Developers fear Prop. 90 clause.

Proposition 90 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, landowners, and 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 so-called "regulatory taking" provision would require governments to financially 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 development interests 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 and 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 California Business Properties Association, an advocacy group for commercial real estate interests that opposes the provision.

"Because it deals with regulatory taking, this opens up so many cans of worms in the current land use process. 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 fast 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.

Moreover, 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 fights movement.

And since the high court decision allowed states the right to restrict eminent domain, laws have passed in 23 states putting varying limits on condemnation actions. Moreover, 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. Currently, 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.

However, 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 goverments 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 is also funding eminent domain initiatives in Montana, Nevada, Washington and other states.

Wide interpretation

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 policymaking and costs," though it also notes that the amount and nature of these effects is dependent on how courts interpret a "substantial economic loss." The report asserts that anything from a small loss like less than a 10 percent reduction in fair market value, to a larger loss in excess of 50 percent of fair market value could be considered substantial economic losses.

"The bigger threat that Proposition 90 poses for a city like Los Angeles is it would potentially hamstring cities from downzoning, or rezoning parcels," charged Cecilia Estolano, chief executive officer of L.A.'s Community Redevelopment Agency.

The initiative could have an effect on condominium moratoriums, which have recently been discussed in the Los Angeles City Council. Last month, the Council's housing committee backed recommendations to tighten the rules on condominium conversions, though no citywide moratorium was endorsed.

In Sierra Madre, the city's new Downtown Specific Plan would allow greater commercial development in a town that has not traditionally seen much of it.

A community group, Sierra Madre Residents for Responsible Development, opposes the proposition and is gathering signatures for an initiative that would restrict the density, height, and number of floors developments can have to guidelines from the city's existing general plan. (Building projects could not exceed two floors, 30 feet in total height, and 13 units per acre. The initiative would also require voter approval of projects that are linger than these guidelines.)

But Beth Buck, co-founder of a group called Residents Supporting Village Preservation that supports the new downtown plan, said that if the local measure passes in March it will "effectively downzone what anyone can do in the commercial zone from that point on."

Buck said she is counting on the passage of Proposition 90 to limit the effects of the local measure by making it financially impossible for it to work.

"The city would have to compensate the property owner for units that it could not develop," she said. "That is going to bankrupt the city. They are going to have to compensate every property owner in the city who tries to do this."

By DANIEL MILLER 

Staff Reporter