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Smaller Cities' Path to Reinvigoration

They have a lot going for them, but they need the kind of infrastructure investment that partnering with financial institutions can provide.

Map of San Francisco Bay Area
With the right collaboration between local government and business, smaller, more affordable cities can become home to the entrepreneurial start-ups that need commercial space in which to expand, as well as to young people starting careers and families.

It's not hard to understand why these smaller cities should be on everyone's radar. A recent Quinnipiac poll found that 41 percent of New York City residents believe they'll be forced to move to a more affordable location within the next five years. In San Francisco, 62 percent of residents consider their cost of living "very high." The steady drumbeat of major companies moving corporate headquarters and top talent into already thriving mega-metropolises brings enormous pressure on housing and commercial real estate in those cities.

There's an antidote to this: reinvigorating smaller cities through investment in local infrastructure. While congressional and other discussions on infrastructure have mostly concerned massive projects -- for example, highways designed to go through and past these smaller cities -- little attention has been given to what happens within them. We need to look through a finer lens and think about projects that will remake these cities into magnets.

Beyond having an abundant water supply and often fine, resilient building stock, most small cities also have a renewable skill base: a local college or university from which most graduates usually make a beeline for the nearest major city. How can we encourage these valuable graduates to stay? Looking at it from an infrastructure-first standpoint can give some clues. Every infrastructure project within a small city's limits is an investment in its revitalized future.

Many small cities lack the finances to address their major infrastructure requirements, from deteriorating water mains to winter-ravaged streets to collapsing bridges. There's usually only minimal public transportation in place. And their root problems are stalled, depressed economic bases, a cycle of waning employment opportunities, and flat or sliding real-estate values. Even if the city hosts a thriving university, there can still be alarming unemployment and poverty levels.

But a thriving university and an available workforce that can potentially support business growth may be the very attributes that can bring these cities back to life. While governments are operating in roughly the same way they were 20 years ago, business is experiencing a massive shift away from monolithic corporations that sometimes impose monolithic layoffs and toward lithe, feisty start-ups. Many of these small companies are technology-based. And many spring up from regional and state colleges and universities, seedlings from entrepreneurially minded students who dream up an idea from what they're studying and then create a business to commercialize it.

In smaller cities the base required for overhead is so low that start-ups can afford to -- and have the time and space to -- think, grow and dream. Indeed, with the right investments in the IT connectivity that enables digitally driven companies to function, small cities are ripe for reinvention into technology hubs. Given the necessary political and economic support, they could become ultra-connected smart cities, attracting some of the star tech entrepreneurs who are bringing positive change.

How can this be accomplished? Local governments can get the ball rolling by inviting large financial institutions to be the engine for this smaller-city renaissance by investing in their infrastructure, whether through public-private partnerships or other forms of capital outlay. Examples of such partnerships include high-speed internet and wireless infrastructure, renewable energy, roads, transportation and workforce housing.

Quite separately from raising money via municipal bond offerings, these are direct, long-term investments that are characterized by financial institutions becoming partners in the reinvention of these cities. It's not done with matching state and federal funds, which so often dry up before any real work happens. It's done through direct investment, and we've witnessed first-hand how local governments become quite gloriously nonpartisan when they are backed and working toward the common goal of regional prosperity.

What's in it for financial institutions? For the next 40 to 50 years, they will earn a steady return from the infrastructure investments as the entrepreneurial start-ups that their investment has helped to enable go on to develop the products and services that will become the path to their own growth and prosperity. And governments will be able to point to true and sustainable infrastructure renewal, more livable cities and happier citizens.

Group chief executive of Legal & General
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