This page includes posts from January 3-11, 2003 in the usual reverse
order. Each posting on the home page is perma-linked to these
January 11, 2003
This week the Associated Press reported that a proposal by Maryland race track owners to bring slots to five major tracks would include more machines to each location than found at the MGM Grand Casino in Las Vegas. In contrast, the incoming governor, Robert Ehrlich, says he’d accept about 10,000 slots at four locations.
Missing from Ehrlich’s version is the notion that any slots would be allowed at Ocean Downs, the race track near Ocean City, Maryland. According to the story, Ehrlich made a campaign promise to Eastern Shore voters that he wouldn’t permit slots to rear their gaudy little electronic heads on their side of the Chesapeake Bay.
That part of Ehrlich’s political position matches with the generally more conservative atmosphere among the primarily rural counties of the Eastern Shore. It also dovetails nicely with a related issue of political positioning with Delaware, Maryland’s neighbor to the east.
You see, we already have slots at three horseracing tracks. Each of them is within a very short driving distance from Delaware’s western border with Maryland. From what I’ve heard and read about the racetracks' customer base, a whole bunch of Eastern Shore and other Maryland folks seem to enjoy leaving their money at Midway, Dover Downs, and Delaware Park.
If Ehrlich keeps to his campaign promise on this issue, the anti-gambling advocates on the Eastern Shore will be happy that their corner of the world won’t be sullied by the presence of the one-armed bandits. On the other hand, the folks on the Shore who enjoy that kind of action will still have a quick and easy way to fulfill their desires, by crossing the border. In addition, whatever influence Delaware officials might possess to reduce the chances of slots returning to Maryland would be a bit more diminished.
Let’s not forget, after all, that the states are among the primary intended beneficiaries of this kind of gambling. In the deal that brought slots to the Delaware racetracks, state officials made sure that there would be a significant amount of “revenue sharing” coming to the state, in return for creating a new, highly regulated, quasi-monopolistic business opportunity. Maryland seems to be headed in the same direction. The AP story says the Maryland proposal assumes a 45% profit sharing with the gang in Annapolis, based on about $2 billion in gambling revenues per year.
To the extent that gambling is a zero-sum game with respect to the number of participants and the amount they’re prepared to spend, some folks will surely claim that Delaware’s own revenue from gambling will take a major hit, and an even bigger one if Ocean Downs is permitted to join in the fun.
Personally, I’m not that troubled by that prospect under either scenario.
First, Delaware’s current “market” advantage in permitting slots, while Pennsylvania and Maryland don’t, always seemed like a temporary condition on which the state could not fairly rely for long. It was nice while it lasted, in other words, but it was never going to last.
Second, the demographics of slots gambling supports the notion that it’s just another way to raise revenues from a targeted group, instead of finding ways to bring in the same money from a broader tax base. Given my predilections about tax incidence, a reduction in successful narrowcasting for state revenues is a good thing.
Third, to the extent that gambling attracts more players from the lower income groups than the higher income groups, there’s a regressive element to the state’s revenue stream from this source that is worth considering.
In any event, I’m not taking any bets on how this will finally come out.
January 10, 2003
A Ninth Circuit Court of Appeals opinion issued yesterday involved a matter of family relations for the U.S. District Judge who presided over a bench trial about a bike accident in Glacier National Park.
Based on the facts and the ultimate decision by the appellate panel, the next dinner the trial judge has with his brother-in-law could be a real tension convention.
In the summer of 1998, Elaine Mangini took a bike tour of the park. The tour operator was a company called Timberline. She hit a gravel patch and flipped over the handlebars of her bike, and was seriously injured. She sued the United States government and Timberline in the Federal District Court for Montana, primarily on the basis of an alleged failure to warn of the danger.
Donald W. Molloy is the Chief District Judge, and he handled the case.
Unfortunately, the law firm representing Mangini included among its members a seventeen-year associate named Kurt Jackson, who also just happened to be the judge's brother-in-law.
Sometime before the December 2000 trial, Timberline's law firm moved to disqualify Judge Molloy. Federal law calls for such disqualification when the persons involved are within a short degree of relationship to each other.
Being married to the judge's sister is close enough to qualify.
One of the law firm's partners filed an affidavit opposing the judge's removal. So did the brother-in-law. The judge then denied the motion to disqualify, relying on the Mangini law firm's affidavits. Judge Molloy ruled that
The trial went forward, and Mangini won, with an apportioned award of $656,675.58 from Timberline and $98,501.34 from the United States.
About seven months later, things became a bit more complicated.
Timberline filed a motion with the Ninth Circuit to add to the appellate record some new information, namely
From that point on, matters deteriorated even further:
I'll bet they did.
On this record, the panel ruled that a new trial before a different judge was obviously required:
As if to rub salt in the wounds, or (viewed more charitably) perhaps to prepare a path toward an eventual settlement, the appellate panel added a bit more news in a footnote:
That finding won't make either side happy. The plaintiff now faces the possible prospect of a different result in a second trial, and Timberline now knows that a district judge and a unanimous appellate panel believe that the tour operator's case is really weak.
The unhappiest person involved, however, just has to be a certain relative of a certain judge.
January 9, 2003
Well, that was interesting.
No, really, it was.
Today I attended (and briefly spoke at) my clients’ public hearing on insurance issues in the taxi, limousine, and charter bus industries in Delaware.
Among other fun things, the Delaware Department of Transportation regulates the intrastate operation of these public carriers. My work includes advising the regulators.
In order to obtain a Certificate of Public Convenience and Necessity, applicants seeking to enter these businesses must meet DelDOT’s regulatory requirements, as well as show proof they will meet the statutory minimums for liability insurance coverage.
Those taxi and limousine insurance limits are currently set at $100,000 per person per accident for personal injury or death, and $50,000 per accident for property damage. 2 Del.C. Section 1802(p).
Those minimums are above the statutory floors set for private automobile insurance coverage under the state’s no-fault law, but below the typical policy limits bought by thousands of Delaware citizens.
Even so, the state's public carrier insurance requirements are higher than what most of the surrounding states insist upon for taxis and limos.
My clients invited the insurance industry and the public carriers to attend the hearing and discuss the insurance issues plaguing the taxi and limo owners.
For example, one large taxi operation said they’ve just been hit with a 124% increase in premiums for their taxis. This change puts them in the high four- to low five-figure annual premium payment per vehicle. Other carriers also complained about their rates being nearly doubled. In addition, the insurance brokers noted that very few insurance companies will even write a policy for taxis or limos in Delaware.
A few of the insurance representatives were pretty blunt about the causes of the current crisis. Some noted that stock market losses forced insurance companies to look back to their premium practices to make up the difference. A few admitted that for many companies lax underwriting and a more competitive atmosphere led to low premiums in years past, only to be caught in the reinsurance debacle after September 11.
Several taxi and limo owners argued that if the state would only lower its minimum coverage requirements, then surely the overall rates would decrease.
Nonetheless, the insurance agents present gently suggested that optimism on this front was a bit premature.
Next week the General Assembly returns to Dover for the start of the new legislative session. Any change in the coverage minimums will require a change in the law.
In years past, folks have literally surrounded Legislative Hall to make their plight as visible and imposing as possible.
Given the intense sentiments expressed at today’s hearing, we might see a thin yellow line around Leg Hall in the next week or two, as the public carriers seek help in reducing the cost of doing business.
January 8, 2003
A month ago I wrote a piece about the increasing pressure to uncouple state and local tax systems from the federal tax laws. In March I discussed the issue with respect to death taxes, but the issue since then has spread to other federal tax schemes, including the income tax.
Judging from the various responses to the new Bush tax cut proposals this week, it looks like the urge to unlink from the Federal tax laws will only intensify.
The News-Journal reported today that the Minner Administration is now openly seeking to break free of Delaware’s current dependence upon the Federal tax structure, in order to stop losing state tax revenues every time the Federal tax laws reduce Federal revenues.
The story also pointed out that Delaware is among at least 20 states that are now actively engaged in weighing the benefits and burdens of uncoupling.
Deborah Orin noted in the New York Post today that the Empire State and the Big Apple both stand to lose big time if they continue to tie their taxes on dividends to the Federal laws:
This is an intriguing policy issue. In the past there were some obvious advantages to coupling the two (0r three) systems together—the joint arrangement provided a common base of tax law provisions, as well as significant economies of administration for both the tax collectors and the taxpayers.
As the new tax cuts go into effect, however, the risks to the states of riding along like remoras attached to the Federal shark are becoming ever clearer. If the latest stories about the new tax cut proposals pan out, the advantages to coupling will fade even faster in comparison to the fiscal consequences of shrinking state revenues.
The potential cures will surely invoke the Law of Unintended Consequences, as the governments try to figure out how to match the existing tax frameworks (and revenue totals) without creating anomalous effects on potentially influential taxpayers.
Nonetheless, I wonder to what extent the coupling issue that now challenges the states and local governments reflects a deliberate effort to force folks to revisit some long-held assumptions about tax policy.
January 7, 2003
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January 7, 2003
Many years ago I served as the labor counsel for a city government. Most of its employees were members of six different unions, including two AFSCME locals, the FOP, the IAFF, the ILA, and the Teamsters.
During one of the union negotiations, I asked an innocent question about the origin of a contract provision that gave these union members a special benefit payment over and above the normal wages.
Both the union reps and the management explained this history of this extra check. There was the official explanation, and more importantly there was also the unofficial explanation, in that the payment met two particular goals:
One of the union members at the table then adopted an older brother pose and explained that sometimes the guys just didn’t want their wives to know about every dollar they received from the City. This check was an important part of that little deception.
I hadn’t heard this term used for many years thereafter, until I saw it again in a Third Circuit tax crime appeal issued last week.
As this case illustrates, the consequences of hiding mad money from the U.S. Government just might be even more dangerous to one’s freedom than hiding it from one’s wife.
Jack and Tony Gambone owned and operated a construction company for over 20 years. During that time they adopted a few methods to fully express their keen interest in shielding some of the money they made from the clutches of the federal tax authorities.
Part of the untaxed money came from convincing homeowners to pay cash for some of the “extras” the customers would order on the construction jobs. In turn, the brothers would take this cash and either keep it at home or in a safe or, in an unusually patriotic gesture, purchase U.S. Savings Bonds (As the court noted, interest on the bonds is not reported until the bonds are cashed).
Other untaxed money came from the careful use of false W-2s and the payment of overtime in the form of straight-time paychecks, with the remainder paid in off-the-books cash. The company also used a few other methods to thus reward the family members and dozens of other employees and subcontractors.
To a large extent, the full details of this case will interest only the direct participants and those interested in tax law prosecutions or defenses.
On the other hand, the Circuit Court decision does recount some fairly colorful testimony, especially from the company witnesses.
For example, Thomas Gaasche worked as the controller from 1985 until 2000. After only six to ten weeks’ experience, he contacted Jack Gambone about a few payroll issues:
Later on, Gaasche talked to Tony Gambone about what he considered to be a false expense reimbursement. Tony was a bit blunt:
Frank Ruser was the Gambone controller from 1972 to 1981. He also spoke to Tony about the company’s overtime payment methods, and also received a fairly direct response:
As the appellate decision explained, however, the Federal Government’s own reply to Tony’s statements turned out to be “Not exactly.”
The Third Circuit upheld the convictions of the two brothers. They now face the prospect of following through on their sentences of over three years in prison, fines of $75,000, and a payment of $3,000,000 to the IRS, among other delights.
Mad money, indeed.
January 6, 2003
The Indian River Power Plant in eastern Sussex County is the biggest electric power source for Southern Delaware. A 1999 study reported that it generates 784 megawatts (MW) during the summer peak season.
The plant also generates a few other things, including environmental controversy. Here’s what the Mid-Atlantic Environmental Law Center wrote in a letter to the Delaware Department of Natural Resources and Environmental Control on September 18, 2002:
A story in today’s Associated Press notes that another power company has a proposal that could go far toward replacing the Indian River plant’s capacity with far less pollution.
On the other hand, if the environmentalists’ reactions described in the AP article are any indication, they might not like this new alternative to the old coal-fired plant any better.
It’s a wind farm, placed on a few hundred platforms just offshore:
Naturally, the company representative suggests an alternate reality:
The AP report concentrates on the company’s proposal for a wind farm off Virginia’s Eastern Shore, near barrier islands owned by The Nature Conservancy.
The Delaware wind farm proposal is for a 67 square-mile area just a short distance from Sneaking Suspicions’ stately manor. According to the company’s web site, the Indian River farm would use 306 3.5MW turbines, on platforms at least 3.5 miles offshore.
As one might expect, Winergy appears to have done its homework on the major elements of any likely environmental impact study. Here’s their discussion of the Indian River site:
This proposal will most likely generate significant debate around here, if one can excuse the obvious pun.
Among other issues, the fact that marine mammal life is not much in evidence at the proposed wind farm location now is no indication that it won't be once the platforms are in place. If the experience of Gulf Coast and California coast oil rigs is any indication, there will be a surprising amount of marine life in the presence of these wind farms in very short order. Around these parts, with marine life usually comes marine mammal life, in the form of hungry dolphins feeding on their prey. This fact will certainly be addressed in the discussion about these farms, as the local commercial and sport fishing industries catch on to the possibilities.
In addition, the primary objection to these wind farms seems to be fundamentally aesthetic. Some will argue that they shouldn't have to look at these windmills while they sunbathe at the beach.
On the other hand, the Indian River power plant smokestack is readily visible to the west from the changing station at Indian River Inlet, the ocean-side state park area closest to the proposed wind farm. In addition, it’s not as if one’s views from the Delaware beaches are completely pristine now. The large ships frequently and easily seen offshore are among the world’s largest oil tankers, after all.
I’ll bet that the Delaware deliberations will center on how far these platforms can be economically placed offshore, to remain in relatively shallow water but with a reduced visual impact from the beaches.
The fact that the wind farm proposal might also provide the basis for eliminating the old coal-fired plant at Indian River will also be a major part of the discussion.
January 5, 2003
A Washington Post story today about black rats helps to illustrate an anti-immigration policy most people would support.
These particular rats crawl over the Channel Islands off Southern California. They are not native to the place, and are blamed by naturalists for eating the eggs and otherwise destroying the lives of several species of birds who are native to the area:
The unusual feature of this story is that two animal rights activists have been arrested for trying to block the rat extermination efforts of the National Park Service.
Rob Puddicombe is charged with bringing vitamin K-rich kibble to the islands. The vitamin K is an antidote to the particular kind of poison used to kill these black rats:
The rats' lives may have value, but let's not forget that humans caused the conditions for the rats' emigration to a place where the natives can't deal with the threat they pose. The plain fact is that there are some places rats just shouldn't be, and based on the quotes from The Nature Conservancy folks and others in the Post article, these islands are among them. Erik Aschehoug of the Conservancy described the situation concisely:
Sometimes it seems that some folks will take a political position out of sheer cussedness. If a particular entity or person stakes out a position, their opponents can be counted on to denigrate it, regardless of the proposal's true merits.
The Park Service is frequently the target of criticism, and sometimes it's justified.
This is simply not one of those times.
These particular foreign invaders should be stopped.
January 4, 2003
A local town controversy over time-share units in former hotels raises an interesting voting rights question or two:
Last week the Dewey Beach town council voted to place a temporary moratorium on the conversion of properties to time-share arrangements. Three hotel properties are up for sale now. Apparently there were concerns that the number of potential voters would literally increase while the council continued their discussions.
During the municipal elections last year, the little beach resort had a huge fight on its hands regarding this same issue.
Bob Frederick, the town’s then-mayor, argued against the notion that folks who bought the standard quarter-share in a former hotel room or suite should have the same voting rights as other property owners. His argument didn’t carry the day, however, and in fact he was ousted after serving four terms.
Unlike some municipalities and other political subdivisions in Delaware and elsewhere, Dewey Beach’s charter grants voting rights to property owners, and not simply residents. That arrangement is pretty common in resort towns, where the number of those living year-round is frequently dwarfed by the number of property owners.
These charter provisions also typically include council membership restrictions that are also intended to maintain equilibrium between the potentially competing interests.
At least one person was happy with the new moratorium:
Given the peculiar dynamics of resort communities, I think it makes sense to expand voting rights beyond those who choose to live there year-round. I also believe there is merit to Frederick’s concerns that the delicate balance of those interests would be upset if all time-share owners were given the exact same voting privileges as enjoyed by the normal fee owners.
In other contexts, such as corporate law, the notion of fractional voting shares is perfectly acceptable. Therefore, it seems to me that a similar change in the voting rights provisions in Dewey’s Town Charter, to permit a similar fractional voting right for time-share owners, would be an acceptable and practical compromise.
January 3, 2003
Our family very much enjoyed our recent trip to New Orleans, for which this site’s recent blogging break was a simple side effect.
During our stay I managed to indulge my inner wonk by reading the Times-Picayune cover-to-cover.
Reading the local daily newspaper is often a great way to find out how much a place resembles one’s own, and how much it doesn’t.
For example, it’s no secret to Louisiana residents that much of their state’s revenues are derived from oil and gas severance taxes, thus relieving the citizens from some of the direct costs of government.
In the same fashion, it’s no secret to Delaware residents that much of their state’s revenues are derived from corporate and banking taxes, thus relieving the citizens from some of the direct costs of government.
In both cases, however, the need for state revenues far outstrips these indirect sources. These two states, along with most others, must now make some hard choices.
Paul Krugman wrote an op-ed piece recently in which he suggested the particular approaches that states would take in finding new money during the current fiscal crisis:
Krugman may have a point or two about parts of his analysis. On the other hand, he’s simply wrong about Louisiana and its recent tax policy choices.
This week a new change in the state constitution takes effect. The Bayou State’s former heavy reliance on sales taxes is being replaced by changes to its progressive income tax system:
The Times-Picayune editorial writers approved of the change in tax incidence:
As for the alleged lack of help from Washington, whether Krugman is wrong on that point as well might just depend on what the meaning of “help” is.
Unlike their Federal friend, state and local governments can’t print their own money. If they need the cash, and either can’t or won’t make some spending cuts, then the smaller governments must raise their taxes and fees to make up the difference.
One could argue with a straight face that one of the effects of implementing additional tax cuts at the Federal level is that more money would then be available for the states to tap.
At the state and local political level, however, there are quite a few folks who would suggest that particular kind of Federal help is not what they’d prefer. That’s one of the reasons why we’re now reading revived discussion about Federal revenue sharing instead, from economists such as Max Sawicky.
Unlike Louisiana, Delaware has no general sales tax. Any politician who would propose it exhibits far more suicidal tendencies than any other character trait. Instead, the Blue Hen State’s personal income tax is the prime source of direct taxation of its citizens. The Minner Administration will soon announce which revenue-raising options she will seek to eliminate the projected state budget deficit, as part of her upcoming State of the State address.
I have a feeling that Krugman will prove to be just as wrong about Delaware and its eventual tax policy choices as he was about Louisiana.
Official small print disclaimer: This is, after all, a personal web site. Any opinions or comments I express here are my own, and don't necessarily reflect the official position of my work as a government attorney or any of my clients.
That fact may become obvious later on, but it needs to be said here anyway.
© Frederick H. Schranck 2002