Public Restrictions on Ownership

09/16/2012

The government has four basic powers that affect real estate owners: The power of taxation, the power of eminent domain, police power, and escheat.

Property taxes are a significant source of revenues for state and local governments that are used to fund schools, emergency services, and other local government activities. The property tax is easy to administer and difficult to avoid because it is tied to generally immobile property. In addition, property taxes the income stream from property taxes is reasonably stable as it is not subject to wide fluctuations in the business cycle.

http://www.nytimes.com/2012/08/17/us/texas-property-tax-for-homeowners-is-easy-to-hate.html

In Texas, property taxes are the biggest source of financing for school districts. In fact, they account for a whopping 52 percent of their funding. In October, school districts will face the state in court to argue about school financing, opening up the whole taxing system for debate. Taxes in the state of Texas have been a hot topic lately due to the fact that property taxes are much higher than most states. Not only is it a hefty expense for property owner's, it comes due as a lump sum. Some officeholders have suggested replacing them with a larger sales tax, arguing that it is just a way to charge people rent on property they already own. Sales taxes and income taxes float proportionately to what is spent and earned. Property tax, on the other hand, is a gray area because it based on the market and the final word of an appraiser. As stated in the article, it is not science, but rather an art. 

Eminent domain is the government’s power to condemn private property for public use upon just payment of compensation as warranted in the Fifth Amendment to the Unites States Constitution. The power of eminent domain has been extended to the states through due process. In a condemnation proceeding, the government must rationalize that the land is needed for public use and that the amount of money extended to the land owner as compensation is a reasobale amount.  Controversy surrounding the use of eminent domain stems from the determination of adequate compensation.

Through police power, the government can regulate activities to promote the public health, safety, morals, and general welfare. Because of the interdependence of land use, governments rely on police power to enact a variety of constraints over the way owner’s can use their land. A comprehensive general plan is used to outline policies that shape the future development of a community and includes a land-use plan. To implement the land-use plan, governments use tool s such as zoning, business codes, impact fees, and others. The most common method of regulating land use is comprehensive zoning. Zoning is used to divide a community’s land into districts in which only certain uses of the land are allowed. With comprehensive zoning, land is divided into zones and regulations relating to the type and intensity of use are perscribed. For example, comprehensie zoning can include restrictions on the height and use of buildings.

The government can also exercise its power through escheat. Following the death of a property owner, the government retains the right to own the property if no valid will or heirs exist. Escheat is used to prevent real estate from simply being unowned. In 2010, Staples sued the state of Delaware, arguing Delawares method for calculating liabilty of escheat as discussed in the article below.

http://www.cbsnews.com/8301-505245_162-57513307/staples-pays-$8.9m-to-settle-dispute-with-delaware/