Techniques for Mining the Public Balance Sheet

Executive Summary

State and local governments are increasingly searching for innovative solutions to balancing budgets without raising taxes. “Mining the public balance sheet,” a systematic process of identifying and divesting government assets through sale, lease, or other techniques, offers one way to increase nontax revenues. Moreover, if done carefully, mining the balance sheet can result in upgrading of the asset, new tax revenues, and preserved or improved service quality. Effective mining the balance sheet thus has the potential to do far more for a government than merely balance its budget for a single year.

Diverse types of facilities may be monetized in this fashion, including: government buildings; data processing centers; recreation facilities; wastewater treatment facilities; bridges; and publicly owned utilities. Legal development rights for undivided land and air rights may also be divested.

Several different types of transactions may be utilized in the divestitures, such as, asset sales; longterm leases; sale and leasebacks; sale and service agreements; asset swaps; and value capture arrangements.

The form of transaction employed depends on several legal and tax considerations. For example, public assistance to private development is frequently subject to a body of state law; the availability of tax-exempt finance will be affected by the extent of private benefits realized and the terms of operating agreements with private parties; and the availability of tax benefits to private purchasers will be determined by the terms of service agreements and leases.

Approached in a systematic way of matching objectives, assets, financing techniques and available incentives, mining the balance sheet can jump start a public entity’s ability to meet current financial difficulties.