RE: [CPEO-BIF] Re: Re-Working the Thinking on Brownfields Subsidies

["Bruce-Sean Reshen" <reshen@mindspring.com>]

Bob and all,

I believe Bob this all started two weeks ago when I responded to several
of your comments.  Perhaps it is fitting then that we begin the next
round.  Your suggestions for the use of LEEDS Certification type rewards
as the basis for subsidies, misconstrues the purpose of subsidies.  A
true subsidy should only be utilized where the developer's expected rate
of return is below the market level and insufficient to entice that
developer to develop the brownfield site.  If we wish to develop a bonus
system to reward the developer for adding other non-market societal
benefits, that is fine.  I stress "non-market" because if the items
would help the developer to gain greater profits, then there is no need
to reward that developer.  But the pure subsidy that results from a
brownfield project's below market rate of return should never be the
subject of a clawback.  I also note that the LEEDS system is not one we
should emulate.  It is full of inconsistencies and allows for such a
wide range of projects receiving the designation, that it is all but
useless as a guide to public benefits.

Many of those participating in this discussion seem to have a
misconception about the development process.  A developer must receive
numerous permits and approvals before beginning a project.  Those
approvals almost always involve conditions that the developer would have
preferred to avoid.  But that is part of the process.  In the end, a
developer will calculate his expected rate of return, adjusted for risk
and uncertainty, and then decide if the project should go forward.  

Prior to those negotiations the individual developer typically competes
with several other developers in bidding for the project.  Thus the
development agency has to choose from among the group of developers
based numerous factors including most prominently the developer's vision
for the site, the amount and types of social amenities, the degree to
which the developer meet the agency's criteria for the project, the
developer's financial backing and general reputation.  At every step the
developer is faced with the competition from others for the project.  If
that developer still submits a bid that involves an outright subsidy,
then the agency has a firm basis for evaluating the rationale for the
subsidy.  

The only case where this would not be true would be if there was only
one developer as part of the process.  In that case the agency must
gather market data and evaluate the propriety of that subsidy in a more
indirect manner.  The agency must also evaluate the importance of the
project, its other benefits to the working community and its overall
role in the revitalization process.

Since Peter is now back from Europe, I believe it is fair to respond to
his last missive.  He suggests that since the average local government
jurisdiction has a population of 2,000-3,000 people, they can't possibly
gain the expertise to evaluate subsidies.  Fortunately the overwhelming
number of brownfield projects are in locals that have much larger
populations, probably in the range of 50,000 to several million people,
and they do have the resources and intelligence to make wise decisions.
That does not mean they will always make a reasonable decision, but they
do have the capacity to do so.  More often than not, it is political
rather than economic decisions that skew the appropriateness of the
result.  Neither does common sense require that a town "optimize" their
decision in some mathematical sense, only that they fairly weigh the
alternatives and are able to reasonably defend their decision.  Good try
Peter but your straw case will not work.

I believe Barry and Lee have already addressed the other clawback
issues.  I would only add that Peter's other straw case of a city giving
away subsidies on a first come- first serve basis, has little basis in
reality and is not something that anyone is suggesting.  It makes for an
inappropriate model for decision-making and a poor example of public
policy.  But I did enjoy reading it Peter.

Finally, Peter attributes to Barry a concept of "balancing out"
subsidies after the fact.  I will let Barry speak for himself, but the
only balancing of subsidies that is required, is to give a developer
sufficient amounts to induce the developer to build the project.  Any
other rewards, post project completion, have nothing at all to do with
our discussion of pure subsidies.

Let the discussion resume!

Bruce

Bruce-Sean Reshen
CEO, The MGP Group
733 Summer Street - Suite 405
Stamford, CT 06901
p. 203-327-2888, X18
f.  203-327-2999
c. 917-757-5925
breshen@mgppartners.com
www.theguardiantrust.org
www.mgppartners.com


-----Original Message-----
From: brownfields-bounces@list.cpeo.org
[mailto:brownfields-bounces@list.cpeo.org] On Behalf Of Robert Paterson
Sent: Wednesday, November 01, 2006 7:09 PM
To: 'Trilling, Barry'; 'Peter B. Meyer'; brownfields@list.cpeo.org
Subject: RE: [CPEO-BIF] Re: Re-Working the Thinking on Brownfields
Subsidies

Perhaps something along the lines of a LEEDs certification system or
Austin's Smart Growth Matrix could be used and re-evaluated each year
for
subsidy packages...the approach ensures flexibility in terms of social,
environmental and economic sustainability performance expectations in
return
for subsidies and as in Austin's example, the more you do for society,
the
larger the subsidy package you qualify for...the key is to learn from
experience -- checking to see what actually delivers to the community
(so
point system is modified each year or two) and make sure each point
system
is custom tailored to the state's or localities needs and interests from
a
sustainability standpoint

That should get another round of interesting reponses...

Cheers

Bob

Robert G. Paterson
Associate Professor
Co-Director, Center for Sustainable Development
1 University Station B7500
School of Architecture
The University of Texas
Austin TX 78712-1160
512-471-0734
Fax 512-471-0716
rgfp@mail.utexas.edu
 
 
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-----Original Message-----
From: brownfields-bounces@list.cpeo.org
[mailto:brownfields-bounces@list.cpeo.org] On Behalf Of Trilling, Barry
Sent: Wednesday, November 01, 2006 4:28 PM
To: Peter B. Meyer; brownfields@list.cpeo.org
Subject: RE: [CPEO-BIF] Re: Re-Working the Thinking on Brownfields
Subsidies

Peter has set up the classic straw man to blow down by characterizing
Lee Hoffman's and my position as the"anything that claws back or places
additional restrictions on developers is bad, therefore no conditions
can apply" argument.  Of course conditions should apply!  There's
nothing wrong with a competitive award with stringent predconditions;
and the granting agency should undertake careful diligence.  The
imposition of preconditions, however, do not equate to "claw back." Nor,
to repeat, do we object to peformance objectives that are quantifiable,
clearly understood, and negotiated at arms length, the failure of which
to meet would result in some refund, although that will not be as
efficient a mechanism to attract interest as one based on
conscientiously enforced stringent application criteria and due
diligence in applying the application criteria.  Quite simply, to
safeguard the virtue of the subsidy mechanism we should not impose a
bureucratic police procedure that will discourage development activity.
While it may make for less lively discussion, I think Peter and I are
closer on our position that his last comment may suggest.  Barry


-----Original Message-----
From: brownfields-bounces@list.cpeo.org
[mailto:brownfields-bounces@list.cpeo.org] On Behalf Of Peter B. Meyer
Sent: Friday, October 27, 2006 6:37 PM
To: brownfields@list.cpeo.org
Subject: Re: [CPEO-BIF] Re: Re-Working the Thinking on Brownfields
Subsidies


I wish we could educate local officials about real estate market 
conditions in their jurisdictions and hold them accountable to support 
the public interest, as Bruce Reshen has suggested ... that would be 
ideal. However, we need a reality fix here: the average (that is, mean 
sized) local government jurisdiction in the USA has a total population 
of something on the order of 2-3,000 people .... that means is does not 
have full time staff to educate! That also means that they probably rely

on the local Chamber of Commerce to manage their economic development 
and related  subsidy and business incentive programs. And, regardless of

size, the local officials typically depend on local businesspeople to 
help finance their campaigns. ... so where do we get the objectivity 
that Bruce recommends? It is at least as unrealistic to expect our 
cities and towns to develop those capacities as it is to pursue the 
mythic "optimal efficiency" of neoclassical microeconomics.
       ... and lest someone suggest that state decisions will be better,

let me remind us all that states get their data on local economic issues

from their localities. The states do not have the staff to collect those

data objectively themselves.

Next, let me address the "anything that claws back or places additional 
restrictions on developers is bad, therefore no conditions can apply" 
argument. This appears to be what Lee Hoffman has put before us in his 
statements, and Barry Trilling appears to also hold this position now, 
which confuses me, since I agreed with his earlier comment that he and I

were converging in our thinking.  Let me posit an argument based on an 
extreme case: that we give away whatever funds we have to stimulate 
brownfield redevelopment on a first come, first serve, basis, accepting 
the claims of need of the developers, backed by zero proof of their 
actual risks or true expected returns on investment.

Would that be rational?  Remember, that means that the first developer 
to apply, whethe ror not the project needed the funds, would get them, 
and later developers, who might have planned a bit better and done more 
research on how to maximize profits through their own efforts, would get

nothing.

Excuse me, all public officials who attempt NOT to do what I just 
described, but what I described above as an "extreme case" is, in 
reality, a common practice ... and it is not efficient, not effective, 
and not even rational.  It does not serve the bulk of the development 
industry well, and it certainly does not serve taxpayers' interests.

Barry's suggestion of a balancing out after the fact is well worth 
considering, as is the incrementalism Lee describes (which is akin to 
the "pay for performance" contracting that the Office of Underground 
Storage Tanks was avocating some years ago). Let's return to the issue 
of a viable program to use our limited funds as efficiently as we can 
... that is what this discourse can best generate.

There now will be a few days' gap in my responding to the listserve, 
since I am travelling and will not have regular e-mail access. Please do

not take my delayed responses as a lack of interest in this extrmely 
important topic.

Peter

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