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January 24, 2007

How Enterprising Cities Build the Economic Commons

The other side of privatization about which we seldom hear: the success of municipally-owned services.

In their 1995 book Reinventing Government: How the Entrepreneurial Spirit Is Transforming the Public Sector, David Osborne and Ted Gaebler wrote, “Pressed hard by the tax revolts of the 1970s and 1980s and the fiscal crisis of the early 1990s, …entrepreneurial governments are increasingly… searching for non-tax revenues” to support essential services – a community-ownership dynamic that has continued to gather force as Bush-era cutbacks have steadily burned their way through city budgets.

As my colleague Gar Alperovitz has put it, “What might once have been called ‘city socialism’ is now commonly dubbed ‘the enterprising city,’ with Republican and Democratic mayors alike involved in efforts ranging from land development to Internet and wifi services. They are using tough-minded business strategies to develop public-sector, and through it, community wealth.” Through these efforts, city governments across the country are creating a publicly-owned, economic commons on behalf of the residents of the communities.

Privatization and government downsizing are frequently seen as the norm in the United States. Yet, interestingly, the trend often is in the opposite direction. Driven by increasingly difficult fiscal conditions and greater economic instability as a result of exposure to the global market, municipal governments have taken on a much more active role in community wealth building efforts. A National League of Cities survey conducted in 2001 found an average of 4.49 enterprises in the 326 cities surveyed. In many of these cities, municipal enterprise is becoming an important source of funding support for services of low income and other community residents. By way of example: in 2002, general fund contributions by municipal power companies exceeded $2.3 billion; in just one city, San Diego, California, FY2004 lease revenue contributed $31.4 million to the general fund.

Businesses owned by local public authorities on behalf of the entire community come in many forms: public power companies that not only provide power, but also cable and broadband services; environmental businesses, such as methane-recovery, that both generate electricity and promote environmental goals; real estate development designed to generate lease revenue from city-owned land to finance public services; subway and bus systems that encourage transit-oriented development, which in turn produces revenue for the municipal government; and city-owned convention center hotels that promote economic development through tourism and increased convention center usage.

Historically, an early form of municipal enterprise began in the early 1900s: the municipal electric company. Today, there are more than 2,000 city-owned electric companies in the U.S. with total sales revenue of $39.5 billion in 2002. Public power exists in 49 states – every state except Hawaii – and provides electricity to 43 million people. And for those who question its efficiency and economic viability: public power costs about 10% less than electricity provided by private companies. According to an American Public Power Association study of 573 public utilities, the median net revenue transfer to municipalities was 5.8% of revenues. By contrast, the median tax payment of investor-owned utilities was 18% less, or 4.9% of gross revenues. This means that public power contributes over $2 billion a year to municipal owners.

A growing sector of municipal enterprise is in the high-tech field. Internet and related services are fast developing as new areas of activity, particularly, but by no means exclusively, in rural areas where privately provided services are scarce. In Glasgow, Kentucky, the municipally-owned utility offers residents electricity, cable, telephone services, and high-speed Internet access, all at costs lower than private competitors. Tacoma, Washington’s city-owned broadband network, Click!, also offers individuals and private companies Internet and cable service, as does Cedar Falls, Iowa.

At the end of 2005, 105 municipal utilities were providing cable television, 175 were leasing fiber-optic networks, 132 were Internet service providers, 272 offered municipal data networking, 47 provided long-distance telephone service, and 57 provided local phone service. More than 50 cities – including Philadelphia, San Francisco, and Tucson – have also developed or are beginning to develop publicly owned municipal wifi systems.

Environmental technologies are also a growing sector of city-owned enterprise. Hundreds of municipalities now generate revenues through landfill-gas-recovery strategies that turn the greenhouse gas methane (a by-product of waste storage) into energy, which they then sell at a profit. In Riverview, Michigan, more than 4 million cubic feet of methane gas are now recovered daily; the sale of the gas for power production helps produce 40,000 megawatt hours of electricity per year, with royalties flowing back to the city. These municipalities are taking a community-owned liability – a garbage dump – and converting it into a source of community wealth, which is shared among citizens in the form of better city services.

Hutchinson, Minnesota, a small city of 13,581, demonstrates the impact that municipal enterprise can have on the life of one community. In 2002, its businesses transferred more than $1.2 million to the city’s general fund. For a city with a general fund of $9.4 million, that’s a sizeable contribution. One business is the city hospital that employs 600; in 2001, the hospital bought the adjacent shopping center, whose stores it plans to convert into health-related businesses. Hutchinson also has a recycling business that uses the organic material it collects to market its Creek Side Soils brand of compost and colored mulches, which is sold to golf courses, individuals, and retailers. The city has an electric plant on the Crow River that generates power for residents and for sale to other cities. The city also owns a liquor store, the local cemetery, and an airport.

Gary Plotz, city administrator for the past 26 years, acknowledges “the incongruity of a city owning and operating many services in an area of predominately Republican voters,” as the Minneapolis Star Tribune reported, but says, “the appeal of low costs and reliable service may blunt philosophical objections.”

For more information on municipal enterprise and how it works to build community ownership, and thus the economic commons locally, see: http://www.community-wealth.org/strategies/panel/municipal/index.html