Friday, October 21, 2005

Monterey Park Eminent Domain

The city of Monterey Park is considering using the power of eminent domain for a redevelopment project.
"Eng and other council members cited financial figures to make their case for the public benefits of the project:

- The development would create $26 million in taxes for the city over 33 years.

- More than 400 jobs would be created.

- More than $200,000 in annual property taxes would be created by the project.

- Kam Sang would have to pay $200,000 into a fund for city parks.

While discussion on the matter went late into the night, at least one council member expressed doubt that the property at 608 N. Atlantic is truly blighted.

Councilwoman Betty Tom Chu said that when she inspected the property it did not appear visibly blighted to her.

City Manager Chris Jeffers said blight could also be defined by the low economic performance of the property.

Of the eight businesses housed in the three commercial buildings, four have already reached a settlement with Kam Sang and the city. Happy Family Restaurant II at 608 N. Atlantic is close to reaching a deal, according to the restaurant owner's attorney." [Jason Kosareff, "Eminent Domain Vote Stalled: Monterey Park Considers Condemning Buildings," San Gabriel Valley Tribune, Oct 21, 2005]
The project in question would appear to have to use eminent domain to take 3 commercial properties. It appears the project would be the work of one corporation, and the plan is to "redevelop" by replacing the current property owners with the corporation's 200,000 square feet of retail, 200 condos, and a 14-screen theater.

The benefits that would be enjoyed by the use of government's eminent domain power seem of questionable value from an economic point of view. Note that two of the items on the list are tax revenues. I suppose local politicians and local government bureaucrats may well see more taxes as a benefit. After all, more taxes means more money to spend. Of course, the source of the tax revenues will be the community's taxpayers. From the perspective of the taxpayers, tax payments are always a cost.

The fact that politicians and bureacrats spend the taxes paid does not create a benefit. Economic analysis is that taxes are always a transfer from one person, through the "middle-man" which is government, to be spent on another person. So, the power of eminent domain would be used in this case to take private property from one person, only to then be transferred to another person, and this for the asserted "benefit" of taking tax money from some in the community to transfer it to others in the community. No economic benefits here.

Another one of the benefits is said to be that "more than 400 jobs will be created." First, note that it is not said that this is the number of net "new" jobs. The property which is taken is devoted to commercial activity by those who own the property. There are probably jobs associated with the commercial activity. But, there is a more significant point suggested by economic analysis. In general, "job" describes a situation where an employee is hired by an employer to engage in some productive activity. The means that the employee cannot be used in other potential productive activities in the community. The employee is a productive resource that could have been used in other productive activities, and this suggests the economic concept of "opportunity cost" is relevant. The point is that a job, from an economic point of view, represents a cost, which is the value of other goods and services forgone. If the 'job" involves the employment of a worker that would otherwise be unemployed in any productive economic activity, then, and only then, would the job be an economic benefit from the perspective of the community. It is quite unlikely that the 400 jobs listed here as a benefit would actually employer workers who woulde otherwise not be employed. This looks like another cost.

Often those in local government who promote economic development policies offer justifications that sound like the economic concept of positive externality. Specifically, there is a loosely argued suggestion, in general, that jobs benefit the community in general. But, this does not represent a positive externality, and these jobs do not benefit people in the community in general. Most people have jobs in the community. The 400 people who take the "new" jobs, will undoubtedly be better off, but they will be the only people in the community to enjoy a benefit for the jobs. The proponents of such city government economic development activities try to make it seem that everyone in the community benefits, but this simply is incorrect.

In summary, city government in Monterey Park appears to be considering using the power of eminent domain to take property from the lawful owners to turn it over to other private property owners. This taking is justified by incorrect assertions of community benefits in the form of greater taxes and greater "jobs." The economic truth is this taking is being justified by its proponents by calling true economic costs benefits.

It is bad enough to note this for one town, but the reality seems to be, that the same sorts of reasons are typically given when local government uses eminent domain for "redevelopment."

No comments: