City and municipal governments are increasingly embracing the idea that smart city initiatives can be transformational and have positive long-term impacts on cities. The technological advancements that make city-wide systems more efficient, resilient and sustainable – once more ideological – are now becoming tangible as top priorities. 

However, survey responses found inside Black & Veatch’s “2017 Strategic Directions: Smart City/Smart Utility Report” indicate a consistent barrier in further deployment of smart city projects: funding. Only 16 percent of municipalities replied that they were able to self-fund a smart city initiative, signaling that a significant perspective shift may be necessary to move smart projects forward. 

Financing smart projects

Municipalities already face limited resources for the traditional services they provide to their communities. When taking other public agencies and their operations into account, it is easy to understand how funding can be a roadblock for additional infrastructure enhancements. Bankrolling city-wide investments through tax incentives, property taxes and municipal funds is also losing steam as a viable funding mechanism with a discerning public averse to rate increases. 

Instead, municipalities are looking to alternative financing options such as public-private partnerships (P3s). Three-quarters of municipalities surveyed believe that P3s are the most effective financing model for smart city initiatives, with government grants and subsidies the next most popular option. Leaning on private partners to take on project risk also seems to be an attractive prospect for smart service providers, with 84 percent agreeing that P3s are most effective.

If public-private partnerships appear to be the most viable funding option, planning initiatives should include communicating the value proposition to all stakeholders. Private partners should collaborate with municipalities to educate taxpayers on the concrete benefits of smart city projects. Energy efficiency, better delivery of public services and economic development are easy enough to describe as concepts, but should be driven home by data and immediate impacts to day-to-day life. 

Balancing Project Costs with Revenue Generation 

Survey respondents, including municipalities and smart service providers, agreed that additional tax revenue from increased economic development may be the best way to directly generate revenue from smart city initiatives. This certainly reflects many current P3 models where cities are collaborating with technology vendors on infrastructure projects, such as installing fiber-optic cable, as a means to attract businesses with increased connectivity. 

However, municipalities often overlook the more immediate prospect of yielding revenue through smart assets such as Wi-Fi kiosks. Only 18 percent of respondents believe that advertising revenue could provide a realistic opportunity to generate municipal revenue. There are success stories, however. For instance, in Kansas City, Mo., interactive kiosks featuring advertising from local sponsors have provided enough capital to help fund a city-wide project. 

As part of the Visit KC economic development initiative, the city installed 25 interactive kiosks at downtown streetcar stations that provide access to free Wi-Fi and pertinent community information. Part of a larger public-private partnership, the project will also enable smart street lighting and other sensor-based street assets for the downtown Kansas City area. 

Evolution of the Public-Private Partnership

The popularity of the P3 model is not expected to diminish any time soon, especially with nearly 80 percent of municipalities naming budget constraints as a top hurdle to overcome to enable smart system integration. As these partnerships evolve, local governments should team up with smart technology providers to develop comprehensive master plans that will satisfy all stakeholder goals. 

The disparity in perspectives on opportunities such as data monetization indicates that increased engagement is required and that vendors should better present the solutions they provide and how they will tangibly improve the lives of community citizens. This way, cities can also better educate taxpayers to gain buy-in on upcoming projects.

In turn, municipalities could benefit from exploring innovative ways to generate revenue from smart city projects through advertising revenue along with more conventional routes such as tax revenue from economic development. A closer examination of how existing infrastructure can be made smarter should be driven by data and coinciding cost-savings. Smart advancements should not be seen as top-line expense items –  rather as amendments to a city’s bottom line. From small increments to modifications to existing projects they can yield benefits that outweigh their costs.

The better cities understand the true value proposition in smart city projects, such as ultimate reductions in overall operating costs, the better they can develop comprehensive master plans that meet a community’s specific needs. Collaborating on smart city efforts with all stakeholders allows systems to be built to scale, taking advantage of the ways data can make infrastructure more efficient and resilient.

Clint Robinson is associate vice president of Black & Veatch’s Government Affairs team, and has more than 32 years of experience as a registered professional engineer. 

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