Because many cities have difficulties paying for smart technology projects and implementing them on a wide-scale basis, Deloitte Global today released a report, “The Challenge of Paying for Smart City Projects,” identifying new business models that can make smart city projects viable and financeable.
“It’s no secret that funding something as innovative or unique as a smart city project can be complex and complicated,” said John Skowron, Deloitte Global Consulting Public Sector leader. “By breaking down the process into three digestible steps, government officials can analyze their proposed projects and technologies to understand their full range of options.”
As part of this report, Deloitte suggests a model that focuses on three steps for the delivery of a successful project:
- Understanding the project and its value
- Considering funding and finance options
- Determining relevant procurement and delivery methods
“Financing doesn’t have to be a major hurdle to becoming a smart city,” said Michael Flynn, Deloitte Global Financial Advisory Public Sector leader. “There are numerous financing options available, however, the trick is matching the project to the most appropriate financing tool. To do that, the project team should fully understand a number of key factors such as the project’s potential cash flows, the level of overall value generated and how a fair share can be captured, the range of financing options available and the technology risk of the project. Only then can the appropriate delivery mechanism be determined.”
The report also outlines what government leaders should consider when reviewing the different options, with the following questions:
- Revenue model—What revenue model will set your project up for success?
- Value capture and asset recycling—What additional value does your asset generate and can some of that be captured by the public sector?
- Financing and funding options—What funding/financing model makes the most sense for your smart city project?
- Procurement structures—What is the optimum level of private sector participation?
One of the key challenges, as outlined in the report, is the tendency to determine the financing and procurement structures in advance of identifying the business case and additional value available. Typically, private sector participation can reach 50 percent of total expenditure in infrastructure programs. With continual budget constraints, public sector should ensure it is maximizing the opportunity in the most appropriate way and this report provides helpful steps to consider.
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