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Feb

7

Pennsylvania Eminent Domain Bills Hardly Protecting Property Owners

February 7, 2006 |

Well, the PA legislature looks to be close to having some bills passed to “prevent” eminent domain abuse.

The Trib Review reports the bills would allow for confiscation if the property is classified as either “blighted” or as an “attractive nuisance” to children. The latter applies to physical condition, use or occupancy. The examples of the latter are “abandoned wells or shafts, excavation sites, or unsafe fences or structures.”

Now, I find the second of the two classifications to be more acceptable, and I’ll touch on that in a moment. However, both seem to have been written in a vacuum, with little consideration of the role of existing government meddling in pushing properties in the direction of being candidates for such eminent domain definitions. Moreover, its seems our politicians completely disregard the overall question of should the government be in the business of economic development, which almost always goes hand-in-hand with eminent domain in one form or another.

For example, let’s take a look at 5th & Forbes. This is an area that has been targeted by central planners in Pittsburgh for decades now. It is an area that, admittedly, is not the most attractive shop district, but it seems to function in a way that Pittsburgh seems to support. After all, Pittsburgh has hemorrhaged both businesses and citizens in the last 30 years, and as such, not many private companies are willing to show up there (or at really any location downtown) and invest only their own money in order to set up a self-supported business. Were it feasible, it’d be happening, yet office space is not hard to get in town, and most of our city businesses are financial, banking or legal.

Now, that does not mean that over the last 15 years there may not have been interest in the area from some private business people in retail or otherwise. However, most businesspeople tend to think in terms of the long run when it comes to their investment. Most know the old statistic, that in most cases it takes about five full years for businesses to become truly profitable. Most take much longer for its investors to truly believe it to be a real success.

Enter the eminent domain busy bodies. For the better part of two decades, government officials have been threatening the existing local business people who have invested their own money in the area with the confiscation of their property. And as part of the threat, they’ll hand over the loot to politically connected developers who will be subsidized with the taxpayers money - much of it coming from the original occupants of the area. So stated another way, who in their right mind would invest their own fresh money when political know-it-all’s are waiting in the lurches to take over your investment and send you on your way –thus putting extreme risk on your entire sweat-equity and even saddling you with losses common to start-ups before the business gets rolling?

In other words, twenty years of threats of eminent domain have more or less created an area of the city where nobody is willing to invest their own money without having the taxpayer pick up a large part of the tab. Combine that problem to the added fear from other existing retailers in the city who stand to lose out if, for example, a Nordstrom were to be lured in with tax incentives funded by existing tax-payers… Well, you then have loyal long-time businesses worried about being put out of business when a subsidized giant comes into the neighborhood. (I personally spoke with boutique owners in Squirrel Hill who decided to close shop on their own terms.)

The Trib article even discusses this point:

    Rep. Dan Frankel, D-Squirrel Hill, said he favors use of eminent domain to obtain property for private developers when it benefits the entire community. Eminent domain was used in East Liberty several years ago on nine properties to help build a Home Depot on land formerly occupied by a Sears store, he said. “That was a $40 million development, which, in turn, has help promote another $140 million in other developments either built or planned in East Liberty,” Frankel said.

It would be nice of Rep Frankel also disclosed that Home Depot has enjoyed many tax-breaks, while its competitors - many family owned businesses supporting the trades for more than a few generations - continued to pay the going rate. In other words, they were subsidizing a competitive giant (lured in by the brilliant minds like Rep Frankel) that took away a large amount of their business, and completely buried others. After all, during that period the population declined. So whatever consumers that were gained by Home Depot and East Liberty came at the direct expense of other local businesses and communities. It’s a classic example of parasitic-economics common to most political initiatives.

Knowing those are the rules of the game, few non-subsidized businesses would be so stupid to set themselves up to be victimized by the parasitic political class even if they aren’t worried about eminent domain — And just like that you have a worse-off economy — a self-fulfilled prophecy — from which the politicians must save us. One that they largely contributed to creating.

That said, back to the eminent domain laws and the issue of blight. We’ve already established that the threat of eminent domain can freeze out new investment in a community. But there is also another major issue that prevents private investment in certain areas: the real estate tax structure. Currently property owners are penalized if they invest to improve their property.

The equation is something like this: invest and increase you real estate value, get taxed more. Let it grow more blighted, your taxes can go lower. Hmmm. What are we incentivizing? Not good.

The government realizes this and gives certain folks who have tons of cash to sink in some property the right to avoid taxes if they fix up big buildings and so forth. The small property owner is not always so lucky to qualify. The government would be better off, of course, shrinking itself and cutting taxes for everyone. And then, it’d be helped by collecting a land value tax instead, which would encourage lots of real estate investment in areas with very inexpensive underlying land value.

And then there is the issue of welfare subsidized communities. These areas invariably become slums due to the breakdown of the community environment, largely thanks to the government subsidizing behavior in the community that is anti-wealth-creation oriented. Welfare properties are notoriously poorly cared for by tenants who have no investment in the property. And just like that, you have more blight.

So, what of the two proposed exceptions to eminent domain mentioned early on in this post? Well, with respect to the “blighted” and “attractive nuisance” scenarios, we’d have far fewer of such properties were we to substantially reform government as it is. In other words, this clause is a solution to a largely government-created problem.

And, then, who gets to define what meets the respective definition, and would it be uniformly applied? Or would it remain, as it is currently, confined to properties highest on the list of the politically connected?

Of course, in any event there would always be some properties, abandoned or otherwise, that would pose a danger to the community where intervention might be crucial. Those might legitimately be confiscated, but they should also be sold off at the market vs. consolidated to the benefit of the political apparatus and its close buddies looking to make big profits, or to gain political clout, on the backs of the taxpayers.


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