Neighborly, a San Francisco-based startup, intends to revolutionize the way American public infrastructures and urban services are funded. The solution they offer: bring the efficiency of crowdfunding to the world of public finance.
Crowdfunding to support citizen initiatives to revitalize particular neighborhoods has been spoken of before. But Neighborly goes to another level with the intention to make municipal bonds comprehensible, to enable citizens to directly and easily invest in local government projects.
Jase Wilson, the chief executive officer of Neighborly, doesn’t stand still when it comes to talking about the upcoming launch of their new platform. For him and his team, it will be the culminating achievement of four years of hard work.
PHOTO – Jase Wilson, the chief executive officer of Neighborly
Neighborly quickly realized that tackling today’s complex public finance system would be too complex to attempt all at once, so as its first project they launched a civic crowdfunding platform, offering similar services as ioby (Brooklyn), spacehive (the UK) or citizenvestors (Florida).
Through this platform, in operation for 2 years, they managed to raise millions of dollars to support neighborhood-improvement projects around the country from dog parks to community libraries.
Jase acknowledges that there is a space for this type of platform. But their mission has always been to take the mechanics of crowdfunding – « What makes crowdfunding so magic » – and « apply it to this enormous market that is the absolute lifeblood of the way we build the city in the U.S. ».
Indeed, public finance is a 1 billion dollar per day market operating in the U.S., a market that finances vital public projects like schools, parks, playgrounds bridges, sewers… « Pretty much every piece of the city except for the buildings… and even some of the buildings. » adds Jase.
The problem is that this market is far from efficient. Indeed, at least 15 million per day out of the 1 billion dollars disappears into the pocket of the intermediaries. First the bankers claim their dues, then the lawyers who can be paid up to a thousand dollars an hour. But there is also the cost of printing the documents.
Jase hands me one of the many finance documents printed each day. It’s huge! The size of a book. « And they don’t just print one copy of it. And have to print several versions. »
Just last year, the cities of California spent 650 million dollars on legal fees, bankers’ fees and printing costs to borrow money.
« How many playgrounds, gardens is that? …You can’t reduce it to zero, but it doesn’t have to be 650 million! We think it looks more like 65 million were we are done. » says Jase, which still means collapsing the costs by 10.
But the problem is not just that people that are borrowing the money are paying too much for it, they are also not giving the kind of community projects that they should be providing.
As Jase says « Finance is guiding the nature and the scale of the things that are built, not the community itself.»
Jase brought the example of a city in California that was looking for a solution to secure its future water supply. Two options were under consideration: an offshore desalination plant or the dissemination of rain water collection systems around the city.
« Of course they go for the desalination plant – borrowing 10 times the money. Because the banks won’t finance the rain gardens proposal. It’s too out there. »
Thus, it has been easier to put together a billion dollars for an offshore plant than it has been to get a hundred million dollars to put a thousand rain gardens throughout the city.
The network of rain gardens would not have generated the same treated water output of course, but they would have had reduce the amount of water needed.
Most importantly, « the rain gardens would have been a better investment for the environment and the city scape. »
« An occasion to make the streets greener and more pleasant, to add some spaces to gather, fountains, benches..to turn the city into a giant leaf! » notifies Jase.
« A lot of what you get excited about in cities right now happens at a very small scale, like a block. But those projects are too small and the market is obsessed with big size. »
Indeed, the way it’s operating right now seems to reduce the possibility to do innovative things and projects are less valuable that they could be.
To re-direct efforts and resources, Neighborly is creating access and transparency for everyone – from an individual to an institution – in a system that is too complex and invisible to most citizens.
The platform aims to be really user-friendly, whatever your experience level is in municipal bonds (muni bonds). They will guide you from how municipal bonds work, their benefits, how much money will you receive from your investment, etc.
And Neighborly will soon allow you to discover local purchasing opportunities and buy portions of a municipal bond to support initiatives such as education, green spaces, transportation, healthcare, housing…
PHOTO – Municipal bond certificate issued in the 1930s to finance the Golden Gate Bridge – framed in Neighborly’s headquarters
It took Jase 14 months to register Neighborly as a regulated financial company. Now, they can provide the direct connection between investors who want to finance public projects and the projects that they want to finance.
Jase indicates that they don’t want to take a position between the two – essentially how the market works today. Neighborly is a depository institution – where the money is stored.
« Muni bonds, in many ways, offer investors the best of many worlds: an opportunity to invest in your community while receiving a decent return at a relatively low risk. » advertises the platform.
Some cities like Portland (Oregon) and Austin (Texas) have already expressed their willingness to get on board.
Neighborly’s aim is to take the power of finance and to put it in the hand of the community.
As exemption from federal taxes on interest earned is one of the biggest advantage of munis, it may attract mostly citizens in high tax brackets. Although it won’t be a problem for Neighborly to find buyers, will the decision-power be taken over by civic visionaries?