Municipal Market Force: the Public-Private Partnership

I was caught in the middle of a debate with an individual who swore beyond a reasonable doubt that there should never be such thing as a public-private partnership, arguing that if the deal doesn’t work for a private company without government help then it shouldn’t be done. Wow! Yes, let’s take our cities back to 1950. Why is this view short-sighted and ignorant? There is no greater participant in any real estate deal, especially in urban redevelopment, than the municipality in which it takes place.

A municipality is already a participant when:

a. the largest portion of operating costs for real estate is property tax;
b. regulated insurance is the 2nd or 3rd largest operating cost;
c. the largest capital expenditure behind direct construction costs and land is impact fees, permit fees, etc. (in fact these actually exceed land costs in many states/municipalities)
d. they regulate everything you do on the land, including in some cases what colors, materials, and details you can build. It is here there is an argument that it is really not private land at all; and
e. they often require dedications of portions of land for public uses.

Just as a person must invest in their health, and a private company must invest in its resources, a city must be honest with itself about its role as a market participant and invest in its future as well. At its best, a city’s investment in one project leads to investment by others. You cannot regulate, control, charge, and provide market rate services and then claim to not be a market participant exempt from investing in the projects that make those services and locations valuable. The public sector can’t have it both ways and be successful over the long-term. Therefore, as long as municipalities go beyond providing for physical security, police and fire services, and begin regulating, charging and providing additional services; then public-private partnerships will exist – and for all the right reasons.