Eminent domain: The Supreme Court “substantially advances”
“Nor shall private property be taken for public purpose without just compensation.”
–
“We the people …”
Takings questions are critical to affordable housing because they provide clear boundaries and partner-protection mechanisms without which public-private partnership is conceptually unsustainable. As I have written at length (link in .pdf) regarding the pending Kelo case, at the heart of takings questions is not so much whether the government can take property, nor even principally when, but rather, how much must it pay?
The Takings Clause ‘does not prohibit the taking of private property, but instead places a condition on the exercise of that power.’ First English (1987). In other words, it “is designed not to limit the governmental interference with property rights per se, but rather to secure compensation in the event of otherwise proper interference amount to a taking.”
This current Supreme Court, which like all Supreme Courts takes only the cases it chooses to hear (by granting certiorari), has evidently decided to grasp the nettle:
The case was one of three this term seeking to delineate the rights of property owners. The other two, which have not yet been decided, examine whether local governments may seize people’s homes and businesses for private economic development; and whether property owners can bring their claims to federal court after losing in state court.
Monday’s case is Lingle v. Chevron
In this particular case, the Justices have unanimously (9-0) knocked away a narrow issue that would otherwise have cluttered up all future jurisprudence.
And along the way, they highlight an encouragingly wry awareness that government regulation can neither repeal the Law of Economic Gravity nor outwit market responses.
On occasion, a would-be doctrinal rule or test finds its way into our case law through simply repetition of a phrase — however fortuitously coined. A quarter century ago, in Agins v. City of
"These wounds I had on at Agins' Court."
The lower courts in this case [Lingle] took that statement to its logical conclusion, and in so doing, revealed its imprecision. Today we correct course. (Page 18)
We hold that the “substantially advances” formula is not a valid takings test, and indeed conclude that it has no property place in our takings jurisprudence.
So far, fine, the court is sending back to the intellectual warehouse a piece of lawn furniture that should never have been placed in its legal library. But the Justices thoughtfully also articulated the boundaries under which they will consider future cases, like the two now pending:
In so doing, we reaffirm that a plaintiff seeking to challenge a government regulation as an uncompensated taking of private property may proceed under one of the other theirs discussed above, by alleging:
1. A “physical” taking [government seizes, intrudes upon, or occupies the property].
2. A Lucas-type “total regulatory taking” [government eliminates all economic value, e.g. by downzoning development land into a permanent wetland or park].
3. A Penn Central taking [government 'interferes with investment-backed expectations' by materially reducing property value].
4. A land use exaction violating the standards set forth in Nollan and Dolan [essentially, carving a hunk, even if small, out of physical property rights].
So much for the legal issues. Now for the fun stuff, all of it irrelevant to the decision these Justices rendered but entertaining as it reflects a classic microcosm of how government grabs a visible issue, attempts to force an outcome, and ham-handedly enacts a law that is at best dubiously valuable and at worst a pretzel hold.
A gas station is a business that resides in a physical property. Many people who can run gas stations cannot afford to build, buy, or operate real estate. So in
In 1997, the State of
What would they have thought of today’s?
… enacted Act 257, which — in the common legislative paradigm of wanting a result but being unwilling to pay anything for it — imposes caps on the rent that oil companies (like Chevron, which then controlled about 60% of Hawaii’s gas market) could charge to lessee-dealers.
Now, here comes the fun stuff — did it work?
It didn’t really reduce rents:
The parties jointly stipulated that Act 257 reduces by $207,000 per year the rent … on 11 of Chevron’s 64 stations. On the other hand it allows Chevron to collect more rent … at its remaining 53 stations, by nearly $1,100,000 per year. (Page 4)
The rents are cheap already, and the lessee deal, far from creating a premium to Chevron, costs Chevron money:
Chevron has not fully recovered the costs of maintaining lessee-dealer stations in any state through rent alone. (Page 4)
Which means that the price of gas already includes a recovery of the benefit of this bargain rent (that we’ve now decide we have to cap!):
Rather, the company recoups its expenses through a combination of rent and product sales. (Page 4)
The rent cap wouldn’t benefit consumers, but instead would transfer money from Chevron to the lessee tenant gas station owners:
The rent cap would allow incumbent lessee-dealers, upon transferring occupancy rights to a new lessee, to charge the incoming lessee a premium reflecting the value of the rent reduction. (Page 4)
Even if it did cut rents, that wouldn’t help consumers:
Oil companies would raise wholesale gasoline prices to offset any rent reduction required by Act 257, and the result would be an increase in retail gasoline prices. (Page 5)
By now I’m practically on the floor laughing at the utterly predictable (but legislatively surprising!) impacts, but here’s the capper:
Act 257 would in fact decrease the number of lessee-dealer stations because the rent cap would discourage oil companies from building such stations. (Page 6)
To recapitulate, the State of
- That doesn’t really regulate rents.
- If it does, simply transfers value from the landlord to a tenant, without helping the customer.
- If it works more, raises a compensatory price (gas) to cover the imposed tax.
- Actually will reduce customer access to the commodity.
Though Constitutional (as found in Lingle), Act 257 is utterly self-defeating and pointless.
Does this remind you of anything?
