I can see that I have exhausted my time. I am happy to stop and respond to questions. Let me say so there is no ambiguity about it, we are opposed to these proposals.

[The prepared statement of Mr. Schmidt follows:]

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

INTRODUCTION

Mr. Chairman, and Members of the Subcommittee, thank you for the opportunity to provide the Administration's views regarding various legislative proposals, including Title IX of H.R. 9, the "Job Creation and Wage Enhancement Act of 1995," that seek to expand the traditional concept of "takings." I am pleased to be joined by Christopher H. Schroeder, a professor at the Duke University School of Law and a consultant to the Office of Legal Counsel in the Department of Justice.

It is sometimes worthwhile to state the obvious just to ensure that no one is laboring under any misconceptions. This Administration supports, as do all Americans the protection of private property rights. The right to own, use and enjoy private property is at the very core of our nation's heritage and our continued economic strength. Those rights must be protected from interference by both private individuals and governments. That is why the Constitution ensures that if the government takes someone's property, the government will pay "just compensation" for it. That's what the Constitution says. That's what the President demands of his government. In addition, we are taking measures and pursuing approaches to protect private property similar to those advanced in the legislation by Senator Dole. If governmental regulations impose unreasonable restrictions or unnecessary burdens on the use of private property, this Administration is committed to reforming those regulations to make them more fair and flexible. We are currently developing ways to improve federal programs to eliminate adverse effects on small landowners.

However, most of the takings proposals currently being considered by Congress will do nothing either to protect property owners or to ensure a fairer or more effective regulatory system. Rather, we are convinced that those proposals that require compensation to landowners for government action that reduces the value of that land are a direct threat to the vast majority of American homeowners.

Further, passage of any of these compensation schemes into law will force all of us to decide between two equally unacceptable alternatives. The first option would be to cut back on the protection of human health, public safety, the environment, civil rights, worker safety and other values that give us the high quality of life Americans have come to take for granted. The money cost of these protections after passage of such legislation would be much too high. Ironically, if we chose this path, the value of the very property this legislation seeks to protect would erode. The other option would be to do what these proposals require: pay employers not to discriminate, pay corporations to ensure the safety of their workers, pay manufacturers not to dump their waste into the streams that run through their property, pay restaurants and other public facilities to comply with the civil rights laws. That is, we would be forced to pay large landowners and corporations to follow the law. In the process, we would, of course, end any hope of ever balancing the budget of the federal government.

No matter what avenue we pursue, hardworking American taxpayers will be the losers. Either they will no longer be able to enjoy the clean skies, fresh water, safe and fair work places that they have come to expect or they will be forced to watch as their hard-earned wages are collected by the government as taxes and paid out to corporations and large landowners as takings compensation. The Administration will not and cannot support legislation that will hurt homeowners or cost middleincome families billions of dollars. That is why we oppose the takings proposals found in H.R. 9 and similar bills.

The Fifth Amendment to the Constitution of the United States

As you know, the Fifth Amendment to the Constitution of the United States provides that "private property [shall not] be taken for public use, without just compensation." That short phrase has provided the standard for compensation cases since the founding of our country. Before we consider proposals to alter those standards, it is worth spending a moment discussing what the Constitution provides and why we believe it has served the American people so well over the last 200 years. The genius of the Constitution's Just Compensation clause is its flexibility. In deciding whether a regulation is a compensable taking, the Constitution requires the government, and if necessary the courts, to consider the regulation's economic im

pact; its nature and purpose, including the public interest protected by the regulation; the landowner's legitimate expectations; and any other relevant factors. The ultimate standards for compensation under the Constitution are fairness and justice. Thus, we have never recognized an absolute_property right to maximize profits at the expense of the property rights of others. For example, reasonable zoning by local governments has long been accepted as a legitimate means to promote safe and decent communities without requiring the payment of compensation to those whose property values might be adversely affected. Indeed, we recognize that the value of property in the community as a whole is thereby enhanced. When the government goes too far, however, compensation must be paid.

This Constitutional tradition has been carefully developed by the courts through hundreds of cases over the course of our nation's history. As I mentioned, its genius is its flexibility for it allows the courts to address the many different situations in which regulations might affect property. It allows for the fair and just balancing of the landowner's reasonable expectations and property rights with the public benefits of protective laws, including the benefit to the landowner.

It goes without saying that economic impact is an important consideration in deciding whether fairness and justice require the payment of compensation to a landowner where regulations restrict land use. But in the very case that established the concept of a regulatory taking-Pennsylvania Coal Co. v. Mahon (1922)—the Supreme Court was careful to emphasize that "[glovernment 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." From the earliest days of our Republic, we have recognized that the government has a legitimate, and indeed a critical, role to play in protecting all of us from the improper exploitation of property. In America, we have an opportunity to use our property freely-within the bounds set by our communities. We have also recognized that our rights as citizens entail a corresponding responsibility to refrain from exercising our rights in ways that harm others.

The Pending Compensation Bills

The pending compensation bills disregard our civic responsibilities and set aside our Constitutional tradition. They replace the Constitutional standards of fairness and justice with a rigid, "one-size-fits-all" approach that focuses on the extent to which regulations affect property value, without adequate regard to fairness, to the harm that a proposed land use would cause others, to the landowner's legitimate expectations, or to the public interest. They ignore the wisdom of the Supreme Court and would wipe out many vital protections.

These bills would require the government automatically to pay compensation when regulation decreases property value by a specified amount. Title IX of H.R. 9 is typical. Title IX would require the federal government to pay a property owner for any loss of property value if (a) the reduction in value is caused by a final agency action that limits or prohibits a use of the property that would be lawful but for the agency action, and (b) the reduction in value is equal to ten percent or more. The proposal defines "final agency action" as any action that binds a property owner with respect to the use of the property, including the denial of a permit, the issuance of a permit with conditions and the issuance of a cease and desist order. Although there are other proposals pending in Congress, the basic contours of the compensation schemes are all similar to that reflected in Title IX, and I will therefore use that proposal as a framework for my comments.

We believe that these bills threaten to hurt homeowners, diminish property values and create a budget-busting, bureaucratic maze. In essence, the compensation proposals prevent the federal government from imposing critical limitations on the way private property owners use their land unless the government and American taxpayers are willing to pay the landowners not to engage in the prohibited activity. The breadth of this rule is staggering. First, this limitation on governmental action applies without sufficient regard to the nature of the activity the agency seeks to prohibit or to the harm those activities might cause to the health or property of their neighbors. In many cases, property owners, most typically large corporations, would be free to use their land in whatever reckless manner they desire without regard to the impact their activities have on their neighbors and the community at large. Second, a landowner would be able to claim a taking whenever his or her application for a permit is denied. For example, a landowner could apply for a permit to build a waste incinerator. If that permit is denied for whatever reason, the government could be obligated to pay the permit applicant. I do not think it is much of a stretch to conclude that applying for federal permits may become a favored form of low-risk land speculation. The less likely a permit application is to be granted, the more attractive it may be under these schemes.

By imposing a broad-based compensation requirement based on reductions in property value, without sufficient regard for the public interest, these bills would hurt homeowners, cost the taxpayers billions, create huge new bureaucracies, and undermine the protection of human health, public safety, civil rights, worker safety, the environment and other protections important to the American people.

A Threat to Property Rights: Although these bills pretend to protect property rights, they would undermine the protection of the vast majority of property owners: middle-class American homeowners. For most Americans, property ownership means home ownership. "Property rights" means the peaceful enjoyment of their own backyards, knowing that their land, air, and drinking water are safe and clean. The value of a home depends in large measure on the health of the surrounding community, which in turn depends directly on laws that protect our land, air, drinking water, and other benefits essential to our quality of life.

In fact, in a recent survey by a financial magazine, clean water and air ranked second and third in importance out of 43 factors people rely on in choosing a place to live-ahead of schools, low taxes, and health care. By undercutting environmental and other protections, compensation bills would threaten this basic right and the desires of middle-class homeowners. In the process, the value of the most important property held by the majority of middle-income Americans—their homes-would inevitably erode.

Untenable Fiscal Impact: Because these bills are so broad and inflexible, the potential budgetary impacts are almost unlimited. Even if new protections were scaled back, these bills could still have a staggering fiscal impact by requiring compensation for statutorily compelled regulation and other essential government action. The payments would go to those who would like to use their property in a way that would be contrary to federal law, typically large corporations and wealthy landowners who have the economic power to harm others if left unregulated.

These bills would also generate a flood of permit requests to federal agencies by property owners who have no intention of development, but rather seek an unjustified windfall for speculative future uses through a compensable permit denial or permit condition. These bills might be construed to require compensation even where the landowner knew about the regulation when purchasing the property, and even where the landowner's purchase price was reduced due to the restriction on land use. And corporations could keep coming back for more compensation by applying for new permits under different programs. If the restriction is subsequently lifted, the landowner would have no obligation to repay.

These bills would also codify the unreasonable notion that the American people should compensate polluters not to pollute, and that taxpayers must pay people to refrain from using their property in a way that harms others and violates federal law. If we continue to provide needed protections for all Americans, the taxpayer would be forced to find ways to pay the compensation prescribed in the bills to force others to follow the law. By requiring unfair compensation payments to large corporations and other wealthy landowners, these bills would create an entitlement scheme at the expense of ordinary, middle-class taxpayers.

Huge New Bureaucracies: These bills would also require the creation of huge and costly bureaucracies in every federal regulatory agency to evaluate compensation requests. For example, H.R. 9 requires the head of the relevant federal agency to determine whether landowners are entitled to compensation due to some agency action within 180 days of receiving the request of the landowner for compensation. It also provides for binding arbitration if the agency head determines the property owner is not entitled to compensation. We are confident that the sheer volume of entitlement requests under these schemes would be overwhelming, Agencies with little experience in addressing the novel compensation claims under these bills would be called on to resolve countless complicated legal and factual issues. They would be required to interpret and apply the nuisance laws and other laws of all fifty states, thousands of municipal codes, and the vague and ambiguous provisions of these bills. The result may well be more government, not less.

A Threat to Vital Protections: As I mentioned earlier, the passage of any of these compensation bills would pose a serious threat to the health, public safety and environmental protections that allow Americans to enjoy the high standard of living we have come to expect and demand. The costs of these protections should Title IX of H.R. 9 or an equivalent become law will simply become too costly or will bust the budget.

Certain bills apparently attempt to address this concern by providing exceptions to the compensation requirement where the land use at issue would violate state or local law or where it would pose a "serious and imminent threat." We do not believe these narrow exceptions would adequately provide for human health, public safety, and other vital protections that benefit every American citizen.

For example, they do not address long-term risks. The discharge of pollution into our Nation's air, land, and waterways for instance, often poses long-term health risks that would not be covered by the exceptions.

Nor do these exceptions to the compensation schemes address cumulative threats. Very often, the action of a single person by itself does not significantly harm the neighborhood, but if several people take similar actions, the combined effect can devastate a community. Pesticide use, wetlands destruction, discharges of toxic pollutants to air and water, mining, or other land use by an individual property owner might not constitute a nuisance or imminent threat by itself and, thus, may not violate any state or local laws. However, in conjunction with similar use by nearby landowners, they seriously impact the health or safety of a neighborhood.

Furthermore, there are some critical public-safety issues that are governed exclusively by federal law, such as nuclear power plant regulation. As a result, public safety in these matters could be held hostage to the government's ability to pay huge compensation claims.

Nor do the exceptions address uniquely federal concerns, such as national defense and foreign relations. For instance, had compensation legislation been in effect during the Iranian hostage crisis, federal seizure or freezing of Iranian assets could have given rise to numerous statutory compensation claims.

The state-law exception ignores the critical role that federal legislation plays in protecting the public interest. Pollution and other adverse effects of improper land use do not respect political boundaries. By discarding the advantages of uniform, national standards for federal programs, these bills would leave us with a patchwork quilt of confusing and inadequate health and environmental protection. It is difficult to overestimate the ensuing public confusion, the uncertainty within the business community, the massive litigation, and the damage to human health, public safety, and the environment.

The exceptions also fail to recognize that there are many important public interests that are not related to health and safety and not fully addressed by state law. For example, these bills threaten civil rights protection, worker safety rules, and other protections that might be viewed as a limitation on land use. In the 1960s, segregationists argued that our landmark civil rights laws unreasonably restricted their property use, and that they should be compensated under the Constitution simply because they were required to integrate. The Supreme Court rejected this argument, finding the Constitution flexible enough to allow us to protect basic human dignity, even if that protection restricts land use to some extent. A much different result could occur with respect to new civil rights protections if rigid compensation legislation were to replace the flexible Constitutional standards. Claims Under Proposed Compensation Statutes

Much of the debate about these issues has been fueled by what appear to be horror stories of good, hardworking Americans finding themselves in some sort of regulatory nightmare where the government is forbidding them from using their land in the way that they want. It is important to look closely at these stories for they often are not as they first appear. But, as I will discuss in a moment, this Administration is committed to reducing unreasonable and unfair burdens on middle-class landowners. Before I address that issue, I want to draw the attention of the distinguished Members to another set of horror stories: those that may result if these compensation bills become law. I am confident that these are not the consequences any of us want:

Suppose a coal company in West Virginia removed so much coal from an underground mine that huge cracks opened on the surface of the land, rupturing gas lines, collapsing a stretch of highway, and destroying homes. If the Department of the Interior required the company to reduce the amount of coal it was mining to protect property and public safety, it is likely that it would have to compensate the company for the profits it was no longer able to generate through its overmining.

Suppose a restaurant franchisee challenges the Americans with Disabilities Act provisions governing access for disabled individuals in public accommodations as a "taking." If the franchisee were able to show that the requirements of the ADA somehow reduced his profits (perhaps by showing that a required ramp reduced the number of tables allowed in the restaurant) and thus diminished the value of his property, he probably would be entitled to compensation. Suppose a group of landowners challenge the Federal government's implementation of the National Flood Insurance Program which places certain restrictions on the land use of participants designed to decrease the risk of flooding. They may be able to successfully argue that such restrictions diminish the value of their land.

Suppose a property owner proposes to build a hazardous waste incinerator in a residential neighborhood. If the EPA denies the required federal permit due to long-term health risks to nearby residents, the property owner would likely be entitled to compensation under some of these bills.

Suppose the Army Corps of Engineers denies a developer a fill permit under section 404 of the Clean Water Act because such development by the applicant and other nearby landowners would increase the risk of flooding of neighboring homes. Even if the Corps granted a more limited permit that would allow for the safe development of the property, compensation could still be sought from the Corps.

Suppose the Federal government bans the use of a dangerous pesticide such as DDT to reduce long-term cancer risks and birth defects. Compensation might well be required because such a ban could lead to short-term reductions in property values. These are just a few examples of the type of problems the "one size fits all" approach of these compensation proposals raises. It is worth noting that the first three examples reflect actual situations in which property owners challenged government conduct as constituting "takings" entitling them to compensation. In each case, the court, often after noting the public benefit derived from the government action, concluded that there had been no taking of property. If Title IX of H.R. 9 or an equivalent proposal becomes law, a different outcome in each case may well be the result. It is because of these far-reaching and ill-conceived consequences that the Administration is in good company in opposing these bills. The National Conference of State Legislatures, the Western State Land Commissioners Association, and the National League of Cities have also opposed compensation bills of this kind. Religious groups, consumer groups, civil rights groups, labor groups, hunting and fishing organizations, local planning groups, environmental organizations, and others are on record as opposing compensation legislation. More than 30 State Attorneys General recently wrote the Congress to oppose takings legislation that goes beyond what the Constitution requires.

More than 20 state legislatures have considered and declined to adopt takings bills. Just a few months ago, the citizens of Arizona voted down by a 60 to 40 margin a process-oriented takings bill subject to many of the same criticisms as the compensation bills. States are concerned that compensation bills would cost taxpayers dearly and eviscerate local zoning ordinances, and that family neighborhoods would be invaded by pornography shops, smoke-stack industries, feedlots, and other commercial enterprises. The Administration shares these States' concerns that compensation schemes would bust the budget and curtail vital protections. Indeed, some of the federal compensation bills would subject various State and local actions to the compensation requirement, raising significant implications for State-federal working relationships. Just as we are working to ease unfunded mandates to the States, these measures could dramatically increase them.

A Better Approach To Protecting Property Rights

The broad-based compensation packages which are currently pending in Congress are not the answers to the horror stories that I know all of you have heard and may well hear from other panelists later today. Rather, we believe the answer lies in crafting specific solutions to specific problems. If federal programs are indeed treating some individuals unfairly, we should fix those programs.

For example, as part of our efforts to reinvent government, the Administration has reformed specific federal programs to reduce burdens on small landowners and others. Many individuals and small businesses are already allowed to fill portions of certain wetlands without needing to get an individual permit, and they are not required to notify the Corps where land-use activities would affect less than one acre. These situations are covered by a nationwide permit implemented to reduce bureaucratic burdens on small landowners. The Army Corps of Engineers is reforming its wetlands program to make the permit application process cheaper and faster. It is setting deadlines for permit decisions, and not requiring detailed evaluations of small projects that have minor impacts. This will substantially reduce or eliminate the burden for small landowners in many cases.

At the Interior Department, Secretary Babbitt has already implemented several changes to the endangered species program to benefit landowners. Under a new "No Surprises" policy, property owners who agree to help protect endangered species on their property are assured their obligations will not change even if the needs of the species change over time. And just this week, under a comprehensive plan for the protection of the Northern Spotted Owl, the Fish and Wildlife Service announced it will propose a regulation that would generally exempt landowners in Washington