It’s a conversation that is as relevant today as it was a century ago. Community development is unique. Investing in the improvement of a place as opposed to a person or people includes investments in infrastructure (water, sanitation, energy, telecom, roads) as well as investments in parks and open space, cultural amenities, education, health care and job creation. The investments are generally long–term, one–time capital outlays, yet they impact generations. With the rise of the city, mobile workforces, climate change, and shifting populations, sustainable community development increasingly involves complex trade–offs. And, just as in Carnegie’s own time, questions of how and when to use public funds versus private capital, land use and community empowerment are at the heart of the work.

Financing for community development is not just a question of priorities. How projects are financed weighs heavily on their planning and design—and ultimately their success. Clearly, we no longer live in a world where communities can wait for the largesse of wealthy patrons to improve their living conditions. The constraints faced by community development professionals, particularly architects and urban planners, in meeting the needs of communities can often only be addressed through equally thoughtful financing. 

A major barrier to finding solutions for both urban crises in emerging economies, and sustainable maintenance of existing cities and small towns, is the disconnect between financing and place. Broadly speaking, this is largely due to three main hurdles. 

The first is the more obvious issue of sector–based funding. Take for example a project to build a basketball court and storage facility on land adjacent to a school. Typically, funds for school construction and maintenance (often handled at the county or provincial level) are separated from funds for school operations (handled at the local level) and further separated from funds for parks and recreation (handled by a different local agency). As a result, developing recreational opportunities on school grounds can require threading funding from three or more sources. At the international level, bilateral and multilateral aid delivery is focused on housing, health, education, etc. As a result, funds earmarked for health care delivery cannot be used to support an investment in sanitation infrastructure in tandem—despite the obvious correlation between improved sanitation and improved health.

The second obstacle is the issue of “restrictions,” be they eligibility requirements or exceptions. Restrictions on funding are usually put in place to create incentives for certain perceived positive development attributes (walkability, owner-occupied home ownership, savings requirements) or to cure perceived or real market deficiencies. For example, following the devastating earthquake and tsunami that struck Japan in 2011, the Japanese government announced that any school that accepted private donations for reconstruction would not be eligible for government funds. The intent was likely to prevent schools from double–dipping, but the result was a slowdown in school reconstruction. Schools declined private donations for fear of losing larger sums of government funds that took much longer to disperse.

The third and most subtle hurdle relates to timing. For those of us who are community development practitioners, this may be the most critical. In most parts of the world construction financing is unavailable to homeowners, small businesses and most critically community groups. As a result, facilities are built incrementally at much greater cost to their users.

The timing issue is felt most acutely after disaster. It took nearly two years for funds that had been earmarked for Hurricane Katrina reconstruction to reach the ground. The same is also true in Haiti, where families displaced after the 2010 earthquake lived in tents for more than two years awaiting international pledges from donor nations to be fulfilled and disbursed.

If public financing is slow and restrictive, and private financing is risk averse, the result is a delay in capital that can significantly increase the costs of managing and implementing community development projects. The cost of that delay is typically born by community development agencies.

Finally, financing schemes, because of their high cost to implement, are still often modeled on macroeconomic data at the national level. This data is interpreted to create regional or national programs that are then carried out at the local municipal level. The issue, of course, is that needs and demographics differ at the local level. Any program designed in this way will by default work better in communities that more closely reflect the population makeup and economic trends of the norm. If that’s 2 percent growth, then the program will be designed to support and manage that growth through housing production or infrastructure investment. What to do about the community that differs from the norm, either because its main job generator requires seasonal labor (therefore rental housing is at a premium) or because it has a shrinking population due to competition from nearby regional centers with greater international ties? 

Many people have tried to solve this problem and connect finance and place through calls for better coordination or community engagement. The United Nations Cluster approach is an example of this. Depending on how these meetings are run they can be effective or waste the energy and time for the participating agencies. There have also been various online aid reporting tools like www.oneresponse.org, which we suspect will evolve and become increasingly effective. However, again, coordination comes at the expense of the agencies and citizens participating—oftentimes with hidden costs—and is rarely funded.

More successful are programs that offer flexible grants to communities, provided the funded activities tie to an overall development plan. For example, in the United States, cities can apply to the US Department of Housing and Urban Development for Community Block Development Grants to fund affordable housing, anti–poverty programs, and infrastructure development. Use of the funds is left largely to the discretion of the state and local municipality.

By far, municipal financing continues to represent the bulk of financial support for infrastructure development and services in most communities, whether urban or rural. Increasingly, however, public–private partnerships are combined with innovative planning approaches that offer broader access to capital for infrastructure and community development—from small–scale projects such as facade upgrades, to school construction, to community–wide slum upgrading.

In our experience, the most effective solution seems to be the creation of community development corporations or economic development authorities. They solve the timing issue (by offering liquidity and access to credit) and have the ability to bundle or thread funding from a number of different sources—including private investment and government funding. They are flexible containers in the way that municipal agencies are generally not. And more importantly, they can be accountable for meeting broader development goals over a long period using monitoring and evaluation tools from the onset to measure their impact. One example of this kind of quasi–public agency is the Empresa de Desarrollo Urbano de Medellín (see pages 318–21).

Understanding the intersection between urban planning and finance is of critical importance to the future of cities. In 2007, and for the first time in human history, the world’s urban population exceeded its rural population. The shift impacts both historically large cities like London and Tokyo, and secondary cities as disparate as Memphis, Tennessee in the United States, and Changzhou, China. More dramatic still are the number of emerging cities such as Kigali, Rwanda, where today cranes building high–rise office towers stud the skyline. 

The world’s poor—those earning less than $2 USD a day—make up the majority of people migrating to cities. In 2003, nearly one–sixth of the world’s population lived in slums, according to the United Nations Agency for Human Settlements. Demographic researchers forecast that 1.9 billion people will migrate to urban centers by 2030, drawn by the promise of opportunity, education and jobs. The future of the world’s emerging cities lies in their ability to convert the tremendous potential of urban migration into economic prosperity. The challenge for these cities is formalizing their informal settlements.

At the same time, for every city that is growing there are others that are shrinking. These include former Rust Belt hub Detroit, Michigan, in the United States, and cities such as Leipzig, East Germany, which saw a dramatic population decline after the fall of the Berlin Wall. Research shows that the number of shrinking cities has increased faster than the number of boomtowns. Between 1950 and 2000, the number of cities with significant, ongoing population loss has grown by 330 percent. Meanwhile, the number of cities with more than 100 000 residents has increased 240 percent. In the last 50 years, about 370 cities with more than 100 000 residents have temporarily or lastingly shrank in population by more than 10 percent. In extreme cases, the rate of loss reached peaks of up to 90 percent (Âbâdân, Iran).

Moreover, population indicators show that many regions of the world are entering into an era of overall population decline, though fear of a population explosion is pervasive in some parts of the world. Globally, birthrates have declined by more than half since 1979, according to the documentary film The New Economic Reality: Demographic Winter (2011). This decline in fertility, primarily in developing countries, means that many nations will be coping with aging populations and shrinking economic bases. There are now 59 nations—comprising close to half of the world’s population—with below–replacement fertility rates.

In her 1991 book, The Global City: New York, London, Tokyo, Saskia Sassen writes of urban “winners” and “losers.” The winners are cities that offer a wide range of financial and specialized services in one place—command centers in the global economy—and the losers being those with outdated infrastructure and economies. Similarly, economist Richard Florida points to the importance of the “creative class” and the need for cities to attract talent from a mobile workforce in order to thrive. In the end, cities will need to watch and anticipate these demographic shifts in the same way that corporations already do.

Today, few cities put adequate resources into analyzing their own market viability. Increasingly, however, it is possible to very cheaply gather data at the local level. Rather than relying on national census results, communities can track their own data sets. The rise of user–generated data mapping tools such as Ushahidi, FrontlineSMS, and OpenStreetMap (see our section on Crowd–Sourced Planning on pages 294–95) are one of the most exciting changes brought by the digital revolution. Now it is up to cities to use that kind of data to create short– and long–term development priorities and a case for investment.

So what do these global trends mean for cities?

Place matters. Just as we need to invest in people, we must also invest in place—and like car racing, every square meter counts. Cities that turn a blind eye to pockets of blight and violence not only put community members at risk, but also put themselves at greater risk for the flight of capital and jobs. This, combined with the leveling of populations in many areas, and projected population declines in others, means that cities cannot count on urbanization and rising birthrates to fuel economic development. Companies can and do go “city shopping,” looking for “creative” places that are safe and desirable. Cities that breed cultural diversity as well as opportunity—where the walk to and from work offers spontaneity and chance inspiration—will thrive. Others will shrink, creating a different but equally challenging kind of opportunity to reinvest in open space and renew the natural environment.

Food security, clean water access and natural resources will force communities to find far more responsive models for managing the balance between the built and natural environment in response to shifting populations.

Professionals charged with stewarding the built environment—architects, planners, builders, real estate developers, city managers—must also shift their focus. More holistic investments in place require an understanding of how cities and natural eco–systems function. Urban planners with business degrees will be offering comprehensive urban management models along with master plans. As stewards of an increasingly competitive landscape, these models will use demographic modeling, return on investment analysis on tax investments, land-use inventories, data tracking and impact measurements to target design and planning interventions.

A typical large–scale development today will use any and all of the tools available to it and often in combination. As a result, community development financing has become a complex and often opaque field dominated by specialists. Ultimately, however, there are four basic considerations that any financing structure for community development must take into account: 1) how are funds to be raised, 2) what kind of entity will hold and disperse the funds, 3) what is the legal structure binding the parties, 4) how is land acquired and who will ultimately own it.

The following chart offers a (simplified) view of some common tools available to communities and their use. It is organized into three sections: Municipal Finance, Public–Private Finance and Private Finance. While not exhaustive, it is intended to serve as a primer for community groups, architects, and others seeking to finance their initiatives.

It is not intended to be an exhaustive survey of financial models and their risks, but rather a reference guide to the types of financial approaches and instruments—both public and private—that have been used historically and are in use today to fund the design and construction of civic infrastructure such as schools, hospitals, urban streetscapes, parks and museums, among others. In short, the kinds of projects, large and small, that community designers take up each day.

This essay was researched and written by Kate Stohr