Localities Look To an Untapped 'Goldmine' of Potential Revenue

Ben McAdams believes local governments are sitting on a "goldmine" of untapped revenue that doesn't depend on taxes or fees and that could help them address pressing issues, like affordable housing.

McAdams served as mayor of Salt Lake County, Utah from 2013 until 2019 and, during that time, backed an initiative to take stock of the county's "commercially viable," publicly owned real estate assets.

The results of that accounting, he said, "were astounding." In Salt Lake County, he explained, the inventory revealed government property worth about $10 billion. This included an often unfilled county-owned parking lot he could see from the window of the mayor's office.

The lot, he noted, "sits empty most of the time in an area of our capital city that is incredibly valuable."

Before this work looking at underused public property went too far, McAdams, a Democrat, won a seat in the U.S. House, where he served one term. And, in the meantime, the Covid-19 pandemic struck, forcing the county to focus on other priorities.

But, since leaving Congress at the start of last year after losing a reelection bid, McAdams is again turning his attention to how governments can capitalize on the property they own. This time, though, he is involved in a project looking at this question in communities nationwide.

McAdams is leading a new project known as the Putting Assets to Work Incubator, which aims to help local governments identify underused public assets that could be ripe for private investment. The idea is that the projects that follow, or the revenue from them could help to deliver environmental and social benefits for residents.

An underused parking lot like the one in Salt Lake County offers an example. McAdams said that a city or county could take land like this and potentially enter into a joint venture with a private developer to build a mix of market rate and affordable housing on the site.

A project like that, he said, could yield a dividend for taxpayers, while helping expand the supply of affordable housing.

The incubator is a collaboration between the Sorenson Impact Center, which is housed at the University of Utah's business school, the Government Finance Officers Association, the consulting firm Urban3 and the Lincoln Institute of Land Policy.

Last month, the program announced six communities around the country that will take part in it, starting with a "fact-finding" phase where they'll work to identify and map underused assets and to come up with plans for private investment in the property. McAdams expects these assets to be mapped out by late fall.

Communities will also focus on thinking through legal challenges around working with the private sector and coming up with organizational structures they can use to guide possible investments.

"There are a lot of opportunities," McAdams said.

'Focus on Maintaining Public Ownership'

But there are also reasons to be wary of governments opening the door for private investment in assets owned by the public.

Chicago's much-maligned deal to lease its parking meters for 75 years offers just one example of how such projects can work out in ways that are arguably not in the best interest of taxpayers. Watchdog groups commonly raise concerns about private sector involvement with public assets like schools, waterworks and roads.

Asked about this, McAdams said a key aim with the incubator is to help communities to avoid one-off public-private partnership deals that shortchange the public and allow companies to cash in.

"We are putting a focus on maintaining public ownership of these assets, or a public ownership interest in these assets," he explained, "rather than just selling."

Another key, he said, is making sure public assets are managed in a way that is both accountable and insulated from politics. And by refining the principles that guide this management, the program aspires to cut down on the mismatch in expertise that can arise when local governments negotiate deals with the private sector.

The local entities selected for the initial round of the program include: Annapolis and Anne Arundel County Resilience Authority, in Annapolis and Anne Arundel County, Maryland; Atlanta; Chattanooga, Tennessee; Cleveland, Ohio; Harris County, Texas, where Houston is located; and Lancaster, California.

"I believe that the city of Cleveland’s real estate assets have tremendous potential," Cleveland Mayor Justin Bibb said in a recent statement when his city was announced as an incubator participant.

McAdams envisions potential that goes beyond just parking lots. Take an aging library in an area that's seen a residential building boom. Housing could possibly be built overtop of it and some money from the project could be used to renovate the facility. Or a new library could be built on a different site with the cost covered by revenue from developing the existing real estate.

Similar concepts could apply to government office space, he said.

Planning For Future Revenue

In McAdams' view, it's an important moment for cities to be looking at new ways of generating revenue. Covid has brought about changes with how commercial offices are being used. Many retail locations have thinned out as people shop more online. These shifts have implications for property taxes.

Meanwhile, if remote work sticks, it could affect sales tax collections from downtowns where people once commuted in for work.

Generally strong revenue and the boost from federal aid to states and localities from the American Rescue Plan Act have many governments on firm financial footing. But as the aid is spent down, "this breathing room will be short lived," McAdams said. At the same time, there are worries about inflation and the possibility of a recession.

This is a good time, McAdams said, to be thinking about what the future of municipal finance will look like.

He said there's already talk of a second round of the incubator that could involve another set of communities and that the program plans to share their findings as they go. Places interested in learning more about the work should get in touch, he said.

"If we can figure out how to tap into the power of our balance sheet," McAdams added, "we can start to address some of the real challenges that we're seeing on the revenue side."