Funding Networked Governance

by Bruce Katz and Colin Higgins · February 3, 2022


As federal investments roll out at scale, it has become eminently clear that effective deployment is dependent upon networks of public, private and civic institutions coming together to design, finance and deliver concrete initiatives and projects. It is, in other words, a networked governance moment.

This is clearly true in the infrastructure space, where multiple public authorities and agencies (at different geographic scales) as well as public and private utilities are the likely recipients of federal investments. The distributed and compartmentalized nature of resource allocation masks the power of aligning multiple road, transit, energy and broadband investments in the same geography, say a waterfront or commercial corridor or central business district (and the amount of work required to do so). The same holds for efforts to drive supplier diversity and workforce diversity; collective, coordinated action across authorities, sectors, institutions and intermediaries is imperative.

It is also true around economic development efforts which try to leverage the distinctive competitive advantages of disparate cities, metros, states and regions. As the recent $1 billion Build Back Better Regional Challenge administered by the Economic Development Administration has shown, economy shaping necessarily entails connecting the dots between the commercialization of research, the development of talent, the formation and scaling of innovative firms and the adoption of cutting edging technologies in companies large, medium and small.

The federal government understands that catalyzing regional competitiveness — and putting it in the service of an inclusive and sustainable recovery — is a team sport, a product of universities, advanced industries, entrepreneurs, investors, community colleges and others collaborating to compete.

Despite the media’s relentless focus on “hero” innovators, the true nature of economic progress depends upon networks and networked governance. Two homegrown examples that have taken root in the middle of the country over the last 20 years demonstrate this point.

Northeast Ohio

Along with Jennifer Bradley, one of us wrote about this at length in The Metropolitan Revolution. As the book concluded:

“In the end, collaboration and network building are the most important foundations for transformative action in a city and metropolis. Everything that follows — vision, strategy, tactics, and impact – is derivative. Build and steward a strong network, and you have set a platform for generational change. Networks, in short, are the gift that keeps on giving.”

In the book, we used the example of North East Ohio as a best-in-class example of network governance. There, a far-sighted group of foundation leaders backed the creation of The Fund for our Economic Future with the capacity and smarts to steward their advanced economy. As we wrote:

“The Fund is one node in overlapping layers of networks, making it a particularly good place to start. One layer consists of the network of foundations that created and still operate the Fund. Another layer is the organizations that the Fund supports, which themselves operate as networks. Yet another layer is the network that these organizations have created among themselves.

All of these various layers began to converge in 2003 when a handful of program officers from foundations in Cleveland, Akron and elsewhere started talking about how their philanthropies could play a larger role in rebuilding the region’s ailing economy. These philanthropies were giving about $300 million every year to various groups and institutions. Maybe there was a way to collaborate so the money could more effectively support a few interesting endeavors aiming to bring the new jobs and industries the region desperately needed.”

As it turns out, that’s exactly what happened. Members of the nascent initiative vowed to raise a $30 million pool of money to support economic development efforts throughout Northeast Ohio. They aimed to do so by building the network of philanthropies working in and across the community. To facilitate network building the fund adopted a policy of one member, one vote (regardless of the volume of resources committed). After establishing their network, the Fund for Our Economic Future took a specific focus on growing industries in Northeast Ohio: bioscience and advanced manufacturing.

We won’t spoil the rest of the story (you can read it for free here), but the upshot is that the fund has been wildly successful at cohering an effective network that delivers economic development outcomes for the region.

Central Indiana

Five years later, Jeremy Nowak and one of us extolled the imperative of networks in The New Localism:

“The most effective local governance occurs in places that not only deploy the formal and informal powers of government, but also create and steward new multi-sector networks to advance inclusive, sustainable and innovative growth. The logic is incontrovertible: if cities are networks of institutions and leaders, then institutions and leaders should co-govern cities.”

We identified Indianapolis as a community that is combining the entrepreneurial capacity and capital of business, philanthropy and universities, with the legitimacy and broader concerns of local government — a new 21st century form of networked governance. We applauded the work of the Central Indiana Corporate Partnership and its relentless focus on Indiana’s central strengths in life sciences rather than trying to “become the next Silicon Valley”. We were particularly enamored of CICP’s BioCrossroads, an effort to steer hundreds of millions of private and civic resources towards recruiting talented researchers, building world-class centers of excellence, investing in STEM education in elementary and secondary schools, giving start-up and scale-up companies access to risk capital and developing quality places.

CICP’s secret sauce: bringing structure to the practice of collaboration. CICP’s Board of Directors consists of dozens of principals from corporations, philanthropies and universities. These CEOs meet not only to discuss—they convene to decide. Multi-sectoral collaboration is treated as a serious business that advances the broader prosperity of the city and metropolis, while the professionalism of the organization ensures that busy leaders focus on long-term impact rather than on the imperatives of four- or even two-year election cycles.

What do These Models Mean for Today’s Massive Federal Investment?

With networked governance now enshrined in federal competitions, we believe it’s important to expand the discussion beyond not just the need for networks or even how successful ones operate but how they are funded over time.

Our conclusion: the sustainable financing of networked governance is a major challenge and a huge opportunity for innovation. The North East Ohio and Indianapolis networks were heavily dependent on philanthropic funding. That works for some communities that are fortunate enough to have a Lilly Endowment or a Gund Foundation, committed to doing the hard work of building institutions. But most parts of the country do not have such assets.

So what do you do if you aren’t fortunate enough to have private or community foundations with large wallets and long-term thinking in your region? For these places, local leaders across the country need to find a dedicated, steady, predictable source of financing so that networks can design, finance and deliver important initiatives and projects in seriatim.

There are models for this, but they may not be readily apparent. Certain parts of US economic development are already populated with institutions that are supported with dedicated sources of revenues. Convention center authorities fund themselves from event revenues. Tourism agencies are funded by hotel taxes and rental car taxes. Business improvement districts are permitted to tax merchants within their designated territory.

These organizations, fairly common in most major cities and metropolitan areas, are now being joined by other innovative entities that are either backed by large corporate contributions (e.g., Cincinnati’s Center City Development Corporation) or access to public wealth (Tulsa’s Authority on Economic Opportunity).

The logic to these financing relationships is fairly simple. These singular institutions create market value by the very work they undertake. Giving them access to resources generated by that market value (e.g., current or projected taxes) or via corporations that stand to benefit (e.g., patient capitalization of development corporations) is not only smart but legitimate.

The question is: how do you, like Central Indiana and Northeast Ohio, elevate these models from single institutions to whole networks that make decisions and operate together? The answer is, unfortunately, it depends on your local constraints. What is clear that, in light of the massive federal investment coming into regions, many public and quasi-public institutions will now be building things or stimulating business formation and expansion that generate economic value. We need to extend the logic of innovative entities to whole networks involved in economic development, since networks are the key for communities to realize the full potential of their distinctive economies. Networks yield economic growth, increasing employment opportunities for a broad cross-section of workers and creating a strong fiscal base, which in turn enables local government to invest in services for local residents.

In the near term: funding networked governance, the backbone of smart metropolitan and regional economy shaping, should be an eligible (and even prioritized) activity of federal funding. Multi-year funding should give networks the stable platform they need to cohere partnerships and practice collaboration.

Over time: the virtuous cycle of job growth, value creation, enterprise formation, and tax generation should enable networked governance to be self-sustaining. Put another way, public institutions deploying investments now should think about ways to capture some of the value created by those investments and put them to public ends.

Many governments use tax increment financing (“TIF”) to forward fund infrastructure for community revitalization projects. As James Carras recently pointed out to us, Fort Lauderdale is intending to use a portion of TIF revenues to fund an entity that is revitalizing the historic Sistrunk neighborhood. This is a logical extension of current practices and underscores the fundamental point that public investment for economic development creates private wealth, and a share of this in-turn should fuel a virtuous cycle.

In some respects, we are borrowing the insights of Mariana Mazzucato who has long focused on the role publicly funded technological innovation has played in the scaling of many of the world’s biggest companies. We similarly focus on the market value that investments in advanced economic development create.

The evidence is clear: networks and networked governance are critical to the growth of the US industrial base. It’s time we move beyond the first order deployment of federal government appropriations and consider funding these networks thorough the market value they create. Given the huge volume of federal investments in innovation and infrastructure currently making their ways into local communities, now is the time to act!

Bruce Katz is the Founding Director, and Colin Higgins is the Deputy Director, of the Nowak Metro Finance Lab at Drexel University. 

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