Taking the Measure of Measure 37

It was Nov. 3, 2004, and Andrew Plantinga was scratching his head. The day before there had been national and local elections, and the most important thing decided in the election was probably not Oregon’s Ballot Measure 37. But Plantinga, an economist in Oregon State University’s Agricultural and Resource Economics Department, is an authority on the economics of land use policy, and something about Measure 37 didn’t compute for him. Down the hall, a colleague, William Jaeger, was also mulling over the implications of the new law that allowed landowners in the state to seek “just compensation” or a waiver if Oregon’s land use planning laws had lowered the value of their property. But what worried Plantinga and Jaeger was that the measure was unclear about how to judge whether land use laws had lowered a property’s value. And as Measure 37 claims started rolling in, so did confusion.

For the people or companies filing Measure 37 claims––and there have been more than 7,500 of them so far––the new law worked like this: if their land would be worth $6,000 an acre without a particular land use restriction, and was worth only $4,000 an acre with the current regulation in place, the governing jurisdiction had to either pay them $2,000 for each of their acres or waive the regulation. However, Plantinga explained, such a “single exemption” approach ignores that the value of one property is intricately linked to the value of neighboring properties and of property miles away.

Plantinga and Jaeger have spent much of their time since the 2004 election helping jurisdictions understand the economics behind Measure 37. They’ve used a variety of scenarios to illustrate their points. Like this one: Imagine a small town with 1,000 houses, where the government is going to seize all of the houses, using eminent domain, to create a wildlife preserve. Under the Fifth Amendment to the U.S. Constitution, in what is known as the “takings clause,” the government has to compensate the landowners for confiscating their land. So in this case, how would you determine how much compensation the government should pay each landowner?

“Most reasonable people would agree that you’d take the current value for each property, and pay each landowner what their land is currently worth,” Plantinga said. Now imagine that the government condemns only 900 houses, leaving 100. Under the law of supply-and-demand, those 100 houses would now be worth more than when there were 1,000 houses. And if the government seizes 999 houses and leaves just one? “Measure 37 is applied as if all 1,000 homeowners were to be compensated for what their land would be worth after the government had already confiscated the other 999 houses,” Plantinga concluded. “That approach gives a monopoly to the first claim, and the compensation would be way too high. But, essentially, that is how Measure 37 is being applied.”

To really know whether a landowner’s property value was reduced by a land use regulation, Jaeger said, “you have to know how the world would look if the regulation had never gone into effect. Then you could compare the real world with that imaginary world.” In other words, you have to study a world that doesn’t exist.

JunJie Wu, an economist in OSU College of Agricultural Sciences, examines map-like models that simulate what Eugene, Oregon, might look like under various land-use regulations. Photo: Dennis Wolverton

“That is very, very challenging,” said JunJie Wu, another land use expert in OSU College of Agricultural Sciences. “It is very hard to construct a counterfactual.” But Wu has created economic models of hypothetical worlds, and he thinks that important insights on the effects of land use planning can be gained from a model that simulates the world as it would look without certain regulations. So he and a graduate student, Ivan Hascic, gathered reams of data and constructed an exploratory model of a section of the Eugene area, trying to figure out what it would look like had various land use rules never gone into effect. According to Wu, their model found that, “in most cases relevant to Measure 37, the costs of regulation are considerably smaller than the values of individual exemptions.”

Plantinga and Jaeger have developed an alternate method to test the validity of a Measure 37 claim: look at the value of a piece of land before a regulation was enacted, adjust for inflation, and compare that inflation-adjusted value to the current market value. They call it the “before and after” method. A man named Sonny Conder calls it the Plantinga-Jaeger method. Conder, an economist and the chief regional planner for Portland Metro, and his colleague Karen Hohndel had independently reached similar conclusions about the inherent problems in Measure 37. Conder learned of Plantinga and Jaeger’s work, and after he attended a May 2005 research presentation by the two OSU researchers, he concluded that Portland Metro should use their method to adjudicate Measure 37 claims.

Most other Oregon jurisdictions have evaluated their Measure 37 claims using the single-exemption method. And in almost every case, they have found that a regulation lowered the value of the land in question, and they opted to waive the regulation. Portland Metro, using the Plantinga-Jaeger method, determined that land use regulations had not lowered property values in any of the six claims it adjudicated in 2006, and it denied all six petitions.

To be sure, there are times when land use regulations have lowered a property’s value, the economists say, and there are certainly times when regulations have prevented landowners from building a house on their rural acres. That is what land use zoning does. And as with most things having to do with government, honest people disagree over how to balance the needs of society and the rights of individuals. As Wu put it, “All regulations create some losers and winners.

William Jaeger (left) and Andrew Plantinga, OSU agricultural economists, have developed a method for municipalities to calculate the economic impact of land use laws on property values. Photo: Dennis Wolverton

“Governments often impose regulation for the public good, and the private landowner can sometimes suffer,” Wu explained. “From the perspective of landowners, governments tend to over regulate because they don’t bear the cost of regulation.” Wu and Hascic looked at the effects of six different types of land use regulation in their model of Eugene, for example, and they found that while some land gained value under the six regulations and some lost value, the aggregate loss of land value was larger than the gain in the area they studied.

For their part, Jaeger and Plantinga say they are puzzled by widespread perceptions that Oregon’s land use scale is tipped too far toward regulation, excessively restricting growth. “Oregon’s land use regulations don’t try to limit the amount of development; they try to contain it,” Jaeger said. “They determine where development happens, not how much happens. People are often surprised when they learn that the law requires each municipality to maintain a 20-year supply of vacant land inside its urban growth boundary.”

Individual landowners, understandably, think mostly about the value of their own property, and maybe to a lesser extent their neighbors’ property. Economists, on the other hand, are more interested in the larger, intersecting network of properties––the whole Monopoly board, if you will.

There are some indications that public opinions of Measure 37 are changing. A statewide poll, released in March 2007 by the governor’s office, found that 49 percent of respondents agreed that Measure 37 had significant flaws and should be fixed as soon as possible, 20 percent supported repealing the measure outright, and 19 percent wanted the measure kept in force unchanged.