The Supreme Court has developed a body of law around the question of constitutional takings. Very oversimplified, the Court has held that no taking occurs where a regulation promotes health, safety, morals, and government welfare. Or, put another way, a regulation is permissible if it substantially advances a legitimate government interest. At the sametime, the Court instructs that there may be a case in which a property owner suffers so much loss of economic value that justice and fairness require compensation. Over the years, the Court has declined to articulate a bright line rule, and instead it has focused carefully on a case-by-case basis on specific facts before it has determined how to apply the standard I have just mentioned.

This bill, it seems to me, turns taking jurisprudence upside down. First, it declares that property owners need no longer be content with compensation. It authorizes a court to invalidate an act of Congress or of an executive department that, "adversely affects private property rights in violation of the fifth amendment."

This is a remedy not contemplated by the fifth amendment itself nor anywhere else that I am aware of in the Constitution. It is a considerable grant of authority to the courts. Indeed, it is nothing short, in my view, of the surrender of the Government's sovereignty right over eminent domain and an abdication of its responsibility to protect public welfare to the courts to make a determination whether that is the case.

Second, the bill would ignore the Supreme Court's definition of a taking and redefine what is a compensable taking. In doing so, the bill takes language used by the Supreme Court in very narrow, fact-specific contexts and converts them into sweeping new standards that would govern all claims on takings.

For example, in the Nollan case, which most would argue was decided correctly, the Supreme Court spoke of whether the regulation at issue would substantially advance the legitimate state interest, a very high standard of review that the Court determined was reasonable, "under the specific facts of Nollan."

Where the condition at issue was to allow the public the right to pass over part of an owner's property, because the right to exclude is an essential attribute of property ownership the Court chose to use this high standard of review. The Court has not said, though, that the high standard would be appropriate in all cases.

Similarly, the bill defines a compensable taking to include any agency action that, one, deprives the owner, even temporarily, of economic, beneficial, or productive use of a property, or that part of a property affected by the action, or diminishes the fair market value of the affected portion by 33 percent or more.

The courts now look to the effect of the regulation on the parcel as a whole in assessing the owner's economic injury and judging the burden of regulation by looking at the owner's entire property to be fair and reasonable. Now, when they look at that right now, one of the things that I think underlies this legislation is the following. If the U.S. Congress, for example, were to pass a law saying that we know that CFC's deplete the ozone layer-and there is very little argumentation on the part of any scientist that I am aware of today that says CFC's being emitted into the air, in fact,

reduces the ozone layer, and that is a bad thing for the population of the world at large and Americans, in particular.

Now, let's assume I have a refrigeration company, the Biden Refrigeration Company, and a third of the value of my property is that portion which provides refrigeration and uses a method whereby CFC's are emitted into the air. By the passage of this legislation, a regulator comes along and says to the Biden Refrigeration Company, you can no longer engage in the method of production that you use because the products you are using to provide for the refrigeration cause the emission of CFC's into the atmosphere and that ain't good, so we are going to require you to find another method or shut down, and it affects a third of the value of my company.

Now, as I understand it, under the present law what the court will look at in determining whether or not this is a legitimate government action is basically whether or not there was a reasonable basis upon which the Congress made that judgment, whether or not they were able to prove by a tort standard or a nuisance standard, were able to prove that it is reasonable that those legislators concluded that it will help the environment if we stop emitting CFC's.

But as I read this bill and listen to my friend from Utah, there would be a different standard that the court would have to apply. The court would have to say, now, let's see, does this rise to the standing of a tort action, the same burden of proof you would have to use in a tort action.

Won't the Government in this circumstance have to prove, if this bill passes, that the Biden Refrigeration Company that is emitting CFC's into the air-that to shut me down, the Government can do it, but they have to compensate me for doing that, or they have to prove that what I am doing amounts to a common law tort?

Mr. SCHMIDT. I think that is correct, Senator. Unless they could fall within that exception for activity that violates a State law nuisance doctrine, the Federal Government would have to pay compensation to you if there is a reduction in the value of your property of a third or more.

Senator BIDEN. Now, I want to make sure that I don't misstate this and that I understand it. To establish a common law tort standard, what would the Government have to prove to justify the regulation of saying no CFC's emitted into the air, assuming the Government passed such a law?

Mr. SCHMIDT. Probably some immediate noxious impact upon the neighboring property of one sort or another. I mean, it is that kind of a standard.

Senator BIDEN. Wouldn't it have to prove that there was injury to specific individuals?

Mr. SCHMIDT. Right.

Senator BIDEN. I mean, when the ozone layer is depleted, that causes cancer in people, and they can name so-and-so and so-andso and so-and-so have gotten cancer from that action that I have taken by emitting CFC's into the air.

Mr. SCHMIDT. Yes, right.

Senator BIDEN. It is almost an impossible standard, it seems to me, for many of the environmental laws that we already have. For

get wetlands for a minute. There are a lot of companies, for example, that produce CFC's, so basically what we say if we had such a statute I am deliberating picking a statute we don't have so I don't get into a lot of extraneous debate about a particular statute, whether it is good or bad.

What would happen, as I understand it, is that the Congress, in this case, who passed the law would have to set aside and decide that if the public wanted to be protected from the depletion of the ozone layer, we would have to compensate all those people who now emit CFC's in the air. I am not saying they are bad folks. I mean, this was a process, we are only learning, causes serious damage to the environment and, in turn, to us.

They would have to go out there and set aside a fund to compensate everybody whose property was impacted upon by a third or more who produced CFC's. If that is true, we are talking about a multibillion-dollar cost, a multibillion-dollar cost.

Mr. SCHMIDT. I agree with that. As I said, in the one estimate that anyone has come up with related to one particular statute, the GAO came up with $10 billion, but that is only one statute in one particular area.

Senator BIDEN. Well, that is what I am trying to pick. Now, let me ask you, if I understand as well, as you read this statute, would the cost to the Biden Refrigeration Company that was compensable be the amount of money that that division represented for me at the moment or future profits that I would make and could_articulate and lay out in the outgoing years? How would you make that judgment?

Mr. SCHMIDT. Well, you would look at the value of your property, which presumably, I guess, would reflect the discounted value of that future stream of income. So if you reduce your ability to produce profitably at a certain level, you are going to reduce the value of the property and that is what the lawyers would argue about. But, clearly, it would be a very large amount in the case you describe if that was central to the business.

Senator BIDEN. Well, let me give you another example. Right now, we pass laws, and maybe we shouldn't, but we pass lawsfor example, the Clean Water Act-that say if an effluent that comes out of a pipe out of my factory or my home or anywhere has more than several parts per billion of a carcinogenic substance in it, then I can't emit that. Don't hold me to the precise number, but they are parts per billion we measure them in.

We, the Congress, and the Congresses of 20 years ago, said we want our water clean enough that you cannot emit into the environment, into a stream, into a river, or into the water aquifer, a substance that, in fact, contains more than "x" parts per billion of a carcinogenic substance.

Now, I don't think most people understand when we talk about taking; they think when we say takings we mean someone is going to go in, like the highway department, and they are going to put a four-lane highway through the middle of your house or the middle of your property and they are taking your property. Or there is a wetlands regulation and they say you can't grow corn on this piece of property because flora and fauna from 300 years ago would

have grown that would make it a wetland. Therefore, you can't use it, so you are deprived of the value of your property.

But there are other kinds of takings when we require through a regulation an industry or an individual to take money out of their pocket to engage in technology, to put something on the end of that pipe that takes the carcinogenic substance out of that water or out of that liquid before it goes into the environment. That costs money, so that is a taking, right?

Mr. SCHMIDT. Yes; I mean, the question is whether it is a taking in the constitutional sense, but it could be.

Senator BIDEN. That is what this bill is talking about.

Mr. SCHMIDT. Right.

Senator BIDEN. We are not just talking about whether or not there is a taking or a regulation as it relates to the use of a physical piece of property.

Mr. SCHMIDT. No; we are talking about regulatory actions.

Senator BIDEN. A taking or a regulation is also arguable in terms of costs required of individuals and companies to take actions to clean the environment to the point that the executive branch of the Government or the legislative branch of the Government says they must do it, correct?

Mr. SCHMIDT. Yes.

Senator BIDEN. Now, what happens if there is a-right now, as I understand it, the courts have basically looked and said, look, we are not going to second-guess whether 2 parts per billion or 20 parts per billion is required to do damage to environment and individuals. They have basically given pretty wide latitude to legislators, allegedly reflecting the view of the public at large, as to what they believe constitutes clean water, right?

Mr. SCHMIDT. Right.

Senator BIDEN. Now, as I understand this bill, it is consistent with Professor Epstein. He did not write the bill. I am not saying that, but the school of thought that believes we should change the jurisprudence, either legislatively or through the courts, as it relates to what constitutes a taking versus a regulation.

The court would be required to apply a different standard, would it not? It is not merely whether or not it was reasonable for the Congress to pass such a law and whether or not that really does or doesn't protect the public health, but they would have to apply a standard that would amount to a nuisance standard, at a minimum, or a tort standard, wouldn't they?

Mr. SCHMIDT. Well, yes. What the bill imposes is a one-third requirement. Professor Epstein probably wouldn't accept a third; he would probably go down to

Senator BIDEN. I am going to get to that.

Mr. SCHMIDT. But, basically, what the bill says is if the regulatory impact reduces the value of the property by a third or more, then regardless of those other factors, there is a taking which requires compensation.

Senator BIDEN. So if the company comes in that is taking this effluent from a process by which they make widgets and says the cost of adding on the containment vessels we need to meet the standards of the Clean Water Act equals a third of the value of our property, now what standard has to be applied under the bill by

the court to determine whether or not this is a legitimate regulation or a taking, as you read it?

Mr. SCHMIDT. Well, again, I think the question would be whether the impact of that regulation is to reduce the value of the property by a third or more.

Senator BIDEN. Right.

Mr. SCHMIDT. That might not be exactly the same as the cost of doing whatever it is the Government requires. I guess it would be a test of

Senator BIDEN. I mean, I can think of circumstances where, if you were required to take the action the Government is asking for, you, in fact, are going to reduce the market value of your property by a third. So help me out here, professor. Let's stipulate that that is what it will do, OK?

Mr. SCHMIDT. Right.

Senator BIDEN. Now, once it has done that, if that is the case, what happens?

Mr. SCHMIDT. That property owner is entitled to recover compensation from the Government.

Senator BIDEN. Period?

Mr. SCHMIDT. Yes, period. I mean, this is an across-the-board test. It has the advantage of simplicity.

Senator BIDEN. My time is expired. I will come back for a second round, if I may. Thank you very much.

The CHAIRMAN. Well, let me just move to Senator Grassley, but before we do, let me just say that I think the nuisance exception will cover CFC emissions into the air. That would be a nuisance. Now, true, the Government must demonstrate some harm before the exception will be given effect, but that is what this bill is about; that is what the fifth amendment is about.

This bill in no way would go as far as Professor Epstein would go. I mean, we are not attempting to do that. We are trying to follow, really, the Lucas, Nollan, and Dolan cases.

Senator BIDEN. Senator, may I ask you a question? Does it require to demonstrate harm to an individual? Most nuisance standards require you to demonstrate harm to an individual.

Mr. SCHMIDT. Nuisance is a tort law. Somebody has to show that they are directly harmed.

Senator BIDEN. Right.

Mr. SCHMIDT. I mean, I can't go and recover on a nuisance theory for somebody

Senator BIDEN. Excuse me. I am not asking you, General. I am asking the Senator what he means by

The CHAIRMAN. Well, it covers public and private uses, and certainly if you can show harm to an individual

Senator BIDEN. But you have to show harm to an individual to establish nuisance.

The CHAIRMAN. Yes, but there are various ways of showing harm. It is not impossible to do so. What I am saying is this doesn't go nearly as far as what you are indicating by quoting Professor Epstein. That is not our goal here.

Senator BIDEN. I made it clear that Professor Epstein didn't say this. I am talking about the overall philosophy.

The CHAIRMAN. I agree.