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Proposition 99 - California's Trojan Horse Eminent Domain "Reform" Referendum Initiative:

The Institute for Justice has a good analysis criticizing Proposition 99 the eminent domain "reform" initiative that will be on the ballot in California this November [correction: June 3](hat tip: Tim Sandefur). Sponsored by the California League of Cities and other pro-condemnation interests, Proposition 99 purports to protect property rights against takings but actually provides almost no real protection. I discussed an earlier version of Proposition 99 in this 2007 post, where I explained in some detail why it doesn't actually provide meaningful protection to property owners. The current proposal is substantially identical to the earlier one. It is a clever effort to prevent the backlash against Kelo v. City of New London from forcing the enactment of reforms that will genuinely restrict eminent domain in California.

As I show in my article on post-Kelo reform, new laws enacted by referendum have generally given property owners far more protection than those enacted through the ordinary legislative process. In this case, however, pro-condemnation interests are trying to use the referendum system to their advantage.

Indeed, Proposition 99 is likely to actually reduce protection for property rights; that is most likely its main purpose. How? by forestalling Proposition 98, an initiative placed on the ballot by property rights activists that really would forbid Kelo-style "economic development" condemnations and other eminent domain abuses. Absent Proposition 99, Prop 98 is almost certain to pass and enter into law - as have anti-Kelo referendum initiatives in ten other states. Section 9 of Proposition 99 would invalidate any other referendum amendment on eminent domain passed on the same day so long as Proposition 99 receives a greater number of votes than the other initiative does. As I discussed in my earlier post, the interest groups behind Proposition 99 are banking on voter ignorance. Legally unsophisticated voters are unlikely to either notice Section 9 or understand its import if they do. Most will vote for Prop 99 simply because it seems to protect property owners against Kelo-like "economic development" takings - a hugely popular cause supported by some 80% of the public. They may well not understand that a vote for Prop 99 actually prevents property owners from getting any real protection.

As I explain in my comprehensive paper on post-Kelo reform, widespread political ignorance has led to the enactment of numerous eminent domain reform laws that pretend to protect property rights but actually allow takings to continue as before. The California League of Cities' Proposition 99 is a particularly skillfull attempt to use political ignorance to stave off effective eminent domain reform. I hope that it fails, but I'm not optimistic.

CONFLICT OF INTEREST WATCH: I have in the past done pro bono work and written amicus briefs in property rights cses for the Institute for Justice.

UPDATE: I have corrected the link to the IJ analysis of Proposition 99. Thanks to commenters for pointing out the previously flawed link.

UPDATE #2. In response to several commenters who raised the issue, it's worth pointing out that Proposition 98, unlike Proposition 90 (narrowly defeated in 2006), does not have any provisions requiring compensation for regulatory takings. It bans condemnations for "economic development" and other similar transfers to private parties, and therefore will have little or no effect on environmental regulation, rent control or other issues. As co-blogger Jonathan Adler argues in this excellent article, compensating property owners for environmental regulations that restrict their ability to use their land is actually good policy and likely to improve the quality of environmental protection. Be that as it may, Proposition 98 doesn't require any such compensation. In this 2006 article, Adler and I explained why a ban on "economic development" takings of the sort Prop 98 seeks to impose would have beneficial environmental consequences.

UPDATE #3: I had not read Section 6 of Prop 98 as carefully as I should have when I wrote the last update. Section 6 of Proposition 98 specifically exempts preexisting rent control laws from coverage and ensures that tenants who currently reside in rent controlled housing units continue to receive the benefit of those laws. However, Prop 98 would forbid new rent control laws, or the limitation of rent for new tenants under the old ones. That said, the California Constitution makes it easy to enact new amendments, so the voters could still enact new rent control laws if they want to - they would just have to take the form of a referendum initiative or other constitutional amendment.

Smokey:
Excellent summary of the competing propositions. Thanks.
Proposition 99 is likely to actually reduce protection for property rights; that is most likely its main purpose. How? by forestalling Proposition 98, an initiative placed on the ballot by property rights activists that really would forbid Kelo-style "economic development" condemnations and other eminent domain abuses.
[my emphasis]
5.1.2008 4:15pm
Dale C. Wyckoff (www):
The link to the Institute for Justice article points to the the The Limits of Backlash: Assessing the Political Response to Kelo article.

One question I've had for some time about Kelo. I live in California, land of Prop 13. (Prop 13 limits the assessed value of a property for real estate tax purposes. The assessed value is limited to a 2% per year increase.)

What protection is there for someone who's lived in their home since say 1972. Could, in theory, a county take their home and resell it for the higher property taxes? I'm sure it would be political suicide, but would such a taking be permitted under Kelo?

Dale
5.1.2008 4:27pm
Casual Peruser:
Ilya--

I'm interested in your reaction to the argument that Prop 98 proponents are muddying the waters by reaching rent control and environmental regulation as well. That's what killed California's last attempt at eminent domain reform, and it appears true believers have not learned the lesson from that experience.
5.1.2008 4:40pm
Tony Tutins (mail):
Count me in with Casual Peruser. The Prop 98 commercials featuring a little girl sobbing as she loses her home and friends warn voters not to pick the other proposition, but do not say that voting for Prop 98 will eliminate rent control.

In renting-vs-buying news: my friends who have been renting a house for the past seven years just received a 60 day notice. Rents for comparable houses in the area are 20-30% higher. For essentially the same house as mine, they will be paying three times my mortgage payment. So along with fixing one's monthly housing costs, the advantage of homebuying is freedom from fear a landlord will dispossess you.
5.1.2008 4:51pm
Ilya Somin:
Could, in theory, a county take their home and resell it for the higher property taxes? I'm sure it would be political suicide, but would such a taking be permitted under Kelo?

Probably yes.
5.1.2008 5:07pm
wooga:
After reading the 98 and 99 arguments in the official California primary guide, I admit I was confused as to which one of the two is truly anti-kelo, and which was the sham provision. Both sides are accusing the other of being a sham, both are accusing the other of being funded by big developers.

Tacking the rent control provision onto 98 was a huge mistake. It allows the 99 scam to harp on "98 is supported by greedy slumlords, and everybody hates slumlords!" argument. If the rent control wasn't in there, the entire 99 scam would have been dead in the water. Oh well, I'm still voting for 98, but those greedy slumlords have probably screwed themselves - and me.
5.1.2008 5:08pm
wooga:
Incidentally, I was really amazed at how the Sec State primary guide arguments were essentially just ad hominem rants. It was really pitiful.
5.1.2008 5:10pm
Ilya Somin:
The Prop 98 commercials featuring a little girl sobbing as she loses her home and friends warn voters not to pick the other proposition, but do not say that voting for Prop 98 will eliminate rent control.

That's because it won't.
5.1.2008 5:11pm
Ilya Somin:
I'm interested in your reaction to the argument that Prop 98 proponents are muddying the waters by reaching rent control and environmental regulation as well. That's what killed California's last attempt at eminent domain reform, and it appears true believers have not learned the lesson from that experience.

Prop 98 does not affect either rent control or environmental regulation. Prop 90 from back in 2006 did cover some of these issues (though not rent control), but 98 doesn't. I think that banning rent control would be an excellent idea myself, but the issue has nothing to do with Prop 98.
5.1.2008 5:13pm
Kevin Murphy:
wooga--

"Slumlords" are helped by rent control, and hurt by its removal. Since they are the last choice of renters, they profit only when supply is tight -- something rent control accomplishes quite well.
5.1.2008 5:13pm
Kevin Murphy:
The really weak part of Prop 98 is the two-subject prohibition for initiatives. The state courts have been willing to trot that clause out whenever the initiative threatened state interests, as this surely would. Oddly, raising taxes on X to fund something totally unrelated has never been subject to the rule, but constraining government gets strict scrutiny.
5.1.2008 5:15pm
Dilan Esper (mail) (www):
I hate the initiative process, and this sort of thing is one reason why.

I would note, however, that there is a sauce for the goose aspect to this (even though I support reversing the effect of Kelo). Moneyed interests have for years played games with liberal initiatives, doing the same thing, putting a preemptive initiative with the same subject matter but weaker provisions on the same ballot and trying to knock the liberal initative out through preemption. Or they wait until the next ballot and put an initiative on the ballot that purports to do the same thing that was already done, when in fact it weakens it.

It's a big racket, and now the California business community is seeing the tactics that they perfected thrown back at them.
5.1.2008 5:23pm
OZ:
Ilya asserts, without any argument or explanation, that Prop. 98 does not eliminate rent control. It does, through the definition of "taking" which is part of Prop. 98:

"Taken" includes transferring the ownership, occupancy, or use of property from a private owner to a public agency or to any person or entity other than a public agency, or limiting the price a private owner may charge another person to purchase, occupy or use his or her real property.

Rent control obviously limits the price a private owner may charge another person to . . . occupy or use his or her real property. As such it is a "taking" under Prop. 98. But it is a taking for the benfit of a private party (the renter) and therefore illegal. So, Prop. 98 does outlaw rent control.
5.1.2008 5:31pm
Jeff R.:
What parts of California are under Rent Control, anyhow? (I know that Berkeley is, but I've no idea if anywhere else is...)
5.1.2008 5:39pm
Eric E (mail) (www):

the eminent domain "reform" initiative that will be on the ballot in California this November...


Minor correction: this is actually being voted on June 3, 2008, not November. Official voter guide is here.
5.1.2008 5:47pm
Dale C. Wyckoff (www):

What parts of California are under Rent Control, anyhow? (I know that Berkeley is, but I've no idea if anywhere else is...)


You can find a list here.

I'm a commercial real estate appraiser in the San Francisco Bay Area. We have rent control in Berkeley, East Palo Alto, Hayward, Los Gatos, Oakland, San Francisco, and San Jose.

I've been in many rent controlled units. It's almost funny to see walls covered with expensive electronics and rent at 1970's levels.

Dale
5.1.2008 5:54pm
Ilya Somin:
Ilya asserts, without any argument or explanation, that Prop. 98 does not eliminate rent control. It does, through the definition of "taking" which is part of Prop. 98:

"Taken" includes transferring the ownership, occupancy, or use of property from a private owner to a public agency or to any person or entity other than a public agency, or limiting the price a private owner may charge another person to purchase, occupy or use his or her real property.


Section 6 of Prop 98 specifically exempts preexisting rent control laws from coverage:


The provisions of this Act shall become effective on the day following the election ("effective date"); except that any statute, charter provision, ordinance, or regulation by a public agency enacted prior to January 1, 2007, that limits the price a rental property owner may charge a tenant to occupy a residential rental unit ("unit") or mobile home space ("space") may remain in effect as to such unit or space after the effective date for so long as, but only so long as, at least one of the tenants of such unit or space as of the effective date ("qualified tenant") continues to live in such unit or space as his or her principal place of residence.


5.1.2008 5:59pm
Ilya Somin:
It's a big racket, and now the California business community is seeing the tactics that they perfected thrown back at them.

SInce it is not the "business community" which sponsored Prop 98 or is the main victim of takings, I don't see how this follows.
5.1.2008 6:04pm
Cornellian (mail):
Ilya, here's what you said earlier in this thread

Prop 98 does not affect either rent control or environmental regulation. Prop . . . I think that banning rent control would be an excellent idea myself, but the issue has nothing to do with Prop 98.

And here's what you've said just above this comment:

Section 6 of Prop 98 specifically exempts preexisting rent control laws from coverage:

. . . except that any [law] that limits the price a rental property owner may charge a tenant . . . may remain in effect . . . for so long as, but only so long as, at least one of the tenants of such unit or space as of the effective date . . . continues to live in such unit or space as his or her principal place of residence.


In other words, Prop 98 will prohibit all new rent controls and gradually eliminate all existing rent controls as tenants move or die.

This being the case, I wonder what explanation you have for stating earlier than rent control "has nothing to do with Prop 98."
5.1.2008 6:10pm
Dale C. Wyckoff (www):
Re: Rent control exemption from Prop 98.

It's my understanding that as long as a tenant occupying a rent controlled unit stays in the unit the preexisting rent control laws remain in effect. Once that unit is vacated Prop 98 rent control laws become effective as to that specific unit. So there is no rent control for the next tenant.

That understanding is consistent with Section 6 as quoted by Ilya Somin.

So it phases out rent control but protects existing tenants.

Dale
5.1.2008 6:15pm
Ilya Somin:
Ilya, here's what you said earlier in this thread

Prop 98 does not affect either rent control or environmental regulation. Prop . . . I think that banning rent control would be an excellent idea myself, but the issue has nothing to do with Prop 98.

And here's what you've said just above this comment:

Section 6 of Prop 98 specifically exempts preexisting rent control laws from coverage:


I had not read Section 6 as carefully as I should have when I made the earlier comment. That said, Section 6 does indeed exempt preexisting rent control laws from coverage.
5.1.2008 6:17pm
Justin Levine:
Sorry Ilya, but any discussion about Prop. 98 without a discussion of its rent control provisions is completely misleading. You might not think it is important compared to the Kelo issues, but it remains a key part of the proposition that many of us consider to be a more pressing issue than government takings.

You claim flat-out in your later comment that Prop. 98 won't eliminate rent control. Are we reading the same Propositions??

Prop. 99 is a completely dishonest attempt to eliminate rent control in California. That is what it is Really about. You ought to amend your post to at least acknowledge that the issue exists in the debate over Prop. 99 and recognize that it is a far more important issue for many voters than Kelo/taking issues (especially with the recent spike in home foreclosures - forcing many more families to rent in the state).
5.1.2008 6:38pm
Justin Levine:
Oops! The last paragraph in my last comment above should read Prop. 98 (not "99"). Even I get confused on this. Hopefully it wont happen at the ballot box.
5.1.2008 6:41pm
Justin Levine:
Ilya - OK. Just read your Update # 3 which was likely posted as I was writing my own comments.

Fair enough - but I still think the rent control issue is important enough to reconsider the very premise of post in support of the Proposition, rather than an offhanded admission in an update tacked on near the end.
5.1.2008 6:44pm
OZ:
Ilya's statement that "section 6 does indeed exempt preexisting rent control laws from coverage" is highly misleading. As others have noticed, all it exempts is rent control of preexisting rent controlled spaces, but only as long as those spaces are occupied by persons who were the tenants thereof as of the effective date of Proposition 98. Thus, after Proposition 98 becomes law, it will be impossible to move into a rent controlled space.
5.1.2008 6:48pm
Dilan Esper (mail) (www):
SInce it is not the "business community" which sponsored Prop 98 or is the main victim of takings, I don't see how this follows.

There certainly is big business support for an aggressive interpretation of the takings clause. They are hardly the only or the most vociferous supporters, but many businesses would stand to benefit immensely from, e.g., a stronger regulatory takings doctrine.
5.1.2008 7:38pm
Cornellian (mail):
I had not read Section 6 as carefully as I should have when I made the earlier comment.

I suspect the people behind Prop 98 are hoping the voters make the same mistake. It seems Prop 98 is something of a Trojan Horse itself.

It would be unfortunate if an otherwise commendable anti-taking measure foundered because someone thought it would be a good idea to tack on an extra section that gradually abolishes rent controls in the hopes that the many well organized tenants' rights associations in California just wouldn't notice.
5.1.2008 8:42pm
Paul B:
The proponents of Proposition 98 will go down to defeat (either through outright loss or through fewer votes than Prop 99) due to the lethal combination of their own stupidity and greed. Trying to phase out rent control as part of an anti-condemnation initiative is the sort of overreaching that almost always leads to referendum defeats in California.

Professor Somin does not exactly get a high grade for integrity when he disingenuously says "Section 6 does indeed exempt preexisting rent control laws from coverage." It does no such thing. It exempts existing tenants, not the preexisting rent control laws that would otherwise cover new tenants.

And as for saying that if voters don't like this particular part of Proposition 98, they can always organize for a new initiative to change this section,you know this proposition is in deep trouble when you have to make that argument.

As someone who has been a California landlord, I am not in favor of rent controls. As a voter who would like to see an end to Kelo like abuses by city redevelopment agencies in this state, it is depressing to see sponsors of an initiative and their academic apologists destroy the chance of success by their too clever by half efforts.
5.1.2008 8:45pm
David M. Nieporent (www):
There certainly is big business support for an aggressive interpretation of the takings clause. They are hardly the only or the most vociferous supporters, but many businesses would stand to benefit immensely from, e.g., a stronger regulatory takings doctrine.
But this isn't about regulatory takings, so what's your point?
5.1.2008 8:58pm
Fearless:

However, Prop 98 would forbid new rent control laws, or the limitation of rent for new tenants under the old ones. That said, the California Constitution makes it easy to enact new amendments, so the voters could still enact new rent control laws if they want to - they would just have to take the form of a referendum initiative or other constitutional amendment.


That is an equally good argument for rejecting Prop 98 and writing a new amendment that does not include such restrictions in the first place.

In fact, this is a good argument for not worrying about whether Prop 99 succeed while Prop 98 fails.

In fact, this is a good argument for not caring about the outcome of referendums at all.

In other words, it really is not a good argument.
5.1.2008 9:17pm
Fearless:

I'm sure it would be political suicide, but would such a taking be permitted under Kelo?


That doing X is political suicide is good reason not to include provisions forbidding X in the Constitution.
5.1.2008 9:19pm
markm (mail):
Fearless: No, "it's political suicide" doesn't prevent politicians from doing it, it just means that they take great care in selecting who to do it to, and in smearing their victims.
5.1.2008 9:36pm
Paul B:
For those of you who are not familiar with California politics, in particular the politics of initiatives, let me make an educated guess why the rent control phaseout clause was included.

The magic word is 'money.' Any initiative can be put on the ballot via citizen petition if someone is willing to put up enough money to hire the companies that specialize in hiring petition gatherers outside every shopping center, big box store and coffee shop (google 'Pruneyard' if you want to understand the legal rights of petitioners)in order to get sufficient signatures to place the initiative on the ballot. In order to get Proposition 98 on the ballot, I'm sure that apartment owners in rent controlled cities funded this initiative in exchange for a clause that would solve their problem.

The irony of this all is that it's not obvious to me that a direct initiative dealing with rent control would not work. That well known center of the vast right wing conspiracy, Massachusetts, eliminated rent control all together without protecting existing tenants through the initiative process. While a significant number of California cities have rent control ordinances, only a minority of them are written in such a way that they significantly affect a landlord's ability to do business, and only a couple, most notably Berkeley and Santa Monica, have clauses that restrict what a new tenant can be charged.

A little more intelligence and a lot less clever scheming would help initiative proponents of all political perspectives.
5.1.2008 9:38pm
BerkeleyBeetle:
Berkeley no longer restricts what a new tenant can be charged, due to state legislation (Costa-Hawkins Rental Housing Act, 1995). I would imagine Santa Monica's laws would be similarly invalid, though I wouldn't know.

One theory I've heard is that the point of Prop 99 wasn't to eliminate prop 98 by passing, but to make things confusing enough that voters will just vote them both down.
5.1.2008 9:58pm
Fearless:

Fearless: No, "it's political suicide" doesn't prevent politicians from doing it, it just means that they take great care in selecting who to do it to, and in smearing their victims.


This is really just an argument that doing X is not political suicide.
5.1.2008 10:07pm
Tony Tutins (mail):
Ilya, my understanding of the propositions comes from the sample ballot; I haven't gotten the proposition pamphlet yet. The rent control part of the proposition summary is terse.
5.2.2008 1:19am
Perseus (mail):
Berkeley no longer restricts what a new tenant can be charged, due to state legislation (Costa-Hawkins Rental Housing Act, 1995).

That is also my understanding for all cities in California. New tenants may be charged whatever the market will bear, but cities may cap annual rent increases (which are tied to the CPI) until the tenants vacate. So Prop. 98 will eliminate the power of cities to cap rent increases during tenancy.
5.2.2008 1:37am
Smokey:
Paul B:
The irony of this all is that it's not obvious to me that a direct initiative dealing with rent control would not work.
Proposition 10 proposed exactly that. It lost badly.

Since Prop. 98 protects current tenants, and since state law allows the market to set rents on a vacated apartment, then who is being hurt?

The San Jose rent control ordinance, for instance, allows an annual 8% increase. If the rent has not been increased for the past 2 years, the owner may increase the rent by 15%. If three years have elapsed since the last increase, the owner may increase the rent by 21%.

These percentages are far more than the market will bear. So the question remains: what tenant would be hurt by the passage of Prop. 98?

Rent control is a bogus non-issue. The central question is: do the citizens want to reverse the Kelo decision?
5.2.2008 5:55pm
calwatch:
Rent control is still an issue, because there are cities such as Los Angeles with rent control but no just cause eviction provisions. As such, it is trivial for a landlord with a renter on month to month to simply evict the tenant and put in a new tenant. One could do so for all of their non-lease tenants, or refuse to renew leases, all at once. Thus, the entire building would be on market rents, forever. There would be an expense in getting new tenants, and the existing tenants would probably be upset, but it would be completely legal. So Rent Control is still an issue, and I think that local cities have the right to regulate their landlords as they see fit.
5.3.2008 5:55am