NEGATIVE-VALUE PROPERTY.

• Author: Huber, Bruce R.

TABLE OF CONTENTS INTRODUCTION I. A BRIEF THEORETICAL OVERVIEW II. EXAMPLES OF NEGATIVE-VALUE PROPERTY A. Depleted Resource Extraction Sites 1. Surface Coal Mines 2. Oil and Gas Wells 3. Hardrock and Other Mines B. Obsolete and Derelict Structures 1. Nuclear Power Plants 2. Other Power Plants 3. Gas Stations and Underground Storage Tanks C. Other Contaminated Sites D. Negative-Value Personal Property III. ANALYSIS A. There's Much More to Come B. Property and Time C. Hiding in Plain Sight: Property Value and Scale D. The Way Forward CONCLUSION INTRODUCTION

Property rights are often regarded as a boon for environmental protection and the conservation of natural resources. (1) By linking owners to assets, property law incentivizes owners to preserve and protect those assets. (2) Imposing ownership on unowned domains can thus help prevent wasteful tragedies of the commons. (3) And perhaps best of all, property law is largely self-effectuating; it does its work with relatively little government involvement. (4)

This cheery view of property, however, is built on the assumption that property will generally maintain a positive value. When property has a negative value--as with, say, a parcel contaminated by toxic waste--everything changes. Many landowners would prefer to abandon such a parcel than to rehabilitate it. (5) Indeed, vast numbers of contaminated or degraded sites, in every American era and locale, have been abandoned by their previous owners. (6) Lawmakers have enacted extensive legislation and created elaborate bureaucracies to clean up such sites and to prevent further dereliction in the future. Resource conservation in such instances is anything but self-effectuating. Enormous public resources, both budgetary and bureaucratic, are required at every turn. (7)

For the most part, the concept of negative-value property is absent from the literature of property law. (8) That literature dwells predominantly (and appropriately) on law's treatment of things of positive value, for property rights are generally a function of the scarcity of sought-after goods. (9) But this Article suggests that negative-value property is the dark matter of the property universe. (10) We are surrounded by it. Negative-value property is property which not only has no positive market value, but which cannot practically be alienated or discarded without improving it, bundling it with other property, or making an additional side payment. (11) As to personal property, the category is enormous. Within your place of residence--if not within your immediate reach--there are almost certainly items which you would rather not own; which would attract no willing buyer; and the disposal of which will require your time, your money, or both. Such property is likely only a minor annoyance to you, but in the aggregate, it represents a problem that is far from trivial: great effort is invested into creating and enforcing policies that divert such property from, say, roadsides and open spaces ("No Dumping!") and towards landfills, recycling facilities, or other users. (12)

As to real property, the category of negative-value property is less obvious but just as important, and it is here that this Article principally dwells. Examples include lands that are contaminated or that otherwise carry binding liabilities in excess of any residual positive market value. Toxic waste sites, depleted and unreclaimed mines, defunct landfills, and unplugged and unproductive oil and gas wells often fit this description. (13) No less conspicuous are properties with derelict or dangerous structures, such as obsolete plants that cannot economically be converted for other uses. For example, many decommissioned power plants are characterized by serious contamination risks, deteriorating structures, and a range of ongoing liabilities that exceed any residual site value. (14) Absent complicated legal interventions, or a wild swing in market conditions, no buyer is likely to appear for such properties.

The danger of negative-value real property is that those who damage or contaminate land may be unable to restore it or may walk away from it, leaving it to others to clean up their mess. (15) Formally, the law does not readily allow such abandonment; (16) indeed, modern law often requires firms to post bonds or otherwise assure the government that they are capable of bearing the potential costs of cleanup associated with their enterprises. (17) But such policies are far from foolproof. To the contrary, owners display boundless creativity in finding ways to evade or diminish cleanup requirements. Sometimes their tactics simply delay the performance of cleanup obligations. (18) In many instances, however, owners escape such obligations altogether via a kind of functional abandonment, leaving taxpayers on the hook for the restoration of negative-value property. (19) Each year, billions of taxpayer dollars are spent cleaning up contaminated or abandoned sites. (20) There are public funds to pay for abandoned mines, (21) abandoned oil wells, (22) abandoned underground storage tanks, (23) abandoned waste sites, (24) and much else--not to mention the vast public funds devoted to more generic brownfield redevelopment. (25)

These public payments represent an important and often overlooked externality--a kind of temporal spillover, an externality foisted across time rather than space. (26) Permanent land ownership is commonly thought to keep the incidence of temporal spillovers to a minimum, (27) and in many instances it may indeed do so, at least when the value of land is positive. But humankind's ability to create lasting harms to land has increased exponentially over the last century. (28) When land is seriously degraded, the incentive to abandon replaces the incentive to conserve. In land use sectors regularly associated with negative-value property, we should expect to see sophisticated efforts to abandon land and liability, and as such efforts succeed, we should expect a further decline in other similarly situated owners' efforts to maintain positive land values. (29) In these sectors, permanent land ownership, standing alone, predictably fails to deliver on its promise of resource conservation. Moreover, the bulk of the public expenditure required to address negative-value property lies ahead of us, not behind. Our nation's most vexing decommissioning and cleanup efforts--those involving offshore oil rigs or nuclear power plants, for example--are in their infancy. (30) The track record of government, in the many regulatory programs established to manage site closure and land restoration, is not encouraging. (31) It is possible that, with sufficient political will, lawmakers could design and implement more effective rules. But the broader lesson is that negative-value property is endemic to American property law and the incentives it creates. It is, so to speak, a bug in the system, and not one that can be easily corrected.

This Article proceeds as follows. Part I will provide some theoretical background in order to explain why negative-value property is important to property theory. Part II describes the extent of negative-value property (and the policies developed to address it) across various domains and lays out a set of examples to provide fodder for the analysis that follows. Although numerous examples are provided, the discussion focuses at length on recent busts in the coal and oil and gas sectors, since these busts allow a close inspection of very recent tactics employed by owners of negative-value property. Part III then moves into analysis, drawing out recurrent legal, political, and economic dynamics in the treatment of negative-value property, and positing some paths forward. The Article ends with a brief Conclusion.

1. A BRIEF THEORETICAL OVERVIEW

   Why is negative-value property important? This Part aims to locate the concept of negative-value property in property theory. In short, the current literature places substantial weight on property's tendency to direct owners' incentives towards resource conservation, but it seldom discusses the temporal spillovers that arise in connection with negative-value property. Part II will examine the incidence of such spillovers, but for the moment, the crucial point is that they cut against the incentive to conserve land. Let's explore this.

   A core function of property law is to protect rights to scarce and desirable things. Our intuitions about ownership, visible from the moment a child cries "mine!" over a favorite toy, tend to match the Blackstonian picture of "sole and despotic dominion" exercised over physical things, "in total exclusion of the right of any other individual in the universe." (32) To own something is to do with it as one pleases. Property law puts the power of the state behind this understanding. In a common law system, the task of property law is to develop and refine the appropriate bases for and parameters of property rights--to sort out illegitimate claims from legitimate ones, and then to stand ready to protect justified possession.

   Yet there is much more to the logic of property than merely protecting settled rights to possession. Harold Demsetz famously posited that "[a] primary function of property rights is that of guiding incentives to achieve a greater internalization of externalities." (33) In contemporary usage, we often assume externalities to be negative, but here Demsetz had in mind positive externalities as well. Property rights will tend to emerge, Demsetz argued, when the gains from internalization exceed the costs. (34) In his example, aboriginals on the Labrador Peninsula recognized private rights to land when the exploding fur trade made it worth their while to do so. Property rights allowed them to capture (internalize) the benefits of husbanding fur-bearing animals, thus addressing what would otherwise have been a deleterious externality: the overhunting of those animals...