Passing the Baton: Taking Resilience from Strategy to Construction & Operation

The City of New Orleans is moving forward to construct the first portions of a city-wide network of green infrastructure projects to address chronic and extreme flooding. Implementing these kinds of innovative, green projects is notoriously tough, though, so how did New Orleans get to where they are now?

Infrastructure project development is a team sport. Just like a relay race, there are clear legs — catalyst, predevelopment, construction, and operations & maintenance — multiple team members, and important “exchange zones” where the baton must be passed from one runner to another. When the baton is dropped, projects stall. Clear lines of sight from one development phase to the next is key to ensuring resilience projects are not just planned, but get over the finish line to deliver long-term benefits to the communities they serve.

Catalyst Leg — Kicking off on the Right Foot (6–18 months)

The catalyst stage involves identifying and conceptualizing the design of an infrastructure project that responds to community needs. Like in a relay race, a false start, or a trip coming off the block, can stop a project in its tracks. The catalyst leg is the least thought about stage of project development — by cities, investors, government funders, design and engineering firms alike — but it is vital to long-term success.

In this first stage, cities define project scope and scale, and determine what they want the project to achieve, ideally through a set of initial design specifications. For example, a city may decide that it seeks to protect a specific geographic area from a 200-year storm and to minimize disruptions to critical services and businesses in the case of an extreme event using natural infrastructure (e.g. constructed wetlands) whenever appropriate. A different city may decide during its catalyst phase that it wants to address its traffic congestion by constructing new light rail, rather than rapid bus transit. It’s important to emphasize that activities should be project-specific, not broad-based polices, strategies or plans. Specific activities that are typically completed during the catalyst phase include: designate and empower city project champion & her team; collect, review and analyze project-specific baseline data; explore different funding/financing options; and build coalition and political support.

Heading out of the catalyst leg into the first exchange zone, the city should have two things. First, it must have a conceptual design of the project. Conceptual design is roughly equivalent to “10% design” — which includes sketches or drawings (often in illustration software), along with back of envelope cost and performance estimates. Second, the city should have enough data and community enthusiasm to support applications for funding predevelopment.

Led by the champion, most of the activities completed during the catalyst phase are conducted by city staff. However, as infrastructure challenges have become more complicated and solutions more integrated, cities are leaning on non-traditional methods for support. Competitions like RE.invest and the HUD Rebuild by Design Competition have provided cities with access to a relatively small group of firms dedicated to the catalyst phase. In addition, more and more cities are publishing Requests for Ideas (RFIs) to source new ideas during the earliest stages of the catalyst phase.

The amount of funding required for the catalyst stage is modest, but funding is very limited. Some philanthropies have begun to fund the catalyst stage via competitions and technical assistance. But barring that support, cities often struggle to carve out dedicated capacity and resources to get through the first leg of infrastructure project development and set a resilience project up for success.

In 2010, New Orleans kicked off its catalyst phase to address systemic flood and subsidence concerns via the Greater New Orleans Urban Water Plan, which was funded by a federal Community Development Block Grant and informed by significant planning work completed since Hurricane Katrina in 2005.

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Innovative Financing & The Myth of the Shovel-Ready Project

Content originally written for and posted on Meeting of the Minds.

With every new Administration in Washington there are always sweeping promises about improving the nation’s infrastructure. Since the last recession, these promises have become inextricably linked with talk about mobilizing private finance.

In 2009, after the immediate impacts of the recession abated, it was clear that cities, dependent on tax income, were going to be cash strapped for years to come. Which means while our infrastructure was getting worse, the money to fix it or upgrade it was getting harder and harder to find. This jumpstarted a national conversation—led by pension funds, environmental and social responsibility divisions at big banks, and impact investors—about how private capital could fill the public financing gap through instruments like P3s, Green Bonds, Social Impact Bonds. While there have been a handful of one-off examples and exciting new models, nearly a decade of talk about financing has not translated into substantially larger or speedier private investments in infrastructure.

Why? Because the mantra “if you build it, they will come” unfortunately doesn’t translate to infrastructure. More often, if you built it right, no one will notice.

The highest value infrastructure investments for cities today are those that help clear the massive backlog of deferred maintenance projects, but the greatest value for investors are new greenfield projects that lock-in long-term revenue streams. This mismatch is most evident in the lack of a clear pipeline of financeable infrastructure projects.

Innovative financing doesn’t magically create new projects, let alone a whole pipeline of shovel-ready financeable projects. To understand why, let’s look at a few of the sexier financing tools which get a lot of air time.


Green Bonds
: Green Bonds, like other municipal debt, are tax-exempt issuances specifically earmarked for funding projects, assets, or business activities that have positive environmental and/or climate benefits. In 2016, issuances topped USD 50 billion by September (nearly 5x the 2013 issuances supporting everything from brownfield development, to transportation and energy projects). In addition, the number of corporations issuing green bonds has grown significantly in recent years, but most have been used to support corporate finance rather than project finance.

Social Impact Bonds: A Social impact bond (aka Pay for Success Financing or Social Benefit Bond), is tax-exempt municipal debt structured as a contract between private financiers, often philanthropies, and a public-sector agency. Funds are provided to pay for improved social outcomes that result in public sector savings. Investors are only repaid if and when improved social outcomes are achieved.

Payment for Ecosystem Services: PES contracts are most often structured as legal agreements whereby a user of an ecosystem service makes a payment to an individual or community whose practices, like land use or deforestation, directly affects the value of that ecosystem services.  Because payments are based on the quantity of services provided, ecosystem service programs must concretely measure the ecosystem benefits generated, which can be a difficult task. These schemes work best when private companies, public-sector agencies, and non-profit organizations collaborate, and have most often been used internationally to support corporate social responsibility agendas.

All three of these innovative finance tools have one thing in common: each one requires projects that are already designed, quantified, and valued. This means that public entities have had to invest up-front in designing a project to generate savings that can be attributed to a specific entity. Therefore, a city must have collected significant baseline data upfront, made sure that they can measure changes in that data across the lifetime of the investment, and committed that they have the capacity to capture those savings as payment commitments under contractual agreements. All of which can be a burden for big cities, let alone many of the small and midsize or rural communities across the country that are often both cash- and data-poor.

In all of these cases the biggest barrier to expanding innovative finance for infrastructure is the lack of funding available to design and develop strong infrastructure project proposals, not to build them. So, what can we, do to hasten the development of the project pipeline?  The first step is making it easier for cities to design new and innovative projects that tackle real problems, like upgrading aging and failing combined sewer systems, not just creating ribbon cutting opportunities.

Often being innovative for a city means being the second or third to do something. So, making sure successful projects are searchable and replicable is key.  The Atlas Marketplace has started to do that by capturing information about the people, policies, financing schemes, and procurement documents that got projects built.

The second step is improving project predevelopment starting at the ideation and design phase. Instead of relying solely on long-term capital improvement plans that respond to historic needs, cities should work to identify cross-sector opportunities that can create savings that up new opportunities. Like laying rentable dark fiber every time a road is repaved, or upgrading water infrastructure to reduce the costs of mudslides. This works best when cities engage early with financiers and engineers to unearth opportunities by issuing challenges or broad requests for ideas.

Finally, building local capacity is essential. There is a big difference between the type of data that governments need to support investment and the type of data private financiers need to support investment. Being clear about that and not conflating the two will go a long way in closing the gap between projects and money.

While it’s fun to talk about innovative financing, it’s time we change the conversation. Moving forward let’s focus on building a pipeline of innovative projects that opens the door for private financing. Because if we build it to make money, the private investors will most definitely come.