Creating Smarter Cities

Context and Global Urbanization Trends

• JPMorgan Chase and the Brookings Institution have launched a five-year, multimillion-dollar Global Cities Initiative to provide data and expertise to municipalities.
• Urban population is projected to rise from 50% globally today to 70% by 2050, creating cities of unprecedented scale.
• In the U.S., 100 metropolitan areas generate three-quarters of the nation's GDP; globally, 600 metropolitan areas account for 60% of GDP.
• Challenges for urban governance include infrastructure, education, energy, and clean water, requiring new business models beyond traditional approaches.

Fiscal Realities and Economic Competitiveness

• 49 states are legally required to balance their budgets, forcing cuts to discretionary spending on education, infrastructure, and public safety during revenue shortfalls.
• A "negative feedback loop" occurs when cities raise taxes and cut services, causing businesses to relocate and further eroding the tax base.
• States like Illinois and California have experienced significant business exodus due to high taxes, while Arizona has benefited from relocation.
• Cities face "city arbitrage," where municipalities compete directly for businesses by offering tax advantages, accelerating the need for fiscal competitiveness.
• Traditional 20th-century financing and taxing systems are misaligned with a modern, mobile, internet-driven economy.

Private Sector Innovation and Public-Private Partnerships

• Bryant Park Corporation operates on a model charging market rates for space and events, contrasting with New York City's standard of $100 for events like a picnic, which Dan Bitterman notes is inefficient.
• Rick Caruso's "The Grove" development strategy focuses on creating localized "town centers" where residents can live, work, and play, reducing traffic and increasing local sales tax revenue.
• The Americana at Brand in Glendale, California, is a private-public partnership generating roughly $1,200 per square foot in sales (triple the national average), making the developer the second-largest taxpayer in the city.
• Mesa, Arizona, implemented a strategic partnership with a local hospital to utilize "transitional response vehicles" (TRVs) for non-emergency medical calls, reducing the deployment of expensive fire trucks for minor injuries.
• Rick Caruso argues that cities should function as facilitators rather than barriers, noting that 10-20% public investment in projects like Millennium Park ensures taxpayer involvement without full privatization.
• Dan Bitterman notes that political resistance to the term "privatization" is geographically concentrated, largely absent west of Harrisburg, Pennsylvania, and east of the High Sierras.

Education, Infrastructure, and Labor

• Meredith Whitney identifies a direct correlation between unemployment, poverty, and the quality of the education system, labeling education the primary competitive factor for cities.
• Whitney advocates for the privatization of public assets (e.g., toll roads, airports) to generate capital for infrastructure and social services, citing the Chicago Skyway lease ($2 billion) as a model for funding hard and social infrastructure.
• Mayor Daley emphasizes that cities must compete globally against international hubs like Shanghai and Mexico City rather than domestically against other U.S. cities.
• Municipalities are urged to consolidate pension funds to professionalize management and fund infrastructure, a move requiring significant political courage.
• Union resistance to privatization is a significant hurdle, particularly in the Northeast and California, though some officials note that private contracts can sometimes maintain union representation with better outcomes.
• Mayor Daley highlights the "Big Dig" in Boston as a worst-case example of infrastructure mismanagement and Mitch Daniels' privatization of Indiana toll roads as a best practice.
• Technology adoption, specifically surveillance cameras, is cited as a proven method for reducing crime and improving efficiency in cities like London and Chicago.

Specific Challenges and Forward-Looking Statements

• Rick Caruso warns that relying on asset sales to cover operating deficits (P&L) will eventually bankrupt a city, suggesting that structural pension problems must be solved first.
• Meredith Whitney suggests that municipal bankruptcy, while not a great solution for individuals, may be necessary to force political courage and reshape unsustainable pension systems, citing the example of Central Falls, Rhode Island.
• Dan Bitterman predicts that the next wave of municipal bankruptcies will primarily occur in "blue states" due to the stronger political taboo against privatization.
• Mayor Smith notes that cities are uniquely constrained compared to federal or state governments because they cannot run deficits, requiring immediate and creative fiscal solutions.
• The panelists agreed that cities must move beyond "either/or" thinking regarding public vs. private control, adopting hybrid models that leverage private capital for public goods.
• Future growth depends on creating "learning environments" that extend beyond the traditional school day, utilizing community spaces and private sectors to support education.