>> thank you very much, erika. and thank you to my colleagues at the urban institute and the lincoln institute of land policy, putting together such a terrific program took excited to be here to talk with some my work with my co-authors at ucla and uc berkeley. first i wanted to take a couple minutes just to explain why my paper is different from the previous paper that was discussed. first our unit of analysis is typically when i look at these tiscali standardized cities but looking at cities just as they exist. we are not capturing these differences that andy laid out between baltimore and tampa but we are capturing the decision-making unit as opposed to maybe think about physically standardized cities as a people who live in the city center paying taxes and receiving services. we think about the decision-makers in these cities. our time. is different. they are interested in the period after the housing market bust and we are interested in the boom. also our measure where interested is housing up as opposed to housing prices. it's sort of amazed not just the increase in home prices but the number of units you have that are subjected to this increases and packets at our motivation and was different and that's the psychology of booms and how it applies to see financial decision-makers. okay, so i think as we talk a lot about the great recession hit local governments quite hard. local revenues fell by 5% which is the greatest decline on record, but for back-to-back recession if th in the 1980s ano to the self-inflicted damage of the property tax which lower top taxes quite a lot of local government felt like a 10% in the 1980. the. the second greatest decline happened during the great recession. this is the greatest decline on record in state aid, 3%. that happened during the great recession. as my colleagues at the future of trust and others have written a disability sort of a double whammy on great squeeze on the government revenues and a couple of ways. we also are still seeing the effects of us in terms of depressed local government employment, state and local still about gotten back up to the prerecession levels of employment. state of love is depressed by about 2.5%. local government employment at about 1.2% and it's hard not to imagine that shows in delivery. when i sync the peak levels in 2002008 when the right level of government employment but basically back toward gore in the mid-1990s in terms of having about 157 state workers per 10,000 residents, at about 434th local government four local government workers per 10,000 residents. i should see also i think someone up the idea of, i think capital investment and you work on state and local investments are also depressed below prerecession levels and that has effects of the larger macroeconomic economy both in terms of employment and investment, those are patterns unlike any we've seen in other post-world war ii recessions. one major way this recession was different was housing. it was a housing centered recession the should ebb and flow soul hunter and local revenues. the pink is things like transaction taxes and that's the canary in the coal mine as andrew mentioned in the previous panel. those went up by about 100% in the most recent recession but they also went up in the early 2000 recession or property taxes went up by 100% in the most recent cycle, and income taxes went up by 200% for income taxes are not a main source of revenue for cities as was discussed at the end of the last panel but for cities that rely on those remedies they saw a lot of action. sales taxes as well were affected. there is a literature in housing finance about this housing wealth effect. in finance more generally there's an idea of the stock market effect that independent of peoples income they tend to spend more when the stock market is doing well. it is also true with housing wealth wax when you see your home price up quite a lot, do you spend more? this is made easier by reduce transaction costs of financial innovations like second mortgages you can take up to give you an unsecured line of credit so you can go by a big free tv -- big-screen tv. on average it is a marginal propensity to consume about seven cents of every dollar in increase in housing wealth. our question was basically did you see the kind of quote-unquote irrational exuberance at the city level? i've got pictures of san bernardino california. i'm just actually thrilled to be here and here from local public officials about what happened in the city because that's how we can learn a lot about our research as well. the first step to enter scratch with declan city level price indexes. this is important because the stuff you see reported in the news, the fhfa indexes at the metro level can be misleading. for local officials if they were to look at a metro level they would make a mistake. this is los angeles metro area and in 2005 this was from 2001 -2006 bu2001-2006 but in 2005 ae through some places home prices pressure less than 10%. some places they appreciate by more than 60%. we did those calculations and there were also created this, this shows where places ended up in our universe of cities and it is similar to the previous paper. without a classic boom bust cycle, places, san bernardino, california, tampa florida. we got high cost places where they see a big boom in us much of a decline. these are pretty much high cost places to live like san francisco, los angeles, sacramento. and you're sort of status quo cities where tulsa, memphis, where not a whole lot have been in the market and in places where they didn't see that much of appreciation but they did see a big decline. you guys call them the secular decline places and publicly places like baltimore, unfortunately. we see this wide range of experiences and a wide range of cities. want to emphasize when looking at something like 6000 cities as opposed to about 90 which gives us some insights into suburbs like elmhurst illinois and culver city california, central cities like baltimore and boston and tampa. we find some suggestive evidence that there is a wealth effect. basically spending goes up as housing wealth goes up. we need to untangle what's going on. we've got this model, i'm sorry to put this in front of you, but basically this is sort of a paraphrase of the housing wealth literature that i talked about where ther there's consumption e one hand, we have spinning on the one hand and income of revenues on the other hand,, and housing wealth. the questionnaire asking him does housing wealth happen independent effect apart from the revenues they come in to city coffers? we've got controls with things like the income of your residence, the age of your residence, the fact you are a seed that tends to spend a lot more a year when people spend a lot, so we're trying to untangle what's going on. we experimented with all different kinds of progressions. we use ordinary squares, time periods, looked at the red states and california separately. we looked at a correction model. you don't need to know what that is. basically we find results that are very insistent with the literature in terms of the revenue effect. we find a three-year delay defect and sort of moderate effect on revenues. on the spinning side were not finding evidence of irrational exuberance basically on average when the control of all the things would like to control for, demographics, the factory certain type of city, a certain type of year in some cases for certain types of institutions which i'll talk about hopefully if i have time. we don't find evidence for spending spree during the boom on average. that doesn't mean it wasn't a problem for certain places and in particular places it had to come out from a crisis. we do find, i forgot to mention among the many regressions that we ran we also separated things by functional categories. we find limited evidence. was that an exuberant responsible response to people, voters who want more in those areas. we need to find more time looking into that. but we do control for the income of residents so that should take care that to a certain extent. we find limited evidence that places were elected officials and appointed cfos sherif budgeted authority, there is less of an exuberant response as opposed to only elected officials controlling that reaction. we find places festered at worst financial conditions are more susceptible to home prices. that sort of good field approval that andrew talked about, you can withstand the shots although that better. i think as the next panel will discuss there have been statewide efforts to monitor what's happened in local government we think that's important and we still hope this type of research can feed into those discussions and i want to say we're entering into qualitative, talking with finance officials drop i do get a lot of the conversation that's coming up. basically finding the people estimate revenues tend to be pretty conservative. they look at county assessor roles that are not as susceptible to the boom and bust psychology, nevertheless, as one of our interviews respondent said you have home price rate ratios way out of whack. we should've seen this coming. i don't know that's different to any of us in the larger economy. look forward to the conversation and thank you for paying attention. [applause[applause][inaudible conversations] >> thanks everyone. my name is mary murphy. i am at the pew charitable trusts where i manage state and local fiscal health projects. i am thrilled to have the privilege to moderate this conversation with these three gentlemen to my left. a music to my left is andy haughwout, vice president of the federal reserve bank of new york. and fitzroy lee from writer in washington d.c., deputy cfo and chief economist or the city. ended with a much longer to butte, kurt wilson, city manager in stockton, california. and i'm really excited for this hours conversation i think we'll get to build on some of the themes that were introduced in the last hour at a think trace his work suggest some really interesting findings from how we can understand how cities responded to the previous boom and bust cycle but also as with the last panel suggest some interesting policy conclusions for how cities thought about putting new policies in place following the last boom and bust but also looking ahead how can we think about things at both state and paul senators conduce to prove one resides in better preparing for the next downturn. i'm excited i think tracy mentioned that, look at the big picture she's aware there's probably more volatility or diversity as to expenses under like that big picture. i'm excited we have a couple of different city expenses on a panel and with even more in the audience. so i'm looking forward to digging into those cities specific experiences a little bit. from his office perspective i'm interested in discussing -- from a selfish perspective come how states reese and local governments can better part of together going forward to manage some of this volatility. with that said, to start us off i'm hoping we can start a little bit with these individual city experiences and may be kurt, we can start with you. stockton of course is this reportedly affected by the housing bubble and in the wake of the crash filed for bankruptcy. as we were just discussing, you came into city management, perhaps you are sympathetic to the decline in baltimore, the moment you're your position there, but i'm wondering if you can talk a little bit bu about r experiences in the context of trace his research and a stockton said expenses lined up with some of those broader trends tracy was describing? >> stockton is a city of about 315,000 people in california. the newest major population center would be san francisco. that would probably be the one that those of you are not from the west coast would affiliate with san francisco. so the housing bubble is a little different for cities that is not the major population center. it is a large city, but the housing growth that you saw from tracy's slide, the correlation of big boom and big bust, that big boom is really the focal point. that came from one of two different things. people live in a place that infaninventory away from the cot for one of two reasons. so the consistent piece is quality of life. some people don't want to live in the middle of downtown los angeles. they want the quality of life, the open space, divided to raise their kids. they think about that environment and that's what you want to be. that's a very steady group. people who do that, they come there, they stay there. that works out very well. the other side which was the bigger story, that population center, san francisco, as were the jobs are. if you happen to work in san francisco your ideal setting would be to work, to live in san francisco. but as the supply and demand, the scarcity concepts come into play, that's not practical for many people. there was an article in the "l.a. times" this week that referred to the phrase you drive into you can find something you can afford. you drive until you qualify. so people come outside of that area pixel stockton ended up with a large influx of people who were there because they couldn't live next to the job that they had. as those dynamics change within the san francisco market, that created some havoc within the stockton market. those closures were pretty significant for us. she mentioned it led to the bankruptcy that it wasn't simply a matter, the last panel had some discussions about the idea of weeds got that money so in the boom cycle we should put it away. we should make sure we don't spend it. it's complicated. california, property taxes not the largest generator. its sales tax for that population who was making that commute back and forth, that does create a little different sales tax continuum for us. the other component is as we built all these houses for all these people, there are some infrastructure things that come along with them. we are going to have to put a water pipe or sewer pipe, build parts, ramp up on staffing for public safety, some of those things. so while that's not an immediate overnight big spike in spending for a particular fiscal year, it does lock us into some strong commitments. once you have the foreclosures, those people of ghana, now stockton is left to continue to pay for this infrastructure. we now have this outside and expensive infrastructure for a group of people who are not there. >> may be to contrast the experience in stockton, scores the contextual factors that go along with being in california say that we heard a lot about this morning, fitzroy lee, you can talk about washington d.c. sixpence every mention of this month that d.c. has been expensing rapid growth and housing values but we've also the expense of being through a financial crisis, having a control board in place and then of course the creation of cfos office, the factors that government. if you could speak about the d.c. experience. >> takdata, mary, thanks again r inviting me here. first of all want to say, like you said, d.c. has a bit of a different experience in terms of the financial crisis. that happen for a number of reasons. of course as you know d.c. is both the seat at the federal government, so the federal government provides us source of jobs and incomes for the district. but in addition to that, d.c. also has a unique physical structure. if you look at the district, and some imagine it's not a state, but in terms of its revenue structure, the revenue portfolio of the state, county and municipal government. so that helps. if you look at our real property tax, for example, unlike most cities it's only about, provides only about 30% of the revenue for the district. more importantly, in terms of the residential sector, it's 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 on the real property standpoint. in that, even though we experience the same amount of price drop, we recovered much more quickly than most of the places because right about that time the federal government went into an expansion mode. so we benefited 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 everyone else, we suffered income tax drops, capital gains, sales taxes. the biggest drop actually occurred on the real estate transactions taxes. because do the commercial sector that has been a really big part of d.c. his revenue portfolio. and right after the stock market crash, so real property markets seized up you. we experience upwards of 50% decline in real estate transaction taxes. so we did have an impact, 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. >> andy, if i can ask you, having heard these two city experiences, if there's something particular about new york experts that you think would be helpful to share, i think we would benefit from a about that. also if i can ask you to help us just about a little bit more to this concept of rational exuberance, more broadly. and if you see things in traces work or in behavior you observed in city spinning over the boom bust. , maybe we can talk about what some kinds of rational responses to rapid growth might be and we might say here so we can identify, what irrational exuberance really looks like. >> sure. thanks. thanks both urban and lincoln for inviting me to be here. i'm also speaking only for myself and not for the federal reserve system jerk maybe i will start a little bit with new york and talk about the particulars of the situation which i think are interesting and maybe in some ways in between the other two cities. so new york is well-known. also had a fiscal crisis and a very serious problem in the mid-1970s and got lots of institutions put in place that have served it very well over the last 40 years. including in the lead up to this last recession and in the wake of the great recession. so when the housing market started to fall apart in 2006-2007 and it was clear the banking system was being put under increasing stress, a lot of us who work in new york looked around at that this is going to be a very, very bad situation for new york city. because new york of course a very high housing prices and lots of leverage against that housing market. but also the banking industry of course a very heavily concentrate in new york city. many of this as expected this to be asked to be difficult. for new york as was a financial crisis and a banking industry stress in a pretty major way. it turned out that was true but not as true probably as we might've expected her to a couple of reasons for that. one, i think in very important set of reasons is from these institutions that were put in place in the wake of the new city financial crisis. and so very careful accounting, extreme transparency in budgeting compass additions like our independent budget office, state comptroller for the city itself, et cetera, all, there's lots and lots of attention paid to the city budget. it's also the case that the mayor and council work together for the well to make sure that the city takes advantage of good years. it's not that the city has a very large rainy day fund. that's not really what new york has. instead, new york tends to prepare lots of its expenses. and so that's another institution. it would probably look in traces work like increasing spending, but it's acted sort in some sense savings on the part of the city. i think that's an important dimension of the whole picture here is that for various cities that are various ways that they can go about sort of taking advantage of the institutional arrangement and trying to smooth, if you will, these kinds of irrational exuberance in the private markets. and to segue into that more generally, i guess in general it's going to be really difficult for cities to manage this extremely well. why? is a lot to ask of city officials really when the whole processing house prices are a thousand it's hard to say no, there will only be 500 a couple years ago and we have two plan for that eventuality. by saving a lot of money today. and so i believe it's going to be really challenging in most city environments for cities to put away lots of money, to save lots of money and expectation that today's prices, today's exuberance is really incorrect and that some of the city officials know that's true even when the whole private market doesn't seem to know that's true. i know it's nice to think we could do that but i think it's quite difficult to expect that of city government. number two, even if they could make that judgment correctly, i think as andrew kleine said, it's interesting to think about whether or not political pressure would allow government to put away that money. even if the government knew that the money should be saved, should be held aside for a future rainy day, it seems probable or likely that in many cases constituents would say hey, that's our money. how about giving that back rather than holding onto it in your government grady day fund, which is getting really, really huge. i think andrews point, in baltimore there was a bit of insulation film is kind of pressure and that's an interesting thing to think about. >> i'm glad you brought that up because i think an interesting sort of broader cynical peon relationship between housing markets and city finances is this question of mitigating volatility more broadly and what are things about state and local policymakers can do to be transparent about above trend growth is being measured and communicating to voters about what it means to be putting some of that aside for rainy day fund. i'm hoping we could put a pin and f1 second-guess a want come back to it. i think there's also a nice segue to come back to kurt and fitzroy a bit about what you see as maybe the most important policies that came out of either the local district baking prices are things that stay was put in place during this time. to help control what might've otherwise been may be political pressure gauge and more exuberant behavior or perhaps in the case of previous independency of those office or opportunities that have been realized yet likened experiences you've been through, things are looking forward to as options. kurt, mainly concerned with you. >> for us there were a series of cases that happened but it was her from the level. they were all at the local level. essentially going to the concept of bankruptcy aside from the actual map of the, probably the most devastating was the embarrassment. it's embarrassing for a community, for the people who lived there, who work there to go through that process. the upside is that once you go through a traumatic event and bankruptcy really is a traumatic event, once you go through that piece, you are a little more willing to do things different than she did before. so in our case, it means this is much more willing to take a longer-term look. so as you dissect what happened, how did things go bad, you realize that the city at one point in time made some very myopic decisions come just getting through the next election cycle, the next budget cycle, that sort of thing. as a result of those lessons learned, the city is going to take that much longer look. for many cities who didn't endure the pain of the bankruptcy, they do have the benefit of the lease looking to those who have gone into that process and said hey, maybe we're doing something similar to what they were doing. maybe we should learn that lesson as well. >> that's great. >> so as you mentioned earlier, d.c. did go through near bankruptcy in the late 1990s. just like new york, at about came a number of changes. there was a control board that was set up by the congress that oversaw the cities finances for a number of years. and when the financial board became dormant, there was an independent office greater. one of the -- make sure that the revenues are conservatively forecasted, that we do multi-your budgeting. so we can't have recurring expenditures that are not financed by record revenues. and out of that, over the years, right into the run-up of the fiscal, the financial crisis that happened a few years ago, we had a huge unbalance. so that helped to mitigate some of the fallout from falling revenues immediately. but because of the independence of the state role, 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 certify that the budget are balanced over a four-year period. and so all of that fiscal discipline did help to initially mitigate the fallout. and then going forward we had a new cfo now for three years, and while the emphasis has been more forward-looking, as many cities and not just cities, but u.s. infrastructure is really a big item, and so they will be looking at taking any surpluses to pay-as-you-go capital improvement. and so all of that has helped to prevent as you say any kind of irrational exuberance. >> andy, coming back to you on this question of the challenges that may be local policymakers face in particular, in the last few years we've seen state governments taking increasing interest in better tying their budget stabilization a rainy day funds to empirical measures of volatility, how can states of better job of these risk-based analyses. do you see the challenges for local governments as unique from the challenges of state policy policymakers and other different kinds of solutions that you see for local officials to consider? >> yeah, i think the situations are pretty different but there are some common house. one thing that's obviously different from most states and most localities is the revenue structure. so localities that howard and tracy and andy are pointed out, the property tax is a main source of revenue. and so that means that locality revenues, city revenue is likely be tied to property value. at the state level income taxes and sales taxes are much more important sources of revenue than they are at the local level. there are exceptions. new york is an exception with a very substantial sales tax and income tax come both corporate and personal income taxes in new york. but in general central cities tend to be more focused on property taxes. one of the big benefits of a property tax historically been its stability. so the fact that we haven't seen this kind of swing in property values historically, or particularly nationally, has been a big benefit of the property tax. that has kept cities on a relatively even keel, and even in this episode as several speakers have already pointed out, the structure of the property tax limits to caps and rebates, triggers and things like that, has kept revenue relatively smooth compared to the volatility of housing prices. an interesting and important thing to point out is that in some of the data received already today, actually sales taxes took a huge hit and so did income taxes. that's an important phenomena that the state level and at, for some cities. it's very relevant because of course the connection between states and cities are really important. if that's the case as was in the great recession that a big decline in house values is then accompanied by big declines in sales tax revenues or personal income tax revenues, that's going to be that cities and states are under pressure at the exact same moment. and that's really a very bad situation. because we would help the states would be in a position to smooth out some of those shocks to the cities when they occur. >> interestingly, in the soft recession as tracy pointed out and kindly reference some of the work we did at pew that we saw this local squeezed a number of falling state at the same time you're seeing this loss is the property tax and also this long lag of those effects were in some cities income and sales tax revenues, sources had started to pick back up and then he saw this drop-off of two main revenue sources which posted if the judge that many states were not equipped to balance. as we shift from sort of what we learned looking backwards and policies that came out of this last boom and bust. come looking ahead to a local governments can think about better building the structure that promote resiliency, better preparing for the next downturn and hopefully looking for opportunity to partner with their states and productive ways to build this concept of resiliency. i'm curious what each of you see as the opportunities in this space. i'm also hoping we can turn to one of the questions that tracy post at the end of her slide where she was referencing the systems in place in many states where states are tempting to measure the local governments and in some cases have tied specific states, whether its emergency aid for technical assistance to their local governments when you see this sort of warning flags happen, but at present most of those systems are really looking at declines. so you don't often have a fiscal warning system that is flagging a rapid increase in home values as a sign of concern. that's not sort of how we think about this. so i wonder what tracy was presenting this morning suggest any new ideas for the folks on this panel about opportunities to engage in that kind of work better and help avoid the crisis in the first place. and maybe andrew, i will start with you again and we can go back down the row. >> sure. so i think there's a little bit of a sense where we are almost like a mini cities go through a really terrible fiscal stress to get the right institutions to do well in the future. i don't suggest that. >> hopefully not. >> that's not the take away. however, think lots of cities can learn from some of the cities that are going to that and that's sort of a statement that, steve and my fellow panelists have made. i looking at city set of recovered from these difficult physical situations, other cities can sort of design institutions that allow them some of the same kind of ability to weather the storm. rainy day funds are great as far as they go, but it's probably going to be a combination of many, many kinds of institutions that allow for states and cities and particular cities to smooth those kinds of irrational exuberance when they occur. so when revenues are really above trend, what do we do, how do we translate that into something that will contribute to the sustainability of the locality, rather than contribute to crisis in the near future. so what can states to do up with that? states can offer the kind of technical assistance to learn from the best practices of cities in the states, for example, to say here's the way you can design your institution. states play big role in designing institutions and they can get directly. they can provide the kinds of information about what revenues that you got last year actually the revenues that you can expect every year and what is sort of above trend picks all that information i think is useful for city officials. but in the end it also requires these kinds of institutions that will allow cities to take a long view, take the officials along. that requires institutions to be built with a long view in mind. >> and again i think the distinction about d.c. having the independence coming out of our previous crisis and the relationship that tracy was noting, research about how governmental structure might be related to some of the spending trends that we saw. of course here in d.c. we don't have a relationship with our state and same with other local governments do. we have instead this very unique arrangement with the federal government. but as d.c. operates that sort of both or all three city, county, state, i want if you sort of looking ahead in this ever present conversation about preparing for the next downturn what future opportunities do you see? >> as you mentioned, you said sometimes they are not clear signals, but we do in terms of the stance of the federal government, as taken up in terms of tendency of the cutback and this is been happening not just recently but for a number of years where there's been budget control act and the sequestration and so on. and so we have had to be preparing for that. again, i'll go back to the institutional arrangements that you put in place. one of the things we did in our office in terms of forecast is to look, looking at these kinds of risks and what is a scenario that said what if the federal government cutback, happens, how much impact will it have on revenues. and we forecast in the middle about when we think that will be. and so building a multiyear budget with com, over the long m with the understanding that we might have less revenue coming in as the federal government cuts back. we have been able to mitigate some of the risks that impose. so about three years ago when the sequestration went into effect, we built that into a revenue structure. it turned out it wasn't as bad as we'd anticipated, but we did see that i revenues moderated as a result of the cutback. but we were able to weather the storm. and we're looking now as the federal government, look at more federal cuts. looking at what that might be, and as we go forward we will build that into our long-term budgeting. so in terms of recommending, having a multitier budgeting where you look at the risks that might occur and you don't always build it. you have to look at the probability that risk might materialize as you put that in place. and then as i mentioned, we look at the long-term needs of the city as well. so what we will require in terms of infrastructure as the population age. right at the district is actually enjoying a renaissance, so to speak, as we get an influx of population. we have been growing, and that is really helped in terms of the bottom line. we are always aware that just as quickly as that phenomena happens it could reverse. and so we have had to look at when the population slows what that will look like for revenues. so looking at all the risks that are out there and try to build that into your revenue forecast, i think is an important part of hedging against these risks. >> concept you mentioned before about being a diligent and it's easier said than done of course, define and identify what a nonrecurring revenue source is and how you can match this to one time cause versus typing into recurring spending is i think a really important note to emphasize you today. something we see state governments struggling, local governments struggling. that's a really important thing. before you respond, let me just note that after this we will open it up for discussion, so be thinking about the questions want to ask, not just of these gentlemen but also tracy gordon who have lost -- there she is. so also feel free to ask tracy questions about her research. and he can for our online audience you can submit questions to events at urban.org. kurt. >> from microlevel i would agree with things that both fitzroy and address it. andrew referenced the prepayment. prepayment. so pre-paying some of that debt. some of the debt whether it's penchant that can infrastructure, the basic concepts it's pretty clear that's going to happen so it's not a mystery of mi going to have to pay some pension gets five years from now, tenure so now? so getting ahead of that really relate some of the pressure. it got the compound affect from time to money. there's a compound affect of making that investment early. and then on to the comments about the idea of aligning or i should say not aligning ongoing expenditures with one-time revenues. like you make it that is a difficult to do because it does create some clear political pressure, but it's worth fighting the fight because the downside really isn't that bad. i think generally from the general public, if you're able to present it in a way that they can grasp, which is difficult, not because they can't grasp difficult things but because they are busy, but if you get in some sort of bite-size way that people can get a hold of it, i think they understand it and its summit to what they do and own personal budgeting, the same concept. from the macro level as far as the whole warning system, so housing crisis is a symptom of the larger economy. so when you have certain stressors you can expect that it's going to be higher sensitivity. so if you have a high-value real estate market where people are paying 50, 60, 70% of income on housing, then you can expect that is going to be a heightened sensitivity to any adjustment in the market. we can look back historically since 1928 and make a pretty safe assumption that a recession of some type every six or seven years. you can quibble over what the number is but the general concept, it's pretty clear its going to happen. so in the absence of having something that is sort of raises a fight for you and tells you it's coming in the next six months, i think it's still fair game to go ahead and make the assumption that it's coming within some relatively short period of time, just because historically that's what happened. .. it is up to the group for questions. again, a reminder please identify yourself and your affiliation. >> frank ford, cleveland ohio, this is an observation, perhaps not a question, but the day started with the framing of the paper with four types of cities, one including the midwest and yet most of the morning has really been from the point of view of the booming bus cities. stockton is coming back, it's one of the hottest markets now. what is missing from the discussion is the midwest cities that dropped and are not coming back. connected to that, at the beginning of the discussion, the problem was framed as though it was still prices came down, people were underwater, that caused foreclosure and loss of revenue. in the midwest cities it didn't happen that way. it started with subprime lending foreclosures and moderate incomes. that then led to the housing crisis coming down and property values coming down. i know baltimore was referenced and they've done a good job, but blight brings up a whole lot of issues that have not been discussed. the police powers of municipalities and how that can be used to connect the revenue and try to get it back and hold people accountable. i just wanted to make the observation. it's not exactly a criticism although you might take it that way, i think there's something that has been missing from the conversation. >> i think part of your comment might get at the importance of some cities or regions that local governments are trying to manage through economic shifts that are beyond their control and some of what we are talking about today, there is an opportunity for local level policy to address but certainly with the regional trends, there is the importance of the state and federal role is that much greater because these trends go far beyond what a local official has the power to control. i don't know if any of the panelists want to respond to this or if you have anything you want to add. >> i agree with the comment, cleveland where you are from is very different from new york where i work and so in part, something we've done for a long time and something i would say is different over the past ten years is that house prices are 30% below where they were ten years ago. a place like nevada where we saw a booming growing place is experiencing something very prolonged. that puts it more similar to cleveland's and cities that are in longer-term equine, but i think stockton, las vegas, they are probably coming back pretty strong. it will be a long time, but maybe more confidence there than in cleveland. it could be the case that the urban revival that we've seen glimmers of here and there could play a role in cleveland and places like that. >> i am carl and i started a project that looks into wealth concentration of the center on capital and social equity. i do a lot on health policy. your question about state, especially where you have federal matching funds like medicaid back counterbalance cyclical funding adjustment. so, when we had the recession, congress boosted medicaid and matchinmatched rates by 30% butw it's unlikely they will do the opposite to lower the rates during better times, but there could be some kind of procedural mechanism put in place whether you have a vote on whether you do that when those circumstances arise, raise rates and what would be expected to be paid back if you do that for the fund of the next cycle. some mechanism like that instead of a block grant, i'm not talking about that we are you are just capping. there could be an opportunity there. maybe it's too complicated. >> does anyone want to speak to the medicaid issue. >> no. >> see how i try to budget. >> all stacy does. >> i think that's a fascinating question. given the work that mary has done about the double buying and cutting aid, i don't see it being feasible but given the comments about the difficulty being the unanticipated surge in revenue, i wonder if there are opportunities on the upside, rather than waiting for states who feel constrained to help out local government, when everyone is feeling flushed maybe the state should offer incentive to pay down debts or invest in infrastructures or make one-time expenditures. >> i was going to add to that point, coming out of the financial crisis in the late 1990s, one of the things the federal government did was increase the medicaid match and that did help the district's bottom line. i think it's one of the ideas that is certainly workable, but as you said we are in a different political environment. >> i think going beyond the medicaid funds, the bigger issue is, the problem does roll downhill and it creates challenges for smaller local government who have less flexibility, even if you are thinking and practical terms. >> how did the housing leaders to the crash when elders did not. we can look at demographic change and my colleagues and i just did it for the great lakes states and this comes back to the point about some particular cities. those cities and places, and i include buffalo and other places in new york, are aging and are older places than other parts of the united states. [inaudible] just thinking about the market behind them and how will you get ahead of that. >> actually, if i can add to the question, i would be curious to know how your thinking about that in a broader long-term planning and if it's being factored in a more specific ways when you look at your forecast and long-term budget development. >> for me, for stockton, it's really a matter of price point. we still have a demand that outstrip supply in a big way. we don't have any concern that there will be someone coming behind it because there are dozens of people who want that particular home when it comes on the market, as long as they can afford it. that will be the case for our newer home stock and older home stock. we date back to the late 1800s so there are some older houses that are more challenging to keep up. we have an across-the-board demand for the newer housing stock in the older housing stock but it really comes down to a function of price and whether or not they can afford the home. >> as i mentioned earlier we are going through a population boom right now. but it has been with younger people. one of the worries we have only look at the forecast, as these young single start getting married and having kids and start to look for schools, then they will start migrating out of the suburbs that would certainly affect our revenue forecast if they start leaving. it's really difficult to model it and get a handle on one that will happen. they tend to be conservative for those reasons because you're after your we planned for this but it doesn't materialize. we certainly watch very closely the formation that's happening and whether we've been seeing more migration. one of the latest things in the forecast is for the first time in five years, what we saw is more of the increase in population came from natural increase rather than migration. we are watching it very closely. >> other questions. >> i'd like to come back to the rainy day fund issue. you can have the government cities doing the saving or you can have the resident to the savings by having very strict caps on assessment. if the market changes, it doesn't translate. so what i wanted to ask was you mention the people say hey, my property values are falling but my taxes are still going up. this is a phenomenon in new york. i would like to ask people on the panel or anyone here to reflect on those try trade-off. how do you tap that untaxed wealth and the idea that maybe people have spent that already in there irrational exuberance so there really is, they really do have a beef when the city says now -- so if anyone has reflections on that kind of trade-off. >> we've talked about this in the past. the local sector is an extension of the household. i take your point, households might choose to save that money themselves or they might choose to have their government take it and save it on their behalf, and there are various reasons, some financial incentives where they might choose one over the other including the fact of whether you can deduct your property taxes on your federal income tax so the federal su will subsidizf you allow your local government to do that on your behalf. that is one positive factor that could play a role. the second thing that's important is what are the payoffs to the very kind of savings that local governments might do. here i'm thinking primarily about infrastructures where one of the most astonishing facts about this recovery has been the low-level of capital outlays by city government. in spite of the fed doing the best they can with low interest rates among these kind of investments, by the public sector have been in extremely low levels which suggest that households want to hold onto the money themselves rather than having their government invested for them. >> i would add to that, the caps on a lot of those tax relief came from citizen tax divisions. it was really the citizens asking for it and so it was like there was an option and the policymakers were just responding to what citizens were requesting as you started having housing booms. >> essentially, we don't have control so california is not a state, i don't do my budget and decide how much i need and here's what your rate will be. that is already set in stone. the idea is there is this very slow growth to the extent that it's the same homeowners still staying in that property, the tax rate 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's not always the case because along with prop 13, and prop eight which happened at the same time, we ended up having a scenario where we do reassess property values so after a major drop in property value, there is a new assessment and then the property tax rate is adjusted to go along with that. the predictability sort of goes out the window. it's all well and good intel there's a recession and then that predictability goes out the window. >> if i could add, i think there's an interesting connection between the, you just made about the surprisingly low capital investments, low interest rates and what andrew brought up in the last channel about multiple types of funds that has strict rules and parameters so you don't end up with one balance that the city is trying to manage in capital investments but a stabilization fund to manage the business cycle. the idea is to create more specific parameters for city residence and establishes the city government, i think it's an interesting idea. >> i'm kevin from the federal reserve and this is my question, not theirs. this is mostly for kurt but anyone is welcome to chime in. on the previous panel we hadn't economists recommend tensor development in cities as a way to reduce the infrastructure burdens you are talking about and more diverse development to attract people at different stages in their lives. do you see that as a viable option for stockton in trying to reduce the volatility or 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 fit where they are at that moment in time so greater density does have certain benefits as far as economies to scale but quality of life depends on where you fall. for some people that greater density is not something that is really palatable. as long as your alignment that people do enjoy that component, there are some benefits that go along with it. it ends up being market-driven. in stockton we've got a mix of both of those things. it's really not just some altruistic endeavor by the developers but a response to what the consumers want. there are consumers who want this type of thing and it's really just a matter of them being responsive. >> i am with the office of the comptroller coul currency and mn question, you talked about supply and demand and the boom in demand in stock, in particular. i'm curious what actions if any of your cities are taking to prevent zoning and other regulations that might prohibit supply from keeping up with demand and how that's balanced with the overbuilding we saw in some areas during the boom years. >> speaking for stockton, it really is a function of jobs. we have a mayor and council that has a strong focus on jobs. i mentioned there were the two types of people who drove the boom in stockton to the extent that we can swing the pendulum meaning we have more job opportunities which brings in more people who are there in that particular city because they want too, not just because it was the closest they could afford. we end up getting to a better spot that way. we've got a pretty substantial focus on the job component so we can swing the pendulum and have better opportunities for people who want to be there so they can live and work in the same community or at least in the same region. >> as for the district, you mentioned the men outstrip the supply so the challenge in the district is to provide more affordable housing so both the mayor and the council both focus and provides incentive for more affordable housing so in terms of the swing of the pendulum, now it is building because prices are going through the roof because the demand is so great compared to the supply. i don't have a lot of knowledge although, one of the big restriction is the height restriction and there's little at the district and local government to do about that. that is one of the big restrictions and really adds to the price challenges that we see. >> i apologize, i neglected the second half of your question about the zoning portion. so, we do have control over the zoning in what's going where and when the middle of that process so if the ultimate goal were just to create enough room for more houses, we could do that by zoning and we can go through all those things. the longer-term view is that houses aren't a revenue generator. in fact, the need to provide services forever to that property, if you look at it in a bubble, it makes it a negative proposition so it really comes when you are able to match it up with those things that we just heard about so people can shop there, people can work there and do the other things. the balance of those two things is pretty substantial. if we did go forward and said housing, housing, housing, we would create a problem for ourselves in the next decade when we had that imbalance. we do, as far as, we do have the ability for more housing and we will have more housing on board but it's much more methodical, much more controlled in order to match up with the other side of the equation so we don't 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 way, there's a big problem with affordable housing. zoning is really relaxed quite a bit over the past couple decades, but transportation investment, lots of things that make new york city extreme and difficult to build in have led to rapidly increased prices over a long period of time, quite persistently. >> other questions in the room. >> yes. >> i'm not familiar with the housing market, but i was curious since it's so relied on by some jurisdiction, the question is, is the value of housing more volatile, more like a commodity or of venezuela than it used to be? because of how wall street has bundled in debt and all these things like ten or 20 or 30 years ago, or is it similar. in other words, there tends to be more variation? >> do want to speak to the. >> so i will tell you, there's lots of expertise in the room. i was a couple things. one is, to me the unique thing that happened is starting in 2006 through 2011 wasn't so much that we had a housing bust it was that it was a national housing bust. there been very pronounced regional cycles throughout u.s. history. all across the country, the fact in this case that was most remarkable to me is not so much that there was the volatility but that was coordinated across the country where we had this big collapse of housing prices in many places simultaneously which led to many other things including the deepest recession since the great depression. i think that's the key difference from the past. now, is there reason to expect an increase in the correlation and house price movements, that's a challenging question that i don't have the answer too. >> so actually, the housing crisis that we just went through wasn't just a national housing crisis, it was a global housing crisis and part of the volatility is the flow of capital around the globe that ended up in the u.s. housing market and that's why central banks around the world were taken down by our housing sector. that housing volatility is a problem of commodified housing since we've now opened up our housing stock to global capital flows and global capital flows have much higher level of capital flows domestically. for example, we saw massive swings in the value of the dollar relative to other currencies, we could see big changes in the investment flow coming in, either positive or negative and that tends to enqueue accumulate in places like new york or san francisco or other places where we have a lot of volatility on the upside, but that volatility could evaporate very quickly if that capital found its way to some other investment goods someplace else. so, right now the dollar is the global reserve currency. we are sitting in very privileged position, a lot of people are looking at real estate in the u.s. as a pretty safe investment. we are seeing a lot of capital flowing in. it could go either way. >> actually, if i can add, looking beyond the housing market, if for looking at the state and local sector, we do see overall that the volatility of total revenue collections is growing. it's more volatile than economic volatility. this question of how both state and local governments manage, whatever the source may be continues to be an increasing concern. >> my name is ricardo byrd. i'm with the national association of neighborhoods. in many communities we have a greater disparity between the haves and have-nots. i have not heard discussed today a social volatility index in terms of creating capital reserve funds and rainy day funds. are we being penny wise and pound foolish? >> if any one of the panelists wants to start with that, please do. this also might be an opportunity for tracy 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 compared to other cities. >> we basically try to take advantage of the housing crash as an external event that cities didn't bring upon themselves and see how, whether it's based on initial conditions. something like revenue volatility would be an initial interesting condition, something like their various measures of physical health as. >> alluded to our initial condition that matters, the structure of whether it's a strong mayor as andrew alluded to is one of the initial conditions that matter so, i'm really struck by this idea that there is a larger backdrop of volatility, especially at the state level but is an and he mentioned, it occurs to me mormor that it's managing the upside risk that we might have to think about. one technical way of thinking about it is the case shiller index came out of this idea that if you are a homeowner you shouldn't have to bear the risk of losing your job in your home and you should be able to invest in another city and that's why there's an index. is there some way cities can share in each other's fortune, maybe a statewide coordination or occasional or index and mechanism but for cities opposed to individuals to withstand social and financial and economic volatility is interesting. >> out as quickly mentioned that the district, for a number of years, has had a housing production trust fund. part of the point of that is to invest in more supply in order to target specifically lower to middle income residents so they would have home ownership and so i would say that is part of the social funds and the district has various funds like that that they invest in when there is a surplus and part of that is recognizing there are great disparities and trying to find ways to address those disparities. >> in stockton we have similar things going on. with respect to more affordable housing, we have a number of things that go on. they are sort of going away now but there have been statewide mandates for us with respect to affordable housing and some funding streams that were tied to it. we have continued to develop affordable housing for that reason, still nowhere near where we ought to be and where we would like to be, but on a different level, in my city there is a certain segment of the city that is much older where there has been a common theme that the area has been more neglected than other areas of the city. so the mayor and councilman made it concerted effort to pay extra attention so that ric resource allocation moving forward there is a greater focus on it. >> 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 policy, i appreciate you hosting this event and the important conversation. please help me thank our panelists. [applause] >> thank you mary for excellent facilitation in helping us tie these conversations together. mummy close with thinking george mccarthy and the whole team from lincoln institute for land policy and the team at urban who organized the conversation. we especially love the folks who joined us on c-span2 and the webcast. thank you for participating. thank you for coming today. with that, i wish you well. thank you so much. [applause] [inaudible conversation] [inaudible conversation] [inaudible conversation] [inaudible conversation] >> you can watch this conference on housing and finance on our website. go to cspan.org. type the words urban institute in the video library search box located on our homepage. white house press secretary sean spicer tweeting this picture from the easter egg roll on the south lawn today. adding a great day at the white house for the 139th easter egg roll. the hill also observed the white house press secretary sported a dark suit and red tie as he read how the catch the easter egg to children and he posed with the bunny mascot on the south lawn monday morning. president trump and the first lady hosting their first easter egg roll and welcomed guest to the white house. here is a look.