What Follows Infrastructure Spending?

by Bruce Katz · July 28, 2022

Newsletter

As the implementation of the Infrastructure Investment & Jobs Act picks up steam, cities, counties and states are scrambling to identify projects that can deliver a new vision of mobility, connectivity, sustainability and quality placemaking.

In many of my recent travels, I have seen examples of the kinds of projects that are now likely to become the norm. The past few decades, for example, have seen the evolution of a common approach to improving key thoroughfares and corridors. Clearly designated bike paths. Roundabouts to slow traffic. Upgrades in signage and lighting. Perhaps even a dedicated bus lane along the medium.

There is much to celebrate here. Parts of cities that have experienced disinvestment and decay for decades are finally the recipients of substantial resources. And these resources capture a vision of cities that are built for people rather than just cars.
Yet infrastructure investments of these and other sorts are just the beginning of whole neighborhood regeneration. Infrastructure, no matter how well funded or well designed and implemented, is a means to an end, not an end by itself.

Infrastructure, particularly transportation infrastructure, only sets the platform for communities of true choice and possibility. More investments are needed, at scale, to redress market failures and the deep structural effects of segregation. Renovations of blighted homes and properties. Rejuvenation of underutilized commercial corridors. Support for locally owned businesses that provide quality services and sell quality goods (e.g., healthy food) at reasonable prices. Local health care clinics and centers for arts, culture and recreation.

These kinds of projects — that truly drive neighborhood vibrancy and vitality — need as much dedicated focus and funding as infrastructure. And, with a few exceptions like the American Rescue Plan’s direct aid for cities, counties and states, this broader focus and funding are not as clearly delineated or appropriated in the Congressional bills that have actually passed. There is no corridor restoration program to leverage the funding provided for complete streets or EV charging. There is no easy-to-access home repair program or lease-to-purchase initiative to complement the funding provided for the renewal of airports or ports or iconic rail stations.

The federal government, in short, has over-indexed on infrastructure spending and under-indexed on other key elements of city- and neighborhood building (housing, commercial real estate and small business just to name a few).

The perspective seems to be: Build It (or Repair It) and other quality investments will follow. But that’s overestimating the ability of the market to finance what matters in the right place at the right time, a local grocery store or center of entrepreneurship or other items high on the list of local residents.

The upshot of this funding imbalance is that transportation, energy and digital infrastructure will improve markedly, making mobility and connectivity more efficient and resilient. But a plethora of other investments that are critical to community vitality and equity — and help local residents raise their incomes and local enterprises build their assets — will likely not happen.

And, in many markets, the outcomes could be decidedly worse. Investments in infrastructure will simply raise property values and attract outside parasitic capital. This is happening all over the country, as investors buy single family homes at scale, boosting rents, displacing residents and altering the fabric of entire neighborhoods. A new class of slumlords now occupies the urban landscape.

So, what to do?

Cities need to use federal infrastructure spending as a catalyst for additional public, private and civic investments in housing, commercial corridors, enterprises and other community defining properties and entities. Public private partnerships need to accompany infrastructure investments, so that these broader projects can be designed, financed and delivered. This is obviously a broader vision of public private partnerships, than the narrowly drawn financial engineering used to enable the construction of tollways and greenways over the past several decades.

What might new public private partnerships look like? Where would funding for community projects come from?

First, cities could, if authorized by state law, use tax increment financing in commercial corridors or community equity districts targeted for federal infrastructure funding. TIFs are a tried-and-true method for using projected tax revenues to front load capital for projects that the market can’t support by itself. Aligning TIFs with infrastructure funding would recognize that federal investments will undoubtedly boost private value, which can be smartly used to reinvest in the whole neighborhood rather than just the underlying infrastructure.

Second, cities could work with banks, CDFIs, philanthropies and investors to establish Place Funds or Commercial Corridor Funds with the wherewithal to invest in projects that naturally follow and build on infrastructure funding. Detroit was an early mover on this with its Strategic Neighborhood Fund. Chicago has pursued a similar path with its Invest South/West initiative. The key here is to codify the learnings from these efforts, so they can be repeated and adapted rather than just admired. As with any financial fund or product, seasoned analytics are critical to give investors and lenders the confidence that returns are real and attainable. And cities and investors must recognize that different places need different things, so flexibility in fund structure and fund deployment will be critical.

Third, cities can harness the potential of federal and state tax credits and incentives to raise private equity and fill a portion of the capital stack for desired projects. Here, too, new norms and models are desperately needed to facilitate the flow of quality capital. Opportunity Zones have yielded less than advertised, partly because private investors were mostly incentivized to take the low hanging fruit rather than collaborating with public, private and philanthropic players at the local level to deliver transformative projects. And New Market Tax Credits are an imperfect vehicle, given that they rely on a bevy of lawyers, accountants and consultants to make deals pencil. The federal government would be well served to offer guidance on deal structures that work in different markets rather than just a plethora of guardrails and restrictions.

Finally, public authorities can use their ownership of infrastructure assets (and properties that are often located in close proximity to such assets) to unlock resources for further investment. To this end, new efforts by the Sorenson Impact Center and the Lincoln Institute on Land Policy deserve close observation.

The harsh reality is this: for all the talk of unprecedented funding and once-in-a-generation investment, the federal government has decided only to finance a piece of the urban puzzle. Unless public, private and civic institutions correct for this, the firehose of federal money will either under-deliver (e.g., improved roads in a sea of blighted and vacant properties) or, worse yet, be the latest catalyst for gentrification and displacement.

The lesson is clear. Infrastructure funding is great and wonderful and desperately needed. But it does not, by itself, a city make.


Bruce Katz is the Founding Director of the Nowak Metro Finance Lab at Drexel University.


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