December 1, 2019

Funding and Financing Smart Cities


Government leaders, citizens, and business professionals understand that infrastructure needs major reinvestment and modernization. As is most visibly apparent in cities, these needs typically surpass the municipal capacity to fund them.

This forces city governments to carefully consider the cost benefit of pursuing a particular project or suite of projects, as well as new models for funding and financing infrastructure programs.

Government financial officers can play a key role in enabling city reinvestment and modernization using fiscal policy, public-private partnerships (PPPs), and performance-based revenue models as important levers to catalyze economically impactful capital investments that create long-term value for citizens, businesses, and the city as a whole. Investing in infrastructure result in broader economic well-being and global competitiveness. Undertaking a broad-based smart city reinvestment and modernization program will help reduce costs, maximize revenue potential, and improve citizen well-being through the deployment of cutting-edge, technology-enabled infrastructure that is more environmentally friendly and resilient.

Cities can adopt a variety of approaches to fund/finance smart city projects. It is important to distinguish between these two terms, which are often used interchangeably. Financing refers to the time-shifting of costs through which a borrower (for example, a city) can defer costs incurred for capital projects until a future point in time (such as the loan maturity date). Funding refers to the means by which project costs are repaid by the city through mechanisms such as property taxes. Financing and funding are used to pay for and generate revenue to service costs related to traditional infrastructure development. This report helps exploring the difference and make a more informed decision for the future of infrastructure.

Authors: Steve Hamilton and Ximon Zhu

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