Average reciprocity of advantage: "Magic words" or economic reality - Lessons from Palazzolo

Urban Lawyer

Volumn 39, Issue 2, 2007, Pages 319-370

  Wade, William W ^a   Bunting, Robert L ^a  

^a Department of Energy and Water Economics ^*

Author keywords

[No Author keywords available]

Indexed keywords

LAND USE; RECIPROCITY; REGULATORY FRAMEWORK;

EID: 38349181755     PISSN: 00420905     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Article

References (255)

1. Something of an oxymoron, as a "term of art" is a word or phrase that has a precise meaning in a particular subject area. BLACK's LAW DICTIONARY 1511 (8th ed. 2004).
2. See Lingle v. Chevron U.S.A., Inc., 544 U.S. 528, 539 (2005) ("The Penn Central factors - though each has given rise to vexing subsidiary questions - have served as the principal guidelines for resolving regulatory takings claims that do not fall within the physical takings or Lucas rules.").
3. Articles representing the polar extremes of disinterested scholarship and polemic discourse, discussed infra, are Lynda J. Oswald, The Role of the "Harm/Benefit" and "Average Reciprocity of Advantage" Rules in a Comprehensive Takings Analysis, 50 VAND. L. REV. 1449,1489 (1997),
4. and Andrew W. Schwartz, Reciprocity of Advantage: The Antidote to the Antidemocratic Trend in Regulatory Takings, 22 UCLA J. ENVTL. L. & POL'Y 1 (2004).
5. See generally John E. Fee, The Takings Clause as a Comparative Right, 76 S. CAL. L. REV. 1003, 1058 & nn.227-30 (2003) (Teaching the same conclusion).
6. John D. Echeverria, A Turning of the Tide: The Tahoe-Sierra Regulatory Takings Decision, 32 ENVTL. L. REP. 11235, 11249 (2002), available at http://www.law.georgetown.edu/gelpi/ current_research/documents/RT_pubs_Law_ELRTahoesierra.pdf.
7. See also Schwartz, supra note 3, at 61 (viewing Tahoe-Sierra as a harbinger of "wider reliance on reciprocity of advantage in takings cases.").
8. Gideon Kanner, The Lie That the Regulated Benefit, NAT'L L.J. , Apr. 29, 1996, at A17 ("[N]ext time you come across a brief or court opinion going on about 'average reciprocity of advantage,' check the context carefully. Chances are that what lurks behind it is a situation neither average, nor reciprocal, nor of advantage to the landowner on the short end of the regulation.... [I]t is more likely a triumph of 'magic words' over economic reality.") (emphasis added). As Oscar Wilde said to the painter James Whistler after some bon mot, "I wish I had said that." To which, Whistler responded, "I'm sure you will." So, thanks to Mr. Kanner for the title.
9. R & Y, Inc. v. Mun. of Anchorage, 34 P.3d 289, 299 (Alaska 2001).
10. Andrus v. Allard, 444 U.S. 51, 67 (1979) (quoting Pennsylvania Coal v. Mahon, 260 U.S. 393, 422 (1922) (Brandeis, J., dissenting)).
11. Plymouth Coal Co. v. Pennsylvania, 232 U.S. 531 (1914).
12. Lingle v. Chevron U.S.A., Inc., 544 U.S. 528, 537-38 (2005). The decision says nothing about ARA per se but affirms that "the Penn Central inquiry turns in large part, albeit not exclusively, upon the magnitude of a regulation's economic impact and the degree to which it interferes with legitimate property interests."
13. Id. at 539.
14. Just when the Federal Claims Court has figured out how to evaluate interference with distinct or reasonable investment backed expectations, see Florida Rock Indus. v. United States (Florida Rock V), 45 Fed. Cl. 21 (1999), the Supreme Court had to invent another obscure phrase, "interference with legitimate property interests, " This brings to mind "Dwight Merriam's immortal dictum that when the Supreme Court coins a new term in the landuse field, that means that landuse lawyers will be buying new cars in the next three years."
15. Gideon Kanner, Making Laws and Sausages: A Quarter-Century Retrospective on Penn Central Transportation Co. v. City of New York, 13 WM. & MARY BILL RTS. J. 679, 768 (2005).
16. Brace v. United States, 72 Fed. Cl. 337 (2006) (relying on the broad version of reciprocity although the decision hinges on the facts of the ease largely related to experts' opposing theories of valuation). The decision never uses the term "reciprocity of advantage;' but echoes the Andrus/Kirby Forest language about the general advantages of living in a civilized society. Id. at 356.
17. Exec. Order No. 12,866.1.b, 58 Fed. Reg. 51,735 (Oct. 4, 1993).
18. OFFICE OF MANAGEMENT AND BUDGET, ECONOMIC ANALYSIS OF FEDERAL REGULATIONS UNDER EXECUTIVE ORDER 12,866, 1 (Jan. 11, 1996), available at http://www.whitehouse.gov/omb/inforeg/riaguide.html.
19. See generally R & Y, Inc. v. Mun. of Anchorage, 34 P.3d 289,298 (Alaska 2001) (citing Florida Rock Indus. v. United States (Florida Rock IV), 18 F.3d 1560 (D.C. Cir. 1994), on remand 45 Fed. Cl. 21 (1999) (Florida Rock V )); K & K V, 705 N.W.2d at 384 (citing Walcek v. United States, 49 Fed. Cl. 248, 270 (2001)).
20. Penn Cent. Transp. Co. v. New York City, 438 U.S. 104, 124 (1978).
21. John D. Echeverria, Regulatory Takings After Brown, 33 ENVTL. L. REP. 10626, 10629 (2003) (calling for an evaluation of the fairness of government actions under the Takings Clause to be "assessed by considering both the burdens imposed and the benefits conferred by government activity").
22. Palazzolo v. State, C.A. No. WM 88-0297, 2005 WL 1645974, at *1 (R.I. Super. Ct. July 5, 2005). Dr. James Opaluch, Professor of Economics at the University of Rhode Island, testified for the state. Co-author Wade testified for Mr. Palazzolo. Both are resource economists trained and experienced in dealing with environmental values that were at issue in the case.
23. Facts of the case are discussed in Part V, infra.
24. Keystone Bituminous Coal Ass'n v. Debenedictis, 480 U.S. 470, 491-92 (1987).
25. 18 F.3d at 1570-71.
26. Id. at 1571.
27. See Andrus v. Allard, 444 U.S. 51, 67 (1979) (citing Pennsylvania Coal, 260 U.S. at 422).
28. U.S. 40, 49 (1960) (recognizing that "the Fifth Amendment's guarantee ... [is] 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").
29. See generally Palazzolo v. State, C.A. No. WM 88-0297, 2005 WL 1645974 (R.I. Super. Ct. July 5, 2005); see also Part V.B. infra.
30. Oswald, supra note 3, provides in-depth discussion of cases prior to 1997. This section keys on cases subsequent to that date.
31. Anthracite Mining Act, 1891 Pa. Laws 176;
32. Plymouth Coal Co. v. Pennsylvania, 232 U.S. 531, 539-40 (1914).
33. Commonwealth v. Plymouth Coal Co., 81 A. 148, 149 (Pa. 1911) (quoting Mapel v. John, 24 S.E. 608, 611 (W. Va. 1896)).
34. Plymouth Coal, 232 U.S. at 540 ("Legislation requiring the owners of adjoining coal properties to cause boundary pillars of coal to be left of sufficient width to safeguard the employees of either mine in case the other should be abandoned and allowed to fill with water cannot be deemed an unreasonable exercise of the power. In effect it requires a comparatively small portion of the valuable contents of the vein to be left in place, so long as may be required for the safety of the men employed in mining upon either property.").
35. Pennsylvania Coal v. Mahon, 260 U.S. 393, 415 (1922). The 1922 decision held that surface property owners explicitly did not purchase in 1878 the right to expect the coal company to support buildings and roads built above the mine. Id. The Kohler Act, passed forty-three years later in 1921, required protection of surface rights, but abrogated the original agreement between surface and mining rights owners. Id. at 412. Justice Holmes agreed with the coal company's assertion that it could not profitably operate the mine because of the Kohler Act and concluded that the mining company's losses went "too far." Id. at 415. In contrast, Plymouth Coal held competent the legislature's requirement to leave a pillar of coal along the line of adjoining property as a barrier sufficient for the "safety of the employees of either mine in case the other should be abandoned and allowed to fill with water." 232 U.S. at 540. "But that was a requirement for the safety of employees invited into the mine, and secured an average reciprocity of advantage that has been recognized as a justification of various laws." Pennsylvania Coal, 260 U.S. at 415 (emphasis added).
36. Pennsylvania Coal, 260 U.S. at 415. What is "too far" seems to be the root cause of most of the vexation.
37. U.S. 22, 30 (1922).
38. Id. at 32.
39. Oswald, supra note 3, at 1489.
40. Pennsylvania Coal, 260 U.S. at 422 (Brandeis, J., dissenting) (emphasis added).
41. For insight into the workings of Justice Brandeis' mind, see Felix Frankfurter, Mr. Justice Brandeis and the Constitution, 45 HARV. L. REV. 33, 77-78 (1931): A philosophy of intellectual humility determines Mr. Justice Brandeis' conception of the Supreme Court's function: an instinct against the tyranny of dogma and skepticism regarding the perdurance of any man's wisdom, though he be judge. No one knows better than he how slender a reed is reason - how recent its emergence in man, how powerful the countervailing instincts and passions, how treacherous the whole rational process.... Truth and knowledge can function and flourish only if error may freely be exposed. And error will go unchallenged if dogma, no matter how widely accepted or clearly held, may not be questioned.
42. Id.
43. See Judge Diarmuid F. O'Scannlain, United States Circuit Judge for the Ninth Circuit, Keynote Address at the Federalist Society Conference: Property Rights After Tahoe (Jan. 30, 2003), available at http://www.fed-soc.org/Publications/Transcripts/tahoeoscannlain.pdf.
44. Penn Cent. Transp. Co. v. New York City, 438 U.S. 104, 140 (1978) (Rehnquist, J., dissenting).
45. Id. at 133 (emphasis added).
46. STEVEN J. EAGLE, REGULATORY TAKINGS 799 (3d. ed., Michie 2005).
47. Penn Cent., 438 U.S. at 140 (Rehnquist, J., dissenting).
48. Id. at 147.
49. Id. at 148-49.
50. The benefits that appellees believe will flow from preservation of the Grand Central Terminal will accrue to all the citizens of New York City. There is no reason to believe that appellants will enjoy a substantially greater share of these benefits. If the cost of preserving Grand Central Terminal were spread evenly across the entire population of the city of New York, the burden per person would be in cents per year - a minor cost.... Instead.... appellees would impose the entire cost of several million dollars per year on Penn Central. But it is precisely this sort of discrimination that the Fifth Amendment prohibits.
51. Id.
52. Id. at 149 n. 13.
53. Id. at 149.
54. Id.
55. See William Wade, Penn Central's Economic Failings Confounded Takings Jurisprudence, 31 URB. LAW. 277 (1999).
56. This article discusses problems with Justice Brennan's law clerk's understanding of the Frank Michelman article that has become bedrock for the "parcel as a whole" theory of the denominator. Frank I. Michelman, Property, Utility and Fairness: Comments on the Ethical Foundations of Just Compensation Law, 80 HARV. L. REV. 1165 (1967).
57. Wade's article also highlighted New York Chief Judge Breitel's "doctrine" of legal-economic nonsense: "[Plroperty may be capable of producing a reasonable return for its owners even if it can never operate at a profit," which might have served as the social justification for requiring Penn Central to maintain the facade of the Grand Central Terminal. Penn Cent. Transp. Co. v. New York City, 366 N.E.2d 1271, 1276 (N.Y 1977).
58. For more on the social underpinnings of the Penn Central decision (in lieu of either law or economics), see Kanner, supra note 10.
59. Penn Cent. Transp. Co. v. New York City, 438 U.S. 104, 123 (1978).
60. See infra Part IV (discussing economic principles that would govern whether government should pay compensation).
61. Penn Cent., 438 U.S. at 138 (emphasis added). Given that Penn Central ceased to exist as a railroad in 1976 and was being operated as Conrail under federal bankruptcy protection at the time of the 1978 decision, we wonder what funds the Court imagined might be used for these further enhancements. Penn Central became the largest bankruptcy in United States history - the Enron of its day. Metro North, a subsidiary of New York's MTA, took over operation of Grand Central Terminal in 1983 under a lease from Penn Central. Metro North described its takeover of Grand Central in 1983 as salvaging it from "the wreckage of Penn Central." Telephone Interview with Marge Anders, Public Information, Metro North (Sept. 22, 1998). Ironically, Grand Central Terminal was eventually restored at public expense by the MTA. De facto, the public, not Penn Central, paid the cost of maintaining the fagade of Grand Central. This factual outcome speaks more about the lack of economic insight in the Penn Central decision than thousands of words in erudite journals since.
62. Kanner's 2005 Penn Central article may provide the best insight for shifting the burden back to the owners of Penn Central in terms of political pressures brought by city elites to preserve Grand Central and the city's impecunious budgetary situation. See Kanner, supra note 10.
63. Penn Cent., 438 U.S. at 106.
64. Id. at 134-35.
65. Oswald, supra note 3, at 1489.
66. Id. at 1506.
67. U.S. 51, 67-68 (1979) (Brandeis, J., dissenting).
68. Oswald, supra note 3, at 1512.
69. Andrus, 444 U.S. at 67-68 ("It is true that appellees must bear the costs of these regulations. But, within limits, that is a burden borne to secure 'the advantage of living and doing business in a civilized community.' We hold that the simple prohibition of the sale of lawfully acquired property in this case does not effect a taking in violation of the Fifth Amendment.") (citation omitted).
70. Oswald, supra note 3, at 1512-13.
71. Raymond R. Colletta, Reciprocity of Advantage and Regulatory Takings: Toward a New Theory of Takings Jurisprudence, 40 AM. U. L. REV. 297, 363-66 (1990).
72. Id. at 363.
73. Schwartz, supra note 3, at 4.
74. San Remo Hotel v. City of San Francisco, 41 P.3d 97 (Cal. 2002).
75. See also San Remo Hotel v. City of San Francisco, 545 U.S. 323 (2005).
76. Tahoe-Sierra Pres. Council, Inc., v. Tahoe Reg'I Planning Agency, 535 U.S. 302 (2002).
77. Schwartz, supra note 3, at 3-4.
78. Id. at 48;
79. San Remo Hotel, 41 P.3d at 108 (citing Pennsylvania Coal v. Mahon, 260 U.S. 393, 422 (1922)).
80. Id. at 53 (citing Keystone Bituminous Coal Ass'n v. Debenedictis, 480 U.S. 470, 491-92 (1987)). Schwartz misstates the amount of coal required to be left in place as 50% instead of the correct amount, 2%. The misstatement enhances Mr. Schwartz's argument that leaving 50% of coal in the ground to support the surface estate was a reasonable burden to bear. The evidence within the decision shows that the Subsidence Act required 27 million tons to be left in place to support the surface. The total coal in place in the mines surveyed at 1.46 billion tons; thus, the Act only affected two percent of the coal in place, not fifty percent. The petitioner's lawyers brought this takings case with no discernable economic damages, and with only a lame response to the question about the lack of proof of damages to their clients: "[A]n assessment of the actual impact that the Act has on petitioners' operations 'will involve complex and voluminous proofs,' which neither party [is] currently in a position to present." Keystone, 480 U.S. at 493. The criti- cal economic fact of Keystone was that the support coal was worth a great deal to the surface landowners, while it had little value to the miners, and no demonstrated value within the case; i.e., the present value of the last two percent of the coal was zero.
81. Schwartz, supra note 3, at 61.
82. John D. Echeverria, Partial Regulatory Takings Live, But .... http://www.law.georgetown.edu/gelpi/current_research/documents/ RT_Pubs_Law_Tahoesieffaaftermath.pdf (last visited Feb. 26, 2007).
83. Schwartz, supra note 3, at 64.
84. Penn Cent. Transp. Co. v. New York City, 438 U.S. 104, 123 (1978) ("[T]his Court has recognized that the 'Fifth Amendment's guarantee ... [is] 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."' (quoting Armstrong v. United States, 364 U.S. 40, 49 (1960)).
85. Tahoe-Sierra Pres. Council, Inc., v. Tahoe Reg'l Planning Agency, 535 U.S. 302, 350 (2002) (Rehnquist, J., dissenting).
86. Id. at 354 (quoting Pennsylvania Coal v. Mahon, 260 U.S. 393, 416 (1922).
87. Fee, supra note 4, at 1059.
88. Florida Rock Industries v. United States entered the court system twenty-two years ago over denial of a permit by the Corps of Engineers to mine ninety-eight acres of a 1,560 acre parcel of aggregate limestone purchased in 1972, before the regulatory prohibition subsequently imposed by federal law. Florida Rock 1, 8 Cl. Ct. 160 (1985).
89. The Court of Claims found in favor of the plaintiff. The case was reversed by the United States Court of Appeals for the Federal Circuit in 1986, in Florida Rock II, 791 F.2d 893 (1986);
90. retried by Claims Court in 1990, Florida Rock III, 21 Cl. Ct. 161 (1990);
91. and reversed again in 1994 by the Federal Circuit, Florida Rock IV, 18 F.3d 1560 (1994). Valuation testimony on remand was heard in April 1996 in Florida Rock V.
92. After three years, Judge Loren Smith issued his decision on August 31, 1999, holding that compensation was due for the originally foreclosed ninety-eight acres of limestone aggregate. Florida Rock V, 45 Fed. Cl. 21 (1999).
93. On March 28, 2000, the Court of Federal Claims entered final judgment on the partial taking of the ninety-eight acre parcel for $752,444, plus interest from October 2, 1980 plus attorney and expert costs of $1,320,377, and urged the parties to negotiate an award related to the remaining 1,462 acres. 2000 WL 331830 (Fed. Cl. 2000).
94. The appeal of the 1999 and 2000 decisions was dismissed by the Federal Circuit, at the request of the parties upon their reaching a settlement, September 12, 2001. No. 00-5081, 2001 WL 1173172. The federal government finally paid Florida Rock $21 million in the fall of 2001 to settle the pending case and dispose of the claim with respect to the remaining 1,462 acres. Florida Rock Industries, Inc. Receives Condemnation Proceeds and Announces an Agreement to Purchase Rock Quarry in Chattanooga, Tennessee, BUSINESS WIRE (Sept. 24, 2001), available at http://www.findarticles.com/p/articles/mi_m0EIN/ is_2001_Sept_24/ai_78549472.
95. Florida Rock IV, 18 F.3d at 1570-71 (emphasis added) (citation omitted).
96. R & Y, Inc. v. Mun. of Anchorage, 34 P.3d 289, 298 (Alaska 2001). For further discussion of this case see infra Part III.H.
97. For more information about the significance of the Florida Rock V decision to determination of compensable takings, see William W. Wade, "Sophistical and Abstruse Formulas" Made Simple: Advances in Measurement of Penn Central's Economic Prongs and Estimation of Economic Damages in Federal Claims and Federal Circuit Courts, 38 URB. LAW 337. (2006). The decision was path-breaking in its application of the Penn Central test to a partial taking.
98. Florida Rock V, 45 Fed. Cl. at 36-37 (citation omitted).
99. Id. at 38.
100. Walcek v. United States, 49 Fed. Cl. 248, 270 (2001).
101. Id.
102. Id. at 269.
103. Id. (citing Creppel v. United States, 41 F.3d 627, 631 (Fed. Cir. 1994)).
104. R & Y, Inc. v. Mun. of Anchorage, 34 P.3d 289, 299 (Alaska 2001) (citing Florida Rock IV, 18 F.3d at 1570-71). In fact, the Walcek decision calls attention to specific disagreements with the way the Federal Circuit analyzed the economic impact prong of the Penn Central test, criticizing the "use of inflation adjustments in [economic impact] computations." Walcek, 49 Fed. Cl. at 267, 271 n.37. Suffice to say, economists routinely rely on inflation indices to adjust dollars to a common metric to avoid the apples and oranges problem of comparing dollars of different vintages.
105. Kirby Forest Indus., Inc. v. United States, 467 U.S. 1 (1984). Case involved the condemnation of plaintiff's forest property for government use as a national park. Protracted negotiations and disagreement over the appraised fair market value of the land and taking date led the dispute to the Supreme Court, which ruled on the date and the fair market value of the property at that date. Plaintiff's foregone uses during the years of negotiation were deemed, it would seem, the cost of doing business in a civilized society. "[W]e do not find, prior to the payment of the condemnation award in this case, an interference with petitioner's property interests severe enough to give rise to a taking under the foregoing theory. Until title passed to the United States, petitioner was free to make whatever use it pleased of its property."
106. Id. at 14-15.
107. Walcek, 49 Fed. Cl. at 270 (citing Kirby Forest, 467 U.S. at 14) (emphasis added).
108. Id. at 270-71.
109. Florida Rock V, 45 Fed. Cl. at 37
110. (citing Creppel, 41 F.3d at 631).
111. Walcek, 49 Fed. Cl. at 270
112. (citing Kirby Forest, 467 U.S. at 14). Judge Allegra's most recent decision in Brace cited the same language from Kirby Forest: "[W]hile most burdens consequent upon government action undertaken in the public interest must be borne by individual landowners as concomitants of the advantage of living and doing business in a civilized community," the Supreme Court has stated, "some are so substantial and unforeseeable, and can so easily be identified and redistributed, that justice and fairness require that they be home by the public as a whole."
113. Brace v. United States, 72 Fed. Cl. 337, 355-56 (2006) (emphasis added). The opinion concluded, "[T]he United States has a legitimate public welfare obligation to preserve our nation's wetlands" and "the government's actions in this case were well directed to that end.... [W]etlands regulations here served important public purposes,... and (were] not targeted on plaintiff."
114. Id. at 25.
115. K & K Constr., Inc. v. Mich. Dep't of Envtl. Quality (K & K V), 705 N.W. 365 (Mich. Ct. App. 2005).
116. Id. at 384;
117. John D. Echeverria, The Triumph of Justice Stevens and the Principle of Generality, 7 VT. J. ENVTL. L. 22, 40 & n. 106 (2005) (referring to the K & K V decision as "a particularly thoughtful application of the principle of generality in the context of wetlands regulation").
118. CCA Associates v. United States, No. 97-334C, 2007 WL 315350 (Fed. Cl. Jan. 31, 2007). The phrase "average reciprocity of advantage" does not appear in the decision.
119. Id. at *26
120. (quoting Loveladies Harbor, Inc. v. United States, 28 F.3d 1171, 1176 (1994);
121. Cienega Gardens v. United States (Cienega IX), 67 Fed. Cl. 434, 466 (2005)).
122. See also Armstrong v. United States, 364 U.S. 40, 49 (1960).
123. See Independence Park v. United States, Cienega Gardens v. United States and Chancellor Manor v. United States in the Federal Claims and Circuit Courts. Economic issues of the Penn Central test and damages calculations are discussed in the article cited supra note 77.
124. CCA Associates, 2007 WL 315350 at *24
125. (citing Defendant's Brief at 46-48).
126. Id. at *25.
127. Id. at *26.
128. Walcek v. United States, 49 Fed. Cl. 248, 270 (2001).
129. Stop Work Order from MDNR Wetland Protection Unit to K & K Constr., Inc. (May 9, 1988).
130. K & K v. Mich. Dep't of Natural Res., No. 88-12120-CM (Mich. Ct. Cl. Nov. 5, 1992) (K & K I).
131. K & K v. Mich. Dep't of Natural Res., 551 N.W.2d 413 (Mich. Ct. App. 1996) (K & K II).
132. K & K v. Mich. Dep't of Natural Res., 575 N.W.2d 531 (Mich. 1998) (K & K III).
133. K & K v. Mich. Dep't of Envtl. Quality, No. 88-12120-CM (Mich. Ct. Cl. May 24, 2002) (K & K IV).
134. K & K v. Mich. Dep't of Envtl. Quality, 705 N.W.2d 365 (Mich. Ct. App. 2005) (K & K V);
135. see also Plaintiff's Petition for Writ of Certiorari to the Supreme Court of the United States, K & K Constr., Inc. v. Mich. Dep't of Envtl. Quality, No. 06-1071, 2007 WL 276147 (U.S. Jan. 29, 2007).
136. K & K V, 705 N.W.2d at 384-85.
137. Id. at 386.
138. Id. at 380 (emphasis added).
139. This is not the federal law, nor was it the law in Michigan before this decision. The law is clear that effects of regulatory impositions need not be tantamount to physical invasion. Agins II clarified the Penn Central 3-prong balancing test by requiring compensation if the regulation denies the owner "economically viable use" of the property. Agins v. City of Tiburon, 447 U.S. 255, 260 (1980) (the second Agins requirement, that the regulation advance legitimate state interests, was deleted by Lingle).
140. Michigan law parallels Agins: compensation is required where a land-use regulation denies a landowner all economically viable use of the land. Volkema v. Dep't of Natural Res., 542 N.W.2d 282, 283 (Mich. Ct. App. 1995). Protection of wetlands that denies plaintiff economically viable use of the property requires compensation. The Michigan appellate court's demand that a taking be the functional equivalent of a "physical invasion" destroys the balancing test.
141. R & Y, Inc. v. Mun. of Anchorage, 34 P.3d 289, 294 (Alaska 2001).
142. Trial court awarded damages of $5.94 million for taking of Parcel 1, plus interest and court costs. Order, K & K Constr., Inc. v. Mich. Dep't of Envtl. Quality, No. 88-12120-CM (Mich. Ct. Cl. Sept. 30, 2002).
143. K & K IV, No. 88-12120-CM, at 20 n.40 (Mich. Ct. Cl. filed May 24, 2002).
144. R & Y, 34 P.3d at 291.
145. Id. at 294. The decision says 1.5% to 2.0%, which does not match the authors' math.
146. Id. at 295.
147. Id. at 298.
148. Id. at 300.
149. Id. at 296.
150. Co-author Wade testified for K & K Construction on the financial measurement of Penn Central's two economic prongs.
151. K & K's land sits idle today while still paying taxes. Plaintiff's Petition, supra note 104, at *29.
152. See supra text accompanying note 73.
153. See, e.g., Lawrence Blume, Daniel Rubinfeld & Perry Shapiro, The Taking of Land: When Should Compensation Be Paid, 99 Q.J. ECON. 71 (1984);
154. Timothy J. Brennan & James Boyd, Political Economy and the Efficiency of Compensation for Takings, 24 CONTEMP. ECON. POL. 188 (2005);
155. William Fischel & Perry Shapiro, A Constitutional Choice Model of Compensation for Takings, 9 INT'L REV. L. & ECON. 115 (1989);
156. Benjamin E. Hermalin, An Economic Analysis of Takings, 11 J.L. ECON. & ORG. 64 (1995);
157. Robert Innes, Takings and Compensation for Private Land, 76 LAND ECON. 195 (2000);
158. Jed Rubenfeld, Usings, 102 YALE L.J. 1077 (1993);
159. Perry Shapiro, Compensation for Takings: Efficiency and Equity, U.C. Santa Barbara, Department of Economics Discussion Paper (2005), http://www.econ.ucsb.edu/conferences/takings06/docs/Shapiro.doc.
160. Abraham Bell & Gideon Parchomovsky, Givings, 111 YALE L.J. 547, 553-54 (2001).
161. See generally K & K IV; K & K V (likely environmental benefits very small for denying permit to develop fifty-five acres of a one-square-mile urban and upland land area, found to contain twenty-seven acres of poor quality wetlands). The K & K property already contained a 10,000 square foot office building, owned by plaintiff, plus a restaurant and a large apartment complex owned by third parties. The surrounding area was completely built up. Close substitute and higher quality wetlands abound in the township. Plaintiff's monetary losses were demonstrated to be large and sufficient to pass the Penn Central test. Foregoing development of the planned restaurant and sports complex might have provided limited environmental habitat services of small benefit value, but also would have caused tax revenue losses to state and local governments and large recreation benefit losses to residents of Waterford Township, Michigan. None of the appropriate elements of social reciprocity were measured and evaluated within the case. Social reciprocity likely would have cut in favor of the plaintiff. The generality of wetlands protection in no way protected significant wetlands at issue that might have supported the appellate court's reversal based on economic efficiency criteria. Narrow reciprocity clearly would not have revealed any direct compensating benefits to the plaintiffs remaining uses of land sufficient to offset instant losses of permit denial. See also infra Part III.I.
162. Treasury and General Government Appropriations Act of 2001, Pub. L. No. 106-554, 31 U.S.C. § 1105 (2006).
163. Office of Management and Budget, Executive Summary, DRAFT 2006 REPORT TO CONGRESS ON THE COSTS AND BENEFITS OF FEDERAL REGULATIONS (2006), at 1, available at http://www.whitehouse.gov/omb/inforeg/ reports/2006_draft_cost_benefit_report.pdf.
164. See generally Thomas J. Miceli & Kathleen Segerson, Regulatory Takings: When Should Compensation Be Paid?, 23 J. LEGAL STUD. 749 (1994).
165. Id. at 754
166. (citing Joseph Sax, Takings and the Police Power, 74 YALE L.J. 36 (1964);
167. Takings, Private Property and Public Rights, 81 YALE L.J. 149 (1971)).
168. Id. at 755
169. (citing WILLIAM FISCHEL, THE ECONOMICS OF ZONING LAWS 156-57 (1985)). But if this were true, why would the landowner file the lawsuit?
170. Florida Rock Industries v. United States (Florida Rock IV), 18 F.3d 1560, 1571 (1994) (emphasis added).
171. VILFREDO PARETO, MANUALE D'ECONOMICA POLITICO (1906).
172. See supra note 122 (suggesting that permit denial in K & K led to an inefficient outcome, as the investment planned for the community likely would have made better use of the land than preserving the meager wetlands).
173. J. Hicks, The Foundations of Welfare Economics, 49 ECON. J. 696 (1939);
174. N. Kaldor, Welfare Propositions in Economics and Interpersonal Comparisons of Utility, 49 ECON. J. 549 (1939).
175. Shapiro, supra note 120, at 5.
176. Shapiro's 2005 working paper, motivated by Kelo v. City of New London, 545 U.S. 469 (2005), defines an equitable compensation rule as one which, ex post, provides the same income to those whose land is taken and those whose land is not taken; or, which, ex ante, provide all landowners the same expected income.
177. Id.
178. Armstrong v. United States, 364 U.S. 40, 49 (1960).
179. Id.
180. Miceli & Segerson, supra note 125, at 773. While these authors discuss concepts by which to evaluate either efficiency or inefficiency in their rules, measurement and implementation would be difficult. Their conclusion about payment, ultimately, is a value judgment.
181. Interestingly, the Alaska Supreme Court noted the "ecological and economic value that wetlands provide in protecting water quality, regulating local hydrology, preventing flooring, and preventing erosion." R & Y, 34 P.3d at 298
182. (citing Paul Sarahan, Wetland Protection Post Lucas: Implications of the Public Trust Doctrine on Takings Analysis, 13 VA. ENVTL. L.J. 537, 538-39 (1994)).
183. Ronald Coase, The Problem of Social Cost, 3 J.L. & ECON. 1 (1960). This perhaps simplifies the Coase Theorem; if the conditions of the Coase theorem apply, one might suppose that the parties could settle the dispute on their own without any intervention.
184. Even if social benefits exceed private losses, agencies tend to choose to fight rather than pay, adopting sometimes disingenuous arguments made by government counsel to avoid payment. Whitney Benefits provides one example. After abundant testimony by competent experts on coal reserves, strip mining technology, coal markets, and prices, the government sought to argue that cattle grazing and farming on the surface of the coal deposit was an adequate beneficial use of the property. The court's decision included a reprimand directed toward the defense counsel: "Defendant's contention is completely off the mark." See Whitney Benefits, Inc. v. United States, 18 Cl. Ct. 394, 405 (1989) (discussion of the testimony);
185. Whitney Benefits v. United States, 31 Fed. Cl. 116 (1994) (final decision for plaintiff).
186. Ann Oshiro, Tahoe-Sierra Preservation Council, Inc. v. Tahoe Regional Planning Agency: A Significant Ripple in Takings Jurisprudence, 41 HOUS. L. REV. 167, 170 (2004).
187. Id. at 196, 198-99.
188. We find little or no evidence in case decisions to support this opinion. Case decisions that cite back to land use regulations, such as zoning, used to prevent, for example, a mining operation or a factory from being built within a residential neighborhood, see, e.g., Euclid v. Ambler Realty Co., 272 U.S. 3659 385-389 (1926), do not apply equally well to protection of environmental resources, such as wetlands. A citation to a zoning case does not automatically prove that protection of natural resources distributes equal burden among landowners. Wetlands are not ubiquitous. Evidence must examine and provide a factual basis to understand reciprocal benefits at stake.
189. Michael M. Berger, Tahoe-Sierra: Much Ado About - What?, 25 U. HAW. L. REV. 295, 320 (2003) ("[T]he Court put the cost of saving Lake Tahoe in the wrong place.... Those who [get] the benefit should also shoulder the burden."). Mr. Berger is correct; theoretically, efficiency only shows that nonpayment leads to inefficient outcomes.
190. Justin W. Stemple, Take It or Leave It: The Supreme Court's Regulatory Takings Jurisprudence After Tahoe-Sierra, 28 WM. & MARY ENVTL. L. & POL'Y REV. 163, 185-86 (2003) ("If the parcel as a whole doctrine were abandoned or modified to regard the relevant parcel as the regulated parcel, the cost of wetland and other property regulations would be prohibitive, and accordingly the decline
191. Oswald, supra note 3, at 1489 (emphasis added).
192. Id. (emphasis added).
193. Id. at 1512.
194. For further discussion of time horizon of benefit streams, see Hanoch Dagan, Takings and Distributive Justice, 85 VA. L. REV. 741 (1999). Keep in mind that past losses and the future stream of benefits must be discounted to some benchmark date, say date of taking in a permanent taking or end of taking in a temporary taking or trial date, for convenience of expressing damages in current dollars payable to the claimant. A discount rate must be applied. Economists might argue about whether a low societal discount rate applies or a discount rate matched to the plaintiff's opportunity cost of capital.
195. S. 605, 104th Cong. (1995);
196. H.R. 925, 104th Cong. (1995).
197. Exec. Order No. 12,630, 53 Fed. Reg. 8859 (Mar. 15, 1988).
198. William W. Wade, Economic Considerations of Regulatory Takings Reform: Judicial Precedent and Administrative Law v. Legislative Intent, 26 ENVTL. L. REP. 650, 676 (1995). Beneficial values for protecting air, land, and water resources are without doubt significant and important.
199. Echeverria, supra note 91, at 39. Professor Echeverria's latest opinion on "generality" still misses the point that potential reciprocal benefits of regulation must be concrete and shown to directly offset the costs of regulation to forestall payment. A fourth definition of character focuses on whether the regulation creates an "average reciprocity of advantage." The concept is based on the idea that a regulation that applies broadly across a community, even if it may restrict an owner's use of his property, is likely to benefit the owner by restricting others' use of their properties.
200. John D. Echeverria, Making Sense of Penn Central, 23 UCLA J. ENVTL. L. & POL'Y 171, 171-210 (2005). Generality is not a theory that supports nonpayment.
201. This also could be referred to as "The Economists' Full-Employment Act." If, indeed, the use of the social version of reciprocity is mechanically not well suited to become a screening tool, then perhaps its overall usefulness is limited. Nonetheless, benefits and burdens need to be evaluated more rigorously to improve judicial practice in takings law.
202. E-mail from Brian Roach to William W. Wade (July 11, 2006) (on file with author) ("It's simply not the court's purview to make decisions based on economic efficiency.... So you're arguing for a complete redefinition of the role of the courts - or even that the courts be eliminated and all policy decisions be made and enforced by a group of economists constantly cranking out [cost-benefit analyses]."). Thanks to Brian Roach for netting out the problem succinctly.
203. Kanner, supra note 10, at 754. The entire paragraph leverages Kanner's cited words.
204. Andrus v. Allard, 444 U.S. 51, 67 (1979) (quoting Pennsylvania Coal v. Mahon, 260 U.S. 393, 422 (1922) (Brandeis, J., dissenting)).
205. Palazzolo v. State, No. WM 88-0297, 2005 WL 1645974, at *1 (R.I. Super. Ct. July 5, 2005).
206. David Cole, Analytical Chronology of Palazzolo v. Rhode Island, 30 B.C. ENVTL. AFF. L. REV. 171, 174 (2002).
207. Palazzolo, 533 U.S. 606, 614-16 (2001) (citations omitted).
208. Palazzolo v. State, 746 A.2d 707, 711 (R.I. 2000).
209. Palazzolo, 533 U.S. at 616.
210. Palazzolo, 2005 WL 1645974, at *11.
211. Cole, supra note 156, at 172.
212. Transcript of Record at 682-83,
213. Palazzolo v. Coastal Res. Mgmt. Council, No. 88-0297, (R.I. Super. Ct. Oct. 24, 1997).
214. Palazzolo, 746 A.2d at 715.
215. Transcript of Record at 21,
216. Palazzolo v. State, No. WM-88-0297 (R.I. Super. Ct. July 5, 2005).
217. Id.
218. Id. at 21-22.
219. DIPRETE ENGINEERING ASSOCIATES, COST ANALYSIS: CONCEPT DEVELOPMENT PLAN ALTERNATIVE ANALYSIS, PROPERTY OF ANTHONY PALAZZOLO 8-10 (Apr. 2004).
220. See WILLIAM E. COYLE & ASSOCIATES, APPRAISAL REPORT FOR NEW ENGLAND LEGAL FOUNDATION, PROPERTY LOCATED AT PALAZZOLO SITE, WESTERLY , R.I., 4-6 (June 2004). Only a few inches governed the location of the MHW - and the outcome of the case.
221. Transcript of Record, supra note 162, at 682-83.
222. Transcript of Record, supra note 164, at 209-11.
223. See WILLIAM E. COYLE & ASSOCIATES, supra note 168.
224. Id.
225. These facts are similar to Florida Rock Indus. v. United States ( Florida Rock V), 45 Fed. Cl. 21, 37 (1999) ("[T]he surrounding community benefits from the wetland's filtering action, stabilizing effect, and provision of habitat for flora and fauna. [The property owner] benefits from being a member of a community which has the potential for a better environment. But there can be no question that [the property owner] has been singled out to bear a much heavier burden than [his] neighbors, without reciprocal advantages. [Other properties] ... nearby ... are among those who enjoy [the property owner's] beneficence without sharing [his] burden."). Therefore, Palazzolo's disproportionately heavy burden was not offset by reciprocity of advantage.
226. The 2005 decision against Palazzolo did not depend upon average reciprocity of advantage. The court undertook a Penn Central analysis, which provided the framework of its decision. It adopted the state's engineer's testimony rather than Mr. Palazzolo's about the buildability of the property, and adopted the state's argument about MHW. These decisions governed the Penn Central calculations. The court found "that almost 50% of Plaintiff's property is below mean high water [line]." Palazzolo v. State, No. WM 99-0297, 2005 WL 1645974, at * 16 (R.I. Super. Ct. July 5, 2005).
227. "[A]s a result ... Plaintiff [has no right] to fill or develop that portion of the site which is below mean high water." Id. at * 17.
228. "The fatal flaw in the Plaintiff 's profit estimate is principally due to the site preparation costs determined by Plaintiff's engineer. The Court finds [these] costs to be unreasonably low and unreliable." Id. at *10.
229. "[R]egardless of any diminution of parcel size ... due to the Public Trust Doctrine, site development costs unique to the [property] would result in an economic loss to the Plaintiff if he were to build either of the ... residential developments he has proposed. Thus.... the regulations ... do not have an adverse economic impact." Id. at *11.
230. The Court also ruled that "clear and convincing evidence demonstrates that Palazzolo's development would constitute a public nuisance." Id. at *5.
231. Transcript of Record, supra note 164, at 181.
232. Id. at 202.
233. Id. at 192-93.
234. Florida Rock Indus. v. United States (Florida Rock IV), 18 F.3d 1560, 1570-71 (D.C. Cir. 1994),
235. Transcript of Record, supra note 164, at 179-81.
236. The benefits of preserving Mr. Palazzolo's salt marsh property for society would be an interesting study for Dr. Opaluch's Rhode Island graduate students to undertake.
237. Natural resources like the salt marsh provide ecosystem services to society and these services have value. The interested reader can learn more from National Academies Press, Valuing Ecosystem Services: Toward Better Environmental Decision Making (2004), http:// books.nap.edu/openbook.php?record_id=11139&page=R1.
238. Benefit transfers are used by public agencies that desire information on environmental benefits of policy decisions affecting a "policy site" without the budget to pay for original research. Existing estimates of use and nonuse values at other "study sites" are transferred in to approximate the resource values at the "policy site." While protocols have been developed to reduce and understand the errors of benefit transfers, no study has yet been able to show under which conditions environmental value transfer is valid. For two recent examples of appropriate valuation methods, see Roy Brouwer, Environmental Value Transfer: State of the Art and Future Prospects, 32 ECOLOGICAL ECON. 137 (2000), available at http://www.csrees.usda.gov/nea/nre/in_focus /ere_floor_environmental.html;
239. and Randall S. Rosenberger & John B. Loomis, Benefit Transfer of Outdoor Recreation Use Values: A Technical Document Supporting the Forest Service Strategic Plan, U.S. Dep't of Agriculture, Forest Service, Rocky Mountain Research Station (2000), available at http://www.fs.fed.us/rm/pubs/rmrs_gtr72.html.
240. Transcript of Record, supra note 164, at 171.
241. Id. at 221-22 ("Q. How much would it cost to do a study showing the effect of water quality on property values in the Winnapaug Pond area? A. I would say hedonic analysis of property values could be done in the range of [$]5 to [$]20,000.").
242. Palazzolo v. State, No. WM 88-0297, 2005 WL 1645974, at *11 (R.I. Super. Ct. July 5, 2005).
243. Discussed supra note 174.
244. C. Ford Runge, The Congressional Budget Office's "Regulatory Takings and Proposal for Change": One-Sided and Uninformed, 7 ENVTL. L. & PRAC. 5, 10 (1999), available at http:/ /www.law.georgetown.edu/gelpi/current_research/documents /RT_Pubs_Policy_CBO.pdf.
245. Id. at 6 (quoting Timothy D. Searchinger, Some Key Questions Raised by the Recent Focus in Takings Cases on "Reduction in Value," presented at Georgetown University CLE Conference on Regulatory Takings, San Francisco, Cal. (Sept. 1998)).
246. Transcript of Record, supra note 164, at 181.
247. Id. at 187.
248. Id. at 203.
249. Id. at 33.
250. Co-author Wade testified at trial about selected amenities that could influence housing prices in the Misquamicut Beach area. People [who] drive from Watch Hill to Weekapaug may have an amenity value of driving through the open marsh land.... They may have a preference for living next to open marshland. Some may have a disamenity preference to living next to open marshland because of the prevalence of bugs and mosquitoes and whatnot. It would be very hard to unravel these things. It would be empirical[,] called Hedonic analysis. They're tedious detailed analyses of the value of housing, but one could undertake it. It hasn't been done. There are no empirical estimates of amenity values in this area. Transcript of Record, supra note 164, at 41.
251. Id. at 35.
252. Co-author Wade also testified to the economic elements of the Penn Central test, showing that based on the plaintiff's engineer's cost estimates denial of permit frustrated distinct investment-backed expectations. See generally Transcript of Record, Palazzolo v. State, No. WM-88-0297 (R.I. Super. Ct. July 5, 2005).
253. Kanner, supra note 6.
254. K & K Constr., Inc. v. Mich. Dep't of Envtl. Quality (K & K V), 705 N.W. 365, 386 (Mich. App. 2005) (citing Walcek v. United States, 49 Fed. Cl. 248, 270 (2001)).
255. Id. (citing R & Y, Inc. v. Mun. of Anchorage, 34 P.3d 289, 300 (Alaska 2001)).