In 2017, the UK city of Brighton and Hove asked citizens to help restore its historic waterfront. The Madeira terrace, a series of arches on the shore where Victorian tourists used to promenade, had fallen into disrepair, and to renovate it all would cost millions. Turning to residents in late Autumn last year, the city asked for donations to help revive a section of it.
The initiative was one of a growing number of crowdfunding campaigns run by cities. Crowdfunding is internet-based fundraising, where anybody can propose a project and make a call to the public for the donations it needs to get off the ground. Since 2009 it’s taken off, thanks to the success of the online platform Kickstarter, which has helped crowdfunding to become a reliable and effective way for ventures to raise money. The total pledged to projects via Kickstarter has ballooned to over $3.6billion and crowdfunding makes up 12% of new loans to small businesses.
The UK, the US, the Netherlands and many other countries are using online crowdfunding platforms which allow citizens to propose and fund civic projects. It is a means to raise money for proposals which otherwise fail to win investment, and brings the added benefits of a sense of democratic participation and community cohesion. But with their growth taking place alongside the decline of public revenues, the question that hangs over civic crowdfunding is whether the crowd is paying for what government should be providing.
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Fundraising for civic projects in cities has actually existed for over a century. New York City’s Statue of Liberty was part-financed by a mass fundraising effort organised by the newspaper magnate Joseph Pulitzer. Today, the difference is in the technology: posting projects on the internet and calling for donations is convenient and cheap — “basically zero cost” according to John Rossant, founder and chairman of the inclusive cities NGO the New Cities foundation — and it has a potentially global reach.
“I was interested in creating a space to the side of the state’s core responsibilities”
In the UK 45 local governments, over 10% of the total, currently crowdfund. When Brighton and Hove embarked on its project, it set out to test the case for full restoration by first reclaiming three arches of the Madeira Terrace. It set up a crowdfunding page with a target of £430,000 ($581,228) and began a publicity campaign for donations. It eventually beat its target by £30,000 (US$40,549).
Brighton’s crowdfund was run via Spacehive, a civic crowdfunding platform launched in 2012. According to Spacehive’s rules, projects have to reach their funding target before they are allowed to spend any of the pledges: if they fail to reach it within the set time limit, none of the pledges are called in. A similar model is run by the Voor je Buurt platform in the Netherlands, where projects must receive 80% of their goal before they can collect donations.
“I was interested in creating a space to the side of what you would call the state’s core responsibilities, where there is an opportunity for collaboration and for people to do things over and above what they might expect their tax dollars to go on,” said Chris Gourlay, founder and CEO of Spacehive.
Crowding out public funding?
The big question asked of civic crowdfunding projects is why they are necessary. When citizens pay taxes, why do they also need to fund projects via crowdfunding?
Tax reform in the US has eaten into a significant chunk of cities’ revenue. In the UK, by 2020 funding to local government will have dropped 77% from the 2015 level. City governments are having to find new ways of funding new developments which would previously have come from taxes.
Spacehive lists several projects calling for donations to save local libraries in the UK, hit particularly hard by the squeeze on public funding which has taken place in recent years. In 2016/2017 the number of libraries in the UK fell for the seventh year running.
McKinsey estimates that if the current trajectory of under-investment by government continues, the world will fall short by roughly 11% of the investment it needs to keep infrastructure and services working. In difficult financial circumstances, it is likely that local urban services will miss out in favour of big infrastructure projects. “In North America the need to modernise and build infrastructure is big,” said Rossant. “We’ve neglected it so badly for so long I don’t know if we do have enough resources to do that.”
But Rossant, and others, argue that, in many cases, crowdfunding isn’t a like-for-like replacement for public funding. Many of the projects which feature on crowdfunding platforms such as Spacehive and Voor je Buurt fall in the space between the public and private sector.
“It’s certainly not an alternative to government funding,” said Gourlay. “No matter what the resources are of the state or the private sector, there’s always going to be that space in between — what this model does is open up a space for collaboration between those different worlds.”
“If you had a dollar to contribute I’d rather you find a way to invest in your neighbour who’s putting his life savings on the line to open up a restaurant in an abandoned building”
When public budgets are tight, the pressure increases for politicians to spend it well. Many cities use crowdfunding initiatives to increase the impact of public investment, and to show them where to focus their spending. In the Dutch municipality of Haarlemmermeer, if a crowdfunding proposal posted via Voor je Buurt reaches 100% of donations, the city doubles its own contribution. London pledges to contribute up to £50,000 (US$67,572) for the best campaigns submitted to its crowdfunding page. The rigorous planning which crowdfunding proposals require to convince individual donations often encourages larger investment from both government and private organisations.
For Christopher Cabaldon, Mayor of the Californian city of West Sacramento, this is the real value of crowdfunding. “Crowdsourcing could be a way for the community to unleash civic-oriented but private activity,” he said. “If you had a dollar as a citizen to contribute, rather than give it to us to build a park that is on our plan anyway, I’d rather you find that there is a way for you to invest in your neighbour who’s putting his life savings on the line to open up a restaurant in an abandoned building”.
Crowdfunding based on donations is not the only model. Other crowdfunds run as a form of investment. In the US the Small Change organisation acts as a means for the public to invest in small real estate projects that fail to attract it. It aims to ensure that regeneration isn’t concentrated in up-and-coming or prosperous areas. Municipal bonds have long existed as ways for cities to fund public projects whilst offering a return on contributors’ investments.
In difficult circumstances city governments see civic crowdfunding as a means to get people to invest, helping citizens and businesses alike to invest money to projects whose viability they are able to measure themselves. Often, the projects it serves to fund aren’t big or flashy, but can make big differences to a community, and help to make the case for different kinds of investors to spend in the area.
For Gourlay, it’s this dovetailing of public and private investment which makes crowdfunding so valuable. “Previously we haven’t had a model that’s located collaboration there,” he said. “That’s just what we’re keen to open up.”
(Picture credit: Pixabay/nattanan23)