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

["Robert Paterson" <rgfp@mail.utexas.edu>]

Okay Bruce,

I agree I'm not terribly fond of LEEDs either--it is completely lacking in
social justice elements, has a poor weighting system and has problems in
implementation to be sure--but what I was pondering with that thread is how
to reasonably "operationalize accountability" for subsidies (taking into
account comments from Ignacio on the feasibility of localities doing such
things).  Localities have never been good at "evaluation," so how could we
make this tractable for them?  The point system might have a baseline
objective of basic market correction/equalization, and then, yes offer more
points for more non-market amenities that are desired........ how might a
locality estimate what was needed in the single developer scenario?  Clearly
we know ways to estimate stigma impacts, clean up costs etc., but is this
reasonable to ask of locals? Maybe this is the focus of the chat at the
National Conference?  

Bob


-----Original Message-----
From: Bruce-Sean Reshen [mailto:reshen@mindspring.com] 
Sent: Wednesday, November 01, 2006 7:48 PM
To: 'Robert Paterson'; 'Trilling, Barry'; 'Peter B. Meyer';
brownfields@list.cpeo.org
Subject: RE: [CPEO-BIF] Re: Re-Working the Thinking on Brownfields Subsidies

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



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