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Using public-privatepartnerships to advancesmart citiesPart two: Funding andfinancing smart cities seriesDeloitte Center forGovernment Insights

Using public-private partnerships to advance smart citiesAbout the authorsTiffany Dovey FishmanTiffany is a senior manager with theDeloitte Center for GovernmentInsights. Her research and client workfocuses on how emerging issues intechnology, business, and societywill impact organizations. She haswritten extensively on a wide range ofpublic policy and management issues,including infrastructure and smartcities. She is the author of Partnering forvalue: Structuring effective public-privatepartnerships for infrastructure, The riseof mobility as a service: Reshaping howurbanites get around and Smart mobility:Reducing congestion and fostering faster,greener, and cheaper transportationoptions. Her work has appeared in anumber of publications, including PublicCIO and Governing.Michael FlynnMichael Flynn is the Global FinancialAdvisory Public Sector Leader forDeloitte. He also leads the Deloitte EMEAInfrastructure & Capital Projects practiceand focuses on advising public, privateand backing sector clients on financeraising, restructuring and refinancing ofboth project finance and corporate debttransactions including the developmentof government and infrastructure assets,real estate, energy, and renewable energyassets. This advice has included theincorporation of ‘smart’ into traditionalinfrastructure and considering valuecapture opportunities including assetrecycling for government clients.About the Deloitte Centerfor Government InsightsThe Deloitte Center for GovernmentInsights shares inspiring stories ofgovernment innovation, looking atwhat’s behind the adoption of newtechnologies and managementpractices. We produce cutting-edgeresearch that guides public officialswithout burying them in jargon andminutiae, crystalizing essential insightsin an easy-to-absorb format. Throughresearch, forums, and immersiveworkshops, our goal is to providepublic officials, policy professionals,and members of the media with freshinsights that advance an understandingof what is possible in governmenttransformation.Michael is a member of the United NationsEconomic Commission for Europe (UNECE)PPP Business Advisory Board and theInternational Project Finance AssociationCouncil in Ireland. Michael is a member ofthe Deloitte Insights board.2

Using public-private partnerships to advance smart citiesIn 2007, for the first time in human history,more people lived in urban areas thanrural ones. Fast forward to today andgrowing urbanization patterns show fewsigns of abating. An estimated 3 millionpeople move to cities every week. By 2050,city dwellers are expected to outnumbertheir rural counterparts by a ratio of 2:1.Saddled with legacy infrastructure andlimited budgets, many urban areas arestruggling to keep pace with such rapidgrowth. The result is increased congestion,reduced quality of life, lost economicpotential, and negative health outcomes.Cities around the world are increasinglylooking to implement initiatives thatrespond to these challenges. But limitedfunds constrain progress. Just 16 percentof cities are able to self-fund requiredinfrastructure projects. As a result, citiesare enlisting the support of private andnon-profit partners to advance their smartcity agendas.In this article, we examine the creativeways municipalities are using private andnon-profit sector participation to advancetheir smart city agendas and distill thelessons learned for other cash-strappedcities seeking to overcome their ownfunding and financing barriers.3

Using public-private partnerships to advance smart citiesPartneringfor smart cityinitiativesFrom initiatives aimed at improving public health and expanding Wi-Fi access topromoting affordable housing, municipalities are forging innovative partnershipsto improve the quality of life for their residents and as a means of refurbishingand modernizing aging infrastructure assets. Their experiences show how citiescan overcome traditional barriers to funding and financing smart city projectsby demonstrating new technology’s potential to reduce costs, recycling existingand legacy infrastructure assets, unlocking value, and bringing a critical mass ofplayers together to spur economic development.4

Using public-private partnerships to advance smart citiesLeveraging privatemarket value inLouisville, KYLouisville, Kentucky had gained a reputationas one of the worst cities for breathingdisorders. To attack that problem, the citydeveloped AIR Louisville, a public-privatepartnership that uses data analytics toinform the public on triggers that aggravateasthma. The initiative used private grantsin its early phases for funding. Since then,technology purchases by private companiesthat stand to benefit from the initiative haveallowed AIR Louisville to expand further.AIR Louisville initially developed from apartnership among : The City of Louisville Propeller Health The Institute for Healthy Air, Water and Soil Local employers Healthcare providers Local advocacy groupsThe technology behind the project is asensor that attaches to an asthma inhaler.Propeller Health manufactures the sensors,which collect data about the surroundingenvironment each time an individual usesthe inhaler. Consumers can view reportingdata through a smartphone app. The usercan then better identify personal respiratorytriggers—time of day, location, temperature,pollen count, and pollution. This data is alsocommunicated to healthcare providers,enabling them to tailor a personalized planfor managing participants’ asthma andchronic obstructive pulmonary disease.In its first year, AIR Louisville helpedparticipants to reduce their asthma rescueinhaler use by 82 percent, more than doubletheir number of symptom-free days, andgain increased control of their asthma forthose with uncontrolled asthma at theoutset of the pilot.Propeller Health aggregates the datagathered from all the sensors in use andprovides this to the city under an agreeddata sharing plan. The city uses this datato create a map of asthma risk for eachneighborhood in Jefferson County. This mapis used to inform various initiatives aimed atimproving air quality in the county’s asthmahotspots—everything from increasingtree coverage and identifying alternativetruck routes to reduce diesel emissions, toconsiderations of city-wide zoning changesto reduce the health impacts of highwaysand industrial emissions.Dr. Ted Smith, Chief Innovation Officerfor the city of Louisville, collaboratedwith Propeller Health to develop the datasharing plan. He arranged for private localphilanthropies to purchase 300 sensorsfrom Propeller Health for free distribution tocity residents. This proof-of-concept phaseconfirmed that the anonymous data sharedwith the city could inform the public aboutthe status of the environment using toolssuch as a heat map.In the second phase, the city approachedthe Robert Wood Johnson Foundation(RWJF) for additional funding. The usefulnessof the aggregated data correlated directlywith how many sensors operated in thecity. The RWJF supported AIR Louisville witha 750,000 grant to acquire an additional2,000 sensors. The grant stipulated that AIRLouisville would track the healthcare costsavings of individuals who used the sensors.In phase three, area companies receivedthe health cost savings research. Sincecompanies have an incentive to reducehealthcare costs, they have begun topurchase Propeller Health sensors,providing them to employees who needthem as part of their health plans. Withthe data sharing plan still in place, the citybenefits from additional deployed sensorswithout purchasing the devices directly.Giving asthma sensors to employees willhelp employers save money on healthcarecosts. Once the private grant money hasbeen depleted, it is anticipated that theprivate market will sustain the purchaseand use of the sensors technology. As thenumber of deployed sensors grows, sowill the data pool the city draws upon tosupport policy decisions, increasing thevalue of its analytics.Many other cities could benefit from aproject like AIR Louisville. Based on datafrom roughly 3,000 cities, nearly 80 percentof people living in urban areas are exposedto air pollution that exceeds World HealthOrganization recommendations. Thatexposure increases the risk of a varietyof respiratory diseases, heart disease,stroke, and lung cancer. In the OECDalone, between 2005 and 2010, ambientair pollution caused nearly a half milliondeaths. Based on Louisville, success in thiscase is built around a collaboration betweenthe public and private sectors with bothbenefiting from the data collection, social/health benefits, and cost savings.5

Using public-private partnerships to advance smart citiesAsset recyclingin New York Cityand TorontoAs the rise of smart phones started tomake payphones obsolete, New York Cityfaced a problem—an aging network of8,400 public phones that attracted fewerand fewer users. Despite the pay phoneshaving reduced usage, the phone boothsstill generated substantial revenues for thecity. By serving as billboards for advertisers,they brought in just over 17 million in 2013.However the city recognized that the annualprofits were decreasing and the boothsalso presented problems: they frustratedresidents, blocked pedestrian traffic, andappeared anachronistic in the world ofmodern communications.In 2013, the New York City Departmentof Information Technology andTelecommunications (DoITT) requestedproposals to replace its aging payphones.The city awarded the contract to theCityBridge Consortium, a partnership thatincludes Qualcomm, Titan, and ControlGroup. Control Group and Titan havesince merged to form a company calledIntersection. Thanks to this partnership, in2014 New York City started replacing theobsolete payphones with smart kiosks—called “Links”—that provide free Wi-Fi, maps,transportation updates, video calls, devicecharging, and more. CityBridge pays forand operates the entire LinkNYC system atno cost to the city and offers the servicesto users free of charge, funded with thesupport from advertising revenues.CityBridge incurred an estimated 200million to install the Links. The city receives50 percent of the gross advertisingrevenue, or 17.5 million (whichever ishigher), from the CityBridge Consortiumeach year. When complete, 7,500 Links willbe installed, making it the most expansivesystem of Wi-Fi hotspots. The city predictsthat its share of advertising revenues willcome to 500 million over the initiative’sfirst 12 years.In addition to producing substantialincome for the city, LinkNYC is alsoexpected to create 100–150 full-time jobsand 650 support jobs once CityBridgeinstalls all the Links.While not every city has thousands ofpayphones to convert, this example pointsto the idea that cities may partner withprivate companies to convert or upgradephysical public assets in ways that increasethe value those assets provide.Toronto is taking this approach in an effortto revitalize part of the city’s waterfront.In 2016, Toronto identified a portion ofcity-owned lands along the waterfront thatit considered surplus and issued a requestfor proposals to prospective developers.The city ultimately sold the land, on Queen’sQuay, to a consortium of developers for 260 million.The terms of the sale call for thedevelopers to work with the city to createaffordable housing, public spaces, heritageconservation sites, and office towers thatwill include new headquarters for theLiquor Control Board of Ontario. The citywill use the 260 million to fund transitand transportation infrastructure projects.Other variants of this model have also beenused around the world from asset disposalsuch as Toronto to joint developmentpartners in other cities. The model used willdepend on the level of risk the city wishes toretain on the ultimate value generated forthe recycled asset.6