Drawing the Line

Public and Private in AmericaBy Andrew Stark

Brookings Institution Press

Copyright © 2009 Brookings Institution Press
All right reserved.
ISBN: 978-0-8157-0333-4

Chapter One

AMERICA, THE GATED?

The Los Angeles suburb of Hidden Hills, a handful of Mediterranean-and ranch-style mansions scattered amid rolling, lightly wooded hills fifteen miles inland from Malibu, boasts one of the highest incomes per capita of any community in California. It is the kind of place where live-in gardeners and six-car garages are taken for granted and where bridle paths outnumber streets. The community is home to fabulously successful business executives and professionals as well as a curious collection of aging pop stars: Frankie Avalon, Neil Diamond, Tony Orlando, and John Davidson. It is also one of the nation’s oldest gated communities, part of the vanguard of what has become a controversial national trend.

In 1961, however, ten years into its existence as a private enclave, Hidden Hills took a step that moved it well to the front of the vanguard. Even though, like other gated communities, it had a thriving, well-managed private homeowners association that oversaw many of its affairs, Hidden Hills incorporated itself as a full-fledged city but left its gates and private homeowners association in place. Ever since, Hidden Hills has been a city with two governments, one private, one public. “It is odd,” says Fred Gaines, a lawyer from nearby Woodland Hills, “to have an entire city that’s gated.”

Odder still is the way in which the two governments have divided their powers. In Hidden Hills, the city government, the public entity, carries out building inspections, provides security, issues licenses, and sponsors some adult education programs, funding them all through property tax revenues; it also manages the local trash collection franchise. These are precisely the kinds of services that governments around the country, after decades of nagging by economists, are now rushing to fund through user fees or to privatize entirely. Meanwhile, the Hidden Hills homeowners association is very busy with other matters. In Hidden Hills, this private government controls the community’s quintessentially public spaces and events-its parks, its roads and horse trails, even its annual Fourth of July parade.

There is one more oddity, perhaps the crowning one. In 1995, after thirty-four years of sharing a sleek wood-and-glass low-rise on Long Valley Road in the center of town, the two governments split up. Hidden Hills’ public government moved to a renovated slate-roofed garage on Spring Valley Road, just twenty-five feet inside one of the community’s three gates. Then the homeowners association moved the gate. Today, the city hall of Hidden Hills stands seventy-five feet outside the town’s own gates.

There is method to Hidden Hills’ various madnesses. Consider, first, the advantage the town derives by publicly providing an array of easily privatized services. Residents can claim their property tax payments as deductions on their federal and state income tax returns. If these services were funded out of private homeowner dues, however, they would not get the same deductions.

It is not only the rich who have discovered the benefits of this arrangement. The few other private communities that have managed to replicate Hidden Hills’ twin-governments trick have embraced the same financial logic. In suburban Pittsburgh, a 500-unit middle-class townhouse community called Pennsbury Village became, in 1977, the only private condominium complex in the United States ever to form its own municipality. After the bitterly litigated separation agreement with the local township was signed, borough manager Irv Foreman recalls, “We sat down, the condo association and the municipality, to divvy up powers, and for tax reasons we gave everything we might otherwise have purchased privately, such as trash collection, sewer, water, and animal control, to the municipality, to the public government.”

All this seems clear enough. But why, we might ask, has Hidden Hills placed its most public functions, including the Fourth of July parade, in the hands of its private government? Because if these things were furnished by the public government, paid for out of tax-deductible property taxes, they would have to remain open to all. They would have to be public, because, through the deductions, every American taxpayer would be contributing to their support. That would be anathema to the residents of this very exclusive private community.

There is only one public space that Hidden Hills could not privatize, could not fund and operate through its private government: city hall, the seat of its public government, an ineradicably public place where anyone from anywhere can legally demand to go. That is why it had to be moved outside the city’s gates. “If people could get into town just by saying, `We’re going to city hall,'” explained city attorney Amanda Susskind, “then the residents of Hidden Hills could have no security.”

Hidden Hills’ municipal building stands as an ironic counterpoint to a much better known town hall on the other side of the continent. There, in its model town of Celebration, Florida, the Disney Corporation has erected a splendid Philip Johnson-designed town hall smack in the middle of the community. But Celebration is a private community, with no intention of incorporating as a municipality. Its impressive town hall, as critics have pointed out, is nothing more than an architectural bauble; totally without political function, it serves as the administrative base for the private homeowners association. Both cases suggest that public buildings will find a place in private communities only if no public business is conducted in them.

Curious as it is, Hidden Hills may be pointing the way to some of the more fundamental dilemmas and conflicts of the American future. Americans today are caught in an array of forces pushing, at the grass-roots level, to redraw the boundary between public and private spaces. Gated communities are only the most obvious example. Public-private boundaries are also being redrawn in tens of thousands of ungated communities-planned developments, condominiums, cooperatives-managed by various kinds of private governments grouped under the rubric homeowners associations. Ill-equipped to form their own public governments Hidden Hills-style, many of these communities have begun demanding tax-deductible status for their private homeowner dues. They argue that they are privately shouldering an array of traditionally public sanitation, security, transportation, and recreation responsibilities-assuming burdens that municipal governments bore before the age of retrenchment.

Public-private borders are also being shifted in hundreds of poor and middle-class city neighborhoods, where aroused residents fighting crime, traffic, and blight are demanding to have their public streets barricaded or gated against drug dealers and other outsiders. Unable to totally privatize their streets, as Hidden Hills has done, they seek barriers that would impede public access without wholly prohibiting it. These efforts have provoked bitter debates. “Whose streets are these, anyway?” critics ask. And in more than a thousand American towns and cities, private downtown property owners have banded together to form business improvement districts (BIDs), paying for and providing street cleaning, landscaping, security, and other services that were once the exclusive province of municipal governments.

Each of these trends grows out of eminently defensible political concerns. But each also raises difficult practical and philosophical questions about the public-private border. BIDs, for example, are in many ways an impressive response to the failings and financial straits of municipal governments. Many BIDs have worked wonders, rescuing entire urban cores from decay and bringing public streets back to life. Unlike the residential neighborhoods that seek gates and barricades on public streets, BIDs welcome the public-paying customers-to their domain. And unlike private residential communities, from which they have learned a lesson, BIDs insist that municipalities continue to provide a full complement of services, supplementing them with their own efforts rather than replacing them. But in preventing city governments from shifting scarce resources to needier neighborhoods, BIDs combine private advantage with their share of the public weal to make themselves privileged zones.

In key ways, today’s border wars are confounding traditional political ideologies and coalitions. Among those leading the charge to allow residents of private communities to write off their homeowners association dues as income tax deductions, for example, are liberal Democrats, who see granting such tax breaks as a way of emphasizing that building parks and maintaining roads, two functions of the associations, are really public responsibilities. Among those most fiercely opposed to gating public streets are staunch libertarians, many of them local Republican politicos. They view public street barriers as infringements on their personal freedom.

Until now, most media and scholarly attention has focused on the rise of gated communities-“privatopias” that are said to herald a future “fortress America” in which the private simply secedes from the public. These are cogent critiques, but a more complex reality is being forged by ungated private communities seeking quasi-public status for their expenditures, by public neighborhoods seeking quasi-private status for their spaces, and by business improvement districts seeking a role for the private in the midst of robust public expenditures and public spaces.

BOOSTING PRIVATE COMMUNITIES

One of the stormier of these contemporary public-private border debates concerns whether residents of private communities should be allowed to deduct their homeowners association dues from their federal and state income taxes. Around sixty million Americans live in such private communities, and their numbers are rapidly growing (at least seven million of these people live in gated communities). Currently, residents are barred from deducting their association dues, as Yale law professor Robert Ellickson explains, “because it is assumed that the value of the association services they receive equals the value of the assessments they pay.” Tax deductions are usually available only in situations in which there is no necessary equality between what one pays and the benefit one personally receives. Deductible expenditures have a public purpose or a redistributionist or altruistic cast. And until recently, it has generally been assumed that there is nothing altruistic or public spirited about paying for your own amenities through a private homeowners association.

But private communities have been challenging that view. In 1990 Robert Figeira, executive director of Woodbridge Village in Irvine, California-with 9,300 households, then the nation’s second-largest private community-made the case for deductions in his testimony before a California State Assembly committee: “We have open space areas … parks, roads, bicycle trails, [and] recreation programs,” Figeira told the committee. “We believe half of the people that enjoy [them] are from outside…. We maintain the lake and yet the people that live there get no credit for it. It’s just, again, part of their association dues, yet it’s all open to the public.” Assemblyman Gil Ferguson, a southern California Republican, drove home the point. “And you might explain to the committee that not one penny of that is deductible,” he said. “Not one penny, not one,” Figeira agreed.

In its report the committee endorsed the notion that residents of private communities-the majority of them ungated in California-are indeed “private[ly] maintain[ing] a number of essentially public facilities.” The legislature never acted. The argument, however, is certainly not implausible, and it continues to be a political lightning rod. “The politician who manages to capture this constituency, speak to its needs, and offer it a voice will be amply rewarded,” says Robyn Boyer Stewart, president of Common Interest Advocates, the California lobbying group for private communities.

A self-described “Zen soldier” who carefully evokes her past association with progressive causes, Stewart offers a liberalism-tinged defense of tax-deductible homeowner dues. “By placing severe limits on government’s capacity to raise property taxes” when it was passed in 1978, Stewart says, California’s Proposition 13 “made it impossible for local governments to continue providing the basic kinds of public services they always had, and so they foisted the responsibility on new developments to privately maintain an array of new roads, parks, streetlights, medians, recreation facilities, all of which [where the community remains ungated] the general public uses.” Many private communities in fact “don’t want to be doing this,” Stewart adds, “but they have had to because government is now so constrained in its capacity to provide services that broadly benefit the public.”

What particularly galls liberals on Stewart’s side of the issue was the sight, all through the 1980s, of California’s municipal governments insisting that their revenue initiatives were less like taxes than private assessments. Proposition 13 contained a loophole (closed by Proposition 218 in 1996) that allowed cities to raise money more easily if they could show that the levy was not a tax-defined as a revenue initiative devoted to broader public purposes-but a “benefit assessment,” designed specifically to improve the private property values of those paying. But if California’s public governments had come to protest that their main purpose was to look after private interests, while its private homeowners associations had begun claiming to pursue the public interest, it is easy to see why Stewart and other liberals might find themselves on the private side of the divide.

The drive to make private homeowner dues deductible would seem to run into obstacles when gated private communities try to join in. In a very few gated communities (and Hidden Hills happens to be one), private homeowner dues are apportioned on the basis of property values, much like deductible property taxes. In effect, this means that some kind of redistribution is going on behind the gates. Those with $5 million estates, for example, are subsidizing the capacity of their poorer neighbors, those living in $2 million homes, to enjoy the private equestrian trail. And this leads some residents in gated communities, even in Hidden Hills, to claim that their homeowner dues ought to be deductible.

In the vast majority of gated communities, however, each property owner pays an equal amount to maintain the common spaces, and no internal redistribution takes place. Instead, to justify deductibility residents of these communities must argue that their private expenditures somehow benefit the public beyond the gates. To see how they might do so, consider the dissenting opinion advanced by Judge Hiram Emery Widener Jr., a conservative Nixon appointee, in a 1989 tax case involving Flat Top Lake Association, whose members live in a gated, lakeside, white-collar community near Beckley, West Virginia.

The private dues paid by Flat Top’s homeowners “do benefit the public,” Judge Widener contended, because they protect “the public purse by performing activities which the taxpayer would otherwise have had to pay for.” In other words, a single mother in nearby Beckley benefits from Flat Top’s artificial lake, even though she cannot swim in it, because had Flat Top not been a private, gated community-had it been a development reliant on public infrastructure-she and other taxpayers would have had to help pay for it. By Judge Widener’s logic, the very fact that the lake is private is a public benefit: a gift (hence deductible) from Flat Top homeowners to the Beckley public. The rest of the court, however, found this argument a bit too metaphysical for its taste.

As in most other things, California is the cutting edge of the movement to make the dues paid by private homeowners deductible. This is not surprising, since these particular homeowners have the most to gain. Homeowner dues are comparatively high in California, partly because the state encompasses America’s wealthiest homeowners associations but also because its private communities have all had to make up for the effects of Proposition 13. Elsewhere, though, private dues are lower and property taxes higher. In states such as Connecticut, Maryland, and New Jersey, residents of private communities have been trying to win rebates of city or county property taxes instead of seeking deductions for their dues on their state and federal income taxes.

(Continues…)

Excerpted from Drawing the Lineby Andrew Stark Copyright © 2009 by Brookings Institution Press. Excerpted by permission.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.