Public Good Trumps Private Benefit in Partnerships
SAN DIEGO-Remaining true to the public good and the California Constitution is of prime importance since the dissolution of redevelopment agencies in California. While the partnering of cities with private entities as an approach to economic development is gaining momentum as tax-increment funding has disappeared, at the heart of such partnerships is the city’s responsibility to ensure that the public purpose outweighs the private benefit, said speakers at a recent Urban Land Institute San Diego/Tijuana District Council ULI @ Lunch program.
While the concept of public-private partnerships has been around for decades, the current economic situation has many people considering the viability of cities partnering with private enterprise for the improvement of the local economy. This is a smart move, but when it comes to balancing the public good with private investment, it “is not clear how far a city can go,” according to Elizabeth Hull, a partner with the law firm Best Best & Krieger LLP, who spoke at the ULI lunch program. For one thing, the California Constitution provides cities with general police power that includes some level of authority to pursue economic development, but court rules at the state and federal levels have given guidance that the public purpose of new development must outweigh any private benefit that may result from the project.
Also, as communities change over time, police powers also change, said Hull. With more public-private development likely because of the demise of redevelopment agencies, how much change will be accommodated is still to be determined.
Cities should also consider the California Constitution’s prohibition on gifts of public funds and multi-year debt limit in structuring economic-development partnerships, said Delmar Williams, also a partner with BB&K. Public purpose is the key requirement for any city economic development arrangement. While courts will likely give deference to a city council in determining public purpose, the courts will also look at each case independently, so every situation is unique, and what has worked in one city may not work in another, he added. Also, while old, established cases provide clear precedent, the ideas of what is public benefit to a city continue to evolve.
According to presenter Paul Marra, a senior principal with the real estate advisory firm of Keyser Marston Associates Inc., more modernization of community plans that will “match what the real world can build” is needed. He also brought up the need “to change the rules” under which development can proceed, including an overhaul of the California Environmental Quality Act. Marra also called for fiscal reform, including statewide bonds that could be used to build infrastructure and affordable housing, which are even harder to finance without redevelopment agencies. He compared the death of redevelopment agencies to a “long, drawn-out process” with cities suffering from “post-traumatic stress disorder.”
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