"Reassessing the State and Local Government Toolkit" will be held at the Law School on June 18–20, 2009. This conference is being organized by Richard Epstein, Lee Fennell, and Julie Roin and is jointly sponsored by the University of Chicago Law School John M. Olin Program in Law and Economics and the University of Chicago Law Review.

The conference will focus on the legal, political and economic implications of various techniques that are (or that might be) used by states and localities to achieve economic and social ends.  Participants will address questions arising in contexts ranging from economic development to education to land use to housing policy.  Conference papers will be published in a symposium issue of the University of Chicago Law Review.

Participants include:

• Vicki L. Been, NYU School of Law
• Christopher R. Berry, The Harris School, University of Chicago
• Richard Briffault, Columbia Law School
• David A. Dana, Northwestern University School of Law
• William A. Fischel, Dartmouth College
• Nicole Garnett, Notre Dame Law School
• Jacob Gersen, University of Chicago Law School
• Clayton Gillette, NYU School of Law
• Roderick M. Hills, Jr., NYU School of Law
• Thomas W. Merrill, Yale Law School
• Richard C. Schragger, University of Virginia School of Law
• Christopher Serkin, Brooklyn Law School

Schedule

Friday, June 19

8:00–8:30 Continental Breakfast

8:30–8:45 Welcome/ Introduction

8:45–9:35 Neither "Creatures of the State" nor "Accidents of Geography": The Consolidation of American Public School Districts in the Twentieth Century
William A. Fischel

9:35–10:25 Affordable Private Education and the Middle Class City
Nicole Garnett

10:25–10:40 Break

10:40–11:30 The Past and Future of Local Industrial Policy
Richard C. Schragger

11:30–12:20 Henry George’s Revenge: The Steep Costs of Using Non-Cumulative Zoning to Preserve Land for Urban Manufacturing
Roderick Hills

12:20–2:00 Lunch

2:00–2:50 Entrenching Environmentalism: Private Conservation Easements Over Public Land
Christopher Serkin

2:50–3:40 Community Benefit Agreements: A New Local Government Tool or Another Variation on the Exactions Theme?
Vicki Been

3:40–3:55 Break

3:55–4:45 The Timing of Elections
Christopher R. Berry and Jacob E. Gersen

4:45–5:35 Controlling Residential Stakes
Lee Anne Fennell and Julie Roin

Saturday, June 20

8:30–8:45 Continental Breakfast

8:45–9:35 Who Should Authorize a Commuter Tax?
Clayton Gillette

9:35–10:25 How to Undermine Tax Increment Financing: The Lessons of ProLogis v. City of Chicago
Richard A. Epstein

10:25–10:40 Break

10:40–11:30 Overcoming Local Tragic Choices by Voting
Thomas Merrill

11:30–12:20 The Most Popular Tool: Tax Increment Financing and Local Government
Richard Briffault

12:20 Box Lunch

Abstracts

Community Benefit Agreements: A New Local Government Tool or Another Variation on the Exactions Theme?
Vicki Been
    A community benefits agreement ("CBA") results from negotiations between a developer proposing a particular land use and a coalition of community organizations that claims to represent the individuals and groups affected by the proposed development (or seeks to do so). In a typical CBA, community members agree to support the developer’s proposed project, or at least promise not to oppose the project or to invoke procedural devices or legal challenges that might delay or derail the project. In return, the developer agrees to provide to the community such benefits as assurances of local jobs, affordable housing and environmental improvements.
    CBAs are a relatively recent phenomenon across the United States, although they grow out of a long history of negotiations among developers, land use authorities and public officials, and the affected community and/or various stakeholder groups (such as environmental groups or organized labor) over development proposals that require governmental approval. The first major CBA, the Los Angeles Staples agreement, was signed in 2001. Since then, at scores of CBAs have been negotiated across the country.
    Given the rising popularity of CBAs, it is important to evaluate the benefits and drawbacks of these agreements in light of both the experience of parties who have entered into CBAs (albeit limited) and more theoretical concerns about the impact that CBAs may have on the processes of land use regulation and real estate development. Those theoretical concerns are grounded in a long history of efforts by communities, developers, and local governments to find flexible ways to address neighbors’ concerns about development proposals. Conditional rezonings, development agreements, negotiated exactions, conditional negative declarations in environmental impact review, and compensated siting agreements between industries needing to develop locally undesirable land uses ("LULUs") and host communities have been used for decades. The debates about, and experiences under, such progenitors of CBAs offer important insights into the possible advantages and disadvantages of CBAs.
    This essay begins by briefly summarizing the structure, history, and political and legal context of CBAs. Part II evaluates the benefits and drawbacks various stakeholders perceive CBAs to offer or threaten. Part III surveys some of the thorny legal and policy questions presented by CBAs. Part IV argues that local governments should avoid the use of CBAs in the land use process, and should recognize CBAs in economic development processes that will be intertwined with land use approvals only after adopting various constraints designed to ensure their transparency, representativeness, consistency with the local government’s jurisdiction-wide priorities, and enforceability.

 The Timing of Elections 
Christopher R. Berry and Jacob E. Gersen 
The timing of local government elections varies enormously in the United States. Many local political institutions hold elections simultaneously with other local, state, or federal elections. Others, however, do not coordinate at all or take steps to ensure that elections are held at different times. Citizens in some localities face the specter of local government elections in eleven months of the year and the legal regimes regulating electoral timing are no less varied. This essay argues that electoral timing is consequential for democratic theory and practice. Empirically, we shows that off-cycle elections—elections occurring at odd times during the year or during years in which there is no major state or federal election—produce systematically lower turnout. This reduction in turnout is unlikely to be randomly distributed across the pool of potential voters, as the essay illustrates with a simple formal model. Because off-cycle elections increase the costs of political participation, voters with more at stake will tend to participate in off-cycle elections, while those with less at stake will not. Put differently, the timing of elections can produce selective participation that drives the influence of special interests on electoral outcomes. To evaluate this theory, we analyze the impact of electoral timing on substantive policy outcomes. By virtue of a 1980s change in the California Election Code, school boards were given the option of changing their elections from off-cycle to on cycle. Consistent with the selective participation effect, special interests are less well off in on-cycle election districts. Turnout is systematically lower and teacher salaries are systematically higher when school district elections are held off-cycle. Against this backdrop, we consider alternative legal regimes for regulating the timing of local government elections.

The Most Popular Tool: Tax Increment Financing and Local Government
Richard Briffault
Tax increment financing (TIF) is both the most widely used and the most controversial local government program for financing economic development in the United States. Although TIF’s role in financing Kelo-style takings has gotten the most attention, most TIF plans do not involve eminent domain, and most of the legal and political battles over TIF have had little to do with takings. This paper considers why TIF has become so widespread and what the debate about TIF tells us about the state of American local government.  TIF succeeds – in the sense of its ubiquitous adoption and use – because it maps precisely on to the principal features of contemporary local government. So, too, TIF is controversial because it exacerbates some of the basic tensions in our local government structure and policies. The paper explores four key features of TIF that resonate closely with out local government system – decentralization, the fiscalization of local policy, interlocal conflict, and entrepreneurial development policies. It suggests that major changes that would restrict TIF are unlikely unless the local government setting to which TIF is so well adapted changes as well.

The Foreclosure Crisis and the Anti-Fragmentation Principle in State Property Law
David Dana 
We are in the midst of a massive foreclosure crisis that has its roots, in part, in the over-fragmentation of property. Secured credit in homes has been divided and over-divided and spun into so many separate interests that economically rational, socially beneficial modifications of loans are impossible. The mortgage story is a new one but the excessive fragmentation of property and the creation of waste and inefficiency is not new. Our legal tradition has an answer, in the form of an anti-fragmentation principle, which is implicit in our estate law doctrines and in state oil and gas unitization statutes. Consistent with this principle, federal government trustees should be authorized to review troubled mortgages and, where modification would yield greater total return than foreclosure, modify the loans. Blind trustee review can be achieved without formal condemnations of property interests or the creation of government liability for regulatory takings.

How to Undermine Tax Increment Financing: The Lessons of ProLogis v. City of Chicago
Richard A. Epstein
The purpose of my paper is to examine the level of constitutional protection that is afforded to the complex set of rights that local governments offer to outside lenders who finance public improvements in tax increment finance districts. The standard devices do not  provide traditional liens against any particular asset because to do so would be to abandon the tax exempt status of the municipal bonds  that are issued. Yet at the same token they do provide extensive protections against the local governments that insure that these obligations will be repaid in all events, which allow these bonds to  trade in ordinary markets. And local governments normally covenant  to pay these bonds in the event that they no longer continue to use the public improvements in question. The bonds may, however, be  vulnerable to loss when local public improvements are subject to condemnation by governments that operate outside their home territory, as proved the case in Chicago v. Prologis, now before the  Illinois Supreme Court. My purpose is to defend the proposition that these complex interests should be treated as property under the takings clause and not simply as a mere expectation devoid of constitutional protection. The examination of this topic opens the way for a larger consideration of the difficult question of valuation under the takings clause, and how property should be understood under  the takings clause in light of the powerful public choice considerations that tend to reduce or eliminate its protection.

Controlling Residential Stakes
Lee Anne Fennell and Julie Roin
The paper examines whether, how, and why local governments might get involved in regulating or shaping the financial stakes that residents have in their homes.  The idea that residents can have too small a stake has been brought home by rashes of foreclosures and abandonments, and also relates to longstanding questions about the effects of renters and owner-occupants, respectively, on a community. However, recent scholarship has also pointed out problems that arise when residents have too great a financial stake in their homes (e.g., the NIMBYism of Fischel's homevoters).  The question is whether local governments can identify a more desirable intermediate position and help members of their communities move towards it. Local governments might regulate problematic forms of stakeholding, or affirmatively foster intermediate stakeholding arrangements (whether through limited equity homeownership arrangements or revised leasehold forms).  More radically, local governments might experiment with regionalism carried out through shared equity arrangements in which local homeowners hold stakes in the housing markets of surrounding localities.

Neither "Creatures of the State" nor "Accidents of Geography": The Consolidation of American Public School Districts in the Twentieth Century
William A. Fischel
American public school districts numbered more than 200,000 in 1910. By 1970 there were fewer than 20,000. The decline was almost entirely accounted for by the consolidation of one-room, rural schools, into larger school districts. Education leaders had long urged districts to consolidate, and the record of their efforts leaves the widely-accepted impression that the state government caused the consolidation. My story is that consolidation was demand driven. Local residents had to approve consolidation. They voted to do so, I argue, only after high-school education became widespread. Graduates of one-room schools found it difficult to get into high school. Rural districts that were not "making the grade" were unattractive to home and farm buyers, and the threat of reduced property values induced voters to agree to consolidate. 

Affordable Private Education and the Middle Class City
Nicole Garnett
Although central-city fortunes improved during the last decade-and-a-half, most large urban centers continue to lose families with children, especially middle-class families. These losses are troubling because there are reasons to believe that middle-class families are a cornerstone of urban health—especially the undisputed connection between residential tenure, homeownership, and social capital. This Essay focuses on the centrality of quality educational options—including affordable private schools—to the goals of building and sustaining a middle-class city. Without question, public-school quality strongly influences parents’ residential decisions: Not only do concerns about urban public schools draw many families to the suburbs, but many parents who choose urban life also choose to invest in private education for their children. Private schools, however, are not an option for many middle-class families: The average tuition at a non-religious private high school in the U.S. is $17,413, more than one-third of the median household income. In light of this financial reality, this Essay suggests that—along with emphasizing public-school reforms, including charter and magnet schools—state and local governments should consider using tax policy to help make private schools accessible to those of modest means. Specifically, the Essay suggests that programs granting tax credits for donations to nonprofit scholarship organizations, which are already in place in several states, can be used to unbundle residential and educational decisions by increasing both the affordability and diversity of educational options available to middle-class parents.

Who Should Authorize a Commuter Tax?
Clayton P. Gillette
A few cities around the United States impose a commuter tax—a tax on income earned within the city by nonresidents. Perhaps more cities would do so if they had the requisite legal authority. But cities are creatures of the states of which they are political subdivisions and legal doctrine requires that they receive either state legislative or constitutional approval before exercising authority. States have jealously guarded their prerogatives over the taxing power. Even many states that grant constitutional home rule to their cities except the taxing power from those grants. Perhaps there is nothing surprising about this state of affairs with respect to commuter taxes. After all, the natural stopping point for the exercise of unrestricted local authority is legislation that imposes significant externalities. Since, by definition, the commuter tax falls on nonresidents, the predicate of external effects appears to be satisfied. Nevertheless, in this Article I argue that, as a general principle, the decision to tax should be allocated to that level of government that is best positioned to balance the social costs and benefits of the proposed exaction. Perhaps more controversially, I then argue that it is the city that imposes the tax rather than the state that traditionally authorizes it that occupies that position. Thus, I will tentatively conclude that cities should be entitled to authorize the imposition of a commuter tax without prior state authorization.

Henry George’s Revenge: The Steep Costs of Using Non-Cumulative Zoning to Preserve Land for Urban Manufacturing
Roderick Hills
Since 1961, New York City has used non-cumulative zones to reserve land exclusively for manufacturing.  Other cities have followed suit:  Chicago, for instance, uses "planned manufacturing districts" to retain industry in the Clybourn, Goose Island, and Elston corridors.  All such non-cumulative zones serve the purpose of preventing developers of residential users from competing against manufacturers for urban land on the theory that the former will often outbid the latter when high-end urban housing is more profitable than industrial uses.  Advocates of non-cumulative zones argue that the high-wage jobs of manufacturing enterprises ought not to be crowded out of the city by more profitable residential uses. 
      This essay examines whether such a zoning strategy is a sensible way to retain manufacturing within the city.  The essay assumes that cities might properly want to subsidize urban manufacturing under certain circumstances – for instance, to protect low-income neighborhoods from welfare losses or promote certain agglomeration spillover benefits from concentrating different industries within a single municipality.  Are non-cumulative zones a good way to accomplish this goal compared to tax subsidies or direct budget outlays?   
      The essay argues that non-cumulative zones are a particularly inefficient way of inducing manufacturing enterprises to stay within the city for three reasons.  First, such zones typically do not require any industrial activity level as a condition for zoning protection.  Therefore, non-cumulative zones can lead to under-utilized land – e.g., abandoned or under-occupied warehouses – that neither supply jobs nor agglomeration economies to the city, at the cost of tax base and housing opportunities.  Second, non-cumulative zones are inalienable entitlements that manufacturers cannot forego.  Therefore, they have the potential to inflict higher deadweight loss than tax subsidies or direct budget outlays whenever the spread between the price of residential and industrial uses of land exceeds the value of the manufacturing enterprise to the city.  Third, the subsidy delivered to manufacturers by non-cumulative zones is not very visible to the public, making this mechanism prone to abuse by small groups of developers, unions, or manufacturers even when the benefits of the proposed or existing manufacturing uses to the city as a whole are dubious.  Well-connected developers, for instance, can use such zones to exclude competition for buildable residential land, massaging their connections to re-zone the land while insuring that rival builders do not have access to developable urban land.   
      Rather than being a sensible means for subsidizing industry, this essay suggests that non-cumulative zones might better serve the function of allowing the city to capture rents resulting from the conversion of land from low-value industrial uses to higher-value residential uses.  Taxing away this extra value might raise revenue for a wide variety of purposes (including subsidies for industries with spillover benefits) with minimal excess burden.  In order for non-cumulative zones to serve this purpose, however, the city needs a visible and expeditious way to re-zone the land without (a)  leaving too much money on the table for the developer or (b) leaving land in an over-regulated state for too long a period of time because of neighborhood opposition to conversion.  My tentative normative proposal is that up-zoned land be subject to a special "Georgist" windfall tax (basically, a higher rate on the extra increment of value to the lot from the upzoning) and that the revenue from this tax be used for industrial retention (or whatever -- affordable housing, etc) to buy off neighborhood, manufacturer, or union opposition to the re-zoning.

Overcoming Local Tragic Choices by Voting
Thomas W. Merrill
Disputes about the provision of local public goods have often been resolved by voting among affected property owners. Special assessment districts, local zoning referenda, and business improvement districts are examples. In this paper, I consider whether voting by property owners can be used to resolve certain local disputes that entail "tragic choices," by which I mean decisions that entail tradeoffs between incommensurate values and hence have no demonstrably right answer. The central case I have in mind is a dispute over whether to use eminent domain to facilitate local economic development – an issue that has elicited intense controversy and has produced disparate results when considered by courts, legislatures, and in state-wide voter initiatives. 
   To anchor the discussion, I describe a recent episode in which voting by property owners was used to resolve a neighborhood controversy in New Haven Connecticut. The question was whether the Saint Ronan/Edgehill area, a residential neighborhood consisting of some 250 properties, would be declared an historic preservation district. The issue involve a tragic choice as I define the term: proponents of the measure cited concerns about tear downs and institutional encroachment into the neighborhood; opponents invoked homeowner autonomy and the costs of bureaucratic oversight. A study report was prepared, public meetings held, and neighbors engaged in door-to-door lobbying on behalf of competing positions. Pursuant to local law, the matter was put to a vote by secret ballot, with a two-thirds majority of homes required for approval. A majority voted against the proposal – a result that was apparently regarded as legitimate by all.
   There are a number of features of the Saint Ronan/Edgehill dispute which may make it difficult to replicate in other contexts. The neighborhood is demographically homogenous, the residents are highly educated, many are otherwise active in civic affairs, and turnover is low. I contend, however, that three structural features of the dispute were critical in making voting the appropriate decisional tool for resolving a dispute with no demonstrably correct answer. First, both the costs and the benefits of the proposed historic preservation district would have been borne by the homeowners, with few external effects. Second, the dispute entailed uniform high stakes; every homeowner would be affected in roughly equal measure, and the effect was likely to be significant. Third, there were no informational distortions in the form of advertising or lobbying by interest groups outside the community. Given these features, resolving the dispute by voting among affected owners was probably better than any other decisional tool that can be imagined.
   Whether the Saint Ronan/Edgehill voting model can be extended to other local tragic choices like economic development takings is uncertain. Economic development takings, like historic preservation, generate controversy over predictive judgments and valuations of outcomes as to which there are no clearly right answers, and in that sense there is a direct parallel. The structural features contain similarities and differences. On the one hand, economic development takings, like historic preservation, generate benefits and costs that are largely internal to the locality where the takings occur. Similarly, it is unlikely that interest groups outside the community will be motivated in the ordinary case to attempt to distort the flow of information about the issue. On the other hand, economic development takings, unlike historic preservation, do not impose uniform high stakes on all affected property owners. Some owners – those whose property is taken – are presumably net losers, whereas as other property owners – those whose property is untouched – are presumably net winners (assuming the economic development project succeeds). 
   Nevertheless, I argue that if certain conditions are met – such as requiring that the funds to compensate the owners whose property is taken be raised from taxes imposed on those whose property in untouched – it may be appropriate to resolve disputes over local economic development takings by voting among affected property owners. Given the failure of courts, legislatures, and voter initiatives to reach consistent judgments about the propriety of economic development takings, allowing such tragic choices to be resolved by local voting would seem to be an appropriate subject for experimentation.

The Past and Future of Local Industrial Policy
Richard C. Schragger
Scholars of local government tend to assume that policy-makers can exert some influence over city well-being. More specifically, the literature assumes that government policies—either at the federal, state, or local level—can influence local economic growth and decline, the most important determinant of a city’s health. This connection between policy and local economic outcomes implies a theory of how cities form and grow, however, and legal scholars have not adequately articulated such a theory. Without an account of how cities develop, we are left to assume that generally good policies will induce growth in the economy and generally bad policies will induce decline. But this is an assumption. If cities do not have much control over their economies than government policy is not particularly relevant to urban outcomes.

This Essay first argues that we need a better (and more self-conscious) account of city formation and local economic growth. The Essay then tests our intuitions about the relationship between policy and economic development by considering a number of explanations for why cities have resurged over the last fifteen to twenty years. Finally, the Essay contrasts two economic development policies that have been adopted in New York City—one that preceded the current financial crisis and one that followed it. The first policy involved location subsidies for a large financial services employer. The second policy involves retraining financial service workers and subsidizing small, start-up ventures. Whether either approach works depends significantly on one’s theory about how city economic development happens. I contend that we do not know enough to be able to predict how one policy or another will affect city growth and decline.

Entrenching Environmentalism: Private Conservation Easements Over Public Land
Christopher Serkin
Anti-entrenchment rules generally prevent local governments from making enforceable precommitments around land use policy. A local government cannot pass an unrepealable zoning ordinance, for example. Nevertheless, driven by local demand, local governments have found various ways around this prohibition by relying on private law mechanisms to create obligations binding in the future. This Essay examines conservation easements as one such tool. In particular, the Essay focuses on an example from Vermont in which a town is in the process of conveying conservation easements over property it owns to a private conservation group. This mechanism functions like an unrepealable ordinance that prohibits the property from being developed, limited only by the government’s ability to condemn the easements back. The Essay examines the benefits and potential costs of precommitting to conservation in this way, including the substantial risks of political malfunction. It then canvasses other forms of private law precommitments -- entering contracts, conveying property, issuing debt -- and finds protections built into each of these that either limit governments’ power to use them in the first place, or create safety valves to release governments later on. The Essay ultimately argues for similar protection from conservation easements. When governments take conservation easements over public land through eminent domain, and they should be given the option of paying the fair market value of the easements on the date the easements were created, instead of their market value on the date of the condemnation. This limits the extent of entrenchment to the value of the development rights when the conservation easements were conveyed away.