Taking ‘Takings’ to the Voters

The California, Idaho, Arizona, and Washington initiatives

The life story of Leo Hayashi, 75, is the stuff of Hollywood epics. Arriving penniless on these shores at age 17, a refugee from war-ravaged Japan via a Siberian concentration camp, he painstakingly scaled the heights of the American dream. He put himself through college, started a one-man real-estate company, and raised a family. Then the trouble began.

Thirty years ago, he bought a piece of land in Brea, near Los Angeles, as a nest egg. But recently city authorities proposed draconian new regulations that, if approved, will nullify most of the long-accumulated value of his land: The 300-acre property will be allowed to hold only 15 houses-instead of the 400 permitted when he bought the land-and only if the owner swallows the cost of a new fire station, sewage lines, and other infrastructure.

Why are they doing this? The official reason is that the slope of the property doesn’t allow more homes. But the slope is no steeper now than when Hayashi bought it. The real reason, Hayashi believes, is that the city commission wants to preserve the hills and end development. “I spent years setting aside money to buy this land, paid taxes on it for 30 years,” he laments. “For what?”

Not much–if a coalition of big government and big business defeats Proposition 90 in California this November. This proposition would prevent cities like Brea from using their zoning and other regulatory powers to destroy property values without compensating owners like Hayashi. Three other Western states-Idaho, Arizona, and Washington-have similar initiatives on their ballots.

This growing movement against regulatory takings follows hot on the heels of the “Kelo revolution”-the widespread movement to limit eminent domain takings that was sparked by the infamous Supreme Court Kelo decision supporting New London, Connecticut’s use of eminent domain to take property from poor home owners and give it to rich developers. Yet, as Hayashi’s lawyer, Greg Reiger, explains, what Brea is doing to Hayashi is actually far worse than what New London did to Susette Kelo. “If Brea had used its condemnation [eminent domain] powers instead of its regulatory powers to take away his land, it would have had to at least pay him fair market value,” he points out. But with regulatory takings-which leave you in possession of the land but take away the most profitable use of it-there is no compensation at all.

Hayashi is not the only victim of overzealous planners bent on combating sprawl or preserving open space or protecting the environment. Ever since the Progressive Era popularized the notion that expert management of land would alleviate all manner of social ills, notes Stephen J. Eagle, a law professor at George Mason University, land-use planners have employed their regulatory powers not to enjoin nuisances, the original purpose of zoning, but to ensure that all uses of private property conform with their vision. The result is that millions of property owners-farmers, homeowners, small businesses, churches-have faced financial losses, even total ruin, as ever more aggressive land-use regulations have barred them from any use of their property that doesn’t serve the planners’ ends.

Oregon, for instance, home to arguably the most draconian land-use policies in the nation, drew growth boundaries around urban areas to combat sprawl. City cores were lavished with government subsidies for mass transit and other infrastructure, while suburbs and villages were starved of the most basic infrastructure. Development was severely restricted in these outlying areas, as well: Farmers were prevented from subdividing their property; individuals had to jump through hoops to get permits to build homes; and loggers were barred from harvesting trees in their own forests. Overnight, farmers and families lost their nest eggs, and businesses shut down. In 2000, the state estimated that these restrictions forced private owners in Oregon to absorb $5.4 billion in uncompensated costs each year.

These restrictions alienated even Oregon’s deep blue voters. Two years ago, they overwhelmingly approved Measure 37, a ballot initiative requiring government to compensate owners for losses stemming from regulations that reduce property values in the name of providing public goods. This move–combined with the public outrage over the Kelo decision-has sparked a veritable wildfire in the West to give property owners “comprehensive” protection from the government.

Indeed, while voters in many other states will vote on ballot initiatives to curtail eminent domain abuses, those in California, Idaho, and Arizona will vote on twin protections against eminent domain abuse and regulatory takings. In Washington, which already has relatively decent constitutional protections against eminent domain abuses, there is a stand-alone initiative targeting regulatory takings.

But in each state, these initiatives face stiff opposition from a powerful coalition of local government organizations (such as the League of Cities), land-use planners, and environmental groups.

In a classic piece of demagoguery, this coalition is trying to portray the initiatives as the product not of local outrage against draconian land-use and environmental regulations, but of radical property rights groups backed by wealthy carpetbaggers-such as Manhattan real-estate investor Howie Rich–hell-bent on undoing decades of benevolent land-use planning and environmental protection. To be sure, Rich and others have contributed funds to local groups for signature-gathering drives. But the attempt to discredit that basic exercise of political rights is reminiscent of George Wallace’s attempt to invalidate the civil rights movement by tying it to a bunch of meddlesome Yankees. (Full disclosure: Contributions from Howie Rich make up about 0.01 percent of the annual revenue of our employer, the Reason Foundation.)

But the hypocrisy of this tactic was recently exposed by Steven Greenhut of the Orange County Register. He reported that the California Public Securities Association-a group of financiers and attorneys, much of whose business consists of providing services to local governments–has donated $400,000 to California’s “Vote No on Prop. 90” campaign. Similarly, Forest City Residential, a Cleveland-headquartered real estate company with many building projects in California, has contributed $250,000 to the “no” campaign. These businesses are big enough to absorb the costs of complying with wetlands and other land-use regulations. What they want most is a good relationship with local authorities so that they can obtain speedy variances and building permits for their mega-projects. “Their support is motivated by business, not ideological reasons,” says David Gilliard, spokesperson for the “Protect Our Homes” or “Yes on 90” coalition. “This is simply Big Business’s attempt at pay-to-play.” No developer has made donations anywhere near this large to the pro-initiative side, he notes.

The coalition’s most disturbing disinformation is the claim that these initiatives are not a spontaneous outgrowth of local anger against over zealous regulations. Yet one has to look no further than the history of Washington’s Initiative 933 (I-933) or Property Fairness Act to realize how out-of-touch this argument is.

Washington passed the Growth Management Act in 1990, when the movement to stop “unplanned” growth was at its height. The act required local governments to incorporate environmental, open-space, shoreline, and other protections into their development goals. However, out of concern for the state’s many farmers, it also provided that new regulations would not result in loss of land values.

Over the years, however, while the state has passed several bills to buttress the environmental protections in the Growth Management Act, it has done precious little to protect property rights. Washington farmers, among the hardest hit, have been pleading for more balance-in vain. Their frustration–and not outside ideologues or greedy big developers–is the driving force behind I-933.

Initiative opponents are also claiming that property rights groups in Arizona, California, and Idaho are exploiting the rage against Kelo and eminent domain abuses to sneak in protections against regulatory takings. But the truth is, you can’t stop eminent domain abuses without regulatory takings reform. As Mimi Walters, a Republican assemblywoman in California, explains, if cash-strapped local governments don’t have to pay for regulatory takings, they can downzone property-or restrict the development that can be done on it-to lower its value and then use their eminent domain powers to acquire it on the cheap. This is not a theoretical worry. Some cities in California have actually drawn plans to this effect.

But the cleverest argument that opponents deploy is that requiring compensation for regulatory takings would decimate local budgets because government would have to pay land owners just to perform its basic zoning and environmental safety functions. Ironically, no less a champion of individual liberty than Barry Goldwater was briefly seduced by this argument when a regulatory takings measure was first put before Arizona voters in 1994. He soon changed his mind, but the damage was already done and the measure was defeated.

Yet this is wrong. For starters, all four initiatives exempt government from any liability for regulations pertaining to public health or safety. Furthermore, each goes to great lengths to protect local budgets from getting flooded by compensation claims for devalued property. The Arizona, Idaho, and California measures limit the potential claims by requiring reimbursement only for future regulations. The Washington initiative applies retroactively to some regulations–but gives authorities the option of waiving the regulations instead.

Clearly, the point of the initiatives is not to prevent government from providing essential land-use or environmental protections. Rather, it is to ensure that if it wants to do more, it do so by digging into its own pocket–not raiding the private homes and businesses of individuals.

Most voters understand this, if the polls are any indication. The Washington initiative on regulatory takings is 16 points ahead, according to an Elway poll. The initiatives in other states that offer comprehensive property rights protections are showing even bigger leads, with Republicans and Democrats supporting them in equal measure. Prop. 90 in California is ahead by 26 points, [though down from a 37-point lead in September] according to a mid-October poll by Datamar Inc.

This is not to say that things won’t change come Election Day. Initiative opponents have twice before killed initiatives by pulling some last-minute trick. They torpedoed the 1994 Arizona initiative by obtaining Goldwater’s support. And they slew a similar initiative in Washington a year later by releasing a non-peer-reviewed study showing that local governments would suffer budgetary Armageddon if it passed.

What would really shield these initiatives against such scare tactics is the support of prominent Democrats. Yet Democrats veer between silence and hostility. “When it comes to regulatory takings,” notes Mimi Walters, “Democrats positively run scared.” On the one hand, these initiatives help traditional Democratic constituencies such as minorities and the poor-who are the least able to hire expensive lawyers to fight unreasonable land-use decrees. (In California, for instance, the Black Chamber of Commerce backs the initiative.) On the other hand, these initiatives are deeply offensive to liberal environmental and other interest groups that pump lots of money into Democratic campaigns.

Democrats then are at a crossroads. They can either reaffirm their old liberal commitment to ordinary hard-working Americans–the Hayashis of the world-or they can push the big government causes of the Sierra Club and its ilk. If they choose the Sierra Club over Hayashi, they will be ceding not only the moral high ground but the political grassroots as well.

Shikha Dalmia is a senior analyst at the Los Angeles-based Reason Foundation, and an archive of her work is available here. Leonard Gilroy, a certified urban planner, is a policy analyst at the Reason Foundation, and an archive of his work is available here. Reason’s eminent domain research and commentary is available here. This article was originally published in The Weekly Standard.