Are Smart Cities Too Expensive in the Long Term? Analyzing the Effects of ICT Infrastructure on Municipal Financial Sustainability

Abstract

Cities around the world are attempting to become smarter by using data and technology to improve internal operations, make better decisions, and increase the quality of life. This technology-intensive use frequently comes with large investments in the ICT infrastructure necessary for smart city initiatives, which may not be financially viable in the long term. Financial sustainability (FS) is a useful framework for assessing how governments meet their financial obligations, using different indicators of financial performance over time by controlling for contextual factors. This study examines 1723 municipal governments; only 89 of these explicitly conducted smart-city initiatives in Mexico over three time points (2014, 2016, and 2018). Panel data techniques were applied to compare the effects of the investments in ICT infrastructure across municipalities with or without smart-city initiatives on five indicators related to the financial condition within the FS framework (i.e., cash solvency, budget solvency, long-term solvency, service-level solvency for revenues and expenses). The results show an association between ICT infrastructure and some dimensions of FS. The main findings suggest the importance of adequate financial analysis for long-term capital and budgeting decisions, to create a more solid smart city financial strategy for the long term. Specific recommendations for city managers are also discussed.