Innovative funding methods can bring new services to citizens in a cost-effective manner.
In the post-pandemic world, investment in smart city technology and infrastructure has become more crucial than ever. Covid has highlighted how having smart systems and technologies in place enables authorities to be much more responsive in real-time to evolving threats, needs and challenges.
In the United States, since the onset of the pandemic state and local government revenues have declined in proportion to the decline in sales transactions and employment. As lockdowns and quarantine measures reduced economic activity and consumption, the growing budget gap has in turn forced authorities to announce deep cuts in spending.
Even before the pandemic, many subnational governments were grappling with ballooning costs, yet the fiscal shock from the coronavirus – which is expected to be at least as great as that of the last recession – is projected to cause record budget shortfalls. The CBPP (Center on Budget and Policy Priorities) projected in April 2020 that the budget gap in fiscal year 2021 will be larger than that during the worst year of the Great Recession, and that states could see a $650 billion shortfall over the next three years.
Even before the pandemic, many subnational governments were grappling with ballooning costs
According to the Congressional Budget Office, states and cities supply nearly 80 per cent of the $441 billion spent nationally on transportation and water infrastructure, yet a survey conducted by the National League of Cities in July 2020 estimated that 65 per cent of U.S. cities have cut spending on infrastructure and equipment. Over 700 of the cities surveyed were halting plans to improve roadways, buy new equipment, and complete upgrades to water systems and other critical infrastructure.
Officials must therefore find increasingly creative ways to balance revenue needs from a currently diminished tax base without implementing policies that make those economic losses permanent. New outcome-based financing models enable cities to do this by funding ambitious technology projects through new savings gained by digitising infrastructure and increasing revenues from user charges.
Outcome-based financing can help cities to improve their crisis resiliency, monetise their urban infrastructure and city data, all while providing better urban liveability and improving the delivery of citizen services.
Every city can use technology to deliver safe, engaging experiences, and that technology can be set-up to pay for itself. Annual payments are linked to savings and revenues from operational outcomes. The process involves identifying the solutions that can support a funding model of the appropriate size and scope, and developing processes to optimise each solution, extracting maximum value for both citizens and cities.
Outcome-based financing can help cities to improve their crisis resiliency
Examples of this include smart parking and waste management, city-wide Wi-Fi, digital signage that enables interactive wayfinding and opens up advertising revenue streams, and video analytics that analyse camera feeds to improve crime reporting.
Implementation of smart lighting technology, for example, not only generates energy efficiency savings but also maintenance and asset management savings. This provides the city with a very predictable source of savings - and consequently additional revenue. As an example, if traditional street lighting systems cost a city, say, a million dollars per year, it is safe to project that the introduction of LED lights that can be gradually dimmed in response to ambient light levels will provide savings of 60 per cent. This means an additional $600,000 available in that city’s budget.
Creating revenue streams for these projects also generates additional funds that endures well beyond their completion. Not only that, but they may also serve as a catalyst for additional funding. At the front-end, a city’s technology partners could make that initial investment and thus provide the technology with no upfront cost to the authority. They would then work with the client to set up realistic revenues and savings projections and set timelines and objectives accordingly.
Yet this is no compromise in terms of outcomes and deliverables. The customer owns the technology at the end of the contract, so the city obtains multimillion-dollar infrastructure without having to find the budget for it, something that is particularly attractive at a time when many authorities have been stretched to their limits due to the strain placed on them by the Covid pandemic.
With outcome-based financing, the city administration doesn’t have to concern itself with the logistics of how to reach its objectives. The technology partner provides them with pre-packaged solutions for enabling success – both for the city and for the project partners.
The fact that projects are based on mutual interests and shared objectives means that everyone is equally invested in the outcomes – and therefore more likely to achieve them. The ultimate win-win.