The Law of Unintended Consequences

History is littered with examples of the law of unintended consequences.  Here are a few:

• During the Raj, the British government in India attempted to cull the cobra population by putting a bounty on snakes.  Enterprising people started breeding cobras and delivering the bodies of domestically-raised cobras to the collection centers.  The result was that the cobra population of India increased;

• When Vermont banned billboards, business owners responded by building large, bizarre sculptures beside their premises.  An automobile dealer erected a twelve-foot gorilla, clutching a real VW beetle.  A carpet store built a nineteen-foot genie holding a rolled carpet.  While the billboard ban was intended to maintain the pastoral aspect of the state’s roadways, the result was an increase in the schlock factor, rather than a decrease;

• After the Exxon Valdez oil spill, coastal states enacted laws placing unlimited liability on oil tankers.  Oil companies responded by transporting their product via third-party contractors, many of whom had looser security standards and less insurance coverage than the oil companies.

Small government types cite these examples as evidence that government regulation doesn’t work.  As an FDR/Johnson (Lyndon, not Andrew)/Biden government-can-be-a-force-for-good type, I recoil instinctively at that.  I suspect that well-crafted regulations can avoid most of these cock-ups.  The British imperial government could have outlawed snake farms.  Vermont could have banned all large advertisements, not just billboards.  Courts could hold oil companies responsible for their contractors’ actions.  However, as a reasonable guy, I understand that prejudices can blind us.  Setting tribal loyalties aside, the best approach is to proceed empirically.  We should remain agnostic about what to do with these facts until we have more data.

Regardless of the policy conclusions you draw from them, unintended consequences exist.  As with everything else, they can be examined through the lens of mobile home park management in New York State.  Two recent changes in law illustrate this.  These are the recent rental relief legislation and the looming increase in federal marginal tax rates.

In January, the New York State legislature allocated $2.4b toward a rental relief program, to be administered by the state Office of Temporary and Disability Assistance, or OTDA   (the rental relief program of 2020, administered by the state Office of Housing and Renewal, was a bust).  OTDA has not implemented the distribution scheme yet, although I understand that it will do so shortly.  At the end of April, New York’s eviction moratorium was extended through August 31, so that tenants can benefit from the rental relief scheme before they get the boot.

(Don’t get me started on eviction moratoria.  The recent decision by the D.C. Circuit overturning the CDC moratorium has no effect on New Yorkers, because the D.C. Circuit doesn’t have jurisdiction over New York State law.  That’s a problem, because eviction moratoria don’t work.  I am a government-can-be-a-force-for-good FDR/Johnson/Biden voter, but non-payors are bad neighbors, and I am in the business of providing my customers with good neighbors.)

The news of impending rent relief has percolated through the community unevenly.  The exceptional tenants – the people who work at the local prison, at the college or the hatchery and the older people who keep their lawns immaculate, say “hi” to their neighbors and pay on the first like clockwork – don’t seem to know or care about it.  Same with the people who do gig work and have been making a good-faith effort to pay despite recent struggles.  The problem is the small minority of hard-core non-payors.  They have begun a game of chicken.

Here is the problem.  Even though the eviction moratorium left open the possibility of money judgments, suits for money carry large transaction costs.  One of the tenants in my park in northern New York has simply disappeared.  She is short four months’ lot rent, and seems to have entered the Witness Protection Program.  For a few months, she told us that she would pay up as soon as she got her stimulus check.  When that excuse expired, she stopped responding to my calls and texts.  When Mike, the manager at that park, knocks on her door, he hears movement, but nobody answers.  I can’t read her mind, but I suspect that she understands that it costs me money to enforce my legal rights.

There is a very good collection attorney in town.  He is responsive, pleasant and competent, and he does all of the work associated with a money suit.  The problem is that he keeps a third of what he collects, plus expenses.  In non-moratorium times, I would not need his services because I could use traditional remedies.  Since the moratorium went into effect, I have hired him and treated his fees as a cost of doing business (unintended consequence of the eviction moratorium: collection attorneys have gotten rich).  But now that rent relief is on the horizon, the rules of the game have changed.  I can insist on enforcing the rules now, hire the guy and eat the cost of his fee, or I can wait until rent relief materializes.  If the rent relief program works out as intended, I have a chance of being made 100% whole.  My quantitative skills are not good, but I do understand that 100% is more than 66.666%, so there is an incentive for me to hang on, see how the rent relief program works out, and let the woman in the Witness Protection Program slide.  I need to balance this potential win against the risk that the OTDA will not get its act together before this lady racks up significantly more debt, or that the OTDA will implement the program in a way that will not make me entirely whole.  Since I do not know how or when the OTDA will implement the program, I need to make my decision based on imperfect information.  If the lady in question has heard about the rent relief program, she has an incentive to use whatever money she has to buy cable service, phone service, insulin and beer instead of lot rent, and to hope that I will also hold out for rent relief money instead of cracking down on her immediately.  Since she does not know how I will play my hand, she, also, has to proceed in the face of unknown facts.

Game theory pervades every nook, cranny, ABS pad and septic line.

The other news is Biden’s infrastructure plan.  America’s infrastructure sucks because Ronald Reagan said that government is the problem rather than the solution (fellow mobile home park owners, who skew red, can throw brickbats at the comment section).  Biden has adopted the laudable policy of undertaking the huge project of modernizing our infrastructure and adapting it to climate change.  That is great news, but these long-overdue upgrades will be paid for by tax increases.  Federal tax rates will go up next year.  Some of the benefits for real estate investors and pass-thru businesses that were written into the 2017 tax act will also, likely, be repealed or pared back.  The unintended consequence of this anticipated infrastructure-upgrade legislation is that it will delay planned infrastructure repairs in my parks. 

I inherited shoddy infrastructure when I bought the properties.  The roads in both parks need to be re-paved.  A long run of Orangeburg sewer pipe in the northern New York park is near collapse (Orangeburg is type of cardboard sewer pipe produced between 1945 and 1972.  It was not designed by Al Qaeda to punish believers in the Enlightenment, but it might as well have been).  The sewer pipe is an emergency, but the road repair falls into the “important but not urgent bucket”.  I had planned to re-pave the roads in both parks during the summer of 2021.  Now that I know that marginal tax rates will go up next year, I will put a band-aid on the problem this year and postpone the major repairs until 2022.  Paving an existing road should be treated as a deductible repair rather than as a capital expenditure.  I will put my tax deductions into the tax year with higher marginal rate and fewer loopholes.  As a result, residents in my parks will have twelve more months of rough roads and shoddy infrastructure.

My park in central New York has a feral cat problem.  I once told Stan, the self-appointed mayor of the park, that I would pay him $20 for each cat tail that he gave me.  However, I included a caveat: “I don’t want to see a bunch of tailless cats running around, and I don’t want to see cats in cages.”  One thing I will definitely not do is put a bounty on snakes.  I have full-on herpetophobia.  I don’t want something slick, cold and electric wriggling into my shirt next time I crawl under a home to shut off the water.  That would be very unintended.