Public-Private Development Partnerships: Working with Municipalities on Tight Budgets
By Larry K. Kimball Director of Hotel Development, C. W. Clark, Inc. | August 14, 2011
Public-private partnerships are a proven structure that often results in mutually-beneficial deals that incentivize new hotel developments for municipalities. Many of these deals are controversial because public or redevelopment funds are involved and sometimes the developer benefits more than the municipality over the long haul. In any case, this deal structure may be in jeopardy over the next few years. Municipalities throughout the U.S. are on the proverbial financial ropes and that is not good news for prospective hotel developers. We will discuss how we got here, where it is headed, and best practice strategies hoteliers can use to obtain financial incentives in future public-private partnerships.
Where Has All the Municipal Money Gone?
Higher Pension Costs
The influence of public sector unions is a primary reason municipalities face and will continue to face tough choices between providing or cutting existing services and imposing new tax increases. A recent University of Chicago and Northwestern University study estimated that states face a $3.92 trillion nationwide shortfall in unfunded pension liabilities for the period 2008-2023 (1). That is just the states, not the municipalities which are as follows:
"It is worth noting that the same issues also arise for the many municipal and county pension plans in the United States. According to the U.S. Census of Governments, local plans in aggregate held $0.56 trillion in assets as of June 2007, which is about 20 percent of what state pension plan assets were at the time. According to Pensions and Investments, as of September 2008 the largest of these local plans were New York City ($93 billion in assets), Los Angeles County ($35 billion in assets), and San Francisco County ($14 billion in assets). If local plans were as underfunded as state plans, underfunding would be $0.90 trillion using Treasury discount rates"(emphasis added) (2).