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What is the Smart City Governance Gap?

 

June 8, 2017

Smart Cities to the Rescue?

The consequence of unsustainable growth is a global threat, recognized with the globally-adopted United Nations Sustainable Development Goals (SDGs). Cities have become the nexus for overcoming these challenges because of increased urbanization, and disproportionate consumption. Yet, cities are the source of the solution, as engines of innovation, generating Trillions of Dollars in growth. Smart cities technology promises to overcome global threats, while guiding sustainable growth and human self-actualization.

What are the effects of legacy Governance?

The reality is that the public sector is ill-prepared to deal with the opportunities or challenges for smart cities implementation.This governance gap is a trillion dollar annual problem that is outside the ability for smart cities technology, as we know it today, to fix. Poor governance and weak institutions were recognized as the #1 perceived impediment to the prosperity of cities (UN-Habitat).

Governments pursue policies that are disconnected from citizen needs and wants, a policy gap. Governments suffer from short-term political thinking that raises distrust in public institutions because of disappointing results, a planning gap. The result of short-term thinking is that governments are Trillions of Dollars in debt, and unable to effectively fund smart government solutions, even those with high potential returns, a financing gap. Silos of legacy government technology cannot provide policy-makers with timely, comprehensive, or accurate information, a technology gap. The result of policy, planning, financing and technology gaps is crumbling infrastructure, a multiple trillion dollar infrastructure gap problem. This problem is augmented by a  government transparency gap.

In other words, governments are implementing the wrong policies ineffectively, hamstrung by legacy technology that reduces the quality of decision-making, operating with insufficient funding to maintain legacy infrastructure. These are the effects of legacy governance techniques and technologies.

What is the Infrastructure Gap?

This gap is the difference between needed infrastructure to sustain growth and the quantity and quality of actual infrastructure.

Studies show that $57 trillion in infrastructure investment will be needed until 203o, about $3.3 trillion annually, to keep up with projected global GDP growth (McKinsey).This gap had widened as public investments steadily fell from an average of 5% GDP in the 1960s to 3% in 2012 (Brookings). The infrastructure gap triples when the investment required to achieve the United Nations Sustainable Development Goals are considered (McKinsey). $1 trillion of investment is needed for the “C40″ megacities to meet Paris Agreement climate action goals (C40 Cities-Arup 2016).

This problem is not unique to developing countries where the lack of infrastructure has significant negative consequences. In the United States, a study found that 27% of 607,380 bridges were ‘deteriorating’ and more than 10% were ‘structurally deficient’ and over 3% are ‘fracture critical’ (American Society of Civil Engineers).

What is the Policy Gap?

This gap is the difference between citizen needs that ought to be in government policy and actual government policy.

Governments globally, at every level, are failing to form meaningful government objectives that align with citizen priorities. This often mean policy created by experts and politicians with limited input from citizens, civil society and businesses. The main symptom of the policy gap is the use of GDP as a policy objective. GDP does not provide an accurate picture into economic health (Pacific Research Institute). And, Improved income does not necessarily lead to improved perceived wellbeing, leading to citizens in countries like Costa Rica having far higher perceived happiness than Chile or the United States (World Happiness Report).

The policy gap can be seen as somewhat responsible for the gap between legislation and implementation of laws (Center for International Private Enterprise) when insufficient resources are used.

What is the Transparency Gap?

This gap is the difference between citizen expectations of government transparency, particularly fiscal transparency, and actual transparency.

Many citizens expect to interact with government in the same way as large web organizations. They expect social media engagement and radical transparency. The transparency gap has created a trust deficit. Today, almost 60% of people polled globally, higher distrust than business, NGOs and media (Edelman). 

The trust deficit is not unique to developing countries. 2/3 of the 176 countries surveyed fall below the midpoint in corruption perception (Transparency International). Government is seen as major source of problems in United States (Gallup). Public trust in government at near historic lows in United States (PEW).

What is the Planning Gap?

This gap is the difference between stated government policy goals and actual budget plans.

Policy-makers often have short-term interests and highly political thinking about spending (IMF) that reduces policy and budget effectiveness with wasteful political projects (World Bank). Annual budget planning cycles can be disconnected from longer term needs, such as infrastructure where the economic benefits may not accrue until future election cycles. This is compounded by poor estimates (PwC), where up to 30% of the potential gains from public investment are lost due to inefficiencies in public investment processes (IMF), up to $1 trillion annually (McKinsey).

Planning is more complex in government than the private sector. There are coordination challenges within ministries, departments and agencies in any government. This is complicated by the need to coordinate investments with multiple levels of government. It is a significant “constellation of actors involved in public investment (OECD).”

What is the Financing Gap?

This gap is the difference between what governments should invest and what governments can invest.

The debt load on national to municipal government reduces the fiscal space necessary for smart city investments. Some developed market governments are at debt loads of 100% of GDP (Citigroup). Developing country governments have lower debt loads, based on GDP, but less ability to repay.

The result of debt is that many cities are unable to finance operations and maintenance of current infrastructure. Government planning techniques often separate capital from operating budgets. This can result in unanticipated crumbling infrastructure.

What is the Technology Gap?

This gap is the difference between the timeliness, quality and effectiveness of information needed for good decision-making and the actual information provided.

Governments are generally laggard technology adopters.Most governments in run on 20-year old technology at the back-office (Accenture). The government information technology space is characterized as having more technology silos, more legacy technology (Gartner), and higher maintenance costs that in the private sector (IDC).

An analysis of federal government spending in the United States found an ever-increasing percentage of IT investment in operations and maintenance resulting $7.3 billion decline from fiscal years 2010 to 2017 in development, modernization, and enhancement activities (GAO). It is estimated that 75% of IT budgets in US State and Local government is for running current systems (Gartner). This spending trend is in direct contrast to the private sector that is investing more rapidly in new cloud, social and mobile technologies (Forrester).

 

There is a high technical debt in the public sector. This means that decision-makers do not have complete, timely or accurate information.

How can Public Investment Management (PIM) software help overcome the governance gap?

PIM software transparently engages citizens to overcome the policy gap. PIM uses scenario planning to overcome the planning gap, in financially sustainable ways to overcome the financing gap by using modern technology to overcome the technology gap that provides comprehensive, timely information. Comprehensive PIM software enables governments across the public investment lifecycle:

  • Smart Planning to improve planning and budget effectiveness 
  • Smart Financing that identifies optimal financing arrangements through scenario planning 
  • Smart Debt to improve more fiscal space through improved predictability of financing needs 
  • Smart Procurement with improved value for money through value-based acquisition 
  • Smart Assets to ensure optimal asset usage by smart tracking and maintenance and predictability 
  • Smart Transparency to increased trust in government through fiscal transparency throughout the budget cycle, and engagement with citizens to align policy with citizen priorities

Comprehensive PIM software also provides feedback loops to improve the quality of capital budget estimates. 

How does FreeBalance PIM Software Compare with Alternatives?

Governments often use a number of systems to support the PIM lifecycle. The Commercial-off-the-Shelf (COTS) set of FreeBalance modules differs from COTS and custom solutions available in the following ways:

  • Comprehensiveness with full coverage of the PIM lifecycle
  • Single technology platform for all modules to simplify integration, metadata management and future changes
  • Massively configured to improve time-to-results and enable future progressive activation, without the costs associated with “legacy ERP” code customization
  • Government-only functionality to facilitate implementation

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Doug Hadden

Doug Hadden

Executive Vice President, Innovation at FreeBalance
Doug is responsible for identifying new global markets, new technologies and trends, and new and enhanced internal processes. Doug leads a cross-functional international team that is responsible for developing product prototypes and innovative go-to-market strategies.
Doug Hadden

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