Freeman

ARTICLE

Transfer of Development Rights: Top-Down Planning in Disguise

How the State Uses a Phony Market Scheme to Achieve Its Goals

AUGUST 01, 1997 by SARAH FOSTER

Filed Under : Socialism, Property Rights

Ms. Foster is an associate of the Western Journalism Center.

Radicals of the 1930s had a favorite saying: Take it easy, but take it. That is to say, a step-by-step, easy-does-it approach is the most efficient and palatable way to implement socialism. Their intellectual heirs understand the principle even better, and have had over 60 years to perfect strategies. Although the idea of centralized economic planning is currently out of favor and there is resistance to top-down policies, the effort to increase governmental control over our lives and property has never slackened.

The most successful strategies today are processes that demand active public participation, thereby creating an illusion of popular control and bottom-up policy- and decision-making. One such tactic is to insert trading or selling mechanisms into blatantly socialistic schemes and label them market-based or free-market-oriented.

The use of transfer of development rights (TDR), which city councils across the country are making part of the local building-permit process, is the strategy adapted to land-use regulation. For every case where a property owner’s rights and the land itself have been trampled by agents from the U.S. Fish and Wildlife Service or Army Corps of Engineers, thousands of quiet takings are exacted by local governments using TDR.

TDR is, in essence, a system of land designation, with certain parcels being categorized either as sending or receiving sites. Development is restricted or completely denied on the first, while permitted on the latter. As described by city planner Rick Pruetz: Using TDR, development rights which are not used at a sending site can be transferred to a receiving site where additional development is consistent with community objectives.[1]

TDR rests on the concept that title to real estate is not a unitary or monolithic right, but . . . a ‘bundle of individual rights,’ each one of which may be separated from the rest and transferred to someone else, leaving the original owner with all other rights of ownership.[2] Mineral rights are an example. In practice, here’s how it works. Property owner A wants to build an apartment house, but his parcel is zoned for a single-family home. Across town, owner B is told she can’t develop her land because a species of endangered fly lives there. Not to worry. The government grants the owner of the fly-specked parcel permission to sell the rights she’s forbidden to exercise to the man who wants to build an apartment house. If each learns of the other’s plight and A buys the ersatz rights from B, owner A can build to a greater density than otherwise allowed. In other words, B has sold a zoning variance to A, probably for peanuts. B still owns the land and must continue paying taxes on it.

Dodging Just Compensation

Proponents admit TDR is a way for governments to take land out of use while dodging the just compensation requirement of the Fifth Amendment. According to Pruetz:

Often, communities are reluctant to restrict development on the sending sites without providing some kind of compensation to the property owner, and usually there is little or no public funding to provide this compensation. TDR solves this problem by providing transfer of development rights as compensation. The community saves the sending site with little or no public expenditure.[3]

TDR is used not only to preserve open space, historic landmarks, agricultural land, and natural areas like hillsides and streams, but also to force densification and urbanization when a city council or other agency decides people ought to live downtown instead of in suburbs. It can be the primary system of land-use regulation, a substitute for—or used with—zoning power. Whatever the goal, the agency simply designates sending and receiving areas or sites. We only set the policy, the planners say. You, the public, are free to work out the details in the marketplace. Since the purpose of TDR is to force participation in government-created markets, excessive controls on land use are necessary. As Pruetz puts it: Successful TDR programs strongly encourage transfers by making development difficult or impossible on sending sites . . . [and] . . . making it difficult or impossible to achieve additional density on receiving sites without using the TDR method.[4]

The TDR idea was introduced in the 1960s, but it’s taken time for it to catch on among local governments. Not surprisingly, as more and more people find themselves in sending areas and would-be developers of receiving sites suddenly discover the additional permitting costs and requirements, resistance is growing. But in anticipation of such public awareness, the architects of TDR set up roadblocks on the usual avenue for redress: the courts. To date, it’s been difficult, if not impossible, for an aggrieved property owner to have a takings hearing.

That could change. In February of this year, the U.S. Supreme Court heard Suitum v. TRPA, which both sides agree is the most important takings case in half a decade. Though in a wheelchair and nearly blind, the 82-year-old plaintiff, Bernadine Suitum, made the trip from her home in Sacramento to Washington, D.C., to hear her case argued by attorney R. S. Radford of Pacific Legal Foundation. The Sacramento-based public-interest law firm is well known for its successful handling of such cases as Lucas v. South Carolina Coastal Council and Dolan v. City of Tigard, Oregon.

Mrs. Suitum had taken on one of the most powerful regulatory agencies in the country: the Tahoe Regional Planning Agency (TRPA), a bi-state entity formed in 1970 as a compact between Nevada and California, with approval by Congress. TRPA exercises virtually complete control over land use in the Tahoe Basin through a particularly complex and draconian TDR program.

In 1987, ostensibly to improve the clarity of Lake Tahoe, TRPA developed a new general plan designed to limit the number of houses. About 10 percent of the Basin’s 204,000 acres were designated as stream environment zones (SEZ), and off limits to development. The empty parcels within these zones, argues TRPA, are sponges that filter storm runoff so contaminants don’t get into the lake.[5]

Mrs. Suitum owns such a parcel, a 2/5th-of-an-acre lot she and her late husband acquired in 1972 in Incline Village, Nevada. When, in 1989, she was financially able to build her long-deferred dream house, she was told her tiny parcel was in a SEZ and any new land coverage, such as a house, was prohibited. Never mind that hers was almost the only vacant lot in a now completely built-up residential area and has houses on three sides.

But though Mrs. Suitum had to leave her land vacant as an alleged public benefit, TRPA refused to admit this was a taking and denied her claim for just compensation. Worse, she was not even allowed to contest it in court. Normally, when a government entity wants your land, say, for a school or road, and you say No, it seeks a condemnation order in court. Then follows a lot of haggling, and you may or may not receive just compensation, but at least you get something.

In the case of regulatory taking, where government wants a particular property kept in a natural or otherwise restricted state for the public good, doesn’t want to pay for it, and has passed a regulation preventing development or other use, the property owner asks the court to determine if a taking has occurred. If the court says one has, price wrangling can begin.

In Mrs. Suitum’s case, the lower courts ruled that since Mrs. Suitum had not participated in the quasi-sales process made available through TRPA, it was impossible to determine if a taking had occurred. Therefore, she’d have to go through that process first.

TRPA had given Mrs. Suitum three kinds of TDRs and basically said Go peddle ‘em. But not to just anyone. No, the buyer or buyers must be certified eligible by TRPA and any sale had to be TRPA approved. Specifically, she was granted one Land Coverage Right of 183 square feet (about the size of a bedroom), a Residential Development Right (representing a single-family house or unit), and the right to participate in a yearly lottery for a Residential Allocation. TRPA admits her chance of winning this last is about one in five. None of these so-called rights enables Mrs. Suitum to build her home on her own lot.

Mrs. Suitum sued, claiming that despite TRPA’s claims, her property had been rendered worthless and the TDRs were of no value since there’s no real market for them. How was she, an elderly person in a wheelchair, expected to sell such intangibles? Was she to go door to door asking folks if they needed a credit to build an extra bedroom?

TRPA officials were shocked at the challenge. She’s asking to take away some of the tools that are used to make the world a better place, announced one outraged TRPA attorney, in effect speaking for bureaucrats and planners everywhere.

The case has focused on the Constitutional issues of denial of just compensation as guaranteed by the Fifth Amendment and denial of due process guaranteed by the Fourteenth, since Mrs. Suitum has been denied access to the courts on the question of compensation. In late May the High Court ruled unanimously in her favor on the due process issue, opening the way for her long-deferred day in court. It’s now up to a Nevada judge to decide if Mrs. Suitum is entitled to compensation. Left unresolved, however, is the broader issue of TDR since she did not challenge the validity of the land use regulations that underlie the process. The Court noted, . . . her only challenge to the TDRs raises a question about their value, not about the lawfulness of issuing them. Suitum seeks not to be free of the regulations but to be paid for their consequences.

Though the decision is not as far-reaching as many hoped it would be, the case has brought the issue of TDR to the foreground of discussions on property rights and government processes. As long as the State claims a right to take property for whatever reason—and the public agrees to the principle—the proper place for dispute and settlement is the courtroom, not the marketplace. The face-off should be between the individual and the State, not between individuals forced to participate in phony market schemes to achieve government goals.

This leads to the deeper issue of goal-setting by the State. What right have planners and government officials to set goals of any kind for the community? Why should people be forced to participate in their implementation? Matters of land use, child care, education, or any of a host of other concerns—none of these are areas for government involvement, let alone goal-setting. This is centralized, top-down planning in disguise, foisted on an all-too-complacent populace. That’s the basic issue in the TDR dispute and what must be challenged.


Notes

  1. Rick Pruetz, Putting Transfer of Development Rights to Work in California (Point Arena, Calif.: Solano Press, 1993), p. i.
  2. Jerome G. Rose, et al., The Transfer of Development Rights: A New Technique of Land Use Regulation (New Brunswick, N.J.: Center for Urban Policy Research, Rutgers University, 1975), p. 3.
  3. Pruetz, p. 3.
  4. Pruetz, pp. 2–3.
  5. Sacramento Bee, February 23, 1997, p. A1.

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August 1997

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