Tag Archives: State House

With Government Shekels Come Government Shackles

Though privileged firms may not focus on it when they obtain their favors, privilege almost always come with strings attached. And these strings can sometimes be quite debilitating. Call it one of the pathologies of government-granted privilege.

Perhaps the best statement of this comes from the man whose job it was to pull the strings on TARP recipients. In 2009, Kai Ryssdal of Marketplace interviewed Kenneth Feinberg. The Washington compensation guru had just been appointed to oversee compensation practices among the biggest TARP recipients. Here is how he described his powers:

Ryssdal: How much power do you have in your new job?

FEINBERG: Well, the law grants to the secretary who delegates to me the authority to determine compensation packages for 175 senior executives of the seven largest corporate top recipients. The law also permits me, or requires me, to design compensation programs for these recipients, governing overall compensation of every senior official. And finally, the law gives me great discretion in deciding whether I should seek to recoup funds that have already been distributed to executives by top recipients. So it’s a substantial delegation of power to one person.

Another example of shackles following shekels comes from Maryland. That state has doled out over $20 million in tax privileges to a film production company called MRC. MRC films House of Cards, a show about a remarkably corrupt politician named Frank Underwood. The goal of these privileges was to “induce” (others might call it bribe) MRC to film House of Cards in Maryland. One problem (among many) with targeted privileges like this is that there is no guarantee that the induced firm will stay induced; there’s nothing to keep it from coming back for more.

In this case, MRC executives recently sent a letter to Governor Martin O’Malley threatening to “break down our stage, sets and offices and set up in another state” if “sufficient incentives do not become available.” Chagrined, state Delegate William Frick came up with a plan to seize the company’s assets through eminent domain. It is clear that Delegate Frick’s intention was to shackle the company. He told the Washington Post:

I literally thought: What is an appropriate Frank Underwood response to a threat like this?…Eminent domain really struck me as the most dramatic response.

As George Mason University’s Ilya Somin aptly puts it:

But even if the courts would uphold this taking, it is extremely foolish policy. State governments rarely condemn mobile property, for the very good reason that if they try to do so, the owners can simply take it out of the jurisdiction – a lesson Maryland should have learned when it tried to condemn the Baltimore Colts to keep them from leaving back in 1984. Moreover, other businesses are likely to avoid bringing similar property into the state in the first place.

My colleague Chris Koopman notes that there are also a number of practical problems with this proposal. The only real property the state could seize from MRC would be its filming equipment: its cameras, its lights, maybe a set piece or two. And by the U.S. Constitution, it would have to offer MRC “just compensation” for these takings. The company’s real assets—the minds of its writers and the talents of its actors—would, of course, remain intact and free to move elsewhere. So essentially Mr. Frick is offering to buy MRC a bunch of new cameras, leaving the state with a bunch of old cameras which it will use for…well that hasn’t been determined yet.

In this case, it would seem that the shackles are more like bangles.

The Maryland State House adopted Frick’s measure without debate. It now goes to the Senate.

Desperate Times: Arizona Leases State House

cap_museumCalifornia’s budget crisis is remarkable for the sheer magnitude of its deficit. New Jersey’s and New York’s revenue streams are entwined with the decimated financial markets. Florida experienced the worst of the housing market collapse.

And Arizona faces its own catastrophe. Its budget shortfall, while at $3.4 billion not as large as California’s, represents 30 percent of its $10.7 billion budget.

After months of wrangling over how to meet the shortfall — program cuts versus tax cuts — a possible solution was reached this week, four weeks into the state’s new fiscal year: the lease of 32 government-owned properties including the State House, a prison, and a state hospital.

The plan involves selling the properties for a quick infusion of cash, and their leaseback over a period of years.

This is the plan’s second go-round. Governor Brewer vetoed it last month. But the state has few options left. Arizona has a constitutional debt limit of $350,000. Under the deal, the state would also have the option of walking away from the lease payments — effectively turning over some of the buildings to the private sector.

Lamentations over the leasebacks are misplaced. Unlike other states — California is “borrowing” money from its cities, New Jersey secured a line of credit from J.P. Morgan to pay its debts — Arizona is taking a step in the right direction.

In fact, looking at the proposed list, it’s not clear why several of the properties aren’t just sold outright.

Does the state need to own a Coliseum and Exposition Center? Simply because it hosts the state fair doesn’t make it a state business.

With a price tag of $84.3 million, privatization is a win-win situation.  Take a non-essential, non-public good off the state’s books, and it has a chance of becoming a profitable (i.e., job-creating) business for a willing investor.

The Arizona Exposition and State Fair’s executive director sees it differently. He writes that the fair is 100 percent self-supporting, and receives no money from the General Fund but, that proposed budget cuts of $2.7 million will mean the Fair will “cease to exist.”

Sounds familiar. Last month, the New England Zoo made even more serious threats when faced with budget cuts: keep our funding, or we’ll have to euthanize these animals.

Maybe under a private owner, the fair will find there’s a lot more it can do before shutting down “one of the most popular all-Indian Rodeos in the Southwest.”