As momentum around smart city applications grows, city planners are both intrigued by the benefits connecting city assets can provide and unsure of how to pay for the upfront costs as well as ongoing maintenance of networks and equipment.
In Boulder, Colorado, the city council is looking at ways to build a citywide broadband network, including the construction of a fiber backbone to connect homes and businesses to a municipal broadband network. The city is considering funding the buildout through the city’s general fund, certificates of participation, bonds or a short-term sales tax. The issue may be put before voters this fall.
Meanwhile, city commissioners in Grand Rapids, Michigan, are considering a proposal to replace all of the city’s 17,800 streetlights with LED fixtures that can be remotely controlled through wireless connections. The lights would be capable of hosting additional sensors, including those that can read water meters. The project is expected to cost about $20 million to replace the streetlights and update conduits, wires and duct work.
To pay for the project, the city’s commissioners are considering whether to issue bonds. But as is the case in cities and communities across the country, many worthwhile projects are competing for a limited number of dollars, and city leaders are faced with difficult decisions about how to allocate those funds.
Elsewhere, cities have employed public-private partnerships to fund their smart city deployment plans.
Financing smart-community initiatives is complex and there is no one-size-fits-all solution, according to a new white paper released by the Wireless Infrastructure Association’s Innovation & Technology Council. Each municipality, government and/or entity must understand its own financing structures, limits and opportunities as a starting point.
A strategic plan around the objective(s) is vital, particularly when funding is limited. Phasing in projects should be viewed as a viable alternative in achieving the long-term vision when funding is not available to cover everything at once, according to the white paper. In addition, city leaders should consider how a system or a solution can be most effectively and efficiently utilized across departments and agencies.
The white paper outlines several potential funding options, including using public-private partnerships (PPP) or leveraging government programs and/or funds already received for infrastructure. Three types of PPPs include:
1. Design, Build, Operate, Maintain (DBOM). This form of project has a private partner take complete responsibility for a project in exchange for fees from the government. The government finances and owns the project in most scenarios. Fees are generated either via fixed method or a percentage of revenues from end user fees.
2. Joint Venture-DBOM plus private financing and ownership stake. In this scenario, the government and the private investors form a new corporation called a Special Purpose Vehicle (SPV). Private equity is the first at-risk capital, but in exchange, the upside is often greater than the return they would get on other forms of investment.
3. Privatization. In this scenario, the private sector takes over existing assets and operates, maintains, finances and owns the infrastructure with the promise of improvements and performance guarantees. The government grants a private entity, a concessionaire, the exclusive right to operate a network or data center for a set period. In effect, the private entity owns the facility for the life of the concession contract, which often spans 20 to 50 years.
PPPs are gaining traction due to a variety of factors, including:
• Cities and municipalities have exhausted their borrowing capacity.
• Private investors are eager to invest in public infrastructure that has a dependable rate of return with anticipated escalations.
• Lack of expertise within the government compared to specialized providers with scale and a track record of innovation.
• Cities and municipalities have a low risk tolerance and thus like to share responsibility for complex capital projects.
The trend is to look to PPPs to finance and operate fiber optics, wireless infrastructure, transportation signals and sensors, street furniture and data centers. The increased demand for this necessary infrastructure is at the core of the smart city and will be vital to building out the promise of 5G and advanced connectivity.