Last Memorial Day I was in Ocean City, New Jersey. I was taking an early morning day-dreamish walk through the beach's cool wading pools when suddenly Lee Greenwood's "God Bless the U.S.A." startled me. I looked up to the nearby boardwalk, and there was our flag slowly rising on what turned out to be an official town flagpole.
The beachwalkers and boardwalkers stopped in place as they became aware of the flag raising. So did the bicyclists and tricyclists. And the stroller-pushers. Some put their hands over their hearts. Other simply stood still. Old men and young girls alike.
As Lee Greenwood's voice blared from the loudspeaker near the flagpole, nobody – and I mean nobody -- moved.
Even after the flag was in place atop the pole, nobody moved until "God Bless the U.S.A." ended.
I know there were flag raisings just like the one I witnessed in Ocean City last Memorial Day all over the country, from the tiniest town squares to the largest metropolitan city halls. I was told, in fact, that the flag is raised every single day of the beach season in Ocean City, although I've only spent that one morning there, last Memorial Day, to witness it.
So, to be sure, in one sense I understand the flag-raising in Ocean City last Memorial Day was not unusual at all. Nevertheless, Lee Greenwood's song, also known by many as "Proud to Be An American," was particularly moving to me in the stillness of that late May morning, that morning when all movement on the beach came to a halt. You can listen to the song here, but this is part of the refrain:
"And I'm proud to be an American
Where at least I know I'm free
And I won't forget the men who died
Who gave that right to me…"
Whether we are at Ocean City, New Jersey, or Ocean City, Maryland, or the backyard barbeque, the local shopping mall, or the baseball park, hopefully we will all find a moment in time this Memorial Day to pause and remember all those brave men and women who have died to preserve our freedom. And to remember and be grateful to those who are risking their lives to do so today.
For myself, I'm sure I'll imagine I am standing on the beach in Ocean City, New Jersey, singing along softly to strains of "God Bless the U.S.A." as nobody moves, and we all remember.
From all of us at the Free State Foundation, have a safe, happy, and memorable Memorial Day.
Sunday, May 24, 2009
Thursday, May 21, 2009
Budget 'Fix' Didn't Last Long
Just over three weeks ago in The Gazette of Politics and Business, I wrote that "the state's budget balancing act is a short-term fix" that "leaves little wiggle room if revenue forecasts come up short." I thought at the time I was talking about this summer or early fall.
Last week, Comptroller Peter Franchot issued his report on April revenues, and yikes, the state was already coming up short for revenues this fiscal year and next. Gov. Martin O'Malley promptly ordered agencies to cut $200 million from a budget that was enacted just last month, with legislators congratulating themselves on the tough job they had done. They should have cut more, and not let O'Malley make all the tough choices.
He's asking for elimination of some programs that have been decimated by previous budget cuts. The failure of the legislature to further cut back on its own spending mandates also ties the governor's hands for fiscal 2010. If things get worse, he may need to call the legislature back in session before next January to reduce spending mandated by law.
And what of the disappearing millionaires Franchot reported? Taxes on people having over $1 million in taxable income were raised retroactively but temporarily in 2008 to replace the computer services tax. In calendar 2005, there were 6,300 of these millionaire returns, 41 percent of them in Montgomery County, and they had an average taxable income of $2.9 million a year. These 6,300 rich folks, about two-tenths of one percent of the tax returns (0.2%) pay about 10 percent of all state and local income taxes.
According to legislative analysts, their tax hike was supposed to raise $154 million in fiscal 2009, and $113 million in fiscal 2010, phasing out the following year. The average tax bill was supposed to go up about $14,000.
Didn't happen. The number of millionaire returns is down by a third, and the taxes they owe are also down, Franchot reported. There are a number of possible explanations. More of them have asked for extensions of the filing deadline. The economic decline undoubtedly has hurt these millionaires, 80 percent of them deriving some of their earnings from business returns as sole proprietors or partners. They also derive a higher proportion of their incomes from capital gains, and possibly may have chosen to take losses last year.
It is easy to speculate about net outflow of Marylanders to lower taxed states, but harder to document. According to state planning department analysis of IRS data, Maryland has had 19 straight years of out-migration to Pennsylvania and over the last 27 years has lost 47,000 people to North Carolina and 133,000 to Florida, which has no income tax. There is anecdotal evidence of wealthy people forsaking Maryland for homes in Florida for the more than half a year to qualify as residents there. Their houses in Maryland, where their businesses may be based, become second homes.
The planning department says the data show that people leaving Maryland is directly related to the state's economic vitality and to its higher cost of housing compared to its neighbors, except for Virginia. In 2007, even before the latest tax hikes, Maryland had "a record outflow … due in part to a relative weakening of the state's economy" and "lower housing costs" elsewhere, the department reported.
Maryland is benefiting from an inflow of federal dollars through BRAC and the stimulus package, but you have to wonder if the 2007 and 2008 tax increases that fell heavily on business and high earners – the millionaire's tax, the sales tax hike (40% paid by business) and the corporate tax hike -- had an impact on that "relative economic vitality."
In any case, the tax hikes didn't solve the structural deficit, and nothing but long-term spending cuts will.
Last week, Comptroller Peter Franchot issued his report on April revenues, and yikes, the state was already coming up short for revenues this fiscal year and next. Gov. Martin O'Malley promptly ordered agencies to cut $200 million from a budget that was enacted just last month, with legislators congratulating themselves on the tough job they had done. They should have cut more, and not let O'Malley make all the tough choices.
He's asking for elimination of some programs that have been decimated by previous budget cuts. The failure of the legislature to further cut back on its own spending mandates also ties the governor's hands for fiscal 2010. If things get worse, he may need to call the legislature back in session before next January to reduce spending mandated by law.
And what of the disappearing millionaires Franchot reported? Taxes on people having over $1 million in taxable income were raised retroactively but temporarily in 2008 to replace the computer services tax. In calendar 2005, there were 6,300 of these millionaire returns, 41 percent of them in Montgomery County, and they had an average taxable income of $2.9 million a year. These 6,300 rich folks, about two-tenths of one percent of the tax returns (0.2%) pay about 10 percent of all state and local income taxes.
According to legislative analysts, their tax hike was supposed to raise $154 million in fiscal 2009, and $113 million in fiscal 2010, phasing out the following year. The average tax bill was supposed to go up about $14,000.
Didn't happen. The number of millionaire returns is down by a third, and the taxes they owe are also down, Franchot reported. There are a number of possible explanations. More of them have asked for extensions of the filing deadline. The economic decline undoubtedly has hurt these millionaires, 80 percent of them deriving some of their earnings from business returns as sole proprietors or partners. They also derive a higher proportion of their incomes from capital gains, and possibly may have chosen to take losses last year.
It is easy to speculate about net outflow of Marylanders to lower taxed states, but harder to document. According to state planning department analysis of IRS data, Maryland has had 19 straight years of out-migration to Pennsylvania and over the last 27 years has lost 47,000 people to North Carolina and 133,000 to Florida, which has no income tax. There is anecdotal evidence of wealthy people forsaking Maryland for homes in Florida for the more than half a year to qualify as residents there. Their houses in Maryland, where their businesses may be based, become second homes.
The planning department says the data show that people leaving Maryland is directly related to the state's economic vitality and to its higher cost of housing compared to its neighbors, except for Virginia. In 2007, even before the latest tax hikes, Maryland had "a record outflow … due in part to a relative weakening of the state's economy" and "lower housing costs" elsewhere, the department reported.
Maryland is benefiting from an inflow of federal dollars through BRAC and the stimulus package, but you have to wonder if the 2007 and 2008 tax increases that fell heavily on business and high earners – the millionaire's tax, the sales tax hike (40% paid by business) and the corporate tax hike -- had an impact on that "relative economic vitality."
In any case, the tax hikes didn't solve the structural deficit, and nothing but long-term spending cuts will.
More Evidence of Consumers Supporting a Deregulated Wireless Market
On May 12th, CTIA filed an ex parte with the FCC describing the "unparalleled value" that United States wireless customers currently enjoy due, in large part, to a very competitive wireless market. I have written about this before, but figures in the CTIA report really emphasize the immense benefits that consumers receive from the U.S. competitive model. Carriers are pressed to provide a wide variety of applications, low prices, and overall advanced capabilities in the mobile phones offered on their networks.
Some key facts contained in the CTIA ex parte:
Some key facts contained in the CTIA ex parte:
- The United States still has the lowest cost per minute and the highest minutes of use of all 26 OECD ranked countries.
- Over 630 different handset are sold in the United States and consumers have access to over 40,000 applications sold through four newly created app stores. Three more stores and more than 20,000 additional applications are planned to launch this year.
- The United States has a higher percentage of consumers actively using mobile Internet capabilities than any other country measured. Additionally, more than half of all U.S. wireless consumers utilize a data plan on their phones and U.S. wireless web use accounts for 29.3% of all mobile web access worldwide.
Wednesday, May 13, 2009
Deconstructing "Dismantling Digital Deregulation"
Free Press has issued a new report entitled "Dismantling Digital Deregulation: Toward a National Broadband Strategy," authored by Free Press Research Director S. Derek Turner. Alliteration is nice. That's one reason I call this blog "Deconstructing 'Dismantling Digital Deregulation.'"
But the most important reason is that Mr. Turner's 123-page report is deeply flawed. I anticipate that over the course of the next few weeks I will have something more to say about Mr. Turner's paper. Here I just want to identify a few statements that appear in the paper's introduction that are symptomatic of its flaws.
The whole premise of the report is that the deregulation of broadband Internet services – in many instances, in reality what has happened is not deregulation but relaxed regulation – that occurred during the Bush Administration years has led to the demise of "competition," competition that Mr. Turner says emerged and existed after the passage of the 1996 Telecommunications Act. So, for example, the report states that before deregulation "the average American consumer had access to more than a dozen ISPs." Indeed, the report cites as evidence of Internet service provider competition the claimed existence of 6000 ISPs in 2000. Accepting the validity of these figures here for the sake of argument, they indicate the very problematic nature of the vision which animates the entire report.
There is no doubt that these narrowband "competitors" were not facilities-based providers, but rather resellers of services that existed at the sufferance of the FCC price regulation of the providers that actually invested in the construction of facilities. The "dozen ISPs" to which the average American consumer presumably had access, and the 6000 ISPs writ large, had no incentive to invest in new facilities that would offer higher speeds or innovative applications and services. And they did not do so. That is why their services generally were referred to as "plain vanilla" ISP services.
The report bemoans the demise of forced line-sharing and mandated sharing requirements upon which the business models of the resale ISPs were based. The notion that these resellers were real competitors or provided any meaningful competition – the idea upon which so much of the report is premised -- is just wrong. Only competition among facilities-based providers has provided benefits to consumers that are sustainable over time.
After lauding the now largely abandoned forced unbundling and mandatory sharing regimes to which Mr. Turner seeks to return, this statement follows not much further along: "Before broadband, carriers were able to earn perhaps $20 per customer each month selling phone service. In today's converged world, a carrier can earn well over $100 on that same line by offering phone, TV and Internet services."
This should be an "Aha" moment as in: How did we as a nation get from a "before broadband" world to today's broadband world in which broadband is available to over 90% of the country's population at increasingly faster speeds and offers telephone, TV, and Internet over the same line? Answer: Massive capital investment.
And the bulk – not all, but the bulk -- of the investment occurred under a regime in which broadband facilities were not subject to the type of forced sharing regulations to which Free Press seeks to return. Recall that in the late 90s there was a strong push to subject the emerging cable broadband services to an "open access" forced sharing regime. Here is what William Kennard, President Clinton's FCC Chairman, had to say in September 1999 in rejecting the same proposals that Free Press now advocates:
"It is easy to say that government should write a regulation, to say that as a broad statement of principle that a cable operator shall not discriminate against unaffiliated Internet service providers on the cable platform. It is quite another thing to write that rule, to make it real and then to enforce it. You have to define what discrimination means. You have to define the terms and conditions of access. You have issues of pricing that inevitably get drawn into these issues of nondiscrimination. You have to coalesce around a pricing model that makes sense so that you can ensure nondiscrimination. And then once you write all these rules, you have to have a means to enforce them in a meaningful way. I have been there. I have been there on the telephone side and it is more than a notion. So, if we have the hope of facilitating a market-based solution here, we should do it, because the alternative is to go to the telephone world, a world that we are trying to deregulate and just pick up this whole morass of regulation and dump it wholesale on the cable pipe. That is not good for America."
The FCC refused to impose an open access mandate for cable under Bill Kennard's leadership and it has continued that deregulatory policy since. In response, the cable industry has invested $130 billion since passage of the 1996 Act to build out an increasingly high-speed two-way interactive broadband networks that incorporates fiber technology.
The same story is true with respect to telephone company-provided broadband as well. Since the FCC in 2004 abandoned the forced sharing regime that prevailed in the narrowband telephone world, capital investment in new broadband facilities has exploded. For example, by the end of 2010 Verizon will have spent over $20 billion alone building out its high-bandwidth FiOS service. AT&T has invested billions in building out its own broadband network infrastructure. In 2008 alone, AT&T says it invested approximately $20 billion in its wireline and wireless infrastructures.
For many years, most recently here, I have said that the call for net neutrality and open access mandates represents a call for imposition on broadband providers of the same kind of common carrier regulation that prevailed in the 20th Century's narrowband world. Mr. Turner's paper unabashedly advocates imposition of such a broadband common carrier regime.
Pervading the Free Press paper is the idea that the policymakers and regulators can establish and enforce a mandatory sharing and unbundling public utility regime to manage competition in a way that might allow the counting of new "competitors" a la the supposed 6000 ISPs that existed in 2000. In today's fast-changing technological and marketplace environment, the policymakers and regulators can't manage competition in a way that will lead to as much investment, innovation, and increased consumer welfare as the marketplace will provide. And they shouldn't try.
But the most important reason is that Mr. Turner's 123-page report is deeply flawed. I anticipate that over the course of the next few weeks I will have something more to say about Mr. Turner's paper. Here I just want to identify a few statements that appear in the paper's introduction that are symptomatic of its flaws.
The whole premise of the report is that the deregulation of broadband Internet services – in many instances, in reality what has happened is not deregulation but relaxed regulation – that occurred during the Bush Administration years has led to the demise of "competition," competition that Mr. Turner says emerged and existed after the passage of the 1996 Telecommunications Act. So, for example, the report states that before deregulation "the average American consumer had access to more than a dozen ISPs." Indeed, the report cites as evidence of Internet service provider competition the claimed existence of 6000 ISPs in 2000. Accepting the validity of these figures here for the sake of argument, they indicate the very problematic nature of the vision which animates the entire report.
There is no doubt that these narrowband "competitors" were not facilities-based providers, but rather resellers of services that existed at the sufferance of the FCC price regulation of the providers that actually invested in the construction of facilities. The "dozen ISPs" to which the average American consumer presumably had access, and the 6000 ISPs writ large, had no incentive to invest in new facilities that would offer higher speeds or innovative applications and services. And they did not do so. That is why their services generally were referred to as "plain vanilla" ISP services.
The report bemoans the demise of forced line-sharing and mandated sharing requirements upon which the business models of the resale ISPs were based. The notion that these resellers were real competitors or provided any meaningful competition – the idea upon which so much of the report is premised -- is just wrong. Only competition among facilities-based providers has provided benefits to consumers that are sustainable over time.
After lauding the now largely abandoned forced unbundling and mandatory sharing regimes to which Mr. Turner seeks to return, this statement follows not much further along: "Before broadband, carriers were able to earn perhaps $20 per customer each month selling phone service. In today's converged world, a carrier can earn well over $100 on that same line by offering phone, TV and Internet services."
This should be an "Aha" moment as in: How did we as a nation get from a "before broadband" world to today's broadband world in which broadband is available to over 90% of the country's population at increasingly faster speeds and offers telephone, TV, and Internet over the same line? Answer: Massive capital investment.
And the bulk – not all, but the bulk -- of the investment occurred under a regime in which broadband facilities were not subject to the type of forced sharing regulations to which Free Press seeks to return. Recall that in the late 90s there was a strong push to subject the emerging cable broadband services to an "open access" forced sharing regime. Here is what William Kennard, President Clinton's FCC Chairman, had to say in September 1999 in rejecting the same proposals that Free Press now advocates:
"It is easy to say that government should write a regulation, to say that as a broad statement of principle that a cable operator shall not discriminate against unaffiliated Internet service providers on the cable platform. It is quite another thing to write that rule, to make it real and then to enforce it. You have to define what discrimination means. You have to define the terms and conditions of access. You have issues of pricing that inevitably get drawn into these issues of nondiscrimination. You have to coalesce around a pricing model that makes sense so that you can ensure nondiscrimination. And then once you write all these rules, you have to have a means to enforce them in a meaningful way. I have been there. I have been there on the telephone side and it is more than a notion. So, if we have the hope of facilitating a market-based solution here, we should do it, because the alternative is to go to the telephone world, a world that we are trying to deregulate and just pick up this whole morass of regulation and dump it wholesale on the cable pipe. That is not good for America."
The FCC refused to impose an open access mandate for cable under Bill Kennard's leadership and it has continued that deregulatory policy since. In response, the cable industry has invested $130 billion since passage of the 1996 Act to build out an increasingly high-speed two-way interactive broadband networks that incorporates fiber technology.
The same story is true with respect to telephone company-provided broadband as well. Since the FCC in 2004 abandoned the forced sharing regime that prevailed in the narrowband telephone world, capital investment in new broadband facilities has exploded. For example, by the end of 2010 Verizon will have spent over $20 billion alone building out its high-bandwidth FiOS service. AT&T has invested billions in building out its own broadband network infrastructure. In 2008 alone, AT&T says it invested approximately $20 billion in its wireline and wireless infrastructures.
For many years, most recently here, I have said that the call for net neutrality and open access mandates represents a call for imposition on broadband providers of the same kind of common carrier regulation that prevailed in the 20th Century's narrowband world. Mr. Turner's paper unabashedly advocates imposition of such a broadband common carrier regime.
Pervading the Free Press paper is the idea that the policymakers and regulators can establish and enforce a mandatory sharing and unbundling public utility regime to manage competition in a way that might allow the counting of new "competitors" a la the supposed 6000 ISPs that existed in 2000. In today's fast-changing technological and marketplace environment, the policymakers and regulators can't manage competition in a way that will lead to as much investment, innovation, and increased consumer welfare as the marketplace will provide. And they shouldn't try.
Friday, May 01, 2009
A "Media Concentration" Retrospective
Even though it has been a long time coming, yesterday marked the first explicit acknowledgement that Time Warner is seriously considering spinning off AOL nearly ten years after the initial merger occurred between the two. When the merger was announced back in January 2000, some thought that the combination of the United State's top Internet service provider and the world's top media conglomerate would create a "digital media powerhouse." AOL hoped to profit by providing Time Warner's large amount of content to its then fast growing subscriber base. At the same time, Time Warner hoped to use AOL as an entry point to the Internet services business, after several failed attempts on its own to do so.
Numerous "consumer and public interest" groups claimed that the merger would create a dominating entity in both the Internet services and the then emerging interactive TV markets. A Consumers Union representative claimed that the consolidated company "would be in a position to thwart competition in many markets across the country." A Media Access Project representative stated that "the sheer size of these two companies' assets and their inadequate commitment to open access fall short of what the public interest requires and the law permits." A representative of the Consumer Federation of America worried that by "[c]ontrolling both content and distribution, the company [could] design interfaces that capture and lock in custom ers, while they lock out competitors, except on terms and conditions that are set by the entity controlling the choke point." A Center for Media Education official noted that companies that "control both conduit and content… wield tremendous power in the marketplace of ideas" and possess "the ability to shape the future of the Internet and other digital media."
These groups filed a petition to deny this merger to the FCC, which described the "dangerous new dimension" being added to "the emerging structure of the cable TV/broadband Internet industry… by extend[ing] the reach of two huge, vertically integrated firms across the cable TV, broadband Internet and narrowband Internets." Among the "findings" cited in the petition: "The merger would allow two enormous firms to dominate the markets for broadband and narrowband Internet services, cable television, and other entertainment services, which could leave consumers with higher prices, fewer choices, and the stifling of free expression on the Internet." And the petition claimed that this "media giant" would "be able to quickly capture the new product market for interactive TV."
Clearly, the merged AOL-Time Warner failed to dominate either of these industries. Instead, the deal has resulted in the loss of more than $100 billion of shareholder value.
It is often interesting, and ought to be instructive, to look back at the hyperbolic statements made by those groups who routinely oppose these media mergers (also see my blog on the Sirius-XM merger) to see whether their concerns ultimately proved valid. They certainly did not with respect to the AOL-Time Warner merger. Wouldn't it be nice if these groups acknowledged that the marketplace, especially when it involves the quickly-shifting Internet and media sectors, has a mind of its own that is responsive to consumer demands and not government-dictated outcomes?
Maryland Officials Act Like They Own the Preakness
Many Kentuckians watching Saturday's fabled run for the roses at Churchill Downs in Louisville probably feel they "own" the great race, the way some New Yorkers feel they "own" Macy's Thanksgiving Day Parade in New York or Indianapolis residents claim the "500."
Of course, these are matters of the heart and culture, not expressions of private property rights. Fans don't own these privately sponsored events no matter how much they are attached to them.
The same is true of the Preakness Stakes two weeks from now. It was named by a Maryland governor, has always been run at Pimlico, and is one of the state's largest public events, even though it is marred by massive drunkenness, lewdness and occasional violence.
Yet in April the legislature passed and the governor signed emergency legislation that will purportedly give the state the power to acquire through eminent domain the Preakness from the Maryland Jockey Club and its bankrupt corporate owner, Magna Entertainment.
The state understandably wants to keep the race, a guaranteed source of both gambling and tourism revenues, and favorable national publicity every year. In fact, according to the company and state analysts, without the Preakness the horse racing industry would be dead in Maryland. On that single day, the owners make up for the losses on the rest of the racing days at both its tracks.
It would be like the city of New York taking over the Thanksgiving Parade and Macy's holiday revenues as well.
Lawyers disagree as to whether the state has any legal right to pre-empt the U.S. bankruptcy court in Delaware overseeing Magna's Chapter 11 filings involving assets across the country. Maryland has already asked that judge to enforce an earlier law saying Maryland has the right of first refusal on any sale of the Preakness. I'm no lawyer, but "the right of first refusal" is generally viewed as a "contractual" right voluntarily agreed to by two parties, not an obligation imposed by the state.
Some believe the bankruptcy judge will take the same view, and hence the need for a bigger club to keep the Preakness in Maryland. In addition to the Preakness itself, the state said its sovereign powers allowed it to seize all of Magna's real estate or personal property, plus any "intangible private property, including any contractual interests or intellectual property," such as copyrights, trademarks and logos.
A power once intended to allow the state to take land from a recalcitrant owner to build a highway or a school has been transformed into a gun to take over what the legislation calls "a sporting event of historical and cultural importance to the State of Maryland that … has significant, positive economic development impact" for the state and the horse racing industry, "preserving the state's stature and quality of life."
Thank you, Magna and Maryland Jockey Club, for hosting such a nice event that produces a lot of money and prestige, but you can't take it away. It's too important for us.
Many people who opposed these broad confiscation powers raised the specter of the Supreme Court's Kelo v. City of New London decision four years ago. Unfortunately, those issues were decided by Maryland's highest court took Kelo's approach sanctioning broad eminent domain authority decades ago.
The Maryland Constitution says the "General Assembly shall enact no law authorizing private property to be taken for public use without just compensation." But "public use" has been broadly interpreted by Maryland judges to include the vaguer "public benefit" or "public purpose." And a 1975 Court of Appeals case specifically found that a county could take a property solely for "enhancing economic growth."
That may be Maryland case law, now sanctioned by the U.S. Supreme Court. But how does that extend to an event that state has regulated and supervised but never owned or operated? And then extend the "taking" beyond the event to all the intangible and intellectual property associated with it? And what might be "just compensation" for a piece of private property with its market value undermined by the state's threat to confiscate it?
There are enough legal issues to have lawyers all over this case like flies. But the state's intervention into the market for these scarce goods under the an "emergency measure … necessary for the immediate preservation of the public health and safety" doesn't give much reassurance to other holders of valuable private property to which the public has grown fondly attached. What if the Baltimore Orioles or Ravens attempted to leave the city, much as the Redskins flew off to nearby Maryland?
Let's try to keep the Preakness and horse racing alive in Maryland, but lets do the same for private property rights.
Of course, these are matters of the heart and culture, not expressions of private property rights. Fans don't own these privately sponsored events no matter how much they are attached to them.
The same is true of the Preakness Stakes two weeks from now. It was named by a Maryland governor, has always been run at Pimlico, and is one of the state's largest public events, even though it is marred by massive drunkenness, lewdness and occasional violence.
Yet in April the legislature passed and the governor signed emergency legislation that will purportedly give the state the power to acquire through eminent domain the Preakness from the Maryland Jockey Club and its bankrupt corporate owner, Magna Entertainment.
The state understandably wants to keep the race, a guaranteed source of both gambling and tourism revenues, and favorable national publicity every year. In fact, according to the company and state analysts, without the Preakness the horse racing industry would be dead in Maryland. On that single day, the owners make up for the losses on the rest of the racing days at both its tracks.
It would be like the city of New York taking over the Thanksgiving Parade and Macy's holiday revenues as well.
Lawyers disagree as to whether the state has any legal right to pre-empt the U.S. bankruptcy court in Delaware overseeing Magna's Chapter 11 filings involving assets across the country. Maryland has already asked that judge to enforce an earlier law saying Maryland has the right of first refusal on any sale of the Preakness. I'm no lawyer, but "the right of first refusal" is generally viewed as a "contractual" right voluntarily agreed to by two parties, not an obligation imposed by the state.
Some believe the bankruptcy judge will take the same view, and hence the need for a bigger club to keep the Preakness in Maryland. In addition to the Preakness itself, the state said its sovereign powers allowed it to seize all of Magna's real estate or personal property, plus any "intangible private property, including any contractual interests or intellectual property," such as copyrights, trademarks and logos.
A power once intended to allow the state to take land from a recalcitrant owner to build a highway or a school has been transformed into a gun to take over what the legislation calls "a sporting event of historical and cultural importance to the State of Maryland that … has significant, positive economic development impact" for the state and the horse racing industry, "preserving the state's stature and quality of life."
Thank you, Magna and Maryland Jockey Club, for hosting such a nice event that produces a lot of money and prestige, but you can't take it away. It's too important for us.
Many people who opposed these broad confiscation powers raised the specter of the Supreme Court's Kelo v. City of New London decision four years ago. Unfortunately, those issues were decided by Maryland's highest court took Kelo's approach sanctioning broad eminent domain authority decades ago.
The Maryland Constitution says the "General Assembly shall enact no law authorizing private property to be taken for public use without just compensation." But "public use" has been broadly interpreted by Maryland judges to include the vaguer "public benefit" or "public purpose." And a 1975 Court of Appeals case specifically found that a county could take a property solely for "enhancing economic growth."
That may be Maryland case law, now sanctioned by the U.S. Supreme Court. But how does that extend to an event that state has regulated and supervised but never owned or operated? And then extend the "taking" beyond the event to all the intangible and intellectual property associated with it? And what might be "just compensation" for a piece of private property with its market value undermined by the state's threat to confiscate it?
There are enough legal issues to have lawyers all over this case like flies. But the state's intervention into the market for these scarce goods under the an "emergency measure … necessary for the immediate preservation of the public health and safety" doesn't give much reassurance to other holders of valuable private property to which the public has grown fondly attached. What if the Baltimore Orioles or Ravens attempted to leave the city, much as the Redskins flew off to nearby Maryland?
Let's try to keep the Preakness and horse racing alive in Maryland, but lets do the same for private property rights.
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