Infrastructure Financing & Urban Rejuvenation

1. Infrastructure Financing&Urban Rejuvenation Ahmed Eiweida Lead Urban Specialist ILUGP, June 7, 2017

2. Content • Financing Infrastructure • Urban Regeneration: Problem definition, case studies and project structure • Phases of UR: from scoping to implementation • Financing UR

3. Financing Infrastructure MEXICO CITY DECLARATION FOR HABITAT IIIFINANCING URBAN DEVELOPMENT: THE MILLENNIUM CHALLENGE • Financing urban development: Is not only about urban services; the challenge aims to contribute substantially to the eradication of poverty and the reduction of the dramatic inequalities and gaps. • Cities, small or big, are reliable partners: Vulnerable or impoverished cities are defined as such, not because they have no wealth to build on, but because local savings are not invested locally, or no credit is provided due to lack of confidence and track record of successful transactions as well as lack of adequate financial mechanisms.

4. General Overview of Municipal Infrastructure Finance Vehicles

5. 1. Municipal Development Funds (MDFs) Growing decentralization and urbanization / Underdeveloped credit market Intermediation of funding to local governments Can have public, private or mixed ownership Transitional instruments to pave the way for self-sustaining municipal finance systems that allow tapping capital markets

6. 1. Municipal Development Funds (MDFs) 1st and 2nd Generations of MDF: Government Financial Intermediaries to channel state budgets or IFI loans (e.g., Tunisia, Georgia and Macedonia) : Supply funds at below-market rates, often combining loans (ideally at market terms) with grants. Introduced in environments where there is no private lending to local governments and where private markets cannot be developed in the short-term. Can evolve into institutions that compete freely with private-sector lenders Performance grants tie municipal reforms to capital grants or free transfers.

7. 1. Municipal Development Funds (MDFs) 3rd Generation of MDF: Bridge to the private credit market (e.g., India TN, Colombia, Czech Republic, South Africa) : Prepare municipal and financial sectors for private lending to municipalities. Lend at market rates, allocate capital through arm's-length decisions of commercial banks or other private lenders. Require that private lenders assume credit risk and seek to establish a track record of municipal creditworthiness

8. Advanced Fiscal Decentralization • Conducive Legal Framework • Willing Commercial Banks to Work With LGs • Municipal Market MDF • Commercial lending to LGs • TA to banks if needed • FI Type of MDF • Credit & Grants • TA • Loan Portfolio Mgt • Simple MDF • Performance Grants to LGs • TA Improved Local Revenues & Accountability 3rd Generation MDF 2nd Generation MDF 1st Generation MDF Limited Fiscal Decentralization

9. 2. Pooled Financing for Small Projects and LGs Several projects /municipalities are pooled together in a single debt issuance, thereby reducing transaction and borrowing costs. Pooled financing is suitable for smaller municipalities, with lower debt requirements and lower creditworthiness. Credit enhancements (Debt Service Reserve Funds / guarantees) are used to facilitate market access. Examples: Tamil Nadu Urban Development and Water and Sanitation Pooled Fund (WSPF) Bangalore Water Supply and Sewerage Used in the United States for the funding of small infrastructure projects in the water and sanitation sector: State Revolving Funds (SRFs) for Water and Sanitation

10. 3. Credit Enhancement Entities Innovative local credit enhancement entities and techniques (Guarantee Agencies / Funds) to mobilize domestic commercial debt for sub-national infrastructure finance: Philippines’ Local Government Unit Guarantee Corporation (LGUGC) Indonesia’s Infrastructure Guarantee Fund (IIGF) Republic of Korea’s Infrastructure Credit Guarantee Fund (KICGF) Mitigate borrower’s credit risk and liquidity risk, commonly seen in sub-national lending. Can be of public or mixed nature. Widely used in the United States pre-financial crisis (Monoline Insurance Companies). Do not have to be seen as a transitional mechanism, but rather as a permanent fixture in a robust capital market.

11. 4. Land-based Financing Techniques include: Long-term lease of land in exchange for an up-front payment (China) Land sales (Vietnam) Sale of land development rights (Brazil) Bank borrowing collateralized by the land that will benefit from the infrastructure Expedited urban sprawling and lack of competition among private land developers are often associated issues. Alternative Mechanisms for Land Value capture: Some other countries capture revenue from increased land values arising from government actions that change land uses.

13. Or here? Washington DC. Anacostia

14. Or here? Here?

15. Here ? Or here?

16. Or here? Here? Puerto Madero Regeneration Project in Buenos Aires

17. Here ? Or here ? Sabermati Riverfront Development Project in Ahmedabad

18. Case Studies: Locations http://urban-regeneration.worldbank.org/ https://openknowledge.worldbank.org/handle/10986/24377 ANKARA SHANGHAI SEOUL WASHINGTON DC SINGAPORE AHMEDABAD BUENOS AIRES SANTIAGO JOHANNESBURG

19. Case Studies: Typologies INNER CITY HISTORIC AREA STREAM WATERFRONT/BROWNFIELD INNERCITY WATERFRONT PORT/ POST INDUSTRIAL INFILL INNER CITY INNER CITY

20. What is the problem? Every city has pockets of unused, underutilized land or distressed and decaying urban areas. These pockets of underutilized assets weaken the city’s image, livability, and productivity. Some could also be a health hazard. They are usually the result of changes in the urban growth, productivity patterns or poor master planning preparation and execution.

21. Urban Regeneration Project Structure • Urban Rejuvenation or Regeneration projects contain four phases • Each project phase contains several sub-phases from scoping through implementation

22. Urban Regeneration Project Structure

23. Scoping • Scoping is a strategic assessment of a proposed regeneration project. • Inclusive process of gathering qualitative and quantitative data so that planners can devise a strategic planning process, action plan, and weigh different considerations. • Occurs at the macro and micro levels. • Ensures that the project rationale is sustainable and will garner sufficient fiscal, political, and community support for successful completion of subsequent phases. • Entails • Analyzing economic, social, physical attributes • Identifying opportunities and barriers • Identifying stakeholders and capacity • Generating a vision

24. Planning The planning phase comprises: • Laying the foundation of planning systems, frameworks • Planning processes for private sector partnership • Creating a master plan • Bridging planning and implementation phases for project execution

25. Financing Urban Regeneration Projects

26. Urban Regeneration Financing Tools • Engage in capital investment planning: Links strategic vision, land use, and budget to finance specific initiative • Seek intergovernmental transfers, grants: Conditional or unconditional. Easily affected by natural and economic disasters • Capital reserves • Own-source revenue • Borrow from banks or capital markets: Requires enabling legal, regulatory framework. Creditworthiness • Leverage municipal land, assets • Other land-based tools

27. Spectrum of Financing Approaches 100% Public 100% Private Own - Plan – Finance – Develop - Operate Public: owns land, constructs infrastructure Private: develops & finances commercial uses Public: subsidizes infrastructure Private: develops infrastructure & commercial uses; programs site Public: Regulates uses Private: owns, develops, finances, programs Public: owns land, plans, contracts for construction

28. Urban Regeneration Financing Tools Financing Tools for Regeneration of Public Land: • Sale or Long-Term Lease of Municipal Land through Arm’s-Length Transaction: Land is often the valuable asset on municipalities’ balance sheets • Land Swaps: Trading municipally for privately-owned land to circumnavigate development restrictions • Sale or Long-Term Lease through Strategic Negotiated Transaction: Used to attract real estate investment for a particular venture • Public Land as ‘In Kind’ Payment for Construction of Public Infrastructure: Viable for municipal land of greater value than proposed construction (also Public Land as an Equity Contribution Towards a Joint Venture)

29. Urban Regeneration Financing Tools Financing Tools for Regeneration of Private Land (non capital market): • Impact fees: Contributions from private sector for incremental burden on public infrastructure and services • Betterment levies: Tax/ fee on land benefited by public investment • Business Improvement Districts: Business-led, not-for-profit entity formed to improve a legally-defined commercial area. Businesses within the designated district pay fees towards top-up services, such as security, garbage collection, shared branding.

30. Urban Regeneration Financing Tools Financing Tools for Regeneration of Private Land (capital market): • Tax Incremental Financing: Revenue-backed financing enables up-front infrastructure investment by capturing anticipated tax increases that will result from the infrastructure investment. Requires robust real estate conditions, creditworthiness. • Special Assessment Districts: Additional tax agreed to by land owners within defined geographic area to cover (portion of) costs of public investment that will primarily benefit that area

31. Financing Land-specific tools (policy and regulatory) • Density Bonus: Increased density in exchange for funds or in-kind support for policy goals. Requires robust market environment • Upzoning: Re-zoning to allow for higher value development (industrial to residential, or increased FAR) • Transferable Development Rights: sale of excess density rights by public authority as financing tool. No negative fiscal impact, requires robust regulatory framework

32. Examples of Successful UR Financing • Washington, DC: The Yards, is a waterfront development created as the centerpiece development along the coastline of Capitol Riverfront re-opened public streets to access the waterfront, and constructed a 5.5-acre park. It is worth about USD 1.5 billion, invested entirely by the private sector, using a subsidy of USD 42 millions from the city to ensure that the site was redeveloped as a mixed-use project. The city is expecting a USD 1.5 billion in additional tax revenues annually by 2030. • Buenos Aires: a self-financing urban regeneration initiative in Puerto Madero redeveloped an unused 170-hectare land parcel to an attractive mixed use waterfront neighborhood. The total investment reached USD 1.7 billion, of which USD 300 million was invested by the city through the sale of lands.

33. No City should be left behind, small or bigTHANK YOU