Phoenix Plans Asset Sales, Seeks Improved Real Property Management

Commentary

Phoenix Plans Asset Sales, Seeks Improved Real Property Management

Phoenix is currently in the process of selling over 650 parcels of city-owned real estate, which could generate tens of millions for city coffers and unlock trapped economic development potential.

Until last fall, Phoenix lacked an accurate list of city-owned land and property. But an investigation by the Arizona Republic last November found that the city was not tracking its vacant land holdings and was unaware of hundreds of vacant parcels on its books (even downtown and in developed neighborhoods) totaling 2.3 square miles with an assessed value of nearly $150 million. That Phoenix was sitting on such trapped value in vacant property was a surprise even to many city officials, who quickly set out to fix the problem.

Since the report, the city has already sold off $4 million in properties, with another $6 million currently listed for sale, but the city appears to be far from done selling off unneeded real estate. The Republic recently reported that in addition to selling off over 650 parcels, City Manager Ed Zuercher has directed a thorough—though not yet complete—review of the city’s real property holdings, with another 400 currently under consideration for possible divestiture.

The November article included the not-so-shocking admission by city officials that they do not even attempt to keep track all of the land they own, a point made abundantly clear by the fact that when the Republic asked the city to produce of all the properties it owns, the city’s list undercounted the number of city—owned parcels by 30% when compared to Maricopa County’s records.

Former Mayor Paul Johnson said of Phoenix’s real estate management, “They’re not good buyers, they’re not good sellers […] They’re terrible landowners.”

Phoenix faces a problem many municipalities face and will continue to face in the coming years—agency directors and elected officials naturally lack incentives to effectively manage government-owned real estate. Policies and procedures that govern agencies often add another layer of difficulty in ensuring that municipalities provide efficient property management.

Until recently, the city suffered from a problem that is common amongst governments at all levels—viewing real estate as a mere sundry asset, where there’s generally a lack of any meaningful incentive to divest unnecessary or underutilized real estate holdings. But the November Republic article notes cites Zuercher as highlighting “a shift in culture in 2014 ‘from viewing land as just an asset that we count like desks and cars and those things to actually items that have a potential for possible income to the city.'”

Phoenix’s asset divestiture policies further add to the problem. Similar to the federal government, city policy dictates that other public agencies get first dibs on any real estate put up for sale. If an agency puts up a property for sale, an official in another agency need only think of a potential use of the property to purchase the holding, while the agencies buying and selling the property both lack a feedback mechanism to ensure properties avoid being a financial burden to taxpayers.

State and local governments often lack the incentive to ensure that their properties are properly maintained or utilized in the most efficient and cost-effective fashion, assuming the agencies themselves even know what they own.

Further, most cities have codes relating to blight on vacant properties—Phoenix is no exception—but when the city itself holds blighted property, the finances of that city suffer threefold: lost fine and tax revenue, as well as the impact on property tax revenues resulting from property values falling due to the government owners neglecting to do what they demand of private property owners within their boundaries—maintaining their real estate holdings in a manner that does not harm their neighbors.

While tracking real property holdings seems a simple enough concept, many states and municipalities fail to accurately do so. Agency officials tend to accumulate real estate holdings like dustbunnies, while lacking an accountability mechanism to ensure responsible stewardship. Thus, state and local governments can sometimes resemble the stereotypical deadbeat landlord that they look to punish, another manifestation of the “who watches the watchmen?” problem.

Creating robust inventories of government—owned real property and more effective tools to manage and maintain—and ultimately divest, if prudent—those properties can lead to many benefits for state and local governments, from added streams of tax revenue to economic development benefits resulting from the introduction of private investment.

As states and local governments continue to face ongoing fiscal challenges, creating an effective system of tracking and managing real property, while no small task, can go a long way toward ensuring that taxpayer resources are maximized and that the proper stewardship of public assets is achieved. It took a newspaper article revealing Phoenix’s mismanagement of its real property to move the city in such a direction—one that stands to produce some major positive results—and hopefully other cities will follow in their footsteps.

Austill Stuart is a policy analyst at Reason Foundation, a non-profit think tank advancing free minds and free markets.