When You're Out of Money, It's Time to Start Thinking

Innovative funding solutions can be born from bad times.
June 3, 2014 AT 11:00 AM
By Ron Littlefield  |  Senior Fellow
Ron Littlefield, a former mayor of Chattanooga, Tenn., is a senior fellow with the Governing Institute and its lead analyst on the City Accelerator initiative. A city planner by career, he also consults to government through Littlefield Associates.

Cities across the U.S. are confronting the same question: As revenues decline and support from federal and state government diminishes, how will we pay for the needs of today and prepare for the demands of tomorrow?

While the past five years have been difficult, hard times are not new for America and we have a history of bouncing back with ferocity. After the Great Depression, necessity was the mother of invention. The New Deal, Works Progress Administration and other Roosevelt-era recovery programs left a legacy of significant buildings, bridges, dams, parks, roads and other public infrastructure. In 1956, another public works project kicked off, resulting in the Interstate Highway System that connects our urban areas through a massive transportation infrastructure.
But it’s now 80 years post-New Deal, and that impressive infrastructure needs to be maintained -- which comes with a very expensive price tag. And while the Interstate Highway System’s initial cost of $130 billion was mostly shouldered by the federal government, the onus is largely on states and localities to constantly redesign, improve and reconstruct this transportation system to keep pace with modern traffic demands as communities change and evolve. Today, the combined states’ share of the annual maintenance bill is more than $25 billion. 
More fuel efficient vehicles -- including hybrid and electric cars -- are good for the environment but bad for government coffers as they have seriously eroded the gas tax as a reliable source of revenue. The Highway Trust Fund struggles to remain solvent, which means the federal government has less to share with state departments of transportation, and states have less in turn to pass along to local communities. 
Two popular city transportation funding programs are the use of highway funds for transportation enhancement projects (TEPs) and transportation investment generation economic recovery (TIGER) grants. Both programs are in such high demand that they cease to be useful for the majority. For example, in the first five rounds of TIGER grants, over 5,200 municipalities applied with requests totaling $136 billion. Only $2.6 billion was available. 
Any city hanging its hopes and dreams for a much-needed local transportation project depending on these sources of funding would probably be better advised to spend its consultant fees on lottery tickets. The reality is that most grant applications aren’t approved, and those that are funded usually receive a fraction of the requested amount.
In short, Rob Puentes of the Brookings Institution might have said it best at a 2011 gathering to discuss innovative financing: “We’ve run out of money; it’s time to start thinking.”
So where do we get the money? It’s clear that infrastructure investments will need to be made – roads and bridges and even concert halls and libraries and schools must be built. 
Increasing taxes or adding new tolls and various user fees are always an option, but such measures are often very unpopular at best and can be politically impossible. Some cities have succeeded by bundling unpopular activities with consituent-approved solutions, like dedicating fines from much-hated traffic cameras to fund intelligent transportation measures that reduce congestion and improve commute times.
Public-private partnerships, borne out of the hard times of the late 1970s -- were used to build new convention halls in cities across the country.  Even though they might now be mainstream, there is plenty of room for additional innovation – and the deep well of private money remains greater than any local government's ability to solely fund major capital projects. Additionally, we have only begun to explore the possible applications of public development authorities (PDAs) and public facility districts (PFDs) that essentially own and manage unique public spaces or undertake public projects outside the usual governmental bureaucracies -- these are only limited by basic laws and imagination.
There is no shortage of options -- some old, some new, some exotic. The hard lessons of the recent financial collapse dictate caution, but the greater lesson borne out of hard times is that our cities are resilient. Our distressed cities are now serving a new role as urban laboratories and hotbeds of creative energy.  Some of our finest minds are now focused on solving the puzzle. We will innovate because we must. 
Be part of the campaign for civic innovation at the City Accelerator, presented by Citi Foundation.