Trend 6: Creating alignment | KPMG | TH

Trend 6: Creating alignment between payers, financiers and beneficiaries

Trend 6: Creating alignment

Citizens are often willing to pay for infrastructure – as long as they see the benefit.

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Citizens are often willing to pay for infrastructure – as long as they see the benefit. But things get much more difficult when the payers of infrastructure do not see themselves as the end beneficiaries.

In some markets, infrastructure is funded out of central budgets. So a taxpayer in one city may end up footing the bill for a new rural highway they may never use, even though they get some important indirect benefits from it (such as efficient transportation for food products resulting in lower costs at the supermarket). Multi-jurisdictional projects face similar problems as governments create cooperative funding models without first evaluating the full benefits to everyone.

The phenomenon is not new. For years, city tax-payers have riled against the imbalance in transit funding: transit is often funded (in part, at least) through city tax budgets. But the direct benefits tend to flow to either the developers that own the property around new  stations (for example), or to those residents that live outside of the city limits but use transit to get to work.

Interestingly, there has been very little public discussion about the misalignment between payers and beneficiaries. More often than not, governments tend to revert to opaque funding equations, hard-nosed negotiations and capacity calculations when making these types of funding decisions. Rarely are end-payers or beneficiaries ever consulted.

 

Who pays and who benefits?

This year, we expect to see governments and infrastructure funders think more critically about the balance between who pays and who benefits from infrastructure development. Those in markets where devolution is disrupting centralized funding models will perhaps have the toughest discussions. But the rising public awareness of the social value of infrastructure suggests that all governments will be talking about this issue over the coming year. 

On the plus side, governments around the world have been working hard to identify new approaches that could solve the funding paradigm (a trend we have noted in previous editions of Emerging Trends). This work will need to be harnessed (and newer funding models will need to be expanded) that bring the costs closer to the beneficiaries. The fact that the equation will likely never result in a one-to-one alignment between payers and beneficiaries will require governments to think carefully about how they create a balance between all stakeholders.

This, in turn, will require governments to become much more forensic about measuring where the benefits are materializing, how they are being shared and who is paying the final bill. And that will require governments to achieve a much clearer understanding of the full value of the infrastructure they are creating (moving beyond simple economic value calculations). New technologies and analytics approaches will undoubtedly help decision-makers find the balance between promoting broader economic benefits and improving upward social mobility.

Politicians will need to engage the public in sober discussions about who pays for infrastructure (always a politically charged debate). In some cases, the need to serve the overall ‘public good’ may lead to some continued misalignment as the ‘haves’ carry some of the costs for the ‘have nots’.

The good news is that, over the coming year, we expect this debate to gain momentum, maturity and engagement from governments, citizens and funders.

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