With prudent financial management, long-range strategic planning, and savvy alliance-building locally and in the corridors of government, cities can better tap into public and private funds that increasingly are targeting green and sustainable outcomes. To help cities bankroll the green and just COVID-19 recovery, a new report serves as a guide to cities to set priorities and navigate the options for attracting financial resources.
This article is also posted on the C40 Knowledge Hub here.
Cities’ shopping lists for the recovery are long. Financing challenges, exacerbated by the pandemic, have compromised most cities’ ability to pay for them. While cities have evidence on their side in appealing for financing for a green and just recovery, these challenges mean that cities need to prioritise high-impact policies that align with their capacity to access funds. Climate Finance Advisors has just released a report for C40 that provides analytical and planning tools to support cities’ policy prioritisation and finance decision-making, which you can find here. These are our top tips for sifting through the policy and financing options for a green and just recovery. While some of them may be obvious to city leaders, having a checklist, to paraphrase Atul Gawande’s The Checklist Manifesto, can help even the most seasoned professionals excel in crisis situations. In the whirlwind of the pandemic response, it may be helpful for cities to keep even the intuitive actions front of mind for accessing financial resources and delivering impact.
- Advocate to change national priorities and redirect funds. Cities need to build the strongest relationship they can with provincial, national and international authorities that establish policy frameworks for enabling sustainable urban development and that hold the purse strings for funding critical to your city’s needs. By “managing upwards” proactively with policymakers and finance agencies, cities can unlock collaboration on smart urban policies and revenue coordination to open the funding spigots and ensure they are flowing to the right buckets.
- Maximize local revenue sources. Raising taxes and fees during a global pandemic and economic recession is understandably unpalatable, but the crisis may provide the impetus needed for unpopular but smart and equitable adjustments to cities’ tax and revenue policy. The pandemic is also accelerating structural changes to the economy that may permanently alter the tax and revenue base. To safeguard against depressed revenues now and in the future, cities can seek to fill holes and align revenues with policy objectives, for example with congestion pricing.
- Nimble budget reallocation may offer a means to finance your policies. In the COVID-19 context, it will likely be to necessary to reassess your city’s highest priorities and which expected revenues are actually forthcoming. Inexpensive solutions and quick wins such as bike lanes, sidewalk dining and leisure spaces, and pop-up health clinics and testing centers may take precedence over larger, more expensive capital projects. Be nimble, improvise and triage, and prepare to take action fast with the resources at hand.
- Match prospective financial flows to ‘shovel-ready’ and ‘programme-ready’ projects and initiatives that can quickly deploy resources toward green and just ends. With national governments delivering trillions in stimulus globally, cities need to be ready to catch the ball (even if, so far, not nearly enough of that stimulus is green). Be ready to explain the funds you need and demonstrate the mechanics of how you will deploy them with conviction and compelling detail.
- Equip your city to attract resources by sending the appropriate green and just policy signals. Does your city have a long-range sustainable growth plan? Has the city established quantitative and rigorous climate change and social equity targets? Having these strategic frameworks in place will help investors, national lawmakers and foundations to see what your priorities are and know that you are well-prepared.
- Assess your city’s barriers to direct finance from development finance institutions or private market actors as part of your response to the recovery. As our report examines in detail, there are advantages and disadvantages to both on-budget sources such as tax revenues and debt issuance as well as to indirect sources such as project finance. Some of these advantages and disadvantages have been magnified by the COVID-19 pandemic, such as the reliability of budgetary funds versus private capital flows; others are dependent on municipal authority for taxation and debt financing. Cities must weigh these trade-offs in developing financing strategies.
- Tap private investment. While many cities do not have the option of issuing debt, those that do are likely to find interest rates in many markets are at record lows and that labelled green, social and climate bonds are attracting new investors. Cities that do not have the fiscal space, market appeal, or authority to issue debt can turn to PPPs and concessions to attract investment from private sources without near-term public outlays. Cities should approach with caution complex transactions that outsource public services to ensure they are a good deal for cities and do not result in unintended negative consequences.
- Put in place enabling regulatory regimes. Enacting sound and smart regulations drive effective policy may sound obvious but is neither easy nor straightforward. Policies such as zoning and building codes, for example, can be critical to spur investment in building efficiency. While some regulatory domains not be solely within cities’ political remit, some policies, such as minimum wage laws to boost incomes of essential and frontline workers, may be entirely within cities’ jurisdiction and easily implemented.
- Engage stakeholders effectively. Don’t assume that because a policy is green and just that it will sell itself to a skeptical public. Most policies have winners and losers, and those on the short end may be organized enough to block a policy, handicap a mayor’s policy agenda – or strike back at the ballot box during the next election. Engagement of stakeholders to design policies that are equitable and workable, as Bogota has done in a systematic way for its cycling infrastructure buildout plan, is invaluable for success; it’s smart policy and smart politics.
- Invest in technical and administrative capacity for revenue generation and fiscal management. While not sexy, strong financial management and governance are critical to give investors and budget allocators confidence to ensure that revenue collection is assured and consistent and that private and public resources are effectively channeled and deployed.
Current trends in green and Sustainable Development Goal (SDG) finance, COVID-19 green recovery stimulus plans, and innovative financing approaches mean that financial markets are increasingly aligned with cities’ green recovery and sustainable development objectives. In pursuing financing for the green recovery from capital markets, cities, for a change, may have the wind at their backs.