Eminent domain: the flaws of Propositions 98 and 99.

Article 1, Section 1 of the California Constitution states: All people are by nature free and independent and have inalienable rights. Among these are enjoying and defending life and liberty, acquiring, possessing, and protecting property, and pursuing and obtaining safety, happiness, and privacy.

The dictionary defines inalienable as absolute and undeniable. Article 1, Section 19 of the California Constitution (establishing the law for "eminent domain") states: Private property may be taken or damaged for public use only when just compensation, ascertained by a jury unless waived, has first been paid to, or into court for, the owner.

When reading the above-noted sections of the California Constitution, it appears relatively clear that all people have an absolute fight to their property unless the State or a local government requires it for "public use." Unfortunately, the term "public use" has been broadly interpreted to include such actions as the taking of property from one private owner and transferring it to another private owner (a developer) to build a new commercial center in a "blighted" neighborhood and to transfer from one private owner to another private owner, who used it to operate the same type of business as the original owner, when the "public use" project that the property was originally taken for was aborted.

Propositions 98 and 99 were created in an attempt to prevent the taking of properly from one private owner and transferring it to another private owner, thus removing the ability to broadly interpret the Constitution in the area of "eminent domain." Proposition 98, the "California Property Owners and Farmland Protection Act," appears to cover all privately-owned property (personal and business) whereas Proposition 99, the "Homeowners and Private Property Protection Act," regardless of its title, covers only the owner's principle place of residence which has been occupied by the owner for at least one year prior to the State or local government's initial written offer to purchase the property.

Both propositions are flawed. Proposition 98, because it proposes to both constrain state and local government authority to take private property and to eliminate rent control, may be in violation of California's Single-Subject Rule which states: "An initiative embracing more than one subject may not be submitted to the electors or have any effect." Additionally, some people share the following concerns expressed by the Los Angeles Times on May 12, 2008: "By barring the transfer of any economic benefit to one or more private persons at the expense of the private owner, Proposition 98 could open the door to lawsuits whenever a government agency zones in such a way that it raises the value of some properties and reduces the potential for others. That could jeopardize efforts to create open space or protect water quality."

Personally, I'm not sure that this is a valid concern since the applicable provision in the proposition actually bars "regulation of the ownership, occupancy or use of privately-owned real estate property or associated property rights in order to transfer an economic benefit to one or more private persons at the expense of the property owner. Thus it appears that for the concern to be valid, the zoning would need to have been done for the purpose of transferring the economic benefit from the private owner to another private person rather than for a public purpose such as open space or a water quality project with an unintended transfer of benefit to one or more private persons at the expense of the property owner.

Proposition 99, although prohibiting the government transfer of an owner-occupied residence to another private party allows some exceptions. One such exception is for private uses incidental to, or necessary for, a public works or improvement project. Some believe that this exception could be easily abused. This proposition also contains what is known as a "poison pill" provision. If both Propositions 98 and 99 receive "yes" votes of more than 50 percent and Proposition 99 receives more "yes" votes than Proposition 98, it wins and Proposition 98 is invalidated. Thus if both pass, the one that will survive is the one that does absolutely nothing for business property.

Eminent domain is a very complicated issue. Any changes in the current law should go through the legislative process where they can be thoroughly vetted through committees where amendments can be made resulting in final bills that have been considered from many perspectives and have the best chance of being successful. To place the decision regarding this issue in the hands of the voters, many of whom are not adequately informed on the subject, with the result being a constitutional amendment that can only be changed through another drawn-out process requiring a vote of the people, could be disastrous.

Gregory N. Lippe, CPA, is Managing Partner of the Woodland Hills-based CPA Firm of Lippe, Hellie, Hoffer & Allison, LLP, Chairman of the Valley Industry and Commerce Association and a Director of First Commerce Bank.