Nowak Metro Finance Lab Vision
by Bruce Katz, Director
The Nowak Metro Finance Lab was created to invent and scale new ways of financing the inclusive city by making sustained, multi-sectoral investments in innovation, infrastructure, affordable housing, quality places, sustainable development and the schooling and skilling of children and young adults. The Lab was conceived as part of my collaboration with Jeremy Nowak, for whom it is now named, and I’m honored to carry his legacy of innovative and inclusive networked finance forward. Below is an overview of how the Lab will work, but first, a primer on why the new field of metro finance matters:
A decade after the start of the Great Recession, U.S., European and other global cities and metropolitan areas find themselves in uncharted territory. The resurgence of cities and regions as the central organizing unit of the global economy has not generated shared prosperity for most urban residents. The goal of the Inclusive City — a city that expands educational and employment opportunities, creates broad-based wealth and engages residents as co-creators and problem solvers — is becoming more and more elusive.
In practical terms, achieving the goal of the Inclusive City requires spiking labor demand by investing in drivers of innovative growth such as basic science and applied research, smart commercialization, entrepreneurial start-ups and scale-ups, business incubators and accelerators, all in ways that reflect the distinctive economies of different communities. It requires spurring labor supply by investing in education and skills, from cradle to career, to help urban residents access quality jobs that provide decent wages and benefits and the smarts and capital to start their own businesses and grow wealth. And it requires building growth that is sustainable environmentally and socially by investing in affordable housing and new kinds of transportation, energy, water and other infrastructure
By conservative estimates, cities and metros in the United States alone will need to aggregate trillions of dollars over the next decade to make these kinds of investments. Yet traditional public finance resources and institutions will be inadequate to meet this demand. Political dysfunction, a challenging fiscal environment, the demands of an aging population and the sheer size of the needed investment are forcing leaders across the country to explore new ways to finance the projects that will grow innovative, inclusive and resilient economies over the next decade.
In short, the fiscal writing is on the wall. With the public sector at all levels facing enormous political and fiscal constraints, financing of critical investments must come from an unprecedented collaboration between the public, private and civic sectors at all levels and require a heightened burst of experimentation around new forms of innovative finance.
In response to this challenge, the Lab will focus, laser-like, on the following three goals:
Establishing a new paradigm: The Nowak Lab will set the broad context for the inclusive financing challenges and opportunities facing cities and metros in the coming decades and show how Metro Finance offers a new path towards funding the future. Although media and academic focus is traditionally placed on national government investments or the health of municipal government finances, many elements of local and metropolitan life are already designed, financed and delivered through a range of public, private and civic institutions. The financing potential of cities, therefore, does not rely exclusively on the balance sheets of local government but rather extends to the asset bases of a broad set of urban stakeholders including corporations, universities, philanthropies and quasi-public entities that can make large scale investments in inclusive growth. In response, the Nowak Lab will show cities can draw capital from a variety of local actors and mechanisms, capital markets and institutional investors, private individuals, corporations and philanthropies interested in impact investing and the smart provision of patient capital, and in doing so, catalyze impact, laying out both a new framework of multi-sectoral finance and new financial products and institutional models.
- Capture and codify existing solutions: The Nowak Lab will provide deep, objective research on proven financial instruments, intermediaries and institutions that have emerged to advance the inclusive city. We will also identify how these new models can become the market norm through the development of seasoned data and analytics and common standards and features, enabling the routinized investment of trillions of dollars for maximum impact. The Lab will begin by digging deeply into institutional models that have driven large scale urban transformation, particularly around waterfronts, downtowns and innovation districts. We are interested in the replicability of public asset corporations like the Copenhagen City & Port Development Corporation and Hamburg’s HafenCity Corporation that have both regenerated the core areas of cites and captured value for reinvestment in public goods (e.g., the new city-wide transit system in Copenhagen). We are equally intrigued by the broad application of private/civic institutions like Cincinnati’s Center City Development Corporation or St. Louis’ Cortex Innovation Community that have harnessed private, civic and university resources to reshape local economies and remake local places. Our goal is to build a body of deep research around a proven institutional model (e.g. the public asset corporation) to enable large-scale adaptation and adoption.
- Forge new solutions for large scale investment in the future: The Nowak Lab will subject difficult financing challenges and emergent opportunities to intensive review and problem solving. The recently enacted Tax Cuts and Jobs Act of 2017 provides an early opportunity for impact. The Act provides a new incentive centered around the deferral and reduction of capital gains taxes to spur private investments in low-income areas designated as Opportunity Zones. The Nowak Lab is working in close partnership with Accelerator for America to identify ways in which cities can use this tax advantaged capital (and other sources of debt, subsidy and equity) to finance the full build-out of downtowns and innovation districts, the revitalization of low-income neighborhoods, the capitalization of local businesses and the production, preservation and recapitalization of affordable housing. A first product of our collaboration is our report, From Transactions to Transformation: How Cities Can Maximize Opportunity Zones. Given the significant interest among many private investors in this new incentive, it is possible that Opportunity Funds will attract tens of billions of dollars in private capital, making this one of the largest economic development programs in U.S. history.
Future work will focus on additional financing challenges and opportunities, including the funding of high-quality science and technology education for disadvantaged children and young adults; the modernization of basic social infrastructure like workforce housing, libraries, schools and parks, sustained support for minority- and female-entrepreneurs and the shift to renewable energy and more climate resilient cities.
We’ll share our research and networked knowledge through reports, case studies and workshops and through regular email updates and twitter. We hope you’ll follow our work and engage with us in co-creating this new field.