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Infrastructure Investment In Smaller U.S. Cities Is The Antidote To Overpriced Top Tier Cities

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There is widespread agreement that U.S. infrastructure is in a critical state and needs improvement. And while there’s debate between the new democratic Congress and the White House on exactly how to pay for it, whether it’s raising the tax on gas, or selling off $1 trillion in federal property, post mid-term signals indicate that with the shutdown over, there's hope that lawmakers can engage in constructive dialogue on how to move forward on this subject. With a historic abundance of global money – $10 trillion around the world earns negative nominal returns, investment in infrastructure is both economically attractive as well as socially useful. A modest 1% reallocation of existing U.S. pension investments to infrastructure would deliver over $250 billion. Given a measure of collaborative private-public partnerships and the use of innovative financial mechanisms, the vision of long-term city and county infrastructure improvements can be realized.

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With the steady drumbeat of major companies moving corporate headquarters and top talent into already thriving top-tier cities comes enormous pressure on housing and commercial real estate in these cities. There’s an antidote to this—namely, investment in the infrastructure of smaller cities, to reinvigorate and once again make them a magnet for young people starting careers and families. With the right sort of collaboration between city and local government and business, these smaller cities can become home to the entrepreneurial startups that need commercial space in which to expand.  Governments can get the ball rolling by inviting our largest financial institutions to be the engine for this smaller-city renaissance, by investing in rebuilding their infrastructure.

The topic of local and city governments forming partnerships with financial institutions to catalyze change in smaller cities is not only avidly discussed in the U.K., it is being acted on, particularly in the vital area of their technological improvement.  This is vital in the U.K. where the imbalance between London and the second tier cities has become far too great. This too can happen with smaller U.S. cities, where there are clear societal and financial advantages to investing not just in physical infrastructure, but in technological infrastructure. These affordable cities have seasons, abundant water supply, and often fine, resilient but sometimes inefficient building stock. They also have a renewable skill base, often in the form of a local university from which skilled graduates usually make a beeline for the nearest major city. How can we encourage these valuable intellectual assets to stay? Looking at it first from an infrastructure standpoint can give some clues.

From deteriorating water mains to winter-ravaged streets to collapsing bridges, many smaller cities, along with their larger counterparts, are held back by infrastructure challenges. To add to that, in smaller cities, public transportation is often minimal.  And their root problems are stalled or economically depressed bases, a cycle of waning employment opportunities and flat or sliding real estate values. Sometimes even if a town houses a decent university, it can become a threadbare blue-collar pasture with alarming poverty levels.  Like some second-tier cities in the U.K., their glory days appear behind them.

But these may be the very attributes that can bring these cities back to life. While governments may be operating in roughly the same way they were 20 years ago, in business we’re experiencing a massive economic shift away from monolithic corporations to lithe, energetic, relevant startups. Many of these small companies are technology based. And many spring up from regional colleges and universities, some of them State Universities, among smart students who get the germ of an idea from what they’re learning and run with it. They are disintermediating traditional industries and creating new ones, and they typically employ a young workforce.

All of these upstarts need a place to work and grow. In smaller cities the base required for overhead is so low that they can afford to—and have the time and space to—think, grow and realize their vision. These cities are ripe for reinvention into technology “hubs,” and could even, given the right political and economic support, become ultra-connected smart cities that attract the tech entrepreneurs who are changing our economy and our future.

How can this be accomplished? City by city, government officials need to forge alliances with financial institutions who have the bandwidth to invest patiently and heavily in them. These long-term investments are characterized not merely by throwing money at these cities, or by matching state and federal funds—which so often dry up before any real work gets underway—but by becoming partners in their reinvention. We’ve seen this happen through partnerships between local government in places like Salford, Cardiff, Newcastle and Leeds and financial institutions with a lot of ready capital, all of whom become gloriously nonpartisan when they are working toward the common goal of regional prosperity.

We’ve seen this done through investment in roads and train lines; refurbishing public buildings and other downtown landmarks; building housing near office parks and other workplaces, often for rent, rather than to buy; and identifying local points of pride to reinvigorate the city’s self-esteem.

It’s easy to see what’s in it for regional, local, and city governments: they will be able to point to measurable infrastructure renewal leading to true and sustainable growth, more livable cities, and happier citizens. What’s in it for the financial institutions? For the next 40-50 years, they will earn a steady return from their infrastructure investments, even as the entrepreneurial startups in areas including health, gaming, care, insurance and finance they’ve helped, go on to develop the products and services that will become the path to their own re-invigoration.  Business-government infrastructure partnerships where all parties are in it for the long-term, are a win-win.