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Property Rights Matter: Lessons from a Failing City

Hosting the Preakness Stakes–the second jewel in racing’s Triple Crown, which will take place Saturday–is ordinarily a source of great pride for my hometown of Baltimore. It’s not just a great party but a time to show the city off as an up-and-comer, a desirable destination, a winner.

This year, not so much. Baltimore’s marketing mavens will do their best, but their strategy might be summarized as: “Party on, and pay no attention to all that corruption and crime behind the curtain.” Our mayor has just resigned in disgrace thanks to allegations that she sold roughly $800,000 worth of self-published children’s books to business interests she favored in decisions taken while serving in various political posts. Our homicide rate is the highest of any large American city. And our myriad social problems recently got front-page exposure in the New York Times magazine.

Many Baltimoreans, therefore, are voting with their feet and heading elsewhere. Just in the last year, the city suffered a net loss of over 7,300 residents. Overall, its population has fallen 23 percent since the 1980 census. By contrast, Boston and San Francisco—two other bayside cities that also had been losing residents steadily since the end of the Second World War—have enjoyed genuine revivals, growing by 22 percent and 30 percent, respectively, since 1980. Up-and-coming we are not.

Mishandling the Preakness Stakes

What has my fair city been doing wrong? Many things both great and small, obviously, but a lot of the policy blunders come under a single heading: a failure to understand and appreciate the importance of stable, secure property rights in encouraging the investments that are a key to prosperity and growth.

A recent example of city officials’ cavalier—indeed, hostile—approach to property rights relates to the Preakness itself. Though it has thrilled fans at Pimlico Race Course since 1873, the track’s useful life is over. Indeed, structural problems led to the closure of thousands of grandstand seats just prior to this year’s race. City officials have grumbled about that, and have been fighting to stop Pimlico’s owners from relocating the Preakness to a track in suburban Laurel, Maryland.

The problem is that it makes good sense to do exactly that. Attendance and revenue at most thoroughbred venues have been in decline for years as rival entertainments and gambling options have proliferated. Pimlico’s annual racing calendar has shrunk to a mere 12 days, compared to 159 at Laurel Race Course, which is advantageously situated on a train line connecting the Washington and Baltimore markets. The Maryland Stadium Authority has concluded that the demolition and overhaul of Pimlico would be necessary for racing to continue there, at a cost of $424 million.

Naturally, the track’s owners would prefer not to pay that cost, or a significant part of it, only to be saddled with operating two competing facilities in a shrinking market. A political tug-of-war has ensued, with the owners lobbying for state subsidies to enhance Laurel, and city officials fighting to stymie them.

Most recently, the city has unsheathed what it considers its ultimate weapon: a lawsuit threatening to use eminent domain to seize Pimlico and the Preakness itself in order to keep the race within city limits. That suit comes on top of a 1987 law asserting that the Preakness may not legally be shifted out of the city except “in case of emergency.”

Why the Colts Left Charm City in the Middle of the Night

The message this sends to companies that are in Baltimore (or thinking of being there) is crystal clear: If officials don’t like your business plan, they might just take your property. But the city already tried this strategy with another iconic sports attraction, the Colts of the National Football League, and found that using eminent domain to take intangible property like a sports franchise is a tad more difficult than condemning houses or businesses standing in the way of a new road.

Back in (appropriately) 1984, in pursuit of leverage in negotiations over a new stadium deal with the Colts’ then-owner, Robert Irsay, the city’s delegation to the state legislature wrote two bills authorizing seizure of the team. A panicked Irsay immediately ordered all the team’s possessions packed into moving vans and, in the dark of night, they rolled out to a new home in Indianapolis.

A year-and-a-half and $500,000 in legal fees later, U.S. District Court Judge Walter E. Black, Jr. ruled against the city’s claim—but not because eminent domain law prevented the city from taking intangible property like a football franchise. Rather, by the time the city had formally begun its condemnation proceedings, the key asset they were trying to take (the contract granting the Colts membership in the NFL) was actually outside of Maryland and beyond the court’s reach, headed west on Interstate 70.

What remains to be seen is whether the city’s attempted taking of the Preakness will backfire in similar fashion. Even if a court ultimately rules that a horse race with that name belongs to the city government, there is no particular reason why racing’s “second jewel” must carry its traditional name or be run in Baltimore. Its current owner operates Gulfstream Park in Florida and Santa Anita in California, either of which could easily step up and host a major stakes race in place of Pimlico or Laurel.

If so, it would be one more example of how Baltimore’s long history of disrespect for private property rights has contributed to its decline: consistent losses of population and jobs over nearly seven decades, a shrinking tax base, rising poverty, and all the fiscal and social problems that accompany these trends.

Arguably, the city sealed its doom between 1950 and 1975, a period during which it raised its property tax rate 19 times. Thanks to the economic phenomenon called tax capitalization, each hike reduced the value of residential and business property, expropriating its citizens’ wealth in small but determined bites. Fool me once, shame on you; fool me 19 times, shame on me. Residents and businesses fled; the city’s stock of productive capital decayed, rendering the residents who remained less productive and, so, poorer.

Our Corruption Problem, and Some Needed “Guardrails”

Of course, Baltimore was not alone on this path to perdition. Many cities engaged in similarly destructive tax policies in order to fuel redistributive policies aimed at achieving progressive political ends. Playing Robin Hood at the local level, however, merely invites the “donor classes” to steer clear of Robin’s merry but confiscatory men in Sherwood Forest.

What’s more, the ability to play Robin Hood invites corruption. Two of Baltimore’s last three mayors have exited office amid scandal. But this shouldn’t surprise. When vested with excessive taxing and taking powers, politicians and bureaucrats can turn into “toll collectors,” cashing checks in exchange for the right to do what elsewhere would be ordinary business.

What rescued Boston and San Francisco from their postwar declines—and, in fact, what contributed greatly to the growth and prosperity of cities like Seattle and Portland with similar political cultures—were statewide referenda that capped property taxes and prevented the kinds of “little takings” that will worry anyone pondering investing capital (residential or commercial) in a city run by Robin Hoods. Thanks to Massachusetts’ Proposition 2 ½, California’s Proposition 13, and similar state-imposed caps in Washington, Oregon, and elsewhere, those thinking of investing in fixed and durable capital in those states’ major cities know that no matter how aggressively local politicians might wish to tax their property wealth away, there are limits to how much they can do so. Call these areas’ tax caps “guardrails on the progressive highway.”

Sadly—indeed, tragically for its most economically vulnerable residents—Baltimore has simply refused to recognize the importance of respecting property rights in its efforts to reverse its decline. It continues to pursue failed urban renewal strategies that stress big-footprint, centrally planned projects; it maintains a non-competitive property tax rate that repels investment and fuels flight, offering development incentives only to those prominent enough to get City Hall’s attention and rich enough to “pay to play” in the market for development subsidies.

And despite decades of progressive, one-party rule (no Republican has been elected to the City Council since 1942, or as mayor since 1962) Baltimore officials and opinion leaders consistently blame structural racism or an inadequate commitment to social spending programs for all the city’s ills. This narrative is profoundly disrespectful to those who have worked tirelessly and successfully over many decades to overcome racial obstacles. It also contributes to a sense of hopelessness and division among the city’s residents, all of whom want Baltimore to thrive but are frustrated at its continuing dysfunction.

Most important, that narrative prevents policymakers from seeing that a true and sustainable urban renaissance must start with a commitment to securing citizens’ property rights. This alone invites the amount and kind of investment in physical, human, and social capital that begins a virtuous cycle making a place more prosperous, safer, and conducive to human flourishing.  Baltimore and failing cities like it can be revived, but they need first to recognize this basic fact.

Reader Discussion

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on May 14, 2019 at 09:35:56 am

OMG!

Give these Proggies credit for their creativity - eminent domain on an NFL franchise. Was the Mayor going to seize the Colts Playbooks?

This one should be easier - you can *take* the horses from the Preakness, I guess - BUT only if you have the money to feed them.

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Image of Guttenburgs Press and Brewery
Guttenburgs Press and Brewery
on May 14, 2019 at 10:17:40 am

The intransigence of Baltimore government across decades brings to mind Satan's perhaps explanantory quote: It's better to rule in Hell than to serve in Heaven...

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Image of OH Anarcho-Capitalist
OH Anarcho-Capitalist
on May 14, 2019 at 10:25:29 am

Perhaps we will see a line of riders on horseback leaving Baltimore in the predawn hours as well.

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Coach James
on May 14, 2019 at 10:48:40 am

And, if it is a "handicap" race, the faster horses will be weighted down with a certain number of childrens books graciously *provided8 by the departing Mayor.

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Guttenburgs Press and Brewery
on May 14, 2019 at 14:51:06 pm

The author is correct in his conclusion about property rights and public policy. But, the story, to me, is not about horses or racetracks or what is to become of Baltimore.

Now, Baltimore is what I consider a perfect example of bad local government policy. And, use of public money & eminent domain for private development and/or operations is one of the worst policies ever devised by government. It is a practice of tyrants going back to ancient times. The story of how Nero fiddled while Rome burned to clear out slums so he could build palaces funded by taxpayers for this friends is an example. Both corporate welfare and eminent domain not only go against the Constitution & Bill of Rights, they are against the Ten Commandments as well (Honor thy father and thy mother; thou shalt not steal, bear false witness or covet thy neighbor's home, business, or land). But, local officials, real estate developers and so-called pro-business interests think it is swell.

The very sad thing is that not many people realize where this kind of bad policy came from, because it is not just ordinary abuse of government power. The abuse is made possible by a very bad federal law. And it was the U.S. Congress that got the ball rolling in the late 19th Century with a federal program called "Urban Redevelopment". Its purpose was to cleanse inner cities on the East Coast of "garlic-eaters" and Negroes who were considered undesirables and replace them with new land uses designed to increase tax revenue for the public treasury. Proponents tended to be Progressive politicians, social reformers and urban planners, but developers hoping to become a beneficiary were also on board. It never worked, and it set in motion a chain of events that lead to the race riots of the 1960s.

The program was always administered in such a way as to exercise the greatest amount of corruption with the least amount of common sense. It was so unpopular the American people were against it, so in the early 20th Century Congress changed its name to "Urban Renewal" and wiped out viable older neighborhoods in the inner cities to make way for high-rise Communist Worker housing. Whole communities where everyone knew everybody, many lower-middle class families owned their own homes and businesses, grown-ups were not shy about correcting other people's kids if they were getting into mischief, and so forth, were forced to move and lose their sense of belonging. The people who moved in were new to the neighborhood, nobody knew anybody else and kids ran around lose getting into mischief with impunity.

After WWII the American people had enough of this program. Republicans didn't like it because it was a big federal program. Democrats liked it because it was. And they got together for one of the most disgusting betrayals of the people who elected them to office ever in the history of the United States. They came up with a plan to rid themselves of the responsibility by turning it over to the States who would be authorized to empower municipalities to set up their own local Community Redevelopment Agencies. This was the Housing Act of 1949. It was the beginning of a body of local, state and federal law called Redevelopment, symbolized by its victims and opponents as "The Redevelopment Bulldozer".

It is the bulldozer made famous by the Chavez Ravine project that built Dodger Stadium. The property where it stands was taken by eminent domain so a private ball club could have it a for a song. Taxpayers paid for the acquisition and the project. The man who fought to keep his property suffered badly, and the story of Chavez Ravine still sends chills up my spine when I hear it. About ten years ago I met his daughter at a statewide anti-redevelopment conference. She told the story again, and it brought tears to my eyes. Her father, her family was only one of many thousands of victims nationwide.

The pretext for Redevelopment Law, which is basically designed to deprive some people of their Constitutional rights for the benefit of others, thereby creating three classes of Americans: those who have more rights than anybody else, those who have less, and those whose rights are secure for the time being. This is done when Redevelopment officials declare they have found blight, which according to Redevelopment Law is a dire and imminent threat to the health and safety of the American people. Blight is described in this law as "physical, social or economic decay". Public officials find blight all over the place, identifiable by the ipso facto determination that properties are not generating as much tax revenue as public officials think it should. No square inch of the Universe does that, so it is an airtight condemnation.

California signed on to Redevelopment in the early 1950's with the passage of two laws: Financing for Redevelopment Projects, Article XVI, Section 16 of the State Constitution which voters; and Community Redevelopment Law, California Government Code Section 33000 et seq. It has been a scandal ever since. In 1975 a small group of opponents got together to fight and around 1990 a statewide group called Municipal Officials for Redevelopment Reform began to meet. It was a nonpartisan movement, but a majority of members were Republicans. Newcomers came to tell their troubles and oldtimers came to teach them how to fight. We were educated in the law and legal precedents by the top two anti-redevelopment attorneys in the State.

In the 1980s, I was in the first group but I knew nothing of MORR back then. By the tine I joined in 1990, when I first joined, I was a rooky in the second group with a pretty good batting average and a determination to see Redevelopment shut down nationwide. More and more foes of redevelopment shared my opinion as time went on.

We were moving in that direction when MORR's founder was elected to the California assembly. He was a Republican. Most of MORR's members were Republican. But Democrat Jerry Brown was running for governor, and one day he had a chance to talk to Brown's future financial advisor. The result of that conversation was Brown's surprise announcement in January 2011 of legislation to shut down the State's 400-odd CRA's. Republicans, whom we thought supported property rights and fiscal responsibility, decided Brown'sproposal was an attack on local government power and economic progress. The Statewide GOP fingered us as enemies of conservatism. To our surprise, our only support in Sacramento came from the Democrats. The legislation passed but was challenged in court. On New Year's Eve word came that the judge had ruled it was constitutional.

So, the agencies were shut down. We knew this was a temporary measure, but we were so burned out after ten, twenty, thirty, even forty years fighting this unjust law the movement disbanded. Now the California legislature iis bringing it back in the form of Infrastructure Finance Authorities whose purpose is to use public money and eminent domain for building high-density residential/mixed-use projects near "transportation hubs" to encourage people to use public transportation. They will have to because there won't be enough parking for all the tenants. If you own a home or a business near a bus or train stop, keep your ear to the ground.

The thing to remember is that Redevelopment doesn't work. It costs taxpayers lots of money, destroys neighborhoods, increases crime, does not create a net gain in jobs or tax revenue, etc. It is a rat-hole.

The thing to remember about Redevelopment Law is that until it is wiped off the books, this abusive law will continue to destroy America's cities, families, and the lives of individual Americans whose only crime is to live, work and pay taxes in a Redevelopment Project Area. It one reason why citizens are cynical about local government. This is what has been happening to Baltimore.

If you want to save the rights of Baltimore property owners and stabilize Baltimore's economy, get rid of Redevelopment. Your opponents will come from the National League of Cities and its sister organizations.

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Standing Fast
on May 14, 2019 at 20:27:45 pm

Baltimore has become a city where family and societal norms have broken down. When you have a city where the vast majority of children are born out of wedlock, to mothers who likely were themselves born out of wedlock, when you have a city where the police are considered criminals and the thugs and gangsters are considered heroes for standing up to police, when you have a city where the public education is so bad that you have a failure of even a single student in the public high schools to perform at or above grade level, even the best tax and fiscal policy will not save you. It simply cannot overcome the moral inversion and collapse.

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Eric R.
on May 14, 2019 at 21:30:54 pm

"Baltimore and failing cities like it can be revived, but they need first to recognize this basic fact."

They? The only "they" that matters is the voters. And they are getting the government they deserve. They voted for it, after all. And continue to do so despite the scandals. ENjoy your dump of a city, folks. We can only conclude that this is what you want.

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Cornfed
on May 15, 2019 at 07:36:35 am

Public v private is critical to eminent domain, and there to the USE. SCOTUS needs to revisit Justice Douglas' stylistic twist from 'use' to 'purpose', restoring the integrity of not merely Constitutional legitimacy, but property. Douglas' abuse led to Kelo v City of New London, which mistakenly upheld the Connecticut Supreme Court in its devaluation of the right of property notwithstanding Art I, Sec 11 of the Connecticut Constitution. Socialism and the majoritarian element of democracy is at the heart of the erosion of property, a linchpin of our liberty.

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gdp
on May 21, 2019 at 14:27:51 pm

[…] Property Rights Matter: Lessons from a Failing City — Law & Liberty […]

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Image of What We’re Reading Today: God Bless America, Tribalism, Laughing At Socialism . . . And More – Issues & Insights
What We’re Reading Today: God Bless America, Tribalism, Laughing At Socialism . . . And More – Issues & Insights
on May 25, 2019 at 10:04:28 am

Many excellent points and historical notes -- thanks.
I would add that the loss of "social capital" -- the networks of relationships and the knowledge and culture embedded in stable communities -- has been little-noted but was one of the more devastating consequences of the Urban Renewal policies mentioned. I suspect that the loss of much of this incredibly valuable but intangible capital as urban residents were scattered so that their neighborhoods could be "renewed" accounts for a good deal of the subsequent poverty we continue to witness in cities like Baltimore.
This was a great tragedy for the marginalized, and one that has not been much studied.

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Steve Walters
on May 27, 2019 at 12:06:56 pm

[…] Rights Matter: Lessons from a Failing City” [Stephen J.K. Walters, Law and Liberty; my two cents on eminent domain, Pimlico, and the Preakness […]

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Image of In miniature, May 27 | Free State Notes
In miniature, May 27 | Free State Notes
on May 27, 2019 at 13:16:10 pm

Yes, I'm glad you commented on this. There is a wonderful book by Mindy Thompson Fullilove, M.D., called "Root Shock: How Tearing Up City Neighborhoods Hurts America, and What We Can Do About It" that addresses the destruction of social capital. Hers is not the first, but I think it is the best and most comprehensive. I think she and her husband are at Columbia University.

Don't remember her solutions--I always have maintained that until the Housing Act of 1949 & related redevelopment laws are repealed nationwide, nobody's rights and property are safe. To achieve this, the American people must be persuaded that government involvement in housing & economic development is bad for both.

The best place to go for an education on the subject is your county's law library. Ask the librarian to help you find your state's Community Redevelopment Law (it'll be in the Health & Safety Code) and the Housing Act of 1949 (U.S. Congress). Plan to stay awhile, then when you leave ask your friends to join you for a drink. You'll need it.

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Standing Fast

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