Are Member States making the most of Cohesion Policy support for sustainable urban development?

Is EU Cohesion Policy equipped to help cities face increasing development challenges? Urban areas are the locus of some of Europe’s most persistent economic, social and environmental problems but also a key source of innovative policy solutions. The intensity and complexity of challenges facing these areas will be more pressing in the future and finding innovative, ‘joined up’ solutions will require cities to scale up capacity and cooperation.

The spread of COVID-19 through cities around the world, with devastating impact on local communities and the wellbeing of residents, underlines this pivotal role.  Urban authorities are at the forefront of efforts to combat the outbreak, implementing nation-wide measures and complementing these with bottom-up, innovative responses that draw on their proximity to citizens. The importance of capacity-building, coordination and innovative policy-making at the urban level will remain crucial in economic recovery processes, particularly in a context of budgetary constraints.  In principle, ESIF investment has an important role to play in this through its territorial focus and capacity-building potential, and the EU’s urban agenda has become increasingly prominent in recent years. In practice, regulatory and governance complexity, weaknesses in strategic frameworks and limited implementation capacities mean that this potential is not always realised.

In the current period, ESIF are supporting integrated sustainable urban development (SUD) strategies as a way to overcome these issues and help urban areas address complex problems in a coordinated way.  Under this, a minimum of 5% of ERDF resources allocated to each Member State must be invested in integrated actions for sustainable urban development with management and implementation tasks delegated to cities. SUD is implemented as an Integrated Territorial Investment (ITI), a new Cohesion Policy instrument in 2014-2020 that allows EU Member States to bundle funding from several priority axes of one or more Operational Programmes (EU programmes) to target specific territories. This approach empowers urban authorities to develop strategies that are:

  • multi-sectoral (bringing together different combinations of thematic objectives);
  • multi-scale (delineating a functional territorial perspective);
  • multi-partner (including the delegation of management tasks to the local level); and
  • multi-fund (mixing support from different funds, programmes or priorities).

Urban authorities have certainly responded to this opportunity. Although implementation of SUDs got off to a slow start, it has accelerated over the past two years. Since 2017, the gap in absorption rate for SUDs and the total rate for all ESI Funds has steadily decreased (see Figure 1).  Of the €81 billion of ESIF investment in urban areas by the end of 2018, cities had chosen projects worth around €10.8 billion, implemented through more than 900 SUDs. But how effective has this integrated form of ESIF urban investment been? Programme authorities and cities are currently taking stock of their implementation experience. What has and has not worked and what can and should be built on in the 2021-2027 financial perspective?

Source: EC, ESI Funds Open Data Platform, see https://cohesiondata.ec.europa.eu/ accessed 21/4/20.

 

What has worked?

Positive messages are emerging from this period of reflection.

  • The value of pursuing a ‘place based’ strategy that identifies the specific needs of urban areas is appreciated by urban authorities, as is the opportunity to address complex, interrelated needs in an integrated manner.
  • Innovative approaches to coordinating projects through linked or sequential calls for proposals under different ESI Funds are paying dividends. Recent evaluations have highlighted the value of joining up urban mobility projects across local authorities, coordinating ESIF support for economic and social issues in deprived districts etc.
  • The incentive these integrated investments offer for capacity building at the urban level are evident in the creation of new structures (secretariats, associations of local authorities, steering groups etc.). In some cases, a more participatory and cooperative culture, for instance between core city municipalities and surrounding areas, has overcome traditional fragmentation and rivalry in accessing ESIF. SUD has also been a source of innovation in implementation processes. Beneficiary municipalities have been challenges to develop and approve projects that group objectives impacting on several of them at once. This has prompted a more integrated, holistic approach, for instance in the generation of indicators and datasets to measure cross-cutting objectives
  • Last but not least, the potential for more actively involving citizens in EU funding through such local, place-based initiatives is increasingly appreciated at EU and Member State levels.

 

What are the problems?

Despite these benefits, SUD investments have often proven difficult to design and implement.

  • Regulatory challenges persist. Public procurement issues, state aid requirements and dealing with varied for different ESI Funds are perennial implementation challenges. But these are compounded when urban authorities strive to integrate investments ‘on the ground’.
  • Shifting away from traditionally competitive cultures for accessing EU funding is difficult. Finding consensus on the geographic scope, thematic content and governance arrangements for strategies often required lengthy negotiations and have sometimes resulted in fragmented SUD strategic frameworks.
  • The establishment of project ‘pipelines’ has been time-consuming as urban authorities came to terms with this new, integrated approach and tried to mobilise new partners in urban communities.

In some cases at least, the extent to which they are producing genuinely integrated, ‘place-based’ projects is being be questioned.

 

Looking forward to the new period

Planning is currently underway for the 2021-2027 strategies and, based on experiences from 2014-2020, there are basic steps that are necessary to make the most of the potential offered by SUD.

  • First, programme authorities and their urban partners have to find the best SUD model for their specific urban contexts. This means developing strategies that are relevant and proportionate to the level of funding available, the institutional setting and the most pressing needs being addressed. SUD can encompass a wide range of strategies but the priority must be to support a functional urban area rather than simply to divide funding among the authorities involved. Implementing a large number of small strategies creates coordination challenges and diminishes the overall impact of investment.
  • Timeliness will also be important: strategies and project plans should be in place as early as possible in order to avoid the delays that have hindered implementation in the current period.
  • In many instances, this will involve administrative capacity building with investment in human resources and systems to support close cooperation between programme authorities and urban authorities in developing and implementing integrated projects. For these strategies to be genuinely sustainable, capacity-building is needed to mobilise beneficiaries and stakeholders in the private sector and third sector and to strengthen ties with citizens.

These efforts will be conditioned by the regulatory context, and the European Commission has proposed changes to support SUD implementation in the next period.

  • The minimum ‘earmarking’ of ERDF to SUD is likely to be increased to 6% in the next period.
  • One of the new Policy Objectives (PO 5 – EU closer to citizens) gives increased visibility to the territorial dimension that includes a specific objective for integrated territorial development targeting urban areas. Member States have flexibility to programme their own models of integrated investments under this, as long as they meet minimum requirements of having strategies based on cross-sectoral, multi-stakeholder approaches and an urban body that draws up the strategies and is involved in the selection of operations.
  • The proposals clarify the required SUD strategic content and allow urban authorities to build the next generation of strategies on existing frameworks rather than ‘from scratch’. Urban authorities no longer have to be given ‘Intermediary Body’ status to implement SUD, avoiding a burdensome formal designation process that caused significant delays in the current period.
  • Alongside these regulatory proposals, the Commission is preparing support and guidance for SUD implementation. The Commission proposes a new EU Urban Initiative, with funding of EUR 500 million to support capacity-building, innovative actions and knowledge exchange. The Commission’s science and knowledge service, the Joint Research Council (JRC), has gathered a range of data and tools to support SUD implementation and dedicated support is provided by Cohesion Policy programmes, notably URBACT, ESPON, and the Urban Development Network.

Assessment

The proposals for 2021-27 are potentially important, but do they go far enough to strengthen SUD implementation in the next period?

  • Integration of funds ‘on the ground’ remains a serious challenge. Could the proposals go further in facilitating integration of the funds ‘on the ground’? This would mean giving ESF a more explicit role in integrated territorial investments alongside ERDF. There is also a concern is that rural development will be separated out from Cohesion policy under the new proposals.  Is the proposed raising of the threshold for SUD urban ‘earmarking’ to 6% ambitious enough? The European Parliament has noted that the current allocation by Member States is currently around 8% and has argued for a 10% threshold.
  • A more general concern repeated across Member States is the lack of ‘fit’ between the suggested SUD regulations and the direction of travel indicated in broader proposals for the future of Cohesion Policy. The principle of thematic concentration, implemented in the current period, will continue to require that Member States focus spending on issues considered to have high added value. Under this, the majority of ERDF would be concentrated on innovation (PO1) and the low-carbon economy (PO2). This could constrain the integration of key themes in some SUD strategies, for instance where urban infrastructure investment remains a priority. Proposed increases in national co-financing rates for projects will put pressure on national and local budgets when they are already under strain as a result of COVID-19 responses, impacting on efforts to mobilise new urban partners. The proposed shift from N+3 to N+2 – meaning that programme authorities will be under pressure to absorb EU funding within two years of commitment – will make it challenging to implement projects under innovative or complex instruments such as SUD.

Overall, there is a growing consensus that ‘place-based’ policies have a crucial role to play in addressing complex socio-inequalities and in engaging citizens in Cohesion Policy. SUD is a prominent example of this approach. It incentivises tailored, integrated responses to multi-faceted urban problems. It also brings EU investment closer to the people by giving urban authorities and their local partners a more prominent role and stake in the process. The uptake of SUD funding in the current period demonstrates the commitment of urban stakeholders to play such a role and emerging studies demonstrate the benefits this offers. In the short-medium term, urban authorities across Europe are facing unprecedented budgetary, strategic and capacity demands as they deal with the COVID-19 crisis. In this context, SUD funding can play a key role in incentivising strategic cooperation and policy innovation.  As negotiations for the next EU financial perspective conclude and increasing attention is paid to the launch of new programmes and SUDs, the question is whether there is sufficient willingness at EU and Member State levels to ease the regulatory burden and invest in the capacities needed to make the most of this opportunity.

Dr Martin Ferry leads EPRC research on sustainable urban development and coordinates SUD-Net, an emerging network of managing and urban authorities sharing knowledge and good practice on SUD. He was the (co-)author of the EPRC studies on integrated territorial instruments for the European CommissionEuropean Parliament and IQ-Net Network.

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