4.6.3. Benefits. Federal acquisitions and the projects they serve can also enhance properties’ market value, often raising complicated valuation questions.818 Under federal law, compensation for a partial acquisition must reflect any direct and special benefits to the remainder due to the government project.819 Indirect and general benefits, on the other hand, are not considered because they are enjoyed by the public as a whole rather than arising from an acquisition’s particular impact on a specific property.820 Distinctions between these types of benefits are discussed in more detail below. 

The same principles guide the analysis of benefits and damages in valuations for federal acquisitions.821 Just compensation turns on the question, “What has the owner lost? not, What has the taker gained?”822 In legal terms, direct and special benefits are a form of just compensation, no different than a monetary award or payment.823 As a result, any direct and special benefits must be set off against the total compensation because when a landowner’s remainder property “is specially and directly increased in value by the public improvement, the damages to the whole parcel by the appropriation of part of it are lessened.”824 One federal court explained the fairness of this principle as follows: 

It is not in contemplation of law . . . that after the sovereign has taken from a citizen and paid him for that which it has taken, that the citizen can on the same market sell his residue for an amount which, added to the compensation he has received, aggregates more than the value of the whole from which the part was taken. That cannot be just compensation . . . .825 

Direct and special benefits commonly include “new access to a waterway or highway, or filling in of swampland.”826 An upward shift in the remainder property’s highest and best use is often an indication of special and direct benefits. For example, a partial acquisition for the extension of a mass transit system had a special and direct benefit on remainder property that was eligible for special zoning that would allow higher-density residential development due to its location within a certain distance of a new mass transit station.827 Comparable sales typically provide the best evidence of special and direct benefits.828 The existence or absence of special and direct benefits turns not on the specifications of the government project, but on its impact in the market. For instance, in a partial acquisition for reservoir purposes: “The question is whether the market value of the remainder was increased by its prospective frontage on the [new reservoir created by the government project, which spurred demand for lakeside subdivision]. Market value ‘is . . . a reflection of the state of mind of the public with respect to the property.’”829 

General and indirect benefits, in contrast, are those “which result to the public as a whole, and therefore to the individual as one of the public; for he pays in taxation for his share of such general benefits.”830 Thus, compensation would not be offset by the benefit of a “general increase in the value of property in the neighborhood” caused by a government project.831 In modern federal acquisitions, appraisers are rarely—if ever—asked to analyze and estimate general and indirect benefits, which relate to taxation, not just compensation.832 But this makes the distinction between the types of benefits no less critical.833 

The extent of a special and direct benefit is a fact question to be determined by the appraiser.834 But correctly distinguishing special and direct benefits (to be considered) from general and indirect benefits (to be ignored) “can raise complicated questions” in practice,835 and virtually always requires a legal instruction.836 The distinction stems from principles of fairness: 

[I]f the proposed road or other improvement inure to the direct and special benefit of the individual out of whose property a part is taken, he receives something which none else of the public receive, and it is just that this should be taken into account in determining what is compensation. Otherwise, he is favored above the rest, and, instead of simply being made whole, he profits by the appropriation, and the taxes of the others must be increased for his special advantage.837 

Applying these principles, “any special and direct benefits [that are] capable of present estimate and reasonable computation” must be deducted for purposes of just compensation.838 

Special and direct benefits can accrue to more than one property, such as a new or widened street benefiting multiple abutting properties. “The benefit is not the less direct and special to the [property at issue], because other estates upon the same street are benefited in a similar manner.”839 The Supreme Court reasoned: 

[t]he advantages of more convenient access to a particular lot of land in question, and of having a front upon a more desirable avenue, are direct benefits to that lot, giving it increased value in itself. It may be the same, in greater or less degree, with each and every lot of land upon the same street. But such advantages are direct and special to each lot.840 

On the other hand, “sharing in the common advantage and convenience of increased public facilities, and the general advance in value of real estate in the vicinity by reason thereof ” would be indirect and general benefits.841 

To take into account any special benefits from the project, appraisers apply the before and after rule of valuation, developing opinions of the market value of the larger parcel (the entire tract) before acquisition excluding any enhancement or diminution from the project, and the market value of the remainder after acquisition including any special benefit or diminution due to the government project. In a practical example, the Sixth Circuit described the valuation of a partial acquisition for construction of a dam and lake: 

An appraiser . . . valued [the landowner’s entire tract before acquisition] at $80,000, or about $365 per acre, as of the day of the taking. That was its market value without any enhancement because of its proximity to the already projected development of the [dam and lake]. The [appraiser] buttressed his valuation by referring to comparable sales. 

He then valued the [remainder property], title to which would remain in [the landowner after acquisition], at $30,000 or about $404 an acre. In valuing this remainder, he gave consideration to the enhancement that would accrue to it from its proximity to the lake and the advantage of an unobstructed view thereof. 164

Deducting this $30,000 from the $80,000 value placed on the entire tract, he came up with a figure of $50,000 representing the fair compensation that should be paid . . . . This appraiser’s method was correct.842 

In this way, the value of any special or direct benefits is offset against the total value.843 

Consideration and offset of the government project’s direct and special benefits to remainder property does not violate the scope of the project rule, discussed in Section 4.5. Rather, the general principle, as the Supreme Court expressly stated in United States v. Fuller, is that the United States “may not be required to compensate a [landowner] for elements of value that the Government has created . . . .”844 And this general principle does not prevent application of the scope of the project rule to exclude increments in value due to the government’s project when necessary “to do substantial justice.” 845 Application of the scope of the project rule turns on the question: “Should the owner have the benefit of any increment of value added to the property taken by the action of the public authority[?]”846 As discussed in Section 4.5, the answer to this question depends on the precise facts of each acquisition, and “requires discriminating judgment” and legal instructions.847