Property Rights Foundation of America®
Founded 1994

Tax base eroded by shifting court sentiment

-by Carol W. LaGrasse
(Originally printed in the August 17, 1992 Capital District Business Review, Albany, N.Y.)

The U.S. Supreme Court ruling in the Lucas case is a bellwether indicator of the direction that land use regulations and environmental controls affecting property are taking.

That direction will be to dig deep into the public pocketbook to pay for the cost of the controls to individual owners. In effect, the courts are saying, "If you, the public, decide to take away the value of someone's private property, pay up."

. . .[T]he financial burdens of land preservation are shifting. Individual private businesses and landowners are beginning to find relief, while the potential for pain to the taxpayer is far-reaching.

In the Lucas decision, the court told a South Carolina state agency that it could not use the reason that a restriction was "enacted to prevent serious harm" as an excuse for not compensating a man for the loss of $975,000 he invested in beachfront property the state stopped him from using afterward.

The opposition faced the ramifications of the decision squarely. Angered by the majority decision, Supreme Court Justice Stevens predicted that as a result of the ruling in this regulatory "taking," "the costs to the government are likely to be substantial."

In his criticism of the ruling, Justice Stevens said that "local officials and planners who must deal with increasingly complex problems in land-use and environmental regulation . . . will face unacceptable penalties if they guess incorrectly about [takings] law."

The respect for the Fifth Amendment protection of private property has been demonstrated in several other cases in federal claims court that resulted in giant awards to landowners affected by environmental regulations. In one case, the U.S. government was told to pay a coal company in Wyoming $150 million because the Interior Department barred it from mining in a protected area.

In another case, a federal judge awarded $2.68 million to a developer because wetlands partially reduced the usability of his property. Environmentalists were taken aback by this restriction, in the Loveladies Harbor case, because it could open a Pandora's box to the government having to compensate for partial takings.

Court rulings like the Lucas and Loveladies decisions have caused a great deal of excitement in the Adirondacks, where state zoning under Adirondack Park Agency law—42 acres per house and wetlands restrictions several times tighter than elsewhere in the state—have never been seriously litigated.

With court climate swinging in the direction of compensations for takings of private property, landowners in the Adirondacks are mulling how best to go to court to be compensated for losses caused by 20 years of environmental takings. The Supreme Court pointed out in the Lucas case that regulatory takings are very similar to eminent domain, and the public may have to pay—just as it would if the land rights were taken clearly by eminent domain.

But compensation for takings is not all that the taxpayer is starting to be hit with because of environmental restrictions on private property.

The taxpayer also will have to make up for the lost tax base caused by environmental controls. A New Jersey court knocked the assessment of a Meadowlands parcel down from $20 million to $1 million this year. Wetlands designation had made the 240-acre parcel—once the most valuable undeveloped real estate in New Jersey—virtually useless commercially.

The ruling resulted in a loss of $19 million in tax base to the city of East Rutherford, which has to be made up by other taxpayers.

Assessors rarely have revalued land to reflect non-usability of restricted areas such as wetlands. As court rulings force assessors to depreciate environmentally restricted property, lost tax base will go to other parcels, causing multimillion-dollar tax shifts all over the United States.

In the Adirondacks, a major concern that I've raised about the governor's failed 1992 Adirondack Park bill was the loss of tax base that would have resulted from the increased environmental controls on the so-called "back country," comprising 87 percent of the 3 million acres of private land as well as shore fronts and roadsides. Assessors in some towns already value the land zoned 42 acres—about half the private acreage—at reduced assessments, which causes a modest tax shift.

Legislation to in effect wipe out the usability of 87 percent to 95 percent of the private land in the Adirondacks would have eradicated a great portion of the tax base, threatening towns with bankruptcy.

In fact, the prospect of such legislation over the three years since Gov. Mario Cuomo's Twenty-first Century Commission report on the Adirondacks, coupled with additional restrictions that the Adirondack Park Agency unilaterally imposed on applicants, have had a destabilizing effect on the values and salability of property in the Adirondacks.

Long-term bonding capacity of school districts has come into question by rating agencies concerned with environmental regulations in the Adirondacks, but as of this date no official rating penalty or credit restriction has been documented. On the other hand, Adirondack-area municipalities were threatened with action to ruin their credit rating because they were about to stop paying bills for the Hudson Falls incinerator, an environmental mandate that the state foisted on the region.

Elsewhere in the state, a bank executive who requested anonymity revealed that parcels of land that were listed by the state Department of Environmental Conservation on its Open Space Conservation Plan for state acquisition were unsalable or of near-zero worth. The plan, which was formulated for all nine DEC regions as a result of the legislation behind the failed 1990 Environmental Quality Bond Act, has taken landowners by surprise all over New York by listing their properties for acquisition to preserve "open space." The value of these lands on the tax rolls will sink.

The direct cost of land acquisition for preservation, as well as the continuing cost of paying taxes on certain state lands, also will hit taxpayers. In the Adirondacks alone, land acquisition costs could reach $2 billion. The cost of state acquisition of the Whitney estate—the prime target of preservationists this year—could be as high as $15 million, even though substantially all timber reportedly has been cleared.

This spring, DEC Commissioner Thomas Jorling estimated that the state planned to preserve 1.25 million acres in the Adirondacks alone—twice the acreage originally recommended by Cuomo's commission in 1990. The state's annual real estate taxes to local municipalities and school districts would be a burden to taxpayers statewide, costing millions annually.

Programs of state land preservation such as those in the Finger Lakes and Catskills are planned throughout New York, and will burden local municipalities—as well as taxpayers statewide—with lost tax base. Federal land preservation programs such as that proposed for the New York-New Jersey Highlands or for the Montezuma National Wildlife refuge near Cayuga Lake would create heavy local tax shifts because the federal government pays no local real estate taxes.

As individuals become wise to the free-wheeling modus operandi of land-regulating agencies and bring them to account, taxpayers will receive the burden of this accounting. In the Adirondacks, where the Adirondack Park Agency has been strangling local business with innovative permit conditions, a group of us served the agency in June with an action enumerating the history of the APA's pattern of abuse and asking the court for damages.

The handwriting clearly is on the wall. Taxpayers will have a heavy price to pay because of environmental restrictions on land. They will pay directly for awards to property owners for "taking" lawsuits. They will pay indirectly due to tax shifts when they are fortunate enough to escape environmental regulations such as wetlands or land-use controls or asbestos rules.

And they will pay twice for unfortunate property owners whose land is on acquisition lists: first to pick up for the owner's lowered assessments and second to pay to buy up his land. Afterward, they will pay the taxes he once paid. And municipalities will pay higher borrowing rates as credit drops.

To add to the assault on the pocketbook, taxpayers are being hit simultaneously with direct costs of expensive environmental mandates such as landfill closure, centralized trash processing and asbestos removal from public buildings.

With business and working people up against the wall economically, and with incipient and active taxpayer revolts all over New York, it's hard to imagine that taxpayers quietly will acquiesce to picking up greatly increased taxes to pay for "taking" of private property to protect the environment or for the tax shifts and loss of municipal tax base that result.

Back to:
Real Estate Tax and Assessments - New York
Real Estate Tax & Assessments —
New York
Real Estate Tax and Assessments - National
Real Estate Tax & Assessments — National
PRFA Home Page
PRFA Home Page
     

© 1992 Property Rights Foundation of America, Inc.
All rights reserved. This material may not be broadcast, published, rewritten or redistributed without written permission.