Debacle  

The California Crack-up

by Timothy Sandefur

Support for eminent domain reform seemed overwhelming — yet somehow property-rights advocates managed to lose the day.

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On June 23, 2005, the United States Supreme Court held 5–4 that government can seize private property and transfer it to developers to boost local economies. In the ensuing furor over the Court’s decision in Kelo v. New London, several state legislatures began considering new ways to protect property owners from eminent domain abuse. But in California, something went terribly wrong.

Shortly after the Court’s decision was announced, California state Sen. Tom McClintock began working on a measure to amend the state constitution to prohibit this kind of abuse of eminent domain. McClintock, the only prominent Reaganite conservative left in Golden State politics, called me and other attorneys at the Pacific Legal Foundation for legal advice on drafting a bill.

It was an ambitious project, given the fact that California is a major abuser of eminent domain. In the five years between 1998 and 2003, the state’s bureaucrats seized property for “redevelopment” some 223 times — eight times as many seizures as in Connecticut, the state where Susette Kelo’s home was condemned, giving rise to the Supreme Court case. Redevelopment has become a considerable industry in a state where a seemingly infinite demand for property has run up against increasingly burdensome land use regulations and the truly infinite ambitions of bureaucrats.

Private developers and city politicians have come together to form the redevelopment business, in which politicians sell the power of eminent domain to developers in exchange for political success. Political leaders prosper not only through campaign contributions but also through construction projects that make them look like visionaries in their hometowns. Developers receive cheap land and tax breaks. Overseen by an industry organization called the California Redevelopment Association, this trade has become a significant part of the state’s economy. A 1998 report by the Public Policy Institute of California found that the state’s redevelopment agencies spent $3.5 billion, and displaced more than 500 households, in only a single year. Redevelopment agencies were even declaring vacant land to be “blighted” so as to qualify for subsidies and government-initiated development. Meanwhile, two-thirds of the state’s redevelopment projects were losing tax dollars at the rate of about $1 million per project area per year.

McClintock and others hoped that fixing California’s eminent domain laws might become a bipartisan effort. Outrage over Kelo crossed party lines, and even radically leftist Congresswoman Maxine Waters railed against the decision, recognizing that “redevelopment” usually ends up seizing property from the poor and politically uninfluential citizens she represents. Democratic Assemblywoman Martha Escutia’s staff contacted me the same week that Sen. McClintock did, seeking advice on fixing the problem. Unfortunately, her staff never returned my call, and it was not long before partisan divisions re-emerged.

On Nov. 17, 2005, a joint committee of the legislature held an “informational hearing” about eminent domain abuse. The committee was chaired by Democratic state Sen. Christine Kehoe — an uncomfortable choice. Kehoe is a former city councilwoman from San Diego, a city notorious for its violations of property rights. There was little consensus among those testifying that day, but the hearings produced a report collecting some important reform ideas, including proposals to refine the state’s ambiguous definition of “blight,” and to put a time limit on redevelopment plans.

Yet defenders of redevelopment were already working hard to spin the Kelo decision. A representative of the California Redevelopment Association told the committee that Kelo made no difference to California because under state law, only “blighted” property could be condemned (not true, since any property in a blighted neighborhood can be condemned, and state law defines “blight” so broadly that virtually anything can qualify). Others testified that “California isn’t Connecticut,” and that “eminent domain is only a last resort” — slippery sound bites that proved popular with the media throughout the next year.

After consulting with attorneys from the Pacific Legal Foundation, the Howard Jarvis Taxpayers Association, the Claremont Institute, and others, McClintock prepared Senate Constitutional Amendment 15, which would have prohibited the government from leasing, selling, or giving condemned property to any private party. The proposal would not have cured all the problems with the state’s eminent domain laws, but it would have curtailed the lobbying and profit-making that generates most abuses. Regardless, the bill had no realistic chance in a legislature made up of 73 Democrats and 46 Republicans, most of them enemies of the archconservative McClintock. It was dumped in the Senate Judiciary Committee, where the Sierra Club testified against it, and where state Sen. Sheila Kuehl loudly defended eminent domain abuse as crucial to the state’s economic health. The bill received an unfavorable report and was quickly devoured by the Senate.

But Democrats recognized that even their constituents were demanding changes, and they started searching for ways to placate them without actually imposing limits on eminent domain. Sen. Tom Torlakson was first, with a cleverly worded proposal to amend the constitution to forbid the taking of “owner occupied residential property for private use.” As he knew, the Kelo decision itself prohibits the taking of property for “private use”: its problem lies in its broad interpretation of the term “public use,” which allows almost anything to qualify as “public.” Since it didn’t address that interpretive problem, Torlakson’s proposal would have had no legal effect at all.

What’s more, “owner occupied residences” are rarely targeted for redevelopment anyway. Residences are found in residential areas, and redevelopment generally takes place in business areas. The most common victims of takings are therefore small businesses. But Torlakson saw that much of the outrage over Kelo centered on the emotional force of Susette Kelo‘s home being taken. By limiting reform to “owner occupied residences,” he hoped to dull the case’s sharpest emotional edge while leaving the state’s redevelopment industry untouched. At the same time, Sen. Kehoe proposed a two-year moratorium on redevelopment condemnations — also limited to “owner occupied residences” — and the formation of a bureaucratic commission to write a report. This was an obvious ploy designed to buy time till the furor over Kelo faded.

As the astute Sacramento Bee columnist Dan Walters remarked, Torlakson, Kehoe, and other Democrats were “pretend[ing] to do something about eminent domain without actually doing anything to upset the apple cart.” Yet even though their proposals would have done absolutely nothing to fix the problem, these bills, like McClintock’s proposal, failed to emerge from committee. Lobbyists for the redevelopment industry were exerting a powerful, if surreptitious, pull on the state legislature. Highly organized and politically experienced, the industry found little trouble in blocking legislative reform — sometimes without even having to appear in public hearings. Instead, reliable leftist allies, including environmentalists and public employee unions, sent representatives to defend eminent domain as a “necessary tool” for “cleaning up neighborhoods.”

With the failure of McClintock’s bill, property rights groups could only plan for a ballot initiative. In December, representatives of most of the state’s conservative organizations met in a Sacramento hotel to examine the results of a poll underwritten by some of the state’s apartment owners. The data showed that Californians supported meaningful eminent domain reform by a margin of three to one. But the results also suggested that voters would support requiring government to compensate property owners for restricting their rights through regulation. This was very surprising: the issue of “regulatory takings” is usually controversial, since it affects far more government programs than does eminent domain. The state’s leading expert on political polling, who was present at the meeting, immediately objected. The data were unreliable, he pointed out, because the questions people was asked were biased and misleading. “The question doesn’t use the phrase ‘rent control,’ ” he explained. “It’s true that if you ask people about government regulation, people will say that they support paying for regulatory takings. But if you use the words ‘rent control,’ people will turn against you. People respond positively to that phrase. And you can bet the opposition will use the phrase ‘rent control.’ ” The lone Democrat in attendance strongly agreed. “Democrats will stick with you if you limit reform to just eminent domain,” she said. “But if you put regulatory takings issues in there, you will lose the Democrats and particularly the environmentalists.” Others concurred, and the meeting ended with a unanimous decision to limit any initiative to eminent domain, leaving more controversial regulatory matters for another day. It was a wise decision, considering California’s reputation as a blue state, and the lack of real evidence that more ambitious plans would succeed. Yet as they gathered their things to leave, the conservatives were already showing signs of hubris, teasing the Democrat attendee for her liberal views and forgetting the fact that most Californians shared her mixed emotions about property rights.

Within an hour, the consensus had evaporated. One prominent attorney returned to his office and immediately began drafting an initiative that would not only limit eminent domain, but would require compensation for regulatory takings. Meanwhile, Sen. McClintock’s staff began drafting its own initiative. After months of technical scribbling, four ballot propositions emerged in April on the website of the California Secretary of State, where all proposed initiatives must be posted before being circulated for signatures. The first two — drafted by Sen. McClintock and the Howard Jarvis Taxpayers Association, with a few suggestions by me — differed little from each other. Both limited the use of eminent domain for private development, required government to offer property back to the original owners when the government no longer needed it, and provided for attorneys’ fees whenever a property owner successfully sued the government over the taking of property. A third initiative, proposed by a citizens’ group in San Jose, was extremely brief: following a model provided by the Institute for Justice, the “people’s initiative” carefully followed the consensus of the December meeting by limiting reform solely to the issue of eminent domain. Months later, versions of this initiative would be approved by overwhelming majorities in several other states.

Nobody knew what to make of the fourth initiative. Called the “Anderson Initiative” because its cover letter was signed by Anita S. Anderson — whom, to this day, nobody in Sacramento knows — it was modeled on an initiative that had already been proposed in Nevada, with some features culled from McClintock’s abandoned SCA 15. No one seemed to know who had written it. None of the state’s conservative or libertarian organizations — the Pacific Legal Foundation, the Reason Foundation, the Claremont Institute, the Pacific Research Institute, or any other — was consulted by its drafters.

Of the four initiatives, this was the clumsiest. It was filled with vague, confusing, and in many places literally unintelligible language. Although it prohibited the use of eminent domain for redevelopment, it also required compensation for regulations that “substantially” decreased the value of land, unless they were written to protect the public’s health and safety. This meant that laws which advanced only public “welfare” (such as animal cruelty laws, minimum wages, or age requirements at adult businesses), if they decreased the value of the land, would require compensation. Few Californians could be expected to approve of such a requirement. In fact, the language could have been read so as to allow property owners to sue whenever neighbors were granted building permits. The initiative redefined “just compensation” as “that sum of money necessary to place the property owner in the same position monetarily, without any governmental offsets, as if the property had never been taken,” a literally nonsensical phrase: it is impossible to place a person “in the same position monetarily” without taking into account any “governmental offsets” that might have reduced the property owner’s injury. The initiative voided any unpublished judicial “opinions or orders,” even though courts virtually never publish their orders, and California trial courts have no power to publish their opinions at all. These flaws, and others, presented serious, if not insurmountable, problems for advocates of eminent domain reform.

Yet in February 2006, it was announced that of the four proposals, only the Anderson Initiative would be circulated for signatures.

The reason quickly became obvious: although the other three initiatives were far more likely to be approved by voters, because they avoided thorny regulatory takings issues, they were also the least likely to provide any financial returns to supporters. Unlike eminent domain reform, regulatory takings reform has a constituency willing to invest in political activism, because property owners whose rights are strangled by regulatory excesses hope that victory at the ballot box will bring them some kind of relief. Only the Anderson Initiative could attract donations sufficient to hire the necessary signature gatherers.

The small community of property rights experts in Sacramento, including Sen. McClintock, was reluctant to back the Anderson Initiative, given its many weaknesses. But the initiative did promise serious eminent domain reform, and there was always the possibility of amending it later, if it should be approved. After all, Proposition 13 — the state’s extraordinarily popular limitation on property taxes — was enacted in 1978 despite its serious flaws, only to be amended in ways that make it a feasible control on politicians’ appetites. Thus McClintock, the Jarvis Taxpayers Association, and others endorsed the Anderson Initiative in the summer of 2006. Almost overnight, signature gatherers appeared in parking lots throughout the state, armed with signs proclaiming “Hands Off My Home!” After a rocky start, they gathered over one million signatures, almost twice the number needed for placement on the ballot.

Bureaucrats and leftists were becoming nervous. The California Redevelopment Association circulated a report warning that the initiative would lead to regulatory chaos and would hurt taxpayers by requiring government to compensate property owners for the state’s many infringements of their rights. Environmental groups flew into hysterics over an initiative that would, according to them, destroy the environment. They pointed to Oregon’s Measure 37, which requires compensation for many limitations on property rights, claiming that it had bankrupted the state. (In fact, Measure 37 has not significantly affected Oregon taxpayers, and the Anderson Initiative would have grandfathered in all previously enacted state laws, something Measure 37 did not do.)

When the Anderson Initiative obtained the needed signatures and became Proposition 90, the campaign ran into serious opposition from Republican politicians. Moderates complained that the initiative went too far. At one meeting that I attended, a Republican assemblyman warned that it would limit bureaucrats’ ability to “decide what businesses are appropriate for a community.” When I replied that I thought consumers ought to decide what businesses are appropriate for a community, the assemblyman snickered and said, “Well, that’s very libertarian of you.” Ultimately, it became clear that only a handful of California Republicans were willing to speak out in defense of the initiative. Led by Assemblywoman Mimi Walters, the campaign pleaded with moderate Republicans not to oppose it publicly.

At its August convention in Los Angeles, the state GOP reluctantly endorsed Prop 90, seeing it as the only hope for reform. But Republican Governor Schwarzenegger remained silent. As the few remaining legislative proposals dwindled before committees, Schwarzenegger’s staff agreed to meet with Sen. McClintock and Assemblyman Doug La Malfa, the two legislators whose reform bills were still pending — but indefinitely postponed the meetings. They were never held, and to this day, Governor Schwarzenegger has refused to discuss the Kelo decision in public, mentioning eminent domain only once: when he signed five virtually meaningless reform bills into law in October.

This reluctance to speak on an overwhelmingly popular issue is inexplicable. Only the year before, the governor’s package of desperately needed reform proposals had been obliterated in a special election, the victim of poor management by naive political deputies. His abject 2006 state of the state address had a humiliated tone. “I have absorbed my defeat,” he told a triumphal audience of special interest pawns, “and I have learned my lesson.” Eminent domain reform could quickly have restored his shaken popularity, but he chose to knuckle under to the interest groups he had promised to combat.

As summer turned into fall, liberal organizations began pulling out all the stops. The media reported incessantly that Prop 90 was backed by a wealthy New York developer who supported similar proposals in other states — as if that discredited the initiative. The media also insisted that the initiative was a “Trojan horse,” using eminent domain to sneak the issue of regulatory takings past unwary voters. One reporter even claimed that the whole conspiracy had been cooked up by a young Reason Foundation analyst named Leonard Gilroy, whose paper “Statewide Regulatory Takings Reform: Exporting Oregon’s Measure 37 to Other States,” was supposed to have originated the idea of fooling voters into regulations takings reform. Gilroy’s article was published after Prop 90 was written, but still the Vast Right Wing Conspiracy charge was repeated endlessly in the media and on blogs.

In early October, as some polls suggested that Prop 90 was running ahead, panicked opponents in the legislature called another “informational hearing,” allegedly to inform voters about the impact the initiative would have. The committee invited a single proponent of the measure, who was given only two minutes to speak; it also invited two neutrals, including me, and six opponents. In addition, the committee gave ten minutes to a Berkeley law professor and 20 minutes to an attorney from Best, Best, and Krieger — a firm that donated tens of thousands of dollars to the opposition campaign — so they could provide a nonpartisan review of the measure. No victims of eminent domain were invited. The kangaroo court dissolved amid tales of the dire consequences for land-use regulations, should Proposition 90 pass.

But the main theme of the opposition campaign was not that land-use controls were a good thing and needed to be preserved, or even that wealthy insiders were manipulating voters. Rather, opponents argued that Prop 90 would hurt taxpayers, because the state imposes so many costs on property owners that compensating them would require tax increases. This strategy had worked well in opposition to a regulatory takings measure in Arizona in 1994; and Douglas Kendall, an attorney for the collectivist Community Rights Council, had argued in a 2001 paper that opponents of property rights should not try to defend land-use regulations but should concentrate on the message that compensation for regulations “would mean more taxes, more bureaucracy and less protection of public health and safety.” Opponents of Prop 90 accordingly adopted the slogan “It’s a taxpayer trap,” and it was enormously successful. It amounted to the argument that “we can’t afford it — therefore we shouldn’t have to pay,” but many conservative voters were confused by the idea that protecting property rights might also increase their taxes.

Meanwhile, the Natural Resources Defense Council sent out dire emails warning of environmental disaster if Prop 90 were to pass, and the Sierra Club, the Nature Conservancy, and other environmental organizations joined with League of Women Voters, trial lawyers, and even the Lutheran Office of Public Policy to oppose the initiative. In the end, the opposition campaign mobilized more than $12 million against Prop 90.

Proponents of Prop 90 remained strangely silent. During the entire election season, not a single rally, billboard, T-shirt, or television ad supporting the initiative appeared. Although at least two commercials were filmed, none was aired, in part because the campaign — which only gathered $3 million to promote the initiative — couldn’t afford to buy the air time. As is often the case in California, a worthy initiative’s proponents spent their money and energy collecting signatures, leaving little for the actual campaign. Throughout the late summer of 2006, voters were bombarded with television advertising against the “taxpayer trap,” without any but the weakest response from an almost nonexistent “Yes” campaign.

This silence lent credence to the opponents’ charge that the initiative was a Trojan horse constructed by a shady outsider. An opposition billboard appeared proclaiming that Prop 90 was “not about eminent domain; it’s about higher taxes” — an outright lie that elicited no complaint from the initiative’s supporters. Finally, only weeks before the election, Governor Schwarzenegger — whose re-election was now comfortably assured — announced his opposition to the measure, on the ground that it might endanger his plan for improving the state’s highways. Given the proposition’s vague language, the charge was understandable. But Schwarzenegger still carefully avoided any mention of Kelo, or of the need for reforming eminent domain.

The only surprise on election night was how close Prop 90 came to passing. In early returns it was running ahead, but by the end of the night it had collapsed, with a close but convincing 52% opposed. A similar initiative in Idaho failed by a much greater margin, and a proposition requiring compensation for regulatory takings — but not mentioning eminent domain at all — failed in Washington state. Only Arizona passed an initiative combining eminent domain and regulatory takings reform. In nine other states, where reform efforts focused simply on eminent domain, propositions passed by landslide margins, sometimes exceeding 80%.

While the failure of Prop 90 was predictable, it is no doubt frustrating to the state’s home and business owners. Conditions in 2006 were ripe for true reform. Yet the Prop 90 campaign ignored the advice of the state’s leading property rights activists and addressed both eminent domain and regulatory takings — an extremely difficult undertaking in a state as populist as California. Moreover, the regulatory takings provision was worded in a way that would have required compensation for most government regulations that went beyond merely protecting individual rights: the state would have been free to regulate to protect public health and safety, but regulations that advanced the public “welfare” were not exempt from compensation. This feature of the proposition, however gratifying to libertarians, would have significantly altered the state’s longstanding police power traditions. Taking on all three issues simultaneously was simply too much to ask of many of the state’s voters. Worst of all, the initiative was riddled with serious flaws, such as its self-contradicting definition of compensation and its unnecessary ban on unpublished decisions, that embarrassed even its proponents.

Still, the campaign might have succeeded, if it had done the needed work. The victory of Measure 37 in Oregon proved that a well-written regulatory takings measure can succeed with voters in the right circumstances. Yet Prop 90’s supporters did no reliable polling and almost no campaigning. Contrary to the media’s insistence that the initiative was being promoted by a sneaky carpetbagger, the campaign was a genuine grassroots effort, up against a legion of well-entrenched, politically experienced insiders with a deep devotion to the status quo and the will to spend $12 million. Such opposition requires a significant investment of time and money if an initiative is going to succeed. Without the will — or the money — reformers can rarely hope for serious change.

Advocates of Prop 90 have already announced that they will try again in 2008. But if they make the attempt, they should learn from the advice they ignored in 2006: focus on eminent domain and leave regulatory takings for another day; write a measure without the profound legal errors so glaring in Prop 90; and run a serious campaign with advertisements planned well in advance.

California has long proclaimed itself a bellwether of political change. Certainly it has a powerful populist cast to its politics. That Californians should lack eminent domain reform at the end of a campaign that saw reforms succeed in places like North Dakota, South Carolina, and New Hampshire is absurd and embarrassing. A little practical wisdom, and a little less gamesmanship, could see property rights vindicated the next time around.

© Copyright 2010, Liberty Foundation

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