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Federalism, the Baltimore Colts, and the Limits of Eminent Domain:

Property law scholar Gideon Kanner has an interesting article in the Los Angeles Daily Journal on the 25th anniversary of the Baltimore Colts' midnight move to Indianopolis. As Kanner points out, the Colts' precipitous departure was caused by the team owner's fear that the city of Baltimore would use eminent domain to condemn the team and thereby prevent it from moving. This fear was precipitated by a then-recent California state court decision ruling that the City of Oakland's effort to condemn the Oakland Raiders in order to prevent them from moving was a permissible "public use" under the state constitution.

As Gideon points out, the Colts were able to foil Baltimore's plan simply by leaving before the city could act. More generally, cities around the country have made little effort to condemn mobile businesses or nonprofit organizations, despite the fact that eminent domain jurisprudence in many states is permissive enough that such efforts would likely survive judicial scrutiny. Why haven't state and local governments sought to condemn mobile assets? The answer is clear: businesses would quickly flee any jurisdiction that started using eminent domain in this way. The example of the Colts is telling. Moreover, other firms would forego the opportunity to move into the area in the first place.

For these reasons, condemning mobile assets is a losing proposition for state and local governments - even if courts will let them do it. Federalism and interjurisdictional competition protect property rights in movable goods with relatively little need for judicial intervention. By contrast, there is little similar protection for property rights in land and other static assets. A landowner might be able to flee a jurisdiction with harsh policies; but he can't take the land with him. For this reason, decentralized federalism is less likely to provide effective protection for property rights in immobile goods. Thus, judicial intervention, including that of federal courts, may be necessary. I discuss this point at greater length in this article (pp. 221-23). Once we understand the distinction between mobile and immobile property and the special vulnerability of the latter, there need be no contradiction between support for decentralized federalism and support for federal judicial protection for landowners' property rights.

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Why "Voting With Your Feet" in a Federal System Benefits the Poor More than the Rich:

In my last post, I explained how the right to "vote with your feet" in a federalist system provides strong protection for owners of mobile assets. Owners of such assets can leave a jurisdiction which subjects them to confiscation, excessive taxes, or other harsh treatment. By contrast, owners of immobile assets, such as land, benefit less from interjurisdictional competition under federalism because they can't take these assets with them if they choose to move.

This point has an important implication for one of the standard criticisms of decentralized federalism: the belief that voting with your feet benefits the rich more than the poor. In some ways, the reverse might actually be true, because the poor are less likely to own significant fixed assets than the rich do. Wealthy people who own expensive houses or other fixed assets (e.g. - factories, large estates, etc.) can't move as easily as poorer individuals whose only major assets are their bodies and minds. To be sure, the rich will find it easier to pay the costs of a move. However, these costs are unlikely to be large in the modern world, where cheap interstate transportation is readily available (especially for those who don't have a lot of possessions to take with them). Overall, it should usually be easier for the poor to vote with their feet than for the more affluent.

Empirical evidence supports this conjecture. As I note in Part V of this article, people living in households with an annual income under $15,000 per year are twice as likely to make interstate moves as those in higher income classes. Historically, poor and oppressed groups have often used interstate mobility to their advantage, even in periods when the costs of transportation were much higher than today. The mass migration of African-Americans out of the Jim Crow South during the early 20th century (briefly discussed in the same article) is a particularly striking example.

Obviously, attracting poor people is not as valuable to revenue-seeking states as attracting an equal number of affluent ones. However, so long as the poor people in question are economically productive, a state government still has some incentives to compete for them - especially if bringing them in also attracts capital from investments in firms that might hire them. Thus, despite widespread racism, early 20th century northern state and local governments did make at least some effort to be hospitable to southern black migrants out of these kinds of self-interested motives. Moreover, attracting a large number of lower-income workers might benefit a state's bottom line more than attracting a small number of higher-income ones. The former group might actually pay more taxes in the aggregate (especially in a state where much of the revenue comes from sales taxes, which are not progressive).

Advocates of centralization often claim that it benefits the poor. In some ways this is true; for example, it may be easier for the federal government to redistribute income to the poor than for a state to do so. However, it is important to recognize that centralization also undermines the ability of the poor to help themselves by voting with their feet. If the early 20th century United States had had a unitary policy on race, it would likely have been far closer to that of the Southern states at the time than the northern ones. Thus, millions of southern blacks would have lost the opportunity to better their lot. If the European Union had a common labor policy today, it would likely have strictly regulated labor markets similar to those of France and Germany, which would make it impossible for citizens of the EU's poorer nations to improve their situations by moving to areas with better employment opportunities - as millions have done over the last two decades.

As both the United States and the European Union move towards greater and greater concentration of power in the central government, we should be wary of the possible negative effects on our poorest citizens. While centralized control of redistributive welfare programs might help the poor, central direction of many other policy areas is likely to have the opposite effect in so far as it undermines citizens' ability to vote with their feet. Far from helping the disadvantaged, the trend toward centralization might well cause them more harm than good.

Related Posts (on one page):

  1. Maryland May Use Eminent Domain to Take Over the Preakness:
  2. Why "Voting With Your Feet" in a Federal System Benefits the Poor More than the Rich:
  3. Federalism, the Baltimore Colts, and the Limits of Eminent Domain:
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Maryland May Use Eminent Domain to Take Over the Preakness:

Maryland state legislators are considering legislation that would enable them to use eminent domain to condemn the Preakness Stakes horse-racing track, as well as the trademark and other intellectual property rights associated with the famous race which is part of the Triple Crown [HT: VC reader John Thacker]:

Under the bill, the state could seize the tracks as well as the Woodlawn Vase and Preakness-related trademarks, copyrights and contracts, if doing so prevents "the loss of the historically, culturally, and economically important" horse racing legacy . . .

The last-minute legislation was prompted in part by reports that Pikesville developer Carl Verstandig was interested in razing Pimlico and turning the Northwest Baltimore property into a shopping center. He has since said he would prefer to keep the Preakness at Pimlico, as have other potential bidders.

Magna Entertainment Corp., the firm that currently owns the Preakness and the Pimlico race track, is facing bankruptcy. And Maryland officials, including the governor, claim that the threat of eminent domain is needed to keep the Preakness from being moved out of state, as the Baltimore Colts were in 1984.

This argument doesn't make much sense. As I pointed out in a recent post, the Colts' famous midnight departure to Indianapolis was itself precipitated by the state's threat to use eminent domain against them. More generally, state efforts to use eminent domain against mobile assets tend to be self-defeating. They cause owners of those assets to flee the jurisdiction and also deter new firms from moving to the state. I suspect, therefore, that Maryland's efforts to use eminent domain to keep the Preakness in-state will be unsuccessful. They may even bring about the very result that state legislators say they want to avoid.

However, there is a complication. It's not clear to me whether the most valuable elements of the Preakness really are mobile assets or not. Since I don't know much about horse-racing, I'm not sure whether the truly valuable commodity here is the Pimlico race track (which is static) or the trademarks and other intellectual property rights associated with the annual Triple Crown race (which can potentially be held at a different race track in another state). In other words, would horse-racing fans be just as willing to watch a Preakness race held in a different state? Or is there something unique about the Maryland site that would make the race significantly less popular if it were moved elsewhere? If the latter is true, then Maryland's threat to use eminent domain might accomplish its objective of keeping the Preakness race going in-state. Ironically, it would do so precisely because the race can't really be moved out of state without losing much of its profitability. The owner's only realistic options would be to either keep the race in Maryland or shut it down entirely in favor of some other use for the land; eminent domain can prevent Magna from picking the latter option. Perhaps readers with greater knowledge of horse-racing can enlighten me as to the true nature of the Preakness' value.

Even if Maryland's eminent domain threat is rational in the sense of having a real chance of achieving its goal, I'm not convinced it is good policy. If the owners of the Preakness track prefer to shut it down and use the land for other purposes, the state probably should not intervene. After all, the owners have the strongest incentives to allocate the land to its most valued use; unlike state legislators, they have their own money at stake. If the highest valued use of the land turns out to be something other than horse-racing, I don't see any good reason for government intervention to prevent it. Indeed, if the new use produces more economic value than the race track does, preventing the change might actually hurt the state's economy during an already difficult time.

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