The Federal Reserve Bank of Chicago’s Community Development and Policy Studies division will host a discussion about Investing in What Works for America’s Communities on Monday, June 17, 2013.

Although registration has exceeded capacity for this gathering, you can join us for the discussion. Follow us on Twitter @whatworksforusa, or @chicagofed and include the hashtag #whatworks in your tweet.

Some contributing authors of Investing in What Works for America’s Communities will join community development practitioners from the Midwest in a dialogue about ideas and programs that succeed in addressing the needs of urban neighborhoods, rural areas and suburbanizing pockets of poverty.

Cook County Board President Toni Preckwinkle will provide a lunch time keynote at 12:15 PM CST.

We’ll go live with our Twitter Feed as the conference begins at 8:45 AM CST @whatworksforusa and @chicagofed using #whatworks

Read Investing in What Works for America’s Communities.

Read a condensed version here.

According to the latest CDPS survey:

• Many issues still impact the housing market in the Seventh District, especially in low- and moderate-income communities (LMI).  Contacts mentioned that the oversupply of vacant homes, the number of underwater mortgages (unpaid balance surpasses home value), the high foreclosure rate, the inability of buyers to obtain mortgages, the high unemployment rate, and unsuccessful loan modifications or workouts all are negatively impacting the housing market. Further exacerbating the ailing housing market are neighborhood crime and the deterioration of existing buildings and infrastructure.  Additionally, in states where the foreclosure process has lagged, there is a constant stream of distressed properties coming onto the market, thereby depressing property values.
• Most contacts reported that credit availability in LMI communities has not tightened recently, but that access to credit remains low.
• Many contacts noted the mismatch between worker skills and employer needs in the District. Ongoing educational programs to address the skills mismatch include: STEM – Science, Technology, Engineering, and Mathematics programs; and community college collaboration with manufacturers and other employers to match curricula with needed skills.
• Contacts noted that there is also a geographical mismatch of jobs in the District (jobs are not located close to the unemployed).
• Research shows that many indicators of poverty—such as poor education, inadequate housing, racism, and poor nutrition—are also indicators of poor health. Increasing access to health care, while essential, is not sufficient to improve public health. Where someone lives is also closely associated with longevity and risk for disease. Community development contacts cite education as a way to foster improved health. Additionally, efficient garbage collection, the elimination of lead based paint, urban garden programs, and better-quality housing also improve public health. 
• On a related note, the Chicago Fed just co-sponsored a summit with the Illinois Public Health Institute and other organizations involving the community development and public health fields.  The summit explored ways the fields could work together to align goals and outcomes to serve the perspectives of policy, practice and financing. We plan to continue this work in the future with meetings with thought leaders and practitioners to culminate in a set of policy recommendations.
• Retailers are coming back to Chicago neighborhoods.  While most new businesses and franchises have been opening in more affluent areas (‘flight to quality’), contacts noted that some new retailers have begun to open in secondary markets.

Recently, the news media have been discussing an uptick in the housing market. We document some of the positive effects we have seen in the Seventh District in a series of Foreclosure Graphs, shown here and available on our Foreclosure Resource Center website.

• Start rates, which measure the pace at which homes enter foreclosure, have come down significantly. This is a positive for the housing market, since it implies less deterioration in the ability of homeowners to meet their mortgage obligations for reasons such as job loss, inability to borrow against home equity due to falling home prices, or rising loan payments.
• Transition rates, which measure the pace at which foreclosures get resolved, are up.
• Finally, the inventory rate, which reflects the proportion of mortgages currently in foreclosure, is decreasing. 

Chart 1: Cook County, Illinois

Source: LPS Applied Analytics and FRB calculations.

Chart 2: Milwaukee County, Wisconsin

Source: LPS Applied Analytics and FRB calculations.

Chart 3: Marion County, Indiana

Source: LPS Applied Analytics and FRB calculations.

Chart 4: Wayne County, Michigan

Source: LPS Applied Analytics and FRB calculations.

Chart 5: Polk County, Iowa

Source: LPS Applied Analytics and FRB calculations.

This blog is a summary of Community Development and Policy Studies topics in the Seventh District from the latest CDPS Survey.

According to the latest CDPS survey:

• The biggest issue impacting the health of housing markets in the Seventh District, especially in low- and moderate-income communities (LMI) is the oversupply of vacant homes. Additionally, contacts mentioned that the number of homeowners whose mortgages are under water (balance greater than the value of the home), the continuing high rate of foreclosures, and high unemployment also negatively impact the housing market. Further exacerbating ailing housing markets is that in judicial foreclosure states like Illinois and Indiana^[1] , the long foreclosure process keeps defaulted mortgagors in their homes long after they have ceased making payments. While the judicial process slows the rate at which foreclosed homes become vacant, it also creates an overhang of supply of foreclosed homes whose occupants have little motivation to maintain them. Illinois Governor Pat Quinn recently signed into law Senate Bill 16, aimed at fast tracking foreclosures of abandoned homes. Quinn explained that, “This law will help restore neighborhoods and property values while fighting crime and blight by decreasing the time a home sits empty and getting it back on the market quickly.”^[2]

• The demand for business loans in LMI communities over the four to six weeks prior to the release of the Beige Book had remained relatively steady.

• While many contacts reported credit tightening in LMI communities over the previous four to six weeks, some argued that availability of credit in LMI areas had not changed, but continued to remain low for a variety of reasons including the following: fewer traditional lenders in the market; less available credit; appraisal problems; and higher credit score requirements. Additionally, some contacts noted that demand is low for loans, reflecting the effects of unemployment and foreclosures on LMI communities.

• There are many challenges associated with revitalizing LMI communities, but most contacts cited employment as the biggest one. Jobs are needed and, importantly, they need to be accessible via public transportation. Employment at all skill levels is an issue.

• Research shows that many indicators of poverty—such as poor education, inadequate housing, racism, and poor nutrition—are also indicators of poor health. Where someone lives is also closely associated with their longevity and risk for disease. Increasing access to health care, while essential, is not sufficient to improve health. Given this, community development contacts cite both education and access to care as two key ways to help foster improved health. Improving education can take many forms: from building strong partnerships with municipal governments and advocates, to identifying partnership opportunities with the financial community, to focusing on early education and educational attainment. Likewise, access can take many forms, including: mobile health care clinics, access to fresh food in food deserts (communities lacking grocery stores and produce markets), and better-quality housing. Although much focus is put on physical health, contacts noted that mental health issues also need attention in LMI communities.

• Several contacts highlighted items that were more state dependent: (1) Michigan is very dependent on the auto industry; (2) the Wisconsin economy is sustained by a robust agricultural market; and (3) the fiscal condition of the State of Illinois is likely to adversely affect employment as well as schools, by limiting the incentives it can offer to new businesses or existing businesses to hire and/or train employees.

On January 30, 2013, the Chicago Fed hosted a conference organized by the Woodstock Institute and other partners in the Regional Home Ownership Preservation Initiative (RHOPI) entitled, “Single-Family Rental Housing: Managing the Next Step of the Foreclosure Crisis”, which focused on Chicago’s affordable rental housing market (single-family to 50-unit buildings).  RHOPI, a multi-year program, was initially launched by the Chicago Fed, the Chicago Community Trust, and Neighborhood Housing Services of Chicago in early 2008.  Many organizations including Woodstock, IFF, Housing Action Illinois, the Metropolitan Mayors’ Caucus, The Metropolitan Planning Council, Chicago Metropolitan Agency for Planning among many others, have stepped forward to lead efforts to implement measures to alleviate effects of the financial and foreclosure crisis in the interim.

In all, approximately 80 organizations, comprising national and community banks; suburban, Chicago City, Cook County, Illinois state, and federal agencies; the Federal Deposit Insurance Corporation; the Office of the Comptroller of the Currency; private foundations; and many nonprofit and advocacy groups identify themselves as formal RHOPI partners. Many more have participated in on-the-ground redevelopment, housing counseling, and loss mitigation efforts for metropolitan Chicago neighborhoods that have been among the hardest hit by the crisis.

The conference agenda included housing, consumer advocacy, and (related) policy experts, among others. Terry Mazany, president and CEO of Chicago Community Trust, started by noting the location of Chicagoland’s most impacted areas during the foreclosure crisis over the past five years, and acknowledging that the rate of foreclosures is once again accelerating. He explained that foreclosed homes are not spread out like “peanut butter” across the region with one every couple blocks. Rather, they are lumped together in certain areas. This concentration of empty, foreclosed, single-family houses, coupled with a need for more affordable housing units, led to the idea of converting vacant houses into rental properties.

The volume of households that have lost homes to foreclosure has led to rapidly increasing demand for rental housing throughout the Chicago metro area; governments and many groups concerned about the rising number of vacant houses have cautiously agreed that renting vacant homes represents an elegant solution to many problems at once, acknowledging that managing a large-scale scattered-site rental operation presents its own challenges.

Alan Mallach, the keynote speaker and a renowned expert on housing policy at The Brookings Institution and the Federal Reserve Bank of Philadelphia, explained that there has always been a large number of houses for rent (approximately one-third of all rental housing). However, absentee ownership has historically been a “mom-and-pop” industry; over 90% of these rentals were owned by private individuals in the 1990s. Since the foreclosure crisis, there has been a gradual shift toward large-scale public and private rental operations. Over the past two years, as housing markets have bottomed out, large bulk purchases have become more common. Additionally, mortgages and notes are also being bought. While the sale of mortgages is hardly new, more recently the mortgages are being purchased by investors who then foreclose and rent the units.

What are the ramifications? According to Mallach, first, the trend signals less home ownership, a movement already under way as young workers seek flexibility, and the option to move to another region to accept a job if necessary. The trend also means more absentee investors and, in turn, increases in what are commonly known as “walk aways.” When a large investor purchases a portfolio, sight unseen, they may simply walk away from a property that they do not feel is worth their time to resell or rent. Since the houses that are the most undesirable tend to be in the lowest value areas, “walk aways” hurt the areas that need the most help.

Mallach suggested that a rental registration ordinance might help solve the problem by establishing accountability for a property. Some renter ordinances are ineffective, as they rely on penalties rather than incentives to encourage participation. A recent New York City study revealed that only 23% of renters lease units registered in their system.  Mallach gave a few examples of ways to make a registration ordinance successful, assuming the city or village has a Web-based property information system. When a property turns over, the city contacts the new owner, stating to provide details about the rental registration ordinance.  Owners must either provide an affidavit of home ownership, if the property is to be owner-occupied, or register and pay a fee, if the intent is to lease the property. If the city discovers later that a home ownership affidavit was signed on a rental property, it would impose a penalty on the owner. Once the rental registration ordinance is created, the city would also need to contact owners of previously unregistered rental properties. While this may add transaction costs and disincentives to a young industry, Mallach suggested that a viable alternative would be to make the registration process free, as well as, on limited basis, requirements such as inspections, to encourage compliance.  By using incentives versus penalties, cost-conscious but otherwise willing (to comply) landlords may be more inclined to register, and the city would be able concentrate more resources on problem landlords.

Additionally there were panels and breakout sessions that discussed: local issues, solutions, best practices, success stories, property management/local policy, and incentives. To close the day the 10th District County Commissioner, Bridget Gainer, discussed single-family rental housing and the Cook County Land Bank. Please view the Cook County Land Bank Proposal from 2012 to learn more about the project.

To learn more about these issues please see the Metropolitan Planning Council‘s white paper released in January 2013 ‘Managing Single-Family Rental Homes, The Next Challenge in the Foreclosure Crisis.’ In a future CDPS blog, we will discuss the Real Estate Owned (REO) to rental market in more detail.

Brief History on Green Bay

Green Bay is the oldest settlement in Wisconsin.^[1]  Settled by the French in the 17^th century due to its strategic location at the junction of the Fox and Wisconsin Rivers.  Green Bay is also a Lake Michigan port and connects, via the Fox and Wisconsin Rivers to the Mississippi River, and, ultimately the Gulf of Mexico.  Established as a trading post for fur and agricultural goods, Green Bay eventually transitioned to dairy production, and finally into a factory town catering first to the lumber industry and ultimately paper production.^[2]  Today, with its century-old paper industry in decline, Green Bay has transitioned into a modern city with a diverse economy that includes many service sectors.  However, with almost one in five jobs still in some form of manufacturing, Green Bay to a large degree retains its manufacturing heritage.

Why Green Bay was Chosen for the Industrial Cities Initiative (ICI)

Green Bay was chosen for the ICI study because it typifies a Resurgent Industrial City – i.e., one that has broadened and diversified its employment base, and scores highly in measures of well-being.  To learn more about the four categories (Resurgent Industrial Cities, Transforming Cities, Fading Cities, and Overwhelmed Cities) into  which the ten ICI cities were organized, please read the Industrial Cities Initiative: Working Paper Summary.

Manufacturing History

Compared with the nation’s manufacturing employment trend, Green Bay has maintained proportionately far more manufacturing jobs, as depicted in the chart below.  Currently, the average of the employed population working in manufacturing among all U.S. cities is 11.0%, while Green Bay has 18.8% of its employed population working in the manufacturing.  Since 1970, the percentage employed in manufacturing for all U.S. workers has fallen from 26.1% to 11.2%, representing a 56.9% drop.  However, since 1970, the percentage employed in manufacturing for Green Bay workers has fallen from 27.5% to 18.8%, representing only a 31.8% drop.^[3]

Future of Manufacturing

Despite its relative health and adaptation to a changing global economy, Green Bay shares a key issue with many ICI cities in that its education system may not fully serve the next generation of potential manufacturing workers, who must have complex technical skills, but do not necessarily plan to obtain a four-year college degree.  As manufacturing has not been actively or positively promoted as a career path, the current school-age generation may accept false stereotypes of manufacturing as a dead-end career.  The NEW (NorthEast Wisconsin) Manufacturing Alliance was created to help build a better image of manufacturing and promote the industry as having a solid career path.  NEW Manufacturing Alliance “is a group of manufactures, working with educational institutions, workforce development boards, chambers of commerce and state organizations to promote manufacturing in our Northeast Wisconsin Region.”^[4]   NEW Manufacturing Alliance has four main objectives: (1) build a positive perception of manufacturing; (2) create and grow partnerships with schools, media, and other outlets; (3) promote workforce development; and (4) advance collaboration efforts that support the industry.  City leaders expressed hope that the NEW Manufacturing Alliance and other organizations devoted to improving manufacturing in Green Bay will help the city’ manufacturing industry thrive.

Followers of the Community Development and Policy Studies blog will be interested to learn that the Detroit Branch of the Chicago Fed have launched a blog that focuses on the Michigan Economy. This blog will serve as a portal for our numerous activities concerning Michigan, ranging from economic analysis to community development and economic education. Moreover, the Michigan Economy blog will report on the many meetings and conferences that are held at the Detroit Branch. And presentations by outside experts, as well as discussions about them, will be posted on the blog. Bookmark the blog to stay on top of Fed commentary on Michigan’s economy and to learn about our upcoming events at the Detroit Branch.

During the past year, the Federal Reserve Bank of Chicago’s Community Development and Policy Studies division has been studying the changing financial landscape of Detroit and its implications for access to financial services and lending to small businesses in the city’s low- and moderate-income neighborhoods. As documented in the study, in the city of Detroit, the number of banks, both large and small, has fallen sharply over the past two decades.  This contrasts with trends across the U.S. that show a decline in smaller banks (less than $1 billion in assets) but an increase in large banks (more than $1 billion in assets) since the Riegle Neal Interstate Banking and Branching Efficiency Act was passed 1994. Today, the number of banks per person in Detroit is comparatively lower than in other cities with declining populations.  According to this study, low- and moderate-income census tracts in the city – the neighborhoods where residents tend to have relatively lower incomes – have even fewer bank branches than would be predicted given the population, median income and other characteristics of those neighborhoods.  While greater bank access is an indicator of the well-being of a community, the same study has found that bank presence does explain, in part, the extent to which small business lending occurs in low and moderate-income neighborhoods (but not middle/upper income neighborhoods).

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Source: Authors’ calculations based on FDIC Summary of Deposits

On October 16–17, the Chicago Fed, the Michigan Bankers Association and the New Economy Initiative for Southeast Michigan co-sponsored a symposium in Detroit that brought together business experts and owners, policymakers, bankers and other funders to address the potential role that financial institutions and other organizations can play in leveraging resources for small businesses in Detroit. Over the course of the two-day symposium, presenters underscored that many resources exist for small businesses in Detroit and surrounding counties, covering legal, financial, management and marketing services.  Foundations, city planners, the state and other civic organizations have been actively involved in developing new resources for small businesses.  As presenters discussed the challenges to increasing bank lending for small businesses in Detroit, many of the speakers and audience members offered ideas for drawing banks more closely into the conversation about neighborhood revitalization and leveraging bank and nonbank re­sources to finance small businesses.

For a more detailed summary of the symposium please read the Chicago Fed Letter co-authored by Robin Newberger and Maude Toussaint-Comeau Developing Small Businesses and Leveraging Resources in Detroit. To view materials from the Developing Small Businesses and Leveraging Resources in Detroit events page on the Chicago Fed website.

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Source: OECD elaboration with data from Census 2000 County and County Equivalent Areas Cartographic Boundary Files, US Census Bureau

More than 300 pages in length, the OECD’s report is premised on two key assumptions:

1. The Tri-State Metro Region’s economic development strategies to date are not sufficient to meet the demands of the global marketplace.
2. This economy extends beyond the borders of any one jurisdiction and there is a mismatch between how political/geographical boundaries are defined and how the functioning economy actually works.

The report[2] synthesizes the region’s international position relative to its peers and highlights four areas that require attention if the region wishes to remain globally competitive:

• Matching Skills to Jobs
• Innovation and Entrepreneurship
• Transportation and Logistics
• Green Growth[3]

Eight federal agencies convened at the Federal Reserve Bank of Chicago on October 29, 2012 to present the ways in which their agencies’ work aligned with the objectives of the Territorial Review. The regional directors, or their deputies, of these agencies , including:  the U.S. Department of Agriculture, Rural Development (USDA-RD), the U.S. Department of Housing and Urban Development (HUD), the U.S. Economic Development Administration (EDA), U.S. Employment and Training Administration (ETA),U.S. Environmental Protection Agency (EPA), the Federal Highway Administration (FHWA), Federal Transit Administration (FTA), U.S. Small Business Administration (SBA) – presented their programs to an audience of county and municipal leaders, as well as economic development agencies, chambers of commerce, metropolitan planning organizations and academic institutions representing the 21 county area covered by the report, with the goal of helping the affected communities develop durable regional economies.

Framework for Regionalism

The publication of the report has spurred local communities and non-profits to begin to align their resources.  Therefore, the federal agencies active in the region are also compelled to align their efforts to support regional economic growth.  As a first step, the agencies have designated a single point of contact to streamline access to the federal government on issues of regional importance.

Jeannette Tomayo, Regional Director for the EDA stressed in her opening remarks that the “boundaries of the region are defined by issues and by the affected people and are ever-shifting.  The conversation is about inclusion, representation and direct access to the federal government.”

The remarks of Thomas Guevara, Deputy Assistant Secretary for Regional Affairs at the EDA who was not able to attend due to Hurricane Sandy, were read by Ms. Tomayo and highlighted the urgency of addressing the findings of the OECD report.  Noting the high level of economic interdependence amongst the region’s 11.5 million people, “the tri-state region is a global economic powerhouse but it is also significantly underperforming.”  Data presented by Dr. Lance Pressl, Senior Policy Fellow at the Institute for Work and the Economy demonstrated that growth in the Chicago region (GRP) has not kept pace with that of the rest of the country. (Chart below)

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In addition to describing their individual programs, some presenters highlighted existing initiatives of regional cooperation:

• Laura Frerichs, Director of the University of Illinois Research Park spoke about an upcoming convening of Tech Park directors from across the region.  Tech Parks/small business incubators take research from universities and turn it into economic development by creating new jobs and companies.  Incubators themselves can be catalysts for economic development and wealth creation that supports regional growth.
• Antonio Riley, Regional Director for HUD, spoke about his agency’s Sustainable Communities initiative which encourages municipalities to work across borders and plan collaboratively and regionally.[4] Director Riley also spoke of the Gary and Region Investment Project (GRIP) which is working to attract national attention and resources to the area.[5]

Finally, as a direct response to the report, the Tri State Alliance for Regional Development was created.  Housed at the Chicagoland Chamber of Commerce, which commissioned the Review, the Alliance is charged to create and execute an implementation plan for the Review’s recommendations.

Jeremiah Boyle, Managing Director for Economic Development at the Federal Reserve Bank of Chicago emphasized the Federal Reserve’s regional presence and its connection to individual communities through financial institutions.  He also referenced the Community Development and Policy Studies Industrial Cities Initiative that has examined 10 industrial cities across the 7^th District.  Those cities that are doing well, he said, “are those that are aware of something larger than themselves.”

Suggested actions for the region are included in the final chapter of the OECD’s report.  In this chapter, the role of the federal government is not clearly stated.  However, the report clearly states “In the Tri-State region, the sheer range of public and private stakeholders with a vested interest in seeing (public policy issues) resolved dictates that policy advice be directed at this broader set of public and private actors operating on behalf of the Tri-State Region’s residents.”

All acknowledged that this is a long-term, perhaps multi-generational, effort.  In the short term, the regional leaders must report their progress to the OECD territorial development policy committee before the end of the year.

To learn more about:

The OECD and its work: http://www.oecd.org/

The Tri-State Territorial Review: http://www.oecd.org/unitedstates/oecdterritorialreviewsthechicagotri-statemetropolitanarea.htm

The Tri-State Regional Alliance: http://chicagolandchamber.org/wdk_cc/programs_and_advocacy/tri-state_alliance.jsp

The presenting agencies:

• EDA: http://www.eda.gov/
• USDA-RD: http://www.rurdev.usda.gov/Home.html
• HUD: www.hud.gov/
• ETA: www.doleta.gov/
• EPA: www.epa.gov/
• FHWA: www.fhwa.dot.gov/
• FTA: www.fta.dot.gov/
• SBA: www.sba.gov/

Federal Reserve Bank of Chicago Industrial Cities Initiative: http://www.chicagofed.org/webpages/events/2012/industrial_cities.cfm

The Northwest Indiana Regional Development Authority (RDA) started the day showcasing a number of projects along the Lake Michigan shoreline, including the Wolf Lake project in Whiting, Indiana. These projects, along with the runway expansion project at the Gary Airport, will leverage a $250 million grant from the State of Indiana to support more than $650 million in investments projects that will help revitalize Northwest Indiana communities.

Chicago Fed staff also toured local industrial facilities, including the BP oil refinery in Whiting, Indiana; and the ArcelorMittal steel mill in East Chicago, Indiana. BP’s management provided a tour of its facility, highlighting the $5 billion, seven-year refinery modernization project. The project represents the largest single private investment ever made in Indiana, creating thousands of jobs during construction and has significant implications for the national, regional and local economies.

Charles Evans, President of the Federal Reserve Bank of Chicago (second from right) is joined at the BP Oil Refinery in Whiting, Indiana by (left to right) Jeremiah Boyle, Managing Director of Economic Development, Federal Reserve Bank of Chicago; Dave Ryan, Executive Director of the Lakeshore Chamber of Commerce; Daniel Sullivan, Executive Vice President and Director of Research, Federal Reserve Bank of Chicago; and James Shoriak, Project Director for BP’s Modernization Project at the Whiting Refinery.

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©2012 Lakeshore Chamber of Commerce, photo by: Armando Gomez

The group also toured ArcelorMittal’s steel mill in East Chicago, Indiana (formerly known as Inland Steel).  In addition to the dramatic visual experience of the steelmaking process, the group heard from the company’s managers and employees about the workforce trends, innovation in the industry, and the challenges and opportunities of continuing to produce steel in the Midwest.

The day’s activities were arranged by the Chicago Fed’s Community Development and Policy Studies division as part of their mission to understand and promote community and economic development throughout the 7^thFederal Reserve District.