Cityleaders

GREG CLARK, SENIOR FELLOW ULI EUROPE

Cities are supposed to be getting smarter - but unless city leaders have greater influence over infrastructure, they can’t create the path to smart cities.

Leading the link: Cities and infrastructure
The theme of the 2012 MIPIM Mayors’ Think Tank was Infrastructure. Six tables debated the different dimensions of the issue including: utilities; transport projects; transport choices and options; aging infrastructure; ‘Mega Projects’; and infrastructure finance. Important questions were raised - who pays? And who benefits? Is there a social return?

The first observation is that city leaders regard infrastructure as a special dimension of city success. Infrastructure is the key common ingredient between quality of life, sustainability and competitiveness. It underpins all three of these goals.

Infrastructure plays a unique role in how cities function. It integrates land use and property with public services, commercial professional activities, and leisure and lifestyle activities.  Infrastructure is a spatial asset, but it supports many different kinds of services, utilities, and logistics. For these reasons, the cities take a special interest in infrastructure, even if very few cities have control of all of the infrastructure systems directly.

City futures are about infrastructure systems
For cities in Europe and North America that are competing with faster-growing economies, infrastructure deficits are the major drag on exploiting their inherent advantages of quality of life, advanced entrepreneurship, the knowledge economy and sustainability. Without infrastructure growth and renewal, Europe and North America cannot play their new niche roles in a global economy in which they are becoming less dominant and must adjust to providing high-value niches. Infrastructure deficits in Europe and North America are preventing the full and effective adjustment to new economic, environmental, and social imperatives.

Cities must lead infrastructure systems integration
Infrastructure is also a special ingredient because it requires something different from the usual city management procedures to make it work. Much infrastructure is locally based but is regulated or overseen by national rules, laws, and systems, or by states, provinces and regional governments. Despite the fact that cities and metropolitan areas are increasingly the units of competition and the hubs of employment and social relations, as well as the core of eco-systems, there have not been systematic reforms that give city governments more authority on infrastructure issues.

There are essential local imperatives but they are addressed within national frameworks, and often the national frameworks are ineffective or backward-looking. This means that infrastructure is an issue on which mayors have lots of interest but also limited power. They have to make the case for what their cities need and find ways to be become influential and play co-ordinating roles.

At the same time as being both local and national, infrastructure often straddles the public and private sectors, where different countries have adopted distinctive patterns of privatisation and contracting out. This further reduces the authority of city leaders and often leads to a co-ordination failure between different infrastructure providers. These co-ordination failures involve big issues such the failure to integrate transports systems with ‘one ticket’ approaches and they also include nuisances like different utilities digging up the same roads at different times.

These systemic co-ordination failures concerning infrastructure run directly against the need to foster smart cities, which are based on the idea of intelligent management of a network of systems using a single set of guiding principles and intelligent networks to achieve optimum integration. Fragmented infrastructure leadership across public and private sectors is the enemy of progress and must be tackled. System integration around cities and metropolitan areas is central to the task of combating climate change, achieving greater investment and also organising around the needs of the mobile citizen.

Leading the infrastructure investment agenda
The mayors also discussed the need to increase the rate of investment as well as the co-ordination of infrastructure within cities. There are many different means now available to finance infrastructure and to re-finance existing infrastructure projects. The current challenges in public finance require that more financial innovation is embraced but the national finance ministries and treasuries are slow to recognise the infrastructure investment requirements.

The financing suite for infrastructure includes many different tools:
• Transfer payments from higher tiers of government, which is hard to secure.
• Local taxation, which is constrained in many countries, and is also now limited by weaker local economies in many places.
• Debt financing for local government and infrastructure companies.
• Institutional and sovereign investment in infrastructure, which is growing.
• PPPs with tolls, user charges, taxes/levies.
• ‘Value capture’ tools such as tax increment financing, betterment levies, and land value shares.
• Joint ventures including property/ capital partnerships between public and private sectors.
• Project bonds, which can raise both equity investments and structure debt finance outside of public debt, and are now on the increase in Europe.

The mayors commented that whilst there is some successful experience amongst their cities of using each of these tools, cities vary enormously on what is allowed or permitted within their own constitutions. Very few cities are empowered to use many of these tools. National governments regulate their financial activities very closely in many countries.

The age of cities needs new financial empowerment
These differences produce competitive advantages for some and disadvantages for others. On the whole, cities in Asia and North America have more self-financing powers than those in Europe and Latin America. Within Europe, cities in Germany, Switzerland, Austria, and Scandinavia have more self-financing powers than cities in the UK, Ireland, Spain, France, and Italy. This latter group are more dependent on their national and regional governments. Cities that have more self-financing powers tend to have larger roles in infrastructure provision, and are thus better equipped to lead the systems integration required to progress towards becoming smarter cities.

Cities that are growing or adapting their activities towards a new future want to use value-capture techniques more often because they need to meet demand with up-front investment, and pay for it with the value created later. City leaders see each of these models as having some merits but the mayors stressed the need for more cities to have more choices about how they finance infrastructure. Each approach will work well for some investments rather than others, so a range of tools is needed.

Cities will lead innovation in infrastructure management and integration
Cities and business partners are leading many of the innovation processes of infrastructure. Continued local innovations by cities in all aspects of local infrastructure are essential to drive reforms in markets, and to win greater freedom for manoeuvre.

Active city leadership is required to demonstrate the ambition to use infrastructure to manage and shape future growth in cities, to integrate systems of infrastructure at the  local level, to achieve inter-operability and to secure good public outcomes for citizens and environment. City leaders have to co-ordinate and integrate different systems if citizens and the environment are to benefit.

Flexibility in financing tools, regulatory frameworks, and land uses will be essential if infrastructure is going to move from being a dormant to an active asset in many cities. The biggest barrier is the lack of a ‘guiding mind’ that oversees infrastructure integration - cities want to take this role, but are frequently hindered from doing so.

As well as expanding the range of financial tools used by cities, a long-term ‘whole of cycle’ approach is needed if the right financial tools are to be adopted, and if ambition is going to meet with resources and implementation capability. Infrastructure funding cycles need to be 50-years plus and the financial system and tools need to recognise that.

More than ever, infrastructure systems must be seen as a ‘joint venture’ between city and metropolitan authorities and those who provide and finance infrastructure projects. Whilst individual providers may remain responsible for their section of the infrastructure platform, it is increasingly cities and metropolitan authorities who must provide the integration and co-ordination required to foster innovation and to build smarter, more efficient and resilient cities.

The ultimate goal is not about building smart cities, but about cities having smart infrastructure that enables them to be flexible, productive, and liveable.

To find out more about Greg’s work as an event leader/moderator click here: www.conferencemoderator.com

To find out more about Greg’s work as a speaker and advisor click here: www.gregclarkspeaker.com

For Greg’s work on investment and development please click here: www.thebusinessofcities.com

To contact Greg Clark please contact:

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