Saturday, May 14, 2011

US Towns and cities with ravaged revenues are selling municipal treasures to pay the bills

As 2010 drew to a close, the mayor of Newark, N.J., was staring into a budget abyss so deep that he sold 16 city buildings to pay the bills. They included the architecturally significant Newark Symphony Hall and the police and fire headquarters.

In New York, the transit authority may sell its Madison Avenue headquarters, complete with an underground tunnel connected to Grand Central Terminal and air rights to build a skyscraper on top.

And soon, if state legislators have their way, private investors will be able to buy plenty of other municipal treasures: power plants in Wisconsin, prisons in Louisiana and Ohio and municipal buildings in Boston.

The Great Government Tag Sale is on. As states and cities struggle with billions of dollars in shortfalls, elected officials are increasingly selling public assets to cover their costs. Sometimes municipalities sell the buildings to pocket a one-time pile of cash and then lease them back so they can continue to use them.

To proponents, selling government property is an efficient way to plug budget holes. That's one reason the Obama administration has looked at unloading office towers, courthouses, warehouses and shacks. Private owners who develop the properties can inject vibrancy into municipal dead zones, the thinking goes. Buildings that were once exempt from property taxes are put back on the rolls.

But to critics, these sales are as misguided as pulling money out of your house to pay your bills. They point out that the government is letting go of a long-term, valuable asset in exchange for a one-time payment. When the asset is a building, a municipality then has to spend more money on leasing it back or renting another facility.

"This is tantamount to selling the family china only to have to rent it back in order to eat dinner," says economist Yves Smith, author of the top-rated business blog Naked Capitalism. (read more)