Maryland folds on eminent domain threat

In a move possibly inspired by the show's villainous main character Frank Underwood, the Maryland House of Delegates recently passed a bill giving the state government the power to condemn property belonging to the producers of "House of Cards" if they decide to move filming to a different state. When Media Rights Capital, the firm that owns "House of Cards," threatened to leave Maryland unless they got millions of dollars in additional targeted tax breaks, state Delegate Bill Frick asked himself "how would Frank Underwood respond?" Inspired by Underwood's brand of ruthless politics, Frick decided to sponsor legislation authorizing the use of eminent domain against MRC should they carry out their threat.

On Thursday, Frick's legislation apparently died in a conference committee tasked with reconciling differences between House and Senate budget proposals, and probably will not become law this year. It remains to be seen whether it will come back the next time MRC or some other firm threatens to leave the state.

If the measure had passed the state senate, it might have been upheld under the state and federal constitutions as currently interpreted by their respective supreme courts. But even if it had survived review in the courts, it would likely to cause more harm than good. Instead of scaring MRC and other firms into contributing to the state's economic development, it would probably deter them from investing there in the first place.

In cases such as Kelo v. City of New London (2005), the U.S. Supreme Court has interpreted the public use clause of the Fifth Amendment to allow states to condemn property for virtually any "public purpose," even if there is little evidence that the supposed public benefit that justifies the taking will actually be achieved. The Maryland Court of Appeals - the state's highest court - has interpreted the Maryland state constitution's public use clause similarly (though not quite as permissively).

In Kelo, a close 5-4 decision, the Supreme Court ruled that the public use clause of the Fifth Amendment, which allows government to condemn property only for "public use," does not forbid the transfer of property from one private individual to another for purposes of promoting "economic development." The court thereby upheld the forcible transfer of 15 homes to a private developer in New London, Conn., even though evidence suggested that that promised economic development was unlikely to actually occur. Almost a decade later, the condemned property still lies empty. Maryland courts have also ruled that takings for "economic development" are permissible. The condemnation of MRC's property could potentially be justified on that basis as well, since the purpose of the condemnation is to force MRC to keep filming in Maryland, thereby possibly bolstering the state's economy. Thus, the taking might be upheld even if the state transfers the condemned property to a private party.

There are powerful arguments against Kelo and other similar decisions. Several state supreme courts have interpreted their state public use clauses to forbid economic development takings. But unless and until Maryland does so or the federal Supreme Court reverses Kelo, the "House of Cards" condemnation would likely be upheld against public use challenges.

On the other hand, it is possible that the condemnation would be invalidated for violating the dormant commerce clause of the U.S. Constitution, which limits states' ability to interfere with interstate commerce. In the 1980s, the California Supreme Court ruled that the state constitution's public use clause did not forbid Oakland's efforts to condemn the Oakland Raiders NFL franchise in order to prevent it from moving to Los Angeles. But a later appellate court decision ruled that the condemnation violated the dormant commerce clause, because the purpose of the condemnation was to prevent an interstate business from moving. Federal or state courts could reach a similar conclusion in the "House of Cards" case.

Another possible problem is that the most valuable property associated with "House of Cards" might already be outside Maryland's borders. While the state could condemn MRC's physical property, so long as it is still in Maryland, the show's intellectual property (such as characters and storylines) and actor contracts are probably located elsewhere, and therefore not subject to Maryland's condemnation authority. It is likely that the intellectual property of a hit show is worth far more than its physical assets, such as studio equipment and props.

Even if courts were to uphold this taking, it would ultimately have been ill-advised and counterproductive. State governments rarely condemn mobile property, for the very good reason that if they try to do so, the owners can simply take it out of the jurisdiction. Maryland could have learned that lesson when it tried to condemn the Baltimore Colts to keep them from moving in 1984. The case ended with the team sneaking out of Baltimore in the dead of night in order to evade condemnation. Even if the state occasionally manages to take an owner by surprise, condemning mobile property is likely to backfire in the long run, since it will deter owners of similar assets from bringing them into the state in the first place. That in turn is likely to damage the state's economy.

Public frustration with businesses like the Colts and MRC is understandable. Colts owner Robert Irsay was no innocent who merely wanted the state to leave him alone. Like many professional sports team owners, he was lobbying for massive government subsidies to build a new stadium, and eventually moved the team to Indianapolis in large part because that city met his demands. Similarly, MRC has already obtained some $26 million in targeted tax credits from the state, and is now lobbying for additional state largesse. The producers of "House of Cards" even held a party for members of the Maryland General Assembly, complete with an appearance by star actor Kevin Spacey, who plays Underwood.

Studies show that both targeted tax breaks and stadium subsidies are dubious forms of corporate welfare that benefit politically connected interest groups without providing broader economic benefits to the community. Scholars find that targeted tax breaks for film studios almost always have costs that outweigh the miniscule economic benefits they create. Similarly, research by economists across the political spectrum indicates that stadium subsidies also waste public funds and fail to boost economic growth. But eminent domain is not the right antidote to such wasteful corporate welfare. States should instead refuse to give special privileges to individual businesses in the first place. The better way to promote economic growth is to have a generally strong business climate for businesses of all types, not favoritism for those that happen to be politically influential or have Hollywood stars lobbying for them. Development economists have also shown that secure property rights are an important contributor to economic growth. If property owners know their rights are secure, they are more likely to make productive investments. That is a good reason to put strict limits on the use of eminent domain.

It is ironic that "House of Cards" is lobbying for the same kind of "crony capitalist" favoritism that is often skewered in the plot of the show itself. But instead of trying to stack the deck by threatening the use of eminent domain, states should simply refuse to play the game in the first place.