Public-Private Partnerships in Urban Development in the United States

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Claggett calls this “performance contracting” (Claggett, W. E., 1982:288). More specifically,
the city and private developers negotiate to reach a contract agreement that is binding on all
parties. In this instance, a contract has been used to formally define the responsibility of each
partner. This can reduce uncertainty and risk for both sectors. In conjunction with
performance contracting ‘strategic planning’ has become more important due to innovative
financing methods and new definitions of public-private responsibilities.

As already mentioned in preceding sections, equity participation has become increasingly
important for local governments in order to generate revenue. According to Arana, equity
participation “may be the most profitable revenue-raising method being used by Southern
California localities today” (Arana, 1986:31). Public entities can raise revenue while keeping
control over a development project. Equity participation encompasses two kinds of
agreements: participatory leases and equity participation agreements. With participatory
leases localities or redevelopment agencies lease public facilities or land to developers. Equity
participation agreements allow cities to invest in real estate projects. In both agreements, the
city gets a percentage of the project profits. In both cases, localities play “a role that’s much
closer to that of a private developer” (Arana, 1986:32). Equity participation has occurred, for
instance, in efforts to develop commercial sports facilities. Whereas equity participation in
shopping malls, CDB redevelopment, and office buildings have become more frequent.
Typically, the city issues revenue bonds for the construction of the facilities. The agreements
may include sales tax participation. However, the danger is that local governments favor
commercial development that gain much sales taxes to the detriment of residential
development. “These governmental ventures [...] involve both substantial opportunity and
risk. Most of these economic development projects are carried out by public-private
partnerships, often in legal form as public, private profit, or nonprofit corporations and often
with a commingling of public and private funds” (Collmann, 1989:148). Public equity
holdings via public-private partnerships have become a common method in urban
development in the US. Cities achieve an equity position in a development project in return
for their investment.

Because in a time of resource scarcity, local governments use various kinds of leasing
arrangements whereby private capital is provided for the construction of the facility that then
will be leased back to the local government. Or local governments may lease public property
to investors and developers and thus public ownership and control of the leased land or
building is retained. Local governments may act entrepreneurial when lease payments include
a so-called “kicker” in addition to the base rate. The kicker might be one percent of the gross
income of the project. In this way, the city functions as an ordinary investor who expects
return on assets.

The establishment of quasi-public and private corporations for the cooperation of the public
and private sectors in urban development was already discussed (section II.2.b). Separate
entities for urban development have increasingly been formed since the 1980s. Cities are
mostly involved in development projects through its redevelopment agency. In general,
redevelopment agencies combine public powers with private enterprise flexibility. They have
been formed to manage redevelopment projects and negotiate with developer. Such
independent public authorities have a quiet long tradition in the US. Alternatively, quasi-
public corporations may be established in order to carry out project planning and management
for the city. Thus, they are intermediary institutions that foster and organize public-private
partnerships. On the other hand, they are often public-private partnerships by themselves as
their board consists of business representatives appointed by the mayor. Development
corporations may also be established in efforts to develop a specific project. In fact, a lot of
partnerships are project-oriented and have never been institutionalized in long term. Separate
entities have been established for projects such as a stadium, ballpark, or convention center. A

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