Sustainable jerusalem Glenn Yagu

Milken Innovation Center

Sustainable Jerusalem: Next Steps towards 2020

Prof. Glenn Yago, Senior Director Jerusalem Institute for Israel Studies

Jerusalem 3-D Conference Nazarian Center for Israel Studies

UCLA May 31, 2015

Milken Innovation Center Milken Innovation Center

Based at the Jerusalem Institute for Israel Studies, we are a financial R&D center that focuses on building financial solutions to enable Israel to move from the “start-up nation” to the “scale-up nation.”

Fellows

Projects Financial

Innovations Labs

We build practical, market-based, data-driven solutions that achieve results…


Milken Innovation Center Specifics

Fellows

Projects Financial

Innovations Labs

•  Towards Affordable Housing in Israel •  Capital Access in Israel’s Underserved

Markets •  (Re)Investing Israel’s Capital Markets •  Building a Social Capital Market in Israel •  New Techniques for Financing

Biomedical Technologies •  Financing Solid Waste Treatment in

Israel •  Cultural Heritage as an Economic

Development Resource

•  National Economic Council •  Tax Authority •  Ministry of Finance •  Ministry of Economy •  Office of the Chief Scientist •  Ministry of Environmental Protection •  Bank of Israel •  Office of Fuel Alternatives

•  Strengthening Israel’s Regions •  Financing the Infrastructure for the

Kidron Valley •  Financial Inclusion Tools and Policies


Regional Development Financial Authority •  Revenue bonds for

infrastructure, small business •  Credit enhancement from

philanthropic investors and government

•  Our Role: Lab, research, modeling, structuring (2007 to 2014)

•  Results: government action being considered for Negev and Galilee

•  Initial social investment: $220,000

•  Expected program results: $60,000,000

•  Status: pending official government action led by National Economic Council, Ministry of Finance, and Ministry of Economy

New Models – New Results Relevant examples of some other related projects…and results so far

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Social Investment Fund •  Leverage social investment into

social enterprise •  Credit enhancement from

philanthropic investors and government to leverage capital market investments

•  Our role: Lab, Fellows, research, modeling, structuring (2010-2014)

•  Results: government tender for launch of social investment fund in 2014


•  Expected program results $50,000,000

•  Status: tender issued

Affordable Housing Initiative •  Range of tools and programs to

encourage development of affordable housing

•  Equity, debt, tax credits, guarantees, etc.

•  Role: Lab, fellows, research, modeling, structuring (2012-2014)

•  Results: Ministries considering adapting specific actions


•  Expected program results: $23 billion (long term private investment)

•  Status: Under review by Housing Cabinet and Ministries

River Revitalization •  Range of tools and programs to

encourage infrastructure, clean-up, and development

•  Project financing •  Role: Lab, research, modeling,

project structure (2011-2014) •  Results: project financing plan

for regional sewage treatment, economic and community development plan


•  Expected program results: $98.6 million

•  Status: pending government approval

Milken Innovation Center Getting traction from research

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Milken Innovation Center Jerusalem 2020:

Next Steps for Strategic Plan

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Milken Innovation Center What are the strategic investment

opportunities in Jerusalem?

Affordable Communities

Downtown Partnerships

Sustainable Infrastructures

East Jerusalem Economic Development

Project goals and representative projects

These goals are based on the Jerusalem Foundation’s Working Policy Paper on Jerusalem (May 2014)

Milken Innovation Center Strategic opportunity

Affordable Communities

Opportunity §  Increase the range of housing options for poor, working poor,

students, young families, and the middle class §  Design scalable financial services to Jerusalem’s youth, student,

and growing family populations Projects •  Affordable housing - leverage philanthropic investments to create scalable and

sustainable financing solutions to provide affordable housing in Jerusalem •  Credit union - create community-based credit union to provide cost-effective, scalable

financial services to students, young families, and the city’s middle class •  Business development – technical assistance and access to affordable financing for the

development and growth of small businesses


Downtown Partnerships

Opportunity •  Enhance downtown as a destination for retail, quality office, and

cultural attractions •  Build public and private partnerships to attract investment and

residents into urban center

Projects •  Office incubator spaces - invest in incubator office spaces for competitive businesses in

the City’s core to leverage the City’s comparative advantages •  Creative hubs - leverage philanthropic and government investments in the city core to

strengthen the growth and development of schools, dormitories, art studios and galleries, and related services in the urban core

•  Business improvement districts - create public, private, and philanthropic partnerships to leverage new sources of investment for business district development.


Developing Urban Infrastructures

Opportunity §  Improve tourism and cultural heritage infrastructures, including

museums, parking, and support services §  Strengthen water, alternative energy sources, land management,

and education facilities §  Integrate and enhance natural habitats in urban fabric

Projects •  Physical assets - Develop scalable environmental, energy, transit, and tourism and

cultural heritage, and waste treatment assets •  Community assets - Leverage philanthropic investments and engage private investors in

creative communities (creative arts and engineering schools, galleries, and community-based programs)


East Jerusalem Economic Development

Opportunity §  Leverage global market for Jerusalem’s modern and ancient

cultures §  Expand business and community development in Arab

neighborhoods

Projects •  Leverage philanthropic investments in build a sustainable

financing and technical support program, including: –  Youth outreach and center for entrepreneurial training in social enterprise and technology –  Business hub for tourism-related business development and network development –  Community-based and business development and entrepreneurship training –  Social enterprise development to support young leaders to develop social enterprises

•  Create regional tourism improvement district to invest new capital into tourism sector

Milken Innovation Center Economic Development Tools

Economic Development Real Estate

Project

Real Estate & Property

Special Districts (Tourism,

BIDs, etc.)

Taxes & Revenue/

Results Based Financing

P3 + Infrastructure

Land Use /

Zoning (Higher Density; Parking)

Cities have 5 BASIC TOOLS for Public Private Projects

Theses tools often work best when used together 13


Opportunities Investment structure financial and social returns

Affordable communities

•  Community investment notes •  Community development bank •  Shared equity funds

•  Loan interest •  Sustainable financial services •  Fee income •  Upside equity returns

Infrastructure •  Credit enhancements •  Regional development bonds •  Tax increment financing

•  Guarantee fees •  Bond interest and fees •  Access to low cost capital

Downtown partnerships

•  Business improvement districts •  Business revolving loan funds

•  Sustainable downtown services •  Stronger downtown amenities

East Jerusalem

•  Business development financing •  Business network development •  Regional asset financing •  Social Impact Bonds

•  Royalties, interest, and fees •  Sustainable business networks •  Jobs and incomes for residents

Examples of social investment structures with types of returns

14


Stakeholders Examples of returns

Businesses more income, stronger market

Cultural institutions stronger market base, larger donor base

NGOs new revenue models and new sources of investment capital

Local government stronger tax base, new sources of capital for investment projects

Government less fiscal dependence, stronger populations

Population jobs, education, community assets

Community schools, sustainable services, and new sources of capital

Philanthropy Sustainable, scalable investments; potential returns on project upsides to support ongoing project and program design and development

Examples of returns on investments to stakeholders

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Social investment

Leverage multiple

Organization and capacity

Low-cost, long-term debt

Guarantees

Participating equity

Capital market investments

Jobs and incomes

Fiscal balance and savings

Investing in a sustainable Jerusalem now A seed investment with high leverage potential

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Indirect returns for philanthropic seed investors: •  sustainable, scalable

investments; •  high impact outcomes; and •  potential returns on project

upsides to support ongoing project and program design and development Proposed seed investment

research and planning






Milken Innovation Center Hasmonean Water System



Kidron Eco-Systems Ecological & Economic: Sustainability Case Study

Water & Sewer Treatment

Solid Waste Treatment

Education

Agriculture Recreation & Tourism

Heritage & Tourism

Economic & Community

Development

Source: Milken Institute 24

Milken Innovation Center Getting Directions

Milken Innovation Center Previous Work: Financial

Innovations Lab


Steering Committee, Institutions, Basin Management and Planning Committees

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Planning Committee: Head of the Planning Arie Rahamimoff Liora Meron Committee: Laure Dachy - Rahamimoff Architect

Gregory Katz Demographic and Society: Planner Israel Kimhi - Jerusalem Institute Community Planning: Planner Muhammed Nakhal Sewage: Eng. Amir Avishai- Afik Drainage: Dr. Eng. Nimrod Halamish, Afik, Dr. Yulia Alexandrov Authority: Eng. Avi Freund - Engineer at Dead Sea Drainage Authority

Landscape Architecture: Arch. Vardit Tsurnamal - Arch. Avital Hagai - Tsurnamal-Turner Transportation: Marc Render- Amav Transportation Planning

Chaim Schwartz - Amav Law and Administration: Adv. Dani Livney- Laster- Gouldman International Law: Dr. Robbie Sabel Economy: Prof. Glenn Yago, Dr. Steven Zecher, Milken

Institute Archaeology, Heritage, Green Osnat Post, Avner Haramati, Avner Goren Pilgrimage and Tourism: Muhammed Nakhal Municipal Project : Idit Alhasid Orit Golan – New Community

Muhammed Nakhal, Fuad Abu Hamed, Haled Abu Kaf

Engineers Without Borders: Dr. Vered Blass, Avner Goren, Co-Chairs, EWB, Israel

Society for the Protection Pazit Schweid, Pearl Kaplan, Sigalit of Nature in Israel SPNI Rachman, Ido Wachtel, Amir Balaban Community Building in a Global Society Planning: Yoel Siegel, Ph.D. Director Metro-Jerusalem

URBIS Local business initiatives Naim Awissat Members who participated in the Master Plan Committee: Hydrology : Prof. Eliahu Rosenthal Drainage and Sewage: Eng. Ilan Helbetz - Lavi Natif Ecology: Dr. Ram Almog - Kayma Environmental Economics: Dr. Boaz Barak

Members of the Steering Committee: Chairman of the Steering Gery Amel , Dead Sea Drainage Authority Committee: Prof. Richard Laster Institutions participating in the Steering Committee: City of Jerusalem Dead Sea Drainage Ministry of the Environment Jerusalem Institute for Israel Studies Milken Institute Peres Center for Peace Basin Management Committee: City of Jerusalem: Naomi Tsur, Deputy Mayor of

Jerusalem and Deputy chair of Dead Sea Drainage

Dead Sea Drainage Authority: Gery Amel , Dead Sea Drainage City of Ubiedyeh: Suleiman Abdallah Al Assa



Making Us Secure: Rivers as a Bridge


Initiative: Wastewater Management


One of 5 Crossing Border Rivers

Kidron- Wadi El Nar Basin- Planning Boundaries

31

מקרא:

Areas addressed - Og, Kumran and Dargot basins

קומראן ققُممرراانن

Kumran

קדרון وواادديي االلنناارر

Kidron

דרגות ددررججةة

Dargot

ערוגות ععررووججووتت Arugot

פרת االلققللطط Pratt

שורק سسووررييكك Soreq

חצצן ححصصصصاانن Hazezan

חבר ححببرر

Hever

אוג ااووغغ Og

ירושלים ااووررششللييمم االلققددسس

Jerusalem

ים המלח االلببححرر االلممييتت Dead Sea

Planning area - Kidron Basin

National watershed line

Milken Innovation Center A Visit to the Neighbors

Mayor Suleiman

Siting Wastewater Treatment Plant

Milken Innovation Center Preparing for the Plant


Lower Region

Central Region

Upper Region

Kidron Basin- Planning Regions

Length of the streambed 40 km

Aerial length 24 km

Area of the Basin 120 Sq. km.

•  Upper Region 20 Sq. km.

•  Central Region 70 Sq. km.

•  Lower Region 30 Sq. km.

4 Legal Juristictions

Kidron Basin Borders between Basin Regions

Streambed 34


35

Kidron/ Wadi El Nar Basin

המרחב התחתון

המרחב המרכזי

המרחב העליון


The Kidron around the Old City of Jeruslem הקדרון סביב העיר העתיקה

36


37

View towards The Separation barrier


Mar Saba Monastery מרכז האגן - מנזר מר סבא Central Basin - Ma

38


Central and Lower מרכז ומורד האגן Basin

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Sewage Pipe from Bethlehem-Beit Sahur region flowing into the Kidron/Nar river

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Central and Lower מרכז ומורד האגן Basin

41


Sewage in the Kidron/Nar

Dumping of untreated sewage in the streambed: A violation of Israeli law, International law (crossboundary pollution), the law in the Israeli-administered West Bank (Area C), and Palestinian law.

42

ü  One third of Jerusalem’s sewage, approximately 30,000 cubic meters per day, flows down the Kidron Stream/Wadi Nar without any type of treatment.

ü  Approximately 15,000 cubic meters of sewage from the Bethlehem-Beit Sahur region flows down the stream every day.

ü  A total of 40,000 to 45,000 cubic meters per day (projection for the year 2025: 60,000 cubic meters).

ü  This comes to a total of 15 million cubic meters per year.


Involving the Community and Stakeholders

ועדת התכנון העירונית, ינואר 2011

הפטריארך היווני תיאופילוס ה- III, נובמבר 2011

מפגש בעלי עניין, מרץ 2010

דיון בתכנית ערב א-סוואחרה, ספטמבר 2010

43


GOALS OF THE MASTER PLAN

-  Guiding Principle: The Kidron Basin- A quality area between the Old

City, Central Jerusalem and the Dead Sea

- “The Stream as a Bridge” - Between Political Entities and Cultures

- Solving the Kidron sewage problem

- Involving the Community and Stakeholders

- Improving the Population's Quality of Life

- Renewing the connection between Jerusalem, the Basin and the Desert

- Implementation of the Basin Plan in the Future 44


45

ILLUSTRATION OF SEWAGE PIPE

Gravity Pipeline קו גרביטציוני

Gravity Pressurized Pipeline קו גרביטציוני בלחץ

WWTP


בעלות משפחה מספר חלופה סולם נכונות להשתתף לפי סלימאן ואבו סנד 1- לא טוב 9- טוב מאוד

גודל שטח 20 דונם לפחות

יש 9סעאדה עצא 1יש 9סעאדה עצא 2יש 9אחמד עלאן סאפי 3יש 9ח'לף עצא 4יש 9אחמד עלאן סאפי 5יש 6מוחמד עבד רחמאן 6יש 9סעאדה עצא 7יש 9סעאדה עצא 8יש 9חסן רבאיעה 9

Ownership of the Sewage treatment Plant Area

46


–ב רחבמ

ת ננובוהת לליככ

ם לוציה

רהסרמו

ה וצקב בותתפשת מ

– וםיל צ

ב |טיאק

ני מי

+

Community Initiatives


48

Community Initiatives


Financing Model Concept

New Business Development &

Growth

Special District Fees

Business & Individual

Taxes

Project Financing

49 Source: Milken Institute

7

8

9

10 2 4

3 5

1

6

11

Special Purpose Vehicle

Infrastructure Construction

Sewage Collection & Treatment

Operating Revenues

Service fees

Milken Innovation Center Financing Model

Explanation

Special Purpose Vehicle

Project Financing

Capital Costs •  Waste water treatment works •  Nonpoint pollution control management •  Clean-up, remediation, and conservation

Program Operations •  Water Collection •  Treatment •  Distribution

Operating Revenues •  Grey Water Sales •  Compost Sales •  Methane Gas Sales •  Energy Sales

Direct Public Fees •  Tap-in Fees •  Flushing Fees •  Drainage fees •  Drinking water fees

Business Growth •  Heritage & Recreation •  Tour & Lodging •  Commercial Services •  Education

Indirect Revenues •  Real Estate Taxes, Improvement

Taxes •  Recreational fees, use fees •  Business licenses

Indirect Revenues •  Tax Increments •  Special purpose taxes •  Event fees

50 Source: Milken Institute

Milken Innovation Center Project Financing

Capital Structure Assumptions

Senior Debt First Loss Protection

Subordinated Debt Credit

Enhancement

Market Equity Socia

l Equit

y 51

Senior Debt – 67% - Revenue bond - Priority lien on all project income and assets; limited recourse to project (with limited guarantee; priced at market interest rates (-50 bp with limited guarantee); 20 years Subordinated Debt – 20% -

International Loans (World Bank - IBRD, USAID, EIB) - Subordinated lien on all project income and assets; priced below market and longer term

Credit enhancement - Israeli, EU, and US sources (OPIC, EU-EIB, World Bank partial risk guarantees) - Standby guarantee with coverage on first losses up to 20% of the outstanding principal on the senior debt; reduced based on debt coverage

Market Equity – 5% - In-kind services and cash contributions by limited partners

Social Equity – 8% - Convertible Grant (World Bank IDA Credits and grants) - Convertible Grant (World Bank IDA Credits and grants) Source: Milken Institute, 2013


Operating Revenues

Treated Water Sales

Israel Services

Palestinian Services

Project Financing Operating Revenue Assumptions

Direct - Services revenues (2.51 NIS/cm) provided to resident population in Jerusalem (85%); Jerusalem payments handled by Gihon Water Company

Direct - Sale of ~65% of the treated water for agricultural production at .50 NIS/cm; payments on sales to Palestinian agriculture paid by Palestinian Authority

Indirect - Reserve Funding – Capitalized with project financing and financed based on a portion* the incremental sales revenues; fees may be collected as supplemental fee or assessment on international tourists

Direct - Palestinian Authority areas (15%) at a cost of .55 NIS/cm; Palestinian payments made by a Palestinian water company

Source: Milken Institute 52


Government & Nonprofit

Sustainable jerusalem Glenn Yagu