Property Rights Measure Reaches Ballot

Paul Shigley on
Aug 1, 2006

A statewide initiative that could completely change how government agencies regulate land use, carry out infrastructure projects and redevelop cities has qualified for the November ballot.

The authors of Proposition 90 have dubbed it “The Protect Our Homes Act,” and have focused their fledgling campaign on the initiative’s provisions to prohibit the use of eminent domain for private development projects. However, Proposition 90 also contains a regulatory takings provision that requires the government to compensate a property owner for “government actions that result in substantial economic loss to private property.”

The measure is not written the same as Oregon’s Measure 37, the 2004 initiative that reworked Oregon’s land use planning regimen. But the point of Proposition 90 is the same: The government must compensate property owners affected by land use regulations.

Money to fund the successful signature-gathering effort in California came primarily from Howard Rich, a New York City real estate investor who has been active for years in libertarian causes and term limit campaigns. Rich’s Fund for Democracy provided $1.5 million in seed money, and Rich was in California during July to raise more funds. A group called Montanans in Action, which has political ties to Rich, has provided $600,000 to the Proposition 90 campaign.

Local government organizations, land use planners, environmentalists, affordable housing advocates and providers of emergency services are lining up in opposition and trying to entice business and anti-tax groups into a coalition.

Vivian Kahn, an Oakland-based planning consultant and member of the American Planning Association’s legislative and policy committee, said property rights proponents are trying to capitalize on popular sentiment against eminent domain.

“It (Proposition 90) is masquerading as an anti-eminent domain measure. In fact, it has sweeping implications,” Kahn said. “Were it to pass, the cost of litigation would be astronomical.”

Ed Thompson, California state director of the American Farmland Trust, called Proposition 90 “the most deceitful and treacherous public initiative that I’ve ever seen.” The measure would essentially end regulatory efforts to steer urban growth away from the Central Valley’s 6 million acres of irrigated cropland, said Thompson, who signed the ballot argument against Proposition 90.

“It is an outright and direct assault on the powers of city councils to build strong cities,” added Chris McKenzie, executive director of the League of California Cities. “It would drastically reduce the ability of city councils to make land use decisions for their cities.”

Proposition 90 advocates, however, discount the sky-is-falling arguments and say the measure only ensures that property owners receive fair treatment. The measure requires compensation only if a government regulation decreases property by a “substantial” amount, and the initiative provides exceptions for regulations to protect public health and safety, noted Tim Sandefur, an attorney with the Pacific Legal Foundation (PLF). Sandefur said that, for example, the government could still pass laws limiting pollution because they protect public health, but regulations such as view shed or tree ordinances would not be excepted.

The eminent domain provisions would provide property owners with “a much fairer shake than under the current law,” Sandefur contended. The measure requires the government to pay a property owner based on the value of “the use to which the government intends to put the property.” Currently, the government must pay fair market value, which does not consider the government’s proposed use of the property. The measure also requires the government to pay all of the property owner’s costs, including attorney fees.

“A lot of times the government gets away with these eminent domain actions because they low-ball the property owners,” Sandefur contended. “This would discourage the eminent domain abuse.”

Kevin Spillane, a Republican campaign consultant and lead spokesman for the Proposition 90 campaign, said the initiative would put “the little guy” on the same footing as the government and well-connected property owners.

Opponents, however, question how the measure’s “just compensation” provisions would be implemented in eminent domain cases. What if a property were condemned to permit development of an electricity generating plant, asked Cathy Christian, an attorney who prepared a Proposition 90 analysis for opponents. Would the property owner, she questioned, get paid based on electricity revenues?

The Post-Kelo World

Proposition 90 appears to combine an outpouring of public sentiment against the use of eminent domain for economic development with property rights advocates’ long-held contention that the government should compensate people who are prevented from using their property as they wish.

The eminent domain issue came to the forefront in 2005, when the U.S. Supreme Court ruled in Kelo v. City of New London, 125 S. Ct. 2655, that a local government-run development corporation could acquire 15 parcels of land and then turn over the property to the developer of a mixed-use project on the New London waterfront. The ruling sparked a public backlash, and bills and ballot initiatives aimed at limiting eminent domain were introduced in many states, including California (see CP&DR Insight, March 2006; CP&DR Redevelopment Watch, January 2006; CP&DR, August 2005; CP&DR Economic Development, July 2006).

The Kelo decision appeared to have minimal legal impact in California because state redevelopment law governs the use of eminent domain for economic development projects. However, to the delight of property rights champions, Kelo packed a huge political wallop. Four initiatives were proposed for the ballot, and state lawmakers authored numerous bills — all aimed at prohibiting the use of eminent domain for economic development. But while about 25 states have approved some new limitations on eminent domain, the California legislative majority showed little interest in a significant overhaul, and the only bills that appear likely to pass this year are modest changes to redevelopment law. The Legislature’s tame response to Kelo appears to be providing indirect support to Proposition 90.

“This (Kelo) decision has opened the floodgates for other cities seeking to increase their tax base at the expense of homeowners,” Assemblywoman Mimi Walters (R-Laguna Niguel) charged after an Assembly committee killed her AB 1990, which would have prevented use of eminent domain for economic development. “This is not what the framers of the constitution intended when they wrote the Fifth Amendment, nor is this what they intended when they reluctantly granted local governments the power of eminent domain.”

Walters — who, as a Laguna Niguel councilwoman, helped lead the fight against a proposed civilian airport at the El Toro Marine Corps base — has signed on as the honorary chairperson of the Proposition 90 campaign. State Sen. Tom McClintock (R-Thousand Oaks), who is running for lieutenant governor, also has endorsed Proposition 90.

“The Kelo Supreme Court decision galvanized public opinion on eminent domain,” said Spillane. “You had local governments over-reaching, and it backfired on them.”

However popular the eminent domain policies in Proposition 90 may be, they could be secondary to the regulatory takings provision. The measure redefines property “damage” to include any regulation that results in “substantial economic loss to private property.” The initiative names downzoning, elimination of access and limits on the use of private air space as examples of damage. The government would have to compensate the owner for such damage, with jury trials apparently deciding disputes.

Attorneys and land use experts have started sounding alarms. The initiative would “vastly expand landowner remedies for downzoning or other currently non-actionable government planning activities,” wrote John Murphy and Lisa Holmes, of Nossaman, Guthner, Knox and Elliott in Orange County.

Christian, of Nielsen, Merksamer, Parrinello, Mueller & Naylor in Sacramento, said the “very badly drafted measure” raises many questions.

The new definition of damage, Christian wrote in her analysis for opponents, “could commit California to a radical departure from basic principles regarding regulatory takings, resulting in greatly increased costs of governmental regulations affecting the value of property — costs that will be borne by all taxpayers.”

The measure makes an exception for regulations to protect “public health and safety.” The word that’s missing from this phrase is welfare. That’s important, said Christian, because many environmental and land use regulations are implemented for the benefit of the public welfare.

“This initiative is no longer about eminent domain,” said John Shirey, executive director of the California Redevelopment Association. “This initiative is about limiting the ability of the government to do sound land use planning.”

“It would raise property rights over every other right in California,” said Christine Minnehan, a housing lobbyist for the Western Center on Law and Poverty. “Do we want to be Texas? Do we want no zoning? I just wonder if people are contemplating what this could mean for how we grow.”

Spillane, the Proposition 90 campaign spokesman, contended that the regulatory takings provisions are directly related to the eminent domain restrictions. “It really is about protecting your property from government abuse,” he said.

But the Farmland Alliance’s Thompson and others said the initiative is one-sided. The provisions requiring compensation to property owners “are not only destructive of good public policy, but they fail to take into consideration all of the good things that government regulation does,” Thompson said. “A lot of property gets its value from actions government takes.”

“I’m all for it,” added planning consultant and University of California, Berkeley, professor Gary Binger, “as long as they put in a provision that says whenever the government puts in any infrastructure improvements or does anything to increase property value, the property owner compensates the government in return.”

Higher Costs For All?

Housing advocates are calling Proposition 90 “extremely dangerous.” Minnehan said “every single policy” that she works on — zoning that requires developers to provide affordable units, relocation benefits for evicted tenants, ordinances that limit the conversion of apartments to for-sale condominiums, rent control — would be impacted by the initiative. Any new regulation or even amendment to an existing regulation would be threatened with litigation and a demand for payment of attorney fees, she said.

Proposition 90’s eminent domain limitations would also affect housing programs, Minnehan added. Redevelopment agencies and housing authorities often assemble parcels to provide sites for affordable housing projects, and the agencies sometimes threaten and even carry out eminent domain to deal with a holdout property owner or two. Without eminent domain, the agencies would have to either pay a premium to holdout property owners or drop the project, she said.

The initiative does permit the use of eminent domain for “projects of public use,” but the initiative’s replacement of “fair market value” with the “just compensation” standard could change the economics of some public projects.

“Clearly,” said the redevelopment association’s Shirey, “with the redefinitions of just compensation that are in this initiative, all property acquisitions will be more expensive.”

The just compensation requirement could have serious implications for the infrastructure bonds that are also on the November ballot, added the APA’s Kahn, because bond money would not go as far as envisioned.

But none of these arguments go far with the initiative’s supporters, who say government has only itself to blame.

“California has been severely abusive of its eminent domain law,” charged the PLF’s Sandefur, who recently authored a book, Cornerstone of Liberty, about government intrusion on property rights. He pointed to an Institute for Justice report that found California government agencies from 1998 to 2003 took 223 properties and provided them to private developers. He also cited a 1998 Public Policy Institute of California study that concluded many redevelopment activities are intended primarily to boost local government revenues.

Redevelopment advocates say Institute for Justice numbers are skewed and note that redevelopment agencies have taken virtually no owner-occupied homes for private development in recent years.

All of these punches and counter-punches are likely to be thrown repeatedly during the campaign. Whether Proposition 90 will become a factor in the governor’s campaign is an open question. People on either side say it could be that neither Arnold Schwarzenegger nor Phil Angelides will want to touch the initiative.

“Governor Schwarzenegger has not uttered a single word about eminent domain since Kelo,” a frustrated Sandefur said.

The Sacramento-based Pacific Legal Foundation, one of the country’s foremost property rights advocacy groups, was not involved in writing Proposition 90, according to Sandefur, who declined to endorse the measure. The PLF had been working with Sen. McClintock on a competing eminent domain initiative that has failed to qualify for the ballot. McClintock is expected to make Proposition 90 a part of his campaign.

Privately, some opponents concede that they have a very difficult job ahead of them. Public anger stirred by Kelo remains strong, and “protect our homes” is an easy campaign slogan to pitch. The opposition is calling Proposition 90 a “taxpayer trap,” but the intricacies of land use regulation do not lend themselves well to campaign sound-bites.

Contacts:
Tim Sandefur, Pacific Legal Foundation, (916) 419-7111.
Kevin Spillane, Proposition 90 campaign, (916) 924-7501.
Cathy Christian, Nielsen, Merksamer, Parrinello, Mueller & Naylor, (916) 446-6752.
Vivian Kahn, Kahn Mortimer Associates, (510) 482-1031.
Chris McKenzie, League of California Cities, (916) 658-8200.
Christine Minnehan, Western Center on Law and Poverty, (916) 442-0753.
John Shirey, California Redevelopment Association, (916) 448-8760.
Ed Thompson, American Farmland Trust, (530) 753-1073.

Similar State Initiatives

California is not the only state where property rights advocates have placed an initiative on the statewide ballot. All of the measures seek either to limit use of eminent domain, force the government to pay landowners affected by land use regulations, or both.

• Arizona. The “Private Property Rights Protection Act” will appear as Measure 207 on the November ballot. The initiative would require just compensation for diminution of property value. It also would limit use of eminent domain to public use projects, and “slum clearance and redevelopment.”

• Idaho: Proposition 2 in November would prohibit use of eminent domain for economic development. The measure also states: “If an owner’s ability to use, possess, sell or divide private real property is limited or prohibited by the enactment or enforcement of any land use law after the date of acquisition by the owner of the property in a manner that reduces the fair market value of the property, the owner shall be entitled to just compensation, and shall not be required to first submit a land use application to remove, modify, vary or otherwise alter the application of the land use law as a prerequisite to demanding or receiving just compensation.”

• Montana: Measure 152 on the November ballot would require state or local governments to compensate property owners for diminished value resulting from regulations. The initiative also would prohibit the use of eminent domain if the property were to be transferred to a private entity.

• Nevada: The “Nevada Property Owners’ Bill of Rights” initiative is circulating but has not yet qualified for the ballot. The measure’s limitations on eminent domain and requirement of compensation for “actions which result in substantial economic loss to private property” are very similar to California’s Proposition 90.

• Washington: Measure 933 has qualified for the November ballot. The initiative would require compensation when regulation “damages the use or value of private property,” and would “forbid regulations that prohibit existing legal uses of private property.”

Section 1. Statement of Findings …

(c) Neither the federal nor the California courts have protected the full scope of private property rights found in the state constitution. The courts have allowed local governments to exercise eminent domain powers to advance private economic interests in the face of protests from affected homeowners and neighborhood groups. The courts have not required government to pay compensation to property owners when enacting statutes, charter provisions, ordinances, resolutions, laws, rules or regulations not related to public health and safety that reduce the value of private property. …

Section 2. Statement of Purpose

(a),/b> The power of eminent domain available to government in California shall be limited to projects of public use. Examples of public use projects include, but are not limited to, road construction, the creation of public parks, the creation of public facilities, land-use planning, property zoning, and actions to preserve the public health and safety.

(b) Public use projects that the government assigns, contracts or otherwise arranges for private entities to perform shall retain the power of eminent domain. Examples of public use projects that private entities perform include, but are not limited to, the construction and operation of private toll roads and privately-owned prison facilities.

(c) Whenever government takes or damages private property for a public use, the owner of any affected property shall receive just compensation for the property taken or damaged. Just compensation shall be set at fair market value for property taken and diminution of fair market value for property damaged. Whenever a property owner and the government can not agree on fair compensation, the California courts shall provide through a jury trial a fair and timely process for the settlement of disputes. …

Section 3. Amendment to the California Constitution

Section 19 of Article 1 of the state constitution is amended to read:

Sec. 19 (a) (1) Private property may be taken or damaged only for a stated public use and only when just compensation, ascertained by a jury unless waived, has first been paid to, or into court for, the owner. Private property may not be taken or damaged for private use.

(2) Property taken by eminent domain shall be owned and occupied by the condemnor, or another governmental agency utilizing the property for the stated public use by agreement with the condemnor, or may be leased to entities that are regulated by the Public Utilities Commission or any other entity that the government assigns, contracts or arranges with to perform a public use project. ...

(3) If any property taken through eminent domain after the effective date of this subdivision ceases to be used for the stated public use, the former owner of the property or a beneficiary or an heir, if a beneficiary or heir has been designated for this purpose, shall have the right to reacquire the property for the fair market value of the property before the property may be sold or transferred. …

(b) For purposes of applying this section:

(1) “Public use” shall have a distinct and more narrow meaning than the term “public purpose;” its limiting effect prohibits takings expected to result in transfers to non-governmental owners on economic development or tax revenue enhancement grounds, or for any other actual uses that are not public in fact, even though these uses may serve otherwise legitimate public purposes.

(2) Public use shall not include the direct or indirect transfer of any possessory interest in property taken in an eminent domain proceeding from one private party to another private party unless that transfer proceeds pursuant to a government assignment, contract or arrangement with a private entity whereby the private entity performs a public use project. …

(3) Unpublished eminent domain judicial opinions or orders shall be null and void.

(4) In all eminent domain actions, prior to the government’s occupancy, a property owner shall be given copies of all appraisals by the government and shall be entitled, at the property owner’s election, to a separate and distinct determination by a superior court jury, as to whether the taking is actually for a public use.

(5) If a public use is determined, the taken or damaged property shall be valued at its highest and best use without considering any future dedication requirements imposed by the government. If private property is taken for any proprietary governmental purpose, then the property shall be valued at the use to which the government intends to put the property, if such use results in a higher value for the land taken.

(6) In all eminent domain actions, just compensation shall be defined as that sum of money necessary to place the property owner in the same position monetarily, without any governmental offsets, as if the property had never been taken. Just compensation shall include, but is not limited to, compounded interest and all reasonable costs and expenses actually incurred. …

(8) Except when taken to protect public health and safety, “damage” to private property includes government actions that result in substantial economic loss to private property. Examples of substantial economic loss include, but are not limited to, the down zoning of private property, the elimination of any access to private property, and limitations on the use of private air space. “Government action” shall mean any statute, charter provision, ordinance, resolution, law, rule or regulation. …

(e) Nothing in this section shall prohibit the use of condemnation powers to abate nuisances such as blight, obscenity, pornography, hazardous substances or environmental conditions provided those condemnations are limited to abatement of specific conditions on specific parcels.