Economic Development

Law of the Land

Voters' challenge to Oregon's stringent land use controls may signal a major shift in the property rights debate nationwide.
by | May 2005
 

Mike Lehne eases his green Mercedes into eastbound traffic and heads across the Willamette River toward the low, rolling hills of east Portland. As he drives, he is talking--and growing angrier and angrier. A long-time real estate developer in the Portland metro area, Lehne is telling a tale that is illustrative, he says, of the irrational, dictatorial approach to land use planning and development in Oregon. The most exasperating example was when he discovered the city of Portland had placed a conservation easement on one corner of a 6-acre parcel, which cost him one full lot out of his proposed 22-lot subdivision. The land in question, he says, is nothing but scrub woods and blackberry patch with no conservation value whatsoever. "It's coyotes chasing jackrabbits," he snorts. By the time he's done with the story, Lehne's face is red, his hands are strangling the steering wheel and he's calling the state "the Socialist Republic of Oregon."

Before last fall, Lehne had only one recourse in fighting the city over the designation: a trip to court to argue a "taking" of his property without compensation. Such fights are generally long, drawn out and expensive, with no certainty about the outcome. But thanks to a ballot initiative passed by Oregon voters in November, Lehne now has a new option. Known as Measure 37, the initiative allows Lehne to file a claim asking the city to either compensate him for any loss in land value caused by the conservation designation or repeal the offending regulation.

Lehne--short, paunchy, prosperous and voluble--may not be the perfect poster child for Measure 37 (the media bestowed that honor on a widow named Dorothy English), but he is part of what its advocates say is a determined and growing army of foot soldiers credited with providing the energy that drove the ballot measure. Which is how most analysts of Measure 37 have interpreted the story: A state known for the toughest land use laws in the country finally squeezed too many little guys, which led to a backlash; the Sagebrush Rebellion rekindled in the Pacific Northwest, a revolt that some expect to spill over into other states.

It is, of course, more complicated than that. Large landowners with significant financial interest in seeing Oregon's land use laws de- fanged provided large amounts of cash in support of the measure (anti- 37 activists, likewise, received big donations from pro-land-use-law heavy hitters). At the same time, there is evidence that many of those who voted for Measure 37--it passed by a healthy 60 to 40 margin--were not altogether clear on the potential consequences of their vote.

However the measure's success is spun, it has certainly gotten the attention of planners and private property rights advocates, alike. What Measure 37 actually does, how it came to pass in a state viewed as a smart growth and planning Mecca, and whether it will boost the cause of property rights nationally are now the subjects of widespread debate.

CONFISCATION AND COMPENSATION

At the most fundamental level, Measure 37 is the latest and by far most successful attack on Oregon's Act 100, the 32-year-old landmark state land use law that laid the groundwork for Oregon's current set of planning and growth rules. Such rules place large and small tracts of land off-limits to development, either by designating them as high- value timber, agricultural, riparian or conservation land, or by placing them outside of urban growth boundaries that now ring every municipality in the state.

Property rights advocates in Oregon have long argued that the confiscatory nature of Oregon's land use rules demand some provision for compensating owners for loss of land value. In response, Oregon's planning advocates have simply tightened the rules. The "straw that broke the camel's back," says Dorothy Cofield, a land use lawyer in the Portland metro region, was a 1994 regulation that required landowners whose parcels had been designated high-value agriculture to show a certain gross revenue from farming before they would be allowed to build a house on their property--even parcels as large as 80 acres. If property rights advocates had been trying to chip away at Act 100 before that, they set their sights on a full overhaul afterwards. In fact, they came close to doing that in 2003, when a ballot measure similar to 37 was passed but then struck down by Oregon courts on a legal technicality.

Measure 37 does two very big things: First, it makes anyone who owned land prior to 1973 (when Act 100 passed) or their heirs eligible for compensation for any diminution in land value caused by the act or by any subsequent restrictions. If a locality can't come up with the cash (local governments administer and execute Act 100 and the other state land use rules and regulations that have followed), then the locality must waive the offending regulation. Second, and prospectively, the law requires that anyone whose land values are diminished by new land use regulations be offered the same deal.

Measure 37 advocates argue that the new law has the potential to shape land use planning and regulation not only in Oregon but in other states as well. Indeed, Measure 37-like legislation was introduced in both the Montana and Colorado legislatures this spring, although neither passed it. Meanwhile, property rights advocates in Washington State are said to be gearing up for a ballot-initiative push there.

LET THEM GROW GRAPES

Analyses of why Measure 37 passed are as varied and polarized as the interests involved in the issue. David Hunnicutt and Bill Moshofsky of Oregonians in Action, a private property rights group that spearheaded the initiative drive, argue that Measure 37's success was inevitable for several reasons. First, Oregon's land use law--with its emphasis on protecting agriculture and forest land--is simply out of sync with where the state's economy is headed--toward technology and tourism. The laws, they say, have had the perverse effect of requiring landowners to stay in a business--such as farming--at which they can no longer make a living. Measure 37 proponents also argued that land designations were often irrational, with parcels made up of poor soils and steep slopes getting tossed into the "high value" agricultural pool. Most fundamentally, though, Measure 37 proponents argued that Oregon land use law was unjustly confiscatory, substantially reducing a property owner's right to a return on his original investment.

Which is how Dorothy English, a nonagenarian widow, became a statewide celebrity and effective spokeswoman in the cause of Measure 37. English, who owns a 19-acre parcel of land on a ridge with panoramic views of downtown Portland, Mount St. Helens and Mount Hood, complained that Oregon's land use laws prevented her from fulfilling her dream of allowing her grandson to build a house adjacent to hers (a dream that has since expanded to include a total of eight houses).

English was featured prominently in pro-37 advertisements that hammered away at the damage done by Oregon's laws to small landowners who just want to be able to have family settle nearby or to sell off a little property to pay for retirement. Other arguments held significant sway as well. Even some Oregonians inclined toward strong land use regulation were convinced by pear farmers in the Willamette Valley, who complained that they were being artificially forced to stay in a business that was no longer viable, required by law to carry land that no longer had any agricultural value.

If the pro-37 camp could find sympathetic witnesses for their cause, the anti-37 forces--which outspent proponents by 4 to 1--came across as cold and insensitive. To the complaint that some types of farming have become less viable (pear farming is the example most frequently cited) and that struggling farmers should be offered some relief, their response was--and is--that farmers who can't make a living growing one thing should find something else to grow that does make money. It's the same argument they use when it comes to complaints that sloping scrubland has been unfairly designated "high value" agricultural land. One staunch advocate of preserving potential agricultural land notes that no one would have thought pinot noir grapes would gain a toehold in Oregon, but they happen to thrive in poor soil.

Others simply argue that there is no inherent right to make a killing on land; no fundamental right to cash in when it comes time to lay down the tree pruners and pick up the golf clubs, particularly when it's at the expense of abutters who may see their land values hurt by new, intense development. Dan Eisenbeis, staff planner with 1,000 Friends of Oregon, the lead statewide organization opposing Measure 37, argues that land isn't a 401(k) and that it's not government's job to accommodate expected windfalls.

Such arguments, while logical, don't tend to resonate with voters who are being told tales of aging farmers or widows being denied their dower by overbearing government bureaucrats unwilling to bend a little to help out the little guy.

LANGUAGE LESSONS

Still, there is something puzzling about Measure 37's success. According to statewide surveys, Oregonians either support or strongly support land use regulations in almost the same proportions by which Measure 37 passed.

Anti-37 activists believe that a significant reason for 37's smooth voyage was the wording of its title: "Government Must Pay Owners, or Forgo Enforcement, When Certain Land Use Restrictions Reduce Property Value." It sounded reasonable enough, with the word "certain" suggesting that the measure would have limited impact. A different and more accurate title, opponents argue, might have resulted in a different outcome; something along the lines of "A Measure that Will Encourage Development; Potentially Cost Oregon Taxpayers Millions of Dollars, and Potentially Discourage Land Use Planning and Regulation Statewide."

Under Oregon law, ballot measures are assigned titles by the secretary of state, but those titles are open to challenge. Nobody stepped up to question the spin on 37, however. "We were asleep at the switch," admits Ethan Seltzer, the head of Portland State University's Urban Studies and Planning program.

Of greater concern to land use planners than the wording of Measure 37's title, are polls that indicate most Oregonians--apparently attuned to a world where government is active in land conservation-- figured that government would come up with ways to blunt any of the worst potential consequences of Measure 37, including paying claims to preserve open space and farmland. Given that the measure sounded reasonable enough, and given the assumption that government would not let Measure 37 run amok, Oregonians pulled the "yes" lever in droves.

Not everyone, of course, believes that Oregonians were so out to lunch when it came to voting. Hunnicutt, of Oregonians In Action, notes that Measure 37 passed by an even wider margin than did Measure 7 in 2003, indicating that voters not only understood the measure but had increasing sympathy for it. John Charles, the environmental policy director for the Portland-based, libertarian Cascade Policy Institute, believes the Measure 37 rout was real and that the land conservation movement in Oregon is now "operating on political fumes." Indeed, another measure on the November ballot, calling for the permanent preservation of a large piece of Oregon coastal forestland, was soundly defeated.

The status of either side's political viability aside, Measure 37 proponents have clearly scored one major philosophical and legal coup: setting a standard that requires government to pay compensation when land values are lowered by land use rules, a notion completely anathema to current standards for a regulatory taking, which requires that a landowner essentially be deprived of all value before any compensation is paid. "There's been a lot of talk about takings laws and compensation, but there's never been any meaningful or robust statute passed before," says John Echeverria, executive director of the Environmental Law and Policy Institute at Georgetown University, which follows takings issues nationwide. "You now have a version of one in Oregon."

Whether the Measure 37 bug is infectious will be tested over the next couple of years. Oregonians in Action says it's had queries from a number of states since last November. Echeverria doesn't see property rights advocates making much headway in legislatures. No states except Florida and Texas have ever passed any real takings laws, and even property rights advocates admit the laws in those two states are ineffective (see "The Property Rights Bust," Governing, June 1999). If any state takes action, it will probably be Washington through its ballot initiative process. "There's been a lot of political groundwork laid in Washington," Echeverria says.

A MOOT EXERCISE

Meanwhile, the impact of Oregon's Measure 37 is unclear, although its potential to turn state land use law on its ear is very real. Few regard a pending legal challenge to Measure 37 as having much of a chance (the suit charges that the initiative unconstitutionally creates two separate and unequal classes of landowner, one class that may reap a significant windfall because they owned land pre-Act 100 and then everyone else).

The lawsuit notwithstanding, there are enough other administrative and legal questions bubbling up around Measure 37 to keep a small army of attorneys and judges busy for a very long time. That is because if the thrust of 37 sounds straightforward--pay or repeal--how it is actually playing out at the ground level is not.

Wrapped up in the post-37 world order are such questions as: What's involved in proving ownership pre-1973? How is diminution in value to be calculated--through a "highest and best use" standard? If so, what use sets that standard--a more generous subdivision allotment, or a gambling casino and golf resort? Who decides that? What sort of claims processing and filing fees should local governments reasonably (or unreasonably) charge? Are new rights granted to a landowner transferable to new owners other than heirs?

Despite the potential confusion, somewhere between 400 and 500 landowners have submitted claims adding up to more than $100 million in compensation requests. Most claims involve allowing relatively small subdivisions or buildings on one lot; a handful, though, do demand more significant relief, such as permission to construct very large subdivisions or intense resort or retail development.

The local government response to the new law varies widely. Rick Sanai, an attorney for Yamhill County, just south of Portland, says his county has received about 40 claims, mostly for smaller subdivisions. Yamhill has adopted a very landowner-friendly approach to claims, says Sanai, inasmuch as "we're a small and not particularly wealthy county, so we're not going to pay compensation no matter what the amount, whether it's thousands of dollars or a six-pack of Slider." Since the county can't pay, calculating accurate diminution in value is a moot exercise, says Sanai. All Yamhill landowners have to do is file a claim and the offending encumbrance on development is removed.

While many local governments may be approving claims in a more or less pro forma fashion, some are being much tougher. In Multnomah County--the heart of the pro-planning movement in Oregon--filing fees are a bracing $1,500 and the procedure for filing claims is formal and involved. Landowners have to present proof of ownership and either one or two professional appraisals depending on the size of the claim. And county attorney Sandra Duffy is not shy about legal parsing when it comes to Measure 37 and any claims that might spring from it. For example, Duffy has argued that subdivisions shouldn't be the subject of claims because Measure 37 only mentions "use" in establishing loss of land value. Subdivision, argues Duffy, is not a use. Furthermore, Measure 37 allows exemptions for land use rules based on protecting public health and safety. That's an exception that has the potential to cover a lot of legal ground, Duffy says.

All claims also must pass muster with the state. According to Lane Shetterly, director of the Land Conservation and Development Department, which oversees state land use law, claims will first be reviewed by the Department of Administrative Services for "completeness." According to Shetterly, the state will require claimants to establish ownership, but will ask for only a rudimentary accounting for loss of land value since the state, like its local government partners, doesn't have any money with which to pay claims. The claims are then handed off for "substantive evaluation and determination to the appropriate state agency," he says. In most cases, that's Shetterly's agency, but some claims may go to the Department of Forestry, the Department of Transportation or other agencies. As of this spring, the state was still working on regulatory language to implement Measure 37 and hadn't ruled on any claim.

Adding to the cloudy legal future of Measure 37 claims is a State Attorney General's advisory letter issued last February stating his opinion that any change in zoning due to a Measure 37 claim is not transferable to a new (non-heir) owner. That puts such parcels in deep legal limbo, a prospect that bank attorneys find entirely unsettling. In fact, in the wake of the attorney general's opinion, Oregon's banking industry has taken the position that banks should not lend to potential new owners of parcels carved out (or carved up) thanks to a successful Measure 37 claim.

COULD THE BACKLASH BACKFIRE?

In order to bring some order to the process, the state legislature is considering fixes to the measure. According to state Senator Charlie Ringo, chair of the Senate Environment and Land Use Committee, his side of the legislature is looking at such options as establishing a clear and rigorous hearing process for every claim, weeding out those that would have serious impact on the key goals set out for land protection in Act 100. Ringo says the legislation might also call for reviewing land designations whereby building restrictions on parcels truly unsuitable for any agricultural use are eased. Given the more conservative bent of the House, and given the 60 to 40 percent vote on 37, it's not clear that such alterations to 37 will fly in Salem at this point.

At the same time, even hard core Act 100 supporters seem to have gotten the message that there ought to be some way to compensate landowners who really are substantially burdened by laws that dramatically reduce their right to use their land. Dan Eisenbeis, at 1,000 Friends of Oregon, says they've been looking at the possibility of a fund that might be created through sales of development rights, which would form a pool for paying compensation claims. But that's a complicated scheme, and nobody is really sure how much money it might raise.

What will ultimately decide the fate of Measure 37, though, is probably not legislative tinkering or cobbling together compensation schemes. What will really decide the issue is Oregonians: Did they understand what they were voting for last Election Day? If the answer to that question is yes, then the message in Oregon is loud and clear: Back off of land use controls. If the answer is no, and voters start seeing projects springing up like the 800-plus housing development proposed for prime (and formerly protected) orchard land in the Hood River Valley, then the revolution could backfire. That's the scenario that Georgetown's Echeverria thinks is most likely. "Yes, Measure 37 was a win for property rights advocates," says Echeverria, "but it's a win they may end up regretting."

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