It has been a crazy election cycle in Colorado with multiple initiatives impacting everything from…
Amendment 74, which will be on the November ballot, would require state and local governments to compensate private property owners when laws or regulations reduce the “fair market value” of their private property. On the surface, it seems straightforward, but the details lurk beneath the surface. This minor change to the constitution will have huge ramifications and cost property owners substantial money. What do you need to know?
Amendment 74 was developed by the oil and gas industry to try to counteract proposition 112 which would increase the setbacks for oil and gas drilling. Amendment 74 would require local governments to compensate property owners for any impacts that reduce the “fair market value”. The thinking from the oil/gas industry is that amendment 74 would “nullify” proposition 112 since local governments would be on the hook for billions to the mineral owners that had their fair market value decreased. The amendment creates a whole new set of problems.
What it changes
The amendment adds 11 words that drastically alter the current constitution (bolded and italicized below):
Private property shall not be taken, or damaged, for public or private use, or reduced in fair market value by government law or regulation, without just compensation.”
Fair Market Value:
As we all know “Fair Market Value” is a subjective term and it is in the eye of the beholder and many factors can influence the market value. For example, let’s say you lived in a residential neighborhood and the county approved an asphalt plant down the street. This would clearly impact the market value of your home. Are you entitled to compensation? If the county denies the zoning for an asphalt plant down the street from a residential neighborhood are they entitled to compensation? You can quickly see where this is going to lead to endless litigation. Ultimately taxpayers/property owners are on the hook for this as money doesn’t grow on trees!
Theoretically if this amendment was approved it could be used by property owners against the oil and gas industry. Let’s say a oil/gas company decided to put in a drilling site near a commercial property that is rented as a daycare center. The county would approve this site that it met current setbacks, etc… The value of the commercial day care facility has clearly been impacted from this new use. Fact or Fiction, most new parents would not be happy about their child going to a daycare center close to active oil/gas drilling. Under this new amendment would the daycare property owner not suffer a “reduction in fair market value due to government law or regulation”? The courts would get to decide! This is quite ironic since the oil and gas industry developed the amendment and are financially supporting this amendment.
One of government’s primary responsibilities is to provide a cohesive plan for development to protect property owners. For example, a marijuana dispensary shouldn’t be located next to a drug treatment center or a gentlemen’s club next to a school. I think most people would agree that there is an important role for government to protect property owners and avoid conflicts like mentioned above. The way that amendment 74 is written would basically eliminate any cohesive planning or zoning as every change impacts one property owner or another and will lead to litigation against local governments. This amendment makes planning/zoning decisions impossible.
I understand the intent of the amendment, but the broadness will create unintended consequences that taxpayers will ultimately bear. If this amendment passes, litigation with local governments will skyrocket and taxes undoubtedly will increase to not only pay for litigation, but also compensate various property owners. I’m a big proponent of property rights, but I do not want to get rid of basic planning/zoning decisions that ensure a cohesive city.
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Written by Glen Weinberg, COO/ VP Fairview Commercial Lending. Glen has been published as an expert in hard money lending, real estate valuation, financing, and various other real estate topics in the Colorado Real Estate Journal, the CO Biz Magazine, The Denver Post, The Scotsman mortgage broker guide, Mortgage Professional America and various other national publications.
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