Category Archives: Municipal Finance

Major League Winners and Major League Losers

With several sports leagues in full swing or in the playoffs, this seems like a good time of year to highlight recent work on using sports as an economic development tool.  Mark Rosentraub wrote both Major League Losers in 1999 which highlighted failed sports-based economic development.  He followed the work up in 2009 with Major League Winners, which found that with careful planning and execution, sports-based economic development had worked in some more recent cases.

For another view, Public Dollars, Private Stadiums by Kevin Delaney and Rick Eckstein provides an account of the process through which sports teams received public subsidies.

Finally, Sports, Jobs, and Taxes edited by Roger Noll and Andrew Zimbalist is a collection of essays that explore the economics and economic development potential of sports and stadia.

Philadelphia Makes First Venture Capital Investment

The City of Philadelphia (through subsidiaries and the Philadelphia Industrial Development Corporation) has made its first equity investment in a company, reports the Philadelphia Inquirer.

The investment is for $200K in Real Food Works a firm that is a subscription food service that delivers healthy meals for people interested in dieting and eating healthy.  It seems to be kind of like a Netflix for healthy, real food.

The fund is called Startup PHL, and First Round Capital.  First Round is a venture capital firm that is managed by Josh Kopelman – a long time internet entrepreneur and investor – who manages investment decisions for Startup PHL.  This type of activity is great for cities and local businesses looking to grow.

I would love to see this type of investing backed by (or a small part of) city-based exchange traded-funds (as I have written about before).

Washington Post’s Homes for the Taking Three Point Series Part 1 – Left With Nothing

The Washington Post has published a three part series in the paper titled, “Homes for the Taking.”  The series is essential reading for urban planners, community development practitioners, and people interested in urban real estate issues.  In Part One, “Left With Nothing,” the authors chronicle Bennie Coleman, a senior with dementia, who lost his home over a missed $134 property tax bill.  Washington, DC sells delinquent tax bills to private companies that then take over charging interest and foreclosure proceedings.  Mr. Coleman’s $134 debt ballooned to $4,999 in the hands of the private lender, who foreclosed on him and then sold the house for $71,000 months later.  Many of these companies charge unreasonable interest and fees and push people out of homes.  Policy makers need to be sure that their tax collection systems don’t cause more harm than good just to make up a small amount of unpaid taxes.

Poor Project Management Leading to Another Failed Public Housing Redevelopment

The Washington Post had a story this morning on the slow, and incredibly delayed redevelopment of Temple Court in Washington, D.C.’s NoMa neighborhood.  Temple Court was slated to be redeveloped to a mixed income development under the Anthony Williams administration.

The redevelopment has had a number of problems – many of which led to the failure of the Urban Renewal Programs of the 1950s and 1960s.  The land has restrictions on it that limited the type of housing that could be built, but the city didn’t know that before starting demolition.  The private developers could not secure financing for the project’s subsidized housing – meaning that what has been built is largely market rate housing and the remainder of the site sits as an underutilized parking lot.

Redevelopment can work, but planners need to get into the details and work with developers and the community to create a viable plan that can be built quickly – before any residents are “temporarily” relocated. Then during construction, strong project management is vital to keep things on track.  If not, projects will look all too much like failed redevelopments of earlier generations.

 

Municipal Bond Tax Exemption Under Review

The Council Development Finance Agencies (CDFA) and Bloomberg News report that the tax exemption for investors in municipal bonds may be abolished as a part of the debt ceiling negotiations.  Lawmakers agreed to preserve the exemption as a part of the fiscal cliff agreement, but it may only be short term.

What would happen to the municipal bond market if the investments became taxable?  The cost of municipal government borrowing would almost certainly go up because investors would suddenly have to pay up to 39.6 percent of earnings on the bonds.

The exemption’s major benefit to municipalities is that it can help them borrow at a lower cost than if they had to borrow through the traditional, taxable market.  The tax free bonds are more attractive to high wealth and high income individuals and entities because they pay higher tax rates.

The municipal bond market is an attractive target for tax increases because of its size at $3.7 trillion.  I haven’t seen a detailed analysis of potential revenue from taxing the market, but it is important to remember that taxes would only come on the earnings in the bond market, not the whole market size.  While borrowing rates are certain to rise in the future, current bond rates are quite low given the interest rate.

President Obama has suggested maintaining the exemption, but capping it at 28 percent – a lower tax bracket.  This would mean that individuals in the highest tax bracket would pay an effective 12.6 percent tax on municipal bonds.  This is not unlike the political strategy with the fiscal cliff.  The increase would affect only the wealthiest investors (who for fairness make up the largest part of the muni bond market since they benefit the most).

A limited exemption for this group is a reasonable policy that might have less of an effect on the cost of borrowing for state and local governments.  Unfortunately, there are only so many ways to raise revenue on the wealthiest Americans, and the increases on them will probably not solve the fiscal situation.  As the federal government has to make more difficult decisions about revenue and spending, the exemption as a whole will probably remain up for discussion.  If the exemption is eliminated, it could significantly dampen the potential for municipalities to renovate, build, and invest in the infrastructure that will help their local economies grow.

For more information on the benefits to state and local governments of the municipal bond exemption, take a look at Municipal Bonds for America.  They are a pro-exemption advocacy group.