November 17, 2016 - From the November, 2016 issue

Engines of Growth: Financing Cities' Infrastructure Priorities & Ambitions

In an era of rapid private-sector innovation and relatively diminished public capacity, how will Cities fund infrastructure and grow their economies? At the Milken Institute’s California Summit in October, leaders with extensive experience in both business and government addressed this question—agreeing that public-private partnerships could be better used to stimulate a more dynamic economy, deliver major infrastructure projects like California’s high-speed rail, and help cities accomplish their ambitious goals while maintaining a balanced budget. TPR presents highlights from the panel California Cities: Engines of Growth, featuring former California Governor Gray Davis, now of Counsel at Loeb & Loeb LLP; Los Angeles City Administrative Officer Miguel Santana; former Senate pro Tem Darrell Steinberg, now Mayor-elect of Sacramento; and Fresno Mayor Ashley Swearengin.


The new source of funding is going to be public-private partnerships, because we have more needs than the public sector can support by itself. –Gray Davis

Donna Bojarsky: Miguel, you’ve worked for both the county and the city of Los Angeles. What is standing in the way of cities’ success? 

Miguel Santana: Cities don’t have the luxury of thinking about our finances later. We have to have a balanced budget very year. We can’t just defer it to another generation.

We don’t have the luxury of ignoring our infrastructure, because we have to manage the realities of our water systems and our transportation systems.

We also don’t have the luxury of deferring big issues, such as homelessness and the quality-of-life issues that we’re confronting.

In the last decade—when the role of the federal government has been as more of an obstacle than an assistance—cities have been forced to take on these issues one by one. The way we’ve done this in Los Angeles is by first focusing on the basics: making sure that we have a balanced budget on an ongoing basis and taking on structural issues like pension reform.

We’re asking basic questions about the role of the city—what we should be focusing on and what areas we can get out of the business of, or instead engage in a partnership with the private sector. We’re figuring out how to deal with issues that are symptomatic of the fact that there hasn’t been assistance and coordination from the federal government.

During the recession, at the height of the crisis, Los Angeles and Chicago confronted the same set of issues and took on responsibility in very different ways. In LA, we confronted them. We looked at the underlying causes that were exposed as a result of the recession, but were lying there dormant even during prosperity. In Chicago, there was an emphasis on one-time solutions and quick wins.

What has occurred is that the contrast between the two has become greater and greater. Crime continues to be contained in LA; even though it’s slightly growing, it’s still about where it was generations ago. In Chicago, it’s one of the worst, if not the worst, crime rates in the entire country.

There’s an opportunity here for cities to demonstrate what it is to govern not just for the short term, but for the long term, which the federal government can learn from.

Donna Bojarsky: Mayor-elect Steinberg, you started in the Sacramento City Council and then, as a legislator, took on the great weight of the whole state of California. Now you’re going back to the city. What are the obstacles to what you imagine your biggest ambitions are going to be?

 Darrell Steinberg: My experience as a legislator, especially in the leadership, was a great experience, although it was very difficult one. We were managing the worst recession and deficits in modern state history. If nothing else, I’m now looking forward to entering office at a time when we’re building and have the opportunity to create and invest.

I think there are going to be many challenges. I’m a policymaker, and though there may be less active policymaking at the city level, I think there will be great opportunities to translate the policies that come down from the state and federal government into real action.

Sacramento is of a scale where we can really do something dramatic about homelessness, for instance. We also have the state resource of the No Place Like Home initiative. I am excited about the prospect of being on the ground and, hopefully, counting the numbers going down.

Our city is emerging from its long-held reputation as a government town and a capital city. We want to build a dynamic private-sector economy. Combine that with the challenges of neighborhoods, kids who need opportunity, and workforce development—to me, it’s going to be a great laboratory for all that I’ve done and all that I know from serving in other levels of government to help the city get to that next level.

 Donna Bojarsky: Governor, why do you think leadership is important in any kind of job—particularly in an executive position, as opposed to legislative? How do you bring people together to do something ambitious? 

Gray Davis: Leadership makes all the difference in the world. Look at what Mayor Garcetti has done: He wants 100,000 new residential units, and he’s more than halfway home.

What made that possible? The work of a prior mayor—Mayor Villaraigosa—with Phil Anschutz from Colorado, who had a vision that no one in California seemed to be able to articulate: that Downtown LA could be a thriving, exciting place to be.

I practiced law downtown in the 1970s. At 6:00, you could shoot a cannon through the city; there was nothing going on. Then the Staples Center and LA Live were built. Now, we have apartments being built for millennials, we have nightclubs and parks opening up, and we have Disney Hall and the Broad, thanks to Eli Broad’s leadership. Everywhere you look downtown, things are happening. That requires cooperation between the public sector and the private sector.

But we’re running out of easy money. This ballot [asked] for money from the top to the bottom in various different ways—taxes, bonds, etc. The new source of funding, I think, is going to be public-private partnerships.

In New York, Mayor Bloomberg was able to get a private company to take over the entire wastewater system. They only get paid as a percentage of the savings that they create for the city, as determined by a third-party independent entity.

The county of Santa Clara worked with a private company to combat homelessness. Because the company could look at big data and see what facilities people were using, they saved the county about $100 million, which the county could use either to expand the amount of housing available for the homeless or for other purposes. The company then gets paid 1-3 percent of the savings they generate.

This new model of essentially being paid for performance on the part of the private sector is one of the real sources of revenue. I predict it will be something we draw upon more and more, because we have more needs than the public sector can support by itself—but we also have a lot of creativity and ingenuity.

Downtown LA used to be a ghost town. Now it’s thriving; it’s exciting; it’s happening. People want to be here. That took enterprising, visionary people in the private sector along with enlightened leadership, through at least two mayors, to make it happen.

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That’s what I see as our future: Our future is working, private and public, together. Now, there have got to be rules. There’s a lot of suspicion of the public sector, and an unbelievable lack of sophistication in the private sector relative to how the public sector works. But both sides are realizing they need one another, which is a good thing.

 Donna Bojarsky: Transportation dictates the urban forum. It’s a key issue. It’s also a place where public-private partnerships are important and, I would argue, where an educated, engaged civic leadership is key. Mayor, talk about what high-speed rail has meant to Fresno, and the public-private partnership there.

 Ashley Swearengin: In Fresno, we’ve seen a broad coalition of support for the project dating back to the early 2000s. It was actually a Republican idea: President Reagan first advanced high-speed rail. It’s a very private-sector-friendly mode of transportation.

In fact, it’s the only mode of transportation in the world that actually makes money on its own operations. In a typical model, government provides upfront capital, but then outsources the operation of the train itself. That’s what’s unique and creative about high-speed rail.

A lot of people have gotten on board. Things did get partisan around the federal stimulus dollars to the project, but we’ve managed to hold together a coalition of people in both the public and private sectors, certainly in Fresno, who support the project in both the public and private sectors. 

Donna Bojarsky: What did you have to do to hold them together?

Ashley Swearengin: We had to pull the arrows out of each other’s backs and recite the facts about the project over and over again. There was so much misinformation about the project that, in some ways, were rooted in fear and misunderstanding, and in other ways were very intentionally put out there to mislead people and create a political kerfuffle.

For Fresno, connecting to LA or San Francisco in 45 minutes or less for $80 is an absolute game-changer. High-speed rail connects us to other parts of the state. And mark my words: 20 years from now, all of you will be discovering Fresno in a new and different way, because it’s going to be so much easier for you to access.

Still, high-speed rail by itself won’t dramatically change Fresno in the way that we want. But coupling it with creative changes in land use, policy reform, regulatory reform, and other local-serving infrastructure projects lining up to support and leverage this investment will, and that is what we’ve done as a community to embrace the station.

In the early days of my time in office, there was a big pull to take the high-speed rail station out of Downtown Fresno and put it out in the middle of nowhere on the I-5 corridor. Proponents and staff of the project were arguing for that at the time. They were saying, “It’s too much trouble to get this train into the middle of the city. The land is cheaper out there.” Think of the consequences of putting a high-speed rail station out in the middle of nowhere!

It’s a growth-inducing project. We wanted to make sure that that major hub ended up in a place where it was going to support the revitalization of our inner city and the city as a whole. Thankfully, we were far enough along in our planning and re-envisioning of what was happening in Fresno to fight that fight and say, “Hell no, it’s coming to Downtown Fresno. We’ll make it work.”

Some companies had to be relocated as a result of the project. That was not exactly a happy day as mayor. But working with those property owners and with the High-Speed Rail Authority, we’ve seen time and again that people who had to be relocated actually leveraged those dollars to expand their business in the process, and remained in Fresno in another location. We’ve had so many of these incredible success stories.

Here’s where we are today: We’ve just passed our High-Speed Rail Station Area Plan with a 7-0 vote. We’ve proactively rezoned all the property, not just around the station area, but in the entire city, to support increased densities and transit-oriented development. We’ve also created by-right development. It’s a ministerial process: you pull a development permit, if you’re building according to the zoning, you don’t have to do a conditional-use permit.

We’re ready to leverage this investment. There are other cities along the corridor that aren’t quite there yet, but as the first high-speed rail city, we think it’s important that we demonstrate how to do this right.

Donna Bojarsky: Miguel, how are you finding these partnerships? How are you pushing them? What resistance do you find to them?

Miguel Santana: I’ve been with the city for seven years, and I also spent 16 years at the county. At the county, the notion of a P3 is actually not that revolutionary. And the county thinks about it in ways that it’s often not thought about.

Look at Disney Hall, LACMA, the Natural History Museum, or La Plaza de Cultura y Artes. These are public assets that are managed by private foundations. The fundamental concept behind that is that it’s in the public good to have these assets, but it keeps the government out of decisions about which symphonies to play at Disney Hall or which works of art to display at LACMA. Then private dollars are matched with public dollars to create the infrastructure of culture and arts that we have in this region, which is unprecedented.

Taking that model into infrastructure is the next step. We’re exploring that in the city at our Convention Center. It was a difficult decision for the mayor and the council to step out of actually managing the convention center. But when we privatized the operations, they went from years in the red to now operating in the black.

The next question is: Should we be managing it at all? What is it about a convention center that needs city employees managing its functions? Does it make sense for us to engage in a partnership with private investors, not only to build a new convention center, manage it, operate it, and finance it, but also and most importantly, to think about it in the long term?

The thing that government has been good at for 100 years is building things. What we’re lousy at is maintaining them. The best day of public infrastructure is Day One; then, we seem to believe it’s going to magically take care of itself. Of course, that doesn’t happen, and that’s why it’s not surprising that our infrastructure is falling apart.

We’re trying to move toward thinking about our infrastructure as an ongoing commitment. Believe it or not, that’s a revolutionary thought for government. It’s a transition that’s moving forward.

It’s not an easy transition; my colleagues around the country are all at different points in this conversation with the public and their governing boards. But when all of our discretionary dollars, which have traditionally been used to build infrastructure, are going keeping up the status quo for public safety and basic services, this is the future of how infrastructure gets built.

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© 2019 The Planning Report | David Abel, Publisher, ABL, Inc.