Senator BIDEN. Now, the Clean Water Act-you probably understand it much better than I do. If the EPA requires a manufacturer to invest in equipment to purify the effluent coming from that factory so that it is in compliance with the Clean Water Act, does the amount of money it takes to, say, put a scrubbing device on a containment vessel-that is the Clean Air Act, but put on a

Mr. LUDWISZEWSKI. But, yes, there are any number of things you can do chemical treat, biologically treat.

Senator BIDEN. Does the money it costs to take those actions to comply with the act-does that constitute property that puts you into a taking? It costs the company $5 million to comply with the act. They have to expend $5 million to comply with the act and they come along and say, which they do now in court cases, making me do that is taking my property; you are taking money out of my pocket because it is property; the property is the dollars I have. So is that private property or property within the meaning of this act? Mr. LUDWISZEWSKI. They could probably successfully argue, actually, that the money lost is property under, I think-is it 203(5)(E), "any interest defined as property under State law?" Probably, under (F) as well; it probably would be commonly understood that money is either under (E) or (F) defined as property.

Senator BIDEN. Now, what I am confused about, if that is property and I agree with you that it is-is how is the money expended on researching and producing a drug that you are not allowed to sell not property under that same section. You are being denied the ability to make use of the dollars you have expended. It is costing you money. The Federal Government's action of saying you cannot market Naltrexone costs you money in the same way that the Federal Government is costing you money by saying if you wish to make widgets, you have got to build a tertiary treatment facility to deal with the effluent from the widget process.

Mr. LUDWISZEWSKI. I wouldn't necessarily say it was in the same way.

Senator BIDEN. It is not in the same way. It affects the same dollars, though. You have put in money. An individual has expended tens or hundreds or thousands or millions of dollars, and the government is now telling you that is too bad.

Mr. LUDWISZEWSKI. Yes, but in the first mechanism, under the hypothetical with regard to the drugs, the company voluntarily undertook those expenditures in hopes of being able to get a drug approved. They were ultimately unable to do that.

Senator BIDEN. I see.

Mr. LUDWISZEWSKI. Under the second hypothetical, as I understood it, the government imposed a new regulatory requirement and that regulatory requirement commanded certain expenditures. Am I misunderstanding the hypothetical?

Senator BIDEN. No, you are not, and if that is a legal distinction and I don't know; that is why I am asking the question-then I understand. What you have is you have regulatory requirements that if you are going to even test a drug, you have to meet certain regulatory requirements. It is a lot easier to go out and test a drug, for example, on a human than it is on a monkey or on a mouse to test what the effects are, but there are regulatory requirements that you say cannot test on a human, you cannot test in the follow

ing way. So you drive up the cost of testing the product in the first place. Is that a taking? Is that property?

Mr. LUDWISZEWSKI. Those are, as I understand the hypothetical, sort of preexisting legal requirements, just like—although this is usually State requirements, just like there are requirements if you are going to build a building, you have to have a sprinkler system in it.

Senator BIDEN. Right.

Mr. LUDWISZEWSKI. If you get into the business of building buildings, you understand you have to do that. If you get in the business of

Senator BIDEN. Right now, if you get in the business of building a brewery, you know there are certain requirements you have about the effluent that comes from that brewery.

Mr. LUDWISZEWSKI. Right, but I think your second hypothetical

was a new

Senator BIDEN. I misspoke. Right now, does this apply to the Clean Water Act as it exists now and is interpreted now?

Mr. LUDWISZEWSKI. Well, it would apply to any deprivation of property caused by any Federal law, so it could apply to any, after its passage, deprivation of property if it was passed.

Senator BIDEN. I hope you understand why I am confused. If it applies to the Clean Water Act as it is written now for someone who wants to get in the business of building a brewery, knowing full well what the Clean Water Act requires to be done to the effluent that comes from the brewery-it applies to that, we are saying. But now I am a drug manufacturer and I know full well before I try to develop a new drug that there are certain requirements, there are certain Federal regulations that limit my ability to develop this drug in what I consider a cost-effective way.

They are saying you have got to do a certain screen first and you have got to go through steps A and B and C, not even in terms of marketing it, just in terms of developing it to determine whether we can market it. If we passed a law saying that every bank that is insured by the FDIC has to have bulletproof windows and sprinkler systems and alarm systems of a certain kind, that is a regula

tion.

Mr. LUDWISZEWSKI. Right.

Ms. MARZULLA. Excuse me, Senator Biden. Could I jump in for just a moment, please?

Senator BIDEN. Please. I need help.

Ms. MARZULLA. I was just going to suggest that I think a useful way of thinking of regulatory taking at the outset is to go back to direct condemnation. I think if you start from condemnation, you

Senator BIDEN. That is easy, though.

Ms. MARZULLA. It is, and the reason why I suggest that is because it puts an end, I think, to all of the problems you can get with hypotheticals. The sort of hypotheticals that you are raising now-to go back to the notion of condemnation, you ask yourself the question of what has been taken. Well, obviously, requiring someone to spend money is not a taking. The Federal Government hasn't taken something from you.

Senator BIDEN. I will sign on to this now if that is what this

means.

Ms. MARZULLA. Exactly. You know, always start from the notion of what has been taken, so that is why you look at the diminution of value. That is, in a sense, a surrogate for something that has been taken by the Government. It is a property interest that has been taken.

Senator BIDEN. Do the rest of you agree with that?

Mr. MARZULLA. Yes, Senator. I think that is the point that was made earlier here, although perhaps not as clearly as it should have been, and that is that the hypotheticals which have been given out in the testimony of the Associate Attorney General, for example, suggesting that this is going to mean that you have to pay people not to pollute are simply incorrect.

Senator BIDEN. Well, that is good.

Mr. MARZULLA. The expenditure of money to comply with Federal regulations is not in itself a taking, nor is the expenditure of money to widen a door to provide access to the disabled.

Senator BIDEN. So it would not fall under this law?

Mr. MARZULLA. Those actions do not constitute a bill because this bill

Senator BIDEN. By definition, then, they would not be subject to this law.

Mr. MARZULLA. Yes; the earlier question, I think, that you asked was whether money is property under the bill. Certainly, it is, and there are circumstances in which the taking of money-the seizure of a bank account, for example, if it is done improperly-would constitute a taking.

Senator BIDEN. That is great from my standpoint, if that is what we are talking about, essentially, condemnation, and the concept and the theory that underlies condemnation, but I don't think that that is what a lot of people who want this bill think it means because what we are talking about in most cases where Federal regulation is hurting people the most-the reason why business likes this is we are not going in and taking their property in a condemnation sense. We are going in and making them spend billions of dollars, if you add it all up. That is what the Federal Government is making them do.

Back in my State, the reason why I suspect an awful lot of the companies would like to have this legislation is they think-it is going to come as a surprise to them that a Federal regulation that requires them to spend more money to keep their business going is not a taking and it doesn't even get in the ball park.

The complaints I most get are, first, from my farmers, whom I agree with on the notion of what constitutes a wetland. They say you can't use your property. But if you are telling me that the Federal Government came along and said, by the way, you can use this property, but in order to use it what you have to do is you have to divert the stream into this area, or you have to put in the following reclamation system, I don't think my farmers would be any happier than they are now.

If all four of you are saying to me that a regulation that does not amount to a condemnation of the use of the property does not fall within this legislation because it is not a taking, then I am ready

to stop asking questions because you have answered all my con

cerns.

Ms. MARZULLA. Yes, Senator. It deals with inverse condemnation; i.e., condemnation.

Senator BIDEN. Explain what you mean by inverse condemnation.

Ms. MARZULLA. In other words, the Government can take property two ways. It can either formally exercise its powers of eminent domain and be very straightforward and say, we are taking this piece of property.

Senator BIDEN. Right.

Ms. MARZULLA. Or, alternatively, and what we have seen increasingly over the past 30 years with the creation of the regulatory state, government, instead of formally exercising its powers of eminent domain, regulates the use of the property.

Senator BIDEN. Well, that is my point.

Ms. MARZULLA. In so doing, it condemns private property.

Senator BIDEN. So, then, these cases would fall in. So, in fact, what you are saying is that if I am a manufacturer of drugs and I am out there and I have got my plant setup and I am ready to go and I have got this new idea that I am going to come up with a drug that diminishes the craving for cocaine there are lot of those that are out there now, a lot that are being proposed. I get working on it and all of a sudden the Federal Government comes along and says, wait a minute, you can't do it this way; first of all, the area in which you are doing this testing is contaminated; you have got to erect a contamination-free section of this factory.

I say, well, that is going to cost me $2 million. They say, if you don't do it, you are shut down. Now, is that a taking? The answer is it is. I can help you all out. It is, OK? It is. That is what the Supreme Court has been saying is a taking. It gets you into the game. The question is whether or not it is a legitimate regulation or it is a taking, a taking that requires compensation.

Maybe I am not asking the questions very well, but I think you are kidding yourselves or trying to kid me, one of the two, because if the FDA comes along and says, look, in order for you to even test for this drug, you must expend enough money to have a sanitary area, all your folks must wear hair nets, all the people who walk in must have clothes on that are similar to that worn by physicians, and you say, wait a minute, you mean I have to go out and buy hair nets, I have got to go out and buy these clothes, I have got to have air-tight locked doors, I have got to do this under these circumstances-wait a minute, Biden; what are you doing to me? Ms. MARZULLA. Senator, if I could just say one thing, I think that the disconnect we are having here you know, we keep responding negatively to all the hypotheticals that are posed.

Senator BIDEN. Yes.

Ms. MARZULLA. It is not that we are suggesting that this isn't a large problem, the problem that the bill is trying to address, because it is. There are a huge number of Federal regulations which have the effect of taking private property rights, but it is just that the hypotheticals that are being posed are sort of in left field and they are not the ones that we normally think of or that, in fact, do affect private property rights.

Senator BIDEN. I understand that you are saying that they might not normally, but what I am trying to get at here

Ms. MARZULLA. Or even ever.

Senator BIDEN. We have to have a normative value here. I mean, what are we talking about that requires compensation by the government? That is what this is about, and the truth of the matter is the vast cost to the economy is not in the confiscation of pieces of land. That happens all the time, like the lovely lady who testified here today about what happened to her property, like the cases that happened with the coastal zoning act in California, like what happened in the Carolinas. That is property taken. They take away your use of that property in the wetlands legislation, but that is not where the big dollars are. That is not where most of the takings occur, if you mean takings. That is not where most economic interests are affected.

Where they are affected is if you say, hey, look, in the Clean Air Act, no longer can the Marcus Hook Refineries that spew air into my neighborhood-no longer can they continue to make gasoline the way they did. They have got to invest tens of millions of dollars on scrubbers on top of those big smoke stacks to take the sulfuric acid out of the air before it gets there. They have turned around and said, wait a minute, you are affecting my bottom line; you are taking my property by making me do that; it is a regulation for which I should be compensated. That is what they are saying.

Mr. LUDWISZEWSKI. My answer remains the same. That is not a taking.

Senator BIDEN. Why is it not a taking?

Mr. LUDWISZEWSKI. Because they had no vested property right recognized under State law or anywhere else to make gasoline on the assumption that they could spew SO2 into the air.

Senator BIDEN. I find that fascinating because until we passed the law they could spew SO2 into the air.

Mr. LUDWISZEWSKI. Right, but they had no vested property right that allowed them to do that. They were dealing in an area that was not yet regulated.

Senator BIDEN. So once we regulate it, if we have a-what is the basis the court is supposed to look at, then? Under this legislation, it doesn't say whether or not there was a reasonable basis for the regulation. It doesn't say, as I read it, that it has to meet a tort standard. It doesn't even say it has to meet a nuisance standard. It just merely says if the effect on my property is one-third-and my property is my dollar, my bottom line, as well as the plant and equipment and piece of land I own; that is my property. If the effect on it is one-third, I am now in the ball game and the Federal Government can't do it without paying me money. That is why I think we are kidding ourselves here. I mean, this is a bit of sophistry, isn't it?

I mean, if you are telling me that any regulation that the Federal Government passes, for which there is a reasonable basis to pass it-we don't want SO2 in the air. The Federal Government says that is a bad thing; it smells. It doesn't smell, but let's say you have a noxious odor in the air. It doesn't harm anybody; it just smells. It may be a nuisance.

The CHAIRMAN. You just broke the code.