When the Government Takes Your Money, It Takes Your Property

Over a decade ago, Daniel and Andrea McClung tried to realize their American dream.  They planned to construct a new building that could house a small business on their property in Sumner, Washington.  But when they submitted their application for a development permit, their dream turned into a nightmare.
Sumner wanted to replace the pipes throughout its entire storm drainage system.  Unwilling to pay for these costly upgrades, the city enacted an ordinance that placed a condition on new development: Anyone who applied for a permit would have to pay fees for the improvements to the drainage system—even if the proposed development did not have any impact on the existing infrastructure.  When the McClungs applied for this permit, the city informed them that it would be granted only if they paid for the improvements, which cost $50,000.

The city ignored the McClungs’ protests that their fees would go towards improving infrastructure not on their property, so their development would have no impact on the drainage system—let alone one worth $50,000.  The city did not care; the McClungs were a captive source of revenue. 

The McClungs sued the city under the Fifth Amendment to the Constitution, whose Takings Clause prohibits the government from “taking” private property for public use without just compensation.  They argued that the city could not force them to pay impact fees for off-site pipes absent proof that their development would have a specific detrimental effect on the existing drainage system.

The Ninth Circuit—not the most property rights-friendly court, and a leading source of Supreme Court reversals—ruled in favor of Sumner.  The court first reasoned that money is not property: The development permit was conditioned on the payment of fees rather than some imposition on the land itself, so there could not be an unconstitutional taking of property.  Further, the court held, because the fees were imposed by an ordinance, the city did not have to show any evidence that the McClungs’ development had an individual, adverse impact on the drainage system.  That the city thought the pipes needed upgrading was justification enough.

The decision seems patently unfair, but even more—because we know the law can produce unjust results in individual cases—it goes against the Takings Clause.  It also highlights a growing, nationwide rift over the judicial enforcement of property rights.

Courts are deeply divided over whether the Fifth Amendment applies to the taking of property by means of fees such as the ones the McClungs were assessed.  They are also split as to whether legislatively imposed conditions allow a local government to avoid making individualized determinations of a development’s impact.  Courts like the Ninth Circuit rely on the fact that the Supreme Court has never actually spelled out that money is property (an issue also at the heart of an otherwise unrelated case seeking high court review, Empress Casino v. Giannoulias).  Nor has the Court clearly stated that monetary conditions placed on development are subject to the same scrutiny as other restrictions and regulations.

The Court now has a chance to correct this oversight and ensure that the standard for reviewing development conditions is uniform across the country.  It should make clear that property right protections do not depend on ill-defined distinctions such as the form of property demanded or the manner in which a condition is imposed. 

Allowing arbitrary and excessive conditions on development to escape scrutiny effectively vitiates the Takings Clause. The time has come for the Supreme Court to do its duty to say what the law is by explaining that the Fifth Amendment covers all private property.

Ilya Shapiro is a senior fellow in constitutional studies at the Cato Institute and Editor-in-Chief of the Cato Supreme Court Review.  Lauren Wiggins is an attorney with the Pacific Legal Foundation.  Cato joined with PLF to file a brief in McClung v. City Sumner, supporting the McClungs’ petition for certiorari in the Supreme Court.