Reciprocity of advantage: the antidote to the antidemocratic trend in regulatory takings.

• Jurisdiction: United States
• Author: Schwartz, Andrew W.
• Date: 22 June 2004

"The most important thing we do is not doing." (1)

I.

INTRODUCTION

Ask any American, even the staunchest advocate for the primacy of individual property rights over the interests of the collectivity, and that person will take for granted at least three propositions: first, that democracy is preferable to oligarchy, monarchy, or despotism; second, that the system of government in the United States, from the federal level down to the local level, is a democratic one; and third, that policy-making in a democratic government should reside in a popularly elected legislature. To what extent, however, do the courts promote these democratic ideals in reviewing government regulation of economic activity? Unfortunately, through the expansion of the doctrine of "regulatory takings," the democratic regulation of economic affairs is in some jeopardy.

How did this happen? The explanation lies in the Supreme Court's recent interpretations of the Takings Clause of the Fifth Amendment. (2) Under that Clause, the "taking" of property requires government compensation. (3) While the Framers of the Constitution intended the Takings Clause to apply only to direct physical appropriation of property, (4) since the Supreme Court's 1922 decision in Pennsylvania Coal Co. v. Mahon, (5) the Court has mandated compensation for regulation that severely limits use or value of property. The Court's innovation in Mahon was equating a regulation that destroys the entire value of property, known as a "total" taking, with direct appropriation.

After Mahon, however, the Court did not issue another regulatory takings decision until 1978 in Penn Central Transp. Co. v. City of New York. (6) Penn Central ultimately proved to be the seed for judicial activism in economic policy-making unseen since the era of Lochner v. New York, (7) in which judges struck down health and safety regulations under the Due Process Clause in reliance on a laissez-faire philosophy of government. The expansion of government liability for takings begun in Penn Central has produced a disturbing anti-democratic trend in the formulation of economic policy. (8)

In Penn Central and other cases, the Supreme Court has moved away from a standard for takings liability that had been the regulatory equivalent of a direct appropriation of property. In particular, the Court has adopted two tests for takings that depart from such equivalency.

First, in Penn Central, the Supreme Court established a partial regulatory takings test. A property owner may claim compensation for a partial regulatory taking where the regulation reduces but does not eliminate all value of the property, usually leaving substantial value remaining in the property as a whole. The partial takings test under Penn Central involves the consideration of three factors: (1) the economic impact of the regulation; (2) the extent to which the regulation interferes with investment-backed expectations; and (3) the character of the government action. (9) Because a partial regulatory taking allows a claimant to receive compensation for regulation that does not produce the equivalent effect of a direct appropriation, the validity of partial takings in the text and original intent of the Takings Clause is questionable.

Second, in 1980 in Agins v. City of Tiburon, (10) which in turn relied on Penn Central, the Court introduced a means-ends test under the Takings Clause, similar to the test traditionally applied in due process analysis. Under due process analysis, courts examine whether the means of legislation fit the ends, and whether the ends are legitimate. In applying the due process means-ends test, the courts determine whether a regulation is arbitrary or capricious, having no rational basis. But instead of deferring to the judgment of legislatures and administrative permitting agencies as required under the rational basis test, the courts have, in several cases, relied on Agins to impose a higher standard of judicial review on regulation under the Takings Clause. As will be seen, the legitimacy of a means-ends test under the Takings Clause, as well as partial takings, is doubtful.

Perhaps in recognition of the weak foundation for partial and means-ends takings in the text and jurisprudential history of the Takings Clause, the United States Supreme Court has consistently construed the partial and means-ends takings standards narrowly. Lower courts, however, have increasingly expanded government liability for takings in reliance on the two tests, resulting in frustration of fundamental democratic processes. By continuing to endorse partial and means-ends takings tests, the Supreme Court has tacitly allowed the judiciary to subvert democratic policy-making.

In two recent decisions of the California and United States Supreme Courts, San Remo Hotel v. City and County of San Francisco (11) and Tahoe-Sierra Preservation Council, Inc. v. Tahoe Regional Planning Agency, (12) however, this anti-democratic trend in takings jurisprudence appears to have been temporarily arrested. In both cases, the courts upheld economic regulation in reliance on the concept of "reciprocity of advantage." Put simply, reciprocity of advantage assumes that the benefits and burdens of any particular economic regulation are distributed unequally. But because each property owner benefits from certain regulations that are imposed on others, the overall scheme of regulation provides a net benefit for individual property owners. Accordingly, awarding compensation to an individual property owner on the basis of the detriment from an individual regulation would confer a windfall on the property owner. (13)

Relying squarely on reciprocity of advantage, the San Remo Hotel and Tahoe-Sierra courts recognized that judges should defer to legislative judgments, and that previous expansive readings of the Takings Clause jeopardize representative democracy. By pulling takings jurisprudence back from the brink of judicial activism, these courts have affirmed the primary role of democratically-elected representatives in making economic policy.

This paper argues that if the process of economic regulation is to remain democratic, average reciprocity of advantage must be the guiding principle of substantive tests for regulatory takings. In the rare and extreme types of government regulation known as "categorical," "per se," or "total" takings--regulations that permanently deprive property of all market value or compel physical occupations (14)--compensation may fairly be awarded without frustrating democratic decision-making processes. In all other cases of economic regulation, however, the presumption that the property owner achieves a net benefit from the overall regulatory scheme should be non-rebuttable, requiring rejection of the takings claim. The categorical takings doctrine and the Due Process Clause provide adequate protection for property owners from unduly burdensome or arbitrary regulation.

Moreover, because individual reduction in property values from "takings" is necessarily offset by the "givings" of regulation, reciprocity of advantage is the only practical and workable criterion for judicial review of economic regulation. The alternative--accurate accounting of takings and givings--is virtually impossible. Accordingly, where regulation does not effect a categorical taking, the courts should defer to the legislative judgment that regulation effects an average reciprocity of advantage.

II.

PARTIAL AND MEANS-ENDS REGULATORY TAKINGS

1. Representative Democracy and Majority Rule

   The American political system is a democratic republic. In a democratic republic, the citizens delegate governmental power to a small number of elected representatives. The elected representatives assembled in a legislative body exercise governmental power by enacting laws. (15) State political systems are designed to be equally democratic. (16)

   Representative democracy promotes self-governance. To work effectively, a democratic system must allow citizens equal opportunity to control the decision-making agenda. (17) Each citizen must possess the right to express preferences for a decision, meaning that each citizen's vote should receive equal weight. (18)

   Inherent in such self-governance is the doctrine of separation of powers between the legislative and judicial branch. "[T]he Constitution does vest each branch with certain 'core' or 'essential' functions that may not be usurped by another branch." (19) The separation of powers doctrine protects decisions of the legislature from "lateral attack by another branch." (20) The legislative branch holds authority to make social and economic policy. As the Supreme Court has consistently recognized in cases involving the powers of the other branches, the Constitution limits the role of the judiciary to restraining the arbitrary exercise of legislative and executive authority. (21)

   In addition to the separation of powers, majority rule promotes self-determination. "[T]he strong principle of majority rule ensures that the greatest possible number of citizens will live under laws they have chosen for themselves." (22) Majority rule also produces correct decisions more often than authoritarian or other hierarchical decision-making processes, and maximizes utility. (23) James Madison recognized as a virtue of majoritarian decision-making that representatives chosen by a large number of citizens would not become "unduly attached" to individual interests and would be more prone to decide matters in the majority's interest. (24) He later stated that "a coalition of a majority of the whole society could seldom take place on any other principles than those of justice and the general good." (25)

   In contrast, in a system dominated by judicial decision-makers focused on the interests of individual litigants, the total welfare of the community suffers. Because the majority consists of individuals, majoritarian decision-making will generally...