Budgetary Impact of Limiting Regulatory Authority

Background

Some advocates are promoting new state and federal laws that would entitle property owners to government compensation when a law, regulation, or local ordinance reduces a property’s value. Such laws could adversely affect the protection of health, housing, public safety, the environment, civil rights, worker safety, and other related concerns. In addition, these laws could have significant budgetary impacts.

Under the Fifth and Fourteenth Amendments to the US Constitution, people are entitled to compensation from the government when it takes their property. A taking is most commonly the result of direct condemnation when the government uses its eminent domain authority. In contrast, a regulatory taking arises when government regulation is so extreme and burdensome that it leads to a taking, even though the government did not intend that result.

The US Supreme Court has established three clear rules identifying situations that amount to a regulatory taking. The first situation is one in which the landowner has been denied “all economically viable use” of the land (Lucas v. South Carolina Coastal Council, 1992). The second situation is one in which the regulation forced the landowner to allow someone else to enter onto the property (Loretto v. Teleprompter Manhattan, 1982). The third situation is one in which the regulation imposes burdens or costs on the landowner that do not bear a reasonable relationship to the impacts of the project on the community (Dolan v. City of Tigard, 1994).

Proponents frame new compensation laws as takings legislation even when those laws go far beyond Court precedent on what constitutes a taking. The two main categories of these types of proposals are known as “red tape” and “compensation.” Red tape laws require the state attorney general or government departments to thoroughly assess the impact of a proposed regulation on private property. Compensation laws require a government agency to pay a landowner for any reduction in property value caused by regulation.

Many state legislatures have considered legislation that is inappropriately framed as takings legislation. About half the states have adopted some form of legislation on the subject. Six states—Arizona, Florida, Louisiana, Mississippi, Oregon, and Texas—have compensation laws. Oregon voters scaled back the compensation requirements of their state’s takings law in 2008. Experience with the earlier Oregon law shows that in most cases government cannot afford to pay compensation. These laws can effectively shut down planning, zoning, and regulatory activities that seek to protect public health, public safety, and quality of life.

At the federal level, legislation to limit regulatory authority was a central feature of the Contract with America in the 104th Congress. Some version of this legislation has been considered but not adopted in almost every subsequent Congress (see Chapter 9, Livable Communities—Community Redevelopment and Revitalization).

Budgetary Impact of Limiting Regulatory Authority: Policy

Limiting regulatory authority

In this policy: FederalLocalStateBudgetregulatory authorityeminent domain

Governments should avoid enacting laws that are inconsistent with US Supreme Court precedent on takings. Such laws and associated regulations could seriously affect governments’ ability to protect human health, create livable communities, ensure public safety, preserve the environment, enhance civil rights and worker safety, and deal effectively with other related concerns. In addition, these laws could have significant budgetary impacts.