The City of Virginia Beach has shelled out $265 million in public funds to support 13 major public-private development projects from the Cavalier Hotel renovation to the Sandler Center for the Performing Arts. Those projects have attracted more than $1 billion in private investment, said Virginia Beach Mayor Bobby Dyer in his state-of-the-city address two days ago. “That’s a solid return that has meant money for schools, public safety, roads and other essential city services.”
“I have not always been on board with every public-private partnership as considered, but I do know a good deal when I see it,” Dyer said, according to the Virginian-Pilot. But the city’s overall approach to P3s has paid off, he contended. The city has a AAA bond rating. All of its public schools are accredited. And the crime rate is the lowest it has been since the 1960s.
Bacon’s bottom line: Public-private partnership always warrant close scrutiny. Private interests have every incentive to seek public subsidies in order to maximize their private returns, and studies ginned up to support P3 projects often are loaded with dubious and unsupported assumptions. But if a locality works to minimize risks and ensure that each project is cash-flow positive, I can be converted on a case-by-case basis.
Virginia Beach is an especially interesting case because its proximity to the Atlantic Ocean and its low-lying elevation make it especially vulnerable to the rising sea level.
Last evening I had a wide-ranging conversation with a group of friends, including Noah Sachs, author of a recent paper highlighting the threat posed by rising sea level to chemical storage facilities in Hampton Roads, and Dan Slone, a land-use attorney with clients in flood-prone regions of the country. The underlying premise of the conversation was that sea-level rise poses an existential threat to Hampton Roads in the long-term, and a threat to investment in the region in the short- to medium-term.
Major insurers are increasingly taking sea-level rise and exposure to hurricane flooding into account when deciding where to allocate investment capital. Low-lying metropolitan areas such as Miami, Fla., and Hampton Roads. Not only are they concerned that their investment properties might be flooded, they increasingly question the ability of local governments and utilities to serve areas subject to increasingly frequent inundation and erosion. Other businesses with a 20- to 30-year time horizon have similar worries.
I’m skeptical of the more alarmist scenarios, but rising sea levels due to subsidence in Virginia’s tidewater region as well as warming global temperatures do seem to be inevitable. Some regions around the world have sufficient density of development — the New York metropolitan area, the Netherlands — that it might make economic sense to invest tens of billions of dollars to fortify against rising seas. I doubt that such density exists in Virginia Beach, if anywhere in Hampton Roads outside, perhaps, of downtown Norfolk.
How is a locality like Virginia Beach supposed to respond to such a challenge? I sympathize with Dyer’s desire to build up Virginia Beach’s tax base. But the city has finite resources to invest. In the long run, what kind of projects offer the highest return on investment — flashy P3 projects or boring drainage and flood control projects designed to protect existing real estate investment? I don’t pretend to know the answer. What I do know is that the mayor of Virginia Beach does not appear to be asking the same kind of questions. And that worries me.
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