Neighborly
= "crowd-funding platform Neighbor.ly focuses on the financing issues of urban projects and services. On this newly launched platform everyone, including local authorities, companies and non-profit-organizations, can start a campaign to get money together for specific urban projects". [1]
URL = http://neighbor.ly/
Description
By AMY CORTESE:
"A start-up that aims to connect citizens more directly to public finance. The idea is to use some of the practices of crowdfunding, which has begun to streamline financial markets from commercial real estate to student and consumer loans to small-business capitalization. Neighborly is setting its sights on a market that, though hardly sexy, may surpass them all in size and complexity: the $3.7 trillion municipal bond market." (http://mobile.nytimes.com/2015/07/12/business/mutfund/putting-the-public-back-in-public-finance.html)
Status
July 2015:
"In its first two years, Neighborly helped raise $3 million for around 60 projects. Over that period, Mr. Wilson was accepted into three programs aimed at accelerating the start-up process: Points of Light, in Washington; Tumml, in San Francisco; and 500 Startups, in Silicon Valley. (Mr. Hosty has participated in Neighborly while continuing with his job at a bond firm.)
In the fall of 2014, Mr. Wilson began to tackle the municipal bond market. By this fall he expects to deploy a system that enables municipalities to market bonds directly to investors. The company has lined up seed funding from Structure Capital; the actor and investor Ashton Kutcher; and the venture capital firm Formation 8, which has invested in other civic innovation start-ups." (http://mobile.nytimes.com/2015/07/12/business/mutfund/putting-the-public-back-in-public-finance.html)
Example
"A Denver-in-a-Box for all cities"
By AMY CORTESE:
"For a glimpse of one possible municipal finance future, look at Denver. Last August, the city made waves when it crowdfunded $12 million worth of mini-bonds. The bond offering, the last phase of a $550 million voter-approved bond program to upgrade roads and civic buildings, was available only to Colorado residents. The bonds were priced in affordable denominations of $500, versus the typical $5,000 minimum for municipal bonds. Orders were limited to $20,000 per person. Had the bonds been offered in the usual way through Wall Street, the average purchase would most likely have been in the $500,000 to $1 million range, said Cary Kennedy, deputy mayor of Denver.
Denver had offered mini-bonds for five years, but this was the first time it did so online. They went on sale at 8 a.m. on a Monday, and orders swamped the city’s website. By 8:16 the bonds were gone; officials had to make refunds to 375 people who placed orders after the bonds sold out.
The bonds were unusual. Investors could buy either a nine- or 14-year zero-coupon bond — which does not pay interest until maturity — with a yield from 4.38 percent to 4.89 percent, higher than that for many municipal bonds at the time. The interest was exempt from city, state and federal taxes. But there was a catch: The Denver bonds could not be easily resold. And while Denver has a triple-A bond rating, these bonds were not rated.
“This was an opportunity for the people of Colorado to invest back into their hometown, in a very safe way,” Ms. Kennedy said.
Denver worked with a local bank, Vectra Bank, to handle the online sales, and did not use a bank underwriter. “We had to start from scratch,” Ms. Kennedy said.
That is where a service like Neighborly’s could come in. Though the company has yet to help any municipality issue a bond, Mr. Wilson said it aspired to be “Denver in a box for all cities.” (http://mobile.nytimes.com/2015/07/12/business/mutfund/putting-the-public-back-in-public-finance.html)
Discussion
Joop De Boer:
"Besides all the opportunities that this new way of generating money for urbanism provides, there’s also a less convenient angle. The decision making process about governmental investments in the city could easily be influenced by the willingness of inhabitants to reach out a hand financially. Some projects, however, are less appealing to crowd-funders or supposed to be carried out in less fortunate communities. This doesn’t necessarily mean that the project is less important. Crowd-funding, in that sense, should probably not affect the neutrality of the local public sector. What shows to be a community-driven bottom-up-kind of city-making could easily become a new form of privatization of urbanism. Apart from that, crowd-funding by governments could easily lead to new ways of letting citizens pay extra for services that they already had paid for by means of taxes." (http://popupcity.net/neighborly-a-new-way-to-let-you-pay/)
Tackling Municipal Bonds
By AMY CORTESE:
"In many ways, municipal bonds — loans that finance public works like schools, roads, water treatment plants and other projects, often paying tax-exempt interest — are ripe for innovation. Compared with the stock market, the vast market for municipal bonds is opaque and relatively untouched by technological change, leading to higher prices for retail investors.
Although individuals hold 75 percent of municipal bonds, either directly or through mutual funds, they are typically at the end of a long supply chain, starting with bank underwriters that buy securities from municipalities and resell them to brokers and big institutions. A bond may change hands several times before it reaches an end investor. Each time it does, the price may be marked up — in ways that are not always clear. (Unlike stockbrokers, who must disclose fees, bond dealers are not required to reveal their markups.)
A 2012 report by the Government Accountability Office concluded that smaller investors were likely to pay higher prices to buy, and receive lower returns when they sell. The Securities Litigation and Consulting Group, a consulting firm, estimates the cost of excessive markups to small investors at $1 billion a year.
For the 50,000 or so municipalities and agencies that issue roughly $350 billion in bonds annually, the current muni market offers many benefits. Capital costs are typically low for issuers. Because the bonds are usually exempt from federal and state taxes, and sometimes local taxes, investors are willing to accept lower yields than for taxable bonds. And the fees that issuers pay Wall Street bankers have dropped steeply since 2008, when many municipalities took big losses because of ill-advised derivative deals.
Municipal governments in the bond market face challenges, though. Some banks have exited the market, put off by the thin margins that come with originating muni bonds. Structural and regulatory changes have also made the bonds less attractive to banks.
Yet as America’s infrastructure ages, the need for state and local spending on road, bridge and building repairs is mounting. As a result, some states and cities have begun experimenting with new ways of pulling in capital, including green bonds for environmental projects; mini-bonds in lower denominations that ordinary investors can more easily afford; and more direct sales to individual investors.
“We want to create a more intimate link between issuers and investors — not just the large investor,” said Steven Grossman, former state treasurer of Massachusetts, which sold the country’s first green bonds and started an online ordering system that gives individual investors direct access to new bonds.
Muni bonds are historically a safe asset class, but some are looking more risky lately as many cities struggle with underfunded pension obligations.
“You want to make sure that people understand the risks that they are getting into,” said Tom Kozlik, a municipal credit analyst at Janney Montgomery Scott. “There’s a lot of stuff you need to be paying attention to, especially in this market.”
Mr. Kozlik does not see a big need for crowdfunding in municipal finance. For one thing, he said, the market is pretty efficient as it is. He also worries that municipal bonds could be difficult for unsophisticated investors to assess. In addition to underfunded city pension obligations, he points to high-yielding bonds for charter schools as an area of risk." (http://popupcity.net/neighborly-a-new-way-to-let-you-pay/)