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Supreme Court ruling related to Takings Clause could impact economic development
Mark Brown   on Thursday, July 6, 2017 at 2:00:00 pm

On June 23, 2017, the Supreme Court ruled 5-3, affirming that the Court of Appeals of Wisconsin was correct in the case Murr v. Wisconsin. The Court ruled that “Treating the lot in question as a single parcel is legitimate for purposes of this takings inquiry, and this supports the conclusion that no regulatory taking occurred here.” According to the Supreme Court, there are two guidelines relevant for determining when a government regulation constitutes a taking. First, “with certain qualifications . . . a regulation which ‘denies all economically beneficial or productive use of land’ will require compensation under the Takings Clause.” Palazzolo v. Rhode Island, 533 U. S. 606, 617 (quoting Lucas v. South Carolina Coastal Council, 505 U. S. 1003, 1015). Second, a taking may be found based on “a complex of factors,” including (1) the economic impact of the regulation on the claimant; (2) the extent to which the regulation has interfered with distinct investment-backed expectations; and (3) the character of the governmental action. Palazzolo, supra, at 617 (citing Penn Central Transp. Co. v. New York City, 438 U. S. 104, 124).

The timeline of this case starts in 1960 when the first plot of land was purchased in 1960 and the title was placed in the Murr’s private plumbing company. On the first lot the Murr’s built a family cabin. In 1963 the Murr’s bought the adjacent lot which has remained vacant. In the 1970’s environmental regulations reduced the usable size of each lot to less than an acre. In the location of Murrs’ property, state and local regulations prevent the use or sale of adjacent lots under common ownership as separate building sites unless they have at least one acre of land suitable for development. So in 1995 when the lots were brought under common ownership the St. Croix County ordinance that states if abutting properties have less than an acre of economically developable lands and they are owned by a single entity the lots are too be considered as one property. The Murr’s land was subject to this regulatory burden, moreover, only because of voluntary conduct in bringing the lots under common ownership after the regulations were enacted. As a result, the valid merger of the lots under state law informs the reasonable expectation they will be treated as a single property, according to the Supreme Court.

The Court also agrees that “the physical characteristics of the property support its treatment as a unified parcel. The lots are contiguous along their longest edge. Their rough terrain and narrow shape make it reasonable to expect their range of potential uses might be limited.”  The Murrs’ could have also “anticipated public regulation might affect their enjoyment of their property, as the Lower St. Croix was a regulated area under federal, state, and local law long before petitioners possessed the land.”

Lastly Court agreed that the prospective value of the two lots supports considering the two as one parcel for purposes of determining if there is a regulatory taking. The Murrs’ are prohibited from selling the lots separately or from building separate residential structures on each. Yet this restriction is mitigated by the benefits of using the property as an integrated whole, allowing increased privacy and recreational space, plus the optimal location of any improvements. The special relationship of the lots is further shown by their combined valuation. The combined lots are valued at $698,300, which is far greater than the summed value of the separate regulated lots Lot F with its cabin at $373,000 and Lot E as an undevelopable plot at $40,000. The value added by the lots’ combination shows their complementarity and supports their treatment as one parcel.

The factors stated above are why the Supreme Court upheld the decision that the taking clause did not apply in this case. The guidance given by the is that “Courts must instead define the parcel in a manner that reflects reasonable expectations about the property. Courts must strive for consistency with the central purpose of the Takings Clause: 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.”” Chief Justice Roberts dissented stating, “Basing the definition of “property” on a judgment call, too, allows the government’s interests to warp the private rights that the Takings Clause is supposed to secure.”

The previous Supreme Court case that affected economic development was Kelo v. City of New London. The Court held that the general benefits a community enjoyed from economic growth qualified private redevelopment plans as a permissible "public use" under the Takings Clause of the Fifth Amendment.  Unlike in Kelo v. City of New London, it is not clear if the the Murr v. Wisconsin ruling will affect economic development in a positive manner. On one hand there is the potential to reduce the amount economic burden that is incurred when a development uses emanate domain to acquire property.   On the other hand Murr v. Wisconsin did not provide any clarity to the issue of the Takings Clause and the uncertainty of the regulations could impact the decision of individuals and firms to purchase adjacent plots of land.

 Urban economists have long argued about the detrimental effects of land use regulation which is the lynchpin of this case. The regulation requiring minimum lot parcel size for this property to be sold is detrimental to economic growth. Land use regulations are the reason that in many metropolitan areas rents are skyrocketing. Instead of allowing the market to determine the efficient use of the space and allow innovations local and state governments are inhibiting growth. Hsieh and Moretti (2015) have estimated that “lowering regulatory constraints” on land use in regional economic centers would “increase U.S. GDP by 9.5%.”