Horizon scanning for funding sources

How to identify new funding

The challenging combination of a recently volatile and inflationary delivery environment, coupled with a constrained fiscal position, has meant that local authorities and grant recipients need to be on the front foot to maintain affordability and keep schemes fully funded. Whilst for many schemes value engineering, de-scoping or rephasing will be a fundamental part of the solution, the need to properly consider whether there are any opportunities for additional or new funding will be necessary in tandem to align capital funding and expenditure wherever possible.

It will always be necessary to demonstrate to MHCLG that there is a credible pathway to demonstrate how funding gaps can be addressed. A structured approach to identify possible funding opportunities, with some lateral thinking applied, can pay dividends.

This may fall under a few considerations, such as:

The nature of the scheme, and particularly whether there may be income generating assets within it (or if this is something that now could be considered for inclusion). Where income generation is possible, this may open up the potential for prudential borrowing against such assets (e.g. through the Public Works Loan Board or other facilities that the local authority or grant recipient may have at their disposal).

The ability to do this will be influenced by the wider context that the local authority or grant recipient is operating within e.g. taking account of existing debt, what any new borrowing might mean, and the ability to service this. The type of asset, the security of its income stream and covenant strength of the potential partner will all need careful consideration.  

Income generating assets may also open the door to co-investment, where the local authority or grant recipient has the ability to work alongside another party (e.g., another public sector, third sector or private sector partner) to pool funding and share risk and reward. Finally, it is also worth noting that the involvement of third sector organisations may also bring about opportunities for philanthropy or crowdfunding in some circumstances. 
How the scheme might be used, and how it might benefit communities (possibly wider than that articulated when the original proposals were put forward), and whether this means that wider/additional public funding sources such as grants or incentives might be possible to secure (e.g. those that support the environmental or transport/travel improvements). This may require further funding applications. If so, there are additional practical considerations that need to be taken account of, and these are touched on below.
Geographic considerations and whether local, regional or devolved stakeholders may have access to alternative supplementary funding as part of wider initiatives or policy objectives (e.g., local transport priorities).
The ability to monetise and dispose of other surplus assets as part of the funding plan for the scheme – noting that there will be a need to identify a potential acquiror, secure value for money from the disposal (formal valuation and achievement of best value), and account for the time needed to achieve this in practice (e.g., complete necessary legal documentation to secure the transaction).

In some instances, whilst the timing may appear to preclude this as an option, the opportunity to seek short-term finance to bridge any period may be an option to consider in parallel, noting the risks and costs attributable to such an approach (i.e. what happens if the acquiror is unable or unwilling to transact?).

 A few practical tips to bear in mind when scanning for funding sources include:

Identify potential funding sources effectively, which can come about through local networks, connections and discussions with regional and central government and stakeholders, and by using proprietary databases. This needs to be done with one eye on the ever-evolving policy agenda.
Consider the timing implications. Funding sources may be available at different times – how well does this align to the proposed capital expenditure forecast? This may also have a bearing on the ability to secure bids from contractors, who are often more risk averse now (i.e. they will want to be confident that the scheme is fully funded, or there is a clear and deliverable path to this). In many instances, looking at how a scheme can be broken down and phased can support both funding sources and successful delivery over the longer term (e.g., to align to funding sources when they might become available, and also where opportunities may exist to recycle funding).
Where schemes are reliant on multiple funding sources, understand how risks are shared (e.g. are cost increases shared equally, or is there is there a hierarchy in place for addressing this?).
Attribute the breadth of outcomes and benefits appropriately between any public funding sources, to avoid the risk of double counting or missing out on the full range of benefits to be captured as part of the economic case for the intervention. Casting the benefits as wide as is practical is essential here. Where possible, monetising or at least quantifying benefits will be key.

Finally, the one aspect that always needs to be considered is the ability to operate, occupy and maintain the scheme. This should be embedded as part of a long-term asset management plan by the local authority or grant recipient to minimise or eliminate the risk of a long-term liability or subsidy. This should be considered and refreshed regularly as part of the proposals, to make sure that a robust whole-life costing approach is adopted and maintained throughout, with both capital and revenue funding implications considered.

Bill is an experienced leader of large and complex strategic real estate and regeneration-led programmes, often with a significant public interest angle. Bill has over 25 years of experience in funding, delivering and assuring such programmes from inception, through their business case, into supply chain procurement and ultimately to a successful execution and handover.

If you have any questions on this topic, or would like support, please contact your Delivery Associate, or email DeliveryAssociatesNetwork@Arup.com