PROTECTING PRIVATE PROPERTY RIGHTS FROM REGULATORY TAKINGS

FRIDAY, FEBRUARY 10, 1995

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON THE CONSTITUTION,

COMMITTEE ON THE JUDICIARY,

Washington, DC. The subcommittee met, pursuant to notice, at 10 a.m., in room 2226, Rayburn House Office Building, Hon. Charles T. Canady (chairman of the subcommittee) presiding.

Present: Representatives Charles T. Čanady, F. James Sensenbrenner, Jr., Lamar Smith, Bob Goodlatte, José E. Serrano, and Barney Frank.

Also present: Kathryn A. Hazeem, chief counsel; Keri D. Harrison, assistant counsel; and Robert Raben, minority counsel.

OPENING STATEMENT OF CHAIRMAN CANADY

Mr. CANADY. The subcommittee will come to order.

I am pleased to be holding this hearing today on protecting private property rights from regulatory takings and I look forward to hearing from our witnesses. In the interest of affording members sufficient time to question each of the witnesses, we will place any opening statements in the record and commence with hearing the witnesses.

I will, without objection, submit my statement for the record and will hold the record open for my colleagues to do the same.

[The opening statement of Mr. Canady follows:]

OPENING STATEMENT OF HON. CHARLES T. CANADY, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF FLORIDA, AND CHAIRMAN, SUBCOMMITTEE ON THE CONSTITUTION

Chief Judge Loren Smith of the Court of Federal Claims recently voiced his concern over the inadequacy of the law of takings at addressing the impact of regulations on private property rights. In the Bowles v. United States decision, he stated:

This case presents in sharp relief the difficulty that current takings law forces upon both the federal government and the private citizen. The government here had little guidance from the law as to whether its action was a taking in advance of a long and expensive course of litigation. The citizen likewise had little more precedential guidance than faith in the justice of his cause to sustain a long and costly suit in several courts. There must be a better way to balance legitimate public goals with fundamental individual rights. Courts, however, cannot produce comprehensive solutions. They can only interpret the rather precise language of the fifth amendment to our Constitution in very specific factual circumstances. Judicial

decisions are far less sensitive to societal problems than the law and policy made by the political branches of our great constitutional system. At best courts sketch the outlines of individual rights, they cannot hope to fill in the portrait of wise and just social and economic policy. (Bowles v. United States 31 Fed.Cl. 37 (1994). (1)

Title IX of H.R. 9 is aimed at filling in "the portrait of wise and just social and economic policy" with regard to private property rights.

I agree with Judge Smith that we need to establish a mechanism which represents a "better way to balance legitimate public goals with fundamental individual rights." Currently, the burden of Federal regulations placed on the American public adds up to more than $500 billion per year. That is approximately one-third of the Federal budget. And the scope of Federal regulation continues to expand without agencies acknowledging the impact of their regulations on individual property owners who are singled out to bear the costs of land use regulations. Agencies need to recognize that when they limit the use of an owner's property, there are economic consequences. Agencies should have to weigh the benefits and costs of their actions carefully paying close attention to the impact of those actions on individuals and the general public. Congress needs to require agencies to be more accountable to carry out the true intent of the statutes they are charged with enforcing—rather than continually extending their bureaucratic reach.

Supreme Court Justice Joseph Story stated that, “One of the fundamental objects of every good government must be the due administration of justice; and how vain it would be to speak of such an administration, when all property is subject to the will or caprice of the legislature and the rulers."

A bill to protect private property owners will help to ensure that property is not subjected "to the will or caprice of" agencies.

Mr. CANADY. I would like to ask now that our first witnessMr. FRANK. Mr. Chairman, I have a brief comment.

I first want to apologize to the witnesses and to take exception to the fact that the subcommittee is having this hearing while simultaneously a bill is on the floor that is the business of the Judiciary Committee. We are now debating a prison bill which came out of this committee.

I think the practice of having this committee have an important hearing such as this while this committee's business is simultaneously being conducted on the floor is in error. I think it accounts for what will be a sparse attendance. I apologize to the witnesses.

And I ask unanimous consent that a statement strongly opposing this legislation from our colleague, Representative McCarthy, come in. I would note that she submits this and notes that she is a past president of the National Conference of State Legislatures with a lot of experience on this issue and I ask that her statement be included in the record.

Mr. CANADY. Without objection, the statement will be submitted to the record.

[The prepared statement of Ms. McCarthy follows:]

PREPARED STATEMENT OF HON. KAREN MCCARTHY, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MISSOURI

I appreciate the opportunity to comment on Title IX of H.R. 9, the Job Creation and Wage Enhancement Act of 1995. This act is aptly named, because if passed and signed into law it will certainly result in a dramatic increase in both jobs and wages. Unfortunately, the people receiving jobs will be the bureaucrats and lawyers needed to interpret and then litigate vast sections of the bill.

As a past president of the National Conference of State Legislatures, I know that the question of regulatory "takings" is one that has been debated for years in various state capitals. Many states have adopted different strategies to chart and limit the scope of regulatory takings. However, not one state has created a remedy for takings that resembles the remedial structure set forth in Title IX of this bill. No state has opened its treasury to landowners in the manner prescribed by Title IX. In fact, no state has adopted a plan that would entitle landowners to cash payments for unproven regulatory takings. The people of Arizona had an opportunity to vote on a similar takings measure; they recognized the cost and voted it down.

Nevertheless, Title IX codifies these spendthrift practices into federal law and then goes on to do still more damage to fiscal discipline. Instead of borrowing from proven state plans to curb the impact of regulatory takings, the authors of H.R. 9 have set an enormously expensive course. I have two primary concerns with Title

IX as written. First, it would open the federal government up to millions of marginal claims. Second, it makes the federal government pay cash for the right to regulate even the most horrific and dangerous business practices of polluters and dumpers.

The Constitution plainly states in the Fifth Amendment that the government shall not deprive people of their land without compensation. However, it has always been the purview of the courts to decide the meaning and scope of that injunction. This bill wrests that authority away from the courts, which have consistently held that a "taking" occurs when a landowners loses 85% of the value of their land. Under H.R. 9, a landowner could claim that the land would lose 10% of its value under a regulatory action and thereby halt the action. The landowner never has to prove the actual value of the loss by claiming a set amount with the IRS or by selling the land.

If the government wants to proceed with the action, it must remunerate the landowner for the perceived loss. Should the landowner reject the government's offer, the parties settle their difference in arbitration. This seemingly judicious structure conceals the true nature of Title IX, which is, at its core, an entitlement program that shifts hard-earned dollars from middle-class Americans into the pockets of rich land

owners.

The landowner receives cash and retains the land. There is no provision in H.R. 9 for the government's action to proceed, to consummate the dearly-bought taking. It is the taxpayer who is actually taken. Their tax dollars go into the coffers of landowners and the government is rendered impotent to execute laws designed to protect the lives, health, safety, and property values of all Americans.

This inequity is the root of my second primary concern with H.R. 9. The construction of the bill is such that the government will be unable even the most basic restrictions on environmental depredations. For example, a company handling nuclear waste could purchase parcels of land in the country. In a few years, houses can spring up on nearby sections. The waste company decides to utilize its land for storage of nuclear material. Except now they are placing their waste in the middle of a residential neighborhood. Can we stop them?

We can't stop the waste company unless we pay them cash first. We can't protect our children and our families from the most hazardous environmental practices without first opening the doors of the Treasury to polluters. Instead of the "polluter pays" concept which has directed our environmental regulations for decades, we have "taxpayer pays." Rather than restricting the destructive practices of one landowner to secure the land values of all landowners, we still have exactly the opposite. Perhaps the most frustrating aspect of Title IX is that it makes no attempt to draw from the experience of the states. Both the National Governors' Association and the National Conference of State Legislatures oppose compensation-based remedies for takings. States have adopted laws to create "Property Impact Statements," to examine and halt truly devastating takings, and track the cost of regulatory takings for private landowners. Some states have left the takings issue to the courts, which has always been the recourse for landowners who feel their land has been taken without compensation.

The courts have not been abrogating their responsibility to examine these cases. In some instances, such as the recent Supreme Court decision of Dolan v. City of Tigard, courts have been making new law in the realm of property takings. Our Constitution is a vital document, and we should reexamine the meaning of provisions like those in the Fifth Amendment when appropriate.

As members of Congress, as keepers of the public purse, we should not interfere in an issue that properly belongs in the court. If we decide that takings represents an area of essential public interest, then we should work together in a bipartisan manner to address takings. We should not, however, sacrifice fiscal discipline or basic environmental integrity when the states have charted so clear a course for us. As currently written, we should not approve Title IX of H.R. 9.

Mr. CANADY. We are pleased to have our first witness here today, the Honorable John Schmidt. Mr. Schmidt is Associate Attorney General. He is accompanied by Christopher Schroeder from the Office of Legal Counsel from the Department of Justice. We would ask that you take 5 minutes to summarize your testimony, and without objection, your entire prepared statement, as well as the statements of all other witnesses today, will be placed in the record.

We appreciate your time in being here today and look forward to your testimony.

STATEMENT OF JOHN R. SCHMIDT, ASSOCIATE ATTORNEY GENERAL, DEPARTMENT OF JUSTICE

Mr. SCHMIDT. Thank you, Mr. Chairman and other members of the committee. I am pleased to be here to present the views of the administration on title IX of H.R. 9 and other similar proposals that would establish a new legal regime for the compensation of property owners who are affected by Federal actions.

I think in order to be as concrete as possible, I will concentrate particularly on title IX, which is the part of Contract With America which has had the most attention, although clearly these remarks would apply to other similar proposals as well. This proposal is of great concern to us as the Justice Department and to others in the administration, and I think it should be of great concern to members of this committee and other Members of Congress.

I come to this subject from the perspective of a position in the Justice Department where I have overall responsibility for most of the Federal Government's legal matters that involve relationships with private property owners. And I think it is only when you look at this proposal in relation to the whole range of Federal Government activity that you begin to understand how sweeping and radical and ultimately how dangerous it is.

I think it is dangerous to us as taxpayers who want to avoid indeterminate and potentially massive new costs imposed upon the Federal Government. It is dangerous to us as citizens who want to see government processes simplified rather than adding new layers of bureaucracy and complexity.

It is dangerous to us as property owners ourselves whose homes and businesses depend upon protection which can only be assured through government action. And above all, I think it is dangerous to us as individuals whose families want to live in communities which are healthy and safe and have clean air and water and other qualities which can only be assured through a level of government activity in the modern world.

In saying all this, I do not mean to be understood, and I don't want anything I have said or intend to say to be understood, as diminishing or minimizing in any way the importance of private property. Private property is a bedrock American principle. It is a bedrock principle in our Constitution. It is embodied in the takings clause of the fifth amendment which provides that the Government shall not take private property for public use without just compensation.

The Chief Justice reminded us that the takings clause of the fifth amendment is as much a part of the Bill of Rights as the first or fourth amendments. And I think he is absolutely right about that. And I think we have learned around the world that the values that are embodied in those other amendments can only survive and thrive in an environment where private property is fully respected. Like those other amendments, the takings clause has been subject to a wide range and volume of litigation over the years. And I want to just, if I could, quote two sentences out of a statement from 126 law professors that was submitted a while ago on this

issue. I think it summarizes where the law currently is. They said, "The courts have developed a complicated body of precedents regarding when property use requires compensation.'

"

Generally speaking, these precedents commit the courts to a factspecific balancing of economic loss to the property owner, the character and purpose of the Government regulation, and the justifiable expectations of the owner about what he or she would be able to do with his or her property.

I think that these fact-specific decisions over the years reflect what is the essential genius of the American constitutional tradition. The decisions are complicated because the relationship of government to private property is complicated in the modern world. As indicated by the Supreme Court decision that I was just quoting from, this is an evolving body of jurisprudence, and there are a lot of complicated and interesting questions about the direction it should take.

H.R. 9, however, would go far beyond any principle which the courts have ever adopted or even seriously contemplated. It would require compensation by the Federal Government whenever regulatory action is taken which imposes a “limitation or condition on use of property" which "results in a reduction in the value of the property equal to 10 percent or more."

The term "use" is then defined in the most expansive possible terms to mean any prior, existing or potential utilization of property. A new administrative procedure is established for the implementation of this compensation requirement. The only significant exclusions that are established are for situations where the use of the property is in violation of State or local law or where the President makes a determination that the use would pose a serious and imminent threat to public safety.

It doesn't require a lot of reflection to realize how sweeping these provisions are. The fact is that virtually everything that the Government does-whether it is protecting the public health and safety, guarding against natural disasters, or preventing the deprivation of individual rights-imposes some limitation or condition on the use of property and affects the value of property. I think that what this proposal does is turn every government action into a lawyer's argument. It really is a lawyer's dream in which they can then argue about whether the impact in each individual case or any individual case represents a deduction of 10 percent or more. If you find that there is such an impact, then the cost of that compensation must be imposed upon all the rest of us as taxpayers. And if ultimately we are unwilling to bear that burden, then the regulation must be foregone entirely.

I think that this is a consequence which, as I say, has an immense impact on the ability of the Government to function in a whole range of activity. The prepared statement runs through some of those. I really think it is a situation where you could take any area of government activity, sit down and begin to analyze what the impact of this proposal will be, and what you will find is that there is a very significant potential additional cost which is being imposed or, alternatively, that the ability of the Government to function in areas where it is currently functioning, where the American people expect it to function, is going to be affected.