6 Infrastructure Finance Themes for Cities

Infrastructure finance tools and strategies are available in a new guide developed with Pittsburgh, Pa., St. Paul, Minn., San Francisco and Washington, D.C.

Reprinted with permission from City Accelerator, an initiative led by Living Cities and solely supported by the Citi Foundation.

City Accelerator’s third cohort learned about building comprehensive and resilient financial strategies that relied on diverse revenue sources, made use of flexible and innovative financing and transferred key long-term risks to the private sector. — Executive Summary, Resilience, Equity and Innovation: The City Accelerator Guide to Urban Infrastructure Finance

Every week seems to bring another report highlighting the crumbling state of America’s infrastructure, from lead poisonings in Flint, to levee breaches in Houston and deteriorating transit systems in Washington, DC and New York.

City governments seeking to finance infrastructure projects face a legacy of past underinvestment, which can make improvements or rehabilitation more expensive. They also experience outdated mindsets and siloed and informal project development processes that can increase the challenges involved in solving financial gaps. And if that isn’t enough — cities are also confronted with the need to strengthen infrastructure against extreme weather and sea level rise.

Recognizing these challenges, four cities joined the City Accelerator’s Infrastructure Finance Cohort, an 18-month peer learning experience. It was designed to bring cross-departmental city teams together who are seeking to be at the cutting-edge of financing capital projects but have formidable obstacles to making their initiatives a reality. Cross-disciplinary teams from Pittsburgh, Saint Paul, San Francisco and Washington, DC learned about innovative revenue sources and creative financial tools, while examining their own project development processes and advancing a selected set of innovative projects.

Representatives from the local governments of Pittsburgh, St. Paul, San Francisco and Washington, D.C. worked with Living Cities to address infrastructure financing strategies.
Image: Living Cities

The cohort learned best practices and delivery strategies that went beyond just financing capital improvements. Delivery strategies such as pay-for-success bonding, public-private partnerships (P3s), and Energy Savings Agreements (ESAs) help ensure that projects deliver long-term performance and services, not just bricks and mortar. They learned about building comprehensive and resilient financial strategies that relied on diverse revenue sources, made use of flexible and innovative financing, and transferred key long-term risks to the private sector.

In the 18-months of the cohort, the City Accelerator teams worked together to explore and test new approaches to their cities’ challenges. The teams came together four times to learn from each other’s experiences, hear from leading infrastructure finance and government innovation experts and visit major ongoing infrastructure projects across the United States. While each of the four cohort cities is pursuing its own unique process changes and individual capital projects, many common themes have surfaced again and again.

#1 Focus on revenue, not just finance and procurement.

Many cities don’t face a shortage of available capital; they face a shortage of revenue with which to pay it back. Creative financing options and alternative delivery tools can’t make up for revenue shortfalls. Often revenue is the key challenge to solve for, but it’s the least discussed.

#2 Focus on engagement, not just engineering or finance.

Ultimately, delivering an infrastructure project involves engagement as [much as] financing or engineering. Bringing diverse stakeholders into the conversation early, clearly communicating the benefits of a proposed project or financing model and soliciting frequent feedback from community members all greatly enhance a project’s chances for success.

#3 Think about outcomes, not just physical structures.

Capital planning often focuses on construction of the physical facility, not the service provided. That’s like focusing on the skeleton, and not the arteries. Thinking about infrastructure as a service lets cities link their operating and capital budgets in new ways and take advantage of new models like pay-for-success. It also allows agencies to build resiliency into their plans, by identifying multiple ways that a service can be provided. Levees can be backed up by green stormwater infrastructure that reduces the risk of flooding; commuters can use ferries or transportation services like Lyft or Uber instead of a bridge that is damaged in an earthquake.

#4 Consider the long-term (even for traditional projects).

Some alternative capital project delivery models, including P3s, require long-term analysis of costs, operations and maintenance. Yet in most cities, planning for traditional capital projects managed in-house only goes as far as construction. Cities shouldn’t reserve the best analyses for projects that others will undertake; they need to plan for and get the long-term resources they need to manage a project successfully.

#5 Cast a wide net—including internally.

Financing infrastructure projects is an “open-book test” for cities. By reaching out to other city counterparts with similar situations, project leaders can get a head start on their analysis and learn a lot about what works and what doesn’t. Yet it can actually be harder to meet or pick up the phone and exchange ideas with some in another agency in the same city, who may be competing for priorities, budgets, territory and mayoral attention.

#6 Let staff invest their time in innovation.

Staff time is one of city governments’ most limited resources. Yet by investing time upfront in an inclusive, multidisciplinary, interagency project, all of the cohort teams found a new way of working together that will benefit many kinds of projects in the future. Building a process that can engage a wide variety of experts and stakeholders is critical to agency and project success.

The cohort also visited numerous transformational infrastructure projects, with multiple features — transit service, green stormwater infrastructure, economic development, park and recreational amenities — that develop new places and ways of living. These catalytic infrastructure reuse projects increase the value of land and quality of life for residents.

This trend of placemaking projects — often in formerly distressed areas — follows a legacy of neglect. For nearly nine decades, redlining and other inequitable credit policies were reinforced by infrastructure development policies that ignored the needs of already-disadvantaged communities. Redlining kept urban neighborhoods poor; transportation infrastructure isolated them and other infrastructure projects polluted them. These factors were a one-two punch that combined to create persistent patterns of poverty in many urban areas. Yet the infrastructure projects that used to reinforce inequity can also help reverse it. Equitable financial strategies can help return some of the public equity — the value created by infrastructure development — to the people and communities where it occurs.

Yet the infrastructure projects that used to reinforce inequity can also help reverse it. Equitable financial strategies can help return some of the public equity — the value created by infrastructure development — to the people and communities where it occurs.

Equity-conscious capital investment and equitable development plans can foster workforce development and business mobilization programs, support affordable housing, build community resources such as health clinics and gathering spaces, and create vital transportation links to jobs and schools. Innovative land ownership models such as community land trusts and limited equity housing cooperatives can help residents gain equity while avoiding being priced out of rapidly gentrifying neighborhoods.

Capital financing has always involved a kind of time travel. It brings revenues from the future to pay for the capital projects that communities need now. Resilient and equitable financial strategies simply reach into the future in a different way.

Many strategies to finance resilience focus on avoiding future costs or losses. Energy efficiency can be financed with cost savings from upgraded equipment; flood control and seawall improvements can be financed with premium reductions because of the reduced risk of catastrophic flooding.

Instead of revenue, resilient financial strategies can bring these avoided costs back from the future, to pay for the infrastructure or other capital improvements that prevented them. Instead of tapping future revenue or cost savings, equitable financing strategies can bring the future value associated with infrastructure development into the present — for the benefit of the people and communities who already live there.

Cities don’t have to choose between fixing ailing infrastructure, building resilience or mending inequity; these issues are inherently linked. The most common reason cited for not achieving any of them is lack of funding. Others include lack of political will, siloed departments and/or processes that aren’t well aligned with the long-term needs of capital projects.

Many of the tools and processes in this guide have been explored and tested by the City Accelerator sites. Their experience can help other cities reach into the future to finance the projects that their communities need now.

Review and download the full report:

LivingCities_ResilienceEquityInnovation_20171121 by Ed Praetorian on Scribd

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