and the mayor change the zoning. This law is in place. We changed it from unlimited height to where only four blocks in the city-this is actual-can have a 600-foot height. I own property and suddenly the law is changed, and I could have gone to unlimited height and now I can only go to 600 feet. Do I have recourse under this law? Mr. SCHMIDT. If this statute applied to the city of San Francisco-I don't want to be confusing it. This is a Federal statute, so by its current terms it wouldn't. But if it applied, that would mean everybody who held property in that area would be entitled to compensation, assuming they could show that the value of their land was reduced by a third or more, which presumably would clearly be the case in that kind of situation. Senator FEINSTEIN. So that is the impact? Mr. SCHMIDT. That is exactly the impact. Senator FEINSTEIN. That is the strength of this law in terms of municipal governmental powers? Mr. SCHMIDT. If this law applied to municipal governments, but again I don't want to be confusing it. This is a law that applies to everything the Federal Government does directly or indirectly. It wouldn't apply directly to the city of San Francisco. Senator FEINSTEIN. Right; I understand. The CHAIRMAN. Even there, there are a lot of variables. There are a lot of factors that could change that, and there might be a reason why that should constitute a taking. In other words, government just can't be arbitrary and do whatever it wants to to people's property. Mr. SCHMIDT. Well, if we generally started saying that any changes in zoning laws that had an impact of more than a third on the value of property would be compensable, we frankly, I think, would bring to a halt the The CHAIRMAN. But that is not what this bill says, as you have pointed out. It only applies to the Federal Government. Mr. SCHMIDT. Well, we were talking, I think, assuming it applied to the city, but the same impact applies to everything the Federal Government does. Senator BIDEN. Let's talk about that. I thought this bill established a Federal right of action in Federal court, but it didn't require a Federal action. Mr. SCHMIDT. No; it applies to action by the Federal Government or anything which is funded by the Federal Government. The CHAIRMAN. That is right. Mr. SCHMIDT. But it doesn't, by its terms, apply to Senator BIDEN. This is important because it is a big deal. It says on page 8, "private property' or 'property' means all property protected under the fifth amendment to the Constitution of the United States, any applicable Federal or State law, or this Act, and includes (A) real property, whether vested or unvested, including (i) estates in fee * * *" and then it goes down and says, “(B) the right to use water or the right to receive water, including any recorded lines of such water right; (C) rents, issues, and profits of land, including minerals, timber, fodder, crops *** (D) property rights provided by, or memorialized in, a contract, except that such rights" Mr. SCHMIDT. But I think, Senator, if you go back, then, to section 204, which is the section which establishes the Senator BIDEN. What page is that? Can you help me out? Senator BIDEN. OK. Mr. SCHMIDT. It says, "No agency or State agency, shall take private property ***" Then if you work it through, the definition of State agency is States and localities, but only, back in the definition on page 9, when they are carrying out or enforcing a Federal law or receiving Federal funds in connection with it. Senator BIDEN. I see. Mr. SCHMIDT. So it isn't applicable by its terms. Senator BIDEN. I see. Well, that is interesting. So this doesn't apply at all, then, to any action taken by a State or local government that isn't required to take that action because of a Federal law? Mr. SCHMIDT. Yes, or funded by the Federal Government. The reason a lot of the cities, however, are very concerned about it is they look at it and they say, look, if the Federal Government starts saying that it is going to be obligated to compensate anybody anytime it takes governmental action which has an impact of reducing property values by a third or more, the same doctrine is going to very quickly, apply to us in the city of San Francisco or the State of Delaware or anywhere else. So to that extent, I think you have concerns at the city and State levels that go beyond the immediate impact of the statute. But the statute, by its terms, applies to the Federal Government and anything done at the State or local level which is funded by the Federal Government or directed by the Federal Government. Senator BIDEN. So if the Federal Government, for example, funds sewers, which we do, and in my State, which is a case that could have happened-it didn't-in my State, the farmers in the lower part of New Castle County back when I was a county council person came to me and said, look, Joe, the Getty oil refinery wants to build a new refinery in the middle of our farmland here; they have purchased "x" number of pieces of property and they are going to build a new refinery. I believe Dow Chemical was going to build a facility on the Chesapeake and Delaware Canal, all overwhelmingly a farm area. The farmers came and said, we don't think you should rezone the property to allow them to do that. It is presently zoned agricultural. Now, both of those facilities would have to have access to sewer and water, both of which would be funded by the Federal Government, in part, at least, although the zoning law is not a Federal law. Are you saying to me, as the Justice Department reads this statute, that if that locality, in order to protect farmers, says Getty Oil cannot build their refinery—and there is a refinery there. I don't want to confuse everybody, but this was a new refinery they were talking about. If the new refinery is blocked from being built because the county council will not give the zoning to allow it to be built, does this statute come into play in any way? Mr. SCHMIDT. Well, I think conceivably it could, but the definition of State agency for this purpose picks up an agency which re ceives Federal funds in connection with a regulatory program established by the State, and then it picks up action which is taken in connection with that regulatory program. So there would have to be a nexus between the Federal funds and the action that was taken which became the subject of the statute. Senator BIDEN. So the action taken would be if the county council said we are not going to do this because it is going to increase the cost to the force main interceptor for the County Sewage System so much that we don't want to do that, and so we are not going to give the zoning to allow high industrial use for that piece of property because it is going to put too much of a strain on the Sewage System in the county? Mr. SCHMIDT. Well, I think the part of it that we would have to look at would be whether the initial Federal funds that were involved in that program were, first of all, Federal funding in connection with a regulatory program. It sounds like they would be. Then the further test is that the receipt of Federal funds must be directly related to the taking of private property. So the answer is there would be a test there of whether there was a sufficiently close relationship between the receipt of the Federal funds, which itself would be a litigable issue, I suppose, in a lot of cases. Senator BIDEN. Well, let me ask you another question, then, because that clears up a lot for me. That makes this much less onerous than I thought it was if that is a correct reading. Let me ask you another question. Let's assume that we change the law to say, for whatever reason-it is a bad policy and we come along and say you can no longer cut any timber in the Tongas; you just can't go into a national forest and contract with anybody for them to take timber out of that. Let's say the House and Senate decide that and whoever is President signs that into law. Does that create any cause of action for anybody under this bill? Mr. SCHMIDT. If the Federal Government were to take that position, it would presumably be running counter to a range of current contractual rights, a wide range, and I would think it would have to pay massive compensation to everybody who currently has a right to go in and cut timber in the national forests. That is action by the Federal Government. When you said it is not as onerous as you thought, I guess it only applies to everything the Federal Government ever does, but it is a pretty broad Senator BIDEN. The overall point I wish to make is I think it is very onerous as it relates to Federal environmental laws and Federal laws designed to protect the public health and safety because it is going to get you into everything, from the FDA to God only knows what else. That is the next point I want to get to. Let's assume that a certain drug company has a product which they believe that if, in fact, they were able to put the product on the market, their investment in it and their projected earnings from putting that product on the market would exceed a third of the value of that company, and the FDA comes along and says, no, no, we think you don't meet the requirements here; it is too safe or too unstable to put on the market; we don't approve it. Does this create a cause of action? Notwithstanding what we are doing in regulatory reform, does this create a cause of action for that drug company to come along and say, OK, you are telling us it affects the public health and safety-I don't know how they prove a tort or nuisance action at that point because they haven't put it on the market. How do you deal with that? Mr. SCHMIDT. This bill does not have any exception for the FDA or for any other particular agency. This bill says whenever the Federal Government takes a regulatory action that has an impact that reduces the value of somebody's property or any portion of their property by a third or more, they have a claim to compensation. So I think in that case they have a claim. Senator BIDEN. If, for example, the Federal Government decided, before we had polio vaccine, and said to Dr. Jonas Salk-they would have been wrong, but if they said, no, you can't put that vaccine on the market, and it hadn't been put on the market, so no one was negatively impacted, so there is no nuisance action, nor is there any ability to establish a tort action because no one has been injured, would a Federal court be required to say under an honest reading of this statute you have to compensate the Jonas Salk polio vaccine company for the investment that they have put into this so far-it is the only thing they do and theoretically the lost profits that would flow from putting this on the market? Mr. SCHMIDT. I think you would. The CHAIRMAN. You are arguing that a drug company that has a drug before FDA that is in a premarket approval mode—if they reject that drug, they have a Takings Clause case? You have got to be kidding. Mr. SCHMIDT. If there is a regulatory action The CHAIRMAN. You have got to be kidding. Senator BIDEN. The regulatory action could be the FDA says you can't put it on the market. Mr. SCHMIDT. Which results in a reduction in the value of their property by a third or more. This bill applies. The CHAIRMAN. In an already approved drug, right? Mr. SCHMIDT. I am sorry? The CHAIRMAN. It would have to be an already approved drug, though. Senator BIDEN. Why? The CHAIRMAN. You are saying this bill would take the FDA's right away from them to approve drugs? Give me a break. Mr. SCHMIDT. I don't think the denial of an approval, per se, is going to give rise to a cause of action. The CHAIRMAN. Well, I will tell you it won't. Mr. SCHMIDT. But if they take an action which has an impact in reducing the value of somebody's property by a third or more, this bill says you are entitled to compensation. There is nothing here that says that doesn't apply to FDA actions. The CHAIRMAN. Well, I guess you can conjure up any extreme hypothetical, but that is certainly one that is going to be upheld by anybody, and you know it and I know it. Mr. SCHMIDT. Well, you know, there have been takings cases where people tried to recover, for example, against States which imposed restrictions on the sale of certain types of alcoholic beverages. The CHAIRMAN. I understand people bring innovative cases. I mean, that is what lawyers sometimes are all about, but that doesn't mean they win all those cases, and they are not going to win, under this bill, those kinds of cases. I mean, that is ridiculous. Mr. SCHMIDT. Well, they would if you don't have an exception for actions that are taken The CHAIRMAN. Well, sure they would. The courts would establish the exception if you didn't have anything else, but I don't think anybody would even argue those things. Senator BIDEN. Would the Senator be willing to write that explicitly into the legislation? The CHAIRMAN. I would be happy to work on language. I mean, if there is something that we can do to make this more refined and better, I have already offered to do that. So we will work with you on it, but I could ask a million extreme things about any bill. Mr. SCHMIDT. But the problem, I guess, Senator, is the language here is stated in the most stark and-I don't want to use scare words-but extreme terms. It says, regardless of anything else, if the Federal Government takes a regulatory action that reduces the value of somebody's property by a third or more, they are entitled to compensation. That is what the words say. Now, you can say, well, a court wouldn't reach those The CHAIRMAN. There is a rule of reason in law, and you know it and I know it, that isn't going to go beyond Senator BIDEN. But we have got to count on reasonable judges, and you and I both know, Senator The CHAIRMAN. Everytime we pass legislation, we have got to count on them, and in this case it is no exception. We are not going to be able to write a 3-million-page bill. I mean, let's be honest about it. I could give you all kinds of extreme examples in anything we do, but the point is what is the practical effect of the bill. Senator BIDEN. The practical effect of the bill, as I read it, and that is why I asked the question, is that if someone had a product for approval before the FDA and that product's failure to go on to the market would affect the value of that company by more than a third, they could bring a cause of action saying they have been deprived. The CHAIRMAN. And that cause of action would be thrown out of court so fast your head would be spinning. Senator BIDEN. On what grounds would it be thrown out? The CHAIRMAN. On the grounds that the FDA has the legislative authority to approve marketable drugs. Senator BIDEN. How is that different than the EPA, or how is that different from Mr. SCHMIDT. If you are saying there would be a general exception for any action taken The CHAIRMAN. If they could show that the FDA was arbitrary and capricious and didn't abide by its own rules and regulations in rejecting the drug, sure. Why shouldn't they have a right of cause of action? You are darned right they should. That is what it comes down to. We could get into this forever. Mr. SCHMIDT. If you are suggesting that this bill won't apply to any action taken by a regulatory authority that is done within |