In continuation of our 3 part series with Dr. Jonathan Reichental, we discuss the burning question: How are we going to pay for all of this? We'll dive into some traditional and clever funding strategies to ensure your smart city journey can be a success.
Dr. Jonathan Reichental is the founder of human future, which is a global business and technology advisory investment and education firm. Former CIO for the city of Palo Alto in California and is also the bestselling author of Smart Cities for Dummies.
Episode guests: Dr. Jonathan Reichental
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Welcome to the Govlaunch podcast. Govlaunch is the Wiki for local government innovation and on this podcast, we're sharing the stories of local government innovators and their efforts to build smarter governments. I'm Lindsay Pica-Alfano, co-founder of Govlaunch and your host. I'm back this week with Dr. Jonathan Reichental, to expand on our conversation on launching a smart city plan. In this episode, we'll chat about how local governments can be creative with their funding strategies to support a bold vision for innovation. Jonathan, so great to have you back.
Oh, it's fabulous to be here again Lindsay.
So for our listeners who may have missed last week's episode, can you give a quick intro your 30 second elevator pitch? Who is Dr. Jonathan Reichental?
Thank you. Yeah I'm definitely a technology guy. I've been doing technology related work and leadership for about 30 years now, although I can't believe it. Um, I've worked in the, uh, private sector for a lot of that, but I've had this incredible opportunity to work in the public sector. And it got me really excited about working in cities and passionate about cities. And I work in academia too. I teach a lot and I think at the heart of who I am, uh, this is something I've recognized here in the last few years, uh, as I'm an educator I absolutely love, uh, to help others and to coach others. And in the process of doing that, I learn a lot. So it's, it's a win-win so that's a little bit about who I am.
Last episode you shared advice for local governments looking to begin their smart city journey. Today, we'll be talking about an important piece of that, perhaps the most important piece in the smart cities puzzle, is how these initiatives get funded. Can you begin with a breakdown of the different options you see local governments having for funding?
Yeah. This is a common challenge and it adds to the excuses why cities aren't moving forward. And it's not because we can't fund things. It's often because we don't know how to. We're not aware of the different opportunities. So today your typical way of course is you get revenue in the city through taxes and fees and, and you prioritize that money against existing projects. That's the vast majority of cities. And, you know, if, if you live in a very successful, affluent community, your revenue's going to be pretty high, you're gonna have more choices, no doubt. Uh, but most cities don't find themselves in that position or they have plenty of money, but they have plenty of challenges, right? So you're now spreading out the money among a lot of different priorities. Another model of course, is that you borrow money, you know, cities have bonds and where you gotta do these big infrastructure projects. You can borrow the money and pay it back over decades, right.
Within the revenue answer, you know, taxes are of course the number one way that we raise money. So that's always sort of in play. What we're not gonna see is huge leaps there. Uh, you know, we're not gonna change the game or double the revenue, um, now, so what else is there? Well, there's money that is often made available through other government agencies. So, uh, cities can often tap into state funds and, uh, all around the world. And of course you can tap into, uh, national or federal funds, too. Here in the United States, we we've now put into law a $1.2 trillion infrastructure bill, and, uh, you know, 1.2 trillion with a T that's a lot of money that's gonna flow into into the states and, and hopefully into the cities to where it's needed. So there's some income that's coming that's sizeable. A lot of it will go on smart city related activities, particularly something like broadband where, uh, the, the federal government now is making available $65 billion to get broadband to every American.
That's the, certainly the goal. Now, the question is, what's beyond that. Um, well, part of paying for things, uh, can also be thought about through the lens of paying less for the things, right. If you go it alone as a city, well, you're gonna negotiate a contract with a vendor and you'll get whatever terms you, you get. Uh, but often a, an agreement has already been negotiated by a different authority, like again, a, a regional authority or even a state, um, and, and cities can tap into that. They can sort of say, uh, do you already have a contract with this vendor, is there a way that we can, uh, get into that contract, be part of it.
There's a part of me having observed this, uh, where this is more advantageous than most cities recognize, and we don't take advantage of it. How is it for example that if there's a common service that's used by 95% of agencies in a particular region, that there isn't a central contract that's negotiated and each community then can take advantage, uh, you know, why don't we see more of that, you know, that, that that's something we should work on and, and overcome. There is that possibility though, there are prearranged contracts with, uh, with federal agencies and state agencies that can be, uh, taken advantage of. Another way that we can get things done. And, and this is what you're seeing, particularly in the innovation space is, is through partnerships.
Can we collaborate with a private sector vendor such that they see some benefit and put in some money and the city sees the benefit and puts in some money. So now you're sharing the costs. And we're starting to see quite a lot of that, particularly where there's an experimental component of the work. Now another model is, uh, we talked about this a little bit on the last show, is the question of whether the city is the primary leader on a solution. Like does every city solution have to be built by the city and supported by the city? Or could the resources be provided to another participant, another stakeholder, like a private sector entity for them to run and manage it entirely.
I think you had mentioned Lindsay in, in one of your questions that cities need to invite people into the conversation they need to uh, inform and, and let community members and, and other stakeholders know what the needs are so that people can respond. I think that's such a key point. So, you know, uh, is there way, uh, that as a city you can make known to the innovation community and beyond that you have these needs. And those that wanna step up can, can step up. And what often happens is the private company wants something like data. They want the permit data, or maybe the public safety data, cuz once they have that, then they can start to build and deliver a solution independently, uh, of the city and the city can be then a, a partner on, on delivering that.
One more. I like this one a lot actually. Um, and it's it's emerging is what I'll say. Startups in the government space and city space, we call 'em, uh, urban tech or gov tech, right? They're motivated to provide solutions and be successful, but they also recognize that it's hard. It's hard to, to convince cities to buy their product, you know, to get their attention. I work with a lot of gov tech companies and I know how hard this is. Often the advice is make it easy for the government, you know, to, to acquire the product or to use the product. Don't create significant overheads, like, uh, very complicated, you know, business models or excessive costs. And so that's an area that's, that's really developing. And, and one of the ways in which that's done is, you know, the service gets provided almost well, ultimately, uh, for free on behalf of the city.
The city though manages it and the vendor gets the revenue by taking a little slice off each transaction. Right? So here's a specific example. In a community that I worked with, they had a children's theater, right. And it was run by the local government so often is, and they needed a new ticketing system. So they needed a new box office. The one they had was old and old tech, some of it wasn't even digital, it was on paper. And so they needed a contemporary way that people could buy a ticket for a show online or on their smartphone, things like Ticketmaster, but they needed it for the city. And so they went out to market to, to find this. And yeah, there was plenty of solutions. Plenty of people wanted to sell a, uh, a ticketing system for a city and it was expensive, but one provider said the solution's free. It's a state of the art ticketing system. You can use it and brand it and, and manage it and it's yours, but every ticket that you sell, we're going to take 1% or 2% and that's how we make our money. That's our business model. Um, that's a, win-win, that's a, you know, there was no investment needed on the side of the city. They get the best solution and the vendor gets revenue.
That's great. Well, you've kind of tip me off for this one already, but thinking back to your days in Palo Alto, did you have a go-to option for funding or, or one you were clearly a bigger proponent of?
So part of thinking about what was my go-to for, uh, additional innovation funds was to, uh, think differently about how is using existing funds. And to give you sort of an explanation behind that, what I'm really saying is, you know, if you had a million dollars, let's say to spend over a few years on hardware, and this was a traditional way, you were delivering your IT capabilities to a community. Basically that money was, was spoken for you. There's nothing you could do with it. If you decided then, Hey, you know what, we're going to move a lot of our capability to cloud computing, where we don't have to spend on hardware. It, it becomes rather than a capital expense or CapEx, it becomes an operating expense or an OPEX. Now, what happens is you're spending money on, you know, monthly fees. Now you go to sort of a subscription model and you free up an awful lot of capital from the money that would've been assigned, uh, over a few years to this hardware.
And that then can allow you to spend it on different things. In fact, spend it on more innovation. So I liked that model and we spent a lot of time really trying to look for efficiencies and optimization and our existing infrastructure, thus that we could free up more cash for innovation. The other model that I liked a lot, and we demonstrated it, uh, over and over again, actually many, many times is, is partnerships.
I liked finding a hungry company, you know, gov tech business, whether it was a startup or, or a bigger tech company, um, who wanted to play with us, who were prepared to invest and experiment, uh, that it helped them learn, helped us learn. And sometimes by the way, uh, building sort of an ecosystem of partners. So, you know, lots of companies have a shot at it. And, and then ultimately we can, we can go out to do the RFP or whatever is necessary to, to do the formal procurement. But the experimentation and the work, was really valuable to help move forward and help us decide what worked and what, what wouldn't work.I was a very big, uh, big fan of that. And I suppose third, uh, would be, uh, helping others innovate on our behalf.
So one of the ways that we achieve that in the city I work with was to provide either talent or, uh, data. Those were the two main things to an outsider. In fact, I, I created a center at the, at city hall called the civic technology center or CTC. And there was a website where you could sign up as a vendor to come in, in, and work with us on a new idea. If you're a gov tech company and you're frustrated by maybe the permitting process or, uh, procurement, you can call people up and hope that someone's gonna return your call, or you can come to city hall with us and we will bring the right people into the room and help you brainstorm on a whiteboard, how you could solve this problem. And so that, that was, you know, something that we would enable, cuz it was in our benefit if they solved it because if they created the solution and delivered it, we would be a, you know, ultimately we would be a benefactor.
Right? And it's a win-win for these companies trying to solve for a problem they don't really understand. So partnering with a city to develop a really specific solution. That's gonna hone in on what cities need can be really powerful. Do you have an example or two either in Palo Alto or other cities you've talked to about really creative procurement?
In many ways what's fascinating about this question is as I think about it, uh, we were quite traditional in our procurement, right. Like every leader in a city, I had to put together a budget and I had to fight for, and I had to go in front of the council and get it approved. When all is said and done some, the vast majority of the way in which we procured things at my city at least tended to be traditional, but we were a little different in what we are asking for, right. Which, which acquired different paperwork and a different process sometimes. But I wanted to tell this, this quick story, cuz um, it, I think it talks to a lot of areas of our conversation, uh, and that is, you know, maybe there's some lessons about leadership here and some other things that people can pick up, but I joined the city and I came in with big ideas and a lot of my peers, the department heads from other parts of the city were, had been around for if not decades in the role.
And we're a little bit, you know, burnt out a little bit more skeptical about stuff and here's this sort of, uh, young, private sector guy coming in saying, Hey, you know, we're going to, uh, I'm gonna change the world by doing all this, you know, probably a little naive for sure. But there was this sort of sense of like, yeah, well we'll listen to you Jonathan, but you know, we'll see what happens, you're quickly gonna get beat up and, and you're gonna find out that your ideas are gonna get blocked in the typical government bureaucracy. Well, I, I didn't want to hear that. And that's never been my style in, in my career. I've always been fairly persistent and creative in how we solve problem together. And so the big project at the time back in 2011 was a replacement of the telephone system across the city for all the city offices in city hall, uh, as well as all the cabling, you know, because it was old.
It really was. Our telephones were, were not in good shape. One director he said, Jonathan, uh, you know, what are you doing? What are you gonna prioritize? And I said, well, we're gonna get new telephones. Just a, sort of a basic thing that we had to do and he said, Jonathan, I have a phone that hasn't had an eight on it for several years. So when I have to when I have to dial a number with an eight, I have to call out to my assistant to dial the number and transfer it to my phone. And so, you know what I said to him, I said, tomorrow morning, when you come into work, you're gonna have a new phone on your desk, like a replacement.
And he said, yeah, yeah, ha ha you know, whatever, you know, and I went to work early that morning and found a new phone that was in a box in storage. My team went up to his office, put the new phone in and, and there it was. And later on, he said, that was pretty incredible. He said, I'd been promised a new phone for years and nobody ever did it. And he said, the night before you said, you're good gonna do it in the morning. I had a new phone. So there is something about leadership there, but I wanted the bigger picture was, um, I was promising this thing by the end of the year that we would replace all the phones and all the wiring in the city, by the end, this was like March, perhaps, and people listened and they, uh, but they, they were skeptical very, very skeptical.
And, and so part of what I was thinking was even if the, uh, we don't get it done on the back end, uh, I was gonna have new phones on everybody's desk. They may not work, but I would be a man of my word. But we, we went gangbusters and we were creative and we eliminated roadblocks and that December, uh, the new telephone system and new cabling was completed for the entire city, uh, it was a multimillion dollar project. We had a, you know, VoIP voice over IP system. And people were pretty pleased to, uh, kind of leave for the holidays with, with a new phone system. And what happened after that was pretty incredible. Because I had said we were gonna do this. And then we delivered, and we delivered as promised, uh, my credibility in that of my team skyrocketed. So the next time I came back and I said, we want this money to do this project. People were inclined to say, well, yeah, because your team, you and your team are, are people of your word and you'll get stuff done. So procurement actually was not a hard thing for me. Now, the city was a wealthy city. And so I had funds, we were creative in how we spent money. Uh, but I think bottom line was, there was trust by the council and the city manager in, in the things we committed to and the results that we said we would get. And then we delivered and, and so asking for money was easier. And so the takeaway here for other leaders is you commit to what you, uh, are going to do deliver on time or under promise over deliver. And that will help you a lot in the decisions you make in the future.
Mm-hmm. It's almost like you have to just get that first domino to drop. And stakeholder buy-in is so challenging, especially for those first few groundbreaking type projects. One piece of advice that's resonated throughout the podcast series and the content we've covered on Govlaunch is start small and then work toward bigger projects. You started with a pretty big project, your experience in the private sector and your technology experience probably helped you out. I would say for our listeners starting out with a whole new revamp of the phone system as your first big thing for stakeholders maybe that's a little bit ambitious. However, starting out with some, some small to medium size projects that you know, that you're gonna be able to deliver. And to your point under promising, overdelivering can go a long way in developing that credibility and the rapport so that different department silos and stakeholders can really get behind more lofty goals in the future. So I think that's, that's a fantastic anecdote that you shared there.
I want to just add if I could, to that, uh, just to be mm-hmm cuz I, cuz I so agree with what you said. I want to be real clear. The telephone project, uh, had been another way for years, but it was failing. So it wasn't that I came in and said, we're gonna start this huge multimillion dollar telephone project. It was that I came in and said, we're gonna finish it. We're gonna do great. We're gonna finally do, we're gonna finally do, gonna do so that's one, but so cuz I actually And we're in very much turnaround situations. So came into sort of a, uh, a poorly functioning organization and with poor results and turned it around twice. And I've written about this, like it's sort of, of, you can find it if you want, it's the, the first 100 days of a new CIO basically.
And I've like five tips. And one of them is your, is your point, uh, you know, listen a lot, you know, um, you talk to a lot of people start working on the strategy. Don't do big projects straight away, but deliver some small successes along the way during that time, but commit to the bigger ones, uh, really key. The problem with the big ones of course is first of all, they're hard to do, but you can also make a mistake if you're uninformed and then opposite to what I said a few minutes ago, your credibility now you're in trouble now you're actually in the negative, you gotta kind of work on your credibility.
Do you have a few favorite open source tools you'd recommend or perhaps alternatively, is there a project that you implemented or know about that that cost nothing but generated some big results?
The question of, uh, open source comes up quite often. And I have to say in a lot of my experience, open source is not as, uh, widely adopted in the public sector as it is in the private sector. Now this is outside of the fact that a lot of the solutions we use in technology have underlying open source code, right? People in the private sector, you may be very quick to adopt something like WordPress, right, to, to run some of your content management. Whereas in the, public sector, you're probably going to do an RFP for a content management system, and not go the, uh, open source route. Some of it has to do with confidence, uh, skills, you know, uh, and, and, uh, whereas, you know, if you can write a check to the private sector, uh, you have some, you know, you've, uh, someone to strangle if it doesn't work or someone to call, uh, you know, to help, uh, when, when issues are, are a problematic. We did play with it a lot though. And, and actually the one solution that I think will resonate is, is, is part of our open government strategy. So we really embrace this idea of, uh, tools and processes for bringing more and more people into our decision making and being wide open to community engagement on, on multiple levels.
Open data course was probably the most overt way in which we manifested, uh, open government early. So we actually did procure a tool, um, a product called junar, and it allowed us to quickly deploy open data sets and had a built in API that people could then use to build other solutions and, and to extract data necessary. At one point I proposed the idea of being, uh, a city that was open data by default. And so we were one of the first in the country to do this, and, and it was a proclamation that my team and I wrote, and we brought it to our council and we got it assigned and proclaimed by the mayor, uh, back in about 2013.
And so we became one of the first cities, uh, in the world to say that, uh, we would open data by default and, and secure it, uh, by exception, you know, where it was regulated or we needed to ensure privacy. So the open data work was, was pretty, uh, a pretty big part of our innovation, uh, portfolio. And so I wanted to continue to expand it. And, and so we did procure for example, uh, eventually open gov, so we could make our budgets, uh, available to everybody. Uh, this is an area that is probably the most popular source of data. Uh, that communities request is how you spending money. How much have you spent, what did you spend it on? Then the third part, uh, that we were innovators around was, uh, our geospatial information systems or GIS. And if you're not in city life every single day, you probably don't recognize that GIS is, is at the core of data required to run a city, knowing where stuff is, you know, knowing where the roads are and the parks and the bridges and the walls and the homes and all different layers of, of geography are key to everything we do in cities.
And, and so most cities will have some sort of product, and it's often a premium product. But I wanted to see what we could do to open up even our GIS information. Um, so I sort of on a, on a napkin kind of spun up an idea for my GIS team to create something called open GIS is how could we then make that content more easily available? And by the way, this was back in again, sort of 2012, 2013, where, uh, opening up very cutting edge, very cutting edge. And today, you know, ESRI and others have very mature, open data solutions. Uh, but back in, you know, all of eight, nine years ago, the old data, the oldest, right? we, uh, we did this open GIS thing and we used free tools.
And, and part of it was, um, Google fusion tables, right? So Google fusion tables at the time was free. So that was first of all the core. And then the delivery, uh, was through, uh, a mix of, uh, experimenting with open street map, which is open source and, uh, Google maps, which for the most part was free too. So our entire open GIS solution, which, um, recently I I've noticed, uh, they have migrated Esri by the way. The entire stack was open source. So we had a very sophisticated, open GIS solution, uh, entirely built on free and open source tools.
You mentioned earlier that Palo Alto is a rich city. I wanna talk about some of these small cities or towns that, that aren't rich cities. You mentioned earlier that the US is a country made up of small cities and towns. Yeah. In the us, in fact, 96% of local governments are serving communities of less than a hundred thousand people. You would never know that, of course reading any publication on local government innovation, because they're focused on New York, Miami, you know, bigger cities. In Australia, New Zealand and the UK, this statistic is, uh, it carries over there as well, about 80% or more of their local governments have a population about less than a hundred thousand people. So we wanna focus on, on those small to medium size cities that we feel are underserved in this innovation narrative. What advice would you share with those folks?
You know in the first part of my book, I address this head on, you know, cuz you're absolutely right. The perception is that the smart city movement is about big cities, cities of a million people or more it's about Dubai and Helsinki and Melbourne, you know, only the big cities. I wanted to say, Hey, wait a minute. You know, if we, if we only focus on the big cities we're missing out, you know, uh, 90% of humanity, uh, and that's not gonna work. So, uh, there's a section all about why small cities can be smart cities too. Um, so this, to me, this is about all types of community. Uh, in fact, there, there is a little bit of momentum towards the term smart communities rather than even smart cities for this very point, because we have things like, uh, smart islands in the house and smart regions, uh, smart villages. These are all, uh, new applications of bringing to bear, you know, the principles of smart cities, you know, new ideas, technology, best practices, innovation being at the core.
Right. Um, so I wanna be real clear right at the beginning and concur with you that we must address the needs of smaller communities. And I, and it's wonderful to hear that Govlaunch makes that a focus. As I speak to other gov tech, uh, startups, this is a, a big message that I'm giving them is, um, you know, the inclination is to it's to go after the bigger cities in America and the world, uh, cuz you think that's where the revenue is. But they're gonna be harder and there's not gonna be as many and you're not gonna serve or change the world where most of the people live. So, uh, in fact, uh, there is this wide open opportunity for, for smaller communities. So we do need to ensure that the tech businesses, the gov tech, uh, startups are, uh, making sure that their models, their go to market is designed to be able to address the smaller cities.
And in many ways, you know, uh, this is shifting and, and gov tech recognizes. Yeah, the, the models, the revenue model might be, uh, more narrow if you like or for each city might be less, but you have, if you have a lot more, you're still gonna be successful. Uh, this is where things like the solution I, uh, explained earlier where, you know, you can go to a city of, of, uh, 55,000 people, uh, and say you don't have to buy anything. We, we're not looking for you to write up an RFP to, to buy a, a half a million dollar solution. We'll give you the solution for free. You run it and we'll take a little, uh, slice of each transaction. For example, uh, urban leap, one of the go tech companies that I work with, they are spinning up, uh, their procurement solution where, uh, you know, a city can, can get the state of the art cloud-based procurement solution and they don't have to pay for it.
And when something is acquired, the vendor provides urban leap with a small transaction fee, right. Mm-hmm, so very different model. Think about that. I mean, just go back a couple years and, you know, if a small city was considering a procurement tool that was a massive undertaking, right. Having to, to budget forward and then to support it and have the infrastructure it's all cloud and it's, uh, now these solutions, uh, can, can be free. Let's look at a city like Aurora, Illinois, right. A wonderful city, but it's not New York, it's not Los Angeles, it's not a massive American city. Um, but it's a community that is, uh, very focused on innovation, very focused on transitioning to the new economy.
You know, they, they were of a typical sort of Midwest city that, uh, was wholly reliant on one or two big manufacturers. And as happened with a lot of, uh, American communities, those manufacturers, uh, went to other communities or even left the country. They were decimated. Right. What we're finding of course in a, in a digital world is you can bring in new industries, uh, that you couldn't previously because, uh, you know, there was a physical component, but now, you can build an innovation ecosystem of digital enterprises that don't require much, uh, physical presence at all. You just need education and, and support and the will of the community to, to help make that happen. So they're transitioning to a much more, uh, 21st century economy and making, uh, a very good, uh, job of it. They are a small community.
Uh, one of the things they did, which I thought was so creative is they made the entire city into an innovation district. So rather than, you know, the bigger cities that will make perhaps a few blocks, a place where there are special incentives, like, uh, maybe lower taxes or for a startup, you know, they'll give an office, you know, subsidize an office for use. What they said was we're going to do this, but we're gonna do it on a citywide basis. And all the benefits of innovation districts that we see around the world are gonna be open to everybody in that community. And it's being transformative in how that's making their city, uh, smarter and more innovative and starting to attract a whole set of new employers, uh, because of this this vision by the mayor and the leadership and a very visionary, uh, CIO, too. Sso, uh, great example of doing it right. And so, you know, I, I hope those two angles, both what the city can do and the vendor community can do, uh, really, uh, sort of codifies this, this notion that, uh, what really matters is all sizes of cities.
Well a really interesting point that you ended with that really goes with a theme that we've been talking about throughout this episode. And even the previous episode is that governments and the community and companies now need to come together to solve this collective problem. It's not just the government's issue. We gotta figure out how to fund these smart city and initiatives, how can companies really take a hard look at their model and how they're marketing to cities and break down some of these barriers to procurement. Obviously, local government procurement is this beast that it's terrifying. And you have organizations like public in the UK that exist to try to break down barriers between companies and local governments, so that we can move toward this digital age. So I, I love that you bring up that point because the challenge is not just for, of governments to start thinking creatively about that.
It puts the onus too, on, on the providers of technology and, and smart city solutions, right? So now that we've covered how to get a smart city plan off the ground, including some creative ways to fund and some challenges for, for companies to also now consider, I'm really excited to get into some of more of these cutting edge trends you see in local government innovation, which you cover a lot of in your book. We've run out of time for today, but next week, I'm gonna be back with Jonathan to talk cryptocurrency, autonomous vehicles, the metaverse and more so, thank you so much for joining me today. Jonathan, I'm super excited to have you back next week.
Thank you so much. And I'm looking forward to it too.
I'm Lindsay Pica-Alfano and this podcast was produced by Govlaunch the Wiki for local government innovation. You can subscribe to hear more stories like this, wherever you get your podcasts. If you're a local government innovator, we hope you'll help us on our mission to build the largest free resource for local government's globally. You can join to search and contribute to the firstname.lastname@example.org. Thanks for tuning in. We hope to see you next time on the gov launch podcast.