Project evaluation for public-private partnerships: aligning development with strategic goals in Virginia Beach.

• Author: Phillips, Patricia

GFOA's newly formed Committee on Economic Development and Capital Planning is working to identify policies and guidelines for local governments to use in evaluating when and how to invest in economic development projects, including public-private partnerships. The Committee recognizes that many localities are currently investing in economic development projects without necessarily tying these projects into any overall plan. This article presents a case study for investing in economic development, using the City of Virginia Beach as an example of how adopted guidelines can be used by local governments to effectively evaluate development projects.

VIRGINIA BEACH: A CITY IN TRANSITION

Virginia Beach is located in the southeastern portion of the Commonwealth of Virginia. The city was established in 1963 through a merger of the resort town of Virginia Beach and Princess Anne County. It is the most populous city in Virginia, with a 2000 U.S. Census population of 425,257 (estimated at 428,200 as of July 1, 2003).

Adjusted for inflation, per capita income in the city was basically flat in the late 1980s and early to mid-1990s. During that period, the city's per capita income gradually lost ground to the state, falling below the average for Virginia municipalities by the year 2000. The slow-growing per capita income was reflected in the modest growth of the city's tax base during the same period. Virginia localities rely primarily on the property tax and cannot add new revenue sources without approval from the state. This approval is not easy to come by, and property tax increases are always very unpopular. As such, the city pays close attention to the growth of its tax base and its ability to support increasing demand for local services.

The City Council was concerned about the direction these statistics seemed to be pointing. The Council envisions Virginia Beach as a "community for a lifetime"--a place where all people in the community can prosper, and graduates of area high schools, colleges, and universities do not have to go elsewhere to find meaningful work. This requires a thriving business environment. As such, the City Council began targeting its economic development efforts toward business retention and expansion and job creation. It soon became evident that the city needed written guidelines to guide its evaluation of an ever-increasing number of economic development projects.

As Virginia Beach continues its transition from a growing city to a mature city, it faces the challenge of meeting demands for new and expanded services--demands that cannot be satisfied by the current tax base. Additionally, the Comprehensive Plan, adopted by the City Council in 2003, calls for the retention of land in the southern part of the city for agricultural use and open space, and thus for the prudent and productive use of land in the north. The plan accentuates the need to steer tax base-expanding growth to specific areas of the city in ways that market forces alone cannot accomplish. This objective will require the combined legal, financial, and entrepreneurial resources of both the public and private sectors. In some cases, it will require the combined resources of different entities within the public sector. One excellent way to achieve this objective is by engaging in public-private partnerships.

A public-private partnership is the investment of a locality's capital and other resources, leveraged with those of a private entity or another public entity, to achieve a significant public benefit that could not otherwise be achieved. (1) Virginia Beach has entered into or has contemplated a number of public-private partnerships over the last several years. These partnerships have produced community assets that would not have been possible otherwise.

While these projects have taken several different forms--including golf courses, an amphitheater, and a parking garage, to name just a few--they were all the product of a joint effort of the City of Virginia Beach and one or more private or public entities (Exhibit 1 summarizes some of the most common forms of public-private partnerships). In each case, the city contributed capital, assumed some risk, or provided other resources of value, all of which leveraged capital investment and risk-taking by our partners to achieve an amenity for the community that could not have been achieved by either party alone. Moreover, the city had a reasonable expectation that each of these undertakings would eventually help expand the tax base and generate additional revenue for the city treasury.

BRINGING RIGOR TO DEVELOPMENT DECISIONS

The public-private partnerships Virginia Beach undertook in the mid-1990s resulted in significant fiscal, economic, and social benefits for the community. However, the city recognized that elected officials, staff, and citizens needed a framework to better understand and evaluate future projects. In 1999, the city manager asked the director of finance to form a task force for the purpose of making policy recommendations to guide the city's potential involvement in economic development projects. Besides the director of finance, the task force included the director of economic development, the interim director of management services, and the director of planning. The city attorney and the city's financial advisors provided additional input and guidance. The task force's charge was to develop criteria for evaluating the desirability, economic and fiscal impacts, and other merits of development opportunities.

The criteria developed by the task force have now been codified as a City Council Policy. As shown in Exhibit 2, the guidelines are...