Protecting Private Property Rights from Regulatory Takings

By Roger Pilon

February 10, 1995
Subcommittee on Constitution
Committee on Judiciary
United States House of Representatives

Mr. Chairman, distinguished members of the subcommittee:

My name is Roger Pilon. I am a senior fellow at the Cato Institute and the director of Cato’s Center for Constitutional Studies.

I want to begin by thanking Congressman Hyde for inviting me to speak before this subcommittee on the subject of Protecting Private Property Rights from Regulatory Takings. I want also to thank Congressman Canady for calling hearings so early in the term of the 104th Congress on so important and timely a subject.

Uncompensated regulatory takings of private property have become an immense problem across the nation. As federal, state, and local regulations have increased in number and scope, property owners have increasingly found themselves unable to use their property and unable to recover the losses that result.

The problem begins, therefore, with the growth of government regulations that deny owners the legitimate use of their property. It should end with the relief that courts might give in the form of compensation to those owners, as required by the Fifth Amendment’s Takings Clause. Unfortunately, the courts have been locked into what the Supreme Court itself has called 70-odd years of ad hoc regulatory takings jurisprudence. As a result, they give relief in only a limited range of cases. That means that property owners, both large and small, bear the full costs of the public goods the regulations bring about, when in all fairness those costs should be borne by the public that orders those goods in the first place.

As the voters made clear last November in race after race, the protection of property rights is a burning issue on which they want action. The time has come for Congress to address this issue, to redress the wrongs that have been imposed on individual owners by Congress itself and by countless state and local officials.

To do that, Congress needs to reexamine the vast regulatory structure it has erected—largely over the course of this century— to determine whether those regulations proceed from genuine constitutional authority and whether they are consistent with the rights of the American people to regulate their own lives. But second, and more immediately, Congress needs also to breathe new life into the Fifth Amendment’s Takings Clause, making it clear to a Court too encumbered by its past that the clause means precisely what it says when it prohibits government from taking private property for public use without just compensation.

Let me address those two issues, the first briefly, the second in somewhat more detail.

1. Relimit Government in the Constitution

The federal government, as every student of the Constitution learns, is a government of delegated, enumerated, and thus limited powers. Delegation from the people gives power its legitimacy. Enumeration limits that power. Unfortunately, that doctrine of enumerated powers, which the Framers meant to be the centerpiece of the Constitution, today is honored in the breach. Whereas earlier congresses asked first whether they had constitutional authority to undertake whatever proposal might be before them, and earlier presidents vetoed measures for lack of such authority, the 20th- century concern has been to pursue public ends without even asking whether the Constitution permits those pursuits. And the Court, following Franklin Roosevelt’s notorious Court-packing scheme, has largely looked the other way, inventing doctrines about Congress’s commerce and spending powers that are no part of the Constitution— indeed, that are in direct contradiction to the very purpose and design of the Constitution. The result has been the regulatory and redistributive juggernaut that has produced the Leviathan we now call government in America.

Because I have addressed this issue in some detail in the Cato Institute’s new Handbook for Congress, which was released here in the Capitol and distributed to each member just this week, I will limit myself today to saying simply that if we are to come to grips with the problem of regulatory takings, the first order of business is to start thinking seriously about rolling back many of the regulations that are doing the taking. And the most fundamental way to do that is to revisit the centerpiece of the Constitution, the doctrine of enumerated powers. If this subcommittee were to do that, it would soon discover, I submit, that much of the regulation that plagues property owners across this nation today—and not property owners alone, let me note—is unconstitutional because undertaken without explicit constitutional authority. Right from the start, that is, there is a constitutional problem. A Congress imbued with the idea that we need to relimit government in fundamental ways, as this Congress surely is, should appreciate that to go forward we need first to look back, to our founding principles. And what better part of Congress to do that than this Subcommittee on the Constitution?(1)

But even if Congress were to do nothing about relimiting its power in so fundamental a way, even if it were to continue on the regulatory path it has followed for most of this century, there would remain the problem of what to do when the exercise of such overweening power takes property—and the courts, acting almost as if they were extensions of the political branches, refuse to order the compensation the Constitution requires. This brings me to my principal concern in these hearings, that Congress make crystal clear its view that the Fifth Amendment’s Takings Clause is meant to compensate owners when regulatory takings of otherwise legitimate uses reduce the value of their property.

2. Breathe New Life Into the Takings Clause

The Fifth Amendment’s Takings Clause reads: “nor shall private property be taken for public use without just compensation.” As presently interpreted by the Court, that clause enables owners to receive compensation when their entire estate is taken by a government agency and title transfers to the government; when their property is physically invaded by government order, either permanently or temporarily;(2) when regulation for other than health or safety reasons takes all or nearly all of the value of the property;(3) and when government attaches unreasonable or disproportionate permit conditions on use.(4)

Although that list of protections might seem extensive, a moment’s reflection should indicate the problem—and it is a very large one. Most regulations do not reduce the value of a person’s property to zero or near zero. Rather, they reduce the value by 25 percent, 50 percent, or some other fraction of the whole. In those circumstances—the vast majority of circumstances—the owner gets nothing. Only if he is “lucky” enough to be completely wiped out by a regulation does he get compensation. Surely that is not what the Framers meant to happen when they wrote the Takings Clause.

Plainly, the Court has gone about its business backwards. Rather than ask whether there has been a taking and then ask what the value of that taking is, the Court asks what the value of the loss is to determine whether there has been a taking. And it has done that because it has never set forth a well-thought-out theory of takings, one that starts from the beginning and works its way systematically to the end. It is just such a clear statement of the matter that Congress needs to provide.

A. Provide a clear definition of “property.” In providing such a statement, the first and most important order of business is to give a clear definition of “property.” In every area of the law except the law of public takings, as every first-year law student learns, “property” refers not simply to the underlying estate but to all the uses that can be made of that estate. James Madison put the point well in his essay on property: “as a man is said to have a right to his property, he may be equally said to have a property in his rights.”(5) Take one of those rights—one of those sticks in the “bundle of sticks” we call “property”—and you take something that belongs to the owner. Under the Fifth Amendment, compensation is due to that owner.

When “property” means simply the underlying estate, however, then government can take all the uses that go with the property— leaving the owner with the empty shell of ownership—and get out from under the compensation requirement. That definition is what many opponents of greater protection for property owners have argued for. But it is also, by implication, the definition the Court starts from, making an exception only when the loss of use (and value) becomes near total. When a thief takes 75 percent of his victim’s property, no one has difficulty calling that a taking. When government does the same thing, however, the Court has been unable to call it a taking.

Congress must make it clear, therefore, that “property” includes all the uses that can be made of a holding—the very uses that give property its value, the taking of which diminishes that value. When those uses are taken through regulatory restrictions, the owner loses rights that otherwise belong to him.

B. Provide for a nuisance exception to the compensation requirement. Not all the uses an owner may make of his property are legitimate. When regulation prohibits wrongful uses, no compensation is required.

Owners may not use their property in ways that will injure their neighbors. Here the Court has gotten it right when it has carved out the so-called nuisance exception to the Constitution’s compensation requirement. Thus, even in those cases in which regulation removes all value from the property, the owner will not receive compensation if the regulation prohibits an injurious use. (Such cases are likely to be very rare, of course, since there is usually some other productive use the property can be put to.)

In carving out such a nuisance exception, however, care must be taken to sweep neither too broadly nor too narrowly. This exception, in essence, is the police power exception. As has long been recognized, a broad definition of the police power will devour the compensation requirement, leaving owners with no protection at all. That has been the trend over the 20th century, with every regulation “justified” as serving someone’s or some majority’s conception of “the public good.”

By the same token, if the police power is defined too narrowly, then property owners themselves might suffer when their neighbors are thereby able to despoil the neighborhood through injurious uses. This is a concern that environmentalists who oppose greater protection for property owners often misstate, even if the concern itself is not without foundation.

In general, the police power—through which nuisances are regulated or prohibited—needs to be defined with reference to its origins. It is, as John Locke put it, the “Executive Power” to secure our rights, which each of us has in the state of nature, before we yield it up to the state to exercise on our behalf.(6) Accordingly, just as the origins of the police power are in the power to secure rights, so too the limits of the power are set by the rights that we have to be secured. Properly conceived and derived, therefore, the police power is exercised to secure rights —and only to secure our rights. Its origins, and justification, set its limits.

In defining the nuisance exception, therefore, care must be taken to tie it to a realistic conception of rights, which the classic common law more or less did. Thus, uses that injure a neighbor through various forms of pollution (e.g., by particulate matter, noises, odors, vibrations, etc.) or through exposure to excessive risk count as classic common-law nuisances because they violate the neighbor’s rights. They can be prohibited, with no compensation owing to those who are thus restricted.

By contrast, uses that “injure” one’s neighbor through economic competition, say, or by blocking “his” view (which runs over your property) or offending his aesthetic sensibilities are not nuisances because they violate no rights the neighbor can claim. Nor will it do to simply declare, through positive law, that such goods are “rights.” Indeed, that is the route that has brought us to where we are today. After all, every regulation has some reason behind it, some “good” the regulation seeks to bring about. If all such goods were pursued under the police power—as a matter of right—then the owners from whom the goods were taken would never be compensated. The police power would simply eat up the compensation requirement.

It is important to recognize, however, that relating the police power to the compensation requirement of the eminent domain power is not simply a matter of “balancing” the two. Rather, those powers must be related in a principled way, and that way is found in the classic common-law theory of rights, which grounds rights in property. The principle, in fact, is just this: People may use their property in any way they wish, provided only that in the process they do not take what belongs free and clear to others. My neighbor’s view that runs over my property does not belong free and clear to him. (If he wants that view, he can offer to buy it from me by purchasing an easement.) His peace and quiet, however, do belong to him free and clear.(7)

Now I enter into details of the kind just discussed because there has been a considerable amount of confusion to date in popular discussion about just how legislation aimed at protecting property owners would work. On one hand, many environmentalists have charged that such legislation would require taxpayers to pay polluters not to pollute. Nothing could be further from the truth. A well-crafted statute would make it clear that property could not be put to injurious uses, as just defined. Regulations prohibiting such uses would thus not give rise to compensation because those uses are wrongful to begin with.

But on the other hand, others have charged that even if such legislation is well-crafted to ensure that people are not compensated for not doing what they have no right to do in the first place, the net effect will still be either a restraint on regulation or a drain on the taxpayer. To that charge, there is a simple, straightforward answer: That is exactly as it should be— exactly what the Takings Clause is for. That is why the Framers put the clause in the Constitution—to restrain government or, failing that, to make the public pay for the goods it wants rather than have the costs of those goods fall on individual victims, as they do today.

C. Paying for public goods. Just as there are no free lunches—someone pays for them—so too there are no free public goods. As noted earlier, every regulation seeks to bring about some public good. Some of those goods are brought about in the course of securing our rights. A good deal of the environmental legislation that Congress has passed, for example, amounts to just that, to prohibiting people from violating the rights of others. That kind of regulation is thus not reached by the Takings Clause.

Other regulations, however, cannot be justified as bringing about anything to which anyone can be said to have a right. We do not have rights to views, for example, even lovely ones, unless we own the conditions that give rise to those views. So too with greenspaces, or historic sites, or habitat for endangered species, and much else. None of which is to say that those goods are not good or valuable. They may very well be. But as with anything else that may be of value, we must obtain those goods legitimately. We cannot just take them. Yet that, too often, is what we do today.

Taking something that way does not make it free, of course, except to us. To the person from whom we take it, our action is very costly. Those who are concerned about the effect of takings legislation on the taxpayer, therefore, are asking the wrong question. The proper question is not how much such legislation will cost the taxpayer but how much the goods we acquire through regulation are costing period. Right now we have no way of knowing because we have driven the accounting “off budget.” The direct costs are borne by the millions of people we prevent from using their property. The indirect costs, in unrealized opportunities, are borne by all of us. In neither case do we have the remotest idea of the costs. Yet those costs are nonetheless real—as occasionally successful litigation on the first category of costs makes clear.

But our inability or unwillingness to account for the costs of the public goods we acquire through regulation has another effect as well, namely, that we demand more of the goods than we otherwise would if we had to pay for them. Not every species may be worth preserving—except, of course, if its preservation is “free.” The Takings Clause, then, was a brilliant stroke. When they wrote it, the Framers realized that there would be times when the public would have to achieve public ends by taking property from private parties. That “despotic power” of eminent domain had to be accompanied, however, by just compensation, for only if the victim was made whole would the power have any semblance of justification.

To do otherwise would be to make the individual bear the full burden of the public’s appetite.

But the compensation requirement served to discipline the public’s appetite as well, for without it, the demand for public goods would in principle be infinite. That is exactly what has happened today. Without the discipline that is provided by the compensation requirement, regulations have grown and grown. It is time to rein in that growth as the Framers meant it to be reined in. The public appetite has been undisciplined for too long and the victims today, both direct and indirect, are too numerous to let this go on any longer.

(1) I have discussed these issues more fully in Roger Pilon, “Freedom, Responsibility, and the Constitution: On Recovering Our Founding Principles,” 68 Notre Dame Law Review 507 (1993).

(2) Loretto v. Teleprompter Manhattan CATV Corp., 458 U.S. 419 (1982).

(3) Lucas v. South Carolina Coastal Council, 505 U.S. (1992).

(4) Dolan v. City of Tigard, 62 U.S.L.W. 4576, June 24, 1994. (5) James Madison, Property, 1 NATIONAL GAZETTE, Mar. 29, 1792, at 174. Reprinted in 4 LETTERS AND OTHER WRITINGS OF JAMES MADISON 480 (1865).

(6) See John Locke, The Second Treatise of Government, TWO TREATISES OF GOVERNMENT 13 (Peter Laslett ed., 1960).

(7) I have discussed these issues more fully in Roger Pilon, “Property Rights, Takings, and a Free Society, 6 Harvard Journal of Law and Public Policy 165 (1983).

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