Commentary

The Perils and Promise of Public Private Partnerships for Redevelopment

Quincy, Massachusetts has decided to make over it’s tired and worn downtown. So, its embarked on a unique approach involving the private sector. This approach shows both promise and peril for property rights. I first became aware of this effort, which appears quite innovative, after reading a lead article in New Urban News (July/August 2011).

Quincy officials recognized that an integrated approach to redeveloping the downtown would likely have more success. As a town inside the Rte 128 beltway outside of Boston, land is scarce. High demand, under the right circumstances, can be harnessed to create an integrated approach to redevelopment. Virtually all the public infrastructure needs to be replaced (including 200 year old clay sewers) and the site encompasses 50 acres.

Quincy, however, didn’t have the funds to underwrite the development plan itself. So, it’s contracted with a private developer to underwrite most of development costs and shoulder most of the risks. As New Urban News explains (p. 6-7):

“One of the things that sets the Quincy project apart from old-style urban renewal is its financial structure. After nearly three years of negotiations, the city and Street-Works [a design and development company] agreed that the builk of the financial risks would be borne by the developers (and its lenders and investment partners) rather than the municipality.

“Street-Works will round up the money to pay for the infrastructure replacements as well as for private portions of the project. ‘This mechanism-the ‘purchase model’-‘largely eliminates the public risk often associated with redevelopment projects,’ Mayor Thomas P. Koch emhasized in a press statement. ‘The city will purchase the public infrastructure-including parking garages-from Stree0Works only when new buildings are occupied and producing enough revenue to cover the City’s debt costs.'”

The complete plan and development agreement can be found here. The entire project is expected to cost $1.8 billion, generate 1 million in commercial office space, support two hotels, and create 735 housing units. The private sector developer is Hancock Adams Associates (whose management partner is Stret-Works) out of Boston, and they are going to finance 78 percent of the project.

According to an article from the World Propety Channel (Jan 4, 2011):

“In a prepared statement, Quincy Mayor Thomas P. Koch and Street-Works believe New Quincy Center could become the new model for urban redevelopment projects across Massachusetts.

“At the heart of the master agreement is a financing mechanism that will require revenue from the new private development to pay for $227 million in public infrastructure costs.

“Koch says this is a wholesale reversal of traditional urban redevelopment by requiring the private investment to come first.

“The mechanism, called the “purchase model,” largely eliminates the public risk often associated with redevelopment projects. It works this way:

“The City will purchase the public infrastructure – including parking garages — from Street-Works only when new buildings are occupied and producing enough revenue to cover the City’s debt costs.”

The city is responsible for providing the infrastructure, including new roads and utilities to service the new development. Interestingly, one of the reasons the city decided to go the public-private partnership route was a belief that eminent domain was no longer possible for redevelopment in a post-Kelo political world. They figured they would let the private companies worry about acquiring the land for the non-public infrastructure and building components. According to the Quincy Patriot-Ledger (March 14, 2009):

“Redevelopment used to be tearing down three blocks and hoping somebody builds something,” Quincy Planning Director Dennis Harrington said. “Those days are gone.”

“No eminent domain takings are sought for the project, and Street-Works will negotiate with individual property owners to gain control of the land area stretching from the Quincy Center MBTA station to Washington Street.”

Unfortunately, this isn’t quite true. The City of Qunicy could still use, and did use, eminent domain to clear private property for the public infrastructure parts of the project. In order to provide access to the new development, for example, the privately owned Quincy Fair Mall was taken through eminent domain and the tenants evicted. Many of these businesses are small and neighborhood based, so at least they didn’t have to underwrite these debilitating costs.

Not everyone was happy with the move, as the experiences of the Asian restaurant Little Q Hot Pot illustrates. Fortunately, Massachussetts state law requires cities to provide relocation expenses to the business evicted. Little Q Hot Pot is indicative of the lengths cities will go to evict businesses to make way for their plans. One Quincy citizen sympathetic to Little Q’s plight to fight city hall wrote (October 14, 2009):

“Little Q Hot Pot restaurant, located in the heart of Quincy Center, has been engaged in an ongoing war to save their business’s retail space (“Hot Pot eatery disputes move costs,” Sept. 26).

“After receiving a notice to vacate the premises due to impending highway construction — a plan they were not given notice to — Little Q began undergoing a rigorous legal and ethical battle.

“From shutting down the adjacent Quincy Fair Mall, to stripping them of their liquor license, the city seems to stop at nothing to get Little Q out.”

After a “negotiated settlement,” Little Q eventually relocated to Boston’s Chinatown.

Nevertheless, this is an interesting case that might represent the next frontier of P3s. The private sector can often provide the experience and management expertise necessary to more efficient build, manage, and develop property. But that doesn’t mean that property rights will be respected in the process.

For more on redevelopment without eminent domain, see Reason.tv’s Drew Carey video “Redevelopment: A Tale of Two Cities” and our policy analysis on eminent domain abuse and reform.

Samuel R. Staley, Ph.D. is a senior research fellow at Reason Foundation and managing director of the DeVoe L. Moore Center at Florida State University in Tallahassee where he teaches graduate and undergraduate courses in urban planning, regulation, and urban economics. Prior to joining Florida State, Staley was director of urban growth and land-use policy for Reason Foundation where he helped establish its urban policy program in 1997.

Staley is the author of several books, most recently co-authoring Mobility First: A New Vision for Transportation in a Globally Competitive 21st Century (Rowman & Littlefield, 2008). Texas Gov. Rick Perry aid Staley and Moore "get it right" and world bank urban planner Alain Bartaud called it "a must read for urban managers of large cities in the United States and around the world."

He is also co-author, with Ted Balaker, of The Road More Traveled: Why The Congestion Crisis Matters More Than You Think, and What We Can Do About It (Rowman and Littlefield, September, 2006). Author Joel Kotkin said, "The Road More Traveled should be required reading not only for planners and their students, but anyone who loves cities and wants them to thrive as real places, not merely as museums, in the 21st Century." Former U.S. Secretary of Transportation Mary Peters said, "Balaker and Staley clearly debunk the myth that there is nothing we can do about congestion."

Staley's previous book, Smarter Growth: Market-based Strategies for Land-use Planning in the 21st Century (Greenwood Press, 2001), was called the "most thorough challenge yet to regional land-use plans" by Planning magazine.

In addition to these books, he is the author of Drug Policy and the Decline of American Cities (Transaction Publishers, 1992) and Planning Rules and Urban Economic Performance: The Case of Hong Kong (Chinese University Press, 1994).

His more than 100 professional articles, studies, and reports have appeared in publications such as The Wall Street Journal, The New York Times, Washington Post, Los Angeles Times, Investor's Business Daily, Journal of the American Planning Association, Planning magazine, Reason magazine, National Review and many others.

Staley's approach to urban development, transportation and public policy blends more than 20 years of experience as an economic development consultant, academic researcher, urban policy analyst, and community leader.

Staley is a former chair for his local planning board in his hometown of Bellbrook, Ohio. He is also a former member of its Board of Zoning Appeals and Property Review Commission, vice chair of his local park district's open space master plan committee, and chair of its Charter Review Commission.

Staley received his B.A. in Economics and Public Policy from Colby College, M.S. in Social and Applied Economics from Wright State University, and Ph.D. in Public Administration, with concentrations in urban planning and public finance from Ohio State University.