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By the time you read this column, the Oregon Court of Appeals will have heard argument in one of the most important cases construing Oregon’s Measure 37.

For those living on Jupiter the last two years, Measure 37 provides for a system of payment from public funds for some losses in property value caused by land-use regulations.

Alternatively (and really the only way), the measure allows for a “rollback” of those land-use regulations to those in place when the “current owner” purchased the property.

Most people skip over the payment alternative. After all, the measure did not provide for any public money, and neither the state nor local governments are flush with cash. More importantly, Measure 37 prevents the public from requiring claimants to present evidence to justify their claims (including any losses alleged) and provides a one-way attorney fee system, so claimants get attorney fees if they prevail, but the state or local government does not get fees if it prevails. Thus the subject of “loss” of value often gets overlooked.

But the definition of value is important. The case to be heard by the Oregon Court of Appeals is Hood River Residents Association v. State of Oregon. In that case, the Marion County Circuit Court determined that the method employed by the state was acceptable. That method was to evaluate reduction in property value under Measure 37 by considering the subject property in isolation so that a judge or jury must compare the value of that property with and without the allegedly devaluing land-use regulation.

The result of this comparison is fairly easy to see – for almost always will a property exempt from a regulation be more valuable than one with a regulation imposed upon it. There is more freedom to develop the property, which almost always equates to more monetary value.

The Court of Appeals will be called upon to determine whether the “exemption” method is permissible and whether it is the only method allowable to implement Measure 37.

The appellants suggest there is more than one way to deal with the issue of valuation than by viewing the property at issue under the “exemption” method used by the Marion County Circuit Court. For one thing, the regulation usually affects multiple properties, and it might be more appropriate to consider the effect on property values if the regulation itself were not applied at all. In that case, there may not be an effect on property values at all. For another, the measure sets the date of calculation of loss to be the day of filing the claim. But how does one evaluate that alleged loss if the regulation has been in effect for years and has become part of the bundle of expectations that all property owners must use in the buying and selling of land? Under that analysis, property owners can make claims for “losses” they never would have considered before the measure was enacted. Indeed, if the date of the enactment of the regulation is the base period, most properties have appreciated in value over time.

Many suggest the valuation test doesn’t matter. Paying any money is beyond the reach of most governments, and it doesn’t matter if the loss is a little or a lot. Nevertheless, knowing the reduction in value of a parcel may focus state or local governments on how to deal with that loss. If it be minimal, perhaps a combination of cash, development credits, transferable development rights or other form of compensation to make the landowner whole. But more importantly, such knowledge (or its pursuit) will force state and local governments to face the real question as to whether the emperor has any clothes. Most claims have little or no documentation and succeed only because of the short response period, the expense and time involved in the government doing the claimant’s work frequently with no fee paid and no information provided, and the possibility of paying attorney fees.

In short, most claimants don’t provide evidence because it would put them at a disadvantage, and most governments don’t think about valuation because they don’t have the time and because they fear crippling judgments may force them to lay off emergency services personnel and close libraries. The Hood River Residents Association case may yet bring clarity to what has been a house of mirrors.

Edward J. Sullivan has specialized in land-use law for more than 35 years and is an owner in the Portland office of Garvey Schubert Barer. Sullivan is the chairman of the State and Local Government Law Section of the American Bar Association and may be reached at [email protected] or 503-228-3939.