Regulatory Takings: Agency Compliance with Executive Order on Government Actions Affecting Private Property Use
Published: 2003-10-16T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Each year federal agencies issue numerous proposed or final rules or take other regulatory actions that may potentially affect the use of private property. Some of these actions may result in the property owner being owed just compensation under the Fifth Amendment. In 1988 the President issued Executive Order 12630 on property rights to ensure that government actions affecting the use of private property are undertaken on a well-reasoned basis with due regard for the potential financial impacts imposed on the government. This testimony is based on our recent report on the compliance of the Department of Justice and four agencies--the Department of Agriculture, the Army Corps of Engineers, the Environmental Protection Agency, and the Department of the Interior--with the executive order. (Regulatory Takings: Implementation of Executive Order on Government Actions Affecting Private Property Use, GAO-03-1015 , Sept.19,2003). Specifically, GAO examined the extent to which (1)Justice has updated its guidelines for the order to reflect changes in case law and issued supplemental guidelines for the four agencies, (2) the four agencies have complied with the specific provisions of the executive order, and (3) just compensation awards have been assessed against the four agencies in recent years.
section_title: What GAO Found
paragraphs: Justice has not updated the guidelines that it issued in 1988 pursuant to the executive order, but has issued supplemental guidelines for three of the four agencies. The executive order provides that Justice should update the guidelines, as necessary, to reflect fundamental changes in takings case law resulting from Supreme Court decisions. While Justice and some other agency officials said that the changes in the case law since 1988 have not been significant enough to warrant a revision, other agency officials and some legal experts said that significant changes have occurred and that it would be helpful if a case law summary in an appendix to the guidelines was updated. Justice issued supplemental guidelines for three agencies, but not for Agriculture because the two agencies were unable to resolve issues such as how to assess the takings implications of denying or limiting permits that allow ranchers to graze livestock on federal lands managed by Agriculture. Although the executive order's requirements have not been amended or revoked since 1988, the four agencies' implementation of some of these requirements has changed over time as a result of subsequent guidance provided by the Office of Management and Budget (OMB). For example, the agencies no longer prepare annual compilations of just compensation awards or account for these awards in their budget documents because OMB issued guidance in 1994 advising agencies that this information was no longer required. According to OMB, this information is not needed because the number and amount of these awards are small and the awards are paid from the Department of the Treasury's Judgment Fund, rather than from the agencies' appropriations. Regarding other requirements, agency officials said that they fully consider the potential takings implications of their regulatory actions, but provided us with limited documentary evidence to support this claim. The agencies provided us with a few examples of takings implications assessments stating that such assessments were not always documented in writing or retained on file. In addition, our review of the agencies' rulemakings for selected years that made reference to the executive order revealed that relatively few specified that an assessment was done and few anticipated significant takings implications. According to Justice, property owners or others brought 44 regulatory takings lawsuits against the four agencies that were concluded during fiscal years 2000 through 2002, and of these, 14 cases resulted in just compensation awards or settlement payments totaling about $36.5 million. The executive order's requirement for assessing the takings implications of planned actions applied to only three of these cases. The actions associated with the other 11 cases either predated the order's issuance or were otherwise excluded from the order's provisions. The relevant agency assessed the takings potential of its action in only one of the three cases subject to the order's requirements. According to Justice, at the end of fiscal year 2002, 54 additional lawsuits involving the four agencies were pending resolution.

section_title: Letter
paragraphs: We are pleased to be here today to discuss the measures taken by the  Department of Justice (Justice) to implement certain provisions of  Executive Order 12630 (EO) and the efforts of four agencies—the  Department of Agriculture, the U.S. Army Corps of Engineers (Corps), the  Environmental Protection Agency (EPA), and the Department of the  Interior—to comply with the EO’s requirements. Our testimony is based  on work included in a report recently released by this subcommittee.
Each year federal agencies issue numerous proposed or final rules or take  other regulatory actions that may potentially affect the use of private  property. Agencies take these actions to meet a variety of societal goals,  such as protecting the environment, promoting public health and safety,  conserving natural resources, and preserving historic sites. At the same  time, these actions may place restrictions on the use of private property,  such as limiting the development of land that includes critical wildlife  habitat or wetlands needed for flood control, thereby potentially depriving  the landowner of the use or economic value of the property.
Any landowner believing that a government regulatory action has resulted  in a taking of his or her private property may file a lawsuit seeking just  compensation under the Fifth Amendment to the U.S. Constitution. In  general, these suits must be brought in the United States Court of Federal  Claims; Justice is responsible for litigating these cases on behalf of the  government. Such cases, many of which may take years to resolve, may  result in a dismissal, a decision in favor of the government, a settlement  payment made to the landowner, or an award of just compensation. In  general, such awards and settlements are paid from the Department of the  Treasury’s Judgment Fund.
In 1988 the President issued Executive Order 12630, “Governmental  Actions and Interference with Constitutionally Protected Property Rights,”  to ensure that government actions are undertaken on a well reasoned  basis with due regard for the potential financial impacts imposed on the  government by the Just Compensation Clause of the Fifth Amendment.  Specifically, the EO requires executive branch agencies, among other  things, to (1) prepare annual compilations of awards of just compensation  resulting from landowner lawsuits alleging takings, (2) account for takings  awards levied against them in their annual budget submissions, (3)  designate an agency official responsible for implementing the order, and  (4) consider the potential takings implications of their proposed actions  and document significant takings implications in notices of proposed  rulemaking. The EO also requires Justice, specifically the U.S. Attorney  General, to issue general guidelines to provide agencies with a uniform  framework for implementing the EO and to issue supplemental guidelines  for each agency, as appropriate, that reflect that agency’s unique  responsibilities. In addition, the EO requires the Attorney General to  update the general guidelines, as necessary, to reflect fundamental  changes in takings case law resulting from U.S. Supreme Court decisions.  Furthermore, the EO requires the Office of Management and Budget  (OMB) to ensure that the policies of executive branch agencies are  consistent with the EO’s requirements and that just compensation awards  made against the agencies are included in agencies’ budget submissions.
Our testimony discusses the extent to which (1) Justice has updated its  guidelines to reflect changes in case law and issued supplemental  guidelines for the four agencies, (2) the four agencies have complied with  the specific provisions of the EO, and (3) awards of just compensation  have been assessed by the courts against the four agencies in recent years  and whether in these cases, the agencies had assessed the potential  takings implications of their actions before implementing them.
In summary, we found the following:
Justice has not updated the general guidelines that it issued pursuant to  the EO in June 1988, but has issued supplemental guidelines for three  of the four agencies. Officials at Justice, the Corps and EPA expressed  the general view that changes in takings case law related to Supreme  Court decisions since 1988 had not been significant enough to warrant  a revision of the guidelines. Justice officials also noted that the  guidelines were intended to provide a general framework for agencies  to follow in implementing the EO, and thus did not require frequent  revision. However, Interior and Agriculture officials said that it would  be helpful if Justice updated a summary of the key aspects of relevant  case law contained in an appendix to the guidelines to reflect  significant developments over the past 15 years. Similarly,  representatives of property rights groups and law professors stated  that the guidelines should be updated, noting that the body of relevant  case law has evolved significantly over the past 15 years. Justice has  issued supplemental guidelines for all of the individual agencies except  Agriculture.
The four agencies’ implementation of some of the EO’s key provisions  has changed over time in response to subsequent OMB guidance. The  agencies have not prepared annual compilations of just compensation  awards or accounted for these awards in their budget documents since  OMB issued guidance in 1994 advising agencies that this information is  no longer required. Regarding the EO requirement for designating an  official responsible for ensuring the agency’s compliance with the EO,  the four agencies have each designated such an official—typically the  chief counsel, general counsel, or solicitor. Finally, the four agencies  told us that they fully consider the potential takings implications of  their planned regulatory actions, but they provided us with limited  documentary evidence to support this claim. Specifically, agency  officials told us that takings implication assessments are not always  documented in writing, and with the passage of time any assessments  that were documented may no longer be on file with the agency.
According to Justice data, property owners or other parties brought 44  regulatory takings cases against the four agencies that were concluded  during fiscal years 2000 through 2002. Of these, the courts decided in  favor of the plaintiff in 2 cases, resulting in awards of just  compensation totaling about $4.2 million. The Justice Department  settled in 12 other cases, providing total payments of about $32.3  million. The EO’s requirements for assessing the takings implications of  planned regulatory actions applied to only 3 of these 14 cases. For the  other 11 cases, the associated regulatory action either predated the  EO’s issuance or the matter at hand was otherwise excluded from the  EO’s provisions. Based on the evidence made available to us, the  relevant agency assessed the takings potential of its action in only one  of the three cases subject to the EO’s requirements. As of the end of  fiscal year 2002, Justice reported that 54 additional regulatory takings  cases involving the four agencies were pending resolution.
subsections: section_title: Background
paragraphs: The just compensation clause of the Fifth Amendment provides that the  government may not take private property for public use without just  compensation. Initially, this clause applied to the government’s exercise of  its power of eminent domain. In eminent domain cases, the government  invokes its eminent domain power by filing a condemnation action in  court against a property owner to establish that the taking is for a public  use or purpose, such as the construction of a road or school, and to allow  the court to determine the amount of just compensation due the property  owner. In such cases, the government takes title to the property, providing  the owner just compensation based on the fair market value of the  property at the time of the taking. Supreme Court decisions later  established that regulatory takings are also subject to the just  compensation clause. In contrast to the direct taking associated with  eminent domain, regulatory takings arise from the consequences of  government regulatory actions that affect private property. In these cases,  the government does not take action to condemn the property or offer  compensation, but rather effectively takes the property by denying or  limiting the owner’s planned use of the property, referred to as an inverse  taking. An owner claiming that a government action has effected a taking  and that compensation is owed must initiate suit against the government  to obtain any compensation due. The court awards just compensation to  the owner upon concluding that a taking has occurred.
In 1987, concerned with the number of pending regulatory takings lawsuits  and with court decisions seen as increasing the exposure of the federal  government to liability for such takings, the President’s Task Force on  Regulatory Relief began drafting an executive order to direct executive  branch agencies to more carefully consider the takings implications of  their proposed regulations or other actions. The President issued this EO  on March 15, 1988.
According to the EO, actions subject to its provisions include regulations,  proposed regulations, proposed legislation, comments on proposed  legislation, or other policy statements that, if implemented or enacted,  could cause a taking of private property. Such actions may include rules  and regulations that propose or implement licensing, permitting, or other  conditions, requirements or limitations on private property use. The EO  also enumerates agency actions that are not subject to the order, including  the exercise of the power of eminent domain and law enforcement actions  involving seizure, for violations of law, of property for forfeiture, or as  evidence in criminal proceedings.
The EO also requires the U.S. Attorney General to issue general guidelines  to help agencies evaluate the takings implications of their proposed  actions, and, as necessary, update these guidelines to reflect fundamental  changes in takings case law resulting from Supreme Court decisions.
The guidelines provide that agencies should assess takings implications of  their proposed actions to determine their potential for a compensable  taking and that decision makers should consider other viable alternatives,  when available, to meet statutorily required objectives while minimizing  the potential impact on the public treasury. In cases where alternatives are  not available, the potential takings implications are to be noted, such as in  a notice of proposed rulemaking. The guidelines also include an appendix  that provides detailed information regarding some of the case law  surrounding considerations of whether a taking has occurred and the  extent of any potential just compensation claim. For example, the  appendix discusses the Penn Central Transportation Co. v. City of New  York case in which the Supreme Court set out a list of three “influential  factors” for determining whether an alleged regulatory taking should be  compensated: (1) the economic impact of the government action, (2) the  extent to which the government action interfered with reasonable  investment-backed expectations, and (3) the “character” of the  government action. However, the appendix provides a caveat that it is not  intended to be an exhaustive account of relevant case law, adding that the  consideration of the potential takings of an action as well as the applicable  case law will normally require close consultation between agency program  personnel and agency counsel.
section_title: Justice Has Not Updated Its 1988 Guidelines, but Has Issued Supplemental Guidelines for Three of Four Agencies
paragraphs: Agency officials and other experts differ on the need to update the  Attorney General’s guidelines to reflect changes in regulatory takings case  law since 1988. Justice officials said that the guidelines had not been  updated since 1988 because there had been no fundamental changes in  regulatory takings case law, which is the EO’s criterion for an update.  They said that the guidelines, as written, are still sufficient to determine  the risk of a regulatory taking and that subsequent Supreme Court  decisions have not substantially changed this analysis. For example,  officials said the three-factor test outlined in the 1978 Penn Central case  remains the most important guidance for analyzing the potential for a  taking that is subject to just compensation. Justice officials also  emphasized that the guidelines address only a general framework for  agencies’ evaluations of the takings implications of their proposed actions  and thus are not intended to be an up-to-date, comprehensive primer on all  possible considerations. The guidelines state that the individual agencies  must still conduct their own evaluations, including necessary legal  research, when assessing the takings potential of a proposed regulation or  action.
The four agencies were divided on the need to update the guidelines.  Corps and EPA officials supported Justice’s position that the guidelines do  not need to be updated. Corps staff indicated that, based on their review of  relevant Supreme Court decisions since 1988, no fundamental change in  the criteria for assessing potential takings had occurred and thus no  update to the Attorney General’s guidelines was necessary. Similarly, EPA  staff said that some of the takings cases decided since 1988 gave the  appearance that the Court was changing the three-pronged test set out in  the Penn Central decision. However, these officials noted that more recent  cases have returned to the Penn Central test, thereby removing the need  for updating the Attorney General’s guidelines. In contrast, officials at  Interior and Agriculture said that it would be helpful if Justice updated the  summary of key takings cases contained in an appendix to the guidelines  to reflect significant developments in this case law over the past 15 years.
Other legal experts said that the Attorney General’s guidelines should be  updated, noting that regulatory takings case law had not remained static  over the past 15 years. For example, legal experts concerned with the  protection of private property rights said that there had been significant  developments in regulatory takings case law since 1988. These experts  said that the mere passage of time and the sheer number of regulatory  takings cases concluded since 1988 argued for updating the guidelines. In  another case, a law professor, who has written and lectured on the issue of  regulatory takings, said that the level of specificity with which Justice  prepared the original guidelines sets a precedent that calls for updating  these guidelines to reflect the many important changes in regulatory  takings case law since 1988.
The Attorney General has issued supplemental guidelines required by the  EO for three of the four agencies—the Corps, EPA, and Interior. The EO  directed the Attorney General, in consultation with each executive branch  agency, to issue supplemental guidelines for each agency as appropriate to  the specific obligations of that agency. The Attorney General’s guidelines  state that the supplement should prescribe implementing procedures that  will aid the agency in administering its specific programs under the  analytical and procedural framework presented in the EO and the  Attorney General’s guidelines, including the preparation of takings  implication assessments. In general, the three agencies’ supplemental  guidelines include specific categorical exclusions from the EO’s provisions  for certain agency actions.
The Attorney General has not issued supplemental guidelines for  Agriculture because Justice and Agriculture could not agree on how to  assess the potential takings implications of the latter agency’s actions  related to grazing and special use permits covering applicants’ use of  public lands. Agriculture argued that such permit actions should be  exempt from the EO’s requirements or, if not, that the agency should be  allowed to do a generic takings implication assessment that would apply  to multiple permits. Agriculture officials indicated that Justice officials did  not agree with these suggestions, and the matter was never resolved.  While lacking supplemental guidelines, Agriculture officials said that their  implementation of the EO and the Attorney General’s guidelines has not  been encumbered. Justice officials agreed with this assessment.
section_title: Implementation of Key Provisions by the Four Agencies Has Changed Over the Life of the Executive Order
paragraphs: Although the EO’s requirements have not been amended or revoked since  1988, the four agencies’ implementation of some of its key provisions has  changed over time in response to subsequent OMB guidance. For example,  the agencies no longer prepare annual compilations of just compensation  awards or account for these awards in their budget documents because  OMB guidance issued in 1994 advised agencies that such information was  no longer required. According to OMB, this information is not needed  because the number and amount of these awards are small and the awards  were not paid from the agencies’ appropriations but are paid from the  Department of the Treasury’s Judgment Fund. In addition, because the  number and dollar amounts of just compensation awards and settlements  paid by the federal government annually are relatively small, OMB officials  said the overall budget implications for the government are small. Hence,  in their view, information on just compensation awards in agency annual  budget submissions was also unnecessary.
OMB and Justice officials said that the relative lack of regulatory takings  cases and associated just compensation awards each year is an indication  that the EO has succeeded in raising agencies’ awareness of the need to  carefully consider the potential takings implications of their actions.
Although OMB no longer requires agencies to comply with these EO  provisions, the provisions remain in the EO. However, OMB and Justice  officials noted that because executive orders are not the equivalent of  statutory requirements, non-compliance with these provisions does not  have the same implications. Instead, executive orders are policy tools for  the executive branch and are subject to changing interpretation and  emphasis with each new administration.
Other provisions of the EO have been implemented. For example, each of  the four agencies has designated an official to be responsible for ensuring  that the agency’s actions comply with the EO’s requirements. In general,  the responsible official at each agency is the agency’s senior legal official.EPA’s and Interior’s supplemental guidelines specifically identify the  designated official by title. Agency officials could not provide us with any  documentary evidence of this designation for Agriculture and the Corps,  but agency officials assured us that their senior legal official fulfilled this  role.
Officials at each of the four agencies said that they fully consider the  potential takings implications of their planned regulatory actions, but  again provided us with limited documentary evidence to support this  claim. Agencies provided us a few written examples of takings implication  assessments. Agency officials said that these assessments are not always  documented in writing, and, with the passage of time, any assessments  that were put in writing may no longer be on file. They also noted that  these assessments are internal, predecisional documents that generally are  not subject to the Freedom of Information Act or judicial review. As a  result, they said, the assessments are not typically retained in a central file  for a rulemaking or other decision, and therefore difficult to locate. For  example, the Corps internal guidance states that takings implication  assessments should be removed from the related administrative file once  the agency has concluded a decision on a permit. In addition, agency  officials also noted that they do not maintain a master file of all takings  implication assessments. In many cases, attorneys assigned to field offices  conduct these assessments. In these cases, agency officials said that  headquarters staff might not have copies. Nevertheless, with the exception  of EPA, each agency provided us with some examples of written takings  implication assessments. These assessments varied in form and the level  of detail included.
To determine if and how the four agencies documented their compliance  with the EO when issuing regulatory actions, we reviewed information  contained in Federal Register notices on takings implication assessments  related to their proposed and final rulemakings, but had limited success.  Specifically, 375 notices mentioned the EO in 1989, 1997, and 2002, but  relatively few provided an indication as to whether a takings implication  assessment was done. Most of these rules included only a simple  statement that the EO was considered and, in general, that there were no  significant takings implications. In contrast, 50 specified that an  assessment of the rule’s potential for takings implications was prepared,  and of these, 10 noted that the rule had the potential for “significant”  takings implications. Given the limited amount of information available  from the agencies or available in the Federal Register notices that we  reviewed, we could not fully assess the extent to which agencies  considered the EO’s requirements.
section_title: Few Awards of Just Compensation Were Made Against the Four Agencies for Takings Cases Concluded during Fiscal Years 2000 through 2002
paragraphs: According to Justice data, 44 regulatory takings cases against the four  agencies were concluded during fiscal years 2000 through 2002. Fourteen  of these 44 cases resulted in government payments. In 2 of these 14 cases,  the U.S. Court of Federal Claims decided in favor of the plaintiff, resulting  in awards of just compensation totaling about $4.2 million. The Justice  Department settled in 12 other cases providing total payments of about  $32.3 million. Of these combined 14 cases with awards or settlement  payments, 10 related to actions of Interior, 3 to actions of the Corps , and 1  to an action of Agriculture.
In general, the settled cases were concluded with compromise  agreements, including stipulated dismissals or settlement agreements,  reached among the litigants and approved by the applicable court. In these  cases, the document usually stated that the parties had agreed to end the  case with a payment to the plaintiff, but no finding that a taking occurred.  For example, in one case concluded in 2001 that alleged a taking of an oil  and gas lease on federal land managed by Interior’s Bureau of Land  Management, the litigants negotiated a stipulated dismissal that provided  that a payment of $3 million be made to the plaintiffs to cover all claims.  However, the stipulated dismissal also provided that the final outcome  should not be construed as an admission of liability by the United States  government for a regulatory taking. In addition, the dismissal required that  the plaintiffs surrender their interests in a portion of the lease. In the two  cases with award payments, the court concluded that a taking had  occurred and thus it awarded just compensation.
Of the 14 cases with awards or settlement payments, the 10 Interior cases  generally dealt with permits related to mining claims on federal lands  managed by that agency or matters related to granting access on public  lands. For example, one case involving mining claims resulted in the  plaintiff receiving a settlement of almost $4 million. In another case,  involving the denial of preferred access to a lake on land managed by the  agency, the plaintiff received a settlement of $100,000. The Corps’ three  cases generally related to a denial or issuance, with conditions, of  wetlands permits for private property. One of these cases, concerning the  filling of a wetland in Florida, resulted in a settlement payment of $21  million, accounting for more than half of the total compensation awards  and settlement payments related to the 14 cases. The Agriculture case  concerned the title to mineral rights in a national forest managed by the  agency. The plaintiff received an award of $353,000 in this case. (Appendix  I provides further information on just compensation awards or settlement  payments, by agency, for cases concluded during fiscal years 2000 through  2002.)
In addition to the cases concluded during fiscal years 2000 through 2002,  Justice reported that an additional 54 regulatory takings cases involving  the four agencies were still pending resolution at the end of fiscal year  2002. Of the 54 pending cases, 30 involved Interior, 14 involved the Corps,  7 involved Agriculture, and 3 involved EPA.
The EO’s requirements for assessing the takings implications of planned  regulatory actions applied to only 3 of these 14 cases. For the other 11  cases, the associated regulatory action either predated the EO’s issuance  or the matter at hand was otherwise excluded from the EO’s provisions.
Based on evidence made available to us, the relevant agency assessed the  takings potential of its action in only one of the three cases subject to the  EO’s requirements. In that case, the Corps denied a wetlands permit  sought by the plaintiff to fill wetlands on the plaintiff’s property in order to  develop a commercial medical center. The plaintiff brought suit against  the agency alleging a compensable taking had occurred. In its takings  implication assessment, the Corps had concluded that the permit denial  did not constitute a taking because the applicant was still free to use the  property for other purposes that did not involve filling the wetland.  Therefore, the Corps concluded that the permit denial did not deprive the  plaintiff of all viable economic use of the property. However, the case  ended with a stipulated dismissal and a payment of $880,000 to the  plaintiff.
In the two other cases, based on information Interior provided to us, it  appears that the EO would apply. Interior stated that, in hindsight, it  appears that the EO may have applied in the first case involving a denial of  applications to drill for oil and gas on federal land. Although a formal  takings implication assessment was not prepared in this case, Interior  stated there was a “good faith” discussion of its takings implications  within the department. The case concluded with settlement of $380,000 to  the plaintiff for attorney fees. In the second case, concerning anticipated  and actual denial of oil and gas drilling permits for federal land, Interior  was not certain whether the EO actually applied to the case in the first  place, but believed that a takings assessment had been done and  documented in a related environmental impact statement. However,  Interior was unable to provide us a copy of this document. We believe that  the EO applied and, lacking documentation, that no formal assessment  was done. This case concluded with a settlement of $3 million for the  plaintiff.
Mr. Chairman, this completes my prepared statement. I would be pleased  to respond to any questions that you or other Members of the  Subcommittee may have at this time.
section_title: GAO Contacts and Staff Acknowledgment
paragraphs: For further information about this testimony, please contact me at (202)  512-3841. Doreen Feldman, Jim Jones, Ken McDowell, Jonathan  McMurray, and John Scott, made key contributions to this statement.
section_title: Appendix I: Awards of Just Compensation or Settlement Payments for Concluded Regulatory Takings Cases, for Four Agencies, Fiscal years 2000 through 2002
paragraphs: (Dollars in thousands)
Number  of Cases  with  Payments  $32,301  $36,505  This is a work of the U.S. government and is not subject to copyright protection in the  United States. It may be reproduced and distributed in its entirety without further  permission from GAO. However, because this work may contain copyrighted images or  other material, permission from the copyright holder may be necessary if you wish to  reproduce this material separately.