In one of the most famous Federalist papers, Federalist 10, James Madison wrote that the first object of government was the protection of the diversity of the faculties of men, from which the rights of property originate. The right to acquire and protect property was considered to be one of the fundamental, inalienable natural rights of mankind, and it is recognized as such in most of the original state constitutions and nearly all of the subsequent state constitutions. Pennsylvania's Constitution of 1776 is fairly typical, recognizing "That all men are born equally free and independent, and have certain natural, inherent, and inalienable rights, amongst which are, the enjoying and defending life and liberty, acquiring, possessing and protecting property, and pursuing and obtaining happiness and safety."
Last week, the Supreme Court dealt a severe blow to the fundamental right of property owners to possess and actually use the property for which they had labored in their own pursuit of happiness. Affirming a 9th Circuit ruling by Judge Stephen Reinhardt that upheld a complete ban on new development in the Lake Tahoe basin in California and Nevada that has lasted now more than 20 years, Justice John Paul Stevens, writing for the Court in Tahoe-Sierra Preservation Council, Inc. v. Tahoe Regional Planning Agency, held that the initial 3-year moratorium on development was not a categorical taking because it deprived property owners of the use of their property for only a fraction of the property's entire useful life. By that reasoning, any local government can deprive individuals of the right to use their property merely by being smart enough to set a termination date to any development moratorium it imposes for what it deems to be in the public interest. As a result, hundreds of people who purchased property near Lake Tahoe for vacation or retirement homes will forever be barred from using their property as they intended.
What is most stunning about the decision is how fundamentally at odds it is with two relatively recent Supreme Court decisions. In the 1992 case of Lucas v. South Carolina Coastal Council, the Court held that a regulation that deprives a property owner of all economically beneficial use of his property was a categorical taking, requiring the payment of just compensation. And in the 1987 case of First English Evangelical Lutheran Church of Glendale v. County of Los Angeles, the Supreme Court held that property owners were entitled to just compensation even for regulatory bans on development that were only temporary.
To be fair, Justice Stevens' opinion, and the lower court opinion by Judge Reinhardt, can be viewed as a logical extension of the Supreme Court's earlier, and never repudiated, decision in Penn Central Transportation Co. v. City of New York, but that just serves to highlight the analytical difficulties with the Penn Central decision itself, and the continuing threat to property rights that it poses.
At issue in Penn Central was a New York City ordinance designating Grand Central Station as an historical landmark and prohibiting any development in, around, or above the station that would alter its aesthetic appeal. When the Court began focusing on whether the ordinance causes a significant enough decline in value to warrant being treated as a regulatory taking, Penn Central argued that the proper denominator for the equation was the value of the air rights alone, conceptually severed from the rest of the parcel. The Court rejected that contention, holding that only significant declines in value to the parcel as a whole would be treated as regulatory takings.
There are two fundamental problems with the Penn Central analysis, particularly as extended by Justice Stevens in Tahoe-Sierra. First, rejecting the doctrine of conceptual severance in the regulatory takings context ignores the fact that property rights themselves are often conceptually severed. A brief hypothetical example will highlight the problem. Suppose the New York ordinance also applied to St. Patrick's Cathedral, but the Archdioceses of New York had sold off the air space above the Cathedral for development prior to the enactment of the ordinance. The ordinance would amount to a categorical taking because it would deprive the Cathedral Development Corp. from all beneficial use, but it would not amount to a categorical taking from Penn Central, because the latter still retained the larger parcel from which the air rights had been severed in the former.
A similar hypothetical can demonstrate the fallacy of Justice Stevens' rejection of "temporal" conceptual severance. Imagine two adjoining vacant lots in Lake Tahoe, both purchased in 1980 shortly before the development moratorium was issued. Property owner A keeps the entire parcel himself, but property owner B sells a 3-year leasehold in the property to a developer, who will develop the property and then be paid for the additional value created at the end of the lease. A three-year development moratorium would deprive B's lessee of all use, and thus be a categorical taking for which compensation must be paid, but without conceptual severance it would only deprive A of a portion of his use, and hence not be a compensable taking.
More fundamentally, by balancing the property owner's harms against the benefit to the public in determining whether a taking has even occurred, the Penn Central analysis simply repudiates the purpose of the takings clause. As Chief Justice Rehnquist wrote for the Court in First English, "[i]t is axiomatic that the Fifth Amendment's just compensation provision 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.'" Less development in Lake Tahoe undoubtedly will help preserve the pristine clarity of the Lake, certainly a public good. By requiring government to pay for the prohibition on development by some property owners, the entire public benefited by the prohibition would share in the cost (via increased property taxes for those who have already built their homes in the area and perhaps a hotel occupancy tax for those who merely visit). Without such a requirement, the entire cost of the public benefit is borne by the handful of property owners — certainly a good deal for existing homeowners, but hardly fair for those whose own life pursuit of happiness was regulated into nothingness for the benefit of others. There is a real danger of majority tyranny here, and the Court is simply abrogating its responsibility to protect individual rights as long as it continues to adhere to (and even expand) the pernicious Penn Central ruling.