## unlocking Public Wealth

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### Hidden value of public assets
- National and local governments own large portfolios of assets, mostly in the form of real estate and government-owned companies.
- Many assets—outdated buildings, undeveloped land, brownfield spaces, and air rights—could generate value and revenue streams to fund government budgets, lower taxes, or pay for infrastructure.
- Debate over state ownership versus privatization has obscured opportunities for better public wealth governance.

### Valuation and returns: the Boston example
- Boston reported total assets worth $3.8 billion in 2014, of which $1.4 billion is in real estate, and liabilities of $4.6 billion.
- Using market-value accounting (International Financial Reporting Standards) rather than historical-cost book value would show substantially higher asset worth.
- An independent estimate of Boston’s consolidated publicly held real estate gives an indicative valuation of about $55 billion.
- Assuming a 3 percent yield on a $55 billion commercial portfolio would amount to almost $1.7 billion a year.
- Boston’s current capital plan is about $400 million; a $1.7 billion annual income would be about four times that amount, potentially quadrupling infrastructure investments.

### Successful city and project examples
- Copenhagen’s By og Havn (City and Port) urban development: 1,290 acres in waterfront and inland districts consolidated under a single independent institution; development will contribute to funding and managing:
  - more than 33,000 new housing units,
  - 100,000 work spaces,
  - a new university for more than 20,000 students,
  - new parks and retail and cultural facilities.
  - Returns have helped finance infrastructure investments, including expansion of the local metro system.
- Hamburg’s HafenCity: 157-hectare (388 acre) development transforming old harbor buildings into more than 2 million square meters of space for offices, hotels, shops, and residential areas.
- MTR Corporation (Hong Kong SAR): funded and managed rail infrastructure, large housing estates, and shopping complexes integrated into stations; pays a substantial dividend to the city used to pay off existing debt and develop other assets.

### Missed opportunities and informational gaps
- Example: relocating an airport (Logan) from prime waterfront to inland property could generate a windfall gain in waterfront real estate potentially exceeding the cost of building a new airport and infrastructure, capturing wealth for infrastructure spending and boosting GDP indirectly.
- A 2017 inspector general’s audit of Washington, DC, found the Department of General Services “neither maintained a complete and accurate inventory of District-owned property, nor submitted annual reports detailing changes in this inventory to the D.C. Council as required by law,” and lacked effective policies and database fields for inventory management.
- Governments often lack precise valuation of public commercial assets: government-owned enterprises; utilities; transportation assets (airports, ports); and commercializable natural resources (air rights, broadband spectrums, real estate, toll-based infrastructure).

### Scale and potential gains
- IMF 2013: attempted to collect book value of public commercial assets for 27 countries.
- Authors’ work (2015): public commercial assets estimated to be on the same order of magnitude as annual world GDP; IMF put world GDP at $75 trillion in 2013.
- World public debt cited as $54 trillion.
- At the city level, available valuation figures suggest an entire public real estate portfolio within a city has the same value as the city’s GDP and represents a quarter of the total market value of real estate.
- Conservative global estimate: an additional annual yield of 3 percent worldwide on public commercial assets would amount to $2.7 trillion—more than current global spending on transportation, power, water, and communications infrastructure combined.

### Performance gap and democratic risks
- Studies (Bloom and van Reenen 2010) show state-owned firms often lag private firms in management methods and performance.
- While some well-run state firms exist (example: Norway’s Statoil), they may be exceptions.
- Democratic costs of poorly governed public wealth include incentives for abuse: political favors for contracts or positions; free access to public resources in exchange for support; union pressure to raise wages in state-owned companies; and yielding to vocal minorities opposing development.
- Political incentives often reward clientelism over reforms in the wider public interest.

### Accounting, balance sheets, and institutional reforms
- Proper public-sector accounting and consolidated balance sheets are at an early stage compared with private-sector double-entry bookkeeping and accrual accounting.
- Accrual accounting can quantify and publish fiscal risks (contingent liabilities, guarantees) per the IMF’s fiscal transparency code.
- New Zealand and the United Kingdom are pioneers in public-sector accrual accounting.
- UK government launched a balance sheet review to make more effective use of public commercial assets, aiming to improve returns on investments, reduce the cost of liabilities, release resources for public services, and improve fiscal sustainability.
- The “holy grail” is an institutional arrangement that detaches governance from direct political control via an independent balance sheet and professional ownership focused on long-term value.
- Models include national public wealth funds or state holding companies that manage commercial assets under a government mandate while remaining independent of short-term political influence—analogous to independent central banks.
- Examples: Austria’s ÖIAG (Österreichische Industriholding AG), Finland’s Solidium, and Singapore’s Temasek (Temasek reported an average annual return of 15 percent over the 35 years since its inception).
- Independent, professional holding companies or funds at the city level (Copenhagen’s City & Port Company; Hamburg’s HafenCity) can manage commercial wealth and finance infrastructure investments.
- Over coming decades, technological disruption and globalization (e.g., self-driving cars freeing public parking space; revamped harbors and airports) will create new opportunities for multiple uses of public assets; success is more likely with transparent accounting and a government that promotes value creation.

*Source: Dag Detter and Stefan Fölster, “unlocking Public Wealth,” Finance & Development, March 2018.*

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_Source: https://www.imf.org/-/media/files/publications/fandd/article/2018/march/detter.pdf_