Trends. This is cohosted by the urban institute and the Lincoln Institute of land policy, just getting underway. Offer solutions t economic ad social policy research. We havent assiduously pursuing this mission since 1968 when president johnson created urban to help if i weight programs and strategies aimed at improving the quality of life in central cities. And we bring expertise and research on the impacts of housing and policy in community developers, the Financial Capacity of families, insights about state and local governments, finance, and we work with policy makers in translating identifying policy problems and helping them develop policy solutions. So todays forum represents a convergence of our mission in expertise and leadership of our partner, the Lincoln Land Institute. On the going concern about municipal physical health and the connection to the housing crisis, and through the two Panel Conversations we will explore how the housing crisis in particular has affected the Fiscal Health of cities. The recent housing crisis and subsequent recession created great uncertainty at all levels of government, not just the federal, national, state and local as well. While fluctuations in Housing Markets have affected city budgets in the past the scale and pervasiveness of the mortgage foreclosure crisis has raised attention about a strong connection of Housing Markets and Municipal Revenue and costs. These crises were felt in parts of United States like the fastgrowing sunbelt cities, but also older industrial legacy cities in the northeast and the midwest. And while there has been quite a bit of research about the social and Economic Impacts of the foreclosure crisis and housing bubble, very few have explored the relationship of the housing crisis on municipal Fiscal Health. So with support from the Macarthur Foundation through its Housing Matters research initiative, which either pleasure of helping to launch when i was at macarthur, several groups of experts in macroeconomics, Housing Market and city financing received support to explore this issue in greater depth. And you can find more about this research and other parts of this whole portfolio on the web portal hosted by urban on how Housing Matters. Org. We invite you to explore that research. Today our forum will showcase some of the preliminary research from those commissioned papers. Will consider questions such as how can policymakers had off the next wave of municipal bankruptcies, what type of data and research do we need come what types of leadership do we need . And im very, very pleased to introduce one of the most important leaders in this work, george mccarthy, who leads the Lincoln Land Institute for land policy, after one of its signature initiatives on municipal Fiscal Health, weve been elevating these issues through forms the media, its journal land lines and in events like this one. I have always admired mac and wevweworked together in our for capacities when mac was at ford and when i was at macarthur on housing policy. Always admired his ability to see around the curve and use the tools of philanthropy to try to get ahead of the challenges with tailored and credit solutions. I think todays event is an exemplar of that and where so delighted to be partnering with him and his colleagues at lincoln. And with that i will invite mac up. [applause] good morning, and than thanku so much, erika. Its been a great to work with the urban institute and with erika sent she came over to the urban institute. The Lincoln Institute of land policy, weve been engaged in efforts to really make land policy relevant to a larger challenges of municipal Fiscal Health or how we adapt or mitigate Climate Change or many years weve been at this work for about 70 years now pick over the last few years weve really been focusing much more specifically on the narrow challenges of things like municipal Fiscal Health. Two years ago we launched a campaign to promote municipal Fiscal Health on a global level, and that was a launched, where we begin with everything with congress around the challenge of unspent federal grants, how localities are not able to make full use of money that is freely allocated from national governments. In the United States this is a big problem and a problem worldwide. But todays topic is also quite relevant, and its really come to the floor recently with the Major Economic crisis in the Housing Market. But in fact, weve been able to understand very much that interaction between Housing Market and municipal finance for a long time because its a twoway street. One of the things we understand about municipal finance, and when we decide to launch the campaign, we took a more nuanced view of invisible finance than most, or Municipal Health than most people would take. Its not the imf mantra that the Fiscal Health is equivalent of austerity. For us Fiscal Health is really helping communities to be able to assemble the resources they need to deliver the goods and services that create the quality of life for their citizens. One of the things weve come to realize is how little citizens understand the role of local government and actually defining their quality of life. And so it local governments are not able to deliver the goods and services that support a high quality of life it will be reflected in the Housing Market. Housing values will fall. The population will leave, and a tax base will erode. So thats part of the twoway street. Better Community Physical health, the delivery of the rights goods and service, maintenance of infrastructure are all the things that make a city work well. Also red bound to better performance in the Housing Market. And better performance and Housing Market throws off the revenues to the property tax which is a main source of own source revenue for cities, for the cities to then pay for the goods and services. So understand yin and yang, whenever you want to call it, its a twoway street. And for us we have really been interested in seeing the pace at which places can rebound, when something really devastating happens to the Housing Market. In the case of the u. S. Over the last ten years, and particularly and older industrial cities as erika mentioned, the severity of the housing crisis really led to a very attenuated rebound, or a lot of places havent really rebounded yet to even pre2007 highs in the Housing Markets. Which means they just have fewer resources to bring to bear to pay for the things they need. They cant really grow in the ways they would like. They cant restore their schools and other things that make places, the kind of places people want to live. It will take a while but i think well understand more today about whats in the realm of possibility for local governments to be able to manage their Fiscal Health. What do we need to do beyond the local government, the state level, federal level to really make it possible for cities to rebound, for cities to thrive in ways that we know are possible. We have seen it happen in many places, including writer in washington d. C. Which was in receivership in the 1990s and is now one of the strongest urban markets in the country and one of the most robust Housing Markets in the country. I really thank you for coming out. I think our viewers all around the world, and i really look forward to a great panel. One of our signature contributions you hear about in a minute from two of our fellows, Andrew Reschovsky and howard chernick, a longitudinal database which tracks of those of funds to cities for over 35 years called are fiscally standardized cities database. And im sure that howard and andy will give you a better view of that. I think its a dual that so far is underutilized and im glad to see that it is really being deployed to tell a story about cities that we know needs to be told and really retold in a much more formal rigorous and nuanced way. So thanks again and i look forward to the discussions. [applause] good morning everyone. Thank you, mac. As the title suggests, were going to talk today about a Research Project that talks about the linkages, particularly the linkages between what happened in the Housing Market and the financing of the cities. Our coauthor, sandy newman, is in the audience and will help us answer questions. I want to start just by reiterating what max said, that a number of cities in the United States are still in the shadow of the Great Recession in the housing crisis with revenues per capita revenues below where they were before the beginning of the recession. Not to everywhere but in many cases. Our study is going to focus on 91 central cities across the country, 91 at the the largest central cities. And before we talk about Housing Market and financing cities, i need to emphasize, and mac already alluded to the fiscally standardized cities work the problem of comparing Cities Fiscal data are substantial, because theres a Great Variety in and variance across the country and the governmental structures. So on the one hand we have a a city like boston where the City Government raises all the revenue to fund public services. On the other case we have, unlike use example of las vegas but many cities where the city municipal government raises maybe a quarter of the total revenue. And the rest of the revenue is raised by overlying governments, special districts come school district, county government, for providing services and financing and services for city residents. Heres a picture on the spending side. If you compare baltimore with tampa, and if you look just at the City Government spending per capita in the two cities since 2014, baltimore really seems a very high spending on three times more higher spending and tampa. But baltimore doesnt have any of the most part overlying government. Tampa, on the other hand, has an independent county, multiple Independent School districts, special districts. So when you add up the portion of spending that goes to city residents, of those governments it turns out that baltimore and tampa spend about the same amount of money in per capita terms. So in general, to allow us to do these comparisons,. Guest mentioned, we have defined and constructed fiscally standardized cities which basically involves just taking Municipal Revenues and spending, lots of detail and adding on a portion of all the overlying governments. The portion that benefits city residents. Im going to talk now a little bit about the Housing Market and talk about average effects among 91 central cities. The red line here is the average and this is core logic Housing Price indices, and the pattern you can see very clearly is the boom and bust, the rising into about 2006 in rising Housing Prices and in the decline in 2011 and it begins it begins to go up again. Ive added to this diagram both las vegas, the poster child of the boom and bust, the bubble, incredibly high increase in Housing Prices and then on the other hand, we have houston where Housing Prices rose by very modestly, declined only a very little bit, and now i weigh above where they were in 2006. Next slide talks about foreclosure rates. You would get a similar picture for delinquency, mortgage to languages. So again we see in the pre2006 foreclosure rates of about 1 of all mortgages rose fourfold to 4 by 2011, and by 2014 down to 2 but still twice the amount what it was pre2005 and 2006. And again big variation across the cities. One thing that we did to try to get the picture about the variety and variance in the Housing Market is to use Factor Analysis to divide our cities into four groups, for Housing Markets. So first we have the boom and no bust, new york and san francisco, examples of see where Housing Prices went up and almost no decline. Second, we have boom and bust. Thats the poster child las vegas, big increases and big decreases including boston and baltimore. Third group are status quo. Those are cities where not much happened. Housing prices grew just a little bit. That was really no decline. And finally we have the detroit case, for instance, of secular decline where there was really no increase and then sharply decreases. Now going to look a little bit at what happened on the financing side of cities. An average of we dont include district of columbia because district of clinic doesnt have a state government. The picture here shows Revenue Sources of the cities on average relative to 2007. Just the just the beginning of the housing crisis and the Great Recession. And what you can see is big declines. In 2014 state aid, 11, 12 below where it was on a per capita level and property taxes, and those of the two big sources of revenue for cities way down. If you look at the line, the black line for federal aid, you can see an increase, but now federal aid is below where it was in 2007. We know it is continue to drop the only source of revenue that is gone of consistently our user charges. Heres a similar sort of crap but on the spending side. Her ca Capital Spending adjusted for inflation. You can see different kinds of expenditures. Some are higher than he were in 2007 per capita death but what you call your attention to two sources. One, funding for education am very important, and funny for government outlays, infrastructure funding. Both of those are substantially below where they were in 2007, and hopefully starting to increase that still way below. Now i will turn it over to howard. Thank youthank you, mac, fore introduction. The next section of a report on our results on the quantitative links between the housing stress, housing pressure and the finances and revenues of cities. So we decided we have a simple but complicated schematic year that tries to at least put some boxes and arrows on the relationship between the Housing Market and city revenues through the property tax, the most important local tax by far. So we start with a sharp decline in Housing Prices, which is following a big increase. Thats the housing bust. That with some lag a year, two years, three years, it varies by cities, results in lower value of the taxable base, the ss value. Local governments can respond to that base in principle because they have the most autonomy over the property tax of any tax offsetting the decline by raising the tax rate. Easy to say, just raise the tax rate and prevent the decline. Other are a number of extremely important factors. So we identified changes in income and expenditure needs which income affects the willingness of the pipe was to support an increase in tax rates. Changes in other Revenue Sources, state aid and federalaid, and other nonproperty taxes all effect that decision. And finally cities now for a long time operate under considerable constraints from state imposed, state voted property tax limitations of a variety. So these all effect the willingness to offset a decline. The net result is a decline in property tax revenues. The other channel that we didnt think about so much before is from Housing Prices to foreclosure rates, the foreclosure crisis but with but some question marks or because this relationship first of all it appears a little bit simultaneous but it varies a lot across state. So comparable Housing Price declines led to bigger increases in foreclosures in some states than others. When foreclosure rates go up theres a direct effect on this arrow, maybe more delinquencies and an ability to collect property taxes. So the effect is the property tax revenue falls. Our analysis suggests how important that is. So that our schematic year. Our results say that when Housing Prices go up, property tax revenues go up. Not a surprise but there is the lag, it takes a while to three years appears to be the strongest relationship. When they fall three years later, property tax revenues fall. It looks to be approximately symmetric, that relationship come up and then. Although it depends on how you cut the statistical models. Applying those statistical estimates to the actual, the magnitude of the Housing Price bust, we get a relationship that about a 26 decline in Housing Prices on average in our sample of cities from the boom from oh seven to 11 is the trough can lead to about a 4 decline in property tax revenue. And if you recall from the graph, you wont, i will help remind you, that the property tax revenues were still about 8 down in 2014, so thats a big chunk of that affect. Now, to explain the property tax results, one might say again its a counterfactual so why doesnt local government raise the rates enough to limit the revenue declines . Well, falling incomes, rising unemployment made that infeasible. They were not going to be able to do that. New york city, my city, stands out as a counterexample where there was a sharp increase in property tax rates pushed through by mayor bloomberg, which went through, some people said it would be a disaster but it worked. There appear to be some reserve fiscal capacity and willingness to pay that was that present in other cities, in part because new york resisted the recession about his role as many other cities. In other city. Just to get a magnitude of why rates could not eras be raised h to prevent that sharp decline, we make an estimate that in california and florida, even a 25 increase in the effective property tax rate, which was not going to happen, we still a bit associated with sharp declines in revenue, ten15 . And finally these tax expenditure limitations place less savior constraints to maneuver. They vary a lot across states. We might ask, another way of saying is, well, if you couldnt raise the rates, why did the property tax go down at the same rate of the housing bust . And hear the assessment limits constrained somewhat the ability of the cities, the drop in the rates, and secondly, nonresidential Property Values which make up a big share. We dont know exactly but maybe 4050 of the base in cities are more stable. Second major finding is the impact of foreclosure rates on property tax revenues. A big effect and contributes substantially. What weve done is to show to kind of post your childs. The dashes are the property tax and the solids are the foreclosure rates. You can see here florida is, outpaces california with a huge increase in foreclosure rates. California has a big increase but nothing compared to florida. What you see then going along is a very sharp drop in property tax revenues in florida, much more so the slope that in california. So florida was different from california in that respect. What about other ways to replace the property tax . State aid doesnt bear much replacement. Federalaid looks high rather than lower. Other taxes will not do it, and use of these appear to supplement. Im rushing and believe it now. Thats the property tax. What about all revenues . We find that the housing stress could cause about a third of the decline of revenues. State aid and even a bigger effect. So these hits of the cities very hard. Just to close up, some policy recommendations or thoughts weve had our to try to prepare for the next downturn. We hope it wont be soon, by increasing Fund Balances or rainy days as the Housing Prices begin to go up unusually cities should try to build up reserves. Dont wait until the housing bubble. As we know its easy for me to say, but very hard to do. Foreclosure, states, cities and nonprofits should develop policies, work on that to limit foreclosures. Federalaid is important, but the timing should be spread out over longer periods, how long it takes for these pressures to work themselves out in the property tax. So thank you very much. [applause] [inaudible conversations] great. Thank you. Evaluation for state and local counties in florida. And then to his flat is andrew kline, budget director for the city of all tomorrow. He joined the city after 15 years in federal Government Service and increase budget policy position in the department of transportation for National Community service. Welcome. To enter his last is ashley olsen comes to see a professor in the school of public and Environmental Affairs at Louisiana State university and her Research Examined causes and is in the housing Public Education to yours among other things. So, welcome. We have a trick that representation in the use of a wonderful data stores that enables us to sort of look in an aggregated way, and but ultimately disaggregated me to some financial conditions. The effects of the housing crisis has had in the Statistical Analysis focuses on impact of the boom and bust cycle and the price is. And i love for you to get some of your perspectives. Yall have a particular city or state perspective and we will go invite you to reflect on not on that and pull apart some of those. So let me start with you, first, will and what you bring to this reflect in on your own experience in florida and how you think what are the connections you see and reflect a nonthe Research Just shared. Sure, i want to first thank the urban and the two for inviting us here in putting together this presentation. About six years ago i was sitting up here doing kind of the same thing because my dissertation was on how those affected city revenues and expenditures. I was very interested in this and i had a lot of data input and that kind of helped me bring together this idea. I do have to say that my views here dont reflect my agency of the u. S. Government otherwise the lawyers would get onto me. What does that come i want to give you an example to think about what howard and andy talk about revenues as responsive to the house price decline . Imagine youre in florida at the peak of the housing boom. You have this 25 decline. 200,000 in campaign 2 million property taxes. When you get down to 150,000, you would think your taxes wouldve gone up perhaps 30,000. That didnt happen. So i did not happen in florida . Florida is different than other states a other states elected around the country. One we have a little reassessment of property taxes so every single year the appraisers get together and every single house across every county. The other thing is property tax assessment that our cap. With caps in several different ways. Military cats with counties and School Districts and that of other overlays. You cant go about 10 milledge points to increase property taxes. They are not responsive in that way. Why didnt the individuals house to increase was because we have individual homeowners. But ends up happening is the person who brought a house for 140,000 is gone up to 200,000, that process developed a tax cap and it increased to the peak. They are taxes cannot change or necessarily go down to the market value of the house price. So we have this sort of job that prevented local governments from having really respond to in reaction in terms of Residential Property tax base. We also have exemptions homeowners are able to claim up to 60,000 in florida and all of these sort of combined together with the responsiveness and it wasnt there on the residential side. Almost 75 of residential homeowners get the property tax homestead exemption that are very active in making sure the local politicians dont remove that. Thats a huge problem for local finance. You cant really do a whole lot. When you have counties primarily looking at only the residential side of the tax base, they dont see a whole lot of fluctuation in the total Tax Collections. What ends up happening is when you have proffered her values going down, we have a rollback. You can actually roll backward change and it wouldve accepted in the name itself, or you can change the rate to make sure you have the same Tax Collections as the year before. So what you end up doing as you could jack up the milledge rate on these properties. None of the Residential Property owners that are homesteaded that are used in a primary home are affected because their taxes are cap. What ends up happening is that plays over to the commercial banks or other industrial bases within the county. Thats going to be a way of offsetting some of these increases. It also causes commercial and industrial uses to plea out when you have that happen. A number of things kind of go on the difficult for other finance is to balance all these roles. The other thing in cities, counties and School Districts can teach. So its in florida he saw baltimore has all this Public Finance in one entity. In florida if you are living in leon county the capital coming of city, county, School Districts and in the race. Not at the same time. If imus asked him and the other has to move as well. School districts ended up moving more quickly and in cities because they milledge rates were lower move more quickly when house prices started to increase their tax rate. Its sort of this local government competition kind of cool but its not so you cant get that your base of where it needs to be. I will just sort of comment quickly and then let the others talk as well. The other things that happen in the foreclosure is that we are a judicial stay. The foreclosure rate causing longer sort of timeline for houses to be foreclosed on. It means that the only way if you are a banker or Mortgage Loan owner to get the money back or to get the asset behind it is to go through the court. California has the option to be judicial or nonjudicial. The florida has a timeline of 930 days versus california which is 540. It is a full year longer. The other thing is we have recourse in florida. Records allows lenders to go back so its not only the mortgage asset. Those are some of the peculiarities. Thank you for laying that out. And now, i noted in my opening remarks and i also meant and this has had all kinds of cities, older industrial cities of which baltimore might be included in that he had given us a sense of how you managed through and how you see some of the ways in which baltimore can experience the foreclosure crisis in city revenue. Sure. I arrived in baltimore in spring 2008. My timing was exquisite. [laughter] eire experience was different then that of the average city based on the research that we were just showed. Property taxes are actually our saving grace during the Great Recession and aftermath and that is because of the way the property tax system is set up in the state of maryland and has some of the same element that will describe from florida. It is also based on a trite annual ss. So coming into the Great Recession, we still have some significant increases in Property Value being phased in. We have a 4 cap on the amount your taxable value can increase in any given year. So we had 150 million what we call home state tax credits built up that we would be working off during the Great Recession. Between fiscal 2008 and 13, are property tax revenue increased by 140 million. The rest of our revenues are different stories. They declined by 100 million after a 50 million revenue package that passed in 2010. Without the revenue package, our overall general fund revenue go in and about 1. 5 billion general fund would have declined over that fiveyear period. So we are grateful for the parachute the property tax policy provided us. Nonetheless, we had huge fiscal challenges on the spending side are pension costs during the same 0813. Increased by 80 million. Obviously most of that was because of poor investment returns. During that. We took from the manuals advise and never let a good crisis go to waste. We reformed our fire and Police Pension system. We transformed our budget process that we could better prioritize their spending. And i think we made a lot of wise decisions about how to reduce their spending, that it has very real service in taxpayer because fire companies, recreation centers, reduce Library Hours and that is just the tip of the iceberg. We also did a lot of things unsustainable. We froze hiring. We froze pay. We furloughed employees for three years in a row. We cut our Capital Spending canceled to defer a lot of tax cut is not led us to developing a longterm Financial Plan. And that was our experience. To come into that. We had an opportunity to see how california compared with florida gave above your insights and wiping foreclosure rate far below average in california despite having a larger than average Housing Prices in some reflections on not. Thank you to the urban and Cato Institute for hosting this event. I think theres some really interesting comparisons in what will describe in terms of property tax revenues in florida makes it sound as though local Government Units had very little flexibility over revenues. But compared to california, they have a lot more revenue flexibility. California is very different. Due in large part to propositio teen in the way in which property taxes are assessed in california is raised on the Purchase Price of a home. It is not reassessed annually based on a market value as is the case in florida. Even though you have all of this overland monthly limitations of florida, what we have in california is an increment annually that either 2 for the inflation rate, whichever is lower. And so we have much more stable revenues coming in from property taxes that they are at a much lower level. I think people might perceive this is relatively stable, less volatile than a case in florida, but certainly large numbers of california a lack of perceived large amounts of government failure and we are not collecting enough property taxes according to many people. One of the issues in california that i think is confusing if everybody hears the foreclosure rates are astronomical and that certainly is the case in the top five states. Im an l. A. Native. Were in the top five states in terms of foreclosure rates during the foreclosure crisis. But never hit the levels of florida experience. Many people are puzzled by this because there is also a large runup in Housing Prices in a subsequent us. In addition to that, california is a nonrecourse state. What that means is in the case of a foreclosure on a home that is underwater, the lender can not paint a Deficiency Judgment against the borrower for the difference between the mortgage amount and sale price of the home following a foreclosure. And so, many people assume this to be huge incentive for people to walk away from mortgages and strategically in california. Florida by contrast of the recourse state. So if you default on your mortgage, enter foreclosure and the sale price of your home is less than what you owe on your mortgage, you can still be liable for the difference between the sales your mortgage. The people thought they will have a huge incentive to walk away in california. I think what happened in california is that they lender knows that an foreclosure they cannot pursue a Deficiency Judgment, it makes them far more like you to pursue other avenues to help farmers in distress. Short Sales Volumes in california are outpaced on a per capita basis in florida during the foreclosure crisis. A short sale is a workaround of a borrower close to the lender and leaves the bar were better off in the lender seems far lower cost as a result of having to maintain a property for a foreclosure process, for example. Another thing to funders may be more willing to renegotiate loans in cases where they know that they cant really share their losses through the foreclosure proceedings. Interesting. These contrasting nicely in real time they very much sought these particular connections in the same way the federal agencies were trying to adapt. Im curious now with a little bit of 2020 vision, they are looking backward. What policies do you think could state governments and City Governments help to reduce the negative . What would have been practical, possible to have mitigated the negative effects of the housing crisis and i might turn back to you with the contrasting continuing california and florida. What i think they could have learned from others they in shaping some of those responses . From floridas dave, what would have been helpful is that we have another areas of the country, kind of reflects back on that to see what went better. Having public budget set for several years and it didnt and potential property decline and tax decline. In this boom. Where we thought everything was going great. A lot of investment that came in from the outside. Their entire subdivisions that we had used development and they all came out and build 300 the 400 homes in the vacancy rates are astronomical. We started to see 30 plus in the Property Values because they are extremely distressed and they just brought in everything within the community. Not at all from the agencys is because it will be a bit controversial perhaps. One thing led me to get rid of the market for the things preventing Market Mechanisms from happening. This is not at all popular among voters and elected politicians. The homestead exemption is extremely hard to gauge out and to be responsive when Property Values are going down. Or even when theyre going up. That all of a sudden makes local governments rely on federal Services Within the Property Tax Base. Theres some communities like panama city thats really popular for spring break and tourism but actually got rid of their millage rate. So then they had no sort of reliance on property taxes and looking at different instruments to do that. Getting rid of millage rate taxpayers and the save our homes cap in california where it 3 inflation rate. Getting rid of the things that interfere with Market Mechanisms would be great. Nasa have to step back have to step back from this annual reassessment. It sounds kind of cool that i worked as a consultant for the state agency that does it and i also worked for an assessors office, so i have a dual idea of how this works. So they have all the characteristics and may go back to properties basically every three years or so. They had this automated mass appraisal system thats not a value. This is done every single year. Those models are back in the assessments about in local government had relied on that creates that influences down the road. I was tempted in maryland where it reassesses every three years and increase Property Tax Base gets to stagger up and over time it gets kind of go in your tax bill and you see it very, very sailing away. That is a little bit better for whats going on. Another controversial thing. The other thing since i got into Housing Finance and im not into house prices anymore is that it changed my perspective on what we can do from a Public Finance payment standpoint. We talked about Rainy Day Funds. A balanced budget for cities and all that you are rather new class cache has to be equal to or lesser expenditures anticipated. The rainy day find our only thought of as this account you can draw from when things get bad or you have programs that arent line item. That is a really bad financial aid. Thats what causes when things started doing that as well. What they perhaps started to think about is not a rainy day time, but as a capital reserve. So you have this kind of increase in Property Values start to increase rapidly and then you have times where you have this high volatility because and the longterm perspective this might be that you will come down to the longterm trend. When youre kind of below the trend you can go into that fund and allocated differently. You need to have the capital reserve for when everything hit the really bad place that you cannot just dont have enough Funds Available to deal with problems there. I totally agree with that last recommendation. I think the use of Rainy Day Fund to be a fabulous way to sort of managed financial crises from, you know, any sort of fluctuations in the tax base. One of the problems is that theres a lot of variability and policies governing the use of Rainy Day Funds. Governments are often addressed parity measures required to send down rainy day balances to a certain level and those types of things can really inhibit local governments ability to use those funds as a source of insurance basically. So i think, you know, in california we have this power of levy limit and that would enhance by not typing assessed values to the market value. That sort of insulated home buyers from liquidity that would have been used by changes in their property taxes batsmen send the market. So i think that in california actually weathered the storm fairly well in places like california because of that. At that again we still have this issue at very those in a row in california and a really low spending a really large decline in spending on Public Education. So if we can sort of take a middle path and do Something Like they be raised slightly to levy limit also allowing for a government some sort of rainy day balance as an insurance policy, using the increase in increments, that would be wonderful a thing. Andrew, coming to you. Again, you came in 2008, looking back. Do you have policies as a means of dealing with the crisis. Are you pretty satisfied by what you guys did. Im happy with how we managed it. Im very proud that we didnt touch ours throughout those years of extremely painful budgets. Doubtless partly because because we have very strict policies around what we call Budget Stabilization reserve. He could only be used during the fiscal year when you have unexpected loss of revenue for emergency expenditures. And we did in fiscal 2010 in particular, and we had to media rounds of budget cuts because of state action. But we stayed away tapping the reserve. We made the difficult choices and knew that would be helpful to us in the longterm. Looking back, under the circumstances, we did the best we could. But im particularly proud of in 2011 we started work on a 10 year Financial Plan. The goal wasnt just to keep our heads above water. One of the cornerstones was we wanted to have structural budget balance. We also wanted to improve our tax competitiveness, property tax rates are double any other jurisdiction in the state of maryland. We also wanted to increase their Infrastructure Investment and we wanted to have a stronger balance sheet. After the bath, we went through all this difficulty. We cut down on the other end. We are on a course toward structural balance, reducing longterm and a 30 over 10 years. We lowered our property tax rate for homeowners by almost. We increased Infrastructure Investment by 130 million. We have reduced our own and a pension and Retiree Health liabilities by 25 , growing our Rainy Day Fund by 33 and we got a bug in our body weight to aa. Are those of us have no bond rating think of baltimore. That is where we are because of Strong School management. Very interesting. Im going to burst that one must set of questioning. This is your invitation to start and can about question both in the room and online. You can email your questions to event brethren. Org and we also hope youre following on twitter at house i live at irving. Twitter handles very near agenda. One of the things howard put up on its last flight about what policy recommendations to burst you with how to get at this crisis in the first place to prevent foreclosures are not named so you cannot face the decline in revenues. When it brought back for me was coming to the city of chicago in the late 1990s. I think mac was not secular time. One of the first things i was charged today that the department of housing for the city of chicago was to come up with a plan to mitigate the foreclosure crisis that has been happening to the predatory lending and asserted a a precursor to the sub prime mortgage crisis. All the elements were there. I learned firsthand what tools do and dont exist for localities trying to intervene in a virtually unregulated Mortgage Market and had to come up with those kinds of tools and strategies to prevent foreclosures. And it was a great learning experience for me and we began to it is about those kinds of changes and one in particular introduced an ordinance that the city would not be predatory lenders or by defining what he meant by that and not got a lot of things that would purchase mortgage companies. Im just curious now looking forward, we obviously have more federal regulation now in the market that cities dont have to do this on their own. But what do you see as the kinds of policies that cities or states could put into play is to promote healthier Housing Market. What rules do they play in relationship to promoting housing policies . Let me start with you. So, i would say from the federal endpoint, i work for an agency that is in charge of the regulation of the secondary Mortgage Market. We service the regular regulator will. At the federal level weve made a lot of efforts recently over the past few years to really increase the quality of the month that are coming through and theyre getting securitizing purchased in the secondary market. They made a lot of effort for that. Weve also changed and then i are reaching out to their mortgage modifications or refinance programs. Weve also been trying to stabilize them and now we are also looking to do certainly streamline action that if you go delinquent on loans and youve been doing it for 90 days or even earlier in some cases that will get you really quickly into a modification if you go to a hardship it at the federal level we are already looking up data. I city or local levels, some of the things that you can do i look out for the barbers or people where you have neighborhood starting to have for doziers. Going at the vices and start to offer subsidy programs for the upkeep of the wind through the unit are different places than i cut taxes are vacant. Those are very effective ways of reducing the foreclosures are spreading around other areas of the city. Another kind of inking ahead in terms of we are not a foreclosures yet, but in a head on how to prevent taxpayer files and foreclosures have been instilled guilt just the sprawling suburban neighborhoods. We need to have a very centered development change your way of looking at things. Im not concerned about foreclosure rates. We are always going to have a foreclosure rate. Always some raid against foreclosure and we will not eliminate them. What im concerned about the severity suffered dozier is where they got killed in florida. Severity of foreclosures means if youre from a mortgage perspective somebodys not paid on it and whether or not do this 10 or uses 80 on the mound and everything dries out. To reduce the volatility from the city standpoint, if you have mixeduse development where you have multifamily buildings that are apartment buildings, all in the signal development, thats the volatility of your Property Tax Base and also a way to create a sense of place in the Community Announcements becoming the proper thing. When theyre coming to us, they offer up its projects, even the authority approved in the 20072008. They have been at the singlefamily. They are no longer do no longer doing that because that is not allowing them to reduce the return on investment in the cities are really interested in also having reduced volatility as well. From a societal standpoint, this is where we need to go as well. Places you have different phases of life for different income levels, different demographics, but then more proxy to our location. All of a sudden you create housing no longer affordable in areas, that will push people into the suburbs who are essential workers making inside that city. Thats all of a sudden going to create a very bad problem for us from a social standpoint on the road. Investment is the Affordable Housing are Diverse Program is great. Cities can encourage that. Developers have been coming to us and offering data for seigniorage housing for lowIncome Housing the federal government has tax credits you can apply to a programs come in through the low Income Housing tax credits and things like that. Those are a way of getting diversities and reducing the volatility. The market learned lesson in a different way in order to mitigate against the problems that preceded this foreclosure crisis. In some ways i guess i think were in a much better state in terms of where we were in 2005 and 2006. Places in the country are already starting to heat up in a lot of that recently has been digging into power demand a showing of this kind of comparison across cities. We develop the zip code to kind of day again and see what is the best, and we find a Center City Area sub lowest decline and responded the quickest in the suburban areas as suburban areas ended up coming up fairly rapidly. But over the past 25 years come appreciation rates have been in recent in the range of zero to five or zero to 10 miles out in the letters to these. Its really the downtown areas that offer tons of amenities and reasons for people to be in there for the retail space in commercials based. Sounds like you agree with him. Yeah, we have a halfmile around city Hall Building for years. No one else pulling in, but over all about populations although it has stabilized after half is entry of the client, its not really. Its going in the center citys. It is shrinking elsewhere, but thats where the center of the dvds are in baltimore. Im wondering if part of the challenges you dont have an aging population and that these cities, too. You alluded to this come in a Housing Options for them to pursue the right kinds of Housing Options. Can we help them and just as the city budget director, one of the sources of the kinds of income they can do the programs mentioned as a Block Grant Program thats apparently on the chopping block in the president s budget. Im just curious federal sources of revenue at the panel sees as being important in the housing policy. And with the implications are of any changes. Ultima relies on the federal government for 230 million out of 3. 5 billion budget operating income and will receive 20 Million Community development grants. We are certainly very concerned about the threats of the program. I am not a housing expert, but i do have a lot of it based on how to manage fiscally to the next recession. If i can turn to net a little bit, that is more my wheelhouse. You know, first of land longterm. I talked about. Another is manager of volatile revenues that are most volatile revenues transferred practices on the sale of properties or refinance team. It was at 160 million in 2006. The very next year was 75, drop down to 40 million. That was the canary in the coal mine for baltimore. Thats where we started to see the effect of the Great Recession. Weve adopted a policy where we base our projection budget projections on a five year moving average. Anything in excess of that you want to go toward capital projects, onetime expense are reserved. So that important. Another is the riskbased reserve policy. Every city has its own unique set of risks that is to prepare her. We didnt touch her Rainy Day Fund, but we do feel like in the future we would like to have some Revenue Stabilization funds and so we are now developing a twotiered Rainy Day Fund. One for emergencies and one or recession. If you have tax caps, try to stay below them. That gives you some more flexibility. We dont have a cap on our property tax rate, but we do on their income tax rate and we are a. Cab. Something we did as of the 50 million revenue package that i mentioned. Make sure your financial policies are in order. Ill give apply to the Government Finance officers association. You know, that way you are not flying by the seat of your pants and you have wrote the bureaucrats and elected officials in agreement on balanced budgets and what to do with onetime revenues, it better. Check to see if your tax structure is aligned with your current economy. We rely 50 of our general Fund Revenues for property taxes, another 70 . Our economy is based on socalled heads and bad. Commuters coming into the city, entertainment, tourism. Its not an industrial economy anymore. But we dont have a local sales tax. We dont have a commuter tax. Our nonprofits a little bit to us that we squeezed out of them. And so, those are sources of revenue that would really help us be more selfsufficient and forward, rely less on the state federal government. From this tape respect it, i would advise any state to look at maryland property tax system. It has a lot of features that really help stabilize revenue for local government. Okay, thank you had ashland, let wrap up with you and your reflections on what we could do better looking forward, Lessons Learned for the Great Recession and what changes would you recommend to california, that maybe across the west. Ill touch on something i think at the federal level that can exacerbate what happens at a local level. One of the areas that is ripe for reform is the investment act, which gives credit for federally regulated lenders by monday night to do some of the moderate loans to borrowers. I have done some research in this area in california specifically for federally related blunder. With the Community Reinvestment act in southern california. What i found with that, delinquencies by loans continue eligible. They got credit that they remain too high income bowers purchasing homes on a speculative basis and low to moderate in some census tracts. The runup was not being driven by low to moderate income buyers purchasing and 97 census tract. I think when we have federal policies that actually create these structures, they can provide an explicit lender and tentative to increase the amount of speculative borrowing that occurs. That is something that perhaps it is famous for being regulated. Some bite different by the popular press, but even local actors, local Government Agencies can get involved in federal reforms on the basis of making the claim it has profound consequences for how we think about Housing Prices, ups and downs, within state and local levels. Im glad she raised that point because its been a hotly debated issue about who caused it and a lot of the blame placed on the low and moderate income borrowers. Your take away is maybe not so much. I have a very big take away. We are going to turn to you and to our listening ideas. A set of mics that are relevant. If you push your hand up, well find you. We need to address your questions, please introduce your affiliation and if you have a particular question, howard and he can also answer questions so we can include them in your questions. [inaudible] [inaudible] you may very well be losing the revenue. You mentioned the commuter income taxes. That is a solution of requirement that employees City Employees live in the city. What they really dont think you also i would argue how the decline in city services, to whip out the garbage your sanitation workers. I just want to comment on those. Sure. We did make a lot of tough choices. I would say our layoffs, we had i think about 200 total of the workforce for 13,000. We kept this to a minimum. We tried to find efficiencies where we could to avoid layoffs. We froze hiring and we did that before i arrived when it started to fall. And that continued for five years. Again, that was enough for us so we would not delay off existing employees. I mentioned we increase revenue by 50 million. Everything but the property tax. Income tax, Telecommunications Tax energy tax. We made a new taxes like the beverage container tax. We were trying to balance our approach to balancing our budget and revenue efficiencies. There were some layoffs, but again, trying to rely more on hiring freeze and furloughs as opposed to layoffs as much as possible. We have a question him our listening audience that all address to the panel. The question about vacant property and what weve learned in terms of test prep is said. Michael raber men, you deal with that quite a bit. Yeah, thank you for the shout out. One of my favorite Old Community of elephants and i was just on a bus tour with him recently about what we recently about public call for the kids to value program. Hes developed market typology to focus our resources in terms demolition, relocation, stabilization, do that in places that have potential for private funds to come in and invest. I think that is our basic approach. Heart of our longterm Financial Plan was to increase our demolition and relocations and being a 2. 5 million a year to 10 million a year. We have done not and we continued that. The state of maryland has also stepped up and provided some significant resources as well. We have 16,000 vacant and abandoned structures and about another 16,000 vacant properties. The scale of the issue is huge and the current resources are no match for it, but we are starting to make it now. Is pretty Compelling Research by John Campbell and others asserted empirically demonstrate the primary mechanism through which foreclosures lead to a discount among properties. The mechanism is through a kink and abandoned properties falling into disrepair and then creating some sort of price reduction among surrounding poverty is. The price reduction is not gigantic. And so, i dont know that there is a great cost way to address vacant and abandoned properties because it has shown to be Something Like 1 . It is large for the property itself. If you are worried about, you know, we need to address this from a policy that because i dont think the evidence is there. I think what probably helped as the shorter foreclosure process because you get the foreclosed home into somebody elses hands, but then you have the way that it can, you know, the consequences of short name to due process of borrowers. Certainly florida could probably stand to be shortened by an entire year. I will comment a little bit, not to create any arguments on this. Theyve actually done some research on the discount of five on average house prices were you have foreclosed properties. It is about a 15 discount on a property going three distress sale. What we ended up finding out that actually goes down 30 in some areas of florida. They got really bad during the financial crisis and recently it is not very large now. Almost all the sales problematic are off the books now and the discounts gone back down to less than 8 of the 5 . When the resales over and over again for the second time, sometimes there is still a stigma about whether or not a misguided and fully repaired. So there still is the distress sale that actually does affect city level house price indices. But more particularly concentrated in certain areas. In terms of programs we tried at the National Level to mitigate foreclosures or severity of these, sort of two different approaches. A big bank or Mortgage Broker you just dissolve your asset. Get rid of all these property and try and get rid of it as fast as he can to bring investors of us stabilize the market and take care of properties that you may not be able to. The others write about. In some communities its better because theyve got properties at the bottom of it. When they started to increase than in florida takes the two years, you are back on the upswing and increasing in some places. As long as you maintain actively the neighborhood, you make sure theyre doing a good job with the proceeds you get will be higher for the nasa employee. When you go through the foreclosure process and figure out the losses are lowrent about those areas because you are actively managing the neighborhood and preventing mass effect and spreading. Theyre kind of different ways of addressing that to get at the end result. Is fair for those who are interested in this, it is a cherry pick resource with a lot of work in this area for full disclosure. Other question . Introduce yourself and your affiliation. [inaudible] mr. Kline come you can tell us [inaudible] well, we are kind of fortunate in baltimore city. We have a very strong executive charter. And so, the mayor proposes a budget to the city council and the city council cannot add anything or move money around. Even if it cuts a line item, the mayor can veto it and makes 12 of the 15 members to override a veto. That really puts the executive and control. That helps a great deal i feel in terms of putting together and passing a rational budget. You dont have to deal with so many parochial interests competing with each other and looking out for the best interest of the city as a whole, so that helps us a lot. I think back to when revolt out of her 10 year Financial Plan, to roll out our forecaster with the feature with the quake. It was dire. There were headlines that have the word anchored cnn. We did not intend for that to be the take away. It actually help us to call attention to the serious structural fiscal challenges we face and it really got our elected officials, councilmembers, got their attention. Even our Union Leadership binders that we had a serious problem on our hands. And in terms of overlooking that. That led legislation to reform our Pension System and work with our unions to perform our help benefits program and change it to our firefighters schedule and a number of other things that help reduce their costs. Other questions . Banks. Just a comment and a question in terms that how federal regulations felt other federal activities, another issue on the landing died that is fueling speculation was the extension of credit to fannie and freddie in the allday markets are they giving you a virus with high Credit Scores and ended at being a lion share that led to fit in friday and had been allowed to california. That is a big of a once again the low income borrowers. My question is actually on the on saturday and tax collection because one of the things weve noticed in some cities that have gone through more astute times or other places is that they cut gas. Some of them actually collect delinquent taxes. It got so bad in detroit that it was three years time and really enforcing tax delinquency. People just stop paying taxes to the point where 53 of taxpayers would delinquent. Im wondering to the cities actually look at the tax enforcement and the austerity to something that works together to create a vicious cycle is supposed to a Virtuous Cycle to help get you out of that problem. What we did in baltimore was i created a new team in my shop. We called it the billing integrity unit. We knew, and this is based on actually open data helped us. We put all of our property tax data online. We actually had a few enterprise citizens say hey, the property of couple houses down a few getting their homes that tax credit. Thats not an Owner Occupied property. We decided to take a systematic approach to this end we recovered millions of dollars from erroneous or fraudulent homes that tax credits. So we were investing in tax collection. I guess this is funny, but not really. We found that there were several Catholic Schools closed but they were still on the Tax Exemption rules when actually they should be paying taxes, we would not hear the archdiocese for their property tax money. So we were looking under the seat cushions everywhere we could to find the tax revenue that we were losing. I dont know if you saw there was an article this past week about a new doctoral student anything from the university of michigan doing an experiment in detroit, behavior economics. I dont know if other people saw this in terms of understanding which letter. The best response. Others may have seen this comment to you it turns out the letter that resulted in a marginal increase was the legal obligations and the likelihood of landing in jail if you dont pay. But interesting that this story is taking a serious look at how to reverse that particular trend could remind people of harassment abilities. Other questions . Ask him a question back here and over here and also be the last two questions he can take. Given what you just said and also the heretical ideas earlier, just wondering if you can speak to the list on abuse in the current property tax system, suchlike the homestead deduction if you didnt have a property tax. So if a tax payer would never really quite understand what im getting us property taxes go up here to see an increase in services im using. Are you a baltimore resident . Now, but i taxes are high. Last not well, that is a tough one. Like i said, we rely on property tax for general revenue. The homestead tax credit is fair. The state requires the cap of at least 10 in the assessment year to year. One of the more taxpayer friendly cats and is constantly discussion about should we increase it up to 10 . We resist that because the dead that was one of the things that really helped us. We had stored up all this homestead tax credit. I was asked all the time why is my property tax bill still going up in the house is going down or should mark that is because the market value, the full cash value is way above the taxable value there is going up 4 a year and one of them still are. I think we were up 150 million. Now were down to 30 million in tax credits. We havent worked all that out. I looked at Montgomery County and they have a 10 cap if they work there is often a couple years. Its gone. And so, for us the roller coaster ride was not nearly as deep. Only one year, fiscal 13 to our property tax revenue actually drop. It didnt job i very much. I feel like thats the sound was put to the greatest test it couldve been put to and it passed. Ray. We have time for one more short question. My name is jim kirchner. These are my questions. Not my organization. The question is sort of twofold. I really love what you are saying about addressing the risk factor by integrating commercial housing, mixed income, get them into the city. The former Clinton Administration [inaudible] again, it really just kind of ring about when you said that. So i really appreciate it. Thats kind of addressing i think, correct me if im wrong here, kind of a risk factor. The concept of new revenues. If you look towards Bernie Sanders and some wall street taxes. Thats getting us away from a prop to be tax hike. So a diversity of the ways in which cities can get money. Capital gains [inaudible] legislation and overcoming some of the legal problems. Im talking us an economist, not as a policymaker or legal and. Conceptually, you know, Capital Gains tax and the transaction tax. Trading on wall street taxes, which is similar to property taxes. Anyway, just want to see if anybody had any comments on not. Thank you for putting those on the table appeared quite interesting ideas. We will have to go to sharp oz. Does anybody have a Quick Reaction . I think i mentioned earlier but i do think baltimores tax system needs to be modernized. I mentioned things that possibly commuter tax sales tax. The state doesnt allow savvy local sales tax, so all of these with take actions on the part of the state. I definitely would like to see us diversify our revenue. Would you please join me in and gave andy and howard for a great presentation . [applause]. [inaudible conversations] [inaudible conversations] this form on housing and finance policy taking about a 15 minute break. After the break their will be a panel on how local jurisdictions deal with fluctuations in Housing Prices. And housing availability. If you missed any of these discussions you can watch it all later in the cspan video library. Go to our website and check cspan. Org. Outside of this portrait is annual white house easter egg roll. Its the first for president donald trump. He spoke to the crowd gathered on the south lawn earlier this morning. We recorded that event and will show it to you later