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

Letter

Background

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.

Justice Has Not Updated Its 1988 Guidelines, but Has Issued Supplemental Guidelines for Three of Four Agencies

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.

Implementation of Key Provisions by the Four Agencies Has Changed Over the Life of the Executive Order

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.

Few Awards of Just Compensation Were Made Against the Four Agencies for Takings Cases Concluded during Fiscal Years 2000 through 2002

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.

GAO Contacts and Staff Acknowledgment

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.

Appendix I: Awards of Just Compensation or Settlement Payments for Concluded Regulatory Takings Cases, for Four Agencies, Fiscal years 2000 through 2002

(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.