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Category Archives: economic development

Coverdell decision set aside, as Branson Landing case goes back to trial court

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Using the “plain error” doctrine, rarely used in civil cases, the Court of Appeals for the Southern District of Missouri, in Empire District Electric Co. v. Coverdell, reversed and remanded a January 14, 2010 jury verdict that had awarded Douglas Coverdell and Coverdell Enterprises the north third of Branson Landing and adjacent areas. This decision is dated June 3, 2011.

The appellate decision is based on the City of Branson’s argument that the trial court made a serious mistake by allowing the jury to enter a verdict affecting the property interests of the City of Branson (and others) who did not participate in the trial.  The appellate court accepted the City’s argument that “plain error review” would be appropriate, because the court’s error was “so egregious as to ‘weaken the very foundation of the process’ and ‘seriously undermine confidence in the outcome of the case.’ ” Empire’s appellate arguments were not addressed in the decision, according to a footnote, since the court’s acceptance of the City’s arguments was sufficient to warrant reversal.

The City of Branson did not participate in the trial held in January 2010, though the City’s attorney was present in the gallery of the court room for much of the trial. In an earlier phase of the case, which took place in 2004, the City had won its effort of affirm its title to the west portion of the peninsula shared with North Beach Park. Thereafter, the City was in a monitoring mode, not aware that title to the City’s land, leased to Branson Landing, would be the subject of the trial.

The appellate court tied its decision to the words of Coverdell’s attorney, spoken to the jury, who told the jury in the January 2010 trial that the dispute with Empire concerned only the east part of the North Park Beach peninsula. Coverdell’s attorney is also quoted as telling the jury that the City “has nothing to do with this dispute between Empire and [Coverdell and Coverdell Enterprises.]”

However, the judgment that Coverdell’s attorneys submitted to the trial judge after the juy verdict included 27 acres that included the Belk store and parking lot at the between North Beach Park and the Belk store, as well as some of the area south and west of the Belk store. The trial court’s mistake was to cloud the title of the City and others who were did not participate in the 2010 trial. The owners of much of the 27 acres were not parties to the suit, which appears to be the fundamental reason for reversal of the trial court’s judgment. The appellate opinion refers to City’s statement that the City “as well as numerous other third parties, have interests in that southern tract of land such that Branson was aggrieved by the 2010 judgment.”

The appellate decision gives the City and Empire the right to amend their claims and face Coverdell in a new trial.

Can a city’s utility charges be a tax? It’s a tough case to prove.

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The City of Hermann provides water, sewer, natural gas, electricity and trash pickup to its residents, allowing them no choice of providers. When the City jacked up the rates and transferred the “profits” to other City accounts, some residents resented the City’s flexing of its monopoly power. They sued, claiming that the City’s governing board had sidestepped Missouri’s constitutional requirement (Article X, sections 16- 24, known as the Hancock Amendment) that tax increases be approved by voters. The court had to decide whether a utility rate increase was a disguised tax.

Here’s an overview of the Missouri Supreme Court’s 26-page opinion in Arbor Investtment Company LLC v. City of Hermann, released May 31, 2011, in which the court determined that the  City of Hermann’s utility fees were not taxes.

The Five (or Six or Seven) Factors

The Missouri Supreme Court identified five factors in the 1991 case Keller v. Marion County Ambulance District which may be applied to distinguish user fees (not requiring a vote of the people) from a tax (which requires a vote). These factors, the court pointed out, are not exhaustive, but provide a framework for analysis:

  1. When is the fee paid?
  2. Who pays the fee?
  3. Is the amount of the fee affected by the level of the service that it is for?
  4. Is the fee for a good or a service?
  5. Is the good or service one that has been historically provided by the government?

The City of Hermann’s utility charges are paid in response to monthly billing, after the services have been metered. This resembles a user charge, rather than a tax that is paid annually. Of course, it also resembles a sales tax that is paid upon a sale.

The City’s utility charges are assessed only against utility customers, unlike some kinds of taxes, which are charged without reference to who is using government services. For example, sales taxes are charged to non-resident and residents alike.

The amount of the City’s utility charges, at least above minimums and flat charges, is related directly to use, other than for Hermann’s “communications fee,” which is used to support the 911 network.

The City’s utility charges fees are imposed for goods or services, rather than being a general tax to be used however the City government chooses. This factor was not at issue in this challenge, though the plaintiffs claimed that the amount of the fees were in excess of the reasonable capital and operating costs incurred in providing the services.

The Supreme Court found the fifth factor in favor of a finding of a tax, though the City of Hermann has a long history of providing these services in Hermann. The court indicated that the City’s prohibition of any other provider offering these goods and services supports a finding that the utility charges are a tax, without explaining why, other than to state that the lack of alternatives was a part (a sixth factor?) of the analysis. Even so, a finding that the utility charges resembled a tax on this point was not enough to overcome the opposite findings on the other factors.

Borrowing from its opinion in Beatty v. Metropolitan St. Louis Sewer District, the court looked at a sixth factor, whether the payment was enforceable by imposition of a lien on the user’s property or merely by disconnection or discontinuance of the service. Without taking judicial notice of the fact that many if not most private and municipal utilities have the right to impose liens for non-payment of utility charges–in addition to disconnection– the court considered that a tax, such as a property tax, is secured by a lien, while utility providers have the right to disconnect the services to enforce payment.

The court upheld the City of Hermann’s utility rates, stating, “There simply has been no showing that the amount charged is so excessive as to not constitute the provision of a service or good in return for the amount paid.”

Municipal rates are unregulated, but does this lead to excessive rate levels?

We should be concerned with the quality of the facilities for providing our water supply, treatment and management of wastewater and stormwater, and delivery of electricity and telecommunications services. The infrastructure for these essential things was constructed in the 19th and 20th centuries. Repairing, replacing and upgrading them is enormously expensive and in many cases has been deferred.

But private and governmental providers face stiff resistance in raising revenues to confront these challenges. For many private providers, utility commissions determine the extent to which rate increases are allowed. For other providers, such as cooperatives, homeowner associations and local governments, rate increases are within the discretion of elected officials, who have wide discretion and motivations that may extend beyond the provision of utility services.

In my experience, local governments, looking at water and sewer rates, generally look around to neighboring communities and communities of the same size elsewhere in the state, hoping to stay somewhere below the top. While this strategy may be effective for helping elected officials to remain in office, it may not produce sufficient revenue for maintaining utility systems.

 

The Corps of Engineers can only release water, not solve problems

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As a lawyer, I first encountered the economic ruin and heartache from controlled discharge from a Corps’ reservoir about 25 years ago. The Corps had opened the gates at the Keystone reservoir west of Tulsa, filling the entire floodplain from Mannford, through Sand Springs and Tulsa. My client packaged fresh salads in a building on the edge of the floodplain that was not known to have ever flooded.

The Small Business Administration offered disaster loans to businesses, and my client’s only hope for survival was to accept a loan.

Unfortunately, the six-month interruption of my client’s business resulted in a loss of market share and employees. The SBA loan and insurance didn’t cover nearly all the losses. There was no revenue to cover the regular bills due in the weeks after the flood. The business had been marginally profitable, only because it had little debt. The SBA loan required the owner to sign a personal guarantee. The eventual result of the SBA loan was that my client became bankrupt (at age 70), since the business couldn’t generate enough money to service the debt and pay its other expenses.

I could find no legal basis for challenging the Corps’ management of the Keystone dam and the Arkansas River basin. The Corps operates under broad statutory authority that has many competing goals, the least of which seems to be protecting homes and businesses built in floodplains below the dams.

The Corps has no control over rainfall. In responding to rainfall, or lack of it, the Corps must respond to those who have statutory claims on impounded water for drinking, power generation, irrigation, recreation, and maintenance of the depth of water in navigation channels. The Corps is constrained by the design of its dams and the storage capacity of its reservoirs. To meet all its goals, the Corps has only one tool: controlling the rate of release of water.

Even if the Corps didn’t have governmental immunity from liability for many of its actions, persuading a judge or jury that the Corps made bad decisions would be an enormously expensive and difficult task.

The lesson is that the economic benefits and protection provided by federal and state projects are extremely uneven in application. We should make decisions based on our own situations.

If you’re a beneficiary of a specific federal program, you can probably count on whatever protection that offers, but only for now. If we expect federal, state and local governments to protect us from weather, we end up in the situation we’re already in.

Glaize Creek Sewer District blows condemnation case, but gets new chance


At a condemnation trial, Glaize Creek Sewer District (in Jefferson County, Missouri, just south of St. Louis), didn’t put on any admissible evidence of damages to the Gorhams’ property. The Gorhams put on proper evidence of damages, showing that the value of their property after the sewer line was installed declined by $29,000. The Missouri Court of Appeals reversed the jury verdict of zero damages (based on an appraiser‘s unsubstantiated opinion testimony), and sent the case back for a new trial.

Two things are unusual about this case: Read the rest of this entry

Hate unions, but love your occupational license?


The decline of union membership and public support for labor unions has corresponded rather precisely to the rise in the percentage of Americans who hold occupational licenses.

Occupational licensing would not have grown without broad support. Here’s an economist’s explanation of why:

Governmental officials benefit from Read the rest of this entry

What good are economists if we don’t listen to them?


Economists, as a group, have been criticized for not predicting the collapse of the economy in 2007 and 2008, even though there were a few lonely voices. We need to learn to listen to the ones who sometimes tell us what we don’t want to hear.

Here’s Raghu Rajan from his blog, Fault Lines: Read the rest of this entry

Our surprising preferences for distribution of income and wealth


Regardless of political affiliation, Americans are remarkably close in their opinions of how wealth would be ideally distributed, according to economists Dan Ariely of Duke University and Michael I. Norton of Harvard Business School.

The results of their survey of 5,522 Americans randomly selected from one million people in 47 states, indicated that most people overestimate the equality in the distribution of wealth and would prefer an even more equal distribution of wealth. The persons polled were asked to divide the population into five groups (“quintiles”) and to estimate how much of the total wealth each quintile owned (in 2005) and how much each group should own in an ideal world. Amazingly, people in all quintiles believe that the two poorest quintiles should have at least twice as much of the total wealth as they now own.

Arielly’s summary of the findings is in his blog, Irrationally Yours, as presented in this graph:

To move from the reality to the ideal in distribution of wealth requires redistribution of income, which can be accomplished through market forces as well as through taxes on incomes and property. In Missouri, the incomes of the lowest-earning quintile grew at a rate of 10.9% over the period from the late 1980s through the mid-2000s, while the incomes of the highest fifth grew by 35.9%, which probably represents a widening of the disparity in wealth.

Many Americans, if not most Americans, have a visceral objection to federal and state governments taking wealth from one class of citizens and giving it to another class. But those of us in the bottom 80% wouldn’t mind if somehow–without any government action–the invisible hand of the market acted as Robin Hood. And we each have our thoughts about the effect of tax policies as incentives for the rich and the poor.

What is it about our economy and our incredibly complicated tax laws that makes the existing distribution of wealth so different from a distribution that we all agree would be better? When considering whether to accept or reject change, the first step in the analysis has to be a critical look at the status quo.

Growers vs. packers vs. USDA


The disputes between growers (of cattle, hogs and poultry), the small number of purchasers (packers) and the USDA dwarfs the Shirley Sherrod affair in economic importance, especially in the Ozarks.

While the character assassination and redemption of Shirley Sherrod was essentially contrived by and blown up by the media, the real economic tensions between those who raise animals and those who buy them and convert the meat into consumer products has reached a point at which Congress in the 2008 Farm Bill asked the USDA to propose regulations to address several problems.

The problems arise out of the unequal Read the rest of this entry

Branson Landing and the dilemmas of economic development


Cliff Sain’s excellent report on Branson Landing in the July 18 Springfield News-Leader contains statements that illustrate some of the dilemmas faced by developers and local governments when planning a large project.

Branson’s aldermen (none of whom were in office when the Branson Landing project was approved for construction) have chosen to take $1.4 million from the city’s general fund and $1.2 million from the city’s transportation fund Read the rest of this entry

Mid-2010 economic outlook for the Ozarks


On January 3, 2010, I posted a glum summary of published economic reports from Federal Reserve Banks in Kansas City and St. Louis and other sources from the metro areas that surround the Ozarks. My rough guess is that the economic activity in the Ozarks is primarily generated by the surrounding metro areas, which create demand for goods and services produced in the Ozarks, an idea that looks something like: Read the rest of this entry

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