July 18, 2013
A Few Quick Thoughts Before We Knock Detroit

Today, Detroit became the biggest US city to ever file for bankruptcy. Hearing bankruptcy in the same sentence as a city almost automatically leads one to think: what is that city thinking? A city should never file for bankruptcy - bankruptcy would cause too much damage to a city by scaring off bond investors and other creditors. However, this line of thinking is too absolute. In the case of Detroit, bankruptcy was likely the right move.

Detroit is a city fighting an immense amount of stigma. Jokes abound about Detroit’s poor financial situation and high level of crime. The city cannot afford to not aggressively combat this stigma. Stigma creates a vicious, painful cycle for cities - it scares away business investment and potential residents, leaving no tax base and more problems to be addressed. Stigma has a material, lasting effect. As someone that has spent a significant amount of time working in Newark, NJ, I’ve seen this first-hand. The riots in Newark in the late 1960’s have plagued Newark for over 50 years. A poor reputation for crime and poverty are many of our cities’ biggest obstacles.  

Although combating stigma is hugely important for cities like Detroit, it is difficult to take the steps necessary to do so when the city must pass its revenues to creditors. Provide seed money to local entrepreneurs? Implement wireless internet services in a downtown park? Start an after-school program for impoverished youth? Can’t do it - we gotta pay the bondholders. Hence, the idea is simple: file bankruptcy, address city needs. Sound crazy? 

As suggested above, filing bankruptcy creates a different kind of stigma: creditors view a city that has filed for bankruptcy as a risky investment and charge the city more to borrow money. Many would assert that this stigma should be a city’s main concern - it will prevent cities from getting REAL money, the level of funds needed for infrastructure and other large scale projects.

But, after filing bankruptcy, Detroit will still be able to find investors. There are always investors willing to make a very risky  bet (see subprime lending fiasco). Furthermore, in the case of Detroit, whether the city filed bankruptcy or not, it was already a risky investment - the marginal cost of the bankruptcy to the city in terms of increased interest rates may not be much. At least bankruptcy gives the city a chance to begin addressing the issues that have made it a risky investment.

While there are always investors willing to buy a bond, our cities have shown us there are far fewer individuals willing to move to or start businesses in a stigmatized city. Filing bankruptcy and taking immediate steps to attack this self-perpetuating, long-lasting stigma, is likely the right approach for Detroit. 

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Filed under: Detroit Bankruptcy Newark 
June 20, 2013
America's Fastest and Poorest Shrinking City: Youngstown

Every city has assets. One of Youngstown’s is strong, determined citizens like this blogger. 

the-tonberrys-lantern:

For people who tell me “It cant be that bad” and “Your town really isnt that horrible”.

Here.

This is my home. This is where I live. And we will not give up on our home. Youngstown Proud.

We may be poor, we may be one of the “Most Miserable Places to Live in America” but on are backs we carried the raw steel for wars. We are stronger than our numbers.

We are plagued by poverty. We are plagued by racism. We are plagued by crime. We are plagued by a nonexistant government. But we are Youngstown.

(via the-tonberrys-jack-o-lantern-de)

June 18, 2013
Seriously, We Have to Stop Giving Away Free Parking to the Disabled: A Comment

On the Atlantic Cities today,”Seriously, We Have to Stop Giving Away Free Parking to the Disabled,” put forth arguments made by the University of California Transportation Center for cities to stop providing free parking to persons with disabilities. The main thrust of the argument is that much of the time, persons with handicap placards are either not truly disabled or have the ability to pay for convenient parking. As a result, such free parking should be discarded because it greatly takes away from city parking revenues. To demonstrate the effect on city revenues, the article provides a chart showing the alleged moral hazard problem the placards create: persons with handicap placards leave their cars parked in metered spaces for very long periods of time, presumably because they are not charged for the spaces (nevermind the fact that persons with a handicap need more time to maneuver because of their condition). 

On their face, the arguments made appear to make sense: why subsidize people that don’t need it and abuse the subsidy? However, a closer looks shows that doing away with handicap parking or drastically modifying it may not be all that great for cities. Many persons with disabilities are both low-income - more than 1 in 4 persons with a disability live in poverty -  and truly need handicap parking to carry out their responsibilities. Thus, completely eliminating handicap parking would be extremely irresponsible from a social perspective (and the people at the UC Transportation Center do not appear to advocate for this) . Furthermore, by taking a way a much-needed benefit, eliminating handicapped parking would make persons with disabilities less independent and more in need of other forms of costly government assistance, such as curbside transportation services. 

As noted above, the article does not appear to argue for totally eliminating handicap parking - some type of income-testing approach seems to be suggested. Income-testing would make sure that only those in need are able to access handicapped parking at a low cost. But, income-testing will be costly from an administrative perspective. Applicants for passes will have to collect documents that are to be reviewed by city employees. Not only would this add another burden on persons with disabilities already flushed with complex application processes, such as for Social Security, Medicaid, etc., it would cost cities time and money. Would the extra parking income such an endeavor would create for cities outweigh these costs? I doubt it. 

The solution doesn’t seem to be in getting rid of free handicap parking, rather it appears to lie in better approaches to how the placards are distributed. The article mentions that a variety of medical professionals can easily distribute the placards. To prevent abuse of this privilege, random checks or increased penalties for such abuse can be utilized. Furthermore, mandatory guidelines for the length of a placard can be put in place. For example, cities could put forth that a placard for a person with a broken leg can be at most 2 months. Through such efforts, we can minimize the dilemmas currently posed by handicapped parking without doing a disservice to persons with disabilities or city budgets. 

June 13, 2013
Hang Outs & Our Spatial Class Divide

Across America, the residential divide among people of different socioeconomic classes has been growing. More and more places are segregated by income rather than race. But, beyond residentially, it seems like we’re segregated in terms of where we shop, eat, and simply hang out. I’ve lived in cities all over the country, including Worcester, MA, Phoenix, AZ, Jacksonville, FL, and Atlanta, GA, and even when I’ve lived in places where upper and lower class people live near each other, these groups rarely hang out at the same places. Most Americans’ opportunities for accidental encounters with people from a different socioeconomic background appear to be extremely limited. Given this dynamic, it is unsurprising that our political dialogue is so polarized and distance between rich and poor is at an all-time high. 

Without interaction among varying socioeconomic classes, persons in such classes are unable to develop an understanding of and appreciation for those in a different class. This lack of empathy allows an unsympathetic image of “the other” to develop that fuels ideological polarization. In addition, a lack of interaction among classes prevents lower income individuals from tapping into the networks and gaining the social capital so important to realizing the American dream and transcending their born-into class. While addressing this issue through residential integration is a tall order, we can begin to chip away at our spatial class divide by changing the places where we shop, eat, and hang out. 

A variety of factors likely contribute to the segregation of people of different classes in public places: different tastes, geographic access, and different levels of spending power. Hence, pinpointing a fail-proof solution to our spatial class divide is difficult. However, with a little creativity, potentially the biggest barrier to class integration in public spaces (different levels of spending power) is being attacked.

Panera Bread has started opening “pay-what-you-can" stores across the country. These stores do not require customers to pay for their meals, rather customers order food and are asked to make a donation for their meal. Surprisingly, this model has been successful for Panera to date. While the model is geared towards fighting food insecurity (and, let’s be honest, getting good publicity for Panera), it has the positive side effect of bringing people of different classes to the same restaurant. A janitor can afford to eat at the same place frequented by professors and business executives. In fact, a key strategy of the model is being located in areas where a mixed-income clientele is possible. 

The Panera model, with the help of government subsidies, can be extended to a variety of other contexts. Grocery stores, like Whole Foods or Harris Teeter, can offer some of its goods on a pay-what-you-can basis or, with the enticement of government subsidy, establish entire pay-what-you-can stores. Gyms, bars, and books stores, which are all hotspots for accidental encounters and networking can adopt a similar model. 

Integrating where we hang out isn’t going to change the world, but it’s a step in the right direction.

June 12, 2013
The Senate’s ‘Elitist, White-Boy’ Plan to Fight Gangs Isn’t Right, But It’s A Start

A proposal by Senators Dick Durbin and Mark Kirk for combating Chicago’s violence epidemic has, for the first time in a long time, brought national attention to inner-city violence. Unsurprisingly, the proposal has also provoked intense debate and controversy. 

This week, “The Senate’s ‘Elitist, White Boy’ Plan to Fight Gangs is Right” by David Masciotra was published on The Atlantic Cities. Masciotra criticizes recent comments by Democratic Rep. Bobby Rush and Rev. Michael Pfleger pertaining to the Senate proposal. The plan calls for the mass incarceration of members of Chicago gangs, specifically the Gangster Disciples, a tactic that Rush and Pfleger have denounced as elitist and out-of-touch. I applaud Masciotra for his concern for and genuine desire to combat the violence plaguing Chicago - the first step to combating this violence is shining a light on it and his passion has helped do so. However, his critique of Rush and Pfleger and analysis of the issue leaves much to be desired. 

Masciotra condemns Rush and Pfleger for not realizing the importance of safety in turning a community around and implying that gang members should receive the same services and rights as the citizens such members have terrorized over recent years.

Masciotra’s first criticism seems misplaced. Rush and Pfleger did not state that safety is unimportant - in fact, they likely completely agree that safety is vital to community revitalization - rather, they view the Senate’s plan as short-sighted because it only focuses on locking gang members up. Inherent in Rush and Pfleger’s statements is the same belief in the importance of safety, but a more nuanced perspective on the issue than Masciotra demonstrates.

Rush and Pfleger have experienced years of the War on Drugs in their communities and, thus, have first-hand knowledge of the effect on safety that a “lock ‘em up” strategy can have. When criminals are simply locked up with no additional strategies for a neighborhood, power vacuums are created and children are left without parents, thereby perpetuating a cycle of violence and poverty. When powerful gangs’ members are thrown in prison, other gangs (recently formed or already existing) will compete for the newly available “turf,” setting off more deadly violence (for evidence of the effect of power vacuums, see the drug war in Latin America). Why? Most of the young people of Chicago have few other rational options given the poor education they’ve received and poverty that has plagued their youth. Turning down the opportunity to grab a slice of the large pie left behind by the Gangster Disciples or another gang is very difficult for someone that has never tasted something sweet. 

Masciotra references federal efforts to lock up organized crime leaders, such as Al Capone and John Gotti, as demonstrating the success of “lock ‘em” up strategies. This analogy is completely unconvincing as it involves individuals from different community contexts and very unique situations. Capone’s arrest did not lead to a bloody struggle for his “turf” because prohibition took the profits out of his empire. With Gotti’s arrest, we do not know whether organized crime was impacted at all. Furthermore, neither Gotti nor Capone lived in high-poverty areas with the characteristics of the Southside of Chicago. 

In addition to setting off a power struggle, the lock ‘em up strategy leaves more children without parents or providers, reinforcing their dire situations and enhancing their own chances of breaking the law. According to the Texas Department of Criminal Justice, 70% of children with incarcerated parents end up incarcerated at some point themselves. Thus, by calling for more holistic efforts rather than simply throwing gang members in jail, Rush and Pfleger are demonstrating a commitment to safety, not a disregard for its importance.

Masciotra’s second critique is driven home with the statement: “When Rush fails to differentiate between what society owes to gang members and what it owes to his law-abiding constituents he makes … crucial errors that disrespect, undermine, and insult the very people he is claiming to defend.” Here, Masciotra misses a complexity that must be taken into account when attempting to address gang violence: gang members and law-abiding citizens are deeply interconnected. Providing substantial services and assistance to those involved in gangs is just as important as doing so with law-abiding citizens. It is not a question of what society owes gang members, it is about what type of treatment they should receive in order to make society safer and neighborhoods more successful - at least this is the question Masciotra should ask if he is truly concerned with safety.  

In this respect, we should seek to provide gang members with services that are similar to those that law-abiding citizens receive. Gangs include young teens that have yet to commit violent acts and others capable of reform. By providing services to these individuals that give them an opportunity to become successful in the legitimate economy, we can prevent them from being menaces to our neighborhoods. Given these individuals are also family members, friends, and partners of law-abiding citizens, providing them services and opportunities also betters the lives of those citizens Masciotra is most concerned about. 

Gang violence is not only an extremely important issue, but it is a complex one. No single strategy can effectively address it. Masciotra, Rush, and Pfleger each make valid points that should be taken into account if we are to achieve the nuanced policy needed to combat gang violence. For example, a “lock ‘em” up strategy is likely needed for the most violent members of street gangs but such a strategy should be accompanied by intense services and real opportunities for the rest of the community as well as remaining gang members.  

Whatever the result that Rush, Pflegler, and Mastriota’s debate has, I am excited that the debate is happening. It’s about damn time. 

January 2, 2013
Combating Sexual Assault on Public Transit

The recent fatal bus rape in India has opened many people’s eyes to the problem of sexual assault on public transit. This article delves into the problem of sexual assault on public transit in the U.S. and other countries. Contrary to what one may think, it appears that such assault is all too common, illustrating this is a problem that must be immediately addressed. 

The article noted above discusses several examples of sexual assaults on public transit. The most alarming aspect of these examples is that no bystanders intervened to stop the assaults. This phenomenon has a variety of potential explanations: people on public transit keep themselves occupied with books/iPods/phones and may not notice surrounding behaviors, people are timid, people may be unsure of what is occurring and don’t feel it is their place to intervene, or the bystander effect may be at work. Regardless of the driving force behind people not intervening, we must incentivize them to do so.

Leveraging regular citizens appears to be the most feasible strategy for combating sexual assault on public transit. Other options are likely too expensive for cities to realistically pursue or simply won’t be effective. For example, placing cameras in buses and subways may seem like a viable approach. However, doing so would be extremely costly and the cameras may not increase detection because of difficult angles and victims not reporting assaults. Another strategy would be to place undercover officers randomly in public transit - this would allow police to intervene to stop attacks and raise the threat of detection, thereby helping to deter potential offenders. But, this would also be a very costly endeavor, especially for cities with already understaffed police departments. 

Unlike cameras and undercover officers, incentivizing citizens to intervene to stop an assault could be done relatively inexpensively. Cities could offer rewards to citizens or groups of citizens that intervene to stop an assault (this could mean calling 911, telling the transit operators, or directly intervening) where such intervention leads to an arrest or police report. Such rewards would need to be widely advertised to ensure citizens are aware of them and to help send the message that our society will not tolerate these assaults. In addition, cities could run campaigns that encourage people to say something when they see an assault occurring. More intervention on the part of regular citizens would increase the risks of committing assault as offenders would more likely be caught, which would help deter such individuals. 

Of course, there are many drawbacks to regular people intervening to stop violent attacks - the violence may escalate and more innocent people could be hurt. However, cities could emphasize citizens quickly notifying authorities rather than directly intervening when a more violent assault is occurring, such as rape. When an individual is being grabbed or harassed, the potential for a violent altercation following a bystander intervening seems slim. Another issue with this approach would be getting victims to file police reports, which would be necessary for distributing rewards and ensuring an incident actually occurred. But, this may not be a major issue as victims may be more willing to file reports out of gratitude to bystanders. 

No one should have to fear using public transit - maybe regular citizens are the key to putting an end to such fear. 

January 1, 2013
blogut:

Untitled by Santi Navarro

blogut:

Untitled by Santi Navarro

December 26, 2012
A City-Owned Movie Theater? Yes, y’all.

In Jackson, MS, the state’s capital city, there are no movie theaters. The lack of a movie theater in the city is perplexing - the city boasts a population of more than 175,000 people (surely, there is enough of a demand for at least a small cinema) and city leaders would love for Jackson to have a theater (leaders are discussing using grants or tax incentives to attract a theater). In Sarah Goodyear’s recent Atlantic Cities article, “Mississippi’s Capital City Doesn’t Have a Movie Theater. Will That Ever Change?,” historian Jerry Dallas puts forth an explanation for this paradox: a continuing fear of crime in Jackson, white flight to the suburbs, and the convenience of suburban theaters in surrounding counties. 

Mr. Dallas’ explanations for Jackson’s movie theater situation (or lack thereof) suggest market failure may be to blame. Dallas hints that Jackson is perceived as a crime infested urban locale that is incapable of sustaining a movie theater. Such a perspective would appear to be the result of an information gap; in Harvard Business School Professor Michael Porter’s “New Strategies for Inner-City Economic Development,” he cites information gaps about the purchasing power and crime rates of inner-cities stemming from social biases about inner-cities as a key barrier to attracting investment to such areas. In Jackson, the median income is $34,567, which, when combined with a population of over 175,000, demonstrates the city has a large pool of purchasing power. In addition, although parts of Jackson, like most cities, do have alarmingly high crime rates, the city also has areas that are very safe. 

Assuming an information gap is indeed to blame for Jackson not being able to attract a movie theater, the city should step in - the role of government is to intervene in precisely such a situation, when a market failure is occurring. Some would assert that this intervention should take the form of tax incentives but such an approach has been met with large opposition (see Richard Florida and others) as it is seen as subsidizing companies without achieving a lasting impact for a locality. Others would suggest correcting the information gap by taking steps to foster a better business environment in Jackson (see Porter). While this approach sounds great, in a place like Jackson, with deep-rooted biases at play, it may not be feasible to simply build a vision of the city as having an attractive business environment. Rather than tax incentives or pursuing a better business environment, Jackson might be better off doing the unthinkable - running its own movie theater.

If city leaders truly believe that a movie theater can turn a profit in Jackson, why shouldn’t the city realize such profit and provide a service that its population values? Cities across the nation engage in enterprising endeavors - Phoenix, AZ sells methane gas, San Bruno, CA has its own cable television company, and the Milwaukee Sewage District transforms sludge to fertilizer and sells it. But, the simple fact that other cities have developed and operated businesses does not alleviate the concerns about government engaging in such efforts and, specifically, a city operating a movie theater. With the city’s access to taxes, it will have an unfair advantage over other theaters - they will have to respond to market pressures, whereas the city’s theater will be able to offer lower ticket prices since it is “subsidized” by the people. In addition, the pursuit of profit opens up the door to corruption among public officials. Lastly, movie theaters are very risky business endeavors, creating the risk of tax payer dollars being wasted. 

These concerns about a city operating a movie theater can be allayed relatively easily. After start-up assistance (say, an amount close to what the city would offer to a potential theater via tax incentives), the theater can be required to be self-sustaining, thus preventing the theater from being continually subsidized and possessing an unfair market advantage. A private third party can be left in charge of theater operations to prevent manipulations by public officials attempting to extract funds or resources from the theater. Lastly, to mitigate the risk of operating a theater, the city could run a small-scale trial period to determine whether investing the full amount a theater would require would be prudent. 

In addition to overcoming opponents of such substantial government intervention into the market, Jackson would likely face major legal barriers to establishing its own movie theater. Local government law greatly restricts the ability of cities to engage in efforts to raise money, such as operating a business. But, in our current economic climate in which localities across the country are starving for revenues, the city may be able to convince the state legislature to allow them to pursue this creative revenue stream.

While this post has focused on Jackson’s movie theater woes, the idea of localities operating businesses is something states and cities across the country should begin to consider. As mentioned above, our localities are extremely limited in how they can raise revenues and many are experiencing economic crises as a result of declining tax bases and rising costs. We must pursue innovative, creative ways to sustain our towns and cities - allowing them access to profits that we reserve solely for the private sector is an example of such an approach. 

December 22, 2012
Economics & The NRA Proposal for Armed Guards

Today, the NRA put forth its proposal for preventing tragedies like Sandy Hook: placing armed guards, both police and private volunteers, in schools. From an economic perspective, this proposal is irrational.

Presumably, the NRA believes that armed guards will prevent shootings in schools by  1) deterring potential shooters from engaging in the act and 2) quickly disarming a shooter once a shooting begins. The shooters involved in Columbine, Virginia Tech, and Sandy Hook each committed suicide after their rampages; these individuals were not afraid of death, they embraced it. Deterring someone with such a mindset from committing mass murder is futile. They may be averse to prison but, as demonstrated by the Columbine, Virginia Tech, and Sandy Hook shooters, such individuals can ensure that their own death is the final outcome of their acts. An armed security guard would not alter this expected outcome: shooters would either avoid the guard and kill themselves or be shot by the guard during a confrontation. Hence, adopting the NRA’s proposal would lead to huge costs (i.e. paying for armed guards) but offer no benefits in the form of deterrence of the acts the proposal is responding to - an extremely inefficient result.

History shows us that armed guards are also ineffective when it comes to intervening in a school shooting. There were two armed guards at Columbine yet fifteen innocent lives were still taken. Such a result is expected given the size of schools and the speed with which shootings occur. A few seconds in a classroom or hallway is all it takes for a large number of lives to be lost. Shooters can easily plan to enter a school away from a few armed guards, giving them enough time to execute an attack. Thus, the large costs associated with placing armed guards in schools is not justified by the potential for such guards to intervene in shootings. 

Rather than placing armed guards in schools, economics would suggest a form of incapacitation to address tragedies like Sandy Hook. When an individual cannot be deterred from causing grave harm, it is efficient to disable their ability to commit such harm. For example, if law enforcement knew with certainty that an individual was going to crash an airplane into a building and no threat of sanctions could prevent the individual from doing so, law enforcement should either incarcerate the person or take steps to ensure they cannot get inside a plane. Given we do not know who is going to commit a school shooting, we cannot incapacitate attackers before a shooting occurs. However, we can disable their ability to commit a shooting by taking steps to ensure they do not get access to guns. You can find a serious, tangible plan to achieve this here.

December 9, 2012
The Mortgage Interest Deduction: A Better Way Forward

The Mortgage Interest Deduction (MID) should be drastically reformed. It is flawed in three major ways: 1) it does not significantly impact homeownership, 2) the amount of resources it allocates towards homeownership appears unjustified, and 3) it disrupts the accumulation of affordable housing by encouraging larger than needed homes. Hence, the MID is failing to effectively achieve its apparent goals of stimulating asset-accumulation and strengthening communities through homeownership, it is detracting from such aims by inefficiently allocating resources towards homeownership, and it is acting as a barrier to widely available affordable housing. To correct these flaws, the scope of the MID should be reduced, its structure altered, and savings obtained from such reforms should be allocated towards strategies that facilitate family savings and a greater supply of quality affordable housing.

The MID does not significantly impact home ownership.

A variety of empirical studies have found that the MID has little impact on homeownership. See Toder (2010). This result is no surprise given the MID’s structure – it primarily benefits wealthy individuals, who would likely purchase a home without the deduction. Only those that itemize their taxes can obtain the MID, and while 98% of those earning above $125,000 itemize, only 23% of those making less than $40,000 do so. Id. Furthermore, “the average value of the MID rises steadily with income from $91 for those with annual incomes less than $40,000 to $5,459 for those making more than $250,000.” Id.

The amount of resources the MID allocates towards homeownership does not appear to be justified.

            In 2012, the MID will cost the federal Treasury about $131 billion – nearly three times the total annual expenditures of the Department of Housing and Urban Development. Id. Until recently, few questioned the wisdom of such an aggressive government strategy to encourage homeownership. Homeownership is often viewed as an effective means of asset-accumulation – it lifts people out of poverty and economic insecurity. However, our recent economic crisis has shown that, like most investments, housing is a risky investment. Of course, overall, housing may be less susceptible to losses than other forms of investment, such as the stock market or a business. But, investment in housing also prevents many families from being able to diversify, which limits their ability to shield themselves from risk. Furthermore, our recent crisis has illustrated that poor housing investments can paralyze the entire economy, compounding the risk of housing as an asset-accumulation strategy.  

Many also cite various studies that have found correlations between homeownership and good citizenship to justify extensive government resources being allocated towards homeownership. However, such studies should be approached cautiously; they find correlation between good citizenship and homeownership, not causation. Homeownership might simply be correlated with good citizenship because wealthier people buy homes and such individuals have more time to devote towards their communities. Additionally, according to Glaeser (2011), homeownership may have deleterious effects on citizenship because homeowners typically live in single-family detached homes, which create distance between neighbors and higher costs of connecting with a community.

Given the uncertainty surrounding the soundness of housing as an asset-accumulation strategy and the mixed perspectives on the relationship between homeownership and citizenship, investing billions of dollars into homeownership through the MID appears unjustified.

The MID disrupts the accumulation of affordable housing by encouraging larger than needed housing units.

            According to Glaeser (2011), the MID encourages excessively large housing units because people typically receive a bigger deduction when they buy a larger home. Because the MID mainly benefits the wealthy, these individuals in particular are being driven to purchase larger than needed homes. This has important implications for our nation’s supply of affordable housing.

As noted by Rosenfeld (2007), housing stock is usually passed down from the wealthy to those with lower incomes. Today’s luxurious homes are tomorrow’s affordable housing stock. But, if the wealthy are being encouraged to buy extremely large homes, this transition is less likely to occur. Large homes are expensive to maintain in terms of electricity, heating, and repair costs. In addition, home size is correlated with price so larger homes will likely always be more costly than similarly situated smaller homes. Thus, by encouraging larger homes, the MID is limiting the future supply of affordable housing.

Reforming the MID   

Transform the MID into a refundable mortgage interest credit

The MID should be turned into a refundable mortgage interest credit that is only available to individuals earning less than $100,000 annually. The maximum credit allowable should be $1,490. A mortgage interest credit up to a maximum of $1,490 available to all individuals buying a home would cost the government the same amount as the current MID. Toder (2010). Hence, limiting the availability of the credit to those earning less than $100,000 will significantly decrease the costs of the MID. In addition, altering the deduction in this way will make it a more effective tool with respect to homeownership because its benefits will accrue to those on the margins between renting and owning rather to individuals that already have the desire and ability to buy a home. The MID will be transformed from a blunt instrument into a precise and efficient tool.

By turning the MID into a refundable mortgage interest credit for people earning less than $100,000, people “on the fence” about buying a home will have greater access to the financial benefits it provides. For example, someone making $30,000 who only pays a few hundred dollars a year in income taxes will be able to receive cash amounting to over a thousand dollars each year, depending on their mortgage interest payments, when they purchase a home. In contrast, under the current MID, they would receive at most, if they itemize, a few hundred dollars in tax breaks. Under this proposal, buying a home will be more financially feasible for such an individual and, therefore, she will be more likely to make the leap to homeownership.

In addition, adopting this reform would greatly mitigate the tendency of the MID to encourage excessively large housing units because the scope of benefits a homeowner could receive would be capped at a lower level and a much smaller segment of the population would have access to the MID.

Use savings from the restructuring of the MID to incentivize localities to make affordable housing more widely available and to develop programs that facilitate family savings

The federal government should use funds saved from the reform of the MID to award grant money to localities that alter their zoning regulations to allow more multi-family dwellings, see Glaeser (2011). In localities across the U.S., zoning regulations prevent the development of multi-family dwellings – housing that can accommodate middle and low-income individuals. This leads to the artificial limiting of the supply of affordable housing. In addition, such regulations contribute to the concentration of poverty, which poses an enormous obstacle to building strong communities. Hence, by incentivizing localities to alter their zoning regulations, the federal government can both strengthen communities and increase access to affordable housing.

The money saved from reforming the MID can also be used to create programs that facilitate family saving. For example, matching savings funds programs can be established for families below a certain income level. Such programs will help families accumulate assets, thus providing families with a viable option, other than investing in housing, for achieving financial stability.

________________________________

Realtors, mortgage bankers, and homebuilders will likely react defensively to the this proposal because such individuals believe they greatly benefit from the present structure of the MID. Furthermore, many homeowners will be unhappy with the prospect of losing some of their current tax benefits. However, the first group’s opposition can be quelled by demonstrating to them that their client bases will be enhanced as a result of the proposals’ likely effect on homeownership, and the current disdain for massive government intervention into the housing market will limit the effectiveness of homeowner opposition. 

October 18, 2012
Philly Tax Credit - A Reason to be Skeptical

Philadelphia is receiving the greatest form of flattery - mimicry. Massachusetts is adopting a tax credit program that the city pioneered in 2002. According to this article, “Philadelphia’s original program allowed private companies to commit to a 10-year partnership that would parlay $100,000 of their annual business tax obligation into funding for a community development corporation to execute commercial development or housing projects.” 

Undoubtedly, Philly’s model is extremely promising - local community development organizations are provided a consistent stream of money. Furthermore, it is important for programs to exist that place such an emphasis on local development. However, as with all programs, we must see both sides of the coin. 

The program furthers the privatization of our local governments. Rather than tax revenues being allocated to the public to be put through the democratic process, the revenues are moved from one private actor to a quasi public/private actor. Community Development Corporations are great but they are a step away from our public government and process. Rather than “the people” deciding how revenues will be spent, executive directors and CEO’s will be making such decision. This may be a good thing or a bad thing - we just need to recognize that this is the case. 

September 12, 2012
Miss this place - Newark is beautiful.

Miss this place - Newark is beautiful.

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Filed under: Newark 
August 14, 2012
Is this what cities are really about?

j5d:

““What should young people do with their lives today? Many things, obviously. But the most daring thing is to create stable communities in which the terrible disease of loneliness can be cured.””

                    — Kurt Vonnegut 

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Filed under: Vonnegut 
August 14, 2012
The Next Step for Infrastructure Banks

Infrastructure banks are all the rage. Rahm Emanuel’s infrastructure bank in Chicago received national attention and praise for its innovative approach to Chicago’s infrastructure needs. Governor Cuomo of New York has also been in the national spotlight as a result of his creation of an infrastructure bank.

These banks are viewed as being on the cutting-edge of public finance because they allow state and local governments to circumvent the limitations that accompany the budget crises governments across the nation are experiencing. They do so by attracting private capital. Private capital is drawn to infrastructure banks because such banks present an opportunity for investors to reap a profit. In addition, infrastructure banks can help cities and states leverage federal funding because, as demonstrated by Emanuel’s and Cuomo’s banks, they send a message to federal officials that a government entity has an innovative plan in place that will effectively use federal funds. However, many have raised questions about infrastructure banks, specifically Chicago’s, because of the potential for public assets to be controlled by private actors.

Given the financial benefits to infrastructure banks, its model should be expanded to less conventional forms of infrastructure, specifically human capital. One way to describe infrastructure is that it is anything that makes society operate more effectively. Human capital, without too much of a stretch, can be seen as infrastructure - it makes places more productive and effective. 

Like Emanuel’s infrastructure bank, a human capital-focused infrastructure bank would present an opportunity for private investors to make a profit and help attract federal dollars because it would send a similar message as Emanuel’s bank, but it would not involve the risks of private control of public assets. A state or local government would allocate some capital to the bank, some of which would be used for a worker training program geared at a certain company’s needs. The goal of the program would be to attract the specific company to the city or state (developing company specific training programs has proven to be an extremely successful strategy for attracting companies to an area - check out this article). Then, a private actor would invest money into the bank that would be put towards bolstering the training program. The bank would be set up to allow the private actor to receive returns on this investment that would be based on the economic benefits that attracting the company provides the city or state, such as increased property tax revenues. Thus, the private actor does not control public assets, it just receives a stake on future revenues. 

A response to this idea may be that the city or state could simply give a tax incentive to the private company, after all, the end outcome is the same: the city or state is foregoing tax revenues to attract a company. But, under this approach, the infrastructure of the city or state is being strengthened, and therefore this approach presents a less risky investment than simply giving away tax incentives. Ten years after receiving tax incentives, a company could relocate, taking the city or state’s investments with it. However, using a human capital-focused infrastructure bank, if a company relocates, the city or state retains its investment: a more skilled population. Even if those skills were tailored to a specific company, those who received the training still will have developed general, transferable skills. 

August 6, 2012
Entrepreneurism: An Ideal Econ Dev Strategy for Poor Communities?

This week, NextAmCity’s feature article focuses on small-scale entrepreneurship as a tool to revitalize our cities. The article neatly illustrates why for-profit entrepreneurial endeavors on the part of city residents is good for cities. When residents start businesses, jobs and wealth are created. In addition, when residents see their neighbors become successful, they believe they can have success through entrepreneurship as well. This leads them to follow their neighbors’ lead by creating their own businesses. The article also cites places like Newark, NJ where such an entrepreneur focus is helping once-forgotten communities reinvent themselves.

Overall, the article makes a strong case for using entrepreneurship to revive cities, but it could be stronger. Not only is entrepreneurism well-suited for revitalizing cities, but the residents of these cities that need “revitalization” are well-suited for entrepreneurism.

When we talk about cities that need to be revitalized, what we are really talking about are places with large low-income communities, places where people have been trapped in poverty. These places are filled with people that have the skills to succeed as entrepreneurs - they’ve been honing their entrepreneurial skills their whole lives.

To survive poverty, you must be an entrepreneur. You often don’t have access to traditional jobs or networks that can support you, so you must be creative and realize market failures and opportunities - you have to hustle. Sudhir Venkatesh’s “Off the Books: The Underground Economy of the Urban Poor” illustrates this point. The book follows people living in poverty that create their own income streams through entrepreneurial endeavors, such as car repair businesses, drug sales, and selling home-cooked meals, and highlights how the isolating conditions of poverty force people to learn how to identify and tap into profitable markets.

Not only are people in poverty forced to become entrepreneurs, they must do so in an extremely competitive environment. In impoverished communities, there are, by definition, few resources to go around. Furthermore, there are few employment opportunities and most people are unable to go outside of their community to earn money because of stigma, lack of transportation, or other systemic restraints. Thus, a large number of people are often competing as entrepreneurs in a compact community for very scarce resources. This dynamic could be seen as Donald Trump’s “The Apprentice” on steroids - a top-notch “school” for entrepreneurs.  

When analyzing potential economic development strategies, we should evaluate a community’s strengths. If a community has human capital and potential with respect to a certain type of growth, we should pursue such growth because doing so will maximize the community’s human capital resources.

Because of the circumstances of poverty, in the world of entrepreneurism, a life in poverty is an asset. By pursuing entrepreneurism as an economic development strategy in low-income communities, we can fully leverage the skills that these communities possess, thereby increasing their chances of being revitalized.