The Future of Small Towns

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“Small towns that are built on a set of shared beliefs or aspirations, be it a desire for sustainable communities or the chance to fully engage in all aspects of a community, will be attractive in the future.”



Tenney, Minnesota, is the smallest town in the country. Population: 6.

Editor’s Note: The Center for Small Towns at the University of Minnesota-Morris  held a two-day symposium on the health and future of small towns. The editor of the Fed Gazette (a publication of the Minneapolis Federal Reserve Bank), Ronald Wirtz, organized an interview with three small town advocates. 

The interview included Bart Finzel, interim director of the Center for Small Towns; Jane Leonard, former president of the Minnesota Rural Partners who is now with the Bush Foundation; and Dave Engstrom, executive director of the Minnesota of Small Cities.

The three discuss the state of small towns today.

Ron Wirtz: First, how did small towns fare during the recession?

Jane Leonard: Small towns and rural areas did better than urban and exurban areas in the first year of the recession, due primarily to strong commodity prices for farmers, which in turn contributed to small-town Main Street doing better relative to its urban counterparts.

Small towns were not as affected by the housing downturns and contractions in finance and banking, in part because they weren’t as exposed as urban areas in the residential housing and commercial real estate markets. However, the length of the current recession is now making its mark on rural areas and small towns because of job losses and the resulting belt-tightening by consumers.

Dave Engstrom: I agree with Jane that small towns have done better than urban areas in general. Small cities in the lakes region and those with tourist economies have done fairly well. These cities tend to have higher-than-average property tax capacities because they have higher-end homes and thriving commercial districts.

However, as the recession has lingered, some towns seem to have been hit harder by the recession, like those with poor property tax capacity and a dependence on [declining] local government aid from the state. It seems to be almost a survival of the fittest.

Bart Finzel: I agree that, in general, small towns initially weathered the recession better than most urban areas. They haven’t been immune, however. In addition to what’s been mentioned, I would add the decrease in credit. Many small-town banks sought higher returns by investing in the speculative run-up in commercial real estate in urban areas. This has left them weakened and less likely to lend to any but their most creditworthy customers.


Downtown Huntington, Indiana, population 17,450 in 2000.

Engstrom: If we are going to preserve small towns as a way of life, there is an absolute need for some sort of property tax equalization to provide assistance to communities in need. So the loss of state aid payments, such as Local Government Aid, for small cities is a huge problem. Some communities have a very poor tax base, and paying for services like police protection would require a much higher-than-average tax levy [if LGA were cut]. Some small cities do not receive LGA because their tax base or tax capacity is very high—like those in the lakes region with high-end homes.

In some cities, LGA payments are 30 to 50 percent of total available revenue. When LGA is cut, as has happened the last few years, there is a limited choice for city councils to make up the lost revenue. Most simply cannot raise taxes, and many cities are subject to state-imposed levy limits. The usual city response is to not fill vacant positions, cut positions and also cut back or limit capital improvements and expenditures. There is at least one city in Minnesota that has pledged its LGA payment to payment of bonds that were used to improve its wastewater system. Nonpayment of LGA could cause default on the bond payments.

Leonard: Local leadership is a necessity for long-term survivability, but external resources and external leadership matter a great deal. These days, we face a crisis in confidence in ourselves. We justify decreasing state aid as a way to hunker down until the storm passes. But hunkering down doesn’t work when we are going through dramatic, long-term transformations that require proactive leadership and resource investments coordinated across local, state and national levels.

We made a pledge when this nation was founded out of 13 colonies: e pluribus unum—“out of many, one.” In practice, at national and state levels, it means we strive to contribute equitably to the commonwealth to ensure reliable and consistent levels of basic services and infrastructure across our states and nation. This “commonwealth” is the base upon which further community and economic development can happen.

Finzel: A sudden loss of state aid, particularly if coupled with continuing tax limits on local government, would be destructive for small cities. Even the most enlightened local leadership couldn’t move quickly enough to overcome the blow.

I agree with Jane. State aid is an expression of our collective desire to ensure that all have access to basic services and to not have areas of the state barren and blighted. Larger units of government have greater capacity to smooth over the peaks and valleys of funding levels market economies naturally create and should play that role.

Wirtz: There’s a lot of talk about better rural-urban connections. It could be argued that the world has never been more socially and economically interconnected. So what’s the “connection” problem or gap that needs bridging?

Leonard: Historically, we had stronger rural-urban connections because our region was very rural up until just after World War II. People who did move to the city still had strong ties back in the countryside. With increasing urban- and suburbanization, rural ties have weakened in succeeding generations.

Today, I’m amazed at how few people make an effort to visit parts of their state that are different from where they live. We’ve had a tradition in Minnesota of “going up to the lake,” but that is usually a narrow corridor between a city and lake country that omits vast parts of very rural or very urban places.

I don’t agree that we as a world are as interconnected socially as you suggest. The connections we have tend to be in distinct circles based on our own special interests. To thrive, we have to be more intentional about reaching beyond our own comfort levels and connect with people and places different from our own settings.

Finzel: As a professor in a small town, I find it remarkable to witness students with urban sensibilities truly connect with the realities of rural places. Some students are empowered by the connection. Others go home.

Students from urban areas take 24-hour shopping, a Walmart or Target, a cinema multiplex and a variety of dining opportunities for granted. Moreover, as their family ties to rural areas have lessened with each generation, their knowledge of small places and their ability to imagine a life without urban amenities have diminished.

After a time, urban students who stick it out find that those in small towns make the most of their limited menu of options: friends cook for one another and create their own entertainment; problems are solved by coming together, rather than making a phone call to a service provider; goods and services are provided by local sole proprietors, barter or not at all. Students learn that nothing can be taken for granted in a small community. Doing for oneself and one’s community is necessary. A sense of shared responsibility is cultivated.

Wirtz: Step back for a big-picture view. Small towns are the historic roots of this country. Then came urbanization, suburbanization and now a lot of emphasis on the competitiveness of regions and regional centers. Can you envision the pendulum swinging to a point where rural areas and small towns are again a preferred, market-driven place to live?

Finzel: Small towns that exist because they provide essential services are, I suspect, unlikely to make a comeback because major services will continue to migrate to regional centers. But small towns that are built on a set of shared beliefs or aspirations, be it a desire for sustainable communities or the chance to fully engage in all aspects of a community, will be attractive in the future. This depends critically on leaders gathering residents together to articulate a shared vision. It will also depend on whether the town welcomes newcomers, creates opportunities for retirees to return and fosters a degree of promise in the future.

The advantages of small-town life—the cheap and abundant housing stock, the community’s role in child rearing, the relative security of knowing your neighbors, the opportunities for self determination and self-expression—will continue to be attractive to some. My thinking is that we are near bottom in terms of out-migration from small communities.

Engstrom: There will always be people who desire the “small-town lifestyle.” I do not think we will get back to a point where small towns are the hubs of commerce in rural Minnesota simply because of the change in agricultural practices. We will have large urban cities, suburbs and regional centers, and there will always be small towns. For many, a small town is a lifestyle choice—for retirees returning to their roots or families looking for a more affordable housing option, maybe with a longer commute.

I would agree with Bart that the out-migration from small towns may be subsiding. What I can envision is small towns that exist as housing clusters; Main Street may not be the same, but there will be some basic services, even if it’s a convenience store and maybe a place of worship. Some small towns will do better than others, and those that have the good leadership to work toward developing their own microeconomy will do very well.

Leonard: The majority of people in this country do prefer to live in a small town if there are certain amenities nearby: recreation, health care, education, jobs or business opportunities, churches and social/civic groups. Broadband can create improved access to health care, education and some economic opportunities anywhere. Small-town resurgence based on recreational amenities—lakes and mountains—has been evident for some time.

The aging of the baby boomers also represents an opportunity for small towns. Many people do want to return to their small-town hometowns when they retire. They have lots of experience, know-how and leadership skills to contribute to any place they settle.