INROADS TOWARD POSITIVE LAND USE MANAGEMENT

A Land Value Adjustment Proposal

SOu"'fiTHRN OREGON UNIVERSITY LIBRARYASHLAND, OREGON 97520

FOREWORD

One of the thorniest problems in land use planningis how we may make it work for positive purposes and removeits negative connotations. It is with this idea in mindthat we present to Oregonians this report, "Inroads TowardPositive Land Use Management -- A Land Value AdjustmentProposal."

This exploration of compensation and land valueadjustment theories provides a look at one approach toeffective and fair land use management.

Our state is one of very few which regards protectionof the environment as a priority. Land use regulation isone of the most important elements in maintaining livabilityin Oregon. But, as we agree to regulations, we must alsomake provisions for preservation of the traditional rightsand expectations of landowners.

Two concepts should be included in any land valueadjustment discussion. First, the landowner who suffersa monetary loss as a result of government action shouldbe compensated to some degree for the forced change inhis expectations. Second, it is equally important forthe public to capture some of the benefit from governmentdecisions which increase land values. Ideally, both sidesof this proposition will balance.

Recent advances in land use management haveeliminated much of the enrichment of land gamblers at theexpense of the environment. These regulations should nothowever, make the landowner a pawn of government and forcehim to lose just return from his property.

We know the ideas in this report will not beadopted in final form. Much more exploration of these issuesis needed before legislation can be drafted to implementtheories expressed in this report.

The pros and cons of compensation will be studiedfor many years, but let's not put the discussion off any longer.

Governor

I

Interchange land ok'dfor commercial uses

Property owners at allfour intersections of Inter-%tate 5 south of Salem will,e able to sell or developtheir land for commercialpWe.-, This was made possible

lVednesday when the Mafioz,j:ounty Board of Commis-sioners approved a changeIn the comprehensive plan.

The comprehensive planhad called for reducing theInterchange districts (ID)tones from four totwo-namely the Sunnysideand Talbot inter-changes-and limiting the

Ankeny Hill and North Jef-ferson interchanges to resl-dential-agricultural uses.

Property owners, mostlyrealtors and developers,called it "confiscation with-out compensation for loss ofvalue."

Salem Capital Journal(May 30, 1974)

The paradox between maintaining a prosperousstandard of living--translated to mean growth with more peo-ple, more industry and more conversion of land from rural tourban uses--and preserving the present quality of life by dis-couraging growth and slowing the process of urbanization isplaguing society.

The news story above reflects the dichotomy sometimesexhibited when elected officials must decide to either hamperfinancial gains and development potential of land or curtailthat movement to sustain the area's livable quality.

As concern for the land and environment has grown,the people have urged more and stronger controls. It is ironic

however, that the negative nature of current regulations hascreated tensions and some explosive conflicts.

These conflicts and the inconsistency between beliefin regulation and willingness to have it imposed personallyare reflected in a recent survey of Willamette Valley residents.

The survey shows Oregonians are not opposed toregulated land use concepts. People point with ease to heavilypopulated, polluted, sprawling urban sectors to justify morecontrols. Regulation is characterized as the catch-all tocombat the problems of threatened prime farm land or fertileareas facing sterility from overuse.

Most of the residents surveyed named preservation ofprime farm land as a first priority of elected officials. Morethan three-fourths of the respondents favored either stoppingor slowing growth in the Willamette Valley.

However, when regulation was applied to personalliving situations, the survey answers reflected an antagonizingcontradiction with idealistic beliefs taking a back seat toreality.

The majority of residents desired to continue livingin single family dwellings, despite favoring maintenance ofprime farm land, and nearly half of the questionnaires werefavorable toward encouragement of industrial growth. Mostrespondents stated "everyone should have the right to live inthe country."

Land use regulations are not only hindered by thisfluctuation of public attitudes. Conflicts over land use areperpetuated by the negative nature of current regulations.Zoning ordinances on the surface appear to permit uses butactually operate as "thou shalt nots." They canallow or pro-hibit specific types of development but because of their nega-tive character cannot actually generate the land uses delineatedin the plan.

These regulations also generally work in oppositionto economic forces. Speculation on any land focuses attentionon government action which can expand or restrict the potentialuse of land.

When determining land uses, a governing body isextremely susceptible to pressures. The vital issues, with thepolarity of personal attitudes playing a key part, often becomea political and economic merry-go-round. Positive land usedecisions cannot be sustained until tools are developed to easethis emotional inconsistency.

-2-

Ik

BASIC RIGHTS

The roots of the dilemma surrounding land usemanagement are deep in society as a result of an Americanphilosophy steeping citizens in the tradition of privateproperty ownership.

The role of private property was so crucial it wassingled out in the Fifth Amendment of the Constitution whichstates, "...nor shall private property be taken for public usewithout just compensation."

Former Attorney General Ramsey Clark noted, "thereis no more vital concept in the Constitution for it protectsthe citizen in his property, and freedom cannot exist in apropertyless state."

Status of land ownership was augmented by promotionof settlement in the nineteenth century. Farm loan programs,property tax relief measures and extensive federally-guaranteedmortgage financing for single-family housing have continuedthis thrust in recent times.

Ownership of land as an investment has been a goodhedge against inflation, increasing in value about 260 per centin the last 13 years. Land figures stronglyin the economicbase, enabling many to borrow and participate in the UnitedStates credit economy. Land ownership has also been a meansfor economic and social upward mobility with real estate ahigh proportion of the investment of low and middle incomefamilies.

Dr. Emery Castle, professor of agricultural economics,Dean of the Graduate School at Oregon State University and amember of the Land Value Adjustment technical advisory committeecommented on the social implications of land ownership, espe-cially by lower-income groups:

"We often assume that property owners are the wealthyof the nation," he told a legislative committee on land use inFebruary. "Such a viewpoint overlooks the fact that we havelabored long and hard in this country to create an economicand social environment that will permit nearly anyone who isin the mainstream of economic activity to own their own home...

"It is my belief that investment in real property,by virtue of debt possibilities, represents one of the princi-pal means by which the person of average or lower than averagemeans can acquire an estate."

.I

-3-

THE INTANGIBLES OF OWNERSHIP

Much of the conflict surrounding land use managementarises from assuming the right to ownership includes a rightto use or develop land at the owner's discretion. A landownerconsciously or unconsciously develops expectations about howhis land will figure into his future.

This intangible issue of individual expectancy iscaught in the balance between private and public control overland uses. Individual expectancies do not necessarily meetpublic needs when determining the uses of land. The tradi-tional view of land as a commodity to be used at the discre-tion of its owner is challenged by those who view land as adwindling resource.

Blatant abuses of the land have triggered the publicto scream for additional controls and tolerate governmentintervention in the private realm of land use. But, thisintrusion must be delicately balanced with the private landmarket while not ignoring the legitimate aspects of individualexpectancy and speculation in land ownership.

As restrictions continue to cut into individualexpectancy, fears are expressed that society will be disruptedbecause personal control over property is being eroded bygovernment regulation.

It is the negative character of traditional controlswhich aggravates this public versus private conflict.

Clashes arise when landowners face substantialfinancial loss as a result of government action. Governmen-tal bodies trying to rectify past mistakes by "downzoning"may catch landowners in financially damaging situations.

For example, a city may decide the practice of stripcommercial development along main arterials should be changedby downzoning the undeveloped land to residential use. Thistechnique may prohibit an undesired pattern of development butdoes nothing to generate the new use.

The owner has usually been paying property taxesbased on values reflecting the commercial potential and afterthe downzoning the property is worth considerably less thanthe previous value.

Arguments arise that this downzoning violates theconstitutional provision of a "taking without just compensa-tion." The courts have rigidly interpreted that clause torequire a taking to be a regulation which deprives an owner

-4-

of all reasonable use of his land. Usually, loss of two-thirds of the pre-regulated value of the property is necessarybefore the court orders compensation.

STRONGER CONTROLS

Land values are now being influenced by new typesof land use controls. Urban service boundaries, areas ofcritical environmental concern, shoreline and wetlands manage-ment programs, time phased development and design ordinancesare examples of new, highly restrictive land use regulations.But these controls are negative and provide no incentive forpositive implementation of land use plans.

The pressure for conversion to urban uses demonstratesthe inability of zoning and the ineffectiveness of systems suchas property tax deferrals in slowing the loss of prime agricul-tural lands.

In 1972, several applications to subdivide werereceived by Marion County for a large farm area northeast ofWoodburn which had been zoned for acreage subdivision. Strongopposition arose to changing the actual land use so the countycommissioners affirmed agriculturally related uses for about3,500 acres.

Reaction to this downzoning was split. Many farmerson large tracts viewed the act as an aid in stabilizing landvalues and property taxes. On the other hand, some residentshad purchased smaller parcels intending to subdivide and thedownzoning meant destruction of their expectations and a poten-tial decrease in property values.

The controversy is now in court and the decision couldhave a significant impact on Oregon land use regulations.

Land use plans and zoning regulations have untilrecently been viewed as temporary guidelines, flexible to mar-ket forces. The market has traditionally reflected actions ofthe local assessor who taxes land on potential use and saleprice rather than the uses allowed.

The status and flexibility of the land use plans hasbeen changed by a recent Oregon Supreme Court decision, Fasanoversus the Board of Commissioners of Washington Count. An

applicaintfor a pIan change must now demonstrate a public needfor a different use of land. Although the decision providesa firmer ground for plan implementation, the regulatory natureof land use management and the dichotomy of private versuspublic interests is not addressed.

-5-

WIPEOUTS AND WINDFALLS

Land use controls usually tall short of intendedpurposes because they fail to meet economic realities. Govern-ment actions establish the foundation for land values by deter-mining uses. Often, results of government are either a wipe-out (worsening) or windfall (betterment) to the landowner.

WIPEOUTS

When government regulation reduces the developmentpotential of private land and it results in a decrease of themarket value, the landowner suffers a wipeout.

There are both obvious and subtle regulations affect-ing development potential and market value of land. The 1973Oregon Legislature recognized this wipeout issue in Portlandby providing monetary relief to property owners affected byexclusive bus lanes.

In some cases, wipeouts can eliminate almost allpotential uses and expectancies of land use without beingrecognized in court as an unconstitutional taking of propertyrequiring compensation.

WINDFALLS

Windfalls are created by governmental decisionsenhancing the land's development potential and market value.Government funded or sanctioned improvements and propertyupzoning usually work hand-in-hand in creating windfall profitsfor the property owner. I

A freeway interchange often makes remote land alucrative investment and water and sewer facilities tend tostimulate or aid development with matching increases in mar-ket value. Development potential and land value increases ina concentric pattern, centering around schools, parks, airports,mass transit terminals and other public investments.

Windfalls and wipeouts are more than just the resultsof conscious land gambling. All landowners speculate or holdexpectations about government's influence on their land withtheir economic outcome depending as much on the official deci-sion as on any physical effort expended with the land.

More negative land use controls will simply continuehigh-risk gambling on government action. The repercussionscan be political pressures, arbitrary planning decisions and

-6-

i

centralization of the land market with a few large andinfluential developers. If this trend continues, it threatensto unleash a backlash of public sentiment against land usemanagement.

The effects of government action on land values canbe neutralized, alleviating the consequences of speculation ongovernment action. Wipeouts can be minimized or prevented andwindfalls tempered or recaptured. These negative elements andresults of land use management can be substituted with the posi-tive tools of land value adjustment.

FIRST ATTEMPT -- SENATE BILL 849

The need to resolve conflicts between private andpublic interests in land was highlighted in the 1973 Oregonlegislature. It became evident in early hearings on SenateBill 100, the state land use planning bill, that to facilitateeffective land use management the inequities of negative con-trols had to be mitigated.

An advisory committee of planners, economists, devel-opers and realtors was formed to examine the nature of theseinequities and develop new methods for their resolution.Although both sides of the "windfalls and wipeouts" issue wereexplored, because of the time limitations of the study, primaryemphasis was given to the compensation aspect.

The result was the Land Value Adjustment Act of 1973,Senate Bill 849. Coming too late in the session for seriousconsideration, the bill was introduced primarily for discussion.It brought the issue of compensation and an imaginative approachto the problem to the attention of the legislators.

Public interest in SB 849 was tremendous, both locallyand nationally. In committee hearings reactions to the specificsof the bill were mixed but all the testimony favored some formof compensatory mechanism.

As a result, the enacted SB 100 included a clausecharging the new Joint Legislative Committee on Land Use tostudy and make recommendations to the next Legislative Assemblyon a program of compensable regulation.

Senate Bill 849 tried to satisfy both public andprivate interests by recognizing property as a collectivityof rights, privileges and interests. When a land use ordinanceor regulation infringed upon a portion of those rights, thevalue of that portion could be separated from the collectivityand be compensated.

-7-

I

In SB 849, three areas of land management weredistinguished: (1) zoning and similar ordinances; (2) tem-porary land reservation; and (3) permanent land preservation.Compensation would have been provided by the state if a localgovernment requested and met state criteria.

In the first delineated area of land management, ifan ordinance or zone had caused a landowner significant eco-nomic loss, compensation would have been "after the fact" or"remedial." The bill allowed the landowner to choose betweentwo methods of compensation.

The interest acquisition compensation method wouldhave allowed purchase of the restricted interest of the landby the state on behalf of local governmental bodies. Titleto the land's remaining development rights, interests andpermitted uses would have been retained by the landowner whocould transfer them freely.

A second landowner's option for compensation wasthe guarantee of a "fair sale price." At the time of sale,the state would have subsidized the difference between the"fair sale price" and the actual sale price. The state wouldalso have retained the right of first refusal to buy the landat the "fair sale price" when the landowner wished to sell.This provided an offset to intentional low-bidding.

The second type of land management, temporary landreservation, would have been used to contain urban sprawl andfacilitate time-phased growth and development.

In addition to interest acquisition and guaranteedsale price methods, the landowner could have also chosen alease/option method of compensation. The state would havetaken a lease of an appropriate interest in the land, retain-ing the option to buy on a first-refusal basis. The landownerwould have retained use of his land with the new restrictions.

Permanent land preservation, the third type of landmanagement, was designed to retain fragile or irreplaceablelands. A willing seller was necessary to acquire land forpermanent land preservation. When the landowner did not wishto sell, the state could have taken a lease on the land withthe option to buy or could simply secure the right of firstrefusal to apply at the sale time.

The county assessor or competent appraiser wouldhave established valuation interests in the land for acquisi-tions, leases and guaranteed sale prices. Arbitration wasestablished as the means to settle disputes about valuation.

-8-

The value of an acquired interest was the differencein land value before and after a regulation took effect. Theguaranteed sale price would have been determined by the currentvalue of the land, adjusted to reflect fluctuations in theConsumer Price Index.

The state's acquired interest would have remainedwith the land, irrespective of transfer in private ownership.Any subsequent transaction by the landowner could have involvedonly his remaining interest. Tax assessments on the land wouldhave reflected only the landowner's remaining interest.

SB 849 required the state to review and approve eachapplication for compensation. Primary responsibility for com-pensation rested with each local qovernment. The state wouldhave provided funding and completed appropriate transactions onbehalf of the local government, provided the regulation wasconsistent with state and local land use policy. Financingwould have been provided by issuing general obligation statebonds.

Senate Bill 849 introduced valid concepts in seekinga positive land use management tool. The need to keep thestate out of the real estate business and limit costs was astrong consideration of this legislation. The landowner wasgiven a choice of methods of compensation. Eminent domainwas expressly prohibited in the bill for executing Land ValueAdjustment.

An important aspect of SB 849 was the recognition ofthe importance of preserving the traditional and legitimateaspects of investment while controlling land use.

More importantly, SB 849 introduced two concepts:remedial compensation for past mistakes and a positive mechanismto avoid future conflicts.

Because of the time limitations in developing SB 849,some problems and issues were not addressed. Beneficial publicregulations creating a windfall effect were not discussed. Thebill did not define the "significant economic loss" to be shownbefore compensation could be initiated. Although a ceiling onstate liability was recognized, the 20 per cent limitation forinterest acquisitions precluded compensation of many losses.

The relationship between local governments and theState in compensation proceedings was not adequately defined.Furthermore, the bill did not sufficiently explore the necessityof long range funding to pay for compensation programs.

Despite these ambiguities and omissions, the conceptsintroduced in SB 849 warrant further study.

-9-

A PROPOSAL

Further study of the windfall and wipeout issue andthe merits and shortcomings of SB 849 was refined into thephilosophy of this land value adjustment proposal.

A technical advisory committee worked with the LocalGovernment Relations Division staff in developing this proposal.Committee members included:

Dr. C. Russel Beaton, Department of Economics atWillamette University;

Ms. Claudia Burton, College of Law at WillametteUniversity;

Dr. Emery Castle, professor of agricultural economicsand Dean of the Graduate School at Oregon StateUniversity;

Robert S. Moore, Salem city manager;Richard Munn, research section, State Department of

Revenue;B. J. Rogers, Springfield realtor;Ray Pyle, Portland appraiser; andLarry Williams, Executive Director of the OregonEnvironmental Council.

The advisory committee periodically reviewed staffresearch, basic assumptions and tentative proposals. Thisproposal was formulated by the Local Government Relations Divisionfrom the wide variety of views expressed by the committee.

The proposal represents only one approach to a highlycomplex problem. It uses simple mechanisms designed for Oregon'sland use needs, local and state political structures. Thisproposed Oregon approach is presented as a point of departure,since developing a concrete universal solution to this issuewould be difficult and impractical.

The proposal retains the distinction set forth inSB 849 of three types of compensable land management--temporaryreservation, permanent preservation and remedial compensation.In addition, windfalls can be tempered or captured under thisproposal. It is constructed on the Oregon land use law requir-ing conformance of local qovernments' plans and regulations withstate goals and guidelines.

The guaranteed sale price provision of SB 849 is notincluded in this proposal. The mechanism for all land valueadjustment activities is acquisition or lease of interests,development rights, or fee simple.

Emphasis of the proposal is placed on application ofthe mechanisms rather than the structures to be used and itstresses positive planning and implementation in land use

-10-

1,

management.

TEMPORARY LAND RESERVATION

When implementing a comprehensive land use plan, agoverning or regulating body--city, county or state land usemanagement agency--must find temporary land reservation isnecessary, justifying a public expenditure.

The regulating body must demonstrate it will:

1. facilitate future construction or continuedusefulness of needed public facilities; or

2. promote orderly growth and development; or3. be necessary for the successful implementation

of the comprehensive plan.

PERMANENT LAND PRESERVATION

In this method, the governing or regulating body mustdemonstrate the acquisition is consistent with the land useplan and achieves one or more of the following purposes:

1. preserves continued usefulness of prime agricul-tural lands, including woodlands; or

2. prevents destruction of fragile lands and insuresecological balances; or

3. preserves historic or archeological buildings,structures or sites; or

4. minimizes potential damage from floods and othernatural disasters; or

5. protects areas with scenic or recreational values;or

6. preserves necessary open spaces.

The regulating body, when implementing temporary landreservation or permanent preservation, may acquire a fee simplein the land or a lesser interest. This could include easements,leases, options, rights of first refusal, development rights orother definable interests. Acquisition may be made by gift,purchase or eminent domain.

If the governing or regulating body uses eminent domain,it may only acquire or lease the minimum land or interest nec-essary to accomplish the stated purpose.

If disputes arise over determination of the minimuminterest, the landowner may first appeal to the local govern-ing body, then to the state land use management agency and if

-11-

necessary, to the courts.

Provisions allow-for payment of the full value ofthe interest acquired or an agreed percentage of the value ofa leased interest. Value would be determined by the countyassessor or competent appraisals; disputes would be resolvedby arbitration.

The governing or regulating body's title to theacquired interest remains with the land and any future trans-actions by the landowner and property tax assessments applyonly to the remaining uses permitted by his partial title.

The governing or regulating body may at a later timedispose of acquired temporary or permanent interests if it isin conformance with the land use plan. Dispositions may includelease or sale with stipulated restricted uses.

The governing or regulating body could also plat andplan the land, selling the complete plans--with full permitsand approvals--to a private developer. Also, the regulatingbody may develop the parcel. Any development must be in fullcompliance with the comprehensive plan AND with the originalpurpose of the acquisition.

Any profits from land dispositions or developmentswould go to the Land Value Adjustment Fund.

REMEDIAL COMPENSATION

Remedial compensation is granted when a governing orregulating body enacts a rule or ordinance consistent with theland use plan, reducing by 20 per cent or more the pre-regulatedvalue of the land. Compensation is carried out through acquisi-tion of the regulated interest.

A minimum loss was established to prevent massiverequests for compensation. A minimum and maximum dollar amounteligible for compensation was recommended to be set and shouldbe subject of further study.

To use the remedial compensation method, the affectedlandowner requests the county assessor to determine his landvalue loss within one year from the enactment of the regulation.The land value loss would be the difference in value immediatelybefore and after the regulation.

The landowner may request compensation from the regu-lating body when the difference in property value is 20 per centor greater. The state land use management agency must then

-12-

review the regulation for conformance with the state andlocal land use plans before granting compensation.

The landowner is entitled to only one recovery forloss caused by a single regulation on a particular parcel ofland. Again, in this instance, the regulating body's titleremains with the land which can be transferred and taxed onlyon the basis of its remaining uses.

RECAPTURE OF WINDFALLS

This proposal recognizes the necessity of financinglosses caused by public regulation from recapture of windfalls.

The Land Value Adjustment Fund contains revenuesreceived from general obligation bonds, land value incrementtransfer tax and disposition of interests in land acquired bygoverning or regulating bodies.

State bonds would provide start-up financing for theLand Value Adjustment acquisition and compensation programs.

At the same time, a land value increment transfertax would be imposed to retire the bonds and provide continuedrevenue to the fund. The tax would be imposed on capital gainrealized at the time of transfer of real property. The rate oftax would increase proportionately with the amount of gainrealized. The rate of tax would decrease with the increasingperiod of time the property was held before transfer.

Tax rates would be constant for the first two years.After this start-up phase, the rates would be adjusted annuallyto fully fund the acquisition and compensation program.

A FIRST STEP

This Land Value Adjustment study proposes compensatinglosses caused by government policies with funds received duringthe overall recapture of benefits caused by public action.Even though there is currently no legal requirement for compen-sation, the benefit of popular acceptability of land use manage-ment far outweighs the cost of the program.

Most importantly, local and state regulating bodieswould have positive tools for land use management. Temporaryland reservation and permanent land preservation forestallundesirable development and promote orderly growth while givingdirection to when, where and what type of development will

-13-

ultimately occur.

Althouqh theso ft:ohods may reduce the role of thespeculator, they do not (*-!stroy the private market for landdevelopment. Risks and waiting time for permit approvals wouldbe reduced as would the costs and political pressures causedby market uncertainty.

Remedial compensation, although not as positive asthe other two provisions, does diminish conflicts in land usemanagement. The landowner can support rigid land use regulationwithout facing loss of personal investment.

The ideas of this proposal are not the last word inthe development of positive land use management. They are afirst step in the right direction.

-14-

EXHIBIT "A" PPage 1

LAND VALUE ADJUSTMENT PROPOSAL

Proposal Explanation

I. Interest Acquisition

A. In carrying out an adopted comprehensiveplan, the regulating body (city, countyor state land use management agency) mayuse either temporary reservation or per-manent preservation of land if it is deter-mined public expenditure for the acquisi-tion is for a public purpose.

1. To acquire land for temporary reserva-tion, the regulating body must assurethat one of the following purposes isfulfilled:

a) facilitate future construction orcontinued usefulness of needed pub-lic facilities; or

b) promote orderly growth and develop-ment; or

c) necessary for implementation of thecomprehensive plan.

2. To acquire land for permanent preserva-tion, the regulating body must find oneof the following purposes will be carriedout:

a) preserve usefulness of prime agricul-tural lands, including woodlands; or

b) prevent destruction or insure protec-tion of fragile lands to ensure ecolo-gical balance or other environmentalvalues; or

One of the primary goals of the Land ValueAdjustment Proposal is to devise methods forlocal governing bodies to more effectivelyimplement their land use policies using posi-tive mechanisms.

By having the power to acquire interests inland for temporary or long-range purposes,local governments can directly control theuses on those lands.

The specific provisions (la-c, 2a-f) outlinedas criteria for use of the acquisition methodsinsures the regulating body will use thispower only for its intended purposes.

Proposal PExplanation Page 2

c) preserve historic or archeologicalbuildings, structures or sites; or

d) minimize potential damage from floodsand other natural disasters; or

e) protect scenic or recreational values;or

f) preserve necessary open spaces.

B. When acquisition is found by the regulating bodyto be necessary, it may acquire:

1. a fee simple in the land; or

2. lesser interests such as easements, leases,options, right of first refusal, developmentrights or other definable interests.

3. It may be made by gift, purchase or by exer-cise of the power of eminent domain.

The proposal allows for acquisition ofmany types of interests in land to providelocal governing bodies with flexibility.For temporary reservation, it is likelyonly a lesser interest such as developmentrights would be acquired. However, forpermanent preservation the full fee mightneed to be purchased. Additional flexibi-lity is provided by the ability to lease,take options, rights of first refusal, andothers.

The power of eminent domain is provided togive local governing bodies maximum abilityto implement positive planning. If theregulating body uses eminent domain, how-ever, it may only acquire or lease the mini-mum land or interest necessary to accom-plish the stated purpose.

C. The amount of compensation payable to the land-owner shall be the full value of the interestacquired or an agreed percentage of the value ofa leased interest, as determined by the countyassessor or competent appraisal. Disputes re-garding appraised values shall be resolved inarbitration.

D. The regulating body's title to the acquiredinterest remains with the land. Any subsequentland transactions by the landowner shall applyonly to the remaining uses permitted by the title.

Property tax assessments shall be based only onthe remaining use.

IProposal Explanation Page 3

E. To bring about the provisions of the adoptedcomprehensive plan, the regulating body maydispose of acquired interests. The disposi-tions must be in conformance with the planand may include:

1. lease, sale back under restricteduse conditions or other stipulations;or

2. platting, planning and development ofthe land by the regulating body inconformance with the plan.

After the local governing body acquires aninterest in land, it must have the flexibilityto dispose of that interest to achieve thepurpose for which it was acquired. However,such dispositions should be in conformancewith the plan in order to confine the governingbody to plan-implementing functions and keepit from speculative activity.

By allowing the governing body to sell backland with deed restrictions, land can be kepton the tax rolls. Leasing land would alsoproduce income. In addition, the governingbody would have the authority to plan and deve-lop land, in accordance with the plan.

F. Any profits derived from dispositions shallbe part of the Land Value Adjustment fund.That fund will provide resources for theacquisition of interests in land. (SeeSection III)

II. Remedial Compensation

A. The landowner may seek compensation if actionof a regulating body in implementing the adoptedcomprehensive plan, deprives him of 20 per centor more of the pre-regulated value of theproperty.

B. In such a case, the landowner shall request thecounty assessor to make a determination of hisloss within one year of the enactment of theregulation, based on the difference in propertyvalues immediately before and after the regu-lation.

C. If the assessor finds the difference in propertyvalues is 20 per cent or more, the landowner mayrequest compensation from the regulating body.

Positive planning through interest acquisitionprovisions of this proposal will hopefullyalleviate much of the need for compensation.However, local governments will continue torely heavily on police power regulations. Inthose cases where land use regulations or otheractions designed to implement the comprehensiveplan cause significant economic loss, the land-owner may initiate compensation proceedings.

In order to assure that every regulation doesnot result in massive requests for compensation,a "threshold" loss of 20 per cent of the pre-regulated value is required. The arbitrary20 per cent figure allows screening out ofinconsequential losses. At the same time itcompensates substantial losses which the courts

IProposal Explanation Page 4

D. The state land use management agency mustreview the regulation for conformance withthe state and local land use plans. If itconforms, the regulating body shall compen-sate the landowner for the amount by whichhis loss exceeds 20 per cent. If the regu-lation is found not to conform, it may berequired to be repealed or amended.

E. The landowner or his successor in interestis entitled to only one recovery for losscaused by any one regulation.

F. In the case compensation is paid, the regula-ting body acquires title to the interest anduses which have been restricted.

have traditionally not found compensable byrequiring loss of substantially all reasonableuses before declaring a regulation invalid.

The right to compensation should not be left tothe discretion of the local government. There-fore, if the landowner can establish the required20 per cent or more of loss, compensation mustbe paid, but only for the amount more than the20 per cent "threshold" figure.

Compensation is a one-time remedy. A landownermust establish his total loss eligible underthe regulation at the time he seeks compensation.By acquiring the interest, the regulating bodyprecludes any claims by subsequent owners ofthe land.

II. Funding

7

A. A Land Value Adjustment Fund shall be created,consisting of revenues from:

(1) general obligation bonds,(2) land value increment transfer tax,

and(3) dispositions of interests in land

acquired by regulating bodies(described in (I) above)

Sufficient funding of interest acquisition andcompensation programs is essential to this pro-posal.

There are three sources of funding. Issuanceof general obligation bonds would provideadequate "start up" financing. Thereafter itis anticipated the compensation and acquisitionprograms could be financed through a land valueincrement tax and revenues from the dispositionof acquired interests.

B. Start-up revenues needed to begin the acquisi-tion and compensation programs will be suppliedby issuing state bonds.

C. At the same time, a land value increment trans-fer tax will be enacted. It will be imposed onthe capital gain realized at the time of

The land value increment tax serves an additionalfunction. Besides generating revenue, it wouldact to recapture "windfalls" caused by social

-'-F

Proposal Explanation Page 5

transfer and will increase proportionatelywith:

1.2 .

the amount of gain realized and,the decrease in the time of turnover.

and public forces. By making the tax progressivein its impact and tying the rate to the lengthof time land is held, it would discourage excessspeculation in land. The tax is imposed at thetime of transfer so as to reflect only realizedgain.

Until accurate projections are available, revenuefrom the tax is collected and used to repay bondsand supplement the acquisition and compensationprograms. When projections can be made, the taxrate will be adjusted for a switchover to fullfinancing through the tax provisions.

D. The tax rate will be constant for the firsttwo years and revenues shall be used to re-tire the bonds and supplement revenues in theacquisition and compensation fund.

E. After the start-up phase, the tax rate shallbe adjusted annually to fully fund the acquisi-tion and compensation programs.

EXHIBIT "B"

OREGON LEGISLATIVE ASSEMBLY-1973 REGULAR SESSION

REPRINT

Senate Bill 849Sponsored by COMMITTEE ON ENVIRONMENT AND LAND USE

SUMMARYThe following summary is not prepared by the sponsors of themeasure and is not a part of the body thereof subject to con-sideration by the Legislative Assembly. It is an editor's briefstatement of the essential features of the measure as introduced.

Authorizes landowner to apply to regulating body for compensationwhenever zoning ordinance or similar regulation prohibits reasonableuse of property or results in economic loss to landowner. Requires regu-lating body to review and reach decision on each claim within 90 days.Provides for appeal to Land Conservation and Development Commissionfrom decision of regulating body and to courts from decision of com-mission.

Provides method of valuation. Designates and defines methods ofcompensation. Provides various alternatives of compensation to affectedlandowners in event that compensation is granted.

Authorizes commission to employ method of temporary land reserva-tion and permanent land preservation on behalf of regulating body ifsuch action is deemed beneficial to warrant public expenditure. Providesfor methods of valuation, acquisition, reservation and compensation.

Permits regulating bodies to exercise certain powers granted underAct independently of commission.

Authorizes issuance of general obligation state bonds not to exceedone percent of full assessed value of state. Appropriates proceeds ofsuch bonds for purposes set forth in Act.

Becomes operative upon final approval of necessary financing bondissue.

NOTU: Matter in botl face In an amended section is new; matter [italic and brack-eted] is existing law to be omitted; complete new sections begin with

UCTION.

J

SB 849 (2]

1 A BILL FOR AN ACT

2 Relating to land use regulations, including but not limited to compensa-

3 tion for regulation of land use; and appropriating money.

4 Be It Enacted by the People of the State of Oregon:

5 SECTION 1. (1) Whereas management of land uses through zoning

6 ordinances, and other regulatory action is necessary to promote the

7 orderly development, health, safety and general environmental livability

8 of this state, including regulation in recognition of the need for temporary

9 reservation and permanent preservation of open spaces in accord with

10 a comprehensive plan, it is declared by the Legislative Assembly that

li such regulation, conservation, reservation and preservation constitutes

12 a valid public purpose justifying public expenditure.

13 (2) Whereas such regulation in present forms disregards resultant

14 economic impact upon landowners, and in some cases, may be so extreme

16 that, in absence of some form of compensation, would constitute the

16 equivalent of an unjust taking, it is further declared that compensation

17 of landowners for economic loss resulting from such regulation is a valid

18 public purpose.

19 (3) The funding of such compensation is deemed to be the responsi-

20 bility of the state in any case in which such action is of state-wide signifi-

21 cance.

22 SECTION 2. As used in this Act, unless otherwise required by the

23 context:

24 (1) "Commission" means the Land Conservation and Development

25 Commission.

26 (2) "Comprehensive plan" means the generalized, coordinated land

27 use map and policy statement of a governing body.

28 (3) "Regulating body" means the specific city, county or state govern-

29 ing body or agency enacting a zoning or similar ordinance, or an agency

30 employing the methods of land management prescribed in this Act, re-

31 sulting in economic loss to a landowner.

32 (4) "Regulation" refers to any action of a regulating body exercising

83 its due authority to designate, enact and enforce certain restrictive or

84 exclusive land uses or standards pertaining to land uses, including zon-

[3] SB 849

1 ing ordinances, open space reservation and other means of land manage-

2 ment.

3 (5) "Specific plan" refers to a detailed, explicit land use designation

4 and mapping by a governing body based upon and consistent with the

6 policy and objectives of the applicable comprehensive plan.

6 SECTION 3. (1) Whenever a regulating body imposes a zoning ordi-

7 nance or similar regulation which prohibits the reasonable use of the

8 property or results in significant economic loss to the landowner, the

9 landowner of record of the affected property may apply to the regulating

10 body for compensation under this Act.

11 (2) Such application must be filed within one year of notice of the

12 enactment.

13 (3) The regulating body shall review and reach decision on each

14 claim with 90 days of its receipt concerning the scope of the economic

15 impact and severity of the restriction upon the landowner.

16 (4) If the regulating body refuses compensation and the regulation

17 in issue is neither repealed nor amended or the compensation offered is

18 unsatisfactory, the landowner may appeal to the commission for review.

19 (5) The decisions of the regulating body and the commission are sub-

20 ject to court appeal.

21 (6) In the event compensation is granted, alternatives open to the

22 landowner include the interest acquisition method provided by sections

23 4 and 5 of this Act, and the guarantee sale price method provided by

24 section 6 of this Act.

25 SECTION 4. (1) If the landowner so desires, as an alternative to any

26 other form of compensation, the state, through the commission and on

27 behalf of the regulating body, may acquire that interest unduly restricted,

28 not to exceed 20 percent of the total fee simple value of the property,

29 if the regulation in issue is deemed to be beneficial so as to justify

30 public expenditure, as determined by the commission.

31 (2) The amount of compensation to be paid to the landowner by the

32 state for the interest acquired shall be the difference between the market

33 value of the landowner's interest immediately before and after the

24 effective date of the regulation, as determined by the county assessor or

- U �

SB 849 [ 4]

1 competent appraisal to the satisfaction of both the commission and the

2 landowner.

3 (3) If the commission and the landowner do not agree, the amount

4 of compensation shall be determined by arbitration pursuant to rules of

5 the American Arbitration Association.

6 (4) Payment by the commission to the landowner shall be amortized

7 over a period of 10 years at a rate of six percent interest; except that in a

8 case of undue hardship the commission may accelerate payments or make

9 a lump sum payment.

10 (5) A record of the transfer of the interest acquired shall be recorded

11 in the deed records for the county in which the property is located.

12 (6) The state's title to the acquired interest will continue to run

13 with the land, any subsequent transaction by the landowner of the re-

14 maining interest shall cover that interest and uses alone, and tax assess-

15 ments shall be based on the remaining interest alone.

16 (7) The state, commission or agents thereof are granted no powers,

17 express or implied to in any manner develop, use or otherwise alter any

18 lands in which it holds an interest acquired under these provisions, other

19 than as permitted under existing regulations at the time of acquisition,

20 or for the general maintenance of uses and interests thereof.

21 SECTION 5. (1) (a) In any case in which the state has acquired an

22 interest in property under section 4 of this Act, if the regulation in issue

23 is at some future time repealed or amended, no longer warranting the

24 state to retain interest in the property, repurchase of the interest by the

25 landowner shall be mandatory.

26 (b) The repurchase price shall be the principal amount or portion

27 thereof paid by the state, plus interest at the rate of six percent per

28 annum from the date of principal payments.

29 (2) (a) If the landowner of record is unwilling to repurchase such

s0 interest and a transfer of the property is not imminent, a lien shall be

S1 placed upon the title, necessitating payment for the additional interest

32 at the time of transfer or the sale of a fee or life estate, or lease for a

33 term of 10 years or more.

84 (b) Any amounts paid by a purchaser shall be paid first to the state,

[5] SB 849

1 until the entire repurchase price has been paid. The repurchase price

2 shall be the greater of the following:

3 (A) An amount determined as provided in paragraph (b) of subsec-

4 tion (1) of this section; or

6 (B) That portion of the purchase price for the property which bears

6 the same proportation to the total purchase price, or in case of sale of less

7 than a fee to the full value of the property determined in the same man-

8 ner as under subsections (2) and (3) of section 4 of this Act, as the price

9 paid by the state for the acquired interest (or portion of the price actually

10 paid) bore to the total original value of the property as determined under

11 subsections (2) and (3) of section 4 of this Act.

12 SECTION 6. (1) If the landowner so desires, as an alternative to

13 any other form of compensation, the state, through the commission and

14 on behalf of the regulating body, may enter into agreement with such

1 landowner to establish a fair guarantee sale price to apply at the time

16 of future sale of the land, if the regulation in issue is deemed to be

17 beneficial so as to justify public expenditure, as determined by the com-

18 mission.

19 (2) The valuation shall be determined by the most recent county

20 assessment or competent appraisal to the satisfaction of both the com-

21 mission and the landowner; or if the commission and the landowner do

22 not agree, by an arbitration as provided in subsection (3) of section 4 of

23 this Act.

24 (3) Such guarantee price, once established, shall be adjusted only

25 in accordance with fluctuations in the United States Department of Labor's

26 Consumer Price Index.

27 (4) At the time of future sale of the fee interest in the property,

28 should the actual sale price be less than the adjusted guarantee price,

29 the state shall pay to the landowner the amount of this difference.

so (5) The guarantee price agreement shall grant to the state the privi-

31 lege of first refusal of purchase at the adjusted guarantee price at the time

32 of sale of the land.

33 SECTION 7. (1) If the landowner so desires, he may refuse any form

SB 849 [6]

1 of compensation at any time and shall bear full consequences of such de-

2 cision.

3 (2) By such refusual, the landowner shall signify his acceptance of

4 the regulation as fair and valid, and shall deny his right to later appeal.

5 SECTION 8. Any method of compensation pursuant to this Act, in

6 and by itself, constitutes a full and final act of compensation and, when

7 complete, is subject to no further appeal.

8 SECTION 9. (1) Any regulating body in forming a specific plan

g to be consistent with an adopted comprehensive plan shall hold sufficient

10 public hearings in all immediate areas affected to achieve the maximum

11 viability of such plan.

12 (2) In affecting a specific plan, should a regulating body determine

13 that the promotion of orderly growth in a particularly defined area is

14 a necessity, the state, through the commission and on behalf of the regu-

15 lating body, may employ a method of temporary reservation and land

16 management pursuant to this Act, if such action is deemed beneficial to

17 warrant public expenditure.

18 (3) The landowner and commission shall detrmine the most appro-

19 priate method of reservation to be used in the particular circumstances

20 from alternatives, including the interest acquisition lease-option, and

21 guarantee sale price.

22 SECTION 10. When the method of interest acquisition is agreed upon,

23 such acquisition shall be conducted pursuant to section 4 of this Act,

24 except that in case of a reservation for less than 10 years, the purchase

25 price shall be amortized over such lesser period, and no repurchase shall

26 be required in any case.

27 SECTION 11. (1) When the lease-option is the agreed method, the

28 state may lease the appropriate fee or lesser interest over any appropriate

29 period of time and shall retain the option to buy such interest as a first

30 refusal privilege at the time of future sale or transfer.

81 (2) Valuation of such lease shall be an agreed percentage of the

32 value of the interest leased, as determined by the county assessor or

33 competent appraisal, or resolved by arbitration as provided in subsec-

34 tion (3) of section 4 of this Act.

- m

[7] SB 849

1 (3) Payment to the landowner shall be made on an instalment basis,

2 specific terms of which may be negotiated by the landowner and com-

3 mission.

4. SECTION 12 (1) In absence of any other method of land management,

5 the state and landowner may enter into agreement establishing a guarantee

6 sale price pursuant to section 6 of this Act.

7 (2) Continued and subsequent uses of the land must conform with

8 all regulations applicable to it.

9 SECTION 13. (1) In effecting a specific plan consistent with an

10 adopted comprehensive plan, should a regulating body determine the

i1 permanent or long-term land preservation of a particularly defined area

12 to be a necessity, the state, through the commission and on behalf of the

13 regulating body, may acquire the appropriate fee or lessor interest in such

14 land on a permanent basis, pursuant to the conditions of this Act, if such

65 action is detremined by the commission to be of benefit warranting

16 public expenditure.

17 (2) In the event of a willing seller, where immediate purchase is

18 deemed appropriate, the state may proceed with purchase of the fee or

19 lessor interest, valued as provided in subsection (2) of section 4 of this

20 Act.

21 SECTION 14. When immediate sale or purchase is not desired, the

22 lease-option method may be agreed upon pursuant to section 11 of this

23 Act.

24 SECTION 15. In lieu of the lease-option, when immediate sale or

25 purchase is not desired, the state may acquire the privilege of first refusal

26 of purchase at the time of future sale pursuant to section 6 of this Act.

27 SECTION 16. Pursuant to ORS 271.310, the state may transfer or lease

28 such interest in land acquired for the purpose of permanent land preser-

29 vation under sections 13 to 15 of this Act provided that subsequent land

s0 uses conform with existing regulation.

81 SECTION 17. A regulating body may independently exercise any of

32 the powers granted under this Act to acquire property or interests in

33 property or enter into agreements, for the purposes of land management

SB 849 [ 8]

1 as set forth in this Act; such action shall be fully funded by the regulat-

2 ing body and not subject to the appropriate financing provisions of this

s Act.

4 SECTION 18. Nothing in this Act shall be deemed to expressly or

6 impliedly grant the power of eminent.domain to any governing body to

6 carry out the provisions of this Act.

7 SECTION 19. Nothing in this Act limits the power of any governing

8 body to acquire land or interests in land, or to contract, agree or other-

g wise transact under any other law which is not expressly amended or

10 replaced by the provisions of this Act.

11 SECTION 20. This Act shall become operative upon final approval of

12 the necessary financing bond issue.

13 SECTION 21. The issuance of state bonds pledging the full faith and

14 credit of the state, not to exceed one percent of the full assessed value

15 of the state, as determined by the Department of Revenue, is hereby

16 authorized within the manner and limitations of applicable state law. The

17 proceeds of such bonds are appropriated for the purposes set forth in this

18 Act.

INROADS TOWARD POSITIVE LAND USE MANAGEMENT

A Land Value Adjustment Proposal

This report was prepared under the

direction of Governor Tom McCall

and with the aid of the Land Value

Adjustment Technical Advisory Committee

by the following staff members of

Local Government Relations Division:

Robert K. Logan

Lawrence R. Lucas

Mary Ann Hutton

Margaret Allender.

August 29, 1974

This report was financed in part through a planning grant fromthe Department of Housing and Urban Development.