Community Research and Development Information Service - CORDIS

JESSICA’s main goals are:
- to help the authorities in the Member States of the European Union to exploit financial engineering mechanisms;
- to support investment in sustainable urban development in the context of cohesion policy;
- to provide new opportunities for managing authorities responsible for future cohesion policies.

Abstract

JESSICA, 'Joint European support for sustainable investment in city areas', is an initiative of the Commission in cooperation with the European Investment Bank (EIB) and the Council of Europe Development Bank (CEB), to promote sustainable investment, growth and jobs in Europe’s urban areas.

JESSICA allows the use of interim payments by managing authorities (MAs) from structural funds to invest in urban development funds (UDFs) through recyclable and recoverable financial mechanisms, essentially equity, guarantees and subordinated loans. Recovered funds may be reinvested through UDFs or conventional subsidies or returned to the MA to support other urban projects. UDFs may take different administrative forms and be devoted to investments in different areas. Their common features are a market-driven approach, as they are expected to at least recover their investment, and the fact that they must invest in projects within well-defined integrated urban renewal and development plans.

Managing authorities may decide to invest directly in UDFs or, given the difficulty of managing non-grant instruments, channel funds to UDFs using holding funds (HFs), with the option of employing the EIB as HF manager if this is the MA’s preferred option. Under this alternative route, HFs will select the UDFs according to the conditions defined by the MA. The JESSICA initiative also facilitates the provision of additional financial support from the EIB (always subject to the EIB’s conditions and operational procedures), CEB and other banks and may also attract additional equity capital, notably for public-private partnerships (PPPs) and other projects supported by UDFs. An evaluation study, commissioned by the Directorate General for Regional Policy (DG REGIO), was launched by the EIB to establish the feasibility and ensure effective implementation of the JESSICA initiative.

This study has reviewed prevailing urban renewal and development actions, indicating the key administrative competencies and processes; identified the existing financial vehicles for urban investment; analysed potential market failures and how financial engineering actions and products could address any perceived deficiencies; and established the interest in using UDFs to channel such actions.

A preliminary phase, which began in September 2006, has provided guidance on how to develop JESSICA, in particular on how recyclable financing mechanisms work in practice to promote urban renewal. The background information has been collected from a small but representative sample of Member States and regions. JESSICA offers new opportunities for the use of structural funds for the integrated development of urban areas and allows a continuous availability of funds for revenue-generating components of urban renewal and development programmes. Building on a market-driven approach that is essential for the success of UDFs, the structural funds used in JESSICA are expected both to leverage substantial amounts of investment into areas in need of social cohesion and to speed up their transformation of social cohesion and to speed up their transformation.

Implementation

Managing authorities deciding to use the JESSICA framework may launch one or more calls for expression of interest, addressed to UDFs and the resulting submissions are then appraised in the usual way. Relevant criteria in this context would include the investments and projects to be targeted, the terms and conditions under which they would be financed, ownership and contributions of co-financing partners of the fund, the justification and intended utilisation of the ERDF contribution and the provisions for winding up of the fund.

As a result of the appraisal, a funding agreement is signed between the managing or other authority and the selected UDF's recipient(s), specifying the terms and conditions, as well as the targeted investments for allocating resources from operational programmes to them.

Urban development funds will select and support PPPs and other urban projects by providing loans, equity or guarantees, but not grants. It is then possible for a given project to be supported partly by the non-grant urban development funds, and partly by public grants (including from operational programmes). Other private banks or investors may also participate. Project promoters may be public, municipal or private sector enterprises, or joint enterprises involving these actors in any possible combination between them. The funds monitor implementation of projects by final beneficiaries. They report to the managing authorities on their activities (selection of projects, implementation by final beneficiaries).

Managing authorities can also organise financial engineering for sustainable urban development through the intermediary of HFs. Holding funds are those investing in more than one urban development fund, providing them with equity, loans or guarantees. In such cases, the authorities have the option of awarding a grant to the EIB entrusting it with the HF tasks.

A funding agreement is signed between the Member States or managing authorities and the HF, specifying the terms, conditions and targeted investments. Holding funds invest in more than one urban development fund, providing them with equity, loans or guarantees. Urban development funds are funds investing directly in PPPs and other projects in the urban context. Projects approved by the funds for support are financed only through equity or loans, and not through grants. It is envisaged that a pre-condition would be that projects would be supported only in the context of an integrated plan for sustainable urban development.

Urban development funds are co-managed by professionals of the banking and private sector, who should contribute financial, technical and managerial expertise and flexibility to the management of projects co-financed by the European Development Fund (ERDF).
Record Number: 874 / Last updated on: 2014-03-05