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How Californians can stop "creative" regulatory theft
Capital Ideas
11.1.2006
SACRAMENTO, CA - There is a case in California with direct bearing on the November 7 election. Legislators and policy makers should be aware of it--and voters should also be asking some hard questions.
What if your neighbors invested their life savings in land, and suddenly local government declared the land virtually worthless with a stroke of a pen? What if the local government then failed to reimburse the owners? This is the predicament of three property owners trying to protect their 814-acre investment from a "down-zoning" crusade in Brea, California. Their story is just one example of governmental abuse of eminent domain and regulatory taking highlighted by author Steven Greenhut in Righting Property Wrongs: Proposition 90 and California Property Rights, a voter-education pamphlet published by the Pacific Research Institute.
Greenhut charts rampant abuse of eminent domain in California, including the common practice of regulatory takings--measures that dictate what an owner may or may not do with their own land. Such takings narrow the viable economic uses of the land and often slam property owners with steep financial losses. Greenhut details how the city's zoning rules may obliterate any investment returns the Brea property owners hoped to receive from building much-needed houses:
The city's general plan had long allowed the development of more than 2,000 housing units....In 2001, city officials "down-zoned" that number by 30 percent, meaning that the owners, by the stroke of a pen, could build only 1,685 units and receive nothing in compensation from the city.
Greenhut continues: "Now officials want to allow only a total of 103 houses on the land. Three owners would be particularly hard hit, losing 95 percent of the development potential of their property. Those owners would be allowed to build 29 houses on 814 acres--an absurd limit of one house per 28 acres."
Clearly the city of Brea wants the land to remain undeveloped, but rather than use eminent domain, which would require the city to compensate the owners, the city seeks its goal through heavy regulation. The city council will most likely adopt the new down-zoning rule and is not ashamed of this action. According to the city's general plan: "Without financial resources to purchase the properties worthy of permanent open-space status, the city must look to creative approaches."
California voters can put a stop to this "creative" regulatory theft by approving Proposition 90. The proposition would require that the state and local governments compensate landowners for any new law or regulation that imposes "substantial economic losses" on the owners. In other words, if the government wants to turn your land into a hillside preserve, they would have to pay you for it.
Further, to ensure that property owners are fully compensated, Proposition 90 requires the government to pay the owners the value of the property as if it had never been taken at all. This means that the government must pay the landowners the value of the property at the price it could have commanded in the marketplace. If applied to the Brea case, compensation would be the price homebuilders would be willing to pay for the land
under the original zoning rules.
Because the initiative places the financial burden on the government, not landowners, fewer takings will occur. And since taxpayers will have to shell out more to regulate any piece of property, it ensures that regulatory takings will only be used for the most crucial public projects. Proposition 90 gives voters a way to end "creative" regulatory theft and provides a much needed safety net for all property owners in California.
Anthony P. Archie is a public policy fellow in Business and Economic Studies at the Pacific Research Institute. He can be reached via email at aarchie@pacificresearch.org.
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