Local Redistribution and Local Democracy: Interest Groups and the Courts


The traditional theory of urban finance argues against local redistribution of wealth on the assumption that such action is likely to chase away the relatively wealthy, leaving only the impoverished behind. Nevertheless, Clayton P. Gillette observes, local governments engage in substantial redistribution, both to the wealthy and to the poor.

In this thoughtful book, Gillette examines whether recent campaigns to enact "living wage" ordinances and other local redistributive ...

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The traditional theory of urban finance argues against local redistribution of wealth on the assumption that such action is likely to chase away the relatively wealthy, leaving only the impoverished behind. Nevertheless, Clayton P. Gillette observes, local governments engage in substantial redistribution, both to the wealthy and to the poor.

In this thoughtful book, Gillette examines whether recent campaigns to enact "living wage" ordinances and other local redistributive programs represent gaps in the traditional theory or political opportunism. He then investigates the role of the courts in distinguishing between these explanations. The author argues that courts have greater capacity to review local programs than is typically assumed. He concludes that when a single interest group dominates the political process, judicial intervention to determine a program's legal validity may be appropriate. But if the political contest involves competing groups, courts should defer to local political judgments. 

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Product Details

  • ISBN-13: 9780300125658
  • Publisher: Yale University Press
  • Publication date: 6/28/2011
  • Pages: 235
  • Product dimensions: 6.30 (w) x 9.30 (h) x 1.00 (d)

Meet the Author

Clayton P. Gillette is Max E. Greenberg Professor of Contract Law, New York University Law School. He lives in New York City.

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Local Redistribution and Local Democracy



Copyright © 2011 Yale University
All right reserved.

ISBN: 978-0-300-12565-8

Chapter One

The Scope of Local Competence

IN JULY 2006, the Chicago City Council brought what it likely thought was a climactic conclusion to a controversial proposal that required a few local employers to pay their workers a "living wage." The 35 to 14 vote increased the minimum wage payable by covered employers to $10 per hour, plus $3 in benefits per hour, by July 2010. The new wage represented a substantial increase over the then-applicable federal minimum of $5.15 per hour and even exceeded the Illinois statewide minimum wage, which was scheduled to reach only $8.25 by the time the ordinance became effective. Primary proponents of the ordinance—including labor organizers; the Grassroots Collaborative, which consisted of local church and labor leaders; and ACORN, a national organizing group—maintained that its enactment would remedy exploitation of the working poor, reverse what advocates labeled as "callous disregard for hard-working people," and fetter corporations whose workplace practices allegedly frustrated employees' effort to enter the ranks of the middle class.

But the city council's effort to improve the lot of local employees had limited scope. The ordinance would apply only to those employers described in the ordinance as "large retailers." That term comprised retail stores in the city that occupied ninety thousand square feet or more, and that were part of a company that had total annual gross revenues of $1 billion or more. In short, the ordinance was directed at "big-box" stores, for which Wal-Mart and Home Depot have served as poster children. While opponents of the proposal contended that living wage ordinances were inherently antibusiness and would cause Chicago to lose badly needed jobs and tax revenue to suburbs more hospitable to national retailers, at least some opponents also questioned what they saw as discrimination against big-box employers and promised legal challenges once the ordinance passed.

The immediate targets of the proposal strategically remained on the sidelines during much of the debate, although Wal-Mart had recently indicated an interest in opening a new store on Chicago's relatively poor South Side. Instead, local proxies ensured that the chains' views were heard. Local suppliers and small businesses that performed work for the big-box stores testified against the ordinance. After the vote approving the ordinance, however, Wal-Mart officials themselves became more vocal. They indicated that the wage ordinance would "make it hard to invest in Chicago" and announced a strategy of serving Chicago residents "from suburban Chicagoland." Target Corp. was reported to have placed "on hold" plans to open additional stores in the city and to be considering closure of its existing stores.

Nevertheless, the proponents celebrated the vote as a major victory in nationwide efforts to enact living wage ordinances. While some form of minimum wage requirement had been enacted in more than 120 cities and counties, most were smaller localities, and most of the ordinances extended the applicable wage only to municipal employees or employees of suppliers that contracted directly with the locality. An ordinance in a major city that applied to private employers promised to change the terms of the debate.

Alas, the proponents' celebration was short-lived. In mid-September, Mayor Richard M. Daley exercised his veto authority for the first time in his seventeen years in office. In his brief letter of explanation to the city council, Daley contended that the ordinance "would drive jobs and businesses from our city, penalizing neighborhoods that need additional economic activity the most." Daley concluded that it was his "duty" to veto the ordinance.

Daley's response was not unexpected. He had earlier announced his opposition to the ordinance and had lobbied against its adoption. But proponents had declared the margin of victory "veto-proof." They had miscalculated. Largely at Daley's instigation, three aldermen who had initially supported the measure voted against overriding the veto. One of the converts represented a district on the South Side where Wal-Mart had indicated it might locate its first Chicago store; the other two had close ties to the Daley political organization. Two weeks after the veto, Wal-Mart opened its first Chicago store, located on the relatively poor West Side of the city.

The living wage issue did not disappear with the mayor's victory. In the following year's city elections, the Chicago Federation of Labor failed to endorse the incumbent mayor for the first time in its history. Instead, organized labor worked to defeat the aldermen who had voted against the measure. In February 2007, eleven incumbent aldermen failed to obtain the majority vote necessary to avoid a runoff election in their districts. Many cited their failure to support the big-box ordinance as a cause of their electoral difficulties. In the subsequent elections, a half dozen aldermen aligned with the mayor on the living wage ordinance were defeated by union-backed candidates. The signal was clear: the living wage ordinance was on the exam in the course of local politics, and those who opposed it had failed.

The intensity of the Chicago debate was not unprecedented. In 2001, the city council in Santa Monica, California, had passed a living wage ordinance that required covered employers to pay employees $10.50 per hour plus benefits or $12.25 per hour without benefits. Although the Santa Monica ordinance was not as narrowly drawn as Chicago's, it did not target all local employers. It applied to the city with respect to its own employees, to any contractor or subcontractor with respect to workers on projects performed under contract with the city, and to any private employer whose business met a gross receipts test and was located in an area of the city designated as the Coastal Zone or Extended Downtown Core. The restrictions on gross receipts and location limited the private employers who were subject to the ordinance primarily to hotels and restaurants along the Santa Monica beachfront. The ordinance also contained a clause that rendered it inapplicable to wage rates established through a collective bargaining agreement, as long as that agreement specified that it was intended to supersede the wages set forth in the ordinance.

In heated exchanges before the Santa Monica City Council, proponents of the ordinance defended the need to pay a living wage to low-wage workers, many of whom were immigrants and nonresidents of the city. Local business owners contended that the ordinance would cause them to reduce their workforce, thus hurting the very class of individuals proponents purported to assist. Labor activists and union members featured prominently among the advocates of the ordinance, while the affected hotel owners were instrumental in organizing the opposition. After the city council enacted the law, many of the approximately forty firms subject to its private business provision organized a referendum campaign to place the issue in front of the electorate. In the ensuing November 2002 plebiscite, a narrow majority—14,380 to 13,860—rejected the ordinance. There the story remained for about two and a half years. Then, in early 2005, the city council enacted another living wage ordinance. This version, however, covered only employees of private contractors who entered into contracts of $50,000 or more with the city itself. Neither city employees nor employees of the private firms that had opposed the earlier ordinance were subject to the new proposal. The modified ordinance became effective on July 1, 2005.

Santa Fe, New Mexico, witnessed a similarly contentious path for a living wage ordinance but experienced a different result. In 2003, the city council considered expanding an existing ordinance that required payment of higher than otherwise applicable minimum wages to city employees, contractors doing business with the city, and other businesses directly receiving benefits from the city. As initially introduced, the proposed ordinance both increased the applicable minimum wage and extended the scope of the ordinance to cover all for-profit employers in the city that had more than ten employees and nonprofit businesses that employed more than twenty-five workers. The proposed wage would start at $10.50 per hour in 2008, with subsequent increases tied to the consumer price index for urban wage earners in the western United States. Approximately 75 percent of all employees and 20 percent of all businesses in Santa Fe would have been subject to that version of the ordinance.

At a public hearing that lasted into the early morning hours of February 27, economists, members of the Green Party of Santa Fe, labor activists, advocates for the working poor, and workers faced off against small-business owners, representatives of the New Mexico Restaurant Association, officers of nonprofits, and hotel managers. Seventy-three people spoke in favor of the ordinance, eighty-five against it. In emotional terms that touched on the political, economic, and social implications of the issue, advocates emphasized the low costs that the ordinance entailed, the moral issues involved in ensuring payment of a living wage, and the economic distress of the working poor. In similarly evocative terms, opponents stressed the risk of shuttered small businesses, the difficulty of finding workers whose productivity warranted higher-than-market wages, and the disincentives that the ordinance would create for businesses to locate in Santa Fe. City councilors enacted the ordinance by a 7 to 1 vote, but only after it had been narrowed to cover employers with twenty-five or more workers. The amendments reduced the coverage of the ordinance to about 60 percent of the Santa Fe workforce and cut in half the number of small businesses that would be affected.

Enactment of the Santa Fe ordinance generated the inevitable lawsuit. The challengers contended that Santa Fe lacked legal authority to adopt a local minimum wage. Under well-established, if controversial, legal principles, local governments lack the capacity to initiate local legislation without prior legislative or state constitutional authority. Local governments are, in the standard language of legal doctrine, merely political subdivisions of the state, which exercises plenary power over them. As a corollary of these principles of limited municipal autonomy, any conflicts between state laws and local ordinances are typically resolved in favor of the former. The challengers contended that Santa Fe's ordinance exceeded the permissible scope of local legislation. Both the trial court and the court of appeals dismissed the objections. Santa Fe was a "home rule" municipality, which, under the state constitution, enabled it to enact legislation relating to "local affairs" without a prior explicit grant of authority from the state. The living wage ordinance, the courts concluded, fell within that protected domain. Even a home rule locality is generally disabled from enacting legislation that directly conflicts with state laws. But, the courts declared, the state's minimum wage law, which imposed a lower hourly rate than the one dictated by Santa Fe, was intended only to set a floor, not a ceiling. Thus, the local ordinance was neither inconsistent with nor superseded by state law.

As evidenced by the broad array of cities and counties that have adopted living wage ordinances, the debates in Chicago, Santa Monica, and Santa Fe do not represent exceptional episodes. The campaigns in these municipalities, however, do demonstrate the passion and politics that local proposals for redistributing wealth can generate. Embodied in these controversies are deeply varying ideologies about the economic effects of wage rates, governmental intervention into labor markets, the widening income disparity between wealthy and poor, and the proper scope of local government. Something less noticed but of equal importance is that the controversies over living wage ordinances reveal the various political forums in which decisions about controversial proposals for local action can occur. While organized proponents may effectively lobby for enactment of the proposals before local legislatures, organized opponents may similarly appeal to local representatives or seek to reverse legislative decisions through referenda, state intervention, or litigation. Different forums, these examples indicate, may generate different results, so that the enactment or defeat of a proposal may ultimately appear to be a consequence of the arena in which the determination was made, rather than of any inexorably correct view of the proper scope of local action.

My concern in this book is with the particular set of biases that judicial determinations bring to the process of defining the scope of local autonomy. As the Santa Fe situation reveals, litigation, like war, can be a continuation of politics by other means. Where enactment of living wage ordinances has generated litigation, the judicial responses to the legal issues have been as mixed as legislative responses to the explicitly political ones. The Louisiana Supreme Court invalidated a New Orleans living wage law by finding violations of the same type of state constitutional requirements that the New Mexico courts had found to be satisfied. A Missouri appellate court similarly held that state law preempted a St. Louis proposal. But a New Jersey appellate court upheld a county living-wage ordinance against challenges on equal protection and vagueness grounds, and a deeply divided panel of a federal appellate court rejected a federal constitutional challenge to a living wage ordinance in Berkeley, California.

The Louisiana Supreme Court decision most thoroughly considers the legal doctrines through which the underlying tensions are displayed. In four different opinions, that court debated the scope of autonomy that home rule municipalities enjoy, the extent to which local wage ordinances generate statewide effects that preclude municipal regulation, the capacity of localities to regulate private economic activity, and the appropriate role of a court in venturing into those issues. Although a majority of the court ultimately concluded that state constitutional principles placed wage regulation beyond the municipality's authority, the breadth of the opinions and the divisions among them suggest conclusions ultimately motivated less by the ambiguities of legal doctrine than by contested views about the merits of local efforts to improve the lot of the working poor.

To some extent, the common features of the political and legal debates belie more-subtle distinctions among the ordinances at issue. Although multiple municipalities have deliberated the merits of a proposition denominated as a living wage ordinance, the source and scope of the contested proposals have varied significantly. Some apply only to municipal employees or employees of contractors who deal with the municipality; some, as in the New Jersey case, cover only employees in a specific industry; some, as in Chicago, Berkeley, and Santa Monica, have been limited to a distinct minority of private employers in the locality; some, as in Santa Fe, broadly cover a substantial percentage of local employers. The scope of a particular ordinance may reflect compromise, a sense of what is legally permissible, or a sense of what is politically plausible.

These political and legal battles, however, adumbrate a deeper puzzle that I will claim should inform the judicial attitude toward local autonomy. Under the standard theory of urban finance, local governments should not be the focal point of debates about living wages at all. That is because these ordinances, and others like them, implicate local policies that redistribute wealth. I define the term "local redistribution" expansively. Typical discussions of redistribution refer to policies that transfer wealth from the relatively wealthy to the relatively poor. But my concern in this work is to explore the economic, political, and legal circumstances of local decision making where some residents (or nonresidents) subsidize the activities of others. These necessarily include local policies that, at least in the first instance, require redistribution to the relatively wealthy. Such policies are usually defended in nonredistributive terms, as when the expenditure is expected ultimately to produce net economic benefits for the locality as a whole. Subsidies for public stadiums, tax exemptions for businesses that agree to locate within the municipality, or the exercise of eminent domain to take property that will be developed privately all fall into this category. Nevertheless, as I explain in chapter 2, because those policies require that at least some residents pay for programs that will leave them worse off and thus induce them to avoid the redistributive payments, they raise the same question of cross-subsidies as local redistribution in favor of the poor.

The conventional wisdom of urban finance that municipalities should play little role in fulfilling the redistributive functions of government is predicated on a simple and compelling premise. Residents and firms, at least those that are mobile, that bear the burden of local redistribution can too easily exit to neighboring jurisdictions that impose only benefit-based exactions of the sort that pays for goods and services that the payers themselves utilize. Local governments, for example, can effectively tax to pave local roads or maintain local parks that are used by substantial portions of the local population. But efforts to redistribute wealth to a small subgroup of residents will induce those who pay the subsidies to relocate outside the offending municipality's boundaries. What is worse from the municipal perspective is that the emigrants are likely to comprise the relatively wealthy, who bear a disproportionate share of the redistributive burden and thus have incentives to find alternative residence in order to avoid taxation from which they receive no tangible benefit. Residents who migrate to geographically proximate jurisdictions will continue to be able to enjoy the (dwindling) benefits of employment or entertainment in the redistributing locality, while escaping the associated redistributive burdens. The resulting exodus, according to the orthodox theory, means that the redistributing locality loses out in the ruthless interjurisdictional competition for residents and tax base. As net payers exit, the redistributive burden falls increasingly on those who remain, exacerbating incentives for them to emigrate as well. Indeed, on some accounts, redistributive municipalities will not only suffer a loss of potential net payers but will attract additional beneficiaries, increasing the demand and cost for redistributive services. The predicted consequence is a downward financial spiral as fewer payers are left to fund more subsidies.


Excerpted from Local Redistribution and Local Democracy by CLAYTON P. GILLETTE Copyright © 2011 by Yale University. Excerpted by permission of YALE UNIVERSITY PRESS. 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.

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Table of Contents

Preface ix

1 The Scope of Local Competence 1

2 Why Does Local Autonomy Matter? 31

3 The Meaning and Scope of Local Redistribution 53

4 Why Do Local Governments Redistribute? 72

5 Local Political Markets and State Constitutional Constraints 106

6 Proxies for Distinguishing Benign and Malign Redistribution 142

7 The Limits of Judicial Intervention 174

8 Conclusion 196

Notes 201

Index 225

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