1. SMART FINANCING TECHNIQUES FOR BROWNFIELD REGENERATION BY PUBLIC PRIVATE PARTNERSHIPS Nico Groenendijk Centre for European Studies University of Twente, Netherlands Regions for economic change Brussels – 7 & 8 March 2007

2. BRUSSELS, MARCH 7-8, 2007 2 Outline of presentation REVIT: project background The ABC model Costs and benefits of regeneration Market failures Financial incentives & financing techniques 4 models of cooperation Lessons learned: 10 critical success factors

3. BRUSSELS, MARCH 7-8, 2007 3 REVIT Interreg III B funded January 2004 - mid 2007 Aim: development and mutual sharing of knowledge & expertise on brownfield revitalization, especially: 1.Community involvement 2.Multi-functional development 3.New financing techniques Partners: Hengelo (NL) Stuttgart (G) Medway (UK) Nantes (F) Tilburg (NL) Torfaen (UK) www.revit-nweurope.org

4. BRUSSELS, MARCH 7-8, 2007 4 The ABC model

5. BRUSSELS, MARCH 7-8, 2007 5 Financial, privatePublic, fiscalSocial I Operating profits and/or yield from selling property + II Operating profits and/or yield from selling property + fiscal benefits + III Positive externalities of redevelopment = TOTAL BENEFITS (I+II+III) IV Redevelopment and remediation costs (borne by private sector) + V Redevelopment and remediation costs (borne by public sector) + VI Negative externalities of redevelopment (esp. on neighbouring people and businesses) = TOTAL COSTS (IV+V+VI) Cost and benefits of regeneration

6. BRUSSELS, MARCH 7-8, 2007 6 Market failures 1. Externalities  Collective (or: social) benefits are not taken into account Including economies of scale in remediation efforts  Benefits for other private parties are not taken into account Including cost-saving effect of more efficient use of existing infrastructure

7. BRUSSELS, MARCH 7-8, 2007 7 2. Inability to deal with uncertainty (& risk & ignorance)  Uncertainty regarding the impact of actual and acceptable contamination on redevelopment costs  Uncertainty regarding (future) liability issues, and their impact on future land value

8. BRUSSELS, MARCH 7-8, 2007 8 Market failures call for:  Equitable cost- and profit-sharing arrangements among all stakeholders (including internalization of externalities)  Equitable risk-sharing arrangements By means of cooperation between public and private parties, using: Smart financial incentives (esp. for private parties) Smart financing techniques

9. BRUSSELS, MARCH 7-8, 2007 9 Financial incentives Cash grants Loans Tax incentives Risk insurance and relief Liability relief Capital attraction incentives Planning & land assembly assistance

10. BRUSSELS, MARCH 7-8, 2007 10 More complex financing techniques Tax increment financing Revolving loan funds (JESSICA!) Benefit sharing & claw back Development charges Development gains taxes & Planning gain supplement Integrated contracts Portfolio development <> separate project development

11. BRUSSELS, MARCH 7-8, 2007 11 Four models of cooperation I. Private development II. Public development III. Procurement & concession PPP IV. PPP Alliance

12. BRUSSELS, MARCH 7-8, 2007 12 Stage/modelI. Private developmentII. Public development III. Procurement & concession PPP IV. PPP Alliance InitiativePrivatePublic Private, public PlanningPrivate, with public assistance PublicPossibly privatePrivate, public FinancingPrivate, with public financial assistance PublicPossibly privatePrivate, public Site developmentPrivatePublicPossibly privatePrivate, public BuildingPrivatePublicPossibly privatePrivate, public Operating & maintenance (commercial facilities) PrivatePrivate, publicPossibly privatePrivate, public Maintenance of public facilities Public Private, public

13. BRUSSELS, MARCH 7-8, 2007 13 Ten success factors for cooperation 1.All parties have clear ideas about their own objectives and constraints, including their specific project cost/benefits 2.Public authorities should operate jointly (public consortium) 3.Early involvement of private parties 4.Selection of private parties based on competition; number of parties should be minimised 5.Involvement of neighbouring citizens and businesses (but not necessarily PPP- partners) 6.Selection of partners: Ability to manage processes and risks is more important than ability to execute specific tasks (these can be outsourced) 7.If private respectively public development with public respectively private contribution is feasible: forget about complex PPP models 8.Reasonable expectations as to the added value of PPP 9.PPP project should be large enough to justify upfront investments; portfolio development may add value 10.Composition of and “culture” in the project team is vital