It was a marriage consecrated with the help of a napkin. The president of Arizona State University (ASU) and the mayor of the fast-growing city of Phoenix sketched out what has become the most dramatic example of a slow but steady shift in the way US public higher education may come to be paid for.

At a time when there has been stagnation or decline in the traditional source of funding for public universities - state government - higher education institutions, including ASU, are persuading cities and counties to step in with money, infrastructure and facilities. The selling point is the promise that universities will be engines of economic growth and help to stop urban blight.

The argument was so persuasive that what started at a breakfast meeting five years ago between Michael Crow, the ASU president, and Phil Gordon, the Phoenix mayor, has resulted in $223 million (?124 million) in city spending for a new downtown campus. The university has already moved its schools of nursing and public programmes downtown from its main campus 13 miles away in Tempe, just outside the city.

This autumn, they will be joined by a gleaming new state-of-the-art School of Journalism and Mass Communications. ASU now has 1,000 faculty and staff in Phoenix and 6,000 students, with plans to enrol two-and-a-half times as many there by 2020, and to connect the campuses with a light-railway line.

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"It's an extraordinary partnership, the greatest investment, as far as our research shows us, that any city in the United States has ever made in a state university," says Debra Friedman, vice-president in charge of ASU's downtown Phoenix campus.

And it may be the forerunner of many more collaborations. Other American universities searching for new sources of financial support are already getting help, in amounts both large and small, from their host cities and counties.

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In the former steel-making city of Harrisburg, Pennsylvania, for example, the county guaranteed construction loans and the local school district pitched in $8.5 million to help establish the state's first new university in 100 years, Harrisburg University of Science and Technology. The new 16-storey main building will open in the heart of the city in December.

The 52,000-student Lone Star College in Texas shares the cost of operating its campus libraries with the surrounding counties, which have also offered it land for expansion and given it space adjoining local hospitals for new health sciences facilities.

In Marietta, outside Atlanta, Georgia, the city has paid to rebuild access roads and the main entrance to Southern Polytechnic State University.

And the city of Pittsburgh and surrounding Allegheny county arranged the financing for a football stadium for the University of Pittsburgh, which it shares with the Pittsburgh Steelers American football team.

These are not typical means of funding for the operation, expansion or establishment of public US universities, which are usually underwritten by state governments. But as they say in the arid southwestern states of Arizona and Texas, that well is running dry.

In Texas, for example, the proportion of public university budgets paid for by the state has plummeted from 63 per cent to per cent in the past 15 years. "And the trend is continuing downwards," says Richard Carpenter, Lone Star College's chancellor. "So we obviously need to find alternative sources of revenue."

There has been a similar, if less dramatic, decline in Arizona, where universities were ordered last month to cut another $50 million, or 3 per cent, from their operating budgets for the coming year.

"State support is not growing the way we would like it and yet the university itself is growing," says Ron Dempsey, vice-president for university advancement at Southern Polytechnic. "We have to start looking beyond ourselves. We've been so used to the state supplying what we needed."

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Cindy Gilliam, chief financial officer at Lone Star College, adds: "The silver lining to the stagnating state support is that we and the cities and the counties have all come to realise how much we need each other."

When it is finished, ASU's downtown Phoenix campus will include student housing, shops, cultural programmes and entertainment venues.

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According to a study produced for the city of Phoenix, the campus will create about 1,300 new jobs and attract $996 million of additional development within a two-block radius in the next six months, not including the building of the campus itself. The study further estimated that by 2020 the university will have generated $1.7 billion within the local economy.

"As businesses contemplate whether or not they're going to invest in downtowns, they're looking for stability," says Friedman, who is also dean of ASU's College of Public Programs. "And one of the things about universities is that they never leave."

She says there are two kinds of cities teaming up with universities: old ones in decline, such as Harrisburg; and new ones seeking economic footholds, such as Phoenix.

"The older cities that have lost their manufacturing base need revitalisation. They've turned to their universities to say, 'how can we partner to advance our economic base in a new or niche-based way'?

"The second category is vitalisation, not revitalisation, in new cities that are emerging. There the question is, how do you compete globally? And universities have quite a role to play in terms of innovation. That's especially acute for Phoenix, where the growth trajectory is extreme."

Just a frontier town 140 years ago, Phoenix has grown by 24.2 per cent since 2000 alone, to a population of 1.6 million, making it the fifth-largest city in the country. In a once-largely agricultural area, the city is trying to diversify its economy into technology and telecommunications.

Cities hope universities can help with such shifts, whether by training students for new industries, as in Harrisburg, or developing them through research, as in Phoenix.

"If you're in a global economy and you want to compete on the basis of brains," says another mayor, Bill White of Houston, Texas, "you'd better invest in brains."

But while many local authorities are waking up to higher education's economic benefits and paying lip service to the idea of contributing financially, for many that has yet to be translated into an opening of the purse strings. Asked if White had followed through with money for higher education, a top official at one Texas university simply laughed.

Even in places where there is collaboration, school leaders say they are realistic about how much they can rely on local government, especially at a time of economic uncertainty and competing demands.

"I don't see in the next several years that the city (Marietta) would be allocating any of their operating budget," says Dempsey at Southern Polytechnic. "They've got their hands full paying for police and everything else."

Still, ASU has entertained a parade of university representatives from all over the US who hope to learn the key to its multimillion-dollar success.

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"There's a huge amount of interest," Friedman says. "We happened to have a partner in the mayor of this city who was very ambitious for this downtown, and an innovative president. It's the convergence of their two aspirations that led to this extraordinary outcome. And that's one of the things that's missing in many other cities. There has to be a leader of a city who has aspirations for it in an exceptional way."