This blogpost was co-authored by Trevor Burrus.

A seemingly complicated legal case that has caught Cato’s attention, CCA Associates v. United States, boils down to a simple constitutional question: If the government reneges on a contract and forces a property owner to rent apartments at below-market rates for longer than originally agreed, does it constitute a taking under the Fifth Amendment (which would require the government to pay just compensation)?

In 1961, Congress amended the National Housing Act to create incentives for private builders to supply housing to low- and moderate-income families. Builders were given below-market mortgages backed by the federal government and, in return, the owners agreed to certain restrictions from the Department of Housing and Urban Development, the most relevant being limitations on raising rent. Owners were also given the right to pre-pay the 40-year mortgage after 20 years, however, freeing them at that time from their rent-control obligations.

In 1990, as one 20-year period came to a close, Congress took away the owners’ right to pre-pay their mortgages. In 1996, however, Congress returned the property owners’ right to pre-pay. Therefore, between 1991 (when the original 20-year period would have lapsed) and 1996, the property owners were forced to rent at below-market rates.

CCA Associates is one of many similarly situated property owners who are suing the federal government for its clear act of duplicity. CCA Associates’ case, among many others, has been bouncing back and forth between the Court of Federal Claims and the Federal Circuit for many years.

One of the key questions is how to determine the degree to which the government’s actions economically affected CCA Associates’ property. One view is that there was substantial economic impact during the five-year period between when Congress eliminated and then restored the pre-pay right – CCA Associates lost approximately 81% of the property’s possible value during those five years. Another view looks at the impact during the five-year period as fraction of the entire life of the property, not just the diminished value during the five-year period. Under this calculation, CCA Associates only lost 18% of the total value of the property.

The Federal Circuit adopted the latter formula and held that 18% is not a substantial enough economic impact to constitute a Fifth Amendment taking. Cato has joined the National Federation of Independent Business, the Center for Constitutional Jurisprudence, and Professor Steven Eagle of George Mason University Law School on an amicus brief urging the Supreme Court to take CCA Associates’ case.

We argue that adopting the Federal Circuit’s answer to the so-called “denominator question” – that is, whether the denominator in the “economic impact” fraction should be the entire life of the property or the shorter (here five-year) period during which the government temporarily took the owners’ right to rent at the market price – could preclude all possible claims that the government committed a “temporary taking.” By choosing a big-enough denominator, courts can always characterize an economic impact as being below the constitutional threshold.

We also argue that, in applying the Supreme Court’s factors in the famous 1978 Penn Central case (which set up the analytical framework for regulatory takings), the Federal Circuit incorrectly treated the factors as a magic formula and ignored other relevant factors. Finally, we point out how courts are obviously confused about the proper standards to apply in these cases, thus creating a perfect time for the Supreme Court’s guidance.

The Court will decide this fall whether to hear CCA Associates v. United States.

When you work at a non-profit, like Cato, you accept part of the deal is being paid below-market wages.  Not that I’d reject a raise, but I actually think it improves the organization.  No one is here for the money.  You’re here for the mission.  When one hears, however, of public employees, especially those in “mission-driven” organizations, being paid out-sized compensation, you can’t help but wonder what happened to the devotion to the mission.

In response to public complaints, HUD conducted a survey of public housing authority director compensation.  The average salary, not including benefits for a housing authority director, who manages over 1,250 units, was $115,615 (2010).  Certainly in excess of the median household income, but not extreme for senior public employees (who in general are over-paid).

A few “outliers” did stand out.  The Atlanta public housing director apparently received, in 2010, $644,241 in total compensation.  Now of course, that director is claiming that such a number is “misleading” as it includes bonuses and pay-outs for unused vacation.  You can find her defense here and judge for yourself.  I would certainly say from having met her on a few occasions, she is one of the more competent and hard-working housing authority directors.  But worth $644,241?

HUD’s reaction to all this?  To cap the federal contribution to $155,500.  Given that housing authorities are themselves creatures of state law and their directors usually appointed by mayors or governors, it is not clear to me why there should be any federal contribution to their compensation.  Let’s cap the federal part at zero.  If a city, county or state wants to continue to receive federal housing money, the least it can do is manage to pay the salary of its director.  While I’m no fan of federal housing programs, I’d at least like to see said funding actually go to those in need.

Having one’s read of the law vindicated by the Supreme Court is always a nice feeling, even if I had to wait about a decade.  From 2002 to 2003, I managed the HUD office which administered the Real Estate Settlement Procedures Act (RESPA).

In 2001, prior to my arrival, the legal staff at HUD released a “policy statement” claiming that RESPA’s Section 8(b) prohibited some instances of fees as excessive or unreasonable because said fees would constitute a person “giving or accepting any unearned fees”.  How HUD even knows what is earned or unearned is besides the point, Section 8(b) of RESPA only prohibits fees that are basically split between two or more parties.  As far as statutes go, RESPA is actually quite clear.  That clarity, however, did not stop HUD from taking the convoluted position that one can split or share a fee with one-self.  This was obviously an attempt to create a “reasonable” test for fees where one did not exist.

During my brief tenure at HUD, the RESPA office largely ignored this section of the 2001 policy statement.  The staff there related to me that its inclusion was largely “political” anyway, an attempt to the make the remainder of the policy statement more palatable.  I made clear at the time that the policy statement went far beyond any actual authority in RESPA.  It seems, however, that the trial bar was not willing to let this statement remain dormant, and assembled a class action based upon this erroneous reading of RESPA, leading to last week’s decision, which rejected 9 to 0 HUD’s reading of RESPA.

Dodd-Frank moved the RESPA office from HUD to the newly created Consumer Financial Protection Bureau (CFPB).  It moved much of the HUD enforcement and legal staff as well.  What is not clear is whether the willingness to simply make up law where there is no statutory authority was also left behind.  One of the reasons why I, among others, have strong concerns as to the current structure of the CFPB is this trend of regulators constantly going around the letter of the law.  How are we to hope for respect for the law when those tasked with enforcing it show so little respect themselves.