“Sophistical and Abstruse Formulas” Made Simple, or: Advances in Measurement of Penn Central’s Economic Prongs and Estimation of Economic Damages in Federal Claims and Circuit Courts. ALI-ABA Conference Inverse Condemnation and Related Government Liability Boston October 1, 2005
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“Sophistical and Abstruse Formulas” Made Simple, or:Advances in Measurement of Penn Central’s Economic Prongs and Estimation of Economic Damages in Federal Claims and Circuit Courts
Inverse Condemnation and Related Government Liability
Boston October 1, 2005
William W. Wade, Ph. D.
Draft September 12, 2005
Clear Benchmarks to Recognize
A Regulatory Taking Vex Supreme Justices –
And Most Everybody Else.
2 Fed Cl. and Cir. Courts
Advanced Penn Central test
For Partial & Temporary Takings & Conformed Damages to Good Economics
(Penn Central Transportation Co. v. New York City, 438 U. S. 104, 124 (1978).)
Economic viability measured with reference to both:
Return on investment after regulatory change was compared to the rate of return on Fannie Mae bonds as a conservative benchmark.
Total Economic Value =
Tangible Asset Values + Intangible Asset Values
Tangible Assets = Real Property.
Valued typically by real estate appraisal methods.
Intangible Assets = Ongoing profits from the
use of the Property;
Value is Present Value of Net Cash Flows.
Benchmark Return: 14%
Damages: $2,740,090 @ 1997
3 Effect of Tulare Lake Basin Decision on Payment of Damages
4 Conclusions: Economic Implications of Fed. Cl. & Cir. Court Decisions
5 Vicissitudes of Measurement of Damages:
Temporary Takings from Kimball Laundry to Independence Park
Fair Rental Value went down the wrong path. District Court 1943 awarded FMV only. 8th Circuit Affirmed.
Rental value understates loss; covers value of use of plant & equipment, only.
Excluded business losses both during take and thereafter.
Returns to management skills and ongoing business lost.
Supreme Court remanded to District Court to discover lost value of trade routes -- lost value of the business.
Rental rate concept remains lower than
lost profits of delayed project.
WACC only provides a floor value of loss and does not measure the actual lost value of the use of the property.
Resultant Values do not meet Seaboard standard.
Damages award is the interest on the diminution of cash flows.
Excludes compensation for the loss itself.
While patently specious, government offered this concept in ongoing
HUD cases: Independence Park, Cienega Gardens & Chancellor Manor.