“Crowdfunding” refers to the use of the internet to raise money from a large group of people for a cause. The canonical example is Kickstarter, whose donors have pledged over $230 million since its founding for a variety of creative projects. Although most Kickstarter projects seek only a few thousand dollars, seven have raised over $1 million in donations to go towards projects to create new products, record music, print a comic book, and design new video games.
With the political climate in many places remaining hostile to new taxes, and cities in need of infrastructure investment, many are considering whether the principles of crowdfunding can be applied to urban infrastructure investment. Two projects I have heard about are doing just that, and I suspect many more are waiting in the wings.
An entrepreneur working in Boston is developing an idea to create a crowdfunding platform for “urban improvements.” Designed to be deployed at a small scale, the target could be small-scale neighborhood improvements or loans to local businesses. The entrepreneur is exploring connections with neighborhood groups and refining his business model before going public.
A project that launched this week is already collecting donations for urban infrastructure in the heartland. A friend of mine in Kansas City was frustrated when a public meeting about a planned streetcar line devolved into a debate about the proposed funding mechanism — a property assessment along the streetcar’s route. He’s launched neighbor.ly, a civic crowdfunding platform launched this week with two initial projects: $10 million for the streetcar and $1.2 million to expand the city’s bike sharing system. In exchange for giving money, donors can receive tokens of appreciation which include “pixels” on the side of the light rail cars (illustrated to the right), or a variety of free perks to use or advertise on the bikes. Donors have already pledged over $400,000 towards the bike system, although most is apparently from a large health insurance company.
Only time will tell whether these initiatives will raise the “real money” needed for public infrastructure. I suspect naysayers will be proven wrong and they will meet with some success for two primary reasons. First, they’re part of an ongoing revolution in public finance towards funding sources closer to the direct beneficiaries of public investments and away from federal and state sources. This interesting article notes more and more transportation infrastructure is funded by “local option taxes” and many of the new light rail systems have been largely funded by local or regional sales taxes (Including in Denver and North Carolina).
The second reason civic crowdfunding will succeed is that it follows a broader ideological shift away from taxation and traditional public finance. The right will like it since it reduces the reliance on mandatory taxes, and the left will like the ersatz grassroots character. Although decentralized, crowdfunding will inevitably result eventually result in tension between donors and elected officials, who presumably will retain permitting authority. This issue can be seen in Detroit, where private donors who pledged $80 million for a new streetcar argued for a curbside alignment while planners sought a more efficient alignment in the center of the street.
The logical culmination of postmodern public finance may be aided by the Jumpstart Our Business Startups (JOBS) Act. Up until now, crowdfunding payments have been nothing more than donations, although the JOBS Act liberalizes federal rules to allow for equity crowdfunding for private startups. This will usher in an interesting period of financial innovation, and will theoretically make possible crowdfunded public private partnerships (PPP).
Like with fee-for-service and local donation schemes I discussed in a previous blog post, these ideas inevitably raise equity concerns. Will only wealthy neighborhoods — and cities — be able to fund public investments? Will funders only give to flashy investments (like bikes and streetcars) while the prosaic (and hidden) infrastructures like water and sewer lines crumble? To a certain extent, existing funding mechanisms already results in these problems. Perhaps public agencies can get ahead of the trend, requiring a portion of all crowdfunded donations be reserved for investment in low-income areas, or spent on agency-determined needs.
Only time will tell whether projects like neighbor.ly will result in a major new trend for funding urban infrastructure, or remain a whimsical footnote only useful in certain contexts.