Topic: Regulatory Studies

San Francisco’s Self-Inflicted Housing Problem

By
David Boaz

Housing is expensive and hard to find in beautiful San Francisco. In today’s New York Times, one would-be housing provider explains why. Scott James writes:

[A]fter renting out a one-bedroom apartment in my home for several years, I will never do it again. San Francisco’s anti-landlord housing laws and political climate make it untenable….

[A] complex legal structure has been created to make evictions for just cause extraordinarily difficult.

At first many of these rules governed only apartment complexes and larger properties with many units. But in 1994 the city applied the regulations to homes if they included just one rental on the property. In other cities, including New York City, such small-time landlords have far more rights over their own homes.

As he goes on to describe his experience with the last tenant in his downstairs apartment—a story featuring a sledgehammer, a flooded apartment, and a plugged-in appliance in an overflowing sink—I was reminded of the 1990 movie Pacific Heights, not coincidentally set in San Francisco.

It’s a thriller that is almost a documentary on the horrors of landlord-tenant law—and that is confirmed by today’s story. A young couple buys a big house in San Francisco and rents an apartment to a young man. He never pays them, and they can’t get him out, and then things get really scary. The lawyer lectures the couple—and the audience—on how “of course you’re right, but you’ll never win.” When I saw it, I just knew this happened to someone—maybe the screenwriter or someone he knew. Sure enough, when Cato published William Tucker’s book Rent Control, Zoning, and Affordable Housing, and I asked Pacific Heights director John Schlesinger for a jacket blurb, he readily agreed to say, “If you thought Pacific Heights was fiction, you need to read this book”; and he told me that the screenwriter had a relative who had gone through a tenant nightmare.

Want to instantly create 10,600 rental units in San Francisco? Reform landlord-tenant law so that small landlords come back to the market. In the meantime, watch Pacific Heights.

Topics: 
Government and Politics, Regulatory Studies

NR: States Should Join Oklahoma, Challenge IRS’s $800b Power Grab

By
Michael F. Cannon

The IRS is attempting to tax, borrow, and spend more than $800 billion over the next 10 years without congressional authorization, and indeed in violation of an express statutory prohibition enacted by both chambers of Congress and signed into law by President Obama. 

In a new editorial, National Review calls on officials in 33 states to join Oklahoma attorney general Scott Pruitt in filing court challenges to this illegal and partisan power grab:

By offering the [Patient Protection and Affordable Care Act’s] subsidies in states that have not set up [health insurance] exchanges, the federal government is inflicting tax penalties on individuals and employers that go beyond even what Obamacare allows…

Pruitt v. Sebelius has been supplemented by a lawsuit filed last month by a group of small businesses and individual taxpayers also challenging the IRS’s authority to impose penalties outside of state-created exchanges…

Stopping the IRS from imposing punitive taxes where it has no legal power to do so should in fact be a popular and bipartisan issue, regardless of one’s opinions about the ACA itself…

Republican governors, attorneys general, and state legislators looking to use their offices to the significant benefit of the nation as a whole should be lining up to create a 30-state united front with Oklahoma. Scott Pruitt is fighting for the rule of law, and Republican governors might trouble themselves to give him a hand. 

Click here for information on an upcoming Cato policy forum on Halbig v. Sebelius, the legal challenge filed by several small businesses and taxpayers.

Topics: 
Government and Politics, Health Care, Law and Civil Liberties, Regulatory Studies

End Prohibition-Era Alcohol Regulations

By
Ilya Shapiro

The three-tiered system of beer distribution that many states adopted to curb breweries’ influence on consumers is an unfortunate hangover from the end of Prohibition. In states like Pennsylvania, for example, most breweries must sell their beer to a wholesaler, which then sells the beer to a retailer where then it can finally be sold to the consumer. Not only does this scheme add artificial costs to retail beer, the legal mandate doesn’t apply to in-state breweries and so this expensive law is also a classic case of crony capitalism.

The Supreme Court struck down this sort of in-state favoritism in the 2005 case of Granholm v. Heald, in which nearly identical laws were used to protect wine distributors in New York and Michigan. Does Pennsylvania and other states with similar laws think that Granholm doesn’t apply because commerce in beer is constitutionally different from commerce in wine?

Last week, the Competitive Enterprise Institute released a paper, authored by former Cato legal associate David Scott, calling for the Keystone State to abide by the Supreme Court’s ruling and end its protectionist three-tiered beer distribution system.

Topics: 
Law and Civil Liberties, Regulatory Studies

Minnesota Supreme Court Punts on Key Privacy/Property Rights Case

By
Ilya Shapiro

The city of Red Wing, Minnesota, has a rental property inspection program—one that’s unfortunately not unusual—whereby landlords and tenants must routinely open their doors to government agents. These searches take place even if both the landlord and tenant believe it not to be necessary. The owner of the property even has to pay a fee for the unwanted search to receive a rental license! The city only sometimes makes initial requests for consent as a mere courtesy, because it proceeds with an administrative warrant in the event of a refusal—without a showing of probable cause to believe there’s a housing code violation or other problem. The inspection ordinance doesn’t even attempt to prevent the disclosure of information revealed during the search; the whole neighborhood may find out the contents of your medicine cabinet or choice of DVDs.

A group of landlords and tenants challenged the inspection program, arguing that several alternatives are available to meet what legitimate interests local governments have. Last September, Cato joined the Reason Foundation, Libertarian Law Council, Minnesota Free Market Institute at the Center of the American Experiment, and Electronic Frontier Foundation and filed an amicus brief urging the Minnesota Supreme Court to confirm that no Minnesotan should be subjected to an intrusive invasion of privacy when there has been no showing of some cognizable public health or safety issue within the home subject to inspection.

Last Friday, the Minnesota Supreme Court handed down its decision in McCaughtry v. Red Wing. Unfortunately, the Court decided to dodge the question of whether the government is required to obtain a warrant to inspect a residence without individualized probable cause under the U.S. or Minnesota Constitution.

The court’s reasoning is maddening: Red Wing’s ordinance allows judges to imagine individualized standards even when the city doesn’t present any individualized evidence when applying for a warrant. Moreover, the Court determined that the challenge was facial and thus the law would need to be unconstitutional in all of its potential applications in order to be struck down. Because some warrants could be constitutional, the Court ruled against the homeowners, and had absolutely nothing to say about the propriety of warrants issued without individualized probable cause. It did this even though the city has never sought such a warrant and has never said it has any interest in asking for one. The court was clear that its holding had absolutely nothing to say about whether a warrant issued without individualized probable cause would be unconstitutional.

So after nearly seven years of litigation, the plaintiffs are left where they started: these warrants may be unconstitutional, but the courts won’t say so. As a result, Minnesota residents remain subject to unconstitutional, over-broad, and intrusive searches of their homes, belongings, and lives.

There was a small silver lining in all this, a concurrence by Justice Paul Anderson, who said that he agreed with the court’s (unanimous) opinion but that the Minnesota Constitution does require individualized probable cause to obtain a warrant to enter someone’s residence.  Although no other justices joined his opinion, this is the first statement by a state supreme court judge ever that narrows administrative warrants in the context of home inspections since the U.S. Supreme Court’s unhelpful and unclear Camara decision in 1967 started the trend toward such programs. (Telllingly, this concurrence was Justice Anderson’s last official act; he retired on Friday.) And that will be something to use on this issue going forward, whether in state courts or in federal courts, to eventually ask the U.S. Supreme Court to reconsider Camara.

Topics: 
Law and Civil Liberties, Regulatory Studies

FCC Takes Eye Off Ball, Leaves Court in Defeat

By
Ilya Shapiro

On Tuesday, the U.S. Court of Appeals for the D.C. Circuit served the Tennis Channel a crushing blow, essentially holding that government agencies cannot tell cable operators what networks should be disseminated to consumers.  

The court found that the FCC had made an unforced error in ruling that Comcast had acted illegally against the Tennis Channel by refusing to distribute it as widely as Comcast’s own sports networks, Golf Channel and Versus.  This was a challenge based on Section 616 of the Communications Act, which gives the FCC authority to prevent “multichannel video programming distributors” from restraining the ability of unaffiliated “video program vendors” from competing “fairly by discriminating” – a broad power that the FCC still managed to abuse here.

Initially, the Tennis Channel contracted with Comcast to distribute its content on Comcast’s less broadly distributed sports tier.  It later approached Comcast with a proposal to reposition the channel onto a tier with broader distribution.  Comcast backhanded this proposal, citing financial impracticability – a basic analysis of whether such a move would make sense given ratings, market demand, etc.  An FCC administrative law judge, without citing contrary financial studies (or even a video replay) then corrected what he deemed to be marketplace “discrimination” and ordered Comcast to pay $375,000 to the government and make the Tennis Channel more widely available to consumers.

On appeal, the D.C. Circuit smashed that finding of unlawful discrimination. Indeed, substituting the judgment of an administrative agency for a freely agreed distribution deal for no good reason flouts basic principles of administrative and contract law.  Even in this day of government overreach, it’s just not cricket!

Judge Brett Kavanaugh’s concurring opinion warrants special attention – and applause.  He concluded that Section 616’s prohibition on discrimination only applies when a distributor possesses market power and that Comcast has no such advantage in the national video programming distribution market. According to Kavanaugh, applying Section 616 to a video programming distributor that lacks market power is not only outside the lines of the Communications Act, but the First Amendment as well.

That is, when Comcast distributes specific channels, it’s transmitting speech.  Overruling a cable operator’s programming choices thus interferes with editorial discretion to select and transmit a protected form of speech.  Courts should continue to umpire federal agencies that grant themselves the power to distort the marketplace of ideas.

For more on this case and the important First Amendment and rule of law issues it raises, see Randolph May of the Free State Foundation.

Topics: 
Law and Civil Liberties, Regulatory Studies

Trade Agreements Can’t Do Everything

By
Simon Lester

Last week, I expressed some skepticism about whether trade negotiations could help convince the EU not to be so cautious about approving genetically modified foods. Along the same lines, I came across the following Bloomberg article:

Wall Street Seeks to Change Dodd-Frank Rules Via Trade Deals

U.S. bankers and insurers are trying to use trade deals, which can trump existing legislation, to weaken parts of the Dodd-Frank Act designed to prevent a repeat of the 2008 financial crisis.

So the first thing to point out is that it’s not really accurate to say that trade deals “trump existing legislation.”  But yes, you could negotiate a trade deal that created an international legal obligation that would have some impact on domestic policy.

Let me put the nuances of the interntional law-domestic law relationship aside, though, and say something about the focus of trade agreements.  As noted in the GM foods post, I think trade agreements are most useful when they focus on protectionism.  So, if the goal with regard to financial regulation is to prevent discrimination against foreign providers of financial services, trade agreements could help with that.

By contrast, if the objective is to remove the burden of financial regulations more generally (and the article is a bit vague on the substance of what’s at issue), I’m not sure trade agreements are the place to go.  There seems to be a tendency in recent years to have trade agreements take on any issue that has even a tenuous relationship to trade.  In my view, if we go that route, we are unlikely to have any trade agreements at all.

Instead, for domestic regulatory issues, I would rely on the domestic policymaking process, and the arguments of people like my colleague Mark Calabria.  Problems with Dodd-Frank are not going to be solved in the backroom by trade negotiators.  They are only going to be solved by a vigorous public debate over what constitutes sensible policy.

Topics: 
Regulatory Studies, Trade and Immigration

Campaign Restrictions Lead to Due Process Violations, Even in Local Politics

By
Ilya Shapiro

Most times when I write about campaign finance laws, the context is a presidential race or Supreme Court case.  But these restrictions on political speech – the protection of which is the main purpose of the First Amendment – abound in local politics and state courts even without FEC intervention or presidential finger-wagging.

Here’s a case from California that literally just came across my transom:

Last year, John Mlnarik ran for Santa Clara City Council.  Mlnarik is the sole shareholder of a small business, a law firm with seven employees – a fact revealed in several mandatory campaign disclosures.  Because his money is partly tied up in his business, along with two personal loans to his campaign he also made a third loan (for about $6000) via his business.  He fully disclosed the loan and its source.

More than three months later, after the election, the City of Santa Clara issued a citation against Mlnarik for receiving an excessive loan “from a third-party source.”  Yet the City Code also states:  “For purposes of the contribution limits … [a]n individual and any corporation in which the individual owns a controlling interest, shall be treated as one person … . Nothing … shall prohibit a candidate from making unlimited contributions to his/her own cam­paign.”  And under state law incorporated into the City Code, an individual’s income includes his business’s income; an individual’s real property includes his business’s real property; and an individual’s investments include his business’s investments.

Given this logical overlay, and the fact that his sole ownership and the loan’s source were both fully disclosed, Mlnarik thought he was following the law.  After all, as the Supreme Court reiterated in 2008, “the use of personal funds … reduces the candidate’s dependence on outside contributions and thereby counteracts the coercive pressures and attendant risks of abuse to which … contribution limitations are directed.”  (Davis v. FEC, quoting Buckley v. Valeo).

The City, however, cited the following from its Code:  “[U]nless a term is specifically defined in this chapter, or the contrary is stated (or clearly appears from the context), the definitions set forth in [a portion of the State Government Code] shall govern the interpretation of the provisions of this chapter.”   The State Code, in turn, includes a 192-word definition of “candidate,” which – along with many other possible definitions – states that “ ‘Candidate’ means an individual who is listed on the ballot.”  Thus, while Mlnarik was free to make unlimited loans to his campaign, he supposedly violated the law by making a campaign loan via his wholly owned business, which itself wasn’t a “candidate.”

Mlnarik argued that the City law was unconstitutionally vague – after all, how is one to know whether a term’s contrary meaning “clearly appears from the context”?  (If it does, then the State law’s definition of “candidate” must not be used – and there would be no case against Mlnarik.)  As noted above, the “context” was a law that repeatedly makes an equivalence between a person and his or her business; moreover, the law has eight statutory purposes, three of which (Mlnarik argued) were actually advanced by allowing sole business-owners to contribute to their own campaigns via their business, while none of the eight purposes was thwarted.  If that’s not the contrary “clearly appearing,” what is?

Nevertheless, the City refused to drop the case, and the trial judge denied that the phrase “the term[’s] … contrary … clearly appears from the context” was unconstitutionally vague (in a quasi-criminal case!).  Mlnarik is now attempting to appeal further, but he has been warned that state law may not permit an additional appeal – even though his constitutional argument couldn’t be heard by the administrative hearing officer, and thus has been heard only once, and then only by one judge.

So not only is there an underlying First Amendment violation, but there are due process infringements squared or cubed.  And all this because a candidate for office “loaned himself” $6,000 and fully disclosed all aspects of the transaction.

You can’t make this stuff up!

Topics: 
Government and Politics, Law and Civil Liberties, Regulatory Studies

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