By: Max Backlund and Dejan Eskic
Note: The opinions expressed are those of the authors alone and do not reflect an institutional position of the Gardner Institute. We hope the opinions shared contribute to the marketplace of ideas and help people as they formulate their own INFORMED DECISIONS™.
Public finance is one of those topics that few people ever plan to research, but here we are writing a blog post about it. And, here you are reading a blog post about it. So, before you read too far along and become enraptured by the idea of increasing non-tax revenues, let’s take a minute to recognize that our goal with this post is to provide you with an important, but necessarily limited, insight into a very complicated topic.
Public asset development has been an emerging financial strategy in Utah for a few years, with examples that range from arts and entertainment districts to affordable housing to business parks. This is, in part, due to the work of Dag Detter and Stephen Fölster, who published The Public Wealth of Cities in 2017. This book is dedicated to the idea that public organizations, like cities, school districts, and universities, can grow their revenues without raising taxes or increasing public debts.[i] Many public organizations in Utah are already doing some form of asset management and development. Now, there is a growing push for a more coordinated approach for both the internal functions of these organizations and for the external partnerships between public and private entities.
Public asset development involves three steps: first create an inventory, second, analyze the assets and third, create a management or development plan.
- Create an asset inventory
There are different types of assets, but the initial inventory should focus on assets that generate, or could generate, non-tax revenues.[ii] These could include undeveloped sites, redevelopment sites, or defunct public facilities that no longer serve a public function. These inventories can be challenging because they require a coordinated effort across departments with different record types, some hundreds of years old, to identify basic information on parcel ownership.
- Analyze the inventoried assets
As the asset inventories proceed, the question that follows is how to properly account for the value of a public asset. Many public entities use historical costs with straight-line depreciation, but experts suggest a modified approach based on either market value or replacement cost.[iii] The goal of the analysis is to provide a more accurate picture of the potential revenue-generating value of publicly owned commercial assets to an audience represented by the Utah Legislature and other oversight bodies, potential public and private partners, and the general public.[iv]
- Create a management or development plan
Lastly, a public entity should use the inventory and analysis to address how to increase revenue through long-term governance and increased opportunities to partner with other public and private organizations.[v], [vi] Typically, public organizations are not real estate development firms, and may need guidance from partners who can help to improve their asset management. Long-term governance is also important as an alternative to privatization, especially if the asset can help to address long-term policy concerns like the social determinants of health.
Deriving long-term value from an asset is a multifaceted and technical process, and places an administrative burden on public organizations. But professional asset management is part of a larger duty to effectively steward public funds.[vii]
Learn more in our most recent policy brief on public asset development.
Max Backlund is a senior research associate and Dejan Eskic is a senior research fellow at the Kem C. Gardner Policy Institute.
[i] Detter, D. and Fölster, S. (2017). The Public Wealth of Cities: How to Unlock Hidden Assets to Boost Growth and Prosperity. Washington D.C. Brookings Institution Press.
[ii] Detter, D. and Fölster, S. (2017). The Public Wealth of Cities: How to Unlock Hidden Assets to Boost Growth and Prosperity. Washington D.C. Brookings Institution Press.
[iii] . Kaganova, O. (2012). “Valuation and pricing of government land and property: A tip of a growing iceberg.” Real Estate Issues, 37(1). Retrieved from https://www.cre.org/wp-content/uploads/2017/03/Government_ Land_and_Property.pdf
[iv] . Governmental Accounting Standards Board. Concepts Statement No. 1 of the Governmental Accounting Standards Board: Objectives of Financial Reporting. Governmental Accounting Standards Series, No. 37. May 1987
[v] Campbell, R. and Wheatcroft, M. (2017). “Managing the public balance sheet: A policy insight.” ICAEW Better Government Series. Retrieved from https://www.icaew.com/-/media/corporate/archive/files/about-icaew/what-we-do/policy/public-finances/managing-the-public-balance-sheet.ashx
[vi] Detter, D. and Fölster, S. (2017). The Public Wealth of Cities: How to Unlock Hidden Assets to Boost Growth and Prosperity. Washington D.C. Brookings Institution Press.
[vii] Campbell, R. and Wheatcroft, M. (2017). “Managing the public balance sheet: A policy insight.” ICAEW Better Government Series. Retrieved from https://www.icaew.com/-/media/corporate/archive/files/about-icaew/what-we-do/policy/public-finances/managing-the-public-balance-sheet.ashx