Transcripts For CSPAN3 Local Governments Responses To Housing Market Fluctuations 20170418

Its my pleasure to invite tracy gordon, who is a senior fellow in the brookings urban tax policy center. She is a leading scholar and specialist in the area of state and local finance, and we are so delighted to have her as part of the urban team and working on these issues. And she is going to present work and research that shes done with colleagues at ucla and kick off our next panel conversation. Tracy . Thank you very much, erika. And thank to my colleagues at the urban institute and the Lincoln Institute of land policy. Such a terrific program. Very excited to be here today and talk about some of the work of my coauthors in l. A. At uc berkley. First, our unit of analysis is different. Were not looking at these fiscally standardized cities, but were looking at cities just how they exist. Were not capturing these differences that andy laid out between, say, baltimore and tampa, but we are capturing the decisionmaking unit as opposed to maybe you can think about fiscally standardized cities as the people who live in these cities who are paying taxes and receiving services. Were thinking a lot more about the Decision Makers in these cities. Also our time period is different. Theyre interested in the period after the Housing Market bust, and were entruinterested in th boom. Also our measure that were interested in is housing wealth as opposed to Housing Prices. And that gets at sort of our motivation and whats different, and thats the psychology of booms and how it applies to city financial Decision Makers. Okay, so i think as weve talked about a lot, the Great Recession really hit local governments quite hard. Local revenues fell by 5 , which is their greatest decline on record,toback recessions in the 1980s and the property tax revolt, which lowered property tax a lot, the second greatest decline happened during the Great Recession. This is the great eest decline record on state aid. About 3 that happened during the Great Recession. As my colleagues at the Pew Charitable trust have written, this was a double whammy or a great squeeze on local government revenues in a couple of ways. So we also are still seeing the effects of this in terms of depressed local government employment. State employment is depressed about 2. 5 . Local government about 2. 2 . Were not saying that the peak levels in 2008 were the right level of government employment, but were basically back to where we were in the mid 1990s in having 150 state workers per 10,000 residents. Oh, i should say also that i think someone brought up the idea i think it was Capital Investments and your work. State and local investments are also depressed below prerecession levels. That has effects on the larger macroeconomic economy. Those are patterns unlike weve seen in other postworld war ii recessions. You see derecordation fees and taxes. That was sort of the canary in in the coal mine. Those went up about 100 in the recent recession, but they also went up in the early 2000s recession. Property taxes went up 100 and income taxes went up by actually 200 . Income taxes are not a citys main source of revenue, but for cities that rely on those revenues, they certainly saw a lot of action there. Sales taxes were certainly effected. Theres a burgeoning literature in Housing Finance about this housing effect. In finance more generally theres this idea of a stock market effect that independent of peoples income, they spend more when the Housing Market is doing well. When you see your home price go up quite a lot, do you spend more . This is made easier by reduced transaction costs or second mortgages you can take out that you give you a second line of secured create. On average, theres a marginal prosecu propensity to consume 7 cents of every dollar in housing wealth. Ive got some pictures of San Bernardino which are all places that declared bankruptcy and all in my home state of california. Im thrilled to be here and mher from local Public Officials to learn about what happened in their cities. To answer this question, we calculated city level price indices. This is really important because the stuff you see reported in the news a lot, the fhfa shiller index at the metro level can be dislead i misleading. This is the Los Angeles Metro area. In 2005, this was from 2001 to 2006, but in 2005 alone, there were some places where home prices appreciated by less than 10 . 24r there were some places that appreciated by more than 15 . Then we also created this housing im sorry. This shows where places ended u our cities. Its similar to the previous paper, we have sort of a classic boom bust, by the places like San Bernardino, california, tampa, florida, we have sort of high cost places where they see a big boom and not so much of a decline, so these are pretty much high cost places to live like San Francisco, los angeles, sacramento. Then you have sort of status quo cities where tulsa, memphis, not a lot happening in the Housing Market. And then places where they did not see that much of appreciation, but they saw a decline, i think you would call them secular decline, places lik like baltimore. We see a wide range of city and were looking at 6,000 cities as opposed to about 90, giving us some insight to places like elmhurst, illinois. So there is evidence that spending goes up as housing wealth goes up. But we need to look at what is really going on here, we have this model here. But basically, this is sort of a paraphrase of the housing wealth literature that i talked about, where we have consumption on the one hand, spending or revenues on the other hand and housing wealth. But the question we asked, does housing wealth have an independent effect to the revenues coming in on the city coffers, we have control for things such as the age of the residents, the fact that its a year when a lot of people spend a lot. So were trying to really untangle what is going on here. We experiment with all different kinds of regression. We use ordinary lease squares and generalized lease squares, we look at time frames and an error correction model. You dont need to know what it is. Basically we find results that are consistent with literature in terms of the delayed effect, the threeyear delayed effect and oh, dear, sort of the moderate delayed effect on revenues. On the spending stuff were not finding the irrational exuberance when we control what we would like to control. The demographics, in some cases for certain types of institutions which i will talk about hopefully if i have time. Okay, so we dont find evidence of the spending spree during the boom on average. That does not mean that it was not a problem for certain places, in particular places that had to come out from a crisis. We do find when we i forgot to mention among the many regressions, we do find limited evidence for Public Safety and transportation. Now is that sort of an exuberant response, or for voters who want more in those areas we need to spend more time looking into that. We do control the city income of residents. We find limited evidence that ple places where elected officials and cfos share Budget Authority and less response as opposed to only elected officials controlling that reaction. We find that places that started out in worse Financial Condition are more susceptible to home prices, the sort of gofa approval if you get your house in order you can withstand these shocks a little bit better. So i think as the next panel will discuss, there were the statewide efforts to monitor what is happening in local government. We think that is important. And the type of research we can feed into those discussions i want to say were looking into the quality and the financial officials and we plan to get a lot out of what is coming up. The people that estimate revenues tend to be pretty conservative. Looking at county accessible roles and are not as susceptible to the booming ecology, you have home price rent ratios that are way out of whack. We should have seen this coming. I look forward to the conversation and thank you for paying attention. Thank you, everyone, hi, my name is mary murphy, im at the trust where i manage the state and local Fiscal Health project and i am thrilled to have the privilege to moderate this conversation with the three gentlemen to my left. Immediately to my left is andy howett, Senior Vice President of the bank of new york, and deputy cfo and chief economist of the city, and curt wilson, city manager, stockton, california. And im really excited for this hours conversation. I think well get to build on some of the themes introduced in the last hour. And i think tracys work suggests some really interesting findings from how we can understand how cities responded to the previous cycle. But also of course with the last panel, suggesting conclusions for how the cities thought about putting policies in place following the last booming bust, but also ahead how can we think about how the state and local policymakers can improve on this concept of resiliency and better preparing for the next downturn. Im also really excited. I think tracy mentioned in looking at the big picture she is aware there is probably some more volatility or diversity in the big picture, so im really excited we have a couple of different pictures on the panel. So im looking forward to digging into the city experiences a little bit and from a sort of selfish perspective im also really discussing how the state context looks at some of the concepts or how state and local governments can go forward managing the volatility. So with that said to start us off, im hoping we can start a little bit with the individual city experiences and maybe curt, we can start with you. Stockton, of course, was disproportionately affected. And you can tell us about the moment you started your position. I wonder if you can talk a little bit about your citys experiences in the context of staceys research and how stocktons experiences lined up with some of the broader trends that stacey described. Sure, they also line up well with what tracy described. Stockton is a city of about 315,000 people in california. The nearest major Population Center would be San Francisco, so that probably would be the one, those of you who are not from the west coast would affiliate from San Francisco. So the housing bubble is a little different for cities that are not the major Population Center. It is a large city but the housing growth, so as you saw from tracy, slide, the correlation of big boom and big bust, that big boom is really the focal point. So that came from one of two Different Things. People live in a place that is inland or away from the coast for one of two reasons, so the consistent piece is quality of life. Some people dont want to live in the middle of downtown los angeles, they want the quality of life and the environment to raise their kids. There are things about that environment that they like and where they want to be. That is a very steady group. So people who do that they come there and stay there. That works out very well. The other side, which was really the bigger story of stockton, is that population of San Francisco is where the jobs are. So if you happen to work in San Francisco your ideal scenario would be to work to live in San Francisco. But as the supply and demand, the scarcity concepts come into play, that is not practical for many people. So there was an article in the l. A. Times this week that referred to the phrase you drive until you can find something that you can afford. You drive until you qualify. So people come outside of that area. Well, stockton ended up with the large influx of people who were there because they could not live next to the job that they have. So as those dynamics change within the San Francisco market that created some havoc within the stockton markets. So those foreclosures were pretty significant to us. Obviously as you said it led to the bankruptcy. But on the last panel we had some discussion about the idea of okay, we have that money so in the boom cycle we should put it away and make sure we dont spend it. But its actually a little more complicated for us. So in california, property tax is not even the largest revenue generat generator. Its actually sales tax, so that population who is making that feedback and forth that creates a little sales tax continuing for us. The other component is as we build all of these houses for all of these people there are infrastructure things that come along with them. Well have to put a water pipe, sewer pipe, parks, we have to ramp up on staffing for pickup safet Public Safety, so while that is not a big overnight spike in spending, it does log some pretty strong commitments. So as you have the foreclosures, those people have gone away and stockton now is paying for this expensive infrastructure for a group of people who are not there. And then maybe to contrast the experience in stockton and for the contextual factors that go into the cities we talked about this morning maybe you can talk a little bit about d. C. s experience. And i think we also mentioned this morning that d. C. Is experiencing a quick growth in housing values and weve also had the experience of housing crisis and having a control board in place. And the cfos office, and of course tracy mentioned about the staffing and government. Thank you, marion, thank you again for inviting me here. First of all i want to say like you said, d. C. Had a bit of a different experience in terms of the financial crisis and that happened for a number of reasons. Of course, as you know, d. C. Is a piece of the federal government. So the federal government provides us a stabler source of jobs and income for the district. But in addition to that, d. C. Also has a unique fiscal structure. So if you look at the district and somebody mentioned that its not a state but in terms of its revenue structure it has both the revenue portfolio of a state, county and municipal government. So that helps. If you look at our Real Property tax, for example, unlike most cities it provides only about 30 of the revenue to the district. And more importantly, in terms of the residential sector its a third of that amount. Because two thirds of the Real Property tax revenue actually come from the commercial side. So in terms of the impact on the district, the financial crisis had a very small impact from the rail property standpoint in that even though we experience the same amount of price drops we recovered much more quickly than most other places because right about that time the federal government went into an expansion mode. So we benefitted from the jobs that were created and the income. So that was sort of a buffer. In the immediate aftermath, though, of the financial crisis like everybody else we suffered from income tax drops. From the capital gains. Sales taxes and the biggest drop actually occurred from the real estate transaction taxes. Sort of a commercial sector, that has been a really big part of d. C. s revenue portfolio. And right after the stock market crash, the Real Property market, we experienced upwards of 50 decline in real estate transaction taxes. So we did have an the financial crisis did have an impact on the district, not as much as many other cities. And we recovered much more quickly than most places. Uhhuh, and if i can ask you having heard these two city experiences if there is something particular about new york experience that you think would be helpful to share, that we benefit from that. Also if i can ask you to help us move out a little bit more of this concept of a rational exuberance, and if you see things in tracys work or observe things in this boom bust experience, maybe we can start to talk a little bit about some of the rational response growth experiences and here is how we can identify what irrational exuberance really looks like. Thank you for inviting me to be here, im also speaking only for myself and maybe well talk about the particulars of that situation which i think are kind of interesting in some ways, with the other two cities. New york also had a fiscal crisis and a very similar problem in the mid70s and got loots lots of institutions put in place that have served it very well in the last 40 years, including the leadup to the last recession and in the wake of the Great Recession, so when the Housing Market started to fall apart in 2006 and 2007 and it was clear the Banking System was put under increased stress a lot of us who work in new york looked around and found this is going to be a very, very bad situation for new york city. Because new york of course has very high Housing Prices and lots of leverage against that Housing Market. But also the Banking Industry of course is very heavily concentrated in new york city. Many expected this would be an extremely difficult period for new york, as the banking stress in a pretty major way. So it turned out that that was true but not as true probably as we might have expected. And there are a couple of reasons for that. One, i think a very important set of reasons is from these institutions that were put in place in the wake of the new york city financial crisis. And so you know, very careful accounting, extreme transparency in budgeting, institutions like our independent budget office, a state con tromptroller for the itself, et cetera, all means there are lots and lots of eyes and attention paid to the citys budget. And its also the case that the mayor and the council have worked together pretty well to make sure that the city takes advantage of good years. Now its not that the city has a very large rate a fund, new york tends to prepay lots of its expenses. And so that is another institution that would probably look in tracy, work like increasing spending, but in fact it sort of in some sense savings on the part of the city. So i think that is an important dimension of the whole picture here is that for various cities, there are various ways that they can go about sort of taking advantage of their institution arrangements and trying to move, if you will these kinds of irrational exuberance private market. And so to segue into that i think it generally will be difficult for cities to manage this extremely well. Why . Well, its a lot to ask for city officials when the whole world is saying the house prices are a thousand, its hard for the city to say no, theyre really only going to be 500 a couple of years from now. And we have to plan for that by saving a lot of money today. So i think it will be challenging in most city environments for cities to save lots of money, put money away in the expectation that todays prices, todays exuberance is really incorrect, and somehow the city officials know that is true even though the Housing Market doesnt know that is true. So its nice to think we can do that but i actually think its really quite difficult to expect that of City Governments. Number two, even if they could make that judgment correctly i think as andrew clein said, even if the government knew where the money should be saved and held aside for a rainy day it seems probable or likely in many cases, constituents would say hey, that is our money, how about giving it back to us rather than holding onto it in your Government Rainy Day Fund which is getting really, really huge. I think andrew kleins point is, there is really a lot of that going on. And the broader theme that goes beyond the relationship between Housing Marketings and city finance is the question of mitigating more broadly and what both state and local policymakers can do to be transparent about how the gross Profit Growth can be measured. I want to come back to that. I think it was also a nice segue to come back. And visit a little bit about what you see as maybe the most important policies that came out of either the local decisionmaking process or things that the state was kind of putting in place during this time period to help control what might have otherwise been political pressure to engage in the behavior, or perhaps in the case of the previous independent cfos office, or the policies you think have not been realized yet but given the experiences you have been through and things that youre looking forward to as an option. So maybe we can start with you. Sure, for us, there were a series of changes that happened but it was not from the state level. They were the ultimate local level. But essentially going through the concept of bankruptcy, aside from the actual math of it, probably the most devastating thing is the embarrassment of it. It is very embarrassing for a community for people who live there and work there to go through that process. So the the upside is that once you go through a traumatic event and bankruptcy really is a traumatic event, once you go through that piece youre a little more willing to do things different than you did before. So in stocktons case, it means the city is much more willing to take a longer term look. So as you sort of dissect what happened, how did things go bad you realized that the city at one point in time made some very myopic decisions, getting through the next budget cycle, that sort of thing. Now as a result of those Lessons Learned the city is willing to take that much longer look. And for many cities who did not endure the pain of the bankruptcy, they do have the benefit of at least looking to those who have gone through the process and said hey, maybe were doing some things similar to what they were doing. Maybe we should learn that lesson as well. So as you mentioned earlier, d. C. Did go through bankruptcy in the late 90s and just like new york out of that came a number of changes. There was a control board that was set up by the congress, that oversaw the citys finances for a number of years. And when those financial board became dormant, the independent cfos office was created. And one of the tasks of the cfo is to make sure that the revenues are conservatively forecasted. That we do multiyear budgeting so you know we cant have recurring expenditures that are not financed by recurrent revenues. And out of that you know over the years right into the run up of the fiscal financial crisis that happened a few years ago we had a huge imbalance. So that helped to mitigate some of the fallout from the falling revenues immediately. But because of the independence of the cfo it was also it also forces the policymakers to make sure that in planning the budget Going Forward that they had to make the necessary cuts. Because one of the roles of the cfo is to make sure the budgets are balanced over a four year period. So all of that fiscal discipline did help to initially mitigate the fallout. And then Going Forward we have had a new cfo now for about three years. And one of the emphasis has been more forward looking as many cities and not just cities but the u. S. Infrastructures, really, of a big item. So they have been looking at picking any surpluses to fund the goal, the capital improvements. So all of that has helped to prevent as you say any kind of irrational exuberance. And andy coming back to you on this question of the challenges that maybe local policymakers face and in particular in the last few years weve seen state governments take an increasing interest in better tying their Budget Stabilization or Rainy Day Funds, and how can states do a better job of riskbased analysis. You see the different types of items they face and are there different types of solutions for local officials to consider . Yeah, i think the situations are pretty distinct but there are some commonalties. One thing different for most states and localities is the revenue structure. So for more localities, as they pointed out the property tax is the main source of revenue. And so that means that locality revenue, central city revenue is likely to be very closely tied to propertile havey lvalues. At the state local, income taxes and sales levels are much more acceptable at the local levels. New york is an exception with a very substantial sales tax and income tax, both corporate and personal income tax in new york. But in general, the central cities seem to be more focused on the property taxes. One of the big benefits of the property taxes historically has been its stability. So the fact that we have not seen this kind of swing in Property Values, historically, particularly nationally has been a big benefit of the property tax. And that has kept cities on a relatively even keel. And on even in this episode as officials have already pointed out. The structural tax with limited and caps and rebate triggers and things like that has kept revenue relatively smooth as compared to the volatility of house prices. So an interesting thing to point out is in some of the data weve seen already today actually sales taxes took a huge hit and so did income taxes. That is actually an important phenomenon both at the state level also for some cities. And its very relevant because of the connections between states and cities is really important. If also tits the case as it wh in the personal income tax levels that means cities and states are under pressure at the exact same moment. That is really a very bad situation because we would hope that states would be in a position to smooth out some of the shocks to the city when is they occur. Yeah, and interestingly, in the past recession as tracy pointed out and kindly recognized some of the work weve done, that we saw this local squeeze dynamic of the falling state dynamic, as you saw before, the property tax and also the long sort of lag in some effects, with cities and revenue access had sort of started to pick back up and then you saw in dropoff. And the significant challenges that many states were not equipped to balance. As we shift to what we learned looking backwards and policies that came out of this last boom and bust period looking ahead to how local governments can think of how better building these structures that promote resiliency, better promoting for the next downturn, and hopefully looking for better ways to partner in the resiliency. Im curious as what each of you sees as opportunities in this space. And ims ho also hoping we can to one of the questions tracy posed where she referenced the system that is in place in many places where they sort of measure the fiscal responsibility of their local government and also tied specific states whether its emergency aid or Technical Assistance to their local governments when you see these sort of warning flags happen. But at present most of those systems are really looking at decline. So you dont often have a fiscal Warning System that is flagging a rapid increase in home values as a sign of concern. That is not how we think about this. So i wonder if what tracy was presenting this morning presented any new ideas for the folks on this panel about opportunities to sort of engage in that kind of work. Hoping to avoid the crisis in the first place. And ill start with you again, andy, and we can go back down to the rest. Sure, so i think that there is a little bit of a sense where were almost recommending that cities have to go through a really terrible stress to get the right institutions to do well in the future. That is not the take away. But a lot of cities could learn from cities that have gone through that and that is sort of a statement that my fellow pa l panelists have looked at. Other cities can sort of design institutions that allow them some of that same type of ability to weather the storm. And Rainy Day Funds are great as they go but its probably going to be a combination of many, many kinds of institutions that allow for states and particular cities to smooth those kind of you know, irrational exuberance when it occurs, but when revenues are really above trend what do we do . Transfer to something that will contribute to the sustainability of the location rather than continue to you know crisis in the near future. So what can states do to help with that . Well, states can offer the type of Technical Assistance to learn from the best practices of cities and their states for example to say here is a way to design the institution. States obviously play a big role in designing city institutions and they can do that directly and provide the kind of information about what revenues that you got last year are actually the revenues that you can expect every year and what is sort of above trend. So all that type of information is really useful for city officials but i think in the end it really also requires these kinds of institutions that allow cities to take a long view, the officials to take a long view. And that requires institutions to be built with the longview in mind. Uhhuh. And do you see and again, i think the distinction about d. C. Having the independence coming out of our previous crisis and the relationship that tracy noticed how government structure may be related to some of the spending trends we saw. Of course here in d. C. We dont have the relationship with the state the same way that other local governments do, instead we have this very unique relationship with the federal government. But as d. C. Operates sort of both, all three city, county, states i wonder if you sort of looking ahead in this everpresent conversation about preparing for the next downturn, what future opportunities do you see . And as you said sometimes you mentioned there are not clear signals, but do in terms of the sense that the federal government is taking now in terms of the tendency to cut back, and this has happened not just recently but for a number of years where there has been budget control acts and the sequestration and so on, so we have had to be preparing for that. Again, ill go back to the institutional arrangements that you put in place. So one of the things we did in our office in terms of forecast, is to look at the sign of risks and what the scenarios are, and said what if the federal Government Cut back you know happens, how much impact will that have on revenue . And we forecast in the middle about where we think that will be. And so building a multiyear budget with over the longterm, understanding we may have less revenue coming in as the federal Government Cuts back. We have been able to mitigate some of the risks that it imposes. So about three years ago when the sequestration went into effect we built that into our revenue structure and it turned out it was not as bad as we anticipated. But we did see our revenues moderated as a result of the cutback. But we were able to weather that storm. And were looking now as the federal government looks at more budget cuts we are looking at what that may be and as we go forward we would build that into our longterm budget. So in terms of recommending having a multiyear budget where you look at the risks that may occur. You know, you dont always build it. You have to look at the possibility that the risk may materialize as you put it in place. And then you know as i mentioned we look at the longterm needs of the city as well, so what we will require in infrastructure as the population ages. Right now the district is enenjoyie enjoying a renaissance. So we are aware that quickly as that phenomenon happened it could reverse. And so we have had to look at when the population explodes what it will look like for revenue. So looking at all the risks out there and trying to build that into your revenue forecast i think is an important part of hedging against these risks. And the concept you mentioned before about being really diligent. And its easier said than done. Define what a nonrevenue course is and how you can match it to a onetime cost versus tying them into a recurring spending, i think is a very Important Note we need to look at today. We see state and local governments struggling, so before you respond, let me just note that after this we will open it up for discussion. So be thinking about the questions you want to ask not just to these gentlemen but also of tracy gordon, who i have lost no, there she is. Also feel free to ask tracy questions about her research and question for online audience you can present questions to events at you aurban. Org. And andrew referenced the prepayment. So prepaying some of that debt, whether its pension debt, infrastructure, some of the basic concepts its pretty clear that is going to happen. So its not really a question of will i have to pay a pension debt five or ten years from now . So getting ahead of that really relieves some of the pressure, with some of the compound and effect of making the investment early. And then on to the comment about the idea of aligning not aligning ongoing expenditures with onetime with onetime revenues. And like you mentioned that is a difficult thing to do because it does create some very clear political pressure. But its worth fighting that fight because the down side really is that bad. And i think generally from the general public if youre able to present it in a way that they can grasp, you know which is difficult not because they cant grasp difficult things but because theyre busy. But if you can do it in a bitesized way where people can get ahold of it i think they can understand it and its similar to their own personal budget, the subsequent. And from the metric, the housing crisis is just a symptom of the larger economy. So when you have certain stressors you can be certain there will be a higher sensitivity. So if you have a high value Real Estate Market where people are paying 60, 50, 70 of their income on housing then you can expect there will be a heightened sensitivity to any adjustments in the market. We can look back historically to 1928 and look pretty certain about a recession of some type, six or seven years. You can argue what the number is but the general concept is, its pretty clear it is going to happen. So if there is something that raises a flag for you telling you hey its coming in the next six months i think it is still fair game to make the assumption that it will come in a relatively short period of time, just because historically that is what happened. And i would like to think at least there is an opportunity in this space of how states think about better assessing the Fiscal Health of their own local governments because we know that these Macro Economic effects are not always shown in uniform ways. That came up from the first panel that we had, there are some cities that rebounded from the recession but others still struggle, how can we better understand the diversity of experiences that may be happening within their state. So with that i would love to open it up to the group for questions. I see one here. Frank ford, cleveland, ohio, with the land conservancy, the day started with a paper, framing some of the cities in the midwest with the secular decline. Most of the point of view came from the bust cities, stockton is coming back, looked on line, one of the hottest markets now. What is missing from the discussion this morning i think is the midwest cities that dropped and are not coming back. And connected to that is at the beginning of the discussion the problem was framed as though it was sale prices came down. People were under water. That caused foreclosure. Then we have loss of revenue and tax revenue. In the midwest cities it did not happen that way. It started with subprime predatory lending foreclosures in low to moderate income neighborhoods, that led to blight, and then properties coming down. So what is missing is blight. I know that baltimore certainly referenced it and they have done a good job. But its blight brings up a whole lot of issues that have not been discussed. The essential Police Powers of municipalities and how that can be used to maybe collect the revenue, try to get it back, hold people accountable. Anyway, i just wanted make the observation. Its not exactly a criticism, you may take it that way. But i think there is something missing from this conversation this morning. And i think part of your comment might get at the importance of particularly in some cities or regions that local governments are trying to manage through economic shifts that are beyond their control. And that some of what were talking about today i think there is an opportunity for local level policy to do a lot to address. But certainly with some of the Regional Trends we see there is the importance of the state and federal roles just that much later. Because these trends go far beyond what a local official has the power to control. I dont know if any of the panel wants to respond to it. I would certainly agree with the comment that there is a tremendous amount of changes, cleveland where youre from is different from new york where i work. So that is something weve known for a long time. And sometimes what i would say is different over the last ten years maybe is that nevadas house prices are 30 below where they were ten years ago. So that is you know, a place like nevada where we thought that is a booming, growing place is still experiencing something that is not just very, very deep but very, very prolonged. So that puts it more similar to cleveland and cities that are sort of in longer term decline. But i think most of us would agree that stockton, las vegas, theyre probably coming back pretty strong eventually. Its going to be a long time but maybe more confidence there than in cleveland. However, it could certainly be the case that something of the urban revival that we started to see glimmers of, could play a role, but the concept i absolutely agree with. Im carl poser and i started a project that looks into wealth concentration called the center on capital and social equity. But anyway, i do a lot on health policy. And to your question about state could there be a concept of especially when you have matching funds like medicaid, have a counterbalance sort of cyclical funding adjustment. So like when we had the recession congress ended up boosting medicaid matching rates by 30 . So now theyre not going to politically unlikely they will do the opposite. And that is to lower the rates during a better time. But there could be some kind of procedural mechanism put in place where you would have a vote on whether you do that when those two circumstances arise. Raise rates, and then should you do that what would be expected to be paid back to a Stabilization Fund for the next cycle. With some kind of mechanism like that, and a block grant, im not talking about anything like that. Im talking about a balancing of a countercyclical fund. So there could be a counter there, maybe too complicated. Anybody want to speak to the particulars see how i tried to punt it to you . I think that is a nfascinatig question having looked at the state and federal acquisitions, but given the question that she had, i dont see it as being particularly feasible. But given to marys comment about the unanticipated surge in revenues, i wonder if there are questions about the upside, when states constrain themselves to help out local governments. When everybody is feeling flush maybe states should offer incentives to people to do things like paying down debts rather than ongoing commitments like onetime revenues. No, i was just going to add to that point that coming out to the districts financial crisis in the late 90s, one of the things the federal government did was increase the medicaid match and that did help the districts bottom line. So i think its one of the ideas that is certainly workable. But as you said were in a different political environment. And that might be something that is harder to do now. I think going beyond maybe just the question of medicaid funds, the bigger issue of we see state governments in particular behaving in procyclical ways. There is a reason for the downturn, but even if youre thinking about practical terms about a risk assessment, and just that theyre politically difficult to get there, i think. Erika posik, this panel talked about how its hard to speculate about the future, particularly markets, why should we expect cities to look at the market . And one thing is we can model the demographic change and my colleague and i did just did the great states this comes back to the gentlemans point about some of those particular cities. And those cities and other places, i include buffalo and other places in western new york too are aging and they are older places than other parts of the united states. Certainly more than d. C. And stockton, california. And once we imagine that the next foreclosure crisis from the next hughousing crisis may be precipitated by those folks passing away and not having folks behind them to procure their homes. Im just looking at the demographic changes and thinking about what effect those will have on future Housing Demand and just thinking about where is the market behind them and how will you get ahead of that . And actually, i would be curious to know how youre thinking of that in sort of a broader longterm planning way but also if that is being factored in specific ways when you look at the longterm forecast and particular budgets. So for me, ill think of stockton, in this case its a matter of price point. We still have a demand that outstrips the supply in a big way. To the extent there is not a price point issue, we dont have a concern that there is somebody coming behind it. There are dozens of people who want that particular home when it comes on the market as long as they can afford it. And that is going to be the case for our newer homes, as well as our older home stock. Stockton dates back to the late 1800s. So some of the older houses are a little more challenging to keep up. But we have the an across the board demand for both the newer Housing Stock and older Housing Stock but it really just coming down to a function of price and its just a matter of whether the people who live in stockton and want to live in stockton are able to afford a particular home. And i was just adding i mentioned earlier that d. C. Is going through a population boom now. But it has been with much younger people. And one of those words that we have when we look at the forecast, looking forward is that as these young singles start getting married and having kids and start to look for schools then they will start to migrate out to the suburbs. And that would certainly affect our revenue forecast as these people start to leave. But its really, really difficult to model that and to get a handle on when that will happen. What weve done is look at the slower population growth as we do our forecast. So our you know forecasts tend to be conservative for those reasons because year after year we plan for this but it doesnt materialize. But we certainly watch very closely how the formation is happening and whether we have been seeing more net out migrations, one of the interesting things in the latest population forecast is that for the first time in five years what we saw is that more of the increase in the population came from natural increase rather than net in migration i. So were watching to see if its a trend, were watching it very, very closely. Other questions . I would like to come back to the Rainy Day Fund issue. And what were looking at is you could have the City Government doing the savings or a little bit of the baltimore and new york model of having the residents do the savings by having very pretty strict caps on assessment, rated assessment increases, so the market values during the boom time dont translate. And then so what i wanted to ask what i wanted to ask was you mentioned, andrew, then the people say hey, my Property Values are falling but my taxes are still going up. And this was the phenomenon in new york. So i just would like to ask people on the panel or anyone here to reflect on those tradeoffs and the ability to tap that kind of untaxed wealth. Also thinking about tracys idea that maybe people have spent that already in their irrational exuberance, so they really do have a beef when the city says now so anyway, if anybody has any reflections on that kind of tradeoff tradeoff. I mean, the local Public Sector is sort of an stnextensi of the household, i take your point, households may choose to save that money themselves or they may choose to have their government take it and satisfactosave it on their behalf. And there may be incentives on why you choose to do that. Maybe the fact that you can deduct your federal taxes, they will subsidize you if you allow your local government to do that on your behalf. So that is one of many, many possible factors that would play a role in that kind of decision. A second role that is important to think about is what are the payoffs to the kinds of savings that local governments may do. Here im thinking primarily about infrastructure, where i think one of the most astonishing facts about this recovery has been the extraordinarily low level of Capital Outlays by City Government. In spite of the fed doing the best it can, with the really low interest rate, its been the case that these kinds of investments by the Public Sector have been at extremely low levels. Which suggests to some degrees that households may want to hold onto it themselves rather than have the government invest it for them. And i would add to that in the case of d. C. And a lot of the caps came from citizens activism. So it was really the citizens asking for this. And so it was like there was an option in that the policymakers were just responding to what citizens were requesting as you started to have the Housing Price booms. California had a system very similar to what you mentioned under prop 13 in the late 1970s. So essentially we dont have control. California is not a state where i dont do my budget, find out what i need and they say okay, this is what your rate will be. The idea is there is this very slow growth to the extent that the same homeowners still staying in that property, the tax growth is very modest and generally the growth rate is much less than the Property Value growth rate. So we continue to have this gap. The upside is theoretically to have this predictability for budgeting. But that is not always the case. Because along with prop 13 and prop 8 which happened at the same time we ended up having a scenario where we do end up reassessing Property Values. So after a major drop in Property Values there is a new assessment. And then the property tax rate is adjusted to go along with that. So the predictability sort of goes out the window. Its all well and good until there is a recession and then the predictability goes out the window. And if i could just add i think there is sort of an interesting connection here between the comment you just made about the surprisingly low Capital Investments, low Interest Rates and federal efforts encourage that. What andrew brought up in the last panel about sort of building multiple types of funds that have the parameters so you dont end up with sort of one general fund balance that is kplt expected to manage the cycle. So the idea that it is created with more specific parameters that communicate mortuatranspar both to city residents. And this is my question, not theirs, from the federal reserve. This is mostly for curt, but anybody is welcome to chime in. In the previous comments, we had them discuss the infrastructure burdens that youre talking about and more diversive development to attract people at different stages in their life, people with or without kids. Do you see that as a viable option for stockton, are there roadblocks you see from implementing that . I think there are some benefits, but as a practical matter just like People Choose a city or what part of the country they want to live in they will choose a lifestyle that sort of fits where they are at that moment in time. So greater density does have certain benefits as far as economies of scale but for quality of life depends on sort of where you fall. For some people that greater density is a reduction of quality of life and therefore something that is not really palatable. As long as youre in line with people that do enjoy that concept, it really ends up being marketdriven. So in stockton we have a mix of both of those things. We have the well planned, all of those Different Things going on. Its really not just some altruistic endeavor by the developers but rather a response to what the consumers want. And there are those consumers who want you know this type of thing, those who want this and its really just a matter of them being responsive because that is sort of their business. Kip jackson, im with the office of the comptroller currency. Also in question, so y my que talked about the boom and supply and demand in stockton, so im curious what actions if any your cities are taking to to prevent zoning and other regulations that may prohibit supply from keeping up with demand. And how that is balanced with preventing the kind of overbuilding that we saw in some areas during the boom years. So speaking for stockton, it really is a function of jobs. So weve got a mayor and council who have a strong focus on jobs. I mentioned earlier there are those types of people who drove the boom in stockton. To the extent that we can sort of swing the pendulum, meaning we have more job opportunities, more, which bring in people who are there in that particular city because they want to, not just because it was the closest that they could afford to where they really wanted to be. We end up getting to a better spot that way. So we have a pretty substantial focus on the job so that we can swing the pendulum and have better opportunities for people who want to live there so they can work in the same community or at least work in the same region. And for the district right now as you mentioned, the demand outstrips the supply. So what one of the i guess the challenges in the district is to buy more Affordable Housing. So both the mayor and council have been really focused and providing incentives for more Affordable Housing. So in terms of the swing of the pendulum, now its for more building. Because the prices are going through the roof because the demand is so great compared to the supply. And i dont have a lot of knowledge about how the zoning works but one of the big zoning restrictions for the district of course is the height restrictions from congress. And there is little that the district, local government can do about that. So that is one of the big restrictions. And really adds to the price challengings thes that we see. And i apologize i neglected the second half of your question about the zoning portion. So the we do have control over the zoning sort of what is going where, were in the middle of that process right now in fact. So if the ultimate goal were just to create enough room for more houses we could just simply do that by zoning and go through all of those things. The longer term view is that houses in and of themselves are not a revenue generator. In fact, the need to provide services forever to that property make it if you look at it in a bubble, it makes it a negative proposition. So it really comes the quality really comes when youre able to match it up with those things we just heard about so that people with shop there. People can work there and do the other things. So the the balance of those two things is pretty substantial for us. So if we did go forward and just say hey, housing, housing, housing, we would end up creating a problem for ourselves in the next decade or two when we have that imbalance. So we do as far as we do have the ability for more housing and well have more housing on boar much more methot cal now, much more controlled to match up with the other side of the equation so we dont end up with a mismatch in the future. I would just throw in that new york is probably more similar to d. C. In this wais way theres a huge problem with Affordable Housing. Supply very constrained for many reasons including zoning, although zoning has relaxed quite a bit over the last couple of decades. But transportation investment, lots of things that make new york city extremely difficult to build in have led to very rapid increase in prices over a fairly long period of time, quite persistently. Other questions in the room . Yes. Im not familiar with the Housing Market but i was curious if the since its so relied on by some jurisdictions as a Funding Source for taxes, its a question, is the the value of housing more volatile, more like a commodity, more like a ven someday la than it used to be because of how its bundled and modified debt and all of these things say ten, 20 were 30 years ago, or is it similar . In other words, does there tend to be more variation . Do you want to speak to this first . Ill say theres lots of expertise in this in the room. Ill say a couple things. One is that theres to me, the unique thing that happened in starting in 2006 through 2011 wasnt so much that we had a housing bust, it was that it was a National Housing bust. So there have been very pronounced Regional Housing cycles throughout u. S. History, d. C. , new york, southern california, all across the country. The fact in this case that was most remarkable to me is not so much that there the volatility but that it was coordinated across the country, that we had this big collapse of Housing Prices in many, many places simultaneously which led to many other things, including the deepest recession since the great depression. So those things, i think thats the key difference from the past. Now, is there reason to expect an increase in the correlation and house price movements over space in thats a challenging question that i dont have the answer to. I can just take a shot at that . Please. So, you know, actually the housing crisis that we just went through wasnt just a National Housing crisis. It was a Global Housing crisis. And part of the volatility of housing kriess is the flow of capital around the globe that ended up in the u. S. Housing market. And thats why Central Banks around the world were taken down by our housing sector. So that is a problem of modifying housing because weve now opened up Housing Stock to Global Capital flows and Global Capital flows have much higher levels of vague gory than domestic flows. If we saw massive swings in the slal val uft dollar relative to other currencies, we would see big changes in the investment flow coming in, either positive or negative. And that tends to accumulate in some places like new york and San Francisco or seattle and other places where you get a lot of Foreign Investment in the Housing Stock and a lot of volatility on the upside. But that volatility on the upside could evaporate very quickly if, for one reason or another, that capital found its way to some other investment good some place else. And so right now the dollar is the global reserve currency, were sitting in a very privileged position. A lot of people are looking buns once again at real estate in the u. S. As a pretty safe investment and were seeing a lot of capital flowing in. But, you know, it could go either way. If i could add i think looking beyond just the Housing Market, if were looking at the state and local sector combined we do see overall that volatility of total revenue collections is growing, its been growing over time and is more volatile than economic volatility. So this question of how they manage volatility, whatever its source may be is going to continue to be ann creasing concern. Yes. My name is ricardo byrd, im with the National Association of neighborhoods. In many communities, theres a greater disparity between the haves and the have nots, and i have not heard discussed today a social volatility index in terms of creating capital reserve funds and Rainy Day Funds. Are we being pennywise and pound foolish . Well, if any one of the pannestists wants to start with that please do but this might be an opportunity for tracey also to comment on some of what you were observing in your data about the difference between cities that were starting off from a more distressed position and the differences that you saw in those cities compared to other cities. Yeah. We basically try to take advantage of the housing crash as this plausibly external event that cities didnt bring upon themselves and see how whether the storm based on initial conditions. So Something Like, you know, revenue volatility would be an interesting initial condition, Something Like there are various measures of Fiscal Health. As macallude to our initial condition that matters. The structure of whether its a strong mayor is one of those initial conditions that matter. So im really struck by this area as mary mentioned that theres sort of a larger brack drop of volatility especially at the state level but as andy mentioned at the local level for people who rely on incomes and as well. But its encouraging the upside risk that we might have to think about. One technical way of thinking about it is the schiller index came out of this idea if youre a homeowner you shouldnt have to bear the risk of losing your job and losing your home and everything, you should be able continue to investigate in another home own es equity in another city and thats why theres an index. Is there someway that cities can sort of share in each others fortunes, smib maybe some sort of statewide index or cities as opposed to individuals to withstand all kinds of social and economic volatility i think is interesting. Ill just quickly mention that the district for a number of years now has had a Housing Production trust fund and part of the point of that is to invest and generate in more supply in order to that are targets specifically middle lower to middle income residents so that they would have homeowner ship. And so i would say that is part of the social the social funds and the district has various funds like that that they invest in when theres a surplus and part of that is recognizing that there are great disparities and trying to find ways to address those disparities. And we have similar things going on in stockton with respect to more Affordable Housing eve got a number of things that go on. Theyve sort of gone away but there this been some statewide mandates for us with respect to Affordable Housing and there were some funding streams that were tied to it. So weve continued to develop Affordable Housing for that reason. Still nowhere near wherewe ought to be where are, where wed like to be, but weve done that piece. But then on a different level weve had in my city for example theres a certain segment of the city thats much older where theres theres been a common theme, a common thought that that area has been more knee plekt glekt neglected than other areas of the city. So the mayor is going to pay extra attention in the reallocation in the next term theres a greatest focus on south stockton. With that i think we are ending right on time. I want to thank again our partners at the urban institute and Lincoln Institute of land policy, really appreciate your hosting this event and important conversation today. Please join me in thanking our panelists. [ applause ] and thank you, mary, for excellent facilitation, helping us tie these conversations together. And let me just close again with thanking George Mccarthy and the whole team from Lincoln Institute for land policy and the team here at urban who helped organize this conversation. And we especially love the folks of who joined us on cspan 2 and on the web cast, thank you for participating and thank you for coming today. With that, i will say adieu and wish you well. Thanks so much. [ applause ] [ indistinct conversations ]. The museum of the American Revolution in philadelphia opens on wednesday, the anniversary of the start of revolutionary war. Watch our live coverage of the ceremony starting at 10 30 a. M. On cspan 2. Speakers include former Vice President joe biden, historian and author david mccullough, museum of the American Revolution president and ceo Michael Quinn and journalist and author cokie roberts. Plus musical performances by the philadelphia boys choir and sidney james har cot an original cast member of the Broadway Musical hamilton. Watch it live wednesday on cspan 2. And you can also watch the opening c c c c c of the americn Revolution Museum wednesday night at 8 00 eastern here on cspan 3. Cspan, where history unfolds daily. In 1979, cspan was created as a Public Service by americas Cable Television companies and is brought to you today by your cable or satellite provider. Now, u. S. Holocaust Museum Director Sara Bloomfield and National September 11th president and ceo Alice Greenwald share how the memorial honor the victims and their families. We sore thrilled that you took time out to participate in tonights program and we also want to say thank you and welcome