4 State and City Government Trends to Watch in 2019

Jurisdictions are increasingly looking to their real estate holdings to free up capital while preserving employee rolls and essential services, according to JLL Public Sector and Higher Education President Kevin Wayer.
Kevin Wayer

Faced with an ever-growing list of financial pressures, state and city government leaders are searching for creative solutions to unlock funds—and real estate is increasingly becoming the answer. From refinancing under-utilized assets to reimagining the use of longstanding facilities, innovative leaders are finding ways to serve constituents and reduce costs without cutting mission-critical services or staff.

Following are four trends illustrating how states and cities can find value in their real estate portfolio in 2019 and beyond:

1) Leaders cannot wait any longer to act on the affordable housing crisis.

Across the United States, the cost of housing has escalated at a faster pace than household income. While many states and cities offer housing subsidies, restrictive eligibility criteria and complicated processes are major obstacles for residents. Further, affordable housing inventory is often constrained by zoning laws and development costs that result in higher-priced housing.

Forward-looking leaders are already searching for ways to solve this problem through a combination of zoning changes, redevelopment incentives, tax policies and other creative approaches. For example, one East Coast county optimized its real estate portfolio and uncovered hidden value to develop affordable housing and ensure a high quality of life for residents of all ages and income levels. The county accomplished this through innovative financing, combining a P3 with low-income tax credits and tax-exempt bond financing from the county housing authority to deliver an affordable senior housing project.

2) Cities will discover new ways to use and monetize public sites.

State and local real estate assets may have potential value far beyond their current uses. For instance, land parcels or facilities could be a valuable resource for solving civic challenges—whether revitalizing a neighborhood or spurring economic vitality.

One Midwest city saw such potential in the form of a prime riverfront site. The site was in a nightlife hotspot and was also home to a large public works facility. The city created a P3 to finance the development of a vibrant live-work-play community and support the public works relocation.

Interest is increasing in similar types of projects and, moving forward, JLL expects more cities to open valuable sites for redevelopment with private sector partners.

3) Inventive and integrated approaches will bring economic empowerment to underserved communities.

City leaders have learned relying on a single economic development mechanism is not enough to bring about revitalization. Integrated approaches can become more than the sum of their parts—but coordinating disparate tax credits, subsidies and TIFs requires significant expertise.

Created by the Tax Cuts and Jobs Act of 2017, opportunity zones offer state and local governments another avenue for increased investment. State and local governments will play a crucial role in identifying worthy projects within their communities, providing state and local incentives to bring projects to fruition, and bringing the appropriate projects to potential investors.

4) City leaders need to take action and fix crumbling infrastructure.

Schools, roads, bridges and railways across the country are crumbling following decades of deferred maintenance. The American Society of Civil Engineers estimates the U.S. needs to spend $4.5 trillion to improve the current state of the nation’s infrastructure, but cities lack reliable funding for such projects. For infrastructure upgrades that can be monetized, cities will increasingly turn to creative financing solutions, such as P3s, to transfer financial risk to a private sector partner while leveraging public resources.

As these projects break ground, many cities will also begin to incorporate smart city technologies such as sensors, ultra-high-speed communication networks, data analytics, and control and automation. One city on the forefront is Columbus, Ohio, which is using an integrated data exchange to analyze aggregated information from sensors installed on traffic lights to inform drivers of danger zones.