Land Use

Taking Land or Just Borrowing It With Interest?

Why are environmentalists in favor of compensating voluntary land use restrictions but not involuntary ones?

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In November, citizens in twelve states will be voting on a variety of property rights initiatives that would limit eminent domain. Several of the initiatives would also require state and local governments to compensate property owners for "regulatory takings." A regulatory taking occurs when agencies impose restrictions on the ability of property owners to use their land in ways that were legal at the time they bought their property. Under those initiatives governments would be required to compensate property owners when they enact zoning regulations that reduce the value of their land. These campaigns were inspired by the Supreme Court's disastrous ruling last year in Kelo v. City of New London. In that case a Connecticut city was allowed to use eminent domain to seize the homes of some residents and then turn around and give the land to private developers.

Naturally, people who think they know best how other people should use their property are up in arms over the initiatives. The Washington Post characterizes property rights advocates as "trying to harness anger over the [Kelo] ruling in an effort to pass state initiatives in the West and federal legislation that could unravel a long-standing fabric of state and local land-use regulations. Among other things, the rules control growth, limit sprawl, ensure open space and protect the environment." Unmentioned by the Post is that the rules do all those good things without paying people who own the affected farms, ranches, forests and homes a dime for the lost value of their land.

Property rights campaigners were heartened in 2004 when 61 percent of the voters supported the Proposition 37 voter initiative in Oregon that rolled back that state's famously restrictive system of land use regulations. Environmentalist opponents of property rights initiatives haul out the argument that the initiatives will cost taxpayers billions of dollars if they pass. However, it turns out that state and local agencies are only willing to commandeer someone's property if they don't have to talk taxpayers into paying for the restrictions they want to impose. For example, in Oregon after Proposition 37, state and local land use bureaucrats say that they have backed down and waived zoning restrictions rather than ask the state's taxpayers to shell out $5.6 billion to maintain them.

The puzzle at the heart of the environmentalists' reluctance to compensate landowners for zoning restrictions comes into focus when you consider their attitudes toward conservation easements. A conservation easement is a voluntary legal arrangement in which a landowner agrees to protect the conservation values of a piece of land by permanently limiting its present and future uses. Landowners then donate the easement to qualified conservation organizations that make sure the land is managed in line with the restrictions established by the easement. For this land owners get substantial federal and state income tax breaks. How does this work?

The value of the charitable donation is the difference between the fair market value of the property before and after the easement is donated. Note that the initiatives opposed by environmentalists would similarly compensate landowners for the difference between the fair market value of the land before and after zoning restrictions are imposed. In August, President Bush signed legislation that permits conservation easements donated in 2006 and 2007 to be deducted at the rate of 50 percent of the donor's adjusted gross income per year; any unused portion can be carried forward for an additional fifteen years. Without bothering to go through the calculations here, one tax advisor notes that the combination of federal income and estate tax benefits can equal or exceed the cost of the easement itself, up to as much 146 percent of the cost of easement. In other words, voluntary land restrictions are compensated—sometimes very well compensated—through the tax code.

The contradiction in the debate over compensating landowners is that environmentalists don't want to pay landowners who are ordered to "preserve" their land for the public's benefit, but they have no problem "giving away" billions in tax breaks to people who voluntarily restrict the use of their land. What's the difference? Surely part of the difference is that the cost to taxpayers for voluntary restrictions is hidden. Taxpayers don't see that granting these conservation tax breaks means that they are likely to have to pay higher taxes to cover the costs all of the other wonderful programs and projects that governments spend money on. As the experience in Oregon shows, land use bureaucrats and environmentalists don't think taxpayers will pony up when they are asked directly to pay for conservation zoning restrictions that are imposed on landowners against the owners' will.

Ultimately, if we compensate voluntary land use restrictions, then we should especially pay for imposing involuntary land use restrictions. That is just plain simple justice.

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