Monday, June 27, 2005

Eminent Domain

A good friend sent me this link and comment today:
"In case there's any doubt that America is all about business"

This is one of those arguments which I take one side in the abstraction, but would be on the other if it were actually MY land in the bull's-eye. This kind of hypocritical stance is not unusual, and is in fact the way our Federal government routinely operates. It's not a Red/Blue, Democrat/Republican divide. The divide is between who's in power (and will do what it takes to stay there) and those who are currently out of the power position.

For example, the Congress insulates itself from all kinds of things the everyday American has to deal with. They have outstanding healthcare benefits, an insanely generous retirement plan, exemptions from prosecution and liability for acts which in the private sector would be called libelous, slanderous, and discriminatory. They make rules they don't personally have to live with. You can bet none of their property will ever be taken by eminent domain.

In this case about land use: one of the many issues is the ability of a community to generate commercial tax revenue. Most residents, especially in suburban areas, want THEIR neighborhood to be free of factories, office buildings, and shopping malls [which they prefer to be conveniently close, but in the next neighborhood], but yet want a full spectrum of municipal services and great schools for their kids. The catch is that those services and schools cost lots of money. In both cases, governments and schools, their budgets have a heavy labor component -- often unionized -- which brings with it constantly escalating costs associated with healthcare and retirement. So in a state like Ohio, where the schools are 60% funded on a community level, the bedroom communities get increasingly expensive to live in as more residents move in -- unless there is commensurate growth in taxpaying businesses to help foot the incremental costs of the schools.

Around our city, the larger employers figured out a long time ago that a great way to reduce their tax burden is to put the word out that they are willing to relocate within the area if some tax relief is offered. The best time to play this card is when the business is growing and needs more space, as it would presumably have to move anyway. The incumbent municipality finds itself in a bidding war with another municipality which has everything to gain and nothing to lose. The best outcome for the company is often to just expand where it is at a significantly lower tax burden.

But what happens if the business is landlocked? Is it better for the municipality and school system to just let the business leave? Remember that the majority of the costs of running the city and the school system vary with the number of residents, not businesses. So if the business leaves, both the city and school system have less revenue, but substantially the same costs. In a community with a few substantial employers, the loss of even one of them can take the municipality from an operating surplus position to one of an operating deficit in a matter of days. Large employers are required to give 30 or more days notice of significant layoffs NOT because it's the right thing to do for the employees, but because the time is needed for the government entities to prepare for the dramatic and immediate loss of revenue.

The residents of the community might just say, "good riddance" to a business that they felt was a negative presence (in all matters other than the tax revenue). As long as the residents accept that they have to either absorb the tax burden or live with reduced services and less-well-funded schools, that's a valid decision. But from the experience I have working on both land use (zoning) and school funding, I have to report with sadness that most residents will simply not take the time to fully understand the issues, and instead vote entirely on emotion and hearsay information. One side is "I love my [kids/town], don't you?" and the other is "the [school administration/city administrators] just pisses away the money, I'm not voting to increase my taxes." Then when the voting is over, both side bitch about the crummy government and the declining schools.

If the municipality in which I live, and the school system where my kids attend, came to me and said, "sorry, we have to take your land by eminent domain to keep your employer from leaving town" (as in going far enough away that I might lose my job), what would I do? I tend to think that my reaction would be to accept it as long as I got reasonable compensation for my land. Land is a lot easier to replace than a high paying job. I would definitely say it's an acceptable thing [to take someone's property] if having someone I didn't know lose THEIR land would allow me to keep MY job and keep MY taxes from skyrocketing.

The thing I wouldn't approve of: Having my land, or anyone else's land, taken by eminent domain to allow more expensive residential developments to be built. We tried that in the 60s under a Great Society program called Urban Redevelopment. The slumlords got money for their worthless property, the city got rid of areas of blight and supposed high crime, and developers got prime property to build office buildings and shopping centers. But what happened to the poverty-level folks who were living in those area? In many cases they were shuffled off to updated soon-to-be slums, without any real improvement in their situation. Once more, the Haves get more, and the HaveNots get screwed. The fancy condos downtown in my city probably have equal shares of liberals and conservatives living in them. Both have great views of the homeless shelters from their balconies.

It's a good lesson to play one of those simulation games like Sim City. You get to play benevolent dictator (maybe even God), and cause property to be developed any way you want, or torn down and replaced with something else if you so desire. I've never been able to get a community to survive more than a few generations, and have given up trying. It takes a balance of many variables, and even when I get to make all the decisions, it's hard. How can we ever expect a community with democratic government to get it right? I think the answer is, they won't, at least not for more than a decade or two at a time. That brings us back to Malthus, and "The Failure of the Commons."

Additional thoughts (6 Jul 05):

I was having a discussion with an old friend about this today. He felt this was an absolutely horrible decision by the Supreme Court, with his key point being that it changed the whole economic model of landholding. It's one thing, he says, to take private land by eminent domain to build a public structure of some kind, like a bridge or an airport. But it's another thing to take private land and put it in the hands of another private owner.

But don't we have to recognize that sometimes (usually?) big public works get built for the economic benefit of a few? Aren't roads and highways sometimes built on paths selected (and acquired by eminent domain) to make a wealthy person's adjacent land more developable? Isn't it interesting that when airports gets built, the adjacent land is in the hands of wheeler dealers who just fortunately bought the land before the airport development was announced?

I haven't read the Supreme Court decision in this case, but will do so soon. Hopefully the decision is narrow enough that there is overwhelming public good being service before eminent domain is ever used. All I'm saying is that whether the land is taken for direct government use (which makes the private land around it more valuable) or is taken to sell to a private sector developer who will generate tax revenue for the community, these kinds of decisions are always about lining someone's pockets. None of this is going to change until the public actually starts caring about local politics.

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