During our presentation on “Old Men in Outdoor” at the IBO conference last week, John Weller asked for my most pessimistic and optimistic takes on the state of OOH. Somewhat ironically, I suggest that the dramatic budgetary shortfalls suffered by local governments offer both challenges and opportunities for the billboard industry. More specifically, the federal government through executive orders and DOGE has severely cut funding for education, healthcare, and other social services, effectively shifting the responsibility and expense for them to state government. The states, in turn, are not only passing these unfunded mandates on to local governments, but at least in Texas, the politicians are campaigning to eliminate and reduce municipal property taxes as well.
The inevitable result has been cities and counties claiming financial crisis, and blaming it on the federal and state governments’ failure to balance their own budgets. For example, last month Harris County passed a historic 3.1 billion annual budget with a 7.6% increase, the highest in over 20 years. County Judge Lina Hildago was quick to point her finger at Texas Governor Greg Abbot and President Trump, arguing that Harris County was being forced to subsidize the critical services promisesd by state and federal government.
While being a fiscal conservative and usually skeptical of expanded government and spending, I can confirm as a former mayor and current city attorney that local governments are indeed facing unprecedented budgetary shortfalls. Whether caused by their own over spending, or due to abuses by the federal and state governments, local government are looking for new ways to balance their budgets, and are likely to do so on the backs of billboard companies.
One of the ways cities and counties have attempted to reduce their spending is to limit the awards for the condemnation of billboards taken for highway improvement. The Fifth Amendment obligates the government to pay just and adequate compensation whenever private property is taken for public use. How that constitutionally mandated compensation is defined and calculated for condemned billboards, however, depends on state law. For example, Texas, Pennsylvania, and many other states value billboards taken in eminent domain under the cost approach, under which only the cost of construction less depreciation is paid by the government. Other states, such as Oklahoma, compensate the owners of condemned billboards under the income approach, where the ad revenue from the billboard is capitalized, similar to the appraisal of hotels, office buildings, and other income producing properties.
Cities are also attempting to raise additional revenue by enacting and levying excise and ad valorem taxes on billboards and their owners. For example, Cincinnati and Baltimore recently passed such taxes on billboards, which were challenged by Lamar and Clear Channel. And, different results were obtained in the ensuing litigation, with the billboard tax held a First Amendment violation in Lamar vs Cincinnati in Ohio, while they were accepted as constitutional in Maryland in Clear Channel vs Baltimore.
Finally, there is some basis for optimism by the outdoor industry arising from the local governments’ financial dilemma. Specifically, cities are much more likely to accept new billboards, digital conversions, and technological upgrades when incentivized by ordinances and development agreements providing lucrative fees for lease and permit rights. For example, many cities such as Chicago have even relaxed their billboard regulations and leased their municipal land to accommodate new digital billboards. Indeed, as more local governments continue to experience financial pains, its likely that they will find billboards more tolerable when their owners help alleviate that pain.
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