Statutory Approaches to Regulatory Takings: State Property Rights Legislation Issues and Implications for Public Administration

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Should state administrators be required to perform assessments of potential violations of the Fifth Amendment before issuing a new regulation or applying an existing one? Should state regulations be confined to protection of public health and safety only and exclude other public interest goals for the "general welfare?" Should local governments be required to perform impact assessments of takings according to the state attorney general's mandated guidelines prior to taking a regulatory action? If as a result of the lawful application of a state regulation, a business person's property experiences a 25 percent decline in value, should the state agency that issued the regulation be required to pay for the amount of the decrease out of its budget? These and other questions are being answered in the affirmative by provisions in new laws governing state and local regulation being considered and passed by state legislatures across the country. The rise of the regulatory state, conflicts over land use and environmental regulation, political organizing by property rights groups, and federal judicial pronouncements have all sparked an explosion of state legislative initiatives concerning regulatory takings.

Recent federal judicial decisions have set out an emerging, albeit somewhat muddled doctrine of regulatory takings that directly impacts a wide range of federal, state, and local regulatory activities. The doctrine states that under certain circumstances, many normal regulatory activities can be judged to have violated the Fifth Amendment's prescription that private property may not be "taken for public use without just compensation."

Compensation can be required by the courts, even though the regulation leaves legal ownership in the hands of the private individual. These pronouncements coupled with concerted lobbying activities by property rights advocates across the country have led to a spate of new state statutes that in some cases embrace, and in others, extend requirements placed on regulators. These measures could portend complicating, if not extremely costly consequences for the exercise of government regulation, depending on the approach a state takes.

In this article we provide a preliminary overview and analysis of the state property rights legislation enacted to date. We describe the extent and nature of these new statutes, explain and critique the major types of measures being adopted, and conclude with a discussion of the key issues raised by these acts and their implications for public administration.

Federal Jurisprudence on Regulatory Takings

One of the intentions of most of the new state statutes concerning property rights is to codify elements of the newly developing takings doctrine. A brief review, then, of the key Supreme Court rulings on regulatory takings is in order before moving on to the legislative approaches themselves.

Since 1922, the U.S. Supreme Court has recognized the possibility that a regulation, as opposed to outright confiscation, could be judged a taking without just compensation (Pennsylvania Coal v. Mahon, 260 U.S., 1992). However, federal courts seldom invoked the "regulatory takings" doctrine or sided with private property owners against state interests until the 1980s. In the last 15 years, the takings doctrine has been elaborated, and property owners have begun to win more regulatory takings suits against state and local regulators in federal and state courts.

The Supreme Court's preferred approach to assessing regulatory takings claims is for trial judges to conduct an ad hoc balancing of the "legitimate state interest" at stake with the burden placed on the property owner affected by the governmental action. The Court has preferred (but not always insisted) that courts assess each regulation as it is actually applied to a particular piece of property to determine if a taking has occurred rather than to assess the regulation when issued. There is no precise formula for doing this. Instead the Court has enunciated three factors for use in "as applied" analysis of regulation: (1) the character of the governmental action; (2) the economic impact of the regulation; and (3) the interference of the regulation with distinct investment-backed expectations. Doctrinal developments in three different areas have begun to modify and qualify this judicial weighing approach.

First, and perhaps most critical for public administrators, is the 1987 ruling that a regulation which is judged to be a taking is compensable, even if subsequently repealed, to the extent of the temporary losses incurred while the regulation was in force (First English Evangelical Lutheran Church v. County of Los Angeles, 482 U.S. 304, 1987). The previous remedy of simply nulliffing a faulty regulation is no longer sufficient. Government must now pay damages for the temporary effects of regulations that are ruled to be takings as well as for permanent effects.

A second development is that courts have been directed to assess the regulators' rationale for demands placed on the property owner through regulation. In short, courts have been directed to assess the connection between the public objective being served by the regulation and the requirements placed on the property. A regulator must be prepared to demonstrate that a "Iegitimate state interest" is "substantially advanced" by a regulation under challenge and that an "essential nexus" exists between the "end advanced" and the "condition imposed by application of the regulation to a specific piece of property" (Nollan v. California Coastal Commission, 483 U.S. 825, 1987). Furthermore, a permit condition that imposes requirements or dedications on private property must be roughly proportional "both in nature and extent to the impact of the proposed development" (Dolan v. City of Tigard, 1994). These rulings have shifted the burden to public administrators to prove the legitimacy of the governmental interests and the efficacy of the proposed means to achieve those ends.

The third area of development in the takings doctrine concerns new "per se" categories of impacts caused by regulations that no longer require the fact-specific "balancing of the equities" just mentioned in the Supreme Court's judicial approaches to regulatory takings claims. These include the following rulings. First, a regulation which causes a physical invasion of private property, no matter how small, will be automatically deemed a taking and is compensable (Loretto v. Teleprompter Manhattan CATV Corp, 485 U.S. 419, 1982). Second, a regulation that denies an owner economically viable use of his property will be automatically deemed a taking and is compensable (Lucas v. South Carolina Coastal Council, 112 S.Ct. 2886, 1992).

There is not room here to discuss all the ambiguities and issues that are raised by these doctrinal developments. That remains very much a work in progress (for such discussion, see Wise, 1992a, and Wise and Emerson, 1994). The attempt to develop a coordinated administrative policy in the federal government and provide direction to federal agencies ran head on into these ambiguities (see Wise, 1992b). Many of these new judicial developments are being further elaborated in legislative approaches. We believe states are going to continue to legislate in this area in an effort to provide more clarity to regulators and property owners alike. More understanding of both the public law developments and the political and administrative implications of this new state legislation is needed, for the issues remain complex and potentially very expensive. State legislatures are making policies that are changing the environment within which regulatory decisions will be made. In short, a newer and more complex legal context is unfolding and placing additional demands on public administrators.

Extent and Nature of Property Rights Legislation

Property rights legislation is being introduced and adopted by the states at a dramatic rate. Within a five-year period, over half of the 50 states have adopted some form of provision for the protection of private property rights. Since 1991, property rights legislation has been proposed in all states. We have tallied over 250 bills proposed to date, approximately 120 of which were introduced in the 1995 session in 42 state legislatures. Twenty-six states have enacted 39 measures since 1991 (See Appendix A).

Property rights legislation has been enacted in all regions of the country (Figure 1). As expected, the northwestern and Rocky Mountain states are well represented, but several southern and mid-Atlantic states have also adopted such measures. Three mid-western states have passed property rights provisions, and two northeastern states have done so.

Researchers and commentators are presenting rationales for why property rights legislation is occurring (Emerson, 1995; Lund, 1995; Yandle, 1995) as well as predictions for which states are likely to entertain if not adopt such measures (Lipford and Boudreaux, 1995; Marzulla, 1994). The various factors at play range from natural resource endowments, to land management practices, to political culture, and institutional explanations. For example, resource-rich states (e.g., the Northwest and the Farm Belt) tend to have politically active resource extraction and agricultural industries that favor such legislation (hence the northwest and the farm belt). Western states with a significant percentage of federally owned land tend to adopt these measures (for example, two-thirds of the states with over 25 percent of their land area owned by the federal government have enacted property rights statutes). States with highly regulated coastlines or state planning acts (such as Washington, Florida and North Carolina) may be subject to political pressures to protect private property rights.

Regardless of the number or combination of factors at play, however, the evidence suggests that statutory provisions to protect property rights are more than a passing fancy. The number and distribution of proposals and the pace with which bills are being adopted make …