When the City received its first official briefing on Project Marvel six weeks ago, there was constant reassurance that no public money would go into a private sports stadium. That mantra vanished within a month when the Spurs admitted they were polling taxpayers about using Bexar County funds. They even wanted to get it on the May ballot. The public funded Hemisfair (first Spurs stadium), the Alamodome (second Spurs stadium) and Frost Bank Center (third Spurs stadium) and now they are on Spurs IV (A New Hope.) They have the most exciting NBA player, so you can’t fault their timing.

The reality is that most real estate development has public funding. And it has always been that way.

Go back almost two centuries to the era of steam railroads and canals. How were those financed? Usually by land sales, and generally those were pure raves of speculation where people would sell the same parcel multiple times in a day. Look at the sale of canal lands in Chicago in the 1830s. Absolute madness. Railroads – whether intercontinental or local – were funded the same way. You got land to finance the railroad and that land became more valuable because it would be connected to rail so you could sell it to finance the railroad construction. Not much different to tax-increment financing (we call it TIRZ in SA). You borrow against the increased value you will realize when you finally build. Neat, eh?

There is almost no example of real estate development that is not seeking a public subsidy. In the early 20th century it took the form of amenities like streets and sewers and sidewalks and fire and police and even schools (Remember public schools? Good times!)

In the last 75 years the subsidy has usually been in the form of highways and zoning. You will recall that zoning emerged in the 1910s after the truck and automobile suddenly rendered the location of the railroad tracks irrelevant. Zoning guaranteed that you stayed on the right side of the tracks. Zoning is a form of financing as well, as I explained here in 2008.

Hey, historic preservation has been in the public subsidy game for a half century. Every March we go to Washington to argue for historic preservation tax credits, which are another form of financing. The basic idea in 1976 was: Even the playing field. Bankers preferred to finance new construction because there was less uncertainty. So, you give rehabilitations of historic buildings a tax credit (taxes you don’t have to pay, not a check from the government) after they finish. 10-25 percent covers most uncertainties.

Wait – how does that work? You get the tax credit afterwards? No, you sell the tax credit at a slight discount and turn it into equity at the front end. So…it becomes a form of financing. The clever thing about land sales, tax increment financing, tax credits, highways and zoning is that they are public subsidies that do not require you to write a check. So, no tax dollars involved…directly.

And you can always sell the stadium to a casino. (Caesar’s Superdome, New Orleans)

This is not to say that real estate developers are rent-seeking lampreys (we’ll leave that to the insurance industry). In my current role on the Board of the National Trust Community Investment Corporation (NTCIC), I see first-hand the complexity and fragility of putting together a real estate deal. Quite frankly, tax credits and tax increments DO make projects happen. And there are plenty of small developments that happen in conurbanities without a public subsidy – aside from roads and sewers and water and utilities and garbage collection.

Affordable housing always requires a subsidy because a million bucks only buys four units at any level.

To be fair, many of the hundred-plus unit sprawl developments actually operate at such a scale that municipalities have – on occasion – been able to ask THEM TO PAY for things like sewers and utilities and even roads. These were originally called “impact fees” and were passed on to the consumer. On the other hand, the current upzoning movement is actually adding another subsidy – for increased density in mature urban communities.

We tend to idolize the private market because it seems to reward individualism, a key aspect of American character. In truth, the smart money is always chasing the public subsidy. Real estate is the only asset whose value is entirely externalized, and the shape and value of those externalities lies within the public sector.