What has Senator Orrin Hatch Said about Signage?

In 1998, the former Signage Foundation for Communication Excellence presented its National Sign Users’ Conference on Sign Regulation and Marketing, in conjunction with the International Sign Association and its Sign Expo ’98 tradeshow. The keynote speaker at the conference was Senator Orrin Hatch (R-UT). The following are some highlights from his address.

“My topic today is the state of the law, particularly Constitutional law, as it applies to commercial communication. The term. of course, includes signs, billboards and the like, legitimate forms of communication. I believe government regulation has become burdensome, often times unconstitutional.

Advertising has been part of our culture since colonial times. Defense of political and commercial speech was recognized by the common law. It has been recognized since day one in this country. In America, the printed word was given greater protection than it was in mother England. Indeed, respect for the printed word was so great that printers were often considered heroes of the Revolutionary War and the new Republic. Witness Ben Franklin, for example.

At the time, legislatures could only prohibit advertising that was fraudulent or misleading. It was not until 1975, in the Bigelow v. Virginia case, and in 1976, in Virginia Board of Pharmacy v. Virginia Consumer Council Inc., that the Supreme Court held that the First Amendment protected truthful and non-misleading commercial messages. The public has an interest in receiving accurate commercial information, and the government has little or no correlative interest in censoring the content of the message.

The Supreme Court recognized a state may regulate commercial advertising more freely than political speech. It may also impose a content-neutral set of restrictions on the time, place or manner of speech. But it may not completely ban the speech.

The content-neutral restrictions often are used merely as an excuse. Other sign codes delegate almost unfettered discretion to bureaucrats. In challenging these restrictions, apply the commercial-speech test of Central Hudson Gas & Electric Corp. v. Public Service Commission in 1980. Here, the government bears the burden of justifying a restriction on commercial speech. The four-part test requires:

  • Is the speech a lawful activity and not misleading?
  • Is the asserted governmental interest substantial?
  • Does the restriction directly advance that interest?
  • Is the restriction narrowly tailored to advance that interest?

In Forty-Four Liquor Mart Inc. v. Rhode Island, in 1996, the Supreme Court increased the protection by subjecting the restrictions to a more strict review. It struck down a prohibition on advertising the price of alcoholic beverages.

Besides First Amendment implications, regulation of sign advertisements raises Fifth Amendment property-rights concerns. Our founders knew from the beginning of the creation of the Republic the importance of property rights. It’s one reason why we have our tremendous wealth and free-market system. Our founders feared that the government they helped form might use its power to abuse the people it was designed to protect.

John Adams, the second president said, “The moment the idea is admitted into a society, that property is not as sacred as the law of God, and as there is not force of law and public justice to protect it, anarchy and tyranny commenced.”

The Father of the Constitution, James Madison, in his celebrated essay on property, wrote that the very purpose of government is to protect private property. That’s why the last clause of the Fifth Amendment was added to the Bill of Rights. Known as the “Takings Clause,” it states, “Nor shall private property be taken for pubic use without due process of law, nor shall private property be taken for public use without just compensation.”

With the growth of government at all levels — federal, state and local — private property has become increasingly under attack. Too often, localities abuse zoning powers by restricting sign advertising on so-called “aesthetic” grounds. Too often, localities misuse the nuisance doctrine to prohibit otherwise legal advertising.

in the 1992 Lucas v. South Carolina Coastal Council Supreme Court case, it struck down zoning regulations that would have forbid the building of a beachfront home. The court said the locality must factually demonstrate that the use of the private property is engendering some concrete danger. Mere aesthetics may not be enough.

What Does Amortization Mean for Signage?

Amortization concerns the compensation for a┬ásign that is no longer in compliance when a sign code changes. The theory is that, if a sign is allowed to exist for a certain period of time, the owner of it will recoup their investment before the sign has to be removed, which is a way of circumventing the “just compensation” portion of the 14th Amendment. The fallacy of this is explained in the following article, written by certified planner Richard Bass, that appears in The Signage Foundation website’s Research Library. http://www.thesignagefoundation.org/Portals/0/SFI%20Amortization%20Explained.pdf

An example of appropriate argument for just compensation occurred in Richfield, Michigan with regard to a Michael’s crafts store. Its rooftop on-premise sign, which functioned like a billboard, had been built in the 1950s by the prior tenant. In 1987, Richfield banned rooftop signs. A 10-year amortization was included in the sign ordinance, and the Michael’s sign was ordered to be removed in 1998.

For “just compensation,” three valuation methods were used: cost of replacement, the income approach and a market comparison. Estimates were that Michael’s would need to spend $825,000 annually to replace the advertising value of its rooftop sign. Factoring in a 10% annual return on investment, this would mean the cost of replacing the sign’s advertising value would be $8.25 million.

As for income, the sign was calculated to account for 20-30% of the store’s sales. Conversely, the loss of the sign would mean a 20-30% decrease in sales. This would account for $200,000 less profit annually. Given the additional loss of investment income, the potential loss was calculated at $2 million.

As for replacement cost, based on a square-foot lease rate for a different use, the loss was calculated to be $56,000 annually. With a 10% investment revenue, this would mean a los of $560,000. Faced with this evidence, the court determined Richfield would have to pay cash compensation. A settlement occurred out of court. A full report on these proceedings appeared in the December 1998 issue of Signs of the Times magazine.

Conversely, others have failed to show an economic loss due to amortization. One instance occurred in Ridgeland, Mississippi in 1999. The city passed a sign ordinance that restricted ground signs to 50 square feet and a height of 12 feet, with exceptions for signs located within 300 feet of the Interstate highway. The ordinance included a five-year amortization period, which meant that legally erected signs, which would now become illegal with the passing of the sign ordinance, could stay up for another five years. But then they would have to be taken down, and that time period would suffice as just compensation.

Five years later, numerous businesses — Shoney’s, Midas Muffler, Red Roof Inns — filed an appeal to keep their signs. They invoked the precedent case of Lamar Adv. of South Georgia v. City of Albany (1990). The appeal process lasted three years, but the sign ordinance was upheld. The appellants erred in not documenting the economic ramifications of their signs being taken down, which is something Lamar had done when it won its appeal. This case is detailed in the June 1999 issue of Signs of the Times magazine.

As of November 2016, exactly half of the U.S. states (and the District of Columbia) recognize amortization as a legitimate form of just compensation, and the other 25 do not.