Case Law Pertaining to Constitutionality of Billboard Amortization by State and Local Governments

Case Law Pertaining to Constitutionality of Billboard Amortization by State and Local Governments, B-302809, November 12, 2004

B-302809

November 12, 2004

The Honorable Mike McIntyre

U. S. House of Representatives

Subject: Case Law Pertaining to Constitutionality of Billboard Amortization by State and Local Governments

Dear Mr. McIntyre:

This responds to your request for an update of our February 6, 1991 opinion to Senator Chafee, B-239187 (Enclosure 1), summarizing case law regarding the permissibility of billboard amortization under the U.S. Constitution. At the time of our 1991 opinion, the vast majority of cases had upheld the general practice of amortization as constitutional; some courts also addressed, on a case-by-case basis, whether a particular amortization practice was constitutional. As discussed below and in Enclosure 2, the small number of additional cases involving billboard amortization decided since 1991 have likewise upheld this practice, ruling that billboard restrictions which provided for an amortization period did not rise to the level of a "taking" triggering constitutional compensation obligations.

Background

The Takings Clause of the Fifth Amendment to the Constitution prohibits the federal government from taking private property for public use unless the government provides "just compensation." The courts have long imposed these same obligations on state and local governments through the Fourteenth Amendment. See, e.g., Chicago, B. & Q. R.R. v. City of Chicago , 166 U.S. 226 (1897). Under the government's inherent "police power," the use of private property may be reasonably regulated and restricted through zoning or other land use laws, as long as the regulation bears a substantial relationship to the public health, safety, convenience or general welfare. See, e.g., Penn Central Transp. Co. v. City of New York , 438 U.S. 104 (1978). The Supreme Court has specifically applied these principles in the context of billboards, holding that a local ordinance excluding billboards (among other things) from a village residential district was a permissible exercise of municipal power. Village of Euclid v. Ambler Realty Co ., 272 U.S. 365 (1926). When such regulations effectively take the billboard owner's property, however, by eliminating or severely restricting the owner's reasonable investment-backed expectations, they may rise to the level of a so-called regulatory taking and require compensation under the Takings Clause. See, e.g., Penn Central , above.

State and local laws restricting or prohibiting billboard use are an example of such public welfare regulations. In a number of cases, the restrictions are mitigated by inclusion of a phase-in period, allowing the billboard owner to continue using the billboard for a specified period after which it is considered a non-conforming use and must be removed. This phase-in is referred to as amortization. Billboard owners have argued that the restrictions constitute a taking of their property and that the taking is unconstitutional because the government has not paid them monetary compensation. Governments have responded that the restrictions do not rise to the level of a taking, because of the effect of the amortization, or that even if there is a taking, amortization constitutes just compensation. In either case, the governments believe, amortization is constitutional.

Our 1991 Opinion and Subsequent Case Law

Our 1991 opinion reviewed a number of cases in which billboard amortization was challenged on constitutional grounds. These cases, representing the decisions of three federal appellate courts and 17 state courts, and amortization periods ranging from one year to 10 years, uniformly rejected the argument that amortization was a per se violation of the Takings Clause. As we explained, however, in deciding whether a particular amortization scheme was reasonable and constituted just compensation, courts were required to carefully weigh a number of factors reflecting public and private interests. [1]

As identified in Enclosure 2, there have been only five additional cases reported since 1991 ruling on the constitutionality of billboard amortization as a general practice, none of which has held that an ordinance's amortization feature rendered it unconstitutional. [2] None of the courts we cited in 1991 has repudiated its earlier analysis; none of the billboard decisions has been overruled by a higher court; and the U.S. Supreme Court has declined to review one billboard amortization case. [3] Courts have continued to evaluate the constitutionality of billboard amortization laws based on the reasonableness of the amortization period and other factors discussed in our 1991 opinion. [4] In Outdoor Graphics, Inc. v. City of Burlington , 103 F.3d 690 (8th Cir. 1996), for example, the United States Court of Appeals for the Eighth Circuit joined the Fourth, Fifth, and Tenth Circuits, whose opinions we cited in our 1991 opinion, in rejecting a constitutional challenge to the use of amortization. The billboards in City of Burlington had been purchased at a "bargain price" after a billboard ban with a 5-year phase-in amortization period had gone into effect. Under these circumstances, the court ruled, the billboard owner had no reasonable investment-backed expectation that it could continue using its non-conforming billboards indefinitely, so there was no taking triggering the constitutional compensation requirement.

In the only significant development in the amortization arena since 1991, one of the few courts that had previously found amortization to be unconstitutionalin a

non -billboard contexthas changed its position. In Board of Zoning Appeals v. Leisz, 702 N.E.2d 1026 (Ind. 1998), the Indiana Supreme Court overruled its 1983 decision in Ailes v. Decatur County Area Planning Comm ., 448 N.E.2d 1057 (Ind. 1983), cert. denied, 465 U.S. 1100 (1984), in which the court had ruled that amortization is unconstitutional per se under the Fifth Amendment. The Leisz court recognized that its earlier decision in Ailes was inconsistent with the decisions of other state and federal courts:

With the sole exception of this Court's decision in Ailes , state courts that have found amortization provisions unconstitutional have done so on the basis of their state constitution. We can only conclude that Ailes , in holding that amortization provisions are unconstitutional per se, incorrectly decided an issue of federal constitutional law. No issue has been raised and we express no opinion as to any state constitutional point.

Leisz , 702 N.E.2d at 1032 (citations omitted). Thus, Indiana has now joined the other state and federal courts that have found amortization to be constitutional under the Fifth Amendment.

It is useful to understand the broader context in which billboard regulations have been enacted, to explain why there have been relatively few decisions addressing the permissibility of billboard amortization under the U.S. Constitution. One reason is that the practice is often expressly prohibited by state statute, meaning that courts in those states are not called upon to rule on whether it would be constitutional. More than a third of states have enacted such legislation. [5] In Eller Media Co. v. Montgomery County , 795 A.2d 728 (Md. Ct. Spec. Apps. 2002), for example, the court ruled that a Maryland state law requiring that just compensation be made in the form of a monetary payment superseded a local ordinance providing for an amortization period. The court stated that "[f]air compensation, as defined in [Md. Code Ann. 25-122E(a),] must be paid even if a reasonable amortization period was provided for in the ordinance." Id. at 739. A second reason for the small number of billboard amortization constitutionality cases is that courts sometimes strike down state amortization laws under state constitutions, rather than the U.S. Constitution, so the question of their status under federal law is not reached. See generally Pa. Northwestern Distributors, Inc. v. Zoning Hearing Bd ., 584 A.2d 1372 (Pa. 1991) (local non-billboard amortization ordinance violated Article I, section 1 of Pennsylvania constitution).

Finally, in practice, certain provisions of the federal Highway Beautification Act have prompted states to prohibit localities from providing billboard amortization as a way of compensating owners for lost use of their property, again meaning that courts are not called upon to address the constitutionality of this practice. As amended in 1978, the Highway Beautification Act requires that states exercise "effective control" of billboards located along federal interstate or primary highways. A state that fails to do so faces the loss of 10 percent of its federal highway funds. 23 U.S.C. 131(b). The Act permits certain informational or historic billboards, 23 U.S.C. 131(c), as well as billboards maintained pursuant to agreement with the U.S. Department of Transportation, 23 U.S.C. 131(d), but all other billboards must be removed and states must contribute 25 percent of the resulting requisite "just compensation" (the federal government pays the remaining 75 percent). 23 U.S.C. 131(g). Thus while the statute does not directly prohibit amortization, it creates a "powerful incentive" for states to prohibit local governments from using amortization as a means of compensating for billboard restrictions. See National Advertising Co. v. City of Ashland, Ore., 678 F.2d 106, 107 (9th Cir. 1982). As one commenter has explained, the practical effect of the Act has been to serve as a shield, protecting billboards covered by the statute from removal by state and local governments who would otherwise use amortization. See Floyd, footnote 5 above, 3 Wash. U. J. L. & Pol'y at 375.

Conclusion

The overwhelming majority of court decisions addressing the permissibility of billboard amortization under the U.S. Constitution, both before and since our 1991 opinion, have upheld this practice, either because ordinances incorporating amortization have been found not to constitute a taking or, if the ordinances are deemed takings, amortization has been found to constitute just compensation. There have been relatively few billboard amortization decisions overall, however, for a variety of reasons, including that some states prohibit localities from using amortization, some state constitutions have been interpreted as prohibiting amortization, and the Highway Beautification Act has had the practical effect of limiting localities in some states from using amortization as a means of compensating for billboard restrictions.

If you have any questions regarding this opinion, please contact Susan D. Sawtelle, Associate General Counsel, at (202) 512-6417, Doreen S. Feldman, Assistant General Counsel, at (202) 512-8264, or Barbara R. Timmerman, Senior Attorney, at (202) 512-8265.

Sincerely yours,

/Signed/

Anthony H. Gamboa
General Counsel

Enclosures - 2 [PLEASE REFER TO THE PDF FILE FOR THE ENCLOSURES]

[1] For purposes of context, our 1991 opinion also summarized cases involving amortization for non-billboard uses. In response to our 1991 opinion, Senator Chafee asked whether we had considered four particular 1987 Supreme Court decisions in our analysis. By letter dated May 17, 1991, we explained that we had considered those cases but found them inapplicable. The cases addressed whether various takings had been for a public versus a private purpose, rather than whether takings for a public purpose were compensable by amortization rather than monetary payment.

[2] There have also been cases, not included in this letter or enclosures, addressing the reasonableness of a particular amortization period.

[3] See Naegele Outdoor Advertising v. City of Durham , 803 F. Supp. 1068 (M.D.N.C. 1992), aff'd, 19 F.3d 11 (4th Cir. 1994), cert. denied , 513 U.S. 928 (1994), discussed in footnote 4 below.

[4] In our 1991 opinion, we identified the 15 factors listed by the Fourth Circuit in Naegele Outdoor Advertising, Inc. v. City of Durham , 844 F.2d 172 (4th Cir. 1988), as typical of the case-by-case inquiry required by the courts. The Fourth Circuit remanded the Naegele case for factual development regarding the amortization ordinance at issue, following which the district court found the ordinance did not constitute a taking because the billboard owner retained some economically viable use of its property. See Naegele Outdoor Advertising, Inc. v. City of Durham , 803 F. Supp. 1068 (M.D.N.C. 1992), aff'd, 19 F.3d 11 (4th Cir. 1994), cert. denied, 513 U.S. 928 (1994).

[5] Billboard amortization bans have been passed in at least nineteen states. See Charles F. Floyd, "Evolving Voices in Land Use Law: A Festschrift in Honor of Daniel R. Mandelker, Part III, Zoning Aesthetics, Chap. 5, The Takings Clause and Signs: The Takings Issue in Billboard Control," 3 Wash. U. J. L. & Pol'y 357 (2000) at 376. North Carolina passed a temporary anti-amortization statute last year, in effect through December 31, 2004, prohibiting local governments from enacting any new ordinance amortizing off-premises outdoor advertising or extending or expanding any existing ordinance amortizing off-premises outdoor advertising. N.C. Sess. Laws 2003-432.