Feature

Oregon's Land Use Wars

Measure 7 and property rights: Pretty simple? Pretty fair?

As she prepared for her firm's Dec. 6, 2000 seminar on how to file Measure 7 claims (with a reception to follow - a dozen bottles of wine and six cases of beer), the attorney managed to spare just enough time to talk to a reporter. 'Measure 7 is the pretty simple, pretty fair idea that when government wants to devalue your property for a greater public good, they ought to compensate you for that,' she said. The same day, Marion County Circuit Judge Paul J. Lipscomb issued a preliminary injunction that stayed Measure 7 on technical constitutional grounds, emphasizing that his opinion had nothing at all to do with the merits of the measure. On the morning of Feb. 22, 2001, Judge Lipscomb issued an opinion declaring Measure 7 unconstitutional, and by 1 p.m., Lars Larson had worked up a full head of steam on KXL Radio: 'We're talking about Ballot Measure 7, passed by the voters, passed by the voters big-time in November, and now thrown out by a judge, Judge Lipscomb, down in Marion County, if you're a voter in that county, hang onto that name, you're going to want to have it handy when election time comes around!'

Welcome to the land use wars. Even if you care about land use planning, you may not have taken notice of Measure 7 on the ballot in November 2000. After all, nothing in the measure summary mentioned land use planning.1 Discussion of Measure 7 was drowned out by the clamorous presidential election and the debate over many of the other 25 ballot measures, several of which posed major threats to state and local government. Apart from a few pro forma statements of opposition, the governor provided little public leadership on Measure 7. Although opponents were successful in raising well over a million dollars, their television campaign against the measure did not catch fire or even gain the public's attention.

You may have thought that Measure 7 was about reaffirming the Fifth Amendment assurance in the famous 'Takings Clause,' which states, 'nor shall private property be taken for public use, without just compensation.' In fact, when it comes to defending property rights, Measure 7 is to the Fifth Amendment what a machine gun is to a musket.

Measure 7 makes Oregon a national example of the current success enjoyed by the property rights movement, which finds its greatest support in the South and the West, but which, in Chief Justice Rehnquist and Justice Scalia, has enlisted outspoken advocates on the U.S. Supreme Court. In a series of opinions from the late 1980s through the present, the Supreme Court has found a right to compensation from the state for even the most minor physical occupation, Loretto v. Teleprompter Manhattan CATV Corp., 458 US 419 (1982); for temporary takings, First English Evangelical Lutheran Church v. County of Los Angeles, 482 US 304 (1987); and for regulations which leave property 'economically idle,' Lucas v. South Carolina Coastal Council, 505 US 1003 (1992). The Court has also toughened the standards for regulatory 'exactions' - what a local government can demand from a developer in exchange for a land use approval - requiring an 'essential nexus' between the legitimate state interest which justifies regulation and a permit condition, Nollan v. California Coastal Commission, 483 US 825 (1987); and requiring 'rough proportionality' between a permit condition and the impact of a proposed development, Dolan v. City of Tigard, 512 US 374 (1994).

However, it is a quantum leap from the very limited protection afforded property rights by the Takings Clause to Measure 7's requirement that the government must pay 'just compensation equal to the reduction in the fair market value of [a] property' when a restriction 'has the effect of reducing the value of that property.' Early constitutional theorists did not believe the Takings Clause embraced regulation of property at all, but only a 'direct appropriation' of property. The first Supreme Court opinion to hold otherwise stated only that 'while property may be regulated to a certain extent, if regulation goes too far it will be recognized as a taking.' Pennsylvania Coal v. Mahon, 260 US 393, 415 (1922). The Supreme Court's opinions since 1922 can be viewed as a largely unsuccessful attempt to reduce 'goes too far' to a more concrete test which can be applied routinely in a variety of situations. However, Mahon is completely at odds with the approach taken in Measure 7. In Mahon the court commented, 'Government hardly could go on if, to some extent, values incident to property could not be diminished without paying for every such change in the general law. As long recognized, some values are enjoyed under an implied limitation, and must yield to the police power.' 260 US at 413.

Measure 7 was drafted by Stu Miller and his wife, Becky Miller, assistant director of Oregon Taxpayers United, which also sponsored six other measures on the Oregon ballot in 2000. Oregonians in Action, a property rights group, took the lead in the measure's signature drive. Measure 7 is not about federal constitutional rights. It represents a policy choice, adopted by Oregon voters without significant public discussion and, apparently, with little appreciation of the consequences. After Measure 7 passed, local governments and land use activists began a feverish discussion of its meaning. Does paragraph (d) mean that Measure 7 is retroactive? Does Measure 7 apply to environmental regulation, the Bottle Bill, the Beach Bill? How large is the carve-out for 'a regulation to implement a requirement of federal law?' What are 'historically and commonly recognized nuisance laws?' If Measure 7 is revived on appeal, the answers to these questions will significantly affect the price Measure 7 requires the state and, inevitably, the taxpayer to pay.

Even as these questions were being discussed, two separate lawsuits were brought in Marion County Circuit Court, one by Audrey McCall, the widow of former Gov. Tom McCall, and others chosen for their symbolic importance; and the other by the League of Oregon Cities and various representative cities, counties and government officials. These suits were consolidated and resulted in Judge Lipscomb's injunction. During the same period, local governments began to draft and adopt ordinances that would allow them to waive land use regulations if the cost of paying compensation became prohibitive. In response, 1000 Friends of Oregon filed precautionary appeals of the adopted ordinances at the Land Use Board of Appeals, maintaining that for local governments unilaterally to waive land use regulations is a violation of state law.

On Feb. 13, 2001, Oregon Attorney General Hardy Myers released a 110-page opinion that interpreted Ballot Measure 7. Although not a judicial interpretation of the law, the opinion carries great weight as legal advice by the state's chief legal officer to the executive branch and state agencies. The attorney general identified many impacts that were neither discussed nor anticipated before the election. These impacts include, but are not limited to, provisions of landlord tenant law that restrict the circumstances under which a landlord may evict a tenant; specific requirements in the partition and subdivision statute (ORS chapter 92) that must be met before dividing and selling real property; most traditional zoning laws, farm and forest zoning (ORS chapter 215); certain other aspects of the statewide land use laws (ORS chapter 197); and many nuisance abatement laws concerning abatement of places of prostitution, lotteries, manufacture of controlled substances; prohibitions on the use of real property contaminated by illegal drug manufacturing; 'certain other laws prohibiting particular uses in particular circumstances, such as the prohibition of the use of property in tsunami inundation zones for essential facilities;' development standards (such as height limits, building setbacks and parking requirements); certain building code requirements, including seismic design standards; limitations on the fill and removal of material from wetlands on private real property; requirements imposed on forest operations; restrictions on access from private real property to public roads; prohibitions on the discharge of air or water pollution without a permit; regulation of noise from industrial and commercial sources; certain applications of the environmental crimes statutes; and rent control ordinances.

In summary, the attorney general concluded that not only does Measure 7 require compensation for the application of regulations commonly characterized as 'land use regulations,' but also for the application of many other regulations. The Attorney General concluded further that Measure 7 is not retroactive, in that persons who acquire property after a regulation applicable to that property has been adopted or first enforced as to any property subject to the regulation cannot claim for a reduction in value of the property as a consequence of the regulation. Furthermore, persons who were or are the subject of enforcement prior to the date when Measure 7 is determined to take effect will not be entitled to compensation under Measure 7.

However, Measure 7 does permit landowners who acquired their property prior to the adoption or first enforcement of a regulation against any property to claim for compensation if the regulation has the effect of reducing the value of their property and is enforced against them after the effective date of Measure 7, even if the regulation was adopted prior to the passage of Measure 7. In other words, Measure 7 requires state and local governments to make payments for enforcing regulations adopted long ago. In this sense, Measure 7 is retroactive.

The attorney general concluded that a state agency has no authority under Measure 7 to forgo enforcement of regulations, including statutes and the agency's own administrative rules. However, an agency's appropriation and its allotments may require the agency to forgo enforcement of a regulation restricting the use of private real property because the appropriation and allotments limit not only an agency's authority to pay claims, but also an agency's authority to incur a financial obligation. If, in performing its mandatory activities, an agency runs out of money, it will no longer be required to perform its mandatory statutory duties, only one of which may be enforcing regulations restricting the use of private real property. And, at the point that the obligation to pay a valid Measure 7 claim would result in a debt limit violation, not only may the agency no longer enforce the regulation against that property, but the regulation no longer applies to the property. In other words, the regulation no longer has any legal effect, at least in relation to the property that is the subject of the claim at issue. Once an agency responsible for enforcing the regulation is unable to pay compensation, the regulation is without effect.

If the attorney general is correct, there seems to be no need for state agencies and local governments to repeal their land use ordinances to avoid the Measure 7 compensation requirement. When they run out of money, they can stop enforcing the ordinances without incurring additional liability. The attorney's general's opinion leaves little doubt that, given the severe limitations on the budgets of the Department of Land Conservation and Development and local governments, Measure 7, if left to stand, will spell the death of Oregon's pioneering land use planning program.

Now, however, Judge Lipscomb has declared Measure 7 unconstitutional on two separate grounds. First, Article IV, Section 1(2)(d) of the Oregon Constitution provides, in relevant part: 'An initiative petition shall include the full text of the proposed law or amendment to the Constitution.' The purpose of this requirement is to give voters fair notice of all of the legal changes that would follow from the enactment of the proposed amendment. The judge decided that because some of the new subsections added by Measure 7 to Article 1, Section 18 of the Oregon Constitution actually modified the effect of existing provisions, and the voters were not informed of this prior to voting, the voters had not seen the full text. The judge observed that the 'full text' problem was not without a solution, noting that providing the voters with notice of the additional direct changes to the substance of the Constitution made by the amending language would have required only the addition of a single paragraph to the measure, or, alternatively, a one word change in the language of the measure to confine its impact to the new subsection rather than applying it to the entire section would have avoided the problem entirely.

Second, the Oregon Constitution, Article XVIII, Section 1 provides, in part: 'When two or more amendments [are] submitted [to the voters] at the same election, they shall be so submitted that each amendment shall be voted on separately.' The Oregon Supreme Court recently interpreted this language to require a determination of whether, if adopted, the proposal would make two or more changes to the Oregon Constitution that (1) are substantive; and (2) are not closely related. After quickly concluding Measure 7 would make two or more substantive changes to the constitution, Judge Lipscomb focused on the 'closely related' test and concluded that the changes effected by Measure 7 are not closely related. He specifically mentioned (1) changing the process of establishing and paying 'just compensation' when government takes property for public use, or demands the particular services of any person; (2) establishing a wholly new requirement for compensating citizens for restrictions on the use of their property; (3) exempting regulatory restrictions applied to drug and liquor stores, adult businesses, casinos and gambling parlors; and (4) exempting nuisance laws, as 'narrowly construed.'

Supporters of Measure 7 have appealed Judge Lipscomb's decision. The Oregon Supreme Court will hear the appeal on an expedited schedule. However, the focus has shifted to the legislature, where the House Land Use and Regulatory Affairs Committee is hearing testimony and considering various options, which would have to be submitted to the voters. House Bill 3998, which is in draft form as this article goes to press, establishes two groups eligible for compensation. The first group consists of owners of farm and forest land who have lost the right to build a dwelling as a result of previously adopted statewide land use planning laws. Members of this group would have to file claims for compensation by Dec. 31, 2004 or lose the right to compensation. The second group consists of property owners whose claims are based on restrictions adopted in the future. To be eligible for compensation, these owners must claim a reduction of 25 percent or more in the fair market value of their real property as a result of a single land use restriction or a reinterpretation by a government entity of one or more restrictions on the use of their real property. The bill limits compensation for the first 50 percent of the reduction in market value to 50 percent of the reduction, with 100 percent compensation for any reduction in value beyond 50 percent. Compensation for either group may be in the form of cash or 'cash-equivalent' (i.e., income tax credits, property tax abatements or systems development charge credits), or land or development benefits (i.e., modification of certain land use standards or transfer of development rights).

HB 3998 further provides a procedure for perfecting claims and establishing the amount of a claim. It establishes a process for allocating the responsibility for claims to the appropriate government entity. It imposes time limits on making claims. It allows arbitration of claims in certain circumstances. Depending on the nature of the dispute, it allows for recourse from a government entity to the circuit courts, the Land Use Board of Appeals or the Oregon Tax Court. It establishes a new Compensation and Conservation Board, consisting of five members appointed by the governor, staffed by a new Compensation and Conservation Authority in the Department of Administrative Services. Among other things, the new board would adopt appropriate administrative rules and then administer the system of banked development credits, designating 'receiving districts' as necessary to accommodate the transfer of development rights, and administer a fund, initially budgeted at $5 million, to pay claims.

The proposed legislation addresses one major flaw in Measure 7, which, far from being 'pretty simple, pretty fair,' is completely one-sided. Measure 7 requires compensation for any reduction in value as a result of a restriction on the use of private real property, but provides no tax or fee mechanism to raise the funds necessary to pay such compensation. It provides for a benefit with no mention of the cost. Oregonians are presently considering cuts to school funding, university funding, in-home care to senior citizens and a host of other social benefits that are deemed too expensive. They recently rejected a small gasoline tax increase to maintain and expand the state's transportation infrastructure. Once the voters are presented with the real consequences of Measure 7 - dismantling Oregon's planning program, paying disgruntled property owners or bearing the substantial expense of establishing and maintaining an elaborate administrative process, including a new state board, to calculate reductions in value, determine which government entity is liable, and then decide appeals which may arise at different points in the process - it remains to be seen whether they will think that going down the property rights road was such a good policy choice after all.

In 1973 Gov. McCall issued a challenge to the state legislature, saying, 'We are dismayed that we have not stopped misuse of the land, our most valuable finite resource… The interests of Oregon for today and in the future must be protected from the grasping wastrels of the land.' McCall was primarily interested in protecting two of Oregon's largest industries, farming and forestry, against unthinking exploitation. As a result, Oregon is now a model for other states. For example, an April 21, 2001, opinion piece in The Boston Globe bemoaned the loss of the 'traditional character of compact historic cities and villages set in a New England landscape,' noting that 'This region is 55 percent less dense than 50 years ago … Eastern Massachusetts has lost half its farmland since 1970 … Portland, Ore., and Toronto are legendary as regional models.'

Will Oregon abdicate its role? What has changed since 1973? One thing is certain: Population growth has changed the economic equation. People who own resource land near urban areas or in desirable destination areas are under increasing pressure to cash in now that the land is much more valuable. That pressure increases during bad years in the agricultural cycle, when the short-term advantages of selling out increase. At the same time, developers who had plenty of land for subdivisions in 1973 are resisting a change to infill development. Their fierce antagonism to development restrictions, thinly disguised as concern for housing affordability and property rights, is loudly expressed in Salem.

Many have questioned the extent to which the free market, which works so well with respect to most investments, is capable without regulation of managing and protecting a finite resource, whether it is an endangered species, water, oil or land. A related question is whether real estate investment should enjoy special protection against the risk of regulatory impacts. (When was the last time an investor in pharmaceuticals could file a claim against the FDA when a drug was deemed unsafe to consumers? Are the costs to society of developmental sprawl - environmental destruction, including air and water pollution, increased infrastructure expenses and congested highways, to name a few - any less than the expense of unsafe drugs?) Land use restrictions can be expensive to those who choose to invest in real estate, whether they are factory owners, individual families with an acre they hope to partition or developers with a hundred acres to subdivide. Until the 1980s, most Americans viewed these costs as acceptable risks associated with real estate investment. If the pendulum swings in the direction of enhancing individual property rights, the costs will be different, but inescapable and irreversible, and will be borne by everyone in society, whether or not he or she is a real estate investor. As the attorney general's opinion and the subsequent discussions in the legislature indicate, Measure 7 is anything but pretty simple. A more fundamental issue is whether Measure 7 and other property rights legislation is even pretty fair. +

ENDNOTE
1. SUMMARY: Amends Constitution. Oregon Constitution prohibits taking private property for public use without just compensation. Oregon Supreme Court has not required compensation when property value merely reduced. Measure requires state, local governments pay landowner amount of reduction in market value if law, regulation reduces property value. Compensation required if owner must act to protect certain natural resource, cultural values or low income housing. Exemption for historically recognized nuisance laws or if owner sells alcohol, pornography, operates casino. Applies if regulation adopted after owner acquires property.
ESTIMATE OF FINANCIAL IMPACT: Direct costs to the state are estimated to be $1.6 billion per year. Local government direct costs are estimated to be $3.8 billion per year.

TEXT OF MEASURE 7

BE IT ENACTED BY THE PEOPLE OF THE STATE OF OREGON:
THE CONSTITUTION OF THE STATE OF OREGON IS AMENDED BY ADDING THE FOLLOWING SUBSECTIONS TO SECTION 18 OF ARTICLE I:

(a) If the state, a political subdivision of the state, or a local government passes or enforces a regulation that restricts the use of private real property, and the restriction has the effect of reducing the value of a property upon which the restriction is imposed; the property owner shall be paid just compensation equal to the reduction in the fair market value of the property.

(b) For purposes of this section, adoption or enforcement of historically and commonly recognized nuisance laws shall not be deemed to have caused a reduction in the value of a property. The phrase 'historically and commonly recognized nuisance laws' shall be narrowly construed in favor of a finding that just compensation is required under this section.

(c) A regulating entity may impose, to the minimum extent required, a regulation to implement a requirement of federal law without payment of compensation under this section. Nothing in this 2000 Amendment shall require compensation due to a government regulation prohibiting the use of a property for the purpose of selling pornography, performing nude dancing, selling alcoholic beverages or other controlled substances, or operating a casino or gaming parlor.

(d) Compensation shall be due the property owner if the regulation was adopted, first enforced or applied after the current owner of the property became the owner, and continues to apply to the property 90 days after the owner applies for compensation under this section.

(e) Definitions: For purposes of this section, 'regulation' shall include any law, rule, ordinance, resolution, goal, or other enforceable enactment of government; 'real property' shall include any structure built or sited on the property, aggregate and other removable minerals, and any forest product or other crop grown on the property; 'reduction in the fair market value' shall mean the difference in the fair market value of the property before and after application of the regulation, and shall include the net cost to the landowner of an affirmative obligation to protect, provide, or preserve wildlife habitat, natural areas, wetlands, ecosystems, scenery, open space, historical, archaeological or cultural resources, or low income housing; and 'just compensation' shall include, if a claim for compensation is denied or not fully paid within 90 days of filing, reasonable attorney fees and expenses necessary to collect the compensation.

(f) If any phrase, clause, or part of this section is found to be invalid by a court of competent jurisdiction, the remaining phrases, clauses and parts shall remain in full force and effect. +