A grant is a direct monetary assistance to an entity to pursue a specific project or programme. Depending on its stipulations, it can be used to fund solutions to identified problems within a community and can come from federal, state, regional and international resources. Grants are a great way for municipalities, specifically for cash-strapped ones, to receive funding beyond the limits of their operational budget. They can help bridge the gap between a department’s limited resources and its needs.
Intergovernmental and donor transfers provide incentives for local governments to act as agents for local management and implementation of certain project or programme objectives. These funds are available to the cities in the form of conditional lump sum, conditional partial grants, subsidised loans or guarantees. This funding source can provide the much-needed capital to execute the Net Zero objectives of the city.
Advantages: The essential advantage of grants is that it does not involve the spending of own capital, while the investment also does not need be returned nor is there an interest to be paid for it. Hence, a grant is very attractive to the receiving entity from a financial perspective.
Disadvantages: As grants are very lucrative, they are associated with strong competition for this kind of financing. Grants, especially national or state sponsored ones, are subject to political will and its availability might be impacted during regime changes. The grants can have many restrictive stipulations which need to be met to meet eligibility. Therefore, projects need to be designed to fit the requirements of the grants.
Further, conditional grants require municipalities to spend the funds they receive according to provincial/state/national/EU guidelines and often require matching funds on the part of the municipality. Consequently, such transfers can distort local decision-making and priorities. The transfers are not an easily predictable and reliable source of capital and are influenced by changes in policies, priorities and the political agenda.
Partial Grant plus Partial Self finance
As the name suggests, with this financing source, the project capital is financed partially through a grant and the remaining is financed using the municipal budget. Many grants require the municipality to contribute a certain amount to establish ownership. See also blended finance.
Based on a needs assessment and the projects proposed identify the capital required
Research available calls for grants at the EU, national, state and regional levels
Analyse whether any of the grants are applicable for the municipality