In a previous column, I discussed how the fiscal challenges gripping our federal and state governments will force local governments to fend for themselves for at least the next 10 years. This decade of local government will be a time of "creative destruction" that will produce an unprecedented amount of innovation. Here I examine some of the issues that will drive this creativity and the ways in which focused local-government leadership can help foster innovation while exercising the discipline to harness it––two decidedly unique but not mutually exclusive concepts.

Five significant factors will influence the future roles and strategies of local government in the United States:

1. The public-sector fiscal crisis. However Congress chooses to deal (or not deal) with issues surrounding taxes, spending and debt, the federal deficit challenge will not be easily resolved. This means increasingly reduced funding for domestic and local programs and greater reliance on regulation and preemption. The result? Virtually no funding to local government to deal with major issues.

2. Demographic changes. In coming decades, the percentage of the country's population that is white will decline, the Latino population will grow, and the baby boomer population will experience some serious aging. The United States is becoming a truly pluralistic, multicultural society. Increasingly, members of the public will have had no experience with the Great Depression, the civil rights movement or the Vietnam era. Instead, 9/11, Iraq, Afghanistan, the Great Recession, and the iPad are becoming our life-defining experiences.

3. The impact of technology. We now have the ability to contact nearly every household multiple times a day to encourage community engagement and help frame conversations around service delivery. At the same time, we no longer can control those conversations. Social media is accessible by people of both good and bad intent, and we ignore it at our peril. Meanwhile, the potential of "big data" is enormous, enabling us to amass large amounts of information that will afford us greater transparency and accountability and give local officials an opportunity to partner with many different stakeholders.

4. Polarized politics. The divide in politics has been most evident in Washington, D.C., but it is increasingly filtering to the local level. The challenge is to reach reasoned compromises to move issues forward. What we see in Washington is deadlock: Anyone can say "no" and everyone has a veto. The question is: How do we reach some constructive form of "yes"?

5. An increasing gap between the haves and the have-nots. Are we creating a new class of people who will be unable to fully participate in the economy? Will work no longer be wholly rewarded––that is, will the American Dream become unattainable––no matter how hard one tries?

To achieve success against the backdrop of these major drivers and complex public policy issues will test the leadership capacity of elected and appointed local officials. Leadership will need to span the traditional and political boundaries of local government to match the geography and scale of major issues and to reach all of the sectors required to make meaningful change and inspire creativity. At the same time, local governments will need to preserve their own sense of "place"––what it is that distinguishes a community and makes it unique.

The new brand of leadership––as well as the creativity and innovation it inspires––will be the outgrowth of a new set of local conditions: Local governments increasingly will be expected to "go it alone," with little help from Washington or their state governments. Cross-sector strategies will be the norm. Performance and results––not just inputs and outputs––increasingly will matter.

While the forces that drive the way we conduct the business of local government during the next few years are for the most part beyond our control, the leadership skills we need to hone to deal with them are not. We must ask ourselves the tough questions and harness the creative forces of change in a disciplined way if our organizations are to succeed.

This content appeared as a Management Insight column in the May 1, 2013,  issue of Governing.com.