Want some fries with your public service?
Edina, Minn., owns a monopoly on its local liquor stores. Vernon, Conn., owns a textile mill. Phoenix is financing the construction of a 1,000-room hotel. Municipal leaders, especially those under pressure from their constituents to show an improvement in the local economy, often see enterprise operations as revenue builders.
While the desert climate and excellent golf courses around metro-Phoenix are a draw to out-of-towners, Community and Economic Development Director Pat Grady says the city has been underserved in the hotel market for decades. After lobbying unsuccessfully for an investor to finance a 1,000-room hotel, and after losing a court battle to enter into a public-private partnership, the city council voted to publicly finance the $350 million hotel itself. The new building shored-up a $600 million city investment in an adjacent convention center expansion project that hinged on an adequate supply of downtown hotel accommodations. Grady says Sacramento, Austin and Kansas City all have embarked on similar projects.
However, Satya Thallam, a fiscal policy analyst at the Goldwater Institute, a Phoenix-based public policy research organization, does not support municipalities dabbling in traditionally private enterprise. “[Big cities] have gone so far outside their core functions and what they do best. A city council should not circumvent the market, which is an efficient way of allocating resources,” he says.
Empty coffers and unemployment concerns, however, often make it difficult for a local government to turn a blind eye. The Rockville section of Vernon, once world-renowned for producing fine wool cloth, fell into decline decades ago when most of its mills closed. “When [the Amerbelle Textiles Mill owner] notified us they were going to dissolve the business and vacate the premises, thereby eliminating 117 badly needed jobs, we had no choice but to get involved,” says Town Administrator Larry Shaffer.
In Vernon’s case, that meant taking possession of the mill property and forming a not-for-profit entity that would lease the mill to a private manufacturer. “The town is a risk-adverse organization,” Shaffer says. “Simply getting into a business to raise revenue isn’t enough. At minimum, you must be able to measure and speak to public benefit. The mill situation was highly unusual for us, but ultimately it met our core business goals: to preserve and create additional jobs, stabilize the tax base and eliminate blight.”
In Edina, where the city council refers to its residents as “customers” as well as taxpayers, city enterprises are old hat. The city holds a monopoly on liquor stores, which generate a cool million dollars annually, help lower taxes and subsidize an art center. “Historically, [the city running private businesses] hasn’t been a problem,” says Eric Anderson, Edina’s assistant city manager.
Multiple golf courses and an aquatic center are other examples of the city’s businesses created to improve the quality of life in the community. For each of its ventures, however, the city prepares a well-researched business plan complete with competitive, environmental and marketing analyses.
“I think it is becoming more commonplace as cities struggle to derive revenues from non-traditional sources,” says Christopher Hoene, research manager for the Municipalities in Transition Program at the Washington-based National League of Cities. “Given voter antipathy toward most taxes and that state and federal funding for city programs isn’t likely to increase anytime soon … cities are having to try and be more entrepreneurial about their activities.”
And for some local governments, private business is an acceptable alternative to super-sizing taxes.
— Annie Gentile is a Vernon, Conn.-based freelance writer.
