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July 6, 2005

Keith Aoki: A market-based way out of the Measure 37 maze

Guest Viewpoint
Look beyond Oregon to find way out of Measure 37 maze

By Keith Aoki

July 3, 2005
The Oregon legislature is in over its head in dealing with Measure 37.
Various versions of draft legislation bounce back and forth like a ping-pong ball in the halls of Salem. Deadlock creates confusion for local governments and property owners. Some counties grant presumptive waivers, while others impose high filing fees for Measure 37 claims. What will be the outcome of this uncertainty?

Could Measure 37 lead to a nightmare of uncontrolled “spot zoning,” as some critics fear? Spot zoning is the arbitrary (and oftentimes corrupt) practice of granting variances to property owners without any discernable benefit to the public. Could Measure 37 lead to the destruction of Oregon’s statewide land use planning system, as some proponents desire? The Legislature must find a solution. Is there a way out of the current dead-end?

The short answer is yes. The slightly longer answer involves using a planning device called “transfer development rights,” or TDRs.

TDRs create a marketplace in which private buyers and sellers exchange rights to develop their pro- perty.

TDRs surfaced in a U.S. Supreme Court case involving the owners of Grand Central Station in New York City in the 1970s. The station’s owners wanted to build a skyscraper atop the historical landmark. The New York City Landmarks Commission refused to grant a permit to build.

The owners sued the city. They claimed that there was a governmental “taking” – they were losing rents they could charge from their proposed skyscraper. When such a “taking” occurs, the Grand Central owners contended, property owners are entitled by the U.S. Constitution to receive “just compensation” for their loss.

The U.S. Supreme Court held that a regulatory taking had not occurred. The owners owned airspace development rights above Grand Central. Furthermore, they could sell those airspace development rights to other developers who weren’t seeking to build atop a historical landmark. Because of this, the Supreme Court held that the owners not only had the income from Grand Central rents, but they also had seven-figure income from the sale of their airspace TDRs. The Supreme Court rejected the owners’ claim that a “partial” taking had occurred.

What does this have to do with Oregon and Measure 37?

First, TDRs have been successfully used by more than 130 local governments. In Florida, which has had a Measure 37-like “partial” takings law, TDRs have been an important land use tool to keep local governments from going broke. TDRs also have been used to protect the water quality in Lake Tahoe. California and Washington state have successfully used TDRs. Owners who are restricted in using their property are compensated.

What do such systems involve?

In a TDR system, you have a “sending” site that is subject to certain restrictions, such as use as agricultural or forest land; such land is allocated an appropriately valued number of TDRs. The sending site then may sell its TDRs to the owner of a “receiving” site. Receiving sites may be located within an urban growth boundary or other area where development is restricted. The TDR buyer may then use their TDRs to get permission to build at greater density or height than would be permitted otherwise.

Sure, there are plenty of details to work out, but that’s what legislatures are supposed to be good at.

TDRs arose from dissatisfaction with command-and-control land use planning. TDRs represent a private market-based approach. The government has the role of jump-starting a TDR market.

Once TDRs are allocated, the government gets out of the way and out of the business of paying compensation. Private parties pay other private parties for rights to develop their realm, and TDRs are the coin of the realm.

After all, when the government pays compensation for a taking, it comes out of your pocket and mine. Why shouldn’t those who want to develop their property pay money to those who may be foreclosed from developing their property, rather than passing the cost on to you and me through higher taxes?

Why didn’t Oregon allow its local governments to adopt a TDR system before now? One reason may be that Oregon rested on its well-earned laurels as one of the first states to use statewide land use planning. Oregon policymakers may not have paid close enough attention to second-generation TDR systems. Those systems were aimed at finding market-based solutions to controlling sprawl that arose in the 1990s. The Oregon Legislature contemplated a TDR scheme in 2001, but dropped the ball.

It’s time for Oregon to regain its reputation for innovative land use planning and look to TDRs as part of the answer to the questions that Measure 37 poses.

Keith Aoki is the Philip H. Knight professor at the University of Oregon School of Law.  In addition to teaching local government law, he teaches property, copyright and trademark, intellectual property and Internet law.   


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