November 2, 2016Doug Hadden
Public Financial Management (PFM) plays a significant role in smart government. FreeBalance is developing numerous “vision cases” to describe the intersection of PFM and “smart”.
The planning and implementation of smart cities is enabled through PFM techniques and the use of open government. Cities cannot achieve “smart” without citizen engagement and a citizen-centric perspective.
Infrastructure is the heart of smart cities and smart government planning. McKinsey has determined that there is a significant infrastructure gap:
“The world today invests some $2.5 trillion a year on transportation, power, water, and telecommunications systems. Yet it’s not enough—and needs are only growing steeper. In a follow-up to its comprehensive 2013 report Infrastructure productivity: How to save $1 trillion a year, the McKinsey Global Institute finds the world needs to invest an average of $3.3 trillion annually just to support currently expected rates of growth. Emerging economies will account for some 60% of that need.”
Yet, governments are challenged to finance infrastructure in this age of declining budgets. Public Private Partnerships (PPPs) are often seen as the magic bullet for infrastructure planning, but is often short-term in thinking. Governments can give up long-term revenue potential through PPPs. Innovation in public financial management can be a solution.
- Assets: government have fixed and capital assets that have value
- Government Valuation: governments often have little insight into the value of assets, some assets such as infrastructure are not on the books at all – full accrual accounting including analyzing non-traditional assets like national parks, can provide a better perspective on financing capabilities
- Sensors and other Smart Devices: provides usage information about assets that can be used to calculate potential revenue
- Scenario Planning: a critical part of public investment planning is to model expected scenarios with sensitivity analysis across multiple years
- Partner Engagement: civil society, businesses, academia and financial institutions can be engaged to determine different sources of financing, to determine who is prepared to finance and at what cost/revenue frameworks
- Accrual Calculations: these financing methods can be analyzed, based on scenarios, across the multiple years required for construction, operations and resulting benefits using accrual methods and identifying the net present value using full government valuation concepts
- Financing Mechanisms: the scenario calculations determine what financing mechanism is most effective for specific infrastructure programs
- E-Procurement: governments use the scenarios to determine value for money related to the financing methods
The integration of PFM, open government and digital devices provides the “smart” in Smart Government:
- Citizen-centric: engages financing partners to determine realism and parameters of financing mechanisms based on infrastructure types
- Data-driven: leverages whole-of-government asset valuation and asset usage
- Performance-focused: identifies the value for money for public investments
- Long-term: leverages long-term analysis to determine the most effective financing method
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