The Takings Clause of the Fifth Amendment

By Bill Funk

Background

The Issue
When can government exercise the power of eminent domain to take private property?

To what extent can government regulate private property before the regulation constitutes a taking, requiring just compensation?

Should Congress or the states enact legislation to require compensation for government regulation under circumstances not required by the Constitution or to restrict the exercise of eminent domain for economic development?

The Fifth Amendment of the United States Constitution includes a provision known as the Takings Clause, which states that "private property [shall not] be taken for public use, without just compensation." While the Fifth Amendment by itself only applies to actions by the federal government, the Fourteenth Amendment extends the Takings Clause to actions by state and local government as well.

When the government wishes to acquire property, for example, to build a new courthouse, it first attempts to buy the property on the open market. However, if the owner refuses to sell, the government can go to court and exercise the power of eminent domain, by having the court condemn the property in favor of the government. The Takings Clause imposes two requirements on government in order to exercise this power. First, the property to be acquired must be "for public use," and second, the government must pay "just compensation" to the owner of the property that is taken. The Supreme Court has long construed the term "public use" to include not only cases in which the public can arguably use the property, for example, as a public road, but also cases in which the property is not literally used by the public but the use of the property will serve a public purpose, such as redevelopment of a blighted area.

Often when the government regulates the use of a person's property, the effect on the particular person is adverse. For example, when the government zones an area for residential use, the owner of a particular property might like to open a convenience store or dog kennel, which might bring a greater economic return than a residential structure. Until 1922, the Supreme Court did not consider such diminution of the value of a particular person's property incidental to a general regulation as raising an issue under the Takings Clause. In that year, however, in a celebrated opinion by Justice Oliver Wendell Holmes, the Court held that if a regulation went "too far," it could constitute a taking that would require just compensation by the government. Since that time the question has remained, how far is too far.

An initial question is whether the regulation interferes with a legitimate property right or whether the regulation merely reflects a "background understanding" of the limits of one's property right. For example, because one's property right does not include the right to interfere unreasonably with another person's property right - the definition of a private nuisance - a regulation that merely codifies that background understanding cannot go too far. The regulation deprives the person of nothing to which he has a right.

Two Supreme Court decisions offer clear guidance on situations that will categorically constitute a taking. In one decision, the Court held that regulations that deprive a person of all ability to develop or utilize his or her property for any economic purposes goes too far and requires just compensation. Another line of Supreme Court cases establishes that if the government effects a permanent physical invasion of the person's property, for example by requiring the owner to allow public access to the property, this constitutes a taking. Absent one of these two circumstances, however, the Court has said that the question whether a regulation goes too far is a contextual, ad hoc determination that involves the weighing of a number of factors. Foremost among these factors is the magnitude of the regulation's economic impact and the degree to which it interferes with legitimate property interests.

What's At Stake?
The ability of agencies to establish sensible safeguards protecting public health and the environment.

The principle that companies and individuals must avoid seriously damaging people's health and our environment to the extent feasible.

A particularly important issue that has been raised is whether a person who acquires property after the institution of the regulatory regime should have any claim whatsoever. Some argue that such a landowner should not, having acquired the property knowing the restrictions to which it was subject and presumably at a price that reflected those restrictions. Others argue that to eliminate any such claim would enable government effectively to extinguish substantial value of the property without any recourse for the owner. The Supreme Court has concluded that the timing of the acquisition of the property - before or after the initiation of the regulatory restriction - is one of the factors to be considered in the ad hoc determination of whether the restriction has gone "too far" and become a taking requiring just compensation.

An issue that frequently arises with respect to regulations affecting property is the ability of governments to attach conditions to the development of property. For example, a city might condition a permit for development of a property into a subdivision of homes upon the developer setting aside certain areas for public park area, constructing streets to city standards and then dedicating the streets to the city, as well as paying an exaction designed to offset the projected city infrastructure costs associated with the new development, such as sewage treatment or school construction. The Supreme Court has said that such regulatory conditions and exactions do not constitute a taking if they have an essential nexus to a legitimate government interest and they bear a rough proportionality to the impacts caused by the development. For example, increasing the size of a commercial establishment and the construction of a large parking lot may cause a substantial increase in impervious surfaces and could justify a requirement that the property owner leave certain property as undeveloped flood plain.

What People Are Fighting About

The debate in recent years over regulatory restrictions on the use of private property has frequently involved situations in which environmental laws interfere with a person's desire to develop undeveloped land. Typically, the problem under the environmental laws has arisen when a person wishes to develop undeveloped land, part of which, if developed, would result in violations of the Clean Water Act or the Endangered Species Act. For example, a developer might wish to subdivide and develop property for single family residences, where part of the property consists of wetlands and its development would destroy the wetlands. Under the Clean Water Act, the developer may not be able to build all the new homes he wished. Similarly, a farmer might wish to bring certain land into cultivation, part of which is habitat for an endangered species that cannot be cultivated under the Endangered Species Act. In both situations, the landowner will be precluded from using all the land as the owner wishes but is not prohibited from all economic development.

Nonetheless, in these situations, the affected landowner often feels that the regulation unfairly asks the landowner to make a sacrifice on behalf of society generally. Such a landowner may sue for just compensation under the Takings Clause. Sometimes these suits are successful, and sometimes they are not, depending upon how the particular court weighs the relevant factors under the ad hoc balancing test. Some politicians believe the constitutional protection of private property from governmental regulation is inadequate and have introduced legislation to amend federal environmental laws and to adopt state constitutional amendments to provide a statutory or state constitutional compensation standard easier to satisfy than the Takings Clause.

Regulatory conditions have also come under fire. It is claimed that governments essentially extort substantial amounts from developers for public improvements that rightfully should be funded by the public at large. Others respond that those who develop property should have a legal duty to accept the costs of the burdens they necessarily impose on the community.

A June 2005 Supreme Court decision focused public attention on another issue under the Takings Clause: Kelo v. City of New London, 125 S.Ct. 2655 (2005). The case involved adoption by the city of New London, Connecticut, of a redevelopment plan for a portion of the city to address the depressed economic conditions of the city. The plan included a waterfront conference hotel at the center of an urban village comprised of restaurants, shopping, a marina, a river walk, new residences, a museum, a park, and 90,000 square feet of research and development office space. At the same time, the Pfizer corporation had planned to locate a major research facility adjacent to the area to be redeveloped. While almost all of the private property within the 90-acre redevelopment area was acquired by the city through purchase from willing sellers, nine persons were not willing to sell. Therefore, the city initiated condemnation proceedings to take these properties through eminent domain. This action was challenged on the ground that the property was to be transferred to private owners in order to effect economic development of the area, and that acquiring property to transfer into private hands for such a purpose does not constitute a "public use" within the meaning of the Fifth Amendment. By a five to four margin, the Court held that no such constitutional restriction exists.

The Kelo decision provoked a firestorm of criticism in the media because it was perceived as allowing government for the first time to take private property from one person and transfer it to another person solely to produce economic advantages to the community, such as tax dollars and jobs. Moreover, critics argued that the taking had been instituted for the benefit of Pfizer, not the people of the city of New London, despite a contrary trial court finding. Had the city acted on behalf of Pfizer, the decision to uphold its actions would raise the specter of using eminent domain for the benefit of powerful private interests, fundamentally altering our system for protecting private property rights.

Supporters of the decision noted the Court's finding that the transfer was accomplished to advance the public interest, not private benefit, and that the Takings Clause has always been understood to allow taking private property from one person and transferring it to another person, so long as it is done for a public purpose. Indeed, fifty years ago a unanimous Supreme Court upheld the taking of a person's property and its transfer to another person incident to urban renewal to eliminate blight. Moreover, in Kelo, the entire Court confirmed that private property could be taken and transferred to another private person for such purposes as building railroads, hospitals, stadiums, and cell phone towers. The dissenters' position, supporters of the decision argue, would make planned development, as well as redevelopment, practically impossible, because it would erect substantial barriers to large scale land assembly.

In the wake of the decision, critics have persuaded some states to enact laws prohibiting the use of eminent domain by state agencies and local governments for the purpose of economic development.

CPR's Perspective

The Constitution's Takings Clause establishes only the basic floor of protection for property rights, both in terms of when eminent domain can be used and the requirement for just compensation. Therefore, there may be particular instances in which some people, or even many people, may feel that the Takings Clause does not go far enough to protect private property. It is this sentiment that fuels interests in statutory or state constitutional amendments to require compensation in a broader set of situations and to prohibit the exercise of eminent domain for economic development.

With respect to concerns about government regulation of land use, because the Takings Clause provides only general guidance on when government action goes "too far," it is not surprising that individual cases may raise issues. Many of these cases, however, involve situations in which the property owner's actions would cause a real harm to the environment. In some cases, these harms might be of sufficient magnitude to constitute a nuisance, thus eliminating any claim for compensation. But even when the harm does not rise to the level of a nuisance, the equitable claim for compensation by a land owner who wishes to take action harming the environment may be exceptionally weak because of the modest nature of his legitimate expectations and the limited diminution of value. Thus, any statutory amendment that would grant compensation whenever there is any adverse effect from a government regulation paints much too broadly.

Some reforms intended to mitigate possible incidental adverse effects of government regulation may themselves interfere with the accomplishment of the underlying public purpose of the government regulation. For example, some suggested statutory amendments would in essence require the government agency either to pay compensation for any adverse effect on the value of private property or to grant a waiver from the regulatory law. Because the agency's appropriations do not include funds for paying compensation in advance, the agency is effectively required to grant an exemption from the regulation, thereby thwarting the effectiveness of the government regulation, perhaps irreparably harming the environment. In addition, many government regulations are of long standing. While they may restrict today what a property owner can do with his property, the actual adverse effect caused by the regulation, if any, may already be reflected in the value of the property, perhaps even when the present owner acquired the land. Consequently, any "compensation" for the restriction would actually be a windfall to the present owner. These considerations suggest extreme caution in statutory amendments to provide compensation whenever compliance with environmental laws limits the use of property.

Simply to bar the use of eminent domain for economic development, rather than tailor protections to the nature of the concerns recent cases have engendered, possibly could create long-term problems for communities. The purpose of economic development plans is to benefit whole communities, and indeed it is a basic function of government to facilitate the well being of communities. The fact that some individuals wish to hold out from selling their property should not stand as an absolute bar to the greater well being of the entire community. There are undoubtedly better and worse ways of furthering economic development, and questions whether adding a Walmart or its equivalent to a community is indeed beneficial are entirely appropriate, but these issues are separate from the ability to exercise the power of eminent domain. Disputes over whether any particular plan or action will in fact benefit the general community, not only economically but also socially, are appropriately resolved through the democratic process, flawed though it may be. They are not best handled through a broad disability of government to use particular tools for economic development.

A number of alternatives suggest themselves, from additional procedural requirements to additional substantive findings and determinations, all to be judicially reviewable, if the purpose of the taking is economic development. For example, one important limitation might be to require any taking for economic development to be part of a coordinated development plan. Such a requirement would effectively ensure against the use of eminent domain for economic development on an ad hoc basis to benefit a particular private entity. One or more of these alternatives would provide significant additional protection against potential misuse, such as was alleged in the Kelo case.

A different form of protection might be to provide alternatives to the normal compensation standard of fair market value, available only in certain cases. The Constitution may not compel compensation that takes account of non-market considerations, but those concerned about the possibly perceived unfairness of moving people out of their homes for economic development could create statutory provisions allowing for enhanced compensation in these cases. Such provisions could address both the non-market values of a person's home and the gap between fair market value and replacement value by ensuring payments sufficient to find equivalent or adequate housing or that seek to compensate for the loss of one's home.

The Constitution erects safeguards against government taking private property for improper purposes and provides compensation for government regulation of private property that goes "too far." In some situations, the safeguards and compensation requirements of the Constitution may appear inadequate, so that additional safeguards or compensation requirements might be justified as a political matter. However, care should be taken in formulating any such additional safeguards or compensation requirements, because many possible responses can be highly counterproductive, frustrating the ability of governments to act or regulate in the public interest.

 

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Copyright © 2005 The Center for Progressive Reform