Sneaking Suspicions

Archives-- May 26-June 1, 2002 (Week 21)

Commentary from a practical perspective

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This page includes posts from May 26-June 1, 2002 in the usual reverse order. Each week's postings on the home page are perma-linked to these pages.

June 1, 2002

A quiet movie

My wife and I went to see Attack of the Clones last night.

For once, we shared the same opinion about a movie—wildly uneven overall, painfully wooden dialogue, characters that were hard to care about, but great special effects.

The weird part of the experience occurred just as the movie finished.

When we saw Spider-Man on its opening weekend, the crowd erupted into cheers and applause as soon as the end credits started rolling.

This time, the audience was as somber and quiet as when we watched In the Bedroom last summer.

That kind of reaction was perfectly understandable for the searing emotions displayed so well in Sissy Spacek’s compelling drama. However, I doubt that the almost gloomy attitude we observed last night was the result George Lucas intended.

May 31, 2002

Public purpose or public outcry?

The financial blogger-guru at More Than Zero Sum (MTZ) asked for a little help on a condemnation case that was the subject of a WSJ editorial.

The city council of Cypress, California voted to condemn a 17.9 acre parcel of land previously and carefully cobbled together by a nondenominational Christian church called Cottonwood. The church bought the land to relocate from its currently undersized building. According to the WSJ and a related website MTZ pointed to, the town intends to turn over the condemned property to Costco, a big-box retail outlet.

As quoted by MTZ, the WSJ editorial objects to the proposed taking, in part because the city council’s alleged reason for condemning the property is that

Cottonwood's 17.9 acres are too valuable as potential tax revenue to be allowed to remain in the hands of a tax-exempt church.

MTZ agrees, and also says:

[T]here must be greater legal checks on [the] use [of eminent domain authority]. Furthermore, zoning and land-use policy must be separated from the power of eminent domain and eliminated from the valuation of property when eminent domain is exercised. Is Cypress going to lose in court, or should I be very afraid?


Given that I represent a government entity that uses the power of eminent domain frequently, one might expect that I would support the Cypress city council’s decision.

One would be wrong, if the only reason for the city's move is as quoted in the WSJ editorial.

Otherwise, MTZ is right to be pessimistic about the congregation’s eventual chances to build its new church on this parcel.

The Takings Clause in the U.S. and comparable state constitutional provisions require two fundamental conditions for the exercise of the power of eminent domain: payment of just compensation, and a public purpose for the acquisition.

The public purpose requirement is not met merely by setting out a few facts or claims in the city ordinance calling for the condemnation. Any legislative declaration of the public purpose to be served by the acquisition is subject to court review. Nonetheless, that review is extremely limited, as described in a U.S. Supreme Court case, National R.R. Passenger Corp. v. Boston & Me. Corp., 503 U.S. 407 (1992):

We have held that the public use requirement of the Takings Clause is coterminous with the regulatory power, and that the Court will not strike down a condemnation on the basis that it lacks a public use so long as the taking "is rationally related to a conceivable public purpose." Hawaii Housing Authority v. Midkiff, 467 U.S. 229, 240-241 (1984); see also Berman v. Parker, 348 U.S. 26, 32-34 (1954). In Midkiff we upheld land reform legislation which authorized condemnations for the specific purpose of transferring ownership to another private party, in order to eliminate a land oligopoly. In Berman we permitted land condemnations which contemplated reselling the land to redevelopers, as part of a plan to restore dilapidated sections of the District of Columbia. In both Midkiff and Berman, as in the present case, condemnation resulted in the transfer of ownership from one private party to another, with the basic use of the property by the government remaining unchanged. The Court held these exercises of the condemnation power to be constitutional, as long as the condemning authorities were rational in their positions that some public purpose was served.

Rationality, of course, is sometimes in the eye of the beholder.

From the limited facts I’ve read about this case, I don’t believe a court would uphold the taking based on the notion that the property needs to be kept in private tax-paying hands. That’s among the weakest excuses I’ve ever read for using eminent domain authority. The city faces the same risk with any parcel bought by a tax-exempt entity, and I don't believe a court would uphold a taking on that slim basis.

Nonetheless, most *redevelopment* proposals that include a condemnation element are upheld. For example, if the church’s land is in a currently blighted area, and the city can refer to a pre-existing area-wide plan for industrial and business uses, condemning the parcel as a linchpin piece for the entire plan would most likely be determined as meeting a public purpose.

MTZ’s other point, about zoning and land use policy relative to eminent domain, is a bit misplaced.

For just compensation purposes, the property must be appraised at its "highest and best use." The potential uses to which a parcel can be put under either existing or even potential zoning are a critical element of the appraisal process in establishing this value. In fact, the possible rezoning of a parcel is one of the ways that property owners can increase the perceived value of their land from its existing use.

For example, a single family residence on land actually zoned commercial will nearly always command a higher dollar award from a compensation jury than the same home sitting on property zoned for residential uses only. However, if the same parcel is currently zoned residential, but the surrounding area is trending toward commercial uses, then the property owner’s appraisers and attorneys will argue for a higher award, and usually be successful.

For Cottonwood’s sake, I hope the city relies solely upon the potential tax consequences to support its condemnation action. That bogus excuse offers the best hope for the new church to be built on the land it already owns. If the city can support a revitalization or similar justification, however, then I believe that Cottonwood will be forced into a new exodus.

There is, of course, the possibility that the WSJ may not have its facts completely in order. For an intriguing, nuanced view from the informed perspective of a resident of Cypress, see Ann Salisbury's post.

Click here for this week’s golf column, and here for the latest golf book review. It’s a murder mystery.

May 30, 2002

Practical limits on state sovereignty remain in place

Howard Bashman commented on the recent FMC v. South Carolina State Ports Authority case.

As a government attorney who deals with 11th Amendment issues on a fairly regular basis, I also have a few quick thoughts about this decision.

First, I believe Justice Thomas missed his chance in one respect.

The opinion for the 5-4 majority carefully notes that in the setting in which the 11th Amendment was adopted, no one could have predicted the rise of the modern administrative state, with alphabet-soup entities exercising vast quasi-judicial authority. The opinion also cites prior case law for its statement that the boundaries of state sovereign immunity are not delimited by the literal text of the 11th Amendment:

Instead of explicitly memorializing the full breadth of the sovereign immunity retained by the States when the Constitution was ratified, Congress chose in the text of the Eleventh Amendment only to address the specific provisions of the Constitution that had raised concerns during the ratification debates and formed the basis of the Chisholm decision. Id., at 723. As a result, the Eleventh Amendment does not define the scope of the States sovereign immunity; it is but one particular exemplification of that immunity. Cf. Blatchford, supra, at 779 ("[W]e have understood the Eleventh Amendment to stand not so much for what it says, but for the presupposition of our constitutional structure which it confirms").

(Emphasis added.) Personally, I think it would have been fun if the FMC majority opinion also cited Justice Douglas’s Griswold right-of-privacy opinion as additional analogous authority:

The foregoing cases suggest that specific guarantees in the Bill of Rights have penumbras, formed by emanations from those guarantees that help give them life and substance.

Gotta love those penumbras and emanations, especially when the usual proponents of such interpretive guidance are stressing the actual language of the 11th Amendment, as occurred in the dissent in this case.

Sauce for the goose moments are usually pretty rare in Supreme Court opinions, so one must appreciate them when they appear.

Second, the practical consequences of the decision should be fairly minor, at least from a big picture perspective:

Of course, the Federal Government retains ample means of ensuring that state-run ports comply with the Shipping Act and other valid federal rules governing ocean-borne commerce.

The FMC, for example, remains free to investigate alleged violations of the Shipping Act, either upon its own initiative or upon information supplied by a private party, see, e.g., 46 CFR 502.282 (2001), and to institute its own administrative proceeding against a state-run port, see 46 U.S.C. App. 1710(c) (1994 ed.); 46 CFR 502.61(a) (2001). Additionally, the Commission may bring suit in a district court of the United States to enjoin conduct in violation of [the Act]. 46 U.S.C. App. 1710(h)(1).19 Indeed, the United States has advised us that the Court of Appeals ruling below should have little practical effect on the FMC’s enforcement of the Shipping Act, Brief for United States in Opposition 20, and we have no reason to believe that our decision to affirm that judgment will lead to the parade of horribles envisioned by the FMC.

As also noted in Footnote 19,

The only step the FMC may not take, consistent with this Court’s sovereign immunity jurisprudence, is to adjudicate a dispute between a private party and a nonconsenting State.

In other words, watch what the FMC does, now that it’s been told how to do its job with respect to state-run ports and similar sovereign entities.

The FMC will have its chances. The trend in maritime matters continues to lead toward more state-run port authorities, as the cost of operating these critical intermodal facilities becomes too much for cities or private entities to bear.

As alleged in this case, for example, if the South Carolina Authority illegally discriminates among cruise lines in providing port access, the FMC can certainly do something about it.

The Feds just won’t be able to shield themselves from potential criticism while carrying out their responsibilities, by claiming they’re only acting as referees in a fundamentally private dispute. The potentially unpleasant prospect of dealing with such criticism makes me think that was the unstated reason for pressing the issue in the first place.

May 29, 2002

Doing well by doing good—with your money

On occasion, government can find ways to do a good thing, while also enhancing the prospects for improving a political party’s chances at the ballot box.

Neither Democrats nor Republicans are at all averse to taking advantage of these opportunities when they can.

Today’s environmental news is a good example:

President Bush committed the federal government on Wednesday to pay $235 million to buy back oil, natural gas and mining development rights near Florida's Everglades and beaches, an environmental deal that his up-for-reelection brother acknowledged as a political boon.

The arrangement is in two parts. The federal government will settle an outstanding lawsuit and purchase nine oil and gas leases near Pensacola for $115 million, for which no Congressional approval is necessary. The second half, a $120 million agreement to purchase Everglades-area drilling rights from the family that owns them, will require Congress to agree.

Florida Governor Jeb Bush’s admission that this package deal did not conflict with his personal interest was refreshingly blunt:

Asked ... if his re-election campaign stands to benefit politically in a state where polls show 75 percent of Floridians opposed to offshore drilling, the president's younger brother replied:

"I hope so. But more importantly, it is good public policy and when there's a convergence of good politics and good public policy, I don't think we should be ashamed about it."

I like the fact that the Federal government is not simply trying to prevent drilling in the Everglades on the cheap, through some kind of regulatory ruse. At least in this situation, the Bush Administration recognizes that if you really want to engage in effective preservation activities, you should have the checkbook handy.

Peter Huber, the author of Hard Green, should be pleased.

May 28, 2002

A new tax incentive?

As discussed in a prior post or two, the State of Delaware is joining many other state governments in searching for additional tax revenue. The latest ideas center upon an increase in the cigarette tax and a possible change in the state’s take from the slots business.

The editorial about realty transfer taxes in today’s News-Journal, Delaware’s primary statewide newspaper, could provide a spark of inspiration for another handy source of funds. Without changing the amount collected, Delaware could add to the state’s coffers and make an additional policy point at the same time.

Realty transfer taxes are a form of sales tax, limited to routine real property transactions. The tax is paid at settlement as the property changes ownership, and in Delaware it is set at 3% of the sales price.

Delaware receives half of the transfer tax revenue, projected to total $39.2 million for its share this year.

The other half is distributed to the state’s cities and counties, the two primary forms of local government. If the property is within a city, the transfer tax goes to the municipality. If it’s outside an incorporated area, then the money goes to the county.

The local governments were required to enact their own legislation formally creating their half of the tax before they could collect it. In that respect it’s not quite the same as the old revenue-sharing models, in that the state forced the local governments to risk a political consequence of adopting the new source of funds. As it turned out, it wasn’t too risky.

This year, Sussex County’s take from the transfer tax will essentially match the money generated from its extremely low general property tax system. The annual budget letter from the County Administrator noted:

The realty transfer tax is projected to generate $8.9 Million in income during FY ’03.

The letter also commented that next year’s county property tax should total a nearly equal amount ($8.7 million), and that Sussex County’s total proposed operating budget was just over $32 million.

The dovetailing of these two county revenues is a first. It also spurred the News-Journal to return to a related topic in today’s editorial, arguing that it’s way past time to do a general reassessment of the county’s property tax base.

New homes are being taxed on the same assessment basis as homes built in 1974. It is unfair to older homeowners and new residents who are buying up beach area properties....

Sussex County Council says reassessment is too expensive. What council members are really saying is they don't want to deal with the political inconvenience of reassessment and the public outcry that always accompanies it. Meanwhile, Sussex school districts, which depend heavily on property tax for their operating budgets, are penalized because half the population pays too little tax.

The editorial writers reminded their readers that 7 years ago the State offered to pay the initial cost of reassessment, then projected at $15 million statewide. The suggestion quickly went nowhere.

None of the three counties use an up-to-date set of property values, but Sussex County is the worst of the bunch.

The really odd coincidence is that the News-Journal's position is the same one I've been advocating. That doesn't happen too often.

If the current State legislature is serious about finding new money, they could change the revenue-sharing element of the transfer tax. It wouldn’t alter the amount collected, but it would certainly grab the counties’ attention.

For example, the transfer tax split could be reset such that Sussex County only receives the portion that would be collected if the property value at the time of the transfer matched the County’s 1974 assessment value.

In other words, the transfer tax would continue to be set at 3% of the transaction price. The county would simply be limited to the tax generated if the price was set in 1974 dollars.

If we assume the same $8.9 million collected by the County last year was collected in 2001, using the handy inflation calculator produces a reduced transfer tax for the County of $2.32 million. The State would pocket the $6.58 million difference.

Whenever the counties updated their assessment year, the transfer tax revenue stream would also be updated.

A reform along these lines could provide a truly intriguing incentive to modernize the property tax system.

There's nothing like a budget crunch to set the policy wonk's mind racing.

May 26, 2002

We moved again

This weekend brought vivid proof to us that we moved again.

Actually, we didn’t literally relocate our home. The 100,000 tourists now filling the streets, beaches, and bays in and around Lewes and Rehoboth Beach just makes it feel that way.

I’m not sure about the actual number of visitors. The state tourism office will probably issue a press release on Tuesday or Wednesday, touting the enormously successful start to the official summer season. Judging from Saturday’s experience, however, the number of beachgoers this year has to be close to a record.

Even though we’ve lived here now for almost 14 years, the sudden impact of the tourist crush can still surprise us. It usually takes a weekend to become acclimated to the changes in lifestyle required to navigate one’s way in a very different, very crowded environment.

We had 7 p.m. dinner reservations with two other couples at our friends’ restaurant, a very popular eatery. Our house is literally 3 miles from its doorstep, and we left at 6:45.

Not very realistic, as it turned out. After several fruitless trips up and down Rehoboth Avenue and several side streets, my wife left the car and hurried to the restaurant, while I continued the search for a parking spot. I finally found one four blocks away, and made it to our seat only 25 minutes late.

A few Saturday nights ago we could have parked directly in front of the place.

I’m not complaining. If it weren’t for the summer hordes and the money they leave behind, Rehoboth simply wouldn’t have as much going for it the rest of the year.

Just takes a little getting used to, is all.

Come to the Rehoboth Boardwalk later this summer. You will see some folks with no trace of sunburn, light tans, and a certain stunned look on their faces at the sight of a six-deep line for a snow cone. You can safely assume they’re probably locals who hadn’t been downtown for a while.

Welcome back!

Contact Information:

Fritz Schranck
P.O. Box 88
Nassau, DE  19969


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Official small print disclaimer: This is, after all, a personal web site. Any opinions or comments I express here are my own, and don't necessarily reflect the official position of my work as a government attorney or any of my clients.

That fact may become obvious later on, but it needs to be said here anyway.

Frederick H. Schranck 2002