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‘New funding models required’ for smart cities

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Report highlights challenges for public sector in encouraging private investment into smart city technologies.

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Private sector appetite to invest in smart city technology – Photo credit: Fotolia

City governments should consider launching focused municipal bonds to fund smart city infrastructure, according to a new report.

A study by consultancy Deloitte’s Center for Government Insights, said that the public sector needs to capture an appetite for investment from the private sector.

Focused mainly on US case studies, the report said that investing in smart cities programs requires creative thinking that departs from traditional models of infrastructure finance.

“As a first step, this includes supporting policies such as fiscal incentives (including tax abatements), PPPs, and qualified infrastructure bonds specifically focused on smart city requirements,” the report said.

In addition, performance-based approaches for revenue sharing should be built into delivery models for smart city systems, according to the authors.

This would see “the public procurer of services and the private-sector investors share in the value of efficiency gains in service delivery, advertising-generated income, and revenue from value-added analytics services”.

A third factor crucial to the success of funding smart city projects is active collaboration between central and local government, Deloitte said.

“This includes the potential to fund special-purpose vehicles and align on potential innovation districts within major metropolitan areas (even military bases),” the report said.

Emerging case studies show that the private sector is willing to invest in pilot projects as an up-front investment or loss leader, “but will expect to participate in longer-term upside and downstream implementation opportunities,” the report went on.

Key challenges to new funding models include the nature of existing procurement rules and the legal or regulatory framework adjustments that are required to assure any conflicts of interest are managed in a manner appropriate to the new model of risk allocation; the flexibility, interoperability, and longevity of new smart city systems, (both in terms of technology platform and across departments and agencies); and a movement to managed, cloud-based services and the associated privacy and cybersecurity risk management requirements.

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