How about an “urban wealth fund”?

I would like to see building deregulators pay more attention to this aspect of the problem:

The next step would be transferring ownership of these assets to what Detter and Fölster call an “urban wealth fund”. Ideally, all publicly owned assets in a given city would be placed in the fund, regardless of whether they technically belong to the county, the city, the school system, the state or some other entity. The local governments would each have shares in the fund proportionate to the value of the assets they contributed. These shares would be reported as assets on the municipal balance sheets.

Independent managers with experience in real estate and finance would be charged with maximising the value of the portfolio. Cities would receive dividends from their stakes in these commercial properties and have the option to borrow against or sell their shares if desperate for cash.

Public officials would then have to decide whether it makes sense to pay fair market rents to stay in their properties. Moving offices might be inconvenient for government workers but the potential gains for taxpayers and citizens who depend on government services would be far greater. Leasing space in subway stations to shops might detract from the “historic” character of the US’s barbarous public transit systems, but the revenues could fund needed improvements, such as ventilation, without the need for debt or higher passenger fares.

That is from Matt Klein at the FT.  Note that profit maximization does not have to be the sole goal of such funds.


Note that profit maximization does not have to be the sole goal of such funds.

Yeah, I don't think you would have to worry about that.y


The key to understanding this sentence you cite is to understand TC's post is about transparency, not profits. The post is simply advocating double entry accounting. Right now all governments in the USA (to my knowledge) operate on a single entry "pay as you go and whatever you can't pay issue bonds for" single entry accounting, which does not account for (no pun) assets. During the Reagan years, Regan, under Reagan's direction, took advantage of this feature to try and 'cut the deficit' by selling assets, aping the UK. This is an accounting trick that would be obvious under double entry accounting.

Bonus trivia: I taught myself double-entry accounting and use Peachtree for my business. The tricky stuff that makes money for you is what is an expense (written off the same year) and what is an asset (depreciated over many years). Expenses are typically better than assets for tax purposes.

Actually, for tax purposes there is no difference between expense and asset for a small business...the cost of the assets is deductible in the year they are acquired.

Well it would be pretty funny if schools were eliminated from Urban areas because they could not afford rent. I suppose it would also be funny if the capital moved since they couldn't afford to be in the city, but then all the lobbyists had to move to follow them and then all the service sector jobs until the old place is super cheap and the new one un-afforable.

But it would probably be better just to exempt the government from insider trading laws, and front run any regulatory approvals or denials, which in turn would be made based on how much they would earn by front running them.

Amazing how quickly some people forget about agency problems the second the word "privatization" appears.


no,no,no --- you must understand that very wise politicians would appoint "Independent managers with experience in real estate and finance would be 'charged' with maximising the value of the portfolio" .
Structuring government so that "independent experts" run things is ideal-- thus eliminating all political, personal self-interest, and incompetence problems. Brilliant concept. It works great as demonstrated by agencies like the Federal Reserve System, USPS, and Amtrak.

Oh, great, so now all public spaces and facilities like parks and libraries will start charging a "service fee" to enter? Because that's what this libertarian fantasy is envisioning: shifting the operations of government facilities more directly onto the hands of people who use them, such that everything becomes much more expensive and inaccessible and all the investment bank creditors get paid off with higher profits.

+1 And, don't forget that publicly managed projects are subject to competitive bidding laws etc. Not so with a turn key operation where the public later has to pay for the toll on the private highway.

You've already got agency problems without privatisation.

Good point. Just a minor example: when I ran a youth sports team, it was tough to find legit practice space even though we have a good amount of empty fields on school and public park property. The local Parks & Rec dept over booked the parks and school fields for their programs, even though they only used about 20-40% of what they booked. They never went back to release the fields they didn't use because it wasn't worth their time. The few remaining fields went to folks who happened to have ins with the school district, usually a parent on the team who was a teacher or administrator who knew the lady who booked the fields.

My teams were willing to pay for the fields, but never could because we never got priority in the process above even though there was plenty of unused space. Rather, at the beginning of the season, I'd drive around and find the fields that were booked, but unused, and just 'bootleg' the space for free.

The lady who booked the school fields had no interest in maximizing rental fees for the school facilities.

'Note that profit maximization does not have to be the sole goal of such funds.'

Wavering a bit concerning the tenets of public choice / rentier theory?

"... or some other entity". Note (note!) that Tyler is now advocating that the government at the point of a gun take your stuff and give it to him. And he promises to do good with it so long as he gets to define "good". And I'm sure he will. It will mean you eat hot mess on a thin bun; and he gets your daughter. This is the Left. And so it has been since its first iteration (known to history) Gengis Khan; or Ashurbanipal or ..." whomever Tyler envies this day.

"This is the Left. And so it has been since its first iteration (known to history) Gengis Khan; or Ashurbanipal". Oh, God.

God, through Its representatives, has taken its fair share of stuff, at the point of a gun, too.

To be fair, it is all His anyway, but he does not use everything all the timel

He still took ir. Naitve American giver?

Put me in charge of maximizing the return on (the property formerly known as) Central Park, please.

By destroying tens of billions in wealth?

Ie, you would crash the prices of all real estate overlooking and near central park.

By the way, building buildings in central park would be complicated by the vast underground structures under it for supplying water to the city.

No but the NYC municipal building would make for a great condo conversion; I bet the penthouse could go for at least 150 mill.

There used to be a guy there you could buy it from, but Giuliani chased him out.

"Note that profit maximization does not have to be the sole goal of such funds."

What could the alternatives be ? Politicians wealth maximization ?

Profit maximization can be checked by external audits, that's why it's the only reasonable attitude

Social goods, like giving out money to current voters, paying to provide for new arrivals/new voters, and pandering to special interest groups.

If it works anything like the state pension systems, then I would advise caution. Consolidation, "independent managers" who invest poorly, and eventually theft to shore up budget holes.

Well defined limits are a must. An Amazon warehouse in Golden Gate or Central Park. Trump Hotel in the Grand Canyon or the ANWR.

Same applies to Italy in general. Their debt problem would change quite quickly!

There is a shortage of safe assets, so extracting the safe assets from local government might be a strategy. However, if you take the safe assets from local government, expect municipal bond which had these assets to crash.

The real question that should be addressed is: are there public expenditures that should instead be paid for by private developers because they are the beneficiaries.

Like: baseball or football stadiums, where governments pay part of the cost.

Let's start with the simple: let developers pay for the improvements that benefit their property. They then can capture the benefit in their land prices...Oh, they already do, it's just you that helped pay for stadium or that road through the wilderness that brought you to Mar Largo West.

Let's call it

An Urban Slush Fund


An Urban Support the Wealthy With Your Tax Dollars Fund.

How's that Malaysian Sovereign Wealth Fund doing anyway.

"Urban Wealth Fund" - I seriously defy you to come up with three words that are more sexually arousing to Dem kleptocrats.

I can hear Rahm Emmanuel's pants bulging from the East Coast...

No, it's Goldman Sach's of the world who get commissions for putting the finances for the project together and distributing it are the ones with the bulging fronts. You can do some research on this as there are countries which have gone down this path of infrastructure financing. The other problem is corruption.

I suspect this is not an either/or situation.

Agreed. It isn't, and because it isn't you can't expect some politician with ties to Goldman to oversee it.

What's implicit in Cowen's post is that elected public officials are dolts, using their position to advance the interests of themselves and their (mostly undeserving) constituents. While that my be true in some places, it's not true in all places. In my place, for example, the elected public officials are beholden to the business interests that prosper from growth, including the real estate brokers, the bankers, the developers, and the builders. It helps that the elected public officials and real estate brokers, the bankers, the developers, and the builders are one and the same. One could say about my place is that it is run like a business. Cowen: "Note that profit maximization does not have to be the sole goal of such funds." Whose profits is Cowen referring to? Don't you love Cowen's dry sense of humor.

Start with naming rights. If the government wants to name something after a hack politician, it should pay the market price.

Pay the market price to who? Itself? Pointless.

I would pay to have a correctional facility named after Trump.

Or maybe a sewage plant.


Not in the real world. Typically, internal accounting entries are used to help evaluate employee performance. And, as a result, we spend many, many hours arguing about 'which internal department is going to pay for which expense.'

Surprising to see so much pushback in the comments.

Yes the politicians might screw it up, but as it stands now we are completely wasting this land.

That's not what the proposal is. Cities can always sell land, and they do. What they are talking about is public/private projects.

Ask who comes out ahead the next time your city takes land and develops a stadium in a joint venture with the team owners.

The sports fans! Just kidding, good point Bill.

What problem is this trying to solve, exactly? If it is underutilization of government land, it is easy enough to calculate the imputed rent and the benefits and decide if locating there is ideal. If it is insufficient commercial real estate, then the zoning code is lower hanging fruit.

The problem to be solved is that TC doesn't have an interesting idea that can be turned into a blog post. A similar problem often presents itself to writers of Dr Who episodes. The solution is the same in both cases:

1. Show an imperfect, but basically functioning, society of people going about their lives.
2. Have an alien species with some absurd one-dimensional view on how to optimize things show up.
3. Profit!

I'm afraid this idea is fundamentally .. harmless.

"Using a unique dataset of hand-collected financial data from California, I document empirically that municipal governments use OFR [opportunistic financial reporting] to approach breakeven income in both sets of financial statements, and that they focus particularly on avoiding deficits. Further, I find evidence that municipalities use discretionary accruals to a greater extent before issuing bonds, but use accounting gimmicks in the fund financial statements – which are easier to detect – to a lesser extent."

To see how that would really work out, replace

"Independent managers with experience in real estate and finance would be charged with maximising the value of the portfolio."


"Independent managers with experience in real estate and finance would be charged with maximising the value of the PENSION portfolio."

Is there anything going on with public pensions in Illinois and Chicago that you want to happen to rest of the city?

Just think of the savings from moving municipal offices to some far-off suburban office park.

Lower rents, of course, but big staff cuts as well, since so many fewer people would find it convenient to go there.

Look. The "income" to the city from the expense of conveniently located offices is partly that it makes it easier fro residents to get to city hall or wherever. The notion that “Independent managers with experience in real estate and finance would be charged with maximising the value of the portfolio,” is ridiculous, even ignoring their fees. And since those fees will be substantial we can of course be confident that the mayor will pick well-qualified honest managers.

Some of these ideas sound like parody. Is Tyler putting us on?

"since so many fewer people would find it convenient to go there"

In most cities, that's where all the people live. It's a pain to go downtown to handle some county business when it could be a lot closer to 80% of the people.

Lots of suburbanites work downtown.

And all those people living in western suburbs will find it not so easy to get to the eastern suburbs, where the office is. Besides, the population density is in the cities, and transit to suburbs is often poor or non-existent.

"building deregulators"?

Not sure what this means, but if we eliminate property zoning in the US, much urban land would decrease in value as supply of housing zoomed (think high-rise condos).

It would not matter much is government sat on some land, as land would not be all that valuable.

Living standards would be higher, and measured inflation lower.

This is actually a larger issue: As foreign capital pours into limited US real estate (financed by trade deficits), the price of housing is rising beyond middle-class means. This problem is seen in sharp relief in Vancouver, New Zealand, Australia and Great Britain and some other areas, but is happening in large parts of the US too.

The US can unzone property, or cut the trade deficit, or watch living standards erode...we are choosing the latter.

Good luck with this one. It is not a PC topic.

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