By DANIEL MILLER
Proposition 90 on California’s November ballot has stirred debate over its proposal to restrict the use of eminent domain only to public projects such as roads and schools,not private development such as shopping centers and housing projects.
But a more obscure provision of the November ballot measure could have an even greater effect on businesses and landowners, and on the ability of state and local government to regulate property.
The proposition includes a clause that calls for property owners to receive “just compensation” whenever government limits the use of their land, not only when it is condemned.
This “regulatory taking” provision would require governments to compensate property owners if property is rezoned to ban development, or even if the height or type of building that could be constructed is limited.
Thus, a small business owner who wants to expand and build a larger store on his land but is prevented by new zoning regulations,a process called downzoning,could seek monetary damages from a local government.
The proposition and its regulatory taking provision has drawn strong support from a coalition of conservative groups and property rights advocates,part of a growing movement nationwide among conservatives and Libertarians to generally restrict government regulatory power.
But an odd mix of cities, larger developers and environmentalists claim the regulatory taking provision could have wide-ranging negative effects.
Cities fear it could restrict their ability to change zoning regulations. Environmentalists fear it could allow widespread development of open land. Some business groups think it is so extreme it may muck up efforts to reform eminent domain laws.
“Even though it’s called an eminent domain measure, it is a whole lot more than that,” said Rex Hime, president of the Sacramento-based California Business Properties Association, a commercial real estate trade group that opposes the provision.
“Because it deals with regulatory taking, this opens up so many cans of worms in the current land use process,” Hime said. “And that’s the core reason we as a property rights group are taking this position. We think it will create a dysfunctional legal nightmare.”
Opponents of the measure have reason to be worried.
Oregon became the first state to enact a regulatory taking law, called Measure 37, two years ago, and it has spawned lawsuits by property owners seeking to lift restrictions on their development rights.
The U.S. Supreme Court’s decision last year in Kelo v. New London to uphold the power of cities to condemn property for private commercial developments created a storm of controversy that breathed new life into the property rights movement.
Since the decision, laws have passed in 23 states putting varying limits on condemnation actions.
There are eminent domain initiatives on the November ballot in Arizona, Idaho and Montana and other states that include the “regulatory taking” provision at issue in California.
The debate about Proposition 90 has focused on its primary provision, which would restrict the taking of private property through eminent domain proceeding. California redevelopment law allows governments to condemn private property and pass it on to private developers for commercial use. That would no longer be allowed under the initiative.
But proponents of the proposition say the regulatory taking provision was included for good reason, arguing that changing zoning designations to allow for less development is a weapon often used by municipalities.
“Local governments will use downzoning and other ordinances to pressure owners into selling property at a vastly reduced price,” said Kevin Spillane, spokesman for the Yes on 90 campaign. “For example, if an area is declared as blighted it is virtually impossible to get somebody to buy it other than the local government. We are trying to prevent those kinds of tactics. If you downzone, it’s hard to sell it for the potential price.”
The initiative is being partly funded by New York libertarian Howard Rich, a real estate and business entrepreneur who chairs the organization Americans for Limited Government. Rich also is funding eminent domain initiatives in Montana, Nevada, Washington and other states.
The proposition’s downzoning language refers to private property damage as “government actions that result in substantial economic loss to private property.” But that is a phrase open to wide interpretation, according to a report issued by the California Legislative Analyst’s Office.
The report indicates that “the measure’s provisions regarding economic losses could have a major effect on future state and local government policy-making and costs,” though it also notes that the amount and nature of these effects is dependent on how courts interpret a “substantial economic loss.”
“Depending on how the term is interpreted it could have a drastic effect on the measure,” said Mac Taylor, deputy legislative analyst for the Legislative Analyst.
The report asserts that anything from a small loss like less than a 10% reduction in fair market value, to a larger loss in excess of 50% of fair market value could be considered substantial economic losses.
The initiative’s language indicates government actions that limit heights of buildings by restricting private air space and the elimination of access to private property should be considered damaging. But it also states that damages cannot be claimed when governmental actions are taken to protect public health and safety.
In Oregon, Measure 37 requires local governments to pay damage claims to property owners whose development rights are restricted after they have purchased a piece of property or grant waivers that allow for the developments.
Last month three separate property owners filed suits against an Oregon county claiming that the waivers they received were inadequate, because they would not be transferable when the existing property owner dies.
If the proposition is passed, Taylor from the Legislative Analyst’s Office said state and local government may try several different approaches to avoid compensating property owners for losses.
His report suggests that governments could try to give property owners incentives to carry out public objectives or link new rules and laws to public safety and health. Under the proposition, new land restrictions based on health and safety issues would be exempted from the compensation requirement.
Miller is a staff writer with the Los Angeles Business Journal.
