Lynne Sagalyn

“Public Profit Sharing: Symbol or Substance?”

Editors: Terry Jill Lassar


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This article explores the profit-sharing aspects of codevelopment agreements and focuses specifically on the nature of the city's financial involvement. Cities are increasingly using a vast array of financial mechanisms, including loan paybacks, participatory leases, and equity participations, to give them a more direct financial stake in projects. Sagalyn examines the financial structures of several codevelopment projects throughout the country. Next, she discusses three supporting myths about municipal entrepreneurship, which she then proceeds to debunk: one, as coinvestors in public/private projects, cities act like developers and seek to maximize profits from deals; two, in public/private negotiations, developers get all they want; and three, deal making generates big financial payoffs for cities.

Sagalyn, like Frieden, concludes that these prevailing myths and their implications for potential conflicts of interest are more troublesome in theory than in practice. Because their chief concerns in negotiating public/private projects are political rather than financial, city officials try to maximize the total package of public benefits—for instance, design amenities, jobs for local residents, and affirmative action programs—in addition to financial return. Equity interest, however, is just one of many bargaining chips.

Sagalyn is more concerned about the policy issues raised by the use of "off-budget" financing techniques, including below-market interest rates, deferred paybacks, loan guarantees, tax abatements, and in-kind expenses, which typically are excluded from the expense side of the ledger, and which bypass voter approvals or capital budgeting processes. With so much of their funding coming from these sources, codevelopment projects thus avoid competitive reviews against other public investments. As a result, warns Sagalyn, the easy politics of off-budget financing may lead public officials to provide their private partners with more assistance than is needed.

Source: City Deal Making
Exact Citation:
Sagalyn, Lynne. "Public Profit Sharing: Symbol or Substance?" In City Deal Making. Ed. Terry Jill Lassar. Washington, D.C.: Urban Land Institute, 1990.
Place: Washington, D.C.
Date: 1990