cently filed a takings claim against the federal government. Even should this case be settled, the damage has been done. Mr. Cone cleared some of his land due to the ESA's punitive regulations, and his story serves as an example of the environmental harm that is often caused by regulatory takings.

Passage of S. 605 would remove many of the negative incentives faced by Mr. Cone and other landowners around the country.

It would be impossible to quantify the expected effect of S. 605 on the quantity and quality of endangered species habitat with any precision. However, one should note that the incentives against conservation produced by regulatory takings are significant. Consider the view of Dr. Larry McKinney, Director of Resource Protection for the Texas Parks and Wildlife Department, who recently wrote in a report published by Defenders of Wildlife that:

While I have no hard evidence to prove it, I am convinced that more habitat for the black-capped vireo, and especially the golden-cheeked warbler, has been lost in those areas of Texas since the listing of these birds than would have been lost without the ESA at all.

As a result of the Endangered Species Act, a law that is enforced on private land through regulatory takings, more habitat for these birds may have been destroyed than if the government had not acted to regulate private land use at all. Given the ESA's poor record in saving and recovering imperiled species (Fish and Wildlife Service claims of success notwithstanding) it is reasonable to conclude that regulatory takings are having a real negative impact on species conservation efforts.

Sound conservation practices will be better served in the long run through respect for private property rights and the use of positive government incentives than by the continued reliance upon punitive regulations.

Question 2. Mr. Adler, we both know that the takings impose costs and that the resources of our society are finite. It is critical, therefore, that we regulate efficiently, without regard to whether the costs of takings are borne by the general public or by a handful of unlucky landowners. But here again it seems that current law has the incentives all wrong. Take the Lucas case, for example. There, beachfront property purchased by David Lucas was rendered economically valueless when state regulators blocked him from building a home on it. After Lucas won his case in the Supreme Court, the State of South Carolina was forced to purchase his property. It promptly put the land up for sale. The State received a bid for $300,000 from a neighbor who wanted to leave the land undeveloped in order to preserve his view. But the State also received a bid for $375,000 from an individual who, like David Lucas, wanted to build a house on the land. Amazingly, to get the extra $75,000, the State chose to sell the land to the bidder who wanted to build a house on it. So while the State was willing to spend hundreds of thousands of dollars of David Lucas's money in order to get the benefits of the use restriction at issue in his case, those benefits were not worth even $75,000 to the State when it was forced to spend its own money in stead of someone else's. That indicates pretty clearly that, in the absence of a compensation requirement like that set forth in S. 605, governments will regulate land-uses in a manner that wastes the finite resources of our society. Mr. Adler, would you agree with this assertion? Has this sort of wasteful allocation of resources had adverse effects upon the environment?

Answer 2. There is no question that when government officials are not held accountable for the costs of their actions, they make poor decisions. As a result, finite resources are wasted, and agency priorities do not reflect common-sense. Forcing agencies to pay for the private property rights that they take through regulatory action will encourage them to examine non-regulatory approaches to achieving their statutory goals.

An example of this can be seen in the case of wetlands regulations, the primary means by which the federal government seeks to prevent the net loss of wetlands. As previously noted, the cost of protecting a single acre of wetlands can reach the hundreds of thousands of dollars due to the costly delays and legal conflicts that the regulatory process produces. However, other approaches to wetlands conservation, such as mitigation, restoration, and the purchase of conservation casements can preserve wetlands at a fraction of the cost. By focusing resources devoted to wetlands conservation on regulatory programs, the federal government is actually less able to achieve the environmental goals it has set out to achieve.

RESPONSES TO QUESTIONS FROM SENATOR ORRIN G. HATCH TO JONATHAN H. ADLER Question 1. As you know, the much criticized 1905 Supreme Court case of Lochner v. New York established a substantive due process standard for reviewing economic

legislation. Some critics of recent Supreme Court takings decisions, as well as of S. 605, claim that the cases and the bill are a throw back to the Lochner era. Please comment on this assertion.

Answer 1. There is really no relation between S. 605 and Lochner. Lochner deals with "substantive due process"-the doctrine that the Constitution's due process requirements can be violated not only by a lack of procedural due process, but also in some cases by the substance of what a contested law seeks to accomplish. In Lochner, regulation was invalidated on the grounds that it violated substantive due

process.

Substantive due process is regarded by many scholars today as a constitutional doctrine that has been correctly abandoned; a few scholars believe it has merit. But regardless of where one stands on this issue, the question of compensation for takings is really a separate one. The compensation question involves not invalidating laws, but compensating property owners for the damage those laws have caused. In short, S. 605, and the Supreme Court precedents which it codifies, have nothing to do with substantive due process.

*

Moreover, the recent line of Supreme Court cases on property rights and takings are interpreting the explicit Constitutional guarantees contained in the Fifth Amendment's admonition "* * nor shall private property be taken for public use without just compensation." Applying this limitation on government power to regulatory actions no more amounts to substantive due process than recognizing that the First Amendment places clear restrictions on the government's ability to regulate speech.

Whether one supports the Lochner decision or not (and most legal scholars today do not), the clear language contained in the Bill of Rights to the Constitution make explicit that there are limitations on government power over private citizens.

Question 2. At the hearing, it was argued that there exists a "police power" exception to the fifth amendment's compensation requirement. My understanding is that the Supreme Court in its recent Lucas case specifically rejected this contention. Would you please comment?

Answer 2. The Lucas Court held that a "police power" exception to the compensation requirement would allow for legislatures too much latitude in avoiding compensation for the taking of private property. This view is drawn from Justice Holmes opinion in Pennsylvania Coal Co. v. Mahon. As stated in Lucas:

it becomes self-evident that noxious-use logic cannot serve as a touchstone to distinguish regulatory ‘takings'—which require compensation— from regulatory deprivations that do not require compensation. A fortiori the legislature's recitation of a noxious-use justification cannot be the basis for departing from our categorical rule that total regulatory takings must be compensated. If it were, departure would virtually always be allowed. The South Carolina Supreme Court's approach would essentially nullify Mahon's affirmation of limits to the noncompensable exercise of the police power. *** Where the State seeks to sustain regulation that deprives land of all economically beneficial use, we think it may resist compensation only if the logically antecedent inquiry into the nature of the owner's estate shows that the proscribed use interests were not part of his title to begin with.

The Court's explicit intent was to prevent legislatures from simply asserting that they are preventing noxious uses under the "police power" and are therefore exempt from any compensation requirement. S. 605 respects this principle.

Question 3. You stated that except for the 33 percent"partial" takings provisions, title II of the bill merely codifies existing case law. Please amplify your testimony and also point out what sections codify what cases.

Answer 3. That regulation can amount to a compensable taking under the Fifth Amendment has long been recognized. In 1922 the Court held in Pennsylvania Coal Co. v. Mahon that "if regulation goes to far it will be recognized as a taking." Title II of S. 605 should be seen largely as an effort to make explicit Congress' opinion as to what amounts to going "too far" and to codify existing Supreme Court precedents on this subject.

This intent is clearly observable in Section 204 of Title II, as this language, with the exception of the establishment of a 33 percent threshold, closely parallels that of Supreme Court jurisprudence as to what sorts of government actions entitle property owners to compensation from the government.

For instance, Section 204(a)(1) provides that landowners are due compensation when private property has been "physically invaded." In the case of Loretto v. Teleprompter Manhattan CATV Corp. [458 U.S. 419 (1982)], the Supreme Court held

that physical occupations of private property are per se takings that are compensable under the Fifth Amendment.

Section 204(a)(2)(A) provides for compensation when a government action that takes private property and "does not substantially advance the stated governmental interest to be achieved by the legislation or regulation on which the action is based." This standard is to be found in the case of Nollan v. California Coastal Commission [483 U.S. 825 (1987)].

The "rough proportionality" test in Section 204(a)(2)(B) mirrors the Court's ruling in Dolan v. City of Tigard [114 S. Ct. 2309 (1994)] that "a term such as 'rough proportionality' best encapsulates what we hold to be the requirement of the Fifth Amendment."

Section 204(a)(2)(C) draws from two cases. Providing for compensation when a government action deprives the landowner of "all or substantially all economically beneficial or productive use of the property” is essentially the standard adopted in Lucas v. South Carolina Coastal Council [112 S. Ct. 2886 (1992)]. The inclusion of government actions that do so only "temporarily" is based upon the Court's ruling in First English Evangelical Lutheran Church v. Los Angeles County [482 U.S. 304 (1987)].

S. 605 provides that compensation should be paid when a government action fails to meet the tests laid out in the aforementioned Supreme Court precedents or results in a devaluation of greater than 33 percent and does not fall under the nuisance exception laid out in Section 204(d)(1). As I pointed out in my written statement before the Committee, this nuisance exception language in Section 204(d)(1) clearly mirrors that of the Lucas court's determination that "no compensation is owed-in this setting as with all takings claims-if the State's affirmative decree simply makes explicit what already inheres in the title itself, in the restrictions that background principles of the State's law of property and nuisance already place upon land ownership.'

In the Lucas decision the Court recognized that “Regrettably the rhetorical force of our 'deprivation of all economically feasible use' rule is greater than its precision, since the rule does not make clear the 'property interest' against which the loss of value is to be measured." The court explicitly acknowledged that less-than total devaluations can be considered compensable takings. Viewed in this light, S. 605's 33 percent devaluation standard is less than revolutionary. It is merely Congress providing guidance to the Court as to when government regulation goes "too far” in impacting private property.

For the record, CEI would prefer to see a de minimis standard. Such a standard would apply the Loretto rule for physical occupations to regulatory takings. However, a 33 percent threshold is an improvement over the status quo, both because it provides a "bright line" test and because it will allow more landowners who should receive compensation to actually get it.

RESPONSES TO QUESTIONS FROM SENATOR RUSSELL D. FEINGOLD TO JONATHAN H. ADLER

Question 1. You testified, in response to a question from the Ranking Minority Member, Sen. Biden, that in the case of a change to government water delivery under a bureau of Reclamation contract, the government should be concerned about breaching that contract and a cause of action exists under contract law. I am interested then in your perspective on the purpose of two definitions of property contained in Title II, section 5: "the right to use and receive water" (Section 5B) and section 5E, which includes contracts.

If contract law is sufficient to protect water quantity and quality under agreements with the federal government, what is the purpose of including these definitions in S. 605? and what types of "takings” would the inclusions of such definitions protect against?

Do you believe that a federal government subsidy deserves private property protections? Will the federal government have the ability to reduce subsidies that raise property values without creating a cause of action under S. 605?

Answer 1. I am not an expert on the intricacies of water law. However, it is my understanding that under certain jurisdictions access to water has been recognized as a property right by both state and federal governments. The aim of including water rights in S. 605 should be to recognize and protect these property rights, but it should not be to protect any existing federal water subsidies. Section 203(5)(B) would protect these water rights. Thus, insofar as a rancher owns a water right on public lands (distinct from whether that rancher purchases grazing permits) this section would prevent the government from taking this right without paying com

pensation. Section 203(5)(E) would ensure that the federal government recognize property rights, whether to water or something else, that are respected under state

laws.

As to the larger point, federally-provided subsidies do not merit protections as private property rights. Moreover, CEI has long argued that federal subsidy programs, such as those for agriculture and natural resource use, should be discontinued. I do not believe that S. 605 will prevent the federal government from reducing farm payments or otherwise reducing or eliminating federal subsidies. If this were not the case, I would recommend that S. 605 be clarified so as to ensure that federal subsidies are not considered property rights that are protected from uncompensated regulatory takings.

Question 2. S. 605 as currently drafted does not make clear the intended relationship between Titles II and V. Title II contains broad definitions of property. Title V seems to confer a very distinct cause of action on certain property owners, namely those who are burdened by endangered species and certain wetlands restrictions.

Do you believe that all property owners, not solely those as defined in Title V, should have the ability to seek compensation for regulatory takings?

Answer 2. As I see it, the primary distinctions between Title II and Title V are as follows: Title II establishes a legal right to compensation that can be pursued in court or through the alternative dispute resolution process outlined in Title III. Title II seeks to codify existing Supreme Court precedents, amend the Tucker Act so as to remove existing barriers to the pursuit of redress, and clarify ambiguities in existing Supreme Court jurisprudence so as to provide a "bright line" test for regulatory takings.

Title V, on the other hand, simply sets up an administrative process through which landowners can seek compensation for regulatory takings that result from regulations promulgated under the Endangered Species Act and the Clean Water Act, as well as to provide additional administrative safeguards to prevent regulatory takings from occurring in the future under these laws.

All property owners should have the right to seek compensation for regulatory takings. The existence of Title V does not compromise this goal. Rather, it provides an additional course of action for victims of regulatory takings under particular laws, so that these landowners may receive compensation without having to file a lawsuit against the federal government.

Question 3. In O'Neill v. United States, the Ninth Circuit Court of Appeals held that the Bureau of Reclamation may make water delivery reductions of up to 50 percent to the Wetlands Water District in California's Central Valley to preserve marine life consistent with the Endangered Species Act. The judges held that the contract "unambiguously absolves the government from liability for its failure to deliver the full contractual amount of water where there is a shortfall caused by statutory mandate." (95 Daily Journal D.A.K. 328).

Do you anticipate that should S. 605 become law, it would create a cause of action that such reductions would constitute a "taking?"

Answer 3. I do not anticipate that passage of S. 605 would make such reductions compensable "takings." I believe that courts would look at the provisions of the contracts in question, and so long as the federal government has observed the terms of the contractual arrangement into which it has entered.

RESPONSE TO QUESTION FROM SENATOR RUSSELL D. FEINGOLD TO RICHARD G.

WILKINS

Question 1. In O'Neill v. United States, the Ninth Circuit Court of Appeals held that the Bureau of Reclamation may make water delivery reductions of up to 50 percent to the Westlands Water_District in California's Central Valley to preserve marine life consistent with the Endangered Species Act. The judges held that the contract "unambiguously absolves the government from liability for its failure to deliver the full contractual amount of water where there is a shortfall caused by statutory mandate." 95 Daily Journal D.A.K. 328.

Do you anticipate that should S. 605 become law, it would create a cause of action that such reductions would constitute a "taking?"

Answer 1. No. The "property" interests conveyed by a contract are always subject to the express terms of the contract itself. If, as the Ninth Circuit concluded, the contract at issue here "unambiguously absolves the government from liability for its failure to deliver the full contractual amount of water where there is a shortfall caused by statutory mandate," no "property" interest of the water purchaser has been invaded. In short, where a contract expressly reserves the regulatory power of

the federal government to reduce the amount of water provided under the contract, the water purchaser has no "property” right to demand an undiminished supply.

Such a result is hardly unusual. In context of bankruptcy, for example, the Supreme Court has held that, while "[p]roperty interests are created and defined by state law," Congress may if "some federal interest requires a different result,” analyze differently the property interests of parties in bankruptcy from those of other parties. Butner v. United States, 440 U.S. 48, 54-55 (1979). Indeed "property' and interests in property' are creatures of state law" only in the absence of "any controlling federal law." Barnhill v. Johnson, 503 U.S. 393, 398 (1992), citing McKenzie v. Irving Trust Co., 323 U.S. 365, 370 (1945) (“In the absence of any controlling federal statute, a creditor or bona fide purchaser could acquire rights in the property transferred by the debtor, only by virtue of a state law"). Accordingly, and indeed a fortiori, a water purchaser cannot-by contract-obtain "property" rights greater than the express terms of the contract. Nothing in S. 605 changes this result.

RESPONSE TO QUESTION FROM SENATOR JOSEPH R. BIDEN, JR. TO RICHARD G.

WILKINS

Question 1. Does Senate bill No. 605 create property rights that would not exist without the legislation?

Answer 1. No. The legislation merely defines the types of property rights that qualify for protection by reference to existing State and federal laws. The only arguable impact the bill has on the "creation" of property rights is the legislation's express reservation of the United States' authority to limit property rights created by Federal contract.

I. Property rights in general derive from, and are defined by, state law. In Board of Regents v. Roth, the Supreme Court established that "[p]roperty interest * * * are created and their dimensions are defined by existing rules or understandings that stem from [a source independent from the Constitution] such as state lawrules or understandings that secure certain benefits and that support claims of entitlement to those benefits." 408 U.S. 564, 577 (1982). This analysis is well established. E.g., Lucas v. South Carolina Coastal, 112 S. Ct. 2886, 2901 (1992) (noting the Court's "traditional resort" to the rule announced in Roth); Delaware v. New York, 113 S. Ct. 1550, 1557 (1993) (same). In fact, the Court has emphasized that "[t]he hallmark of property *** is an individual entitlement grounded in state law, which cannot be removed except 'for cause." Logan v. Zimmerman Brush Co., 455 U.S. 422, 430 (1982), citing Memphis Light, Gas & Water Div. v. Craft, 436 U.S. 1, 11-12 (1978); Goss v. Lopez, 419 U.S. 564, 573-574 (1975); Roth, 408 U.S. at 57€-578. See also Budinich v. Becton Dickinson & Co., 486 U.S. 196, 199 (1988) (stating that the definition of property "naturally suggests a reference to state-law concepts."); Bishop v. Wood, 426 U.S. 341, 344 (1976) ("A property interest in employment can, of course, be created by ordinance, or by an implied contract. In either case, however, the sufficiency of claims of entitlement must be decided by reference to state law. (footnote omitted)).

II. Nothing in Senate bill No. 605 alters the foregoing understanding that property rights are generally created by state law. Indeed, Section 203(5) of the legislation which defines the terms "private property" or "property," merely refers to a list of property interests created by state law and codifies the settled principle that the government can restrict the creation and enforcement of contractually defined property interests in appropriate circumstances. Section 203(5) of Senate bill No. 605 defines the term "private property" or "property" as used in the legislation. The section defines those terms as including:

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, life estates, estates for years, or otherwise

(ii) inchoate interests in real property such as remainders and future interests;

(iii) personalty that is affixed to or appurtenant to real property;

(iv) easements;

(v) leaseholds;

(vi) recorded liens; and

(vii) contracts or other security interests in, or related to, real property; (B) the right to use water or the right to receive water, including any recorded lines on such water right;

(C) rents, issues, and profits of land, including minerals, timber, fodder, crops, oil and gas, coal, or geothermal energy;