Community Investments Vol 25, Issue 1
Research Briefs

Spring 2013

Author(s): Federal Reserve Bank of San Francisco

State and Local Governments Face Unprecedented Economic Losses after Recent Recession

Following most recessions in the United States over the past five decades, state and local governments have helped to lift the overall economy through increases in consumption, investment, public sector employment, and property tax revenue. As a recent study from the Urban-Brookings Tax Policy Center reveals, however, the impact of the 2007-2009 recession on state and local governments has been markedly different, with never before seen losses seen in all four of these indicators and in overall state and local government contributions to the national GDP. Benjamin Harris and Yuri Shadunsky examined trends in state and local government activity from 1970 to the present, including six periods of economic recession in the United States. While each of these recessions varied in length and severity, during the years immediately following each recession, changes in state and local government spending, employment, and revenue were notably similar until the most recent decline.

Harris and Shadunsky compared change rates for these measures over a three-year period from the trough of economic contraction for each of the six U.S. recessions since 1970. Their findings show that following the first five recessions, state and local government consumption and investment rose by one to 16 percent; over the three years following the most recent recession, by contrast, consumption and investment fell four percent - an unprecedented post-recession decline. Similarly, in four of six recessions, state and local government employment increased by two to eight percent post-recession. Only the recoveries beginning in 1980 and 2009 saw declining state and local government employment, and of these, 2009 showed the largest loss of 3.5 percent. Property tax revenue trends revealed yet another anomaly after the most recent recession. The study shows that revenues from property tax increased after each of the first five recessions, at an average gain of about 10 percent, yet in sharp contrast such revenues contracted by one percent after the 2007-2009 recession.

In addition to the most recent recession being the longest in duration of the six that they examined, the authors suggest that an additional key factor lies behind the stark differences that mark the most recent recovery period. The 2007-2009 recession centered on a housing crisis that toppled home values across the United States and shrunk property tax revenues, a crucial financial stream for state and local governments. Though Harris and Shadunsky's findings indicate a negative effect of the recent recession on state and local governments that is atypical compared to other recessions since 1970, the authors note that such effects may become the norm following future recessions. They point to limits on state borrowing, unpredictable revenues at the state and local level, and growing resistance among some governments to increase taxes as factors that could lead to similar negative impacts on these governments and, by extension, the national economy following future downturns.

Harris, Benjamin H. and Yuri Shadunsky, "State and Local Governments in Economic Recoveries: This Recovery is Different," Urban-Brookings Tax Policy Center, 2013.

Urban Families Seek Affordable Homes in Rural Areas

In a growing trend that reverses traditional rural to urban migrations of the past, American families seeking lower- cost housing options and safer neighborhoods are relocating from major urban centers to neighboring rural communities. According to a recent study, high housing costs, a lack of available housing units, and persistent crime problems in some city neighborhoods are among the most significant motivating factors for the families that decide to move to rural areas nearby in pursuit of a safe and affordable alternative. Yet these families often face different challenges in their new rural environments.

Sherri Lawson Clark's study, part of a larger twophase research effort, includes an in-depth examination of the experiences of 18 low-income families moving from urban to rural areas in Pennsylvania. Through interviews and observations over an eight-month period, Lawson Clark and her colleagues found that study participants moved to rural locations primarily to find better and less expensive housing, and secondarily to live in a safer neighborhood. While many of the study participants noted that they were able to find more affordable housing in their new rural communities, other barriers arose there, including difficulty securing employment, transportation, and child care, and difficulties around racial tolerance. Most of the families in the study who moved from urban to rural communities are African American, while the rural areas they moved into are largely white. Some families also had difficulty finding their initial housing in the rural area due to perceived or actual instances of racial intolerance. Study participants reported difficulty adjusting to rural cultural norms and other unexpected differences, as the majority of them had never before lived outside an urban environment.

Yet the most significant challenge, according to Lawson Clark, is competition for a dwindling number of jobs in rural areas hard hit by industrial decline. The three rural counties included in Lawson Clark's study were already home to a relatively poor population, and though all of the study participants who moved from the city were foremost seeking housing rather than jobs with their migration, they found that there were few opportunities for work when they arrived. A lack of reliable transportation and accessible child care in the rural communities contributed to the arriving families' challenges in finding suitable employment. This study suggests that while lower-income urban families are moving away from expensive urban areas to find affordable homes, few employment opportunities are available when they arrive, and the rural communities they join are already struggling with declining investment and infrastructure. Lawson Clark concludes that the trends shown in the study support a significant need in urban communities for more affordable housing in safer neighborhood environments, which would allow these families to remain in familiar surroundings near job opportunities and amenities rather than pushing them into struggling nearby rural communities.

For practitioners, they suggest that increased collaboration between the fields of urban planning and public health could help to mitigate health disparities.

Clark, Sherri Lawson, "In Search of Housing: Urban Families in Rural Contexts," Rural Sociology, Vol. 77, No. 1, March 2012, 110-134.

The views expressed are not necessarily those of the Federal Reserve Bank of San Francisco or the Federal Reserve System. Material herein may be reprinted or abstracted provided Community Investments is credited. Please provide our Community Development Department with a copy of any publication in which material is reprinted.

Other articles in this issue

CI Notebook

Challenges for Affordable Housing in a New Era of Scarcity

Diversification of Capital Creates Fresh Focus

New Paths to Housing and Transportation Affordability

Putting Housing Program Delivery into High Gear

The Other Housing Crisis: Rental Housing

Connecting Housing and Health Care through Community Development

Social Impact Bonds: A Promising Tool for the Future of Permanent Supportive Housing

Improving Financial Stability by Building the Capacity of the Local Community

The Partnership for the Green Dividend

Data Snapshot