Using public-private partnerships for smart city funding
Part two in a series on financing smart cities
Saddled with legacy infrastructure and limited budgets, many urban areas are struggling to keep pace with rapid population growth. The result is increased congestion, reduced quality of life, lost economic potential, and negative health outcomes. Cities around the world are increasingly looking to implement initiatives that respond to these challenges.
Funding the smart city
As cities work to implement initiatives that respond to the challenges of population growth, limited funds often constrain progress. Just 16 percent of cities are able to self-fund required infrastructure projects. As a result, cities are enlisting the support of private and non-profit partners to advance their smart city agendas.
In this article, we examine the creative ways municipalities are using private and non-profit sector participation to advance their smart city agendas and distill the lessons learned for other cash-strapped cities seeking to overcome their own funding and financing barriers.
Strategic partnerships are helping to fund smart city initiatives in Louisville, Kentucky; New York City, New York; Toronto, Ontario; Kansas City, Missouri; and Columbus, Ohio. Read the case studies now.
Whatever kind of smart city initiative a local government pursues, several key practices can set the stage for successful public-private collaborations. Here are a few ways to foster productive partnerships:
- Start with the end in mind: Define the desired outcomes at the outset of the project. Getting clarity
onthe ultimate objectives you're trying to achieve and the needs you're trying to address is a necessary first step.
- Inventory your available assets: Take stock of the assets you have at your disposal. Are there particular assets that could be recycled? If so, are you permitted to recycle the asset or are there barriers to transferring ownership or management of the asset? Once a public sector entity has established what it's permitted to do, the next step is understanding the relative value of the assets to both the city and to the private sector.
- Understand the business model: What is the proposed revenue model? What are the related business risks? Projects need to be financially sustainable, which, in some cases, may require scale beyond your city.
- Appoint a champion with clear decision-making authority: A clear decision-maker, often a chief innovation officer or equivalent leader, within city government can streamline planning and aid in building key relationships. The city-led approach assists in project implementation by establishing a public champion to act as a face for the city.
- Build local support: When smart city projects have local support, cities are better positioned to attract private partners. Residents embrace projects that have clear social benefits and such projects appeal to businesses' social responsibility goals. The likelihood of receiving philanthropic support improves when the project serves the needs of a population and aligns with a private partner's mission. In the case of Columbus, the city prioritized assisting underserved residents and the business community's pledge served as a vote of confidence which helped to secure the Department of Transportation (DOT) grant. AIR Louisville's project aimed to improve the health of the residents, attracting support from the RWJ Foundation. LinkNYC and Kansas City's Wi-Fi kiosks provide a free, convenient service to tourists and residents.
- Develop a business case that clearly lays out the value to potential partners: A city must present a business case that clearly articulates the potential value of the project to private partners. The value can take different forms, from direct returns on investment to indirect benefits like greater economic development. With LinkNYC, the CityBridge Consortium received direct value in the form of advertising revenue. In Kansas City, Sprint contributed in order to access profitable usage data. For Columbus, while many businesses will not receive a direct return, the improvements to the city indicate future financial gains for the private sector. AIR Louisville saved participating firms an average of $930 per year for each asthmatic employee.
- Create a third-party entity: Establishing a third-party entity encourages role clarity, political feasibility, and eases procurement. A third-party entity can help partners and cities navigate the complex structure of both city governments and private corporations. Columbus relied on the Columbus Partnership to raise significant funding for the initiative. LinkNYC delegated the operations of the Links to the CityBridge Consortium. Louisville established AIR Louisville to coordinate the transfer and analysis of complex health data. Third parties provide a clear platform for decision-making and planning.