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Regulation as a Taking

The government does not have unlimited authority to regulate activities on private property.  This limit has been addressed in numerous court cases and the issue centers on whether the government activitiy was an "appropriate exercise of police power," or whether the government activity amounted to a "taking" of private property rights.  This web page provides an overview of the question and excerpts from several decisions wherein courts have attempted to provide an answer.

Overview of question --

• The government has the authority to “take” private property for a public use (such as to build a school) as long as the government justly compensates the owner.  This is sometimes referred to as the "power of eminent domain."
• The government also has the authority to regulate activities (which restrict our rights) WITHOUT compensating us as long as the regulation is needed for the health, safety, and general well-being of society, such as imposing a speed limit.  We call this “an exercise of police power.”
• A legal dispute arises when a regulation imposes so many restrictions that the regulation has effectively “taken” our property rights, thus entitling us to be compensated (for example, a zoning ordinance that leaves my land with very little use or value).  Restated, the legal issue is how do we distinguish between 1) a regulation that is a proper exercise of police power that does not require compensation and 2) a regulation that amounts to a taking for which compensation has to be paid. 
• When an individual feels the government regulation amounts to a taking (that is, the regulation has gone beyond the proper exercise of police power), the individual seeks compensation from the government by filing a lawsuit claiming the government action has ‘taken” the person’s property.  We refer to this legal argument as “inverse condemnation.”
• The person seeking compensation (the person who brings the inverse condemnation action) will argue that the government regulation went beyond an exercise of police power and is a “taking” that entitles the person to be compensated.  The government will argue the regulation is not a taking, but a proper exercise of police power that does not entitle the person to be compensated.  Again, defining when a regulation has “gone too far” is the difficult question.
• If the regulation is a taking, the government can either 1) make the payment, or 2) revise the regulation to reduce how restrictive it is and thus convert it from being a taking back to being a proper exercise of police power.

The following excerpts are from court cases that distinguish between 1) a regulation that is an exercise of police power and 2) a regulation that amounts to a "taking."

• Paraphrased from the syllabus of Penn Central Transportation Co. v. New York City , 438 U.S. 104 (1978) (USSCt)

(a) In a wide variety of contexts, the government may execute laws or programs that adversely affect recognized economic values without its action constituting a "taking," and, in instances such as zoning laws where a state tribunal has reasonably concluded that "the health, safety, morals, or general welfare" would be promoted by prohibiting particular contemplated uses of land, this Court has upheld land use regulations that destroyed or adversely affected real property interests. In many instances use restrictions that served a substantial public purpose have been upheld against "taking" challenges, ... though a state statute that substantially furthers important public policies may so frustrate distinct investment-backed expectations as to constitute a "taking," ... and government acquisitions of resources to permit uniquely public functions constitute "takings..."

(b) In deciding whether particular governmental action has effected a "taking," the character of the action and nature and extent of the interference with property rights ... are focused upon ... Consequently, [the property owners] cannot establish a "taking" simply by showing that they have been denied the ability to exploit [a portion of the parcel], irrespective of the remainder of [their] parcel.

(c) Though diminution in property value alone, as may result from a zoning law, cannot establish a "taking," as [the property owners] concede, they urge that the regulation of [their land] is different, because [the regulation] applies only to selected properties. But it does not follow that [this regulation is]... discriminatory... Nor can it be successfully contended that [this regulation] ... involves only a matter of taste, and therefore will inevitably lead to arbitrary results ... and there is no reason to believe it will be less effective than would be so in the case of zoning or any other context.

(d) [The fact that the regulation] affects some landowners more severely than others does not, itself, result in "taking," for that is often the case with general welfare and zoning legislation. Nor, contrary to [the property owner's] contention, are they solely burdened and unbenefited by the [regulation], which has been extensively applied and was enacted on the basis of the legislative judgment that [this regulation] benefits the citizenry both economically and by improving the overall quality of ... life.

(e) [This regulation] no more effects an appropriation of the [portion of the land] for governmental uses than would a zoning law appropriate property; it simply prohibits [the owners] or others from occupying certain features of [the land] while allowing [the owners] gainfully to use the remainder of the parcel.

(f) The [regulation], which does not interfere with the [land's] present uses or prevent [the owners] from realizing a "reasonable return" on its investment, does not impose the drastic limitation on [the owners'] ability to use the [portion] that [they] claim, [because there is no indication that an alternative use] would not be authorized. Moreover, the ... rights are made transferable to other parcels in the vicinity ... thus mitigating whatever financial burdens [the owners] have incurred.

• Paraphrased from the syllabus of Lucas v. South Carolina Coastal Council , 505 U.S. 1003 (1992) (USSCt)

(a) Regulations that deny the property owner all "economically viable use of his land" constitute one of the discrete categories of regulatory deprivations that require compensation ... Although the Court has never set forth the justification for this categorical rule, the practical -- and economic -- equivalence of physically appropriating and eliminating all beneficial use of land [argues that it should be continued].

(b) ...

(c) Rather, the question must turn, in accord with this Court's "takings" jurisprudence, on citizens' historic understandings regarding the content of, and the State's power over, the "bundle of rights" that they acquire when they take title to property. Because it is not consistent with the historical compact embodied in the Takings Clause that title to real estate is held subject to the State's subsequent decision to eliminate all economically beneficial use, a regulation having that effect cannot be newly decreed, and sustained, without compensation's being paid the owner. However, no compensation is owed -- in this setting as with all takings claims -- if the State's affirmative decree simply makes explicit what already inheres in the title itself, in the restrictions that background principles of the State's law of property and nuisance already place upon land ownership.

(d) Although it seems unlikely that common law principles would have prevented the erection of any habitable or productive improvements on Lucas' land, this state law question must be dealt with on remand. To win its case, [the state] cannot simply proffer the legislature's declaration that the uses Lucas desires are inconsistent with the public interest, or the conclusory assertion that they violate a common law maxim ... but [instead, the state] must identify background principles of nuisance and property law that prohibit the uses Lucas now intends in the property's present circumstances.

• Summarized from ROSE ACRE FARMS, INC., v. UNITED STATES, US Court of Appeals for the Federal Circuit, June 30, 2004.

A regulatory takings claim "'arises from some public program adjusting the benefits and burdens of economic life to promote the common good,'" as opposed to a government appropriation of private property for its own use ... When a takings claim arises from [a regulation], it is necessary to determine whether "'justice and fairness' require that economic injuries caused by public action be compensated by the government, rather than remain disproportionately concentrated on a few persons." ... No per se rules or "set formula[s]" govern such determinations; instead, courts "engag[e] in . . . essentially ad hoc, factual inquiries." The Supreme Court has, however, identified several factors having particular significance, namely, the "economic impact of the regulation on the claimant," "the extent to which the regulation has interfered with distinct investment-backed expectations," and "the character of the governmental action." Application of these Penn Central criteria is required where, as here, "less than a 'complete elimination of value'" resulted from the regulation at issue.

[Inserted from another section of the opinion] The Lucas per se rule only applies in the 'extraordinary case' where three prerequisites are met: the regulation must (1) permanently deprive, (2) the whole property, (3) of all its value" (emphasis in original).

A. Economic Impact

Simply put, it is not possible to determine the economic impact of a regulatory scheme applied to a private [person] without casting the appropriate absolute measures of the effect of the regulation against the backdrop of relevant indicators of the economic vitality of the [persons] ... Yet, an assessment of the severity of the economic impact of the regulations … must take [those relevant indicators] into account.

In regulatory takings cases concerning diminished real estate values, this concept is known as the "parcel as a whole."

"Taking" jurisprudence does not divide a single parcel into discrete segments and attempt to determine whether rights in a particular segment have been entirely abrogated. In deciding whether a particular governmental action has effected a taking, this Court focuses rather both on the character of the action and on the nature and extent of the interference with rights in the parcel as a whole...

The Court recently elaborated on this concept, stating:

This requirement … also clarifies why restrictions on the use of only limited portions of the parcel, such as setback ordinances or a requirement that coal pillars be left in place to prevent mine subsidence were not considered regulatory takings.

We recognized in Yancey that comparable or even larger diminutions in value had been held insufficient for takings purposes in particular cases (holding that a 75% value diminution caused by a zoning law did not constitute a taking), and (holding that no taking resulted from an 87% diminution in value). We rejected the notion that such cases set a minimum value diminution that had to be demonstrated for liability to lie. In so doing, we recognized that "the modern Penn Central approach" requires a balancing of "all the relevant considerations."

All of which is to note that there are a number of different ways to measure the severity of the impact of the restrictions...

B. Reasonable Investment-Backed Expectations

The trial court noted that, although the industry in general is highly regulated, government experts previously believed [the problem arose in only one way].  Accordingly, prior to 1990, [the government pursued one type of regulatory action. The recent change in government regulatory action, based on new scientific understanding of the problem, was not contemplated by private persons who made investments in the industry prior to this new understanding. Accordingly, the investors would argue that the new regulatory scheme interferes with reasonable investment-backed expectations.]

The government [in its counter-argument] seeks to define the field of relevant regulation more broadly, citing to long-standing regulations aimed at preventing the [problem]. It argues that a new regulation aimed at a specific, recently-recognized disease threat was not unforeseeable in such an environment.

But the [new] regulations were more than an extension of comparable regulations to a new disease. They were grounded in new scientific understanding... Accordingly, even accounting for the history of regulation in the industry, we cannot agree that [this regulation did not extend to a new issue].

C. Character of the Government's Action

"[a] 'taking' may more readily be found when the interference with property can be characterized as a physical invasion by government, ... than when interference arises from some public program adjusting the benefits and burdens of economic life to promote the common good." The court cited with approval a decision holding that no compensation under the Fifth Amendment was due orchard owners ordered to cut down their ornamental cedar trees infected with cedar rust to protect neighboring apple orchards. This decision so held based solely on the power of the state to prevent impending harm to a valuable public resource -- the apple industry. ...[W]here the public interest is involved preferment of that interest over the property interest of the individual, to the extent even of its destruction, is one of the distinguishing characteristics of every exercise of the police power which affects property."  "Although a comparison of values before and after" a regulatory imposition "is relevant, ... it is by no means conclusive..."

As noted above, Keystone Bituminous also sprang from a police power regulation -- action on the part of the Commonwealth of Pennsylvania "to protect the public interest in health, the environment, and the fiscal integrity of the area."  The Court there noted that "the nature of the State's interest in the regulation is a critical factor in determining whether a taking has occurred."  It reaffirmed the principle that "no individual has a right to use his property so as to create a nuisance or otherwise harm others," and noted that "the Takings Clause did not transform that principle to one that requires compensation whenever the State asserts its power to enforce it."

"A regulation that burdens private property may 'constitute a "taking" if [the burden is] not reasonably necessary to the effectuation of a substantial public purpose.'" (quoting Penn Central).

But the issue is not whether a less restrictive alternative to the government action existed or was "possible."  It is whether there is a nexus between the regulation and its underlying public purpose (if the regulation "utterly fails to further the end advanced as the justification," the "purpose then becomes the obtaining of an easement to serve some valid governmental purpose, but without payment of compensation").

The trial court's finding that [private person] "shared a disproportionate amount of the burden of the ... regulations," even if correct, is not relevant.

Nowhere does [person] argue that the regulatory means were inconsistent with knowledge the government possessed at the time [the initial regulations] were adopted or applied. Nor does [the person] contend that there was no nexus between those means and the substantial public purpose underlying the regulations -- protecting the public against exposure to a potentially serious, even fatal, food-borne illness.

D. Balancing of the Penn Central Factors

The Penn Central test was "designed to allow "careful examination and weighing oJuly 25, 2006ions at issue in this case went "too far" and, therefore, constituted a taking is thus determined by balancing their interference with [the person's] right to use its property in accordance with its reasonable economic expectations against the substantiality of the government's purpose and the nexus between that purpose and the means undertaken to achieve it.

Only when all of the relevant criteria and circumstances are considered, and considered together, can a conclusion be reached as to whether compensation is required in this case. The court must evaluate the severity of the economic impact and weigh that against the other Penn Central factors.

Here then, the same analysis must be employed to determine whether [the person] is entitled to compensation under the Fifth Amendment. The trial court must evaluate the severity of the economic impact of the regulation ... Further inquiry into whether the regulations [a.] interfered with [the person's] reasonable investment-backed expectations and [b.] furthered a substantial public interest need not be undertaken... However, the court must ultimately weigh all the Penn Central factors to determine whether the Fifth Amendment requires compensation.

Last updated July 25, 2006

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