Original Post, Apr 16, 2019, | Forbes

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.

Levent Sucuoglu, the director of information technology for Tamarac, noted that with the system in place, “everything we do, everything we manage, every service we provide, is measured and is tracked. We get this information from our technology, from our software.” Applying that data to accurately assess community needs makes budgeting and planning priorities more effective.