Rachel Weber

Selling City Futures: The Financialization of Urban Redevelopment Policy

abstract This article examines the specific mechanisms that have allowed global financial markets to penetrate deeply into the activities of U.S. cities. A flood of yield-seeking capital poured into municipal debt instruments in the late 1990s, but not all cities or instruments were equally successful in attracting it. Capital gravitated toward those local governments that could readily convert the income streams of public assets into new financial instruments and that could minimize the risk of nonpayment due to the actions of nonfinancial claimants. This article follows the case of Chicago from 1996 through 2007 as the city government subsidized development projects with borrowed money using a once-obscure instrument called Tax Increment Financing (TIF). TIF allows municipalities to bundle and sell off the rights to future property tax revenues from designated parts of the city. The City of Chicago improved the appearance of these speculative instruments by segmenting and sequencing TIF debt instruments in ways that made them look less idiosyncratic and by exerting strong political control over the processes of development and property tax assessment. In doing so, Chicago not only attracted billions of dollars in global capital but also contributed to a dangerous oversupply of commercial real estate.

The Financial Engineering of Infrastructure Privatization

Problem, research strategy, and findings: Leasing government infrastructure to private investors has been proposed as a practical way to increase both public revenue and investment in aging facilities, yet questions remain regarding lease value. In particular, some recent private auction bids surpassed governments lease estimates for U.S. roads and parking systems by hundreds of millions of dollars. We argue such discrepancies are largely explained by the use of structured finance or financial engineering techniques; these lower capital costs and maximize quick investor payouts, yet are often ignored in lease agreements because governments do not understand them. Our approach models the separate effect of several deal parameters on the investment return of a hypothetical tolled facility. We find even modest financial engineering (such as interest rate derivatives and swaps, deferred payment sweeps, or mark-to-market accounting practices) increases the current value of future facility revenues far more than changes in lease length, tolls, or operating costs. The public sector undercharges for its infrastructure when it ignores how private investors package and assess future revenue. Takeaway for practice: When leasing public facilities, governments would be smart to better understand potential investors’ capital structure and financial engineering strategies. Doing so avoids leaving money on the table; it also reduces the risks of future underperforming assets. Research support: None.

Reconstituting the state: City powers and exposures in Chicago’s infrastructure leases:

In the 2000s, cities across North America began leasing existing infrastructure to global investment consortia. Previous evaluations of infrastructure leases focus on the lack of transparency of the privatisation process and the terms of the arrangements negotiated by the public sector and the private concessionaires. In this research, we argue that such approaches fall short by failing to investigate the significant repositioning of the local state relative to financial markets produced by their involvement in major asset lease deals. We develop this argument through a case study of the institutional transformation of the City of Chicago, the US’s most aggressive instigator of infrastructure asset leases. Even as the concession agreements seemingly protect the City from the claims of investors, creditors and counterparties and provide it with new powers, they enmesh the City in a set of financial relationships that expose it to liabilities not accounted for in lease agreements and create an institutional bias towards managing the collateral effects of financialisation.

Equity and Entrepreneurialism The Impact of Tax Increment Financing on School Finance

How do the socially reproductive functions of local government fare within municipalities that adopt “entrepreneurial” economic development practices? This article examines the case of tax increment financing (TIF), a quintessentially entrepreneurial strategy whose use has significant fiscal implications for the overlapping taxing jurisdictions that provide these functions. Statistical analysis of TIFs impact on the finances of school districts in Cook County, Illinois, reveals that municipal use of TIF depletes the property tax revenues of schools during the lifespan of the TIF district but that a portion of the budget shortfalls are relieved by increases in state school aid. Entrepreneurial policies can create conflict between taxing bodies unless higher levels of government take on some of the fiscal burden of these more redistributive functions.

Valuing New Development in Distressed Urban Neighborhoods: Does Design Matter?

Abstract We estimate the effect of design on the assessed values of new housing units in high-poverty Chicago census tracts with a parcel-based hedonic regression in which we distinguish between three urban design types: enclave, traditional neighborhood development (TND), and infill. We find that urban design significantly affects housing values, and infill housing is more highly valued than either enclave or TND housing. We also examine the influences of individual urban design features and find that residents prefer entrances that face the street, and facades constructed from the same material as adjacent buildings. They also prefer parking in front of their homes, and to be buffered from public streets. We interpret the former to be preferences for greater integration into the surrounding neighbourhood, consistent with our findings on infill.

TEARING THE CITY DOWN: UNDERSTANDING DEMOLITION ACTIVITY IN GENTRIFYING NEIGHBORHOODS

ABSTRACT: We estimate the probability that a residential building in a gentrifying neighborhood will be demolished, situating the decision within a context of consumer preferences, neighborhood change, and public policy. We perform a logit analysis of address-level data for every privately initiated demolition permit issued in three Chicago community areas between 2000 and 2003. We find that smaller, older, frame buildings with less lot coverage had a greater probability of being demolished during this period. Political jurisdiction and socioeconomic factors, other than the change in Hispanic population, were less important than expected. Demolished structures were located in appreciating areas, further away from Tax Increment Financing districts. We speculate that this popular redevelopment tool has been used in areas with primarily commercial land uses on the periphery of residential neighborhoods and that rent gaps are reduced by the negative externalities associated with conflicting land uses.

Getting the Max for the Tax: An Examination of BID Performance Measures

Abstract This article explores the issue of BID performance measures with the goal of enhancing their capacity as diagnostic and prescriptive tools. We examine the different kinds of performance measures in the context of BID designation and evaluation, paying attention to the needs of the varied stakeholders invested in BID performance. We develop a typology of the different kinds of indicators that are most appropriate for the mission and land uses within BIDs and discuss ways to institutionalize the use of these indicators. This research is based on survey data and case studies of the City of Chicagos Special Services Areas (SSAs) as well as an extension of theory in public administration on the appropriate use of performance measurements. We find that Chicago SSAs rarely evaluate their performance in a systematic manner. When they are required to do so, they tend to rely on subjective appraisals by stakeholders with conflicts of interest, confuse outputs with outcomes, and assume that renewal applications are accurate proxies of stakeholder satisfaction.

Do Better Contracts Make Better Economic Development Incentives

Abstract This article analyzes recent municipal attempts to specify and enforce reciprocal obligations (e.g., job creation) for subsidized firms. In theory, these contractual mechanisms, by defining standards of performance and threatening the use of penalties, should induce subsidized firms to act in ways that promote the publics welfare. However, the public sectors inability to write complete and enforceable contracts with subsidized businesses weakens the prospects for mutual gain. Through a survey of local and state officials and textual analyses of redevelopment agreements and incentive contracts, I examine the reasons why contracts alone may not be able to hold firms to their promises.

Assets and neighborhoods: The role of individual assets in neighborhood revitalization

Abstract Asset‐building strategies—including individual development accounts, homeownership programs, and microenterprise development—became increasingly popular in the 1990s. Although research has demonstrated how assets produce individual benefits, less is known about the extent to which these benefits induce positive place‐based effects. We develop a model of the relationship between individual asset‐building strategies and neighborhood revitalization in order to inform future empirical work and help ensure that asset accumulation and neighborhood revitalization are mutually reinforcing. Our model emphasizes the conditions and programmatic factors that may encourage and discourage the transfer of benefits from individuals to neighborhoods. Examples from case studies of four community‐based organizations suggest that the likelihood of neighborhood spillovers may be increased if policies and practices aim to “manage” the returns from the individual asset, retain asset holders, provide reinvestment conduits, track local purchasing power, and create additional opportunities for collective action.

Gentrification and Urban Children’s Well-Being: Tipping the Scales from Problems to Promise

Gentrification changes the neighborhood and family contexts in which children are socialized—for better and worse—yet little is known about its consequences for youth. This review, drawn from research in urban planning, sociology, and psychology, maps out mechanisms by which gentrification may impact children. We discuss indicators of gentrification and link neighborhood factors, including institutional resources and collective socialization, to family processes more proximally related to child development. Finally, we discuss implications for intervention and public policy recommendations that are intended to tip the scales toward better outcomes for low-income youth in gentrifying areas.