This is the second year of our campaign to promote municipal fiscal health as a foundation for better quality of life in cities, and since February we’ve held a series of workshops probing the far reaches of public finance.
At the Urban Institute in Washington, D.C., researchers and practitioners floated strategies to manage lingering foreclosures, which continue to wreak havoc on municipal finance and the property tax base. Housing Markets and the Fiscal Health of US Central Cities, featured on C-SPAN, examined the resilience needed in many American cities to ensure the provision of essential public services, and prepare for future shocks in housing markets and local economies.
Lincoln Institute fellow Andrew Reschovsky reported on pioneering research quantifying the linkage between falling housing prices and rising foreclosure rates, and the fiscal conditions of cities. The study, The Effect of the Housing Crisis on the Finances of Central Cities, by Reschovsky, Howard Chernick of Hunter College, and Sandra Newman of Johns Hopkins University, found that about one third of the post 2009 decline in the per-capita revenue of a sample of the nation’s largest cities was attributable to housing market stress. Also, the study found that a 26 percent decline in home prices was associated with a four percent drop in property tax revenue.
The study’s results on the fiscal impact of foreclosures gained new relevance after the Supreme Court ruled that Miami can bring suit against some banks and financial institutions, based on the argument that their behavior led to a steep rise in foreclosures that had serious fiscal impacts.
Among additional conclusions: cities should take advantage of good times to squirrel away a rainy day fund and pre-fund capital infrastructure investment; states should enact policies that minimize foreclosures; and cities should take steps like maintaining lawns at vacant properties to help head off neighborhood contagion.
Andrew Kleine, Baltimore’s budget director, noted the establishment of a two-tier rainy day fund, and other steps for greater efficiency in the delivery of city services, stabilizing pensions, doing housekeeping on the tax rolls, and generally planning balanced budgets for the long term. He was joined by other researchers and public officials from the Urban Institute, Stockton, CA, Washington, D.C., the Federal Reserve Bank of New York, the Federal Housing Finance Agency, The Pew Charitable Trusts, Hunter College, and Indiana University Bloomington.
Earlier this year at the Pew Charitable Trusts, also in Washington, the topic was the equally stubborn problem of unspent federal grants – by some accounts an estimated $1 billion in funding that keeps getting left on the table, though a combination of compliance issues, flaws in program design, and lack of capacity at the local level. The workshop featured federal, state, and local officials, as well as private and non-profit stakeholders, to raise awareness of the problem and search for solutions.
The Government Accountability Office issued a 2015 report detailing how the money isn’t being used in the places that need it most right now, such as Detroit. A team from Northeastern University found problems in organizational capacity, auditing and oversight, and information technology. Up to 20 percent of allocated grant money may be going unspent in any given year, as Lincoln Institute President George W. “Mac” McCarthy noted in the Land Lines article Money on the Table: Why Cities Aren’t Fully Spending Federal Grants.
Both the federal government – at least 27 different agencies that meted out $600 billion in 2010 – and local jurisdictions need to work on the problem, without casting blame on one another. Carol Kraus, the director of Grant Accountability and Transparency for Illinois, and Laurie Petrone, director of Grants Management for Rhode Island, shared efforts to do a comprehensive cataloguing of all federal assistance and standardize the business process. Other states getting a handle on the problem include Massachusetts, Maryland, Ohio, and Utah.
Finally, in Boston in May at the Federal Reserve Bank of Boston, the Lincoln Institute hosted the launch of a new policy report of the Organisation for Economic Co-operation and Development (OECD), The Governance of Land Use in OECD Countries: Policy Analysis and Recommendations. The report offers practitioners and scholars in the private, public, and academic sectors policy analysis and recommendations supported by statistical analysis. It covers a wide range of themes that include: the impact of fiscal policies on land use; the integration of fiscal policy, land use planning, and zoning instruments; a discussion of the incentives that local governments face to pursue certain planning policies; and country fact sheets on land use planning systems and land use trends in OECD countries. A video of the workshop can be viewed here.
The pillars of the municipal fiscal health campaign include the intersection of planning and public finance; the critical role of land-based revenues; multi-level governance; capital accounts and infrastructure investment; unfunded obligations; and the importance of ongoing monitoring of fiscal health in cities worldwide. Coming soon, we plan to focus on one particular component – the use of value capture to fund critical urban infrastructure, affordable housing, and other elements of 21st century city building.