The ‘sleeper’ initiative
Picture this scenario: Years ago a couple bought a parcel of land with the idea of someday building houses on it to finance their retirement. But then their city writes a new general plan, and their property is now zoned for half as many houses as before and they’re looking at making only half as much as they anticipated. What can they do?
Short of convincing their City Council to reinstate the previous zoning, nothing.
That will change, however, if Proposition 90 on the Nov. 7 ballot passes. Ostensibly about the government power of eminent domain, the initiative also has a “sleeper” provision that would require government to pay property owners for “substantial economic losses” resulting from some new laws and rules.
Our hypothetical land owners would be able to sue their city to be reimbursed.
It’s only fair, say proponents of Prop. 90. If people invest in land zoned for development, they should be able to have faith in that zoning. If government subsequently downzones the property, the owners should be compensated for this “regulatory taking.”
If passed, Prop. 90 will mean that “economic impact will have to be one of the considerations in land-use decisions,” explained District 3 Assemblyman Rick Keene (R-Chico), who supports the measure.
David Reade, chief of staff for District 2 Assemblyman Doug LaMalfa (R-Richvale), echoed Keene. The initiative, he said, mandates that “when government takes an action that affects the value of someone’s property, it has to pay for it.”
Opponents of Prop. 90 acknowledge abuses of eminent domain, but worry that the measure will hamstring government’s ability to regulate land use for the public good. The initiative is opposed by a broad cross-section of groups, including the League of California Cities, the California County Supervisors Association, the state Chamber of Commerce and the Sierra Club. On Tuesday, (Oct. 31), Gov. Arnold Schwarzenegger also came out agains it.
Opponents point specifically to 90’s provision that mandates compensation whenever government “damages” private property through actions that “result in substantial economic loss,” including “any statute, charter provision, ordinance, resolution, law, rule or regulation.” This could mean a downzoning, a general plan amendment, a wetlands determination or any of numerous actions affecting land use.
Land development, opponents note, is a speculative business, one that can go both ways. Most of the time public actions—building a new school, extending a road—increase the value of property, and developers never complain about that. In fact, most property would be worth little without government actions to create infrastructure.
Occasionally, however, it’s necessary to make a rule or zoning change for the greater good that decreases the profit that can be made on a piece of property. A 150-year history of zoning and regulatory law has upheld government’s right to do so.
“What scares me about Prop. 90,” said Chico Mayor Scott Gruendl, “is a case like what happened with the Fogarty property [the proposed 1,324-unit Oak Valley subdivision off Highway 32], where he sued us over his 80 units.”
Gruendl was referring to the Chico City Council’s decision to require Yuba City developer Tom Fogarty to move 80 units planned for the easterly portion of his project to protect the public’s view of the foothills. Fogarty sued the city for $17 million, charging he’d lost that much because of a decision made in a flawed process.
Prop. 90, Gruendl said, would have given Fogarty’s suit much more weight by classifying the council decision as a “taking,” and the developer “would be a lot closer to making his $17 million.”
The initiative is ostensibly designed as a response to the U.S. Supreme Court’s controversial 2005 decision in Kelo v. City of New London. By a 5-4 margin, the court ruled that local governments may use their eminent-domain power to seize people’s property even if the land is to be used for private purposes, as long as the new use provides appreciable benefits to the community, such as new jobs and increased tax revenue.
Subsequent opinion polls showed the decision, which was widely seen as a case of taking from the poor to give to the rich, was hugely unpopular. Legislators all across the country began writing bills to limit the reach of Kelo.
Some of those bills simply limit a state’s eminent-domain powers to strictly public uses. Prop. 90 goes further. Instead of requiring that “just compensation” be paid in eminent-domain cases, it mandates that compensation be determined by the property’s “highest and best use,” which could cost far more.
And what, exactly, makes a loss “substantial"? Is it 10 percent? 20 percent? 50 percent? The courts would have to decide.
Early polls show Prop. 90 ahead, but a late groundswell of opposition—including more than 60 newspapers editorializing against it—may turn things around by Nov. 7.