©2014 Irene Tung ALL RIGHTS RESERVED
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©2014 Irene Tung ALL RIGHTS RESERVED FINANCIALIZING URBAN GOVERNANCE: CITIES, CAPITAL MARKETS AND PROPERTY TAX LIENS By IRENE TUNG A Dissertation submitted to the Graduate School-New Brunswick Rutgers, The State University of New Jersey in partial fulfillment of the requirements for the degree of Doctor of Philosophy Graduate Program in Geography written under the direction of Kathe Newnam and approved by ________________________ ________________________ ________________________ ________________________ ________________________ New Brunswick, New Jersey October 2014 ABSTRACT OF THE DISSERTATION FINANCIALIZING URBAN GOVERNANCE: CITIES, CAPITAL MARKETS AND PROPERTY TAX LIENS By IRENE TUNG Dissertation Director: Kathe Newman This dissertation investigates the growing integration between global capital markets and municipal finance. In the United States, financial activities make up an increasingly large proportion of overall economic activity, an expansion which is often referred to as financialization. One of the primary ways that financial markets have grown is through the transformation of various income streams into new financial instruments. In recent decades, financialization has drawn land, local governments and the built environment into relationships with capital markets in unprecedented ways. I examine a key and under-explored moment in the financialization of urban governance: the first experiments in municipally-sponsored property tax lien securitization beginning in the 1990s. Most cities that engaged in this form of financial engineering quickly abandoned it, with the notable exception of New York City, which has continued its tax lien securitization program for almost two decades. My study considers the experiences of these cities, how and why they undertook securitization, and the results of their efforts. Examining qualitative and quantitative data including ratings agency documents, private placement memoranda for tax lien backed securities, and the New York City Department of Finance annual lien sale lists, I contend that municipalities' varying experiences with ii this practice can reveal important insights about what this form of financial engineering offers to local governments. Analyzing tax lien securitization transactions, I show how financial intermediaries relied on the accounting and legal idiosyncrasies of asset-backed securitization to adapt the technique for municipal sponsorship. However, given high transactional costs, tax lien securitization failed to provide viable policy and financing solutions for most local governments. This study suggests that the practice endured in New York City in part because it served to reconfigure the local government's capacities and institutions in ways that met its particular needs for centralized administrative control and regulatory arbitrage. iii Acknowledgements I am grateful to the many people who have contributed time, energy, and encouragement to this project and during my time as a graduate student. My greatest debt is to my dissertation director, Kathe Newman. Kathe, thank you for continually challenging me, suggesting fruitful directions of inquiry, and providing insightful feedback. Your guidance and direction on this project have been invaluable. I can't thank you enough for your gracious willingness to read draft after messy draft, and read them thoroughly. No matter how busy you were, you never turned me away. Thank you for your thoughtful comments and intellectual rigor. Thank you for investing the time to hold me to high standards, while also helping me keep things in perspective. And thank you for doing it all while still maintaining a sense of humor. To my committee, I am grateful for your steadfast support. To Bob Lake, thank you for always asking the hard questions, guiding my reading, challenging my understandings of method and being a constant mentor throughout my time at Rutgers. Thank you to James DeFilippis for our spirited discussions during the course of our directed study, and for your thoughtful questions at my dissertation defense. My outside committee member, Ruth Gilmore, introduced me to the discipline of geography more than a decade ago. Ruthie, its hard to express how much I've learned from you, both directly and from participating in the dynamic intellectual communities you create in your courses. Your early enthusiasm for my project, and smart feedback on my proposal in its first iterations were instrumental to this dissertation becoming a reality. iv Special thanks to Joshua Goldstein, Chandra Ganesh and Sally Mabon at the New York City Office of Management and Budget and Shelby Kohn at the New York City Department of Finance for their kind assistance and for providing me access to data. I wish to also acknowledge Rachel Bardin and Thelma Holder at the New York City Comptroller's Office for their help. Thank you to Harold Shultz, Salvatore D'avola, Franklin Romeo, Joshua Zinner, Sara Manaugh, Sarah Hovde and Moses Gates for sharing their expertise. Many thanks to Gregory Jost for providing me access to data from the University Neighborhood Housing Program's Building Indicator Project. Special thanks to Amy Carrroll for helping me to get in contact with various legal services providers. I would like to express my great appreciation to Rick Schroeder, Dave Robinson, Laura Schneider and Robin Leichenko for all they have done to make the Geography Department such a supportive environment for scholarship. I am grateful to the Department for providing me with fellowship funding and teaching assistantship positions, especially for my critical fifth year of study. I would like to extend a heartfelt thanks to staff members of the Geography Department including Betty Ann Abbatemarco, Theresa Kirby, Cleo Bartos, Kelly Bernstein, Michelle Martel, and Johnny Nunez for their patience and good humor in helping me make it through my time at Rutgers with astonishingly few bureaucratic headaches. v Thank you to my classmates for their support and camaraderie: Lindsay Cambell, Nick Klein, Jack Norton, Debby Scott, Asher Siebert, Brian Stromberg, Sean Tanner, Laurel Turbin, Ben Teresa and Kalpana Venkatasubramanian. Mom, Dad and William, you have been constant sources of support throughout this journey. Maya, you deserve more thanks than I can ever give. To Ranran, thanks for the high fives, jokes, and banter and your patience and good spirits in these final days. I would also like to extend my thanks and gratitude to all those who took the time to participate in, and contribute to this research, without whom this dissertation would not be possible. I cannot name you all, but please know that I sincerely and greatly appreciated your time and patience in speaking with me and providing me with information. vi Table of Contents Abstract of the Dissertation ................................................................................................ ii Acknowledgements............................................................................................................ iv Table of Contents............................................................................................................... vi List of Tables ..................................................................................................................... ix List of Illustrations.............................................................................................................. x List of Acronyms and Abbreviations................................................................................. xi CHAPTER ONE Introduction 1 1.1. Introduction...................................................................................................................1 1.2. Problem statement.........................................................................................................2 1.3. Research questions........................................................................................................3 1.4. Data and methods..........................................................................................................9 1.4.1. Case selection.................................................................................................9 1.4.2. Archival sources and document collection..................................................10 1.4.3. Interviews.....................................................................................................11 1.4.4. Quantitative analysis....................................................................................12 1.5 Outline of the dissertation............................................................................................14 CHAPTER TWO Perspectives on financializing urban governance 16 2.1. Pathways of financialization.......................................................................................16 2.2. Post-Keynesian municipal governments.....................................................................18 2.3. Financializing municipal governments.......................................................................24 CHAPTER THREE The limits of urban financial innovation 27 3.1. The evolution of securitization ...................................................................................28 3.2. Second wave of asset-backed securities and tax liens ................................................31 3.3. Why tax liens?.............................................................................................................34 vii 3.4. Surplus capacity..........................................................................................................37