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Friday, July 07, 2006

The weakness of the case against Measure 37

States and their political subdivisions frequently pass land use regulations. Sometimes these regulations reduce the value of the land that they regulate, by small amounts or large. Since the Supreme Court has shown little interest in enforcing the due process clause or the just compensation clause (let alone the public use clause) against these regulations, some have taken recourse to the political process, producing (to the dismay of technocratic academics everywhere) Oregon's Measure 37, which requires full compensation for land use regulations that reduce the value of land(as an alternative remedy, the government can give up on the regulation, without being required to pay First English interim damages).

Eduardo Penalver thinks these laws are bad because they 1, reflect a "wrongheaded and antisocial" premise that we should not have to bear trivial burdens to our property, 2, compensate people for unexpected costs without taxing them for unexpected benefits, 3, are produced by interest groups, and 4, have exceptions (for, e.g., anti-vice regulations) in order to make them politically feasible.
Ben Barros provides a partial defense of such laws here. (He thinks that it would be better to have a law that provided compensation only for "severe" losses in value, but also thinks that the statutes are more populist then Penalver admits.) Geoff Manne has a much more muscular defense here. I will add that the best serious investigation of the enactment of Measure 37 appears to be fellow YLSer Sara Galvan's note, Gone Too Far: Measure 37 and the Perils of Over-regulating Land Use.
Now, I tend to think we should simply ignore Penalver's objection 3 on the grounds that it is unhelpfully ad hominem. The fact that a measure is promoted by an interest group is probably orthagonal to its merits. The interest groups in question tend to support positions that I support, and positions that Penalver opposes. So maybe it would be more helpful to examine the merits of the initiatives instead.
I am also not sure that it is fair to attack the measures as a whole on the grounds that they are "downright hypocritical" for including exceptions in order to make them politically palatable. Would I rather have full compensation for anti-vice zoning law? Absolutely, and I suspect that a number of the interest groups that supported Measure 37 would too. But for better or worse, voters do not agree. So the question is whether 8/9 of a loaf is better than none at all. Because I think there are plenty of legal injustices suffered by porn peddlers far more severe than not-receiving compensation for certain types of devaluaing land-use regulation, and because I think the underlying project is valuable, I think that it is. Suggesting that we should have no compensation law at all if we cannot have a compensation law that covers smut shops seems to me about as plausible as suggesting that we should have no federal Civil Rights Act if we cannot have one that covers those who employ fewer than 15 people.
That leaves Penalver's two real substantive critiques, namely that it is antisocial to demand that your property be free from all regulation, and that it is unfair to pay the land-use losers if the government doesn't also extract money from the land-use winners. I disagree with both of these judgments. The intuition that the government ought to compensate those who suffer from well-intentioned land-use regulations is just a special case of the general intuition that tortfeasors ought to compensate their victims, that those wrongfully imprisoned are entitled to restitution, and that the government sometimes ought to provide interim assistance to those injured by a surprise change in policy. Given the powerful influence of special interests and politically-connected developers in the land use process (an influence that makes the referendum process look positively clean by comparison), there is particularly strong reason to believe that those who are not politically connected or in-the-know may suffer unexpectedly while others make money off of regulatory games. Supporters of Measure 37 do not suggest that there is a right to have one's land be free from all regulation. Of course not. Property rights are themselves a form of regulation. The suggestion is that there is a right to have a little bit of money when one has suffered a particular kind of harm.
Nothing about that suggestion entails a threat to the general system of redistribution-- property owners, like others, pay taxes, and everybody is fully aware that Measure 37 does not allow the government to produce dollars out of thin air. So the law does not really force the government to pay to regulate (as opponents of Measure 37 used to say). The people are the ones who pay for a regulation either way-- Measure 37 simply says that rather than concentrating that cost on the people whose land is regulated, the cost is to be spread out through the taxation system in some other way.
Nothing precludes the state, by the way, from setting up special taxing districts to recoup all of the surplus value it creates via land-use regulation. That would make the regulation symmetric and meet Penalver's objection 2. Of course, there is something of a tradition in our legal system of expecting institutions to compensate for damage that they cause without necessarily entitling them to reclaim any surplus they create. That is why consumers can sue a paper factory for polluting their land, but the owner of a Frank Lloyd Wright home cannot sue his neighbors on the ground that his house drives up their property values. Measure 37 applies the same asymmetric but highly traditional rule to the government. I wonder if Penalver objects to the Anglo-American tort system too.

Posted by Will Baude on July 7, 2006 at 05:33 PM in Property | Permalink

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Comments

Nice post

Posted by: Chris Bell | Jul 7, 2006 7:24:48 PM

Will, do you really think that any regulatory diminution in value should be compensated? If nothing else, the administrative costs would be out of hand. Every land-use reg impacts value in some way. Are we supposed to figure out the impact on value of every regulation on every person? A setback requirement might force some homeowners to build a house 200 square feet smaller than they'd like, and that would impact property value. Should compensation be paid? It also seems a little disingenuous to suggest that supporters of Measure 37 don't expect to be unregulated and that the only thing involved is some small compensation payments to be made for regulatory impact. Taking administrative costs into consideration, it seems that the net impact on regulation would be severe.

As you note, I think there should be compensation for severe impacts on property owner (got to define "severe", of course), and I'm skeptical of some of Oregon's land use regulations. But I think that Measure 37 goes way too far, and I'm still looking for a good argument supporting a requirement of compensation for any diminution in value.

Posted by: Ben Barros | Jul 8, 2006 3:41:27 PM

Will -- Interesting post. You raise some good arguments, and I would love to respond in full, but it's a beautiful day here, and I want to enjoy some of it. But I will respond to three points you made:

First, I think you misunderstood the point of my "ad hominem," as you call it. As I noted in response to someone in the comments (and in response to Ben Barros's post), I don't have any generalized objection to interest group politics -- I just think that the involvement of well funded interest groups (development lobbies, out-of-state property rights groups, etc.) complicates the causal story that some people (mostly conservatives) like to tell linking comprehensive land use legislation with a broad-based public reaction to (or rejection of) planning in the form of support for a law like Measure 37. That is, it calls into question arguments like the one Ben makes in his post, and the argument that I take Sara to be making in her excellent student note, that the passage of these sorts of laws shows that (most) property owners have had enough with overregulation. I think it is far more likely that it shows that a few land owners have really gotten the shaft, and that most voters sympathize enough with the stories they are told about those few that they are willing to vote for a law like Measure 37. Obviously, this is not such a terrible story for your side, but it's not the same story, and it's somewhat less compelling, I think. I do think it undermines the folksy, grass-roots legitimacy with which libertarians like to regale these property-rights initiatives, which was the only point I was trying to make.

Second, you ask whether I oppose the tort system. I think the analogy is a poor one. That is, I reject the private-law based model of the relationship between citizen and government that you are proposing -- the same model, incindentally, that Epstein adopts in his book on Takings. (For what it is worth, if I am remembering correctly Robert Ellickson HAS suggested modifying the (property) tort system in order to make it balanced in the way that we are discussing.) My point in observing the unbalanced nature of these laws is not to recommend that government start trying to internalize all the positive externalities of its actions, but just to poke a stick at the unstated motives that the unbalanced structure of the law reveals. A consistent view of the relationship beteween citizen and government, which I think yours is, would favor pervasive attempts to capture positive spillover effects of government action. But I would suspect that public support for Measure 37 would dry up completely if it were paired up with such a provision. So what we have is a law, some of whose proponents are principled and cosistent, but whose popular support is based on a one-sided, self-serving instinct.

In a way, this leads into the third point -- hypocrisy. I think your comparison to civil rights law is either unconvincing or inapt (or both). It is unconvincing because part of me wants to say that, yes, civil rights laws are hypocritical for exempting small employers and private clubs, etc. from their abmit, and a law's hypocrisy (however reasonable the explanation) seems to me to be a reason to oppose it (in its current form) or, at least, a flaw worth discussing. Second, your comparison seems inapt in that a story can be told in the civil rights context about the need to strike a balance between two incommensurable values, privacy (or intimate association) and equality, such that the carve out from the civil rights law does not come off as flatly unprincipled. I'm not sure a similar story can be told in the case of the carve out for adult businesses from a law whose principal message is that property owners either should not be told what to do with their property except to the extent that they create a nuisance (in the narrowest possible sense of that word, which does not include adult businesses) or should receive compensation for their troubles. Let me put it this way, there are nonarbitrary reasons for the civil rights carve outs. I may not find them to be all that convincing, but I can recognize them as principled. I'm not sure the same can be said for the adult business carve out. I think you're right that it's just in there for coalition building. But it shifts the message that the law sends from a principled libertarian opposition to regulatory burdens -- like yours -- to a somewhat more self-serving position: don't burden MY land use with regulation, but feel free to burden that guy over there whose use offends me.

Posted by: Eduardo Penalver | Jul 8, 2006 5:40:09 PM

Ben:

The short answer is that I don't see any problem with a full-compensation regime, so long as those who are burdened by the regulation have to actively sue or petition in order to receive compensation or a waiver.

For any potential cut-off (like the 25% dimunition rule from, I think, Texas) there will be line-drawing problems. And it seems to me that "0" is no more arbitrary of a place to draw the line than "5" or "10" or "50". It also avoids the "denominator problem" that we both know is created by the silliness of the Lucas regime, or any percentage-based regime.

As to practicalities. I guess I don't see how having to pay full compensation hinders the government in any particularly bad way. If a regulation's burden is in fact trivial, then presumably the person burdened by it won't find it worth their while to sue in order to collect a few dollars here or there, especially in a world of finite time and legal resources.

So I guess the answer is, so long as the law puts some of the burden on the landowner to come forward and make a case explaining the burden, then I don't see how the rule is particularly hard or burdensome to administrate. Landowners are highly unlikely to bother bringing suits for trivial amoutns of money. And if the amounts of money aren't trivial, then a suit should be brought.

Posted by: Will Baude | Jul 9, 2006 12:02:39 AM

Eduardo:

I too will probably devote a fuller post to this later, but for now, briefly.

First, I take your point, and intend not to try to defend Measure 37 on "folksy, grass-roots" grounds, but rather on the merits.

Second, the tort system applies between citizen and government too, right? At least to the extent that the government has waived its sovereign immunity, citizens can sue under the Federal Tort Claims Act or its state analogues when they are hit by a federal vehicle, or otherwise caused to suffer in the pursuit of the greater good. And again, no state so far as I know has an inverse Tort-Claims-Act that sues citizens for the surplus value every time the mail truck successfully delivers the mail without injuring them. Ellickson thinks this asymmetry might legitimately stem from loss-aversion, I think. I'm less sure about that, but it seems like even in the governmental context it is not at all untraditional for the government to attempt to pay for concentrated injuries it causes (some of the time) even while not attempting to force others to pay for concentrated benefits it causes.

Third, I confess that it seems to me bizarre to suggest that the freedom-of-association grounds for exemptions from the Civil Rights Act are "nonarbitrary" while exemptions from Measure 37 on the basis of prudishness and disapproval of smut are "arbitrary". Just as the Civil Rights Act balances autonomy against racial equality, Measure 37 balances an interest in fair dealing against a strong moral disapproval of certain types of land-users.

It's far too strong to suggest that this fundamentally changes the message that the law sends. It would be a better rule if it compensated more people, sure, but again, lots of laws don't go as far as its hardcore proponents would like. Can't one make the same claim about the Civil Rights Act? (Instead of sending a message about racial equality, it sends the self-serving message that I should be allowed to be a racist while that other guy should be forced to integrate.)

Or what about federal financial aid for college, which is offered to everybody except those convicted of certain drug crimes? It would be better, I agree, if we offered financial aid to everybody. But who thinks that the fact that we keep financial aid away from certain drug-users means that we should get rid of the financial aid system altogether? And who thinks the drug-user-exclusion fundamentally changes the message of the financial aid system from a generous promotion-of-education message to a self-serving money-for-me-but-not-for-thee message?

Laws are imperfect, we should strive to make them more perfect, but that doesn't mean that we should give up on a particular proposal during the tenure of its imperfection.

Posted by: Will Baude | Jul 9, 2006 12:16:39 AM

Will, I'll give this more thought as well, but on the practicalities point, the ability to bring a class action would make it worthwhile to bring suits over trivial amounts if the regulation was sufficiently broad-based. It is possible to argue that by causing small damage to lots of people, the reg causes a great deal of harm in the aggregate, but that seems to me to be an argument that plays well into generating fees for plaintiffs' lawyers than redress for property owners. 'Course, you could just bar class actions in your statute.

Posted by: Ben Barros | Jul 9, 2006 8:49:09 PM

If I buy property with ten development rights and I submit a rezoning request to have those increased to 20 development rights, most jurisdictions will require some kind of impact fee or proffers in return for the "giving" of the increased property value. If the fees were truly equal to the value of the giving there would be no point in requesting a zoning change. The reason the fees are not that high is that the zoning board has the option of refusing the change: they only admit the change and accept the fee if they can see some other value to the community provided by the proposal, like having more homes avaialable.

If I buy a property with ten development rights the value of those rights will be a consideration in the price. If the government later imposes a downzoning for the benefit of the community then some kind of reverse impact fee is only fair. Likewise, if the fees were truly equal to the value of the benefit, the community might not be so eager to make the purchase. But in this case the owner has no opportunity to refuse the action, therefore full restitution is necessary. Since the community is typically much larger than those affected by the rules, compensation shouldn't be a hardship, unless the rules are a hardship to too many people. If that is the case then it is hard to make a claim for community benefit. If the price is too high, then maybe the rule is suspect, as appears to be the case in Oregon and many other places. The rules are cynically created specifically to avoid what there is of takings law.

I think the postal delivery argument is silly. Clearly we arne't talking about every giving or every taking. We aren't talking about a taking where no previous right existed.

But there are some situations that bear no ethical pardon. Consider a community that downzones and eliminates 80% of building rights to preserve the quality of life for existing residents. Later the community decides this isn't enough so they institute a plan to purchase more of the remaining development rights. By doing so they have admitted that development rights are valuable property, by extension, those that were eliminated previously must have been stolen. I see no way out of this other than restoration or compensation. Besides that preserving the quality of life for existing residents implies they are also decreasing quality of life for everybody except residents. It is hard to make a "common good" argument out of that.

When Measure 37 was passed 1000 Friends of Oregon were the first to say, "Hey, you can't change that rule, I bought this property with the expectation my view would be unchanged. You owe me compensation." Yet when the land use rules were instituted they argued that no one should have an expectation that the government doesn't have the right to change the rules. I don't see how they can argue both ways succcessfully, particularly after the voters ordered the government to change the rules. Twice.

So apparently, both sides now agree that we will be better off and suffer fewer surprises if we make it harder to change the rules. One way to do that is to require compensation in at least some cases. We already do that, and now we are arguing about the degree to which we should expand the existing program of compensation.

Now it is a matter of posturing over which side should have ascendancy and primacy on the date we decide to start being fair and honest, and stop letting the government steal valuable property.

Finally, (most) current rules require compensation only when ALL or almost all value is taken. But the law also recognizes property as a bundle of sticks. If you take one of my sticks, haven't you taken ALL of that stick? Shouldn't I be compensated for that stick?

All that is required is that the county itemize the available sticks when it records the property exchange, same as it does for an easement for ingress and egress. Then the county has to do its job and protect people and property.

Posted by: Diphda | Oct 2, 2006 1:32:54 AM

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