June 5, 2006

Kelo-New London Council Meeting Watch (Result: 5-2 Vote to Evict Kelo and Cristofaro)

Filed under: Economy,Taxes & Government — Tom @ 11:04 pm

June 6, 3:15 p.m.: Welcome to Michelle Malkin readers, and thanks to Michelle for the link. Go here for the complete collection of Kelo-New London posts, and here for today’s latest (don’t forget the money the town wants from the holdouts).
________________________________________

11:55 — Signing off; the evictions story is going out all over the country. One thing is certain: This sad, sorry saga is not over. Come back in the morning, as I’m sure there will be lots more reaction.

11:25Immediate reax is strong, from this updated AP report at The Day (check out the naming of the hyperlink :–>):

….. Scott Bullock, a lawyer for the Arlington, Va.-based Institute for Justice who represents the residents, said the homeowners can still fight the city. He said they’ll be considering appeals to state government to ask that state funding for the development be pulled. He said they also may engage in civil disobedience.

“This is a civil rights struggle to save poor and working class people from eminent domain abuse,” he said.

City Councilor Robert Perro supported the effort to remove the families. He said the issue has been through state agencies and three courts.

“This was a plan that was well thought out,” he said. “The development of this peninsula needs to move forward.”

But Charles Frink, one of the two councilors who opposed seizing the properties, criticized supporters, saying they should admit they made a mistake.

“I can’t accept a possible reduction in taxes by having neighbors thrown out of their property,” he said. “This is morally abhorrent to me. I refuse to profit from my neighbor’s pain.”

11:05 p.m.It’s official. It doesn’t surprise, but it does disappointCouncil voted 5-2 tonight to evict:

NEW LONDON, Conn. – City officials voted Monday night to evict residents who refused to leave their riverfront homes, signaling that the end is near in an eminent domain dispute that reached the U.S. Supreme Court.

The City Council approved the action 5-2. The city attorney will now go to court to seek removal of the remaining two families and obtain the properties in the Fort Trumbull neighborhood, a process that could take three months.

So here’s where things stand after all of the events of today (The Google map isn’t current, as most properties in the area have been razed, but the status of the identified properties is accurate):

Kelo0605vote

Excuse the simplistic phrasing, but all Council had to do is:

  • Follow through on the existing understanding to move the red square (Kelo) and the orange square (Cristofaro) to some undetermined location in Parcel 4A (probably in the northern or northwest section) at state expense.
  • Agree to give Kelo and Cristofaro the immediate-family-transfer titles the Governor recommended.
  • Let the high-powered and politically-connected red square outlined in black, The Italian Dramatic Club, stay right where it is, since they’re apparently (excuse the allusion) untouchable.

This could have been over and done with tonight. But nooooooooooo. Mr. Frink above is right when he calls this “morally abhorrent.” The IDC stays, and if Council has its way, Kelo and Cristofaro will be dragged out of their homes kicking and screaming. Way to go, people — You continue to be Exhibit A as to why the Kelo Supreme Court ruling was so wrong, and in so many ways.

10:55 p.m. — Google News is up to 53 outlets for tonight’s story, coast to coast.

10:40 p.m. — Just came across this at The Day — Go to the end of this post to see the most of the letter Scott Bullock sent to Connecticut Governor Rell earlier today. In it, he mentions the special treatment given to high-powered and politically-connected Italian Dramatic Club, whose building isn’t being taken, or even moved. (see this post for background)

10:25 p.m.And then there were twoThis updated AP report is saying that “One of them (the homeowners) agreed to a settlement just minutes before Monday’s meeting began, The Day of New London reported.” Here it is (missed it at The Day’s site for 90 minutes, because it wasn’t where I expected, darn it) — As I would have expected, it’s Mr. Von Winkle:

Minutes before Monday night’s City Council meeting, a fourth plaintiff in the six-year legal battle over the use of eminent domain in Fort Trumbull reached a settlement with the city and its development agency.

William Von Winkle, the owner of an apartment building and a house on Smith Street, agreed to sell his properties to the New London Development Corp. for an undisclosed sum.

The map will get updated tonight, but essentially that leaves the holdout-occupied properties of Susette Kelo and Cristofaro. Scott Bullock told me earlier today that they had not been in contact with Mr. Von Winkle since Mr. Von Winkle’s son was tragically shot to death a week ago. Unexcerpted portions of Bullock’s letter at the end of this post refer to Mr. Von Winkle’s situation as a landlord and not a resident. Both those facts lead me to believe that Mr. Von Winkle’s settlement was a surprise to the remaining holdouts.

One might think that this would make it easier for the Council to give the titles to Kelo and Cristofaro, but if past form holds, Council might feel emboldened to dig in its heels even deeper.

10:10 p.m. — Tonight’s story from New London is getting picked up all over the country, and I expect the number of outlets to snowball. Papers in DC, FL, LA, MN, and MI have the story, as does the Forbes web site. No fresh news is in the latest story. The claim that the eviction process would take 1-3 months is contrary to the three-month minimum Scott Bullock at The Institute for Justice has claimed the process would take in the past. By the way, did you notice the irony in Mayor Sabilia’s reference to “the home stretch”?

10:00 p.m.This unattributed report at WFSB in Hartford explains why so much of the country doesn’t understand the ugliness of what is happening in New London:

It’s a development plan a decade in the making. New London’s city council wants to revamp the Fort Trumbull neighborhood. The city hopes to put a hotel, convention center, and condos in the area, but to do that it will have to evict three homeowners, who are refusing to leave.

People, that is horsecrap. Everybody agrees that if the houses get moved to Parcel 4A, they won’t be in the way of anything. Got that?

9:10 p.m.AP has a story saying that a vote hasn’t been taken yet:

New London preparing for evictions in eminent domain dispute
June 5, 2006, 8:40 PM EDT

NEW LONDON, Conn. — City officials were preparing Monday to begin eviction proceedings against residents who refuse to leave their coastal Connecticut homes, a move that could signal the end is near in an eminent domain dispute that reached the U.S. Supreme Court.

“I anticipate we are headed into the home stretch,” New London Mayor Elizabeth Sabilia said Monday morning, hours before the City Council was due to vote on whether to evict the three families remaining in the Fort Trumbull neighborhood.

The meeting was under way Monday night. No vote had been taken as of 8:30 p.m. About 100 people filled the meeting room, a hallway and an adjacent room.

Michael Cristofaro, one of the Fort Trumbull holdouts, spoke out against the property seizures.

“Just give us back our deeds,” Cristofaro said. “You are not being straight with us or the public. You are not listening to the general public.”

Cristofaro singled out five of the seven council members who favor taking the property.

“You are a disgrace to the city, the state and the nation,” he said.

….. One local resident who spoke Monday night, Donald Harrington, was against Rell’s plan.

“What right has she got to tell the city of New London what to do?” he asked.

An eviction process, which includes another court fight, would take a month to three months.

….. (The Institute for Justice’s Scott) Bullock said he doesn’t think the city wants the publicity that will come with razing the homes.

“It would be a disaster, evicting Susette Kelo from that pink house that nearly everybody in the nation recognizes by now, when you’ve got a proposal from the governor on the table,” he said.

______________________

EARLIER TODAY, Scott Bullock sent a letter to Connecticut Governor Jodi Rell. Here’s most of it, which in essence says that the legalistic concerns Mayor Sabilia and The Day’s editorial raised in the past couple of days are weak to nonsensical:

Dear Governor Rell:

On behalf of the remaining Fort Trumbull residents, I write to thank you for your statement on Friday supporting returning deeds to familial residences in the area. All Susette Kelo and her neighbors wish is to own their homes, to be good neighbors to the new occupants and businesses in this neighborhood, and, if they choose, to pass these homes down to other family members.

Your proposal now makes this a very realistic possibility. The remaining residents of Fort Trumbull and a vast majority of the public support your leadership in finding a way out of this ongoing crisis. It is our hope that the City Council approves your proposal this evening so that years of litigation, controversy, and national scorn for the City of New London can finally come to an end.

It was distressing to see New London Mayor Elizabeth Sabilia’s June 2, 2006 return letter to you, where she claims that returning the deeds to the Fort Trumbull folks beyond a “lifetime occupancy” would violate the Municipal Development Plan (MDP), New London’s zoning regulations, and the State of Connecticut’s “financial endorsements” of the plan. This is simply not the case. As the trial in the Kelo case demonstrated, there is very broad discretion in determining what is a “substantial” or “minor” change to the MDP. Indeed, the New London Development Corporation (NDLC) decides whether something is a substantial change, subject to agreement by the DECD. Obviously, it is within the power of the City and NLDC to simply classify the decision to retain some of the homes as a minor change. In fact, counsel for the NLDC testified at trial that only impossible changes would violate the MDP. ….. Clearly, saving a few homes in this area, when the plan in fact calls for new residences, would not violate the MDP.

Furthermore with regard to the MDP, perhaps the best evidence as to why your proposal would not violate the MDP is the fact that the City and the NLDC approved retaining the Italian Dramatic Club (IDC) in the municipal development plan area, with the IDC maintaining full title to the property (even without the right of first refusal proposed by you for the remaining occupants of Fort Trumbull).

This decision was not considered a violation of the MDP nor any other applicable law. Surely, if the IDC, which was slated for acquisition and demolition under the MDP, can be maintained, so can a few homes in the neighborhood.

The City also wrongly claims that giving the deeds back to the property owners would violate New London’s zoning ordinances. Most importantly, a decision to keep plaintiffs’ homes would not even require a, change in the zoning code. All the existing properties are “grandfathered” into whatever land use changes were made for the area. ….. Even leaving aside the fact that the existing homes are grandfathered, a similar modification of the zoning regulations could be made in this instance, just like it was for the IDC.

With regard to the City’s third concern, I simply do not understand how your proposal would violate any financial “endorsement” of the plan by the State. If there were any problems, it seems like those could easily be addressed. Like her other arguments, it seems like Mayor Sabilia in her letter is grasping at technicalities that have no basis in the law.

….. Again, thank you very much for your efforts on behalf of the Fort Trumbull residents.

We would be happy to answer any questions you or any of your staff may have on this issue. I hope the City Council will vote in favor of your recommendations so that this controversy and ongoing dispute can finally end.

Scott G. Bullock
Senior Attorney

New London’s Council Meeting Tonight May Be a Rubber-Stamp Event

Filed under: Economy,Taxes & Government — Tom @ 5:04 pm

UPDATE, June 6: Contrary to the expectations of the person I spoke to before the meeting, there was a 2-hour public comment period during the meeting, as reported by The New London Day (registration required after one day, paid subscription after one week):

“Do the right thing, the ethically right thing. Go beyond the law, give back the deeds,” Sandra Beachy, a city resident, said.

She was one of 18 people from around the state who spoke in favor of Rell’s proposal and in support of the former property owners at Fort Trumbull during the public comment portion of the meeting. Three said they supported the city’s Fort Trumbull redevelopment plan.

“I am here tonight to give vocal support to those councilors who have been working so hard to find a resolution,” said Margo Bernier of Ocean Avenue. “Once the Supreme Court made its decision, we considered it an accomplished fact, a done deal. The highest court in the land made its decision, and whether one agreed with it or not, it was time to move on.”

Comments from Kelo, Cristofaro, and others are addressed elsewhere.
________________________________

Reviewing the agenda (click on today’s date at the link to download the PDF file) of tonight’s New London City Council meeting, two things stick out:

On Page 2 (Item b):

Council060506

I have been told by someone close to the situation that the referral of the Rell and Sabilia letters to committee may be an attempt to prevent any kind of discussion, debate, and/or public comment at the Council meeting. Though I’m not close enough to the situation to be sure, this looks to potentially be a deliberate slap in the face directed at Governor Rell.

Then on Page 10, there’s this little gem (Item 2):

Council060506exec

This would appear to be an attempt to ensure that any discussion between and among Council members of the legal situation takes place outside of public scrutiny.

Someone more familiar with state and federal laws on parliamentary procedure and the like will have to let me know if this apparent attempt to shield Council members from the unpopularity of their positions is in violation of any kind of Open Meeting or Sunshine laws.

Regardless, it doesn’t say much for Council’s eminent domain-supporting majority (four Democrats and one alleged Republican) that they appear to be unwilling to hear the reaction of the holdouts, other city residents, or the two members of the One New London Party minority to what is undeniably a fresh and new proposal from the Governor to break the stalemate. It looks like their minds are made up, and they don’t want to risk any reasonable attempts at persuasion.

The apparent outrages never seem to stop.

FLASH: New London Council Expected to Ignore Gov’s Plan, May Initiate Evictions; Ah, But the Italian Dramatic Club Stays

Filed under: Economy,Taxes & Government — Tom @ 2:45 pm

Just off the wires from the AP:

New London preparing for evictions in eminent domain dispute

NEW HAVEN, Conn. — City officials were preparing Monday to begin eviction proceedings against residents who refuse to leave their coastal Connecticut homes, a move that could signal the end is near in an eminent domain dispute that reached the U.S. Supreme Court.

“I anticipate we are headed into the home stretch,” New London Mayor Elizabeth Sabilia said Monday morning, hours before the City Council was due to vote on whether to evict the three families remaining in the Fort Trumbull neighborhood.

….. But a 5-4 Supreme Court ruling last year upheld the city’s right to take the homes. Since then, all but three people have settled with the city, taken money and left.

Gov. M. Jodi Rell has proposed letting the holdouts remain in their homes but giving the city the right of first refusal if the houses ever were sold.

“Tonight’s a really big night,” said Scott Bullock, an attorney for the residents. “They have the chance to accept the governor’s proposal and resolve this once and for all.”

Sabilia said Rell’s proposal won’t be approved. With the settlement deadline expired, the City Council was to vote Monday night on whether to begin evictions.

“The balance of councilors are staying the course,” said Sabilia, who also votes on the council.

An eviction process, which includes another court fight, would take a month to three months.

For what it’s worth, I don’t believe the Derys, the Beyer tenants, or the Brelesky’s have all “taken money,” and I’m virtually certain that all of them (or their tenants) have not “left.” Saying that they have “accepted monetary offers and plan to leave” is more correct. I informed AP writer Matt Apuzzo of this, and it appears that if there are indeed inaccuracies in that phrasing, they’ll be corrected.

Ah, But The Italian Dramatic Club Stays

Hours before he was to leave Washington for New London’s Council meeting tonight, Scott Bullock of The Institute for Justice was nice enough to speak for a few minutes with me about the situation (this was just before the AP report above hit the wires).

Scott for the most part confirmed my understanding of the situation, but told me three things I didn’t know:

  1. The Cristofaro family has used their home as a family starter home for generations, making their ability to hold the title and continue to use it in its traditional manner all the more important.
  2. The current development plan calls for mixed-use residential development in the areas where the remaining homes are (you read that right).
  3. Finally, Scott also brought up one incredibly important point from many years ago that I was not aware of: A building I previously did not know about, The Italian Dramatic Club, was exempted from eminent domain, and is staying. Accordingly I have added it to the map:

KeloWithIDC060506

Here’s the what and why (about 1/3 of the way down the linked page) behind the Italian Dramatic Club’s ability to remain:

A notable exception to the NLDC’s plan to clear-cut the neighborhood is the Italian Dramatic Club, a politically connected “social club” of Connecticut’s political establishment, which is located in the very same neighborhood as all the homes targeted for destruction. Among the Italian Dramatic Club’s patrons was former Connecticut Gov. John Rowland, who helped direct much of the State funding for the NLDC’s work in New London and who resigned in June 2004 amid an ethics scandal. The club was informed in September 2000 that it could remain in the neighborhood. The un-elected NLDC decision to preserve the politically powerful Italian Dramatic Club while demanding that New Londoners move out led Fort Trumbull homeowner Matt Dery to quip that the NLDC’s actions in his neighborhood have been both shameful and shameless.

Scott also told me that the running joke in New London is that the Italian Dramatic Club can stay, but the Italians in the neighborhood have to go.

What, a, sick, joke.

I don’t know how to characterize the city’s/NLDC’s treatment of the Dramatic Club as anything other than breathtakingly naked favoritism that is so obviously unfair both to those who have lost their homes and those who are holding out that it doesn’t even merit a counterargument.

(Aside: Why in all of the news accounts I’ve read in the nine months I’ve been covering this story has The Italian Dramatic Club’s ability to stay never been mentioned?)

This “dramatic” exception, combined with the fact that residences are planned for the area where dozens of homes have been destroyed (I can’t believe I just typed that), show more than anything else why governments shouldn’t be in the business of taking private property for non-public purposes, and why the Supreme Court’s Kelo decision was so very, very wrong. The fact that the Supreme Court ruled as it did, in full knowledge of the arbitary Italian Dramatic Club exception, is simplly incomprehensible.

The city’s 10-year exercise in eminent domain, including tonight’s apparently foregone conclusion, based on the AP report above, that it will reject Governor Rell’s perfectly sensible solution, shows to me that this has always been more about the exercise of arbitrary power than anything else even remotely high-minded.
___________________________

UPDATE: MuD & PhuD detects the crud — “this is absolutely un-freaking-believable. Our countrymen are going to have their property stolen from them under the (very credible) threat of physical violence while this pissant little group of ‘politically connected’ POSs get to keep their club. Does anyone out there still want to argue that this is anything other than an outright, egregious abuse of power? ….. There is a (council) meeting this evening. If you’re in the area go and support the last three homeowners standing up for liberty.”

Kelo New London Crunch Night: The Map, The Situation, The Homes, and Advance Commentary Roundup

Filed under: Economy,Taxes & Government — Tom @ 2:43 pm

This post will be updated and kept near the top through most of the day. For full background, go to The Kelo New London Collection.
____________________________________

The Map:

The image is from Google Earth. It is not current in that most of the properties except those of the holdouts have been razed. The placement and status of the holdout and recently settled properties is up to date. The map has been updated for Italian Dramatic Club’s “exceptional” presence, i.e. its ability to stay (see this post for more).

KeloProps060406

The Situation:

  • As of early last week, the City of New London and the New London Development Corporation (NLDC) had proposed that the holdout-occupied homes (not the rental properties) be moved to an area with Parcel 4A that is not in the way of current development plans; that the NLDC would retain the titles to the properties that were taken back in 2000; and that the holdouts would pay rent for the rest of their lives or until they vacated the premises, whichever came first. (Everyone agrees that the Kelo and Cristofaro homes are holdout-occupied; there is disagreement as to whether one of the three Von Winkle properties will be considered holdout-occupied for settlement purposes.)
  • The holdouts had agreed to the movement of the holdout-occupied properties, but had refused to accede to the idea of paying lifetime rent.
  • Council had imposed a dealine of May 31 on the holdouts for agreeing to house movement and lifetime rent, or face $946,000 in assessments for back rents, property taxes, and other fees.
  • As the Council’s deadline passed or shortly thereafter, three of the six holdouts (identified on the map above) settled.
  • In two letters to New London Mayor Elizabeth Sabilia last week, Connecticut Governor Jodi Rell made it very clear that she feels the resident holdouts should be given titles to the homes that are transferable to immediate family members. Any attempted sale to non-family members would trigger a right of first refusal by the City.
  • In a letter, (go to Update 4 at link) New London Mayor Elizabeth Sabilia responded to the Governor by insisting that any title transfers (what Sabilia refers to as a “deed of …. [life-time] interest” in her letter) be limited to only the lifetimes of the current holdouts, and not be transferable to immediate family members. That letter from Sabilia, by inference, appears to mean that the idea of lifetime rent and NLDC retention of the titles has gone by the wayside.
  • The mayor was also memorably quoted as saying that “There are people in the City of New London who are livid, absolutely livid, that this has gone on this long. It’s the majority I’ve been hearing.” This seems to fly in the face of three things: an online but still likely reliable New London Day poll last week that showed 78% support for the holdouts’ position; resident sentiment that has continually been expressed in favor of the holdouts at previous council meetings; and the near electoral coup last November, when the Council’s three-vote Democrat majority was cut to one, and survived the loss of majority status by only 19 votes. Council’s current makeup is four Democrats (including Sabilia), one Republican, and two members of the upstart One New London Party.
  • It is probable that the majority only survived because of what many believe was an orchestrated and insincere “divorce” by Council from the NLDC after the NLDC had earned nationwide scorn for its heavyhanded issuance of eviction notices and demands for back rent and taxes last summer, in defiance of Governor Rell’s request for forbearance. Council and the NLDC “reconciled” two weeks before the election after the head of the NLDC stepped down.
  • Tonight, Council decides tonight whether to go with the Mayor’s, the Governor’s, or some other alternative.

The Two Holdout-Occupied Homes:

Kelo House Cristafaro
The Kelo and Cristofaro Homes

New London Day Letter to the Editor Nails It

In advance of tonight’s New London City Council meeting, where the fate of the Kelo holdouts largely hangs in the balance, Sara Ingram of Deep River, CT tells The New London Day why it’s so important (Day link requires registration, and paid subscription after one week):

Eminent Domain Shows How Power Can Destroy

Every day I read The Day to see what is happening to Susette Kelo’s property because what happens to the “little pink house” defines what it means to live in a democracy. Can the rich working in groups really steal from the poor? Why do the leaders of the New London Development Corp., (NLDC) who do not live in New London, make decisions for those living there? Why would any middle-income person buy property and fix it up as an investment, if the city could decide that it wanted the land for a building that would bring more tax dollars? Why keep your property nice if the government is going to condemn it?

….. There can be no reason the NLDC needs the existing homeowners’ properties to go on with development plans if they are offering the homeowners lifetime use of the properties.

Title to the properties should have been given back to the homeowners, and the city could build around them. We all know that stealing is a sin.

Rossputin Writes to Rell

Blogger Rossputin’s letter to Connecticut Governor Jodi Rell said, in part:

The Supreme Court Kelo decision was a travesty, a disgraceful abandonment of the Constitution, obviously wrong, and one of the gravest threats I have ever seen to the basic foundation of American life: one’s home.

I urge you to use every official power, every bit of moral suasion, and any other method you can think of that is not illegal to save Ms. Kelo from the rapacious city council and their devilish alliance with land-grabbing developers.

I am an ardent capitalist. I have nothing against big business, land developers, etc. But business is done by handshake, not at the point of a gun. What is happening to Suzette Kelo is simply theft. You, as the highest state official in Connecticut owe it to her to defend her from the criminals even if those criminals were also elected.

New London Day Editorial Makes One Point Crystal Clear

The editorial unsurprisingly comes out in favor of Council holding its ground, siding with the mayor, and rejecting the Governor’s proposed solution. The editorial’s biggest point, and probably the most revealing window into the thought process of the city’s power structure that we’ll see before tonight, is this (requires registration after one day, and paid subscription after one week):

The governor’s plan would transfer the titles back to the former property owners. Mayor Sabilia’s plan would not.

The rest of the editorial raises what appear to me to be very specious legalistic objections. When I spoke with Scott Bullock at The Institute for Justice earlier today, he agreed with that assessment, which seems credible to me, given the “exceptional treatment” of the Italian Dramatic Club mapped above and discussed at the next post.

As noted above, Mayor Sabilia calls the lifetime tenancy she and Council favor a “deed of …. [life-time] interest.” It’s clear they will do anything and everything but allow those precious titles to go back to the holdouts. From here (especially given the new items I’ve learned that are in the next post), it appears that there’s nothing other than that three-letter word that starts with “e” and “o” preventing them from doing so.

Told You: SarBox Is Causing More Companies to Go Private, and Causing IPOs to go Elsewhere

Filed under: Business Moves,Economy,Taxes & Government — Tom @ 11:27 am

From Saturday at OpinionJournal.com:

Kinder Morgan unveiled the largest management-led buyout in history this week, with top executives proposing a $13.5 billion deal that would make the oil and gas pipeline company a closely held firm. Let’s hope this event isn’t lost on Congress, whose regulatory fervor is one reason many companies are fleeing the U.S. public capital markets.

Private equity is booming, and sweeping up U.S. business in the process. Fifteen years ago, a handful of private-equity firms managed a few billion; today, more than 250 firms control some $800 billion in capital. Buyouts magazine, which tracks private-equity deals, estimates that nearly $175 billion in new money flowed into U.S.-based private-equity firms last year alone, including giants such as Blackstone, KKR and the Carlyle Group.

That money has in turn been driving a spate of public-to-private deals that are growing in both frequency and size. Kinder Morgan is big, but last year also saw some gigantic buyouts, including those of Toys “R” Us, SunGard Data and Hertz. By the end of May private-equity firms had sealed more than $61 billion worth of deals, compared with $51 billion recorded at the same time a year earlier.

….. At least part of the strength of private equity is a direct result of the problems besetting public markets. Public-to-private deals are in fact lengthy and costly and can lead to unpleasantness with shareholders–often via lawsuits. The fact that so many companies have nonetheless been willing to take the plunge speaks volumes about how eager they are to escape the increasing burdens of public-company regulation.

Sarbanes-Oxley has been the last straw for some, with its auditing and reporting requirements imposing major new costs, especially on smaller companies. This has already played a part in the remarkable slowdown in U.S. initial public offerings. Today’s largest IPOs are taking place mainly on foreign markets, away from the reach of U.S. regulators. New York Stock Exchange CEO John Thain understands this as well as anyone, which is one reason for his $20 billion EuroNext purchase.

The Securities and Exchange Commission is promising Sarbox reform, though its recent noises suggest it won’t exempt smaller companies from the rules. It might want to consider International Strategy & Investment Group data showing that 191 public companies–worth $146 billion in deal value–have gone private since June 30, 2002, shortly before Sarbox went into effect. Daniel Clifton, executive director of the American Shareholders Association, notes that the big spike came right after Sarbox’s implementation, yet the dollar amount of the deals didn’t rise equivalently–suggesting it was mainly smaller firms doing the exiting.

Mr. Clifton has also been studying the surging costs of regulation for public companies and has found that while in 1999 regulatory costs were about 4.8% of market capitalization, by 2002 the ratio was 9.9%. It has fallen some since. But these costs are a double whammy for smaller companies, which have fewer resources to devote to compliance costs. “It is also money that they can’t use for the investments that they need to make to grow,” says Mr. Clifton.

One of the sad ironies of these trends if they play out for several more years is that mutual funds may actually start running out of quality public companies to invest in. If that’s true, they will achieve lower results for their shareholders, including those in 401(k) plans, than they would have before SarBox. I don’t know how you even begin to calculate the monstrous cost of that.

Bizzy’s AM Coffee Biz-Econ-Life Links (060506)

Free Links:

  • Totally shameless plug — If you are one of the few in the universe not reading this blog every single day, you might have missed this post from yesterday on the manufacturing sector of the economy, which is, believe it or not, on its longest winning streak of consecutive month-to-month expansions in over a quarter century.
  • Porkopolis asks a great question that demands an answer and probably won’t get one — “Where’s the national debate on rebuilding flood-prone areas?”
  • Don Luskin, despite the overblown talk of a “slowing down” economy (zheesh) say the Fed should, and will, raise rates — probably a couple more times. He thinks the stock market will come back nicely if the Fed does the right thing.
  • Reuters Journalists in England and Ireland have called for a boycott of BizzyBlog Internet Wall of Shame member Yahoo! (HT NewsBusters) — It is sad that no organization of American journalists that I am aware of beat them to it.
  • More ho-hum news about the mediocre economyDell adds 1,000 jobs in Tennessee.
  • Mark Cuban thinks click fraud is a big problem — bigger than, uh, advertised (HT B2Day).
  • Betcha didn’t know that GDP growth under outgoing Treasury Secretary John Snow and the Clinton Administration’s Robert Rubin was the same — 3.8% (HT Ohio Conservative).
  • JetBlue has bought spectrum (HT Instapundit) that will enable it to offer, among other things, wireless Internet on its flights. Bring, it, on.

Positivity: Lost Wallet Returned

Filed under: Positivity — Tom @ 6:07 am

After 35 years:

(more…)