Regulatory vs. Proprietary Action

Public entities are involved in large development projects in many different ways. For attorneys, one important way to look at the types of public involvement is on a spectrum activity from the purely proprietary to the purely regulatory. Where a government action falls on this spectrum has crucial implications with regard to many different laws.

On the purely proprietary end of the spectrum, there are publicly-owned, -constructed, and -operated projects, such as most airports and public office buildings. On the other end of the spectrum are purely private projects, receiving no public subsidy and requiring no new public infrastructure or other discretionary public investment.

(Note that even purely private projects often need permit approvals and decisions from local government that are purely discretionary on the part of the government: amendments to general or specific plans, zoning changes, variances, certain conditional use permits, etc. Very few projects of any size are by-right projects, meaning that the landowner’s project comports with all existing laws, and therefore that there is a legal right to construct it. Discretionary approvals such as those listed above are still based on the government’s regulatory power (or police power), rather than a proprietary action.)

Across the spectrum of government involvement with a development project from purely proprietary to purely regulatory, there is any number of ways the government can be involved. Local governments may subsidize private development through a direct monetary payment; they might sell or lease land to a private developer (perhaps after using the government’s eminent domain power to acquire that land); they might re-route public streets or construct expensive infrastructure that supports the development; and so forth. All of these actions are proprietary to one degree or another, and are purely discretionary on the part of the government entity involved.

The proprietary nature of these actions has important legal implications. Most importantly, in many cases it empowers the local government to attach community benefits conditions to the action, while avoiding an attack based on preemption by federal law. Preemption doctrines under the NLRA, ERISA, and the Federal Aviation Administration Authorization Act (FAAAA) all have exceptions for contexts in which the government is acting in a proprietary capacity. The federal constitutional doctrine of the dormant commerce clause also prohibits certain local actions, but contains an exception for actions proprietary in nature.

While the particulars of these preemption doctrines vary, in all these cases and others, local governments have broader leeway to advance policy when they are acting in a proprietary manner.