Transportation on my mind...

Before heading over to Marquette University Law School yesterday to watch Mayor Barrett and County Executive Walker debate Milwaukee's transit future, I came across three other transportation stories making news that day.

The first, in the Philadelphia Inquirer, headlined a call from the I-95 Corridor Coalition , made up of east coast transportation and police officials, for a doubling of highway spending and "drastically" increased use of transit and rail in the corridor extending from Maine to Florida. Interestingly, a coalition spokesman acknowledged that neither the states nor feds have the capacity to fund the estimated $71 billion annual cost and argued that public-private partnerships be utilized to help fund improvements. That is the direction in which the Pennsylvania Legislature may be headed in light of proposals to lease the Pennsylvania Turnpike and authorize privately built toll lanes on existing highways.

The second and third articles, from the Associated Press and Wall Street Journal, detailed the "surge" in transit ridership nationwide during the second quarter and the significant challenges facing many transit agencies as they try to accommodate it. The AP story laid out the arguments for and against increased federal funding, while the Journal story reported on specific proposals in Congress to boost mass transit funding.

Armed with this context, I listened to the mayor and county executive lay out their respective transportation visions and argue again about use of the $91.5 million in federal funds authorized 17 years ago for a Milwaukee transit project. As I did so, I couldn't help but reflect on the following:

• While we continue to argue with each other on the local level, other mega-regions have formed powerful coalitions to advocate in Washington for their collective transportation needs. Who is more likely to get their fair share of an insufficient federal transportation funding pie, huge regions of the country who band together to fight for their parochial interests, or mid-sized metropolitan areas whose elected officials can't even agree on priorities among themselves?


• Not only Pennsylvania, but countless other states are acknowledging that their transportation infrastructure needs and those of the nation as a whole are so staggering that non-public funding and/or operation of parts of that infrastructure, as well as congestion pricing or other tolling mechanisms, must be contemplated as at least part of the solution. Ironically, the decrease in driving and popularity of smaller vehicles is making the problem even more acute, as gasoline tax revenue is no longer an elastic source of revenue. Is Wisconsin behind the eight ball in awakening to these realities?


• The Journal article notes that "momentum is building in Congress" to increase funding for public transportation, signaling good news for those counting on greater federal support to build and operate light rail, bus rapid transit and/or commuter rail in southeast Wisconsin. At the same time, however, both that article and the AP story describe the monumental challenges facing transit systems in paying for existing bus and rail service. That reality - combined with a depleted Federal Highway Fund that has some in Washington talking about diverting transit dollars for highway needs - reflects the challenges Milwaukee will face in attempting to obtain federal money for new transit services.

Of course, the fundamental lesson here is that transportation needs not only here in southeast Wisconsin, but across the country, are immense, and that other states and metro areas are objectively assessing those needs and developing strategic, diversified and cohesive approaches to meeting them. If indeed Washington is poised to provide more money, then it's a pretty safe bet that those with the best plans and the most unity will be first in line to get it.

Windfall federal housing funds headed to Milwaukee

What happens when a large pot of one-time federal funding becomes available to local governments? In the case of Milwaukee County and emergency flood aid, it was the unfortunate incident outside the Coggs Human Services Center. In the case of New Orleans and federal disaster assistance, it was a slow rebuilding effort which is only now beginning to improve.

Now, the City of Milwaukee enters the fray. In the coming weeks, the City will find out just how much of the $3.97 billion allocation it stands to receive from the recent passage of H.R. 3221 - The Housing and Economic Recovery Act of 2008. The funds are to be used for the redevelopment of abandoned and foreclosed homes.

Although the allocation formula has not yet been set by the U.S. Department of Housing and Urban Development (HUD), the Enterprise Community Partners estimates that Wisconsin stands to gain $57.2 million under this provision. The City of Milwaukee can expect to receive a significant portion of that allocation.

One key stipulation on the expenditure of these funds is that "Community Development Block Grant (CDBG) regulations will govern the administration of the funds." Of course, CDBG regulations are notoriously flexible. In an ideal situation, this would be just fine because localities would be given the flexibility to craft an appropriate response to local housing conditions. However, this one-time allocation brings up a host of questions as the City of Milwaukee decides how it is going to spend its allocation:

• Capacity - The legislation stipulates that state and local governments must use the funds within 18 months after receipt of the allocation from HUD. This begs the question: can the city come up with an effective and accountable housing program in just a few months time? If not, there is a risk of the funds not being spent or being susceptible to misuse.
• Parochialism - Will the planning process for these funds resemble the "battle" that surrounds annual CDBG appropriations in municipalities and counties throughout the state? Or, will community-based organizations join forces with the city to jointly craft a policy that is both focused and accountable? Will outside technical assistance be needed to craft an effective policy?
• Equity - How will this money get to the right people? How can one tell who is suffering from the crisis and who is just suffering - is there a difference? Should the program focus on rehabilitation or demolition? Should the program focus on the renovation of abandoned properties for rental or homeownership? Can policy be crafted that will not be perceived as a bailout for the banks which own many of the foreclosed properties?
  
• Accountability - What will be the metrics for success? This may have to be a local requirement because CDBG regulations require minimal accountability.
• Leveraging - Can these one-time program funds be leveraged with other public and private dollars to maximize impact? Can the funds be used to capitalize a revolving loan pool to fund the redevelopment of foreclosed homes? Can the funds be matched with dollars from area banks (after all, banks will partially benefit from this infusion of resources)?
  

Public policy often works best when it is implemented to prevent fires, not to put them out. The intent of this piece of legislation is laudable, but the implementation of the Title III funds will be challenging, to say the least. A collaborative and depoliticized process to plan for the expenditure of the tens of millions of CDBG dollars will be a critical factor in crafting a sound policy to deal with the fallout from the foreclosure crisis.

How can state and local policies blunt the impact of the mortgage crisis? Part II of II

The home foreclosure crisis obviously affects individual homeowners and the entire credit market, but it is also a crisis for local governments.

The Pew Center on the States estimates that the nation’s lost property tax base due to foreclosures amounts to $356 billion so far; and projects Wisconsin’s lost tax base will total $1.9 billion by 2009. These figures do not include the amount of property tax revenue lost due to the lower tax base.

While a municipal or county government cannot change the momentum of the crashing housing market, it is in a local government’s best interest to prevent foreclosures from accumulating and further decimating the tax base. In addition, vacant homes can result in cost increases for a local government, due to the greater need for policing empty neighborhoods, fighting fires, and reinforcing the safety net for the newly displaced and homeless.

Some local governments have become pro-active. Chicago, for example, just passed a new vacant properties ordinance strengthening the requirements for owners of vacant properties to maintain the dwelling. To enforce the ordinance, building inspectors will conduct interior and exterior examinations every six months.

The City of Boston has a three-pronged attack:
1. Prevention—The city has long run a Home Center to provide counseling and education for first-time home buyers.
2. Intervention—A foreclosure prevention hotline gives advice to homeowners in default. In addition, the city has begun to reach out directly to anyone receiving a foreclosure petition to offer intervention counseling. In 2007, 192 foreclosures were prevented (which was three times more than the number of actual foreclosures in 2005).
3. Reclamation—The city has an intensive program aimed at stabilizing neighborhoods experiencing a rash of foreclosures with more intensive policing and street repairs and maintenance. The city also sponsors a trolley tour of potential home buyers, showing them all the foreclosed homes that are now listed with brokers, and offers classes and technical assistance to buyers of foreclosed properties.

But the most important thing Boston is doing is surveying all bank-owned homes on a monthly basis to document their condition, putting the most deteriorated vacant homes into receivership, and streamlining the process for turning these homes over to developers for rehab and resale. The city is also doing “bulk” purchasing of the entire portfolio of a lender, as they have found this to be an easier way of dealing with banks and other loan servicers, who are often not motivated or equipped to sell individual properties promptly.

Protecting property values is of vital importance for local governments during this time of tight budgets and reluctance to raise tax rates. Mayor Barrett recognizes this and his administration is working with the Metropolitan Milwaukee Fair Housing Council and the Legal Aid Society to counsel homeowners. In addition, Milwaukee's Common Council president, Willie Hines, has recently proposed a housing and foreclosure policy advisor position be created in the upcoming budget. But even more action may be needed. It is imperative for Milwaukee to remain vigilant and be ready to move similarly to Chicago or Boston to keep vacant properties from causing wholesale value decline.

(Read part I of this post here.)

Home foreclosure crisis causes, Part I of II

What do Ed McMahon and Eric Rosengren, president of the Federal Reserve Bank of Boston, have in common? They've both faced foreclosure on their homes. It’s an interesting tale as told by Paul Willen, senior economist at the Boston Fed, who presumably had his boss’ permission when he recounted his story during the Governmental Research Association’s annual conference.

Mr. Willen’s story illustrates the results of his research into the causes of the mortgage crisis. A dataset of all mortgage loans in Massachusetts revealed some interesting findings.

Finding 1: Most of the defaulted subprime loans are not the purchase loan, but a refinance or a piggyback loan. The crisis isn’t solely the result of new homebuyers going after a house they can’t afford with an unwise purchase loan, as is often contended.

Finding 2: The rate adjustments after the initial lower-interest period, called resets, aren’t the sole problem either. The definition of a subprime loan is one in which the initial interest rate is already above the market rate; the reset didn’t push the rate too much higher. Resets on subprime loans are not like the interest rate resets on those cheap credit cards you can sign up for at Summerfest.

Finding 3: Housing prices are a contributing problem. In Massachusetts less than 0.1% of all homebuyers in 2002 went into default on their mortgage within 24 months; but 0.4% of all 2005 buyers went into default during that timeframe. Mr. Willen applied the home price appreciation experienced by the homebuyers of 2002 to those of 2005 and found the 24-month default rate would have gone down to 0.1% had 2005 buyers seen their home values go up as the 2002 buyers did.

It may be that the Federal Reserve Bank’s monetary policies, particularly the low interest rates of the early 00’s and the decision not to cut rates in 2007, had an impact on housing demand and thus housing prices. Even so, the bank's finding that declining home values are a source of the crisis is significant. It means the crisis is not acute—it will not be a sharp spike of defaults that will soon pass through the system, but a continuing problem until home values eventually start to recover.

For Southeastern Wisconsin, this may mean we’ll be insulated from the worst of the crisis, as the housing bubble here was never as expansive as in other metro areas. By never reaching the peak of the bubble, we may have been saved from experiencing the depths of the crisis.

And Mr. McMahon's and Mr. Rosengren's story? While they’ve both faced foreclosure on their homes, the outcomes were very different. When Mr. Rosengren became “upside down” on his home loan in the 90’s, he did not default, but tightened his belt and stayed in the home, waiting for home prices to increase.

Mr. McMahon, in default in 2008, entered foreclosure—for him, and thousands of others, the market turnaround is too far off. Luckily for Mr. McMahon, Donald Trump came to the rescue, buying the house and leasing it back to him. That’s a rather unlikely scenario for any other homeowner facing foreclosure.

(Part II, tomorrow: How can state and local policies blunt the impact of the crisis?)

Milwaukee and the Voter Fraud Debate

The long-debated issue of election reform resurfaced in Milwaukee recently, when two groups conducting major voter registration drives – the Association of Community Organizations for Reform Now and the Community Voters Project - reported that several of their employees were submitting voter registration cards under the identities of “dead, imprisoned, or imaginary people.” In both cases, the workers involved were fired, and the organizations voluntarily notified the Milwaukee Election Commission of the inaccuracies. Nonetheless, the incident raised worries that Wisconsin’s election system could be vulnerable to widespread fraud.

Such worries are hardly new in Wisconsin: the November 2004 presidential election was marred by a number of discrepancies. In Milwaukee, the number of ballots cast outnumbered the list of registered voters by 4,609 votes. Revelations of suspect voting practices triggered a firestorm of criticism and attracted national attention. Then, as now, some commentators, like Chris Lato and Brian Fraley, reacted by calling for the state to require registered voters to show photo identification at the polls.

The argument over voter ID laws in Wisconsin has unfolded along the same lines as similar debates in other states and at the national level. Advocates of more stringent ID requirements claim that they will safeguard against the fraudulent impersonation of registered voters. Opponents counter that requiring IDs effectively disenfranchises poor, elderly, and minority voters, who are less likely to have photo identification. A political current runs just beneath the surface of the discussion: minorities and working-class people, the groups voter ID opponents claim will suffer from voter ID requirements, tend to hold more liberal political views.

But a look at the evidence suggests that the hype on both sides of the voter-ID debate is largely unmerited. On one side of the debate, there is little empirical proof that requiring ID would suppress turnout in a discriminatory fashion. A paper by Timothy Vercellotti and David Anderson concludes that voters in states that require photo ID at the polls are 2.9% less likely to vote, but that photo ID laws had no statistically significant effect on African-American and Hispanic turnout. Other analysts argue that Vercellotti and Anderson’s methodology led them to overstate the negative effect of voter-ID laws.

On the other hand, there is little evidence to substantiate fears that election fraud will become widespread enough to tip the balance of an election. In 2004, even if each of the 4,609 questionable ballots in Milwaukee had been cast for John Kerry, they would not have decided the contest, which Kerry won by a margin of 11,384 votes. Moreover, the vast majority of the ineligible votes did not constitute criminal election fraud, which Wisconsin law defines as an intentional act. Many of the inappropriate votes appeared to be the result of errors by Election Commission staff. A lengthy investigation by the Milwaukee County District Attorney and the U.S. Attorney for Milwaukee found sufficient evidence to prosecute fourteen cases of fraud; five of those cases resulted in convictions. The U.S. Attorney, Steve Biskupic, concluded there was no “massive conspiracy” to change the results of the election in Milwaukee. That the ineligible votes cast in 2004 were mostly the result of unintentional error is problematic, but not necessarily an indicator of the potential for widespread criminal election fraud.

The voter ID debate is moot in Wisconsin for the time being, since Democratic control of the state Senate will prevent the proposal from passing until at least 2011. In the meantime, though, a much less controversial reform may well eliminate many of the errors that have led to calls for tighter regulations on voting. The state recently unveiled a long-overdue voter registration database, which local election clerks will use to check newly registered voters against lists of felons, deceased people, and licensed drivers. Many of the problems that emerged in 2004, and again in this month’s registration-drive flaps, could have been prevented if the statewide database had been fully functional. If the new system performs as well as promised, it could help curb the potential for election fraud and allow policymakers to more fully debate the need for a voter identification law.

PPF Pearls: Should we be surprised the MPS neighborhood schools initative did not work?

Today's Journal Sentinel runs the second of a three-part story investigating the outcomes of the Milwaukee Public School district's Neighborhood Schools Initiative (NSI), which increased capacity in neighborhood schools. The reporters, Dave Umhoefer and Alan Borsuk, find that despite over $100 million invested in school additions and upgrades, fewer children attend their neighborhood schools today than ten years ago and the amount spent on busing has stayed roughly the same.

Much of the reporting on this story utilizes Forum research: for three years during the planning and implementation of the NSI, the Forum closely monitored the district and conducted case studies in four MPS schools. Our reports from that time can be found on our website. The first report, from January 2000, entitled The Implications of Eliminating "Forced" Busing, concludes: "...the transition to neighborhood schools will require a greater effort by the district than perhaps was originally contemplated by the legislature. Most of today’s busing is voluntary, and in the current atmosphere of school choice, demand is not likely to decrease.”

Our last report on the topic, in June 2003, declared “the jury’s still out on neighborhood schools,” and concluded that “the innovative MPS Neighborhood Schools Initiative appears to be making incremental progress towards its twin goals of increasing neighborhood capacity and reducing busing. Not every measure shows results, but there are encouraging trends in neighborhood attendance. However, not until after the plan has been fully phased in can we truly judge its effectiveness.”

Now, in 2008, the jury is in: NSI has failed to reduce busing costs or increase neighborhood enrollment. As the Journal Sentinel story points out now and the Forum cautioned at the time, the data did not necessarily portend a slam-dunk success for this initiative--parents were not clammoring for fewer buses while enrollments were on the decline. Questions will likely be raised as a result of this week's reporting, and rightly so. Perhaps the result will be that the next time a large-scale reform is proposed, the questions will surface before the money is spent.

When to hold and when to fold public assets

Last week's annual Governmental Research Association (GRA) conference in Boston brought together dozens of government researchers from across the country to toss around ideas and hear about national public policy trends and innovations. Perhaps the most relevant panel discussion to southeast Wisconsin was one entitled "For Sale: Government Assets".

That relevance, of course, is most related to Milwaukee County's ongoing fiscal challenges. County Executive Walker has pledged that privatization proposals will be a key part of his 2009 recommended budget. Furthermore, he has already proposed selling the property that houses the county's mental health complex and leasing a new complex from a private developer, and he has talked openly of wanting to sell or lease Mitchell International Airport.

As these and other proposals are subjected to emotional rhetoric from both sides during the next several weeks, it may be helpful to keep in mind an unemotional litmus test for considering public asset sales developed by John Foote, senior fellow at the Kennedy School of Government, and presented at the GRA conference. Foote's litmus test consists of four key questions:

1. Are there real efficiency gains? In other words, by transferring an asset to the private sector, will the services associated with the asset be delivered better and more cost effectively?


2. Is there a balance between who pays and who benefits? The test here is whether those who may be asked to pay new or higher user fees associated with a privatized asset (e.g. those parking at the airport) benefit from those fees (e.g. airport improvements), or whether instead the proceeds are siphoned off for profit or unrelated functions.


3. Is there a match between the length of the deal and the use of the proceeds? This speaks to the essential and often ignored budgeting tenet that one-time proceeds should not be used to fill short-term budget holes, but should instead be stretched out over the length of a lease deal.


4. Is the public compromised in any way? This question asks whether the sale or lease of a major public asset will impact consideration of other worthwhile public policies. The specific reference made by Foote is to the privatization of the Chicago tollway, which has disrupted efforts to consider system-wide congestion pricing for all of Chicago's major highways.

While this set of criteria may be most applicable to the potential sale or lease of Mitchell International, another panelist, Joseph Aiello of Meridiam Infrastructure, made comments that could be relevant to Milwaukee County's decision on how and whether to build a new mental health complex. He cited three advantages to government's use of private development/ownership for public buildings:

1. When things go wrong with the building - as they inevitably will - the private sector owner is responsible for fixing them.


2. Public construction contracts are awarded based on the lowest construction bid without regard to life-cycle costs (which are heavily impacted by the quality of construction materials and techniques), while private developers/owners must take both initial construction and long-term life cycle costs into account.


3. Private building owners don't skimp on ongoing maintenance, while public sector owners are notorious for doing so in light of pressing programmatic needs.

Finally, the third panelist, Hudson institute vice chairman Joseph Giglio, raised a provocative point about a potential third partner in public-private partnerships for transportation projects: the local business community. Giglio argued that local businesses who benefit from highway, transit or airport construction projects should also be viewed as logical investors in such projects who can help make the financing work and create another level of oversight to ensure proper return on investment.

In all, food for thought as Milwaukee County struggles with some major decisions on its financial future.