An Open Letter to Infrastructure Funders and Investors
The US is in desperate need of new infrastructure investment. Cities across the country are dealing with aging and failing systems, and there is a huge opportunity to leapfrog to new technologies — with more distributed, resilient, and green infrastructure projects. Making this leap successfully depends on thousands of small and medium-sized communities like Flint, MI and Gloucester, NJ taking action to replace legacy assets, like combined sewer systems. Funders and investors have to do a better job of attracting these new types of applicants and projects, because without them, investment in new infrastructure will never scale. If you are among the thousands of public funders, private investors, and permitting agencies looking to create new and better infrastructure investment opportunities, this letter is for you.
Everyone supports infrastructure investment, until they don’t.
Staff at State Infrastructure Trusts and Revolving Loan Fund Programs whose primary goal is to mobilize low- or no-interest capital for new infrastructure projects will tell you that finding good projects (and borrowers) is hard. This is especially true in sectors like water and wastewater systems, where investment has been historically lagging. First-time applicants and newer, more innovative solutions — like green and resilient stormwater infrastructure — face even higher hurdles to access capital. Throwing more money at the problem isn’t likely to fix these structural issues. Funders and investors need to be more effective with money they already have, if cities across the US are to have any hope of comprehensively upgrading their infrastructure to meet future challenges. This letter offers some ideas on how.
Building a diverse project pipeline is more important than creating new funds.
Politicians have long held that the key to unleashing a wave of new infrastructure projects is to create a national infrastructure bank, trust, or fund. More recently, the White House has promised $1 trillion in new investment. But problems with infrastructure investment are not (only) about money. Many federal and state agencies and private investors currently have significant resources to fund or finance the construction of infrastructure projects and are actively looking for well-designed projects to invest in, but they are unable to attract high-quality applicants and projects. At the same time, many applicants complain that there is no money available for the projects their communities need and want most. Why the disconnect?
Often the application processes and requirements of government funding agencies are so onerous that they block the very progress they are looking to jumpstart. Private financing is even more opaque for the uninitiated. Standards and regulations were created with big cities and large, traditional “grey” infrastructure projects in mind. This means that infrastructure funding and financing tends to go to the same types of applicants and the same types of projects over and over again, leaving behind first-time, low-capacity, smaller-scale applicants seeking to develop smarter, more creative, resilient and sustainable solutions.
Sound familiar? It should. Higher education institutions and hiring professionals have faced similar issues with expanding the pipeline for diverse college applicants for decades.
Empty project pipelines are paved with good intentions.
Just as universities have recognized that scholarships alone are not the solution to attracting a diverse pool of high-quality applicants, infrastructure funders and investors must recognize where their efforts are having the unfortunate effect of undermining the quantity, quality, and diversity of applicants and projects. Funders, investors, and permitting agencies need to simplify application processes and reach out early to support non-traditional applicants years before they formally enter a project pipeline. This takes work. Good intentions do not scale.
Below are a several examples of how well intentioned, but misguided “support” has derailed new infrastructure development from smaller applicants and for more sustainable projects — along with our suggested fixes from 10+ years working with local governments and utilities.
The Overwhelming Show of Support: Funding and regulatory agencies often send dozens of officials to meet with potential applicants to discuss projects and offer their help. The sheer number of agency officials participating — often with overlapping roles and responsibilities from many different departments — can be incredibly confusing for a small city or new applicant. This is especially true in the early stages of framing a project before funding has been secured, when most cities do not have consulting engineers or designers on board.
The fix: Designate a single “pathfinder” whose primary responsibility is to help guide non-traditional applicants and projects through the funding process, avoid pitfalls, and make introductions to relevant technical officials along the way.
Cheerleading the Underdog: Some agency officials encourage cities to submit projects for funding/financing without regards to the city’s capacity or resources to actually reach the high bar required for full application. This often manifests itself as funding or permitting agency officials minimizing or brushing aside application requirements in conversations with city officials, or suggesting that there is flexibility in the process where none exists. Telling first-time applicants to “do your best and your project will get funded” is not okay. Getting project funding is never that simple. This misguided encouragement can lead to unrealistic expectations, frustration, confusion and delays for cities urgently trying to fix failing systems.
The fix: Don’t do it. Funders, investors, and permitting agencies need to communicate clearly and consistently with potential applicants. Set clear expectations about what resources are available and what information is required up-front about a proposed infrastructure project to get access to specific resources.
Everything but the Kitchen Sink: First-time or smaller funding applicants often ask for sample applications or templates. In the absence of standardized materials explicitly created to help applicants through the process, some agency officials will randomly send past submissions as examples. In one case, a small city pursuing a $5 million green infrastructure project was sent an “initial project description” — not even a full application — that was 1,900 pages long. Yes, you read that right. Nineteen-hundred pages. Only consultants or large cities with dedicated staff are capable of generating that volume of content. For the small city that did not have the resources to hire consultants to help secure project funding, this example intimidated them so much that it almost derailed their entire project.
The fix: Create a standardized set of sample applications for different types of projects and funding recipients (e.g. green and grey, small and large) so that potential applicants can picture themselves and their projects within the larger project pipeline, and move forward with reasonable expectations of the application and financing processes.
The Gatekeeper Will See You Now: Many funding agencies do not make information about their application requirements and processes easily available online. Instead, they require potential applicants to schedule a meeting or phone call with agency officials to discuss their interest because they want to help applicants directly. However, the formality of scheduling a meeting — especially if regulatory agency officials participate — can prevent potential applicants from entering the project pipeline because they do not have answers to basic eligibility, funding availability, or application questions to feel comfortable with an official discussion. Even when detailed application information is available online, it is often protected behind a sign-in screen and some agencies require registrants to create complete profiles on behalf of their city or utility. In some cities, this seemingly innocuous gate can be a barrier requiring approval from multiple managers or city leaders for anyone just looking to learn more.
The fix: Make basic information about the types of funds available, application requirements and processes, and general Frequently Asked Questions (FAQs) clearly visible up-front so that junior and mid-level officials can brief managers about the benefits of applying, and city leaders can feel informed about the process before entering pre-application meetings.
No One Likes the “Back of the Envelope” (Except Funders): Many funders and permitting agencies require quantitative estimates of project costs and outcomes (like environmental performance measures) very early in the design process. For example, submission forms for planning and technical assistance grants regularly include full project cost and performance metric fields — even for applications that are specifically geared toward pre-construction design, engineering, and permitting activities. Funders will encourage applicants to make their best guesses, but city officials (and the technical consultants that support them) are rightfully wary of generating “back of the envelope” estimates prior to having clear project specifications. This means that in order to submit many initial applications, cities must find a way, without any dedicated resources or capacity, to get far enough into a design process that it is possible to generate reasonable and defensible cost and performance estimates.
The fix: Focus on the user (funding recipient). Be aware of where applicants are in the funding cycle, and avoid asking for quantitative estimates too early in a design process. If numbers are necessary, allow early-stage applicants to select ranges rather than generating specific estimates, and clearly communicate that preliminary estimates are not binding and can be revised later in the design process. If appropriate, create separate application forms for pre-construction grants and loans rather than forcing all applicants through the same process.
Please Check All That Apply: Many application requirements were originally put in place — for good reasons — with large, traditional “grey” infrastructure projects in mind. Infrastructure has changed and continues to evolve, but application requirements, by and large, have not reflected those changes. For example, requiring studies of “user rate impacts” and cultural/historic resource assessments is perfectly appropriate for a large new wastewater treatment plant, but is inappropriate for a small green infrastructure system of distributed bioswales and street trees. Some funding and regulatory agencies will verbally tell applicants to simply ignore sections that do not apply to their project, but even then, it’s often not obvious to applicants which requirements apply to their project and which do not.
The fix: Similar to the US Census, develop threshold questions in paper and online application systems to direct applicants to skip or jump to the next relevant question/section rather than leaving applicants to guess if or how a question might apply to their project.
Uncertainty Kills Projects: Some agencies, recognizing the barriers that smaller cities and utilities face in securing project funding, have introduced measures into their application processes to lower the bar for submissions, but in doing so, they create uncertainty and confusion about which requirements and processes apply to which types of applicants. For example, some agencies will lower local matching fund requirements if a city is in financial distress. But the requirements for demonstrating financial distress are not clear. This type of uncertainty can prevent small and medium-sized cities from applying for resources because they are unsure of what their obligations will be and if they can meet them.
The fix: Any and all program changes (including amount of funding available, terms, eligibility requirements, timelines, etc.) should be made strategically and communicated clearly, consistently, and repeatedly to all potential applicants and other stakeholders.
Funders and investors must focus on the project pipeline, not only projects.
For infrastructure investment, scale is everything. In order to successfully attract high volumes of smaller applicants with more innovative projects, funding and regulatory agencies must recognize that their applications processes and requirements often prevent good applicants from entering the project pipeline. The fixes above are not complicated or expensive, and do not rely on the creation of a national infrastructure trust or a trillion dollars in federal investment. They should be implemented immediately, with the broad goal of making current funding more effective. Specifically, processes and requirements must be:
1. Transparent: Funding application processes and requirements should be clearly and concisely written and available online to interested applicants. Interested applicants should not have to create detailed online profiles or contact agency officials to request information by email (or mail!) about application requirements.
2. Consistent: Messaging and communications to applicants should not vary by departments, offices, or individual officials. It is particularly important for information to be consistent between the agencies that fund and finance infrastructure projects and those that issue permits for implementation (e.g. environmental permits).
3. Simple: Application processes and requirements should be reformed to make it as easy as possible to apply, within legal limits. Specifically, application processes or requirements that are not legally required or necessary to prevent corruption and other abuses should be made optional or completely removed. Components that are optional must be clearly and consistently marked within all applications.
Funding agencies should consider permitting agencies to be their most important allies in attracting new infrastructure projects and both must work collaboratively to consistently implement the fixes suggested above. Regulatory reform-focused NGOs can also play an important convening role in closing the gap between state and local funding and permitting agencies to remove barriers to nontraditional applicants; encourage more creative, distributed, sustainable, and “green” projects; and streamline application processes.
Infrastructure investment at scale depends on different colors of money.
Successfully scaling up infrastructure investment will depend on removing barriers smaller communities and more innovative projects currently face while trying to access existing resources. In addition to the practical and immediate fixes outlined above, we also strongly believe that funders and investors (including philanthropies and impact investors) need to redefine “infrastructure investment” as four distinct colors of money:
1. Catalyst Funds: Support cities to identify and frame (conceptually design) infrastructure projects that respond to community needs.
2. Predevelopment Support: Fund detailed design, engineering, permitting, and public/community engagement activities required prior to construction.
3. Construction Funding: Fund project implementation and “earth-moving” activities.
4. O&M Resources: Support ongoing operations and maintenance. Reducing the backlog of critical deferred maintenance projects should be highest priority.
Many cities and utilities need all of the colors of money above in sequence to get to successful project completion. However, of the four, only construction funding is widely available. Without access to the first two colors of money (catalyst and predevelopment) and a clear line of sight from one to the next, most communities are unable to design projects and complete essential predevelopment activities to be eligible for construction funding.
Through our work on the RE.invest Initiative and Build It Green Competition, we know that catalyst and predevelopment money, even in small amounts, can make dramatic differences for small cities like Hoboken and Gloucester, NJ. Philanthropies and impact investors can play a transformative role in both of these funding spaces by engaging to ensure that early-stage infrastructure project plans and designs have positive economic, social and environmental outcomes for the communities they serve. State and federal agencies would do well to work collaboratively with these types of socially responsible fund managers to incentivize strategic investment and cost-recovery for predevelopment as well.
Catalyst and predevelopment funds don’t need to be large. We have worked with cities like Gloucester to turn $20,000 of catalyst technical assistance into $200,000+ of predevelopment funding applications and Hoboken to leverage $200,000 of predevelopment support to secure ~$20 million in project implementation funding. With all three colors of money, funders and investors have the opportunity to change the game and scale up infrastructure investment with a high-volume pipeline of small and medium-size green and resilient infrastructure projects rather than the once-in-a-generation big city bridge or tunnel.
The need for major infrastructure investment is not controversial. Estimates of the total funding required range in the hundreds of billions over the coming decades. What is controversial is how that funding should be made available. While federal officials sort out the big picture details, state and local infrastructure funders, private investors, and permitting agencies would do well to make sure their project pipelines are full whenever funds start to flow. After all, getting the biggest bang for the buck out of a trillion-dollar infrastructure investment opportunity might just mean that funders and investors need to start thinking small.