A long-time goal for pro-business groups in Montana — requiring government reimbursement for the cost of regulations — is gaining ground in the Legislature, while alarming others who fear it will cripple the state’s budget and its ability to enforce measures that protect the public.
Senate Bill 260 would broadly expand how the state defines private property, while requiring that many regulations and rules that devalue property by 25% or more be compensated by the state or local government enforcing them. It passed the Senate on a party-line, 31-19 vote shortly before a midpoint-of-the-session deadline and faces its first House hearing Tuesday.
The concept of regulatory takings is similar to eminent domain, when the government must pay out the value of property it takes for public use. State and federal courts, however, have held that only applies to instances where the government removes the full value. SB 260 would expand the idea to a broad range of other circumstances, including state regulations on specific types of businesses and actions that devalue “intangible” property like intellectual property, licenses and reputations.
“Why should you have to have your property basically run down to nothing, where you can’t do anything with it before a taking comes along?” said the bill’s sponsor, Sen. Steve Fitzpatrick, R-Great Falls, in an interview last week. “And that’s basically the law. I mean, it has to be functionally rendered useless in order for you to have a taking.”
Because of the bill’s broad implications for the state’s ability to enact and enforce regulations — from environmental and public safety rules to issuing or setting the terms of licenses — Montana Environmental Information Center policy director Anne Hedges says she’s more worried about SB 260 than any other proposal within range of reaching the governor’s desk this session.
“It sounds simple on its face, but the depth of a proposal like this is going to devastate the state, which is why similar bills have failed in previous sessions,” Hedges said.
SB 260 is the first of the regulatory takings bills to clear either chamber in more than a decade. A 2009 bill with similar language to Fitzpatrick’s won Senate approval before dying on a tie vote in the House. At least four other similar measures have been introduced since.
A broad range of possible effects
As with previous iterations, however, Democrats and environmental advocates have expressed alarm that the law would upend the state’s ability to enforce everything from water quality standards and hunting tag limits to insurance, mining and flood plain regulations.
“There’s a lot of people that are going to be affected by this,” Hedges said. “How do you limit tags for elk in an area based on management decisions, without impacting the businesses of guides and outfitters? Same thing with [floating] the Smith River, how do you limit permits?”
Opponents argue that regulatory takings laws undermine the fundamental basis for regulations. In the case of a factory emitting pollution, the costs of that pollution — whether it’s degradation of adjacent private property, the loss of fish in a nearby trout stream or damage to human health — are sometimes borne by society. A regulation limiting pollution attempts to return those external costs to the polluter.
Fitzpatrick counters that the 25% threshold is a high bar to clear, as well as being a potentially massive loss of property.
“You’re going to have to prove a fairly substantial reduction in the business value or your property value, and I don’t think that’s necessarily going to be easy to prove,” he said, adding, “I think you have to ask that question: Is the regulation worth it?”
SB 260 largely omits municipal government actions from the requirement, unlike its predecessors. Kelly Lynch, a lobbyist for the Montana League of Cities and Towns, said in an interview last week her organization remains opposed to the bill due to some lingering concerns, but called it “soft opposition.”
Another key difference between SB 260 and previous takings bills is that it applies to regulations protecting public health and safety. The earlier bill would have specifically exempted the enforcement of building fire codes and regulations applying to health and sanitation, traffic control, pollution control and hazardous waste, without requiring the state government to cover the cost of compliance.
Fitzpatrick and Hedges disagree about one major piece of the bill: the applicability date. Fitzpatrick insisted that it would only apply to regulations enacted after its passage, meaning current rules the state uses to enforce laws like the Clean Air Act or the Clean Water Act wouldn’t apply.
However, Hedges said that she and other experts believe language in the bill does apply to existing regulations, if the state attempts to enforce them after the law’s passage.
A $600 million price tag?
Earlier attempts to pass takings bills generated a lot of discussion around their price tags, given the potential for compensation claims, lawsuits and added administrative work.
The last one, introduced during the 2017 session, was accompanied by projections that it would cost state and local governments at least $600 million over a six-year period.
SB 260’s fiscal note makes no specific predictions about its cost — a fact the bill’s opponents attribute to a new Republican administration in charge of making those estimates. Previous estimates under Democratic administrations were likewise accused of being overblown by proponents of the regulatory takings bills.
The fiscal note for Fitzpatrick’s measure lists the cost estimates as “unknown."
“Due to the many variables in SB 260, the fiscal impact to the state cannot be reasonably determined,” the note reads.
A request to the Office of Budget and Policy Planning for more information on the fiscal note calculations was not returned by deadline.
For the 2017 bill, the budget office attempted to ballpark the costs by looking at the impact of a similar law proposed in Washington.
That state’s Ballot Initiative 933, which failed to pass in 2006, would have enacted a similar law to SB 260, although without the 25% minimum for compensation. Prior to the election, the state had estimated the proposal would generate more than $7 billion in costs to state and local governments.
Opponents and proponents to SB 260 sharply disagree on its potential economic impacts. Charles Denowh, a lobbyist for United Property Owners of Montana, said last week that fiscal notes on the previous bills were unrealistic.
“It’s atypical for takings claims to be paid,” Denowh said. “Usually governments take other measures to avoid paying out claims to landowners. So really the fiscal impact should be close to zero.”
But Hedges said that’s just the point, that in the face of massive compensation claims, local and state regulators would opt to simply not enforce the rules.