Here the FT reports on the value of land underlying America’s city and town governments as a possible solution to America’s pension crisis. According to one estimate, the value of land owned by local governments, excluding public parks is $25 trillion. That compares to $3.8 trillion in municipal debt and $7.5 trillion in accumulated pension obligations. Matthew Klein writes:
Boston’s Logan International Airport was built in the wrong place. Instead of occupying undesirable plots on the outskirts of the city, it sits on almost 1,000 hectares of easily accessible waterfront property close to the urban core. The land should be home to condos and office towers, not take-offs and landings.
The question is whether it’s worth paying the high cost to move the airport for benefits that will not be realised for decades. Nobody knows. Today’s politicians will be long gone by then and have no incentive to explore whether the move would make the city better off in the long run.
The financial system provides a way round this problem: wise cities can use the market as a time machine to reap rewards today for good decisions about future investments. This would require cities to adopt the accounting and governance standards sought by activist investors in hoteliers, retailers and chain restaurants. In particular, cities should separate their real estate assets from the services they provide to their residents.
The potential rewards would be enormous. Excluding public parks, local governments own about a fifth of all the land within many US cities’ limits. It is worth at least $25tn, according to Dag Detter and Stefan Fölster in The Public Wealth of Cities. That figure dwarfs the $3.8tn in municipal bond debt and $7.5tn in accumulated pension obligations collectively owed by the US’s states and localities. Capturing this value and boosting yields by even a tiny amount could generate more than enough income to pay benefits to retired workers, invest in maintenance and develop additional infrastructure to accommodate growing populations.
Read more here.
