Takings for granted.

Protection of the environment has run smack up against private property rights, and legislators are struggling to produce some sort of balance between them.

The framers of the Constitution didn't give states a whole lot of guidance when they crafted the Fifth Amendment. There's one phrase, less than a sentence, mentioned in tandem with capital crimes, double jeopardy, self-incrimination and due process. Maybe that's the genius of the Founding Fathers: Brevity, let the states decide.

Madison and Jefferson, and the early courts that interpreted their thoughts, viewed a "taking" as a physical invasion of private property, one that frequently accompanied the condemnation of land for a road, a reservoir or some other public need. In such instances, government - whether federal, state or local - had to pay the landowner the fair market value of the land. No argument.

The courts have recently broadened the application of the Fifth Amendment to include "regulatory takings." These are cases where rules adopted by government agencies restrict the use of private property to such a degree that the landowner is left with little or no economic value. Usually these regulations spring from environmental laws, the need for which Madison and Jefferson could not have foreseen.

People who want to protect private property rights through legislation argue that environmental rules restricting land use have the same effect on the property owner as a physical taking under eminent domain, which requires compensation. They ask why a landowner should bear the costs of environmental benefits enjoyed by everyone. Opponents counter that certain kinds of development may have harmful effects on public health and safety, and the developer should pay for it. They contend that the courts provide enough protection to property owners.

FINDING A BALANCE

In 1988, President Reagan signed an executive order asking federal agencies to review their regulations to avoid reaching that ill-defined threshold where a "taking" occurs. With that, states began to grapple for balance between private property rights and environmental protection. Washington passed the first new takings law in 1991 as part of its growth management act, requiring the attorney general to adopt guidelines to help state and local government agencies evaluate proposed regulations that might effect a taking. Delaware and Indiana followed in 1992, passing laws that call on the attorney general to review proposed agency rules for takings implications.

KEY COURT DECISIONS

Then came Lucas and Dolan, U.S. Supreme Court decisions, and the race to the statehouse was on.

Lucas vs. South Carolina Coastal Council, 112 S.Ct. 2886 (1992), involved beachfront property. South Carolina had a law that prohibited development in low-lying areas on barrier islands to protect the landowners from flooding and the shoreline from erosion. Lucas purchased property that was sometimes under water and planned to build a couple of houses there. (Home building in the area had been approved before passage of the law in 1988.) Denied a permit, Lucas went to court. Ultimately, the U.S. Supreme Court ruled that the state's action removed all economically beneficial use of the land, and that amounted to a taking.

Two years later, Dolan vs. City of Tigard, 114 S.Ct. 2309 (1994), dealt with increasing the size of a hardware store and its parking lot. A condition of the Oregon city of Tigard for issuance of the permit to expand the property was a dedication of 10 percent of Dolan's land for drainage and a bike path along the adjacent stream. The Court struck down the conditions, saying they did not bear a "rough proportionality," that is, they were not closely enough related to the impact of the development. The Court did not say what would pass the rough proportionality test, but it did say that governments must do a better job of justifying new regulations.

Both these decisions have implications for legislatures. Lucas directly involved a state statute, and Dolan dealt with a local land use plan adopted under state law.

State legislatures have responded with bills of three kinds:

* Requiring the state attorney general to review proposed agency regulations to ensure that they do not result in a taking requiring compensation.

* Requiring agencies themselves, with the help of guidelines prepared by the attorney general, to assess the potential impact of proposed regulations on the use of private property in order to avoid a compensable taking.

* Defining a regulatory taking by a specified percentage of diminished property value.

FIGURING OUT THE IMPLICATIONS

Most of the legislation enacted so far uses the second, or assessment, approach. Besides Washington, 11 other states use it - Arizona, Idaho, Kansas, Missouri, Montana, North Dakota, Tennessee, Utah, Virginia, West Virginia and Wyoming. It is important to realize that evaluating the impact of a proposed rule on the use of private property does not change the definition of a taking. An assessment is done to make sure that the proposed environmental regulation does not eliminate every economically beneficial use of the land (which would amount to a taking and require compensation). Wyoming's 1995 Act 65 says, "It is not the purpose of this act to expand or reduce the scope of private property protections provided in the state and federal constitutions."

Advocates of assessment laws emphasize that the purpose is to avoid lengthy litigation by making agencies do their homework up front. The idea is to reduce delays and their costs and to provide greater certainty to those being regulated.

Opponents argue that the real intent of assessment legislation is to discourage regulation by requiring extensive analysis that adds costs to the rulemaking process. They suggest that where an agency's budget is tight, the law will create a financial disincentive to issue new regulations - especially if the agency's budget is identified as the source of any compensation payment.

STATE AGENCY DISCRETION

Assessment bills can grant state agencies wide discretion in evaluating proposed rules. Idaho's 1994 Chapter 116 merely requires agencies to "follow the guidelines of the attorney general." They can be much more prescriptive, however, as in Utah's 1993 Chapter 269. There, state agencies must conduct a detailed analysis of proposed regulations that includes:

* Alternatives to the proposed action.

* Estimate of the cost to the state if a taking occurs.

* Identification of the public harm to be corrected.

* Assurance that the proposed action is proportionate to the environmental risk incurred.

In drafting the legislation, a Utah staff attorney noted that "there haven't been a lot of private property takings, but when one has occurred it has been without much thought on the part of the regulators." He added that the bill's intent is to "institutionalize a procedure to require them to think about it."

Sensitizing government agencies to the implications of their actions is at the heart of a bill that Arizona House Speaker Mark Killian introduced this session. HB 2229 authorizes a property owner to appeal a restriction placed on the use of real property by a city, town or county agency. During the hearing, the local government must prove that the restriction is roughly proportional to the impact of the proposed land use and that there is a close relationship between the regulation and a legitimate government purpose. In essence, the bill requires local governments to comply with recent Supreme Court decisions. HB 2229 was signed by the governor in April.

Takings bills that target local government actions generate the most political pain because proponents of greater protection for private property generally support local government control.

A bill before the Colorado legislature - SB 149 - requires cities, towns and counties to prove that restrictive land use actions substantially advance a legitimate government purpose and are directly proportional to the impacts of a proposed development.

Opponents fear that it may inhibit local zoning. While acknowledging this concern, Representative Norma Anderson asks what is more important, "what local officials think or what the Constitution says?" Representative Marcy Morrison cautions that "what I see this bill doing is making it that much tougher for local officials to come to decisions that make the community feel comfortable." There are no easy answers to this one, especially for states facing rapid growth.

Legislators must face a fundamental question if they choose the assessment approach: At what point does an agency rule deviate from the legislative intent, thereby shifting responsibility to the agency, especially when the legislature has mandated specific regulatory action? West Virginia's 1994 Chapter 61 attempts to resolve this issue by exempting from the assessment requirement limitations on the use of private property that are adopted pursuant to state or federal statutes. The same exemption applies under Arizona's HB 2229 to local government acts that do not give agencies discretion in crafting regulations.

PUTTING A VALUE ON LOSS

The third category of legislation - requiring compensation for regulatory takings - changes the case law by redefining how much lost property value resulting from a government action triggers the need for payment. Recent state legislation has usually set a threshold of 50 percent: Any reduction beyond one-half the property's value constitutes a taking. Bills being considered this session, however, set a lower threshold ranging from any loss in value to 50 percent.

The Washington Legislature passed the most far-reaching compensation bill this year. Initiative 164 requires state and local government agencies to pay private property owners for the reduction in value caused by a regulation issued for the public benefit. Private property restrictions may not be imposed unless an agency first prepares an economic impact analysis and makes it public. The initiative, which was passed by the Legislature without amendment, becomes law without requiring the governor's signature or a vote of the people. A referendum has been filed, however, to block implementation of the law until the electorate has a chance to vote it up or down in November.

North Dakota enacted legislation this year that combines the assessment approach with compensation requirements. Under SB 2388, a state agency must prepare a written assessment of the takings implications of any proposed rule that limits the use of private property. It also defines "regulatory takings" to be the reduction in value of private real property by more than 50 percent. It exempts regulatory actions, however, that substantially advance legitimate state interests, do not deny an owner some economically viable use of the land, or comply with state or federal laws.

Mississippi's 1994 Chapter 647, which applies only to government restrictions on timberland, requires payment for reduced value of 40 percent or more. The law was amended by HB 1541 this year to expand the compensation requirement to reductions in the value of agricultural land.

Mississippi Senator Dick Hall sympathizes with property owners facing restrictions more stringent than necessary to achieve a public purpose. He is concerned, however, with "the pace of action" on these bills.

"We don't know how far-reaching this compensation legislation might be," he cautions, hoping that legislators aren't overreacting to an otherwise legitimate concern that might hamstring government and drive up costs.

New Hampshire Senator Richard Russman, who chairs the Senate Environment Committee, describes himself as "a fiscal conservative and believer in limited government." But he fears the potentially high costs to government of compensation requirements. He says that public participation in New Hampshire's regulatory legislation safeguards against takings. "As a practical matter," Russman adds, "environmental rules are rarely overreaching because the public participates actively in the rulemaking process." In addition, the legislature can ask for a state Supreme Court opinion on a proposed law before it is passed.

Former Maryland Senator Gerald Winegrad, like Russman an attorney, strongly opposes takings legislation, but "fully supports compensation when all economic value is destroyed." He says Maryland circumvented the issue by providing protection for property rights in environmental legislation. This includes grandfathering in existing land uses and allowing for exemptions, variances and waivers to environmental rules. Environmental laws thus can give agencies some wiggle room in interpreting them and can make allowances for some kinds of development.

USING COMMON SENSE

This suggests an alternative approach that legislators, regardless of their views on takings generally, may want to consider. Cotton Harness, a South Carolina attorney who has both sued and defended the state over environmental regulations, packages his advice into five common sense recommendations for legislators:

* Document the harm to be addressed by an environmental law in the bill's legislative history.

* Define the social value of any proposed government action.

* Determine if there are alternative measures that can achieve the same public purpose including what the landowner can do to mitigate the problem (a key failing in Dolan).

* Make the law clear: Don't leave it up to the courts to work it out.

* Give the legislature an escape hatch by reassessing the law after two years.

It is too early to judge the effect of takings legislation on government rules and agency budgets since the first new state law passed four years ago. The number of bills is increasing each year, especially those requiring compensation, as legislatures wrestle with an issue that used to reside in the courts. Whatever the result, there are two clear messages. For regulatory agencies, know the case law and tie your actions to it. For legislators, know the costs and give clearer direction to regulators to avoid having to pay. In the end, the source of compensation is irrelevant - they're the same tax dollars.

RELATED ARTICLE: moderates support WYOMING COMPROMISE

Representative Carolyn Paseneaux had been trying for six sessions to get a takings bill through the Wyoming Legislature, first as a lobbyist and former executive director of the Wyoming Wool Growers Association, then as a state legislator. She was motivated by President Reagan's 1988 executive order calling for federal agencies to review the takings implications of their actions. Programs administered by the U.S. Departments of the Interior and Agriculture carry significant clout in Wyoming's economy. This session, Paseneaux succeeded, and Wyoming became the first state to enact a takings law in 1995.

HB 171 (signed into law as Act 65) started out as a compensation bill, requiring payment for government actions that diminished property value. It was amended on the House floor, however, into an assessment bill requiring the attorney general to adopt guidelines to assist state agencies in identifying and evaluating proposed rules that may result in a taking. Paseneaux noted that the new language was necessary to gain the support of moderate Republicans in order to pass the bill. "What started out as a driver," commented the Casper Republican, "ended up as a pacifier."

The bill picked up Democratic support in the process. Senator Jim Applegate, an attorney, commented that he supported the concept contained in the amended version "in an effort to get something passed that provided an accountability standard for government agencies so they would examine what they were doing."

Applegate had problems with the bill in its earlier form: "I don't see the need for the Legislature to define for the courts what constitutes a taking...they have done an adequate job." He raised a concern that "if different states defined takings differently, there could be a problem" for industries that operate nationally. He eventually voted against HB 171, however, because of the failure of an amendment to clarify the relationship between the attorney general's guidelines and state agency assessments.

Although Act 65 wasn't what Paseneaux originally envisioned, she felt it was "more important to get a bill on the books than to fight and scramble" for something that wasn't going to pass. She's sure the law will change over time as regulators and legislators watch it work.

RELATED ARTICLE: congressional action on THE CONTRACT WITH AMERICA 

Takings legislation is not confined to the states this year. The House Republican "Contract With America" contains a provision - Title IX of HR 9 - that would require compensation for government actions that reduce the value of private property by more than 10 percent. The takings bill was amended before being reported out of the House in March. The compensation threshold was increased to 20 percent, and its application limited to four government programs:

* Wetlands provisions under Section 404 of the Clean Water Act.

* Endangered Species Act.

* "Swampbuster" provisions under Title XII of the Food Security Act.

* Water rights under various federal land and water management programs largely confined to the West.

An omnibus private property rights bill introduced in the Senate at the end of March, S 605, sets a 30 percent reduction level in the value of private property as the basis for compensation and applies it to all federal regulations. It also requires federal agencies to assess the takings implications of proposed rules. S 605 replaces three earlier bills sponsored by Senators Bob Dole, Orrin Hatch and Larry Craig.

Larry Morandi is a senior fellow at NCSL specializing in environmental issues.