Coastal Storms, Private Property, and the Takings Issue

by John Echeverria

On October 29, 2012, Hurricane Sandy made landfall on the New Jersey shore, claiming dozens of lives and destroying or damaging more than 300,000 homes. Properties along the shore were especially hard hit, with many oceanfront homes lifted off their foundations and tossed inland. All told, business losses were estimated at more than $30 billion. While no single storm event can be entirely attributed to climate change, Hurricane Sandy is precisely the kind of severe storm event that scientists predict will become more frequent in the era of climate change.

One issue raised by Hurricane Sandy — and the prospect of other, potentially even more severe storms in the future — is how to keep residents and businesses (and their occupants) out of harm’s way. This question in turn implicates the rights and privileges of private property owners. The scope of government authority to affect property interests is governed largely by judicial interpretations of the Takings Clause of the U.S. Constitution, which provides: “Nor shall private property be taken for public use, without just compensation.”

The basic problem, generally stated, is that climate change is expected both to increase sea levels and exacerbate the severity of hurricanes and other storm events. According to the latest information from the U.S. Global Change Research Program, “global average sea level has risen by about 7–8 inches since 1900, with almost half (about 3 inches) of that rise occurring since 1993.” Looking to the future, the program predicts that, “Global average sea levels are expected to continue to rise—by at least several inches in the next 15 years and by 1–4 feet by 2100.” Ominously, taking into account new information about melting of the ice sheets in Greenland and Antarctica, the report says, “A rise of as much as 8 feet by 2100 cannot be ruled out.” Storm surges from more violent storms, on top of elevated sea levels, will predictably result in ever more frequent and destructive coastal flooding.

The Legal Landscape for Controlling New Development along the Coast

One logical policy response to these coastal threats is for state and local governments to use their traditional police powers to restrict new and expanded development along the shore. While there is little question that state and local governments have the power to restrict development in this fashion, there is considerable room for debate over whether such regulations might be compensable “takings” within the meaning of the Takings Clause, meaning, in effect, that the government could impose the restrictions only if it were able to buy the properties and maintain them in public ownership.

The key and much contested Supreme Court precedent is the 1992 decision in Lucas v. South Carolina Coastal Council. This case arose from South Carolina’s adoption of a setback line prohibiting new development along the ocean shore. David Lucas had purchased two building lots shortly before the adoption of the setback line, and he claimed that because the new rule barred him from developing the property, he suffered a compensable taking. While the South Carolina courts rejected the takings claim, the U.S. Supreme Court reversed, holding that because the setback line denied Lucas “all economically viable use” of his properties, he should be presumptively entitled to financial compensation under the Takings Clause. The Court indicated that an exception should be recognized to this per se taking rule only in two circumstances — when the “background principles” of nuisance or property law preclude a landowner from claiming an entitlement to engage in the regulated activity to begin with, or when the government is addressing an “emergency situation,” such as the need to tear down buildings to block the spread of a large urban fire.

While some applaud Lucas as a forceful defense of private property, the Court’s decision has had a major chilling effect on coastal regulators across the United States. The shorthand understanding of Lucas has been that regulators cannot prohibit development of coastal property without running afoul of the Takings Clause, and since state and local governments lack the funds to buy all of the land along the coast that is ill-suited for development, they are left no choice but to allow the development to proceed. Rational buyers of real estate are deterred to some degree from investing in the coastal zone by the threat of sea-level rise. But the combination of unscrupulous real estate developers, the natural tendency of individuals to downplay the significance of low-probability risks, and the perverse incentives created by federal flood insurance and disaster polices, means that citizens continue to over-invest in the coastal zone.

What Should Be Done?

Overturn or adopt a narrow reading of Lucas

Only the Supreme Court can fix the Lucas decision, and the Court is generally reluctant to overturn its prior precedents. But there is reason to hope that, over time, given the overwhelming evidence of sea-level rise, the Supreme Court may come to think better of its Lucas decision, leading either to its outright reversal or its reinterpretation so that it does not stand in the way of restrictions on land threatened by sea-level rise.

As discussed above, the Court said that a takings claim may be defeated by showing how a regulatory restriction parallels background principles of nuisance or property law. While some courts and commentators have interpreted this background principles defense narrowly, it’s possible that the Supreme Court could give it a broader reading. For example, the Court has said that background principles could defeat a takings claim by “the corporate owner of a nuclear generating plant, when it is directed to remove all improvements from its land upon discovery that the plant sits astride an earthquake fault.” It is hardly farfetched, depending on the pace of sea-level rise, to see developing a residential community on the eroding ocean shore as creating a probability of harm comparable to building a nuclear power plant above an earthquake fault (if not harm of a similar magnitude).

The Lucas Court also has said that takings liability may be defeated where the government is acting to address an emergency, including when “grave threats to the lives and property of others,” might be avoided. While this exception has generally been understood to involve threats of imminent harm, such as a wildfire, it might sensibly be extended to apply to the threat of sea-level rise due to climate change. As Professor Robin Craig has observed, climate change and its threatened coastal impacts can be analogized to the kinds of emergencies that have stood as a bar to takings liability in other contexts. As she puts it, “[a]s sea-level rise becomes an increasingly pressing concern . . . [state courts] could choose to evolve their common-law doctrines away from a strict emergency requirement, making them more supportive of longer-term governmental actions to address this problem.”

Finally, it is possible that there is no longer a solid majority of Supreme Court justices willing to stand behind the Court’s Lucas opinion. Justice Anthony Kennedy often served, in takings cases as in other types of cases, as the swing vote on the Court. In Lucas, he concurred only in the judgment, arguing that the reasonableness of a claimant’s investment expectations should be a relevant factor in takings analysis, even if a regulation deprives the owner of all economically viable use. He continued:

[R]easonable expectations must be understood in light of the whole of our legal tradition. The common law of nuisance is too narrow a confine for the exercise of regulatory power in a complex and interdependent society. The State should not be prevented from enacting new regulatory initiatives in response to changing conditions, and courts must consider all reasonable expectations whatever their source. The Takings Clause does not require a static body of state property law; it protects private expectations to ensure private investment. I agree with the Court that nuisance prevention accords with the most common expectations of property owners who face regulation, but I do not believe this can be the sole source of state authority to impose severe restrictions. Coastal property may present such unique concerns for a fragile land system that the State can go further in regulating its development and use than the common law of nuisance might otherwise permit.

Justice Kennedy’s replacement could change the equation, one way or another. But if the Kennedy viewpoint gains ascendancy on the Supreme Court, the Lucas decision should no longer be a barrier to restrictions on development of coastal lands facing inundation and destruction from sea-level rise due to climate change.

Acquire and relocate communities threatened by sea-level rise

But restricting new development along the seashore addresses only one aspect of the challenge presented by sea-level rise and the prospect of more severe hurricanes and other storms. The other challenge is that enormous stretches of coastlines that have already been heavily developed are threatened with inundation and destruction. Significant portions of Louisiana, Maryland, and Florida are seriously threatened by sea-level rise over the next 200 years. According to one report, based on projections developed by Zillow, nearly 1 million Florida properties worth more than $400 billion are at risk of being submerged by rising seas.

Recognizing the unavoidable need to get out of harm’s way, how will individuals, families and entire communities manage to move to higher, safer ground? One option is to simply rely on individuals’ own motivation to leave their threatened communities. The difficulty with this approach is that purely voluntary migration is likely to leave the poorest, the least educated, and the least physically able behind, imposing a disproportionate burden on those most vulnerable. In addition, even as a community hollows out due to out-migration, the need to provide infrastructure (roads, water, sewer, etc.) and services (education, trash collection, social services, etc.) to those who remain will continue. Over time, the costs of sustaining all these facilities and services will be imposed on fewer and fewer taxpayers with a shrinking capacity to pay. It is easily predictable that community financial (and social) collapse will arrive before communities are literally inundated by water.

A potentially superior alternative is a program of organized retreat managed by government. Mandatory evacuations are an infrequent but not completely unfamiliar response to hazardous conditions. During Hurricane Sandy, for example, New Jersey Governor Chris Christie ordered temporary evacuation from all barrier beaches from Cape May to Sandy Hook. In limited circumstances, local communities have ordered the removal of coastal structures facing imminent collapse that pose serious risks to human life and welfare. But mandatory relocations of entire communities threatened by sea level rise would represent an interference with private property interests and human lives on a far vaster scale.

One option would be use of eminent domain power to accomplish coastal retreat. The Takings Clause did not create the power of eminent domain; rather, this power is generally regarded as an essential attribute of sovereignty. Under the Takings Clause, eminent domain can only proceed if it is for a “public use” and the government is able and willing to pay “just compensation.” Under the Supreme Court’s 2005 decision in Kelo v. City of New London, the term public use is synonymous with “public purpose.” There is no legitimate room for doubt that relocating individuals and communities from the path of threatening seas would serve a public purpose. In theory, eminent domain for coastal retreat purposes could be exercised by the federal, state, or local governments.

One obvious advantage of the use of eminent domain is that entire communities could be moved together at one time, leaving no one to fend for themselves in a dying community and creating the opportunity to keep communities intact at new locations. But the very effectiveness of this tool would also likely be a source of great controversy, especially if some members of the community contested the need for relocation. Public concerns about the use of eminent domain might be mitigated by a condition that a supermajority of the affected community affirmatively votes in favor of relocation.

Calculating the amount of “just compensation” due under the Takings Clause also would be complicated. In general, just compensation is equated with a property’s fair market value as determined by evidence of actual market transactions involving comparable properties. Under this traditional approach, estimating the fair market value of properties threatened with sea level rise would prove very difficult. As sea level rise proceeds and (equally important) as public awareness of sea level rise projections expands, demand for coastal properties will naturally decrease and banks will be less willing to finance purchases of such properties, leading to long-term declines in coastal property values. As a result, evidence of past market transactions will be a poor indicator of current market values, much less of future market values. One can imagine scenarios in which property values might remain stable for long periods until a major storm hits or a critical mass of residents starts heading for the exit and the market collapses. That said, the real estate market in Miami, Florida, which is especially threatened by sea level rise, appears remarkably stable, perhaps due to irrational exuberance or investment in real estate as a money laundering tactic. When that market will (or may?) actually begin to collapse is hard to say.

The constitutionally mandated level of “just compensation” (however hard that turns out to be to calculate) need not be the ceiling on payments to property owners affected by sea level rise; governments might choose to make payments above the constitutional minimum. For example, compensation might be awarded based on the value of properties prior to the advent of sea level rise. This additional compensation can be justified on the ground that coastal residents are bearing the brunt of sea level rise but are no more responsible for generating the harm than everyone else. The case for additional compensation is especially strong in the case of the poor or people with disabilities, who are unlikely to have the financial resources or physical capacity to adapt to climate change on their own. The primary argument against awarding compensation above the constitutional minimum is that it would create a moral hazard, that is, a positive incentive against individual adaptation steps. Just as the dysfunctional National Flood Insurance Program has had the perverse effect of encouraging more flood-prone development, overly generous relocation payments could encourage more development in areas at risk of sea level rise. Some possible solutions might include reasonable caps on relocation payments and a firm prohibition on relocation assistance for future purchasers of properties at risk of sea level rise.