Helping cities flip money pits into gold mines

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Welcome back to Route Fifty’s Public Finance Update! I’m Liz Farmer and this week I’m looking at the lessons learned from an innovative public finance experiment that looks to turn money pits into new revenue streams.

The idea behind the program is that local governments could be sitting on millions of dollars in potential annual revenue in the form of assets they own but aren’t using to their full potential. A downtown surface parking lot or a staging area near public transit, for example, could be redeveloped into income-generating properties.

But in many cases, governments don’t have a single list of everything they own and they definitely haven’t assessed the market value or potential better uses for their assets. That’s where the incubator, called Putting Assets to Work, or PAW, helps cities understand exactly what they have, what it’s worth and how that value can be leveraged to fund residents’ priorities.

“Initially, some jurisdictions will push back and say, ‘We already know what we own,’” said Ben McAdams, who is now heading up the incubator and formerly served as mayor of Salt Lake County and in the U.S. House of Representatives. “What we do is put it all on a geospatial map [and] compare them with nearby private parcels to identify where there are opportunities.”

The project launched last year with six pilot cities including Atlanta; Chattanooga, Tennessee; and Cleveland. The incubator is a collaboration between the Government Finance Officers Association, the Common Ground Institute and Urban3, which conducts economic analysis through geospatial modeling. The partnership is currently working with the second cohort—made up of four cities—and recruiting for the third.

McAdams said the experience of the first 10 cities has demonstrated the need—and benefits—of having someone who thinks about city properties like a real estate developer would. Moreover, separate management of public assets can help ensure they are handled in a way that is both accountable and insulated from politics.

As it stands, property management typically falls to the agency that owns and uses the space. Thinking about how to monetize an empty building or parking lot just isn’t something most agency and department managers have the time or expertise to do. And institutionalizing the idea that public assets should be put to better use can take some convincing.

“I had one mayor comment to me,” recalled McAdams, “‘So, [this project] is going to generate $5 million a year but my budget is $1 billion—how’s that going to move the needle?’”

From Empty Lot to Downtown Housing

Atlanta’s experience shows why cities, as a white paper by the Government Finance Officers Association put it, may be “sitting on a virtual ‘gold mine’ without realizing it.”

Across the street from City Hall in the heart of downtown is a gravel and grass lot that had been there as long as anyone could remember. As part of their examination, Atlanta officials discovered that the city actually owned the lot—or rather, it was owned and used a few times a week by the Department of Corrections to stage prisoner transport buses. 

Why would prime real estate be used for something that could potentially be accomplished elsewhere? It may have something to do with the fact that the recorded value of the lot was $25.

That was what Atlanta paid for the lot decades ago and the value was never updated. While it’s not uncommon to report asset values based on historic costs instead of the likely market value, it creates a distorted and undervalued picture. Dag Detter, the Swedish investment advisor whose book The Public Wealth of Cities inspired the incubator project, has previously estimated that Cleveland’s capital assets are in reality worth four or even seven times their reported value because of this practice.

On paper, using a $25 parking lot for occasional prisoner transfers makes sense. But not in reality, when the downtown location’s market value is in the millions. 

Atlanta, which has assembled a Housing Strike Force as part of its incubator project participation, is working with a private developer to build a mixed-use residential building on the lot that will include 200 affordable units and ground floor retail. As a result of the asset mapping and valuation work, the city has some 35 public land projects either in the pipeline or under construction.

Putting Small City Assets to Work

With each group of cities, McAdams hopes to refine and institutionalize the principles that guide public asset portfolio management so that mid-size and smaller cities with fewer resources can be just as adept at the practice as larger cities.

In fact, three of the four cities in the second cohort—Evanston, Illinois; Mt. Vernon, New York; and Sugar Land, Texas—are mid-sized suburban cities. Each one is looking for assistance with development issues. Mt. Vernon, located outside New York City, hopes to monetize the public land by a commuter rail stop that requires coordinating with the state agency that operates the rail. Evanston is interested in better capitalizing on its parks and waterways. And Sugar Land hopes to figure out the best use for city-owned parcels near the site of a major, mixed-used development now underway.

Cleveland’s participation in the pilot prompted the city to create a $100 million “Site Readiness Fund” with the help of federal pandemic recovery dollars that will identify sites of 10- to 50-plus acres to get into shovel-ready shape. McAdams said other mid- and small-size cities could work with their regional or local economic development corporation and nonprofits to build something similar.

“Next step is building that institutional capacity,” he said. “The New Yorks and the Chicagos can handle this. It’s the Mt. Vernons and the Evanstons that really need the help.”