Wednesday, March 28, 2012

Slippery Slope of Public Private Partnerships

I'm going to have a linkages post here shortly, but wanted to make a quick post and warning about public-private partnerships. Virtually all infill development these days is done via a variety of tools available to local governments (and larger bodies) to incentivize or encourage a type of investment that is not happening otherwise. This usually means a certain part of town or a certain type of development (for the rhetorical purposes we're going to refer mostly to infill development that is at least nominally "mixed-use" herein).

Types of public participation in private development include tax incentives, neighborhood empowerment zones (NEZ), Public or Business Improvement Districts, Tax Increment Financing (which finances public improvements from future expected tax revenues from new development above what was there before), etc. Virtually every recent mixed-use, infill development that you can think of in DFW had some a la carte menu of incentives in order to make them happen with varying degrees of success.

In essence, it is an overlap of interests that are mutually aligned. These could be called win-wins. Developer wants to make money and stay in business. The city wants (typically) tax base and occasionally are interested in quality of life issues as well. Except, as mentioned above, tax incentives are often provided. Potential developers all over the city are looking for such tax breaks in order to make their deal work, most recently, the developers under contract for the Crozier Tech site.

The immediate problem is that you're giving up tax revenue in order to get tax revenue. It's a risky game to play as there is no guarantee that further investment will ever come. Why? And herein lies the deeper issue. All of these tools are primarily used to add supply. None ever add demand for an area. If the land cost to demand ratio was healthier, ie profitable towards investment there wouldn't need to be any public assistance.

Look no further than the kind of development that had been occurring at the extreme edge of the city. Often, low density developers have even built all of their own internal infrastructure, though the cities still provide the connections to them. Though most of these have stopped because the demand side was fueled by funny money, imagined wealth, the promise housing prices would go nowhere but up, and easy to get mortgages.

In other words, none of those things still exist and cities are coming to the realization that they get left with the long-term infrastructural burden that low density development just doesn't pay for. Once a road is built, that sh1t ain't free. It has to support the kind of development, ie tax base, that can and will maintain it long into the future.

In terms of infill development, most developers don't want to be the pioneer, the first one into an "unproven market," ie a sketchy area. As the saying goes, pioneers get the arrows, settlers get the land. To combat this, cities and the federal government concoct an array of the tools as mentioned above, but again these are generally entirely supply-side. If you build it (the first few developments), they will come. So they think. Except there is no guarantee of demand. A building is supplied, the developer is covered as the public side kicks in what the developer thinks is their increment of risk (i.e., who knows if enough people will move in at the rents they need to make a dollar) by the public partnership.

Their thinking is usually, that if they can just get the first couple projects off the ground, the rest will take care of themselves. Again, two more problems arise. Some developers could become entitled, expecting certain amount of $ or their take their toys and go home. And in turn, the cities end up spending a few million here and a few million there on every single project in an area. And in the end, you wonder if all that was spent was even worth it.

Ultimately, there is and has been very little analysis of why some work and some don't. What underlying characteristics are at play? It obviously isn't simply the superficialities such as "mixed-use." Those that do have a fine-grain network of local connectivity, a small-street and block structure over a large enough area to have a critical mass. They're connected globally, but those global connections (usually rail, highways, or arterials) are boundaries of the district. They connect tangentially to this local success, but inhibit it from expanding further.

That's not to say the public sector doesn't have a role. They absolutely do. Except currently we build infrastructure that displaces demand locally and ships it out further and further away, thus interrupting the natural self-organizational aspect of organic systems/cities. We need infrastructure that brings us together, that is sociopetal, not sociofugal where we instill increasing distance and therefore cost of connectivity. It is those connections that are why cities exist, between talent, goods, ideas, services, jobs, genes, you name it.

Jane Jacobs warned against the blurring of public and private boundaries, but rather they can be mutually aligned but also defined. People from one side of the spectrum tend to take her words as a validation of their own adopted dogma. "Moderates" think there ought to be a blend of all things and why not? PPPs are the band-aid that prevents the whole system from falling apart.

Part of her reasoning was the potential for cronyism built into PPP. Certain projects or certain financial interests take precedence and get favorable treatment despite the legitimacy of their proposal. This form of political corruption is then played out as a corruption of the living system, into a zombie-like state.

What we need is a healthier marketplace with more clear divisions between public and private. Cities provide the infrastructure, the interconnectivity of networks and systems, but in the form that is sustainable. That is desirable and therefore density is a natural by-product. And if a place has low desirability, low opportunity, then it will be low density. There is a natural order to these things and our current M.O. for city building inhibits this.

It is advantageous for a variety of personal reasons to be closer to work, other people, amenities, etc. This crosses socio-economic strata. The wealthy want to be near amenity (though they have the means to live elsewhere if so desired), the poor need to be near opportunity/employment, and the middle class have a little of both.

The public sector has to focus on an infrastructure of demand, build a legitimate street and block structure based on local interconnectivity, to empower citizens, and remove the cost burden of the automobile on citizens and the local economy (I'll have something important on this in linkages later).

I'm not saying I'm fully against public-private partnerships. All hands must be on deck, but we can't become too dependent upon them. We've built a broken city. A dead zombie in need of defibrillation every now and then. But the ultimate goal must be a living city and that starts with an infrastructure of demand, opportunity, and empowerment. Exactly what a public body is supposed to do. The private sector will meet provide the supply.

With shared, common purpose yet clearly defined boundaries, the two sectors (public and private) can move in conjunction, but without getting in each other's way nearly as much as they do now.

If we look at the model I've established for how cities evolve or devolve based on systems thinking:

Organization of Living Systems:
Purpose (begets) Interconnectivity (begets) Elements

I've repackaged that as a self-reinforcing or self-defeating process of cities:

Purpose (begets) Integration (begets) Accommodation

Integration = demand.
However, it doesn't so much create demand as releases demand. Demand is latent. It is human need. Interconnectivity/Integration just allow for the meeting of human needs, ie empowerment.

Accommodation = supply

If we stack this vertically we can think of it like this:

PURPOSE (shared amongst stakeholders, both public and private)

INTEGRATION (public sector releases demand thru connecting infrastructural networks)

ACCOMMODATION (private sector meets demand with supply of things like hotels, businesses, housing, etc. located based on the value inherent in the integration model).

Wash, Rinse, and Repeat and build a legitimate living, sustainable city. Don't Rinse than Wash. Or else you'll get Psoriasis.