A core issue regarding the future of private property rights now is the in hands of the U.S. Supreme Court, as the justices consider arguments in an unheralded yet key Fifth Amendment case.

The question is to what extent government agencies can regulate the use of private property before such rules constitute a "taking," which under the Fifth Amendment requires compensation to the property's owner. And since government agencies have increasingly refused permits to owners because of environmental concerns, the Supreme Court literally holds the fate of the real estate industry in its hands.

The facts of the case are clear. Anthony Palazzolo and his business partners bought 18 acres on the Rhode Island coast in the late 1950s and early 1960s for about $13,000. Palazzolo essentially controlled the partnership interests as well and became sole owner of the property by 1978.

From the 1960s to 1986, Palazzolo applied for land use permits five times. He wanted to fill the property, subdivide it and build 74 single-family homes. He estimated that his profits from this venture would reach almost $3 million.

But Palazzolo was turned down by the city, state and federal governments, which wanted to preserve a bog on the property for wildlife. According to Rhode Island, the land serves as a "refuge and feeding area for larval and juvenile finfish and shellfish and for migratory waterfowl and wading birds." What's more, state regulations require "scenic diversity," which Rhode Island said would be harmed by Palazzolo's proposed development.

No matter that the state owns a parking lot for 2,800 cars that sits virtually next door, as well as interests in a nearby airport. Palazzolo, Rhode Island insists, should not be able to use his land as he sees fit.

So now, 40 years after buying the land, Palazzolo is still embroiled in a lawsuit he filed in 1988. He is suing for his $3 million in projected profits.

The Fifth Amendment of the U.S. Constitution seems clear on the matter. It states that private property shall not "be taken for public use without just compensation."

But Rhode Island, as well as the 18 other states and a host of environmental organizations backing it, contend that the regulation of Palazzolo's property does not constitute a taking. After all, the state contends he could build one single-family house on the uplands portion of the property, thereby gaining about $200,000.

In other words, the state says he should be happy with less than one-tenth of his projected profits. After all, Palazzolo has the honor of protecting some fish.

What's more, Rhode Island says that Palazzolo was "on notice" that there were land-use restrictions in place. If the state has its way, the Supreme Court in Palazzolo v Rhode Island will affirm the state's "on notice" provision, thus allowing any government agency to issue virtually any restrictions it likes, since property owners know their land use can be limited.

This emasculation of the Fifth Amendment is unlikely to sit well with the court's conservative majority. Yet disallowing even reasonable regulations -- such as setbacks and other zoning provisions -- surely won't be part of the court's decision.

Which leaves us with the question of how the court will strike a balance between the two. These fine points will have a powerful impact on developers and real estate owners of all stripes. With the conservative majority in place, real estate may see a rare strong blow against environmental regulation.

Preservation of the Fifth Amendment is paramount. In just a few months, we'll find out just how important that piece of the Constitution is to the high court.

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