Recently, Brookings has posted two articles commenting on proposals to raise the full retirement age for Social Security retirement benefits from 67 to 70. One revealed a fundamental misunderstanding of how the program actually works and what the effects of the policy change would be. The other proposes changes to the system that would subvert the fundamental purpose of the Social Security in the name of ‘reforming’ it.

A number of Republican presidential candidates and others have proposed raising the full retirement age. In a recent blog, Robert Shapiro, a Democrat, opposed this move, a position I applaud. But he did so based on alleged effects the proposal would in fact not have, and misunderstanding about how the program actually works. In another blog, Stuart Butler, a conservative, noted correctly that increasing the full benefit age would ‘bolster the system’s finances,’ but misunderstood this proposal’s effects. He proposed instead to end Social Security as a universal pension based on past earnings and to replace it with income-related welfare for the elderly and disabled (which he calls insurance).

Let’s start with the misunderstandings common to both authors and to many others. Each writes as if raising the ‘full retirement age’ from 67 to 70 would fall more heavily on those with comparatively low incomes and short life expectancies. In fact, raising the ‘full retirement age’ would cut Social Security Old-Age Insurance benefits by the same proportion for rich and poor alike, and for people whose life expectancies are long or short. To see why, one needs to understand how Social Security works and what ‘raising the full retirement age’ means.

People may claim Social Security retirement benefits starting at age 62. If they wait, they get larger benefits—about 6-8 percent more for each year they delay claiming up to age 70. Those who don’t claim their benefits until age 70 qualify for benefits -- 77 percent higher than those with the same earnings history who claim at age 62. The increments approximately compensate the average person for waiting, so that the lifetime value of benefits is independent of the age at which they claim. Mechanically, the computation pivots on the benefit payable at the ‘full retirement age,’ now age 66, but set to increase to age 67 under current law. Raising the full retirement age still more, from 67 to 70, would mean that people age 70 would get the same benefit payable under current law at age 67. That is a benefit cut of 24 percent. Because the annual percentage adjustment for waiting to claim would be unchanged, people who claim benefits at any age, down to age 62, would also receive benefits reduced by 24 percent.

In plain English, ‘raising the full benefit age from 67 to 70' is simply a 24 percent across-the-board cut in benefits for all new claimants, whatever their incomes and whatever their life-expectancies.

Thus, Robert Shapiro mistakenly writes that boosting the full-benefit age would ‘effectively nullify Social Security for millions of Americans’ with comparatively low life expectancies. It wouldn’t. Anyone who wanted to claim benefits at age 62 still could. Their benefits would be reduced. But so would benefits of people who retire at older ages.

Equally mistaken is Stuart Butler’s comment that increasing the full-benefit age from 67 to 70 would ‘cut total lifetime retirement benefits proportionately more for those on the bottom rungs of the income ladder.’ It wouldn’t. The cut would be proportionately the same for everyone, regardless of past earnings or life expectancy.

Both Shapiro and Butler, along with many others including my other colleagues Barry Bosworth and Gary Burtless, have noted correctly that life expectancies of high earners have risen considerably, while those of low earners have risen little or not at all. As a result, the lifetime value of Social Security Old-Age Insurance benefits has grown more for high- than for low-earners. That development has been at least partly offset by trends in Social Security Disability Insurance, which goes disproportionately to those with comparatively low earnings and life expectancies and which has been growing far faster than Old-Age Insurance, the largest component of Social Security.

But even if the lifetime value of all Social Security benefits has risen faster for high earners than for low earners, an across the board cut in benefits does nothing to offset that trend. In the name of lowering overall Social Security spending, it would cut benefits by the same proportion for those whose life expectancies have risen not at all because the life expectancy of others has risen. Such ‘evenhandeness’ calls to mind Anatole France’s comment that French law ‘in its majestic equality, ...forbids rich and poor alike to sleep under bridges, beg in streets, or steal loaves of bread.’

Faulty analyses, such as those of Shapiro and Butler, cannot conceal a genuine challenge to policy makers. Social Security does face a projected, long-term funding shortfall. Trends in life expectancies may well have made the system less progressive overall than it was in the past. What should be done?

For starters, one needs to recognize that for those in successive age cohorts who retire at any given age, rising life expectancy does not lower, but rather increases their need for Social Security retirement benefits because whatever personal savings they may have accumulated gets stretched more thinly to cover more retirement years.

For those who remain healthy, the best response to rising longevity may be to retire later. Later retirement means more time to save and fewer years to depend on savings. Here is where the wrong-headedness of Butler’s proposal, to phase down benefits for those with current incomes of $25,000 or more and eliminate them for those with incomes over $100,000, becomes apparent. The only source of income for full retirees is personal savings and, to an ever diminishing degree, employer-financed pensions. Converting Social Security from a program whose benefits are based on past earnings to one that is based on current income from savings would impose a tax-like penalty on such savings, just as would a direct tax on those savings. Conservatives and liberals alike should understand that taxing something is not the way to encourage it.

Still, working longer by definition lowers retirement income needs. That is why some analysts have proposed raising the age at which retirement benefits may first be claimed from age 62 to some later age. But this proposal, like across-the-board benefit cuts, falls alike on those who can work longer without undue hardship and on those in physically demanding jobs they can no longer perform, those whose abilities are reduced, and those who have low life expectancies. This group includes not only blue-collar workers, but also many white-collar employees, as indicated by a recent study of the Boston College Retirement Center. If entitlement to Social Security retirement benefits is delayed, it is incumbent on policymakers to link that change to other ‘backstop’ policies that protect those for whom continued work poses a serious burden. It is also incumbent on private employers to design ways to make workplaces friendlier to an aging workforce.

The challenge of adjusting Social Security in the face of unevenly distributed increases in longevity, growing income inequality, and the prospective shortfall in Social Security financing is real. The issues are difficult. But solutions are unlikely to emerge from confusion about the way Social Security operates and the actual effects of proposed changes to the program. And it will not be advanced by proposals that would bring to Social Security the failed Vietnam War strategy of destroying a village in order to save it.

Editor’s note: The remarks below were delivered to the Committee for a Responsible Federal Budget on release of their report on the SSDI Solutions Initiative. 

I want to thank Marc Goldwein for inviting me to join you for today’s event. We all owe thanks to Jim McCrery and Earl Pomeroy for devoting themselves to the SSDI Solutions Initiative, to the staff of CFRB who backed them up, and most of all to the scholars and practitioners who wrote the many papers that comprise this effort. This is the sort of practical, problem-solving enterprise that this town needs more of. So, to all involved in this effort, ‘hats off’ and ‘please, don’t stop now.’

The challenge of improving how public policy helps people with disabilities seemed urgent last year. Depletion of the Social Security Disability Insurance trust loomed. Fears of exploding DI benefit rolls were widespread and intense.

Congress has now taken steps that delay projected depletion until 2022. Meticulous work by Jeffrey Liebman suggests that Disability Insurance rolls have peaked and will start falling. The Technical Panel appointed by the Social Security Advisory Board, concurred in its 2015 report. With such ‘good’ news, it is all too easy to let attention drift to other seemingly more pressing items.

But trust fund depletion and growing beneficiary rolls are not the most important reasons why policymakers should be focusing on these programs.

The primary reason is that the design and administration of disability programs can be improved with benefit to taxpayers and to people with disabilities alike. And while 2022 seems a long time off, doing the research called for in the SSDI Solutions Initiative will take all of that time and more. So, it is time to get to work, not to relax.

Before going any further, I must make a disclaimer. I was invited to talk here as chair of the Social Security Advisory Board. Everything I am going to say from now on will reflect only my personal views, not those of the other members or staff of the SSAB except where the Board has spoken as a group. The same disclaimer applies to the trustees, officers, and other staff of the Brookings Institution. Blame me, not them.

Let me start with an analogy. We economists like indices. Years ago, the late Arthur Okun came up with an index to measure how much pain the economy was inflicting on people. It was a simple index, just the sum of inflation and the unemployment rate. Okun called it the ‘misery index.’

I suggest a ‘policy misery index’—a measure of the grief that a policy problem causes us. It is the sum of a problem’s importance and difficulty. Never mind that neither ‘importance’ nor ‘difficulty’ is quantifiable. Designing and administering interventions intended to improve the lives of people with disabilities has to be at or near the top of the policy misery index.

Those who have worked on disability know what I mean. Programs for people with disabilities are hugely important and miserably hard to design and administer well. That would be true even if legislators were writing afresh on a blank legislative sheet. That they must cope with a deeply entrenched program about which analysts disagree and on which many people depend makes the problems many times more challenging.

I’m going to run through some of the reasons why designing and administering benefits for people determined to be disabled is so difficult. Some may be obvious, even banal, to the highly informed group here today. And you will doubtless think of reasons I omit.

First, the concept of disability, in the sense of a diminished capacity to work, has no clear meaning, the SSA definition of disability notwithstanding. We can define impairments. Some are so severe that work or, indeed, any other form of self-support seems impossible. But even among those with severe impairments, some people work for pay, and some don’t.

That doesn’t mean that if someone with a given impairment works, everyone with that same impairment could work if they tried hard enough. It means that physical or mental impairments incompletely identify those for whom work is not a reasonable expectation. The possibility of work depends on the availability of jobs, of services to support work effort, and of a host of personal characteristics, including functional capacities, intelligence, and grit.

That is not how the current disability determination process works. It considers the availability of jobs in the national, not the local, economy. It ignores the availability of work supports or accommodations by potential employers.

Whatever eligibility criteria one may establish for benefits, some people who really can’t work, or can’t earn enough to support themselves, will be denied benefits. And some will be awarded benefits who could work.

Good program design helps keep those numbers down. Good administration helps at least as much as, and maybe more than, program design. But there is no way to reduce the number of improper awards and improper denials to zero.

Second, the causes of disability are many and varied. Again, this observation is obvious, almost banal. Genetic inheritance, accidents and injuries, wear and tear from hard physical labor, and normal aging all create different needs for assistance.

These facts mean that people deemed unable to work have different needs. They constitute distinct interest groups, each seeking support, but not necessarily of the same kind. These groups sometimes compete with each other for always-limited resources. And that competition means that the politics of disability benefits are, shall we say, interesting.

Third, the design of programs to help people deemed unable to work is important and difficult. Moral hazard is endemic. Providing needed support and services is an act of compassion and decency. The goal is to provide such support and services while preserving incentives to work and to controlling costs borne by taxpayers.

But preserving work incentives is only part of the challenge. The capacity to work is continuous, not binary. Training and a wide and diverse range of services can help people perform activities of daily living and work.

Because resources are scarce, policy makers and administrators have to sort out who should get those services. Should it be those who are neediest? Those who are most likely to recover full capacities? Triage is inescapable. It is technically difficult. And it is always ethically fraught.

Designing disability benefit programs is hard. But administering them well is just as important and at least as difficult.

These statements may also be obvious to those who here today. But recent legislation and administrative appropriations raise doubts about whether they are obvious to or accepted by some members of Congress.

Let’s start with program design. We can all agree, I think, that incentives matter. If benefits ceased at the first dollar earned, few who come on the rolls would ever try to work.

So, Congress, for many years, has allowed beneficiaries to earn any amount for a brief period and small amounts indefinitely without losing eligibility. Under current law, there is a benefit cliff. If—after a trial work period—beneficiaries earn even $1 more than what is called substantial gainful activity, $1,130 in 2016, their benefit checks stop. They retain eligibility for health coverage for a while even after they leave the rolls. And for an extended period they may regain cash and health benefits without delay if their earnings decline.

Members of Congress have long been interested in whether a more gradual phase-out of benefits as earnings rise might encourage work. Various aspects of the current Disability Insurance program reflect Congress’s desire to encourage work.

The so-called Benefit Offset National Demonstration—or BOND—was designed to test the impact on labor supply by DI beneficiaries of one formula—replacing the “cliff” with a gradual reduction in benefits: $1 of benefit last for each $2 of earnings above the Substantial Gainful Activity level.

Alas, there were problems with that demonstration. It tested only one offset scenario – one starting point and one rate. So, there could be no way of knowing whether a 2-for-1 offset was the best way to encourage work.

And then there was the uncomfortable fact that, at the time of the last evaluation, out of 79,440 study participants only 21 experienced the offset. So there was no way of telling much of anything, other than that few people had worked enough to experience the offset.

Nor was the cause of non-response obvious. It is not clear how many demonstration participants even understood what was on offer.

Unsurprisingly, members of Congress interested in promoting work among DI recipients asked SSA to revisit the issue. The 2015 DI legislation mandates a new demonstration, christened the Promoting Opportunity Demonstration, or POD. POD uses the same 2 for 1 offset rate that BOND did, but the offset starts at an earnings level at or below earnings of $810 a month in 2016—which is well below the earnings at which the BOND phase-out began.

Unfortunately, as Kathleen Romig has pointed out in an excellent paper for the Center on Budget and Policy Priorities, this demonstration is unlikely to yield useful results. Only a very few atypical DI beneficiaries are likely to find it in their interest to participate in the demonstration, fewer even than in the BOND. That is because the POD offset begins at lower earnings than the BOND offset did. In addition, participants in POD sacrifice the right under current law that permits people receiving disability benefits to earn any amount for 9 months of working without losing any benefits.

Furthermore, the 2015 law stipulated that no Disability Insurance beneficiary could be required to participate in the demonstration or, having agreed to participate, forced to remain in the demonstration. Thus, few people are likely to respond to the POD or to remain in it.

There is a small group to whom POD will be very attractive—those few DI recipients who retain a lot of earning capacity. The POD will allow them to retain DI coverage until their earnings are quite high. For example, a person receiving a $2,000 monthly benefit—well above the average, to be sure, but well below the maximum—would remain eligible for some benefits until his or her annual earnings exceeded $57,700. I don’t know about you, but I doubt that Congress would favorably consider permanent law of this sort.

Not only would those participating be a thin and quite unrepresentative sample of DI beneficiaries in general, or even of those with some earning capacity, but selection bias resulting from the opportunity to opt out at any time would destroy the external validity of any statistical results.

Let me be clear. My comments on POD, the demonstration mandated in the 2015 legislation, are not meant to denigrate the need for, or the importance of, research on how to encourage work by DI recipients, especially those for whom financial independence is plausible. On the contrary, as I said at the outset, research is desperately needed on this issue, as well as many others. It is not yet too late to authorize a research design with a better chance of producing useful results.

But it will be too late soon. Fielding demonstrations takes time:

• to solicit bids from contractors,
• for contractors to formulate bids,
• for government boards to select the best one,
• for contractors to enroll participants,
• for contractors to administer the demonstration,
• and for analysts to process the data generated by the demonstrations.

That process will take all the time available between now and 2021 or 2022 when the DI trust fund will again demand attention. It will take a good deal more time than that to address the formidable and intriguing research agenda of SSDI Solutions Initiative.

I should like to conclude with plugs for two initiatives to which the Social Security Advisory Board has been giving some attention.

It takes too long for disability insurance applicants to have their cases decided. Perhaps the whole determination process should be redesigned. One of the CFRB papers proposes just that. But until that happens, it is vital to shorten the unconscionable delays separating initial denials and reconsideration from hearings before administrative law judges to which applicants are legally entitled. Procedural reforms in the hearing process might help. More ALJs surely will.

The 2015 budget act requires the Office of Personnel Management to take steps that will help increase the number of ALJs hired. I believe that the new director, Beth Colbert, is committed to reforms. But it is very hard to change legal interpretations that have hampered hiring for years and the sluggish bureaucratic culture that fostered them.

So, the jury is out on whether OPM can deliver. In a recent op-ed in Politico, Lanhee Chen, a Republican member of the SSAB, and I jointly endorsed urged Congress to be ready, if OPM fails to deliver on more and better lists of ALJ candidates and streamlined procedures for their appointment, to move the ALJ examination authority to another federal organization, such as the Administrative Conference of the United States.

Lastly, there is a facet of income support policy that we on the SSAB all agree merits much more attention than it has received. Just last month, the SSAB released a paper entitled Representative Payees: A Call to Action. More than eight million beneficiaries have been deemed incapable of managing $77 billion in benefits that the Social Security Administration provided them in 2014.

We believe that serious concern is warranted about all aspects of the representative payee program—how this infringement of personal autonomy is found to be necessary, how payees are selected, and how payee performance is monitored.

Management of representative payees is a particular challenge for the Social Security Administration. Its primary job is to pay cash benefits in the right amount to the right person at the right time. SSA does that job at rock-bottom costs and with remarkable accuracy. It is handing rapidly rising workloads with budgets that have barely risen. SSA is neither designed nor staffed to provide social services. Yet determining the need for, selecting, and monitoring representative payees is a social service function.

As the Baby Boom ages, the number of people needing help in administering cash benefits from the Social Security Administration—and from other agencies such as the Veterans Administration—will grow. So will the number needing help in making informed choices under Medicare and Medicaid.

The SSAB is determined to look into this challenge and to make constructive suggestions. We are just beginning and invite others to join in studying what I have called “the most important problem the public has never heard of.”

Living with disabilities today is markedly different from what it was in 1956 when the Disability Insurance program began. Yet, the DI program has changed little. Beneficiaries and taxpayers are pay heavily the failure of public policy to apply what has been learned over the past six decades about health, disability, function, and work.

I hope that SSA and Congress will use well the time until it next must legislate on Disability Insurance. The DI rolls are stabilizing. The economy has grown steadily since the Great Recession. Congress has reinstated demonstration authority. With adequate funding for research and testing, the SSA can rebuild its research capability. Along with the external research community, it can identify what works and help Congress improve the DI program for beneficiaries and taxpayers alike. The SSDI Solutions Initiative is a fine roadmap.

The past few months have seen a flurry of reports on discouraging trends in life expectancy among some of the nation’s struggling populations. Different researchers have emphasized different groups and have tracked longevity trends over different time spans, but all have documented conspicuous differences between trends among more advantaged Americans compared with those in worse circumstances.

In a study published in April, Stanford economist Raj Chetty and his coauthors documented a striking rise in mortality rate differences between rich and poor. From 2001 to 2014, Americans who had incomes in the top 5 percent of the income distribution saw their life expectancy climb about 3 years. During the same 14-year span, people in the bottom 5 percent of the income distribution saw virtually no improvement at all.

Using different sources of information about family income and mortality, my colleagues and I found similar trends in mortality when Americans were ranked by their Social-Security-covered earnings in the middle of their careers. Over the three decades covered by our data, we found sizeable differences between the life expectancy gains enjoyed by high- and low-income Americans. For 50-year old women in the top one-tenth of the income distribution, we found that women born in 1940 could expect to live almost 6.5 years longer than women in the same position in the income distribution who were born in 1920. For 50-year old women in the bottom one-tenth of the income distribution, we found no improvement at all in life expectancy. Longevity trends among low-income men were more encouraging: Men at the bottom saw a small improvement in their life expectancy. Still, the life-expectancy gap between low-income and high-income men increased just as fast as it did between low- and high-income women.

One reason these studies should interest voters and policymakers is that they shed light on the fairness of programs that protect Americans’ living standards in old age. The new studies as well as some earlier ones show that mortality trends have tilted the returns that rich and poor contributors to Social Security can expect to obtain from their payroll tax contributions.

If life expectancy were the same for rich and poor contributors, the lifetime benefits workers could expect to receive from their contributions would depend solely on the formula that determines a worker’s monthly pensions. Social Security’s monthly benefit formula has always been heavily tilted in favor of low-wage contributors. They receive monthly checks that are a high percentage of the monthly wages they earn during their careers. In contrast, workers who earn well above-average wages collect monthly pensions that are a much lower percentage of their average career earnings.

The latest research findings suggest that growing mortality differences between rich and poor are partly or fully offsetting the redistributive tilt in Social Security’s benefit formula. Even though poorer workers still receive monthly pension checks that are a high percentage of their average career earnings, they can expect to receive benefits for a shorter period after they claim pensions compared with workers who earn higher wages. Because the gap between the life spans of rich and poor workers is increasing, affluent workers now enjoy a bigger advantage in the number of months they collect Social Security retirement benefits. This fact alone is enough to justify headlines about the growing life expectancy gap between rich and poor

There is another reason to pay attention to the longevity trends. The past 35 years have provided ample evidence the income gap between America’s rich and poor has widened. To be sure, some of the most widely cited income series overstate the extent of widening and understate the improvement in income received by middle- and low-income families. Nonetheless, the most reliable statistics show that families at the top have enjoyed faster income gains than the gains enjoyed by families in the middle and at the bottom. Income disparities have gone up fastest among working-age people who depend on wages to pay their families’ bills. Retirees have been better protected against the income and wealth losses that have hurt the living standards of less educated workers. The recent finding that life expectancy among low-income Americans has failed to improve is a compelling reason to believe the trend toward wider inequality is having profound impacts on the distribution of well-being in addition to its direct effect on family income.

Over the past century, we have become accustomed to seeing successive generations live longer than the generations that preceded them. This is not true every year, of course, nor is it always clear why the improvements in life expectancy have occurred. Still, it is reasonable to think that long-run improvements in average life spans have been linked to improvements in our income. With more money, we can afford more costly medical care, healthier diets, and better public health. Even Americans at the bottom of the income ladder have participated in these gains, as public health measures and broader access to health insurance permit them to benefit from improvements in knowledge. For the past three decades, however, improvements in average life spans at the bottom of the income distribution have been negligible. This finding suggests it is not just income that has grown starkly more unequal.

Editor's note: This piece originally appeared in Real Clear Markets.

Much public focus is being given to a broader role for hospitals in improving the health of their communities. This focus parallels a growing interest in addressing the social determinants of health as well as health care policy reforms designed to increase the efficiency and quality of care while improving health outcomes.

This interest in the community role of hospitals has drawn attention to the federal legal standards and requirements for nonprofit hospitals seeking federal tax exemption. Tax-exempt hospitals are required to provide community benefits. And while financial assistance to patients unable to pay for care is a basic requirement of tax-exemption, IRS guidelines define the concept of community benefit to include a range of community health improvement efforts.

At the same time, the IRS draws a distinction between community health improvement spending–which it automatically considers a community benefit–and certain “community-building” activities where additional information is required in order to be compliant with IRS rules. In addition, community benefit obligations are included in the Affordable Care Act (ACA).

Specifically, the ACA requires nonprofit hospitals periodically to complete a community health needs assessment (CHNA), which means the hospital must conduct a review of health conditions in its community and develop a plan to address concerns. While these requirements are causing hospitals to look more closely at their role in the community, challenges remain. For instance, complex language in the rules can mean hospitals are unclear what activities and expenditures count as a “community benefit.” Hospitals must take additional steps in order to report community building as community health improvement.

These policies can discourage creative approaches. Moreover, transparency rules and competing hospital priorities can also weaken hospital-community partnerships. To encourage more effective partnerships in community investments by nonprofit hospitals:

• The IRS needs to clarify the relationship between community spending and the requirements of the CHNA. 
• There needs to be greater transparency in the implementation strategy phase of the CHNA. 
• The IRS needs to broaden the definition of community health improvement to encourage innovation and upstream investment by hospitals.

Download "Hospitals as Community Hubs: Integrating Community Benefit Spending, Community Health Needs Assessment, and Community Health Improvement" »

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Editor's note: On March 16, Paul B. Ginsburg testified before the California Senate Committee on Health on fostering competition in consolidated markets. Download the full testimony here.

Mr. Chairman, Madame Vice Chairman and Members of the Committee, I am honored to be invited to testify before this committee on this very important topic. I am a professor of health policy at the University of Southern California and director of public policy at the USC Schaeffer Center for Health Policy and Economics. I am also a Senior Fellow and the Leonard D. Schaeffer Chair in Health Policy Studies at The Brookings Institution, where I direct the Center for Health Policy. Much of my time is now devoted to leading the new Schaeffer Initiative for Innovation in Health Policy, which is a partnership between USC and the Brookings Institution. I am best known in California for the numerous community site visits over many years that I led in the state while I was president of the Center for Studying Health System Change; most of those studies were funded by the California HealthCare Foundation.

The key points in my testimony today are:

• Health care markets are becoming more consolidated, causing price increases for purchasers of health services, and this trend will continue for the foreseeable future despite anti-trust enforcement; 
• Government can still play an effective role in addressing higher prices that come from consolidation by pursuing policies that foster increased competition in health care markets. Many of these policies can be effective even in markets with high degrees of concentration, such as in Northern California.

[1] Gaynor, M., and R. Town, The Impact of Hospital Consolidation – Update, Robert Wood Johnson Foundation Synthesis Report (June 2012).

[2] Baker, L. C., M.K Bundorf and D.P. Kessler, “Vertical Integration: Hospital Ownership Of Physician Practices Is Associated With Higher Prices And Spending,” Health Affairs, Vol. 35, No 5 (May 2014).

[3] Chapin White and Megan Egouchi, Reference Pricing: A Small Piece of the Health Care Pricing and Quality Puzzle. National Institute for Health Care Reform, Research Brief No. 18, October 2014.

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Volunteer, civil society and governmental delegates from 22 nations gathered in Johannesburg this month for the Southern Africa Conference on Volunteer Action for Development. The conference was co-convened by United Nations Volunteers (UNV) and Volunteer and Service Enquiry Southern Africa (VOSESA), in observance of the 10th anniversary of the United Nations International Year of Volunteers (IYV).

Naheed Haque, deputy executive coordinator for United Nations Volunteers, gave tribute to the late Nobel Laureate Wangari Mathai and her Greenbelt tree planting campaign as the “quintessential volunteer movement.” Haque called for a “new development paradigm that puts voluntarism at the center of community-centered sustainable development.” In this paradigm, human happiness and service to others would be key considerations, in addition to economic indicators and development outcomes including health and climate change.  

The international gathering developed strategies to advance three key priorities for the 15 nations in the Southern Africa Development Community (SADC): combating HIV/ AIDS; engaging the social and economic participation of youth; and promoting regional integration and peace. Research data prepared by Civicus provided information on the rise of voluntary service in Africa, as conferees assessed strategies to advance “five pillars” of effective volunteerism: engaging youth, community involvement, international volunteers, corporate leadership and higher education in service.

VOSESA executive director, Helene Perold, noted that despite centuries of migration across the region, the vision for contemporary regional cooperation between southern African countries has largely been in the minds of heads of states with “little currency at the grassroots level.” Furthermore, it has been driven by the imperative of economic integration with a specific focus on trade. Slow progress has now produced critiques within the region that the strategy for integrating southern African countries cannot succeed on the basis of economic cooperation alone. Perold indicated that collective efforts by a wide range of civic, academic, and governmental actors at the Johannesburg conference could inject the importance of social participation within and between countries as a critical component in fostering regional integration and achieving development outcomes. 

This premise of voluntary action’s unique contribution to regional integration was underscored by Emiliana Tembo, director of Gender and Social Affairs for the Common Market of Eastern and Southern Africa (COMESA). Along with measures promoting free movement of labor and capital to step up trade investment, Tembo stressed the importance of “our interconnectedness as people,” citing Bishop Desmond Tutu’s maxim toward the virtues of “Ubuntu – a person who is open and available to others.”

The 19 nation COMESA block is advancing an African free-trade zone movement from the Cape of South Africa, to Cairo Egypt. The “tripartite” regional groupings of SADC, COMESA and the East Africa Community are at the forefront of this pan-African movement expanding trade and development.

Preliminary research shared at the conference by VOSESA researcher Jacob Mwathi Mati noted the effects of cross border youth volunteer exchange programs in southern and eastern Africa. The research indicates positive outcomes including knowledge, learning and “friendship across borders,” engendered by youth exchange service programs in South Africa, Mozambique, Tanzania and Kenya that were sponsored Canada World Youth and South Africa Trust.   

On the final day of the Johannesburg conference, South Africa service initiatives were assessed in field visits by conferees including loveLife, South Africa’s largest HIV prevention campaign. loveLife utilizes youth volunteer service corps reaching up to 500,000 at risk youths in monthly leadership and peer education programs. “Youth service in South Africa is a channel for the energy of youth, (building) social capital and enabling public innovation,” Programme Director Scott Burnett stated. “Over the years our (service) participants have used their small stipends to climb the social ladder through education and micro-enterprise development.”

Nelly Corbel, senior program coordinator of the John D. Gerhart Center for Philanthropy and Civic Engagement at the American University in Cairo, noted that the Egyptian Arab Spring was “the only movement that cleaned-up after the revolution." On February 11^th, the day after the resignation of former Egyptian President Hosni Mubarak, thousands of Egyptian activists  removed debris from Tahrir Square and engaged in a host of other volunteer clean-up and painting projects. In Corbel's words: “Our entire country is like a big flag now,” from the massive display of national voluntarism in clean-up projects, emblematic of the proliferation of youth social innovation aimed at rebuilding a viable civil society.

In late October at the United Nations Economic and Social Commission for Asia and the Pacific (UN ESCAP) headquarters in Bangkok, a multi-stakeholder coalition was launched to promote the role of youth and civil society in advancing post-2015 United Nations Sustainable Development Goals (SDGs). The youth initiatives, fostering regional integration and youth service impact in the Association of Southeast Asian Nations (ASEAN) and counterpart regions of Northeast and South Asia, will be furthered through a new Asia-Pacific Peace Service Alliance. The alliance is comprised of youth leaders, foundations, civil society entities, multilateral partners and U.N. agencies. Together, their initiatives illustrate the potential of youth and multi-stakeholder coalitions to scale impacts to meet SDG development targets through youth service and social media campaigns, and partnerships with multilateral agencies, nongovernmental organizations, corporations and research institutes.

The “Asia-Pacific Forum on Youth Volunteerism to Promote Participation in Development and Peace” at UN ESCAP featured a new joint partnership of the U.S. Peace Corps and the Korea International Cooperation Agency (KOICA) as well as USAID support for the ASEAN Youth Volunteering Program. With key leadership from ASEAN youth entitles, sponsor FK Norway, Youth Corps Singapore and Peace Corps’ innovative program in Thailand, the forum also furthered President Obama’s goal of Americans serving “side by side” with other nations’ volunteers. The multi-stakeholder Asia-Pacific alliance will be powered by creative youth action and a broad array of private and public partners from Thailand, Malaysia, Myanmar, Indonesia, Singapore, the Philippines, Australia, Korea, China, Mongolia, Japan, India, Nepal, Pakistan, the U.S. and other nations.

During the event, Dr. Shamshad Akhtar, ESCAP executive secretary, pointed out that “tapping youth potential is critical to shape our shared destiny, as they are a source of new ideas, talent and inspiration. For ESCAP and the United Nations, a dynamic youth agenda is vital to ensure the success of post-2015 sustainable development.”

Dr. Surin Pitsuwan, former ASEAN secretary-general, called for a new Asia-wide multilateralism engaging youth and civil society.  In his remarks, he drew from his experience in mobilizing Asian relief and recovery efforts after Cyclone Nargis devastated the delta region of Myanmar in May 2008. Surin, honorary Alliance chairman and this year’s recipient of the Harris Wofford Global Citizenship Award, also noted the necessity of a “spiritual evolution” to a common sense of well-being to redress the “present course of possible extinction” caused by global conflicts and climate challenges. He summoned Asia-Pacific youth, representing 60 percent of the world’s young population, to “be the change you want to see” and to “commit our youth to a useful cause for humanity.”

The potential for similar upscaled service efforts in Africa, weaving regional integration and youth volunteering impact, has been assessed in Brookings research and policy recommendations being implemented in the Common Market of Eastern and Southern Africa (COMESA). Recommendations, many of which COMESA and ASEAN are undertaking, include enabling youth entrepreneurship and service contributions to livelihoods in regional economic integration schemes, and commissioning third-party support for impact evidence research.

A good example of successful voluntary service contributions from which regional economic communities like ASEAN can learn a lot is the current Omnimed pilot research intervention in Uganda. In eastern Ugandan villages, 1,200 village health workers supported by volunteer medical doctors, Uganda’s Health Ministry, Peace Corps volunteers and Global Peace Women are addressing lifesaving maternal and child health outcomes furthering UNICEF’s campaign on “integrated health” addressing malaria, diarrheal disease and indoor cooking pollution. The effort has included construction of 15 secure water sources and 1,200 clean cook stoves along with randomized controlled trials.

Last week, the young leaders from more than 40 nations produced a “Bangkok Statement” outlining their policy guidance and practical steps to guide volunteering work plans for the new Asia-Pacific alliance. Youth service initiatives undertaken in “collective impact” clusters will focus on the environment (including clean water and solar villages), health service, entrepreneurship, youth roles in disaster preparedness and positive peace. The forum was co-convened by ESCAP, UNESCO, the Global Peace Foundation and the Global Young Leaders Academy.

Stephen was still a teenager on the north side of St. Louis when his dad, a police officer, was killed during a robbery in their neighborhood. Despite the trauma, Stephen later joined the police force to continue his dad’s legacy and commitment to safe and inclusive neighborhoods. But even before the fatal shooting of Michael Brown in Ferguson in 2014, Stephen (not his real name) yearned to right local wrongs through broader approaches. “The darkest forces weren’t necessarily the ones getting arrested,” he observed. “So I retired from the police force after 22 years, essentially to chase after a different type of perpetrator.” Wanting to focus on policies at multiple levels of government that “were causing the disparities that fueled increasing crime and violence in St. Louis,” Stephen pivoted to civil rights enforcement, tracking policy violations and innovations at a government agency in the St. Louis region.

I met Stephen in February while in St. Louis for a conference his agency organized on HUD’s recently strengthened Affirmatively Furthering Fair Housing (AFFH ) rule, which increases local accountability in promoting residential integration. He wasn’t a speaker at the event, but hearing his story reinforced the importance of combating the deeply entrenched and often invisible causes of segregation.

Recent events and new academic research, including landmark findings by Raj Chetty and colleagues testifying to the benefits of low-poverty neighborhoods for low-income kids, the updated AFFH rule, and the Supreme Court’s disparate impact decision upholding other tools to fight segregation have brought renewed attention to these challenges. Meanwhile, underlying these developments, poverty has failed to decline since the recession and, as recent Brookings research shows, has become more concentrated in neighborhoods of extreme poverty.

How can regional leaders and practitioners respond to these challenges? I was in St. Louis to discuss one part of the solution—advancing more mixed-income neighborhoods. In the Chicago region, our housing and community development-focused firm, BRicK Partners, is collaborating with the Chicago Metropolitan Agency for Planning (CMAP), the Illinois Housing Development Authority (IHDA), and 10 metropolitan Chicago public housing authorities, with support and leadership from HUD, to develop and operate the Regional Housing Initiative (RHI)

RHI is a small, systemic, and potentially scalable “work around” of a very specific set of programs and policies that contribute inadvertently to regional inequities. A flexible and regional pool of resources working across the many traditional public housing authority (PHA) and municipal jurisdictions in the Chicago region, RHI increases quality rental housing in neighborhoods with good jobs, schools, and transit access and provides more housing options to households on Housing Choice Voucher (HCV) waiting lists. Recognizing that the federal formulas allocating HCVs to each individual PHA are not responsive to population, employment, or poverty trends, RHI partners convert and pool a small portion of their HCVs to provide place-based operating subsidies in support of development activity that advances local and regional priorities. RHI supports both opportunity areas with strong markets and quality amenities as well as revitalization areas where public and private sector partners are planning and investing toward that end. In both cases, the bulk of RHI investments are in the suburbs, where the PHAs are smaller and the rental stock more limited. 

RHI has committed over 550 RHI subsidies to nearly 40 mixed-income and supportive housing developments across Chicagoland, supporting more than 2,200 total apartments, over half of which are in opportunity areas. The pooling and transferring of subsidies has allowed RHI to support proposals that local jurisdictions wouldn’t be able to undertake otherwise.

Although a number of innovative programs around the country provide assistance to households moving to opportunity areas, RHI is unique its focus on increasing the supply of housing in opportunity areas regionwide. Its approach is consistent with lessons learned from Brookings’ work on Confronting Suburban Poverty in America: With CMAP as a strong quarterback, RHI has addressed the shortage of rental housing in the suburbs by working across jurisdictions, developing shared priorities, metrics and selection criteria, and by working with IHDA and other stakeholders to leverage greater private sector investment.

This recipe for success is now being deployed in communities beyond Chicago. Baltimore is preparing to advertise for its first round of developer applicants under the leadership of the Baltimore Metropolitan Council, with regionwide PHAs, the State Housing Finance Agency, and a regional housing counselor lined up as supportive partners. In St. Louis, the regional planning and housing finance organizations both attended the February conference where I met Stephen, signaling the potential for greater collaboration for both these entities and the PHAs.

Like many housing advocates and professionals, my colleagues and I at BRicK Partners derive a lot of satisfaction from supporting communities like Baltimore and St. Louis and individuals like Stephen and his peers with replicable best practices. Given today’s political realities, we don’t expect major changes in the federal formulas and statutes behind some of the regional inequities, but “work arounds” such as RHI can still scale up. Nationwide, just a small percentage of HCVs have been converted for such flexible supply-side solutions, but there is reason to be hopeful that this will change. The Regional Mobility Demonstration proposed in the 2017 budget as well as federal public housing voucher legislation passed by the House of Representatives earlier this year are signs that there is real momentum to advance regional strategies that increase access to opportunity for low income residents and families. 

Executive Summary

If the main purpose of the Emergency Economic Stabilization Act of 2008 is to give banks confidence in each other, then enabling Treasury directly to bolster the capital positions of banks that need more capital may be an even more effective way to restoring confidence to the inter-bank market than the purchased of troubled assets. Whatever Congress may have intended about the pricing of the distressed assets, it also authorized a much more direct way to recapitalize the financial system and weak banks in particular: direct purchases by Treasury of securities that individual institutions may wish to issue to bolster their capital. At this writing, Treasury reportedly is considering ways do this. In this essay, we outline a specific bank recapitalization plan for Treasury to consider.

In particular, Treasury could announce its willingness to entertain applications for capital injections, using a set pricing formula. For publicly traded banks, Treasury could buy at the price as of a given date, such as the price one or more days before its plan was announced. For privately-owned banks, Treasury could use a price based on the average price-to-book value for publicly traded banks as of that date. To prevent government intrusion into the affairs of the banks, the stock should be non-voting. Treasury would make clear that it only would take minority positions. There should be no takeovers of more companies—AIG, Fannie and Freddie are quite enough. Treasury also should announce that it will dispose (or sell back to the bank) any stock acquired through these actions as soon as the financial system has stabilized and the bank is in sound financial condition (perhaps a time limit, such as three years, should be a working presumption).

We believe Treasury can accommodate a systematic recapitalization plan within the funding it has been given – initially $350 billion and another $350 billion later upon request to Congress (unless it disapproves) – by using the required disclosures about its asset purchases as a way of jump starting private sector pricing and trading of these securities. This should conserve Treasury’s resources it might otherwise use for asset purchases, and thus free up funds to recapitalize weak banks directly, but in an orderly fashion.

Treasury will have to be careful when it buys distressed assets to guard against the possibility that banks will just dump their worst stuff on taxpayers. The Department will also have to be careful when buying equity in banks. There cannot be an open invitation for bank owners to move assets out of the bank and then, in effect, say: “We don’t want this bank, you buy it.” To avoid this problem, Treasury should work closely with the FDIC and other regulators to determine whether or not a particular bank is eligible for an equity injection. The Department also may need to limit the scope of the recapitalization program to larger national banks, if it becomes infeasible to allow smaller banks to participate.

Making the Rescue Package Work: Asset and Equity Purchases [1]

The unprecedented financial rescue plan – technically the Emergency Economic Stabilization Act of 2008 (“EESA,” the “Act”, or the “plan”) -- has now been enacted by the Congress. One of the goals of the plan is to end the immediate panic in inter-bank lending markets, and on this basis several omens are not encouraging.

The Dow Jones stock index has been dropping daily, by large amounts, since EESA was enacted. The TED spread measures the difference between the interest rate on short term Treasury bills and the interest rate banks pay to borrow from each other (the LIBOR) and is a widely accepted measure of perceived risk in the financial sector. For several years this spread had hovered around 50 basis points or half a percentage point, reflecting the fact that lending to other financial institutions was considered almost as safe as buying Treasury bills. However, the spread shot up to 2.4 percentage points in July 2007 as the financial crisis hit, and it fluctuated widely in subsequent months. Following passage of the plan it remains even more elevated than it was last July—it was 3.8 percentage points as of October 7 and broke 4 percent on October 8. Financial institutions simply do not trust each other’s credit worthiness. Some of the market worries, of course, reflect the fragile state of the U.S. and global economies, but clearly the passage of the rescue plan itself has not calmed markets.

A second and related goal for the plan, according to media accounts, is to facilitate the recapitalization of the financial system, but the language of the bill is surprisingly coy about this. While the Act aims to “restore liquidity and stability to the financial system” it also directs the Treasury Secretary to prevent “unjust enrichment of financial institutions participating” in the asset purchase program. It is not yet clear whether Treasury will choose to recapitalize banks through its asset purchases – by buying them at prices above the values to which banks and other sellers have already written them down – or whether Treasury will simply use its purchases to stabilize prices for these securities and thus provide liquidity to the market, even if it may result in additional write-downs of their values (and thus additional reductions in capital).

Whatever Congress may have intended about the pricing of the distressed assets, it also authorized a much more direct way to recapitalize the financial system and weak banks in particular: direct purchases by Treasury of securities that individual institutions may wish to issue to bolster their capital. Of course, in normal times, such authority would be unnecessary because financial institutions would seek to tap private sources of capital first. But these are not normal times, to say the least.

If the main purpose of the plan is to give banks confidence in each other, then enabling Treasury directly to bolster the capital positions of banks that need more capital may be an even more effective way to restoring confidence to the inter-bank market. Accordingly, we outline here a possible supplementary bank recapitalization plan that we believe Treasury should pursue, at the same time it purchases distressed assets. As this paper is being completed on October 9, 2008, The New York Times reports that the Treasury is now considering such a move. We are encouraged by this and in this essay we provide both a rationale for doing so and some concrete suggestions for how such a direct recapitalization program might work. We do not support further nationalization of the banking system beyond what has already been done but we believe that the crisis has become so severe that the asset purchase plan on its own will not be enough to turn the current situation around. Additional capital is urgently needed and could be supplied by Treasury purchases of minority, non-voting equity stakes, or by warrants.

We believe Treasury can accommodate a systematic recapitalization plan within the funding it has been given – initially $350 billion and another $350 billion later upon request to Congress (unless it disapproves) – by using the required disclosures about its asset purchases as a way of jump starting private sector pricing and trading of these securities. This should conserve Treasury’s resources it might otherwise use for asset purchases, and thus free up funds to recapitalize weak banks directly, but in an orderly fashion, as we describe below.

Why Do Banks Need More Capital?

Financial institutions make money by borrowing money on favorable terms, that is, at low interest rates, and then lending it out at higher rates or by buying assets that yield higher returns. They may make money in other ways too, but the state of their balance sheets of assets and liabilities is crucial. In order to create a viable financial institution that can accommodate requests by depositors to take money out, someone has to put up capital and typically this comes from the equity in the company. The owners of the company have an incentive to keep this equity capital low and to build a large volume of borrowing and lending off a small base of capital—to increase leverage. This is because the profits earned are divided among the equity owners and the less capital there is, the higher the return on equity.

Governments for many years and in almost all countries have regulations in place setting capital requirements for banks in particular to stop them from taking too much risk in the pursuit of high returns and also protect any fund that insures their deposits against loss (the FDIC in this country). But some of our larger banks in recent years found a way around these rules by establishing “off-balance sheet” entities – Structured Investment Vehicles (“SIVs”) – to purchase mortgage-related and other asset-backed securities that the banks were issuing. In addition, large investment banks significantly increased their leverage in the years running up to the recent crisis, and were able to do so without mandated capital requirements. As a result, when the mortgage crisis hit, our financial system was weaker than was widely believed, and in the case of large banks in particular, than was officially reported.[2]

The mortgage crisis, which first surfaced in 2006 and has escalated rapidly since then, has hit bank balance sheets severely. As banks were forced to recognize losses on the mortgages they held in their portfolio, and especially to write down the values of their mortgage securities to their “market values” (even though the prices in those “markets” reflected relatively few “fire-sale” trades), they suffered reductions of their capital. Furthermore, the large banks that had created SIVs to escape such events found they could not hide from them when the SIVs could no longer roll over the commercial paper they had issued to finance their holdings of mortgage securities. To avoid dumping these securities on the market to satisfy their creditors, the banks took the SIVs back on their balance sheets, only to suffer further losses to their capital.

As we have seen, some of our largest banks – Washington Mutual and Wachovia, to name two – have not been able to survive all of this, and have been forced or are or being forced into the hands of stronger survivors. Other banks have been doing their best to shore up their capital bases by issuing new equity to replace the losses they have absorbed on delinquent loans and declining prices of their asset-backed securities. According to media reports, financial institutions (largely banks) worldwide have suffered over $700 billion in such losses to date, of which they replaced approximately $500 billion by issuing new equity.

But more losses are sure to come; indeed Secretary Paulson has said to expect further bank failures. Earlier this year, the International Monetary Fund projected that losses due to the credit crisis worldwide could hit $1 trillion. The IMF has recently upped that forecast to $1.4 trillion. If anything close to this latest forecast is realized, then many banks – here and abroad – will need to raise even more equity, but in a capital market that is now highly more risk averse than only a few months ago.

It is in this environment that banks have grown much less comfortable dealing with each other, even though they must to keep the financial system running. Every day, some banks have more cash on hand, or reserves, than they need to meet reserve requirements and ordinary demands for liquidity, while others are short of such funds. In the United States, banks thus trade with each other in the Federal Funds market while global banks borrow and lend to each other through the London Interbank market using the LIBOR rate of interest. The Federal Reserve’s main objective of monetary policy is to stabilize the “Fed funds” rate around a target, now just lowered to 1.5%, down from 2% where it has been for some months (and down from 5.25% before subprime mortgage crisis). To do so, the Fed has added a huge amount of liquidity to the financial system, even going so far this week as to buy up commercial paper issued by corporations, an unprecedented step. But the Fed does not and probably cannot control the longer term inter-bank market, in which banks lend to each other typically over a 3-month period.

The steep jump in the 3-month inter-bank lending rate – well over 4 percent – reflects two fundamental facts that EESA is designed to address. One is that banks don’t trust each others’ valuations of the mortgage and possibly other asset-backed securities they are all holding, precisely because the “markets” in those securities are so thin and thus not generating reliable prices. The second problem is that banks either are short of capital themselves, or fear that their counterparties are. No wonder that banks are so unwilling to lend to each other for a period even as short as three months – which in this environment, can seem like an eternity.

The capital shortage in the banking system, in particular, has severe implications for the rest of the economy. An institution that is short of capital is forced to cut back on its lending and this shows up in denials of lines of credit to companies and reductions in credit limits for consumers. Households cut back on spending; it is difficult to get a mortgage or a car loan; and companies reduce investment and curtail operations. And as we learn in any college course on banking, the impact of a loss of capital on bank lending can be multiplied. Each dollar of bank capital supports roughly ten dollars of overall lending in the economy. Each dollar of lost capital thus can result in ten dollars of lending contraction. The impact of an economy-wide bank contraction can be devastating for Main Street. The Great Depression was greatly exacerbated by the collapse of banks. The long stagnation in Japan was in large part the result of a failure to recapitalize the banks.

How bad is the current problem? We do not know how many banks, insurance companies or other financial institutions are in a weakened state, or perhaps even more important, may become weakened as the overall economy deteriorates. The official data published so far don’t really help on this score. The FDIC compiles information on the number and collective assets held by “problem banks,” or those in danger in failing. As of the second quarter of 2008, there were 117 such banks with assets of $78 billion up from 90 in the second quarter with assets of $28 billion., These figures did not include Washington Mutual, which would have failed had it not been bought by J.P. Morgan, or Wachovia, which at this writing, looks like it will be acquired by Wells Fargo (but also was in danger of failing without being acquired by someone). Together these banks hold more than $500 billion in customer deposits. Furthermore, according to recent media reports, even some large insurance companies (beyond AIG) may be having capital problems, having suffered large losses on the securities they hold in reserve to meet future claims.

Can the Asset Purchase Plan Succeed in Recapitalizing the Banks?

In principle, there are two ways in which the original Treasury asset purchase plan would recapitalize the banks. The first method is premised on the view that private markets are unwilling to supply capital to the banks because investors do not know how much their assets are worth. The Treasury, it is argued, would use its asset purchase plan as a way of revealing the prices of the assets and once that information is known, the banks will be able to raise new capital again from private markets. But better pricing will only attract capital if there are investors out there who are willing to supply it. Given the dramatic downturn in equities markets, finding such willing investors will be difficult, to say the least. Those investors that provided capital to banks early on in the crisis have been hit hard by the subsequent decline in equity prices and are reluctant to get burned again. When Bank of America said it would raise $10 billion from the markets, for example, its stock price fell sharply, suggesting there is a lot of market resistance to be overcome before private investors are willing to recapitalize the banking system.

Second, in principle, Treasury could recapitalize the banks by buying distressed assets at prices above those at which the securities are currently carried on the books of the institutions that sell them (original book or purchase value minus any write-offs).[3] In this case, the bank would be able to report a capital gain from its sale to the Treasury, a gain that would reverse, at least in part, the capital losses it had taken in the past and thereby add to its capital.

Treasury has said it will use reverse auctions[4] when it buys assets, and it is possible that the Department will be able to construct some auctions that will enable some holders of troubled assets to sell them to the Treasury at prices that earn a capital gain. But we are somewhat skeptical how many securities will fall into this category. For one thing, asset-backed securities are not homogenous, like traditional equity or bonds. In addition, it would be surprising in the current environment if reverse auctions would reveal prices that are above the written-down values of many of these securities. After all, an auction does not necessarily produce valuations that reflect the “hold to maturity” price rather than the “liquidation” price for the securities, as Fed Chairman Ben Bernanke suggested the purchase plan would accomplish.

Accordingly, we strongly suspect that Treasury will have to purchase many securities in one-on-one deals rather than through auctions. But in doing this, it may be both legally and politically difficult for the Treasury to pay prices in negotiations that are above the valuations banks or other sellers already have given them. Section 101 (e) of EESA specifically requires the Treasury Secretary “to take such steps as may be necessary to prevent unjust enrichment” of participating financial institutions, and Congress could construe such language to preclude such sales.[5] Furthermore, even if there were not a specific prohibition in the EESA, Treasury may wish to avoid the public criticism it would face if it purchased assets at prices that would allow participating institutions to book gains. And, in the case of sales at prices below the explicit or implicit price of the securities carried on an institution’s books, the sales will trigger further accounting losses and thus additional deductions from reported capital.

In short, we are not at all confident that the Treasury’s planned purchases of troubled securities, by themselves, will do much to recapitalize the banking system. This does not mean that the planned asset purchases will not deliver some needed help. Although at this writing the inter-bank lending market remains frozen even though EESA has been enacted and signed into law, one reason why banks and others may not yet have confidence that it will lead to a thaw in credit markets is that the guidelines for the asset purchases have not yet been issued. Once these guidelines are announced and the purchases begin, and the markets start to see real results, it is possible that some of the missing trust in the banking system will come back.[6]

However, Treasury may not need to spend, and for reasons elaborated below we do not believe it should spend, anywhere near the full $700 billion, or perhaps even most of the initial $350 billion tranche in borrowing authority, to liquefy the markets for mortgage and other asset-backed securities. EESA requires Treasury to publish (within two days) information about each of these purchases. We urge the Department to include in such publications (presumably on its website) regular data on the defaults and delinquencies to date of the loans underlying each batch of securities it purchases. Such information should enable financial institutions that are still holding similar securities not only to price them more accurately, but also to give market participants enough confidence to begin trading these securities without further Treasury purchases.

Husbanding its resources should be a prime objective for Treasury. In conducting its purchases of troubled assets, it should target first those asset categories that are the most illiquid. The main objective always should be jump-starting private sector activity or at least bringing greater clarity to the pricing of particular classes of securities. There is no need for Treasury, therefore, to make repeat purchases of similar securities (such as collateralized debt obligations issued within several months of each other, structured in roughly a similar way). Rather, the aim should be to make a market in as many different asset categories as are reasonably necessary to provide guidance to market participants, no more, no less.

Yet no one can be confident at this point that asset purchases alone will give banks sufficient confidence to begin dealing with each other at much lower interest rates. If the asset purchases do the trick, fine. But if they don’t, Treasury should make sure it has enough financial ammunition to pursue a second, more direct, strategy for restoring banks’ confidence – the direct bank recapitalization strategy to which we now turn.

Recapitalizing the Financial System Directly

Having the government put capital into financial institutions directly is not a new idea. It is the approach followed in this crisis for Fannie and Freddie and has been used in other countries. Sweden recapitalized its banks by adding capital to them during its crisis in the 1980s. Most recently, the British government has announced a sweeping bank recapitalization amidst the current crisis. And of more relevance to the U.S. situation, Congress specifically added authority in EESA for Treasury to make direct capital injections into banks.

In recent days, Treasury Secretary Paulson has acknowledged that the Department may take advantage of this authority and thus use some of its funds to buy equity in troubled banks. This is a welcome development. Even if Treasury’s asset purchase program restores confidence in the pricing of troubled securities, many banks still believe that many other banks lack sufficient capital, and thus can still be reluctant to lend to them. The fact that the FDIC stands ready (especially with its new unlimited line of credit at the Treasury) to assist acquiring banks in taking over failing banks is probably not sufficient, even with a successful Treasury asset purchase program, to provide this confidence. Bank lenders to failed banks can still lose money in such transactions, or at the very least may have difficulty accessing their funds for some period, at times when all banks seem to want or need as much liquidity as they can get.

How might such a capital injection program work? Treasury could announce its willingness to entertain applications for capital injections, using a set pricing formula. For publicly traded banks, Treasury could buy at the price as of a given date, such as the price one or more days before its plan was announced, as has been suggested by former St. Louis Federal Reserve Bank President William Poole.[7] For privately-owned banks, Treasury could use a price based on the average price-to-book value for publicly traded banks as of that date. To prevent government intrusion into the affairs of the banks, the stock should be non-voting. Treasury would make clear that it only would take minority positions. There should be no takeovers of more companies—AIG, Fannie and Freddie are quite enough. Treasury also should announce that it will dispose (or sell back to the bank) any stock acquired through these actions as soon as the financial system has stabilized and the bank is in sound financial condition (perhaps a time limit, such as three years, should be a working presumption).

The Treasury will have to be careful when it buys distressed assets to guard against the possibility that banks will just dump their worst stuff on the taxpayers. The Department also will have to be careful when buying equity in banks, especially if it decides to go for a broad, nationwide program. There cannot be an open invitation for owners to move assets out of the bank and then, in effect, say: “We don’t want this bank, you buy it.” This problem suggests that Treasury would need to work closely with the FDIC and other regulators to determine whether or not a particular bank is eligible for an equity injection. Treasury also may need to limit the scope of the program to larger banks, if it becomes infeasible to allow smaller banks to participate.

We presume that Treasury did not initially embrace the idea of a more systematic recapitalization of the banking system out of concern not to have any further government involvement in the banking system, especially on the heels of the Fannie/Freddie conservatorship and the Fed’s rescue of AIG. That Treasury is now considering direct capital injections indicates that this may no longer be a concern. In our view, limiting Treasury’s purchases to non-voting stock in any event would address this concern directly.

Conclusion

Ben Bernanke has compared the current financial crisis to a heart attack in the economy. For some heart attacks, it is enough to administer drugs and change diet and exercise habits. But in acute cases, major surgery is needed and the current crisis is in the acute phase. Direct surgery in the form of capital injected into financial institutions, along with direct asset purchases, should help calm the inter-banking lending market.

Based on recent monthly data it appears that GDP started to fall in mid-year and the economy is moving into recession so the proposals made here will not change that. Nor can the proposals compel banks to make loans to their traditional customers – consumers and businesses – in the current climate of fear. But Treasury can do something to mitigate that fear and thus, along with the recent further easing of monetary policy, likely additional fiscal stimulus and further homeowner relief, the Department will help reduce the severity of the current recession if it uses all the tools in its financial arsenal.

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ABSTRACT

In recent decades economists have turned their attention to data that asks people how happy or satisfied they are with their lives. Much of the early research concluded that the role of income in determining well-being was limited, and that only income relative to others was related to well-being. In this paper, we review the evidence to assess the importance of absolute and relative income in determining well-being. Our research suggests that absolute income plays a major role in determining well-being and that national comparisons offer little evidence to support theories of relative income. We find that well-being rises with income, whether we compare people in a single country and year, whether we look across countries, or whether we look at economic growth for a given country. Through these comparisons we show that richer people report higher well-being than poorer people; that people in richer countries, on average, experience greater well-being than people in poorer countries; and that economic growth and growth in well-being are clearly related. Moreover, the data show no evidence for a satiation point above which income and well-being are no longer related.

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• The New Stylized Facts About Income and Subjective Well-Being

Event Information

China’s meteoric rise lifted its economy but damaged its environment, and it has new aspirations to leadership on the global stage. Africa has enormous natural capital and is hungry for development. How can they collaborate? Their interests may intersect within a model of development that invests in natural capital instead of prizing only extraction.

On July 11th, the Brookings Tsinghua-Center, in collaboration with GreenPoint Group and School of Public Policy and Management at Tsinghua University, hosted the panel Sustainability within the China-Africa Relationship: Governance, Investment, and Natural Capital. The panel was moderated by SMPP Associate Professor and IMPA director Zheng Zhenqing, and featured Mr. Peter Seligmann, chairman and CEO of Conservation International; Professor Qi Ye, director of the Brookings Tsinghua-Center; Honorable Minister Anyaa Vohiri of the Environmental Protection Agency of Liberia; Professor Pang Xun, expert on official direct assistance and the politics of aid; and Mr. Rule Jimmy Opelo, Permanent Deputy Secretary of the Ministry of Environment, Wildlife and Tourism of Botswana.

Professor and Dean of School of Public Policy and Management Xue Lan gave the opening remarks, highlighting that both China and Africa face the challenge of balancing development and sustainability. Minister Vohiri then presented on the challenges and great potential of Africa's vast, untapped renewable energy resources before Professor Zheng opened the panel. Framing China and Africa as global partners with the common aspiration of growing sustainable, the panelists discussed the need for developing economies to recognize that the health of their environment is inseparable from the health of their economies.

Questions concerning the UN’s Sustainable Development Goals and Millennium Development goals presented conservation as a global issue requiring global governance. Mr. Seligmann forwarded the idea that sustainable development as enlightened self-interest has entered mainstream thought, asserting that the challenge now lies in crafting region-specific policies and plans of implementation. The importance of cooperation surfaced as a common theme. Mr. Opelo examined the possibilities of South-South cooperation, and Professor Qi provided a history for the emergence of natural capital as a concept before underlining the need for government to collaborate with civil society and the private sector.

The highlighted benefits of Sino-African cooperation ranged from the greater political freedom afforded to aid recipient countries when there is donor competition to Africa's potential "leapfrog" development to a green economy if it obtains sufficient investment. Professor Qi spoke of the lessons provided by China’s evolution from a parochial developing country into the world’s leader in sustainable development. Professor Pang emphasized the benefits both to China and to African countries when the influence of conditional aid from the United States is diluted by Chinese competition. Minister Vohiri and Mr. Opelo discussed the challenges of balancing conservation enforcement with the provision of basic needs, concluding that China's capital and knowledge could help Africa develop its economy in a sustainable direction. The panelists closed by addressing questions from the audience that problematical transparency problems with China's current model of development in Africa, the sustainability of green energy subsidies, the threats of mining and poaching, and Africa's role in addressing a global environmental crisis to which it largely did not contribute.

Xue Lan gave the opening remarks

Minister Vohiri delivered keynote remarks

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• Sustainability within the ChinaAfrica relationship governance investment and natural capital

This week, the richest business leaders and investors from around the world will gather in Davos, Switzerland, for the annual meeting of the World Economic Forum. In keeping with tradition, a small portion of the agenda will be devoted to global development and the plight of people living at the other end of the global income distribution.

Philanthropy is one way of linking the fortunes of these disparate communities. What if some of the mega-rich could be persuaded to redistribute their wealth to the extreme poor?

This question may feel hackneyed, but it deserves a fresh hearing in light of a dramatic reduction in the global poverty gap over the past several years (Figure 1). The theoretical cost of transfers required to lift all poor people’s income up to the global poverty line of $1.90 a day stood at approximately $80 billion [1] in 2015, down from over $300 billion in 1980. (Values expressed here are in 2015 market dollars.)

Source: Authors’ calculations based on OECD, World Bank

This reduction can be unpacked into two parts. The first is a steep decline in the number of people living below the global poverty line. This is increasingly recognized as one of the defining features of the era. A U.N. goal to halve the poverty rate in the developing world between 1990 and 2015 was nearly achieved twice over. The second and lesser-known factor is the shrinking average distance of the world’s poor from the poverty line. In 1980, the mean daily income of those living below $1.90 was $1.09. In 2012 it was 25 cents higher at $1.34. (Values expressed here in 2011 purchasing power parity dollars.)   

Despite this good news, global poverty still demands attention. Hundreds of millions of people continue to suffer this most acute form of deprivation. In several countries, the prospects for ending poverty over the next generation, in line with a recently endorsed successor U.N. goal, appear challenging at best.

Figure 1 illustrates that in 2006, global aid flows exceeded the cost of the global poverty gap for the first time. This suggests that the elimination of extreme poverty should be possible simply through a more efficient allocation of aid. However, this confuses foreign aid’s goals and functions. The bulk of official foreign aid is used in the provision of public goods, such as physical infrastructure and strengthening institutions. Only 2 percent is directed to social payments and their administration. If the elimination of extreme poverty is to be achieved through targeted transfers, it depends on sources other than foreign aid.

The main source of transfers to the poor is welfare programs run and financed by developing countries themselves. These social safety nets have emerged as an increasingly prominent instrument in the toolkit of developing economy governments. Eighty-three percent of developing economies employ unconditional cash transfer programs, although many are small in scale. Several countries are in the process of building the apparatus for more accurate targeting and authentication through the assembly of beneficiary registries and the rolling out of identity programs. In at least 10 developing countries, social safety nets have succeeded in establishing a social floor by lifting all those people under the poverty line up above the threshold. In the vast majority, however, safety nets are insufficiently targeted or generous for that purpose, reflecting not only resource constraints, but also political choices that can be resistant to change.

A complementary approach is to consider the role of private mechanisms and wealth. NGOs were among the original pioneers of cash transfers in the developing world. More recently, the NGO GiveDirectly has designed a compelling new method of charitable giving that sends money directly to the poor using digital monitoring and payment technology. Its approach has received strong endorsements from independent charity assessors and has been validated by impact evaluations. Yet the scale of its existing donations remains tiny relative to the global poverty gap.

This is where Davos’s global elite could come into play: What difference could a philanthropic donation from the world’s richest people make?

To explore this question, we begin by identifying those developing countries that are home to a least one billionaire. (Our analysis is restricted to billionaires by data, not by the potential largesse of the world’s multi-millionaires. We focus our attention on billionaires in the developing world given the traditional focus of philanthropy on domestic causes.) Let’s assume that the richest billionaire in each country agrees to give away half of his or her current wealth among his or her fellow citizens, disbursed evenly over the next 15 years, roughly in accordance with the Giving Pledge promoted by Bill Gates. That money would be used exclusively to finance transfers to poor people based on their current distance from the poverty line. Transfers would be sustained at the same level for the full 15-year period with the aim of providing a modicum of income security that might allow beneficiaries to sustainably escape from poverty by 2030.

Table 1 summarizes the key results. In each of three countries—Colombia, Georgia, and Swaziland—a single individual's act of philanthropy could be sufficient to end extreme poverty with immediate effect. Swaziland is an especially striking case as it is among the world’s poorest countries with 41 percent of its population living under the poverty line. In Brazil, Peru, and the Philippines, poverty could be more than halved, or eliminated altogether if the billionaires could be convinced to match Mark Zuckerberg’s example and increase their donation to 99 percent of their wealth.

Source: Authors’ calculations based on Forbes, International Monetary Fund, PovcalNet, and the World Bank. Poverty rates post-transfer calculated based on average distance of the poor from the poverty line.  

In other countries—Nigeria, Tanzania, Uganda, and Angola—the potential impact on poverty is only modest. A number of factors account for differences between countries, but two factors that penalize African countries are especially noteworthy. First, the depth of poverty in Africa remains high, with 15 percent of the population living on less than $1.00 a day; and second, Africa has relatively high prices compared to other poor regions, which means more dollars are required to deliver the same amount of welfare.  

For those nations that have more than one billionaire, an alternative scenario is that the country’s club of billionaires makes the pledge together and combines resources to tackle domestic poverty. This would end poverty in China, India, and Indonesia—countries that rank first, second, and fifth globally in terms of the absolute size of their poor populations. The last two columns of Table 2 describe the results.

Table 2. The potential impact on poverty of collective billionaire giving pledges

Source: Authors’ calculations based on Forbes, IMF, PovcalNet, and the World Bank. Poverty rates post-transfer calculated based on average distance of the poor from the poverty line.

This exercise is of course laden with simplifying assumptions. [2] It is intended to provoke discussion, not to provide definitive figures. Moreover, it is open to debate whether transfers represent the most cost-effective way of sustainably ending poverty, the extent to which transfers ought to be targeted, the efficacy of building private transfer programs alongside public safety nets, and whether cash transfers represent the most appropriate use of billionaires’ philanthropy.  

What is less contestable is that a falling global poverty gap presents an opportunity for more systematic efforts for poverty reduction. This raises the question: How low does the poverty gap have to fall before we explicitly design programs to bring the remaining poor above the poverty line? We would argue that we are already beyond this point, not least in countries that remain a long way from ending poverty. Were a billionaire at Davos to commit to using his or her wealth in this fashion, it could trigger a powerful demonstration effect of innovative solutions—not just for other billionaires, but for countries that are currently at risk of being left behind.

[1] The cost of the global poverty gap in 2015 is an overestimate compared with the World Bank’s tentative poverty estimate for the same year. This is due to a different treatment of Nigeria. For this exercise, we rely on data from the 2009/10 Harmonized Nigeria Living Standards Survey reported in PovcalNet, despite its well-documented problems, whereas the Bank draws on the 2010/11 General Household Survey.

[2] Simplifying assumptions include: zero administrative costs in identifying the poor, assessing their income, and administering payments with no leakages, or no portion of those costs being borne by billionaires; the efficacy of administering miniscule transfers to those who stand on the margin of the poverty line; and no change in the cost of closing the poverty gap in a country over time, whether due to population growth, an increase or decrease in poverty, or a change in prices relative to the dollar.   

With over 16 million people and nearly 8.6 million jobs, America's older industrial cities remain a vital-if undervalued-part of the economy, particularly in states where they are heavily concentrated, such as Ohio and Pennsylvania. They also have a range of other physical, economic, and cultural assets that, if fully leveraged, can serve as a platform for their renewal.

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Across the country, cities today are becoming more attractive to certain segments of society. Meanwhile, economic trends-globalization, the demand for educated workers, the increasing role of universities-are providing cities with an unprecedented chance to capitalize upon their economic advantages and regain their competitive edge.

Many cities have exploited these assets to their advantage; the moment is ripe for older industrial cities to follow suit. But to do so, these cities need thoughtful and broad-based approaches to foster prosperity.

"Restoring Prosperity" aims to mobilize governors and legislative leaders, as well as local constituencies, behind an asset-oriented agenda for reinvigorating the market in the nation's older industrial cities. The report begins with identifications and descriptions of these cities-and the economic, demographic, and policy "drivers" behind their current condition-then makes a case for why the moment is ripe for advancing urban reform, and offers a five-part agenda and organizing plan to achieve it.

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At a legislative conference in Cambridge, Ohio, Bruce Katz stressed the importance of cities and metro areas to the state's overall prosperity. Acknowledging the decline of Ohio's older industrial cities, Katz noted the area's many assets and argued for a focus on innovation, human capital, infrastructure, and quality communities as means to revitalize the region. 

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The 2008 Ohio Summit – Restoring Our Prosperity: The State Role in Revitalizing Ohio’s Core Communities convened more than 1000 government, corporate, civic, neighborhood and academic leaders from around the state, including Governor Ted Strickland, Lieutenant Governor Lee Fisher, Senate President Bill Harris and Speaker of the House Jon Husted confirmed as speakers. The Summit was co-convened by the Metropolitan Policy Program at Brookings and GreaterOhio.

The purpose of The Summit was to elicit reaction to a draft set of proposals for state policy reforms that reflect a critique of past policies, aimed at revitalizing communities throughout Ohio. Each of the recommendations was carefully tailored to the unique assets and challenges of Ohio’s 32 core communities whose revitalization is the springboard to a more prosperous and competitive state as a whole. Comments derived from this gathering will help to shape the final report to be released in early 2009.

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Event Presentations:

• Bruce Katz Vice President and Director, Metropolitan Policy Program
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• Scott Bernstein President, Center for Neighborhood Technology 
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• Rob Greenbaum Professor, John Glenn School of Public Affairs, Ohio State University 
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• Mark Partridge Swank Chair in Rural-Urban Policy, The Ohio State University 
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• Jane Dockery Associate Director, Center for Urban and Public Affairs, Wright State University 
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• Alan Mallach Nonresident Senior Fellow, Brookings Institution 
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Event Resources:

• Welcome Letter 
• Summit Agenda 
• Sponsor List 
• Biographies of the Speakers 
• Executive Summary- Restoring Prosperity: The State Role in Revitalizing Ohio’s Core Communities 
• A Restoring Prosperity Case Study: Akron, Ohio 
• Working Draft: Restoring Prosperity: The State Role in Revitalizing Ohio’s Core Communities 
• Working Draft: Our Joint Future: Rural-Urban Interdependence in 21st Century Ohio 
• Restoring Prosperity to Ohio: Fact Sheet 
• Ohio Summit in the News

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• The Honorable Michael Coleman
• Lavea Brachman
• Bruce Katz
• The Honorable Ted Strickland

Bruce Katz offers a number of key recommendations to foster prosperity in the Buckeye state.

Louisville/Jefferson County is the principal city of America’s 42nd largest metropolitan area, a 13-county, bi-state region with a 2006 population estimated at 1.2 million. It is the largest city by far in Kentucky, but it is neither Kentucky’s capital nor its center of political power.

The consolidated city, authorized by voter referendum in 2000 and implemented in 2003, is home to 701,500 residents within its 399 square miles, with a population density of 4,124.8 per square mile.² It is either the nation’s 16th or its 26th largest incorporated place, depending on whether the residents of smaller municipalities within its borders, who are eligible to vote in its elections, are counted (as local officials desire and U.S. Census Bureau officials resist). The remainder of the metropolitan statistical area (MSA) population is split between four Indiana counties (241,193) and eight Kentucky counties (279,523). Although several of those counties are growing rapidly, the new Louisville metro area remains the MSA's central hub, with 57 percent of the population and almost 70 percent of the job base.

Centrally located on the southern banks of the Ohio River, amid an agriculturally productive, mineral rich, and energy producing region, Louisville is commonly described as the northernmost city of the American South. Closer to Toronto than to New Orleans, and even slightly closer to Chicago than to Atlanta, it remains within a day’s drive of two-thirds of the American population living east of the Rocky Mountains.

This location has been the dominant influence on Louisville’s history as a regional center of trade, commerce and manufacture. The city, now the all-points international hub of United Parcel Service (UPS), consistently ranks among the nation’s top logistics centers. Its manufacturing sector, though much diminished, still ranks among the strongest in the Southeast. The many cultural assets developed during the city’s reign as a regional economic center rank it highly in various measures of quality of life and “best places.”

Despite these strengths, Louisville’s competitiveness and regional prominence declined during much of the last half of the 20th Century, and precipitously so during the economic upheavals of the 1970s and ‘80s. Not only did it lose tens of thousands of manufacturing jobs and many of its historic businesses to deindustrialization and corporate consolidation, it also confronted significant barriers to entry into the growing knowledge-based economy because of its poorly-educated workforce, lack of R&D capacity, and risk-averse business culture.

In response, Louisville began a turbulent, two-decade process of civic and economic renewal, during which it succeeded both in restoring growth in its traditional areas of strength, most notably from the large impact of the UPS hub, and in laying groundwork for 21st century competitiveness, most notably by substantially ramping up university-based research and entrepreneurship supports. Doing so required it to overhaul nearly every aspect of its outmoded economic development strategies, civic relationships, and habits of mind, creating a new culture of collaboration.

Each of the three major partners in economic development radically transformed themselves and their relationships with one another. The often-paralyzing city-suburban divide of local governance yielded to consolidation. The business community reconstituted itself as a credible champion of broad-based regional progress, and it joined with the public sector to create a new chamber of commerce that is the region’s full-service, public-private economic development agency recognized as among the best in the nation. The Commonwealth of Kentucky embraced sweeping education reforms, including major support for expanded research at the University of Louisville, and a “New Economy” agenda emphasizing the commercialization of research-generated knowledge. Creative public-private partnerships have become the norm, propelling, for instance, the dramatic resurgence of downtown.

The initial successes of all these efforts have been encouraging, but not yet sufficient for the transformation to innovation-based prosperity that is the goal. This report details those successes, and the leadership, partnerships, and strategies that helped create them. It begins by describing Louisville’s history and development and the factors that made its economy grow and thrive. It then explains why the city faltered during the latter part of the 20th century and how it has begun to reverse course. In doing so, the study offers important lessons for other cities that are striving to compete in a very new economic era. 

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Chattanooga a few years ago faced what many smaller cities are struggling with today—a sudden decline after years of prosperity in the "old" economy. This case study offers a roadmap for these cities by chronicling Chattanooga's demise and rebirth.

Chattanooga is located in the southern end of the Tennessee Valley where the Tennessee River cuts through the Smoky Mountains and the Cumberland Plateau. The city’s location, particularly its proximity to the Tennessee River, has been one of its greatest assets. Today, several major interstates (I-24, I-59, and I-75) run through Chattanooga, making it a hub of transportation business. The city borders North Georgia and is less than an hour away from both Alabama and North Carolina. Atlanta, Nashville, and Birmingham are all within two hours travel time by car.

Chattanooga is Tennessee’s fourth largest city, with a population in 2000 of 155,554, and it covers an area of 143.2 square miles. Among the 200 most populous cities in the United States, Chattanooga—with 1,086.5 persons per square mile—ranks 190th in population density.2 It is the most populous of 10 municipalities in Hamilton County, which has a population of 307,896, covers an area of 575.7 square miles, and has a population density of 534.8 persons per square mile.

With its extensive railroads and river access, Chattanooga was at one time the “Dynamo of Dixie”—a bustling, midsized, industrial city in the heart of the South. By 1940, Chattanooga’s population was centered around a vibrant downtown and it was one of the largest cities in the United States. Just 50 years later, however, it was in deep decline. Manufacturing jobs continued to leave. The city’s white population had fled to the suburbs and downtown was a place to be avoided, rather than the economic center of the region. The city lost almost 10 percent of its population during the 1960s, and another 10 percent between 1980 and 1990. It would have lost more residents had it not been for annexation of outlying suburban areas.

The tide began to turn in the 1990s, with strategic investments by developing public-private partnerships—dubbed the “Chattanooga way.” These investments spurred a dramatic turnaround. The city’s population has since stabilized and begun to grow, downtown has been transformed, and it is once again poised to prosper in the new economy as it had in the old.

This report describes how Chattanooga has turned its economy around. It begins with a summary of how the city grew and developed during its first 150 years before describing the factors driving its decline. The report concludes by examining the partnerships and planning that helped spur Chattanooga’s current revitalization and providing valuable lessons to other older industrial cities trying to ignite their own economic recovery. 

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Part of the larger Northeast Ohio regional economy, the Akron metropolitan area is composed of two counties (Summit and Portage) with a population of just over 700,000, and is surrounded by three other metropolitan areas. Akron is located approximately 40 miles south of Cleveland, 50 miles west of Youngstown, and 23 miles north of Canton. The Cleveland metro area is a five-county region with a population of 2.1 million. The Youngstown metro area includes three counties, extending into Pennsylvania, and has a population of 587,000. Canton is part of a two-county metropolitan area with a population of 410,000.

The adjacency of the Akron and Cleveland Metropolitan Statistical Areas (MSAs) is an important factor in the economic performance of the Akron region. The interdependence of economies of the two MSAs is evidenced by the strong economic growth of the northern part of Summit County adjacent to the core county of the Cleveland metropolitan area. This part of Summit County beyond the city of Akron provides available land, access to the labor pools of the two metropolitan areas, and proximity to the region’s extensive transportation network.

Although affected by economic activity in the larger region, the fate and future of Akron and its wider region are not solely determined by events in these adjacent areas. While sharing broad economic trends with its neighbors, the Akron metro area has been impacted by a different set of events and has shown different patterns of growth from other areas in Northeast Ohio.

This study provides an in-depth look at Akron’s economy over the past century. It begins by tracing the industrial history of the Akron region, describing the growth of the rubber industry from the late 1800s through much of following century, to its precipitous decline beginning in the 1970s. It then discusses how the “bottoming out” of this dominant industry gave rise to the industrial restructuring of the area. The paper explores the nature of this restructuring, and the steps and activities the city’s business, civic, and government leaders have undertaken to help spur its recovery and redevelopment. In doing so, it provides a series of lessons to other older industrial regions working to find their own economic niche in a changing global economy. 

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Even in comfortable times, the service cutbacks and fare increases being proposed by the Metropolitan Transportation Authority would have sparked outrage from New Yorkers. Coming in the depths of the most serious economic crisis since the Great Depression, things seem that much worse.

Not that it's any consolation to frustrated New York transit riders and taxpayers, but you are not alone. Transit agencies like the MTA are reeling nationwide; all are suffering from factors at least some of which they really can't control without some legislative help.

This is not to deny the pain that could occur unless the state comes up with a rescue plan. In its 2009 budget, the agency proposes painful service cutbacks and fare increases to help cover a projected deficit of around $1.5 billion.

No fewer than 51 transit agencies around the country are in the same financial situation. For example, the Massachusetts Bay Transportation Authority that runs Boston's smaller transit system is chewing over major service cuts and fare increases if the state doesn't help cover its $160 million deficit.

The fact that so many transit agencies are struggling may come as a surprise. After all, didn't Washington just pump a lot of money into infrastructure as part of the $787-billion American Recovery and Reinvestment Act? Wasn't public transit a big part of that law?

Yes. The stimulus package provides $8.4 billion to be spent on transit this year. That's a helpful shot in the arm to metropolitan transit agencies that Washington ordinarily relegates to second-class status. And the MTA will receive the largest portion of this money: more than $1 billion. Even by today's standards, that's nothing to sneeze at.

But how much will it really help? Federal rules in effect since 1998 stipulate that this money can be spent only on capital improvement projects and not to finance gaps in day-to-day operating expenses.

Surely there is no transit service without capital - the buses, trains, tracks and other facilities that make the system run. However, operating costs - which are generally about twice as high as capital expenses for the largest transit agencies - cover the salaries of the workers who keep the system running, as well as the debt contracted to pay for capital projects.

So as the federal government aims to put Americans back to work on shovel-ready, temporary construction jobs, transit agencies are looking at the likelihood of laying people off from stable, permanent positions.

Why the disconnect?

The response in Washington is predictably stubborn: Recovery money cannot be used for operating expenses because operating is not a federal role.

You would think that the pressure of this policy would lead to transit agencies that are self-sufficient - where passenger fares pay the full costs of operating the system.

But large metropolitan transit agencies generally "recover" only about one-third of their costs from subway riders and about one-quarter from bus passengers. The MTA has the highest cost-recovery ratio among all subway operators - its fares pay for two-thirds of operating costs.

For large bus systems, the MTA's New York City Transit ranks second only to New Jersey's in terms of the share of operating costs paid for by riders. The Long Island Rail Road is the seventh among the 21 commuter rail systems in the country, recovering from fares close to half of its operating costs.

So what should be done to close the MTA's budget gap?

For one thing, lawmakers in Albany need to recognize that the state contributes a lower proportion of the MTA's budget from its general revenue than other states provide to their transit agencies from general revenue. In New York, about 4 percent of all the MTA operating costs are covered by the state budget; in other states, transit agencies are getting closer to 6 percent.

Raising state general fund support to national levels would be a good place to start helping the MTA.

Another idea is to get Washington to help. Not in doling out more money, but in stepping aside and empowering metropolitan agencies to spend their federal money in ways that best meet their own needs.

Specifically, the federal rules could be changed to allow transit agencies to spend their transit capital stimulus dollars on operating expenses. Certainly, agencies have capital needs as well, but particularly in these stressful economic times they should have the short-term flexibility to use those federal dollars to meet their immediate problems.

Over the long term, some form of federal competitive funding for operating assistance also might provide the right incentive - or reward - to states and localities to commit to funding transit.

Based on their level of commitment, metropolitan agencies, localities and states that legislatively dedicate a stable stream of funds could potentially receive federal operating assistance, perhaps as a matching grant. The federal government would be helping those who help themselves.

The New York metropolitan area cannot afford to have a transit system that is hampered from operating at its fullest and most efficient potential.

An extensive transit network like the MTA provides important transportation alternatives to those who have options and basic mobility for those who don't. It can help mitigate regional air-quality problems by lowering overall automobile emissions and slowing the growth in traffic congestion.

It also can provide economic benefits by creating development opportunities around transit stations and help enhance regional economic competitiveness as an important and attractive metropolitan amenity.

Such a functioning network plays a fundamental role in attracting highly skilled labor and talent, which we know is so important in 21st century metropolitan America.

On September 8, Brookings Senior Fellow Vanda Felbab-Brown participated in a Center for International Policy and Washington Office on Latin America event, “Using Militaries as Police in Latin America: A Discussion on Citizen Security and the Way Forward.” Felbab-Brown was joined on the panel by Adam Blackwell, secretary for multidimensional security at the Organization of American States; Richard Downie, executive vice president for global strategies at OMNITRU; and Adam Isacson, senior associate for regional security policy at the Washington Office on Latin America. Sarah Kinosian, lead researcher on Latin America at the Center for International Policy, moderated the event.

Felbab-Brown argued that police reform across Latin America over the past two decades has often been at best deficient or has failed outright. The lack of rule of law characterizes many countries in the region, including continually Mexico. Police forces are often not only corrupt, but highly abusive, and both police forces and military forces deployed for policing engage in major human rights violations. Even assumed exemplary experiments, such as the Unidade de Polícia Pacificadora (UPP) approach in Rio, have struggled to execute an effective handover from heavily-armed takeover forces to regular policing.

If governments choose to deploy their militaries in local policing roles, suboptimal as that is, the forces should adopt population-centric strategies, immediately develop concrete handover plans to police forces, and operate under a civilian coordinator. A key requirement for military forces is to respect human rights and due process and diligently prosecute perpetrators. Ultimately both police and military forces need to understand that their role is to protect society.

To some extent, Felbab-Brown argues, the resort to military forces for policing purposes is compounded by the lack of expeditionary police capacity by outside partners and donors, who overwhelmingly tend to deploy military forces for training policing. However, if the United States and outside donors want to make their policing assistance more effective, they should consider developing expeditionary police forces for such training purposes as well as a range of stabilization operations.

The most important factor for security efforts is citizen support. Marginalization, exclusion, and abuse from policing forces—be they police or military ones—have often prevented local populations from cooperating with law enforcement units and buying into rule of law: security or insecurity is co-produced as much as by citizens as by the police or military.

Editor’s Note: The following chapter is part of the report, "After the Drug Wars," published in February 2016 by the London School of Economics and Political Science's Expert Group on the Economics of Drug Policy.

Even as the administration of Mexico’s President Enrique Peña Nieto has scored important reform successes in the economic sphere, its security and law enforcement policy toward organized crime remains incomplete and ill-defined. Despite the early commitments of his administration to focus on reducing drug violence, combating corruption, and redesigning counternarcotics policies, little significant progress has been achieved. Major human rights violations related to the drug violence, whether perpetrated by organized crime groups or military and police forces, persist – such as at Iguala, Guerrero, where 43 students were abducted by a cabal of local government officials, police forces and organized crime groups. This has also been seen in Tatlaya and Tanhuato, Michoacán, where military forces have likely been engaged in extrajudicial killings of tens of people. Meanwhile, although drug violence has abated in the north of the country, such as in Ciudad Juárez, Monterrey and Tijuana, government policies have played only a minor role. Much of the violence reduction is the result of the vulnerable and unsatisfactory narcopeace – the victory of the Sinaloa or Gulf Cartels. 

The July 2015 spectacular escape of the leader of the Sinaloa Cartel and the world’s most notorious drug trafficker – Joaquín Guzmán Loera, known as El Chapo – from a Mexican high-security prison was a massive embarrassment for the Peña Nieto government. Yet it serves as another reminder of the deep structural deficiencies of Mexico’s law enforcement and rule-of law system which persists more than a decade after Mexico declared its war on the drug cartels.

The Peña Nieto administration often pointed to the February 2014 capture of El Chapo as the symbol of its effectiveness in fighting drug cartels and violent criminal groups in Mexico. The Peña Nieto administration’s highlighting of Chapo’s capture was both ironic and revealing: ironic, because the new government came into office criticizing the anti-crime policy of the previous administration of Felipe Calderón of killing or capturing top capos to decapitate their cartels; and revealing, because despite the limitations and outright counterproductive effects of this high-value-targeting policy and despite promises of a very different strategy, the Peña Nieto administration fell back into relying on the pre-existing approach. In fact, such high-value-targeting has been at the core of Pena Nieto’s anti-crime policy. Moreover, Chapo’s escape from Mexico’s most secure prison through a sophisticated tunnel (a method he had also pioneered for smuggling drugs and previously used for escapes) showed the laxity and perhaps complicity at the prison, and again spotlighted the continuing inadequate state of Mexico’s corrections system.

Read the full chapter here.

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• Cuidado: The inescapable necessity of better law enforcement in Mexico

During his address at the U.S. Coast Guard Academy graduation this week, President Obama highlighted climate change as “a serious threat to global security, an immediate risk to (U.S.) national security.” Is President Obama right? Are the national security threats from climate change real?

When I listen to the “know-nothing” crowd and their front men in Congress who actively ignore ever-stronger scientific evidence about the pace of climate change, I want to quit my day job and organize civic action to close them down. The celebration of anti-knowledge, the denial of science, the treatment of advanced education as a mark of ignominy rather than the building block of American innovation and citizenship—these are as grave a threat to America’s future as any I can identify. So I’m sympathetic to the Obama administration’s desire to take a bludgeon to climate deniers. But is “national security” the right stick to move the naysayers forward? 

The Danger of Overstating for Effect

The White House’s report on the national security implications of climate change is actually pretty measured and largely avoids waving red flags, but it overstates for effect, as do the President’s remarks to the Coast Guard Academy. 

The report gets right the notion that climate change will hit hardest where governance is weakest and that this will exacerbate the challenge of weak states; but it’s a pre-existing challenge and almost all weak states are already embroiled in forms of internal war—climate change may exacerbate this problem, but it certainly won’t create it. The White House report also asserts a link to terrorist havens, and of course there are risks here—but it’s far from a 1:1 relationship, and there’s little evidence that the countries where climate will hit governance worst are the places where the terrorism problem is most serious. 

The report also highlights the Arctic as a region most dramatically effected by climate change, and that is true—but so far what we’re seeing in the Arctic is that receding ice is triggering commercial competition and governance cooperation; not conflict. The security challenge from the Arctic is modest: the climate challenge of melting ice caps and potential release of trapped greenhouse gases is potential very serious indeed. 

Then there are the domestic effects. The report highlights that the armed services may be drawn in more to dealing with coastal flooding and similar crises, and that’s a fair point—though it’s a National Guard point more than its an armed forces point. That is to say, it’s about the question of whether we have enough domestic disaster response capacity: an important question, not obviously a national security question. And it oddly passes over what’s likely to be the most important consequence of climate change in the United States, namely declining agricultural productivity in the American heartland. America’s farmers, not just its coastal cities, are in the front lines here. 

All of these are real issues and the U.S. government will have to plan for lots of them, including in the armed services; all fair. But is national security really the right way to frame this? Is linking it directly to the capacities needed for America’s armed services the right way to mobilize support for more serious action on climate change? 

Of course the term “security” has been evolving, and has long since extended beyond the limited purview of nuclear risks and great power conflict. Civil wars and weak governance and rising sea leaves are certainly a security issue to somebody, and we’re sure to be involved—whether it’s in dealing with refugee flows, or more acute crises where severe impacts overlay on pre-existing tensions. These are global security issues for someone, to be sure; I’m not sure they are “immediate risks to our national security.

Words Matter

Why does the rhetoric matter? Am I glad that we have a President who cares about climate change? Yes. Do I want the Obama administration to be focusing on mobilizing the American public on this? Yes. So why does it bother me if they use a national security lens? A national security framework implicitly does several things: it invokes a sense of direct threat, which I think distorts the nature of the challenge; it puts military responses front forward, which is the wrong emphasis; and although the report doesn’t get into this question, if the President highlights the immediate national security risk from climate, it displaces other security threats that we confront and truly require U.S. strategic planning, preparedness, and resources. None of this is totally wrong, but surely there are other ways to mobilize the American public to an erosion of our natural and agricultural environment than to invoke the security frame? 

Every piece of evidence I’ve seen about the state of temperature change; the real pathway we are on in terms of carbon-based fuels consumption (despite optimistic pledges in the lead up to the Paris climate conference); realistic projections of growth in renewable energies; and demand growth in the developing world (especially India) tells me that we’re rapidly blowing past the two degree target for limiting the rise in average global temperatures, and we’re well on our way to a four degree shift. 

We need urgently to pivot our scientific establishment away from the now well-trod field of predicting temperature shift to getting a much more granular understanding about the ways in which changing temperature will affect water sources, agricultural productivity, biodiversity, and dramatic weather events. And we need to treat those who willfully deny science—in climate and other areas—as a serious threat to our nation’s  future. I’m just not convinced that national security is the right or best way to frame the arguments and mobilize the America public’s will around this critically important issue.

President Obama should be congratulated for highlighting the growing links between U.S. national security and climate change in his address before the U.S. Coast Guard Academy’s graduation ceremony earlier this week. The president’s speech drew upon earlier administration documents (the Third National Climate Assessment, the White House’s 2015 National Security Strategy, the Department of Defense’s 2014 Quadrennial Defense Review, and the 2014 Department of Homeland Security’s Quadrennial Homeland Security Review) to highlight the numerous challenges posed to our nation and the world by climate change, including:

• Threats to the world’s coastal infrastructure
• Rising temperatures and extreme weather
• Creation of failed states
• Degradation to the marine environment and critical ecological regions around the globe
• Threats to our energy production and delivery systems
• The devastating impact on native Arctic inhabitants

While these issues are important and deserve attention, the president was singularly silent on how best to manage threats, posed to the Arctic and the global environment by the rush to develop or utilize its resources (including energy, minerals, fish, and tourism) as the region opens with the melting of sea ice. I raise none of these issues to disagree with the president’s policies, or to suggest we should not develop the region’s resources or allow enhanced international maritime trade through our waters. In fact, I have often called for the economic development of Alaska with high safety standards for oil and gas production. If we allow these activities to proceed, we must be willing to provide the resources for infrastructure of all kinds: pipelines, onshore and offshore, and including ports, airfields, housing, etc., in order to be prepared for all contingencies.

Additionally, the president did not make any mention of the financial demands posed to the country to even meet the challenges in our own Arctic region of Alaska, let alone the many commitments we have already made in the Arctic Council, vis-à-vis instituting a true search and rescue capability and an oil spill prevention and response mechanism. The sad reality is that for all intents and purposes the United States has one heavy icebreaker to patrol our entire Arctic region. With cruise ships now sailing into very dangerous areas without adequate sea mapping, the prospect of a disaster occurring at least 800 miles from our nearest port in the Aleutians looms large. Were a cruise ship to run into ice, there is no logistical infrastructure in Northwest Alaska even to off lift passengers to on shore by helicopter. With icebreakers likely to cost at least $800 million to $1.5 billion each and take many years to build, where is the president's clarion call to the Congress on the need for more revenue for our Coast Guard to deal with the challenges highlighted in his speech?

Likewise, with many Asian nations interested in the fish resources of the Arctic, where are the funds both to determine what fish exist in Arctic waters including fish migrating from the Pacific as well as their volumes and assessments of how to insure their sustainability? If the president is serious about the threat of climate change on America’s front door to the Arctic, where are the U.S. Coast Guard and the State of Alaska as well as the myriad of federal agencies responsible for various activities in Alaska going to get the requisite resources to carry out their mandates?

As a result of the administration’s commendable recent decision, Shell will be allowed to proceed with drilling several wells in the Chukchi Sea, allowing for development that benefits not only Alaskans but also the entire United States. While Shell will be subject to stringent regulatory oversight, Russia also plans to drill in its area of the Chukchi as well. What would happen if the Russians had an accident and the current brought oil into Alaskan waters? Would the United States, in concert with the Russians have the capability to contain it? Similarly, if there were a major maritime disaster in the Bering Strait where a South Korean ship literally disappeared several years ago, what response capability would we have if a ship containing hazardous cargo sank? While I applaud the decision of the administration to allow Shell to drill in the Chukchi, I am apprehensive of the U.S. commitment and ability to respond to any matter of national security in the Arctic, in part due to the severe lack of federal funds going to support this region.

Consequently, while recognizing that the American and broader Arctic is only a small part of the myriad of issues you identified in your Coast Guard address, I would urge that you begin to inform Congress and the American people of the large costs we may have to incur to protect ourselves against the forthcoming economic and social ravages of climate change.

As a first step to begin to prepare for the direct “existential” challenges posed to Alaska and our broader responsibilities as chair of the Arctic Council, I would recommend the following:

1. A request to Congress for $1.2 billion dollars a year for 10 years to build a new fleet of ice worthy ships to deal with various contingencies in the Arctic (as defined by the Coast Guard) financed by an overall increase in the gasoline tax of $0.20/gallon of which $0.02 would go for Arctic infrastructure development;
2. As an interim step before these ships can be built, the appropriation of funds for the leasing of two Arctic worthy vessels per year;
3. An increase in alcohol and tobacco taxes (or perhaps a tax alongside the legalization of marijuana at the federal level) totaling $500 million dollars a year for 10 years for ancillary infrastructure development of ports, airfields, roads, etc. in Alaska to improve our ability to responds to climate contingencies both in  Alaska and throughout the circumpolar north;
4. A surcharge of one percent on all adjusted federal taxable incomes in excess of $200,000 and two percent on incomes above $500,000.

While there will be hews and cries by climate deniers and other opponents of any tax increase if as the president says the changing climate poses graves threat to our own and other nations security, these are modest proposals (particularly in comparison to an outright price on carbon) and should be passed with the greatest urgency.

Cities and suburbs occupy well-defined roles within the discussion of poverty, opportunity, and social welfare policy in metropolitan America. Research exploring issues of poverty typically has focused on central-city neighborhoods, where poverty and joblessness have been most concentrated. As a result, place-based U.S. antipoverty policies focus primarily on ameliorating concentrated poverty in inner-city (and, in some cases, rural) areas. Suburbs, by con­trast, are seen as destinations of opportunity for quality schools, safe neighborhoods, or good jobs.

Several recent trends have begun to upset this familiar urban-suburban narrative about poverty and opportunity in metropolitan America. In 1999, large U.S. cities and their suburbs had roughly equal numbers of poor residents, but by 2008 the number of suburban poor exceeded the poor in central cities by 1.5 million. Although poverty rates remain higher in central cities than in suburbs (18.2 per­cent versus 9.5 percent in 2008), poverty rates have increased at a quicker pace in suburban areas.

Watch video of co-author Scott Allard explaining the report's findings » (video courtesy of the University of Chicago)

This report examines data from the Census Bureau and the Internal Revenue Service (IRS), along with in-depth interviews and a new survey of social services providers in suburban communities surrounding Chicago, IL; Los Angeles, CA; and Washington, D.C. to assess the challenges that rising suburban poverty poses for local safety nets and community-based organizations. It finds that:

Suburban jurisdictions outside of Chicago, Los Angeles, and Washington, D.C. vary sig­nificantly in their levels of poverty, recent poverty trends, and racial/ethnic profiles, both among and within these metro areas. Several suburban counties outside of Chicago experi­enced more than 40 percent increases of poor residents from 2000 to 2008, as did portions of counties in suburban Maryland and northern Virginia. Yet poverty rates declined for subur­ban counties in metropolitan Los Angeles. While several suburban Los Angeles municipalities are majority Hispanic and a handful of Chicago suburbs have sizeable Hispanic populations, many Washington, D.C. suburbs have substantial black and Asian populations as well.

Suburban safety nets rely on relatively few social services organizations, and tend to stretch operations across much larger service delivery areas than their urban counter­parts. Thirty-four percent of nonprofits surveyed reported operating in more than one subur­ban county, and 60 percent offered services in more than one suburban municipality. The size and capacity of the nonprofit social service sector varies widely across suburbs, with 357 poor residents per nonprofit provider in Montgomery County, MD, to 1,627 in Riverside County, CA. Place of residence may greatly affect one’s access to certain types of help.

In the wake of the Great Recession, demand is up significantly for the typical suburban provider, and almost three-quarters (73 percent) of suburban nonprofits are seeing more clients with no previous connection to safety net programs. Needs have changed as well, with nearly 80 percent of suburban nonprofits surveyed seeing families with food needs more often than one year prior, and nearly 60 percent reporting more frequent requests for help with mortgage or rent payments.

Almost half of suburban nonprofits surveyed (47 percent) reported a loss in a key rev­enue source last year, with more funding cuts anticipated in the year to come. Due in large part to this bleak fiscal situation, more than one in five suburban nonprofits has reduced services available since the start of the recession and one in seven has actively cut caseloads. Nearly 30 percent of nonprofits have laid off full-time and part-time staff as a result of lost program grants or to reduce operating costs.

Downloads

• Full Report
• Suburban Chicago Factsheet
• Suburban Los Angeles Factsheet
• Suburban Washington, D.C. Factsheet

As expected, the latest data from the Census Bureau’s 2009 American Community Survey (ACS) confirm that the worst U.S. economic downturn in decades exacerbated trends set in motion years before, by multiplying the ranks of America’s poor. Between 2007 and 2009, the national poverty rate rose from 13 percent to 14.3 percent, and the number of people below the poverty line jumped by 4.9 million. Yet because the economic impact of the Great Recession was highly uneven across the nation, the map of U.S. poverty shifted in important ways over the past couple of years, with implications for both national and local efforts to alleviate poverty.

An analysis of poverty in the nation’s 100 largest metro areas, based on recently released data from the 2009 American Community Survey, indicates that:

The number of poor people in large metro areas grew by 5.5 million from 1999 to 2009, and more than two-thirds of that growth occurred in suburbs.  By 2009, 1.6 million more poor lived in the suburbs of the nation’s largest metro areas compared to the cities.

Between 2007 and 2009, the poverty rate increased in 57 of the 100 largest metro areas, with the largest increases clustered in the Sun Belt.  Florida metro areas like Bradenton and Lakeland, and California metro areas like Bakersfield, Riverside-San Bernardino-Ontario, and Modesto, each experienced increases in their poverty rates of more than 3.5 percentage points.

Poverty increased by much greater margins in 2009 than 2008, with cities and suburbs experiencing comparable rates of growth in the recession’s second year.  Between 2008 and 2009, cities and suburbs gained 1.2 million poor people, together accounting for about two-thirds of the national increase in the poor population that year.

Several metro areas saw city poverty rates increase by more than 5 percentage points, while many suburban areas experienced increases of 2 to 4 percentage points between 2007 and 2009.  The city of Allentown, PA saw a 10.2 percentage-point increase in its poverty rate, followed by Chattanooga, TN with an increase of 8.0 percentage points.  Sun Belt metro areas were among those with the largest increases in suburban poverty, including Lakeland, FL and Riverside-San Bernardino-Ontario, CA.

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• Full Paper
• Appendix A
• Appendix B

The growth of suburban poverty over the past two decades raises questions about the ability of nonprofit organizations to adapt to this relatively new geography of metropolitan poverty. These organizations play multiple roles, including providing basic safety net services, connecting residents to new opportunities, and serving as advocates (and sometimes as organizers) for low-income communities.

Although federal, state, and local governments are often the primary funders of nonprofits, governments do not often take the lead in creating new organizational capacities or in coordinating capacity across political jurisdictions. In many regions, the local philanthropic community has become aware of these gaps in services for the poor and has sought to assist the nonprofit community in building capacity and expanding activities. Local foundations are experimenting with various strategies to address the growing dispersion of poverty.

This analysis combines an original data set of foundation grants for social services with in-depth interviews to assess the role of foundations in supporting the suburban social safety net in the Atlanta, Chicago, Denver, and Detroit regions. It finds that:

Suburban community foundations in the four regions studied are newer and smaller than those in core cities, despite faster growth of suburban poor populations. In the regions studied, most suburban community foundations began operating in the 1990s, and have not accumulated significant asset bases. Some larger city-based foundations have taken a regional approach, but face restrictions on the extent to which they can address growing need in poor suburban communities.

The share of foundation dollars targeted to organizations serving low-income residents varies widely across regions, but relatively few of those dollars are devoted to building organizational capacity in the suburbs. Chicago saw the largest share of foundation grant dollars go to organizations serving low-income people (60 percent), while Atlanta posted the lowest share (19 percent). Detroit was the only region where total grants to suburban-based human service providers were relatively comparable to their city-based counterparts.

Suburbs with high rates of poverty have substantially fewer grantees and grant dollars per poor person than either central cities or lower-poverty suburbs. Though metropolitan Atlanta has the highest rate of suburban poverty among the regions studied, it has the lowest rate of suburban grant-making per poor person. Denver’s results are a mirror image of Atlanta’s, with the lowest poverty rate and highest suburban grant-making per poor person.

Four types of strategies to build and strengthen the capacity of the suburban safety net are showing promise in these regions. Each region is engaging in four types of capacity building strategies: supporting existing regional organizations, creating new regional organizations, supporting regional networks, and establishing new suburban community foundations.

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• Download the Full Paper
• Media Memo

Last month, a team from the Metropolitan Policy Program, along with a delegation from the city of Chicago, traveled to Mexico City as part of the Global Cities Economic Partnership (GCEP). Launched at a 2013 event sponsored by the Global Cities Initiative (GCI), this novel partnership aims to expand growth and job creation in both cities  by building on complementary economic assets and opportunities.

Together with representatives from World Business Chicago, the Illinois governor’s office, and members of Chicago’s tech startup scene (organized by TechBridge), the Brookings team arrived in Mexico City just as, after a 20 year debate, reforms to devolve greater autonomy and powers to the largest metropolitan area in the Western Hemisphere were finalized.  Central to that reform is Mexico City’s enhanced ability to plan and implement its own economic development policy, underscoring the growing importance of city-regions assuming roles once solely the province of state and national governments: fostering trade, investment, and economic growth.

Chicago and Mexico City illustrate this trend through the GCEP. Emerging from a GCI analysis that identified unique economic, demographic and and social connections between the cities, Chicago Mayor Rahm Emanuel and Mexico City Mayor Miguel Angel Mancera established a novel city-to-city collaboration. Since signing the agreement, government, business, and civic leaders in both cities have been experimenting with new approaches to jointly grow their economies.  They have tried to foster more trade and investment within shared industry clusters; link economic development support services; and leverage similar strengths in research, innovation, and human capital.

This trip to Mexico City focused on one of GCEP’s early outcomes, a formal partnership between Chicago tech business incubator 1871 and Mexico City incubator Startup Mexico (SUM) that facilitates the early internationalization of firms in both cities. Both organizations advanced the creation of a residency program that will enable entrepreneurs from both incubators to have a presence in each other’s markets.

The GCEP approach of city-to-city global engagement has inspired other GCI participants to try their own models, forming economic alliances to ease global navigation and engagement. San Antonio, Phoenix, and Los Angeles also crafted agreements with Mexico City, each focused on different opportunities built off their distinctive economic assets and relationships. Portland and Bristol have investigated how to leverage their comparable “green city” reputations in the U.S. and U.K., connecting mid-size firms in their unique sustainability clusters for collaboration on research and joint ventures. Similarly, San Diego and London are testing how to promote synergies among companies, academic centers, investors, and workers in their shared life sciences subsectors such as cell and gene therapy.

Home to half of the world’s population, cities generate about three quarters of the world’s GDP, and now serve as the hubs for the growth in global flows of trade, capital, visitors, and information. The future prosperity and vitality of city-regions demands finding new approaches that take full advantage of these global connections.  

The Global Cities Economic Partnership emerged from work supported by the Global Cities Initiative: A Joint Project of Brookings and JPMorgan Chase. Brookings recognizes that the value it provides is in its absolute commitment to quality, independence, and impact. Activities supported by its donors reflect this commitment and the analysis and recommendations are solely determined by the scholar

Image courtesy of Maura Gaughan