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complete compensation would enhance the security of property rights, and would be consistent with a general objective of promoting government forbearance.44
• Regulatory Takings
The Court has not limited the Takings Clause to explicit takings, but has held that it also applies to certain regulations of the use of property that have a particularly disruptive effect on owners. This has come to be known as the regulatory takings doctrine. The doctrine comes in two versions, weak and strong, with different implications for how much they promote government forbearance.
The weak version of the regulatory takings doctrine understands it as an antievasion rule. The Constitution requires that the government pay just compensation when it “takes” property. Consequently, the government should not be allowed to enact a regulation that achieves the same end as an explicit taking, and thereby evades the requirements of the Constitution. Under this weak version, the task of the courts is to ask whether the challenged regulation is “functionally comparable to government appropriation or invasion” and to force the government to pay compensation if the answer is yes.45 The weak version provides modest support for forbearance, basically by preserving the integrity of the requirement that the government may engage in explicit takings only for public uses and only if it pays just compensation. The writings of Joseph Sax, who has argued that the regulatory takings doctrine should be limited to cases in which the government
44.A recent study suggests that because of relocation benefits some owners may not fare so poorly in terms of compensation once political realities are taken into account. Nicole Stelle Garnett, The Neglected Political Economy of Eminent Domain, 105 Mich. L. Rev. 101 (2006).
45.Lingle v. Chevron U.S.A. Inc., 544 U.S. 528, 542 (2005).
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is acting as an enterprise, as opposed to a regulator, are consistent with the narrow view.46
The strong version is considerably more ambitious. Under this version, the regulatory takings doctrine is designed to protect owners from any type of disproportionate loss in the value of their property caused by government regulation. As stated in one oftenquoted case, the idea is to prevent “Government from forcing some people alone to bear public burdens which, in all fairness and justice, should be borne by the public as a whole.”47 The strong version has drawn intellectual sustenance from the pioneering work of Frank Michelman, who coined the term “demoralization costs” to refer to the disutility of an owner and the owner’s sympathizers from an uncompensated taking as well as the loss of production stemming from the greater insecurity of property rights.48 Michelman suggested that the government should always compensate if demoralization costs exceed settlement costs (which include compensation and administrative costs). He argued this was required on general utilitarian principles, and was also consistent with Rawlsian justice, insofar as the worst off in society would see this practice as part of an overall pattern that they would choose behind a veil of ignorance.
The contest between the Sax and Michelman perspectives, and more broadly between the narrow and broad visions of the regulatory takings doctrine, raises yet again far-reaching questions about the need for government forbearance. The broad version seems to suggest that the Takings Clause can be viewed as a form of mandatory insurance against losses in property values as a result of changes in government policy. The narrow version, in contrast,
46.See Joseph L. Sax, Takings and the Police Power, 74 Yale L.J. 36 (1964); Joseph L. Sax, Takings, Private Property, and Public Rights, 81 Yale L.J. 149 (1971).
47.Armstrong v. United States, 364 U.S. 40, 49 (1960).
48.Frank I. Michelman, Property, Utility, and Fairness: Comments on the Ethical Foundations of “Just Compensation” Law, 80 Harv. L. Rev. 1165, 1214 (1967).
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assumes that actors can anticipate that there will be change, and therefore mandatory government insurance is not called for; either self-insurance or private insurance would be better. Under the broad view, the government is both the insurer and the source of the risk—unlike private insurance companies that insure against earthquakes or lightning. The demand that the government insure against risks of its own creation brings us back to the question whether the main objective should be to require the government to internalize the costs of policy changes.49
Some find instructive evidence about the need for greater cost internalization in Oregon’s recent experience with Measure 37, which very broadly requires local governments either to compensate landowners for decreases in land values caused by regulations, or to drop the regulation.50 So far in every case, the government has chosen to drop the regulation rather than pay. This could be because the costs of the regulations were internalized by the governments and were found not to be worthwhile. Or it could be because the government has to pay for the costs imposed by its regulations but is not able to charge for the benefits those regulations provide. Or it could be because the legislature has refused to appropriate funds for compensation, leaving only the option of dropping the regulation. The explanation is unclear, and thus the competing intuitions underlying the narrow and broad versions of the regulatory takings doctrine still await a definitive empirical test.
Support for both the weak and strong versions can be found in the Supreme Court’s decisions. The Court’s first important
49.There is a similar problem of distinguishing between taxes and takings. Redistributive taxation would be impossible if compensation were required. Most commentators do not think that the Takings Clause prohibits progressive taxation. But see Richard A. Epstein, Takings: Private Property and the Power of Eminent Domain 295–303 (1985) (arguing that the Takings Clause, rightly construed, requires a flat tax and rules out progressivity).
50.Or. Rev. Stat. § 197.352.
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regulatory takings case, Pennsylvania Coal Co. v. Mahon,51 involved a Pennsylvania statute protecting surface owners of land from subsidence caused by the mining of coal beneath their property. The Pennsylvania Coal Company, which owned the rights to mine the coal, challenged the statute as an uncompensated taking of the pillars of coal that would have to remain in place in order to prevent damage to the surface.
Elements of Justice Holmes’s opinion for the Court read as if he was simply preventing the state from evading the requirement of paying compensation for an explicit taking. He stressed that the right of support is considered a separate “estate” under Pennsylvania law, and that the company had expressly reserved this right in the deed under which the Mahons claimed. The Pennsylvania statute, from this perspective, looked like an attempt to transfer a discrete property right from the coal company to the Mahons—something that ordinarily would require either a purchase of rights or an exercise of eminent domain.
Other elements in the Holmes opinion point toward a broader doctrine. He said that among the factors to be considered were the extent of diminution in value caused by the regulation, whether the statute seeks to regulate what would be regarded as a public nuisance, and whether the statute affords a rough reciprocity of advantage by restraining all property owners in a way that benefits each. The general rule, he concluded, is that “while property may be regulated to a certain extent, if regulation goes too far it will be recognized as a taking.”52 These elements of the opinion point toward an ad hoc balancing test in which courts decide whether particular regulations “go too far” and must result in a payment of compensation.
The ambiguity has persisted. In 1978, the Supreme Court restated the ad hoc regulatory takings doctrine in Penn Central
51.260 U.S. 393 (1922).
52.Id. at 415.
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Transportation Co. v. New York.53 The case involved a takings challenge to a New York City landmark designation that prevented the owners of Grand Central Station from constructing a new office building in the air space above the station. The Court rejected the challenge, but in so doing offered up a different set of factors than the ones considered in Pennsylvania Coal v. Mahon. Writing for the majority, Justice Brennan agreed that the degree of diminution in value is relevant, but he identified the relevant “property” to be examined for these purposes as the “whole parcel” owned by the railroad, not just the air rights that were barred from development. Justice Brennan also said that courts should ask whether the regulation interfered with “distinct investment-backed expectations,” thereby expressly linking the regulatory takings inquiry with forbearance values. Finally, he said courts should consider the nature of the government action, and in particular whether it has intruded directly onto the property or merely engaged in a regulation of its use.
The rhetoric of Penn Central points away from a minimalist concern with evasion toward a broader degree of protection of reasonable owner expectations. But the outcome of the case seemed to suggest that even highly intrusive regulations that disproportionately affect a small number of owners will not qualify as a regulatory taking. Over time, the latter signal appears to have dominated the former. After Penn Central, application of the ad hoc test has generally been fatal to regulatory takings claims.
Perhaps because of the uncertainty of the ad hoc approach of Penn Central, perhaps in response to the weak protection that case appears to afford to property owners, the Court in subsequent cases has developed exceptions to the Penn Central test in the form of certain “categorical” regulatory takings rules. In Loretto v. Teleprompter Manhattan CATV Corp.,54 the Court held that any permanent physical occupation of property by the government or a
53.438 U.S. 104 (1978).
54.458 U.S. 419 (1982).
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stranger acting with permission of the government is a taking, without regard to how the ad hoc Penn Central analysis would come out. Specifically, the Court held that a New York statute that allowed cable television companies to string cable transmission wires on rental buildings without the owner’s consent was a taking, even though the addition of cable service was likely a net benefit to both the landlord and her tenants. And in Lucas v. South Carolina Coastal Council,55 the Court ruled that unless it prohibits what would have been a nuisance at common law, a regulation that deprives an owner of all economically beneficial use of the property is a taking, again without regard to how the Penn Central balancing test would come out. The regulation at issue in Lucas prohibited construction of homes on two beachfront lots on a barrier island subject to periodic erosion, which the South Carolina courts had found rendered the lots “valueless.”
Loretto and Lucas were greeted by property rights advocates as redressing an imbalance in favor of government regulation introduced by Penn Central. Paradoxically, however, their long-range effect may have been to push the Court back in the direction of the narrow, anti-evasion conception of the regulatory takings doctrine. The regulation in Loretto was “functionally comparable” to the condemnation of a utility easement. Ordinarily, if an electric or telephone company wants to string wires on someone’s property, it must acquire an easement to do so, either by purchase or condemnation. The New York statute allowing cable companies to string wires on rental property without the owner’s consent looks like a straightforward evasion of this settled understanding. Similarly, the regulation in Lucas was “functionally comparable” to the condemnation of a conservation easement. Again, conservation easements are ordinarily donated or purchased. The South Carolina statute looked like an attempt to acquire by regulation something that ordinarily would be purchased or condemned by eminent domain.
55. 505 U.S. 1003 (1992).
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In any event, the history of the regulatory takings doctrine after Lucas has largely been one in which the Court has narrowly defined these categorical rules. For example, the Court declined to characterize a rent control statute that prohibited eviction of the tenant as a “physical occupation” under Loretto,56 and it declined to characterize a temporary moratorium on development as a deprivation of all economically beneficial use under Lucas.57 By confining the categorical rules to circumstances in which the government uses its regulatory power to acquire something that ordinarily would be purchased, the Court has effectively recast the regulatory takings doctrine as a narrow, antievasion principle.
Of course, the narrow version advances important forbearance values. It prevents the government from circumventing the protections the Takings Clause provides in cases of explicit takings. But, for the moment at least, the Court seems disinclined to expand the regulatory takings doctrine into a general source of insurance against government frustration of reasonable owner expectations. The regulatory takings doctrine is taking the shape that Chief Justice Taney would have given it, not the one advocated by Justice Story.
The problem of flexibility versus stability is characteristic of property in another sense. As we have seen in this book, some areas and elements of property law are fairly standardized and formalistic and achieve their goals indirectly. The basic exclusion strategy itself serves people’s interests in use only indirectly. This simple basic structure is easy to use and manages a lot of complexity, and so stability is an emergent property of the system. It is when problems become great and urgent enough that more direct methods, from new governance rules on a micro scale to larger macro reforms, come onto the agenda. Debate over when and how
56.Yee v. Escondido, 503 U.S. 519 (1992).
57.Tahoe-Sierra Pres. Council, Inc. v. Tahoe Reg’l Planning Agency, 535 U.S. 302 (2002).