Ten ways to pay for a Smarter City (part one)
August 29, 2012 21 Comments
Birmingham’s striking new Library, which will open in 2013, is one example of the regeneration projects currently underway in cities despite the challenging economic climate.
I’ve been meeting frequently of late with academic, public sector and private sector partners in city systems to explore the ways in which Smarter City initiatives are funded. Whilst many such programmes are underway, it is still the case that individual cities starting on this path find that it can take considerable time to identify and secure funds.
The ultimate stakeholder in Smarter City initiatives is often a local authority – they alone have the responsibility to ensure the functioning and success of a city as a whole. But whilst some reports show that private sector sentiment is finally improving following the 2008 crash, public sector – and in particular, local government – is still in the grasp of an unprecedented squeeze in funding. So where can city authorities look for the – sometimes substantial – funds needed to support Smarter City initiatives?
Up to now, a great many Smarter City initiatives have been funded at least in part by research grants. By their nature, these will only fund the first projects to explore Smarter City concepts – they will not scale to support the mass adoption of proven ideas. So we need to consider how they are used alongside other sources of funding.
In this post I’ll describe the first five of ten ways that Smarter City initiatives can be funded, including but not limited to research grants. None of them are silver bullets; but they all represent realistic ways to start paying for cities to become Smarter. I’ll describe another five in a follow-up post next week.
The UK Technology Strategy Board’s “Creative Industries Knowledge Transfer Network” (who took this photo) brings innovators in cities together to create new ideas.
1. Apply for research grants to support new Smarter City ideas
Whilst research funding will not pay for widespread adoption of proven Smarter City ideas, it will still support the search for new ideas. And we have certainly not exhausted the supply of ideas – far from it. In the UK, the Technology Strategy Board’s award of thirty £50,000 grants to perform “Future City” feasibility studies has kick-started a frenzy of activity. Just one of the thirty cities awarded these grants will be chosen to receive £24 million to support a demonstrator project; but many of the others will use the results of their feasibility studies to seek independent funds to move ahead.
The European Union recently launched an Innovation Partnership for Smart Cities and Communities that is expected to provide €365 million to support projects demonstrating innovative urban technology systems; and many funding programmes that are not labelled “Smart” or “City” are nevertheless relevant to Smarter Cities – such as the Technology Strategy Board’s “Innovating in the Cloud” funding competition or the UK Engineering and Physical Sciences Research Council’s “Research in the Wild” programme.
From social science to sustainability to healthcare to transport and buildings, many research agendas are relevant to creating the cities of the future; and new, well-formed ideas can always seek support from the relevant funding organisations. In this context, it’s not surprising that we’re seeing ever-closer links being forged between cities and the Universities that are located in them.
2. Exploit the information-sharing potential of shared service platforms
City and regional authority finances are under unprecedented pressure from the acute financial situation and expected demographic changes. In the developed world, we are getting older, and more people who have retired from work need the support of less people who are still working and paying taxes; and in emerging economies, urban populations are growing at a staggering rate.
In order to save money whilst maintaining vital services, local governments are increasingly sharing the delivery of support services such as finance, HR and IT; saving money – and reducing staff – in those functions in order to preserve the delivery of frontline services such as education and social care. It is difficult to overstate the significance of these changes; in the UK, for example, it is expected that nearly 900,000 public sector workers – 3% of the entire national workforce – will lose their jobs over the next five years as a result. Whilst specific characteristics vary from place to place, similar trends are visible across the world.
One outcome of these changes is that shared IT platforms are increasingly in place in cities and regions to support shared services. Those platforms now host co-located, multi-agency data. Cities such as Plymouth, Dublin and Sunderland are starting to explore the benefits that might be realised from that data. In Sunderland, the CEO and CIO have both spoken extensively about the opportunities they see to transform the city and services within it using their City Cloud platform. The East Riding of Yorkshire has been sharing services between agencies for some time, and has reported their achievements in addressing Child Poverty through improving cross-agency information sharing as a result.
These examples all show that whilst the current acceleration of shared services in cities and regions has its origins in adversity, it nevertheless offers the potential to support some positive outcomes too.
3. Find and support hidden local innovations
(Photograph by Meshed Media of Birmingham’s Social Media Cafe, where individuals from every part of the city who have connected online meet face-to-face to discuss their shared interest in social media.)
City populations are not passive observers to the Smarter City phenomenon. They may be crowd-sourcing mapping information for OpenStreetMap; running or participating in hacking events such as the forthcoming Government Open Hackday in Birmingham; or they may be creating new social enterprises or regional technology startups, such as the many city currencies and trading schemes that are appearing. Simply running social media surgeries as Podnosh do in Birmingham, can have a powerful effect on local communities by helping them exploit social technology to uncover hidden synergies and connections.
Individual officers in many councils work very positively with these community innovators. But substantial formal relationships can be impeded by the complexity of public sector procurement regimes which are simply too expensive and time-consuming for very small organizations to engage with. By simplifying procurement practices – or even by being transparent about the level of purchase below which competitive procurement does not apply – the level of engagement between city authorities and these communities could be increased. Bridging organisations can also play a positive role here, such as Sustainable Enterprise Strategies (SES) in Sunderland. SES provide support to the local social enterprise community and act as a link between that community and the City Council.
Local entrepreneurs and innovators often have limited resources. On their own, they are unlikely to implement such Smarter City infrastructures as energy grids or real-time transport information systems, for example. But collectively, their ideas could contribute significantly to the business case for a local authority to invest in such infrastructures. By engaging with this community extensively, a portfolio of potential innovations and outcomes can be created to demonstrate the value of such investments. By drawing on the collective creative energies of the city in this way, that portfolio is likely to contain many more ideas than could be obtained from central agencies alone.
4. Explore the cost-saving potential of Smarter technologies
At the heart of Smarter Cities is the idea that information integration and analytic technologies allow better, more forward looking decisions to be taken within cities; with the potential both to improve outcomes and to reduce costs. Whereas the desired outcomes may be citywide and social or environmental in nature rather than directly financial, many case studies show that short-term cost reductions can also be achieved within a single investing organisation. These cost reductions, of course, can then be the basis of an investment case – as they were for Sunderland’s City Cloud.
The London Borough of Brent in the UK, for example, realised significant cost savings by reducing error and fraud using such technologies, as did Alameda County in the US, who also identified new revenue opportunities (see this case study and this video).
As I dicussed in an earlier blog post exploring this topic, if these technologies are deployed on the shared IT platforms described above, then once in place they can be re-used for other purposes. This might lower the cost of deploying subsequent solutions elsewhere in city systems, such as traffic prediction for commuters in order to reduce the congestion that lowers economic productivity and job creation in cities; or predictive analytics to enable preventative approaches to social care, as demonstrated by Medway Youth Trust.
5. Could Smarter Cities be sponsored?
The Miami Dolphin’s Sun Life Stadium photographed by Bob Brown
In recent times we have become used to the idea that sports stadiums take their names from sponsors who fund the teams that own them, such as Arsenal Football Club’s Emirates Stadium. Such facilities are cities in microcosm in many respects, operating their own power, transport, safety and other systems analogous to those found in cities. Some, such as the Miami Dolphin’s Sun Life Stadium are already transforming those systems to become Smarter Stadiums.
Other facilities such as ports, airports, industrial plants, shopping malls and University campuses can be considered “micro-cities” in a similar way; and as I have commented before some of these are large enough that transforming their systems can make a significant contribution to transforming the cities in which they are based.
Could the concept of sponsorship be extended beyond sports stadiums? It has certainly been applied to entertainment facilities such as the O² Arena; and many airports have changed their names for marketing and branding purposes.
I don’t expect we’ll see a city renamed by a corporate sponsor anytime soon, and novels such as Max Barry’s “Jennifer Government” and Rupert Thomson’s “Soft” have cautioned against such ideas. As past controversies around privatisation and commercialisation in areas of education and the justice system suggest, there are certainly city systems for which this idea could be challenging or simply inappropriate. But with cities increasingly conscious of the value of their brands in attracting investment and business, and with local employers conscious of the need for cities to seem attractive to the skilled people they need to employ, the possibilities for sponsorship to support some form of investment in appropriate Smarter City systems or facilities – especially those that are already private sector components of the city ecosystem – could be worth considering.
Funding the Smarter City roadmap
It’s very unlikely that any of the ideas I’ve discussed here will fund an entire Smarter City transformation, of course. But they are all realistic possibilities to fund elements of such a transformation. The challenge for cities is for their stakeholders to come together and agree how they will collectively exploit all of these ideas – and more – in funding the elements of a programme that they agree to undertake together.
Next week I’ll continue this discussion by exploring five more ways for cities to fund and support Smarter initiatives.
About Rick Robinson
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Rick, you should put this on a sharpcloud story, Paul
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Good idea Paul – I’ll take a look at doing that,
Regards,
Rick
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Rick, Looking forward for the final five approaches. What is clear to me and obviously to you is there is no magic bullet. One area where Council’s could exploit are their purchasing power. Birmingham City Council spends over £1bn a year purchasing goods and services. This could be used in two ways. The Council through its PFI deal with Amey is replacing most of its street lights hence the works going on across the City. There had been discussions about how these might have ‘smart’ elements built in. This sort of thinking was applied in the 1980’s and 90’s in a different area when developments were expected to spend 1% of the total cost on public art. Perhaps what is needed now is a ‘Percent for Smart’. Ths would mean atleast £10m a year being spent by BCC on Smart elements.
Another way to use this spending power is to use it to not only purchase smart solutions but also create smart solutions as a recent post on Birmingham Science City blog by Jackie Homan illustrates.
Patrick
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Hi Patrick,
I think you are absolutely right to focus on procurement; it’s a huge financial lever within cities and regions that I was intending to comment on in the follow-up blog post – you’ve given me some new things to think about in writing it. I agree that Jackie’s post was excellent – for anyone reading this who hasn’t seen it, it can be found here:
http://birminghamsciencecity.wordpress.com/2012/08/07/public-procurement-driving-innovation/
(And by the way, the streetlights you mentioned were replaced outside my own house just yesterday!)
Regards,
Rick
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Thank you Rick for the piece on financing . I am glad you heard me . I look forward to the next part – then post my comments
Cheers!
Saibal
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Hi Rick,
A thoughtful piece. But it suggests that we are seemingly happy to address this in a piece meal manner rather than strategically. Part of the problem is that grants are not a good way to roll something out systematically, far too haphazard. Better is to review what is essential and to work from base-line funding positions. Doing this offers a steady progression and a buy-in from a wider number of participants. Anything else is always open to financial cuts for purchase and maintenance since it is “non-core”. This is where our major suppliers need to move their understanding of public sector finances and to devise new products that fit within this…
Thanks,
Brian
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Hi Brian,
Thank you – this is an interesting reply; and my hope in posting this article to stimulate a discussion.
I do agree that the most powerful way to affect a “Smarter City” or “Future City” transformation is through a strategic programme agreed across city stakeholders – I posted my thoughts on that subject here: https://theurbantechnologist.com/2012/07/26/how-smarter-cities-get-started/
But what I haven’t seen yet is a widely available funding mechanism that can be used to support the whole of such a transformation. Three reasons occur to me why that might be the case: firstly, an overall city transformation has so many different components, costs and outcomes that it would be hard to align them against the structure of any single funding vehicle; secondly, that no single organisation “pays” for a Smarter City – lot’s of organisations within the city need to invest in working differently, but according to an overall vision; and thirdly because the local government bodies responsible for cities – the only bodies with a duty to be concerned with the city as a whole – simply do not have the financial strength in today’s economy to put together the complete financing package single-handed.
So as a practical approach, I have the view that it is inevitable that Smarter Cities will be financed from a multitude of different sources; but that can still be within the context of a joined-up, holistic approach if a cross-city plan and governance body is in place to co-ordinate the projects supported by those different financial means.
I’d be interested to hear your views on my response to your comment, and in particular if there are simpler ways to approach this challenge I would be delighted to learn more!
Thank you again for taking the time to comment,
Rick
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Rick,
Ive looked at The funding streams as well, and came to the, conclusion that a co-operative limited by guarantee, that represented Civic, Academic, Business & Enterprise, Community & Cultural stakeholders in a city, would be the most effective as it aligns interest and allows the integrated and cross cutting benefits be recognised accross the different actors accross a city.
Thanks
paul
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Hi Paul,
That’s a really good point – such a structure could help to address some of the integration issues that Brian pointed out.
I was hoping to start a debate with my post – I certainly don’t claim to have all the answers. Thankyou for contributing!
Cheers,
Rick
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Hola Rick, muy interesante tu tema. Colombia es un país en vía de desarrollo, que obviamente se encuentra entre el inicio y la mitad de esa curva. Esa posición muestra que las dificultades son muy grandes y que dirigirse a la meta Smart Cities tiene un costo muy alto. Sin embargo, considero que en la medida en que las ciudades son de tamaño mediano, la solución de sus problemas no será tan costosa. Pero el inconveniente grande radica en encontrar recursos para mejora de Infraestructura TIC, que considero fundamento indispensable. Cómo encontrar soluciones que faciliten la superación de estas barreras? Muchas gracias.
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Hi Rafael,
I have used Google to translate your comment to English and will answer it below:
“Hi Rick, very interesting your subject. Colombia is a developing country, which obviously is between the beginning and the middle of that curve. That position shows that the difficulties are great and go to the goal Smart Cities has a very high cost. However, I believe that to the extent that cities are medium, the solution of their problems will not be as expensive. But the biggest drawback is finding resources to improve ICT infrastructure, which I consider indispensable foundation. Finding solutions that facilitate overcoming these barriers? Thank you very much.”
I agree that the challenge of finding funding for these technology infrastructures can be a challenge, and is clearly an important step. A challenge is often that the goals of a city in investing in this sort of infrastructure is to promote economic, social and environmental objectives, not to achieve short term financial returns – clearly, that can make the creation of a traditional business case for investment difficult.
I wrote two articles on this blog a few weeks ago that discussed some ideas for securing funding despite these challenges, perhaps they will help:
“Ten ways to pay for a Smarter City: part one”:
https://theurbantechnologist.com/2012/08/29/ten-ways-to-pay-for-a-smarter-city-part-one/
“Ten ways to pay for a Smarter City: part two”:
https://theurbantechnologist.com/2012/09/04/ten-ways-to-pay-for-a-smarter-city-part-two/
Cheers,
Rick
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Hola Rick:
Estoy incursionando en el tema de las Smart Cities con tres compañeros más de aula como tema final para la maestría en evaluación de proyectos. Escogimos el tema por considerar que en países como el nuestro (Panamá), hay una gran oportunidad de desarrollar de manera coherente, algunas áreas que encajan dentro del concepto y que pueden servir no sólo para el desarrollo de actividades económicas donde pueda incorporarse a la comunidad como beneficiarias de éstas, si no como una fuente de ingreso para los Gobiernos Locales quienes al ver reforzadas sus finanzas, podrán entonces invertir en mejoras comunitarias y mejorar su capacidad de gestión siendo así más eficaces en darle seguimiento al cumplimiento de las normas que se establezcan para que un proyecto de esta categoría pueda funcionar.
El problema de nuestros países Latinoamericanos con economías emergentes, es la sobre-valorización que tiene el componente político sobre el técnico, por lo que un proyecto con las connotaciones y perspectivas a futuro y cuyo desarrollo beneficia a todos los sectores; La Comunidad, Empresa Privada, Universidades, Urbanistas, etc. se ve empañado y hasta mermado, porque termina prevaleciendo el interés de unos pocos en perjuicio de la gran mayoría.
Siendo el componente tecnológico una de las piezas angulares en este desarrollo, parte del financiamiento del plan como tal, debe provenir de las empresas que se dedican a esta actividad, y que lógicamente van a obtener un gran beneficio por la incorporación y aplicación de los sistemas que han desarrollado.
Organismo internacionales como el BID y el Banco Mundial, deberían contemplar dentro de sus programas (si es que no lo tienen ya), algún tipo de aporte para sufragar parte del costo del establecimiento del plan maestro que debe elaborarse, ya que profesionales como nosotros sólo contamos con los conocimientos, la iniciativa y los buenos deseos de ver crecer a nuestros países de forma organizada y con un beneficio en todos los ámbitos, económico, cultural, social y sobre todo con un alto concepto ético y moral.
Gracias,
Rosemary García
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Hi Rosemary,
I’ve used Google Translate to translate your comment into English:
“Hi Rick :
I’m dabbling in the topic of Smart Cities with three companions classroom as the ending theme for masters in project evaluation . We chose the theme considering that in countries like ours ( Panama ) , there is a great opportunity to develop a coherent, some areas that fall within the concept and can be used not only for the development of economic activities where you can join the community as beneficiaries of these, if not as a source of income for local governments to see who reinforced their finances , can then invest in community improvements and improve their management capacity thus being more effective for monitoring implementation of the rules laid down for a project of this category can work.
The problem of our Latin American countries with emerging economies, is the over- valuation that has the political component of the technician , making a project with the connotations and future prospects whose development benefits all sectors, The Community, Private Enterprise , Universities , Planners , etc. . is clouded and even diminished , because it ends the predominant interest of a few to the detriment of the majority.
Being the technological component of the cornerstones in the development , financing of the plan as such , should come from companies that engage in this activity , and that logically going to get a great benefit for the implementation and application of the systems they have developed.
Agency such as the IDB and the World Bank , should provide in their programs ( if not already have it ) , some kind of contribution to cover part of the cost of developing the master plan to be developed as professional as we only we have the knowledge , initiative and good wishes to see our countries grow in an organized and with a profit in all areas , economic, cultural, social and above all with high ethical and moral concept .
Thank you,
Rosemary Garcia”
I’ve written recently on my blog about the need to concentrate not on technology but on people and communities when designing Smart City initiatives – just as when designing any urban system – see the 3rd “myth” in this article:
https://theurbantechnologist.com/2013/07/14/smarter-city-myths-and-misconceptions/
One of the challenges we still have, though, is that whilst many of us recognise the important potential for new technology to address the challenges faced by cities around the world, the financing models for applying those technologies – or for planning their use through the masterplanning process as you suggest – are not clear; my most recent thoughts on that are here:
https://theurbantechnologist.com/2013/10/10/three-mistakes-were-still-making-about-smart-cities/
and here:
https://theurbantechnologist.com/2013/08/18/gain-and-responsibility-five-business-models-for-sustainable-cities/
I’m not sure that funding bodies such as the World Bank will address this; however, I do think that policy changes – at local, national and international level – are required to steer the existing investment that takes place in cities – through property development or regeneration programmes, for example – to take account of the technology agenda. Many cities that I know are working on procurement policies to accomplish that for example; and I’m working with the British Standards Institution to do the same thing through planning policy – see https://theurbantechnologist.com/smarter-city-design-principles/ .
I think we’ll need a variety of such approaches to address the challenge; and possibly the role for organisations such as the World Bank is to encourage and promote their adoption by local and national governments across the world,
Cheers,
Rick
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