As municipalities across the United States work to modernize aging systems and meet growing community demands, funding remains the single most defining challenge. In the National League of Cities 2025 Municipal Infrastructure Conditions (MIC) report we examined the financial hurdles cities face and the pathways used to keep infrastructure projects moving.
Rising Costs, Tight Budgets and Financial Juggling
Survey results underscore what local officials already know too well: Inflation and supply chain disruptions have made project costs skyrocket. This mirrors broader economic trends recently highlighted by Forbes, which notes that labor shortages and inflationary pressures have defined the industry’s landscape for several years. Nearly 90 percent of MIC survey respondents cited rising material and labor costs as a major financial hurdle. Compounding this are insufficient capital budgets (84 percent) and the uncertainty of future funding, making long-term planning a high-wire act.
Municipalities are being pushed to do more with less – stretching limited resources while responding to public demand for better service. Notably, expanded federal support from the American Rescue Plan and Infrastructure Investment and Jobs Act (IIJA) has empowered local governments to accelerate long-overdue improvements, from water systems to broadband access. However, that support is not guaranteed in perpetuity, and local leaders remain concerned about long-term stability.
Funding: A Patchwork of Solutions
So how are cities funding their capital investments and improvements? The data from MIC 2025 (PDF) reveals a funding mosaic. Municipal capital budgets and grants emerged as the most common lifelines, used by over 65 percent of survey respondents. Loans and bonds, particularly tax-exempt general obligation bonds, also remain critical tools, offering affordable access to large sums for capital-intensive upgrades.
Seeking Grants and Reliance On Capital Budgets Among the Sought After Infrastructure Financing Techniques
Count Survey Responses Indicating Funding Approach for Infrastructure Population Category
Figure Note: Percentages are calculated as the proportion of all total responses to the question. Respondents were able to select multiple options so the total of the count columns are greater than the total number of respondents. Population data is sourced from the U.S. 2020 Census.
Unlike the operating budget, which covers day-to-day expenses like salaries and utilities, the capital budget is a multi-year strategic blueprint — typically looking five to ten years ahead. It identifies major physical investments, from bridge repairs to new water treatment plants, among other categories, which often tend to be expensive, long-term projects.
Grants often serve as the essential piece of total capital funding. Unlike loans, they provide non-repayable funds that allow cities to tackle high-priority projects without increasing the local debt burden. While these funds are highly competitive and often tied to specific federal or state mandates (e.g. IIJA), they have become a crucial part of the overall municipal capital funds.
When local revenues aren’t enough to cover these massive upfront costs, cities turn to the debt markets – primarily through General Obligation (GO) and Revenue bonds. This practice has a deep history in American governance, rooted in the principle that if a bridge or sewer system will serve the community for 30 years, its cost should be shared by the future residents who will benefit from it. General Obligation bonds are typically backed by the city’s full taxing power and offer the lowest interest rates, though they often require voter approval. In contrast, Revenue bonds are repaid strictly from the income generated by the project itself – such as water tolls or parking fees – and typically do not require a public vote.
Creativity Amid Constraints
Thankfully, IIJA and Inflation Reduction Act (IRA) grants have helped to fill some of these gaps over the last few years. According to NLC’s Rebuilding America Dashboard, 5,270 projects have been funded in 2,279 municipalities. However, with over 19,000 cities, towns and villages in America and the IIJA program nearing its conclusion, municipalities must continue to be creative in how they fund capital projects.
Cities aren’t simply waiting for ideal conditions — they are adapting. Municipalities are borrowing strategically, tapping into private funds where appropriate, and aligning with state and federal priorities to unlock more grant opportunities. They are also rethinking project phasing to match fluctuating fiscal conditions.
In short, cities are responding with creativity and resolve — and in doing so, offering early lessons on how to fund tomorrow’s infrastructure without compromising today’s services.
About the Author
The Policy Compass in Dubuque, Iowa: Building Equity through Smarter, Shared Data
Sally AI Masterclass: National Municipal Cyber Resilience Program
- CyberAlliance
How NLC’s AI & Emerging Tech Forum Is Advancing Responsible AI in Local Government
- Christopher Jordan
Longest DHS Shutdown in History Put Cities at Risk: What To Know Now
- Yucel Ors
CitiesSpeak Podcast: Achieving Affordable Clean Monthly Electric Bills in Athens, OH
What Is Drone as First Responder? And Why Are Cities Adopting It?
- Brinc