SHAKY GROUND.

WHY FLEXIBLE RULES AND REASONABLE REGULATORS ARE A BUILDER'S WORST NIGHTMARE

A couple of ago, my wife and I were looking at a small house in a New England town that I will call "Hampshire." The property also encompassed a strip of land in the town to the north of us--let's call it "Yorkshire." Our intention was to buy and then expand the house, but we discovered two obstacles to doing so. The first was that the lot was "nonconforming" because it was just one acre in an area zoned for two-acre lots. To do any work, then, we would need a zoning variance. The second obstacle was a creek 80 feet from the house; its proximity meant we would need approval from the conservation authorities of both towns. To help us decide whether to go ahead, we called Hampshire Town Hall and spoke to the clerk, a pleasant woman who cheerfully answered our questions. Yes, she told us, most likely we would be able to expand. According to her, about 95 percent of all variances were approved.

We weighed our decision. The asking price was very reasonable, and we loved the rolling property with its seasonal creek. But what if we weren't permitted to expand? We could always sell and move on. But this would entail two moves in two years, as our first child was on the way, and the house, without expansion, soon would be too small for us. With some trepidation, we finally made an offer on the house.

Having secured the house, we proceeded with plans to expand. That's when we discovered we would have to persuade the Hampshire Planning and Zoning Commission, the Hampshire Conservation Commission, the Yorkshire Planning and Zoning Commission, the Yorkshire Conservation Commission, and the Yorkshire/Hampshire Health District that we were worthy of the additional space.

Our architect, who had grown up in Hampshire, agreed to guide us through the approval process. I knew I had made the right choice when, at our meeting with the Hampshire Planning and Zoning Commission, one of the board members introduced our architect to another member by saying, "You remember Phil from the Hunt Club, don't you?" The architect and I had a site walk with the inspector from the health district, and another one with the building inspector. We attended one zoning meeting. We also attended conservation meetings-four of them.

I came to know the members of the Hampshire Conservation Commission like family-like my family when I was a teenager, as they considered whether to let me take the station wagon out on a Saturday night. The dominant personality on the commission was a fellow named Fred, who was also, not surprisingly, the chairman.

Fred was always smiling. He smiled at odd, inappropriate times, such as when saying, "You see, if we don't have an MA103F Soil Test Form completed and in front of us, we're just not going to be able to proceed with your application." The smile seemed intended to assure people that Fred's request, however arbitrary and cumbersome it seemed, flowed from a fountain of wholly benign eco-concern.

One of Fred's main concerns was that everyone who came in for an approval would plant a particular species of river weed called "sedge" along the edge of their wetlands. In almost every application, Fred brought up the subject of sedge, always with great gusto. I began to wonder if Fred had ties to the National Sedge Growers Association. Exactly which plants would border your wetland was a matter of utmost concern to him. He made one supplicant agree not to plant a lawn within 20 feet of her creek as part of the terms of her approval. She had offered not to use any "chemical" lawn products, but Fred wasn't buying it. No, he explained, some future owner might be tempted to hire "ToxoLawn" to maintain that patch. The applicant was responsible not only for her own acts involving the wetlands but also the potential acts of future owners. She was enjoined from undertaking activities that, while not harming the wetlands in themselves, might tempt the guy who owns the house 20 years from now into harming them.

At one meeting we met the God of Boredom, whom we came to call Soil Engineer. He had been hired by some poor soul who was on his fourth trip to see the commission for a four-lot subdivision. The applicant also brought along a couple of fellows in suits-his attorney and his builder. Soil Engineer attempted to lull the board into submission by describing, in detail, the geological history of the lot from the Cretaceous Period to modern times. As the North American and European continental shelves separated, I found myself biting my lip to shock myself awake. I was sure that if my head slumped forward during the meeting, it would count against me when the vote on my property came.

Soil Engineer began discussing "drumlins." Don't ask me what these really are-by this stage of the meeting I was in a semi-hallucinatory state, and my recollection is that it was in-side a drumlin that Frodo Baggins first encountered a barrow wight.

Fred leaned forward with a knowing look on his face. The tension in the room heightened from none to the smallest amount above none that can possibly be measured. Had Fred found, amid the nearly pure white noise of this monologue, the melody that would resolve the dispute?

"Were the drumlins formed while the glaciers were advancing or while they were retreating?" he asked.

Could this really be the deciding factor? "Retreating? Good. Approved!" No-Fred was educating an audience whose knowledge of Ice Age New England he knew to be sorely deficient. Suddenly, the applicant exploded at the commission. All over the room doodling ceased and heads picked up. He launched into a tirade about how other, larger projects had been approved, because, he implied, the applicants were wealthy developers who gave generously to the campaigns of various town officials.

Predictably, the commission was not amused. Fred graced the supplicant with a gentle smile.

"We understand that you're upset," he said, "and we'd like to help you. But we're going to need some more information from you before we can proceed."

Fred then listed inconsistencies to be resolved, measurements to be made, obscure plant species to hunt for on the land. The applicant, duly chastised, shuffled off with his contingent.

Finally, after three hours of listening to other people's cases, our turn had come. "Callahan?" the clerk said. We indicated that we were present. The clerk opened the folder for our case. "Oh, the Town of Yorkshire hasn't responded to our letter of advisement," he said. "You'll have to come back for the next meeting." In two weeks.

Another notable person on the commission was the fellow whom we came to call Yes Man. He was the lonely representative of the idea that perhaps the town should have the burden of proving that there is ecological harm, rather than forcing the applicant to show that there isn't. At a certain point he would get bored with drumlins and soil microorganisms and blurt out, "I forward the motion that we approve this application." Occasionally his boredom would carry the day, as other commission members would begin to feel the same ennui and just want things ended with the conclusion that was probable anyway.

After three meetings with the conservation commission, Yes Man forwarded his motion, and we gained our approval. But we were not done with them yet. We made a change to our building plans that did not affect the footprint, and filed the changed plans with the building inspector. Since our impact on the wetlands hadn't changed, the architect felt that we weren't required to go back to the conservation commission. Apparently, he was wrong. Our builder was confronted by the town conservation officer, who threatened to shut the job down because of the change in plans. My architect called me and told me to bring my attorney to the next meeting. The sight of an attorney seemed to change the commission's mood. The board members were immediately conciliatory and merely admonished us by saying that they would "appreciate being told about these things."

In his popular 1996 book TheDeath of Common Sense: How Law Is Suffocating America, Philip Howard contends that the chief legal problem in America today is not that there are too many laws but that the law is not being applied "reasonably." Bureaucrats, he argues, are not given sufficient discretion when making their decisions. The result is that our obsession with "a government of laws, not men, is destroying government's ability to act rationally. "Relaxing a little and letting regulators use their judgment is the only way to liberate our judgment," Howard writes. He moves so far from the principle of the rule of law as to recommend regulating each of America's 4,000 most polluting factories individually.

Well, here we were in a situation where the bureaucrats had plenty of discretion and were very reasonable, yet we were worse off than if what we wanted to do were simply forbidden. In that case we just wouldn't have purchased the property. Instead, we had months of uncertainty after the purchase. We wound up spending dozens of hours of our time and thousands of dollars in fees for our architect's and our lawyer's hours. It was necessary to talk very politely and sound very eco-friendly to the conservation commission, especially when dealing with Fred. He could turn stubborn on a project and request information not possibly available at the meeting, sending the hapless applicant out to spend more cash and time determining the ratio of green-backed to yellow-backed slugs on his land.

At one meeting my wife felt compelled to hide the cover of a conservative magazine she was reading, for fear of offending some liberal on the board. Board members would pop over to our property at odd times of the day and walk the land. These intrusions into our private lives were made possible by the discretion these boards enjoy. What you want to do is forbidden by default, but if you're nice and don't put up a fuss about their choosing your landscaping plants or crashing your croquet party, they'll let your project go forward. As F.A. Hayek remarked in The Constitution of Liberty: "It used to be the boast of free men that, so long as they kept within the bounds of known law, there was no need to ask anybody's permission or to obey anybody's orders. It is doubtful whether any of us can make that claim today."

Our case, while daunting to us, was actually resolved comparatively easily. When I described its history to John Charles, environmental policy director at the Cascade Policy Institute, an Oregon-based policy research center, he expressed genuine surprise that we had been able to move forward so quickly. In contrast, REASON Contributing Editor James DeLong describes in his 1997 book Property Matters the case of a Pacific Grove, California, property owner who spent over $600,000 and three and a half years to get permission to build a residence on a 1.1-acre lot.

It is precisely the discretionary power of local land use authorities and the "reasonableness" of their procedures that lead to cases that drag on for months or years. Since there is no simple rule deciding whether a particular project can go forward, regulators must invest large amounts of time to show that they have considered all factors and have not been unfair or negligent in their final decision. In fact, the system gives them strong incentives never to make any decision at all--if they can merely delay decision until the project fades away, no one can blame them for deciding improperly.

In describing the difficulties of Andrew Varlow, who wished to expand on his Mann County, California, property, DeLong comments: "The planners fret about the size of the house, the effect on views, future development in the area, the possible impact on real estate prices, and the project's 'inconsistency with the goals' of the planning group (whatever these may be; the meeting minutes do not say). No standards are announced. Varlow and his people have spent over two years on the project without any firm guidance that 'you can do this but not that.'"

Philip Howard would contend that the regulators should be held responsible for being dilatory, but this merely inserts another layer of administration making another round of discretionary decisions. After all, weren't the Marin regulators just using their legal discretionary power to withhold a decision until they felt certain that Varlow's project was "consistent with their goals"? By what guideline could the regulators be judged to have taken "too long"? And who will judge the regulators who judge the regulators?

During the third of our conservation commission hearings, our architect pointed out to the board members that we had a child on the way. They all nodded in understanding, and our approval came soon thereafter. Should this have been relevant to their decision? If we were childless pensioners, would we have had less right to expand? Hampshire is a Republican stronghold--might the decision have been different if we had been prominent Democrats? What would our odds have been if we had been a gay couple hoping to build in a fundamentalist Christian community? Blacks in an otherwise all-white town in the Deep South?

I have no idea if the applicant who yelled at the commission had any factual basis for his accusations of corruption. But a system in which a bureaucracy has discretionary powers over individual citizens will always lead to suspicions of this sort. Each case must be decided on its own, unique merits, so it becomes an entirely subjective judgment as to whether different parties received "equal" treatment.

The man who wanted the four-lot subdivision had much more trouble with conservation than we did. Because his motive was simply "profit," his standing with the commission was lower than that of a young and growing family needing living space. A commission tasked with protecting wetlands wound up assessing the moral worth of various applicants' projects.

Howard is wrong, and the defenders of the rule of law are right. Hayek, one of the greatest 20th-century advocates of the rule of law, saw that it is the keystone to liberty. People living under the rule of law have clear-cut guidance as to whether they are permitted to undertake some activity. This clarity leaves us free to plan our own actions, because we understand, vis-a-vis the legal system, what the consequences of those actions will be. All of us understand that if we kill someone and are caught, we will go to prison. Occasionally there will be gray areas in the law, such as determining when a killing might be in self-defense. But our town had set up a situation where the majority of contemplated development was in gray areas. In our case, it was never clear to us exactly what would decide the fate of our petition. As Hayek put it, "Nobody disputes the fact that, in order to make efficient use of the means at its disposal, the government must exercise a great deal of discretion. But...under the rule of law the private citizen and his property are not an object for administration by government, not a means to be used for its purposes. It is only when administration interferes with the private sphere of the citizen that the problem of discretion becomes relevant to us; and the principle of the rule of law, in effect, means that the administrative authorities should have no such discretionary powers in this respect."

In Simple Rules for a Complex World (1995), Richard Epstein argues that we should generally favor rules that offer a clear delineation of what is and isn't permissible over more complex rules that require discretion on the part of those enforcing them. He illustrates the principle with the example of lawsuits that involve harm caused jointly. For instance, your car struck mine after you failed to obey a stop sign one night. I, however, was driving without my headlights on, making it difficult for you to see me. Law that requires an "accurate" determination of how much each of our errors contributed to the accident necessitates great discretion on the part of those deciding the case--and leads to interminable trials with large legal expenses on both sides.

Epstein's suggested solution is elegant: simply split the difference, awarding half of the damages that would have been awarded had the plaintiff not also been negligent. Although this eliminates all discretion, and may seem to be unfair in some cases, Epstein contends that most cases wind up near this mid-way mark anyway. The huge administrative costs involved in the futile attempt to arrive at a "reasonable" apportionment of blame swamp the meager gains from the few cases where the result of a 50-50 split of losses is manifestly unjust.

Our problem was not that the town had set rules restricting our use of our property. Such rules are necessary, since some property uses significantly affect neighbors and, if permitted, would allow the property owner to impose large costs on others. Preventing us from building a nuclear weapons facility on our rural land in a residential neighborhood does not in a significant way impair our liberty. If we are hoping to construct such a factory, we know in advance to avoid properties with residential-only restrictions, and therefore we are still able to plan.

But the town does not really intend that its restrictions be uniformly enforced. As DeLong points out, regulators prefer vague restrictions that allow them great leeway. This type of restriction requires an administrative apparatus with large discretionary powers, which serves chiefly to enhance the power of bureaucrats. The bureaucracy avoids a public outcry because it drives up the cost of new construction, limiting its supply and raising the prices of existing homes. For the majority of homeowners in town who do not intend to expand in the foreseeable future, the large losses suffered by a small minority are an acceptable cost of protecting their own investment.

DeLong recognizes the basic problem when he writes: "Several things are necessary to restore the balance [in regulation]. The first is to assert the boundaries and certainties of property rights. Cities need to get their basic rules in place, and then let people act, without more nit-picking detailed review. A recent news article reported on the success of city planning in Portland, Oregon. What does Portland do? Well, for one thing, it follows its own zoning laws. If the code says you can build apartments somewhere, that is what you are allowed to do."

Howard fails to see that it is in the market where citizens can properly exercise their discretion over property use and that once government is given discretion in this regard, it has the arbitrary power to decree one citizen's aims more worthy than another's. Although Howard cites Hayek, he does not seem to comprehend his message. Howard has no wish to limit the state's power to infringe upon private property rights as long as it does so "reasonably."

If you enter my house and begin to negotiate with me about what I may watch on TV, the issue at hand is not how reasonably you do so. You have intruded into my private sphere and are unwelcome, however reasonable your requests may seem to you or others. The U.S. Constitution does not say that Congress should "make no unreasonable laws respecting an establishment of religion"; it says that Congress shall make no laws at all establishing a religion. Congress is not enjoined from "unreasonably abridging the freedom of speech" but from any such abridgment. Of course, these rights may come into conflict with others, and the government is well within its bounds in preventing a religious group from practicing infanticide or in punishing free speech if it is slanderous. But these are rare exceptions to otherwise clear rules. As DeLong says, "What is needed is a restoration of government of law rather than government by whimsy."

It is possible to conceive of other, realistic arrangements that would both preserve the property owner's liberty and achieve environmental and planning goals. A government, be it local, state, or federal, can set minimum guidelines that say when a project may proceed without, for instance, a wetland permit--if, say, it is more than 100 feet from any area that is below water more than six months a year. That government can then sell increasingly expensive permits that allow transgressing these limits, up to a point where certain activities, such as draining a pond, may be strictly prohibited. Strictly prohibited should mean that no exceptions can be granted, resulting in clear guidelines for the property owner. Where such restrictions impose a significant burden on property owners when compared to normal use in the area, takings law should apply, and the state should pay for the loss of normal use. (For instance, if two-acre zoning is the norm for an area, a restriction that limits a landowner to one house o n a six-acre lot should require compensation.)

These permits should be made fungible, so that a market can develop in them. DeLong notes that such a system of transferable development rights has already been established in many municipalities. With a market in these rights, property owners could plan activities on a site with a reasonable degree of confidence by calculating whether the project would be worth the cost, including the purchase of the necessary rights. The revenue raised could be used to buy and preserve undeveloped properties. If the people in a town want to limit development, this purchasing of open land is by far the fairest and most efficient means available. The townspeople are not able to impose the cost of their preference for open space on isolated individuals, who have had a portion of their property rights seized in order to create a public good.

It is not only economically sensible to establish clear property rights in regard to wetlands, open space requirements, historic districts, and other land use issues. It is also morally correct. Even if a certain course of action is beneficial to a community and requires the abnegation of certain property owners' rights, this does not justify imposing the entirety of the cost of this community benefit upon a few individuals. DeLong notes that "these decisions [to restrict property use] involve a judgment by the supporters of the restriction that someone must sacrifice, and your friends and neighbors have selected you."

A healthier environment, historic preservation, open space: These are not goods that most of us should steal from a few of us. If we want them, we should all be prepared to pay our part of the cost. And citizens who want to use their property as they see fit should not have to grovel before boards that exercise arbitrary power over their lives. Having a "standing rule to live by" makes any tradeoff involved manifest and will ultimately result in both more respect for a community's true values and a more secure right to plan our individual futures.

Gene Callahan ([e-mail]) is a regular contributor to National Review Online, mises.org, lewrockwell.com, and Java Developer's Journal. He is working on a book, Economics for Real People, to be published next year by the Ludwig von Mises Institute.