How U.S. cities can finance resilient and equitable infrastructure

By Jen Mayer
 

In a time with little bipartisan agreement, there’s one common consensus in Washington: America’s infrastructure desperately needs renewal. While details are scarce about the Trump administration’s infrastructure plan, no one expects a significant increase in Federal funding for infrastructure. Instead, the administration may incentivize local funding, awarding Federal funds on a competitive basis to communities that raise new revenue for infrastructure. 

Not that there’s anything new about locals coming up with infrastructure funding. State and local governments have upped their contributions as Federal dollars have diminished. But with the new State and Local Tax (SALT) deduction limits making it even harder to raise local revenues, how will local governments step up even more? 

A new guide for financing resilient and equitable infrastructure projects has some answers. As part of City Accelerator, an initiative led by Living Cities and supported by the Citi Foundation, four cities (Washington, Pittsburgh, San Francisco and St. Paul, Minn.) recently explored innovative revenue sources and creative financing tools, while examining their project development processes and advancing a diverse range of infrastructure projects.

Key takeaways include:

Diversify revenue sources. Cities and counties may feel tapped out, but projects may have revenue potential that can be unlocked with the right financing tools. Traditionally, capital projects have been funded with general taxes or user fees. Local governments have been slower to tap into revenues based on beneficiaries, like landowners benefiting from infrastructure projects, or ancillary and enterprise revenue opportunities, such as retail leasing, concessions, and advertising. Cities can also monetize existing assets and real estate. San Francisco was able to leverage construction of housing and street improvements from sale of vacant state land after removal of a highway interchange.  

Explore flexible/innovative financing models. To make new revenue approaches work, local governments need access to patient, flexible capital. The United States Department of Transportation’s Transportation Infrastructure Finance and Innovation Act (TIFIA) credit program and the EPA’s Water Infrastructure Finance and Innovation (WIFIA) program are both designed with flexible repayment features like income-contingent repayments and up to a five-year delay on repayments after construction. That allows time for project-related revenue sources like fares and tolls to ramp up, and for more speculative revenue sources like property tax increments to weather upturns and downturns. 

Use future cost savings to pay for today’s projects. Communities are already using strategies like Energy Savings Agreements (ESA) to monetize future cost savings. Capital and operating budgets are separated (for good reasons) but future operational savings may help fund for capital infrastructure improvements. For example, avoided costs of flooding (monetized through premium rebates) may help pay for the flood control and resiliency projects needed to address future sea level rise. 

Transfer key risks to the private sector. Using pay-for-success bonding and public private partnerships (P3s), cities are able to try new techniques without taking on the risk alone. The District of Columbia is piloting new green stormwater infrastructure in a pay-for-success structure where the private sector undertakes the risk that the new technology won’t perform. 

Embed equity into infrastructure. An infrastructure project in an economically distressed area can’t be considered successful if it doesn’t benefit the individuals living there. Seeking equity, local governments are expanding workforce programs, linking infrastructure to affordable housing, and identifying other ways to bring benefits back to the community. 

Even if new federal infrastructure funding remains unlikely, communities can still pursue equitable development policies – and many other innovations in the guide. In particular, communities exploring new revenue options may benefit from Federal incentive funding, if adopted, as well as any expansion of Federal credit that would facilitate borrowing in conjunction with these new revenue streams. 
 

Jen Mayer leads the third cohort of City Accelerator, which focuses on infrastructure finance. City Accelerator is an initiative of Living Cities, a collaborative of 18 foundations & financial institutions that aims to improve the lives of low-income people and the quality of their cities. She is also the author of the “Resilience, Equity and Innovation” report.

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