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August 29, 2005

Kleiman's Kelo query

Mark Kleiman asks a very good question:
How is it that the entire debate about the Kelo eminent-domain decision has run its course without anyone mentioning that the President of the United States made most of his huge fortune by arranging for exactly that sort of taking of private property for private use?

Imagine a Democratic President in the same situation, and imagine what Fox and Rush and Drudge would have made out of it. That's why it's fair to say that the country has, in effect, no liberal media in the sense that it has conservative media.


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TALK ABOUT THE FORTUNATE SON GEORGE BUSH means talking baseball. His magical mystery tour through the NATIONAL GUARD and his COKE USE AND DENIAL can be canned for later. George Bush made money for nothing. No word about chicks [Read More]


Eminent domain is the corporatist Republican's best friend. Republicans are not anti-government. They're anti-progressive government. So-called "libertarians" who repeatedly vote Republican because they claim to fear "big government" are either disingenuous or just plain fools.

As I understand it, the SCOTUS ruled that private property on the waterfront in New London, CT could be seized by eminent domain because the new developer's scheme would produce more tax revenue for the municipality than the existing homes did.

While it may be true that the city would theoretically enjoy greater tax revenue, that may be offset by the cost that the city would incur in providing service to the new development (sewer, fire protection, roads, schools, etc.)

There is a fellow here in my area of upstate New York who has done some interesting research that indicates that new economic development doesn't always produce desirable results. One of the most obvious pieces of evidence for this notion is that taxes are almost always higher in highly-developed areas; if you want low taxes, live where there are few other people.

I would expect that the SC decision might be challenged on this basis, and we might end up in a situation where a prospective developer is forced to prove not only that his project will generate more tax revenue, but that the increased revenue to the community won't be offset by additional costs.

I could be in the minority here, but I kinda think baseball fields fall into the category of "public good."

I'd like to see the eminent domain decision modified to provide for an equity stake for the original owners in any business enterprise arising from the seized property. Thus, the people whose homes were seized for the baseball stadium would have a never-ending portion of ticket sales.

I could be in the minority here, but I kinda think baseball fields fall into the category of "public good."

If public recreation is permitted, yes. Megastadiums charging stratospheric admission prices in order to generate massive private profit are not a "public" good at all. What principled distinction is there between a major league ballpark and a Walmart or a movie megaplex? At least with a Walmart, you can get in the door without paying.

Global Yokel, the Court's opinion quotes the earlier Berman case for the proposition that the courts will not second-guess the determination:

Just as we decline to second-guess the City’s considered judgments about the efficacy of its development plan, we also decline to second-guess the City’s determinations as to what lands it needs to acquire in order to effectuate the project. “It is not for the courts to oversee the choice of the boundary line nor to sit in review on the size of a particular project area. Once the question of the public purpose has been decided, the amount and character of land to be taken for the project and the need for a particular tract to complete the integrated plan rests in the discretion of the legislative branch.” Berman, 348 U.S., at 35—36.

Bob H., your suggestion is well-intended, but economically it doesn't change the current state of affairs. A municipality that takes property by eminent domain still pays for it (though the devil is in the calculation). If they pay equity instead of cash, the valuation is still an issue. If I got 34,000 shares of stock for my house, worth $10 each, I've been paid $340,000. Why not just pay the cash and let the property owner invest as they may? In fact, requiring the property owners to take as compensation something that requires them to speculate on the success of the enterprise is probably worse -- if it fails, the whole neighborhood's nest-egg could be wiped out, and it provides no opportunity for the risk-averse to put it all in AAA debt.

P.S. Lindsay, your link goes to the four-judge dissent by O'Connor, not Stevens' opinion for the Court.

My thought on the whole Kelo decision: ban the use of emininent for private use designed to increase value and hence property taxes, but IF the municipality makes a non-coercive offer to buy owners out, and that offer is greater than the currently appraised value of the property, then the property's value of tax purposes will automatically be reset to the value offered by the municipality as long as the owner owns it. And, considering that the owner values the property at least as much as the value offered by the municipality, this isn't unfair.

That way, municipalities can get the higher property taxes, and owners can keep properties if they want them.

Several observations:

1. Kelo dealt with the transfer of private property from one party to another, wealthier private party. My understanding is that the Ranger stadium is not owned by the Rangers, Bush, or any private individual or group - it's owned by the local government. At most, Bush, and the Rangers themselves are only beneficaries of eminent domain as it was used for the stadium. Mind you, it's still wrong. If I had my druthers, there would be an absolute separation of State and Sport. For that matter, with the possible exception of roads and railways and such (and even then!), eminent domain should probably never be used. But as public property, the Ranger case seems closer to the spirit of the Constitution in that land was seized to be made into public property.

2. It's not really surprising that only leftist activists - not politicians so much - have criticized Bush for this. (This probably also applies to the media). Again, consider what allowed the Ranger stadium in the first place - the principle that local governments may promote their perceived economic good by promoting the good will of local professional sports teams franchises. This is embarrassingly universally accepted by most elected politicians, Republican and Democrat alike. If Democratic politicians were to criticize Bush for this, then people might wonder about the merits of similar projects in blue cities and states across the country.

3. I have no idea what world Donna Dallas is living in for her first comments here. She realizes, I hope, who voted for Kelo and who dissented. Just to review, the opinion was authored by that corporatist Republican's best friend, Stevens, who was joined by fellow corporatists Kennedy, Souter, Ginsburg, and Breyer. Dissenting were the well-known progressive justices O'Connor, Rehnquist, Thomas, and the most progressive of them all, Antonin Scalia.

Julian, to do that, you'd have to require that the offer be virtually unconditional. Otherwise, municipalities would game the system.

Suppose a town agreed to buy out a whole neighborhood at 150% of market, on an all-or-nothing basis. They can gamble that one homeowner will hold out, either for personal reasons, or just to extract a further premium. If the deal doesn't go through, the town has increased the tax assessment by 50% at almost no cost to itself.

But extending unconditional offers would deter municipalities from making offers for redevelopment plans. If they offer market for every house in a neighborhood, but they have to buy if only 80% sell, they cannot bring the project to fruition. Suddenly, the town is making at-risk equity investments with your tax dollars.

Of course, redevelopment could always be carried out by the municipality, using contractors as contractors instead of letting them take the equity stake as developers. But that hardly prevents what folks worry about, which is the taking of private land for a deal that only benefits the developer. A corrupt municipality could just structure the deal so all the money was in the building, leaving the municipality holding an overvalued bunch of buildings.

The best solution is, of course, responsive local government.

IIRC, the stadium in Texas was not owned by the consortium which included Bush; it was owned by some quasi-governmental 'authority'. The consortium, of course (again, IIRC) had a sweetheart deal where they had to pay a nominal rental.

Much, much better than actual ownership, which might involve taxation and liability, etc.

The Ballpark in Arlington is owned by the Arlington Sports Facility develooment Authority

I would say that more shenanigans happened with the purchasing of the team later by Tom Hicks -- along time Bush buddy who Bush put in charge of the UT-Austin endowment funds than with the eminent domain issue

1989 April: Bush helps arrange a syndicate to purchase controlling interest in the Texas Rangers for $89 million. He borrows $500,000 to buy a small stake in the team and convinces the investor group to make him managing general partner. Bush becomes the public face of the team, while co-general partner Rusty Rose assumes control over the financial side. He receives a reported salary of $200,000 and begins lobbying for a new stadium for the club, which plays in a renovated minor-league facility, Arlington Stadium.

September: The Rangers fail to make the playoffs. But with new free agent pitcher Nolan Ryan, they post their first winning record in three years (83-79) and surpass 2 million in attendance for the first time in franchise history.


April: Bush buys an additional $100,000 ownership stake in the Rangers.

October: Arlington Mayor Richard Greene crafts a deal that will go before voters and devote $135 million toward a new stadium for the Rangers by raising the sales tax by a half-cent. At the time, Greene is among a group of former executives being sued by federal regulators for his role in the widespread savings-and-loan scandal.


January: Arlington citizens, by a 2-to-1 margin, approve public funds for the new $191 million ballpark. Two weeks before the vote, federal regulators dismiss their lawsuit against Greene after he pays a $40,000 penalty.

April: The Rangers shepherd through the Texas legislature a bill that creates the Arlington Sports Facilities Development Authority (ASFDA), a quasi-governmental entity that is given the power of eminent domain. Shortly after the bill is signed by new governor Ann Richards, 13 acres of private property are seized for the Rangers' new ballpark, later prompting two lawsuits.

Juan Gonzalez and Ivan Rodriguez break in with the Rangers, giving the team two popular stars in Latino communities of North Texas. Both would later become American League MVP award winners.

July: Bush buys another $6,302 ownership interest in the Rangers, increasing his financial investment to $606,302.


January: President George H.W. Bush leaves the White House, defeated by Bill Clinton.

September: George W. Bush announces his intention to run for governor of Texas in 1994, making the decision after expressing some interest in the baseball commissioner's job that has been vacated by Fay Vincent.

October: Nolan Ryan, baseball's all-time strikeout leader, retires after 27 years. Ryan, who had become a Bush friend, later campaigns for him for governor.


April: The Ballpark in Arlington, with its retro touches reminiscent of Baltimore's Oriole Park at Camden Yards, opens to much fanfare. A league-leading average of 40,374 fans attend games in the coming months, best in franchise history.

August: The end of the season is canceled due to a labor dispute between owners and players, with the Rangers finishing in first place for the first time in franchise history. Among major-league owners, Bush is perceived as a moderate who worked hard to avoid a work stoppage.

November: Bush is elected governor with 53.8 percent of the vote, defeating popular incumbent Ann Richards despite her attacks on the stadium deal and Bush's grasp of issues. (She had declared that it was "difficult to run a race against someone who doesn't have a clue.")

December: Before taking office, Bush resigns as managing general partner of the Rangers but keeps his ownership stake in the team. At the time, his share is 1.8 percent equity interest, plus another 10 percent bonus if the team is later sold and the investors get back their original investment plus interest (Rose, the other general partner, gets a 5 percent bonus for his role).


July: Baseball holds its All-Star Game at The Ballpark in Arlington. But the Rangers, like other major-league teams, continue to suffer from the fans' adverse reaction to the labor stoppage. The team averages only 27,582 fans. That, in turn, reduces the value of the franchise to $138 million, from $157 million the year before, according to the annual Financial World magazine evaluation.


October: The Rangers win the American League West, making the playoffs for the first time in franchise history. Attendance rebounds to 36,113 for the team, whose stadium revenues ($25.5 million) are deemed tops in baseball by Financial World. The magazine raises the estimated value of the franchise to $173 million.


June: Tom Hicks purchases the Rangers for $250 million, the second-most ever paid for a Major League Baseball team. With his 10 percent escalator bonus, Bush receives $14.9 million for investment.

I'm not sure it's fair to cast this as a simple matter of evil Republican greed.

Wasn't the necessary legislation signed into law by a Democrat Governor?

Good critique, Thomas.

I suppose the simplest solution, then, is to only raise appraisals above previous values for those who refuse. After all, if someone accepted an offer for 150% of market value, there's no evidence that they value it that much: they might value it considerable less.

Of course, this leads to, for example, people accepting who aren't willing to sell their houses at the offered price, hoping that some other neighbor will refuse the offer and scuttle the project, allowing them to keep their house without an appraisal increase. In that case, though, while I sympathize with such peoples' plight, I have to say that they pretty much brought it on themselves: if you accept the buyout offer and hope it doesn't go through, you're bound to it when it does, and you should have (and probably did) know that.

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