## Unlocking Public Wealth: Governments and Public Assets

## Source details

**Canonical URL:** [Unlocking Public Wealth: Governments and Public Assets](https://www.imf.org/en/publications/fandd/issues/2018/03/detter)

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## Bibliographic details
- Authors: DAG DETTER, STEFAN FOLSTER
- Published: March 1, 2018

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### Overview
- National and local governments own large portfolios of public assets—primarily real estate and government-owned companies—that are often undervalued and undermanaged.
- Better governance and professional, politically independent management could convert latent asset value into revenue streams to fund budgets, lower taxes, or finance infrastructure.

### Evidence and illustrative case studies
- Boston (reported figures):
  - Total assets reported in 2014: $3.8 billion.
  - Real estate reported: $1.4 billion.
  - Liabilities reported: $4.6 billion.
  - Independent indicative valuation of Boston’s real estate portfolio: about $55 billion.
  - Boston Housing Authority holdings: $4.7 billion.
  - Boston Public Market valuation: $5.6 million.
  - Assumed conservative yield improvement: 3 percent on a $55 billion portfolio → income of almost $1.7 billion a year.
  - Comparison: Boston’s current capital plan: about $400 million.
- Copenhagen’s By og Havn (City and Port):
  - Size: 1,290 acres in waterfront and inland districts.
  - Projected outputs include more than 33,000 new housing units, 100,000 work spaces, a new university for more than 20,000 students, plus parks and retail and cultural facilities.
  - Returns helped finance local metro system expansion.
- Hamburg’s HafenCity:
  - Size: 157-hectare (388 acre) development.
  - Transformation into more than 2 million square meters of space for offices, hotels, shops, and residential areas.
- Hong Kong SAR’s MTR Corporation:
  - Funded and managed rail infrastructure, large housing estates, and shopping complexes integrated into stations and pays a substantial dividend to the city.

### Scale of public commercial assets and potential gains
- IMF 2013 context:
  - World GDP in 2013: $75 trillion.
  - World public debt: $54 trillion.
- Authors’ estimates:
  - Public commercial assets globally are on the same order of magnitude as annual world GDP.
  - At the city level, public real estate portfolios can be roughly the same value as a city’s GDP and may represent a quarter of total market value of real estate.
- Conservative global yield improvement example:
  - An additional annual yield of 3 percent worldwide would amount to $2.7 trillion—more than current global spending on transportation, power, water, and communications infrastructure combined.
- Institutional performance benchmarks:
  - Temasek reported an average annual return of 15 percent over the 35 years since its inception.

### Missed opportunities and examples of unrealized value
- Boston Logan Airport hypothetical:
  - Moving Logan from prime waterfront to cheaper inland property could create a windfall gain in waterfront real estate potentially well exceeding the cost of a new airport and infrastructure, with indirect GDP and living-standard benefits and direct public-wealth gains for infrastructure spending.
- Inventory and valuation gaps:
  - 2017 inspector general’s audit of Washington, DC: 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.”

### Risks, democratic costs, and management shortfalls
- Democratic and governance costs:
  - Easy access to public wealth introduces incentives for abuse: political favors, lucrative contracts or positions, free access to public resources in exchange for support, wage pressures via state firms, and yielding to vocal minority opposition—leading to clientelism.
- Operational performance:
  - State-owned firms often lag private firms; Bloom and van Reenen (2010) show state-owned firms lag private firms considerably.
  - Local governments entering commercial property markets without professional capacity face huge financial and fiscal risks (example: local councils in the United Kingdom borrowing to buy commercial real estate).

### Institutional solutions and policy recommendations
- Accounting and transparency:
  - Shift from historical-cost book value reporting to market-value assessment (for example, via International Financial Reporting Standards) to reveal true asset values.
  - Use accrual accounting and consolidated balance sheets to quantify fiscal risks, including guarantees and contingent liabilities (aligned with the IMF’s fiscal transparency code).
- Create independent governance structures:
  - Establish independent balance sheets and institutions (public wealth funds or state holding companies) to detach commercial governance from short-term political influence, encourage active long-term governance, and ensure funding of maintenance and life-cycle costs.
  - Examples of institutional arrangements:
    - National wealth funds or state holding companies (ÖIAG in Austria; Solidium in Finland).
    - City-level independent holding companies/funds (Copenhagen’s City & Port Company; Hamburg’s HafenCity).
    - Temasek and comparable professional institutions as performance benchmarks.
- Policy actions being taken:
  - United Kingdom launched a balance sheet review to improve returns on investments and reduce cost of liabilities to release resources for public services and improve fiscal sustainability.

### Outlook and transformative drivers
- Over the coming decades, technological disruption and globalization will open new opportunities for multifunctional uses of public assets (for example, self-driving cars freeing parking space; revamping harbors, airports, and transport infrastructure).
- Success depends on transparent accounting of owned assets and government policies that promote creation of value through professional and independent asset management.

*Source: F&D Magazine, "Unlocking Public Wealth," Dag Detter and Stefan Fölster, March 2018.*

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_Source: https://www.imf.org/en/publications/fandd/issues/2018/03/detter_