Tuesday, January 11, 2011

Atlantic Yards cited in Competitive Enterprise Institute report as example of bad public-private partnerships

On the heels of state Comptroller Thomas DiNapoli's cautions on public-private partnerships comes The Limitations of Public-Private Partnerships: Recent Lessons from the Surface Transportation and Real Estate Sectors, by Marc Scribner of the libertarian Competitive Enterprise Institute.

Notably, Scribner suggests that the two categories are very different beasts, and that real estate projects should be avoided. Atlantic Yards is one of five examples in that sector.

His summary:
One has long been dominated by government monopolies and the other has been largely free of political forces. In the case of surface transportation infrastructure, innovative new private-sector financing, management, and ownership regimes have much to offer in terms of minimizing taxpayer exposure to risk, capturing user revenues, and creating an efficient transport network. In contrast, government’s recently expanded role in real estate development has increased taxpayer exposure to risk, socialized costs, and concentrated the benefits into the hands of select private developers and special interests.
He recommends that partnerships in the real estate sector be avoided, "[o]utside of limited instances such as the Department of Defense’s Base Realignment and Closure (BRAC) program."

The examples, including AY

The 30-page report cites five examples of dubious real estate deals, including:
  • downtown Minneapolis’ Block E
  • downtown Pittsburgh's Fifth and Forbes corridor
  • New Jersey's Xanadu (recently renamed The Meadowlands) megamall
  • Navy Yard development, including a new stadium, in Southeast Washington, DC
The fifth is Atlantic Yards, which "required extensive use of eminent domain—both the threat of condemnation and condemnation itself," relied on "hired-gun" Smith College economist Andrew Zimbalist, and involved “community activists” Al Sharpton and Bertha Lewis.

Whether the taxpayers will be "on the hook for at least $1.6 billion" is hard to ascertain, but the developer will be saving a bunch. (And that's before Chinese money for green cards, even.)

And Scribner's right in pointing out that property owners in New York face little chance challenging condemnation in court.

Would private sector have gone it alone?

His conclusion:
The elements of these five real estate PPPs profiled above vary greatly, but all share some key characteristics: fiscal mismanagement, handouts to business or labor interests (or both), and top-down central planning. The extent of social harm created through public sector subsidies also varies— ranging from New Jersey’s Xanadu project facing imminent collapse to Pittsburgh’s recent shift toward more humble (though still pernicious) planning. But make no mistake: All of these projects have misdirected investment to projects that the private sector, absent public subsidies, would never have developed.
Marc Scribner - The Limitations of Public-Private Partnerships

1 comment:

  1. Correct me if I'm wrong Norman, but isn't FCR heavily involved in the DC Navy Yard Development as well? I wouldn't be at all surprised if they were also involved in the Pittsburgh one cited also. And crazily enough, they may well be a contractor in the DOD's Base Realignment and Closure program. After all, NLG just posted that story from the Honolulu Advertiser about all the real estate work they are doing for the DOD.

    So. If true, we're really talking about a coziness btwn the nation-state and one particular firm that reminds one of at best, Halliburton, and at worst, the South Sea Company or the East India Company. The latter examples, of course, being the main reason for that vaguely known diatribe in the history of international reform, The Wealth of Nations.

    Ugh. Some proverb about not knowing one's history is somehow coming to mind. Except I thought that, of all our history, at least the politicians all claim to be adherents to Adam Smith, right? Guess they really never opened up the pages of that book....

    Also, if true, don't hold your breath for any DOJ investigations of FCR in Yonkers. This won't change until Norman pens a latter-day Wealth of Nations.

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