Freeman

ARTICLE

Denial of Rights Through Regulation

The regulatory taking of property implemented by the bureaucracy plunders the rights of property owners and produces a needless financial burden.

JUNE 01, 1993 by ZAK KLEMMER, JO ANNE KLEMMER

Zak Klemmer is a designer with M3 Engineering and Technology in Tucson, Arizona. Jo Anne Klemmer is the business manager of the Tucson Osteopathic Medical Foundation.

When does uncompensated regulation become theft? Environmental regulations have become some of the most obtrusive laws invading private property rights today. Regulatory taking gave rise to Lucas v. South Carolina Coastal Commission, decided last year by the U.S. Supreme Court.

David Lucas paid $975,000 in 1986 for two beach-front lots on which he planned to build two houses, one for himself and one to sell. A state agency barred the construction under an environmental law that took effect two years after he purchased the lots. Lucas sued the state of South Carolina, arguing that the regulation denied him all economically viable use of his land. (It should be pointed out that similar single family houses are adjacent to both sides of Lucas’s property.)

The state court agreed with Mr. Lucas’s argument and awarded him $1.2 million for the regulatory taking of his property. However, the South Carolina Supreme Court reversed the lower court’s decision on appeal, ruling that “a restriction ‘enacted to prevent serious public harm’ doesn’t require a state to compensate landowners for their losses.”

This case made its way to the U.S. Supreme Court. In June 1992, Lucas received a six to two vote in his favor. In an opinion for the majority, Justice Antonin Scalia wrote, “Even if a regulation addresses a serious harm, the government must compensate a property owner denied all economically viable use of his land.”

Although the decision was favorable for Lucas, it appears that the U.S. Supreme Court’s decision was narrowly drawn and did not adequately protect property rights destroyed by land use restrictions. “This was a golden opportunity to ‘straighten out’ the law on the government taking of property . . . . The court ‘blew’ the opportunity . . . It’s impossible to tell what it does to a whole range of cases because its effect may be extremely limited,” writes Roger Pilon of the Cato Institute.

What land use restrictions achieve is a weakening of our economy by obstructing commercial development. This is a direct and intended result of environmental activism. An overly broad environmental agenda, enforced by expansive regulations with a sluggish legal system, can be as destructive to our economy as confiscatory taxation. The net effect of a regulatory taking of property, as illustrated by Lucas, is similar to that of a direct tax, in that it hinders (or in some cases prevents) the property owner’s use of his livelihood, his rights.

Some twenty-five hundred miles away from David Lucas, Nell Simon of Tucson, Arizona, represents the Venture West Group (VWG). This is an investment group founded in Tucson in 1981. The VWG has successfully developed commercial real estate in Phoenix, Denver, and California, as well as Tucson.

Simon, like Lucas, is embroiled in a property regulatory nightmare with environmental do-goodism at its core.

The property in consideration is a 7.1 acre site at Broadway and Houghton, on Tucson’s east side. This parcel has been zoned for shopping center use for the entire eleven years that VWG has owned it. Running through the middle of this parcel is a dry wash (approximately 3.2 acres), which traverses into an existing culvert under Broadway Boulevard. Many washes have been culverted along Broadway to accommodate commercial projects.

As a pretext to save the remaining “prime riparian habitat areas” within the city limits of Tucson, no-growth activists lobbied the city council to pass the Environment Resource Zone Ordinance (ERZ) in 1990. The ERZ Ordinance was intended to prevent the development of 53 miles of designated washes. The parcel at Broadway and Houghton fell under the ERZ. Because its 600-foot-long wash bisects it into two less valuable parcels, Simon sought a variance to allow development of the shopping center. This process began in January 1991.

By December 1991 the City Board of Adjustments unanimously approved the variance. This lengthy process included, among other things, public hearings. The variance, however, was subject to design considerations intended to mitigate the impact of development on the wildlife habitat in the ERZ. These considerations attached additional costs to the project outside the control of the developers and their architects surpassing $100,000. In February 1992 the City Council of Tucson took up the issue and overturned the variance that had been granted by the City Board of Adjustments.

“We want to build the shopping center. We don’t want to file a lawsuit,” said Simon in reply to the Council’s reversal. “The Council’s action amounts to an illegal ‘taking’ of property,” declared Sy Short, Simon’s attorney. The VWG has filed a lawsuit of $2.5 million against the city for the refusal to allow this proposed shopping center to be built over a culverted wash.

It seems as though government agencies have an endless supply of time and money to obstruct citizens who expect these agencies to respect and honor their constitutional right to own and use private property. One may ask: When does regulation become an obstacle to productivity and progress? And, what occurs when a regulation becomes an end in itself instead of the means to an end? When regulation becomes an end in itself, it perverts the law and usurps the economic freedom it is designed to protect, resulting in poverty and decline. The endless delays and regulations which have been imposed on Simon’s project have not only been financially prohibitive, but have detrimentally affected the economic health of the local community by the loss of potential employment.

More Regulation Means a Loss of Jobs

Moving westward to California we locate still more examples of undue regulations brought on by environmental activism. The Council on California Competitiveness (CCC) reported in April 1992 that the growing regulatory burden has become a major hurdle to the state’s economic recovery. Since 1990, 700,000 jobs have been lost in California; yet regulatory costs to employers persist. The once proud “Golden State” no longer creates jobs and wealth. It is creating burdensome regulations, exorbitant state government employment, and deficits at record levels. According to the CCC, chaired by Peter Ueberroth, “Laws that were originally passed to protect our quality of life now are being used to thwart environmentally sound economic growth without balancing job impact with economic needs.”

Ball Glass Packaging Corporation has been producing glass jars in Santa Ana, California, for the past 60 years and has employed over 300 people. Ball Corporation is closing its doors. Why?

David Westmoreland, vice-president of Ball Corporation stated, “One of the problems we have in the South Coast Air Quality Management District (AQMD) is that we’re always chasing a moving target.” To be more specific, Westmoreland lamented, “[The Santa Ana plant] has a furnace which is the heart of the operation which by necessity of normal [economic] life will require major repairs next year. But, before that furnace can go through its next life cycle, new rules are passed that make it no longer in compliance . . . . You could put millions into a rebuild only to find out you’ve been regulated out of business.”

Besides the dilemma of financial feasibility, another problem with compliance is dealing with the regulatory agencies. Meeting with enforcers who possess overlapping authority becomes time consuming and frustrating. “These agencies are really not interested in hearing about your troubles . . . . And we’ve had people say, ‘If you can’t meet the rules, shut up and get out of here.’ Just like that, ‘if you can’t meet the damned rules, close down. We don’t care!’” charged Francis Paladino, senior vice president of operations for the Ball Corporation. Consequently, Ball Corporation will do just that: close down. Those companies who looked to Ball Corporation for their jars will now have to look elsewhere.

And, again in California: At a time when South Central Los Angeles desperately needs jobs, one furniture manufacturer (who requests anonymity) said he had to move 500 jobs from Southern California to Mexico because of AQMD regulations governing wood paint. “The primary reason for the move,” he said, “was that the air quality rules were neither legitimate nor reasonable. We proved that what they were asking us to do was physically impossible and we demonstrated it, so they gave us a three-month variance.”

“Why they thought we could comply in three months, I cannot say,” he added. The furniture is still sold in Los Angeles so the manufacturer must now ship materials to Mexico and the finished product from Mexico. This obviously adds to the traffic congestion, tailpipe emissions, and equipment costs of this manufacturer. “We have now doubled our fleet of trucks so the amount of stuff we’re putting into the air with [the added] trucks is probably more than we were putting into the air as manufacturers,” he said.

A 1990 Department of Commerce survey of manufacturers found that 62 percent of those surveyed cited ”streamlining environmental regulations” as an imperative policy goal. In Southern California alone there are 39 agencies with water quality authority, 38 with hazardous waste authority, 17 with air quality authority, and 14 with solid waste authority. Due to this glut of regulatory agencies, Southern California is losing state revenue and employment for its residents with the exodus of businesses. States like Colorado and Nevada have recruited businesses from California by streamlining the regulatory process.

The regulatory taking of property implemented by the bureaucracy plunders the rights of property owners and produces a needless financial burden. The hidden cost of complying with these laws is measured by time lost in negotiating the nearly endless maze of local, state, and federal agencies in the permit process, through applying for variances and design changes, defending nuisance suits, and enduring delays in the legal process. All of this dramatically impedes economic growth for each of us by raising the cost of housing and manufactured products, thwarting production of new products, and eliminating employment opportunities.

All law, including environmental regulations, must be based solely on our individual rights to own and use private property. The greatest danger exists in subordinating our rights to the technocracy of the central planners. Communism may be dead or fading in Eastern Europe, but collectivism as a political philosophy is still alive and dangerous to everyone in the industrialized West.

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June 1993

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