Technology as infrastructure is rapidly emerging as both a sector and credit factor unto itself in the municipal bond market. Those states, cities, counties and towns applying technology to assess and deliver services more efficiently and effectively are positioning themselves to be future ready.
Actions speak louder than words; the number of municipalities around the nation implementing a wide variety of technology-driven projects are in the triple digits. Initiatives in the current top eight tech categories of hardware, software, data, systems, apps, sensors, blockchain and fiber optic broadband are underway, helping governments on all levels be successful in numerous functions, from civic engagement and financial transparency to mobility and public safety. Moreover, with each technological advance, governments gain new visibility and actionable insights into difficult problems. When these technologies are applied to governmental functions, they fall under the broad catchphrase “govtech”.
Credit and Investment Implications
The credit and investment implications are positive for those municipalities and public agencies engaging technological solutions. Time and again, these solutions are crucial in developing and implementing public policy to address ever-faster economic, demographic, environmental and technological changes. They lay the groundwork to be ready for next-generation infrastructure, ensure better educational outcomes, offer greater economic opportunity and output, and provide improved healthcare. In a world increasingly faced with a digital divide between the technological haves and have-nots, these municipal and public agencies are on the have side.
Those not embracing technology end up on the wrong side of the digital divide. They face the prospect of diminishing financial performance, declining credit quality, increased borrowing costs and perhaps even lowered access to financing.
GovTech At Work
This is the first in a series of four pieces on govtech’s influence in government and its credit implications for both municipal borrowers and municipal bond investors. Starting with a summary of the eight major technologies currently being applied, the series will go on to cover how technology is permanently changing how government itself is organized, show how sensors in transportation are solving a public health problem, and how a simple phone app is likely to bring faster internet connectivity to underserved rural communities.
Making Cities Smart
If the central component of government is providing essential services to the public, then it must be able to plan for and ensure its two key components. First, it has to be able to provide those services. Second, it has to provide people the ability to access and utilize the services. This is particularly true in cities across the nation. Many are experiencing unprecedented population growth that is not expected to abate any time soon. Correspondingly, many have embraced govtech to systematically approach in providing services to their swelling ranks of residents.
They have been dubbed “smart cities.” The U.S. Conference of Mayor’s President, Mayor Steve Benjamin (Columbia, SC) succinctly made the point. “The drive to make cities ‘smarter’ is all about harnessing data and digital technology to meet the challenge of doing more with less,” he said. Acknowledging that “technology alone can’t solve every urban problem” he added that “it’s a powerful and cost-effective tool for helping cities accelerate progress.”
Show Me The Data
To do some data-gathering of its own on this rapidly emerging trend of city-as-living-tech-lab-and-incubator, the U.S. Conference of Mayors teamed up with IHS Markit, a leading company for information and analytics.
In more than 122 cities, the collected data documented some 312 projects addressing core municipal service functions: energy and resource efficiency, governance, healthcare, mobility and transport, physical infrastructure and safety and security.
Taking a step back to look at the big picture, the report demonstrated smart city projects are nascent, vast and ambitious. Maggie Shillington, one of the analysts with IHS Markit’s Internet of Things and Smart Cities Practice who worked on the Cities of the 21st Century report, observed that “with initiatives and goals as big as affecting climate change to as specific as generating revenues from smart parking applications, smart cities nationwide are active incubators in applying data and technology to address a wide range of important social and municipal issues. The results of the projects that have been completed created tangible improvements for those cities.” She went on to note that while many of the smart cities covered in the report just started their projects and are in the process of implementation, they remained optimistic about the final outcome.
But how, exactly, are governments using technology to assess and deliver municipal services?
Hardware and Software
Some initiatives are hardware and software upgrades. That used to mean buying a few new computers. Now it’s creating fully integrated technology systems. For example, Tamarac, Florida comprehensively revamped its entire resource enterprise planning system to become fully digitally integrated, including replacing every desktop, laptop and mobile device. It is a critical management tool to assess and deliver municipal services in an efficient manner.
Because we interact with our smartphones, tablets and laptops so often, effectively we sometimes slip into thinking of technology as a bunch of rectangular gadgets with screens. We forget that the content driving much of what we see and use on those devices is derived from data technology. Governments have an enormous amount of public data collected from all the services they provide. Offering the public access, more than 85 cities have open data portals where citizens can access literally hundreds of data points on nearly any topic.
For nearly a decade, the City of Chicago has been a leader in this, creating the Department of Innovation and Technology and launching back in 2010. From taxi trips and business licenses to crime and food inspections, there are several hundred data sets. The data can be mapped and graphed online or downloaded to mine, analyze and customize. Following suit are many other urban centers, such as Los Angeles and New York. It’s not just cities. The highly respected Rockefeller Institute of Government recently launched an interactive data portal offering information on trends in New York State.
In addition to devices and data, technology is integral to developing comprehensive solutions to many daily issues municipalities grapple with. Traffic is usually high on that list. Beyond moving people and things between point A and point B, the City of Columbus, Ohio saw transportation in its pure form—providing people critical access to opportunity, be it work, healthcare or education.
Additionally, transportation solutions could reduce adverse environmental impacts. To effect that, they are developing Intelligent Transportation Systems focused on host of outcomes, including connected vehicle technologies, electric autonomous vehicles and traffic management. With a wide array of partners, from Ohio State University and the Greater Columbus Art Council to Honda and ATT, the city is engaged in roughly 120 transportation projects.
We’re all familiar with the plethora of apps we can download on our devices, from Waze to Candy Crush. For municipalities, an app can be a simple but very powerful technology, creating multiple positive outcomes. Take the “311” application now used in nearly every American city. Boston’s BOS:311 is a good model. In spring, as the snow melts away, a fresh bloom of potholes planted by snowplows during the winter now blossom from the streets. When a proper Bostonian sees a pothole that needs fixing, they tap on the “New Report” button. A list pops up of common problems. No shock, “Get a Pothole Fixed” tops the list. Take a picture with the phone, upload it, and the GPS nails the location down to the exact spot. Another tap creates a time-stamped report, instantly categorizing, labeling, logging and sending it to a municipal-services responder.
It can be tracked from that point forward, including by that proper Bostonian who reported it. Yes, the pothole got fixed, proving the application’s effectiveness as a public services management tool. But the app didn’t just fill a pothole. It filled what is too often perceived—correctly or incorrectly—as a void in local government: transparency, accountability, citizen engagement and empowerment and trust. The app’s real function? Pure Jeffersonian democracy-through-technology.
For those who wonder what the “things” are in the Internet of Things (IoT), look no further than sensors. Sensors exist now that can detect any or all of the five human senses: scent, feel, sound, taste and sight. By lens and chip, they capture this sensory information, digitize it to transform it from unstructured information into structured, digital data, which then is able to be transmitted over the internet. The information caterpillar turns into a digital data butterfly.
Poetic analogies aside, the Dallas Innovation Alliance’s Living Lab saw what it could do in real life. The lab collaborated with AT&T, GE and Philips to install a smart streetlight system in the West End Historic District. In addition to better lighting, the system’s sensors collected and transmitted data on foot traffic and noise.
If it can be digitized—and if you can categorize it and assign a number to it, nearly anything can be digitized—it can be measured and the outcome assessed. The measured outcomes of installing just 11 of these units was unambiguously positive. In addition to the energy savings of an estimated 3,500 kWh (and the related cost savings for the city), the crime rate dropped 27% and business revenues increased nearly 17%. Revenues popped in large part because business owners, now able to tap into the foot-traffic data, could make more astute marketing and window display decisions.
Unfortunately, headlines have so often linked blockchain technology to cryptocurrencies that people think of them as one in the same. They’re not. Blockchain is the software technology; cryptocurrencies use the technology. But the definition of blockchain as a “distributed ledger technology” doesn’t offer much clarification. Instead of continuing through this looking-glass of tech-speak about tokenizing, proof-of-work algorithms and cryptographic hash-linked blocks, it’s much easier to understand blockchain by what it does.
The one thing blockchain does exceedingly well is create immutable records which, for government, is a near perfect fit. Keeping records is a core function of government, from driver’s licenses to real estate transactions.
To explore if blockchain technology could help simplify and manage the land records in Cook County, Illinois John Mirkovic, then the deputy recorder of deeds, prepared a Blockchain Pilot Program Report. Thorough and very readable, the report was quick to emphasize blockchain provides “a method of recordkeeping that is resistant to alteration, even by government officials.”
The report also noted that the cryptocurrency blockchain model would not be economical for the real estate transactions; the “massive amounts of electricity” necessary to confirm each transaction make it uneconomical. However, various components of blockchain technology could be readily applied to certain aspects of land conveyance. The participants in the study designed a real estate conveyance software workflow “that can be a framework for the first legal blockchain conveyance in Illinois (and possibly the U.S.).”
Moreover, the report found that “if the use of blockchain were to be extended to the maintenance of the [Illinois’ land] records system [it would allow] economies of scale and the ability to create true distributed consensus.” The public record at that time had over 190 million data points. In 2018 alone more than 166,000 homes were sold in Illinois, each generating its own set of documents and data. Even with an online option, the majority were paper filings. Blockchain could lower the costs of transactions and subsequent record keeping, but wouldn’t eliminate Illinois’ land offices. It would make them more efficient, secure and transparent.
Fiber Optic Broadband
Fiber broadband networks are the most important foundation for every future-ready community: the key to better educational and telehealth outcomes, greater economic opportunity and output, and all next-generation infrastructure. High-speed fiber optic broadband is the bridge connecting communities now at risk of falling on the wrong side of the digital divide.
In Utah, a group of communities comprising Salt Lake City’s suburbs and exurbs saw this divide developing in their area. The population swelled 10% since 2010 to 461,000. But there was no high-speed broadband.
To get that high-speed broadband, they created the ;Utah Infrastructure Agency to fund, build, own, and manage a fiber optic broadband backbone “last mile” infrastructure. Now communities are connecting to qualified internet service providers offering voice, video streaming, data services, and future content and device services.
Given there is no part of our lives, personal or professional, that aren’t influenced by (or dependent on) internet connectivity, the beneficial impact of fiber optic broadband on communities is immediate. Today, every business is a technology company in one form or another, from the local dentist office to the manufacturing plant. For each and all, high-speed and reliable internet connectivity for fast uploads and downloads is essential.
What This Means To The Municipal Bond Investor
In a world where most municipal credit analysis is forensic, driven by ratios derived from stale financial reports disclosed in unstructured data, having quantifiable, forward-looking indicators of credit drivers are essential to make sound investment decisions.
Consistently, government engagement in technology, and the level of that engagement—both in applications and within their own organizational structure—is one of the best indicators of a stable to improving credit. It is at the core of providing essential public services. Note that 49 of the 50 cities awarded recognition as digital leaders are also rated double-A or better by either Standard & Poor’s or Moody’s. Govtech makes communities better places to live.
That’s about all the data you need.