Property Rights, Regulatory Taking, and Compensation: Implications for Environmental Protection

By Goldstein, Jon H.; Watson, William D. | Contemporary Economic Policy, October 1997 | Go to article overview

Property Rights, Regulatory Taking, and Compensation: Implications for Environmental Protection


Goldstein, Jon H., Watson, William D., Contemporary Economic Policy


I. INTRODUCTION

After the 104th Congress convened in early January 1995, more than 100 bills were introduced addressing private property rights. The purposes espoused in these bills are noble: (i) to promote both efficiency and equity by protecting the constitutionally guaranteed rights of property owners not to have their property taken for public purposes without just compensation, and (ii) to promote efficiency by requiring that federal agencies conduct risk assessments and cost-benefit analyses of proposed actions before promulgating regulations, policies, and guidelines. (see S. 605, [section]101 and [section]102 and HR. 9 [section]402).

In the ensuing, frenetic months, the legislative landscape became less cluttered. Three bills emerged as the flagships for the reform effort. HR. 9 passed by the House combines both regulatory reform and analysis with takings/compensation provisions. The Senate separated the two undertakings; S. 605 addresses takings and S. 343 focuses on regulatory reform and risk and cost-benefit analysis. Table 1 provides a side-by-side comparison of the principal features of the House and Senate bills.

Although the bills' stated purposes are commendable, the sponsors' intent may not be quite so lofty. Focussing primarily on health, safety, and environmental regulation, the bills seem designed to effect widespread disruption of the regulatory process in order to provide regulatory relief to landowners and businesses regardless of the merits of the regulation.

First, the bills require federal agencies to conduct detailed risk and cost-benefit analyses before promulgating rules. The mandated analyses have been borrowed from the field of health risk assessment (toxicology, epidemiology, etc.), where experiments can be replicated and banks of historic data are often available, In the environmental arena, however, these techniques produce unreliable estimates with large variances due to the use of simplified models. Moreover, they absorb large amounts of agency time and effort. Secondly, the bills increase the opportunities and lengthen the period for reviewing, challenging, and delaying implementing, and enforcing regulations. For example, the assumptions, models, and data used in conducting the required risk and cost-benefit analyses all may be challenged in court. Finally, the bills expand property rights and the entitlement to compensation far beyond current court standards.

Under current court standards, if a regulation with a valid public purpose eliminates all economic use of an entire piece of property (including reasonable, investment-backed expectations), a taking has probably occurred. Depending on the regulatory purpose, however, even when all economic value is eliminated, compensation may not be required by constitutional standards. (Courts tend to be more sympathetic with regulations that prevent a "substantial harm" than with those designed to "create public benefits." For example, dismantling a nuclear power plant after discovering that it has been built on a geologic fault probably would not require compensation, while a land-use restriction designed to enhance public enjoyment of the environment might not pass muster.) In contrast, the congressional bills ignore any regulatory purpose and endorse segmentation. If an agency action diminished the fair market value of a portion of a property by more than the statutory threshold - 20% in HR. 9 and 33% in S. 605 - the property owner would be entitled to compensation. Thus, the bills expand property rights and the entitlement to compensation by (i) ignoring, with few exceptions, whether the regulation has a valid public purpose (essentially reversing "polluter pays"), (ii) focussing attention on the regulated portion of the property (specifically allowing segmentation), and (iii) lowering the eligibility threshold for compensation (from essentially 100% to 20%-33%).

Further, if Congress creates but does not fund these financial liabilities, agencies are likely to become uncertain and tentative about their enforcement authority, especially for environmental statutes. …

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Property Rights, Regulatory Taking, and Compensation: Implications for Environmental Protection
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