SUMMARY
This measure amends the California Constitution to:
- Require government to pay property owners for
substantial economic losses resulting from some new
laws and rules.
- Limit government authority to take ownership of
private property.
This measure applies to all types of private property,
including homes, buildings, land, cars, and “intangible”
property (such as ownership of a business or patent).
The measure’s requirements apply to all state and local
governmental agencies.
PAYING PROPERTY OWNERS FOR
ECONOMIC LOSSES
State and local governments pass laws and other rules
to benefit the overall public health, safety, or welfare
of the community, including its long-term economy.
(In this analysis, we use the term “laws and rules” to
cover a variety of government requirements, including
statutes, ordinances, and regulations.)
In some cases, government requirements can reduce
the value of private property. This can be the case, for
example, with laws and rules that (1) limit development
on a homeowner’s property, (2) require industries
to change their operations to reduce pollution, or (3)
restrict apartment rents.
PROPOSAL
This measure requires government to pay property
owners if it passes certain new laws or rules that result
in substantial economic losses to their property. Below,
we discuss the types of laws and rules that would be
exempt from the measure’s requirements and those that
might require government compensation.
What Laws and Rules Would Not Require
Compensation?
All existing laws and rules would be exempt from
the measure’s compensation requirement. New laws and rules also would be exempt from this requirement
if government enacted them: (1) to protect public health
and safety, (2) under a declared state of emergency, or
(3) as part of rate regulation by the California Public
Utilities Commission.
What Laws and Rules Could Require
Compensation?
While the terms of the measure are not clear, the
measure provides three examples of the types of new
laws and rules that could require compensation. These
examples relate to land use and development and are
summarized below.
- Downzoning Property. This term refers to decisions
by government to reduce the amount of development
permitted on a parcel. For example, a government
action to allow construction of three homes on an
acre where five homes previously had been permitted
commonly is called “downzoning.”
- Limitations on the Use of Private Air Space. This
term generally refers to actions by government
that limit the height of a building. For example, a
government rule limiting how tall a building may
be to preserve views or maintain historical character
often is called a limitation of “air space.”
- Eliminating Any Access to Private Property. This
term could include actions such as closing the only
public road leading to a parcel.
In addition to the examples cited above, the broad
language of the measure suggests that its provisions
could apply to a variety of future governmental
requirements that impose economic losses on property
owners. These laws and rules could include requirements
relating, for example, to employment conditions,
apartment prices, endangered species, historical
preservation, and consumer financial protection.
Would Government Pay Property Owners for
All Losses?
Under current law and court rulings, government
usually is required to compensate property owners
for losses resulting from laws or rules if government’s
action deprives the owners of virtually all beneficial use
of the property.
This measure specifies that government must pay
property owners if a new law or rule imposes “substantial
economic losses” on the owners. While the measure does
not define this term, dictionaries define “substantial” to
be a level that is fairly large or considerable. Thus, the
measure appears to require government to pay property
owners for the costs of many more laws and rules than
it does today, but would not require government to pay
for smaller (or less than substantial) losses.
EFFECTS ON STATE AND LOCAL GOVERNMENTS
The measure’s provisions regarding economic
losses could have a major effect on future state and
local government policymaking and costs. The amount
and nature of these effects, however, is difficult to
determine as it would depend on how the courts
interpreted the measure’s provisions and how the
Legislature implemented it. Most notably:
• How Many Laws and Rules Would Be Exempt From
the Requirement That Government Pay Property
Owners for Losses? The measure does not require
government to compensate property owners under
certain circumstances (such as actions to protect
public health and safety). If these exemptions were
interpreted broadly (rather than narrowly), fewer new
laws and rules could require compensation.
• How Big Is a Substantial Economic Loss? If
relatively small losses (say, less than a 10 percent
reduction in fair market value) to a property owner
required compensation, government could be required
to pay many property owners for costs resulting from
new laws and rules. On the other hand, if courts ruled
that a loss must exceed 50 percent of fair market
value to be a substantial economic loss, government
would be required to pay fewer property owners.
Under the measure, state and local governments
probably would modify their policymaking practices to
try to avoid the costs of compensating property owners
for losses. In some cases, government might decide not
to create laws and rules because of these costs. In other
cases, government might take alternative approaches to
achieving its goals. For example, government could:
- Give property owners incentives to voluntarily carry
out public objectives.
- Reduce the scope of government requirements so that
any property owners’ losses were not substantial.
- Link the new law or rule directly to a public health
and safety (or other exempt) purpose.
There probably would be many cases, however, where
government would incur additional costs as a result of
the measure. These would include situations where
government anticipated costs to compensate property
owners at the time it passed a law—as well as cases
when government did not expect to incur these costs.
The total amount of these payments by government to
property owners cannot be determined, but could be
significant on a statewide basis.
LIMITING GOVERNMENT AUTHORITY TO TAKE PROPERTY
Eminent domain (also called “condemnation”) is the
power of local, state, and federal governments to take
private property for a public use so long as government
compensates the property owner. (In some cases,
government has given the power of eminent domain
to private entities, including telephone and energy
companies and nonprofit hospitals. In this analysis, these
private entities are included within the meaning of
“government.”)
Over the years, government has taken private
property to build roads, schools, parks, and other
public facilities. In addition to these uses of eminent
domain, government also has taken property for
public purposes that do not include construction of
public facilities. For example, government has taken
property to: help develop higher value businesses in
an area, correct environmental problems, enhance tax
revenues, and address “public nuisances” (such as
hazardous buildings, blight, and criminal activity).
PROPOSAL
This measure makes significant changes to
government authority to take property, including:
- Restricting the purposes for which government may
take property.
- Increasing the amount that government must pay
property owners.
- Requiring government to sell property back to its
original owners under certain circumstances.
Below, we discuss the major changes proposed by
the measure, beginning with the situations under which
government could—and could not—take property.
Under What Circumstance Could Government
Take Property?
Under the measure, government could take private
property to build public roads, schools, parks, and other
government-owned public facilities. Government also
could take property and lease it to a private entity to
provide a public service (such as the construction and
operation of a toll road). If a public nuisance existed
on a specific parcel of land, government could take
that parcel to correct the public nuisance. Finally,
government could take property as needed to respond
to a declared state of emergency.
What Property Takings Would Be Prohibited?
Before taking property, the measure requires
government to state a “public use” for the property. The
measure narrows the definition of public use in a way
that generally would prevent government from taking
a property:
- To Transfer It to Private Use. The measure
specifies that government must maintain ownership
of the property and use it only for the public use it
specified when it took the property.
- To Address a Public Nuisance, Unless the Public
Nuisance Existed on That Particular Property. For
example, government could not take all the parcels
in a run-down area unless it showed that each and
every parcel was blighted.
- As Part of a Plan to Change the Type of
Businesses in an Area or Increase Tax
Revenues. For example, government could not take
property to promote development of a new retail or
tourist destination area.
In any legal challenge regarding a property taking,
government would be required to prove to a jury that the
taking is for a public use as defined by this measure. In
addition, courts could not hold property owners liable
to pay government’s attorney fees or other legal costs if
the property owner loses a legal challenge.
How Much Would Government Have to Pay
Property Owners?
Current law requires government to pay “just
compensation” to the owner before taking property. Just
compensation includes money to reimburse the owner
for the property’s “fair market value” (what the property
and its improvements would sell for on an open market),
plus any reduction in the value of remaining portions of
the parcel that government did not take. State law also
requires government to compensate property owners
and renters for moving costs and some business costs
and losses.
The measure appears to increase the amount of money
government must pay when it takes property. Under the
measure, for example, government would be required to
pay more than a property’s fair market value if a greater
sum were necessary to place the property owner “in the
same position monetarily” as if the property had never
been taken. The measure also appears to make property
owners eligible for reimbursement for a wider range of
costs and expenses associated with the property taking
than is currently the case.
When Would Government Sell Properties to
Former Owners?
If government stopped using property for the purpose
it stated at the time it took the property, the former owner
of the property (or an heir) would have the right to buy
back the property. The property would be assessed for
property tax purposes as if the former owner had owned
the property continuously.
EFFECTS ON STATE AND LOCAL GOVERNMENTS
Government buys many hundreds of millions of
dollars of property from private owners annually.
Relatively few properties are acquired using
government’s eminent domain power. Instead,
government buys most of this property from willing sellers. (Property owners often are aware, however,
that government could take the property by eminent
domain if they did not negotiate a mutually agreeable
sale.)
A substantial amount of the property that government
acquires is used for roads, schools, or other purposes that
meet the public use requirements of this measure—or is
acquired to address specific public nuisances. In these
cases, the measure would not reduce government’s
authority to take property. The measure, however, likely
would increase somewhat the amount that government
must pay property owners to take their property. In
addition, the measure could result in willing sellers
increasing their asking prices. (This is because
sellers could demand the amount that they would
have received if the property were taken by eminent
domain.) The resulting increase in government’s costs
to acquire property cannot be determined, but could be
significant.
The rest of the property government acquires is used
for purposes that do not meet the requirements of this
measure. In these cases, government could not use
eminent domain and could acquire property only by
negotiating with property owners on a voluntary basis.
If property owners demanded selling prices that were
more than the amount government previously would
have paid, government’s spending to acquire property
would increase. Alternatively, if property owners did not
wish to sell their property and no other suitable property
was available for government to purchase, government’s
spending to acquire property would decrease.
Overall, the net impact of the limits on government’s
authority to take property is unknown. We estimate,
however, that it is likely to result in significant net costs
on a statewide basis.
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