Does innovation lead to more innovation? In the case of funding, the answer is yes.
As local governments push the envelope with new solutions to improve their communities, they’re also finding innovative ways to raise money for these initiatives. In some cases, these funds are coming from residents, by choice, without an increase in taxes.
Cities and counties are using bonds, shares, and other investment tools to fund projects ranging from solar power to homeless housing. Let’s take a look at some of the ways local governments are bringing public investment into the mix, and by doing so creating more engaged and invested communities:
Using bonds for solar power
One of the most common uses of community investment is to drive forward alternative energy solutions, such as solar farms. It allows members of the public to invest locally, earn interest, and contribute to making their communities more sustainable.
In order to build Common Farm, a solar farm on Council-owned land, citizens were able to purchase bonds that started at £5. The bonds, which were structured by Abundance Investment, have a 20-year term with a 6 percent rate of return. Within less than 100 days, the Council raised £1.8 million through these bonds. The Council itself also provided £3 million for the project.
A few months later, the Council issued another offer for a second farm, Chapel Farm, raising an additional £2.3 million in just 42 days.
To engage citizens and encourage bond purchases, Abundance launched a PR and marketing campaign that drove record engagement and caught national attention.
What’s more, the farms themselves continue to give back to the community. As a Community Interest Company, municipally owned Public Power Solutions reinvests 65 percent of Common Farm’s profits from selling the renewable energy in local community projects. The remainder goes back to the Council. The farmland is still put to use for agriculture; sheep graze on the land around the panels for part of the year.
Buying shares of solar
Citizens are helping to fund the initiative by buying “Power Packs” from Ames Electric Services. Each $300 pack equates to 175W of power generation capacity. In return, Power Pack owners will get a monthly credit on their utility bill (assuming they are Ames Electric Services customers). The credit value is tied to how much energy the solar farm produces; the expected monthly return is forecast around $1. Investments may not make citizens wealthy, but the city says there are other interests at play:
“People typically are not going to sign up for SunSmart to make money, but they do sign up to participate in a green, renewable, sustainable energy resource.”
Still, there’s a chance residents could see a full return on their investment at the 16 to 18 year mark of the 20-year contract.
The city solicits interest from local organizations and nonprofits, who will then receive solar panels that are funded by the community, through the Pingala Cooperative. Citizens can buy $250 AUD shares (up to $1000 AUD), becoming part of the co-op, through which they have the potential of earning up to a 5 to 8 percent dividend each year.
Leveraging Social Impact Bonds
To address this, Bexley launched a five-year pilot that pools funding from public, private, and voluntary sources, including the £1.6 million Social Impact Bond, to help individuals who are living in temporary shelters secure and stay in more permanent housing on the private rental market. Clients who meet the program’s requirements are provided with a bond to help rent a property — this bond acts like a security deposit, allowing the landlord to claim damage or losses against it.
Bexley’s use of Social Impact Bonds to provide housing to homeless people is part of a larger trend we’re seeing across multiple countries, from Denver, CO to Greater Manchester, UK. Their use transfers the financial risk from governments funding services to the social investors. If the program succeeds, the investors recoup their funds. If it doesn’t, the investors don’t recover their money — but have still contributed to a socially responsible effort.
Bonding for broadband
Community investment is unlocking new technology/ways of operating for some communities. In others, it’s helping them tap into what already exists.
Minibonds bring in more investors
You don’t need a specific cause to get the community involved. In Cambridge, MA, the ask is simply to “invest in Cambridge.” The city introduced the Cambridge Minibonds program to issue bonds to residents for $1,000 per bond. Each investor can purchase up to $25,000 in bonds, but the barrier to entry is now much lower than the previous $5,000-per-bond price tag. The bonds have a five-year term, with a 2 percent interest rate.
It started with a pilot. During the weeklong test period, Cambridge raised $2 million. When the city rolled out their next sale, which is capped at $2.5 million, they pulled in $800,000 the first day.
Bringing the community into the process has a number of benefits.
First, there’s the immediate influx of funds. This can be the make or break for projects, especially in times of economic stress. Some initiatives set thresholds before work can be done: for example, the solar panels in Lake Macquarie don’t begin construction until 75 percent of the necessary bonds are sold.
Bigger picture, the ability for residents to invest in their communities is a big step towards cultivating a more engaged citizen base. It creates buy-in for the projects themselves, as well as for the ideas they represent: sustainability, social responsibility, and innovation. And it keeps the citizens directly involved in projects being led by local governments. This creates a positive impact for the community, beyond any one specific project.