How to fund the European urban agenda

By Gerry Muscat, Head of the Urban Development Division, European Investment Bank

When ministers finally endorse the EU’s Urban Agenda with the Pact of Amsterdam on 30 May, it will signal the end of many long months of negotiation over the key “priority themes” and how to put them into action. The occasion will, however, leave us to concentrate with how best to fund urban actions and investments.

As numerous local and regional governments emphasised at the CEMR Congress in Nicosia at the end of April, they face significant budgetary constraints. Many of them still face challenges obtaining fixed-rate attractively priced financing for long-term capex. Central governments have used up the lion’s share of the total public debt limits set up under the Maastricht Treaty, so local and regional governments (which use debt for capex rather than opex) find themselves constrained. They also made the point forcefully at the CEMR and in the Urban Agenda partnerships that local governments can only access EU funds via central government. That means they lack direct access to the AMIF fund on migration and the European Structural and Investment Funds. On the other hand, municipalities and regions also face such a plethora of funding possibilities that they often are unsure where to start.

What municipalities and regions need is:

• a clear explanation of available funding opportunities
• innovative funding methods which respond to their investment needs.

My own institution, the European Investment Bank (EIB) is trying to help by contributing to the CoMo guide on financing opportunities for climate action. We’re presenting our framework loans to finance municipal or regional long-term investment programmes, as we did at the CEMR, and cooperating with the Committee of the Regions and EUROCITIES to make our urban financing clearer. To that end, we’re issuing a new brochure this month on our Urban Agenda financing.

The EIB is also looking at innovative ways to support social inclusion, through social impact financing which can offer a way to finance investments based on socially oriented results

We’re also advising cities and regions, for example, on how to finance climate adaptation and mitigation programmes or how to set up revolving funds. Through the new Smart Development team in JASPERS, we’re also thinking of ways to prepare smart, integrated urban projects for EU grant funding.

Furthermore, our lending, due diligence and advisory teams are working on ways to finance urban investments with enhanced risk. Take, for example, recent deals that lend to lower-rated social housing companies, or make equity investments in urban development funds or brownfield regeneration funds.

The Investment Plan for Europe, known as the Juncker Plan, is quite relevant here. Urban project promoters, promotional banks and the EIB are looking at ways to unlock long-term financing for projects which may otherwise be too risky to attract it. To do so we’re using a plank of the Investment Plan called the European Fund for Strategic Investments (EFSI). By directly financing these projects, EIB can help to crowd-in funding from other private and public sources. Risk sharing with promotional banks under EFSI enables them to finance more projects in more municipalities.

The EIB–and the European Investment Fund, which is also part of the EIB group–is also looking at innovative ways to support social inclusion, through social impact financing, for example, which can offer a way to finance investments based on socially oriented results rather than inputs. Still in its early days, social impact financing–combined with public sector funding–could offer an innovative way to tackle some of our greatest challenges, such as refugee integration. Could we, for example, provide financing to NGO’s or training organisations based on measures such as the number of refugees starting their own business?

Perhaps we don’t have an answer to that question, let alone a way to fund it. Well, that’s the point. This is an evolving, dynamic policy area. The answers we develop now–and the methods we find for financing them–will draw the map of our communities for decades to come. We at the EIB can not only provide the funding but also help municipalities and regions figure it all out.