Destroying Property Value by Regulation Is Just as Bad as Using Eminent Domain

Nearly a century has passed since Justice Oliver Wendell Holmes’s legendary proclamation that “while property may be regulated to a certain extent, if regulation goes too far it will be recognized as a taking.” But that statement did little to actually clarify when the Fifth Amendment’s protections against uncompensated takings of property applies to government action that regulates away the use of land rather than physically taking it through eminent domain.

Attempting to clear up that confusion, the Supreme Court 40 years ago handed down the now infamous Penn Central decision (involving the historic qualities of NYC’s Penn Central Station). Penn Central requires courts to go through a balancing test based on (1) the economic impact of the regulation, (2) the extent to which the regulation interferes with reasonable investment-backed expectations, and (3) the nature or character of the government action. Unfortunately, that’s a lot of words to give very little direction, so property owners, regulators, lawyers, and lower courts have been clamoring for meaningful guidance on those fact-bound, ad-hoc inquiries ever since.

As the story of Simone and Lyder Johnson illustrates, the Supreme Court needs to provide true guiding principles on regulatory takings. The Johnsons were drawn to Ponce Inlet, Florida, where they bought land and made plans to construct their dream home. Sensing that the town may be able to benefit, Ponce Inlet persuaded the Johnsons to expand their plans into “a delightful mixed-use waterfront development.”

Over several years, the Johnsons bought additional parcels while working hand-in-hand with the town. They were amenable to providing everything the town asked for, like a nature preserve and boat slip. After millions of dollars were spent, the town changed its mind, halted all work, denied permits, and went so far as to pass legislation prohibiting all development on the Johnsons’ property.

The Johnsons sued, claiming that Ponce Inlet’s actions amounted to a compensable taking. The state trial court agreed, but the appellate court reversed and sent the case back to determine if a taking had occurred based on the economic impact on the “parcel as a whole” (meaning all the Johnsons’ property, rather than the specific parcels the trial court had found to be left devoid of economic value).

The Johnsons—through companies collectively known as Pacetta—have now asked the U.S. Supreme Court to review their case. Cato, along with the NFIB Small Business Legal Center, filed a brief supporting that petition. The Supreme Court has consistently referred to the Penn Central factors as the North Star of regulatory-takings law but has done little to clarify the meaning of each factor or how they should be weighed relative to one another.

What we do know is that property owners almost always lose under Penn Central. Under that nebulous test, lower courts are free to use those malleable factors to find that what government is attempting to achieve through its regulations is so important that a taking has not occurred, regardless of the regulation’s economic impact on the owner or the extent of its interference with invest-backed expectations. Likewise, lower courts frequently find that the economic impact of a regulation is not quite drastic enough—despite destroying as much as 95% of a property’s value—to find that a taking occurred, despite the extent of interference with investment-backed expectations.

The Court should take up Pacetta v. Ponce Inlet and use it as an opportunity to clarify at least one aspect of property law: that when one of Penn Central’s three ad-hoc inquiries tips strongly in favor of the owner, a taking has occurred and compensation is due.

Immigration Politics and the Perception of Chaos

A compelling explanation for why the American immigration system is more restrictive than other developed countries is that voters here do not feel that they have control over the border.  Pictures, videos, and the widespread perception that there is chaos on the border caused by illegal immigrants, despite facts to the contrary, have the effect of convincing American voters to be less liberal on the issue than they otherwise would be.  A recent paper by political scientists Allison Harell, Stuart Soroka, and Shanto Iyengar in the journal Political Psychology tests this “locus of control” argument by comparing immigration policies in Canada, the United States, and the United Kingdom with perceptions of control over immigration and its impact on their society. 

Harell et alia examine three perceived loci of control: individual, social, and an outgroup’s control over one’s own economic condition.  Across the three countries, the more that a respondent perceives himself and his society as being in control, the more pro-immigration he is.  When a respondent thinks that immigrants are responsible for his own personal economic or life outcomes then he is more hostile toward them because of his perceived lack of control.   They sum up their findings as:

Those who feel in control (personally or as a society) are less hostile towards immigrants, while those who attribute negative outcomes to immigrants’ predispositions are also more hostile. Results also suggest that measures of control are related to, but distinct from, both partisanship and racial prejudice.

Respondents’ perceptions of control across countries are related to the openness of immigration policies in the three countries studied by Harel et alia.  Canada has the most open immigration policy and Canadians have the greatest sense of control over immigration. Americans and British feel like they have less control, due to the Southern border with Mexico and membership in the Schengen Area, respectively.  Some of these measures of control, such as individual, social, or an outgroup’s degree of power, vary between the countries but the pattern holds: a greater perception of control is correlated with a more open immigration system.

Harell et alia’s theory passes the smell test, is consistent with what I know about psychology, and their empirics help explain different immigration policies across this small sample of countries.  However, the recent separation of families, caging of child migrants and asylum seekers on the border, the inability of the government to reunite them efficiently, and the chaos that this has created add an important caveat.  Voter reactions to border chaos probably depend on whom they blame for the chaos.  If voters blame the pro-immigration political party for the chaos, then voters are more likely to react by adopting more anti-immigration views.  With the exception of the current situation, politicians with a pro-immigration reputation (even when undeserved) have presided over the recent border crises so it makes sense that respondents would blame them.  However, if voters blame the anti-immigration political party for the chaos then they could react by adopting more pro-immigration views. 

There are two cases that help illustrate this point.

There was a large surge of unaccompanied alien children (UAC) on the border in 2014 that caused a crisis for the Obama administration.  Republicans reacted by claiming that Obama created the chaos by being too lax in enforcing immigration laws and that his announcement of DACA created the mass influx – two assertions that do not stand up to a bare minimum of scrutiny.  First, President Obama was nicknamed the Deporter-in-Chief because he deported more people than any other administration and will likely never have that odious honor taken from him.  As for border security, the number of crossers precipitously fell during his administration due to the poor American economy, rising fortunes and falling birthrates south of the border, and more effective border enforcement.  Secondly, the surge in child migrants that led to the crisis for Obama in 2014 began before he announced DACA, continued after everybody knew that the new crossers were ineligible, and was more linked to homicides in Central American countries than any change in American policy (although Mexican policy mattered quite a bit).  Regardless, voters blamed the feckless-looking Obama administration for the border chaos and Republicans took control of the Senate that year and nominated the most anti-immigration candidate in the GOP primary for president who shortly thereafter went on to barely win the election.

President Trump is now dealing with his own border surge just like President Obama did.  The recent surge in asylum seekers along the southwest border who enter unlawfully and surrender to Border Patrol is entirely an unintended creation of the Trump administration’s anti-asylum policies.  First, Trump’s administration has turned away many asylum seekers along the border and told them to “come back later.”  Second, they were changing asylum rules to restrict who could ask in the first place.  Those two factors, individually and together, incentivized asylum seekers to enter the United States illegally and ask for asylum because, for all they knew, they would never be able to at a port of entry.  They did so and got struck by the Trump administration’s third policy: zero tolerance and prosecution of all unlawful border crossers.  Since Trump’s administration ordered that every border crosser had to be prosecuted to the fullest extent of the law, the government separated parents from their minor children so as to charge the former with the misdemeanor of illegal entry.  Children aren’t caged with their parents when their parents are charged with a crime.  That turned into the nightmare of children in cages without their parents and the government’s inability to reunite them with their parents in many cases. 

Obama looked helpless, incompetent, and brutal in the 2014 border chaos as his administration caged entire families in deplorable conditions.  Trump now looks incompetent, brutal, and responsible for everything that’s happened on the border under his watch.  Republicans politically capitalized on the border chaos in 2014 by painting the Democrats as either complicit with the migrants or helpless to stop it.  The Republicans introduced a bill to gut the asylum system in response.  The Democrats, for their part, didn’t have a coherent explanation except “nuh-uh.”

Now that the dynamic has flipped, and anti-immigration politicians are being blamed for the chaos, we can test the locus of control theory.  If enough voters also blame their recent perceptions of border chaos and lack of control on anti-immigration politicians then they could react by supporting more liberal immigration policy rather than reflexively opposing liberalization.  Polling already shows that Americans are more supportive of increasing immigration during the Trump administration, and perhaps this could be in response to the chaos created by his policies or the fact that they are too brutal for voters, but those numbers have also been trending up for decades.

It is difficult for President Trump and the Republican Party to capitalize on the border chaos that he created when everybody believes that they created it.  The recent surge in asylum seekers and migrants on the border could provide an excellent testing ground for this caveat to the locus of control theory and whether perceptions of chaos always lead to less support for liberalization.  

What Elections Mean for Pakistan’s Civil–Military Imbalance

Campaigning is officially over—and Pakistan will hold its third consecutive general elections tomorrow, on July 25. These elections have raised concerns about the state of civil–military relations within Pakistan amongst Pakistan-watchers. The Financial Times has labeled tomorrow’s elections as the “dirtiest elections in years” while the Economist explains that “The true winner may be the army; the losers will be Pakistanis.”

Pakistan’s military establishment is known for being involved in the state’s political affairs. In its 70 years of independence, Pakistan has spent more than half of its life under military rule: it has experienced four military coups, and each has turned into a 7–10 year military dictatorship. Even when civilian governments have been in power, the military has been known to interfere, calling the shots in foreign policy and national security. Oftentimes, the civilian leadership has called on the military in times of domestic security crisis, and the public has usually favored the military.  

But what makes the military’s interference in this election worse than past interferences? Politicians, analysts, human rights groups, and media personnel in Pakistan have accused the military of doing three things that are considered troublesome.

The first is targeting the Pakistan Muslim League–Nawaz party, who was elected in 2013. Historically, the army and recently ousted prime minister Nawaz Sharif have had a tumultuous relationship. Two years ago, it was the army along with Pakistan Tehrik-i-Insaf’s Imran Khan that brought the lawsuit that led to Sharif’s court-ruled dismissal, disqualification from running for office, and corruption trial that has sentenced him and his daughter to 10 and 7 years in prison respectively. However, Imran Khan and the military deny any links to each other.

The second problematic activity is the army’s pressure on the media. Pakistan is considered to be one of the most dangerous countries for journalists regardless of the kind of government in power. Hameed Haroon, chief executive of the Dawn Media Group (the largest English media company in Pakistan) and the president of the All Pakistan Newspapers Society wrote an op-ed in the Washington Post about how this time the level and kind of media censorship is different. The recent media censorship is all about ensuring that the media does not provide independent coverage of Pakistan’s central political issue, which is the “deepening power struggle between the military and civilian authorities.” In April, a widely watched cable news channel, Geo News, was forced to go off air after appearing too sympathetic toward Sharif. Only direct negotiations with army officials allowed Geo News to go back online. Dawn newspaper has also experienced pressure, where newspapers have been confiscated in army-controlled areas and distributors have been harassed by army officials.

The third, and perhaps most concerning, is how the military has been using the judiciary as a cover. The military’s encroachment into judicial space began after the December 2014 Army Public School attack by the Pakistani Taliban that killed over 130 children and teachers. The Sharif government and then-Chief of Army Staff Raheel Sharif came together and developed the National Action Plan, a 20-point plan designed to counter domestic terrorism. The plan reinstated the death penalty and established military courts, where those charged with terrorism would now be tried, avoiding the overburdened civilian special courts called the Anti-Terrorism Courts. In the past, any time a civilian government or military dictatorship created military courts to try civilians, the Supreme Court of Pakistan struck the courts down as being unconstitutional. But in 2015, the parliament passed a constitutional amendment, called the 21st amendment, which discarded the separation of powers between the branches of government for those charged with terrorism, granting jurisdiction to the military and applying court martial rules to those charged with terrorism. The media eventually uncovered that the civilian government had been pressured by the military to pass the constitutional amendment. Later in 2015, the Supreme Court ruled to uphold the 21st amendment. Military courts remain active today.

The Pakistan Army, therefore, views itself as the manager of the government rather than a subordinate. But for a democratic system to work, the military needs to be beholden to the civilian leadership. If a military controls foreign policy then it will create a military-centric foreign policy where a solution to every national security problem will be seen as something that can, and should, be solved by the military. As they say, when you have a hammer, everything looks like a nail. But as a developing country with a host of other issues, such as a looming financial crisis and a youth bulge where 64% of the population is under the age of 29, Pakistan can’t afford to have a military-centric foreign policy.

Ultimately, the military’s current involvement and interference in the political system undermines its own credibility—and that of the system that it so desperately wants to lead.

Is Green Energy Competitive?

The declining cost of solar panels and the widespread adoption of rooftop solar in California lead to many cocktail party discussions about the competitiveness of green energy. While at first glance it may seem that solar power and other renewable energy sources are able to compete with conventional resources, a closer examination of the characteristics and costs of electricity systems demonstrates that current renewable technologies are not economically competitive.

The fixed costs of electricity systems, the capital costs of transmission and distribution systems, are large. Actual electricity tariffs do not typically recover fixed costs explicitly and separately from electricity use. Instead they recover them through use charges per kWh. If electricity pricing were more efficient, customers would pay a large fee for the use of the transmission and distribution systems disconnected from the amount of electricity they use and would be charged a separate variable fee based on actual consumption. (See this article by Ahmad Faruqui and Mariko Geronimo Aydin in the Fall 2017 issue of Regulation for a more thorough discussion of electricity pricing.) Thus, current bills do not inform consumers about how high the fixed costs of the system really are.

Understanding the significance and recovery of fixed costs is important because of the manner through which customers with solar panels on their roof are reimbursed for the power they generate.  Solar production in many states, especially California, is reimbursed at full retail rates. But when a household produces solar power and reduces the use of system-generated electricity, the system saves only the marginal costs of the power that it did not have to produce, which is usually much less than the retail rate. None of the large fixed costs are saved.

In California, because of its tiered retail rate structure, the discrepancy between the retail rate and the amount the system saves because of rooftop solar production is large. The marginal cost of power generation is about 6-10 cents per kWh, but customers are reimbursed at full retail rates (many at over 30 cents per kWh) rather than the lower marginal costs of system generation. Reimbursement at full retail rates shifts the fixed costs of the electric system from solar panel households to other users. Without the excessive payments, decentralized solar would not be competitive.

Other renewable generation sources would appear to be competitive with natural gas generation. According to estimates of the total costs of various generation technologies over their operating lifetime, large-scale centralized solar generation in the deserts of the American southwest and large-scale onshore wind generation both have costs that are competitive with new natural gas generation. (Offshore wind is much more costly. See my blog on Cape Wind, a failed plan to build a wind farm off the coast of Massachusetts.)

However, even if the lifetime average costs of wind and solar are the same as coal or natural gas, the equivalence needs to be qualified. Different electricity generation technologies are very imperfect substitutes. The marginal value of electricity varies across time because demand varies by time of day and space because of transmission constraints. For example, wind power supply is greatest during winter nights, when demand is low, and lowest during summer when demand is highest. Wind is also most plentiful far from where people live and consume electricity, meaning it incurs additional costs to transport the electricity to people. At least solar output is large during the summer afternoon peak demand period. But both solar and wind are not dispatchable. That is, their output cannot be made to vary up or down.

Until cost-competitive green energy that is dispatchable is available, renewable sources of electricity require backup conventional generation. Because the sun eventually sets, and the wind stops blowing, natural gas generation whose output can be varied (sometimes quickly) must be available as backup. The fixed and variable costs of the backup must be paid by someone. These hidden costs need to be considered in any calculation of “cost competitiveness.”

Future technological breakthroughs, such as more efficient batteries to store electricity and more cost effective dispatchable solar power sources, may make green energy a better substitute for conventional generators. But for the time being, without governments putting their thumbs on the scale, green energy is not competitive. 

Written with research assistance from David Kemp.

Qualified Immunity Meets #MeToo: Prison Official Says Sexual Abuse Didn’t Violate “Clearly Established Law”

When Katie Sherman was nineteen years old, she was incarcerated at Trumbull County jail in Ohio, for about five months. During that time, Charles E. Drennen worked as a corrections officer in the female pod of the jail where she was housed. Several female inmates had filed complaints that they’d been harassed and threatened by Drennen, who had a reputation for glaring at the inmates while they were sleeping, but Drennen began focusing on Ms. Sherman in particular. He often made highly sexual comments to her, and on at least four or five occasions, ordered her to expose herself to him, and to touch herself sexually in front of him and other inmates. Ms. Sherman – again, then a nineteen-year-old girl – complied because she was intimidated by Drennen. She eventually attempted to file a complaint against him (even though complaints were not anonymous), but she was never given the complaint form she requested. 

After she was released, Ms. Sherman - along with Michele Rafferty, her cellmate - filed a Section 1983 lawsuit, asserting (amongst many other claims) that Drennen’s sexual abuse violated her Eighth Amendment right to be free from cruel and unusual punishment. Drennen moved for summary judgment, arguing that this was “only” sexual harassment, and that because he did not physically touch Ms. Sherman himself, he hadn’t violated her constitutional rights. The district court correctly rejected this perverse “no touching” safe harbor for sexual abuse, and noted that “the facts, viewed in a light most favorable to Plaintiffs, demonstrate that Sherman only masturbated and revealed her breasts due to Drennen’s control over her.” The court likewise rejected Drennen’s claim for qualified immunity, holding that “[i]t is clearly established that sexual abuse is impermissible” and that “[a]ny reasonable prison official would understand that he has no authority to command an inmate to engage in sexual acts.”

Under normal principles of civil litigation, Ms. Sherman would then have been entitled to a jury trial on her civil rights claims. But the doctrine of qualified immunity gives defendants a one-side litigation advantage in the form of interlocutory appeals - that is, if a defendant is denied qualified immunity, they can immediately appeal that decision, before the case even goes to trial. Mr. Drennen has done exactly that, so the question of whether he should receive qualified immunity is now being briefed before the Sixth Circuit. The Cato Institute has therefore filed an amicus brief, urging the court to affirm the denial of immunity, but also to address the legal infirmities with the doctrine in general.

As I’ve  discussed  several  times now, qualified immunity was essentially invented out of whole cloth by the Supreme Court over the last half century. The text of our primary civil rights statute – usually called “Section 1983” after its place in the federal code – makes no mention of any immunity, and the common-law background against which it was adopted did not include any freestanding defense for public officials who acted unlawfully; on the contrary, the historical rule was that public officials were strictly liable for constitutional violations. In essence, qualified immunity has become nothing more than a “freewheeling policy choice” by the Court, at odds with Congress’s judgment in enacting Section 1983.

Tax Reform 2.0 and Savings

In the wake of their successful Tax Cuts and Jobs Act last year, Republicans are now considering Tax Reform 2.0.

For individuals, the 2017 law trimmed tax rates and changed deductions and exemptions. But it did not fix the tax code’s bias against personal savings, which is a serious problem given that many Americans save so little. 

One idea the GOP is mulling for 2.0 is the creation of Universal Savings Accounts (USAs). Such accounts were considered last year but were not included in the final bill.

USAs would be like vastly improved Roth IRAs. Individuals would contribute up to, say, $10,000 a year of their after-tax income, and then the account earnings would grow tax-free.

Account assets could be withdrawn tax- and penalty-free at any time for any reason, which would make the accounts simple, flexible and liquid.

You can read the rest in this new oped in The Hill.

Breaking News: Ways and Means Committee Republicans have just released today their framework for Tax Reform 2.0, and it includes Universal Savings Accounts.

You can read more about this revolutionary savings vehicle in this Cato study co-authored with Ryan Bourne.

 

Civilian Casualties Continue to Mount in Governments’ War on Opioids

I have written here and here about how patients have become the civilian casualties of the misguided policies addressing the opioid (now predominantly fentanyl and heroin) crisis. The policies have dramatically reduced opioid prescribing by health care practitioners and have pressured them into rapidly tapering or cutting off their chronic pain patients from the opioids that have allowed them to function. More and more reports appear in the press about patients becoming desperate because their doctors, often fearing they may lose their livelihoods if they are seen as “outliers” by surveillance agencies, under-treat their pain or abruptly cut them off of their pain treatment regimen.

story in the July 23, Louisville (KY) Courier Journal illustrates the harm this is causing in Kentucky. “Doctors say the federal raids on medical clinics lead to unintended consequences — patients thrust into painful withdrawals and left vulnerable to suicide or dangerous street drugs,” states the article.  Dr. Wayne Tuckerson, President of the Greater Louisville Medical Society, said, “[When investigators] go in with a sledgehammer and shut down a practice without consulting community physicians, suddenly we have patients thrown loose.” He went on to say, “Docs are very much afraid when it comes to writing pain medications…We don’t want patients to become addicted. And we don’t want to have our licenses — and therefore our livelihoods — at stake.” And if pharmacists in the area learn of a police raid or investigation of a medical practice—regardless of the outcome of that investigation—many of them refuse to fill legal prescriptions presented by patients of those practitioners.

Last week Oregon regulators announced plans for a “forced taper” of chronic pain patients in its Medicaid system. This contradicts and is much more draconian than the recommendations of the 2016 guidelines issued by the Centers for Disease Control and Prevention, which in turn have been criticized as not evidence-based. The Oregon Health Evidence Review Commission announced: 

 

The changes include a forced taper for all chronic pain patients on opioids (within a year), no exceptions. Opioids will be replaced with alternative treatments (cognitive behavior therapy (CBT), acupuncture, mindfulness, pain acceptance, aqua therapy, chiropractic adjustments, and treatment with non-opioid medications, such as NSAIDS, Acetaminophen).

 

This proposal has sparked an outcry from patients and patient advocacy groups in Oregon. While this policy proposal only applies to Medicaid patients, they fear it will soon become the standard adopted by all third-party payers in the state.

University of Alabama Medical School Associate Professor Stefan Kertesz, an addiction medicine specialist at the Birmingham VA Medical Center, tweeted in reaction to this proposal:

 

I cannot imagine a more violent rejection of the CDC Guideline on Prescribing Opioids of 2016 than the plan current before Oregon Medicaid : forced taper to 0 mg of all opioid receiving pain patients.