[Congressional Record Volume 140, Number 47 (Tuesday, April 26, 1994)]
[Senate]
[Page S]
From the Congressional Record Online through the Government Printing Office [www.gpo.gov]


[Congressional Record: April 26, 1994]
From the Congressional Record Online via GPO Access [wais.access.gpo.gov]

 
                           GOVERNMENT TAKINGS

 Mr. LEAHY. Mr. President, I would like to submit for the 
Record today an article by Edward Thompson Jr., the director of the 
public policy for the American Farmland Trust. We hear a large amount 
of discussion about whether whenever a governmental action affects 
private property, the government should make a payment to the 
landowners.
  Often when we hear governmental action and private property in the 
same sentence, a negative image is created in our heads. However, as 
Mr. Thompson explains in his article, governmental action often 
increases rather than reduces the value of private property. In fact, 
governmental givings commonly are equal to, or outweigh, any 
governmental takings. Nevertheless, governmental givings are frequently 
lost in the takings debate. This article offers both an insightful look 
into the root of the problem and proposes possible solutions. I would 
invite my fellow colleagues to each take a look at this article and 
carefully listen to what it has to say. I ask that Mr. Thompson's 
article be printed in its entirety.

                         The Government Giveth

                       (By Edward Thompson, Jr.)

       By decreeing in the landmark case First English Evangelical 
     Lutheran Church v. City of Los Angeles that landowners may 
     collect monetary damages from the government when property is 
     ``taken'' by regulation, the U.S. Supreme Court may have done 
     a favor for a nation struggling to reconcile private 
     enterprise with environmental protection. Now that the public 
     treasury is at stake, budget-conscious legislators are being 
     forced to take a harder look at the risk that government 
     regulation may take property by too severely regulating its 
     use.
       When they do so, they are likely to discover that the best 
     way to manage the risk of takings may be to eliminate 
     ``givings'': government subsidies that simultaneously 
     encourage uses of land that require public regulation and 
     increase the value of the land itself. Examples range from 
     farm subsidies that have promoted wetlands drainage and soil 
     erosion to the income tax deduction for home mortgage 
     interest that drives wasteful urban sprawl. Eliminating or 
     redirecting subsidies such as these would not just minimize 
     potential takings claims. It would also result in budgetary 
     savings that could be re-invested in incentives to make 
     environmentally desirable land uses more profitable--a win-
     win outcome for the environment and property owners alike.
       There isn't an acre of property in the United States with a 
     value strictly attributable to private enterprise. Government 
     actions exert a powerful influence on the utility and, hence, 
     the value of land, whether it is waterfront property in South 
     Carolina or farm fields in Illinois. As often as not, such 
     actions increase property values by making formerly 
     uneconomic uses profitable. That, of course, is the essential 
     purpose of subsidies.
       Take the celebrated case of David Lucas, the real estate 
     developer who recently won a $1.5-million takings judgment 
     because he was denied permission to build houses on the beach 
     at Isle of Palms, South Carolina. Whether or not one 
     agrees with the decision in his case, the fact remains 
     that both Lucas's ability to build on the beach and the 
     value of his beachfront lots were augmented by government 
     action. Public authorities had constructed a bridge to 
     provide access to the island, roads to drive on, water and 
     sewage systems to serve the houses, and beach protection 
     measures to prevent them from washing away. On top of 
     that, the government has helped underwrite flood insurance 
     to cushion the loss when those measures fail. All of these 
     taxpayer-financed improvements contributed to the value of 
     Lucas's property and in all likelihood spelled the 
     difference between its being attractive for development 
     and a financially worthless strip of shifting sand. In 
     effect, much of the government's financial exposure for 
     taking the Lucas property was attributable to the 
     government itself.
       Another example of government action that has given value 
     to private property is the payment of agricultural subsidies. 
     On average, the federal government pays the nation's farmers 
     about $30 million a day to encourage them not to plant crops 
     on part of their land. The ``set aside'' payments are 
     intended to regulate the supply of corn, wheat, and other 
     major commodities so that their prices do not become 
     depressed. Together, the payments and higher commodity prices 
     maintain farm income, keep farms in business, and help assure 
     that the United States has the world's most abundant and 
     affordable food supply.
       In so doing, however, agricultural subsidies have been 
     capitalized into land prices, increasing the total value of 
     U.S. farmland by around $250 billion, according to the 
     American Farm Bureau Federation. This windfall has helped 
     make it profitable for farmers to drain wetlands and to plow 
     up fencerows and highly erodible ground that otherwise would 
     have been untouched. While the ``sodbuster'' and 
     ``swampbuster'' provisions of the 1985 farm bill seem to have 
     enjoyed some success at preventing new drainage and plowouts, 
     the ironic fact remains that agricultural givings have 
     probably done as much as anything to fuel the current takings 
     debate between farm groups and environmentalists over 
     wetlands and erosion-control regulations.
       A third example of givings is another sacred cow: the 
     income tax deduction for home mortgage interest. For 
     taxpayers whose combined federal and state income tax bracket 
     is, say, 35 percent, the deduction reduces the cost of every 
     $100 in mortgage payments to only $65. This enables people to 
     buy houses almost half again as expensive as they could 
     without the write-off and is, thus, a massive subsidy to 
     the real estate industry. The Congressional Budget Office 
     estimates the annual revenue cost of this tax preference 
     to be $44 billion. Assuming capitalization at 6 percent, 
     today's average mortgage rate, it can be said to have 
     enhanced residential property values by approximately $730 
     billion.
       The mortgage deduction is intended, of course, to make home 
     ownership more affordable. Few would argue with this 
     objective. But the subsidy is conferred regardless of how or 
     where houses are built. They can be built in wetlands or 
     endangered species habitat, on barrier islands, floodplains, 
     or Civil War battlefields. The subsidy is the same whether 
     the pattern of development is low-density sprawl or compact 
     communities that have a wide variety of environmental and 
     economic advantages: conservation of prime farmland and open 
     space, lower energy consumption and air pollution, reduced 
     public service costs and demand for property tax collections. 
     Though some would argue that the neutrality of the mortgage 
     deduction keeps land use planning at the local government 
     level, as a practical matter it gives developers a powerful 
     incentive to try to upset local plans.
       These are only a few of the public subsidies built into 
     private property values in the United States. Ironically, 
     givings such as these are at least partly responsible for the 
     increased attention to takings of private property now 
     manifesting itself both in litigation and in legislative 
     attempts to require review of proposed government 
     regulations, ostensibly for purposes of avoiding takings 
     litigation and the potential liability now associated with 
     it.
       By creating expectations of profit from land where none 
     formerly existed, givings have almost certainly encouraged 
     takings litigation, the mere threat of which intimidates 
     government officials into making questionable land use 
     decisions. But a more explicit judicial recognition of the 
     influence of givings on property value as it relates to the 
     issue of just compensation might help restore government 
     officials' confidence by discouraging borderline litigation 
     and reducing potential damage claims.
       A recognition of governmental givings is already a 
     significant--though seldom acknowledged--part of modern 
     takings jurisprudence. Notwithstanding First Lutheran Church, 
     Lucas, and other recent cases, the basic takings rule has 
     remained unchanged since it was first articulated by Justice 
     Oliver Wendell Holmes in Pennsylvania Coal Co. v. Mahon: 
     Virtually all economic value of land must be destroyed by 
     regulation for a taking to occur. Only under such 
     circumstances, Holmes said, does regulation ``go too far'' 
     in shifting the cost of improving the social condition 
     from the public to private property owners.
       Some property rights advocates have criticized the all-or-
     nothing rule. They seek to enlarge the concept of takings to 
     include circumstances where regulation proscribes use of only 
     part of a larger property or the whole has merely been 
     reduced in value. This, they claim, is necessary to restore 
     fairness to the system of land use regulation and make 
     government, which is to say the general public, pay its fair 
     share of protecting the environment. A closer examination of 
     the philosophical and practical basis for the current rules 
     suggests, however, that compensation for partial takings or 
     mere diminution in value would itself go too far.
       The source of the current ``all-or-nothing'' rule was 
     Holmes's insight that property values are increased as often 
     as decreased by government action; that, on the whole, 
     landowners are benefitted and burdened in roughly equal 
     measure by government spending and regulatory decisions. The 
     renowned jurist termed this ``average reciprocity of 
     advantage,'' but in plain English it could simply be said 
     that ``givings tend to balance takings.''
       Though the rule is a practical one--``Government could 
     hardly go on,'' Holmes observed, ``if to some extent values 
     incident to property could not be diminished without paying 
     for every such change''--it also implicates fundamental 
     fairness. Would it be just to charge the public for every 
     diminution in property value, while at the same time allowing 
     property owners to reap a windfall every time government 
     action increases land values?
       The ``all-or-nothing'' rule thus insulates government from 
     liability except when regulations proscribe all economic use 
     of property. Few regulations go that far, but there may be 
     some important exceptions, including regulations designed to 
     protect wetlands, barrier beaches, and some endangered 
     species habitat. None of these environments can tolerate much 
     if any economic use and survive. They will remain fertile 
     ground for future takings litigation and the source of 
     potential government financial liability. It is, therefore, 
     worth exploring how the concept of givings could further 
     inform takings jurisprudence as it affects the sharing of 
     responsibility and cost of environmental protection.
       One promising avenue of inquiry might be a re-examination 
     of the notion of just compensation. Currently, the measure of 
     damages for takings is the fair market value of the property 
     whose use is prohibited. This concept of valuation reflects, 
     among other things, enhancements of land value attributable 
     to governmental givings. Arguably, where government has 
     subsidized property value, a takings award based on fair 
     market value results in unjust enrichment of property owners 
     who are compensated not only for their ``equity'' but also 
     for the windfall value created at public expense.
       Whether the courts will entertain this argument remains to 
     be seen. Currently, they look only at the harm suffered by 
     the aggrieved landowner--not the potential loss to the 
     government or taxpayers--in determining just compensation. 
     But how can it be said that a property owner has been harmed 
     when the government decides to take back by regulation what 
     it has given through subsidies or other action? Why shouldn't 
     courts consider evidence that property values have been 
     inflated by government action in deciding what compensation 
     is fair? Why shouldn't they reduce damage awards by an amount 
     attributable to givings?
       The prospect of government financial liability for takings 
     has prompted officials to analyze proposed regulations 
     affecting land use to determine the extent to which they 
     could lead to damage claims. Though it is questionable 
     whether such analysis can actually help government avoid 
     takings exposure by rewriting regulations, it does afford 
     officials an opportunity to examine how they can do so by 
     eliminating givings.
       Executive Order 12630, signed by President Reagan in the 
     early 1980s' was the first initiative to require regulatory 
     analysis aimed at reducing takings exposure. While a U.S. 
     Senator, Steve Symms (R-Idaho) later succeeded in persuading 
     the Senate to pass a bill (S. 50) in the 102nd Congress that 
     would have codified this order, but it died in the House. 
     Variations on it have been resurrected in the current 
     Congress by Senator Robert Dole (R-Kansas) (S. 117) and a 
     number of members of the House, where an agriculture 
     subcommittee recently held hearings on such a measure (H.R. 
     561). Many state legislatures are considering similar bills 
     and a few--such as Indiana and Utah--have passed them, but 
     most bills have been defeated.
       It is difficult to see how prospective analyses of takings 
     claims could possibly result in any meaningful conclusions. 
     If 70 years of Fifth Amendment jurisprudence have taught 
     anything, it is that takings determinations are perforce a 
     case-by-case exercise. To predict government liability in 
     advance, so many assumptions would have to be made about the 
     on-the-ground impact of regulation on individual 
     properties as to defy credulity: the number of affected 
     properties of record, the environmental characteristics of 
     each property, patterns of ownership relevant to ``total 
     taking'' analysis, the appraised value of each parcel 
     under future market conditions, and any circumstances that 
     under Lucas could excuse a taking. If the government 
     really tried to get access to that much information about 
     private land in the United States, property rights 
     advocates would scream invasion of privacy--as indeed they 
     have in opposing the National Biological Survey.
       One conclusion about government's potential exposure to 
     takings claims is clear under any set of assumptions: Its 
     exposure could almost certainly be reduced by eliminating, 
     conditioning, or redirecting governmental givings that 
     increase the value of private property by encouraging uses 
     that must be regulated in the interest of protecting the 
     environment. While the courts may be reluctant to consider 
     the extent to which taxpayers enrich landowners--yes, there's 
     an overlap, but taxpayers don't get to spend their own 
     money--there is no reason why Congress, the administration, 
     and state officials should not. Indeed, at a time when 
     budgets are tight all over, and the nation's environmental 
     and social deficits continue to grow, re-examining how tax 
     dollars are distributed among classes of subsidy 
     beneficiaries would seem to be an imperative.
       A hard, careful look at real givings--not putative 
     takings--is the kind of analysis that needs to be undertaken 
     if the nation is to avoid both financial and environmental 
     bankruptcy. For too long, we have been subsidizing the very 
     uses of land we need to regulate in the interest of 
     environmental protection. This has set the stage for double 
     dipping in the public treasury by those who benefit from 
     taxpayer largesse and then sue the government for damages 
     when regulation frustrates their plans. The last thing we can 
     afford is to pay twice for environmental protection. Paying 
     once--compensating property owners for using the land as the 
     public sees fit--is probably the most effective way of 
     achieving harmony between private enterprise and protection 
     of our environment.
       Instead of continuing to subsidize new development of 
     barrier islands and other flood plains, we could reprogram 
     funds now used to build infrastructure and use them to buy 
     and retire development rights on flood-prone lands. That is 
     in effect what South Carolina was forced to do in Lucas's 
     case, except that it is now offering the property for sale 
     for development purposes. It probably could have bought 
     two or three times as much land on an island where 
     property values were not as inflated by government 
     subsidies.
       Agricultural subsidies are also fertile ground for fiscal 
     reprogramming. They could be shifted from Traditional set 
     asides to ``green incentives'' paid to farmers for conserving 
     soil, protecting wetlands and other habitat, cleaning up non-
     point-source water pollution, and dedicating prime farmland 
     to rural open space. Existing programs like the Conservation 
     Reserve, Wetlands Reserve, Water Quality Incentives, and 
     Farms for the Future, which now account for only about one-
     sixth of annual farm spending, provide ready-made vehicles 
     for doing this. Farm income would continue to be supported, 
     assuring a stable food supply. But many of the environmental 
     impacts of modern agriculture would be ameliorated by 
     withdrawing the incentive to push the land beyond its 
     capacity and replacing it with an incentive to conserve 
     resources and protect the environment.
       It is probably too much to ask for Congress to re-examine 
     the home mortgage interest deduction in any meaningful way. 
     But what would happen if this subsidy to real estate 
     development were graduated or conditioned on the basis of the 
     impact of new dwellings on the environment and their 
     consistency with local comprehensive plans? Developers would 
     be encouraged to build houses on land with few environmental 
     constraints because those houses would be less expensive than 
     comparable dwellings located on prime farmland, in wetlands, 
     critical wildlife habitat, and maybe even on barrier beaches. 
     The revenue recaptured could be used to fund a housing tax 
     credit for lower-income families to maintain the overall 
     affordability of housing. For perhaps the first time in 
     history, federal tax policy would harness the marketplace to 
     improve the quality of community growth and to protect the 
     environment, rather than promoting its destruction.
       The Fifth Amendment seeks to assure that the cost of 
     achieving social objectives if fairly shared by property 
     owners and the public at large. Property rights advocates 
     complain that regulations are forcing landowners to bear a 
     disproportionate share of the burden by taking property 
     value. All but ignored in the debate are givings, 
     governmental subsidies that enrich property owners by making 
     uneconomic uses of land profitable and which, not 
     coincidentally, increase the need for the regulations that 
     landowners find so vexatious.
       An honest recognition of, and accounting for, givings has 
     tremendous potential to inform the debate over private 
     property rights and change the way we approach the protection 
     of public environmental values. Though the courts implicitly 
     consider givings in takings jurisprudence, they are powerless 
     to curb them and can only arbitrate when the government sends 
     property owners confusing signals about the appropriateness 
     of land uses by simultaneously subsidizing and regulating 
     them. It is up to the political branches of government to 
     reexamine how tax dollars are spent on subsidies to unwise 
     land use, and to reprogram scarce funds so that they send the 
     unmistakable market message that there is more profit in 
     protecting the environment than in destroying it.

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