John Locke Update / Research Brief

Provide just compensation for business owners hammered by Cooper’s orders

posted on in COVID-19 Series, Economics, Government Reform, Law & Regulation, Property Rights, Rights & Regulation
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  • Roy Cooper’s abuse of his emergency powers signals a clear need to reform the Emergency Management Act
  • Cooper’s business shutdowns and restrictions also amount to a regulatory taking depriving business owners of the use of their property
  • Lawmakers should reform eminent domain to include compensation for regulatory takings

Consider the lowly hammer. It has a short handle for an easy grip, a blunt face for striking, and a claw for prying and extracting that sweeps away from the face in a permanent mullet. The hammer is an elegant tool well-made for construction.

Used outside of its design purposes, however, it can be used for destruction — even murder. The same features made for driving and pulling nails can also be perverted for terrible uses, and there is nothing intrinsic to the hammer to prevent it.

Like the hammer, laws designed for one purpose can also be perverted for terrible uses. Unlike with the hammer, however, there can be something intrinsic in law to ward off terrible uses. Even though some misuses of a law would be unanticipated in its development, when they manifest themselves, legislators can amend the law to prevent such things from happening again, and they can also learn from the abuse to anticipate and prevent similar abuses from ever occurring.

Gov. Roy Cooper’s abuse of the Emergency Management Act (EMA) is a clear and all-too-present example of a law being used counter to its intended design with destructive effects. The obvious reason for the giving the governor emergency powers is that, during an emergency, the slow, deliberative process of making laws would take too long when decisive action is needed immediately. The EMA takes for granted that an emergency is a short-term, immediate need, since that’s something we all know.

We are not under an emergency requiring immediate action that warrants setting aside normal lawmaking. Instead, we are now in the twelfth month of the governor ruling by emergency powers acting as if he suddenly discovered a loophole out of the constitutional restraints against his authority.

Cooper’s abuse of emergency powers may have been unanticipated in the development of the EMA, but legislators can amend the law to prevent such terrible abuse of it in the future. My colleague Jon Guze has written an important series of research briefs detailing how and why the EMA should be repaired to prevent future such abuses. His final installation gives specific legislative language to make those repairs.

How Cooper’s executive orders are like eminent domain takings

There is another reform that would also help ward off the dangerous misuse of the law we’re witnessing. It flows from wisdom already contained in the General Statutes. When government deprives someone of the use of their property in the name of serving the public interest, it must provide compensation.

In state law, government can take part of your property “for the public use or benefit” to do such things as build roads, build sidewalks, establish storm drainage systems, build public parks, and many other things. It is the power of eminent domain, and property owners victimized by eminent domain takings are required by law to be compensated.

The governor’s executive orders shutting down untold businesses statewide over COVID-19 and also greatly restricting the normal operations of businesses amount to a regulatory taking. Its effects are not unlike an eminent domain taking. The government has deprived business owners use of their property ostensibly for a public purpose.

Guze wrote back on April 27, 2020, with respect to Cooper’s original shutdown order, that “the disastrous impact that the COVID-19 emergency orders have had on many businesses in North Carolina suggests that the scope of eminent domain reform should be expanded to include what are known as ‘regulatory takings.'” He explained:

All regulations deprive property owners of the use of their property to some extent, but when the deprivation goes too far it can constitute a taking for which compensation must be paid. The COVID-19 emergency orders are unprecedented in the extent to which they deprive business owners of the use of their property. If, as seems likely, many of these businesses are forced into bankruptcy, their owners will feel, with a good deal of justification, that these restrictions constitute regulatory takings for which they should be compensated.

Unfortunately, the courts haven’t come up with a satisfactory rule for determining when regulations go far enough to constitute takings, and regulatory takings cases have traditionally been very hard to win. This might, therefore, be a good time for the legislature to intervene by providing clear and fair guidelines for determining when and how property owners should be compensated for regulatory takings.

The Locke Foundation has long advocated eminent domain reform, including stronger definitions of “public use” and “just compensation.” As Cooper has harmed businesses with his abuse of the EMA, however, we have realized that eminent domain reform needs to include protections against regulatory takings.

For that reason, in our Carolina Rebound study of critical post-Covid reforms for a stronger economic recovery, we recommended the following:

Provide clear and fair guidelines for compensating business and property owners victimized by regulatory takings such as executive shutdown orders.

State policymakers have been seeking to reform eminent domain in North Carolina to ensure takings are for true public uses and are fully compensated. Due to COVID-19, it has become clear that policymakers should also provide clear and fair guidelines for compensating property owners victimized by regulatory takings.

In a Dec. 14 Carolina Journal piece, John Hood wrote put it this way:

As a fiscal conservative, I believe in minimizing the extent to which government power is used to redistribute resources or favor certain businesses over another. I also believe, however, that when government mandates, not the free choices of consumers, are responsible for imposing costs, governments should provide compensation. That’s why we require taxpayers to pay the owners of property taken to build roads, for example.

So, in the case of service businesses and workers harmed by COVID restrictions, I think North Carolina should deploy General Fund dollars to help. Otherwise, we’ll be forcing some North Carolinians to bear a disproportionate burden for policies intended to limit the spread of the virus.

Legislators could not have imagined the EMA being used for nearly a year (so far) to circumvent their own constitutional authority to create laws for the state. Nor could they have imagined the governor depriving business owners of the use of their property for the novel public purpose of supposedly preventing virus transmission. But they can act to amend the EMA and eminent domain to prevent future governors from hammering us with such terrible abuses.

Jon Sanders is an economist studying state regulations, that spreading kudzu of invasive government and unintended consequences. As director of regulatory studies and research editor at the John Locke Foundation, Jon gets in the weeds of all kinds of policy… ...

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