Measure 37 Passes

Will Oregon property rights measure come to California?
Article
February 1, 2005

Since 1969, when Oregon's Senate Bill 100 created the most comprehensive statewide planning program in the nation under legendary Governor Tom McCall, the administering state agency, the Land Conservation and Development Commission (LCDC), has proved a model for planners-and an irritant for many landowners. Their irritation was manifested on election day, November 2, 2004, when Oregon moved from top to bottom in planning potency, and from bottom to top in property-rights protection, when its voters passed Measure 37 requiring payment to landowners for any reduction in land value due to land use controls, or alternately, removal of the regulation.

Measure 37 provides that a public entity, such as a city, county, or state agency, enacting new regulation (typically zoning or environmental controls) or "enforcing" preexisting regulation (i.e. preventing uses other than those permitted) that reduces the fair market value of land, must compensate owners or waive the control. Excluded from its purview is regulation for public health and safety, pollution control, and public morality (regulation of pornographic uses remains unaffected). Its application is retroactive, as well as prospective. Compensation must be given for the financial effects of any law enacted after acquisition by the owner or a family member (i.e. ancestor) of the owner (hence the date of eligibility would be when the first family member, not the current one, first acquired the land).

The impact of the measure will be far-reaching with thousands of owners being able to make some claim, many noting some monetary effect even on their grandparents, albeit increasingly smaller in uninflated dollars the earlier the impact. The lands on the controlled side of urban growth boundaries likely will be the subject of most claims. Rural landowners able to show significant economic potential reduced by regulation in the 1970s and later, may also be claimants. Depending on how deep into their pockets public agencies will dig, the unsullied Oregon wilderness could be defaced by scattered development allowed by waiver.

The Portland, Oregon, skyline from above the Willamette River
The Portland, Oregon, skyline from above the Willamette River.


On its face, the measure appears eminently reasonable (except for the notable omission of the counterpart to compensation for reduction, namely exaction for enhancement, discussed later). To the average voter, largely unaware of its implications, the seemingly innocuous and outwardly appropriate measure sounded like the correction of a prior oversight--61 percent of the voters voted for it, while 39 percent opposed it. But it is predictably causing great consternation in the state's government halls. The most problematic feature of the measure is that when a public agency cannot or will not pay a claim, likely the case, it must waive the regulation within 180 days or the owner may file suit in state circuit court with the plaintiff entitled to attorney fees and costs.

The result threatens the role and even the existence of the state's Land Conservation and Development Commission (LCDC), which reviews and "acknowledges" local plans and regulations as consistent with LCDC-adopted statewide goals. Most importantly it could turn outer urban rings and previously rural areas into a patchwork of scattered development covering the now-pristine Oregon countryside. A state famous for its clearly defined urban-rural boundaries could become notorious for amorphous urbanization patterns because of what could become almost automatic entitlements, and because some zoning and other controls likely will at best remain static and at worst may be repealed.

In retrospect, the outcome of the vote probably should have come as no surprise. Measure 7, dealing with compensation for regulatory impact but without the waiver option, passed in 2000, but was overturned by the state supreme court because of the absence of the waiver remedy; the court seems unlikely to invalidate this version, which includes it.

Because the state and its localities are fiscally challenged, the waiver option allowing the owner to establish uses permitted at the time the owner or his ancestor acquired the property may be their only choice, and could undo 30 years of progressive and innovative planning and land-use control in Oregon.

As of this writing there have not yet been a great many claims filed, but those that have been are substantial. For instance, Washington County, with a population of 450,000, has a potential for 17,000 claims according to the December 26, 2004 Portland Oregonian. Given that zoning was introduced in most of Oregon in the mid-1950s and LCDC and localities imposed most regulation in the 1970s, there are many potential claimants. Cost projections cannot be confined to land-use-control agencies. The measure will affect public-transportation, environmental, public-utility, and community-services agencies as well.

One can begin to see the enormity of compensation costs, and local agencies will look in vain for a revenue source in the new law. It will be their own general funds. The secretary of state, in the ballot proposition, forecast a $344 million annual cost for administration alone, without compensatory payments. State and local agencies already stretched to the limit to provide schools and public safety in a weak Oregon economy simply cannot find the hundreds of millions of dollars needed to compensate owners submitting large and perhaps speculative claims for a great number of parcel value reductions. Even landowners whose land has greatly appreciated (most farmers, for example) can make a claim that the land would have been worth far more without intervening regulation.

The result of these waivers is likely to be an anomalous zoning and land-use pattern, arrived at without benefit of data, analysis, policy, or public testimony--in short, without land-use planning. Spot and spotty zoning and development may cover the state. The impact may not stop with the first waiver. Conceivably, a neighbor of the recipient could bring a claim that the waiver given lowered his or her adjacent property values and then bring a secondary claim.

Many issues will arise. Will the system be inherently undemocratic in that it will favor those with the financial means to file claims? Will a new "industry" spring up in the transition period to encourage speculative or even fraudulent claims? Because this is the first such law of its kind, there are many unforeseens. Quite possibly, when infeasibility becomes apparent, owners may not go to the trouble of filing claims.

The result of the Oregon vote also is not surprising given growing hostility to LCDC, its regulations and administration. As the first comprehensive state-monitored planning and land-use regulatory program in the country, Oregon did not have the benefit of precedent. Without a plan map, it chose heavy reliance on pre-stated and necessarily complex zoning covering diverse settings throughout the state. At about the same time that LCDC was established, Sedway Cooke Associates, a planning consulting firm in which I was a principal, was asked to help devise the regulatory methods to implement first the San Francisco Bay Plan and then the California Coastal Plan. It considered all possible regulatory idioms. It was easy to foresee, were zoning to be used, that lengthy and complex regulations would be required in the future (even for the smaller than whole state areas involved) which would have to be revised later for change over time. The amount of regulatory fine print required would make only an optometrist happy. So instead, a plan-based administrative review system was recommended. Although lessening predictability, available to some extent via the underlying plans, this approach has withstood the test of time. But Oregon, in 1973, had to move quickly into a zoning mode without the benefit of a mapped plan, which both the San Francisco Bay and California Coastal agencies' study/planning predecessor agencies had developed.

Obviously the most critical flaw in the Oregon property rights crusade that sponsored the measure is the private sector economic market myopia involved. The crusaders ignored the fact that if the public agencies are considered responsible for value reductions, they should get the benefit of value increases they impart, both by zoning and perhaps by other actions as well. Although that is politically less palatable and harder to quantify, to be consistent part or all of those value increases should be returned to the public sector and are clearly necessary to fund a feasible compensatory program. The British devised such a "compensation and betterment" system, which was repealed when the Conservative party came to power in the late 1980s.

Sedway Cooke Associates also undertook three other studies relevant to the Oregon "crisis." They were done for Sonoma County, California, in the late 1970s. The first examined the future of county agriculture, the second studied options for agricultural preservation, and the third focused on the most promising of these options-a density transfer system. Two major impacts of the proposed system were addressed and responses developed: a means for dealing both with private-value enhancement and value reduction, variously called windfalls-and-wipeouts, boons-and-busts, and givings-and-takings; and a means for dealing with the other corresponding effect-the skewing of intergovernmental fiscal returns attributable to transferring density from "sending" to "receiving" areas.

That study found the means to facilitate such transfers between landowners and between jurisdictions in an equitable manner. Although it is a hard sell-and Sonoma County found it to be so--Oregon is under greater pressure, and may ultimately be forced, after local government bankruptcy and/or environmental despoliation, to consider a variant of the Sonoma County study approach, namely to confine compensation "rights" received by an owner in previously protected "sending" (e.g. conservation) areas, to sale to other landowners in suitable "receiving" (e.g. development) areas (akin to its use in downtown San Francisco for historic-building preservation).

Can a Measure 37--type initiative pass here? It's possible but unlikely. The issues of LCDC and property value reduction have been before Oregon voters for decades. There is no state agency in California analogous to LCDC that would be a political target. And our local agencies taken together seem to be able to find sites for all land uses, unlike Oregon where there is a lack of research and development and industrially zoned sites. However, other western states with strong property-rights advocacy groups might be fertile ground for this one-sided and ultimately self-destructive "reform" of land-use regulation.spur logo

About the Authors: 

Paul Sedway is a SPUR board member and a principal of Sedway Consulting.