2006 CPEO Brownfields List Archive

From: "Peter B. Meyer" <pbmeyer@louisville.edu>
Date: 26 Oct 2006 19:10:24 -0000
Reply: cpeo-brownfields
Subject: Re: [CPEO-BIF] incentive evaluation and subsidies
 
In response to your question, Bruce, I am very interested in the study you suggest ... and Kris Wernstedt, with Lauren Heberle, has already looked at a related issue -- the divergence between perceptions of developers and those officials who might be te ones offering subsidies... I leave it to him to raise that issue more thoroughly for the group, but the general finding I derive from their work is that the officials misread the concerns and risk perceptions of developers, and thus do not provide subsidies in anything remotely approximating an economic or socially efficient manner.

Bill Cocose's point about assessed values is exceptionally well taken -- but incomplete. There are, indeed, states in which it is very difficult to discharge old tax debts in the case of redevelopment of abandoned, and thus tax delinquent, sites. In such cases, the burden accumulated from those tax obligations can, as he points out, add to the financial burdens carried by a brownfield site.

However, there is another side to the issue. In other instances, especially with warehoused small sites, some of which are held on spec against expected property value increases, the carrying cost for holding a site off the market would be depressed by reassessments to close to zero for un- or under-utilized sites. In Kentucky, for example, some cities were pressing for the right to assess a higher tax rate burden on vacant unused brownfield sites as a means of getting access and forcing sites onto the market. 

The problem really is that there are few, if any formulaic solutions or responses that make sense. The real need is for tailored responses - and for subsidies where needed, but not as automatic grants. The problem, then, is that such responses require data, and we have not been willing to demand information from business applicants requesting public support, while we have always required it from individuals and families. "Need-based assistance" is acceptable as a basis for providing welfare or supplemental security income to the elderly -- why isn't it equally appropriate for developers?

There is also no reason  not to require some sort of assurance of public benefit as a condition of that assistance. To continue the welfare analogy, we evolved "workfare," in which people had to show that they were making an effort to get themselves beyond dependency. We could, logically, require a similar demonstration of environmental or other socially beneficial outcoems from brownfield developers, and we might even penalize them after the fact for nonperformance.

We do not need to look to welfare for an analogous program, but to the economic developemnt experience with "clawbacks." These are conditions imposed on various forms of state support for economic development projects, in which the developers or new firms promise some number or jobs or total payroll in return for some subsidies. States, dating back to the 1970s, monitored development project performances and implemented clawbacks of different sorts, and this did not seem to acutely discourage investment. (A typical clawback might be a higher interest rate on a low interest loan proviced in response to a commitment to generate a specific number of jobs, if the target jobs were not created.)

In the brownfield case, the performance measure could be the site remedial response, and the pollution abatement condition attained. This is an outcome that is more under a developer's control than the number of jobs generated by a company, and one that can be attained regardless of  the unknowns of economic condition or real estate market changes.  Such a clawback provision need thus need not add to the uncertainty prospective developers would face, and could actually save investors time and money by providing community representatives, who might otherwise be a real thorn in brownfield redevelopers' sides, with some assurance about the environmental performance the project will deliver. Reduced community resistance can speed project approvals and safe money.

-- All in call, this is an excellent and important debate to have, and I am very pleased to see that CPEO has hosted the discussion thus far.

Peter
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Peter B. Meyer
Professor Emeritus of Urban Policy and Economics
Director, Center for Environmental Policy and Management
School of Urban and Public Affairs
University of Louisville
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Director of Applied Research
Institute of Public leadership and Public Affairs
Northern Kentucky University
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Senior Advison, E2 Inc.
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President, The E.P. Systems Group, Inc.
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Managing Member, Ecofun, LLC
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cell         502-435-3240
phone     859-491-9298
fax          859-491-9252
skype      pbmeye02 or 859-648-0373
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3205 Huntersridge Lane
Taylor Mill, KY 41015
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