How does JESSICA work

JESSICA will offer the managing authorities of Structural Funds programmes the possibility to take advantage of outside expertise and to have greater access to loan capital for the purpose of promoting urban development. Where a managing authority wishes to participate under the JESSICA framework, it would contribute resources from the programme, while other international financial institutions, private banks and investors would contribute additional loan or equity capital as appropriate. Since projects will not be supported through grants, programme contributions to urban development funds will be revolving and help to enhance the sustainability of the investment effort. The programme contributions will be used to finance loans provided by the urban development funds to the final beneficiaries, backed by guarantee schemes established by the funds and the participating banks themselves. No State guarantee for these loans is involved, hence they would not aggravate public finance and debt.

Urban Development Funds are the core functionality of JESSICA

An Urban Development Fund (UDF) is a fund investing in public-private partnerships and other projects included in an integrated plan for sustainable urban development. To be eligible for JESSICA funding, the UDF will need to demonstrate, amongst other things,sufficient competence and independence of management; a comprehensive business plan and budgets for undertaking qualifying projects; as well as sound financial backing. Whilst not specific on legal form, a UDF can be a separate legal entity, or be established as a “separate block of finance” within an existing financial institution. In such cases, JESSICA funds need to be separately accounted for and clearly segregated from the other assets of that financial institution. UDFs can be established at either a national, regional or local/city level in response to integrated urban development plans, project pipelines and investor interests.

Urban development funds will be 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 Regional Development Fund.
Managing authorities deciding to use the JESSICA framework will launch one or more calls for expression of interest, addressed to urban development funds and the resulting submissions would then be 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 utilization of the ERDF contribution, the winding up provisions of the fund, etc. As a result of the appraisal, an Operational Agreement would be signed between the Managing or other Authority (e.g the Holding Fund) and the selected urban development fund(s), specifying the terms and conditions, as well as the targeted investments for allocating resources from operational programmes to them.

Managing authorities have the possibility to organise financial engineering for sustainable urban development through the intermediary of holding funds

A Holding Fund is a fund set up to invest in more than one UDF. Whilst a Holding Fund is not a requirement for JESSICA implementation, there are several benefits for Member States in having one:

  • it allows Managing authorities to delegate some of the tasks required in implementing JESSICA to appropriate professionals. These tasks include establishing specific criteria for making investments in UDFs, appraising and recommending appropriate UDFs to invest in, negotiating contractual arrangements with as well as monitoring and reporting on the performance of UDFs;
  • member States with a less developed urban investment sector can still take advantage of JESSICA funding immediately, whilst UDFs and qualifying urban investment projects are being established and implemented; and
  • holding Funds allow for JESSICA funds to be confirmed with other public and/or private sector resources for investment in UDFs.

A funding agreement would be signed between the Member States or managing authorities and the holding fund, specifying the terms, conditions, targeted investments, etc.