New Finance for America's Cities

Abstract

Hebb T. and Sharma R. New finance for America's cities, Regional Studies. In the past, investment in cities' built environment was primarily carried out by government, with public good as the primary motivation. But governments are increasingly struggling to find the available capital required for public financing of cities' investment needs. This paper suggests that there are new sources of finance available for investment in America's cities. Retirement savings are being used to invest in these cities' future growth. While such investment generates positive ancillary benefits for the cities, it is not the primary purpose of this capital. The motivation for large institutional investors including pension funds and sovereign-wealth funds is the risk-adjusted rate of return. This private profit-driven motivation leads to different investment decision-making than was found in the past when public good was the primary driver.

Hebb T. and Sharma R. 美国城市的新财政，区域研究。在过去，城市的建成环境投资主要是由政府执行，而促进公共财则是首要的动机。但政府逐渐必须费力寻求城市投资的公共财政所需的可用资本。本文主张，美国城市的投资有可用的新财政资源：退休储蓄被用来投资这些城市的未来成长。这些投资虽然对城市产生了正向的补充效益，但却不是该资本的首要目标。大型机构投资者的动机，包含退休基金和主权财富基金，是风险调整后的回报率。此般以利润为导向的私人动机，导致不同于过去以公共财做为主要驱动力的投资决策。

Hebb T. et Sharma R. De nouvelles sources de financement pour les grandes villes américaines, Regional Studies. Dans le passé, l'investissement dans le milieu bâti des grandes villes était réalisé principalement par le gouvernement, poursuivant un objectif premier axé sur le bien public. Mais, les gouvernements éprouvent davantage de difficultés à trouver le capital nécessaire pour assurer le financement public des besoins des grandes villes en matière d'investissement. Ce présent article laisse supposer qu'il y a de nouvelles sources de financement disponibles pour investir dans les grandes villes américaines. On utilise l’épargne-retraite pour investir dans la future croissance de ces grandes villes. Alors que de tels investissements entraînent des retombées auxiliaires positives pour les grandes villes, ce n'est pas l'objectif premier de ce capital. La motivation des grands investisseurs institutionnels, y compris les fonds de pension et les fonds d'investissement souverains, est le taux de rendement ajusté en fonction du risque. Cette motivation individuelle, fondée sur le profit, suscite une variation de la prise de décision relative à l'investissement par rapport à ce qui s'est passé antérieurement lors que le bien public était la force motrice.

Hebb T. und Sharma R. Neue Finanzen für amerikanische Städte, Regional Studies. In der Vergangenheit wurden Investitionen in den Gebäudebestand von Städten in erster Linie durch die Regierung vorgenommen und waren vor allem durch das Allgemeinwohl motiviert. Immer öfter haben Regierungen jedoch Mühe, das nötige Kapital zur öffentlichen Finanzierung der erforderlichen Investitionen in Städte zu finden. In diesem Beitrag zeigen wir, dass für Investitionen in amerikanische Städte neue Finanzierungsquellen zur Verfügung stehen. Sparvermögen der Altersvorsorge wird für Investitionen in das künftige Wachstum von Städten genutzt. Diese Investitionen erzeugen für die Städte einen positiven Nebennutzen, der jedoch nicht den Hauptzweck dieses Kapitals darstellt. Vielmehr liegt die Motivation für große institutionelle Investoren wie Pensionsfonds und staatliche Investitionsfonds in der risikobereinigten Ertragsrate. Diese private und gewinnorientierte Motivation führt zu anderen Investitionsentscheidungen als in der Vergangenheit, als das Allgemeinwohl die wichtigste Motivation darstellte.

Hebb T. y Sharma R. Nuevas finanzas para las ciudades estadounidenses, Regional Studies. En el pasado la inversión en inmuebles urbanos era sobre todo responsabilidad del Gobierno cuya motivación principal era el bien público. Pero ahora los Gobiernos cada vez deben aunar mas esfuerzos para hallar el capital disponible que se requiere para la financiación pública de las necesidades de inversión en las ciudades. En este artículo sugerimos que existen nuevos recursos de financiación disponible para invertir en las ciudades estadounidenses. Se están utilizando los ahorros de jubilación para invertir en el futuro crecimiento de las ciudades. Aunque este tipo de inversión genera ventajas secundarias positivas en las ciudades, no se trata de la principal finalidad de este capital. La motivación para los grandes inversores institucionales, incluyendo los fondos de pensiones y los fondos soberanos, es la tasa de rendimiento ajustada al riesgo. Esta motivación privada con un enfoque lucrativo lleva a tomar diferentes decisiones de inversión en comparación con antes cuando el principal objetivo era el bien común.

• Urban investment
• Pension fund-targeted investment
• Urban revitalization

• 城市投资
• 瞄准退休基金的投资
• 城市復兴

• Investissement urbain
• Investissement ciblant les fonds de pension
• Revitalisation urbaine

• Investitionen in Städte
• Investitionen von Pensionsfonds
• Stadtsanierung

• Inversión urbana
• Inversión para fondos de pensiones
• Revitalización urbana

JEL classifications:

• G2
• R1

Acknowledgements

The authors would like to acknowledge and thank Professor Gordon Clark and Dr Lisa Hagerman for their contribution to the research that underpins this article. From 2004 to 2008 Tessa Hebb, Lisa Hagerman and Gordon Clark undertook a substantial research on public sector pension funds and urban revitalization from which much of the findings in this article are drawn. The authors would like to thank both the Rockefeller and Ford Foundation for their financial support of this work. Additionally, the authors thank the officials at CalPERS, CalSTRS, NYCERS and MassPRIM for agreeing to be case studies in this work. Finally, they thank all those who provided interviews and data that underpin this work. Any errors and omissions are strictly those of the authors alone.

Notes

1. The Public Sector Pension Funds and Urban Revitalization Initiative research was carried out by Tessa Hebb, Lisa Hagerman and Gordon Clark from 2004 to 2008 and funded by the Rockefeller and Ford Foundations. It can be found at: http://urban.ouce.ox.ac.uk/index.php.

2. See note 1.

3. See note 1.

4. Positive impact on urban revitalization can be measured by the number of affordable housing units built, by the number of new jobs and businesses created in LMI neighbourhoods, and by the acres of brownfield land decontaminated and redeveloped.

5. See note 4. For the Mapping Matrix of US pension funds targeted investing programmes, see http://urban.ouce.ox.ac.uk/research.php/.

6. Thirty-four per cent of all ZIP codes in the United States are classified as LMI, while in California, 55% of all ZIP codes are classified as LMI, including 73% in the ‘urban core’ comprising the central business districts of San Francisco, Oakland, Los Angeles and San Diego (CalPERS, 2011).

7. Phase II of CalPERS’ California Initiative is a new fund with a new manager, vintage year and mandate. While Phase I of this programme, initiated in 2001, has been able to realize significant gains, Phase II has underperformed both in absolute and relative terms. The ‘J’-curve effect would indicate that Phase II is still in its first five years of existence and in private equity where it takes a number of years to realize gains it may increase its return in the next five years (Phase I is now 11 years old). However, it may be that investments made just before the Global Financial Crisis in 2008 were purchased at the height of the market and may not perform well even over the long-term.

8. Many US public sector pension funds have elected political figures on their Boards of Trustees, who are often vocal in their support of targeted investment in the communities they represent.

9. Core economic infrastructure qualities: long-term assets providing essential services, limited or no competition and high barriers to entry, predictable and steady cash flows with a strong yield component, low volatility and correlation to other asset classes.

10. Interview/personal communication, London, 2009.

11. Interview/personal communication, London, 2009.

12. Interview/personal communication, New York, 2009.

13. Interview/personal communication, New York, 2009.

14. The mapping that underpins this work was conducted in 2004.