Financing can be a big issue for cities.
George Atalla, global sector leader at EY, explained how cities can use nontraditional methods to finance smart city projects.
There are two types of financing, he said. There is the financing of traditional types of infrastructure, and there is the financing of smart city projects. These traditional types can be financed through the city’s funds or through their budget. However, smart cities initiatives become challenging to finance because there isn’t a “physical, tangible asset to secure the loan,” so cities must come up with alternative solutions, Atalla said.
He suggested three creative ways cities can fund their smart city projects:
1. Find ways to share in the savings
These types of alternative methods have to be built on some sort of sharing in the revenue or in the savings, that comes from implementing smart city initiatives.
2. Use tax incremental funding
The smart city project will increase the value of the properties where the project is being held, he said, which will increase the property value. And lead to a higher tax collection that can be shared, and used as a way to finance the project.
3. Social impact bonds
These type of bonds are tied to an outcome that a project will achieve. Once the outcome is achieved, there will be an additional return that goes back to the lenders. These bonds have not yet moved to smart cities, but there’s no technical reason why they couldn’t, he said.
“We’re still at the start of an exciting journey when it comes to smart cities, and I think those models will become more prevalent and more available, and investors will become more comfortable with them and cities as well over the next few years.”