Why Amendment 74 Could Be an Expensive Mess for Colorado

After a heated signature-gathering campaign, Amendment 74 will appear on November's ballot. The amendment would change the state constitution to require that property owners who have experienced any reduction in their property value as a result of state laws or regulations be compensated for said loss.

It doesn't say anything about the oil and gas industry, but opponents argue that it's a direct response to Proposition 112, which would require new oil-and-gas development projects be a minimum of 2,500 feet away from occupied buildings and other areas designated as "vulnerable." Amendment 74's text on the ballot will simply read: "Shall there be an amendment to the Colorado constitution requiring the government to award just compensation to owners of private property when a government law or regulation reduces the fair market value of the property?"

Adding fuel to opponents' arguments is the fact that the amendment's only financial backers are the Colorado Farm Bureau; lobbying firm Pac/West Communications; and Protect Colorado, an oil and gas industry-backed issues group, which has contributed nearly $75,000 in in-kind donations, according to campaign finance disclosures.

The measure's general wording makes it fairly expansive, and it could impact a litany of local regulations on the books, experts argue, like wipe out zoning codes, bankrupt the state government with endless litigation and effectively require citizens to pay — via their tax dollars — to protect themselves from the ramifications of oil-and-gas development.

"A lot of government policy would be uncertain at best, if not thrown out the window, if [Amendment 74] passes," says Kevin Lynch, an associate professor at the University of Denver's Sturm College of Law who focuses on takings law — the area of law Amendment 74 is trying to change — when a government takes someone's private property for public use, like to build a road, for example.

As it stands, takings law requires compensating owners only if their property has been devalued by 90 percent or more. Shawn Martini, vice president of advocacy for the Colorado Farm Bureau, says that threshold is too high. "[The courts have] set that standard so high, it's effectively unavailable," Martini argues.

Martini says the measure doesn't specifically mention oil and gas because it's meant to encompass other property rights issues that Farm Bureau members care about, including water rights, land development and preservation. "Some of our members have mineral rights, some of them don't. For the Farm Bureau, it's much more broad than just mineral rights; it's property rights at large," he says.

But Lynch argues its language could be broad on purpose to garner more support in November.
"That's one of the limitations of direct democracy and these ballot measures," Lynch says. "People aren't understandably able to think through all of the consequences of this, so people vote for something without realizing what the consequences would be."

Indeed, Lynch cautions that voters could approve both Proposition 112 and Amendment 74, creating a nightmare scenario that would force the state into a cycle of litigation that would be too costly to maintain. "It could potentially bankrupt the state government," he says.

In that scenario, legislators would probably try to repeal Proposition 112 — likely one of the goals of Amendment 74, Lynch explains — because the amendment would be codified in the state's constitution and harder to repeal.

"Then we're in a situation where that could really muck up the development of oil and gas."

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Amendment 74 could even backfire on companies looking to develop oil and gas via "forced pooling." Forced pooling is when developers get permission under state law to combine the mineral rights of a group of property owners into one unit. For example, if a group of wells sits under three properties, and two consent to leasing their mineral rights but the third doesn't, the developer can get a state order that would force the third property owner to allow development to move forward.

The process to force pool is fairly simple now, but could be a lot more complicated under Amendment 74, Lynch says. Under Amendment 74, the third property owner could demand compensation under the premise that their land is being devalued by forced pooling, a government regulation. They could also demand a jury trial to decide what that compensation would be.

"Then we're in a situation where that could really muck up the development of oil and gas," he argues.

Lynch cites what happened to Oregon, which passed a similar measure to Amendment 74 in 2004. In 2007, a second measure was passed that overturned or modified parts of the original legislation. "They passed [the first measure], they had a couple years experience with it, it was a disaster and they had to repeal it right away," Lynch says. "I think we'd probably be facing a similar situation here."

Martini of the Farm Bureau is confident that the courts will establish new precedents that would set limitations on Amendment 74, and that they would do that "rather quickly."

"That's how the constitution should work: plain language that sets out principles, and the courts from there interpret the language to find the edges," Martini says.

Opponents have said the measure would likely have a chilling effect on state and local regulators, who would soften up on oil and gas regulations to avoid paying hefty sums to affected landowners. If that's the case, maybe it's a good thing, Martini argues.

"If part of that is expressed through municipalities and counties taking another look at what it is they're going forward and doing, making sure there are ways they can mitigate the negative impacts and not require an individual landowner to bear the entire cost of that action, we think that's a good thing."