I lead the policy Advisor Group here at the urban institute. If this is your first time at the urban institute, a very warm welcome to you. And if you are a regular participant in our live at urban events, welcome back. And also a warm welcome to those joining us today via the webcast and via cspan 2. We hope youre able to participate in the conversation. To follow it follow the hashtag live at urban. The twitter handles for all the participants are there so you can include us in your tweets. If you have a question and are watching this event on web cost or on cspan 2. You can email us at events. Urban. Org. We hope you do and participate in the conversation today. Let me say a little bit about urban. Urbans mission is to open minds, shape decisions and offer solutions through economic and social policy research. Weve been pursuing this mission since 1968 when president johnson created urban to help develop programs and strategies aimed at including the quality of life in central cities. We bring expertise and research on the department of housing and Community Development, the capacity of families,s snoigtsds about state and local Government Finance and we work also directly with policy makers in translating research, identifying policy solutions. Toads forum represents a convergence of the leadership of our partner, the land institute. On the growing concerns about health and housing crisis, through the Panel Conversations we will explore how the housing crisis, in particular has affected the physical health of cities. The reason housing crisis and subsequent Great Recession created great uncertainty at all levels of government, not just the federal, national, state and local as well, among fluctuations have affected budgets in the past, the scale and pervasiveness has raised attention about the strong connections of Housing Markets and Municipal Revenue and costs. These cries ease were felt in parts of the United States like the fast growing sun belt cities but also older industrial legacy cities in the northeast and the midwest. And while there has been quite a bit of research about the social and economic impacts, very few have explored the relationship of the housing crisis on moouchl fiscal help. With some more from the Mcarthur Foundation through its Housing Matters research initiative, which i had the pleasure of helping to launch when i was at mcarthur, several groups of experts in macroeconomics, Housing Markets and city financing received support to explore this issue in greater depth. You can find more about this research and other parts of this whole poerlportfolio on howhousingmatters. Org. We invite you to explore that research. Today well showcase some of the preliminary research. We will consider questions such as how can policy makers head off the next wave of municipal bankruptcies, what type of data and research do we need, what types of leadership do we need. Im very pleased to introduce one of the most important leaders in this work, jork mrge mccarthy, who leads the Lincoln Land Institute. Through one of its initiatives on physical health, theyve been elevating this through media, journal land lines and in events like this one. I have always admired mack. We have worked together when he was at ford and when i was at mcarthur on housing policy and i always admired his ability to see around the curve and use the tools of philanthropy to try to get ahead of the challenges with taylored and grounded solutions. We are so delighted to be partnering with him and his colleagues at lincoln. With that, ill invite mack up. [ applause [ applause ] good morning and thank you so much, erica. Its been great to work with the urban institute and with erica since she came over to the you are taliban institute. The Lincoln Institute of land policy has been engaged in efforts to really make land policy relevant to larger challenges of Municipal Fiscal Health or how we adapt to or mitigate climate change. For many years we were at this work for about 70 years now and in the last few years weve focused much more specifically on the narrow challenges of things like Municipal Fiscal Health. Two years ago we launched a program to do it on a global level and that was launched where we began with a briefing with congress around the challenge of unspent federal grants, how localities. This is a big problem and ice a problem worldwide. Todays topic is quite relevant. Its really come to the fore recently with the you know, with the major check crisis in the Housing Market. In fact, weve been able to understand very much the kind of interaction between Housing Markets and municipal finance for a long time, because its a twoway street. One of the things we understand about municipal finance and when we decided to launch the campaign we took a nor nuanced view of Municipal Health than most people would take. For us, its not kind of the imf mantra that fiscal hotel is the equivalent of austerity. For us, Fiscal Health is really helping communities to be able to assemble the resources they need to deliver the goods and services that create the quality of life for their citizens. One of the things that weve come to realize is how little citizens understand the role of local government in actually defining their quality of life. And so if local governments arent able to deliver the goods and services that support a high quality of life, its going to be reflected in the Housing Market. Housing values will fall. The population will leave, and the tax base will erode. So thats part of the twoway street. Better Municipal Fiscal Health, the delivery of the ride, goods and servicings, from you are, all of the things that make a city work well, also were down to better performance in the Housing Market and better performance in the Housing Markets increase revenues primarily through property tax for the cities to then pay for the goods and services. So understand yin and yang, whatever you want to call it. Its a twoway street. For us, we really have been interested in seeing the pace at which places can rebound when something really devastatesing happens to the Housing Market. In the case of the u. S. Over the last ten years, particularly in the older industrial cities as erica memphised, the severity of the housing crisis really led to a very attenuated rebound or, you know, lot of places havent really rebounded yet to even the pre2007 highs in their Housing Markets. Which means they have fewer resources to bring to bear to pay for the things they need. They cant really grow in the ways that they would like. They cant refor their schools and the other things that make the places the kinds of places that people want to live. And it will take a while. But i think well understand more today about whats in the helm of possibility for local govs to be able to manage their Fiscal Health. What do we need to do beyond the local government at the state level, the federal level to really make it possible for cities to rebound, for cities to thrive in ways that we know are possible. Weve seen it weve seen it happen in many places including right here in washington, d. C. , which was in receivership in the 1990s and is now one of the strongest urban markets in the country and one of the most robust Housing Markets in the country. So i really thank you for coming oumt. I thank our viewers all around the world and i really look forward to a great panel. One of our signature contributions that youll hear about h in a minute from two of our fellows is a longitudinal database that actually tracks the flows of funds through cities for over 35 years called our fiscally statisticized city dab. Im sure theyll give you a better view of that. I think its a tool thats so far underutilized and im glad its being deployed to tell a story about cities that we know needs to be told and can be told in a much more formal rigorous and nuanced way. Thanks again and i look forward to the discussions. [inaudible]. Gone, everyone. Thank you, mack. As the title suggests, were going to talk today about a Research Project that talks about the linkages, particularly the linkages of what happened in the Housing Market and the financing of cities. Kour coarthur sandy newman is in the audience and will help us answer questions. I want to start by reiterating what mack said, that a number of cities in the United States are still in the shadows of the Great Recession and the housing crisis with revenues, per capita revenues below where they were at the beginning of the recession. Not true everywhere, but in many cases. The our study is going to focus on 91 central cities across the country. 91 of the largest central cities. Before we talk about Housing Market and financing cities, i need to emphasize and mack already alluded to the fiscally standardized cities. The problem of comparing city fiscal data are substantial because theres a Great Variety in and variance across the country in the governmental structures, so on the one hand we have a city like boston where the City Government raises all the revenue to fund public services. On the other case, we have might use the example of las vegas but many cities were the city municipal government raises maybe a quarter of the total revenue and the rest of the revenue is raised by overlying governments, special districts, School Districts, county government, for providing services and financing of services for City Residents. Heres the picture on the spending time. It compares baltimore with tampa and if you look just at the City Government spending per capita in the two cities in 2014, baltimore really seems very high spending. Three times more higher spending than tampa. But baltimore doesnt have any for the most part overlying governments. Tampa, on the other hand, had an independent county, multiple Independent School districts, special districts. So when you add up the portion of spending that goes to City Residents of those governments, it turns out that baltimore and tampa spend about the same amount of money on a per capita term. In general to allow us to do these comparisons, as mack mentioned, weve defined and constructed fiscally standardized cities which basically involve taking Municipal Revenues and spending and lots of detail and addings on a morgues of all the overlying governments, the portion that benefits City Residents. Im going to talk now a little bit about the Housing Markets and talk about average effects among 91 central cities the rode line is average. The pattern you can see very clearly is the boom and bust. The rising until about 2006 in Housing Prices and then the steep decline until 2011 and then it begins to go up again. And ive added to this diagram both las vegas, the poster child of the boom and the bust, the bubble. Incredibly high increase in Housing Prices. Then on the other hand we have houston, where Housing Prices rose but very modestly declined only a very little bit and now are way above where they were in 2006. Next slide talks about foreclosure rates. Youd get a similar picture for delinquencies. Again we see in the pre2006 fore clez your rates rose four fold to 4 by 2011 and by 2014 down to 2 , but still half twice the amount that it was pre2005 and 2006 and again, big variation across the cities. One thing with we did to try to give a picture about the variety and variance in the Housing Market is to use Factor Analysis to divide our cities into four groups, four Housing Markets. So first we have the boom and no bust. New york and san francisco, examples of cities where Housing Prices went up and almost no decline. Second we have boom and bust. Thats the poster child, las vegas, where big increases and big decreases, including baltimore. Third group are status quo. Those are cities where not much happened. Housing prices grew just a little bit. There was no decline. Finally, we have the detroit case, for instance, of secular decline where there was really no increase and then sharp decreases. Now going to look a little bit at what happened on the financing side of cities. An average of for 90 fiscs, we dont include district of columbia because district of columbia doebt hasnt have a st government. We show the cities relative to 2007, the beginning of the housing crisis and the Great Recession, and what you can see is big declines. So in 2014, state aid, 11, 12 whereby low where it was in 2007 on a per capita level. Way down. If you look at the line, the black line for federal aid, you can see first a dip and then an increase. Thats the federal stimulus program. But now its federal aid is below where it was in 2007 and way know its continued to drop. The only source of revenue thats gone up consistently are user charges. And heres a similar sort of graph but on the spending side, per capita spending adjusted for inflation. You can see some figures higher than they were inspect 2007. I want to call your attention to two sources, one, funding for education, very important, and funding for infrastructure funding, government outlays. Both of those are substantially below where they were in 2007. And hopefully have starting to increase but still way below. And now im going to turn it over to howard. Thank you, mack, for a nice introduction. In this section im going to report on our results on the quantitative links between the housing stress, housing pressure and finances and revenues of cities. So weve decided we have a simple but complicated schematic here that tries to at least put some boxes and arrows on the relationship between the housing marked and city revenues through the property tax, the most important local tax by far. So so we the we start with a sharp decline in Housing Prices, which is following a big increase. Thats the housing bust. That with some lag, a year, two years, three years, it varies by city, results in lower value of the taxable base, the assessed value. Local governments can respond to that base in principle because they its they have the most autonomy over the property tax of any tax by offsetting the decline by raising the tax rate. Easy to say. Just raise the tax rate and prevent the decline, but there are a number of extremely important factors, so we identified changes in income and expenditure needs, which income affects the willingness of the populace to support an increase in tax rates, changes in other revenue sources, state and federal aid and other nonproperty taxes all affect that decision, and finally, cities now for a long time operated under considerable constraints from state imposed, state voted property tax limitations, a variety. These all affect the willingness to offset a decline. The net result is a decline in property tax revenues. The other channel that we didnt think about so much before is from housing fries to foreclosure rates. Foreclosure crisis. We put some question marks there because this relationship first of all, it appears a little bit simultaneous. But it varies a lot across states, so comparable Housing Price declines led to bigger increases in foreclosures in some states than others. When foreclosure rates go up, theres a direct effect from this arrow on assessed value, maybe more delinquencies and inability to collect property taxes, so the effect is that the property tax revenue falls. An impir cal analysis suggests how important that is. Thats our schematic here symmetric that relationship up and down, it depends a little bit how you cut the statistical models. Applying those statistical estimates to the actual the magnitude of the Housing Price bust we get a relationship that about a 26 decline in Housing Prices on average in our sample of cities from the from 07 to 11 is the trough led to about a 4 decline in property tax revenue. And if you will recall from andys graph you wont, but i will help to remind you that the property tax revenues were still about 8 down in 2014. So thats a big chunk of that of that effect. Now, to explain the property tax results one might say again its just a counter factual. So why didnt local government raise the rates enough to limit the revenue declines . Well, falling incomes, raising unemployment made that infeasible. They were not going to be able to do that. New york city, my city, stands out as a counter example where the there was a sharp increase in property tax rates pushed through by mayor bloomberg and which went through some people said there would be a disaster but it worked, there appear to be some reserve fiscal capacity and willingness to pay there that was not present in other cities in part because new york resisted the recession about as well as any other city. Just to get a sense of the magnitude of why rates could not be raised en