Property Rights and Regulatory Takings: A Controversy for the Accounting Profession

Article excerpt

The Fifth Amendment to the U.S. Constitution, part of the original ten amendments known as the Bill of Rights, is more popularly known for the right it gives the accused in a trial not to testify against herself. However, "taking the Fifth" is just one of the rights enumerated under the Fifth Amendment. The final statement found in the Fifth Amendment states succinctly:

"Nor shall private property be taken for public uses without just compensation."

The above quotation is often termed the "takings clause" of the U.S. Constitution. It provides that the government can not seize property unless it pays the owner "just compensation," generally meant to be the property's fair market value. Originally intended as a check against the abusive police power of the federal government, the reach of the Fifth Amendment Takings Clause was extended to state and local governments by the "due process" clause of the Fourteenth Amendment to the U.S. Constitution.(1)

The obvious case of a governmental taking is when a governmental entity, under its right of "eminent domain," acquires title through a governmental "condemnation" of the property. Implicit in the Fifth Amendment's final clause, however, is the restriction that this seizure, or condemnation, can only be for "public uses" and there must be "just compensation." In any event, the governmental unit will acquire title to the property, i.e., there will be an exchange of title, a quasi-sale if you will. The end product of the condemnation is that the private owner has no legal connection to the property anymore. The governmental unit now has it, to use for whatever "public uses" necessitated the seizure.

The New Property Rights Movement

Within the last several years, however, a new development under the "takings clause" has arisen. Under the "property rights" mantra, individuals, corporations and other owners of private property have argued in the courts that whenever a government law or regulation is enacted or a governmental agency takes action pursuant to an existing law or regulation, any of which appreciably lowers the value of affected property, this action qualifies as a "takings" under the Fifth Amendment, and the harmed party deserves "just compensation." The fact that the government does not actually acquire title to the land is irrelevant. In fact what has occurred is not an outright "taking" of the property but rather a "regulatory taking," to use the new parlance. Moreover, private parties have begun to find friendly allies not only in various state legislatures throughout the country but also the U.S. Congress.

Several of the state legislatures have proposed legislation that would codify "regulatory takings" by providing compensation to injured parties whenever a new state law or regulation or an agency action is taken pursuant to these laws (usually to mean environmental impact legislation) that reduces the value of affected property by a threshold amount, e.g., 40% of its previous value. Even the famous Republican "Contract With America" had room for the issue of regulatory takings, with its proposal to compensate injured parties whenever regulatory actions cause property values to decrease by more than 10%. True to its promise, in March 1995 the 104th Congress passed a "property rights" bill, calling for compensation to property owners whenever federal agency actions, due specifically to environmental legislation, decrease property values by more than 20%.

In this article, the author will examine these issues, looking at both the common law jurisprudence as well as some pending civil legislation.

The concept of "regulatory takings" can be broad and take many forms. However, what is consistent is the determination of property rights advocates to, as they see it, redress the balance away from "government greed," a process whereby government can, in some cases, effectively and economically seize property without paying the owner. …