State and local governments have a variety of powers. They can take private property for public use, but they have to fairly compensate the property owner. They can also use their police power—a broad array of authority to protect public health and safety—to regulate the use of property. The Wisconsin Court of Appeals’ recent decision in United America v. Wisconsin Department of Transportation, 2018AP2383 (Wis. Ct. App. April 28, 2020), illustrates the limited damages available to property owners when governments exercise police powers.

The state, local governments, and certain corporate entities may use eminent domain (also known as condemnation) to acquire private property, even if the property owner does not wish to sell. The condemning entity must follow the procedures delineated by chapter 32 of the Wisconsin Statutes and provide just compensation for the property taken.  Assuming the condemning authority follows the strict procedural requirements and provides just compensation, it may take possession of private property for a public purpose.

How much compensation is “just” is frequently disputed in condemnation cases.  Both the U.S. Constitution and the Wisconsin Constitution require providing “just compensation” to property owners for a taking (U.S. Constitution, Amend. V; Wis. Constitution Art. I, § 13). Wisconsin has codified valuation methods for determining just compensation for total or partial takings in Wis. Stat. § 32.09. Those methods attempt to provide owners the fair market value of the property taken, and for diminution in value of remnant parcels resulting from partial takings. Property owners or tenants may be entitled to additional compensation if the taking displaces the person from a home, business, or farm. Those expenses could include moving expenses; increased interest expenses or debt service costs; costs of construction for replacement buildings; professional service costs for planning, engineering, and legal advice; construction of utilities and other infrastructure needed to serve a replacement building; and imputed administrative costs for time spent by the owner or tenant in connection with the taking. (If a city, village, or town is the condemnor, relocation costs are capped at $100,000.)

Conversely, when governmental use of police powers affects property, damages are limited. Police power actions refer to enacting laws or undertaking an activity that affects property, but does not result in taking possession or occupation of property.  Wisconsin has long held that “[a]n impairment of the use of property by the exercise of police power, where the property itself is not taken by the state, does not entitle the owner of such property to a right to compensation.” Surety Savings & Loan Association v. State Department of Transportation Division of Highways, 54 Wis. 2d 438, 443, 195 N.W.2d 464 (1972). That is because incidental property damage resulting from government activity furthering the public welfare is not a taking of property. See id. Generally, when a government enacts a law affecting property, no compensation to the owner is required so long as the government does not take possession of the property.

There are two major exceptions to the prohibition on compensation for effects of police power. First, compensation is required when a law or regulation so restricts the use of the property that a “regulatory taking” occurs.  Courts balance several interests to determine if a regulatory taking occurred. The factors weighed include economic impact, interference with reasonable investment-backed expectations, and the character of the government action: “A ‘taking’ may more readily be found when the interference with property can be characterized as a physical invasion by government … than when interference arises from some public program adjusting the benefits and burdens of economic life to promote the common good.” Penn Central Transportation Company v. City of New York, 438 U.S. 104, 124 (1978). If a regulatory taking occurs, then the government must provide the property owner with just compensation. Second, compensation is due when a statute specifically mandates it be provided to an affected property owner.

The applicability of the second exception was at issue in United America. The plaintiff, United America, operated a gas station near the intersection of Highway 51 and Northstar Road in Lincoln County. Prior to 2013, that intersection was “at grade,” meaning vehicles could directly travel between the highway and road. The gas station’s entrance was on Northstar Road, meaning customers could easily travel to and from Highway 51 from the gas station.

In May of 2013, the Wisconsin Department of Transportation (“WDOT”) installed an overpass so that Northstar Road and Highway 51 became “grade-separated”. This eliminated direct access to Highway 51 from Northstar Road by the gas station’s potential customers. As a result, United America argued that it lost 90 percent of its business. WDOT stated that it made the change to this intersection under its police power for safety reasons.

United America made a claim for damages under Wis. Stat. § 32.18, which requires compensation resulting from “any damages to said lands occasioned by” a change in highway grade, even when there has been no taking of property. The WDOT interpreted the language to apply only to physical or structural damage to the land itself, while the landowner argued the statute applied any damages the landowner sustained that resulted from the change in grade.

The court of appeals sided with WDOT.  It found that the statutory phrase “to said lands” acted as a limitation on the availability of “any damages.” Therefore, the damages had to be to the land itself, not to the owner. Further, the court noted, Wis. Stat. § 32.09 expressly addressed the types of damages that United America sought. However, that statute applies only to total and partial takings, neither of which occurred here. Indeed, Wis. Stat. § 32.09(4) restrictively states that, “[i]f a depreciation in value of property results from an exercise of the police power, even though in conjunction with the taking by eminent domain, no compensation may be paid for such depreciation except as expressly allowed in subs. (5) (b) [total taking of property] and (6) [a partial taking of property] and s. 32.19 [relocation costs].” The court held that, by creating limited exceptions (none of which applied to United America’s claim), the legislature indicated its intent to broadly prohibit compensation for other exercises of the police power. Therefore, Wis. Stat. § 32.18 applies only to physical or structural damage to land and does not authorize damages for diminution in the property’s value.

United America reiterates the severe limitations on claims for damages based on government use of police power. When a condemning authority takes property, the property owner is entitled to just compensation and other damages; but when the government acts under its police powers, that will generally not result in any compensation.

Find a Professional