On my flight home to Portland, I regretted not asking my daughter - an Oregonian proud of Oregon's reputation for stewardship - how passage by voters of Measure 7 in November fit the notion of a "social contract" among Oregonians. The measure had a simple ballot title: "Requires payment to landowner if government regulation reduces property value." It didn't attract much media attention (it was one of 26 measures on the ballot). Yet Measure 7 fundamentally altered - a lawyer might say "breached" - the social contract among Oregonians.

One way to comprehend the notion of a "social contract" is to ask a simple question: Who picks up the trash? Nobody picks it up at first. But, after a while, rats get into the garbage, the garbage stinks, and it looks bad. Also, it reduces the value of property in town. Finally, people get together and tax themselves a small amount to pay someone to dispose of the garbage. Everybody yields a modicum of freedom (pays a tax) in order to improve the quality of life in the town.

Theoretically, a civil society is built upon a series of such agreements. Examples abound. We tax ourselves to provide schools, roads, police and other services. Cities have zoning agreements that exclude junkyards from residential neighborhoods. Cities and counties adopt floodplain regulations to reduce flood hazard. The Oregon Board of Forestry has regulations that limit the harvest of trees along fish-bearing streams. The Oregon Department of Parks and Recreation has a regulation that prevents construction of motels and residences on the "dry sand area" of Oregon beaches. The Land Conservation and Development Commission adopts statewide planning goals to establish urban growth boundaries and protect farm and forest land.

Each of these laws and regulations reduces the value of our properties. Why do we tolerate them?

One reason is what economists and lawyers call "reciprocity of advantage:" the laws often bestow a gain on the affected properties to offset the loss. Take the city residential zoning ordinance, for example. Each property in the residential zone loses value because it cannot have a junkyard on it. But each property also gains because the ban on junkyards and other noxious uses increases the residential value of the property.

Consider again the city or county floodplain regulations. The regulations impose costs - one is the requirement to elevate buildings - on each property in the flood zone. But each owner also gains because the regulations reduce the risk of harm to any and all properties in the zone and make owners eligible for flood insurance at rates far below market rates. Return to the Board of Forestry's forest practices regulations. Each forest landowner loses some value because he or she cannot cut and sell some trees along the stream. But each also benefits from an overall system of forest practices regulations that resolves conflicts among users of the forest and the natural resources affected by logging. Finally, back to beach regulations. Each owner of dry sand area on the beach loses part of the value of his or her property. But each gains, as well, because the regulation enhances the value of all beachfront property by preventing adjoining properties from building on the beach.

There is another reason we accept regulations. In most cases, the regulations also bestow benefits upon society at large. Zoning, for example, provides a measure of stability and certainty to property values, beneficial to economic growth and development. Floodplain regulations reduce damage from floods and reduce disaster payments, which are paid from our taxes. Forest practices regulations protect the quality of water we drink and reduce water treatment costs. The regulations also protect the fisheries that feed us, employ fishers and support the sports fishing industry. Beach regulations keep our beaches free of motels and privacy fences common in other coastal states. They also prevent uncontrolled "hardening" of beaches with rock structures that can rob beaches of their sand supply and make walking on the beach dangerous and unpleasant. In short, we accept these and other "infringements" upon our freedoms because they make our society livable, sustainable and otherwise civilized.

But not all of us accept these infringements, even if we experience a "reciprocity of advantage", or benefits to society, to weigh against our losses. To some of us, the effect of regulation on our property seems unfair, and sometimes it is unfair. We look to checks and balances in the system to address the unfair application of regulations.

The most fundamental checks, of course, are the provisions in the U.S. and Oregon Constitutions that prohibit government from taking private property without just compensation. Through litigation, these constitutional protections have come to mean that regulations cannot take away all economic use from a property. This security for a property owner may be solid as the constitutions themselves, but the right the constitutions provide is neither convenient nor inexpensive to exercise.

That is one reason why governments have taken other measures to address fairness in the application of regulations. Perhaps the most familiar is the "variance." There are many formulations of the variance concept in regulations, but the notion is to relax the regulation if its effect on a property would be out of proportion compared to other properties affected by the regulation. Another common means to address fairness is the tax break. The best example in Oregon is the farm value assessment program. In part because regulations limit uses of farmland (no shopping centers or subdivision, for example), farmland is taxed far below its value as farmland. A number of tax reduction programs provide some compensation for owners of property affected by regulation, even if there is not a "taking" of the property under the U.S. or Oregon constitutions.

In spite of these and other measures, however, a sense of unfairness from regulations persists and helped drive voter support for Measure 7. Would Measure 7 itself be fair? What part does fairness play in consideration of the social contract among Oregonians?

Measure 7 says we must pay each other for any reduction in property value that results from a regulation. The measure has two unavoidable consequences.

One consequence is that local or state governments will shrink from adopting new laws, or even amending existing laws, for fear of exposing taxpayers to compensation claims. The Florida League of Cities testified in Congress of the "chilling effect" of that state's compensation measure (considerably milder than Measure 7) two years after its enactment. Shortly after passage of Measure 7 on November 7, on advice of their lawyers, cities and counties all over Oregon halted work on revisions to ordinances to improve their communities. Agencies of the state, too, stopped or delayed work on revisions to regulations dealing with matters from natural hazards to dam relicensing to water quality.

Suppose voters had put Measure 7 into the Oregon Constitution back in 1955 instead of 2000. It is doubtful Oregon would have adopted rules to clean up the Willamette River, to keep motels off Oregon beaches, to protect farmland from subdivisions, to establish urban growth boundaries, to place a deposit on certain beverage containers, to protect riparian areas to save salmon - things we did not anticipate in 1955 - because they would have exposed local and state governments to compensation claims from polluting industries, developers and timber companies.

How can we know today what measures we will need tomorrow in order to sustain our way of life? City and county ordinances and state regulations become outdated. We learn new information every day about natural hazards, environmental risks and clever ways to bypass well-intentioned laws. If we cannot revise and improve our system of regulations to accommodate new situations, for fear of generating compensation claims, our laws will atrophy. Civility will begin to break down as Oregonians deal with problems as individuals rather than as a society.

Or, the federal government, which is not subject to Measure 7, will take care of Oregon for us.

The second consequence of Measure 7 is that each city and county and the state will have to make a wrenching choice: either pay compensation claims or repeal or not enforce environmental, public safety and land use laws. It is this choice that most calls the social contract among us into question.

In order to pay compensation claims to ourselves, we will have to raise taxes or reduce funding for services. Because Measure 7 contains so many ambiguities, no one knows how many claims will be filed, or how much they will cost. The very first claim reported by the media seeks $50 million for an aggregate site in Jackson County. The owner filed a lawsuit in U. S. District Court in Medford, pointing to a county law that prohibits extraction of aggregate from his 150 acres. He claims his land could produce 100 million cubic yards of hard rock, worth $1 to $2 a ton. Ordinances like Jackson County's are common. If the Jackson County claim merits compensation under Measure 7, Oregon counties can expect similar claims from owners of farm and forest land across the state with gravel deposits worth many hundreds of millions of dollars.

Local governments can anticipate claims from owners of tracts in the hills above our cities whose ordinances regulate placement of cell towers. There will be claims from owners of forest land who are prevented by state forest practices rules to protect water quality and salmon habitat from removing trees near streams. There will be claims from owners of grocery stores who are forced by the Bottle Bill to set aside areas in their stores for container returns. The statement prepared for the Voters Pamphlet by the Financial Impact Statement Committee estimated the cost of Measure 7 claims against local governments could be $3.8 billion, the cost to the state $1.6 billion, each year. The breadth of Measure 7 makes it difficult to exclude total claims of this magnitude from the realm of possibility.

In the era of tax limitation measures passed by voters in the 1990s, no level of government has money to pay claims of any significance, much less claims of the magnitude of the first ones filed. But Measure 7 did not offer Oregonians a new tax to raise funds to pay compensation claims. Short of a new tax, the only way to pay compensation claims is to reduce services. Given the likely sums involved in such claims, the Governor and Legislature would have to take hundreds of millions of dollars from education, human services and public safety - which absorb 94 percent of general fund and lottery revenues - to pay claims.

Let's return to the fairness question for a moment. Should needy Oregonians forego essential services, or pay higher taxes, in order to pay a compensation claim? Perhaps the answer should depend upon the nature and effect of the regulation. Most people would probably say "no" if the regulation is intended to prevent the owner from a use of his property that would impose a harm, such as building in a floodplain or cutting every log down to the edge of a salmon-bearing stream. This would be particularly true if the owner had other economically viable uses of the property. On the other hand, most people would probably say "yes" if the regulation is intended to bestow a public good, such as access for a bike path, particularly if the accessway caused a several reduction in value. Measure 7 requires compensation for ANY reduction in value, without regard for the nature or effect of the regulation. For this reason, Measure 7 seems unfair.

If we conclude that we do not want to pay higher taxes or sacrifice services in order to pay compensation claims, Measure 7 gives us one more option: we can simply not enforce the laws and regulations. Do we really want to repeal parts of the Beach Bill and the Bottle Bill, some clean water laws, floodplain regulations, our land use laws, zoning regulations, portions of building codes, highway access management rules, forest practices rule and other laws and regulations? These laws are among those which make the quality of life in Oregon exceptional, laws we celebrate. Do we want to breach the agreements we made with one another over the past 30 years to sustain the Oregon way of life?

Suppose a city or county or a state agency decides not to enforce an environmental or land use regulation in order to avoid a compensation claim. Consider the effect of that decision on our willingness to join together as a society to protect our quality of life.

Let's say you own a small office building in an area subject to a city ordinance that limits the height of buildings to preserve views of Mt. Hood. You accept the limitation on your tract because you know all properties in your area are subject to the same limitation. You can't build a tall building, but neither can anyone else. As a result, views from your building are protected. After passage of Measure 7, the owner of the tract between your property and Mt. Hood proposes to add five stories to a two-story building, blocking your view. The city ordinance doesn't allow five additional stories, but the owner seeks compensation for the difference in value between a two-story and a five-story building. The city can't pay the owner the $100,000 difference, so the city waives the requirement and authorizes the addition. You feel betrayed and are tempted to follow your neighbor's example, even though you were once willing to live with the height limitation. It is likely that the ordinance will fail over time. Indeed, it is likely that all ordinances and regulations subject to compensation under Measure 7 will fail, as will people's willingness to be subject to any limitations enacted for the benefit of all.

Consider the question of fairness again. Should Oregonians lose the benefits they derive from environmental and land use regulations because there is not enough money to pay compensation claims? Most people would probably say no if the regulation leaves a property owner with the right to make a full range of uses of the property, but limits the right to subdivide and sell the new lots for others to use. Measure 7 requires compensation for ANY reduction in value, without regard for the nature or effect of the regulation. For this reason, Measure 7 seems unfair.

So these are our choices under Measure 7: (1) raise taxes to pay compensation claims; (2) reduce services to pay claims; or (3) repeal or suspend our environmental, land use and public safety laws. Can we reconcile any of these choices with our social contract with one another? Are they fair to Oregonians?

Only the first choice is consistent with our social contract. Paying taxes is part of the contract: we agree to tax ourselves in order to provide ourselves with a service we want. The service could be disposal of the trash. Or it could be compensating ourselves for loss of real property value.

There is a way to pay for loss of value and remain faithful to our agreements to keep society livable, sustainable and otherwise civilized. Unlike Measure 7, this way is genuinely fair.

Let's start with the sources of the value of real property. The sponsors of Measure 7 evidently believe that owners of property are fully responsible for the value of their real property. That is why they believe it is fair that they should be compensated if a law reduces that value. Appraisers, however, disagree. They speak of "forces of value" - economic, physical and political - that influence land value. Several of these are beyond the landowner's control or credit. Consider an example.

Compare two five-acre parcels of farmland in the Willamette Valley. One lies ten miles southwest of Wilsonville. The other lies within the city of Wilsonville. Both are undeveloped; both were purchased 35 years ago for $15,000 each. Both are capable of producing valuable crops and all manner of commercial, residential and industrial development. The tract southwest of Wilsonville is worth $5,000 an acre. The tract in Wilsonville is worth $50,000 an acre. The $45,000/acre difference in value of the Wilsonville tract comes in part from the federal and state investment in Interstate 5 and the Wilsonville interchanges, the city's investment in sewer and water systems, streets, schools, fire protection and other services and the investments of hundreds of owners of nearby private properties, such as Nike and Tektronix. The owner of the Wilsonville tract is responsible for some of this enhanced value: he or she has paid taxes for the services that have enhanced the value. But the taxes paid fall far short of the $225,000 difference ($45,000 x 5 acres) in value. Most of the enhanced value derives from political (government) and economic (private business) decisions made by people other than the owner. Herein lies the opportunity for a fair compensation system.

That portion of value gained by the Wilsonville tract attributable to investments made by the government in public services, rather than to investment made by the owner, can be taxed to pay compensation claims from owners whose values have been reduced by regulation. This system would be fairer than Measure 7 because it reflects a fuller and more accurate accounting of the effect of local and state actions on the value of real property. It would be fairer because it is self-contained - government pays for loss of value for which it is responsible from a source of revenue generated by gain in value for which government is also responsible - and would not deprive less-than-wealthy Oregonians of education, human resource and public safety services.

The fairness of such a system can be seen in the following hypothetical. A person buys one acre near the South Medford interchange on Interstate 5, zoned "Highway Commercial" to allow all manner of commercial development, including "big box" stores. The person pays $50,000 for the acre, low for the location because the interchange is operating beyond its capacity. The city, state and federal governments pool their resources and invest $50 million to rebuild the interchange. As a result, our owner's property value soars to $100,000 - a $50,000 gain - because access to the property is greatly improved. In order to prevent the new interchange from overcrowding again, Medford revises the commercial zoning ordinance to remove "big box" stores from the long list of allowed commercial uses. The revision reduces the value of our owner's property by $15,000.

Under Measure 7, our owner would be entitled to $15,000 in compensation, paid by city taxpayers, even though the government decision to rebuild the interchange enriched our owner a net gain of $35,000 ($50,000 in gain from rebuilt interchange minus $15,000 loss from revision of the ordinance).

Under a fairer and more equitable system, our owner would be compensated from a fund to which the owner contributes a portion of the gain. City taxpayers pay only once - the city's share of the interchange - not twice, for the interchange and for compensation due the owner for the ordinance revision designed to protect the city's investment in the interchange.

It is not easy to design a system of compensation that is fair and equitable and retains our network of agreements that sustain our way of life. Governor Tom McCall got closer than anyone since. He proposed a system in 1974 (the year after passage of the 1973 land use planning law) that would have established a "land increment value tax" as the source of revenue to pay compensation claims ("Inroads Toward Positive Land Use Management", Salem, Local Government Relations Division, 1974). The tax rate would have varied, depending upon the length of time the property had been held by the owner (shorter time, higher rate) and the gain upon sale (higher gain, higher rate). In short, the McCall proposal would have taxed owners who make large gains in a short period of time in order to compensate owners who had lost value as a result of regulation.

The Joint Legislative Committee on Land Use (established by the 1973 land use planning law) studied and reported to the full legislature on compensation for loss of value in 1975, 1976, 1980 and 1986. After the studies in 1975 and 1976, the legislature enacted a limited compensation system. Senate Bill 827 (found at Oregon Revised Statutes 308.341) provided a five-year reduction in property taxes as partial compensation for reduction in property value resulting from zoning. The law - however limited - was consistent with Oregon's social contract and a step in the direction of fairness.

Oregon voters may have another chance to vote on a compensation system. There is talk in Salem of repairs to Measure 7. If the legislature refers a measure to voters to substitute for Measure 7, it should send us a system that does not force us to make a Sophie's Choice: reduce funding for education, human services and public safety; or repeal environmental and land use laws. Given the concern of Oregon voters for fairness, compensation for loss of real property value may be a service Oregonians would tax themselves to provide.