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Economic Backbone of the Penn Central Test After Florida Rock V, K&K, and Palazzolo

October 2002

Citation: ELR 11221

Author: William W. Wade

Introduction: Too Little Attention to Economic Underpinnings of Penn Central Test

The U.S. Supreme Court remanded Palazzolo v. Rhode Island1 to the Rhode Island Supreme Court to examine the plaintiff's takings claim under the Penn Central Transportation Co. v. City of New York2 test. Arguably, this decision transferred to Rhode Island a question upon which certiorari was granted, but never dealt with: "Whether the remaining permissible uses of regulated property are economically viable merely because the property retains a value greater than zero."3 This question is more a matter of economics than law. Courts have dedicated too little attention to the economic underpinnings of this question.

Like Palazzolo, the Michigan Supreme Court remanded K&K Construction, Inc. v. Department of Natural Resources4 to the trial court to determine: (1) which parcels of the entire property should be included in the denominator parcel; and (2) applying the balancing analysis of the Penn Central test, should compensation be paid for a taking. The K&K trial court ultimately found in favor of the plaintiffs. The case provides a good illustration of how economic calculations fit into the Penn Central test.

William W. Wade, Ph.D., President of Energy & Water Economics in Columbia, Tennessee, is an economist whose practice encompasses litigation and policy issues, mostly related to natural resources: energy, water, and environmental values. He was economic expert for the plaintiffs in K&K Construction, Inc. v. Michigan Department of Natural Resources. Comments are gratefully acknowledged from Lead Trial Council Robert L. Bunting, Oxford, Michigan, and Richard Hoffman, Lake Orion, Michigan, attorneys for plaintiffs; Don Blankenau of Fennemore Craig, Lincoln, Nebraska; James S. Burling of Pacific Legal Foundation, Sacramento, California; Michael Elliot-Jones, Ph.D., Bala Research, Inc., Santa Rosa, California; and Brian Roach, Ph.D., Tufts University, Boston, Massachusetts. Remaining errors are the author's. Comments may be sent to wade@energyandwatereconomics.com.

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