“Urban Development Funds in Europe – Opportunities, Structures, Operations” Presentation Luxembourg 24 January 2013 Wolfgang Breuer and Dominique Schaeling Chair of Finance RWTH Aachen University Templergraben 64 D-52056 Aachen Phone +49/241/8093533 Fax +49/241/8092163 Wolfgang Breuer wolfgang.breuer@bfw.rwth-aachen.de Dominique Schaeling dominique.schaeling@bfw.rwth-aachen.de 24 January 2013 www.bfw.rwth-aachen.de 1
Introduction JESSICA – Initiative to promote the use of financial engineering instruments for sustainable urban development Invest Structural Funds in Urban Development Funds 1. Introduction 2. Research approach European Commission 3. Distance Structural Fund Grants 4. Movability Member State or Region 5. Imperfections 6. Results Level 1 Holding Fund (of Member State or Region) Level Invest- Return Invest- Return 3 ment flow ment flow Urban Development Urban Development- Cities Fund I Fund II Banks Equity Equity Level Return Return (public, private) Loan Loan 2 flow flow Guarantee Guarantee Project I Project I Other investors (public, private) Project II Project II Project … Project … Wolfgang Breuer Dominique Schaeling 24 January 2013 Level 1 = Macroeconomic Level Level 2 = Microeconomic Level, Level 3 = „Added Value “ of JESSICA 2
Research Approach on Level 1 Idea: We want to determine where the employment of UDFs is a suitable means to 1. Introduction fund urban development by considering three aspects 2. Research approach 3. Distance 4. Movability Distance : 5. Imperfections Need for urban development based on the distance to a benchmark defined 6. Results through a set of indicators Movability : Funding efficiency to separate funding targets which need technical assistance first (e.g. due to governmental failures) and those which should be supported financially Imperfections : Appropriate funding instruments depending on the underlying market imperfections (resulting in market failures): grants for mere external effects or monopoly, revolving instruments for combination of these two imperfections with incomplete information Wolfgang Breuer “The DMI Approach for Urban Development Funding” Dominique Schaeling 24 January 2013 3
Research Approach on Level 1 Idea: We want to determine where the employment of UDFs is a suitable means to 1. Introduction fund urban development by considering three aspects 2. Research approach 3. Distance 4. Movability Distance : 5. Imperfections Need for urban development based on the distance to a benchmark defined 6. Results through a set of indicators Indicator 2 Distance UDF candidates Indicator 1 Distance Wolfgang Breuer Dominique Schaeling 24 January 2013 4
Research Approach on Level 1 Idea: We want to determine where the employment of UDFs is a suitable means to 1. Introduction fund urban development by considering three aspects 2. Research approach 3. Distance 4. Movability Movability : 5. Imperfections Funding efficiency to separate funding targets which need technical 6. Results assistance first (e.g. due to governmental failures) and those which should be supported financially Indicator 2 UDF candidates Movability Change financial focus Funding UDF candidates impact focus Indicator 1 Distance Wolfgang Breuer Dominique Schaeling 24 January 2013 5
Research Approach on Level 1 Idea: We want to determine where the employment of UDFs is a suitable means to 1. Introduction fund urban development by considering three aspects 2. Research approach 3. Distance 4. Movability Imperfections : 5. Imperfections Appropriate funding instruments depending on the underlying market 6. Results imperfections (resulting in market failures): grants for mere external effects or monopoly, revolving instruments for combination of the two imperfections with incomplete information UDF Indicator 2 Loans Market imperfections financial focus UDF impact focus Grant area financial focus Grant area impact focus Indicator 1 Grants Distance Wolfgang Breuer “The DMI Approach for Urban Development Funding” Dominique Schaeling 24 January 2013 6
Distance 1. Introduction 2. Research approach Distance : 3. Distance Need for urban development based on the distance to a benchmark defined 4. Movability through a set of indicators 5. Imperfections 6. Results Indicator 2 Distance UDF candidates Indicator 1 Distance Wolfgang Breuer Dominique Schaeling 24 January 2013 7
Indicators for sustainable urban development ERDF funding determination from the OPs: 1. Introduction Define the names In the EU 12 e.g. in Czech Republic of cities 2. Research approach “Subjective“ Black box Define the In the EU 15 3. Distance number of cities e.g. Brandenburg Selection of 4. Movability cities E.g. Population 5. Imperfections Thresholds number in Spain 6. Results Development “Objective“ Data based E.g. in France indicators Funding need for E.g. growing cities urban development Types of cities in Romania Competition of E.g. Brussels specific projects We apply the idea of determining funding targets by using indicators Which indicators are ??? appropriate to quantify the Wolfgang Breuer Cities differences among cities with Dominique Schaeling respect to urban development? 24 January 2013 8 ???
Problems with existing indicator sets • Evaluation of non-monetary aspects is always a critical issue 1. Introduction • The two extremes for sustainability comparisons are: 2. Research approach 3. Distance Highly aggregated indexes Large indicator sets 4. Movability Difficult interpretation of Impossible to handle 5. Imperfections results due to enclosed information when 6. Results neutralisation effects! maintaining all items! • Middle way: methods combining lower complexity with better clarification of the cities’ relative positioning in sustainability: Framework approach Reduction of complexity as a compromise! Use the framework approach for funding decisions and funding efficiency analyses! Wolfgang Breuer But how can we obtain a small set of useful indicators to determine the Dominique Schaeling 24 January 2013 differences of cities? By searching for intersections of existing sets? 9
Bringing system to indicator sets Definition of level and capital categories for the systematisation of existing 1. Introduction indicator sets: 2. Research approach 3. Distance 4. Movability national 5. Imperfections 6. Results regional level urban project capital Wolfgang Breuer Dominique Schaeling 24 January 2013 Systematic comparison of existing indicator sets! 10
Existing indicator sets Comparison of existing indicator sets arising from different organisations, researchers, nations and describing sustainability indicators on several levels: urban, national or any. Urban Audit Key Indicator Report Ekins Medhurst 1. Introduction United Nations United Nations United Nations Policy Based OECD 2005 Cap. Based Indicators Small Set D 2010 2. Research approach Few indicators 3. Distance Indicators are represented HUMAN CAPITAL 4. Movability x x x x x x x Educational attainment broken down by gender and age in multiple sets 5. Imperfections Education expenditure x Enrolment in post-secondary education x x x x 6. Results Problem of size Education participation rates x x Life expectancy (health adjusted) x x x x differences in x Infant mortality/immunization against childhood diseases the sets x Nutritional status of population (obese) x x Exposure to air pollution Sub- x Health and environment related health expenditure x Extent of drugs/alcohol abuse x categories are Premature mortality (by gender, key illnesses, suicide) x x x represented Index of changes in age-specific mortality and morbidity x x Number of deaths in road accidents per 10000 population x erratically Real per capita human capital x x x Number of start-up businesses Need for x Ratio of entrepreneurs/population Employment rate (age, population, working-age population) x x x x methods which x Activity rate (male, female full-time equivalents) help to Proportion in part-time employment x Self-employment rate x determine a Unemployment (rate, level, gender, age) x x x x smaller number x Absenteeism; x Worker productivity of indicators for x Long-term unemployment the Multi-factor productivity growth rate x Wolfgang Breuer x Number of patents taken out from innovations being developed sustainability Dominique Schaeling x Net employment created or safeguarded 24 January 2013 comparison of x Brain import/export Research & Development expenditure (public, private) x x 11 funding targets! x Success rate of training (% finding employment on completion)
Finding a small indicator set Method: 1. Introduction We employ a principal component analysis 2. Research approach transforms differences that are originally defined in a complex, 3. Distance multidimensional manner into a small number of dimensions 4. Movability compressed indicators 5. Imperfections 6. Results Compressed indicator 2 Cities Compressed indicator 1 Wolfgang Breuer Dominique Schaeling 24 January 2013 12
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