When it comes to overdue infrastructure upgrades needed across the country and how to pay for them, most eyes have been on Washington, D.C., throughout 2021. And for good reason: There are big, unusual funding streams for city leaders to potentially leverage: 1) The Infrastructure Investment and Jobs Act, which will fund roads, bridges and other kinds of projects, and 2) The American Rescue Plan Act, which allows aid to cities to be allocated for water, sewer, and broadband projects.
Cities can tap many local funding sources to pay for infrastructure projects—options go well beyond property and sales tax revenues. When strategizing how to reach infrastructure goals, city leaders should look beyond discrete funding sources. By bringing together private sector and quasi-public organizations from across a region together in cross-jurisdictional partnerships, they can drive infrastructure-related investments and broader redevelopment goals forward.
[The rest of this article explores common (non-federal) infrastructure funding sources, as well as how cities forge successful regional partnerships.]
Historically, infrastructure projects have reinforced inequity in U.S. cities—decisions to construct freeways through poorer, non-white neighborhoods is a prominent example from the 20th century. Given this history, it’s important to think carefully about if and how local funding sources are equitable in nature.
Infrastructure repair in Baltimore, MD
For example, sales taxes are regressive in nature. Property taxes, while officially proportional to the value of a home, often disparately impact taxpayers of color because of over-assessments of their properties relative to market value. Fines and fees disproportionately impact people of color. “Black taxpayers and other taxpayers of color bear a heavier tax burden for public services due to the local assessment and collection practices of tax and non-tax revenues,” notes Tonantzin Carmona of Brookings’ Metropolitan Policy Program.
Thankfully, more redistributive funding sources exist that city leaders can use to support equitable redevelopment goals. Here are five such resources and funding avenues.
- Land banks: These are quasi-public agencies that acquire, manage, and redevelop distressed properties. About 200 land banks existed across 15 states, as of last year.
- Community benefits agreements (CBAs): These are legally binding contracts between community-based organizations and a developer detailing the benefits a community receives in return for supporting a developer’s project. In Sacramento, California, for example, a CBA developed this year for a $1.1 billion mixed-use development generated $50 million in funding for affordable housing, anti-displacement investment, prioritized hiring for residents, and improved public transit infrastructure.
- Community development agreements (CDAs): Also known as benefits sharing agreements, CDAs are an agreement between businesses and community groups (and sometimes also government agencies) to ensure equitable benefits from large projects. For example, in 2017 a variety of organizations came together across sectors, forming a CDA to ensure that Maryland’s Purple Line light rail project spurred equitable transit-oriented development.
- Impact fees: Typically a one-time payment, impact fees can be imposed by a local government on a property developer to help pay for infrastructure improvements associated with a development project (i.e., roads, water, and sewer). The basic idea is to offset the financial impact a particular development places on nearby public infrastructure.
- Developer exactions: These are similar to impact fees in intent, but often differ in form. They can obligate a developer to build or pay for public infrastructure created by local governments. For example, they can take the form of donated land to create new city parks, or in-lieu payments to support a city’s acquisition of park land.
- Community development financial institutions: These are private lending organizations focused on supporting the development of low-income communities. They can take the form of banks, credit unions, and venture capital funds, and help to fund various kinds of projects, including affordable housing and municipal infrastructure.
A map of Maryland’s Purple Line light rail project.
The Dayton Arcade project in downtown Dayton, Ohio, is a prime example of how strategic redevelopment supported by a diverse mix of funding sources can spur more equitable outcomes. Phase one of the $95 million project was completed this year. It returns a collection of nine historic buildings back to its original use—a mix of retail, offices, public space, and housing. Already, the complex effort has helped centralize much of the city’s business development and innovation programming. Urban policy expert Bruce Katz, author of The Metropolitan Revolution, called Dayton Arcade “the most transformative project in America.”
A historic building rehabilitated through the Dayton Arcade Project.
It comprises nearly a dozen funding sources, including millions of dollars in tax credits, an $11 million loan agreement, a community reinvestment area tax abatement agreement, a bond ordinance, an energy improvement district resolution, and a new community authority petition. The Arcade redevelopment plan also focuses on social challenges, bringing together students, residents, and other city stakeholders to address critical challenges including the opioid crisis and food insecurity.
The Power of Partnerships
The Dayton Arcade is an example of a marquee redevelopment in a mid-sized city. Many smaller cities find it difficult to spur such large projects because they often lack the financial, human, or political resources of larger cities.
One potential solution to this challenge: Forge cross-jurisdictional partnerships that bring organizations together from across a region and then mobilize support for public sector efforts to upgrade infrastructure and achieve large equitable redevelopment goals. In smaller cities, working together with other jurisdictions is “critical for making efficient and effective infrastructure decisions, and figuring out how to pay for things,” says George McCarthy, president and CEO of the Lincoln Institute of Land Policy. He spoke to city leaders across the country in October 2021 as part of What Works Cities’ City Budgeting for Equity & Recovery program.
Creating regional partnerships to power equitable development takes time and effort. While no partnership will look exactly like another, city leaders can learn from successful strategies employed by smaller “legacy” cities with approximately 30,000 to 200,000 residents. Former industrial and manufacturing hubs such as South Bend, Indiana, and Worcester, Massachusetts, have built development ecosystems that enable economic growth and equity to go hand-in-hand.
How can cities create an equitable development ecosystem that brings together key leaders from the public, civic, and private sectors, as well as grassroots organizations? The strategy playbook detailed in a Lincoln Institute report on equitable development of “legacy cities” involves three steps: building trust and repairing relationships, organizing a diverse coalition, and conducting strategic planning and visioning.
Bikeshare in Baltimore, MD
Ultimately, equitable redevelopment visions should be grounded in the needs of city residents, not affluent suburbanites. In the past, smaller cities have made the mistake of focusing strategies on specific assets (i.e., sports stadiums) to attract people. “We need to find investments that advance the interests of residents and protect their tenure in the place,” McCarthy says.
A statewide effort in Massachusetts shows how cross-jurisdictional partnerships can do this. In 2008, the governments of 11 smaller cities in Massachusetts, all former industrial hubs, decided to work together to spur equitable renewal and a new paradigm for urban investments. The mayors of these former manufacturing centers signed a compact to coordinate efforts for community and economic development. State legislators representing the 11 cities formed a caucus to flex their political power, both in the State House and with the governor.
Pushed by the regional partnership, the legislature created the Transformative Development Initiative (TDI) at MassDevelopment, the state’s quasi-public economic development agency. The new TDI strategy focused a range of development efforts in small core areas (a five-minute walking radius) to generate a critical mass of activity that inspires investments by local residents, businesses, and entrepreneurs, among others. MassDevelopment lent both capital and capacity to help a diverse group of smaller developers based in the 11 cities. The new development model catalyzed private investment in cities that hadn’t seen much of it in 40 years or more.
Larger cities can also benefit from cross-jurisdictional partnerships—especially while pursuing goals in inherently regional infrastructure areas, such as transportation. Indianapolis offers a great example of what this can look like. A broad array of stakeholders, including business and community groups, regional mayors, nonprofits, and labor groups, formed the Transit Drives Indy coalition. It successfully pushed for a state law allowing certain counties to dedicate a portion of income tax revenue for mass transit. Next it backed a referendum asking voters to approve a 0.25% tax increase to fund a five-year transit infrastructure plan. The measure passed in 2016; construction on a rapid-transit bus line is underway.
IndyGo’s new Blue Line is the third phase of Indianapolis’ Bus Rapid Transit (BRT).
Across the country, infrastructure needs are immense. In early 2021, the American Society of Civil Engineers estimated that about $2.6 trillion in funding will be needed over the next 10 years to address roads, bridges, waterways, and other lackluster systems. ARPA funds and money flowing from the federal infrastructure bill are great starts.
Infrastructure needs will always persist and with new federal funding, there is opportunity to make investments that will impact communities for generations. The old way of doing things does not meet today’s demands to more equitably allocate resources. City leaders, therefore, should use data and evidence to drive their development investments, and explore and embrace multi-faceted solutions for funding projects that both upgrade the physical landscapes of cities and the lives of residents who are too often left behind (or harmed) by infrastructure projects.
The good news is that cities can potentially leverage a toolset of funding sources and strategic partners to achieve more equitable outcomes. If city governments build diverse coalitions that emphasize the benefits of equitable developments, they can garner support across the public and private sectors—and do great things.
Anjali Chainani, the former director of policy for Philadelphia, is a senior advisor at Results for America and leads the What Works Cities’ City Budgeting for Equity & Recovery program.