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Handbook on Urban Infrastructure Finance Dr Handbook on Urban Infrastructure Finance Dr. Julie Kim, Senior Fellow, New Cities Foundation WITH SUPPORT FROM: Handbook on Urban Infrastructure Finance Dr. Julie Kim, Senior Fellow, New Cities Foundation This report was written as part of the Financing Urban Infrastructure Initiative and published in April 2016. The opinions expressed and arguments employed herein are the Foundation’s. Please cite this publication as: Kim, Julie, New Cities Foundation (2016), Handbook on Urban Infrastructure Finance [online: http://bit.ly/NCFUrbanFinance] You can copy, download, or print this report for your own use, and you can include excerpts from New Cities Foundation publications, databases, and multimedia products in your own documents, presentations blogs, websites, and teaching materials, provided that suitable acknowledgment of the New Cities Foundation as source and copyright owner is given. All requests for public or commercial use and translation rights should be submitted to [email protected]. Request for permission to photocopy portions of this material for public or commercial use shall be addressed directly to the New Cities Foundation. Photo credits for cover page: Denver Bike Lanes - Flickr © Mark Danielson | South Lake Union Streetcar, Seattle - Flickr © Curtis Cronn | Goethals Bridge Reconstruction project, New York/New Jersey - Wikipedia © US Cost Guards | Agua Espraiada - Flickr © Jornal SP Zona Sul | Plenary Properties Long Beach LLC (Developer), Edgemoor Infrastructure and Real Estate and Clark Construction (Contractor), Skidmore Owings & Merrill (Architect) | N-33 Road Project, Netherlands - Royal BAM Group © Aerophoto EELDE | London CrossRail project - Flickr © Department for Transport | Carlsbad desalination plant © Kleinfelder | FasTracks Commuter and Light Rail Project, Denver - Wikipedia © vxla | Rio Operations Center, Rio de Janeiro - Flickr © World Resources Institute | Hobart Airport, Tasmania - Wikipedia © R773 | Atlanta Beltline, Atlanta - Rails-to-Trails Conservancy © Ryan Gravel courtesy of Atlanta Beltline Inc. Contents Preamble.......................................................................................................................................................................................... 1 EXECUTIVE SUMMARY.......................................................................................................................................................T3 1. Introduction............................................................................................................................................................................... 18 1.1 Global Urbanization Context........................................................................................................................................... 18 1.2 Key Urban Infrastructure Challenges....................................................................................................................... 18 1.3 Handbook Objective and Organization..................................................................................................................... 22 2. Urban Infrastructure Financing Instruments............................................................................................ 23 2.1 Basic Concepts and Underlying Issues.................................................................................................................... 23 2.2 Public Sector Financing ................................................................................................................................................... 25 2.2.1 Intergovernmental Transfers from National and State/Provincial Governments..................................................................................................................................................... 26 2.2.2 Municipal Financing Instruments........................................................................................................ 28 2.2.3 Other Public Sector Financing Considerations......................................................................... 33 2.3 Private Sector Financing................................................................................................................................................... 33 2.3.1 Private Sector Financing vs. Private Capital................................................................................. 36w 2.3.2 Equity Capital Sources................................................................................................................................ 37 2.3.3 Debt Capital Sources................................................................................................................................... 42 2.3.4 Public Private Partnership Models..................................................................................................... 43 2.3.5 Privatization through Divestments..................................................................................................... 48 2.3.6 Other Private Sector Financing Considerations........................................................................ 51 2.4 Financing Support from International Financial Institutions..................................................................... 53 2.5 Credit Enhancements and Other Financial Leveraging Tools................................................................... 58 3. Funding Considerations and Sustainable Revenue Sources..................................................... 61 3.1 Taxes and Other Related Revenue Sources.......................................................................................................... 62 3.2 User Charges............................................................................................................................................................................. 69 3.3 Revenues from Brownfield Recycling........................................................................................................................ 72 Contents 4. Innovations in Urban Infrastructure Funding and Financing..................................................... 77 4.1 CEPAC Bonds: Additional Revenue Source.......................................................................................................... 78 4.2 Crowdfunding: Small Projects and P3 Equity Capital................................................................................... 81 4.3 Pension Funds in the Greenfield Space: N-33 Project in the Netherlands...................................... 86 4.4 Local Government Funding Agencies: Multi-City Pooled Approach................................................... 89 4.5 Socially Responsible Financing..................................................................................................................................... 93 4.5.1 Green Bonds........................................................................................................................................................ 93 4.5.2 Social Impact Bonds..................................................................................................................................... 94 4.5.3 Carbon Tax/Cap-and Trade.................................................................................................................... 97 5. Summary, Conclusions, and Afterthoughts............................................................................................... 100 Appendix A: Institutional and Governance Dimensions to Urban Financing.................... 106 A.1 Institutional Capacity Building: IFI and NGO Support.................................................................................... 107 A.2 Institutional Requisite in P3 Implementation...................................................................................................... 109 Appendix B: Financing Smart City Concepts.................................................................................................. 115 References....................................................................................................................................................................................... 127 Handbook on Urban Infrastructure Finance Preamble In early 2015, New Cities Foundation who have devoted most of our lives on launched the Financing Urban the subject are often at a loss in the maze Infrastructure Initiative to address critical of an ever-changing financial landscape. infrastructure financing issues and challenges facing cities today. This This handbook focuses on financing handbook is the culmination of that challenges at the local, sub-sovereign initiative. level rather than at the national, sovereign level where many larger and critical Infrastructure financing is a complex macroeconomic issues are at stake—e.g., subject that requires a great deal of development of capital markets, currency knowledge and experience. At the same, limitations—that are beyond the control infrastructure and its financing needs affect of local governments and addressed everyone. And their effect is not a frivolous amply elsewhere. This handbook does one—our basic livelihood often depends on not provide a laundry list of the state- them. There have been other guidebooks of-the-art infrastructure financing tools and reports on the topic, some a helpful list and instruments (although we do provide of various financing instruments available, these as necessary) or detailed case others more geared to investors and studies
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