FUTURE PROOF CITIES - How to Pay It? Social Innovation Bonds As An Innovative Solution to Financing

Interview with Maria Chiara Pizzorno

This May, we are focusing on social innovation. But for municipalities, it is a challenging topic: implementing social innovation cannot be achieved without the right financing tools. This month, we have talked to Maria Chiara Pizzorno, an ad-hoc expert in the URBACT network SIBDev. SIBDev is implementing a good practice called social impact bonds. SIBs are, on the one hand, a form of social innovation itself, but also a novel way to finance innovative social solutions. Here is our interview with Maria Chiara, slightly edited, explaining the potential of SIB schemes in financing innovative solutions to social problems.

What is SIBdev?

SIBdev is a project involving eight European cities, financed by the URBACT programme, and involving municipalities and local authorities. The focus of the project is developing social impact bonds in Europe to improve the quality, efficiency and effectiveness of social services. The eight cities involved are expected to develop a local integration action plan, which is a plan to set up their own social impact bond. They are not expected to implement a social impact bond, as that is a very challenging adventure, but they are expected to involve local stakeholders, and together with them to develop a plan towards launching a social impact bond.

Could you explain to the readers how social impact bonds work?

A social impact bond is a financial scheme to implement innovative social interventions. It starts from an outcome payer, which is a public body (such as a regional government, a national government, or a municipality). This public body then decides on a priority, a social problem. I give you an example: unemployment among young people. They want to reduce unemployment, and they set an expected social outcome, defined very precisely. In our example, we want to reduce unemployment in our municipality by five percentage points, today it is 20%, and we want to reach 15%. Then they set up an outcome-based contract, usually with investors such as bank foundations or corporate foundations, fund managers. These investors provide the upfront capital, the financial resources to finance an intervention that is capable to reach these impacts. So, they pay a service provider to implement services and actions and reach the expected goal. For example, they provide upfront capital for employment services, to offer skill development, training, or job placement to the target group. If the social provider achieves the expected outcome, they are able to reduce unemployment by five percentage points, the public commissioner will pay the investors back with interest. There is an external evaluator, usually appointed by the outcome payer (i.e., the public commissioner) to assess if the expected outcome is reached. In short, social impact bond is an outcome-based contract.

What is the advantage of a social impact bond over a traditional bank loan or bond?

Social Impact bonds are not bonds but outcome contracts. When you borrow money, through a loan, you have to return the money plus an interest, no matter what, while in the social impact bond the investor provide the upfront capital to the social provider, and if the outcomes are not achieved, they will lose all the money, on the contrary if the outcomes are achieved investors will have their capital back plus interest. So, the risk for investors is higher compared to a loan – if the investor lent the money, they would expect to get the principal amount back, whereas in a social impact bond the investor risks the capital. Similarly, bonds are debt instruments that must be repaid in full, while repayment in SIB is triggered by the achievement of the expected outcomes.

But in this case why should an investor risk their money on a social impact bond? Beyond being a good way to do CSR, is there an incentive for investors?

Social impact bonds usually involve investors sensitive to the social impact, concerned about them, such as foundations or bank foundations. In many SIB schemes (as there are many different models) the investor can select their social providers, so they want to select reliable social providers that can achieve their outcomes. Sometimes, if they see the social providers are not capable to achieve their outcomes, they have the power to say, okay, stop and we will engage someone else.

To reduce the risk taken by investors, in the last few years outcome contracts have changed. Instead of setting a binary outcome (if you reach 5%, we will return the capital with interest, but if you don’t, you lost the money), frequency outcomes are now more common. This is less risky for the investor, understanding the outcome more progressively, focusing on different levels of achievement with different amounts repaid.

How widespread are SIBs in Europe?

A couple of years ago 40 to 50 SIBs were established in Europe, the majority of them in the UK, in Continental Europe we have now around 20 or 30 SIBs. European institutions are promoting this instrument, though, so it is more and more popular, so in the future we expect to have many more SIBs in the EU.

If a city wants to start their own SIB scheme, how should they start?

You need to have a very committed and motivated team in the public administration launching the SIB, and you need political endorsement as well. This is needed as this will be a challenging, frustrating and time-consuming process. Then, you have to be very clear about your focus, the social problem you would like to address. And you need data on social issues, because you need to be very precise about the expected outcome. You need to build partnerships with social providers and investors very soon, and they must be very motivated and committed, because this is a very complex process, with organisations from various sectors, from the public sector, the third sector, and the financial sector, and there is a lot of friction. The languages and cultures of these sectors are very different, so it is frustrating and time consuming to create dialogue between the various actors in a multi-sector partnership, which is necessary for an SIB scheme.

Why is an SIB innovative?

SIB is innovative compared to traditional public procurement of services sine service providers are not paid for outputs (e.g. number of people reached by the intervention) but for the outcomes they generate, for the social change they deliver. SIB are also innovative compared to “Pay by Results” contract as in a SIB the financial risk is taken by private investors. “Pay by Results” are contract between a public commissioner and a social provider and the latter take the risk of not achieving the agreed-upon results and lose money.

What are the individual factors making an SIB successful?

SIBs rely on partnership between public, private and third sector, willingness to cooperate with a common goal - make a change for people who are suffering- is crucial. True commitment of the parties involved paves the way to success. Getting support from researchers, legal advisor, and other professionals (hopefully pro bono!) to define and measure outcomes, to achieve optimal targeting and to build a strong business case is also crucial.

Could you give an example, first, of a very successful SIB, and also perhaps of an SIB scheme that didn’t go well? What makes an SIB successful and what are the pitfalls to be avoided?

A successful SIB I’m very keen on is Energise, established in the UK to target early school leaving. They involved 3000 adolescents at risk of dropping out from school, and the scheme was successful, the investors were paid back. But what was really interesting is the intervention model, as SIBs aim to finance innovative interventions. This was very innovative, supporting adolescents in school and outside school, giving them tutors, a multi-action intervention with a very risky target.

One unsuccessful SIB was, I think, in the United States, giving cognitive therapy to ex-prisoners to reduce incarceration. But it seems it has failed, but I’m not very familiar with this case.

Is it normal for a SIB to be paid back? If I’m an investor, there’s an SIB in my city, I do background checks on the social providers, can I expect the target will be met and I will be paid back?

Yes, the majority of SIBs implemented so far were successful and it is clear why: it is a win-win. Everyone is interested in its success, the outcome payer (the public commissioner) wants the SIB to be successful, the social provider wants to succeed, and the investor wants that too. Everybody at the table wants to succeed, even if for different reasons, and that is why so many SIBs have been successful. And the public commissioner and the investor negotiate the outcomes, so there is room for negotiation as well to set feasible, viable, achievable outcomes.

Are there areas of social interventions where SIBs are more successful? Is it true that, for example, unemployment is a suitable issue for a SIB scheme, whereas, say, healthcare is less suitable?

Many SIBs are in employment and education, and it is easy to see why. It is easy to measure the outcomes. The crucial point for an SIB is outcome measurability. You must be able to define and measure the outcomes. When you have very complex social issues, it might be difficult to set the measurements of success. The health sector is another sector where SIBs are increasing, because health outcomes, too, are relatively easily measurable and definable, even mental health and wellbeing is measurable. There are plenty of ways to measure health outcomes.

But, for example, drug addiction is an area in which it is difficult to define what is success and set a time frame to measure this. With some topics, the definition and measurement of success is very problematic.

And in some sectors, like education, employment, or health, you can rely on a strong background of social providers. You can involve social providers with a strong track record. In other sectors, where an effective intervention model is not in place, so it is going to be riskier.

If you are interested in learning more about SIBdev, you can find more info here. If you want to find out more about how to develop a SIB, the UK Government has a step-by-step guide that is largely applicable outside the UK, available here.

Maria Chiara Pizzorno is an expert in education, social innovation and social impact investing. She has a PhD in Psychology of Health and Quality of Life from the University of Turin and the University of British Columbia. Maria Chiara has been involved in several European projects related to social impact bonds. These included ALPSIB, funded by the Interreg Alpine Space programme, SIB FOR GROWTH: Education & Integration through Social Finance, funded by the EU Programme for Employment and Social Innovation, as well as the URBACT network SIBdev.

Additionally, as an education expert, Maria Chiara has focused on preventing early school leaving, and promoting career development and mobility among disadvantaged students.

FUTURE PROOF CITIES - possibilities of the neW EU programming period?

Interview with Eszter Héjj

Thank you for sitting down for this interview Eszter, we are grateful for giving us some of your time. February is the Month of Urbanism in Hungary and we wanted to talk about how urbanism, urban development and related issues are manifesting in the European Union’s new, 2021-27 Multiannual Financial Frameworks (MFF) and the programmes that are expected or planned to be part of this new MFF.

But to understand that, I wanted to ask you about the EU’s main initiatives, agendas or goals in relation to urbanism and urban development.

We can clearly see that the importance of urbanism and sustainable urban development, to use a term used more and more often in all the development goals and documents, is significantly increased in the new programming period. Cities are more and more important and stronger and stronger, which is reflected in the programming.

I wouldn’t say there are specific goals only related to cities or urbanism. However, the overall goals of the EU, which are behind all EU investments in the 2021-27 period, are to create a greener, more digital and more resilient Europe, and to achieve this the EU has five main objectives. The EU wishes to create a smarter Europe, a greener, carbon-free Europe, a more connected Europe (both transport-wise and digitally), a more social Europe and a Europe closer to its citizens. The first four objectives are not that different from the previous period. Yet the fifth objective, a Europe closer to citizens, shows the importance of cities, as it basically means supporting locally-led development strategies and sustainable urban development across the EU. So already on the level of objectives, it appears that sustainable urban development needs to be in the focus. This is the key driver of all urbanism-related EU initiatives.

Cities becoming more important was already visible in the previous period when new structures and programmes were set up to support cities.

We can mention the Urban Agenda for the EU which was launched in 2016 after the Pact of Amsterdam, setting out a multi-level working method for cooperation between the Member States, cities, the Commission and other relevant stakeholders, thus bringing together all sorts of players. It has twelve topics and has working groups setting up agendas for the twelve focus areas. This will be continued.

There is the Urban Development Network which is a formal platform where cities can directly interact with the Commission, again gaining more importance and being continued. Then there are specific, dedicated programmes like the Urban Innovative Actions (UIA) which is built upon the Urban Agenda for the EU and the Urban Development Network.

So all in all what I can say is that the new MFF will work to deliver the overall goals of the EU, and within that cities will play a specific role.

Before going into details about the programmes, do you think the EU is playing a proactive role in centring cities and increasing their importance in EU policy, or is the EU merely following social and economic trends and tendencies, such as increased urbanisation and the increased role of cities in climate change mitigation?

I think it is both. I am not into EU-level policy-making as such, but it must be both. On the one hand, it is the international tendencies and bottom-up initiatives, for sure, and there is a high level of urbanisation and a need to tackle issues locally. For example, challenges set out by the Sustainable Development Goals or the European Green Deal have big implications on the city level. But it is also the EU embracing these initiatives, so it is a conscious decision as well. Nevertheless, I think the tendencies are clear, you’re absolutely right to ask that. There is a clear urbanisation tendency worldwide, not just in Europe, but Europe is specific in that.

And besides the ones mentioned above, there are also several bottom-up European-level initiatives that focus on cities, such as Eurocities or the Covenant of Mayors, to mention just two, that are gaining more and more importance and thus need to be heard and taken into consideration.

Let’s move on to specific programmes. It is still very much the beginning of the new programming period, but as far as you can tell, what will be the programmes related to urban development? Will there be any new thematic programmes, like UIA was in the previous period, and will other programmes have emphases on urban issues? What I mean here, for example, if there is an increased emphasis on urban problems in Horizon Europe (the successor of Horizon 2020) or Digital Europe, or if the European Green Deal is manifested in the programmes in a way that relates back to cities.

Yes, it is quite early, the programmes are still being discussed and developed and while some information is already shared publicly, most information is not yet available. Still, with regards to directly managed programmes, which is our area of expertise, we have a general idea of what is to be expected, so I can give a brief overview of those.

What we see, on the one hand, that there will be dedicated urban programmes like there were in the previous period, but these are even more emphasised. We know for sure that the good old URBACT programme remains. This is a programme dedicated to cities, supporting knowledge exchange and networking. There is a programme we already mentioned, which was new in the previous period and proved to be successful, which is the Urban Innovative Actions. But UIA doesn’t really remain a standalone programme. Rather, we have a new thing called European Urban Initiative, which serves as a kind of umbrella for urban initiatives. One strand of this will be UIA, while its other strand will focus more on knowledge sharing and networking. As far as it can be known at this stage, a specific knowledge sharing platform will be created and knowledge flow will be encouraged between the various programmes like URBACT and UIA. Actually, just now there has been a call initiated by URBACT, the aim of which was to transfer knowledge gained from successful UIA projects to other European cities, and more of this kind of initiative is expected in the new period. Knowledge sharing is expected towards the mainstream programmes, to ensure that the outcomes of the URBACT networks and UIA projects are taken more into consideration when planning mainstream programmes and implementing mainstream projects. So there is clearly a dedicated set of programmes.

On the other hand, as you also asked, we see that there will be an increased emphasis on urban development issues in other directly managed programmes, too. You, rightly, mentioned Horizon Europe (the follow up programme of Horizon2020), which is traditionally the research, development and innovation programme of the EU: cities are gaining more and more prominence in Horizon Europe calls, mostly in a role of testing out solutions (from an applied research point of view) and serving as demonstration sites for innovations. The same goes for the LIFE programme, traditionally the green programme of the EU, where urban problems and urban issues appeared, especially in its climate strand, but also its biodiversity strand accepts cities and urban issues and problems more and more into its scope. And of course there are the Interreg programmes that consider not only regional but increasingly urban developmental issues. Most of the direct, transnational programmes are focusing more on urban development.

Two more things are to be mentioned. In general, 6% of the European Regional Development Fund (ERDF) funding available for countries has to be spent on urban development, which also emphasises cities. Finally, in response to the COVID19-pandemic we have the Recovery and Resilience Facility, where local and city governments are supposed to be involved in how the funds are used. Let’s hope that will happen like that, as there are no guarantees yet for the RRF funding actually being spent in the way it was planned to be.

And we can be certain that from time to time there will be specific initiatives dedicated to cities or urban development. Like we can just think of the current European City Facility that was born as part of a H2020 project and that offers cities the possibility to develop investment concepts related to actions identified in their energy and climate plans, thus related to energy efficiency, energy transition etc. Or we can mention the also currently open ERA-NET Cofund Urban Transformation Capacities that invites consortia including cities to create innovation and research projects enabling and supporting capacity building for urban transformations. I am convinced that more of these kinds of initiatives will pop up in the coming period as well.

Could you explain to the readers what are “mainstream programmes” as they might not be familiar with the term?

By “mainstream programmes” we usually mean the European Regional Development Fund (ERDF) and the European Social Fund (ESF) funding– that is available for national governments, usually used in the form of national Operational Programmes. We often refer to this as “national funding” but this is the EU funding dedicated to each country and implemented in the framework of operational programmes. Whereas the other programmes we have been talking about are more directly related to Brussels, to put it like that, either directly managed by the Commission, or by specific agencies, but not on national level.

Okay, so what are the main changes compared to the previous period? What I mean isn’t so much on the level of programme details, but on a more overarching level, if you look from the distance. What are the main differences?

It is a good question, but it is a hard question to answer at this point, because we don’t see the full picture yet, only what is being discussed.

Clearly, it is a big change that we will have a European Urban Initiative, which is acting as an umbrella programme, as part of this a clear change is that the focus will be on knowledge transfer, which wasn’t this much emphasised in the previous period. It has always been an aim and as more and more programmes are implemented, of course, the EU always tried to build on the knowledge coming out of them, but such a dedicated knowledge sharing mechanism related to urban issues is clearly new in this period. And it’s also new that cities are gaining more prominence in programmes that were traditionally not welcoming to cities as partners in their projects, such as Horizon Europe. This is part of an evolution, let’s say, which we have already seen in the previous period and is now being, on purpose, strengthened further. I cannot be more concrete yet but we can come back to this question in a couple of months’ time when hopefully we will be able to read all the programmes or at least the draft ones.

This leads to the next question. We talked about the principle of involving local government and local stakeholders and the increasing emphasis of sustainable urban development. What are the roles that local actors – not only municipalities but local civil society organisations, local NGOs, local businesses, local citizens – play in these new programmes?

That very much depends on the programme. If we take UIA, the goal of that is to provide room for experiment for cities, so cities can try out completely new solutions for urban issues, urban problems according to the twelve topics of the Urban Agenda mentioned earlier, which includes among others climate change, transport, urban poverty, cultures, so a variety of topics. To implement these experiments, cities need to be in the lead, but need to collect around them all relevant local stakeholders.

So “partnership” is a key word here and I can say, in general, that local players, stakeholders need to work in partnership with cities. This is a formal requirement in certain programmes, while in others it is not, but can still be an informal requirement. To be successful, and we have seen this in previous projects, partnership is key. Working together, building on one another’s knowledge. This relates to localism of the whole thing again, sustainable urban development done locally, with local players as well. So involvement and partnership, I would say, are the key words here.

You’re one of the partners and managing director of Grants Europe Consulting. I want to ask about your company and how your company is helping municipalities, and organisations applying for funding more generally. Both in relation to programmes in the old MFF and upcoming programmes, how can you be of help?

Our company is specialised in these direct European funding programmes, and we can help our clients, who are mostly cities, at all stages of the development process, from scratch to successful project implementation. We can help cities identify what and how they wish to develop, what they should focus on, what are the strengths they can build upon. We can help them develop a strategy to apply for funding, by matching ideas to potential sources of funding, and also generating project initiatives and project ideas together with them.

It is very important to emphasise that it’s always very close and intensive cooperation, a joint effort. We are there to support cities – to help them think strategically, to help them plan, and to help them turn ideas into projects. And once we reached this phase, we are there to help them develop actual project applications for the programmes we’ve talked about and help them submit these applications. Once the application is successful – and, thank goodness, we were quite good at developing successful project applications in the previous period, with a success rate of around 80% – we can give them support on how to kickstart their project and then all the way through the project implementation we can be behind them and help them both in the administrative and even in some content-related issues.

Finally, what are your recommendations for municipalities in this new MFF? What should they look out for, what should they be aware of?

What has always been important and we can never emphasise it too much, is that cities should think ahead, they should plan, and they should think strategically. Now, we are still in a waiting period, because due to the delay in accepting the EU budget for this new period, the programme development is still ongoing, so there are no calls out yet. What we see and this may be important, the urban programmes we were mentioning previously will probably not have calls out before the end of 2021 or even more likely before early 2022. The same goes for Interreg-type programmes. But it is expected that some programmes will come out with calls this year. In fact, it is still forecasted that some programmes will come out with calls this spring, including Horizon Europe, LIFE and Creative Europe (we have not mentioned the last one yet -Creative Europe is focused on culture and creative industries).

So there will be some calls this year, but most of it is expected next year, which gives a kind of opportunity for cities to plan ahead. As more and more information is available on the programmes and funding opportunities, there is more and more room for them to identify their priorities, their strengths, what they can and want to build on, how they want to continue to set up strategies, plan ahead what they could apply for and how they could apply for them. Our advice is that it’s always very good to think in steps. It is always good to plan ahead and have projects that build on one another, serving the same purpose. So, for example, a municipality focusing on aging can start with an Interreg project, then use an URBACT project, and if they come up with a very innovative idea, this might culminate in a UIA project, this all building on one another, at the same time also setting up and / or strengthening the related local ecosystems. So that is my basic advice, to think strategically, to think in steps, to think ahead as much as possible. Don’t commit the mistake of waiting, waiting, waiting, then there is a call out and you find yourself thinking “what shall we do? We want some funding, what could we do?” Be ready.

Eszter Héjj is one of the partners of Grants Europe and responsible for the company’s international project development department since 2015. In this position, she has been successfully coordinating the development processes of dozens of international projects (in UIA, URBACT, INTERREG Europe, Interreg CENTRAL EUROPE, Interreg Danube, Interreg NWE, Creative Europe, H2020 etc.) across Europe. She is specialised in bridging regional/urban and European policies and associated funding programmes by connecting clients’ needs to funding opportunities.

Before this position, Eszter was responsible for the international management unit of the company, guiding the implementation support provided to a multitude of European projects for clients across Europe in all the above mentioned programmes and more. Before joining Grants, between 2004 and 2006, Eszter worked for the Hungarian Managing Authority of the Regional Development Operational Program and INTERREG Community Initiative, gaining important experiences in Programme implementation as well.

The power of art and culture ... and how to fund it

So I want to begin with an apology. I apologise in advance for writing another one of those articles that uses COVID as an excuse to talk about something the author thinks is important. In my case: art, culture, and wellbeing.

I’m going to use this article as a soapbox, giving a few examples and providing a couple of tips for urban policy makers. By way of payment for your patience with this indulgence, I’ve sprinkled a few cultural recommendations throughout as a sweetener. If nothing else, hopefully, you’ll find a new book to read or film to watch.

Living through a pandemic has only reinforced my belief in the importance of art and culture for my wellbeing and the wellbeing of others.

Whenever cabin fever has hit me hardest, I’ve been able to find inspiration and energy by indulging the flâneur in me, sauntering around my home city of Rotterdam and admiring its world-renowned modernist architecture. Norman Foster, Rem Koolhaas, Piet Blom, Willem Dudok, we’ve got it in spades.

Come the evening, I can lose myself in the world of TV and cinema thanks to the package of subscriptions we’ve cobbled together with friends and family. I can’t get enough of Sorkin’s dialogue so the October release of The Trial of the Chicago 7 was a real treat for me.

And if I’m looking to connect with friends and colleagues, I can discuss a great book with my reading group over Zoom (for me, 2020’s literary highlight was definitely reading Mantel’s Cromwell trilogy during the first lockdown); or I can team up with old mates from the UK and try to survive Verdansk on Call of Duty (eight wins and counting!).

On top of all this, if I’m working out or going for a run, there’s no better soundtrack than Spotify’s song radio playlist for Action Bronson’s Easy Rider.

So, in short, art and culture has been a lifeline for me, and I’m sure it’s the same for others. It’s because of the value of art and culture that the European Commission has recently granted funding to a series of projects that will use its power to develop and test solutions to challenges faced by cities across Europe, and several of these have involved input from BURST’s team of experts.

The first is based in Hungary’s capital, Budapest. Last year, the Urban Innovative Actions programme (Europe’s DARPA for urbanism, helping cities run real-world tests of ideas generated by blue sky thinking) granted just over four million euros to CUP 4 CREATIVITY. The project will use this money to test the large-scale application of an innovative combination of online and offline interventions to fight digital loneliness by unleashing the creative potential of the citizens involved and bringing them together in creative communities.

Looking to Western Europe, the city of Tilburg in the Netherlands was also granted just over four million euros by the same programme for its project, ForwArt. The city and its partners will use this money to develop and test a solution that increases ‘eudaimonic’ well being amongst its citizens through the use of participative art projects that build communities and increase feelings of agency and self-belief.

These projects are inspiring, but everyone knows it’s not enough to have an inspiring idea, or even to test it on the ground, you also need to be able to implement it in a sustainable way. Fortunately, there’s an EU project for that, too.

Running between 2016 and 2019, the Creative Spirits project (funded by URBACT, Europe’s urban capacity building programme) investigated how local authorities can improve the way in which they implement their policies for the cultural and creative industries. Nine cities worked together on five common challenges related to implementation. These challenges were:

1. Ensuring that implementation is done in an integrated manner

2. Maintaining the involvement of stakeholders during implementation (and the closely related challenge of organising decision-making for delivery)

3. Measuring performance with indicators and monitoring systems

4. Translating strategies into actionable plans

5. Enhancing funding through financial innovation

The project found solutions to each of these challenges, the details of which can be read in the final report (published on the BURST’s ISSUU platform along with this article). However, since we’re in the middle of a pandemic and the cultural sector is facing unprecedented funding challenges, I'll close this article by giving more details about the last of these through the lense of the ForwArt project: how can we improve funding for cultural activities?

To improve funding for arts and culture we need to improve how we answer the two questions that must be answered when funding any public good. First, how do we get people to pay for it? Second, how do we decide what to pay for and how much money we should give it? Fortunately, the ForwArt project has a potential solution: quadratic funding.

What is quadratic funding? The short (but technical) answer is that it’s a design for philanthropic or publicly-funded seeding to allow the (near) optimal provision of a decentralised, self-organising ecosystem of public goods. Big words, sounds very clever, but what does it actually mean?

In plain English, it’s a type of crowdfunding. Citizens donate money to projects they think are good and the municipality tops up that donation with extra money.

So far so boring. But quadratic funding has a secret sauce. The money provided by the municipality isn’t a one-for-one match. Instead, it’s the square of the sum of the square roots of the contributions made by the people who donated.

Did you get that? I know I didn’t. Let’s look at a concrete example. Imagine you have €10,000 in a matching fund provided by the municipality and you have three projects participating in a funding round.

Project A receives €1000 in donations from five citizens, each contributing €200. Project B also receives €1000 in donations. However, this is provided by just two citizens, each contributing €500. Project C also received €1000 in donations. However, this was provided by 20 citizens, each contributing €50.

Now let’s use the formula to check the matched amounts and see the power of quadratic funding.

Project A receives a top up from the municipality of €1,185, an extra 185% on top of the original donations from the citizens. Project B receives a €741 top up from the municipality, an extra 74% on top of the original donations from the citizens. And now here comes the magic. Project C receives a whopping €7,407 top up from the municipality, an extra 740% on top of the original donations from the citizens!

What’s special about this? First, it increases the incentive for people to pay for the public good in question (in our case, art and culture). Second, it reveals the preferences of the citizens regarding their preferred projects (citizens vote with their money). Third, it ensures the projects with the widest support base get the biggest top up (which is good because these are likely to bring value to the greatest number of citizens). Fourth, it is a flexible system that allows the set of projects to emerge from the community organically (anyone can propose a project). This is why economist Alex Tabarrok has described quadratic funding as, “a quantum leap in public-goods mechanism-design”.

I can’t wait to see what Tilburg, its citizens, and the ForwArt project create using this solution. Who knows, at the rate this pandemic is going, maybe I’ll be able to lean on the fruits of their labours as I hunker down and dodge its tenth wave three years from now...

The Final Report of Creative Spirits project is available from now on BURST's ISSUU platform. The author of the Report was Hen Gerrits, one of the experts of BURST.