The Vacant Municipal Lands and Properties: Entrepreneurial Activities

Executive Summary

Ontario Province has established a series of private and public partnership programs over the years to serve the public and reduce service provision cost. These programs have demonstrated significant success in specific areas. This research focuses on the types of entrepreneurial initiatives available to small towns as they seek to fill emptying commercial spaces and sell or develop vacant municipal lands to generate income and enhance societal progress. The municipalities must blend private and public entities to ensure successful reestablishment. The evaluation of different types of partnerships that developing towns can access is crucial to understand the process of emptying commercial spaces.

Introduction

Recent research shows that firms are amalgamating to form larger and more complex partnerships.¹ To successfully form partnerships, businesses that merge must have a legally-binding cohesive factor that no organization can contravene. This factor must be incorporated into the overall aim of the consolidated companies. When evaluating firms’ unity, requirements should not render the process to be punitive from the perspective of other organizations. Each business should note the shared goals, and that organizational complexity and the binding factor should be established.² It is imperative to ensure that all the merging firms understand each member’s organizational structure. Mutual comprehension eases case resolution when a member acts contrary to the principles of the entire group. Thus, a business’s structure should be defined, indicating how organizational levels relate, and their significance in achieving overall organizational goals.

In a bid to serve the public and reduce costs, the Ontario has incorporated various public and private partnership programs over the years. These projects have shown significant success in the areas mandated to the address. Thus, this research will focus on the types of entrepreneurial initiatives available to small municipalities. They tend to empty commercial spaces and sell or develop vacant municipal lands to generate revenue. Municipalities must create a hybrid of private and public partnerships to establish successful economic redevelopment.

The Current Trend of Emptying Spaces

The prevailing Covid-19 situation has affected every sector of the economy. It is evident through the many commercial spaces that have been either closed, vacated, or have rent dues. The rents paid are an income to various economy groups from landlords, brokers, and the municipal governments. Real estate has been a lucrative business sector, with the players within the sector making hundreds of billions annually as different economies zipped along. The COVID-19 related economic crisis is destroying them, and the worst part is that the sector may never recover, or it may take a long period to recover from the shock.

The reduction of personal income is among the factors that have accelerated the vacation of commercial spaces. The pandemic has soared the number of people being laid off and the furloughed employees³. Reduction in personal income affected the aggregate demand, leading to low profits for businesses. As a result, some businesses could not continue with their operations, leading to the closure and vacation of business premises. Besides, the features of the COVID-19, such as lockdown and social distancing affected businesses negatively. Halting operations decreased firms’ productivity and profitability, reducing their ability to pay obligations such as rent when due. The National Multifamily Housing Council stated that only 69% of the US households had cleared their rent by March 5, a 12% decline from the 2019’s value in the same month⁴. The trend applies to commercial spaces as small businesses and restaurants exit the market due to the pandemic’s economic shocks.

Further, although globalization is good, it worsened the impact of COVID-19 on the business world. Globalization expanded the supply chain, where companies import raw materials from other countries globally. For instance, China, the country where the virus started, is a major raw material source.⁵ With the World Health Organization directives to contain the virus spread such as lockdown, international travel ban, and social distancing, the international supply chain was disrupted. The disruption halted many entities’ operations affecting their ability to pay their obligations, such as rent and employee salaries. For instance, WeWork postponed rent payment for some of its US joints as it also tries to re-negotiate lease terms with the owners⁶. Small businesses with no leverage to negotiate lease terms are forced to vacate whenever their ability to finance their expenses reduces substantially. However, with the pandemic’s persistence, the impact may hit even the large corporations, which may be forced to vacate their offices.

Further, the pandemic has changed the perception people had concerning formal jobs. Social distancing and lockdown made people adopt work flexibility through working from home⁷. The narrative that people had to demonstrate in offices to ensure productivity and effectiveness is slowly diminishing. Company owners and managers are starting to realize they can achieve company goals without assembling their employees into one area.⁸ They do not see the need for large office areas that attract higher rents, yet their employees can work from home and achieve similar goals. As a result, they are shrinking their office spaces, increasing the number of empty commercial spaces.

The Need for Revenue Generation

Emptying commercial spaces has reduced the cities’ tax bases. They showcase a still looming economic crisis. Cities and states depend on taxes to fund public expenditures like education. The revenues have reduced significantly while the expenditures have substantially increased⁹. It results in a budget deficit. Normally, when states experience a budget deficit, they increase tax rates on various tax bases such as personal and business incomes. Nonetheless, COVID-19 has presented a relatively new case that has left the municipalities vulnerable. The tax bases are affected such that they now need unemployment rebates, and the corporates need funds to keep them afloat. The empty spaces indicate businesses’ closure and people losing jobs. Moreover, local governments may solve the budget deficit by cutting their public expenditure in a normal business contraction¹⁰. However, the present COVID-19 related economic downturn calls for more state expenditure; thus, the policy is not applicable.

The municipalities can also utilize empty commercial spaces to generate more revenues that solve the looming problem and increase their resource utilization efficiency. Among the local states’ initiatives are privatization, outsourcing, and public, private partnership (PPP). Privatization refers to a long lease or actual sale of municipal property. While privatization may improve utilization effectiveness, it may not generate significant revenues. Outsourcing, on the other hand, educational contracting services to a private entity, while city management remains under city workers who provide a substantial range of services. Like privatization, the initiative may increase service delivery efficiency but generate low revenues, but, in most cases, it is government spending. The last initiative is a public-private partnership (PPP).

Types, Strengths, and Weaknesses of Partnerships

Private Partnership

This paper will focus on this initiative’s effectiveness in filling the emptying commercial spaces to generate revenue and develop communities. Various entrepreneurial initiatives will steer the economic development of municipalities. To cope with contemporary trends in commercial spaces, municipalities must establish a hybrid of public, private partnerships to ensure successful economic redevelopment. There is no clear definition of PPP, but there seems to be a consensus that their primary aim is to utilize the synergies created by joint innovative resource usage and practical management knowledge.¹¹ PPPs bridge a gap between full privatization and government projects procured traditionally.

On the other hand, private partners in Design, Build, Own, operate (BOOT) contracts handle financing, operations, design, and building. The private partners in such contracts obtain payment from governments, user fees on the service provided, or both. However, some authors have defined PPPs¹². PPPs are agreements between governments and private sectors where the private institutions participate in decision making and goods production traditionally provided by the public sector. The private sector will share the risk associated with the production or the good defined or the service delivery expressed in the contract.

There is no guarantee that PPPs will succeed and attain the goal intended. Thus, there are underlying enabling factors that will steer their success. For the public sector to attain service delivery improvement through PPPs, it must;¹³

• Ensure it structures contracts in a suitable manner regarding pricing and risk transfer to the private partners.
• It identifies and selects projects correctly depending on the viability of PPPs.
• Ensure it establishes a transparent and comprehensive standard for fiscal accounting and reporting for PPPs.
• Ensure it formulates regulatory, monitoring, and legal frameworks that support reasonable pricing and service quality.
• In Ontario, an appropriate strike between value and fairness is vital in the successful design and implementation of the procurement process.

Benefits

Among the benefits include the value for money.

• Value for money entails the optimal combination of risks, benefits, and cost¹⁴. It is the extent to which it meets user requirements and attaining the maximum outcome as possible. Private partners will ensure accurate cost and capital estimation as they actively participate in decision making.
• The second benefit includes time savings. The private partners possess expertise that steers and expedite project development and completion.
• Also, PPP projects are managed better than solely public projects. The private partners bring in project governance expertise and frameworks that include resource management, project structure, reporting, communication, and monitoring systems.¹⁵ These benefits have steered the rampant preference for PPP by government and policymakers.
• PPP creates a monopoly situation.
• Involvement of private partners can mean the introduction and transfer of new technology that improves the process.¹⁶
• It drives the synergies of cooperation that include resources derived from the two parties. A larger pool of resources leads to a more efficient project management process.

Weaknesses

• PPPs are more expensive than public projects due to the higher borrowing cost of capital incurred by the private partners. Also, they incorporate profit, increasing the project’s costs on the government.
• The projects have a longer life span, over 30 years, and engage many parties, increasing their complexity than the normal public projects.¹⁷
• There may be a conflict of interests among the parties. The private wants to make a profit while the public is after the public’s interest.
• Lower transparency levels. The private partners are less concerned with transparency than the public partners.
• Lack of equitable results due to skills and expertise disparity leads to one partner undermining the interest of the other.

Public Partnerships

Municipalities partner with local government bodies to cut costs or, in other cases, to generate revenue. For instance, the GeoSmart project of Renfrew County gathers 18 municipalities, the 17 municipalities and the country, two school boards, four private organizations, and two public sector institutions. They went into partnership with the Ministry of Natural resources that provides the public and the municipalities with geographical data and analytical abilities. The benefits include;¹⁸

• Higher cooperation levels among the various government organizations to offer quality services to the public.
• Also, they steer the completion of infrastructure due to the engagement from the private partners that offer expertise not found in the municipalities.

Besides the benefits, a few weaknesses exist, including more expensive delivery of services and infrastructure, and delayed payment of public sector projects.

Entrepreneurial Initiatives for Municipalities

In pursuant of more revenues, some municipalities are adopting progressive and innovative entrepreneurial activities such as;

• Revenue expansion and generation Municipal service review
• Managing costs and not cutting expenditures.
• Municipal Services Delivery Review that can lead to joint ventures with various resource pools to reduce costs.
• Pursuing Alternative Service Delivery Options.

Focus on Revenue Generation

The aim is to generate revenue that can outdo the costs. Thus, entrepreneurial municipalities should focus on opportunities that will generate more revenue than its costs. To ensure they effectively do this, they ought to divide revenue-generating opportunities, into3 classes.

• Opportunities that should not and do not generate revenue
• Opportunities that generate medium revenue
• Opportunities capable of generating revenues higher than their costs or can achieve a break-even point.

Normal government services should not break even or make profits and should not be provided by the private sector. When municipalities become sensitive to the costs of services they provide, they gain insights on opportunities available to them, steer revenue generation, and save costs.

Managing Costs and Not Cutting Expenditures

Cutting expenditures are processes or measures taken during financial distress to maintain economic stability. Managing costs is a counteractive approach that helps manage costs rather than react to budget requirements. Cost-cutting in municipalities curbs a tax increase, either for financial or political reasons. Managing costs reduces expenses while enhancing the quality and standard of service. Three key elements ensure a successful cost management program. One of them is a history of good management staff relations and mutual trust between councilors and staff. Good relations among the team promote healthy connections in the organization and promote trust. Secondly, the success of a cost management program relies on the history of staff working in teams. Teamwork is created repeatedly and proven during setbacks or unstable moments. Hence, a municipality staff with a background of teams being collaborative in matters that leverage and manage the cost is advantageous to have cohesion amongst them.

Cost management programs that are successfully implemented can result in efficient outcomes, such as eliminating work that does not add value. It also reduces unit costs concerning a defined output level, which opposes removing items from the budget. Thirdly, it streamlines and stops services that do not benefit residents. Lastly, cost management allows for readiness to spend money on investments that will bring costs down over time and account for the revenue and the money being spent.

Municipal Service Review

A municipal service review can be defined as a comprehensive study to determine the adequacy of government services given by the local government or agencies. Joint provision of services can be through partnering with both the public and private sectors. In some instances, municipalities partner with other local governing bodies to generate savings but in some time to raise revenues. None of these approaches should be perused in isolation since they need a fulsome process; they should be considered together as part of a systematic approach 119.

A service review is also comprehensive in that it studies the structure and governance of a local community by capturing and analyzing information. The study also shows the efficiency of services provided and the opportunities for better working between service providers. Similarly, if there are inadequacies in the service provision, the local authority has the power to take more effective and strict measures.¹⁹

Alternative Service Delivery (ASD) is changing the delivery of a service from the municipality to the private or public sector. It seeks to provide and develop infrastructure through the available service rather than traditional bureaucratic processes²⁰. Also, service review is used to improve an organization’s efficiency and effectiveness and solve financial stability issues. It answers questions such as, what is mandatory? What is Optional? What scope for additional action is available?

All of the above questions should be taken into first consideration in any service delivery review. Upon identifying what services are mandatory or have been chosen to be provided because of public demand/need, the next step is to evaluate each one and see if there may be more efficient ways of fulfilling these commitments 119.

Pursuing Alternative Service Delivery Options

Entrepreneurial municipalities are not limited by the traditional model of the self-sufficient service provider of all services needed by its residents. They embrace cities’ role as service arrangers as an enabling authority that draws upon resources from varied sources and stresses collaboration and joint ventures. The new model of government referred to as “governing by network” in which the core responsibilities of senior managers no longer center on managing people and programs but on organizing resources, often belonging to others, to produce public value. Partnerships are crucial in resource organization. For example, Geosmart is a software system developed due to six townships in the united counties of Glengarry Dundas and Stormont combined sots to update their outdated DOS-based financial software. The new network is a connection that serves as the primary server for all seven municipalities.

Another example is the Renfrew county. The Geosmart project accommodates 18 municipalities, two school boards, two public sector organizations, and four private sector businesses into a partnership with the Ministry of natural resources. Hence it provides excellent access to the geographical area. Public partnerships with joint purchasing arrangements include municipalities partnering with area hospitals and community colleges, generating an even more significant opportunity for savings from bulk purchasing.

On the other hand, public-private partnerships involve a municipality and one or more private sector companies and are also referred to as P3s. Over the last two decades, P3s have been actively promoted. Furthermore, infrastructure investment/completion may only be possible from private partners with expertise not found in a municipality. P3s are a valid option, but they need to be approached with caution because of borrowing costs and the need for profit for the private partner; they are usually costlier.

It is challenging to determine P3 capital projects’ merits because its proponents and opponents tend to get bogged down in distorted claims. These projects are justified because private participation ensures greater efficiency and cost-saving 121. There being concerns about the lack of transparency associated with private sector operations, their Municipal act was for clarity. The Municipal Act concluded that though a combination of sections 8, 17 regulations under section 203, 110,195, and 202, the legislation provided the necessary powers for municipalities to enter into public and private partnerships.

There are typically different operating and value systems in public vs. private entities. Instead of choosing to operate solely publicly or privately, which is not feasible or rational with a municipality’s operation, “the key ingredient is a competitive atmosphere since this is what provides a spur to productivity and high-quality service.” There are several ways for a city to create a competitive atmosphere, including an initiative known as managed competition. Rather than considering the alternative service delivery options in isolation, it is recommended that they be examined systematically as part of an overall municipal services review.²¹

There are several legitimate questions and concerns about P3 capital projects following Tindal and Tidal 2009. One of the items being, it is unlikely to provide a capital project or facility more cheaply than a municipality since a private company borrows money to cover its expenses. Secondly, private companies are not philanthropic endeavors and will ensure an adequate return on their investment. Lastly, private companies operate with a degree of confidentiality that is not easily reconciled with the openness and public accountability objectives.

From the above, there are no definitive answers concerning P3s. Therefore, municipalities must consider P3s when undertaking capital projects. Certain matters, therefore, have to be given particular attention, such as; how public and private companies will share risks, and how their privacy needs will be reconciled at federal levels. Lastly, it is crucial to consider whether municipalities have sufficient expertise to monitor contractual arrangements and projects.

While contracting out and privatization are service delivery options, the two are often used interchangeably to represent different options. Contracting out involves maintaining ownership and overall authority but outsources a private sector as the dominant form²². While privatizing is the transfer of ownership, property, or business from the government sector to the private sector. Constructing or maintenance of a municipal road does not make it a private road (123). Furthermore, privatization options must often be considered by municipalities if they fall, they fall into that category. The city retains the service or facility’s responsibility in question but explores whether it would prefer to have provided or constructed or operated by a private company.

The decision to privatize a service means that it is no longer the municipality’s responsibility and is left to the market place to provide or not (123). Various municipal services are their responsibility. What happens if there is a movement or contract out of delivery (123)? It should be assumed that privatizing a municipal service would lower cost even if private companies offer what seems to be an attractive price for providing an existing municipal service; what this offer entails has to be scrutinized. None of these approaches should be pursued in isolation need a fulsome process; they should be considered together as part of a systematic approach 119. However, there has to be careful selection of the quality of service being offered to avoid poor service delivery for greater efficiency²³.

Managed competition is an approach where the cost of delivering services is reduced by enhancing competition between private and public providers. As a result of a few strained months after an election in Indianapolis in the early 1990s, a new approach of managed competitors under which public sector employees and their managers compete with private firms for the right to provide a given service.

For example, in Ontario, the peel region introduced managed competition in 2000 for public works department services. The regional employer won five of the first eight contracts awarded under the process. Savings amount to more than six hundred thousand dollars, and with a gain sharing plan in place, 50 percent of savings realized under a contract stays with the Region. Other 50 percent is distributed as a bonus to staff working under that contract.

Nonetheless, before an initiative similar to the managed competition is introduced, several things must be in place. One of them is an awareness of all specific services and programs provided by the municipality. Secondly, the well-developed measure of the cost of the services. Besides a work environment in which productivity improvements have been emphasized as a value reinforced and rewarded in practice. Lastly, a trusting relationship between employers and employees so that initiatives to reduce costs are not seen as a threat that will lead to the loss of loyal staff.

Municipalities have great power and authority vested in them in regards to the success of the economy. Despite the worrying trend of emptying commercial spaces, small cities must establish a hybrid of public, private partnerships to ensure successful economic redevelopment. They have to create enabling environments for all the stakeholders in the business world. They can re-develop their economies by managing costs, municipal service Review, and pursuing alternative delivery services.

However, they must also not be greedy or create private firms that they will partner with and later be beneficiaries by allocating lump sums but rather allow the free and transparent process for the greater good of the community. The latter cannot be achieved if the municipalities have not structured and organized themselves. Hence, each city should come with initiatives that will benefit them and help them grow economically. Equally, the industries should be one that generates income and generating revenue. Public-private participation in the future need’s improvements, both in organization and accountability to realize optimum benefits.

Hybrid Approaches to PPP

The approaches include:

• Managed competition
• Emptying vacant commercial spaces
• Alternative service delivery options
• Filling vacant positions and selling municipal lands

The first approach is managed competition, which is established following the notion that competition spurs creativeness and offsets costs by eliminating waste, excess staff and inefficiencies arising from budget shortfalls. Managed competition improves operations, build employee skills, and improves strategic use of technology and decision-making. However, it can lead to poor employee productivity and renting out in municipalities. Another approach is emptying commercial spaces. This framework also focuses on how competition increases innovation and cost cutting through the reduction of surplus staff and waste.²⁴ It also encourages firms to explore alternative service delivery options. In Ontario, municipalities are losing tenants in commercial spaces following the dominance of online sales and Covid-19 implications. The main resolution is to establish and to share public policies before issuing requests for proposal and identifying policy trade-offs. Moreover, alternative service delivery options have been applied in Ontario to appraise projects over the years. Finally, municipalities fill vacant positions and sell municipal lands to mitigate the effects of procurement in PPP projects.

Conclusion

Various views have been highlighted concerning PPP in Ontario and other provinces in Canada. There are numerous inconsistencies in the delivery of goods and services, but significant benefits are notable. The literature showed that the states undertake several projects under PPP, but they have not delivered the intended results. From an analysis of schools, hospitals, and water treatment plants as the main projects, PPP saves huge amounts of money because risks are transferred to contractors. Additionally, the prevailing Covid-19 has exacerbated the rate at which municipalities empty spaces. It has led to closure, vacation, or rental of commercial spaces. Service culture can be built through cooperation between the public and private sectors. With the use of the internet becoming common, basic public participation in political and other decisions is enhanced. Public involvement in political decisions may increase service delivery, especially in politically determined services. In Ontario, public-private participation has recorded success in both service and infrastructural sectors. Several projects undertaken under public-private partnership participation are completed and workings with few discrepancies being recorded. Use of Public-private participation in the future needs’ improvements both in organization and accountability to realize optimum benefits.

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Footnotes

1. Akintola, Akintoye and Matthias, Beck eds., Policy, Management, and Finance of Public-Private Partnerships. (United Kingdom: John Wiley & Sons, 2009), p. 3.
2. Akintoye and Beck, eds., Policy, Management, and Finance of Public-Private Partnerships, p. 4.
3. Burchell et al., “Cut Hours, Not People: No Work, Furlough, Short Hours and Mental Health During COVID-19 Pandemic in the UK.” (2020). Web.
4. Connie Loizos, “Commercial real estate could be in trouble, even after COVID-19 is over.” Tech Crunch, 2020. Web.
5. Villena, Verónica and Dennis, Gioia, “On the Riskiness of Lower-Tier Suppliers: Managing Sustainability in Supply Networks.” Journal of Operations Management 64 (2018): 65-87.
6. Konrad Putzier, “We Work Skips Some Rent Payments as Coronavirus Undermines Revenue.” Wall Street Journal, 2020. Web.
7. Iza Gigauri, “Effects of covid-19 on Human Resource Management from the Perspective of Digitalization and Work-Life-Balance,” International Journal of Innovative Technologies in Economy 4 no. 31, 2020: p.1.
8. Viktor, Bryzhko, Gennadevich, “Development of the land market in rural municipal area.” Revista ESPACIOS 40, no. 18 (2019). Web.
9. Auerbach et al., “Effects of COVID-19 on Federal, State, and Local Government Budgets.” Brookings Papers on Economic Activity, Conference Draft, Fall, 2020: p.1.
10. Auerbach et al., “Effects of COVID-19 on Federal, State, and Local Government Budgets.” (p. 12).
11. Jomo KS, Anis Chowdhury, Krishnan Sharma, Daniel Platz, “Public-Private Partnerships and the 2030 Agenda for Sustainable Development: Fit for Purpose?” DESA Working Paper, No. 148 ST/ESA/2016/DWP/148, 2016, 2.
12. Jomo et al., “Public-private partnerships and the 2030 Agenda for Sustainable Development: fit for purpose?” 3.
13. Jomo et al., 3.
14. Peter Girard, et al., “Public-Private Partnerships in Corpeartive Agreements in Municipal Service Delivery.” International Journal of Administration. (April 2009). 2-25. 3.
15. Girard, et al., “Public-Private Partnerships in Corpeartive Agreements in Municipal Service Delivery.” 4.
16. Rashed Md, et al., “Considerable Issues for Sustainable Public-Private Partnership (PPP) Project.” Rashed, MA, and Alam, MM, and Mohd Ekhwan, Vol. 2(4), 2017: 57-65. P. 57.
17. Rashed, Md, et al., “Considerable Issues for Sustainable Public-Private Partnership (PPP) Project.” 59.
18. Peter Robertson, J. and Acar, Muhittin, “Concentrated Hopes, Diffused Responsibilities: Accountability in Public-Private Companies.” Proceedings of the 60^th national Conference for the American Society for public Administration Held in Ontario, Florida in 2009.
19. Keshav K. Acharya and Habib Zafarullah, “Community Governance and Service Delivery in Nepal: An Assessment of Influencing Factors,” Commonwealth Journal of Local Governance, no. 21, (2019). Web.
20. Idfc Foundation, India Infrastructure Report 2012: Private Sector in Education, 56 (London: Routledge, 2016).
21. Wang, Zujian and Qi, Mingyao, “Service Network Design Considering Multiple Types of Services,” Transportation Research Part E: Logistics and Transportation Review, 126 (2019): 2. Web.
22. Dale Huntington, “Contracting with private-sector networks: franchising reproductive health care,” Strategic Contracting for Health Systems and Services, 2017, xx. Web.
23. Jonathan Crawshaw, Pawan Budhwar, and Ann Davis, “Human Resource Management: Strategic and International Perspectives,” (Thousand Oaks: SAGE, 2014), 98.
24. George Peterson, “Land Leasing and Land Sales as an Infrastructure-Financing Option.” World Bank Policy Research Paper 4043, 2006. Web.