Why cities don't have to finance a more resilient future alone

Wed, 2014-10-29 06:00 -- Liz Enbysk

As cities around the world face acute infrastructure needs, the obstacle time and again is how to pay for the smart technologies that can make them more resilient.

You will hear, says Jonathan Koppell, they will pay for themselves. "That's fine," he adds, "but that doesn't actually write the check."

Koppell is Dean of the College of Public Programs at Arizona State University and one of the authors of the Council's Smart Cities Financing Guide. He spoke at a Council forum earlier this month in New York with John Macomber, a senior lecturer in the finance unit at Harvard Business School. The two discussed how cities are finding the money they need to get smarter.

Koppell suggested it is incumbent on the private sector to work with city leaders to structure deals that include ways cities can pay for the solution they are proposing.

"It's not just the responsibility of the city," he said. "And if your solution doesn't have the financing element, that's not a solution."

Macomber agreed. "In my point of view, the private sector has to step in," he said.

Creating and sharing value
The two highlighted several ways governments can work with companies to create and share value.

For example, Algiers was challenged amid a large population influx to supply fresh drinking water to residents. Macomber said leaders turned to GE Water, which came up with a financing plan and joint-venture partners to help with a solution. He also mentioned the opportunity for public-private partnerships in the energy space; energy performance contracts and demand response programs among them.

Koppell noted that the Smart Cities Financing Guide is a tool to help the public and private sector get a sense of available financing options. He highlighted three detailed in the Guide:

  • Pooled bond financing is a way for jurisdictions to come together, borrow together and share the risk. It's a mechanism well-suited, he said, for smart city projects.
  • Catastrophe "Cat" bonds he describes as betting against Mother Nature to build resiliency. Cat bonds have been used, for example, to remediate against forest fires in the American West, he said.
  • Property-assessed clean energy loans help home and business owners pay for energy improvements that are financed through loans against their taxes.

The Smart Cities Financing Guide details 28 municipal financing tools and is available for free download for registered members of the Council.