Delivering the Key to the City: Special Considerations in City Hall P3s

A number of municipalities have recently issued, or are contemplating, competitive solicitations for public-private partnerships (“P3s”) to deliver new municipal facilities, typically as part of a transformative “town center” or “downtown” redevelopment project. In a recent Partnerships Bulletin article, Seth Miller Gabriel, infrastructure & P3s practice leader at BDO USA, recently noted that “we are seeing a lot of interest in South Florida where there are lots of authorities that have civil buildings - city hall, police stations - all built at around the same time [that] are in need of renewal.”

As of September 30, 2024, the City of North Miami, City of Hialeah, City of Margate, City of Pompano Beach and City of Riviera Beach, among other jurisdictions in South Florida, have expressed interest in, or are currently pursuing a P3 whereby the private component of the project will subsidize the construction of much-needed new city hall facilities. 

Some municipalities will require the new City Hall to be developed at its existing location and integrated as part of the larger redevelopment project. Other municipalities desire to strategically relocate their City Hall to an area or neighborhood that the city otherwise seeks to revitalize, using the City Hall complex as an anchor institution to bring foot traffic and attention to an underserved area. 

In all cases, the key to a City Hall project is the careful thought and planning required to determine the scope of the new public improvements, and how best to fund design and construction costs, as well as all of the technology upgrades and security enhancements that are required for a new municipal facility in the modern era. This planning process presents unique circumstances when it comes to city hall projects, given that facilities in many cities have experienced significant deferred maintenance over the years, and the staff “wish lists” tend to be extensive, if not daunting. With careful planning and discipline, local officials can resist the temptation to turn the staff “wish lists” into mandated scope requirements that could easily render a project infeasible. 

Local officials should also challenge their finance and budget teams to find ways to contribute to the projects wherever possible, so as to free up private capital for other public benefits or project improvements that will also benefit the city. For example, if the city’s building department will be housed in the new facility, building permit fees (which may only be used for Building Department purposes under state law) may be available to cover the portion of the total costs reasonably attributed to the building department. The same holds true for other enterprise funds, such as parking fees, which can also be used to support rent payments under a city hall lease, or as a pledge of non-ad valorem revenues for a financing. Such public contributions, if available, reduce the pressure on the P3 partner to consolidate all of its proposed public benefits package in the new facility, and could go a long way to turning an unrealistic or cost-prohibitive “wish list” into a reality.

Local officials should also consider whether to require fee simple ownership of the new municipal facility, or whether a long-term lease is an appropriate vehicle for their city hall project. Although leases of City Hall complexes are fairly common in South Florida (i.e., Fort Lauderdale has leased its city hall facilities for years), a lease structure may not work for every jurisdiction. Leases also require special attention, particularly with respect to lease terms surrounding default and termination, given the public interest in the continuous, uninterrupted provision of municipal services, even in those rare cases where a city defaults on its lease obligations. 

To be sure, all of the above issues, whether related to location, scope, funding constraints, political concerns, or deal terms, are highly relevant factors in every P3 project. However, for municipalities committed to working through those issues collaboratively with the private sector, P3s offer a powerful means to deliver modernized city hall facilities, while increasing the city’s tax base through redevelopment projects that advance economic development objectives or other objectives such as affordable housing.