At Lincoln House June 2017

Fiscal health conversation turns to foreclosures, unspent federal grants and land use

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.

Legislators consider federal policies affecting state and local governments

State legislators from Connecticut, Maine, Massachusetts, and New Hampshire gathered at the annual Economic Perspectives on State and Local Taxes seminar last month, organized in partnership with the New England Public Policy Center of the Federal Reserve Bank of Boston. Tax, fiscal, and economic development experts from across the country discussed proposed federal changes that could impact state and local governments, revenue-raising options for local governments including value capture, and ways to improve the use of tax incentives.

Nicole Kaeding, an economist for the Tax Foundation, spoke about the potential impacts of federal tax reform on state and local governments, focusing on the House Republican tax plan released in June 2016. If the plan broadens the federal income tax base, states that link their tax policies to the federal tax code see a revenue increase, she said. However, eliminating the federal deductibility of state and local taxes would increase residents’ tax burdens and might lead to calls for state and local tax cuts. This would especially hurt revenues in New England states, which rely heavily on the property tax. Michael Leachman, Director of State Fiscal Research for the Center on Budget and Policy Priorities, spoke about potential federal budget changes, warning that reductions in Medicaid and non-defense discretionary spending could lead to billions of dollars in cuts to federal aid for state and local governments. Jenna DeAngelo of the Lincoln Institute looked at the longstanding problem of state and local governments who are unable to spend all their federal grant money. She cited Maryland as an example of a state that worked hard to make sure that grant money is fully utilized. The Maryland Governor’s Grant Office helps state agencies, local governments, and nonprofits find, win, and manage grants.

Catherine Collins of the George Washington Institute of Public Policy and co-manager of the Lincoln Institute’s Significant Features of the Property Tax database discussed property tax exemptions for nonprofits, covering recent developments including the lawsuit challenging the exemption for Princeton University. Gerald Korngold, a professor at New York Law School and visiting fellow at the Lincoln Institute, tackled the potential for value capture as a revenue raising tool in the U.S., including special assessments and impact fees, among other devices. He cautioned legislators to be mindful of both federal constitutional constraints (most importantly the takings clause of the Fifth Amendment) and the requirements of state constitutions and case law.

Robert Triest, vice president and director of the New England Public Policy Center at the Federal Reserve Bank of Boston, provided a regional economic update. He noted that Massachusetts has rebounded from the recession more quickly than the other New England states, and is the only New England state growing faster than the U.S. He also noted that manufacturing employment has grown since the Great Recession in the U.S., but not in New England.

Ellen Harpel, president of Smart Incentives, consults for state and local governments on effective use of tax incentives, among other economic development tools. She advised that tax incentives should always be connected to a larger economic development strategy. Joshua Goodman of The Pew Charitable Trusts discussed his new report How States Are Improving Tax Incentives for Jobs and Growth, which ranks states based on how well they evaluate the performance of tax incentives. Within New England, Maine is graded “leading,” Connecticut, New Hampshire and Rhode Island are graded as “making progress,” and Massachusetts and Vermont are graded as “trailing.” Building on the 2012 report Rethinking Property Tax Incentives for Business, the Lincoln Institute continues to study the costs and benefits of tax incentives and explore ways to prevent waste, ensure accountability and transparency, and produce the maximum benefit for each public dollar invested. The institute convened a panel on the subject last month at the American Planning Association’s National Planning Conference in New York City.

How states can support urban revitalization

A new Working Paper by researcher Alan Mallach for the Lincoln Institute of Land Policy explores how state governments can support lasting and inclusive urban revitalization. Cities are “creatures of the state,” and subject to state control, regulation and intervention, even in states where municipalities have home rule authority. States set the rules about what cities may or may not do, which can in turn bolster or limit their ability to take the steps they need to build stronger economies and neighborhoods. States also have access to far greater resources, and their financial and programmatic support – or lack thereof – for cities’ revitalization efforts can make the difference between a good idea and a tangible achievement. Amid the ongoing uncertainty in the federal role toward the cities, what state governments do has perhaps never been more important.

State Government and Urban Revitalization: How States Can Foster Stronger, More Inclusive Cities lays out for the first time a comprehensive framework for state policy in urban revitalization. It addresses how state laws and policies affect urban revitalization, focusing on five identifying key elements:  fiscal and service-delivery capacity; economic competitiveness; building a stronger housing market; building stronger neighborhoods and quality of life; and building human capital, while placing them all in the context of equity and inclusion.

Mallach offers a series of guiding principles for state governments to make cities stronger, more inclusive places, where issues of poverty and inequality are addressed in tandem with revitalization:

• Support, don’t substitute. Urban revitalization can only succeed where it is driven by local leadership. State governments must recognize that local officials have the best understanding of their communities’ needs. State oversight is important, but constraints placed on programs or spending at the state level often hinder the local creativity necessary for successful revitalization.
• Recognize the uneven playing field. States should target more resources to jurisdictions that need them most and should reexamine policies, which are unfortunately widespread, that disadvantage the central cities and smaller communities that are most in need of revitalization.
• Think regionally. Cities and the suburban and exurban regions that surround them make up a single economic unit. As such, revitalization efforts championed by state governments should encourage greater cooperation among jurisdictions in fragmented regions.
• Break down the silos. A lack of coordination among government agencies and departments is a widely acknowledged problem, at both the state and local levels. States should not only encourage local governments to remove internal barriers to coordination, but should also ensure that state government is organized in ways that promote comprehensive thinking and collaboration with local governments.
• Foster inclusivity. Revitalization needs to benefit everyone in our cities, not merely a few. Many of the challenges related to poverty and inequality, however, are outside of a city’s ability to control. States have a critical role to play in ensuring that residents have greater access to economic opportunity, both by enacting state policies that directly benefit low-income people and by explicitly enabling or encouraging cities to create inclusive policies.

Mallach, co-author with Lavea Brachman of the 2013 Lincoln Institute Policy Focus Report Regenerating America’s Legacy Cities, concludes that states are not only important but essential actors in urban revitalization, and offers  a series  of more specific recommendations for how they can promote cities’ success, including providing diversified  revenue sources for local governments, providing state dollars to seed catalytic redevelopment projects, and “fix-it-first” and multi-modal transportation policies.

After Great Disasters: An In-Depth Analysis of How Six Countries Managed Community Recovery

In the face of earthquakes, tsunamis, hurricanes, and the extreme weather impacts of climate change, communities need to plan ahead for their disaster recovery to ensure that they rebound and emerge stronger than before, according to a groundbreaking new book of in-depth case studies from six countries across three continents.

After Great Disasters: An In-Depth Analysis of How Six Countries Managed Community Recovery by Laurie A. Johnson and Robert Olshansky, synthesizes the authors’ 25 years of collaborative experience as recovery planners onsite of major disasters ranging from the 1995 earthquake in Kobe to Hurricane Sandy in 2012. They recommend best practices for urban officials and policy makers based on firsthand research on the roles of various levels of government in successful disaster recovery and rebuilding in the United States, Japan, China, New Zealand, Indonesia, India, and several other countries around the world. The authors collected hundreds of documents and interviewed government officials, academic researchers, representatives of international aid organizations, community leaders, and disaster survivors, with the aim of finding common lessons in these disparate environments and facilitating the recovery of communities struck by future disasters.  

The book provides more tools for implementation following the 2016 publication of the Policy Focus Report After Great Disasters: How Six Countries Managed Community Recovery, also by Johnson and Olshansky, showing how metropolitan regions can rebuild for greater resilience during the reconstruction process after earthquakes, tsunamis, hurricanes, or terrorists attacks. “The level of detail in the book is invaluable for disaster recovery workers on the ground, compared to the concise recommendations in the earlier report, which is geared to readers at the executive level,” says Olshansky, head of the Department of Urban and Regional Planning at the University of Illinois at Urbana-Champlain. Johnson is an urban planning researcher and consultant, and chairs the U.S. National Advisory Committee for Earthquake Hazards Reduction.

As Johnson notes, “Disasters can change the fortunes of a city or region forever.” Chicago and San Francisco became more successful cities after being ravaged by fire and earthquake, respectively, and Tokyo successfully survived devastating fires caused by earthquake and war. But the city center of Managua, Nicaragua, never recovered from a 1972 earthquake, and Galveston, Texas, lost its status as a booming metropolis after its destruction by a great hurricane in 1900.

The management of recovery matters because disasters extend over time. They disrupt lives and businesses as people await assistance, infrastructure repair, and the return of their neighbors. Physical recovery from disasters takes many years, and the psychological scars can last for decades. Many people survive the initial disaster but then suffer from the recovery as the economy stagnates, social networks weaken, and healthcare and support services decline. The process of recovery is a major aspect of a disaster, and its management can affect both the intensity and the duration of citizens’ disaster experiences. Post-disaster reconstruction offers a variety of opportunities to fix long-standing problems by improving construction and design standards and quality, renewing infrastructure, creating new land use arrangements, avoiding hazardous locations, reinventing economies, improving governance, and raising community awareness and preparedness.

In the past 40 years, a number of serious international disasters have required large-scale, sustained intervention by multiple levels of government and nongovernmental organizations, and their activities and actions have increased knowledge of long-term post-disaster reconstruction. We now have enough examples to develop effective models for the process of rebuilding human settlements after disasters.

Michael Nutter, Scott Smith, and Timothy Renjilian join Lincoln Institute of Land Policy board

Former Philadelphia mayor Michael Nutter, former Mesa, Ariz. mayor and Phoenix-area transit chief Scott Smith and business and financial consultant Timothy Renjilian have joined the Board of Directors of the Lincoln Institute of Land Policy.

“We welcome Michael Nutter, whose lifelong commitment to public service embodies the impact the Lincoln Institute wants to have on quality of life in communities worldwide,” said Kathryn J. Lincoln, chair and chief investment officer for the Lincoln Institute. “Similarly, Scott Smith’s distinguished record in local government and transit will be an asset as we promote fiscally healthy and sustainable communities. And Timothy Renjilian’s deep experience with business, financial and regulatory issues will enrich the collective expertise of our Board of Directors.”

Michael Nutter served as Democratic mayor of Philadelphia from 2008-16 after nearly 15 years on the City Council. During his tenure, he focused on reducing crime, increasing sustainability, attracting new businesses and residents, and strengthening the city’s fiscal health. He worked with New Orleans Mayor Mitch Landrieu and the National League of Cities to launch Cities United, an initiative aimed at combatting violence and crime among African-American men and boys, and served on former President Barack Obama’s My Brother’s Keeper Advisory Council. Nutter was also president of the United States Conference of Mayors from 2012-13. He is now the David N. Dinkins Professor of Professional Practice in Urban and Public Policy at Columbia University’s School of International and Public Affairs, a member of the Homeland Security Advisory Council, and a Senior Fellow for What Works Cities, a program of Bloomberg Philanthropies, among other roles. He has a bachelor’s degree in economics from the Wharton School of Business at the University of Pennsylvania.

Scott Smith served as Republican mayor of Mesa, Ariz. from 2008-14, focusing on reducing spending and increasing efficiency and accountability. He was appointed in 2016 as CEO of Valley Metro, a public transit authority serving a population of 4 million people and 67 million annual passengers in the Phoenix metropolitan region. In addition, he is a senior nonresident fellow at The Brookings Institution Metro Policies Program, served as president of the United States Conference of Mayors in 2013-2014, and was also a resident fellow in the Institute of Politics at Harvard University’s Kennedy School of Government. Smith has a bachelor’s degree in accounting from Brigham Young University and MBA and JD degrees from Arizona State University.

M. Timothy Renjilian is a senior managing director for FTI Consulting Inc., with 30 years of experience providing audit, accounting and advisory services to attorneys and corporate clients. He is focused primarily on the health care sector, serving as an advisor on a range of regulatory and legal issues. His clients have included hospital systems, inpatient rehabilitation facilities, skilled nursing facilities, home health companies, durable medical equipment suppliers, pharmaceutical companies, device manufacturers, payers, and others. Renjilian was previously a partner with KPMG LLP, and with Arthur Andersen LLP. He has a bachelor’s degree in accounting from the University of Virginia.

The other members of the Lincoln Institute board include Roy Bahl, Regents Professor of Economics, Emeritus, at Georgia State University; Carolina Barco, former ambassador of Colombia to the United States; Raphael Bostic, director of the Bedrosian Center on Governance and the Public Enterprise at the University of Southern California and incoming president and CEO of the Federal Reserve Bank of Atlanta; Mimi Brown, former commissioner of Rating and Valuation for the Government of Hong Kong; Jane Campbell, director of the Washington office for the National Development Council; Anthony Coyne, president of Mansour, Gavin, LPA in Cleveland; Bruce Lincoln, president of Innervizion Surf Company in Chandler, Arizona; David C. Lincoln, president of VIKA Corp. and chairman of Claremont Lincoln University; John G. Lincoln III, former senior engineer at CH2M-Hill in Boise, Idaho; Johannes F. Linn, a resident senior scholar at the Emerging Markets Forum in Washington, D.C.; George W. McCarthy, president and CEO of the Lincoln Institute of Land Policy; Constance Mitchell Ford, visiting professor at the Philip Merrill College of Journalism at the University of Maryland; Thomas Nechyba, professor of economics and public policy studies at Duke University; and Jill Schurtz, Executive Director, St. Paul Teachers’ Retirement Fund Association, in St. Paul, Minnesota.

Odds & Ends

We’re partnering with the New York Times to promote Cities for Tomorrow July 10-11, a convening of policy makers, private sector leaders and others, looking at what makes great cities thrive. Register for a 20% discount … Value capture takes hold in Massachusetts as landowners are asked to contribute to public projects that increase property values, through a business improvement district along the Rose Kennedy Greenway and several transit financing plans … Chicago’s Global Strategy echoes themes at our Journalists Forum on how on how cities can forge their own path … Houston grapples with property tax cap, revenue challenges … As Hartford teeters on bankruptcy, the Wall Street Journal cites our property tax research (subscription may be required) … This month’s highlighted Working Paper: Where do Property Rights Matter More? Explaining the Variation in Demand for Property Titles across Cities in Mexico, by Paavo Monkkonen.