4.11.3.3. Substitute-Facility Compensation.As noted above, it is constitutionally permissible for the United States to provide compensation in the form of a substitute facility instead of cash.1161 This form of compensation may be the most practical and equitable means of compensating landowners in certain “peculiar” acquisitions.1162 In such circumstances— typically acquisitions of properties that are owned by a public entity, dedicated to public use, and for which a functional substitute is required and payment of market value would deviate significantly from making the owner whole—“compensation by substitution would seem to be the best means of making the parties whole.”1163 

But while a substitute facility is a constitutionally acceptable form of just compensation instead of cash, the Supreme Court has repeatedly rejected attempts to measure just compensation by the cost of a substitute facility instead of the market value standard.1164 The Court unanimously criticized the “substitute facility doctrine” as an unfair measure of compensation: among other flaws, it increases the risk of error, prejudice, and windfall awards; adds uncertainty and complexity to the valuation process without any necessary improvement; and departs from the established “principle that just compensation must be measured by an objective standard that disregards subjective values which are only of significance to an individual landowner.”1165 

If the United States provides compensation in the form of a substitute facility, “the market value of the . . . property is no longer relevant.”1166 As a result, appraisals of market value are generally inapplicable in such situations,1167 although appraisers or other experts may be retained to estimate costs, perform traffic studies, or conduct other analyses in connection with compensation by substitution.1168 But determining whether substitute-facility compensation would be appropriate for a given acquisition is beyond the scope of the appraiser’s task of developing an opinion of market value.1169 

Congress can specifically authorize substitute-facility compensation, regardless of whether the standard market value measure of just compensation would be adequate.1170 Absent a congressional mandate to provide substitute-facility compensation, agencies are to be guided in this determination by the basic principles of just compensation: fairness to both landowners and the public, and making the landowner whole.1171 With substitute-facilities compensation, as with monetary compensation, “the question is, What has the owner lost? not, What has the taker gained?”1172 Accordingly, appropriate compensation will turn on the impact of the government’s acquisition, not the nature of the acquisition itself. Regardless of the form of compensation, the Fifth Amendment does not require any award for non-compensable (or “consequential”) damages, further discussed in Section 4.6.1173 

In practice, substitute-facility compensation is often extremely complex and arises only in “peculiar” situations.1174 As for the specifics of this form of compensation for a given acquisition, the Fourth Circuit’s discussion in Town of Clarksville v. United States is instructive: 

Of course, the interests of the public, upon which the payment burden rests, are at stake, too, and the award must not be in excess of strict equivalence. Yet we are not here dealing with a rigid, blind measure, that grants compensation only on a pound of flesh basis, but rather with an equitable concept of justice and fairness that accords with the Fifth Amendment’s mandate. Accordingly, the equivalence requirement which must be met with respect to the substitute facility is more that of utility than of mere dollar and cents value.1175 

As the Supreme Court held in rejecting a substitute-facilities measure of compensation for the taking of a municipal landfill in Duncanville, “[i]n this case, as in most, the market measure of compensation achieves a fair ‘balance between the public’s need and the claimant’s loss.’”1176 To be just, compensation—whether in the form of cash or substitute facility—must achieve that “fair balance.”1177