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Who will pay for smart cities?

AUSTIN, Texas – We all want to live in smart cities, but are we willing to pay higher taxes to build them? City planners charged with moving municipalities into the digital age say there are several sources of funding available, but without some kind of “smart city tax” the projects that do get financed may not be sustainable.

Grants, venture capital investments and municipal bonds are all possible funding sources, but of these only grants are likely to materialize without a projected return on investment. Grants may not be a good solution for projects that won’t generate a positive cash flow in the early years as those projects will not be sustainable once the grant money is gone.

A smart city enterprise fund was one of the ideas put forth in the Smart Cities Council’s first smart city readiness workshop, held in Austin, Texas. One of the main advantages of creating a separate fund might be a legal separation from the other entities that are deploying technology. For example, it might be politically and financially difficult for Austin’s water authority to buy smart meters, but a separate fund might be able to raise funds to do this and even add a fee to residents’ water bills to help pay for it in the early years.

Of course smart meters and sensors are expected to save money, not cost money, over the long term. But until these solutions are in place and start collecting data, it will be hard to quantify the savings.

Another reason cities may want to consider a separate entity to fund smart city investments is the potential ability of a new agency to command the attention of existing city departments. Participants in the workshop said that in Austin it has been very difficult to get different city departments to collaborate. But the primary reason cited for this difficulty was that city employees are too busy and it is not clear how creating a new city agency would change that.

One clear theme in the workshop was the willingness of corporations and small businesses to invest in smart city solutions if municipalities can just meet them halfway. Ron Baker, distinguished engineer and smarter cities strategist at IBM, said his company has made numerous offers to finance smart city technology for municipalities, but many of these deals have fallen through because the cities could not commit to paying monthly fees for the technology.

Baker also said it has been easier to sell electric meters than water meters as electric utilities have greater incentives to conserve their resources. Unfortunately, the experiences of electric utilities in many cities may not have been fully shared with municipal water authorities.

“You can’t even get a meeting of those two departments in the same room unless it’s a Christmas party,” said Charlie Nobles, marketing director at Sensus.

Kerry O’Connor, Austin’s chief innovation officer, said the busy schedules of city employees and the lack of communication between departments is making her job an uphill climb.

“My realm of possibility is closing every day,” O’Connor said. “These things seem like no-brainers, but you can’t get the people in the room. … Everybody is over-tapped.”

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