Urban wealth fund

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# Urban wealth fund An Urban Wealth Fund (UWF), Local Wealth Fund, or Community investment fund[1] is a local government-owned Public Wealth Fund, a holding company that owns, manages, and develops operational and real estate assets, mainly within its jurisdiction at the city, county or regional level of public administration. Government surpluses could also be invested in bonds, equities such as the stock market, or private equity. Operational assets often include utilities such as water and electric utilities, transportation assets such as airports, ports, subways and other local transport operations.[2][3] The real estate segment is often the largest part in value terms as governments have been found to own at least half of the real estate market, in value terms and not seldom exceeding the economic output of the local entity. Due to the lack of proper asset registers and public sector accounting, the real estate segment is the least well understood, with considerable value hidden from being considered when formulating the budget.[4] The term was coined by Detter and Fölster in their book The Public Wealth of Cities. In its general idea, it is a compromise between government control and privatization, set up to manage the assets of a city, often with the objective of maximizing return on the assets as a means of generating revenue for the city government.  As a result, this will enable cities to increase their investments (for example for infrastructure projects) without increasing taxes.[5] Its operation is similar to a Sovereign Wealth Fund (SWF) but on a smaller scale. A UWF has an asset manager concerned with managing a portfolio of operational assets.[6] The assets are publicly owned by the city but administered by an independent management structure that is free from political influence and concentrates on maximization of value, which is useful for when assets are not ‘routine’ real estate such as docklands or old sport stadiums. The fair market value of assets can be difficult to determine since they may have no active market whose prices can provide effective guidance for the valuation of the property.[7] In addition to the professional management of assets, such funds protect cities from short-sighted politically inspired measures, such as selling properties to resolve liquidity problems.[8] For Detter and Fölster the core idea of the Urban Wealth Fund can be summarized by 5 key points, which are simple in design but may be difficult to execute:[8] Some economists[9][10] and politicians[11] advocate for the establishment of UWFs as a means of making more efficient use of city-owned assets, such as land, in order to generate revenue without necessarily resorting to tax increases or running up debts. The positive examples of Copenhagen and Hamburg suggest that the concept can be successful despite the numerous differences between the UWF structure.[10] However, McNickle notes that there is a dearth of scholarly literature casting any sort of critical eye on UWFs.[12] Examples for the creation of UWF can be found all over the world and include HafenCity GmbH in Hamburg, Germany, City & Port Development Corporation in Copenhagen, Denmark, MTR Corporation Limited in Hong Kong, Philadelphia Industrial Development Corporation, Philadelphia, United States and Temasek Holdings, Singapore.[13] The individual characteristics and responsibilities of these UWFs differ significantly.[10] The Copenhagen City and Port Development Corporation, fully owned by the City of Copenhagen and the state of Denmark, was created in 2007 when multiple development areas around Copenhagen (most importantly the port and Ørestad) were consolidated under one entity. CPH City and Port Development was established with the explicit purpose of using the revenues of redevelopment to finance the construction of infrastructure (especially the CPH metro line).[10] It accomplishes this task through the use of smart valuation techniques and low-cost financing using the assets as collateral. For example, the re-evaluation of one of the biggest assets, the land of North Harbor, increased its value by €450 million. In total, the redevelopment of North Harbor led to investments of €15 billion.[14] Katz and Noring analysed the political, institutional and financial features of the Copenhagen model:[14] Since 2004, HafenCity Hamburg GmbH is the operational corporation in charge of managing all assets and overseeing the urban redevelopment of HafenCity. The UWF is called 'Special Fund for City and Port', which consists of land owned by the City of Hamburg located in the HafenCity area (97% of all properties in HafenCity area).[15] The redevelopment of HafenCity relies entirely on HafenCity Hamburg GmbH, which either sells properties or solicits loans from commercial banks using the assets of HafenCity as collateral.[10] The capital is then mainly used for infrastructure and basic amenities, notably roads, bridges, squares, parks, quays, and promenades.[16] In addition to its financial tasks, HafenCity Hamburg GmbH clears and prepares sites, acquires real estate developers and is responsible for public relations and communications.[16] Similar to the CPH, HafenCity Hamburg GmbH benefits from the high credit rating of the city of Hamburg. As a result, it is one of the few European megaprojects which does not receive EU funds and almost no federal budgetary support.[17] When completed, the HafenCity development areas will become home for approx. 23,000 people and create approx. 71,000 jobs.[16] In comparison to CPH, HafenCity Hamburg GmbH has less responsibilities and tasks. While CPH is responsible for the construction of the whole metro system in Copenhagen, HafenCity Hamburg GmbH only finances the urban regeneration within the HafenCity area.[10] Further, HafenCity Hamburg GmbH requires annual budgetary approval by the city of Hamburg and is not allowed to engage in joint ventures with private developers and investors.[10] Nonetheless, both projects share one crucial characteristic: the bundling of public assets and the management of such assets through one organisation that is granted significant freedom of operation in the market economy.[18] This ensures that the long-term plans are not endangered by political shifts in local government and that the corporation has the needed agility to operate in market economies.[10] MTR Corporation Limited (originally, Mass Transit Railway Corporation) was established in 1975 and tasked with managing and operating the rail transit system, the adjacent land and most of the adjacent real estate. In 2000, MTR was partially privatised. While the railway system itself is profitable, most MTR's profits derive from property development and other commercial activities, such as leasing of retail space  or personal telecommunication services.[18] As a result, MTR pays a substantial dividend to the city, which has been used to pay off existing debt and to develop other assets.[19] Similar to CPH in Copenhagen, the UWF is used to ensure high quality public transport, while also increasing the living standard in Hong Kong.[18] As the concept of UWF is relatively new, McNickle notes that there is a dearth of scholarly literature casting any sort of critical eye on UWFs.[12] He argues that the UWF structure is too complicated and local governments are better off selling assets and outsourcing services, keeping the government as small as possible.