Financing

Introduction

While deprived neighbourhoods often suffer from neglect and unfair share of services delivered by public authorities, simply getting a bigger share of public funding is not an aim of regeneration. To achieve economic sustainability of neighbourhood development one must understand the nature of objectives and motivation of the public governance system that may impel the stakeholders to provide more resources for concerted activities of regeneration and afterwards. The authorities may not be ready for devolution of responsibilities and decision making to the neighbourhood. The stakeholders may lack capacity to take more responsibility for gaining more support, as their ultimate goal is to improve the quality of their life, not to expand activities.

Money matters, but it matters only if used sensibly. To put the funding to efficient use, the effort must approximate public governance’s and individual stakeholder’s objectives over a sustainable future of deprived neighbourhoods, developing local capacity to overtake the engine of development from public effort to local resources in the neighbourhood.

Types of Public Funding

Summary: Criteria and interests of public authorities for distributing funding to neighbourhoods often differ from the interests of the other stakeholders. Better effectiveness of public investment and support for neighbourhood regeneration can be greatly facilitated by public authorities and local stakeholders working together.

The public authorities, local and national, normally provide two kinds of funding to the neighbourhoods and their communities:

• Ordinary funding, as management, maintenance and investment of physical infrastructure (e.g. streets) and social infrastructure (e.g. education or unemployment benefits) infrastructure, and
   
• Extraordinary funding, that is allocated to alleviate recognised severe problems.

The objective for a public authority, in theory, is to provide equal quality of service to all parts of its territory and level social conditions for all social groups layered across its territory. In practice, this universal obligation is never implemented completely, partly because of heterogeneity of society and freedom to choose, partly because of administrative deficiencies. If this could be achieved in normal distribution of services the extraordinary funding would not be necessary at all. Hence the authorities try to level the differences by adjusting ordinary funding; consequently, at a given time different neighbourhoods and groups receive ordinary funding at levels above standard or below standard. Where the differences are severe, extraordinary programmes are introduced.

• In deprived neighbourhoods maintenance costs are usually higher due to vandalism and indifference of the users, they consume more social subsidy due to higher non-employment rate. Therefore their absolute share may turn out higher than in well-to-do neighbourhoods. The public is reluctant to invest in new installations that depreciate faster in these deprived neighbourhoods rather improving things where it is cheaper to maintain them. That creates effects both of resignation and of a vicious circle. Initiative, awareness and share of public funding are often directly interrelated. Resignation and lack of initiative common to the deprived neighbourhoods often results in their not receiving the proportional share of public investment. Hence building capacity to accommodate the change can substantially influence ability of the neighbourhood and its social and interest groups to get a fair share of public investment and subsidy of both types.
   
• Funds for public extraordinary funding are limited, the problems are many and they occur in many places. As the extraordinary funding has to be used with maximum political benefit, it tends to be allocated for time as short as possible, measures as effective as possible. Therefore authorities tend to prioritise "pump-priming" above total subsidy as this is supposed to help building the momentum that is carried on by the market and voluntary forces. On the other hand, the nature of representative democracy often leads to placing the immediate resolution of recognised problems higher than fundamental changes. Together, these two constraints make it difficult to get funding for long-term fundamental change that is required to reverse negative development trends in deprived neighbourhoods.

The interests of separate stakeholders and the neighbourhood community as a whole may be quite different from the objectives of the public authorities. Individuals are oriented to improving their own quality of life with least of effort. It creates competition between different neighbourhoods and interest groups for increase of ordinary and allocation of extraordinary funding. The contradiction of public interests, individual interests and real nature of problems can best be resolved by awareness, mutual confidence and working together on the problems.

Getting priorities right – or creating synergy

Summary: Use the extraordinary funding efficiently: do not confront a choice between resolving the problems and building capacity to accommodate change – use synergies of both

The extraordinary public funding to alleviate problems is always creates a problem of choice: is it more efficient to alleviate problems or change a fundamental aspect that causes these problems to emerge? Or, from another angle: to invest in "hardware" or to cover running costs of revitalisation? While the answer to both questions is clearly: both at the same time, it may be difficult to achieve in practice, and not only because political systems want to spend less and achieve quick successes to satisfy the electorate – many stakeholders have different contradictory interests. The polarity of problem alleviation vs. changing the fundamentals is not the only polarity involved in this issue:

• How to make regeneration sustainable? In other words, how to prime the pump? By providing temporary gap subsidy (e.g. subsidising activities that are initially loss making), or building capacity of the stakeholders that they are able to overcome problems by own effort? What is more effective from financing point of view – incentives to particular actions or improvement of overall reputation of the neighbourhood?
   
• How to determine effectiveness of measures, or how long and how much does it take to achieve sustainability? When to stop throwing good money after bad money, yet not to throw the baby out with the bath water?

Lets us use a metaphor of pump priming to illustrate the complexity of the task. Let us say your house is on fire, and you have to put it out. You are only three persons, there are two buckets, an open basin somewhat far away, and a long hose attached to a good efficient pump which has to be primed before you can pump lots of water on the flames. What would you do? Just to carry water from basin directly onto the flames leaves one person uninvolved (only two buckets) hence resources wasted. Use two people with buckets to prime the pump while the third one is pumping, and when the pump is primed two will pump and one will direct the hose? Then the fire might spread too far as it keeps burning while you prime, then even the pump will not extinguish the fire as it is too late. Have one person pump, another one carry water for pump priming, and the third one directly onto flames? Then it might be not enough water to prime the pump at all as one-two buckets are not enough, and it leaks while you bring more. Got the picture? The expected benefit is that after your pump is primed it is enough to have two people – one to pump and another to direct the hose, and the third can carry things out of the fire. The same problem may be further aggravated if two people are called back to base as soon as the pump is primed. The remaining one can either pump or point the hose at flames, but cannot do both at the same time, and the fire spreads again, while he runs back and forth with the bucket. Then the base sends the two people back, and read above from the start. Hence the trick is to convince one more person to stay for a while after the pump is primed.

There are no universal recipes how to resolve issues of prioritisation. Many problems have to be alleviated or at least softened before any awareness and capacity building can start, as it requires confidence of the stakeholders in regeneration and mutual trust. It takes a relatively long time and much money to have development taken over by market forces, and that speaks for awareness and capacity building against gap subsidies. Awareness and capacities built last longer after subsidy is withdrawn than activities generated by subsidised monetary incentives. Such activities tend to cease when the subsidies are withdrawn, unless other incentives are built simultaneously. Yet starting conditions are so bad in many of the deprived neighbourhoods that the stakeholders simply cannot mobilise any resources to invest at the beginning, if such a "starting capital" is not provided. The best advice is to design the extraordinary funding multifaceted, so that multiple issues are addressed simultaneously, and flexible, so that it allows swift changes according to results of monitoring. In any case, if the negative trend is not reversed, the insufficient extraordinary funding is wasted and results in forced increase of ordinary funding. That may warn against starting without ensuring or at least envisaging the sources and feasible extent of necessary extraordinary funding.

Using Public Funds to attract other investment

Summary: Introducing special programmes can help regeneration of a neighbourhood, but such programmes are limited in scope, scale and time. They should be used to attract other funds. Existing resources – both ordinary public funding and individual efforts of the citizens and stakeholders – must be employed for regeneration if its effect has to last. While public funding can be made more cohesive by administrative effort, individual efforts must be guided without taking control over decision making.

The concept of employing public investment to attract private investment is widely used in case of physical infrastructure for triggering further commercial development and business in the neighbourhood. The principle can well be extended to other fields of "soft" investment, as providing free knowledge and making action of multiple stakeholders cohesive. It is not easy to attract large-scale private investment into development schemes, and it may take a major improvement of preconditions, often beyond the powers of a neighbourhood regeneration programme. Yet consistent long-term efforts are usually rewarded by creating credibility and investment starts flowing in.

• Existing ordinary funding can often be used with greater effectiveness. It is usually arranged sectorally without cross co-ordination, hence there are reserves for synergy. Yet you must remember that it may be easier to give impact to regeneration with flexible new funding, than move around existing ordinary funding bound by multiple regulations. There are many ways to achieve that synergy, but the most important factor by far is introduction of cross-sectoral criteria of success to public administration units. It can also be helped by devolution of responsibilities to the neighbourhood level, provided same criteria are introduced on the local level. An interesting case is the local council experiment in Copenhagen (see Kongens Enghave Case Study)
   
• Perhaps a resource most overlooked is the effort that individual stakeholders are putting into the development of a neighbourhood. By sheer volume of activity and investment, it many times exceeds public support.

Stakeholders taking and stakeholders giving: In urban regeneration, the stakeholders are seldom only giving or only receiving. Neither should they be. While the objective of regeneration is to make neighbourhoods sustainable by reversing the negative trend of development and then decrease public subsidy, the stream of public funding will not cease completely as it comes even to the wealthiest neighbourhoods in the form of investment in physical infrastructure and its maintenance, and some social and education institutions. The issue is how to help the stakeholders contribute to the future of their neighbourhood, both giving and taking in meaningful ways. The target may be defined as "how to give something to the stakeholders so that they become able and willing to contribute more to the common benefit in return"; It is important that stakeholders traditionally seen as "funders" show more involvement other that giving funds (that is often a position of public authorities), and start "receiving" e.g. transferring some of traditionally centralised responsibilities to the neighbourhood level and voluntary effort; and stakeholders traditionally "receiving" (as the unemployed) would give that voluntary effort. Hence it is important to achieve that everyone contributes – directly or indirectly - to the extent of his capacity and does not feel cheated.

The issue to tackle is how to combine direct control of regeneration actions (managed by a local authority or any kind of a programme office) and targeting actions, independently taken by the individual stakeholders, by building their awareness of regeneration objectives. It is important to remember, that not all stakeholders may be willing to accept additional responsibilities, and many of them in a deprived area may lack individual and organisational capacity to take individual actions benefiting regeneration, hence such capacities may have to be built. Ultimately, success of regeneration depends on individual actions of the stakeholders – the managed programmes can only give directions and build awareness and capacities, as their funding and therefore existence is limited in time. Here, it is important to implement the principle of contributing by non-involvement – so that individual, unorganised and ungoverned action helps regeneration, as only few stakeholders will choose to associate into voluntary bodies for regeneration purposes after an intensive managed programme is completed.

Sharing Funding Responsibilities

Summary: Combination of various types of funding: using concepts of Co-financing and Contribution "in-kind" helps you add new funds to existing funding

Funders want local commitment to be proven by the participation of recipients in the effort you want to be funded. They will look for a combination of available funding and the effort of stakeholders with new financing to serve your project purposes, using monetary and non-monetary incentives to generate participation of the stakeholders bringing in their own resources and finances.

Funders do not like to be lone funders. They have grown wise enough to know that, if the recipient does not put anything in himself, it is not a priority to him. That bore a concept of funder-recipient co-financing – ‘give something yourself and I will add more’. This is what "co-financing" means: recipient and funder pool their funds into one bag controlled by the same agency for the same project for same objectives.

• For "in-kind" co-financing, you can give available labour, space, and cover any cost in local rates, and the funder gives you cash (either a grant or a loan) for something you cannot pay for. In cash management, that can lead to different solutions: effort and resources can be pooled under same control, as in co-financing concept, or requirements can be relaxed by having different management while targeting same objectives. In multinational projects (as IUPM), different co-financing rates allow to equalise factual contribution of partners in different economic situations.

Some recipients are so short of cash (or quashed by exchange rate and labour cost differences - in case of poor countries), that the concept started depriving the poorest of support. Imagine – you need a couple of million USD in support, requested co-financing rate is 80/20, so you have to come up with half a mil, and in your country half a mil is 100 persons salary for 10 years. If you had that cash, you would not need any donor. The funder still cannot give requested 2 mil unconditionally – he wants you to commit something, as without your financial participation he has no other way to determine if this is a priority to you. What to do? A solution came out in a concept of "in-kind contribution".

• Wiser funders, who value overall effect on development more than their own administrative influence have gone further in the multi-funder approach, pooling resources of several funders to provide co-financing to the recipient. Yet sometimes in such schemes each funder is compelled to stick to his own rules (e.g. different time-frames for disbursement and termination of programmes). These concepts are mostly used in extraordinary funding., Applying for and managing implementation of such co-ordinated and especially uncoordinated multi-funder support may become a reporting and accounting nightmare, as it always means playing according to several systems of rules at once and may annihilate weaker accounting capacities.
   
• More importantly, co-financing and "in-kind" contribution concepts allow using existing financing to attract new funds. Then the funder rests assured of concerted effort - that his support does not go for something irrelevant, since the recipient is putting considerable funds in the same effort himself.
   
• You will have to motivate the stakeholders. You can combine monetary incentives (tax deduction, co-financing) with non-monetary incentives, as offering access to information, training, finding partners, offering facilities, and many other.

Do not let these concepts confuse you in accounting terms - funders may request many additional assurances and procurement procedures. Yet accounting complexity can always be overcome by commons sense supported, where inevitable, by specialist competence. The notion of connecting existing financing to additional new funds for the same purpose is a very important technique in quest for sustainability. In the sense of concept, it goes beyond attracting external funders. The same principle – leading to demonstration of commitment by putting in co-financing - is used for attracting stakeholders’ effort, e.g. asking local businesses on a square to contribute to costs of re-paving and new lighting.

International Funding

Summary: International funding can help to extend regeneration activities, facilitate experience exchange and support innovation. But it is important to think about the effort of fund raising.

There is a huge gap: institutional, administrative, but also conceptual (in understanding local needs of a neighbourhood), between any neighbourhood regeneration programme and foreign and international funders. This gap is supposed to be filled by national governments and agencies, but they are not always capable of bridging that gap properly.

After having found out how scarce the resources for regeneration are in many communities with deprived neighbourhoods, some of the programme planners start turning their view towards international financial sources. The international funders normally operate through locally established or commissioned institutions, and one must find those in one’s one country to check for whatever is available. As the international sources have many political objectives, while officially targeting benefits of the recipient country, their grant programmes often bind the recipient in different ways, sometimes failing to satisfy the real needs of the recipient.

Such sources can be roughly divided into international banks, multinational (and now often multi-funder) support programmes, and private charitable trusts and foundations.

• Banks, be that the World Bank Group (WB), European Bank for Reconstruction and Development (EBRD), European Investment Bank (EIB) (or their likes in Asia and the Americas) lend money or buy equity in development projects. Their grant programmes are diminishing and they are oriented exclusively to prepare lending (building capacity to borrow). In addition, their mandate is to deal almost exclusively with the national governments that hold membership in those institutions through their Ministries of Finance. International Finance Corporation (IFC) in the WB Group finances private sector, and under right circumstances may be of interest to some business stakeholders in the neighbourhoods.

Those in Central and Eastern Europe, apart of various EU programmes, have more choice, as there are some bilateral (country-to-country) programmes. They have very different institutional arrangements, varying from country to country. They normally bind the recipient with using services and products of the donor country, often limiting effectiveness of this support to the recipient.

• Support programmes sometimes tend to be sectoral, supporting a narrow aspect (environment protection/decrease of pollution; energy saving) or targeting capacity building in administrations, hence there are rather few of them that the holistic projects of neighbourhood regeneration can benefit from. (Raymond, here I will add something about ESF and structural funds – I need to research a little and have no time just now)

In the European Commission currently there are several Directorates General (DG) that deal with issues and have programmes that may concern aspects of neighbourhood regeneration. There are a number of sectoral programmes that may be partly relevant to the issues of regeneration, depending on the set of key problems. The most relevant are Community initiatives URBAN (which is basically handled at the national level and hence cannot help you directly) and INTERREG at DG Regio financed through Structural Funds, namely European Regional Development Fund and Fifth Framework Programme for Research, at DG Research (http://www.europa.eu.int/comm/research/fp5.html).

• While a private charitable trust or foundation may support a project in a developed country, it is difficult to expect anything but a small amount for very specific issue.

Private funds and charity organisations are often exclusively committed to subsidising restoration of cultural heritage buildings or poverty alleviation programmes. A few are said to consider responding to calls for integrated effort. (E. g. The Getty Grant Programme, until now exclusively devoted to cultural heritage, Ford Motor Company Fund, and The Ford Foundation – all USA but engaging internationally) Nationally operating funds and charities will perhaps follow the suit. Although a possible source, they tend to cater to those in extreme need or to innovative ideas, and that may not necessarily be in your interest to twist things to qualify for their support.

• Many European support programmes are targeted at international collaboration projects, making a specific number of countries one of many conditions to be eligible for support. It is perhaps the best use for international funding, as exchange of emerging experience can create added value to your activities by helping to get different insights into your situation and inspiration from others.
   
• Innovation is another criterion that the international funders willingly support as long as it sound plausible to them, as they know that local governments are more conservative in this respect.

Generally, the possibilities and usefulness of obtaining international funding are very different from country to country, and it is difficult to give any universally useful advice. One thing that has been proven many times is that international fund raising takes a lot of time and effort, and it pays involving someone knowledgeable in the field already at an early stage and - inevitably - for helping to write applications. In many countries there are free-to-use services (as Eurocentres and National Contact Points) that may help you to find information, but their scope of assistance is very limited.
For deprived neighbourhoods in re-developing countries foreign and international funders can be occasional source for support. Seeking their support is not always worth the trouble as they target lending or subsidising within their own political goals and constraints while neighbourhood regeneration objectives may be incompatible with these goals.
There are many good and responsive people who handle grant and loan applications, but one must watch out. The main warning to be issued here is the grant trap warning, although it is relevant also to national funding. Hunting grants one may end up receiving funding for activity that is less than important to regeneration objectives. That is worse than getting no funding at all, as one is compelled to use time and manpower for something irrelevant to objectives. As foreign and international funders often have more constraints and discrete targets than national, this is often the case. Then, paradoxically, one is actually better off having less funding. Hence before starting to commit oneself to international fund raising it is crucial to make sure that the funding available may be used relevantly.

Regeneration without funding

Summary: Regeneration is an expensive undertaking. Yet there are periods when there is no funding available. Should these periods be gaps of activity? Use effort to build awareness, develop preconditions to regeneration and raise funds, but do not initiate action if there is no funding available to build and support participation capacity in the neighbourhood.

Lack or absence of money often has a paralysing effect on regeneration activities. While it is possible to do start doing something without having considerable funding in place, it is difficult to expect that deprived neighbourhood can be regenerated without extraordinary financial support. Initiating action that cannot yield results will inevitably create disappointment in regeneration among the stakeholders. A second start will be much more difficult as once failed the confidence is very difficult to bring back. You must be aware that: (i) starting with little or no funding, (ii) having significant part of your funding suddenly taken away under the programme implementation, and (iii) having to stop activities for any lengthier period - are three totally different situations with different implications.

• It is possible to involve volunteers: residents, local businesses and, often, outside stakeholders, provided they believe in the future of the neighbourhood and have capacity to participate. Hence planned activity has to match their initial capacity.

Extending the metaphor of pump-priming, if you only have a couple of glasses of water – do not put it on the flames, better look around to see if there is someone stunned who needs a splash on his face to wake up and start helping you.

• If existing financing can be used better - provided deprived neighbourhoods get their proportional share of funding and service, and cohesion of unmanaged activities can be attained, some progress can be achieved without massive extraordinary allocations from the public purse – provided stakeholders have capacity to participate in regeneration.
   
• The best targets to spend the little money you have, are on individual and group capacity building, getting to know the neighbourhood, formation of attitudes, mutual confidence building, and shared visions.I if properly balanced with fund raising efforts these will create the main preconditions for sustainable development of the neighbourhood.

Same priorities: awareness, capacity and common objectives - apply if you DO HAVE funding in place.

This is the key dilemma of financing regeneration. While a lack of funds does not have to doom stakeholders to resignation and inactivity, awareness, synergies of activity and voluntary effort alone can hardly reverse the trend if stakeholders do not have capacity to generate necessary level of activity, and there is no confidence in the future of the neighbourhood. Neither capacity nor cohesion of activity can be achieved without considerable public support. Determining capacity of the stakeholders to decide what can be done with available funding is one of the most difficult tasks in initiating neighbourhood regeneration.

Avoiding the Grant trap

Summary: Money matters but not for money’s sake – do not fall into a grant trap

Fund raising often becomes a central issue in regeneration: not only because many severe problems cost money to alleviate, but also, in a longer term, to "release endogenous resources" – i.e. to find currently unused potential among the stakeholders, costs effort and money. Yet the issue is not just where and how to find the money – it is how to make sure that searching for money does not take too much effort and that funds raised can be employed effectively.

It is important to remember that there is no free lunch. Asking for grants almost always requires readiness for a compromise.

• Fund raising is a time-consuming effort, and in case of additional funding from external (e.g. international) sources requiring special expertise that is itself expensive to commission. It may save a lot of time and money adopting a sound approach to fund raising. The effort to get more money may be more effectively spent actually doing something in the field!
   
• Going for any available funding may result in getting funds for something that you do not really need to do. (Especially funding that seems easy to get) This may become worse than getting no additional funding at all as you will have to spend your time on carrying out something that does not really help. Therefore, it pays to take time to consider your needs seriously; having said that, funding institutions often have criteria, rules and constraints that make it difficult to fit the particular real life priorities of a neighbourhood into an eligible frame. Making concessions to the eligibility rules pays as long as the key issues and targets of the activity you want funded do not shift;
   
• When funding is allocated to the neighbourhood without clear strategy and measurable objectives it may create additional or voluntary activities that improve the picture and gives hope for improvement but do not really trigger any fundamental changes; furthermore, these activities may cease when funding is terminated.

The real challenge is not to raise the funds but to make sure that funding flowing in the area develops additional capacities and that the effect produced by this funding does not dissipate. You have to anchor the "enabled" stakeholders in the neighbourhood, otherwise they tend to leave the deprived neighbourhoods as soon as their situation improves, and your investment leaves with them. That may mean creating jobs for the unemployed, improving conditions for small businesses, and upgrading housing. However, identification with the place and emotional attachment is no less important than issues of material well being

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