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Senator GRAMM. Thank you, Senator Thurmond.
The CHAIRMAN. Senator Kyl?
Senator KYL. Thank you, Mr. Chairman.

Senator Gramm, I have one question, but first let me say that your appearance here today confirms what I already know, and that is that you are one of the foremost champions of private property in this country. You understand its role to our future and I appreciate that very much.

We just passed unfunded mandate legislation which says that if the Federal Government imposes requirements on States and local governments, we ought to pay for it. Now, the States and local governments don't have a constitutional right like private property owners do, but what is the difference between the Federal Government imposing a requirement or regulation on the States and having to pay for it and doing the same thing on a private property owner?

Senator GRAMM. Well, I think that the question you pose is a very good question, and I think that if the President vetoes this bill or if those who oppose it are able to use the filibuster to stop it, what they would seem to be saying is that the will of the Federal Government is more important than the constitutional rights of our people.

I don't think that there is a right in America that is more fundamental than the right to own property and to have security in that property. I just go back to a point I made earlier and amplify it. The Founding Fathers understood that security in property was essential to freedom. They understood that freedom of speech and assembly was of no real value if you weren't secure in your property. If government could threaten your property, these other freedoms didn't matter very much.

The Founders had a very clear focus on property and its protection as being fundamental to freedom. It is an incredible quirk of history that as we have worked to try to protect rights under the Constitution, the fundamental right of private property is not one of those rights that has been championed in the courts or in the press.

If someone stood up and said that people did not have the right to go on the street corner and shout their opinion, there would rightly be an outcry from both political parties, from Congress and the White House, from an editorial board at every paper in America. Yet we hear that people have their property effectively stolen by government, in clear violation of the Constitution and where is the outcry? Where is the righteous indignation?

The point is that the right to own property is what gives the right to freedom of speech any real meaning, and that is why I take this issue so seriously. I know it is why you take it so seriously.

Senator KYL. Thank you.
The CHAIRMAN. Senator Feinstein, do you have any questions?

Senator FEINSTEIN. Good morning, Senator. I have no questions of this Senator. Thank you.

The CHAIRMAN. Thank you, Senator Feinstein.

Thank you, Senator Gramm. We appreciate your taking time to be here.

We will also place a statement by Senator Dole in the record today, without objection.

(The prepared statement of Senator Dole follows:)

PREPARED STATEMENT OF SENATOR ROBERT J. DOLE Mr. Chairman, let me say first that I appreciate your having me here this morning for a few introductory remarks.

Since last November's elections we have pursued an ambitious program of reform to fundamentally change and improve the relationship between the government and its citizens.

To the defenders of business as usual, these are wrenching changeschanges like a balanced budget amendment; regulatory reform; and even the elimination of cabinet level departments. But we will continue to fight for these reforms, and for the American people.

Mr. Chairman, many of these reforms have come through this committee, and today you take up yet another important task. This committee considers one of the most fundamental clashes between government power and individual liberty: the taking of private property for public uses. There is perhaps no greater foundation for a successful free society than private property. Private property rights are the rights to enjoy the fruits of our labor and our ideas and deservedly enjoy special protections in the U.S. Constitution.

One of the most basic of these protections is found in the fifth amendment to the Constitution: "Nor shall private property be taken for public use, with just compensation." As the Supreme Court has stated, this protection is about basic fairness: Preventing the 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.” The fifth amendment thus provides a balance between public necessity and individual liberty.

Today, however, this balance is missing. A regulatory, state that seems only to grow and grow-that is increasingly, intrusive has provided the means for a sustained assault on private property rights in America. It is our duty to ensure that we limit the arbitrary exercise of government power and pursue worthwhile goals in ways that also protect the rights of our citizens.

Mr. Chairman, I am proud to be a co-sponsor-along with you, Senator Heflin and other members of this committee of S. 605, the “Omnibus Property Rights Act of 1996.” I want to especially commend you for your leadership of the working group that produced this bill.

I know that others will address in more detail the provisions of this bill. But I would like to make one point about our bill.

The reforms contained in this bill do more than provide that “just compensation" is paid in proper circumstances. The initial test of property rights legislation is to ensure that we minimize the number of takings that occur in the first place.

We need to ensure that when we pursue otherwise laudable goals, that we do so in ways tha allow the government to take private property only as a last resort; and when it is necessary to do so, to insist that just compensation is paid to the property owner. The “Omnibus Property Rights Act of 1995” accomplishes these goals, and I urge this committee to report a strong bill as soon as possible.

The CHAIRMAN. Let us call at this time now a representative from the Justice Department, a good friend, Associate Attorney General of the United States, Mr. John R. Schmidt.

Mr. Schmidt, we are happy to have you with us today and we look forward to hearing your testimony.

STATEMENT OF JOHN R. SCHMIDT, ASSOCIATE ATTORNEY GENERAL, U.S. DEPARTMENT OF JUSTICE, WASHINGTON, DC

Mr. SCHMIDT. Thank you, Senator. I am happy to be here and have an opportunity to present the views of the Justice Department on this legislation.

We don't think the sun will fall from the sky, but we do think that this is a piece of legislation that presents some major risks to the ability of the Federal Government to function in ways that we have all become accustomed and used to it being able to function. We also think it presents some major risk to the taxpayers of having to pay substantially increased costs in compensation to property owners in circumstances where under current law that kind of compensation would not be required.

We obviously come to this with the premise of support for private property. It is a bedrock American principle; it is a bedrock constitutional principle; and, as your own comments have indicated, it is embodied in the Takings Clause of the fifth amendment, which the Chief Justice has said recently is as much a part of the Bill of Rights and the Constitution as the first and the fourth and other provisions.

There has been much litigation regarding the Takings Clause over the years. Much of that litigation over the last 70 years or so has involved the question of when regulation, which does not involve the actual taking of property, nevertheless goes so far that it requires the government to pay compensation and will be deemed to be a taking. In making that judgment, the courts have looked to a number of different factors. They have looked at the extent of the regulation: Does it deprive the property owner of all productive or economic use of the property, or does it just take away one or another particular uses of the property? They have looked at the property owner's reasonable expectations: Is it a form of regulation that one could have reasonably anticipated or is it, to use the Court's phrase, inconsistent with reasonable investment-backed expectations? They have looked at the nature of the public interest that the regulation is serving: Is it a narrow special interest for which a property owner is being asked to sacrifice or is it a general public interest which is serving the interests of that property owner along with the rest of the public?

It is clear that the trend of the law in this area has been in favor of increased protection for property owners, but no Supreme Court decision has ever come anywhere close to upholding or maintaining the doctrine which is embodied in the legislation before this committee. That legislation provides, that, regardless of any of those other factors, the Government will be required to pay compensation when it takes action that reduces the value of any portion of a property by a third or more.

That is a doctrine which will require compensation in a wide variety of areas where it would not be required under current law, and I think it is important to understand we are not talking just about the environmental laws. A lot of attention has been presented in that area, but we are talking about a whole range of government actions that have an impact on the value of property: agricultural restrictions; the ADA, which requires property owners to provide access for the disabled; a whole of business regulations, ERISA requirements, bank regulations, et cetera.

Those are all areas where over the years people have tried to recover under a takings theory. What this bill would say is that in any area where the government acts, it is required to pay compensation if the result is a reduction in the value of property, or any portion of property, of a third or more.

I think in doing that, and in flying in the face of the variety of factors that the courts have considered over the years, it really is running directly counter to two basic principles that the courts have looked to. One is a principle of fairness and community, the notion that, in general, we own property in this country subject to reasonable regulation in the public interest. And since we all share in the benefits of that regulation, we should not, in general, be able to exact a price from our neighbors for complying with that form of regulation

This principle is easy to see if we are talking about regulation to achieve some general common good, such as clean air or clean water. But the courts have talked about the fact that even more particular kinds of regulation result in what they have called an average reciprocity of benefits, where overall we benefit. Thus, in any particular case we are not entitled, absent the special circumstances that the courts have looked at, to recover just because there has been a reduction in the value of our property.

I think that in trying to enact into law this kind of across-theboard principle you are also flying in the face of another basic notion, which is a notion of necessity. Justice Holmes, in the decision which first enunciated the regulatory taking doctrine, referred to the fact that the Government literally could not function if it was required to pay compensation every time it took action that reduced the value of property.

There really are two alternatives available to us with respect to any significant form of regulation if this bill passes. One is that we will take a look at it and see that the price is so great that we just won't go forward. I think there is a tendency when people look at legislation of this kind to pick some area of regulation they don't like and say, "Well, that is a good thing; we will bring that to a halt.”

During the hearings before the House, there was a witness from the Cato Institute who said one of the reasons he supported this kind of legislation was it would bring enforcement of the ADA to a halt. Well, that may be a good thing from his perspective, but the problem with this kind of across-the-board legislation is it doesn't apply just to regulation that he doesn't happen to like or just to regulation that I don't happen to like or that somebody else doesn't happen to like. It applies across the board, and I think there is a real risk here that we will bring to a halt forms of regulation that the American people have come to rely on.

The other alternative available to us, is that we will look at the proposed legislation and we will say, "OK, we will go forward.” We may do that because the statute itself provides no discretion, or we may do it because the regulators and Congress and the American people expect action in that area. At that point, we will have to pay the price, and the price at that point is paid by the American taxpayers.

I don't know what that price will be. Frankly, nobody knows what that price will be. There is one estimate that is cited in my .. written testimony where several years ago the General Accounting Office looked at a similar statute, applied to a particular piece of environmental legislation, and found a price of $10 to $15 billion. But that is only one estimate; that is only one statute.

The one thing that is clear is we are talking about multiple billions of dollars, real money by anybody's standards, and it is our money. It is not as though there is some pot of gold somewhere

that we go to and we find the money to pay compensation to property owners. If compensation has to be paid, it comes from the taxpayers, which, when you look at who pays taxes in this country, means primarily middle-income, middle-class people who pay the bulk of the taxes in this country. So what we are talking about is requiring middle-income, middle-class taxpayers to pay the cost of increased compensation to property owners.

There is another consequence that will flow, and this one, I would say, is absolutely inevitable regardless of what else happens. This legislation will produce a huge volume of litigation. I asked our lawyers in the Justice Department who do work in this area how often it is the case that the difference between our initial estimate of the value of property and a property owner's is more than a third. The answer was virtually every case over 90 percent. And remember what we are talking about here is a principle that says everytime the Government takes action that results in a reduction in value of property or any affected portion of property of a third or more, the Government will be required to pay com sation.

It is clear to me what we are doing is creating a litigable issue that will be litigated in literally hundreds of thousands of additional cases. So at a time when we are all trying collectively to reduce litigation and reduce the kind of government bureaucracy that is necessary to handle litigation and, in general, reduce the complexity of government, it seems to me this is moving in just the opposite direction.

For all these reasons, we do believe that enactment of this bill would be a mistake. The Justice Department will join the Vice President in recommending to the President that he veto legislation of this kind with an automatic compensation entitlement, but I hope it will not come to that.

It is my understanding that the motivations of this legislation lie primarily in particular problems with particular regulatory statutes and, particular regulatory actions which people have regarded as problems. If that is true, the answer is to focus on those problems and figure out how to solve them. I don't think there is any substitute for that kind of individual judgment. I don't think you can take refuge or recourse to this kind of really radical, abstract principle, which I do think has a major risk inherent in it that it will make it difficult or impossible for the government to function in a wide variety of areas and, alternatively, has the major risk of imposing some major unpredictable, but clearly massive new costs on the American taxpayers.

So, for all those reasons, we are opposed to it, and I will stop at that point and would be glad to respond to any questions.

The CHAIRMAN. Thank you, Mr. Schmidt. We are glad to have your testimony and the testimony of the administration, but your testimony seems to indicate that, my gosh, if this bill passes, the government is just going to have to pay too much money to take people's property.

Much of your argument is based on the supposition that the concept of nuisance is all but nonexistent. But as commonly understood, the doctrine of nuisance is quite significant, and I think would nullify the parade of horribles that your statement and you here today claim that the bill will create. For example, dumping

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