takings

Dodd-Frank Financial “Reform” Violates Property Rights and Equal-Protection Guarantees

by Hans Bader on January 9, 2011 · 2 comments

in Bailout Watch, Economy, Legal, Property Rights, Regulation

Last week, I described how the Dodd-Frank financial “reform” law passed last summer violates constitutional separation-of-powers safeguards by giving unaccountable bureaucrats the power to seize companies and legislate through administrative fiat.  But that is not the only way Dodd-Frank violates the Constitution.  It also violates property rights and equal-protection guarantees.

For example, it contains racial preferences that were criticized by members of the U.S. Commission on Civil Rights. It “imposes race and gender employment quotas on the financial industry,” noted economist Diana Furchtgott-Roth in the Washington Examiner. Its ”Section 342 states that race and gender employment ratios must be observed by all government agencies that regulate the financial sector, as well as private financial institutions that do business with the government.”

This unconstitutional requirement is the brainchild of Los Angeles Congresswoman Maxine Waters, the Castro-loving, left-wing ideologue who earlier praised the Los Angeles race riots that destroyed scores of Korean-owned businesses as an “uprising” against injustice. Waters once told a CEO in a public Congressional hearing, “This liberal will be all about socializing . . . .uh, uh . . . would be about, basically, taking over and the government running all of your companies.”

Law Professor Richard Epstein notes that Dodd-Frank is also an unconstitutional “taking” of private property, since it deliberately forces certain banks to process debit card transactions at a loss. (That provision is being challenged in a lawsuit called TCF Bank v. Bernanke. Debit cards did not contribute to the financial crisis in any way, but Dodd-Frank regulates them at the behest of large businesses that objected to being charged any fee by banks for processing debit card payments. Thanks to Dodd-Frank, some customers will now be charged annual fees for their debit cards.)

Dodd-Frank itself contains little “reform,” reinforcing the very features of the status quo that spawned the financial crisis.  Congressional Democrats blocked a GOP amendment that would have reformed the government-sponsored mortgage giants, Fannie Mae and Freddie Mac, and the Obama administration lifted a $400 billion limit on bailing them out and showered their executives with $42 million in pay — even though Treasury Secretary Geithner has admitted that “Fannie and Freddie were a core part of what went wrong” in the financial crisis.

Fannie and Freddie helped spawn the mortgage crisis by buying up risky mortgages and repackaging them as prime mortgages, thus creating an artificial market for junk: “From the time Fannie and Freddie began buying risky loans as early as 1993, they routinely misrepresented the mortgages they were acquiring, reporting them as prime when they had characteristics that made them clearly subprime.”

At the direction of the Obama administration, Freddie Mac ran up more than $30 billion in losses to bail out mortgage borrowers, some of whom had high incomes. Federal regulators sought to make Freddie Mac hide the resulting losses from the SEC and the public.

Dodd-Frank is not unique in containing racial preferences. Many bills backed by Obama are riddled with racial set-asides, including the health care law passed last year. Obamacare has attracted criticism from the U.S. Commission on Civil Rights for containing both racial preferences and lower standards for treatment in predominantly-minority institutions, potentially harming both white applicants and minority patients. This racial discrimination appears to violate court rulings like the Supreme Court’s Adarand decision, and the Rothe and Western States Paving decisions issued by the federal appeals courts.

Five Years After Kelo

by Marc Scribner on June 23, 2010

in Economy, Legal, Personal Liberty

Today–this June 23–marks the fifth anniversary of the U.S. Supreme Court’s wrongheaded ruling in Kelo v. New London. Here’s my piece on Kelo+5 in The Daily Caller. The reasoning behind the opinion relied primarily on three past (although modern) Supreme Court decisions involving definitions of “public use”:

  1. Berman v. Parker (1954) — This case upheld the right of municipalities to declare entire areas blighted, even if the property in question isn’t blighted. It also accepted Washington, D.C.’s argument that the area condemnation was necessary to prevent future blight. An all around terrible decision.
  2. Hawaii Housing Authority v. Midkiff (1984) — This case involved redistribution of land titles in Hawaii. When the state moved to seize the properties, 49 percent of land in Hawaii was controlled by government and 47 percent was controlled by 72 owners. The Court failed to recognize the central problem with land distribution in Hawaii at the time: almost half of the property was controlled by government, which created massive real estate market distortions–in addition to Hawaii’s odd economic history. While Justice Sandra Day O’Connor wrote the majority opinion in Midkiff, she also wrote a scathing dissent in Kelo, where she regretted her broad language in the Midkiff ruling that opened the door for a terrible opinion like Kelo.
  3. Ruckelshaus v. Monsanto Co. (1984) — This case involved chemical industry trade secrets. While it was solely about intellectual property, the Court argued that this case was relevant because it dealt with public use in a purely economic context. The enormous distinctions between intellectual property and real property were lost on the majority in Kelo.

While the ruling itself was terrible, the events of New London demonstrate the fallibility of the municipal planner world view–that they somehow possess more market information than actual market players, and can in essence predict the future. In 2009 of last year, Pfizer announced it was closing the research facility that spawned New London’s redevelopment pipe dream, which in turn led the city to seize and demolish the petitioners’ homes. The land where their homes once stood is now largely vacant, with waist-high weeds supporting a thriving community of feral cats. Just another sad example of how economic development by fiat is bound to fail.

“A lie told often enough becomes the truth.”

by Marc Scribner on April 22, 2010

in Odds & Ends, Personal Liberty, Politics as Usual

In [dis]honor of the 140th anniversary since pinko pin-up Vladimir Ilyich Lenin spawned, I’d like to present the Lenin Prize for the Reification of Destructive Ideologies to ACORN CEO Bertha Lewis. Ms. Lewis has taken a lot of heat since the ACORN-appearing-to-aid-and-abet-child-prostitution scandal broke, but remains incredibly committed to her organization–one based on a particularly vile and inane form of bureaucratic socialism. As the leader of a group that can claim more credit (excluding government) for perpetuating urban poverty than any other, the following should not be surprising.

Earlier today, Reason‘s Damon Root posted an e-mail authored by Lewis disparaging a Brooklyn man whose home was condemned through eminent domain:

Finally, the itch that was Daniel Goldstein has been scratched and scratched out.   After almost seven years of flawed strategies, smear campaigns, stupid tactics, disingenuous rhetoric and total disregard for people who have lived in the downtown Brooklyn community for years before he even thought about coming here; finally he got what he really wanted.  A Deal.  Not for the community he claimed to love so much, but for the only beneficiary of his community of one, himself, Double Dealing Danny Goldstein.

Her cranky little missive is in response to Goldstein’s announcement that he has agreed to vacate his home next month. Goldstein lives/lived in the Atlantic Yards area of Brooklyn, which is currently undergoing forced redevelopment. Naturally, as with most comprehensive redevelopment plans, this one entails kicking many low- and middle-income residents and business owners to the curb in order to transfer the property to a wealthy private developer.

But why, you might ask, would ACORN, an organization with a stated mission to “[help] those who have historically been locked out,” support wealthy private developer Bruce Ratner’s land grab over the rights of residents? Because even for committed socialist dupes, money talks. Ratner quietly funneled money into the group in 2008 following a funding panic in the wake of a multi-million dollar embezzlement scandal involving high-ranking ACORN officials. It is also alleged by a former ACORN official-turned-whistle-blower that ACORN and Lewis were promised kickbacks from Ratner in the form of control of new affordable housing units, an arrangement that could net the organization tens of millions of dollars in the coming years.

For more on Atlantic Yards, the state’s land grab, and the Ratner plan, visit Develop Don’t Destroy Brooklyn.

Property Rights Under Siege

by Marc Scribner on March 9, 2010

in Economy, Legal, Personal Liberty

Since the Supreme Court’s poorly-reasoned majority opinion in 2005′s Kelo case, Americans have been aware of the grave threats facing their homes, businesses, and property. This awareness–while driving some meaningful reform–has unfortunately not translated into iron-clad property rights protections for most Americans. Municipal planners and rent-seeking private developers still engage in the back room wheeling-and-dealing that undermines our basic rights to own and use property as we see fit.

Today, I wrote about Detroit Mayor Dave Bing’s plan to “downsize” the city in the Detroit News, and warn city officials that redevelopment takings are far more harmful than most planners realize and to avoid using eminent domain–an issue I go into at greater length in my recently released CEI OnPoint. Put simply: government has an incentive to abuse redevelopment processes and is incapable of knowing key economic variables necessary to promote long-term growth. In addition to the actual land grab, cities often bungle the public financing mechanisms to such a great degree that they often end up far worse than they started from a fiscal perspective.

So what potential relief can property owners and taxpayers reasonably expect to get? Following the Kelo decision, a federal court redefining the public use doctrine seems like a long shot. The more promising avenues appear to be state courts and particularly state legislatures (or ballot initiatives, if your state permits them). As I’ve discussed before, implementing the following reforms would be a great first step forward:

  1. Enacting state legislation mandating the creation and maintenance of a public eminent domain database accessible via the Internet. Currently, data on development takings are difficult to obtain due to the fact that eminent domain condemnations are ordered at the local level. Right now, an empirical analysis of takings within a state would require contacting every county clerk and requesting specific filings. A central state database would allow social scientists, journalists, and the public to examine the economic effects of eminent domain use and abuse.
  2. Enacting state legislation defining “public use” as “use by a government body,” which would deny municipalities the opportunity to claim that their takings deals with private developers serve the “public purpose” because they will ostensibly increase tax revenue at some future date.
  3. Enacting state legislation mandating that blight be determined on a parcel-by-parcel basis.
  4. Enacting state legislation mandating that Tax Increment Financing (TIF) be limited to the length of time required to complete public infrastructure improvements within a given TIF district. This would reduce the ability of rent-seeking private developers to collude with local officials to subsidize development projects.

Pfizer to Close Facility Behind Kelo Case

by Marc Scribner on November 10, 2009 · 1 comment

in Economy, Legal, Personal Liberty, Politics as Usual, Zeitgeist

Yesterday, Pfizer announced it was closing its research and development facility in New London, Connecticut. This is the same complex that was at the center of the redevelopment plan at issue in Kelo v. New London. From the Castle Coalition:

This was the same bogus development plan that five justices of the U.S. Supreme Court refused to question when the property owners of New London pleaded to have their homes spared from the wrecking ball.  Justices mentioned that there was a plan in place, and that so long as lawmakers who are looking to use eminent domain for someone’s private gain had a plan, the courts would wash their hands.  Now, more than four years after the redevelopment scheme passed constitutional muster—allowing government to take land from one private owner only to hand that land over to another private party who happens to have more political influence—the plant that had been the magnet for the development is closing its doors and the very land where Susette Kelo’s home once stood remains barren to all but feral cats, seagulls and weeds.

This turn of events underscores the argument, often employed by eminent domain opponents, that government-sponsored development corporations lack the economic foresight to efficiently make long-term development investment decisions. Those decisions are best made by economic actors in an open marketplace, not by bureaucrats hungry for additional tax revenue and rent-seeking private developers who have no problem promising the moon to said tax-dollar-sign-eyed officials.

The poorly-reasoned Kelo decision did do some good in galvanizing a nation-wide property rights movement, which resulted in the majority of states enacting additional property protections. While the movement has lost a little steam recently, Texas voters just approved a constitutional amendment (with 81 percent support) that will outlaw several more egregious development takings practices.

For more on moving forward on the eminent domain front, see my previous post which outlines four practical reforms for curtailing eminent domain abuse.

Fighting Eminent Domain Abuse

by Marc Scribner on October 13, 2009 · 1 comment

in Deregulate to Stimulate, Economy, Legal, Personal Liberty, Stimulus to Nowhere

Popular outrage over eminent domain abuse may have waned a bit since the Supreme Court’s poorly-reasoned Kelo ruling in 2005, but economic development takings remain incredibly unpopular throughout the country. Public opinion polls indicate that more than 80 percent of Americans oppose eminent domain for economic development, which is surprising when one considers the relative inaction on the part of state legislatures to meaningfully protect their citizens’ property rights.

However, there are reasons to be optimistic. Brooklynites fighting the proposed Atlantic Yards development filed a lawsuit today challenging the legality of the Metro Transit Authority’s land handout to the private developer. In Texas, citizens will soon vote on widely-supported Proposition 11, which would amend the Texas Constitution to prevent area blight designations and condemnations, and prohibit takings for purposes of economic development. If it passes, which seems likely, Texas property owners will have some of the strongest protections against eminent domain abuse in the nation.

But there is a lot of work to do. Many in this country are still largely defenseless against development takings, so the question arises: What can property owners do to take back their rights from revenue-hungry municipalities and rent-seeking developers? The law, as it stands, is against them in most respects, but there are legislative avenues worth pursuing.

A few of the most politically-feasible are:

  1. Enacting state legislation mandating the creation and maintenance of a public eminent domain database accessible via the Internet. Currently, data on development takings are difficult to obtain due to the fact that eminent domain condemnations are ordered at the local level. Right now, an empirical analysis of takings within a state would require contacting every county clerk and requesting specific filings. A central state database would allow social scientists, journalists, and the public to examine the economic effects of eminent domain use and abuse.
  2. Enacting state legislation defining “public use” as “use by a government body,” which would deny municipalities the opportunity to claim that their takings deals with private developers serve the “public purpose” because they will ostensibly increase tax revenue at some future date.
  3. Enacting state legislation mandating that blight be determined on a parcel-by-parcel basis.
  4. Enacting state legislation mandating that Tax Increment Financing (TIF) be limited to the length of time required to complete public infrastructure improvements within a given TIF district. This would reduce the ability of rent-seeking private developers to collude with local officials to subsidize development projects.

These proposals could also be enacted through ballot initiatives, if the state allows them. As eminent domain is primarily a local issue, Congress is a less likely venue for legislative relief. However, it is possible for Congress to tie federal development and highway funding to takings behavior (as they presently do for myriad other “carrot-and-stick” purposes). For example, a bill was introduced in the previous legislative session that would cut off federal development grant money for 10 years to any state that permitted an eminent domain condemnation for the benefit of a private developer.

With the five-year anniversary of Kelo coming up next summer, a renewed interest in the harm caused by eminent domain abuse will hopefully materialize.

Eminent Domain Abuse in New York (Upstate Edition)

by Marc Scribner on October 7, 2009 · 1 comment

in Economy, Features, Legal, Politics as Usual, Zeitgeist

Yesterday, U.S. District Court Judge Frederick Scullin dismissed the majority of a lawsuit filed by J.C. Penney against the owner of the mall where it leases retail space.  The Carousel Center, located in Syracuse, New York, is currently undergoing a [doomed] expansion project–the largest commercial development to break ground in Syracuse in 20 years. The project is in part bolstered by public support in the form of generous tax breaks and ridiculous green giveaways (the planned hotel will be “powered by rainwater, solar,” and construction vehicles by biofuel), which has become a contentious issue in local Syracuse politics. But the development is also supported by questionable eminent domain condemnations.

In its complaint, J.C. Penney alleged that the mall owner violated the terms of its lease agreement, including provisions that required the retailer’s consent before any significant alteration to the mall was allowed to take place.  The court found that the mall was not liable because–at the insistence of the mall’s owners–the Syracuse Industrial Development Agency had condemned the property through eminent domain, which stripped all rights J.C. Penney had to its retail space per the original lease agreement. However, there appears to be some evidence that the takings were pretextual and that the developer violated the terms of the lease prior to the condemnation. This means it is possible that J.C. Penney will get some relief, despite New York’s notoriously biased and antiquated eminent domain statute. (And where exactly is the blight in this case justifying the takings? It seems difficult to apply the over-broad definition that came out of Berman v. Parker, as the condemnee is not a lone department store surrounded by “slums [and] blighted areas that tend to produce slums” in an economically-depressed inner city neighborhood, but an anchor store in a large, secure, modern shopping center.)

Unfortunately, the same cannot be said for Syracuse taxpayers, as the expansion project has also run into serious financial problems and completion of the expansion is now in jeopardy. In June, Citigroup, the primary construction lender, halted funding for the expansion project after it came to light that no tenants have agreed to lease the new space and that massive cost overruns now require drastic changes to the financing plan (specifically, Citi now wants the developer to contribute more cash). The case is currently tied up in appeals court, and the construction jobs and other benefits touted by cheerleading politicians have yet to materialize.