Economic uncertainty is forcing cities to rethink technology investments, AI and resilience

As federal pandemic relief and infrastructure funding winds down, cities across the U.S. are increasingly looking to new technologies, like artificial intelligence, to help stretch limited budgets and support economic development, according to a report published Friday.

The National League of Cities, an advocacy group, identifies in its annual State of the Cities report that economic development is top priority for mayors in 2026, followed by infrastructure, public health and safety, housing and budget management. But unlike in previous years, technology is less a standalone priority than an enabler across nearly every policy area, the report’s authors found, from workforce development and AI adoption to cybersecurity and resilient infrastructure.

Christine Baker-Smith, the league’s research director, said cities are approaching technology with a broader perspective than one that simply adopts new tools.

“I think what’s different about it this year is the way that it’s woven throughout the other components of priorities,” Baker-Smith said in an interview. “It’s a lot more nuanced this year, and I think that’s really exciting.”

Baker-Smith said AI and AI data centers are emerging as both an economic development strategy and a workforce issue, with cities looking beyond software to the physical infrastructure supporting the technology economy. Those investments could include workforce training, public transit, child care, electric grid improvements and water infrastructure that benefit both residents and technology companies, she said.

“How do you use the companies coming in with a data center and their resources to invest in your city?” she said. “Not just thinking about it as what does it cost the city, but how can it support the city?”

The league’s report also highlights mounting fiscal pressure facing municipalities as American Rescue Plan Act funds, known as the State and Local Fiscal Recovery, expire and Infrastructure Investment and Jobs Act funding begins to taper off. Nearly 70% of mayors surveyed in the report said federal funding has decreased or remained flat this year, while 81% expect the loss of federal infrastructure funding to negatively affect government projects.

And as budgets tighten, Baker-Smith said, cities are becoming increasingly creative in pursuing partnerships with private industry to stretch their budgets: “From nonprofits who are supporting childcare options to a corporation that’s coming in that can be supportive of expanding the electric grid, there are mutually beneficial goals there — and cities are beginning to get very creative.”

The report points to cybersecurity as an increasingly important part of building resilient communities. Baker-Smith said protecting connected infrastructure has become a top concern for local leaders, in addition to preparing for climate-related disasters, but limited resources could be an obstacle for cities looking to pursue new environmental initiatives. “One of the other pieces of climate resilience that’s important to capture is cyber resilience,” she said. “Water systems run on a network [and] are vulnerable to cyberattacks. How do you protect a city from that without lump sums of money?”

Technology is reshaping cities’ public safety operations. The report notes a growing interest in drones “as first responders,” allowing emergency dispatchers to better determine whether incidents require law enforcement or medical personnel. “Two-thirds of the calls are public health calls, not public safety issues. And so [cities] are able to more strategically deploy resources,” Baker-Smith said of the increasing use of drones. “There are, of course, AI predictive modeling approaches as well, but the drone one is really intriguing.”