The Right to Full and Fair Compensation: Making Sure Small Business Gets a Fair-Shake

Since the Supreme Court’s infamous decision, in Kelo v. New London, there have been some big eminent domain reforms across the country. That was the decision that allowed government to take private property from ordinary homeowners, and small businesses, for the benefit of large corporate developers. But if there was a silver-lining, Kelo brought a lot of attention to the problem of eminent domain abuse in America. The result is that citizens in some states have succeeded in limiting the government’s power of eminent domain through legislation and the initiative process. For example, last fall Virginians voted to amend their State Constitution to prohibit municipalities from taking private property for the benefit of private corporations.

NFIB Legal Center has been vocal about eminent domain abuse in both the court of law and the court of public opinion. To be sure, we led a coalition of 12 different groups in urging the Supreme Court to reconsider Kelo last year. And we continue to fight eminent domain abuse in other ways—including challenging the authority of state and local government to proceed with eminent domain takings where the authorities have failed to comply with procedural rules that are designed to protect private property owners. But, one of our biggest concerns—in the fight to end eminent domain abuse—is the problem of undervaluation. Accordingly, NFIB Legal Center has launched a special initiative to advocate for rules that ensure small business owners are fully and fairly compensated for their losses when they suffer a taking in eminent domain.

As part of our Just Compensation Project, NFIB Legal Center recently filed in an Ohio case to defend the rights of a small business owner. In that case, the City of Westerville decided to use eminent domain to take a landscaping easement—taking the owner’s right to control landscaping on his property. This was all part of a municipal beautification project. But, in taking this right for itself, the City’s actions caused the remainder of the owner’s property to depreciate in value. This is because the City was taking away the owner’s right to ensure unobstructed views to and from public roads—an especially valuable right for commercial property owners because there is a strong correlation between public visibility and consumer traffic.

But, the City is refusing to compensate the owner for the resulting depreciation, and the City is appealing a lower court’s decision in favor of the landowner. Accordingly, NFIB Legal Center filed an amicus brief arguing that the Constitution requires compensation for depreciation in value to private property when government takes away valuable property rights through eminent domain. We also defended the owner’s right—under the Ohio Constitution—to receive compensation for the taking of his legal right to continue using an existing access point. As we argued, loss of an access point can result in further depreciation to commercial property, even when there are other ways to access the property.

This is just the latest in NFIB Legal Center’s ongoing effort to ensure full and fair valuation in eminent domain cases. You would be amazed at the ingenious—sometimes Orewellian—arguments that governmental lawyers come-up with to justify low-ball compensation awards. But that is all the more reason for us to fight harder. We may have a long-way to go in the fight to end eminent domain abuse in America, but we are not going to give-up. We’re rolling-up our sleeves and ready to defend small business rights from coast-to-coast.

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How the West Was Won: What Does the Brandt Decision Mean for Property Rights?

Brandt Revocable Trust v. United States is a case that any property rights advocate should love—especially if you also happen to be an American history buff. Writing for the majority—which included the entire court, with exception of only Justice Sotomayor—Chief Justice Roberts’s eloquent opinion tells a narrative of the American west: “In the early to mid-19th century, America looked west. The period from the Louisiana Purchase in 1803 to the Gadsen Purchase in 1853 saw the acquisition of the western lands that filled out what is now the contiguous United States.”

Of course key to settlement and development of the west was the emergent railroad system. Though popular sentiment supported the expansion west and the development of railways in that process, the political ethos of the American people would not have supported publicly funded railway projects of the sort we now see in many metropolitan areas. Accordingly, the federal government supported private railroad companies in other ways—first by giving generous land grants, and later giving more limited “right of ways” to the railroads across public lands. So what does all of this 19th Century history have to do with our current fight for property rights in America?

Well, a lot has happened since Congress passed the Railroad Right-of-Way Act of 1875. This was the Act that gave railroads a “right of way” to build and maintain infrastructure across public lands for the purpose of promoting western settlement and development. In 1942 the Supreme Court explained, in Great Northern R. Co. v. United States, that the 1875 Act gave railroad companies only a limited right to use the subject property—i.e. an easement in the land, which would be extinguished if the railroad ever abandoned its railway. That would mean that the owner holding title the land on which the railroad easement once existed would then own the full and complete title to the land. Indeed, the United States argued as much in the Great Northern R. Co.

But, in Brandt —decided yesterday—the United States took the exact opposite position, arguing that the 1875 Act conveyed something other than an easement, and that upon its abandonment the subject property reverted back to the United States. In other words the United States was staking out a new position in Brandt in a manner that was essentially redefining previously recognized property rights. For the Brandt family who brought the case to the Supreme Court on a petition for certiorari, this was unacceptable because the government was now claiming public ownership of land that it had long ago conveyed to the family. Indeed, the Brandts own the full title to the land subject only to the railroad easement, which is now abandoned.

The NFIB Small Business Center and the Owners Council of America teamed up in this case to defend property rights, making the case for why government should not be able to redefine previously recognized property rights out of existence. Indeed if the United States could get away with redefining previously settled property interests in this case, it may do the same in other cases—as might state or local governments. Government should not be able to take an end-run around constitutional protections for property rights in this manner. Of course that’s the big picture issue. But on a practical level the case is of immediate concern to thousands of western landowners—especially ranchers and farmers—who have abandoned railways running across their land. The decision reaffirms what we have been saying all along: if the United States wishes to acquire these lands from the owners who now hold title to the underlying property, it must pay for what it is taking. Or as one columnist summed it up: Supreme Court tells government to take a hike — but not on private property.

On a final note, it is relieving to see the United States called out on taking explicitly contradictory positions on the same legal issues—albeit 72 years later. In previous cases I have observed, with extreme frustration and angst, that the United States has switched its position in the midst of litigation so as to defeat legitimate legal claims. For ordinary citizens–for whom government exists to serve–the doctrine of judicial estopple would prevent us from changing positions during the midst of litigation for expedient reasons; however, in at least some cases the federal government has successfully argued that this equitable principle cannot apply against the United States. That seems unconscionable and patently unjust. This is an issue that I should hope the Court will eventually address in a future case. But, perhaps the Brandt opinion offers further grounds for a citizen to hold the federal government to positions it has previously taken on a given legal issue. What is clear is that once property rights are recognized, no legislative enactment or executive order can outright extinguish that right without raising serious constitutional problems. 

For further comments and analysis check out Robert Thomas’ blog at Inversecondemnation.com. Also Brian Hodges offers interesting thoughts at the Liberty Blog. And Trevor Burrus offers further insights at Cato Institute’s blog.

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NFIB to Silver: You Want Better Schools, Reform Scaffold.

ALBANY (March 6, 2013) – All of the following may be attributed to Mike Durant, State Director of NFIB in response to Speaker Silver’s concerns over space in New York City schools.

“Yesterday, Speaker Silver expressed concerns regarding the current state of schools in New York City.  He should be concerned.  Too many children are attending school in trailers that are unsafe and inadequate.

“It is worth noting, however, that the Speaker’s continued refusal to allow a floor vote on the sensible reform to the scaffold law is a major contributor to the problem that he laments.  The scaffold law increases the legal risks, the financial risks and therefore the cost of building anything in New York, including new school facilities.  Reforming the law will remove a big barrier to construction and make it possible to put our children and teachers in safe, modern schools.  The Governor has expressed interest in addressing this problem and if Speaker Silver is truly concerned, he will take Governor Cuomo up on his offer.”

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NFIB Legal Center Submits Hard-Ball Questions to IRS Over Affordable Care Act Regulations

Yesterday the NFIB Legal Center sent IRS Commissioner Hon. John Koskinen a letter voicing concerns over recently finalized regulations governing employers under the Affordable Care Act. Specifically, the letter raised several important questions about the “transition relief” regulations, which IRS announced last month. The questions were as follows:

(1) Why Did IRS Finalize the Regulations Without Giving the Regulated Community an Opportunity for Notice and Comment on the Newly Added “Transition Relief” Provisions?

(2) What is the Legal Authority for Enforcing the Employer Mandate Against Businesses With 100 Full- Time or Full-Time Equivalent Employees, While Exempting Businesses with 99?

(3) What is the Legal Authority for Requiring Businesses to Justify Personnel Changes as a Condition of Invoking “Transition Relief?”

(4) Does IRS Claim the Authority to Require Businesses to Justify Personnel Changes Once the Employer Mandate is Fully Enforced Against Businesses with 50 or More Full-Time or Full-Time Equivalent Employees?

(5) If IRS Claims the Authority to Require Businesses to Justify Down-Sizing Below 50 Full-Time or Full-Time Equivalent Employees, Will IRS Exercise Such Authority?

(6) What is the Legal Authority for IRS Certifying that the Final Regulation is Not a Significant Regulatory Action?

We will have to wait and see what kind of response we get from the IRS. But, we think these are important questions that should be answered in a timely fashion. We specifically hope that the IRS will disavow the authority to require businesses to justify personnel changes once the Employer Mandate if fully enforced because there is no basis in the ACA for imposing such a requirement on businesses.

The full letter can be found here.

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NFIB Legal Center Dissents in Sarbanes-Oxley Case

This was a disappointing week for small business in the Supreme Court. As we have argued in the past, the heavy-handed and complex requirements of the Sarbanes-Oxley Act were never intended to apply to independent companies. The Act was meant to govern only publically traded corporations. But, the Supreme Court rejected our arguments this week in its decision in Lawson v. FMR.

This was especially frustrating because the Court ignored our essential concern that extending whistle-blower protections to employees of independent companies would only encourage lawsuits. NFIB Small Business Legal Center’s Executive Director, Karen Harned, was quoted in voicing our dissent in Bloomberg, the Chicago Tribune, CNBC and Reuters.

For more on the case, check out the SCOTUS BLOG’s coverage here.  

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‘Circuit breaker’ won’t fix New York’s property tax problem

As printed in today’s Buffalo News

Gov. Andrew M. Cuomo has rightfully focused on New York’s property tax burden since taking office. We were pleased to work in tandem with the administration in implementing both the highly touted property tax cap and pension reform. Both were essential steps in the fight to stem the unsustainable tide homeowners were facing. Our position was and remains that comprehensive property tax relief needed to be a multifaceted approach, i.e. tax cap plus mandate relief.

This year, the governor has again focused on the fiscal peril our schools and communities face while also looking at the adverse impact taxes have on business. The governor’s rhetoric has been spot on and we largely agree that property taxes continue to have a negative impact on the business climate of New York. But the methodology Cuomo is taking to address these concerns is simply wrong.

The governor is pushing a new website and doubling down on his efforts to put in place a two-year freeze on property taxes and a gradual phase-in of a “circuit breaker” tax shift concept that has been kicking around Albany for years. Both of these ideas are based on assumptions that are widely held to be not true and are also concepts that are not actual tax reform.

The assumption is that homeowners will put pressure on their schools and communities to stay under the property tax cap in order to receive the tax freeze by forcing consolidation, shared services and other tax reducing efforts. Have schools and communities not been doing that already? Are we really sure that these entities have not exhausted most, if not all, of their options within the parameters of existing law? We believe they have.

The circuit breaker concept is being touted as a tax cut, which is partly true, but not exactly. The circuit breaker bases homeowners’ property tax bills on their income. It does not reduce the entirety of the levy, just moves the pieces around the board. It will not create the financial flexibility our schools and communities need and will do nothing to reduce the enormity of New York’s property tax burden. It just shifts the costs.

The governor is right to focus further on rightsizing government and reducing taxes, but shifting costs and putting temporary freezes in place will not move New York forward. We continue to push for comprehensive mandate relief, such as Scaffold and Wicks law reform. Or perhaps reform in health contributions by public employees or dare I mention the holy grail of the unsustainability, the Triborough Amendment?

We will stand with the governor again, but only when meaningful efforts to reduce property taxes are advanced. This component of the state budget proposal should be rejected.

Mike Durant is state director of the National Federation of Independent Business.

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Should Antitrust Laws Apply to State and Local Governments Engaged in Anticompetitive Market Conduct?

Occasionally we hear from small business owners who are upset about government affirmatively competing with them for customers. It is certainly a problem if you make a living offering yoga lessons and your town decides to start providing free lessons. The City has an unfair advantage in that it can take taxpayer dollars to subsidize its services. But, assuming that the City has been vested with broad authority to promote public health and welfare, there isn’t much one can do in such a case. Perhaps in that situation your best bet is to focus on offering a superior experience to your customers. Nonetheless, this can be frustrating for a small business owner.

But, what if government is competing with your business in a manner that is so anticompetitive that it could actually violate antitrust law? In a forthcoming law review article in Competition Magazine, Jarod M. Bona and I argue that federal antitrust law should apply to state and local government actors when they are engaged in market conduct on equal footing with private businesses. In other words, when government is engaged in the market—selling goods or services—it should be subject to the same laws that private actors would be. 

For over a century, the Sherman Antitrust Act has been understood to prohibit private actors from engaging in anticompetitive conduct. There are some per se violations: for example a price-fixing agreement between competitors, or an agreement to allocate a geographic market between competitors. But, most antitrust claims are more difficult to prove because you have to show that (1) the challenged business conduct could cause prices to go up or down; and (2) the defendant has so much market power that it could actually charge more than what could be charged in a healthy competitive market. That’s boiling it down a lot. But the bottom-line is that the Sherman Act was designed to prevent businesses from engaging in anticompetitive conduct to either attain, or maintain, a monopoly.

But it has always been an open question as to whether these rules should apply just the same to public actors when they are engaged in the market, selling goods or services. As we note in our article: “governmental entities can and do enter the marketplace as competitors and may have even stronger incentives than profit-maximizing firms to harm competition.” And in an age of tightening fiscal budgets—where many municipalities are facing difficult choices, or on the verge of bankruptcy—there is a real danger that public entities might see the potential for monopolistic enterprise as a way out.

For example, a local entity could “use the power to tax to raise sufficient revenue to offer a product or service below cost for sufficient time to exclude other competitors from a market.”  This may be a tempting option for local governments because monopolies are extremely profitable. And if antitrust law does not preclude local government from engaging in anticompetitive conduct, public actors can get away with driving-out competing private businesses and extracting monopoly rents from consumers in the end.

As Bona and I argue, it is time to make clear that municipal and state actors stand on equal footing with private business under federal law—at least when we’re talking about government-run business enterprises. Why should government actors—who are supposed to be protecting the rights and interests of the people over whom they represent—be given a blank check to act in anticompetitive ways against small businesses in the community, and in a manner that ultimately hurts consumers?

But there is a major hurdle in establishing that government actors can be held liable when acting as market participants. In 1943 the U.S. Supreme Court held in Parker v. Brown, that federal antitrust laws do not apply to certain state conduct. So in many instances state sanctioned government conduct is considered immune from antitrust law. But the Supreme Court has always held out the possibility of a “market participant” exception to the Parker immunity rule. In Federal Trade Commission v. Phoebe Putney Health Systems, NFIB Legal Center argued that the Court should expressly endorse the “market participant” exception theory. That case was ultimately decided on other grounds—though affirming the principle that publicly run commercial enterprise must be (a) authorized by a “clearly articulated and affirmatively expressed state policy; and (b) subject to “active[] supervision” by state officials. Nonetheless, Phoebe Putney was a step-forward for us in the fight to hold public actors subject to antitrust law when engaged in market conduct. Indeed, the Court made clear that when local or state actors engage in anticompetitive conduct, they do so “against the backdrop of federal antitrust law.”

Bona and I suggest that this gives good reason to think that the Court would ultimately endorse the market participant exception if it was to squarely address the issue. And given that there is a current split in authority among the federal courts of appeal on the market-participant issue, there is good reason to think that Court will eventually have to take the issue up. We certainly hope that happens sooner than later. As we argue, application of a market-participant exception could even give small business new avenues to attack anticompetitive local and state regulatory conduct. This is perhaps the most controversial of our assertions. We lay-out a case for why antitrust law should preempt local regulatory conduct—or actions in eminent domain—where it is apparent that the only purpose of the government’s conduct is to protect its own commercial enterprise from competition. (For example, a condemnation action aimed at displacing private business, so as to establish a government monopoly for parking, or other services.) Not only would applying antitrust law in such a case advance the pro-competitive goals of the Sherman Act, but it would be consistent with our liberal democratic conception of good governance, and the principles of federalism.

Though not directly confronted with the market-participant exception, the Supreme Court is currently considering petition for certiorari in a case raising a similar issue. North Carolina Board of Dental Examiners v. Federal Trade Commission, raises the question of whether a state regulatory board created by state law can be treated as a “private” actor under antitrust law where a majority of the board’s members are also market participants who are elected to their official positions by other market participants. Given that the SCOTUS Blog highlighted the case as its “Petition of the Day” on February 12th, it seems there are greater than usual chances that the Court will take the case. If the opportunity presents itself, we will weigh in once more to voice small business concerns.

For more on this issue, check out Jarod Bona’s commentary at The Antitrust Attorney Blog

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Spending Cap Will Ensure Tax Cuts Come To Fruition

The National Federation of Independent Business (NFIB), which supports most of Governor Cuomo’s tax cut proposals, today said the best way to ensure their full implementation is to cap state spending increases at two percent.

“The Governor’s budget assumes that state spending increases won’t exceed two percent over the next two years. That’s a leap of faith that taxpayers shouldn’t have to make,” said NFIB State Director Mike Durant.

The pressure on Albany to increase spending is always heavy, said Durant, and the promise to cut taxes could be easily abandoned next year or the year after.

“The tax cuts depend on fiscal restraint and that’s always the first casualty of politics,” said Durant.  “A two-percent cap would lock everyone in to the commitment that the Governor is making to taxpayers.”

Durant pointed out that the two-percent cap on property taxes, which the Legislature approved, works on the same principle.

“Think of it as belly band surgery for government,” said Durant.  “It’s a way to control Albany’s appetite for more spending.”

To learn more about NFIB please visit www.nfib.com.

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Predictable Fault-Lines in EPA’s Green House Gas Case: Is a 5-4 Decision in the Works?

This week, in the U.S. Supreme Court, NFIB and various other industry groups took the Environmental Protection Agency (EPA) to task over its decision to begin regulating greenhouse gas emissions (GHGs) from stationary sources (i.e. buildings, and standing structures). Although the agency seeks to justify its GHG regulations under the Clean Air Act (CAA), we maintain that Congress never authorized EPA to regulate GHGs in this manner. In previous posts I’ve outlined the basic arguments, and explained the problem with EPA’s boot-strapping rationale.

The big picture problem with EPA’s argument is that it would allow federal agencies to essentially rewrite statutes as they like, and in a manner that would allow them to regulate subjects that Congress never intended. That would mean carte blanche regulatory power for the agencies, and the prospect of unfettered regulation for the rest of us. Of course, that is a concern for small business owners who are already struggling to deal with an over-regulation problem in America.

But, the issue at hand—regulation of GHGs—is of immediate concern to the small business community. Prior to the argument, NFIB issued a statement emphasizing the importance of this case for small business. As Karen Harned, Executive Director of the NFIB Small Business Legal Center explains: “For the small business community complex environmental regulations, like the CAA, only create new burdens. These burdens come from new federal permitting requirements, higher fuel costs, restrictions on fuel choices and energy use, higher electricity costs, and requirements for installation of new energy efficient equipment. And if [EPA’s] rule is allowed to stand, small business owners such as ranchers, farmers, manufacturers, restaurant owners, and others will be subject to even more paperwork, oversight and big time fines.”

Perhaps not surprisingly, the Court offered only mixed signals as to how the case will be decided. As one might well expect, the liberal wing of the court seemed inclined to affirm the D.C. Circuit’s decision, which upheld EPA’s GHG regulation of stationary sources last year. Justice Kagan went so far as to suggest that EPA’s approach to GHG regulations “should be [viewed as] the apex of Chevron deference.”  This refers to the so-called “Chevron doctrine,” which holds that the courts must generally defer to an agency’s interpretation of its own regulations because the agency has special expertise.

But, the more conservative wing of the court was much more skeptical—perhaps a sign that there may be enough votes to strike-down EPA’s GHG regulations. That is what NFIB thinks should happen because agencies should not have deference to rewrite statutes. As NFIB argued, along with the other industry groups in this case, the first rule of the Chevron doctrine is that an agency should only get deference where its interpretation is consistent with the actual text of the statute conferring its authority. And this is ultimately EPA’s problem here.

Justices Ailito seemed to be among those most skeptical of EPA’s position. He noted at one point that EPA’s arguments seem to be in tension with each other. And several of the justices seemed concerned about the principles—or lack thereof—guiding EPA’s approach to GHG regulation. But, as always, it is reading tea leafs when trying to count votes in the Supreme Court. For now, we will keep our fingers crossed. But, conventional wisdom would be that this is likely to be a 5-4 decision—with Justice Kennedy being the crucial fifth vote.

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Estate Tax Reform a Big Deal for NY’s Small Business Owners

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Governor Cuomo included a tax cut package in his executive budget proposal unveiled in January as a nod to struggling businesses in New York State. The package includes several components that are similar to those in the NFIB/NY Legislative Agenda — reducing the corporate franchise tax, eliminating the manufacturers’ tax and reforming the estate tax.  While we take issue with the lack of broad based tax reform and the inclusion of a “circuit breaker” property tax shift, the estate tax component has the potential to be significant for small business.

Earlier this week a new report was released from the Empire Center makes the case for eliminating the “death tax.” The report reasons that the estate tax suppresses economic growth by creating a disincentive to save and invest, and it gives New Yorkers the incentive to move to avoid higher taxes.  New York notably is only one of fourteen states that taxes estates, and it’s a significant consideration when small business owners and farmers are planning for the future.

Unlike many other states that have a higher threshold or those that have repealed the estate tax altogether, New York currently taxes estates valued at over $1 million.  Governor Cuomo’s plan suggests a five-year phase-in to increase the threshold to $5.34 million to match the federal threshold, and he proposes lowering the state’s top rate from 16 percent to 10 percent. According to the Empire Center Report, this will reduce the number of estate filings by 90 percent.

Without these changes to the estate tax, thousands of small businesses and farmers will have a difficult time passing property  to the next generation, as evidenced in the amount of vacant commercial property and farmland sold off across the state.

We were pleased to participate in a press conference with E.J. McMahon of the Empire Center and Jeff Williams of the Farm Bureau discussing this issue and the impact reforming the death tax could have for small business.

Read New York’s Death Tax: The Case for Killing It

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