I. Federal Land Use Regulation
Though forms of land use regulation have been imposed by the state throughout American history, it is only since the twentieth century that it has become a prominent regulatory force. From local zoning laws to regional and even national land use planning, laws restricting private property rights have become more common and more widespread. The two most important pieces of national land use regulation are the Endangered Species Act (ESA) of 1973 and section 404 of the 1972 Clean Water Act. Subject to certain exceptions, the ESA prohibits not only the destruction of members of endangered plant and animal species but also the destruction of their habitats.Footnote 1 An important implication of the ESA is that the number of species extant in the United States should not be diminished. The discovery of members of an endangered species on private property can significantly reduce the value of that land, a reduction for which the owners are typically not compensated. My purpose in this essay is to address this compensation issue as it arises under the ESA. This issue also comes up under section 404 of the Clean Water Act, which has been interpreted by the courts to give the Army Corps of Engineers regulatory authority over wetlands. Considerations of space prevent a full discussion of this law, though the same principles would seem to apply to both regulatory regimes. I shall argue that the main arguments against compensating landowners under the ESA are defective and that landowners should indeed be compensated when the ESA imposes significant limitations on what property owners can do with their property.
The ESA is a complex piece of legislation, so a brief discussion of some of its details and how it has been implemented is in order. The Endangered Species Act of 1973 (16 U.S.C. sec. 1531 et seq. [2008]) requires the cooperation of literally dozens of government agencies. The two most important agencies in implementing it are the Fish and Wildlife Service (FWS) and the National Marine Fisheries Service (NMFS). The former is housed in the Department of the Interior and the latter in the Department of Commerce. Each of these agencies is entitled to list species as endangered or threatened, though most listings are done by the FWS. “The term ‘endangered species’ means any species which is in danger of extinction throughout all or a significant portion of its range …” (16 U.S.C. sec. 1532[6] [2008]). “The term ‘threatened species’ means any species which is likely to become an endangered species within the foreseeable future throughout all or a significant portion of its range” (16 U.S.C. sec. 1532[20] [2008]). Although most listings are done by the FWS, private parties may petition to list a species or have the status of a species changed (16 U.S.C. sec. 1533[b][3][A] [2008]).
Three sections of the ESA do most of the work: (1) Section 1533 states the mechanics of the listing process and requires the development of a plan to recover an endangered or threatened species. (2) Because the federal government owns or controls so much land, especially in the West, section 1536 details a consultative process that the secretaries of the departments of Commerce and the Interior must engage in when other federal agencies (e.g., the Bureau of Land Management, the U.S. Forest Service) are involved. (3) Section 1538 spells out the actions prohibited by the ESA on private land, including the “taking” of a member of an endangered species. In the definitions section (section 1532), a taking is defined as follows: “The term ‘take’ means to harass, harm, pursue, hunt, shoot, wound, kill, trap, capture, or collect, or to attempt to engage in any such conduct” (16 U.S.C. sec. 1532[19] [2008]). Under section 1538(a)(2)(2008), plant species are subjected to less stringent protection than animal species. Though takings of members of endangered plant species on federal lands are prohibited, their incidental destruction on private property is not forbidden unless it is deliberate or in knowing violation of the law.
Because of various problems with the act and its implementation, the ESA has been amended at least ten times.Footnote 2 Perhaps the most important amendments were passed in 1978. They required the secretary of the interior to designate a species' critical habitat whenever it listed a species as endangered.Footnote 3 Critical habitat is defined by reference to specific areas occupied by the species at the time of listing. It is not coextensive with the entire range of the species, which might be quite large. An important fact about the 1978 amendments is that the secretary can take economic factors into account in designating critical habitat (16 U.S.C. sec. 1533[a][3] [2008]) but not in the decision to list a species as threatened or endangered. Conflicts with other government agencies, specifically conflicts over the Tellico Dam in Tennessee and the Grayrocks Dam and Reservoir in Wyoming, led to another provision in the 1978 amendments.
Construction on the Tellico Dam was halted to preserve a tiny minnow-like fish known as the snail darter. The FWS also determined that the Grayrocks project threatened the habitat of the whooping crane on the Platt river. The FWS's action halting work on the Tellico Dam was upheld in Tennessee Valley Authority v. Hill (1978).Footnote 4 The Supreme Court opinion, written by Chief Justice Warren Burger, stated that “the plain language of the Act, buttressed by its legislative history, shows clearly that Congress viewed the value of endangered species as ‘incalculable.’ ”Footnote 5 Arguably, this was Burger's way of telling Congress to fix the law. Complaints in Congress over the implications of the ESA for the Tellico and Grayrocks projects (in both of which the federal government had invested considerable resources) led to changes in the law that permitted some compromise. Specifically, one of these amendments created the Endangered Species Committee, quickly dubbed “the God Committee.” This is a high-level committee authorized to exempt federal projects from the provisions of the ESA, if the committee judges that the economic and social benefits of the project outweigh the biological consequences of the exemption.Footnote 6 Basically, the committee can authorize incidental “takings” of members of endangered species by the relevant federal agency or its contractors, provided these incidental takings do not lead to the species' extinction and provided that mitigation measures are taken to lessen the impact on the affected species (16 U.S.C. sec. 1536[e] [2008]).
The next major change in the law came with the 1982 reauthorization of the ESA.Footnote 7 This reauthorization relaxed some of the listing requirements (that is, made it easier to list a species as endangered), and it required the secretary of the interior (or commerce) to issue a preliminary finding on a listing within ninety days, to be followed by a critical habitat listing. A major complaint against the act as originally formulated was that it treated federal government agencies differently from the way it treated private parties. The ESA required no consultative process between the FWS or NMFS and private landowners (in contrast with federal agencies), nor did it make any provision for incidental takings by landowners. All takings of endangered species were prohibited. However, legal counsel for the FWS advised that, absent a taking (in effect, a dead body), nothing could be done by the government to protect an endangered species on private property. Hence the motivation for landowners to “shoot, shovel, and shut up.” The 1982 amendments made some effort to fix these problems. A new section, 16 U.S.C. sec. 1539 (2008), was created, which permitted incidental takings, provided that a habitat conservation plan (HCP) was submitted and accepted, and provided that whatever incidental takings occurred did not threaten the species with extinction. In theory, this allowed landowners to use their land for their own purposes while protecting endangered species. In practice, however, the expense and delay involved in developing HCPs put them beyond the reach of nearly all small- to medium-sized landowners. For large landowners, the more land that was subject to the HCP, the more likely it would turn out that multiple endangered species would be implicated, thereby complicating whatever plans they might draw up. Besides, the habitat modifications that landowners were most interested in—development—remained strictly limited.
In a series of cases originating in Hawaii,Footnote 8 the plaintiffs successfully argued that populations of feral goats and sheep, which were maintained by the state of Hawaii for the purpose of sport hunting, had illegally harmed an endangered bird species, the palila, by destroying seedlings of the vegetation upon which the birds exclusively depended for food and nesting, though there was no showing that the birds could not have found other habitat. In these cases, the courts allowed to stand the FWS's expansive definition of “harm” within the statutory definition of a “taking.” As the secretary of the interior defined it in the Code of Federal Regulations:
“Harm” in the definition of “take” in the Act means an act which actually kills or injures wildlife. Such act may include significant habitat modification or degradation where it actually kills or injures wildlife by significantly impairing essential behavioral patterns, including breeding, feeding or sheltering.Footnote 9
This means that habitat modification, including interference with breeding behavior, counts as a form of injury to wildlife. This definition was the issue in a 1995 case that attracted national attention, Babbitt v. Sweet Home Chapter of Communities for a Great Oregon. Footnote 10 In this case, the Supreme Court affirmed the secretary of the interior's understanding of “harm,” which allowed the FWS to (continue to) impose logging restrictions in the Northwest and the Southeast to protect the habitats of the spotted owl and the red-cockaded woodpecker, respectively.
II. The Compensation Issue
A. The search for criteria
The restrictions imposed by the ESA are part of a larger controversy about the reach of the takings clause of the Fifth Amendment, which says that private property shall not “be taken for public use, without just compensation.” The question is whether or not land use regulations imposed by the federal government amount to takings that require compensation. In the case of the ESA, it has been generally held that compensation is not owed. I shall argue that this is misguided and mistaken, and that the regulatory burdens imposed by the ESA ordinarily do require compensation.
Most land use regulation is done by state and local governments, which introduces a complication. In many of the cases where the courts have held that state and local governments need not compensate property owners, the rationale has been that the governmental entity in question has been engaged in a legitimate exercise of its police power. The police power is held to be an inherent power of state and local governments. However, in the U.S. system, the federal government has only those powers that are specifically listed or enumerated in the Constitution. One such power is found in the commerce clause, which gives the federal government the right to regulate interstate commerce and has served as the predicate for federal land use regulation, including land use regulation under the ESA. Nevertheless, since most jurisprudence on regulatory takings concerns state and local laws, in what follows I will address the compensation question as it comes up in these contexts; I will postpone a discussion of federal land use regulation under the ESA until Section III. This should create no special problems, since the Supreme Court incorporated the Fifth Amendment takings clause, making it applicable to the states through the due process clause of the Fourteenth Amendment.Footnote 11 What follows is not intended to be a comprehensive discussion of regulatory takings but is instead a discussion of a range of cases that implicate a fundamental philosophical principle of fairness—a principle that appears to undergird some of the more important Supreme Court decisions of the twentieth century.
State and local governments can regulate private property without compensation for the “health, safety, or morals” or (more recently) “the general welfare” of society. So, for example, manufacturers can be prohibited from dumping toxic substances onto someone's property, and compensation is not owed because the state is acting to protect the public health. Indeed, in the absence of a government regulation prohibiting this sort of thing, a landowner could successfully sue under tort law as an infringement of his or her property rights. Nearly everyone could agree—even libertarians—that this is a legitimate exercise of state power, and it does not require that any compensation be paid to the party subject to the prohibition. Problems arise when one considers regulations that cannot be construed as proxies for tort law (or the criminal law).
Until the early twentieth century, the police power was defined by reference to “health, safety, or morals.” Around that time, however, it was expanded to include the “the general welfare.”Footnote 12 This allowed state and local governments to deny compensation in a much broader range of cases. On the face of it, this would seem to give them pretty much unlimited power to impose regulations on private property without compensation. The courts have ruled, however, that some regulations, even though they serve some perfectly legitimate governmental function, are nevertheless so burdensome that they effectively “take” the property of a landowner. Under some circumstances, then, compensation is required.Footnote 13 The first case to recognize these so-called regulatory takings was Pennsylvania Coal Company v. Mahon (1922).Footnote 14 The basic facts of the case were these: the Mahons owned a single-family dwelling on land the mineral rights to which had been retained by the coal company which sold them the land. In 1921, the state of Pennsylvania passed the Kohler Act, whose purpose was to prevent subsidence of the land on which houses such as the Mahons' were built. The act did so by annulling the provision of these contracts which left rights to mine the coal under these houses in the hands of the coal companies. The Kohler Act required the latter to leave columns of coal in place to support the homes on the surface, but the state did not compensate the companies for the loss of the coal they were now not permitted to mine.Footnote 15 The Supreme Court ruled this a taking of the mine owners' property by the state of Pennsylvania for which just compensation was owed. In his majority opinion, Justice Oliver Wendell Holmes wrote:
Government hardly could go on if to some extent values incident to property could not be diminished without paying for every such change in the general law. As long recognized, some values are enjoyed under an implied limitation and must yield to the police power. But obviously the implied limitation must have its limits or the contract and due process clauses are gone. One fact for consideration in determining such limits is the extent of the diminution. When it reaches a certain magnitude, in most if not in all cases there must be an exercise of eminent domain and compensation to sustain the act.Footnote 16
This passage suggested that the Court would uphold regulations that did not require compensation if the value of the property were “somewhat” diminished by state exercise of the police power, but in the Mahon case, too much of the value would have been lost. In effect, the state had taken some of the company's coal, so compensation was required.
A similar case, Lucas v. South Carolina Coastal Council, was decided in 1992.Footnote 17 In 1986, David Lucas purchased some coastal property for $975,000 with the expectation of building houses on the two lots that comprised the property. The passage of the Beachfront Management Act of 1988 by the South Carolina legislature, however, effectively prohibited Lucas from erecting any permanent habitable structures on his two parcels. A state trial court found that this prohibition rendered Lucas's parcels “valueless”Footnote 18 and ordered the state of South Carolina to pay compensation, a ruling which was reversed on appeal. The case was then appealed to the U.S. Supreme Court, which ruled that the state did indeed have to compensate Lucas because the law had deprived him of all economically beneficial use of his land. Speaking for the Court, Justice Antonin Scalia wrote: “[A]s we have said on numerous occasions, the Fifth Amendment is violated when land-use regulation ‘does not substantially advance legitimate state interests or denies an owner economically viable use of his land.’ Agins, supra, at 260 (citations omitted) (emphasis added).”Footnote 19 The Lucas case stood for the principle that if the government deprives a property owner of all, or effectively all, economically viable use of his land, the takings clause of the Fifth Amendment applies and compensation is owed.
Three other cases established the principle that if the government physically occupies someone's property or causes someone's property to be occupied, then compensation is required. The first was a nineteenth-century case, Pumpelly v. Green Bay Co. (1871).Footnote 20 While Wisconsin was still a territory, the federal government authorized the construction of a dam on a river that resulted in Pumpelly's land being flooded. The Court ordered that compensation be paid on the grounds that the government had caused Pumpelly's land to be occupied. In United States v. Causby (1946),Footnote 21 the Court ruled that overflights by military planes landing at a nearby military airfield effected a taking of an easement on Causby's farm for which compensation was owed. Finally, in Loretto v. Teleprompter Manhattan CATV Corp. (1982),Footnote 22 the Court ruled that a New York law requiring landlords to permit cable television facilities to be installed in apartment buildings effected a taking for which compensation was owed.
On the other side, there have been a number of cases in which compensation has been denied. In what follows, I will discuss these cases with an eye toward elucidating criteria for denying compensation, which means I will not challenge the substance of the arguments themselves, at least at this juncture. The seminal case was Euclid v. Ambler Realty (1926).Footnote 23 The town of Euclid, Ohio, had promulgated comprehensive zoning regulations, which Ambler Realty challenged on the grounds that the zoning laws limiting the types of buildings that could be built in certain areas to residential dwellings so diminished the value of their property that compensation was required. The Court rejected Ambler Realty's contention, though the ultimate grounds for the decision are less than completely clear:
The ordinance now under review, and all similar laws and regulations, must find their justification in some aspect of the police power, asserted for the public welfare. The line which in this field separates the legitimate from the illegitimate assumption of power is not capable of precise delimitation. It varies with circumstances and conditions…. In solving doubts, the maxim ‘sic utere tuo ut alienum non laedas’ [one should use one's property in such a manner as not to injure that of another], which lies at the foundation of so much of the common law of nuisances, ordinarily will furnish a fairly helpful clew [sic]. And the law of nuisances, likewise, may be consulted, not for the purpose of controlling, but for the helpful aid of its analogies in the process of ascertaining the scope of, the power…. A nuisance may be merely a right thing in the wrong place, like a pig in the parlor instead of the barnyard. If the validity of the legislative classification for zoning purposes be fairly debatable, the legislative judgment must be allowed to control.Footnote 24
The idea seems to be that the police power, limited to considerations of “health, safety, or morals,” should serve as some sort of guide to what the state should be permitted to do under the (general) “public welfare” rationale for denying compensation. The opinion goes on to quote a number of lower and state court decisions that ostensibly appeal to a “health, safety, or morals” justification to sustain various zoning ordinances—but, the Court claims, these justifications were actually much broader.Footnote 25 The upshot is that the Court seemed to want to move away from a narrow “health, safety, or morals” rationale for denying compensation, but not too far. Something has to be at least like a nuisance to justify denying compensation, though what that might mean in the abstract (or indeed in the instant case) is opaque.
Perhaps the most important case resulting in a denial of compensation was Penn Central Transportation Co. v. New York City (1978).Footnote 26 Its importance lies in the fact that the Court moved clearly and decisively beyond the narrow police-power rationale (“health, safety, and morals”) and embraced the much more easily satisfied “general welfare” rationale for denying compensation. New York City's Landmarks Preservation Law (1965) allowed the Landmarks Preservation Commission to designate buildings and the sites on which they are located as historic landmarks. Among other things, this law requires owners of designated properties to get permission before they make major changes to the structure's facade. In 1976, Penn Central's Grand Central Terminal was designated a landmark. The company wanted to build a multistory office tower in the space above the terminal. The Landmarks Preservation Commission prohibited that and refused to pay compensation; the company challenged that refusal under the due process clause of the Fourteenth Amendment and the takings clause of the Fifth Amendment and lost. The Court's decision, which was written by Justice William J. Brennan, enunciated some additional criteria relevant to the compensation question. After noting that the Court “has been unable to develop any ‘set formula’ for determining when ‘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,”Footnote 27 Brennan went on to identify several criteria or factors that the Court considers:
(1) The fact that economic values were diminished—indeed significantly diminished—by the Landmarks Preservation Law was insufficient to establish that a taking had occurred.Footnote 28 What distinguished this case from Mahon, at least according to Brennan, is that in the latter, the relevant statute had “so frustrate[d] distinct investment-backed expectations as to constitute a ‘taking.’ ”Footnote 29 In other words, Pennsylvania Coal Company had, on Brennan's view, sold the land to the Mahons with the expectation of being able to mine all of the coal underneath the dwelling at some point in the future. When the state prohibited that with the passage of the Kohler Act (which required that they leave supporting columns to prevent subsidence), the state frustrated an investment-backed expectation and thus compensation was owed. By contrast, when Penn Central bought Grand Central Terminal, Penn Central (at least according to the Court record) had no plan to construct an office tower above it.
(2) The mere fact that Penn Central was forbidden from developing the airspace over the terminal does not by itself constitute a taking by the state.Footnote 30 This raises what later commentators have called the “denominator problem”: sometimes a landowner is entirely denied the use of part of his land. This is the numerator. The question then becomes what the denominator is. If it is that very part of the land that the owner has been denied use of, then the numerator and denominator are the same. This means the owner's land has been taken and compensation would ordinarily be owed. In the Penn Central case, it seems quite plausible or natural to consider the parcel as a whole the denominator and the air rights as the numerator, but there are other cases where this is not so clear. For example, in Palazzolo v. Rhode Island (2001),Footnote 31 Palazzolo owned a thirty-six-acre parcel of land, half of which was wetlands and half of which was uplands. He argued that the state's prohibition on development of the wetlands deprived him of all economically viable use of the (wet)land and that compensation was therefore owed; the Court rejected this because he could still build a residence on the eighteen-acre upland part of the property. The legal scholar Richard Epstein explains the problem with this in the following way:
If the wetlands were considered separate from the uplands, the restriction on their use could be regarded as total. But if the two are considered together, then the restriction might be regarded as partial. What tells us, then, whether those lands should be regarded as a single parcel or as separate parcels? In … [Palazzolo] the uplands could be sold off before the time that the state restricts filling in the wetlands. Do we treat the two parcels as one, or separately? Does it make a difference that they were acquired at the same time? From the same seller? By the same deed? Does it matter whether they are held by the same family members, and in the same proportions? Those details sound like irrelevancies to any serious inquiry about when regulation requires compensation, but after the decision in Penn Central they are the stuff of everyday concern. They were evident in Palazzolo and in other cases as well.Footnote 32
That the compensation question should turn on such issues is clearly a bad sign.
Brennan's opinion makes three additional points: (3) The fact that this law affects some property owners more than others does not make it a taking.Footnote 33 (4) The prohibition on using the airspace above the terminal for the office building Penn Central proposes to build is not a form of government appropriation or occupation of that airspace.Footnote 34 (5) The law does not interfere with the company's present use of the terminal, nor does it prevent Penn Central from realizing a reasonable return on its investment.Footnote 35
The air rights (development rights) to the land on which the terminal existed were transferred to at least eight other Penn Central properties in the immediate vicinity, as partial compensation.Footnote 36 In effect, this meant that the city would not prevent the company from building an office tower on any of these other properties that it owned in the vicinity of the terminal. Presumably, other zoning laws might have otherwise prevented that, so it is not as if they were being compensated with something they were already entitled to do.
The next important case in which compensation was denied for a regulatory taking was Agins v. Tiburon (1980).Footnote 37 After Agins acquired five acres of land in the city of Tiburon for residential development, the state of California passed a law requiring cities to prepare a general plan for land use. The plan that was put in place by the city of Tiburon prohibited Agins from constructing more than five houses on the land. Because of the spectacular view of San Francisco Bay, Agins wanted to put many more units on the land. In response to the prohibition, he filed suit, claiming that his rights under the Fifth and Fourteenth amendments had been violated and that the zoning ordinances were facially unconstitutional. The Court rejected these claims, saying that the zoning ordinances did not take the appellant's property. Justice Lewis Powell's opinion cited a number of grounds for this:
(1) The application of a zoning ordinance effects a taking if “it does not substantially advance legitimate state interests.” In this case, legitimate state interests include discouraging premature and unnecessary conversion of open-space land to urban uses.Footnote 38
(2) The appellants, along with all the other property owners within the city, get both the benefits (protection from the ill effects of urbanization) and the burdens of the city's exercise of its police power. In judging the fairness of these ordinances, these benefits must be considered along with the reduction in market value that appellants might suffer.Footnote 39
(3) Although the zoning ordinances limit development, they neither prevent the best use of the appellants' land (as in Causby) nor extinguish a fundamental attribute of ownership (e.g., possession, as in Pumpelly). Since appellants are free to pursue their reasonable investment expectations by submitting a development plan to the city, the impact of the ordinances has not denied them the “justice and fairness” guaranteed by the Fifth and Fourteenth amendments.Footnote 40
The first of these three points cites a legitimate government goal as a reason against compensation, though that cannot be a sufficient condition to release the state from its obligation to compensate (cf. Mahon). The third point notes that, in effect, the decision does not run afoul of Causby and Pumpelly, which require compensation when the government takes physical possession (or causes physical possession to be taken) of property. The key to this decision is in the second point, which cites two relevant considerations: namely, that other landowners are similarly treated by the restriction, and that Agins will realize some of the benefits of the ordinance as well as being forced to bear some of its costs. Both considerations speak to the issue of fairness. I will have more to say on this shortly.
As this brief survey of case law makes evident, it is difficult to find any comprehensive general principles that can be consistently applied to reach these results. Nonetheless, the following principles can be discerned:
(i) If the government physically occupies the land, or compels a landowner to allow someone else to occupy it, a taking has occurred and compensation is owed.
(ii) If the government prevents all economically viable use of the land, a taking has occurred and compensation is owed.
(iii) Legitimate investment-backed expectations cannot be significantly disappointed.Footnote 41
(iv) If the regulation has a narrow police-power rationale (“health, safety, and morals”), then compensation is not required.
B. Fairness
The problem with these principles is that they are radically incomplete; that is, they do not cover a wide range of cases. There is, however, a suggestion of a principle in Mahon, Agins, Lucas, and even Penn Central that might explain these diverse rulings; that principle involves an appeal to considerations of fairness.Footnote 42 Consider, first, Mahon. In the passage quoted above, Justice Holmes has this to say about the limitations on the police-power rationale: “One fact for consideration in determining such limits is the extent of the diminution. When it reaches a certain magnitude, in most if not in all cases there must be an exercise of eminent domain and compensation to sustain the act.”Footnote 43 This means that if the losses suffered by the property owner become large enough, compensation is required.Footnote 44 Notice also that in Mahon, the Pennsylvania Coal Company did not benefit at all from the Kohler Act. How much value can be lost without compensation is, of course, left undetermined, but for Holmes's purposes, there was no need to settle that question in the abstract. After all, on his view, the state of Pennsylvania effectively took the company's coal, so they had to pay for it. Referencing the case of Plymouth Coal Co. v. Pennsylvania (1914) in his Mahon opinion, Holmes spoke of another Pennsylvania law as “secur[ing] an average reciprocity of advantage that has been recognized as a justification of various laws.”Footnote 45 In Agins v. Tiburon, the Court also made an appeal to considerations of fairness: “appellants will share with other owners the benefits and burdens of the city's exercise of such police power, and in assessing the fairness of the ordinances these benefits must be considered along with any diminution in market value that appellants might suffer.”Footnote 46 Agins is assumed to have benefited from the restrictions imposed by the land use plan on himself and others, which is supposed to offset, at least to some extent, the losses he has suffered. There has to be some benefit to the person who suffers the diminution in the value of his or her land. Otherwise, the Mahon decision would control.
This principle about fairness was implicit in a related case, Armstrong v. United States (1960).Footnote 47 The United States had entered into a contract with Rice Shipbuilding Company for the construction of eleven Navy vessels. Armstrong had furnished materials for the construction of the vessels. When Rice defaulted on its obligations under the contract, the government took possession of the hulls of the vessels, thereby rendering null and void Armstrong's materialman's lien (a lien on property for materials supplied). The Court ruled this a taking of Armstrong's property and ordered that compensation be paid. Like the Pennsylvania Coal Company in the Mahon case, Armstrong got no benefit from the government's action but was saddled with the costs. As Justice Hugo Black wrote in his decision, “the Fifth Amendment's guarantee that private property shall not be taken for a public use without just compensation was designed to bar Government from forcing some people alone to bear public burdens which, in all fairness and justice, should be borne by the public as a whole.”Footnote 48 The same thing happened in the Lucas case. Whatever insubstantial benefits Lucas might have received from the South Carolina legislature's passage of the Beachfront Management Act of 1988 were swamped, so to speak, by the costs he was forced to incur.
Even in Penn Central there was an appeal to considerations of fairness. The Court cited a number of benefits that accrued to the railroad: (1) “[A]ppellants' repeated suggestions that they are solely burdened and unbenefited is factually inaccurate…. Unless we are to reject the judgment of the New York City Council that the preservation of landmarks benefits all New York citizens and all structures, both economically and by improving the quality of life in the city as a whole—which we are unwilling to do—we cannot conclude that the owners of the Terminal have in no sense been benefited by the Landmarks Law.”Footnote 49 (2) Brennan also maintained that Penn Central exaggerated the effect of the law on their ability to make use of the air rights. According to him, as far as the public record is concerned, there is no indication that the Landmarks Commission would have rejected alternative plans to develop the airspace above the property that did not involve a massive office building.Footnote 50 (3) Finally, the air rights to the terminal property were transferred to other properties that Penn Central owned. This served as partial compensation for the prohibition imposed by the landmarking law.Footnote 51
The upshot of all this is that the Court has over the decades repeatedly appealed, either explicitly or implicitly, to considerations of fairness, or to the lack of unfairness, to justify its rulings. This has been true in cases where compensation has been denied as well as in cases where compensation has been required.
It is now time to comment on the substance of these arguments. What is striking about the ones that deny that a taking has occurred and that compensation is owed is how utterly unconvincing they are. Specifically, the implicit appeal to fairness, or to the lack of unfairness, as grounds for denying compensation in Penn Central is strained and implausible, and indeed inconsistent. It is strained and implausible because in Penn Central the Court denied the railroad the ability to realize millions in revenue from the proposed office tower. In exchange for this, the railroad received the same benefits that other New Yorkers got from having historic structures preserved. Those other New Yorkers, by the way, paid nothing for this benefit, other than the trivial administrative costs of operating the Landmarks Commission. Moreover, Brennan's claim that the Landmarks Commission might approve other structures which developed the airspace over the terminal's facade was disingenuous. Any plans for changing the terminal's facade were widely opposed by many local luminaries, including Jacqueline Kennedy Onassis, for whom it was a cause célèbre. Finally, compensation also took the form of a transfer of development rights from the terminal to other nearby properties owned by the railroad. The value of these rights was never ascertained, but it is a reasonable hypothesis that the railroad did not highly value them; otherwise, it would not have taken its case all the way to the Supreme Court.
In the case of Agins, his property consisted of five acres, and he was prohibited from building more than one single-family dwelling per acre. Agins's benefit from the California law—whatever benefits accrued to him from a general prohibition on “[the] premature and unnecessary conversion of open-space land to urban uses”—was, shall we say, quite modest relative to his opportunity cost. Given that he wanted to build many more houses/condos/apartments than the law permitted, it is certain that he viewed the costs of the law as greatly outweighing the benefits, such as they were. It is also likely that his “investment-backed expectations” were not honored.
The inconsistency in these rulings lies in the fact that the Court was justifying its decision by appeal to the fact that the landowners were being compensated for their loss. If what was being offered was compensation, however, that would involve an admission that a genuine taking had occurred.Footnote 52 If there is no taking, as in cases where a narrow police-power rationale can be successfully offered, the fact that the landowner (allegedly) benefits from the law is completely irrelevant. The relevant principle must be that when the police-power rationale appeals to the general welfare, some compensation is owed—just not full compensation. How much compensation is required under such circumstances is completely undetermined and is left to the court's discretion (or invention). The constitutional warrant for this principle is arbitrary at worst and unclear at best.
C. Public goods and the appeal to fairness
One way to make the appeal to fairness more precise is to notice that the benefits that accrue to the public in all these cases are public goods, in the technical sense of the term. That is, the benefits are both jointly consumed and nonexcludable. Consider the benefits New Yorkers get from having landmarks protected and the (supposed) benefits that residents of the San Francisco Bay Area get from wise land use planning. Consumption by one person does not inhibit consumption by others similarly situated. In addition, the respective benefits are not excludable, in the sense that if contribution to the provision of the good were to be voluntary, those who did not contribute could not be excluded from receiving the benefits. If, for example, some private party were to buy the development rights to the space above the Grand Central Terminal to preserve its character as a landmark, those who did not pay for those rights would nevertheless benefit from the landmark's preservation. Construing these benefits as public goods has the added advantage of being one very natural interpretation of state action intended to promote the general welfare, a police-power rationale, which, according to our earlier stipulation, leaves open the question of compensation. The state provides many public goods, from national defense to the criminal and civil justice system to local streets and highways. When it does so, however, it purchases those goods with taxpayer dollars. A natural interpretation of the fairness requirement implicit in the Court's reasoning is that the state should pay for the property it has taken. That is, it should exercise its power of eminent domain and compensate landowners at fair market value or, at the very least, purchase a conservation easement.
It is reasonable to assume that Justice Brennan (in Penn Central) and Justice Powell (in Agins) were not oblivious to the weakness of the respective arguments they were making. Why would they make such obviously bad arguments? Any answer has to be speculative, but one reasonable hypothesis is that they believed that the landmark statute and the open-spaces plan were legitimate government activities, but that it would be impractical (because too costly) to compensate every adversely affected property owner. Society, for whom the state allegedly acts as agent, would simply be unable to afford it. But, of course, the Court had already decided that society could afford these laws; the only question was who was going to bear the costs—the taxpayers or the landowners. On the Court's view, it should be the landowners, but this is utterly arbitrary. In its expenditure of public funds, the state must make choices. Some goods must be forgone if others are to be purchased. There is no good reason for saying that the state must make hard choices when it comes to spending on national defense, police protection, and local streets and highways, but not when it comes to land use regulation. Democracies have an elected legislature and an executive to set priorities and make choices. That is what they are for.
It might be objected that these criticisms presuppose a Lockean theory of property rights, a theory that the Court has long ago discarded. On a Lockean theory, private parties have full, liberal ownership rights, and if the state takes any of the incidents of ownership, it has to pay for them, unless noncompensation is justified by a narrow police-power rationale. Otherwise, compensation is necessary and, by convention, is understood in terms of fair market value. While it is true that a Lockean theory of property rights has this implication, it is not the basis for the argument I am making. Instead, an argument for some compensation need only appeal to basic considerations of fairness. Indeed, there is an implicit or explicit appeal to fairness in both the Penn Central decision and the Agins decision, so it is not as if this argument is based on some novel principle that the Court has forsworn. Indeed, in other areas, (modern) liberal judges such as Brennan have shown exquisite sensitivity to considerations of fairness.
A second objection is that the limitations imposed on private property rights in cases where compensation has been denied are intended to prevent nuisances, or at least something sufficiently like nuisances so that a narrow police-power rationale would apply. This much was suggested in Euclid v. Ambler Realty. As the Court said, “in solving doubts, the maxim sic utere tuo ut alienum non laedas, which lies at the foundation of so much of the common law of nuisances, ordinarily will furnish a fairly helpful clew [sic].”Footnote 53 A Wisconsin land use case from 1972 nicely illustrates this point. Wisconsin's Marinette County had passed a zoning ordinance that prevented owners of coastal marshes from filling them in as a prelude to developing their property. In Just v. Marinette County, the Wisconsin Supreme Court upheld the ordinance as a legitimate exercise of the police power, narrowly construed, thereby denying compensation to the Justs.Footnote 54 In its decision, the court laid great stress on the fact that the Justs planned to make “unnatural” changes to the land:
An owner of land has no absolute and unlimited right to change the essential natural character of his land so as to use it for a purpose for which it was unsuited in its natural state and which injures the rights of others. The exercise of the police power in zoning must be reasonable and we think it is not an unreasonable exercise of that power to prevent harm to public rights by limiting the use of private property to its natural uses…. This is not a case where an owner is prevented from using his land for natural and indigenous uses.[Footnote 55] … The changing of wetlands and swamps to the damage of the general public by upsetting the natural environment and the natural relationship is not a reasonable use of that land which is protected from police power regulation.Footnote 56
The public rights to which the decision refers are, needless to say, unenumerated. Putting to one side the court's medieval metaphysics (where value judgments are made by reference to what is natural and what is unnatural), there is another way to make their point. In an essay titled “Takings, Just Compensation, and the Environment,” philosopher Mark Sagoff discusses this case. He writes: “[D]id the owner's destruction … of the wetland … constitute a ‘noxious’ activity that the legislature may prohibit without paying compensation, even though that sort of destruction would not be recognized as a tort in private law?”Footnote 57 Sagoff believes the answer to this question is yes. In support of this, he cites the opinion of Justice John Harlan in Mugler v. Kansas (1887).Footnote 58 In this case, the state of Kansas had passed a law prohibiting the manufacture and sale of alcoholic beverages throughout the state. Mugler was convicted of manufacturing and selling beer after the effective date of the statute. The takings issue comes up because Mugler's property was “worth the sum of ten thousand dollars for use in the manufacture of said beer, and [was] not worth to exceed the sum of twenty-five hundred dollars for any other purpose.”Footnote 59 Mugler claimed that his due process rights under the Fourteenth Amendment had been violated. The Court, however, ruled against him, holding that he was not entitled to compensation. Justice Harlan wrote that
the power which the states have of prohibiting such use by individuals of their property as will be prejudicial to the health, morals, or the safety of the public, is not … burdened with the condition that the state must compensate such individual owners for pecuniary losses they may sustain, by reason of their not being permitted, by a noxious use of their property to inflict injury upon the community.Footnote 60
It can be argued, however, that Mugler was wrongly decided and that Mugler should have been compensated. The prosecutor for the state of Kansas made no effort to show that Mr. Mugler created a public nuisance, that is, that he was personally responsible for anything that prejudiced the “health, morals or the safety of the public,” and, indeed, it would have been difficult to do so.Footnote 61 Declaring something a public nuisance does not make it one. What the prosecutor could have argued was that Mugler's business was part of an industry that, considered cumulatively, was doing substantial physical and moral harm to its citizens. The state foresaw (incorrectly, as it turns out) that banning the sale of alcoholic beverages would produce a public good (or would ameliorate a “public bad”). If the Court had conceived of the matter in this way, however, it would still have had to explain why this good should not be paid for in the way that other public goods/bads are paid for, namely, with tax revenues.
III. Land Use Regulation Again
What are the benefits of the Endangered Species Act of 1973? It restricts, sometimes dramatically, what property owners can do with their land. Its purpose is to promote environmental values that are not easily promoted through a private ordering. These values are arguably public goods. The economist Randy Simmons summarizes the public goods associated with the ESA in the following passage:
In fact, each of the most commonly cited justifications for preserving species focuses on their character as public goods: (1) they serve ecological functions; (2) they are sources of knowledge that can be turned to consumptive and nonconsumptive human uses; (3) they are sources of scientific information, models, and theory; (4) all species have rights worthy of respect; and (5) a species-rich world is esthetically superior to a species-poor world. The first three justifications qualify on public-goods grounds—benefits flow to everyone, and no one's consumption of those benefits diminishes anyone else's consumption. The esthetic justification is also a public-good argument to the effect that if we allow species loss to continue, each of us is impoverished, or each person's soul is diminished.Footnote 62
There are well-known cases in which medicines have been derived from plants, some of which are endangered species.Footnote 63 Some animals are useful as scientific models. For example, the cheetah might hold the key to a better understanding of cardiovascular function, since it can withstand severe oxygen deprivation when it quickly accelerates to and then sustains speeds up to seventy miles per hour over short distances. Species diversity can serve as a source of genetic information to make commercially grown crops resistant to disease or pests. Ecosystem stability, to which the ESA contributes, provides important ecological services such as soil regeneration, waste disposal, and pest control. And so on and so forth. Let us bring all of these (public) goods under the general heading of “biodiversity.”
The discussion thus far has proceeded at a relatively abstract level; the problem of unfairness in land use cases under the ESA can be made clearer and more vivid by looking at some particular cases. Recall that the ESA prohibits takings, not of private property, but of endangered species. The statutory definition of a taking of a member of an endangered species is this: “the term ‘take’ means to harass, harm, pursue, hunt, shoot, wound, kill, trap, capture, or collect, or to attempt to engage in any such conduct” (16 U.S.C. sec. 1532[19] [2008]). As previously noted, in two cases from Hawaii, the courts allowed to stand the interior secretary's expansive definition of “harm” within this statutory definition,Footnote 64 which was affirmed by the Supreme Court in Babbitt v. Sweet Home Chapter of Communities for a Great Oregon. Footnote 65 This had the effect of affirming the Fish and Wildlife Service's authority to impose logging restrictions in the Northwest and the Southeast to protect the habitats of the spotted owl and the red-cockaded woodpecker, respectively, under this definition of harm. This expansive conception of harm was responsible for a number of horror stories. Randy Simmons recounts the story of North Carolina landowner Ben Cone's encounter with the FWS's attempt to protect the red-cockaded woodpeckers found on Cone's land:
In North Carolina, Ben Cone had 1,560 acres of his 7,000 acres of land taken by the ESA to provide habitat for the red-cockaded woodpecker. He still owns the land, of course, but no timber may be harvested within a half-mile radius of each colony of woodpeckers. In addition, each colony must be protected from the controlled burning Cone does to improve wildlife habitat on his property, so now he has to rake and bushhog [i.e., cut with a rotary mower] around each nest tree before burning because a burned tree would constitute a taking under the ESA.
In addition to increased management costs, Cone has suffered a loss of land value. He had the 1,560 acres appraised in 1993 and found that, absent the woodpeckers, the estimated value of the hunting leases, timber, and pine straw was $2,230,000. With the woodpeckers, the land was worth just $86,500, or 96 percent less. The twenty-nine birds therefore cost Cone $73,914 each, a cost he alone has borne.Footnote 66
Habitat conservation plans (HCPs) provide no real solution to problems such as this, since the government can still prevent people from using their property in the way that is most valuable to them. Indeed, Cone was offered an HCP by the Fish and Wildlife Service that would have allowed him to harvest timber on all the land except for the acreage devoted to woodpecker habitat.Footnote 67 That, of course, was exactly the problem as Cone saw it.
Charles Mann and Mark Plummer have documented comparable problems with a high-profile HCP in Texas: the Balcones Canyonlands Conservation Plan (BCCP).Footnote 68 This was an ambitious regional conservation plan designed to protect the habitat of two endangered bird species: the golden-cheeked warbler and the black-capped vireo in Texas. Beginning in 1989 in Texas, nearly a dozen agencies and groups, ranging from environmental organizations to developers to local, county, and state government agencies, met to hammer out a plan to set aside preserves for the threatened warbler and vireo that would pass muster with the FWS. As boom times returned to the Austin area, land values began to climb, and when Travis County tried to pass a bond issue to finance the county's land purchases, it failed on a close vote, and the plan was defeated. Shortly after that, the project coordinators for these agencies and groups met with the FWS to present them with an alternative: they would fund a much larger preserve two hundred miles to the southwest near the Rio Grande River. The price was to permit takings of vireos in Travis County—takings that would probably lead to the disappearance of the bird in the Austin area, though it would not cause the extinction of the species. The FWS rejected this alternative because it would restrict the vireo's range.Footnote 69 The fallout was substantial; after the golden-cheeked warbler and the black-capped vireo were listed as endangered species, property values in Travis County declined dramatically. One landowner alone suffered a decline in the appraised value of her land from $830,000 to $38,000.Footnote 70 As Mann and Plummer note,
behind the battle in Austin and wherever else economic growth encounters a listed species, federal biologists have been transformed into economic mandarins, with the power to govern projects ranging from fence posts to highways to dams. They have the power to make compromises in the name of Native American hospitals, shopping malls, orange growers, or even developers; or not to make them in the name of beetles, butterflies or birds…. Although that position is mandated by the Endangered Species Act, it has never been accepted by the people whose lives are governed by the law.Footnote 71
To protect themselves, ranchers and other property owners surveyed their land and submitted the results to the FWS. If there was no suitable habitat for the vireo or if that habitat had been unoccupied by the birds for at least three years, the FWS would issue what came to be called a “bird letter,” which permitted the landowner to develop his or her property without interference from the FWS. Bird letters increased property values up to 25 percent, and those who could not get them suffered as a result.Footnote 72 The upshot was predictable: in a habitat version of “shoot, shovel, and shut up,” landowners stripped their land of every tree and every bit of vegetation that might serve as vireo habitat so that they could get a bird letter. These are not isolated incidents.Footnote 73 The Department of the Interior later developed some policies to mitigate these disincentives, but there is still no assurance that landowners could not have enormous costs imposed on them to save the habitat of endangered species. None of these policies ensure that there will be no more cases like that of Ben Cone.
It is possible to dismiss these cases as merely anecdotal; though the injustices that have been visited on these property owners are real, every law has its perverse consequences. Recently, however, more systematic empirical work has been done to substantiate the hypothesis that land use regulations, such as those imposed by the ESA, negatively affect species conservation efforts on private lands. In one study, Dean Lueck and Jeffrey Michael examined the rate of preemptive habitat destruction for red-cockaded woodpeckers (RCWs).Footnote 74 Because RCWs tend to nest in older trees, landowners at risk of being subjected to critical habitat designation were more likely to harvest trees prematurely. According to another study, the listing of the endangered Preble's meadow jumping mouse led some landowners to make their land more hospitable to the species, but that was offset by other landowners' making their land less hospitable to the mouse.Footnote 75 Even on its own terms, the ESA seems to have been less than successful.
This essay has argued that the goods associated with land use regulation are public goods, in the economists' sense of the term: consumption is joint (i.e., consumption by one person does not impede consumption by others), and the good is nonexcludable (i.e., noncontributors could not feasibly be excluded from getting it, if contribution to its provison were voluntary). The takings clause of the Fifth Amendment states that private property shall not be taken for public use without just compensation. Though the concept of public use has been broadened or stretched since the time of the Founding, public goods surely meet anyone's criterion for public use. This makes it hard to see why the costs of public goods associated with land use regulation should be paid for by the landowners instead of by the taxpayers. Compensation should be paid to landowners whose land has been devalued by a critical habitat designation. Outright purchase by the government may not be required in many cases. Purchase by the federal government of a conservation easement may be suitable compensation. Problems about valuation will undoubtedly exist but should be no more intractable than they are in traditional eminent domain cases.
IV. Conclusion
There is a useful parallel between the benefits of the Endangered Species Act and the alleged benefits that accrued to the citizens of Kansas when the state passed a law prohibiting the sale of alcoholic beverages in 1885 (which led to the Mugler case two years later). The diminution of biodiversity that accompanies the taking of members of an endangered species, or even the loss of an entire species, is, barring special explanation, inconsequential.Footnote 76 Generally speaking, rich, complex ecosystems can sustain the loss of a species without appreciable harm. In contrast, it is arguable that what should not be permitted to happen is a significant loss of biodiversity. Similarly, Mugler was not responsible, except in the most tenuous and tendentious sense, for the social evils associated with alcoholic beverages. Closing down his brewery, however, was part of a larger social policy that legislators in Kansas believed would ameliorate a “public bad.” This makes species loss, as well as Mugler's production of alcoholic beverages, similar to air pollution from automobiles in the following respect: each automobile contributes very little to the pollution problem, but, in the aggregate, automobile pollution is, or can become, a serious problem. Similarly, the beer brewed and sold by Mugler's brewery contributed insubstantially to the social problems associated with the consumption of alcoholic beverages in the state of Kansas. Both are “public bads,” which can, in theory at least, be diminished by government regulation. Notice, however, that the burden of addressing the public bad (higher fuel costs, the expense of emission control devices, inability to purchase alcoholic beverages—or at least the risk of arrest for consuming same) falls with some rough proportionality on those who benefit from private transportation and those who allegedly benefit from the ban on the sale of alcoholic beverages. Notice too that there are also some people who suffer net harms (e.g., those who use public transport; those for whom the costs of Prohibition outweigh the benefits), so the distribution of burdens is not perfect. Nevertheless, this situation arguably meets Oliver Wendell Holmes's criterion of “secur[ing] an average reciprocity of advantage.”Footnote 77 The felt burdens also ensure that if enough people are inconvenienced or otherwise negatively affected, they can use the democratic process to protest and agitate for relief. This in fact happened in the case of Prohibition in the twentieth century. By contrast, in the land use cases, those who benefit (the public at large) do not pay, and those who pay (the landowners) do not benefit, at least on net. This makes the social costs both invisible and unfair. The unfairness of this arrangement consists in the way that it distributes the benefits and the costs. No Lockean theory of property rights is required to sustain this judgment. The fundamental problem with the Endangered Species Act is nicely captured in a national survey commissioned by the Fish and Wildlife Service and carried out by the polling company Belden and Russonello in 1996: 87 percent of those surveyed found it personally important that biodiversity be maintained; 77 percent supported the expenditure of more federal tax dollars for that purpose; but only 48 percent were themselves willing to pay more taxes for that purpose.Footnote 78Res ipsa loquitur.
The analogy with air pollution is instructive in another way: it is simply not practical for modern life to go on without some air pollution from motor vehicles, though that may change in the future. The ESA mandates that there must be no loss of any species, whether it be plant or animal. The basis for this absolutist policy is completely mysterious. Some species ought to be permitted to become extinct, if sufficiently important human values are at stake. This requires that trade-offs be made, but that is one important function of government policy and, ultimately, of democracy.
