Unlocking the Potential of Intermediary Cities for Regional Development

6. Policy priorities for unlocking the potential of intermediary cities

Abstract

Intermediary cities cannot be understood through a single, uniform model. Rather, their development trajectories, economic performance and functional roles vary significantly across contexts, underscoring the importance of case-specific and context-sensitive policy approaches. Drawing on insights from in-depth case studies, this chapter identifies policy priorities to unlock the potential of intermediary cities. It sets out key areas for action, including: i) strategy; ii) workforce, skills and innovation; iii) connectivity, infrastructure and services; and iv) well-being, environment and attractiveness. The chapter further complements these cross-cutting priorities with more targeted recommendations tailored to different city types and geographical contexts, as well as institutional considerations such as multi-level governance and financing frameworks.

6.1. Analytical framework: six case studies

The analysis presented in previous chapters highlights that intermediary cities are highly heterogeneous. Chapter 3 showed that intermediary cities operate within a set of global megatrends – including population ageing, digitalisation and rising demand for economic transformation – which present both new opportunities as well as challenges for them. At the same time, the chapter reveals that the extent to which intermediary cities can respond to and benefit from these global megatrends is strongly dependent upon geographical, institutional and governance contexts.

The quantitative analysis in Chapter 4 further demonstrated that intermediary cities differ significantly in their economic performance, with marked variation both across and within countries. Chapter 5 complemented this by showing that intermediary cities also vary in their functional profiles and combinations of key urban functions, resulting in distinct city types. Taken together, these findings underline that intermediary cities cannot be understood as a single category, but rather as a diverse set of places with differentiated roles, capabilities and development trajectories.

This heterogeneity is reflected not only in structural characteristics but also in the diversity of local conditions influencing policy implementation. The geographical position of an intermediary city – for instance, whether it is located close to a large metropolitan area or in a more remote rural setting – significantly affects which functions are most critical for its development (Section 3.2). Similarly, institutional and governance frameworks shape cities’ capacity to plan, invest and co-ordinate effectively (Section 3.3). While some of these conditions are determined at the national level through fiscal systems, administrative structures or decentralisation models, important variation also exists within countries, further reinforcing the need for context-sensitive approaches.

To deepen the understanding of these dynamics, the OECD conducted six in-depth case studies: Alba Iulia (Romania), Brindisi (Italy), Klagenfurt (Austria), Liepaja and Saldus (Latvia), Most (Czechia), as well as a national-level case study of France with a focus on Valence (Table 6.1). These case studies complement the analytical evidence presented in earlier chapters by providing granular, place-based insights into the diverse contexts in which intermediary cities operate. They also allow for a closer examination of how EU strategies and programmes are implemented in practice, and how local institutional and governance arrangements influence policy outcomes.

Table 6.1. Major characteristics of selected case study cities

Case study cities	Typology	Demographic trends	Key unique elements (rationale for selection as a case study)
Alba Iulia (Romania)	Cultural Hub	Expanding Ageing	City maximising the potential of urban-rural linkages
Brindisi (Italy)	Service Hub	Shrinking Ageing	City with ports and logistics industries Context of polycentric regions
Klagenfurt (Austria)	Self-contained Employment Hub	Expanding Ageing	Context of a federal state government Strong recognition for its leadership in environmental agenda Potential to develop strong urban-rural linkages
Liepaja (Latvia)	Self-contained Employment Hub	Country’s shrinking and ageing trends	Insights on how two cities with different population sizes and hierarchies are playing intermediary roles within the national urban system: Liepaja: the third largest city in the country Saldus: city with fewer than 50 000 inhabitants
Saldus (Latvia)	N.A.
Most (Czechia)	Housing Hub	Shrinking Ageing	Context of polycentric region City of transition (e.g. green energy transition)
France	Housing Hub (Valence)	Expanding Ageing	National-level programmes for intermediary cities

Note: Typology classification does not apply to the city of Saldus in Latvia as its population threshold is under the intermediary city definition of this project. France is a national level case study with a focus on Valence. The information regarding France refers to intermediary cities overall in France, except for the typology classification, which applies specifically to Valence.

Source: six case studies for unlocking the potential of intermediary cities for regional development: (OECD, 2026[1]), (OECD, 2026[2]), (OECD, 2026[3]), (OECD, 2026[4]), (OECD, 2026[5]), (OECD, 2026[6]).

Despite this diversity, the evidence also reveals a set of common opportunities and challenges faced by intermediary cities in strengthening their role in regional development. Global megatrends are reshaping their development pathways, while constraints such as limited fiscal capacity, governance fragmentation and co-ordination challenges remain particularly significant in many cases. At the same time, when enabling conditions are in place, intermediary cities are better able to perform their key bridging functions. The eight core functions identified in Chapter 2 therefore provide a useful analytical framework for interpreting these dynamics.

Against this background, the case study evidence points to four broad policy areas that are central to strengthening the bridging role of intermediary cities, as described in detail in Section 6.2:

• Strategies targeted to intermediary cities

• Workforce, skills and innovation

• Connectivity, infrastructure and services

• Well‑being, environment and attractiveness

While the six case studies do not capture the full diversity of intermediary city types, they nonetheless provide sufficient depth to identify robust and policy-relevant conclusions.

In addition to these cross-cutting priorities (Section 6.2), the chapter also develops more targeted policy considerations according to city type (Section 6.3), geographical context (Section 6.4) and institutional context (Section 6.5), reflecting the differentiated nature of intermediary cities and the need for tailored policy responses.

6.2. Strengthening the bridging functions

6.2.1. Developing place-based visions and strategies to leverage the strength of intermediary cities

Intermediary cities differ fundamentally from large cities and therefore require tailored strategies that reflect their unique opportunities and challenges. Their distinct economic structures, demographic trends and territorial “bridging” roles, such as complementing larger cities and supporting smaller cities and towns in surrounding rural areas, mean that strategies and policies designed for big cities cannot simply be scaled down. Instead, intermediary cities need approaches that build on their specific assets, address their particular constraints and strengthen their contribution to balanced regional development. Developing future‑oriented visions grounded in a city’s unique assets can help shape coherent investment decisions, mobilise private financing and strengthen the city’s ability to secure external funding. Examples such as Brindisi’s Navigare il Futuro initiative (OECD, 2026[6]) and Liepaja’s designation as the 2027 European Capital of Culture (OECD, 2026[3]) illustrate how strategic visioning can anchor investment and enhance long‑term development trajectories (section 6.2.4).

Developing a credible, long-term local vision requires a strong evidence base. Local governments must first assess and identify the strengths, weaknesses and functional characteristics of intermediary cities, supported by clear indicators and systematic data collection. A harmonised monitoring framework can support this process by enabling comparisons across economic, social and environmental dimensions and by informing targeted investment decisions. Such an assessment should include performance across the eight key functions (Section 2.1.3), analysing local labour market dynamics (Section 6.2.2), examining linkages with surrounding rural areas (Section 6.2.3), and identifying gaps in quality and accessibility of essential services (Section 6.2.4).

Building on this evidence base, local governments can develop a shared long-term vision that translates analytical findings into strategic priorities and investment choices. Meaningful stakeholder and citizen engagement is also essential to ensure that this vision reflects local needs and strengthens legitimacy. This is particularly important in cities undergoing structural change, where transitions in energy, mobility or land use can have significant social and spatial impacts. Brindisi (Italy) illustrates this approach: its renewable energy communities and integrated regeneration of the Paradiso neighbourhood combine infrastructure upgrades, energy‑efficiency improvements and community‑led initiatives, ensuring residents directly benefit from the green transition (OECD, 2026[6]). Most, Czechia, is another intermediary city undergoing a significant transition. Despite challenges related to economic restructuring and population decline, opportunities exist in the green transition and the emerging “landscape of lakes,” which offers strong tourism potential. Strengthening intermunicipal co‑operation will be key to attracting residents and investors and supporting Most’s long‑term renewal (OECD, 2026[2]).

While intermediary cities need a clear local vision, many of their key functions extend beyond municipal boundaries. Labour markets, housing markets, transport systems and service catchment areas often operate at the scale of the functional urban area (FUA) rather than within a single municipality. As a result, developing a shared strategic vision across the FUA is essential to align investments, avoid fragmented development and maximise complementarities between the central city and surrounding municipalities. A common vision can help identify shared priorities, clarify the respective roles of municipalities and support more coherent approaches to economic development, mobility, housing and service provision. In this regard, co-ordination across municipal boundaries is essential. Coherent spatial planning, transport development and economic strategies across the wider FUA can help avoid fragmented or duplicative investments. Establishing regional economic clusters, promoting shared investment platforms among neighbouring municipalities, and developing integrated mobility and land‑use plans can further strengthen the economic resilience and attractiveness of intermediary cities in the long term. Enhancing inter‑municipal co-operation through formal governance structures, shared analytical tools, and joint projects, can also reinforce strategic alignment across the FUA (Section 6.5.1).

Enhancing the capacity of intermediary cities also requires robust national and regional urban policy frameworks that recognise their strategic role in territorial development. Intermediary cities have been gaining policy attention, and several national plans and programmes related to them have been introduced in some EU countries (Section 2.2). However, case studies show that existing national instruments often rely on project-based approaches that lack continuity, provide limited recognition of intermediary cities, and insufficiently integrate FUA perspectives.

Beyond local and FUA-level strategies, national and regional governments also play a critical role in enabling intermediary cities to realise their development potential. While local actors are best placed to identify territorial strengths and define development priorities, higher levels of government can provide the strategic direction, institutional framework and financial support necessary to translate local visions into long-term development outcomes. To maximise policy impacts, the national and regional governments can develop a clear national vision and urban policy framework for regional development focusing on intermediary cities. For instance, in the case of Italy, the national government can develop such a clear national vision and urban policy framework, which can embed regeneration projects into regional and municipal planning, building on the lessons learned from pilot initiatives such as PN Metro Plus and MediAree (OECD, 2026[6]). Since 2018, public policy supporting intermediary cities in France has mainly relied on the Action Cœur de Ville (ACV) programme, which aims to revitalise the town centres of medium-sized cities (10 000 to 100 000 residents) through five action pillars: retail, housing, mobility, urban planning, and public services. Other national programmes – such as Petites Villes de Demain, Villages d’Avenir, Territoires d’industrie, and actions supporting priority urban neighbourhoods (Quartiers prioritaires de la ville) under France’s urban policy – complement this support by targeting smaller municipalities, rural areas, industrial territories and disadvantaged neighbourhoods that make up the FUAs of intermediary cities. The articulation and complementarity of these programmes are ensured through various co-ordination tools, including contracts such as the Contrats de relance et de transition écologique (Contracts for the Success of the Ecological Transition - CRTE), which bring together the various contracts signed between the State and local authorities (OECD, 2026[4]).

Policy priorities on strategy

Local governments

• Assess and identify the strengths and key functional characteristics of intermediary cities, and design policies to enhance them, with support from national and regional governments, including setting clear indicators and systematic data collection to monitor performance.

• Ensure local communities benefit from major transitions (e.g. energy transition) and associated infrastructure developments if any, with sufficient stakeholder and citizen engagement.

• Align spatial planning, transport, and economic development strategies across municipal boundaries to ensure coherent development within the FUA.

National and regional governments

• Support and facilitate local governments to assess and identify the strengths and key functional characteristics of intermediary cities and design policies to enhance them, including setting clear indicators and systematic data collection to monitor performance.

• Develop dedicated national or regional urban policy frameworks that support intermediary cities and provide a clear strategic vision for them.

6.2.2. Addressing workforce shortages and skill gaps and leveraging innovation

Intermediary cities across the EU are increasingly facing workforce shortages and skill mismatches, largely driven by significant demographic changes. They face ageing populations, shrinking shares of working-age residents, outmigration and declining birth rates (OECD, 2024[7]), reducing their talent pool and weakening their attractiveness for residents and investors, hindering economic development and innovation (Section 3.1.2). To respond effectively, local governments need to anticipate demographic and labour‑market trends by collecting and analysing data to identify emerging skill gaps and workforce needs, with appropriate supports from national and regional governments. This provides the basis for designing targeted measures to address shortages, including high‑quality vocational and educational programmes aligned with local industry demands and developed through close collaboration between governments, academia and businesses. Strengthening the alignment between education and training systems and evolving skill needs also requires the active involvement of national and regional authorities (e.g. ministries of education). There are some insights from case studies.

For instance, demographic and labour‑market pressures are evident in Liepaja and Saldus in Latvia, where shortages of skilled workers are a persistent barrier to growth. These cities face youth outmigration, population ageing and limited access to quality rental housing for newcomers. In the South Kurzeme region and in Saldus, the absence of higher education institutions further exacerbates the mismatch between the skills available locally and the evolving demands of the labour market, particularly in technical and digital fields. Addressing these challenges requires expanding vocational education and training programmes aligned with emerging labour market needs, including reskilling initiatives focused on digital competencies. In Liepaja, where branches of central universities such as Riga Technical University operate, there is scope to strengthen education pathways in engineering and technology-related skills for the wind energy sector – areas such as operations and maintenance – would be highly beneficial. Enhancing healthcare‑related skills would also help meet the needs of an ageing population and strengthen regional resilience (OECD, 2026[3]).

Similar challenges are present in Most, Czechia, where shortages of skilled workers constrain economic development. Improving educational attainment and upskilling the local population will be essential for attracting new businesses. The city is partnering with local universities to promote technical education, encourage students to complete secondary school and build stronger pathways into employment. Allowing tertiary students to work while studying has shown promising results and could be complemented by a dual‑education model inspired by the German system, where classroom learning is combined with practical training through internships (OECD, 2026[2]). Alba Iulia, Romania, provides another example of efforts to align education systems with labour‑market needs. Despite a relatively strong educational offer for a small city, Alba Iulia continues to experience “brain drain,” with many young people leaving for larger university cities and not returning. To address this, the city introduced a dual‑vocational education model in 2012, developed in partnership with high schools, universities and private companies. This system provides practical training within local firms while equipping students with industry‑relevant skills. The dual‑education campus also offers accommodation for students from across Alba County, helping widen access to training opportunities and strengthening the local talent pipeline (OECD, 2026[5]).

While demographic change poses challenges, ageing populations can also present opportunities for intermediary cities to become more inclusive and sustainable. As the share of older residents grows, cities must ensure that age‑friendly services, infrastructure and labour‑market practices are in place to support older workers, multigenerational workforces as well as retirees. Klagenfurt, Austria, illustrates this opportunity: its high quality of life positions it as an attractive destination for retirees, reinforcing the need for age‑responsive planning (OECD, 2026[1]). Growing demand for age‑friendly housing, mobility, healthcare and leisure services supports the expansion of the “silver economy,” creating opportunities for new business models and social innovation. Promoting age‑diverse communities, encouraging intergenerational engagement and expanding opportunities for older workers can also help strengthen social cohesion and stimulate local economic development.

Economic opportunities will increasingly emerge from the growing consumer expenditure of the elderly, alongside the expansion of industries such as healthcare, elderly care, and assistive infrastructure. These sectors tend to incorporate advanced technologies and offer strong multiplier effects for employment and entrepreneurship. To meet future demands, vocational and higher education institutions can scale up training programmes in elderly care and assistive technologies. Lifelong learning must also be made more accessible to elder professionals through micro-credentials, flexible training pathways, and remote learning options. Supporting ageing-focused start-ups and facilitating intergenerational mentorship programmes, connecting experienced older professionals with young entrepreneurs, can further catalyse innovation and social inclusion in the silver economy (OECD, 2025[8]). In Portugal, small and medium-sized cities already leverage silver economy potential with projects like Ageing@Coimbra co-ordinating local university and research centre to deliver health-related products to residents, or Vida Feliz in Guimarães that build on public-private partnerships to address the needs for movement and recreational activities targeted at older adults (OECD, 2025[9]).

More broadly, intermediary cities can strengthen their ability to attract talent by establishing specialised local economic development strategies that align with local key assets. Prioritising high‑growth, high‑value‑added sectors can drive economic growth and create a virtuous cycle that boosts investment, innovation and talent attraction. For instance, City of Klagenfurt, Austria, has an economic growth opportunity through developing high green industrial clusters by actively attracting environmental research institutes and industries focused on water, air quality, and sustainable technologies. This effort can be strategically aligned with existing assets such as the Lakeside Science & Technology Park which primarily focuses on Information, Communication and Technology (ICT) but also actively supports sustainability-oriented innovation (OECD, 2026[1]). Another such example is an offshore wind farm development in the special economic zone (SEZ), Liepaja, Latvia. With direct and indirect tax incentives, the Liepaja SEZ encompasses several industrial and business parks, which provide essential infrastructure and services to support a diverse range of enterprises. Liepaja SEZ has also outlined a port development plan to establish a logistics base for offshore wind farms. Starting from 2027, the development of offshore wind farms in the Baltic Sea presents a strategic opportunity for Latvia’s major ports (OECD, 2026[3]). In Most, Czechia, the city’s vision is to become a “sought‑after location and home to investors from sectors with higher added value”. The municipality is prioritising the attraction of high‑value industries, such as battery manufacturing, based on the view that job creation is a principal benefit of new business activity. This strategy aims to draw higher‑skilled and higher‑income residents to the city and strengthen its long‑term economic prospects. The renewable energy transition is a significant opportunity for Most to attract high-value industry (OECD, 2026[2]).

These examples highlight how aligning existing key assets, innovation ecosystems, and infrastructure planning can strengthen the competitiveness of intermediary cities and expand their capacity to generate quality jobs. Building deeper collaboration with universities and technical institutes, investing in entrepreneurial support services, and introducing targeted incentives for start‑ups can accelerate the development of local innovation systems. Such measures can also enhance the broader economic transition of intermediary cities by supporting new business formation and fostering more diversified growth pathways.

To drive economic growth through innovation, particularly in knowledge hubs, it is also essential to define clear innovation specialisations and developing complementary sectors (e.g. health tech) leveraging innovation ecosystem/districts (e.g. technology parks), built on strong collaboration between government, academia, and industry. Klagenfurt, Austria, provides a relevant example. The city has developed a dynamic start‑up and innovation ecosystem anchored by the Lakeside Science & Technology Park, which hosts more than 70 companies and research centres specialising in ICT and digital innovation. As Carinthia’s regional centre for digital innovation, the Park brings together developers, start‑ups and established firms alongside leading research institutions within a purpose-built environment that promotes collaboration. For instance, the regional government of Carinthia provides ownership subsidies, covering around 20% of investment costs for new construction phases. Originally created to support the ICT sector, the Park has since expanded its focus to globally competitive technologies and now serves as a platform where research, development and market application converge. Ongoing projects, ranging from robotics to digital tools for urban and policy design, illustrate how such ecosystems can facilitate fast, scalable and future‑oriented technological solutions (OECD, 2026[1]).

Policy priorities on workforce / skills / innovation

Local governments

• Forecast demographic trends as well as labour demand for existing industries and for sectors expected in the future to identify potential workforce gaps; Collect and analyse labour-market data to identify skill mismatches.

• Provide high‑quality vocational and educational programmes aligned with local industry needs, based on close collaboration among governments, academia, and businesses.

• Support older workers and multigenerational workforces through age-friendly services, policies and infrastructure.

• Identify and prioritise high‑growth, high value‑added industries for strategic investment, aligned with existing local assets and emerging opportunities (e.g. green technologies).

• Foster innovation ecosystem through close collaboration between government, academia, and industry.

National and regional governments

• Support local governments in forecasting demographic trends and labour demand, both for existing industries and emerging sectors, to identify potential workforce gaps.

• Strengthen alignment between education and vocational training systems and evolving skill needs so that local governments can provide high‑quality programmes tailored to local industry demand.

6.2.3. Promoting connectivity with adequate investments in infrastructure

Connectivity is a critical driver of regional development for intermediary cities which cannot thrive in isolation. Connectivity for intermediary cities is understood across three dimensions: physical, digital and territorial. Physical connectivity refers to transport networks such as railways, roads, ports and logistics systems that enable the movement of people and goods. Digital connectivity relates to the availability of high‑quality digital infrastructure (e.g. wireless networks) and access to services via digital technology, which are increasingly vital for economic activity and service provision. Territorial connectivity captures the role of intermediary cities as regional connectors within broader spatial systems: linking to large metropolitan areas, strengthening urban-rural interactions, and connecting with other intermediary cities in polycentric regions (Section 6.4).

Enhancing physical mobility requires adequate and timely investment in public transport networks. Within national urban systems, strong physical connectivity is essential for intermediary cities to play complementary roles with large metropolitan areas and, where relevant, in relation to nearby intermediary cities. For Housing hubs, it is particularly important to provide reliable, fast, and affordable mobility options for frequent commuter routes, to fully leverage their potential by enabling residents to live locally while efficiently working outside the city. Connectivity within the FUA is equally important: effective transport links inside the city and its commuting zone support the performance of intermediary cities by facilitating access to health services, education, business activities, jobs and housing, while ensuring more equitable access to opportunities. Identifying key connectivity infrastructure and assessing strengths and weaknesses across the national urban system – including linkages with large cities, neighbouring intermediary cities and rural areas both within and beyond the FUA – can help prioritise investment decisions and maximise development impact. Such assessments should be supported by national and regional governments to better understand and situate cities within the broader national urban system and their relationships with neighbouring intermediary cities and rural areas. This, in turn, enables these higher levels of government to enhance investment in transport infrastructure to improve connectivity with larger urban centres and promote access to opportunities.

The benefits of such improved connectivity are maximised when urban spatial strategies are closely aligned with urban transport. To adapt effectively to the dynamic changes brought by improved connectivity, spatial strategies such as transit‑oriented development (TOD) and mixed‑use neighbourhoods can help limit urban sprawl and promote more efficient land use. In case of Klagenfurt, Austria, the opening of the new railway combined with population growth has intensified competition between residential, commercial and recreational functions, creating a “triangulation challenge”. Promoting compact development through the reuse of underutilised buildings can foster mixed use and urban regeneration. A dense and walkable urban form aligns with climate objectives and supports an ageing population. To fully capture the benefits of the new railway, targeted investments in housing and infrastructure around transport nodes, such as the main station, will be essential. National, regional and EU support for TOD can reinforce these efforts by integrating high‑density growth with sustainable mobility (OECD, 2026[1]).

Connectivity also encompasses digital infrastructure and access to essential services, which are particularly important for Service Hubs. Strong digital connectivity supports not only economic activity and business services but also access to health, education, administration and social services for residents across wide catchment areas. This is particularly important in regions facing demographic decline, population ageing, or dispersed settlement patterns. In Saldus, Latvia, the local medical centre provides comprehensive outpatient and emergency care, which makes healthcare more accessible than in smaller towns. However, the lack of a regional hospital means that the local outpatient and emergency care centre in Saldus must meet rising demands from the ageing population, and some specialised care still requires referral to larger cities like Liepaja or Riga. Investing in telehealth infrastructure and mobile diagnostic units, such as imaging or screening services, would expand access to specialised care by connecting residents to specialists in larger cities and reducing travel burdens. Digitalisation of public services can also be strengthened, particularly for residents in rural areas who rely on remote access (OECD, 2026[3]). At the same time, enhanced digital services must be accompanied by digital literacy initiatives. Intermediary cities can lead rural inclusion through smart services and innovation hubs, but without local skills and participation, digital divides risk widening. Investing in people is as important as investing in infrastructure (OECD, 2026[5]).

Policy priorities on connectivity / infrastructure / services

Local governments

• Identify key physical connectivity infrastructure and networks (e.g. rail, roads, ports and logistics) and assess strengths and weaknesses across the national urban system – including linkages with large cities, neighbouring intermediary cities and rural areas both within and beyond the FUA.

• Pursue adequate and timely investment in improved physical connectivity (e.g. high‑speed rail) based on the assessment.

• Promote transit‑oriented development and mixed‑use neighbourhoods to limit urban sprawl.

• Ensure efficient land use (e.g. compact urban development) to balance development between residential, commercial, and recreational purposes.

• Enhance connectivity through adequate investment in digital infrastructure (e.g. wireless networks) and by expanding access to services leveraging digital technologies (e.g. telehealth)

• Mitigate digital divide risks via initiatives such as digital literacy training.

National and regional governments

• Support local governments in identifying key physical connectivity infrastructure and networks (e.g. rail, roads, ports and logistics), and in assessing strengths and weaknesses across the national urban system.

• Enhance investment in transport infrastructure to improve connectivity with larger urban centres and promote access to opportunities.

6.2.4. Enhancing well-being and environment to attract residents and workers

Enhancing the overall quality of life for residents is a central pillar of competitiveness for intermediary cities, particularly those seeking to attract and retain residents and workers. High‑quality public services, cultural and recreational amenities, and affordable housing are key components of a compelling living environment and can help counteract demographic pressures. Cities that successfully combine natural assets with well‑designed urban services are better positioned to strengthen their regional role and appeal to families, workers, investors as well as tourists. In this context, Klagenfurt, Austria, offers a strong example of how natural beauty, cultural vitality and affordability can reinforce one another to create an attractive urban environment. Klagenfurt is situated directly by Lake Wörthersee, surrounded by the Alps, the city offers access to many recreational activities including hiking, swimming and sailing. Beyond its attractiveness for sports, Klagenfurt is filled with a number of cultural amenities such as museums, a city theatre and small art galleries. With these attractions, Klagenfurt is a well-established tourist destination within Austria. Moreover, housing in Klagenfurt is more affordable than in other Austrian cities, with the median transaction price was roughly two‑thirds of that in the Vienna FUA in 2021 (OECD, 2026[1]).

To maintain high levels of well‑being, it is also essential for the city to systematically assess gaps in the quality and accessibility of essential services such as education and healthcare to guide future investments, with appropriate support from national and regional governments. This, in turn, enables those high levels of governments to ensure adequate funding and service standards for essential services and their associated infrastructure (e.g. transport), while allowing local governments to focus on effective service delivery.

For housing supply, it is crucial to assess employment opportunities in surrounding areas and ensure that the volume and type of housing provided align with these local and regional labour‑market dynamics. The city of Most, Czechia, illustrates this well: around 21% of its working‑age residents commute to jobs outside the city, compared with 12% in other Czech intermediary cities, highlighting its strong housing function. Although housing costs in Most are among the lowest nationally, a significant share of units is in deteriorating condition, leading many residents to relocate to nearby rural municipalities and accelerating depopulation. Urban regeneration is therefore critical to attracting and retaining residents. Publicly owned land in the city centre and access to EU funding provide a strong basis for revitalisation efforts, including modernising and reconfiguring existing apartments to make them more appealing, in particular for families, and reinforcing Most’s role as a Housing Hub (OECD, 2026[2]).

Enhancing a city’s attractiveness also depends on developing a strong territorial brand that leverages historical, cultural and natural assets to differentiate themselves. Strategic cultural branding not only enhances visibility but can also serve as a platform for long-term partnerships, investment attraction and citizen engagement. Brindisi in Italy illustrates how an intermediary city can leverage cultural branding to connect heritage, community engagement and future-oriented development priorities. Brindisi has pursued this strategically through its candidacy for Italian Capital of Culture 2027, articulated under the theme Navigare il Futuro (“Navigating the Future”). The proposal positioned the sea and port as symbols of openness and identity and organised priorities. The application process triggered significant strategic reflection and mobilised an extensive network of partners. It resulted in a portfolio of cultural, social and economic initiatives and laid the groundwork for a more coherent cultural policy framework. These have translated into concrete actions, including repurposing underused buildings into cultural and community hubs, such as the Case di Quartiere Scuole Pie and the Ex Convento Santa Chiara, now the city’s first municipal library. The initiative also strengthened education and lifelong learning opportunities, and expanded training spaces. Overall, the experience positioned culture as a driver of regeneration, innovation and social inclusion while strengthening civic pride and territorial identity (OECD, 2026[6]).

Branding has also emerged as a powerful tool for enhancing attractiveness of cities, particularly in intermediary cities whose cultural and natural assets extend beyond municipal boundaries. When designed inclusively, territorial branding can highlight both urban landmarks and surrounding rural landscapes, foster shared identity, and support economic opportunities across the wider region (OECD, 2026[10]). Alba Iulia, Romania demonstrates how urban-rural cultural collaboration and joint branding can strengthen territorial cohesion by integrating rural assets, such as valleys, wine routes, local gastronomy, heritage sites and traditional practices, into a unified tourism and cultural strategy centred on the city’s “Other Capital” brand. By linking iconic urban monuments with rural landscapes and producers through trails, festivals, fairs and food corridors, the city actively connects residents, visitors and rural communities while raising regional visibility. Similar approaches across Europe, such as Poland’s Sandomierz Apple Trail and Spain’s Granada Geopark, show how joint branding can unite diverse municipalities around shared cultural and natural assets (OECD, 2026[5]).

Strengthening synergies between cultural and tourism ecosystems often requires not only local investment but also co-ordinated regional action and targeted national support (OECD, 2022[11]). Moreover, fully leveraging cultural assets requires integrating cultural planning with broader SME and business supports to promote a thriving cultural and creative ecosystem. Intermediary cities can play pivotal roles as cultural anchors within wider territories, yet their ability to expand cultural offerings and attract visitors and workers depends heavily on collaboration with neighbouring municipalities and higher levels of government. Liepaja, Latvia, demonstrates how a clear cultural vision, supported by regional co-operation and national frameworks, can elevate a city’s cultural profile and support the development of local cultural and creative ecosystems. Liepaja’s selection as European Capital of Culture 2027 has strengthened its role as a cultural hub and enabled the city to build a long-term cultural strategy to 2035, expand international partnerships, and invest in sustainable and accessible cultural infrastructure. However, the Capital of Culture title also brings significant financial responsibilities. Targeted national support is therefore essential to ensure the city can deliver high‑quality cultural programming while maintaining financial sustainability. Saldus, Latvia, is working closely with Liepaja and regional partners to strengthen its cultural and tourism profile. Through regional and cross‑border platforms, including the Kurzeme Tourism Association, the city has benefited from joint projects in eco‑tourism, nature‑based recreation and cultural programming, contributing to rising visitor numbers and a growing cultural ecosystem. However, Saldus needs further investment in hospitality and tourism services to fully leverage these partnerships. More broadly, the Kurzeme region could reinforce its shared identity through joint cultural branding, integrated programming and co-ordinated investment strategies, helping small municipalities like Saldus better position themselves within national and European cultural networks (OECD, 2026[3]).

Policy priorities on well-being / environment / attractiveness

Local governments

• Ensure a high quality of life by providing accessible (e.g. well-connected by public transport, affordable, and inclusive) education and healthcare to attract and retain residents and workers; Systematically assess gaps in quality and accessibility of essential services (e.g. education, healthcare) to guide investments.

• Align volume and type of housing supply with local and surrounding employment dynamics to meet current and future needs.

• Develop a strong city brand that leverages historical and natural assets (e.g. cultural heritage, waterfronts) and key infrastructure (e.g. ports).

• Ensure adequate investment in infrastructure (e.g. accommodation facilities, studios) to support cultural and tourism activities.

• Co-create cultural initiatives with local communities and collaborate with other municipalities in the region to develop joint cultural routes, shared cultural services and strong cultural and creative networks.

National and regional governments

• Support local governments in assessing gaps in the quality and accessibility of essential services (e.g. education, healthcare) to better inform and prioritise investment decisions.

• Ensure adequate funding and service standards for essential services (e.g. healthcare, education, housing) and the associated infrastructure (e.g. transport).

6.3. Tailoring policy mixes to different intermediary city types

In addition to the policy priorities common to all intermediary cities, insights from the case studies highlight the need and value of developing tailored policy priorities for different types of intermediary cities (Section 5.2), reflecting their specialised roles and structural characteristics. The following list presents a set of priorities tailored to the specific functional profiles of each cluster of intermediary cities. These priorities are not intended to alter their types; rather, they aim to help intermediary cities strengthen their existing advantages while addressing areas where their functions are weaker.

For example, Knowledge Hubs benefit most from policies that strengthen innovation ecosystems, such as fostering university-industry collaboration, developing innovation districts and improving regional connectivity to research networks. Service Hubs, by contrast, require measures that enhance the quality and accessibility of health, education and administrative services, supported by digitalisation and resilient utility infrastructure. For Housing Hubs, priority should be given to improving commuter mobility, expanding diverse and affordable housing options and strengthening community services that support households who live locally but work elsewhere. Cultural Hubs need strategies that support cultural and creative ecosystems, including both promotion of local creative workers and organisations, and support wider networks with neighbouring cities and rural locations; policies which help promote access to culture for local residents and policies which leverage cultural and natural assets for visitor and workforce attraction. Finally, Self-contained Employment Hubs require policies that modernise industrial zones, strengthen vocational training linked to local industry needs and upgrade freight and logistics infrastructure, together with support services for industrial workers and their families.

Taken together, these differentiated policy approaches enable each type of intermediary city to build on its comparative advantages, tackle its particular challenges and contribute more effectively to balanced and resilient regional development.

Policy priorities by intermediary city type

Knowledge Hubs

• Define clear innovation specialisations and develop complementary sectors (e.g. health tech) to those innovation areas to drive economic growth, via innovation ecosystem/districts (e.g. technology parks), built on strong collaboration between government, academia, and industry.

• Strengthen vocational training in line with local knowledge economies by co‑designing programmes with firms, universities and research centres.

• Improve regional and intercity transport links to expand access to research networks.

• Develop high-capacity digital infrastructure (e.g. campus-wide Wi-Fi).

• Invest in innovation district infrastructure (e.g. co-working spaces, labs, incubators).

• Enhance student and researcher living conditions (e.g. affordable housing, mental health services).

• Position the city as a centre of knowledge and talent, through branding and international partnerships.

Service Hubs

• Promote digitalisation of local services (e.g. healthcare and administrative services) to enhance their accessibility, supported by digital literacy training for residents and local government staff.

• Strengthen last‑mile logistics infrastructure (e.g. warehouses).

• Upgrade health, education, and administrative facilities.

• Invest in resilient utilities, such as water, energy, district heating/cooling systems.

• Strengthen health and social service access (e.g. primary care, community health centres).

• Reduce pollution via interventions such as clean logistics zones and low-emission delivery systems.

• Promote service excellence branding to attract businesses and visitors.

Housing Hubs

• Enhance remote working ecosystems, including coworking spaces, digital connectivity, and local entrepreneurship supports.

• Provide reliable, fast, and affordable public transport options for frequent commuter routes.

• Invest in community infrastructure (e.g. childcare, schools, health centres, recreation).

• Promote digital services for residents such as telehealth and digital municipal services.

• Provide diverse, affordable, and high‑quality housing that meets current and future needs, taking demographic trends into account.

• Expand green and blue infrastructure (e.g. parks, rivers, cooling corridors).

• Increase quality of life amenities (e.g. sports facilities, cultural programming).

Cultural Hubs

• Develop city level cultural plans and integrate them into complimentary policy areas (e.g. transport, tourism).

• Support cultural and creative sectors through business support services and skills programmes.

• Identify existing cultural and creative micro-clusters and further develop them (e.g. via dedicated tax incentives, zoning allocations).

• Promote year-round cultural programming and events to support local artists and increase access to international artistic work.

• Preserve and restore heritage buildings while enabling adaptive reuse (e.g. new cultural centres).

• Ensure equal access to culture for residents by supporting cultural infrastructure (e.g. libraries, museums), programmes and events.

• Ensure that place identity and branding rooted in culture and heritage reflects the history of the city and its unique offerings.

• Strengthen synergies between culture and tourism by developing joint cultural tourism itineraries and experiences.

Self-contained Employment Hubs

• Strengthen vocational training responding to local industrial needs, and promote work-based learning models (e.g. dual-education model).

• Offer workforce services, such as job matching and skills counselling.

• Support industrial modernisation by linking firms and technical institutes.

• Strengthen freight mobility infrastructure (e.g. rails, logistics hubs, improved road capacity).

• Modernise industrial zones with sustainable utilities, circular waste systems, and clean energy.

• Invest in community services to support families of industrial workers (childcare, recreation).

• Regenerate post-industrial sites into parks, mixed-use areas or innovation campuses.

• Support just-transition initiatives for carbon-intensive sectors.

6.4. Adapting policy approaches to different geographical contexts

Insights from the case studies highlight the need and value of developing tailored policy priorities reflecting their differentiated bridging roles. For instance, for intermediary cities located close to large urban centres, effective co‑ordination with the large cities becomes essential to ensure coherent transport, housing and economic development. Proximity creates strong functional interdependencies, such as commuter flows, shared labour markets, and common housing demand, which provides opportunities for intermediary cities to complement large cities not only by strengthening transport and housing functions, but also through retail revitalisation and the provision of specialised health services. These shared demands and opportunities make joint planning and investment crucial to mitigate agglomeration challenges stemming from overconcentration, such as high housing costs and congestion (Section 3.2). Shared transport authorities and integrated land‑use planning can help align priorities across the metropolitan region, while co-ordinated investment in mobility networks supports more efficient and sustainable movement of people. Similarly, joint housing strategies can help manage spillover pressures from the larger city, ensuring that intermediary cities provide affordable options.

In contrast, intermediary cities in rural regions anchor regional labour markets, provide essential services to surrounding rural communities and facilitate economic and social linkages across wider territories as a connector between rural regions and large urban centres. They help retain population and skills by fostering local business opportunities, such as agri‑food markets and regional entrepreneurship, providing residents with viable reasons to stay and mitigating brain drain. By hosting education and vocational training institutions, these cities also support skills development and knowledge transfer to surrounding rural areas, strengthening productivity, sustainability practices and innovation. At the same time, intermediary cities serve as hubs for transport connectivity, cultural amenities, and cultural and creative sectors, retail, housing and healthcare, offering accessible services, specialised goods and medical facilities that would otherwise be distant for rural populations (Section 3.2). Strengthening these roles requires a strategic approach that recognises city-hinterland interdependence, promotes shared regional identity, and supports integrated investments in transport, digital connectivity, housing, education and public services to enhance resilience and balanced regional development. Brindisi, Italy, illustrates this approach through initiatives that integrate tourism assets, agri‑food value chains, environmental protection and territorial governance in surrounding rural areas. Partnerships with GAL Alto Salento promote sustainable agriculture, short supply chains and rural business co‑operation, while the Consorzio di Torre Guaceto links biodiversity conservation with sustainable tourism and education. These collaborations enable Brindisi to incorporate rural and coastal resources into its wider development strategy and strengthen territorial cohesion. The promotion of slow‑tourism routes further reinforces connections with inland villages, deepening urban-rural linkages across the territory (OECD, 2026[6]).

Alba Iulia, Romania, provides another holistic example of how intermediary cities can strengthen regional cohesion by adopting an integrated urban-rural development approach. The city effectively links transport, skills, tourism and digitalisation through a co-ordinated strategy aligned with national and regional frameworks such as the Territorial Development Strategy of Romania 2035. Its diversified business ecosystem, ranging from SMEs and export‑oriented firms to logistics services and an industrial park connected to rural supply chains, illustrates how urban economies can reinforce rural livelihoods. However, challenges persist in ensuring that more peripheral rural areas benefit from adequate connectivity, skills development and access to services. Addressing these gaps will require stronger urban-rural collaboration, wider use of instruments such as Integrated Territorial Investments (ITI) and Community‑Led Local Development (CLLD), and targeted investments in digital literacy, mobility, education and health services. Alba Iulia’s strategic branding and tourism initiatives (Section 6.2.4), coupled with its role as a provider of key regional services, demonstrate how intermediary cities can leverage their assets to integrate rural communities into broader development trajectories while reducing inequalities and supporting territorial cohesion (OECD, 2026[5]).

Intermediary cities in polycentric regions, comprising multiple small and medium-sized cities without a dominating urban centre, can facilitate strong inter-city linkages, which in turn can share metropolitan functions (e.g. transport infrastructure, healthcare, education, innovation), share knowledge and skills across cities (Section 6.5.1). This underscores the significant importance of inter-municipal co-operation, including shared investments and joint procurement. The city of Most, Czechia, is located in the Ústí Region in northwestern Bohemia, a former coal-mining region bordering eastern Germany. This polycentric region contains three intermediary cities, of which Most is the second largest. In such polycentric regions, nearby cities can “borrow” functions from each other, allowing them to each specialise and operate as a broader inter-city network. However, given the Ústí Region’s proximity to Prague, cities in this region are less reliant on each other than might be expected and consequently have not “specialised” in particular functions. This began to change with the introduction of the ITI tool in 2014-20, which co-ordinates EU funds across 132 municipalities. Managing over EUR 201 million in the 2021-27 period, the ITI has encouraged a stronger culture of co‑operation, long‑term strategic planning and integrated infrastructure development. It also helps bridge municipal capacity gaps by supporting project proposal development, data harmonisation and technical expertise, making it an important platform for horizontal co‑ordination in the region (OECD, 2026[2]).

Policy priorities by geographical context

ICs in urbanised regions, close to large cities

• Strengthen transport connections with the closest large city to improve access to jobs, services and opportunities across the wider urban region.

• Ensure an adequate mix and volume of housing supply, taking into account spillover demand from nearby large cities, to help limit urban sprawl and relieve housing pressures in these large cities.

• Leverage demand from large cities by exploring opportunities for retail revitalisation and the provision of specialised healthcare services.

• Co-ordinate with the larger city on transport, housing, and economic development, including through shared investments.

ICs in rural regions, remote from large cities

• Strengthen local economic opportunities (e.g. agri‑food markets) to provide residents with viable reasons to stay, helping retain skilled workers and reduce brain drain to large metropolitan centres.

• Invest in education and vocational training institutions to bridge skills gaps in low‑density regions, support knowledge and technology transfer to surrounding rural areas.

• Improve regional transport connectivity, including road, rail and airport infrastructure, to link rural populations to wider labour markets, services and economic opportunities.

• Strengthen intermediary cities as attractive living, service and employment hubs by leveraging relatively affordable housing, expanding cultural and social amenities, reinforcing their role as regional retail and service centres, and enhancing access to healthcare.

• Set a strategy to strengthen urban-rural linkages and support investments in services and infrastructure that function as regional connectors (e.g. urban-rural transport services).

ICs in polycentric regions

• Enhance collaboration with other intermediary cities in the regions, including cultural co‑operation, long‑term strategic planning, and integrated infrastructure development, while helping bridge capacity gaps among the municipalities.

6.5. Strengthening multi-level governance and financing frameworks

In addition to the policy priorities aimed at strengthening the bridging functions of intermediary cities, the following subsections examine policy priorities related to the institutional context in which intermediary cities operate. Since institutional contexts are multi‑dimensional (e.g. state structure, the number of subnational levels, degrees of fiscal decentralisation) and largely shaped at the national level rather than by individual cities (Section 3.3.1), policy priorities in this section are not tailored to specific context. Instead, they identify common institutional challenges and priorities relevant to intermediary cities across different governance systems, with a particular focus on strengthening horizontal and vertical co‑operation, as well as on funding and financing to enable targeted investments.

6.5.1. Fostering inter-municipal co-operation and ensuring vertical and sectoral coherence

Horizontal collaboration is a critical driver of regional development for intermediary cities, which – given their smaller size – cannot operate alone in the way large metropolitan areas can. This is especially true considering the nature of their key “bridging” role – complementing larger cities and one another and supporting smaller cities, towns and surrounding rural areas (Section 2.1.3). Moreover, as shown in section 3.3.4, intermediary cities often face a higher level of internal municipal fragmentation than larger cities in the same country relative to their population size, increasing the complexity of co-ordinated planning and service delivery.

Strengthening inter‑municipal co‑operation across its municipal constituents remains essential for improving service delivery, enhancing infrastructure planning and ensuring more efficient use of public resources in intermediary cities. Effective co‑ordination platforms can help address these challenges by enabling municipalities to pool expertise, jointly address shared problems and design solutions that reflect functional rather than administrative geographies. By collaborating across municipal boundaries, intermediary cities can reduce duplication, improve administrative and technical capacity and support joint investment and long‑term planning. Co-operation is especially valuable for shared services and administrative tasks (e.g. inspections, procurement, IT systems, accounting and citizen services) where pooling staff and infrastructure lowers costs and improves reliability (OECD, Forthcoming[12]).

Regular dialogue forums, joint planning processes and shared investment frameworks can significantly increase the coherence and impact of local development policies. The Czechia illustrates how structured co‑operation can support practical progress on local infrastructure projects. In the Ústí Region, the regional authority convenes municipalities and national stakeholders twice a year to co‑ordinate land‑use planning. Following a 2023 meeting, a municipal working group was launched to develop cycling infrastructure. Despite initial scepticism, the collaboration led Most and neighbouring municipalities to jointly plan two new cycle routes. Most also participates in the Ústí nad Labem ITI mechanism, which channels EU funds for regional infrastructure (OECD, 2026[2]). This example shows that co‑operation is more effective when driven by concrete challenges and shared priorities, underscoring the value of problem‑focused, place‑based co-ordination.

Expanding joint procurement and joint funding mechanisms can further enable intermediary cities to implement municipal integrated investments in areas such as public transport, mobility and waste management. Such mechanisms reduce costs, pool expertise and ensure consistent service standards across wider territories. While municipalities can establish these arrangements themselves where capacity allows, national and regional governments play an important role in supporting and facilitating their development. Some case study countries illustrate how these approaches can be operationalised. For instance, in Romania, the Alba Iulia metropolitan area demonstrates the benefits of operating at the FUA scale through its Integrated Urban Development Strategy 2021-2030, which provides a shared long‑term vision supported by a metropolitan transport association. This collaboration improves rural accessibility, strengthens tourism and local value chains, and is reinforced by the Sustainable Urban Mobility Plan and by national investments under the National Recovery and Resilience Plan (NRRP). Additionally, in 2018, the Ministry for Regional Development facilitated a joint procurement process for four municipalities across Romania, including Alba Iulia, to acquire electric buses at a lower cost (OECD, 2026[5]). Similarly, in Czechia, Most and Litvínov jointly operate a shared public transport company that has provided integrated services since 1995, enabling efficient mobility solutions for both cities (OECD, 2026[2]). These examples highlight how joint procurement and funding can create economies of scale, support integrated infrastructure planning, and strengthen co-operation between municipalities.

Aligning institutional arrangements with FUA boundaries can also improve coherence of service delivery and spatial planning, and support more efficient investment. While Intermediary cities serve as key territorial connectors, their full potential requires a functional approach at the scale of the FUA. However, governance arrangements frequently do not correspond to functional boundaries, limiting co-ordination and policy effectiveness of investments with fragmented planning. In France, the boundaries of many intermediary‑city FUAs extend beyond that of their formal Inter-municipal co-operation structures, known as Établissements Publics de Coopération Intercommunale (EPCI), potentially limiting the effectiveness of planning and investment decisions. For example, the EPCI Valence Romans Agglomération encompasses 54 municipalities, while the Valence intermediary city FUA covers 71. Better alignment between these scales would allow for shared investment planning, reduce duplication, and improve service coherence across the wider urban area (OECD, 2026[4]). Similar challenges in Italy’s Puglia region highlight the value of establishing stable FUA‑level co-ordination structures and multi‑fund co-operation mechanisms that allow municipalities to jointly plan, invest and deliver services in line with regional and national priorities (OECD, 2026[6]).

Another way to address municipal fragmentation is to adjust institutional arrangements through territorial mergers. Latvia has pursued this path through its Administrative Territorial Reform (ATR), aimed at supporting national development, empowering local governments and improving residents’ well‑being by creating economically viable administrative territories. The reform seeks to enable a more efficient use of budget resources, enhance the capacity and autonomy of municipalities and build economies of scale across wider territories to reduce regional disparities (MoSARD, 2025[13]). Following the reform, the number of municipalities dropped from 119 to 42, and the gap between municipal budgets narrowed considerably. Despite its well‑intentioned objectives, the reform has also faced challenges, reflecting the inherent trade‑offs of territorial consolidation. Some residents have expressed concerns about feeling more distant from local government and having fewer opportunities to engage or make their voices heard (OECD, 2026[3]).

Ensuring policy coherence across levels of government is also fundamental to enabling intermediary cities to further contribute to regional development. Misalignment of priorities between intermediary cities and national or regional governments can create significant challenges for intermediary cities, leading to service gaps, inefficiencies and fragmented governance. When national frameworks for sectors such as health, education, transport or housing are not aligned with local priorities and territorial realities, intermediary cities may struggle to deliver essential services, attract investment or plan effectively. These cities often operate with limited administrative capacity and depend heavily on well co-ordinated territorial linkages and balanced service networks to fulfil their “bridging” role. As a result, incoherence across government levels can translate into higher administrative burdens, missed funding opportunities and reduced strategic coherence, making intermediary cities particularly vulnerable to policy misalignment.

Clear vertical co-ordination helps align national, regional and local priorities, reduces fragmentation, and provides municipalities with predictable strategic direction. Some case studies highlight concrete examples of such effective vertical co-ordination. In Austria, despite the absence of a binding national urban policy, the Austrian Spatial Development Concept (ÖREK 2030) provides a shared strategic reference for federal states, cities and municipalities. Complementary regional frameworks, such as the Carinthian spatial strategy (STRALE), clarify priorities related to demographic change, economic diversification and environmental pressures, and directly inform Klagenfurt’s Urban Development Strategy 2035 (STEK) and its Smart City Strategy (OECD, 2026[1]). In case of Emilia-Romagna region in Italy, Emilia‑Romagna’s Pact for Work and Climate and its 2021-2027 Regional Development Strategy demonstrate how integrating sustainable urban development into top‑level strategies can strengthen multi‑level governance through co‑designed strategies that link local priorities with regional goals (OECD, 2026[6]).

Despite the role of national and regional strategies in promoting coherence, misalignments sometimes arise among national sectoral strategies – such as differing definitions of service hierarchies – which require better alignment to avoid conflicting objectives. For instance, Latvia’s ATR has paved the way for the restructuring of education and health sectors, bringing changes in hospital and school networks. The hospital network restructuring took into account demographic trends, availabilities of new treatment methods and technologies, the needs of the population in terms of health care and the availability of health human resources (Ministry of Health, 2023[14]). A reform of the school network also proposed a restructuring to ensure equally accessible and high-quality education based on the density of pupils per area, the number of pupils in in class groups and the capacity of the pedagogical staff (Ministry of Education, 2023[15]). However, Saldus currently lacks a regional hospital (previously existed) and only has a medical care centre, even though it is designated as a Development Centre of regional significance in the Sustainable Development Strategy of Latvia until 2030. To ensure adequate access to basic services for these important regional hubs, national policy should better align the Development Centre designation with the actual infrastructure provisions (OECD, 2026[3]).

Aligning sectoral strategies with regional priorities is also important to ensure that intermediary cities benefit from balanced, place‑responsive investment. Stronger co-ordination between regional and sectoral ministries supports more integrated decision‑making, reduces overlaps, and ensures that sectoral policies reflect territorial needs. Latvia provides an example of a country with a regulatory framework designed to align regional and sectoral policies. Regional development councils, methodological guidance from the Ministry of Smart Administration and Regional Development (MoSARD), and the integration of territorial perspectives into EU‑funded programmes have strengthened the coherence of sectoral strategies. Co‑ordination is also embedded in the preparation, implementation, and monitoring of the National Development Plan and sectoral planning documents. However, cross-sector collaboration often occurs on an ad‑hoc basis, with an exception being the 2024 Thematic Committee for the Eastern Border Region. A more structured and consistent mechanism would help ensure that sectoral policies consistently reflect territorial realities and support more balanced development across all intermediary cities (OECD, 2026[3]).

The EU already plays a critical role in supporting multi-level governance, integrated territorial development and FUA approaches, notably through Cohesion Policy, and is expected to continue and reinforce this support in the next Multiannual Financial Framework. EU actions have helped member states define national strategic visions for intermediary cities within broader territorial development frameworks, while also encouraging alignment across national, regional, and local policies. Building on these foundations, continued EU support can further promote co-ordination between levels of government on urban policies including intermediary cities, operationalise FUA approaches, enhance data availability, and integrate cross-sectoral priorities such as climate adaptation and mobility. This includes sustained investment in peer‑learning networks, capacity-building programmes for local officials, and digital tools that enable municipalities to benchmark performance and identify shared challenges and opportunities across FUAs.

Policy priorities on multi-level governance

Local governments

• Strengthen inter‑municipal co-operation mechanisms for service delivery and infrastructure planning, such as regular dialogue platforms, shared services or pooled administrative functions (e.g. inspections, IT, citizen services), joint planning processes and shared investment frameworks at the scale of the FUA.

• Engage systematically with national and regional authorities so that sectoral strategies and investment decisions reflect local realities and the functional role of intermediary cities.

National and regional governments

• Provide joint mechanisms to support integrated investments and services (e.g. public transport, waste management) across municipalities.

• Align institutional arrangements with FUA boundaries to improve coherence for spatial planning, service delivery, and investment.

• Ensure policy coherence across levels of government and align sectoral strategies affecting intermediary cities with their regional priorities.

• Ensure alignment across national sectoral strategies regarding service‑level hierarchies and the corresponding provision of infrastructure.

EU

• Continue to support member states in establishing a national strategic vision for territorial development including the role of intermediary cities, and to aligning national, regional and local policies to implement this vision.

6.5.2. Mobilising funding and financing for targeted investments

Intermediary cities generally have less fiscal flexibility than larger cities due to their greater dependence on grants and subsidies and a smaller own‑source revenue base. This is reinforced by population decline in many intermediary cities, which further reduces their tax base. Their capacity to raise revenues from user charges or asset income is also more limited, reflecting both weaker demand (fewer businesses, lower incomes) and more constrained administrative and technical capacity. As a result, intermediary cities often face challenges in maintaining the scope and quality of fee‑based services. Accessing bond markets or private financing is even more difficult, given smaller project sizes, higher borrowing costs, lower creditworthiness and limited market expertise (Section 3.3.2). These difficulties are particularly pronounced in countries with high fiscal centralisation, such as Latvia, where many municipalities lack sufficient revenue sources to finance their autonomous functions and rely heavily on central government transfers (OECD, 2026[3]).

For intermediary cities to strengthen their financial capacity, it is essential to diversify financial sources such as taxes, fees and charges to increase own-source revenues. The case studies highlight several opportunities to enhance financial capacity, such as broadening tax revenues. For example, one such potential example in Klagenfurt, Austria, is a vacancy levy, a tax applied to residential or commercial units left unoccupied for a defined period. Such an instrument could both increase own‑source revenues and promote more efficient use of existing buildings (OECD, 2026[1]). International practice reinforces this approach: in Wallonia (Belgium), local authorities analyse water and electricity consumption to identify underused dwellings, applying a vacant‑building tax to those below minimum usage thresholds, thereby contributing to municipal revenues (UVCW, 2023[16]). More broadly, there is considerable potential to improve property tax performance in Austria by updating outdated cadastral values. Property taxation remains among the lowest in the OECD due to valuation bases that have not been revised since the 1980s. Regular updates to property values, common in countries such as Hungary, Korea, Mexico and the Netherlands, would provide municipalities with a more robust and equitable revenue base (OECD, 2024[17]).

Beyond taxation, intermediary cities can strengthen fiscal capacity by widening the range of fees, charges and incentives aligned with local policy objectives. Environmental charges, congestion‑related measures or differentiated parking policies can simultaneously contribute to achieving environmental goals and expanding municipal revenue sources (OECD, 2026[1]). For example, congestion charges and low emission zones, typically implemented to ease traffic, can also play a significant role in reducing air pollution and mitigating climate change. Furthermore, fees for the use of transport infrastructure, such as road pricing, tolls, and parking charges, can reinforce environmental objectives. Beyond these regulatory instruments, such mobility‑related policies can also generate indirect revenue impacts. For example, Alba Iulia in Romania removed minimum parking requirements in dense, well‑served central areas, enabling more flexible development and encouraging alternative transport modes (OECD, 2026[5]). Such policies can drive development in the city, encouraging sustainable mobility and in part increase property tax income for the municipality.

The case studies also underscore the importance of reducing reliance on grants by better leveraging private financing mechanisms. Tools such as public-private partnerships (PPPs) or municipal borrowing remain underused in many intermediary cities, due to limited experience as well as broader structural constraints related to project pipelines, legal frameworks, fiscal rules, transaction costs, and market appetite. In Czechia, municipalities are legally able to issue bonds and take on debt, yet cities such as Most maintain very low debt levels and have limited exposure to PPPs. Historically, the availability of EU funds reduced incentives to explore alternative financing options; however, access to EU resources is expected to decline as Czechia moves towards becoming a net contributor by 2030. The national government could offer targeted support to a select group of intermediary cities to develop successful cases of private financing (e.g. bond issuance) in practice, as a first step in developing a more positive narrative around these types of funding arrangements (OECD, 2026[2]).

It is also important to establish funding and financing mechanisms that can bridge the revenue-cost gap between core municipalities in intermediary cities and the surrounding municipalities. Fiscal disparities between core and surrounding municipalities are a recurrent challenge in intermediary cities. Core municipalities often provide hospitals, schools, cultural facilities and transport systems not only for their own residents but also for neighbouring populations. The revenue-cost gap, commonly described as a “centrality charge”, places significant pressure on local budgets and can undermine cities’ ability to invest in strategic infrastructure (Section 3.3.2). Liepaja illustrates this dynamic: the city serves as a regional service centre for its FUA, including municipalities such as South Kurzeme, yet its revenue base does not reflect the full population it serves. Addressing these imbalances requires co-ordinated financial arrangements across municipalities, backed by national‑level frameworks and regional facilitation to ensure fair cost sharing (OECD, 2026[3]).

Several countries are beginning to introduce measures that ensure fairer compensation for core municipalities and greater coherence across municipal finances. In Latvia, the new municipal financial equalisation system represents a shift toward funding services based on actual usage rather than on population declarations. Previously, inter‑municipal settlements were required, for example when children from one municipality attended schools in another. Under the proposed new system (not yet implemented as of April 2026), funding allocations for education will be based on the number of enrolled students, ensuring that the municipality providing the service, such as Liepaja, receives appropriate financial support (OECD, 2026[3]). Such reforms provide an important step toward reducing centrality charges and enabling more equitable sharing of costs within FUAs. Over time, these mechanisms can help bridge the revenue-cost gap and support more sustainable and balanced regional development.

More broadly, national governments are encouraged to develop clear national vision and urban policy frameworks for regional development focusing on intermediary cities, as discussed in Section 6.2.1. In Europe, the EU can play a pivotal role in supporting member states in shaping this strategic vision and in strengthening the alignment of national, regional, and local policies to ensure coherent implementation across levels of government.

In line with such national strategies, governments should design financial support that reflects the integrated needs of intermediary cities rather than relying solely on sector‑specific or function‑specific programmes. Doing so effectively requires identifying capacity and competence gaps at the city level for key functions and aligning financial instruments to help bridge those gaps. This approach would allow intermediary cities to address interconnected challenges, from skills and innovation to connectivity, well-being and public service delivery, in a more co-ordinated manner.

Ensuring effective investment also requires funding instruments to operate at the FUA scale and to offer sufficient flexibility for intermediary cities in how they can deploy resources. Frameworks for inter‑municipal co‑operation at the FUA level (Section 6.5.1) can play a critical role in enabling such an approach. Financing becomes far more impactful when it is structured at the FUA scale, allowing municipalities to plan coherently, pool resources and implement targeted investments. Such an approach would help maximise the efficiency and effectiveness of EU and national funding for intermediary cities while providing the flexibility needed to tailor investments to local priorities and conditions. In case of France, since 2023, ACV has expanded its scope beyond city centres, more systematically integrating areas such as city gateways and station districts, in line with a broader, place-based approach led by local authorities through territorial development projects. While the scope does not fully correspond to the FUA scale, the recent broadening of scope represents a positive evolution towards better accommodating functional urban dynamics (OECD, 2026[4]).

Ensuring predictable, multi‑annual financing is essential for strengthening the long‑term investment capacity of intermediary cities. Reliance on fragmented project funding limits continuity in service delivery and constrains strategic planning for major infrastructure. To address this, intermediary cities should integrate long‑term financial sustainability into project design and adopt medium‑ to long‑term financial plans to complement annual budgeting. The experience of Saldus, Latvia, illustrates these challenges: heavy reliance on EU programmes exposes the city to delays, shifting programming cycles and administrative burdens, while co‑financing requirements make sustaining projects difficult after completion. In response, Saldus is streamlining project management, strengthening staff capacity and exploring broader financing tools, including national recovery and green transition funds. Introducing a medium‑term financial framework alongside annual budgets would further improve fiscal sustainability and better align investments with long‑term development goals (OECD, 2026[3]). In case of France, State-Region Planning Contracts (Contrats de Plan État‑Région, CPER) serve as a key instrument for multi‑annual investment planning between the central government and regional authorities. These seven‑year contracts structure the majority of subnational public investment by co-ordinating the priorities and financial contributions of all levels of government. CPERs support the convergence of funding toward major regional development projects, promote territorial cohesion, and enhance the coherence of public policies within each region (OECD/UCLG, 2022[18]).

Improving access to national, regional and EU funding and financing mechanisms is also critical to strengthening the financial management capacity of intermediary cities. Compared with larger urban centres, intermediary cities often face additional hurdles in securing competitive grants or international financing due to more limited administrative capacity and smaller teams (Section 3.3.2). National governments can help address these gaps by providing capacity‑building support such as targeted training. For local governments, integrating these funding opportunities into strategic planning and regularly assessing participation in national and EU programmes can help identify overlaps, gaps and opportunities for better alignment across financing mechanisms.

European funds have been crucial in supporting integrated sustainable urban development strategies, multilevel governance and place‑based approaches for intermediary cities across Europe, particularly through Cohesion Policy. These investments have contributed to urban regeneration, innovation, local competitiveness and social inclusion, while advancing EU objectives on sustainability, the green transition and territorial cohesion. For example, in Brindisi, Italy, European funding has enabled flagship initiatives such as the regeneration of the Paradiso neighbourhood, which strengthened the housing function through social housing (OECD, 2026[6]). Investments in intermediary cities also generate broader benefits, contributing directly to the EU’s sustainability, green transition and territorial cohesion objectives. Supporting these cities is therefore a cost‑effective pathway for the EU to advance its cohesion, climate and digital agendas.

Building on this strong foundation, the EU is expected to continue and reinforce its support in the next Multiannual Financial Framework, maintaining a focus on integrated territorial development, including FUA approaches, as promoted by the Handbook of Sustainable Urban Development Strategies (European Commissions, 2020[19]). Intermediary cities would particularly benefit from greater simplification, coherence and integration of EU support tools, given their more limited administrative and financial capacity. This orientation is consistent with the ongoing reflection on the future of Cohesion Policy for the 2028-2034 period and with recent efforts to reduce fragmentation and streamline access to funding (European Commission, 2025[20]). At the same time, fulfilling the role of intermediary cities requires co-ordinated investment across a wide range of sectors and policy areas for their key functions. EU’s reform of the financial framework and its tools would also offer an opportunity to broaden their scope to cover a wider set of urban policy objectives relevant to strengthening the functions of intermediary cities. The EU Agenda for Cities, launched by the European Commission in December 2025, also aims to streamline access to EU funding to address fragmentation. As a new strategic framework, it aims to empower Europe's urban areas, acting as a unified guide for sustainable development, addressing challenges like housing, climate change, and social inclusion (European Commission, 2025[21]).

In defining future programming, the EU build on existing practices through the following avenues to further empower intermediary cities in the EU:

• Continue supporting urban policy at appropriate geographical scales, in particular at the FUA scale and encompassing urban-rural continuum: Further embedding FUA approaches within EU funding frameworks would strengthen alignment with functional geographies, allowing investments to better reflect how people live, work and access services. Structuring funding instruments to operate at the FUA scale, including urban-rural linkages, would enhance integrated planning, reduce fragmentation, and improve the efficiency of investments.

• Make sure that the new framework can further reinforce support for a wide range of urban policy objectives, including enabling the key functions of intermediary cities: By maintaining and strengthening flexible, multi‑sector interventions under Cohesion Policy, the EU can enable intermediary cities to address the interdependencies across policy domains such as mobility, climate adaptation, housing, culture and economic development. This continued support for integrated, place‑based strategies would help cities respond to local needs while contributing to broader European objectives.

Policy priorities on finance

Local governments

• Diversify financial sources such as taxes and fees/charges (when permitted by laws) to strengthen own-source revenue.

• Responsibly leverage financing tools such as borrowing and public‑private partnerships (when permitted by laws) for investment finance.

• Establish medium- to long-term financial plans in line with the city’s strategic objectives to strengthen financial predictability and stability, complementing annual budget process.

• Identify and apply to EU, national and regional funding, and integrate these resources into local strategic planning at FUA scale.

• Regularly review participation in EU and national funding programmes to enhance functions and assess duplication or opportunities for better alignment at FUA scale.

• Assess the distribution of costs and benefits across core municipalities and surrounding municipalities within the FUA, and pursue financing mechanisms to align costs and benefits (when such arrangements are permitted by laws).

National and regional governments

• Provide dedicated national financial support that addresses the integrated and cross‑sectoral needs of intermediary cities, rather than relying solely on sectoral or function‑specific supports.

• Identify competence gaps at the city scale for each key function, and align financial support to help bridge those gaps.

• Ensure that national and regional funding instruments operate at the scale of the FUA, predictable and multi-annual (rather than project-based and short-term), and flexible for intermediary cities in how they can use.

• Empower intermediary cities by improving their access to national and regional funding and financing mechanism through capacity‑building support (e.g. training).

• Establish co-ordination mechanism to ensure fair cost allocation between core municipalities in intermediary cities and surrounding municipalities (e.g. for transport services), including a review on how such cost is shared between them.

EU

• Continue supporting urban policy at appropriate geographical scales, in particular at the FUA scale and encompassing urban-rural continuum.

• Make sure that the new framework can further reinforce support for a wide range of urban policy objectives, including enabling the key functions of intermediary cities.

References

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[20] European Commission (2025), The 2028-2034 EU budget for a stronger Europe, https://commission.europa.eu/strategy-and-policy/eu-budget/long-term-eu-budget/eu-budget-2028-2034_en (accessed on 23 December 2025).

[19] European Commissions (2020), Handbook of Sustainable Urban Development Strategies, https://territorial.ec.europa.eu/sustainable-development/strategies/handbook-sud/full-report (accessed on 27 April 2026).

[15] Ministry of Education (2023), The government does not oppose the proposal of the Ministry of Education and Science to reform the school network and instructs the preparation of an information report, https://www.izm.gov.lv/lv/jaunums/valdiba-neiebilst-pret-izm-piedavajumu-skolu-tikla-reformai-un-uzdod-sagatavot-informativo-zinojumu?.

[14] Ministry of Health (2023), The Ministry of Health discusses with hospitals the planned changes to the hospital network, https://www.vm.gov.lv/lv/jaunums/veselibas-ministrija-ar-slimnicam-parruna-planotas-izmainas-slimnicu-tikla.

[13] MoSARD (2025), Administrative-territorial reform, https://www.varam.gov.lv/lv/administrativi-teritoriala-reforma.

[10] OECD (2026), Local Identity, Pride and Branding in Place Transformation: Stories that Shape Places, Local Economic and Employment Development (LEED), OECD Publishing, Paris, https://doi.org/10.1787/9ccee12a-en.

[5] OECD (2026), “Unlocking the potential of intermediary cities for regional development in Alba Iulia, Romania”, OECD Regional Development Papers, No. 186, OECD Publishing, Paris, https://doi.org/10.1787/2ef49817-en.

[6] OECD (2026), “Unlocking the potential of intermediary cities for regional development in Brindisi, Italy”, OECD Regional Development Papers, No. 185, OECD Publishing, Paris, https://doi.org/10.1787/b3a6ab2c-en.

[4] OECD (2026), “Unlocking the potential of intermediary cities for regional development in France”, OECD Regional Development Papers, No. 187, OECD Publishing, Paris, https://doi.org/10.1787/f92c5f72-en.

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[12] OECD (Forthcoming), Making Inter-Municipal Co-operation work, OECD publishing, Paris.

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