Recognizing that all developers are not a sordid, greedy lot, some cities are jumping in with private/public partnerships to rescue deals that make sense.  From Reuters:

Las Vegas’ city council voted last month to move its city hall, a decision Mayor Oscar Goodman called a “mini-stimulus.” It is a complicated deal that frees up the building’s attractive current location for the development of a district anchored by a sports arena, since Vegas hopes to attract a Major League franchise.

“The city needs something like this right now,” said Eric Louttit, Vice President of Finance at Forest City Enterprises Inc, a national developer of retail, office and apartment properties.

Louttit, the project developer of Forest City’s Las Vegas land, said that, without the move, downtown development could remain stalled for years.

The Las Vegas experience is a good model of a public-private partnership, said Thomas Powell, CEO of ELP Capital Inc, an investment advisory firm that buys real estate debt and equity, mostly in the western United States.

Such partnerships are more important because of the dearth of private capital and because city-controlled land is key at a time when many mid-sized cities are looking to revive their downtowns. The crisis, meanwhile, has made city and state government officials more willing to work with business, since they are keen for any incremental tax revenue.

Conceptually I am on board with this idea.  Win win – the city gets the new city hall that they need, the developer gets to stay alive and build projects that provide the “incremental tax revenue.”  The article in Reuters sited a couple of other examples…Cleveland for one.

The problem I have with this is three-fold.  One, this opens the door for corruption on a scale not seen before…campaign contributions lead to approved projects?  Second, the influence going the other way could be just as detrimental – Madam City Councilwoman decides she doesn’t like the color of the stucco the architect has chosen…”repaint it all or suffer the consequences” she shrieks!  Third, I am just about done with government involvement in real estate.  Government does not create jobs that are self-sustaining.  One need look no further than the shattered hulks of Freddie and Fannie that we are continuing to pour money into to realize that this is not a good idea.  Projects need to be able to stand on their own merit without disequilibriums created by fiat.

I would much rather see rational development policy emerge that uses instruments like property tax holidays and TIFF to help create projects in lieu of direct financing.  Whole neighborhoods have been created that are self-sustaining and generate millions in property taxes to their cities with this type of approach.  Harbortown in Memphis, Tennessee is a superlative example of this.  Some of the projects inside that community on Mud Island in downtown Memphis received incentives like five years of no property tax followed with five years of 50% property tax.  That can get private capital interested very quickly.