Entrepreneurial Thinking in Local Government: How governments can use community assets to uncover potential new revenue.

• Author: Kavanagh, Shayne
• Position: RETHINKING REVENUE | ENTREPRENEURIAL THINKING

Most people assume that private enterprise is inherently more dynamic than government. This leads to a belief that local governments can't think creatively and pursue new ventures. This may lead to traditional government services being transferred to the private sector via strategies like privatization, long-term leases of assets to private operators, and outsourcing.

Certainly, private enterprises have many strengths. Also, tools like outsourcing have their time and place. However, this article contends that local governments may have opportunities to raise new revenues and create value for the public by thinking more like a private enterprise. To start, consider that private firms are not always superior to government when it comes to efficiency, innovation, and other characteristics associated with dynamic organizations. For example, research on outsourcing of public services has shown that what matters to an efficient/effective public service is not merely the publicness or privateness of an organization, but whether the organization providing the service is subject to competition. (1) This suggests that, under the right conditions, governments could be as or even more efficient, innovative, etc., as a private corporation. Therefore, local governments may have opportunities to pursue entrepreneurial activities that take advantage of the assets they have to create more value for the community and financially strengthen the local government.

The Rethinking Revenue initiative has published a paper on Urban Wealth Funds, (2) which is about maximizing the value of public assets by using competitive management techniques while retaining full public ownership and control. This is one form of entrepreneurialism in local government. Urban Wealth Funds are closely associated with larger metropolitan areas. However, entrepreneurial thinking can happen at any scale, from the very small to the largest governments. In this article, we will illustrate entrepreneurial thinking using the City of Lancaster, California. Lancaster has a population of about 150,000. Though it is located in the northern part of Los Angeles County, it is separated from the main population center of the county by a large area of protected forests and mountains.

Entrepreneurial thinking can happen with any public service, but probably the greatest potential is in asset-intensive services. This is because asset-intensive services have the most potential for economies of scale. Economies of scale allow for lower per-unit costs as more units are produced. By thinking entrepreneurially, the City of Lancaster became active in energy production and solar power. As of fiscal year 2020-21, the city's energy operation comprised $40 million of a total $234 million city budget. The energy operation more than covers its cost. The fund that accounts for the city's power activities has a fund balance of nearly $7 million compared to its $40 million annual revenues. Also, the fund's revenues help offset some of the city's overhead costs, like finance and administration.

Of course, not every local government can be in the power business. Hence, the focus of this article is not municipal power but rather how the city recognized how it could parlay its existing assets (physical or otherwise) to create new re venue for the city and value for the public. Other local governments may find they have similar potential in municipal power or maybe potential in a different service by thinking entrepreneurially. To illustrate, the City of Lancaster is pursuing or considering the following ideas:

([right arrow]) Using the city's zoning power to increase the value of vacant parcels owned by the city and capturing the value of those parcels via new development. (ii)

([right arrow]) Working with the local broadband internet provider to create municipal "add on" services, like municipal wireless internet.

([right arrow]) Developing a local industrial park focused on biotech. But instead of building a site and handing it over to private firms, the city keeps a share in the products that are incubated at the site.

Local Government Assets That Can Support Entrepreneurialism

Like many cities, Lancaster operates several asset-intensive services, including recycled water, a storm drain system, and a sanitary sewer collection system. What Lancaster has done differently than other local governments is to think broadly and strategically about its assets and how it might derive value from them. This includes physical assets like infrastructure and land, and other assets like human resources, the public and a potentially inspiring purpose the local government serves, and more. Many of the assets that put Lancaster in a place to get into municipal power are similar to the assets that other local governments have. These assets could serve as the foundation for other entrepreneurial ventures. The most important assets include:

Skilled staff who are hungry for a new challenge. Because of the large stock of assets that Lancaster owns and manages, it has a great deal of on-staff expertise in engineering and finance. People are often motivated by the chance to apply their skills and meet a challenging goal. (3) Hence, the skills of a local government's staff are a store of potential that could be used in the pursuit of new ventures.

A strong public purpose. People are motivated by inspiring goals. (4) There is evidence that public servants may be motivated by achieving an ennobling public purpose. (5) In Lancaster, the purpose was to be the first carbon-neutral or "net-zero" city in the United States. (iii) Solar energy was seen as an important part of the city's plan to achieve this goal. Local governments should have an advantage over private companies in identifying an inspiring goal that serves the community. Lancaster didn't rely just on one public purpose. Though the environmental benefits of renewable energy were the prominent public purpose for Lancaster, as we will see later, the city also identified potential benefits to the...