The Law That Keeps on Taking – #3

Note: This is part of a series.

Washington’s Initiative 933. Montana’s Initiative 154. Idaho’s “Property Rights Protection.” All three 2006 ballot initiatives are modeled on Oregon’s Measure 37—a prototype pay-or-waive scheme aimed to eliminate most land-use laws.

Last week, I wrote about claims made in Oregon under Measure 37. The claims are often pricey, sometimes absurdly so, and governments simply waive land-use restrictions for claimants because there’s no (taxpayer) money to pay the claims. But there’s an additional hidden cost to pay-or-waive laws: the expense of administering them. This week, I take a look at the administrative costs—the unavoidable costs—of a law like I-933.

How much will it cost to administer Initiative 933? This question should be of some concern to Washington voters because the entire cost will fall to taxpayers. I-933 stipulates that property owners wanting exemptions from land-use laws will pay no costs whatsoever—no filing fees, no attorney fees, nothing. So, what’s the damage?

The answer, in brief, is “a lot.” A low-ball estimate puts the figure in the neighborhood of $1 billion per year; mid-range estimates could be closer to $2 billion annually. (And remember: scary as they may sound, these estimates assume that agencies waive laws for every claimant and never pay a landowner to comply to with land-use laws. These are simply the costs of administering the law.)

Where do these figures come from?

There are two possible way to figure out how much I-933 will cost Washington taxpayers. First, we can see what Measure 37 costs in Oregon. Second, we can consider Referendum 48, a 1994 ballot measure—very similar in some respects to I-933—that Washington voters rejected. R-48 was vetted extensively by nonpartisan lawyers and economists who developed a sophisticated range of cost estimates. Those estimates can be applied, with some modification, to I-933.

Let’s take a look.

In Oregon, estimates for annual compliance with Measure 37 range as high as $44 million for the state and $300 million for local governments. Adjusting for Washington’s larger population (72 percent larger than Oregon’s), we could perhaps ballpark the cost of I-933 at roughly $590 million a year for a top-end number. We could do similar adjustments based on Washington’s larger economy or larger government spending, but the estimates all wind up in the $600 million a year range.

So where did I get those billion dollar figures? Not from Oregon. That’s because Oregon’s Measure 37 is comparatively lax—it has many fewer requirements than I-933—and as a result, any figure from Oregon is likely to wildly understate the costs of Washington’s I-933.

I-933 goes far beyond Measure 37 to demand that government agencies complete a welter of reports, studies, and analyses covering 9 separate complex subject areas before making even minor alterations to rules or ordinances. (These subject areas include extensive policy comparisons and economic assessments based, in part, on hypotheticals and abstractions.) And these analyses are in addition to the substantial paperwork burdens already required by law.

The billion dollar estimates I cited are derived from detailed academic studies of Referendum 48 over a decade ago. In 1994, Washington voters weighed in on R-48 (they rejected it soundly), a measure that required compensation for restrictions on land-use. It was importantly different from today’s I-933 because R-48 didn’t provide an option to waive: it was a much simpler pay-or-pay scheme. But very much like I-933, R-48 required government agencies to conduct economic analyses and studies that would document the effects of land-use regulations. And like I-933, the administrative burden of complying with R-48 was costly.

As the voters weighed the merits of R-48, a blue-ribbon team of experts convened to evaluate the costs of the measure. The group included economists and public administration experts from the state’s top universities, and legal analysis from a top law firm. The research was conducted in a strictly nonpartisan environment that did not have contact with either the campaign for or against the referendum.

The researchers carefully examined and documented the costs to both state and local governments. And they developed a range of costs based on varying legal assumptions—one favorable to the measure’s supporters, one in keeping with legal consensus, and one based on a more expansive, but still plausible, reading of the law. (They also developed cost estimates for compensation—paying landowners to comply with regulations—but I am ignoring those figures entirely. They’re orders-of-magnitude higher than the figures I’m citing here.)

The researchers concluded that simply administering R-48 (not counting paying the claims) would cost state and local governments—i.e. taxpayers—somewhere between $500 million and $2.3 billion in 1994 dollars. The middle-of-the-road estimate was $815 million annually.

So I adjusted the numbers into 2006 dollars. My own range of estimates tried on different assumptions. I looked at increases in state government spending; increases in the size of the state’s economy; increases in the consumer price index, the employment cost index, and the Bureau of Labor Statistic’s inflation calculator; increases in the state’s population; and increases in compensation for government workers. Each of these inflators gave me a different answer, resulting in my own range of estimates for 2006.

The answer? $800 million is about the cheapest I-933 could possibly be. And pushing the number that low requires some extreme assumptions that strain the bounds of credulity. The most reliable estimates—those based on R-48’s mid-range and my own mid-range inflation adjustments—put the cost between $1.2 billion and $1.6 billion. And more expansive—but still quite plausible—assumptions can put the cost at $2 billion and beyond.

Even $1 billion a year is a pretty steep cost to taxpayers. It’s asking a lot of citizens who, under I-933, are giving up their say in how their communities change. Developers have complained that land-use regulations take away from maximum profitability. But I-933 takes something too—it takes from taxpayers and communities instead; and it just keeps on taking.