Explosive growth in the smart cities market will reach over $2 trillion by 2025, according to a recent analysis. Globally, rising rates of urban populations will test the limits of aging city infrastructure. Studies predict that by 2030, over 60% of the global population will live in cities.
However, the greatest lever in determining the pace of smart city adoption is and will continue to be funding.
Part of the challenge lies in effectively communicating the benefits of becoming “smart.” Smart cities integrate intelligent and connected solutions, typically emphasizing digital technology, into the everyday fabric of city life. Common goals have been to improve quality of life for citizens by increasing government transparency, reducing traffic congestion and pollution, creating secure energy systems, and ensuring reliable and convenient access to city services and healthcare. There is also the less immediately tangible benefit of encouraging a city’s economic sustainability.
Key monetization strategies
In all, the smart city solutions that have found the greatest funding success are those with proven monetization strategies or avenues to profitability. With a ready source of revenue from user fees, these projects are able to attract investors, making it easier for cities to tap into public-private partnerships.
Although there may be clear public value for smart city projects, no direct links to revenue generation or cost reimbursement mean that cities themselves must source funding, typically through existing city budget allocations, grant programs, tax hikes, or the bond market. Diverting funds away from other pressing needs and toward smart city projects may be politically challenging.
The good news is that cities are beginning to look more towards bonds and taxes to secure financing earmarked for smart city initiatives.
In 2015, the citizens of Atlanta passed the Renew Atlanta Bond, a $250 million infrastructure investment which has been used to help fund smart city projects such as the North Avenue Smart Corridor — a living lab for smart city transportation solutions. Renew Atlanta is also slated to fund support infrastructure, ranging from electricity networks to cellular and fiber-optic connectivity, for over 90 smart city projects.
In India, the Smart Cities Mission, launched in 2015 under Prime Minister Modi’s government, has seen a number of Indian cities enter the municipal bond market to raise the requisite funds needed to match the over $7 billion dollars pledged from the central government.
As cities recognize that smart is the next evolution in city planning, officials will use the full range of financing tools to expedite transformation. Expect to see more strategies aimed at proving how smart city projects can pay for themselves.