Drucker's Great Company Philosophy Applied to Cities

While running a city is somewhat different than running a company there are universal qualities in leaders that are transferable across the private and public sectors. Similarly, there are fundamental goals that the private and public sectors must always keep top of mind: the private sector is driven by maximizing profits, and the public sector is guided by maximizing public good.

In the private sector, companies sell goods or services to cover the costs to run their business operations and make a profit. In the public sector, cities use public revenues to pay for: "parks and recreation services, police and fire departments, housing services, emergency medical services, municipal courts, transportation services (including public transportation), and public works (streets, sewers, snow removal, signage, and so forth)." In the news we often hear that the public sector is funded by our "taxes," but local government revenue is a little more complex than that, it can come from "property, sales, and other taxes; charges and fees; and transfers from federal and state governments and municipal bonds.

Just like most companies seek to become great companies, most cities seek to become great cities, and just like some companies may get confused along their path, some cities do so as well. I recently re-read some classic Peter Drucker and saw how his advice to companies seeking to become great companies in his Management: Task, Responsibilities, Practices, also provides a cautionary tale for cities as cities levy to position themselves as the best cities to live, work and play in.

For the private sector Drucker asserts that "profit" is a strategic necessity rather than the ultimate end goal, when he said: "Business cannot be defined or explained in terms of profit...The concept of profit maximization is, in fact, meaningless...The first test of any business is not the maximization of profit, but the achievement of sufficient profit to cover the risks of economic activity."

Similarly, by just changing a few words to the classic quote here is my take on how we can apply this management concept to cities as they turn to local taxes to ensure that the revenue from those taxes can cover the costs to keep the city looking beautiful, maintain good roads and parks and have reliable utility services across the city: "Cities cannot be defined or explained in terms of city tax revenues from land use...the concept of city revenue maximization is, in fact, meaningless...the first test of any city is not the maximization of city tax generation, but the achievement of sufficient public good for all to cover the risks of economic activity."

Just for fun: if you're interested in seeing how your city's revenue sourced the Government Finance Officers Association has created revenue sources for cities with populations over 10,000 people.

Can Cities Convert Office Space to Housing?

Can cities convert vacant or underutilized office space to more housing units?

In theory the immediate answer is should be "Yes," yet the answer is more like "It's Complicated."

In fact if you Google "can cities convert office space into housing?" these are top 5 similar questions that "People also ask":

Equally as interesting here are also the search results from the 1st page on January 15, 2023. They are all links to articles from different publications that delve into the complexities of converting vacant, unused or underutilized office into housing:

1. "Cities push to convert deserted office buildings into housing" published September 2022 by Axios

2. "Why empty offices aren't being turned into housing, despite lengthy vacancies" published July 2021 by NBC News

3. "Why the dream of turning empty offices into housing is a bust" published December 2022 by Slate

4. "Converting office to residences can help fight the housing shortage" published December 2022 by Forbes

5. "Cities are turning empty offices into apartments" published April 2022 by Quartz

6. "Why it's so hard to convert offices into housing" published December 2022 by Quartz

7. "The top 10 cities turning old office buildings into apartments -take a look inside" published November 2021 by CNBC

8. "Newsom signs bill aimed to turn empty commercial properties into housing" published September 2022 by capradio

9. "Yes, S.F. could turn empty downtown offices into housing. Here is what it would take" published October 2022 by the San Francisco Chronicle

10. "Vacant stores will become homes more easily under new California laws" published September 2022 by NPR

Even before the work from home (WFH) phenomena started to create office vacancies during the height of Covid-19 the city planning world and policy makers had started exploring the idea of converting unused office space into housing as a strategy to tackle the housing affordability crisis plaguing many US cities.

Allowing housing in land currently zoned for office space helps to solve the problem of "where will we build it (more housing)" without perpetuating urban sprawl. So why can't we just do it? It's expensive. There's a ton of red tape and zoning laws that make it very hard to get a project approved and the conversion process takes a long time. The actual construction costs are also high, and in some markets it takes "almost as much money to convert an old building to residential as it does to build a new one from scratch." Also office rents are typically much more lucrative for developers than building housing units. So while the office building vacancy rate may make some building owners and developers reconsider their options, they also know the market is cyclical "would rather wait out the pandemic than begin a yearslong process."

Cities and states understand the potential this can have on their housing shortages and are putting policies into place to eliminate some of the land use red tape and also offer tax credit and financing tools incentives. Plus, repurposing existing underutilized buildings to higher use building also has some environmental benefits that make this strategy even more attractive. For instance, New York City's Office of Adaptive Reuse Task Force recently published their recommendations in a report. Last year, California, after years of pitching housing legislation finally passed two laws to accelerate housing construction around the state, Senate Bill 6 and Assembly Bill 2011.

Additional suggested readings

• Insights on the NYC Office Adaptive Reuse Report read these insights from land use & real estate law firm Kramer Levin

• Highlights on the two new California housing laws from the law firm Holland & Knight

A Free Summer Transit Treat in Coronado

Despite San Diego's amazing year long weather, there are a few extra treats we get during summer, like outdoor concerts and some free transit. One of my all time favorites is the free shuttle on Coronado Island that runs along Orange Avenue on the 904 bus route. We usually hop on at the Ferry Landing and head south on Orange Avenue until we get to the Hotel Del Coronado.

Part of the charm of the free shuttle is it's predictability, it runs every 15 minutes so need to worry that if you miss one that it's gonna take forever to get on the next bus.

The free shuttle is a courtesy of the City of Coronado has operated since 2013 except for 2020 because of covid. This year the city spent $192,312 to operate the shuttle, provide extra 904 service schedules and to distribute 1,000 MTS day passes to the Coronado Cays to help reduce vehicle traffic on the island during summer. In addition to being a fun summer perk the free shuttle, like other forms of public transportation, also helps to reduce parking demand and green house gas emissions, and incentivizes people to spend more by creating more opportunities for carefree foot traffic to discover the many shops on the island.

If you haven't tried the free shuttle, you have until September 5th to try it for free, after then you can still take the 904 along the same path. The only difference is that you're going to have to be a bit more aware of the bus schedule, since the 15 minute frequency is meant to support the increased summer traffic on the island, and pay a regular fare.