Living with privatization: at work and in the community.

PositionSymposium - Panel Discussion

MS. O'CONNOR: Good afternoon. Welcome back to the Fordham Urban Law Journal's Tenth Annual Symposium on Contemporary Urban Challenges. The title of our Symposium is Redefining the Public Sector: Accountability and Democracy in the Era of Privatization.

This third panel will be on "Living with Privatization: At Work and in the Community." It is moderated by Professor Jerry Mashaw from Yale Law School. Thank you.

PROFESSOR MASHAW: Thank you very much. I am delighted to be here. You know that you are at a cutting-edge gathering when the panelists start arguing about what the topic is, which of course is what we have done through part of the morning. This suggests that there actually is something interesting to talk about.

This afternoon, we have a remarkable panel of people, both practitioners and academics, and some of them both academics and practitioners. Indeed, as I look at their bios, I want to ask them, "What is your day job?" Everybody on this panel seems to have about six jobs, and I am not sure which job they are going to be speaking from, but we will find out. Sheryll?

PROFESSOR CASHIN: It is an honor and a pleasure to address you.

I am going to talk about a phenomenon known as "common interest developments." (1) We are a nation of homeowners. I am a former Clinton Administration official. (2) The Clinton Administration took great pleasure in noting that home ownership in the United States reached an all-time high of sixty-seven percent on its watch. (3)

Common interest developments--and I am going to use the acronym CID--are residential developments with a homeowners' association. CID residents are required to pay a fee, like a tax, to a homeowners' association, which in turn provides an array of services. The most common services provided by the homeowners' association are landscaping, snow removal, garbage pick-up, swimming pools, street lights, and street cleaning. So the fee feels like a tax to residents. Typical examples of CIDs are planned unit developments, condominiums, and apartments.

As of 1998, forty-two million Americans were living in CIDs--approximately fifteen percent of the U.S. population. (4) About eight million of those people live in what are called "gated communities," where an actual gate or barriers encircle the development. (5)

We have seen an explosion of private governance arrangements--homeowners' associations--that govern neighborhoods both through the provision of services and through mutual, restrictive covenants and agreements that the homeowner's associations enforce.

In 1964, there were only 500 homeowners' associations in the United States. (6) By 1998, that number had reached 205,000. Observers of this trend estimate that every year 10,000 new homeowners' associations are being created. (7) By one estimate, in the year 2000, approximately twenty percent of all homeowners in this country lived under the governance of a homeowners' association. (8)

In my paper, I argue that the private contractual arrangement for the provision of formerly publicly-provided services is putting the nation on a course toward civic secession. (9) I am not the first person to say something like this. Robert Reich, the former Secretary of Labor, wrote a famous article in The New York Times, called The Secession of the Successful, in which he discussed this phenomenon. (10)

The wedge begins with the creation of a class of property owners, members of which increasingly feel that they are paying twice, in the form of local taxes and their fee assessments, for services. This attitude threatens to predominate among the upper and affluent classes because in many areas where there is new development, particularly in the South and West, common interest development is the dominant form of ownership.

The schism widens when you consider the quality of response to community membership that the CID cultivates. Surveys have shown that CID members, particularly in gated communities, tend to think of themselves as taxpayers rather than citizens. (11)

Several states--including New Jersey, Texas, Maryland, and Missouri--already allow for adjustments to local taxes paid by CID residents. (12) At first blush, that seems fair. The residents' argument is that: "We pay for things ourselves that are public goods; we maintain open spaces that the public gets to use." (13)

But an intellectual firewall already has been crossed. The prevailing theoretical argument was that the Tax Code should never be used to support things that are not public in nature and that are not wholly available to the public.

As of 1996, there were a couple of examples violating this principle. There is a private gated community in New Jersey, called Panther Valley, and its residents currently deduct from their federal and state income tax returns the fees they incur for the maintenance of private roads that the public is not allowed to use. (14) And there are other examples of such tax adjustments in Florida. (15)

This and other forms of what I call civic secession have been happening across the country. At its extreme, a CID incorporates and becomes its own municipality, thereby gaining the right to regulate, primarily through zoning powers. It also uses powers in a way that is the familiar, unfortunate way of the American suburb--to wall out undesired populations.

In my paper, I present what I call a "theory of secession." I analyze how CIDs attenuate the social contract. I am neutral as to the benefits that CIDs provide to the people who live in them. It is probably more efficient for residents; they probably receive better service. I am neutral as to that. However, in this paper, I am arguing about the larger social cost.

My central theoretical argument is that a governance mechanism, the primary impetus of which is the protection and maintenance of private property, cultivates an attitude of selfishness because it is premised on private property. I am not against private property, but the whole theory that brought private property rights into creation--at least one of the predominant theories--is that it enabled people to maximize as much of the benefit as possible and internalize more of the costs associated with a piece of land.

The quality of the relationship that cultivates between the individual and the state is one of a private property owner, rather than a citizen. (16) Empirical surveys show that the quality of community within a CID, or a gated community in particular, is not better than non-CID communities. (17) In fact, CIDs tend to have a heightened free-rider problem, in which people rely on the fact that the homeowners association takes care of everything. (18) An agreement in which the basis of the arrangement is simply the ability to facilitate people collectively paying for services does nothing to engender a participatory consciousness. Consider the implications of this type of community ethos when, in twenty-thirty-forty years, most homeowners, certainly in the outer-ring suburbs, live in these kinds of communities.

The more important point is that CIDs are highly homogeneous by race and class. (19) Again, that is no different than what you see in suburban development. I think this homogeneity contributes to the phenomenon of civic secession.

There is empirical research--which you can read in my article about localism, in the July 2000 issue of the Georgetown Law Journal--showing that communities are much less likely to cooperate with other communities that are different from them in terms of racial or social backgrounds. (20)

Indeed, gated communities and CIDs are generally most common in those parts of the country where foreign immigration has been highest. (21) There is definitely a fear element that animates the formation of these communities.

Another potential problem that contributes to the likelihood of further secession, or further receding from civic engagement, on the part of people who live in these communities is that this form of privatization is going on mainly in new developing communities.

CIDs are going to continue to predominate in new developing communities, where there is the highest population growth. (22) You are not going to see many of them in existing communities, because the transaction costs are higher for organizing people in an existing community to agree to a set of rules and regulations.

We already are beginning to see evidence of secessionist attitudes. Many CIDs now have associations that lobby state governments, particularly for tax adjustments. (23) I think you are beginning to see--and I will discuss this in my paper--evidence of secessionist voter attitudes in electoral politics. (24)

The outcomes of most fiscal debates, particularly at the state level, are determined primarily by middle-class suburban voters, (25) and I contend in my paper that you are going to see an acceleration of parochial attitudes with CID development. (26) Thank you.

PROFESSOR DONAHUE: I also am a former Clinton Administration official. (27) I always enjoyed working with Sheryll. We were sort of colleagues, but always working in different areas, and I feel like we are continuing that tradition. My topic is quite different from hers, illustrating the richness of this broader conversation.

The context of my observations, and really the content of my broader research, (28) has a lot to do with the subject of the first panel today, (29) and I would like to echo a few of those themes again, just to set the context.

One, government is undergoing a period of accelerated evolution somewhat comparable to, somewhat parallel to, but different in important details and somewhat delayed from, what the private sector has gone through in recent decades. (30) This evolution entails significant risks, for sure--the imperative to update our conceptual apparatus to catch up with reality--but I am moderately hopeful that, on balance, this evolution will bring more good news than bad news.

One thing I am pretty...

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