Proposition 98 - Eminent Domain and Rent Control

What it does

Proposition 98 would amend the California Constitution to add, “Private property may not be taken or damaged for private use.” This means that private property (including commercial and residential property) could be “taken” by eminent domain only for public uses, including freeway construction, parks or schools. For example, government could not use eminent domain to transfer land to nonprofit organizations to build affordable housing or to private owners for economic development projects such as a new retail center or a technology or industrial park. Needless to say, there would be no redevelopment involving uses of eminent domain. The only mechanism under which government could transfer land to a private user would be if the property owners willingly sold their home or business to the government.

Prop. 98 also makes other changes that limit the ability of government to regulate land and property for environmental or equity goals, or to protect public safety.

1. Prevents regulations that transfer economic benefit to a private person

Prop. 98 would prohibit regulations affecting the ownership, occupancy or use of real property if the regulations are enacted “in order to transfer an economic benefit to one or more private persons at the expense of the property owner.” This broad prohibition could affect many regulations since regulation, by its nature, usually provides an economic benefit to some private person at the expense of another. In particular, this clause suggests that Prop. 98 might be interpreted to restrict many environmental and land use regulations because they can be construed to transfer economic benefit. For example, this could restrict a local community from passing zoning regulations to restrict adult businesses as nearby homeowners could receive an economic benefit through increased property values.

2. Invalidates rent control and other affordable housing and tenant protections

Under Prop. 98, the government would not be allowed to enact or enforce local rent control laws. While the initiative does retain rent control for current tenants, once they move no control is permitted for them at a new residence, and no further control may be enforced on the dwelling the tenant has vacated. Affordable housing is similarly affected. Resale restrictions on affordable housing would be invalidated. Inclusionary zoning could be deemed illegal.

Prop. 98 would greatly affect the very poor, the elderly and those who qualify for rental assistance. Under current law, if without cause a landlord terminates a Section 8 contract for a rent subsidy, he or she may charge the tenant only the contract rate on the unit – the combination of the amount the tenant was paying directly and the additional amount provided by the local housing authority. Under Proposition 98, the landlord could charge any amount after the contract is terminated, thus making it very difficult for the tenant to pay the rent while finding new housing. Prop. 98 also would invalidate state Ellis Act limitations on the amount a landlord could charge seniors and disabled people in the last year of their residency prior to an eviction that would make way for new development.

Laws governing the return of rental deposits most likely would be invalidated, as would protections regarding terminations of tenancy, and required tenant notice periods, such as the 30-day requirement prior to a rent increase or any other change in the leasing agreement, the requirement for 30 or 60 days’ notice to vacate, the 90-day notice to terminate a Section 8 contract requirement and many others. With all of these statutes invalidated, notice periods and other protections would be subject only to individual agreements between landlords and tenants.

3. Prevents eminent domain for public uses that are similar to the prior private use

Prop. 98 would restrict the government from using eminent domain in situations where the new use — even if it were a public use — would be similar to the prior use. For example, open space that is used for private recreation such as hiking, fishing or horseback riding could not be taken for habitat preservation, conversion into a public park or for any other recreation facilities. This part of the initiative also could affect large water projects, as government agencies could not use eminent domain to obtain water rights and then use those water rights for larger public water projects. For example, any of the properties that make up Point Reyes National Seashore were purchased using the power of eminent domain, but under Prop. 98, this national park would not have been possible unless every landowner had been willing to sell. This provision would restrict the use of eminent domain in open space protection, habitat preservation and historic preservation.

4. Changes the compensation for public works projects

In cases in which the government could still use eminent domain for qualified public works projects, Prop. 98 would change the definition of “just compensation” to allow a property owner to sue if he or she did not consider the amount of compensation to be “just.” The government would have to pay both sides’ attorney fees if a jury awarded the property owner a higher value for the property, even if the difference was minimal.

5. May have broad impact on other environmental and land use regulations

The extent to which some provisions in the measure would be implemented is unclear. For example, some environmental and land use regulations could be restricted or outlawed by Prop. 98:
 

• Regulation of greenhouse gas emissions to limit global climate change
• Regulations that protect costal areas, wetlands, forestland, farmland, ranchland, and cultural and historic sites
• Restrictions on timber harvesting, water use, pollution and mining
• Regulations to preserve rural character and planning moratoria
• Ordinary planning and zoning regulations, such as restrictions on the development of polluting industry, adult businesses and big-box stores
• “Smart growth” regulations designed to promote compact, walkable and transit-oriented communities that combine residential and commercial land use
• Affordable housing requirements, other tenant protection laws, condominium conversion ordinances and Ellis Act safeguards.

6. Provides stronger legal recourses for property owners

If a public agency takes property under false pretenses or abandons its plans, the property must be offered for sale to the original owner at the original price, adjusted by the fair market value of any changes to the property. The property tax would be assessed at the value of the property when it was originally condemned. If farmers or business owners were evicted by eminent domain, they would be entitled to compensation for temporary business losses, relocation expenses, business re-establishment costs and other expenses. Why it is on the ballot

Prop. 98 is a follow-up to the 2006 measure Prop. 90, which narrowly failed at the ballot. Prop. 90 was a California measure that was similar to many proposed in other states, all of which used the Supreme Court’s Kelo v. City of New London decision (which upheld the right to use eminent domain to take a home and transfer it to a private user) as an excuse to assail broad government regulatory authority.

Prop. 98 is co-sponsored by the Howard Jarvis Taxpayers Association, California Farm Bureau Federation and the California Alliance to Protect Private Property Rights. More than 85 percent of funding to qualify Prop. 98 comes from owners of mobile homes and apartments, and associations that represent them.

These are different organizations than the chief proponents of Prop. 90, but they share a common perspective that courts have not been good at reviewing the administrative actions of government that have a serious damaging impact on the value of private property.

Pros

Arguments in favor of this measure:

• By eliminating rent control, this measure could, over time, result in a more reasonable market rate rent, which potentially could benefit future tenants. Some argue that rent control is an unfair taking of the full market value of real estate by suppressing the price of units with long-term tenants. Prop. 98 would end rent control for future tenants without harming existing tenants.
• Proposition 98 would allow a judge to issue an injunction to stop a regulation. This means that monetary damages against regulators are not the only possible response to overreaching laws, but rather it gives the courts better discretion to stop such regulations.

Cons

Arguments against this measure:

• Prop. 98 goes beyond 2006’s Proposition 90 by preventing government actions “taken to protect health and safety.” Land use regulations that restrict building in unsafe or flood prone areas might be illegal under Prop. 98. This is not only unwise, but also unfair to future property owners.
• It would eliminate a long list of tools that communities have to plan for their future, including laws and actions related to land use, the environment, tenants, housing, and public works. In many cases, Prop. 98 not only could prevent governments from passing new laws, but also from enforcing existing laws. For example, Prop. 98 would prevent environmental protection such as habitat preservation. It might eliminate inclusionary housing laws and other affordable housing regulations that require a certain number of units in developments to be priced below the market rate.
• Prop. 98 eliminates rent control and many other tenant protection laws. If the proponents of Prop. 98 are concerned about rent control, they should run a campaign focused on the issue of rent control rather than mixing rent control with unrelated subjects.
• Prop. 98 includes a specific prohibition that would prevent the use of eminent domain for public water projects. This is because the measure includes a prohibition on the “transfer of ownership … to a public agency for the consumption of natural resources.”
• Prop. 98 would make public works projects much more difficult and expensive, as property owners would tie up eminent domain projects in new litigation over the value of “just compensation,” and would force the government to pay all attorney fees if the courts determine that the government should have paid even $1 more for the property than the owners were offered. For example, the measure could also jeopardize the San Francisco Public Utilities Commission’s seismic upgrade of the Hetch Hetchy water system.
• Prop. 98 would result in thousands of new lawsuits to block new homes and businesses, harming our ability to grow our economy and house our workforce.

SPUR’s analysis

Every day, governments make decisions that benefit one interest at the expense of another. Ideally, these decisions are made for the greater public good. But they may involve the transfer of value and sometimes ownership from one property owner to another private person. This process is part of the tradeoffs between various interests in society. This is what planning and government is for.

Prop. 98, however, is a complex and far-reaching measure that would wreak considerable harm on our system of self-government. It outlaws many of the core planning, environmental, public works and housing tools that our communities rely on in order to benefit certain property owners. If passed, it would also launch a slew of expensive and protracted legal battles.

Ultimately, as public policy, Prop. 98 has no redeeming qualities. SPUR has a longstanding belief in the appropriate use of government regulation to protect health and safety, to strengthen environmental protections, and to provide for the creation of affordable housing. Prop. 98 reverses each of those.

SPUR recommends a “No” vote on Prop. 98.