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Governor Paul Patton Is Hoist on His Own Petard!

by Theresa Fritz Camoriano

Now that the Hyundai deal has fallen through, we would like to recap the event and make some suggestions for steps the state might take in order to position itself to be more successful in attracting future investors.

Governor Patton tried to take a farm away from the Howlett family by abusing the power of eminent domain in order to give the Howlett family's farm to Hyundai to build a factory.  The Howletts refused to be intimidated by the state and fought the eminent domain action, but they finally agreed to an option to sell their farm to the state for $6 million, which the Governor accepted while complaining that the price was much too high.  When the deal with Hyundai fell through, the Governor placed the blame loudly and squarely on the Howlett family, trying to publicly smear the family by releasing the following e-mail letter from Leon Howlett to a representative of Hyundai:

Stephen,

The Courier-Journal called you the Hyundai spokesman. I was still wondering about a phone number for me to contact the decision makers concerning the assembly plant loction. If they are not willing to speak to my family directly (whose home is trying to be taken for their benefit) could you relay the message below.

I am not sure how familiar Hyundai's lawyers are with eminent domain. Our constitution does not allow property to be taken for a private company. The state of Kentucky would have you and others believe that are taking this ground for an interstate interchange. Nothing could be farther from the truth. We are nowhere near the interstate. Their attempt will be to condemn us for (as they have described to us in writing) a sewer treatment plant, power substation, training center and fire station. They have 1500 acres under contract to put those facilities on, they do not need our farm. Our lawyer along with one of KYs finest constitutional lawyers and others lawyers consulted and in addition to the Institute for Justice agree this is an unethical and unlawful, Indeed laughable, attempt to take our farm. Hyundai lawyers must understand that if condemnation is pursued by our state we will fight there right to take our home. Litigation in these cases can take a number of years and the state will loose their case. In the mean time the facilities mentioned above can not be built until the suit is settled. If Hyundai wishes to be under production by 2005 Kentucky will not be able to accommodate their needs. This case will not in any terms be settled by 2005. The assembly plant cannot fuction without those facilities. Please be advised that our state officials have been dishonest and unjust in the treatment of the land owners involved at the Glendale site and they will use the same stratagem with Hyundai in their attempt to assure you that we will not be a problem.

I can assure you we will be a problem.

WE WILL NOT GIVE UP OUR RIGHTS AS LAND OWNERS.

Leon Howlett

What the Governor apparently did not realize was that the Howletts were right!  By trying to forcibly and abusively throw them off of their farm in order to attract Hyundai, he only succeeded in showing Hyundai that he could not be trusted as a negotiating partner.  And by releasing the e-mail to the public in order to try to smear the Howletts, he only succeeded in making the situation plain enough for everyone to realize how abusive he had been to that family!

So what should the state do differently the next time a similar investment opportunity arises?  The first thing the state should consider is that any business planning to come to Kentucky to build a large facility is planning to become a large, long-term property owner in the state and has reason to be concerned about the way the state treats its existing property owners.  So, running roughshod over our existing property owners and trying to take their property illegally might not make the best first impression!  (And the Governor's so-called "smart growth" plan would be an enormous taking of property rights.)

Next, the state should recognize that anybody considering making a billion dollar investment by building a factory in a fixed location is going to be looking for assurance that he will be able to get a return on his investment over the long term in that location.  Once the siting decision is made and the factory is built, he cannot change his mind, pick up his factory, and move it to a new state.  For that reason, he will be very concerned about that state's tax rates and about any future regulations that might impede his ability to operate.  And, according to news reports, those were, in fact, very critical factors in Hyundai's assessment of the state.

There are several things Governor Patton and the state legislature could do to reassure prospective investors that their investments will be safe in Kentucky.  First, they could roll back tax rates and pass a constitutional amendment that required a supermajority of the legislature and a majority of the people before any new tax could be imposed or any existing tax could be increased.  Second, they could pass a law requiring the state to compensate for provable losses caused by the imposition of any new regulations.  Third, they could publicly scrap the so-called "smart growth" initiative, stating that, in the future, instead of plundering property rights they will respect them.  Those actions would give Kentucky property owners, including prospective investors, much greater confidence and security and would set the state on a new course in economic development.

Thereafter, instead of the current approach of plundering existing Kentucky residents in order to bribe new investors to come to the state (knowing that they too will be plundered in the future), the state would take the approach of treating all residents with respect.  If potential investors do not face great risks of losses due to government interference in their business, they will not need to be bribed in order to compensate for that risk.  Instead of trying to outbid Alabama or any other state with bribes for prospective investors, Kentucky could win investors by proving to them our strict respect for property rights, showing them that their investment will be safe here.  If you were getting ready to invest a billion dollars in something very large that could not be picked up and moved, would you be more impressed with a gift of $150 million and a risk that your property could be made worthless in five years through the imposition of taxes and regulations (resulting in your losing hundreds of millions of dollars), or would you prefer a guarantee that you would be able to operate without government interference for the next thirty years (resulting in a good return on your investment)?

Investors, large and small, want a sense that their investment is secure.  They want to be able to trust the people who have power over their investment.  Kentucky has the ability to provide that sense of security, which is of far greater value to an investor than any bribe it could possibly muster, and it can provide that sense of security to outside investors by treating its existing citizens right -- truly a win-win proposition.  If our governor and state legislature care about the economic development of our state, it is time to take steps to make all Kentucky property owners' rights secure.  If, instead, they choose to continue plundering Peter to pay Paul, they cannot blame the Howletts if nobody volunteers for the role of Peter.

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