McGeorge School of Law

Proposition 90

Proposition 90:
Government Acquisition, Regulation of Private Property.

By

Christopher Phillips
JD, McGeorge School of Law, University of the Pacific
to be conferred May, 2007
B.S., Exercise and Sport Science, Texas Tech University, 2003

 

Copyright © 2006 by University of the McGeorge School of Law


Table of Contents

I. Executive Summary
II. The Law
III. Drafting Issues
IV. Constitutional Issues
V. Public Policy Considerations
VI. Conclusion


I. Executive Summary

Proposition 90 will make significant changes to the rules and process by which the government may take or regulate private property. Proposition 90, the Government Acquisition, Regulation of Private Property (“Protect Our Homes Act”), is an Initiative Constitutional Amendment. California Official Title and Summary (Secretary of State, 2006). Proposition 90 would amend Article I, § 19 of the California Constitution, requiring government to pay property owners for substantial economic losses resulting from some new laws and rules, as well as limiting government authority to take ownership of private property by restricting the purposes for which government may take property.

This initiative, if passed, will require the government to pay property owners if it enacts certain new laws or rules that result in substantial economic losses to their property such as “downzoning,” which refers to decisions by government to reduce the amount of development permitted on a parcel of land. The initiative would also modify the current eminent domain scheme in California by restricting the purposes for which government may take property, increasing the amount that government must pay condemned property owners, and requiring government to sell condemned property back to its original owners under certain circumstances. 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 fiscal effects of Proposition 90 are unknown but potentially significant on a statewide basis. Increased annual state and local government costs are likely in order to pay property owners for (1) losses of their property associated with certain new laws and rules, and (2) property acquisitions.

Proponents of Proposition 90 argue that Government should not be able to take private property, outright or through regulations that reduce the value of the property, in the absence of a legitimate public use and without paying for a fair value for the property.

Opponents of Proposition 90 concede that Californians deserve protection from eminent domain abuse, but that this initiative is a “bait-and-switch” that will produce a “taxpayer trap,” leading to thousands of expensive lawsuits that would tie up courts and result in added bureaucracy and red tape.

II. The Law

A. Brief Explanation of Eminent Domain and Regulatory Takings

Eminent domain is the right of the people or government to take private property for public use. The right to compensation arises in two situations: (a) Where the governmental agency or other authorized person brings a condemnation action to take property, and (b) where public works or other governmental activities are undertaken with resulting injury to property, and the owner brings an "inverse condemnation" action to recover damages. Under the Fifth Amendment to the federal Constitution no private property shall "be taken for public use, without just compensation." U.S. Const. amend. V. And, under the California Constitution, "[p]rivate property may be taken or damaged for public use only when just compensation…has first been paid to, or into court for, the owner." Cal. Const., Art. I, §19.

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. California Official Voter Information Guide, Analysis of Proposition 90 (Secretary of State, 2006).

State and local governments pass laws and other rules, including statutes, ordinances, and regulations, to benefit the overall public health, safety, or welfare of the community, including its long-term economy. In some instances, these laws and other rules can reduce the value of private property. This is called a “Regulatory Taking” and can happen through zoning ordinances that limit development or the use of “air space” (height of structures), regulations that require industries to change their operations to reduce pollution, or a number of other public health, safety or welfare reasons. Id.

B. Current Law

For over 50 years government has had the power to condemn “blighted” areas in order to promote urban renewal programs as a “public use.” Berman v. Parker, 348 U.S. 26 (1954). The interpretation of “public use” has been an ever expanding concept. Last year, the United States Supreme Court upheld the condemnation of middle class homes in Connecticut for redevelopment even though the homes themselves were neither blighted nor otherwise offensive. Kelo v. City of New London, 125 S. Ct. 2655 (2005). The reasoning behind the decision was that the increased tax revenue and job opportunities created by the new private development served a “public purpose” within the meaning of “public use.” The Supreme Court noted in the Kelo decision, that its holding was an interpretation of federal constitutional law and that each state is free to adopt its own, more stringent, provisions to protect the rights of private property owners. Id .

Current law requires government to pay “just compensation” to the owner before taking property. Cal. Code Civ. P. Ann. § 1263.310 (LEXIS 2006). Just compensation is defined as what the property and its improvements would sell for on the open market, or “fair market value.” Id. at § 1263.320. Where the property acquired by the government is part of a larger parcel, compensation is also required for the injury, if any, to the remainder of the parcel. Id. at § 1263.410. California law also requires government to compensate property owners and renters for moving costs and some business costs and losses. Analysis of Proposition 90.

Under current California law, a judge makes the determination if a property owner seeks to challenge an eminent domain action on the ground that the “public use” concept has been violated. Cal. Code Civ. P. §§ 1085, 1245.255 (2006). Also, once a condemnation has taken place and the title of the property has vested in the condemning entity, the former owner has no recourse if the property is not used for the purpose that it was condemned for. Arechiga v. Housing Authority of Los Angeles, 159 C.A.2d 657 ( Cal. App.1958).

The United States Supreme Court stated a categorical rule regarding regulatory takings compensation in Lucas v. South Carolina Coastal Council: compensation is required when a regulation prevents all economically beneficial use of the land. Thus, the starting point in a regulatory takings case should be to ask whether there has been a total taking of the property. Lucas v. South Carolina Coastal Council, 505 U.S. 1003 (1992). However, if the regulation does not deprive all economic use of the land, the Supreme Court mandates an ad hoc, factual analysis of (1) the economic effect of a regulation on the landowner, (2) the extent to which the regulation interferes with reasonable investment-backed expectations, and (3) the character of the government action. Penn Cen. Trans. Co. v. New York, 438 U.S. 104 (1978). Therefore, under current law, the government is usually required to compensate property owners for losses resulting from regulatory takings if the government’s action deprives the owners of virtually all beneficial use of the property. Analysis of Proposition 90.

C. Proposed Change

1. Paying Property Owners for Economic Loss (Regulatory Taking)

First, Proposition 90 makes it clear that all existing laws and rules would be exempt from the measure’s compensation requirement. Also, new laws and rules would be exempt from the compensation 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. Id.

Under current law, government is usually required to compensate property owners for losses resulting from laws or rules if the government’s action deprives the owners of virtually all beneficial use of the property. In contrast, “damage,” under Proposition 90 is defined as: “government actions that result in substantial economic loss to private property” except “when taken to protect public health and safety.” Proposition 90 § 3(b)(8). Thus, the measure lowers the triggering mechanism for a regulatory taking from a “total” diminution in value to a “substantial” diminution. The term “substantial economic loss” is not defined by Proposition 90, but a non-inclusive list of examples is provided in the text as: “the downzoning of private property, the elimination of any access to private property, and limitations on the use of private air space.” Id.

2. Limiting Government Authority to Take Property

There are three major alterations Proposition 90 will make to the government authority to take property: (a) restricting the purposes for which government may take property and altering the remedial procedures for property owners who challenge governmental takings; (b) increasing the amount that government must pay property owners; and (c) requiring government to sell property back to its original owners under certain circumstances.

a. Restricting the Purposes for Which Government May Take Property

If Proposition 90 passes, government will still have the authority to take private property to build public roads, schools, parks, and other government-owned facilities. Analysis of Proposition 90. Government would also have the authority to take private property and lease it to a private entity to perform a public use project. Proposition 90 § 3(a)(2). The State’s eminent domain powers to abate nuisances such as blight, obscenity, pornography, hazardous substances or environmental conditions are not prohibited by Proposition 90. Id. at § 3(b)(10)(e). And finally, the government could take property as needed to respond to a declared state of emergency. Id. at § 3(b)(10)(d).

Under Proposition 90, the definition of “’[p]ublic use’ shall have a distinct and more narrow meaning than the term ‘public purpose.’” Id. at § 3(b)(1). This is a direct response to the Kelo holding by the Supreme Court. The new definition’s limiting effect “prohibits takings expected to result in transfers to non-governmental owners on economic development or tax revenue enhancement grounds, or for any other actual uses that are not public in fact.” Id. The measure will require that government maintain ownership of the property and use it only for the public use it specified when it took the property.

In its Statement of Findings, Proposition 90 states, “[a]s currently structured, the judicial process in California available to property owners to pursue property rights claims is cumbersome and costly.” Id. at § 1(d). Therefore, Proposition 90 will alter the remedial procedures for property owners in the following ways: In all eminent domain actions, the property owner would have the right to a “separate and distinct determination by a superior court jury as to whether the taking is actually for a public use.” Id. at § 3(b)(4). This is a substantial procedural alteration as current law provides for a judicial determination rather than a jury determination. Cal. Code Civ. P. §§ 1085, 1245.255 (2006).

Further, property owners that challenge the government in eminent domain actions, even if unsuccessful, would not be liable to the government for attorney fees or costs. Proposition 90 § 3(b)(9). This is also a substantial alteration as current law provides for “loser liability” in eminent domain actions, meaning an unsuccessful challenge by a property owner may result in reimbursement of the government’s attorneys’ fees and costs. Cal. Code Civ. P. § 1036. This provision would likely increase the willingness of property owners to challenge eminent domain actions.

b. Increasing the Amount that Government Must Pay Property Owners

Proposition 90, if passed, will codify some existing laws, such as defining “fair market value” as the “highest price the property would bring on the open market,” Cal. Code Civ. P. § 1263.320, and “just compensation” as “that sum of money necessary to place the property owner in the same position monetarily…as if the property had never been taken.” United States v. Miller, 317 U.S. 369 (1943). The measure would, however, redefine what constitutes “damage” (see above) as well as how certain uses by a governmental agency can trigger increased compensation to the property owner.

Under the measure, “damage,” except when property is taken to protect public health and safety, is defined as “government actions that result in substantial economic loss to private property.” Proposition 90 § 3(b)(8). Examples are given in the text of the proposition and include the down zoning of private property, the elimination of any access to private property, and limitations on the use of private air space. Id. Downzoning of property happens when government further restricts the use of a certain property; for instance, decreasing the number of houses that can be built on a parcel of land. “Limitations on the use of private air space” refers to the height limitations of buildings.

Proposition 90 also states “if private property is taken for any proprietary governmental purpose, then the property shall be valued at the use to which the government intends to put the property, if such use results in a higher value for the land taken.” Id. at § 3(b)(5). Currently, present market value is “determined only by uses for which land is adaptable and available,” unless “evidence tends to show a reasonable probability of a change in the near future.” Los Angeles v. Decker, 18 Cal.3d 860 (1977).

c. Requiring Government to Sell Property Back to its Original Owners Under Certain Circumstances.

Under Proposition 90, if the government stopped using the 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. § 3(a)(3). The property would be assessed for property tax purposes as if the former owner had owned the property continuously. Id. This would change the current law which does not give the former property owner any rights to reacquire the property once it has been lawfully condemned because the title has been transferred and the former owner ceases to have any interest in the property. This provision is “in recognition of the fact that some projects in which property has been acquired by eminent domain either fail to come to fruition or turn out to be duds.” Michael Berger, Proposition 90: Myth and Reality (August 8, 2006) (available at http://www.manatt.com/newsPopup.aspx?id=4064).

III. Drafting Issues

A. Ambiguity

Proposition 90 is rife with ambiguity and if passed, will undoubtedly spark heated litigation while the judicial system interprets many of its provisions.

What will constitute a “substantial economic loss?” Depending on how the courts interpret this term, the economic impact could be enormous and widespread, or it could be very similar to the status quo. If “substantial” is held to constitute 50% diminution in value or more, then a great number of future laws and rules could be affected. However, if “substantial” is determined to constitute something greater, such as 90% diminution in value, then fewer new laws and rules will trigger a regulatory taking requiring compensation.

What does the regulatory taking exemption for new laws that protect “public health and safety” mean? How will the courts interpret “public health and safety”? “Public health, safety and welfare” is a term-of-art that describes the “police powers” inherent in state authority. However, under the state’s police power, property is not taken for use by the public; the use of the property by its owner is regulated or prohibited where necessary for the public welfare. O'Hara v. Los Angeles County Flood Control Dist., 19 Cal.2d 61 (1941). The word “welfare” is noticeably absent from Proposition 90. “Welfare” usually covers such practices as downzoning, which is specifically enumerated as compensable damage in Proposition 90, but downzoning can also be a public health or safety concern as well. Thus, Proposition 90 contains internal inconsistencies between its undefined provisions that will result in confusion and litigation. Interview with Timothy Sandefur, Attorney for Pacific Legal Foundation (Sept. 21, 2006)(Notes on File with the McGeorge School of Law, University of the Pacific Capital Center for Government Law and Policy). If the regulatory taking exemption for laws that fall under the “public health and safety” is interpreted to have a broad meaning, the fiscal impact may be low because it will exempt more new laws and rules than a narrow interpretation would exempt.

As the Supreme Court of California noted almost 60 years ago, “The right of initiative is precious to the people and is one which the courts are zealous to preserve to the fullest tenable measure of spirit as well as letter.” McFadden v. Jordan, 32 Cal. 2d 330, 332 (1948). When interpreting Proposition 90, a court will employ the canons of statutory construction. First, the plain language of the initiative will be analyzed to determine if ambiguity exists. If ambiguity is found, a court will then look to the common meaning of the terms used in the initiative. If the ambiguity is still not resolved, outside sources of information will be analyzed, such as the Official Title and Summary prepared by the Attorney General. This will provide the court with the information that the voters who enacted the measure had at the time they enacted it.

B. Severability

Proposition 90 contains a severability clause which purports to allow provision(s) to be severed from any portions of the initiative later found invalid. The severability clause states:

If any provision of this section or its application is held invalid, that finding shall not affect other provisions or applications that can be given effect without the invalid provision or application.

Proposition 90 § 5. The California Supreme Court has developed a three part test to determine whether the remaining provision(s) can be severed from the invalid sections of the initiative: the invalid provision must be grammatically, functionally, and volitionally separable. Gerken v. Fair Pol. Practices Commn., 6 Cal. 4 th 707 (1993).

Focusing on the text of Proposition 90 reveals that it is grammatically well written. Each section and subsection can be mechanically separated without rendering the remainder inconsistent or incomprehensible.

The overall function of Proposition 90 could be regarded as strengthening private property rights. The two mechanisms of reform are alterations to eminent domain law and alterations to regulatory takings law. If either of these two mechanisms were to be invalidated, the other could survive unaffected. If, however, a substantial portion of either one of these two mechanisms were to be invalidated, it may obliterate the purpose for which it was intended, thereby invalidating the entire mechanism.

The final determination of the severability test is whether “it can be said with confidence that the electorate’s attention was sufficiently focused upon the parts to be severed so that it would have separately considered and adopted them in the absence of the invalid portions.” People’s Advocate, Inc. v. Superior Court, 181 Cal.App.3d 316, 332-333 (1986). To meet the third test, the invalid provisions to be severed must have been presented to the electorate in the initiative in such a way that their significance was seen and independently evaluated in light of the assigned purposes of the enactment. Id. Some relevant factors taken into account by courts when analyzing this prong of the severability test are whether sufficient attention was drawn to the remaining valid portions of the measure, and whether they reflect a substantial portion of the electorate’s purpose in enacting the measure. Gerken, 6 Cal.4 th at 715-16.

Viewing the ballot measure as a whole, as well as the Official Title and Summary prepared by the Attorney General, it seems as though the two mechanisms—alterations to eminent domain law and regulatory takings—are sufficiently highlighted to be independently separated and remain true to the purpose of the measure. The Official Title and Summary highlights both mechanisms of change as well as explain each in some detail. Therefore, a court would likely find that Proposition 90 does meet the requirements necessary to be severable. An invalidated portion of the measure will not invalidate the measure in its entirety.

C. Future Changes

Proposition 90 amends Article 1 Section 19 of the California Constitution. If passed, it can only be amended by future initiative. The measure does state that the Legislature may adopt laws to further the purposes and aid in its implementation. Proposition 90 § 4. If passed, the Legislature will undoubtedly enact laws dealing with the eminent domain and regulatory taking subject matters and with Proposition 90’s implementation. These laws may be challenged and lead to further litigation. It will be the province of the judiciary to determine whether or not the laws enacted by the Legislature actually further the purpose of the measure or not.

IV. Constitutional Issues

A. Federal Constitution

As noted last year by the United States Supreme Court in Kelo, each state is free to adopt its own standards regarding private property rights as long as the minimum federal constitutional standards have been met. California’s private property rights scheme is more stringent than the United States Constitution demands. Therefore, if Proposition 90 is enacted, there will be no federal constitutional conflicts.

B. State Constitution

The California Constitution contains the “Single Subject Rule” located in Article 2, Section 8(d). It states, “[a]n initiative measure embracing more than one subject may not be submitted to the electors or have any effect.” This constitutional provision was dormant in California for a long time until the California Supreme Court removed a challenged initiative measure from the ballot in 1999. Senate of the State of California v. Jones, 21 Cal. 4 th 1142 (1999). The initiative was held by the court to violate the single subject rule because the measure was not reasonably germane to a single subject. The court held that the initiative embraced “at least two separate and unrelated subjects: (1) transfer of the power to reapportion state legislative, congressional, and Board of Equalization districts from the Legislature to the California Supreme Court, and (2) revision of provisions relating to the compensation of state legislators and other state officers.” Id.

Proposition 90 may be held to violate the single subject rule just as Proposition 24 did in Jones. The standard that must be met is “reasonably germane to a single subject.” Id. Although a general subject such as “strengthening private property rights” may be a proper label for Proposition 90, that broad purpose may not meet the Court’s test of “reasonably germane to a single subject.” Proposition 90 can conveniently be divided into at least two distinct purposes: (1) alteration to eminent domain law, and (2) alteration to regulatory taking law.

The policy considerations for the single subject rule are to avoid voter confusion and to avoid “logrolling.” Logrolling is a tactic employed to ally two different policies in order to gain support. In Jones, the court noted that the reapportionment component of Proposition 24 was linked to a decrease in Legislators’ salary, which was politically popular. Id. Similarly, it can be noted with confidence that there is a nation-wide backlash against the Kelo decision from last year. Thirty One states in the past year have enacted legislation intended to reform eminent domain in response to the Kelo decision. Castle Coalition, Legislative Action Since Kelo, http://www.castlecoalition.org/pdf/publications/State-Summary-Publication.pdf (accessed October 11, 2006). By linking the popular eminent domain portion of Proposition 90 to the portion altering regulatory takings, a court may find the two polices have been combined in an attempt to logroll the regulatory takings portion into enactment.

The single subject rule, by its express language in the Constitution, has been held as appropriate for preelection challenge. Jones, 21 Cal. 4 th at 1153. No constitutional challenges have been made to Proposition 90 as of October 11, 2006, in an attempt to prevent it from being voted upon. A single subject challenge may still be made before the election as well as after the election if enacted by the people of California.

V. Public Policy Considerations

A. Proponents

Proponents argue that through unfair use of eminent domain powers, local governments can take our homes, businesses, and churches. Proposition 90 protects our fundamental right to own—and keep—our homes and private property, and fixes the Supreme Court’s Kelo decision. Analysis of Proposition 90.

The Protect Our Homes Proponents say that the Act will do two things: (1) stop the government from taking your home simply because they want higher tax revenues, and (2) provide protection from regulatory takings, ensuring just compensation if the government devalues your property through regulatory actions. Protect Our Homes, http://www.90yes.com/about_eminent_domain/ (Accessed Oct. 11, 2006).

Proponents argue that the “Protect Our Homes Act” protects all of us—and helps families for future generations—while stopping government from taking your property simply to boost tax revenue. The government should not be able to take your home, outright or through regulations that reduce the value of your property, without it being for a legitimate public use and without paying for what it takes. Analysis of Proposition 90.

Proposition 90 will restore homeowners’ rights that were infringed upon by the Supreme Court’s Kelo decision, which allowed eminent domain to be used to take homes and businesses and turn them over to private developers. This proposition will return eminent domain to legitimate public uses, such as building roads, schools, firehouses, and other needs that serve the public and not the financial interests of government and powerful developers. This proposition will also restrict government’s ability to take away people’s use of their property without compensating them. Id.

Proponents also note a judicial bias in California against private property rights and Proposition 90 will help to level the playing field. If Proposition 90 is enacted, judges will no longer have the discretion to promote governmental interests at the expense of innocent and hard working property owners. Interview with Timothy Sandefur.

Proponents of Proposition 90 also claim that opponents are engaging in scare tactics in order to divert attention from their real motive, which is to maintain the status quo. They argue that opponents falsely claim that the measure will hurt the enforcement of environmental protections, when in reality, all existing California environmental laws and regulations are expressly protected in the text of the Proposition. Analysis of Proposition 90.

B. Opponents

Opponents of Proposition 90 coin it as a “bait and switch” that is really a “taxpayer trap” for Californians. The bait is eminent domain and the trap is the section regarding regulatory takings. Proposition 90 would change California’s constitution and opponents argue that large landowners and corporations will benefit by being able to demand huge payouts from state and local taxpayers by claiming a law has harmed the value of their property or business. Analysis of Proposition 90.

Opponents argue that Proposition 90 could requires billions of dollars in new taxpayer costs each year if communities and the state continue to pass basic laws to protect neighborhoods, limit unwanted development, protect the environment, restrict unsavory businesses, and protect consumers. And, it is not just limited to land-use laws. Proposition 90 could trigger regulatory taking compensation demands for any new consumer protection law, restriction on telemarketing, and worker protection laws. Id.

Opponents argue that enacting Proposition will result in thousands of frivolous lawsuits and more bureaucracy and red tape. Virtually any speculative landowner or business looking for a windfall can file a lawsuit under this measure, claiming even the most minor new law has impacted the value of their property. Californians Against the Taxpayer Trap, http://www.noprop90.com/facts/index.php (accessed Oct. 11, 2006).

Opponents claim that Proposition 90 is a trap in two ways. First, because it is an initiative constitutional amendment, the only way to undue Proposition 90 is with another initiative. Second, the proposition will prohibit local communities from enacting new and necessary laws and regulations or waive enforcement of them. This will happen as a result of the litigation and regulatory payout costs associated with any new regulation. Taxpayers will be forced to make huge payouts any time their community acts to protect their quality of life. Opponents claim that Proposition 90 will drastically limit our ability to protect the California coastline, open spaces, farmland, air and water quality because it will just be too expensive. Analysis of Proposition 90.

VI. Conclusion

Kelo” backlash (eminent domain reform) has spread across the United States and some type of eminent domain reform has already been achieved in over half the states. Castle Coalition, Legislative Action Since Kelo, http://www.castlecoalition.org/pdf/publications/State-Summary-Publication.pdf (accessed October 11, 2006). When Californians vote on Proposition 90, they will be deciding upon more than simple eminent domain reform. Proposition 90 has two aspects to it: alterations eminent domain law, and alterations to regulatory taking law.

The proposed eminent domain reform restores rights back to property owners in that government will not be permitted to condemn private property unless it is for a public use and the land cannot be transferred or assigned to another private party.

The proposed regulatory taking reform is somewhat more convoluted. Ambiguity in the text of the proposition that lessens the diminution in value threshold of a regulatory taking could render this mechanism of change either dramatic, with enormous fiscal impact, or it could be relatively minor, mostly keeping in line with the status quo. The outcome will be judicially determined and hotly contested.

One thing is for certain regarding Proposition 90: if passed, it will spark a litigation firestorm aside from sorting out the ambiguities in the text. This proposition calls for two different devices which will encourage litigation both for challenging the public usefulness of an eminent domain taking and for demanding compensation from the government for a diminution in value to their property as a result of a regulatory taking.

The first device calls for a jury trial if property owners challenge the “public usefulness” of their property being condemned. Juries of one’s peers are more likely to have sympathy for a property owner that is being forced to sell their property to the government for a marginal public use.

The second device contained in Proposition 90 that will encourage litigation relieves the property owners’ obligation to pay the government attorney fees for an unsuccessful challenge. With the risk of incurring attorneys’ fees gone, property owners will have less to lose and more to gain by challenging the government.