Financing smart urban infrastructure that works at scale

Bill Eggers: From Deloitte, this is Government’s Future Frontiers, the podcast that asks questions today to help create tomorrow. I’m Bill Eggers, the executive director of the Deloitte Center for Government Insights. This episode comes to you live from Barcelona at the Smart City Expo World Congress, an amazing event that brings together key players across sectors from all over the world. So it’s an ideal place to explore this episode’s subject, urban transformation and the infrastructure of tomorrow.

I’d like to welcome three guests to this episode: my Deloitte colleague, Michael Flynn, Jeff Merritt from the World Economic Forum, and Phil Swan of the Greater Manchester Combined Authority.

Could each of you first say a few words about yourself?

Jeff Merritt: Sure. As you said, I work for the World Economic Forum now. I’ve built out a global effort there focused on urban transformation. We work with cities and local economies around the world, seeing how we can build robust, multi-stakeholder communities to drive impact on the ground, how do you take these global ambitions and deliver that real action.

Eggers: That’s wonderful. And Phil?

Phil Swan: Yeah, great to be here. My role in Greater Manchester Combined Authority means I lead digital initiatives across the city region, of 2.9 million people of Greater Manchester, in the north of England.

In this context, probably two things are most relevant: One is I have a CIO hat for our organization, which includes a fire service, a mayoral function, and all sorts of things. But I have a policy function at the city-region level around infrastructure and infrastructure build [and] digital infrastructure. And it’ll be really exciting to explore how we’re unpacking some of that at a combined-authority level.

Michael Flynn: Hi, Bill. Yeah, great to be here, and really looking forward to this conversation. So, [I am] Michael Flynn; I lead the infrastructure practice at Deloitte, and within that, we’re looking at end-to-end delivery of infrastructure, particularly layering in, and a significant amount of digital in terms of making that more efficient with a real focus on operations. So, making sure that’s efficient, sustainable, resilient, and economically viable as well—so, it’s bringing in that resiliency, but starting that thought process from the very start at a strategy point of view. So that’s our focus in delivering for the future.

Eggers: Fantastic. It’s going to be a great podcast. So, Jeff, I’m going to start with you. At Davos in 2025, [where] you highlighted the concept of cities as test beds where innovation thrives under pressure. What are a couple of infrastructure domains—whether it’s energy, mobility, water, data, whatever—that you believe are most primed for large-scale experimentation in the next three to five years?

Merritt: First off, cities as test beds are sort of a given in some ways, right? Cities are responsible for 80% of global GDP, probably, and more than 90% of innovation starts in cities because they’re the places [where] people live. It’s where our thought leadership and our research institutions are, and the question ultimately is, how do you go from ideas into real implementation and impact?

And I think, in that vein, when we talk about infrastructure, for me it’s less about the particular vertical. If we’re talking about mobility or energy—and rather the question of business model. Business-model innovation will be the biggest game changer to determine our ability to develop the infrastructure we need because we know that we have such a significant gap between the needs in communities and the resources that we have. So, we have no choice but to find alternative models, and I think the private sector is key here. How can the private sector identify new funding mechanisms apart from just relying on government to foot the bill every time?

Eggers: You mentioned business-model innovation. But people mostly think of business-model innovation when it comes to the private sector. So, how are you thinking about business-model innovation when it comes to cities?

Merritt: Well, take your basic piece of infrastructure. The expectation oftentimes by default is that government will come up with the capital costs to pay for that, and then the operational-expense costs to maintain it. And that just doesn’t work anymore. In this day and age, particularly coming out of the COVID-19 pandemic, most cities are running significant budget deficits—and so infrastructure development has stalled. And so, some of the solutions that we’ve been looking at, I’ll give you an example from the city I live in, in San Francisco. We worked with a startup, rolling out EV infrastructure, electric vehicle–charging stations. But instead of asking the city to pay for the infrastructure, they said, can you give us right-of-way access?

Can you make a fast permitting process? And if so, we will cover the cost of a pedestal-style EV charger. We’ll connect it into the nearby building. It will run off of their electric current, and we will give them passive income, so it doesn’t cost taxpayers a dollar. It puts the infrastructure we need. It creates good jobs, and it creates income for the city residents. We need more ideas like that right across every area of infrastructure.

Eggers: Yeah, I think it’s a great example of what we’re seeing all around the world: We’re seeing a whole new wave of public-private partnerships and creative financing mechanisms that we really didn’t see 10 [or] 15 years ago. Michael and I started working on infrastructure financing and P3s over 20 years ago, and it was mostly very confined to certain areas.

Well, Michael, Jeff mentioned the finances: According to our Deloitte estimate,¹ trillions of dollars are going to be needed in the next decade to transform infrastructure for the future. What are some of the most prominent funding and financing mechanisms that government leaders, whether in cities or elsewhere, should be considering to plug into this massive funding gap?

Flynn: Yeah, Bill, the numbers are estimated at least US$5 trillion a year to catch up and keep up with the infrastructure needs, and that’s for the next 20, 30 years. So, it’s hundreds of trillions of dollars all around the world. If you take that US$5 trillion a year, at best, the public sector can fill about 50% of that, right? That is, at best. And it’s probably a higher number than five. So, you have got to bring private capital in, in order to fill that gap. We’ve talked about it for years. We talked about the new business models. Jeff was talking, you know, that’s part of it. We call it private sector participation now because there is a bit of a connotation in terms of what PPPs are and P3s, and it can sometimes be inflexible and not flexible enough for what cities need to do, bringing in different parties. And so, we all talk about critical infrastructure. Actually, one of the most critical things that you need from a city point of view is that ecosystem that brings in the private sector, brings in private capital.

Now, that ecosystem should become critical infrastructure in terms of delivering. As you put it together in terms of what the model [is], half the battle is determining whether you have revenue potential or not. Can you charge somebody for the service that you’re offering?

If you can start doing that now, the potential for private capital becomes a lot easier. You’re looking at risk/reward, you’re looking at that certainty over revenue or what has to happen in order to do that, and from a public sector point of view, does it feel like an additional tax or not?

Is it a new service or is it not? So, there’s a lot of things that need to be considered as to whether this is a business model that might work or not. But [with regard to] infrastructure [or] city assets—using that public sector covenant is certainly something that private capital is very interested to invest in. It’s there [and] it’s ready to go.

One last point in terms of one of the challenges for [the] public sector is that it tends to try and put too much risk on the private sector. [It] just asks for a little bit too much in terms of the rewards that are available, but also it doesn’t think that it has to structure itself to allow that capital in.

And there’s a structuring piece, and oftentimes there’s a willingness on both sides. The public sector is keen to have it, and the private sector is keen to put it in, and it’s just that the deal structure doesn’t work in the middle. So, a lot of effort is being placed on how you get ready to take in that private capital. So, it just takes a bit more time and a bit more effort.

Eggers: Well, I want to get back to that in a few minutes with each of you because that has been such a sticking point. And we also have seen some big failures because the risk-reward-incentive structures just didn’t work over time.

Phil, you have a big portfolio there—[at] Manchester—[of about] 2.9 million people. You’re the leader of the digital portfolio and part of your mantra is doing digital differently. I’d love to hear what you mean by taking a different approach, and why it’s important to do so.

Swan: Well, thanks very much. A great question, Bill. I mean, in this, I’d like to respond actually to this, because I think it’s a really relevant conversation. So, we’ve spent about 50 million [pounds] on digital infrastructure at a city [or] region level over the last five years, and built out a dark fiber network to about 1,500 endpoints, public sector buildings, and other buildings across the whole geography of Greater Manchester.

And we did that [by] being quite creative about how we found funding to do that. Now, we have attracted some money from government to do that, and partly this was to push fiber out into areas of Greater Manchester, which were really poorly served. But we looked at our operating expenditures, and our existing wide-area network spends across our different public sector organizations, and basically brought that forward and capitalized it over a 30-year period, which gave us enough money to be able to put up some funds to be able to invest at scale, to build out, and get a right to use, through a commercial partner over a 30-year period […] a network. Actually, we got a lot more, Bill, than we thought we were setting up a procurement framework in the right way. And then on the back of that, we went out for jointly lighting that fiber, which Cisco eventually took on board and won and is running now for us. Because what we tend to find in a public sector context is [that] we overbuild our infrastructure across all the councils, across fire services, across police, across transport. We’re layering up our wide area networks actually. So, we’ve collapsed those down and collapsed the funding down to have a single infrastructure—digital infrastructure—layer. And, on the back of that, we are doing all sorts of smart-city activities and urban traffic control work and visualization of data flows into digital twins, which we couldn’t have done if we hadn’t invested in the infrastructure in the right way. But we were creative about how we borrowed against Treasury funds. So, we were able to draw down against some of our operating expenditure flows—some of that capital—to invest in infrastructure.

And that’s kind of what we mean by doing digital differently. We knew we had a problem, we knew we had a connectivity issue across the city region, and it wasn’t going to get addressed by the market quick enough. But, actually, it’s cashed out for us too in terms of savings. And we also put a 20% weight on social value in the procurement.

And that’s given us almost 6 million pounds worth of credit to work on the issues around digital exclusion, which is a real challenge as a society, and enabled us to think differently about how we connect community centers and all sorts of other functions too. But we have to do it collaboratively. And I think that’s the thing, the secret sauce that we have in Greater Manchester—we have a real willingness to get together and go, you know what? What is the problem? How do we collectively address this and really work with industry, not in an adversarial sense, [but] in a genuine partnership sense.

Eggers: Because that’s been, Phil, one of the big problems over the years with scaling a lot of the smart-city thing—just funding. The model that you’ve talked about, are you going to be using that for other smart-city projects?

Swan: Yeah, my team would laugh. We have a mantra. We don’t do anything that doesn’t scale. I’m not interested in any pilots of tech projects that are tech for tech’s sake. If it won’t scale, we’re not doing it. We’ve done a great piece, recently, working with companies on air-source heat pumps and retrofitting digital connectivity to them so we can do remote monitoring, and it’s tying into more monitoring work and other pieces as well in social housing, really cashing out for the social housing organizations; but having proved it and put residents right at the heart of that work, including talking to people on the doorstep about their experience of using air-source heat pumps as opposed to traditional gas heating. That’s playing into a wider 75-million-pound building-retrofit program. So, the same [approach] we’re doing across the digital road-network activities—some fantastic work with AI-enabled cameras looking at near misses of school children crossing roads that we weren’t aware of. Because school kids don’t cross where the pedestrian crossings are, they go where they want to go. And these reveal how many near misses there are. So that’s informing our decision-making, and we’re rolling that out across a digital road-network program in the city region.

So, you’ve always got to be thinking, is this going to scale? Is this going to scale? And how does it dock into policies and the wider strategic problems that we’re trying to address at a city-region level?

Eggers: Great. And so, Jeff, you’re working with cities all over the world. And the model that Phil describes [has] a lot of creative financing—are you seeing a big uptick in this sort of model to deal with the kind of revenue shortfall that Michael talked about, or what’s the maturity level of cities and what needs to change, possibly, to address that sort of massive infrastructure deficit? Whereas Michael said maybe the public sector is only able to do 50% of that. That’s a lot more private capital than we’ve probably ever seen going into infrastructure.

Merritt: Yeah. You know, for me, it’s less about the maturity level and the inertia around just keeping doing things the way you’ve done them for years and years and years.

You know, we have to be honest with the fact that [for] a lot of the challenges that we have to drive real change, we have to change the time horizon. We have to think in terms of decades, not in terms of years, but our elected officials are oftentimes [in office for] short terms, a few years, and they’re so focused on making sure that they deliver results fast.

And so, I think, for those reasons, we have to be very intentional about who we work with, who are focused on a longer-term time horizon. Perhaps don’t expect your elected officials to be the ones coming to the table with those ideas, but on the public sector side, pension funds, are thinking about long-term gains are great ones to get investing in infrastructure.

The insurance industry is both thinking about [the] short term and long term because they play dual roles. They’re worried about their short-term liabilities on property and casualty insurance, but they’re also investing in the long term. And so, I think thinking about which stakeholders we engage is very important, and there’s a lot of differences in terms of particular markets. So, it’s never going to be a one-size-fits-all approach. And understanding the local context and how do we engage the right stakeholders in those kinds of transformations is really key.

Eggers: Fantastic. Well, Michael, I want to get back a little bit to the funding issue. And you’ve been working on this for decades now, and so now you just gave a challenge—50% of the funding needs to be private capital, and you’re going and talking to government leaders, business leaders, others. We heard from Jeff about insurance and pension funds.

What are some other ways of closing that gap? And then what do government leaders need to do to get the risk, reward, and incentive structures right?

Flynn: So, there’s always a balance of risk and reward; there’s always a balance. How do you attract private capital in, but also not [have them] taking too much, [while] also [ensuring] that they get enough? And private capital is looking for a return. How do you balance that off? I think one of the things that we’ve seen is that the public sector has a budget for the year, and they can often, in various jurisdictions, throw that money at some of the easiest projects—the projects that you could easily bring the private sector in on. It’s a quick win. And some of it’s from that governmental point of view. The political issue is—I need to be able to deliver that project, therefore I’ll just use these public funds, get it done. It’s quicker, it’s done, and I’ve delivered it. And now if you step back and you say, well, how could I leverage those public funds? Could you get 2x [or] 3x on that at least in terms of bringing in capital by managing the risk, by putting in a portion of public funds? But then you’re able to leverage that. So, it’s a balance. And now you’re making deals that [the] private sector will come to, and they’ll understand the risk—[the] public sector is putting some money in to take away some of the unmanageable risk from a private point of view.

Now, it’s different—it does take hugely different thinking within [the] public sector to do that. It isn’t straightforward. It’s not what they do every day. So, there’s a complexity that [it] brings with it. It’s not rocket science. But it just takes that mindset shift to deal with that.

So, our view is that if you take […] and there’s ways of calculating it in terms of the level of public money that needs to go in on particular projects that can say, okay, with this lever of public money can [we] then leverage 70% to 80% financing from the private sector. That will get you done multiple projects.

So, for us, that’s the change, right? That’s the switch that needs to happen. Then it’s about capacity. So, whether there’s enough private capital looking at your jurisdiction or looking at the type of projects that you’re looking at, because again, there are different risk profiles on that.

In Europe [and the] United States, there’s plenty of interest in private capital. As you go to maybe some of the more emerging economies, that’s more of a challenge. And yet their infrastructure need is often higher. We talked about insurers. I mean, one of the things that we are also looking at is resiliency.

So, oftentimes, you have insurers paying out once the problem happens. So, flooding happens or climate issues [arise]: There are ways of at least even dealing with warning systems or setting yourself up to address those. The discussion that is beginning to happen is whether insurers should get involved in helping to finance the piece up front, in terms of making the infrastructure more resilient, putting in place the warning systems, because that ultimately should save [them] money in the long term.

And you create an investment that they’re willing to do. So, they’re already investing in infrastructure in other areas, but this actually aligns with their business model in terms of saving money in the future. So, there are many different models that may come, but it takes a little bit of innovation, a little bit of change in mindset, and using your public money strategically in order to look at the prioritization, but spread it as much as you can to leverage what you get across the market.

Eggers: And it’s going to take a lot of skills in government to do those kinds of very complex transactions, right?

Flynn: It does. But there are many people willing to try and help—they’re willing to invest time [and] human capital in order to help solve some of these things.

And so, if there’s a willingness on both sides, this is back to the power of having that ecosystem and willingness to go at this. There’s certainly people willing to help sort that out. Yes, you can bring in that capability, and a lot of it is that change in mindset and approach.

That will get you a significant way down the road. Capability will solve itself because there’s plenty of bright people in the world that can help solve this, and plenty of bright people who want to solve it for their investment reasons.

Eggers: Phil, your thoughts on this?

Swan: Well, yeah, I want to come in on that if I can. I just think there are a couple of other factors as well. The public sector and, I think you touched on it before, Jeff, there are issues around access to wayleaves, access to power, access to water. There’s a whole permitting system that often sits around infrastructure as well.

So, it isn’t always just about the money. Let’s look at where data centers are at the moment. There’s a huge amount of private capital ready to [be spent] on data centers. It’s the access to sites, the access to power, and access to water, as well as proximity to internet peering hubs and those sort of things as well.

And so, the pay element and the investment element are more being determined by nonfinancial factors, I would say, in that kind of space at the moment. So, it does vary. It absolutely varies [depending] on the infrastructure and on the kind of requirement and the ask around it. But I do think Mike’s absolutely right in terms of sometimes you need a public sector anchor tenant for some of these things.

Because the financials have got to cash out ultimately—haven’t they—on the investment. And by having an initial public sector investment in it, it can tip it into the feasibility category and derisk it sufficiently. And that is something that we try to take into account at a city-region level.

You know, what is our role in this? We don’t want to fund the whole shooting match with some of these things. But what our role in this can be is sufficiently to de-risk it to a certain extent that makes it a viable investment for whichever party is involved. But it does require a level of sophistication, as you say.

Eggers: Great. Now, Michael talked about ecosystems, and Jeff, you led the creation of the World Economic Forum’s Center for Urban Transformation to scale public-private collaboration. One great example of this is the “Yes SF” initiative we talked about earlier, in which Deloitte had also been engaged.

Could you tell us more about the “Yes SF” initiatives, and you have a presence here, and what you’ve learned about building local coalitions that move the needle on economic development and infrastructure?

Merritt: Yeah, so I mean, a big part of this effort that we call “Yes Cities” is about, one, changing the way in which we view challenges. So, just look at the flip side of the coin and recognize them as opportunities, particularly on the economic development side. Oftentimes, there’s such a focus on, we have a problem, we need a solution, without thinking about the fact that another part of your job as a city official is to grow the economy, which means growing the number of solution providers, right? And if you can get these pieces aligned—your economic development strategy with the problems that you’re trying to solve—it means that you are attracting and growing the companies that are not just selling sort of vaporware—they’re actually selling solutions that improve the quality of life for your residents.

And so that’s been the core of this, and getting city governments to work together. And I used that example earlier. I was talking about the EV-charging station. To speak to your point, Bill, we had to get, I think, seven different city agencies to work together to put those chargers in the ground.

And the reason is permitting, right? It’s really hard. It’s incredibly complicated when you’re talking about the transportation department, the public works department, the environment department—that type of thing. The reason that we were able to do that end to end, from the time that we first started introducing the solution and the startup to the city, to the time that you had infrastructure in the ground, was less than a year.

And how did that happen? Because we were able to connect the dots between a solution, the economic development strategy, which is ultimately what are the jobs that you’re going to create; and also, the upskilling that is needed. And so those jobs that you were creating were jobs for electricians, for example, and construction workers, where they were understanding new technology.

They were upskilling as a result. Those are jobs that, as an elected official, are very, very important. That’s the bread and butter of your workforce. And that ultimately, it was addressing the climate action goals, a whole lot of different priorities for different city agencies. And so that alignment is really key to enable the behavior change. You can very easily just get caught up in all of the bureaucratic processes, or you can recognize that these are opportunities for us to think differently.

And I think the biggest takeaway for this effort is, it’s not about the particular solutions, it’s about getting cities comfortable with a different way of problem-solving. Procurement is not always the answer. Sometimes, you just have to create space for the private sector.

You have to facilitate the conversations that Michael was talking about. I was having a great conversation with the city of Barcelona last night about affordable housing. And it was interesting because I had very similar conversations with the private sector about looking for new models of treating housing, more like infrastructure, and we just have to connect the dots there and facilitate that conversation and [that] new way of thinking. I agree completely. There’s a desire—we just have to connect the dots and make it happen.

Eggers: I love the idea of we have to look at public-private collaboration beyond simply procurement.

Merritt: Yeah.

Eggers: It’s so important. Okay, we’ve got to close up in a minute, but I want you all each to look out to 2035, and if you were to write a headline [about] cities, infrastructure, digital, and AI, what would a headline be of where you hope we can be?

Swan: By 2035, I’d hope our economy in Greater Manchester, which has gone from 66 billion [pounds of] GVA to 90 billion in the last eight years, is now at 120 billion to 140 billion as a city region. But importantly, it’s still a great place, an even better place to grow up, to get on, and grow old.

Eggers: That’s wonderful, Michael.

Flynn: Yeah, I would agree. It’s got to be a great place to live in, otherwise we’ve got this all wrong. So, I think when public and private sit together and the city just works, and it’s tech-enabled and it works for you as the citizen, whatever your day-to-day is. And you don’t see it, it’s seamless between public and private, but yet in the background it’s addressing all of your services that you do. So, I just believe we can live in a great city with all the back end, with a whole ecosystem solving that for us.

But as a citizen, it doesn’t really matter because it’s providing those citizen services in that seamless manner. That would be ideal. The infrastructure gaps have been addressed. Somebody else [is] paying for it. And it’s a managed piece, and all of that works in the background, and it’s no longer a blocker to providing a great city to live in.

Merritt: Yeah, I think for me, you know, I think [about] 2035, and I think about my kids, and how old they will be. Actually, my daughters will be entering the workforce at that time. And I think about what I want to see, I would actually love them to see government and the public sector as a place for entrepreneurship. That sounds in some ways sort of counterintuitive, right? But no, actually, the only way in which we’re going to change this relationship between public and private [is] if we understand that they’re actually not that different.

That, at the end of the day, the public and private sector should both be solving problems. They are just taking slightly different resourcing models to do that. And I would love to see my daughters want to be problem-solvers and be open to a career in either sector as a means for entrepreneurship.

Eggers: I love that. Or going back and forth across the sectors and being bridgebuilders—that’s what we like to call them. Well, this is a fantastic session—episode—and thank all three of you so much for joining us.

Thanks to my guests, Michael Flynn, Phil Swan, and Jeff Merritt for painting an inspiring picture of tomorrow’s urban landscape. And thanks to you for joining us.

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