Public/Private in the New Economy
Currently, the Public Sector is spending trillions across America developing communities. Unfortunately, this investment is either meaningless, as it does not attract any private sector investment, or it is too costly and will never generate any positive return on investment.
I believe that the Public and Private sectors both have a role in the development of our cities. The boundaries, skills, and values of each of these entities are different. It is our role as urbanists to understand these differences and explore how we can maximize these two entities to make Strong Towns.
I have a unique perspective because I have worked in both the public and private sectors. I want to share some of my observations because I think we need to understand the strengths and weaknesses of both the public and private sector. This is a critical understanding we must have if we want to see contextual, meaningful development in our communities. It is my hope that, once you read through these observations, you will see where the opportunities are in your own community to make a difference.
The Public Sector does have the ability, and I would argue the responsibility, to partner in capital improvement projects to support meaningful development that creates opportunities for citizens to prosper. This role is greater then just rule making. The decisions made at the political level are translated into the built environment.
Cities need to start thinking of themselves as equitable partners in development, and even go as far as thinking of themselves as developers. This is a hard thing for most municipalities to comprehend. The role of the Public Sector is different than the Private Sector, however the Public Sector spends millions to grow their local economy. As Strong Towns has pointed out, and many of you have shared, these investments are not wise investments.
Public Sector has a mixed history of success in development, and the Public Sector should not necessarily be investing tax dollars hoping to see a dollar for dollar return on its investments. Look at housing developments like Pruitt-Igoe in St Louis is an example of a complete disaster. However in the mid 1990's mixed income developments under the HOPE VI program have led to city wide renaissance in places like Portsmouth Virginia, and Louisville, Kentucky, while meeting the public housing needs of these cities.
The Public sector has several weakness as a developer compared to the Private Sector. However, through proper leadership, political will, and creative thinking, these weaknesses can be turned into strengths. The public's expectation is that government is transparent and fair in it's work. This is why many states have rules called Sunshine Laws that allow the public to see and participate in the decision making process, and you have the right under the Freedom of Information Act to ask for government documents. This is but one reason why the Public Sector cannot follow the same rules as private sector development.
With that said, there are three factors that make Public Sector Development unique from Private Sector Development:
- Consequence of Time
- Guaranteed Annual Income
- Definition of Prosperity
The Public Sector has no consequence of time. Look up any definition of bureaucracy, and you will come to the same conclusion. Joking aside, this may not be due to the lack of knowledge or skill of your local staff. I believe that the reason for this is that the public sector leadership can only be held accountable on an annual basis at the polls. As a result, public sector staff is only required to report to the governing body on an annual basis. This reporting occurs when communities adopt their annual Capital Improvements Plan, and adopt an annual budget. This weakness is a powerful strength when understood in the context of building communities. The Public Sector can use this to hold out for changes in the market and evaluate a return on investment in terms of decades or multiple life cycles. The Public Sector can be the tortoise in any race.
The Public Sector is guaranteed annual income which can provide access to capital. The Public Sector is "paid" annually regardless of performance because the Public Sector has the power to tax. Until recently, it was believed by the Public Sector that this money would continue to grow each year, and that the money tree was plentiful. We are reminded that the value of taxable items like property values can decrease. You are now seeing political leadership raise the percentage of property tax to match the decrease in value. This is sold to the public using the justification that the property owner is not paying more in taxes, yet they have lost 20% of the value of their property.
In addition, the power to tax is a revenue stream that the Public Sector can borrow against. Special Taxing Districts or Tax Increment Financing (TIF) provide the Public Sector the tool to capture the growth of taxable value and return it to a specific area or project. Even in a slow or stalled economy, TIF can provide growth and a revenue stream that could be available to the Private Sector. For example, a new development may generate an additional $50,000 a year in TIF. A savvy developer would look for ways to have a portion of this revenue returned to the project. This could be used for traditionally Public Sector Capital Improvement projects like utility expansion, new streets, or public on-street parking, that could directly benefit the private investment.
The public sector also has a different definition of prosperity then the private sector. I understood the definition of prosperity in the private sector right away: work hard, accomplish goals, get rewarded. It was not until my second budget year in the Public Sector till I started to understand the definition of prosperity in the Public Sector. Once again the absence of time.
Cities are not looking to make a profit, they are looking to balance their budgets. With this perspective, you can understand why the enemy of the Public Sector Budget are projects. The Public Sector values, Staff, Maintenance, and Projects, in that order. Projects are a liability against payroll in the Public Sector, and are the first items to be cut in the annual budget. In the Public Sector, you will hear that repaving has been deferred another year to save the jobs of the staff in a municipality.
In the Private Sector, the end product and worth of the company are the projects. In the Private Sector the above list is flipped into the following order: Projects, Maintenance, and Staff. In the Private Sector, the workforce is a liability against the profitability of the new products. Private companies will lay-off employees while a new model car is coming off the assembly line or while new investment is made into researching the next best thing.
Unlike the Private sector, the Public Sector values staff greater then built projects.
We must understand what the Public and Private Sector value when discussing development. In a down market, do not expect your city to start a new construction project, and do not expect a developer to pay for any planning services. Instead, challenge staff in the Public Sector to start developing plans for private investment. Let the Public Sector staff do technical things. This is the skill and knowledge base that the Public Sector is fostering, and it is highly coveted.
Private Development should not be looking for a handout or grant. This does not match the Public Sector definition of prosperity. It does not matter how much tax base you will be creating, or how many jobs you will be creating, these items do not translate into Public Sector prosperity. You need to return back to the Public Sector values, and explore how you can elevate staff to do technical things. Have Public Sector staff look at the development codes, design requirements, and let them venture into planning the future for privately own land. These technical projects utilize Staff time, which is potentially infinite in a bureaucracy, and do not impact the municipal budget.
This may not be the typical practice for local government, but the truth is that the Private Sector will seek out the path of least resistance and invest. I have found that a proposal from local government to the community stakeholders is received differently then a proposal from a developer. I have also found that Public Sector staff have local knowledge, and have built a trust with their communities. This can be leveraged to explore ideas, and gain public input in a non-threatening way, with very little risk to a Private Sector developer.
With all of this said, all three of these differences will continue to frustrate and infuriate the relationship between the Public and Private Sectors. We need a little of this friction, but communication is key in development. Once understood, these differences can be transformed into strengths. Maximizing these strengths will provide the competitive advantage to communities to be successful in this new economy.
Note from the author: The postings on this site are my own and do not represent Martin County Board of County Commissioners’ positions, strategies, or opinions.