Meredith Whitney’s Misinformation Campaign

Almost six months ago, Meredith Whitney – the controversial financial investor who made her name by predicting the recent troubles for Wall Street banks  – set off a firestorm in financial markets by claiming that “social unrest” was coming in the form of ”50-100 sizeable municipal defaults.” She’s back this week with an op-ed in the Wall Street Journal where she claims the fiscal pressures on states threaten the economy.

Mostly though, the op-ed is an attempt to sell her latest 77-page report and keep her name in the category of celebrated market analysts (or is it celebrity market analysts?).

In a piece that reads more like political commentary than market analysis, Whitney claims that fiscal pressures on states threaten economic recovery.  But, this is hardly news.  Over the last several years, NLC, a host of state-focused groups (CBPP, NGA, NASBO, SUNY-Rockefeller), and President Obama, among others, have been calling attention to state-local fiscal pressures requiring layoffs and service cuts, and the potential drag on the economic recovery.

Whitney’s op-ed focuses, in part, on unfunded state pension liabilities – also true, though in many cases the cause is an underperforming market in recent years.  While we don’t deny there is more work that needs to be done on this front, this work is already underway in state and local governments across the country.

But, fiscal pressure from cyclical revenue declines and pension liabilities does not add up to Whitney’s doomsday predictions of sizeable defaults and social unrest.  The latest version of Whitney’s misinformation campaign includes her note at the end of the WSJ piece that “Municipal bond holders will experience their own form of contract renegotiation in the form of debt restructurings at the local level.”  Yet, restructuring debt does not necessarily qualify as default, nor is it destabilizing to financial markets (since, in most instances, investors are kept whole).

Whitney’s op-ed is an example of the misinformation permeating the national dialogue about state and local finances. She’s in good company, as poorly constructed arguments about state-local insolvency have, in recent months, riddled airwaves and policy debates: confusion over structural deficits versus budget shortfalls, a lack of understanding of local municipal budgeting processes that place debt service payments above all else, and a near-total lack of understanding of the difference between municipalities with general obligation bonds as opposed to revenue bonds and conduit bonds.

Now Whitney seems to be suggesting that renegotiating labor contracts and restructuring debt are signs of a failing sector, when in fact, these actions occur all the time during both good and bad economic times.

Once again, Whitney’s “call” is a distraction from the real story, which is about the difficult choices local and state leaders are making about delivering services.  There are real implications when the wrong information is pushed and repeated over and over in the media for ratings, report-sales, and celebrity status.  Earlier this year retail investors fled the bond market over exaggerated concerns, followed by a series of poorly conceived policy proposals on state bankruptcy, federal intervention in state pensions, and public sector compensation.

All of this combines into one big pot of bad smelling soup because American taxpayers are on the hook for paying more for services like schools and infrastructure projects.  When Whitney and her supporters get it wrong on the corporate side, only her clients (and her clients’ shareholders) suffer.  When they get it wrong on the municipal bond side, communities and taxpayers pay the price.

Gross Exaggeration or Factually Ambiguous (or both?)

In recent media interviews, Whitney waffled on her earlier predictions.  First, on Bloomberg Radio she argued that the sequence leading to a run on the muni bond market would start with widespread downgrades of municipal issuers.  Exodus from the municipal market would be led by insurance companies whose portfolios are limited to holding only the highest-rated municipal securities.  From there, the run is on…Scary stuff, except Standard & Poor’s just published predictions that widespread downgrades are unlikely.

Add to this the fact that there has not been any real increase in sizeable municipal bankruptcies since Whitney made her now-infamous prediction in December.  Whitney’s latest backtracking on that prediction described her overreach as an “approximation for the current cycle”.  Huh?   In other words, it was a gross exaggeration (she also had a report to sell at the time) or factually ambiguous, or both.

At the same time this week, new reports show that revenue at the state level is up.  Concern over the finances of local governments started more than two years ago.  While localities still have a couple of tough years ahead of them, our own research (forthcoming) shows that local economic indicators are improving.

In the end, it’s useful to remember that cities and other local governments must balance their budgets.  For most, it’s required by state law and few cities could function if they did not balance their budgets every year. Cities also have the ability to raise taxes.  Unlike a company that is facing economic hardship, cities can compel revenue.  While this may not be politically popular, it insures fiscal solvency in the municipal sector.

The real story, hidden by misinformation provided by Whitney and others, continues to be about the services that are being cut and the implications of those service cuts for communities.  That’s the real risk.  Cities will survive, but we will see continued cuts to necessary services like schools, fire and police.  And the evidence shows city leaders will cut the services rather than destroy city credit ratings.  Investors should worry less about the risk of systematic collapse of the bond market and instead worry more about whether their local school, police department, or fire hall down the street needs a fundraiser to stay in service?

Places and People are Keys to Thriving Cities

Efforts at “place making” have seldom been so visible in both federal policy and local initiative.  But author Edward Glaeser in his popular work Triumph of the City, suggests that a focus on place is truly, well, misplaced.  “Invest in people,” Glaeser advocates, because at their best cities are job-creating engines that put talent to productive use and magnify human creativity.  In a lovely play on words, he suggests that cities have overbuilt infrastructure resulting from an “edifice complex.”

Certainly the factor of human collaboration is the powerful value of the city.  Ideas and energy swirl among people in a dense urban space fostering miracles of insight and innovation. This is precisely were Glaeser plants his flag; on the importance of education and ultimately on skills.

But skills and creativity are portable.  The talented are footloose.  Therefore, what qualities of urban life bind creative and talented people to a particular place?  Assuming its relatively simple to learn what people want, the next logical question for policy makers is to ask how do you build, rebuild or improve one particular place in order to hang on to the talented people?  Put another way, how do you build and sustain a community that people want to remain in rather than drive through?

No two things on earth are exactly equal.  Not people, nor plants, nor sunsets nor least of all cities.  The city as an institution may have several features that transfer across time and place, but the individual cities themselves are as unique as snowflakes.  In that uniqueness lies the power of place.

A team of thoughtful architects, designers, scientists, journalists and social justice activists at the Solomon R. Guggenheim Museum in New York are grappling with many of these same issues.  They seek to answer the succinct question, “In what kind of city do we want to live?”

To this end, the Guggenheim and automaker BMW are working together to create the BMW Guggenheim Lab.  This collaboration is intended to be a multidisciplinary platform to inspire the creation of forward-looking designs and ideas for urban living.  The Lab is envisioned to be an urban public think tank, performance space, lecture hall and community center all rolled into a compact carbon-fiber movable structure.

There are bound to be some surprises that result from the investigation by the Guggenheim team.  But it is reasonable to assume that a debate about investments in people or places – in the built environment or human capital – will confirm that this is not an either/or proposition.  For cities to truly thrive both kinds of investments are required.

Building Affordable Housing is Risky Business

Please note: This post is a collaboration between James Brooks and Michael Wallace at NLC. 

For the past two days, The Washington Post has lambasted the Department of Housing and Urban Development and local housing authorities and community development corporations for failing to adequately manage programs that build or rehabilitate affordable housing.

There is a great deal wrong with the conclusions drawn by The Post.  It is useful for us to step back and examine the obvious: HUD and local authorities have an 85% success rate at going into the poorest neighborhoods in the country and providing affordable housing.  These are neighborhoods that private developers don’t dare to tread on their own because of the financial risk involved.  (To see a list of successful HOME projects, please look at the 20th Anniversary award winners at

In its reporting, The Post brushes off the complete collapse of the housing market that represents a significant and real factor that has caused delays in all efforts to build or rehabilitate housing.  This housing market collapse began in 2006 and continues to languish to this day. This is a major reason why many buildings remain unsold.

Granted, not everything is rosy.  There remains a need for improved capacity of local housing authorities and community development organizations.  But, this is already being addressed by more aggressive reporting requirements in the Neighborhood Stabilization Program (NSP).

If these reports are any indication, the local groups are improving their reporting and demonstrating they are effective in delivering housing programs even during a time of significant crisis. This occurs despite local governments continuing to reduce their workforce in significant numbers as a response to the poor economy.

Additionally, HUD has been working to update its obsolete data management systems that are the legacy of the slash and burn tactics by the leadership of HUD operations from 2001 to 2009.  And, as HUD’s own response to the articles points out, they are recapturing money at every instance where fraud is taking place.

While there is no denying some of the lapses in oversight that The Post reports, the characterization that HUD and local housing agencies are complicit and doing nothing is false.  To pick only the most egregious projects and ignore that the vast majority of the projects in the program are wildly successful, smells of cherry-picking for sensationalism. There are very good managers and program officers at every level making significant contributions to the lives of millions of families around the country.

A Changing Paradigm: Cities and Regions Embracing Global Interdependence

Distrustful, inward-looking and even smug…U.S. local officials have been called it all when it comes to describing their attitudes toward strengthening global economic interdependence.  And this is part of a broader story about the U.S., that we are unwilling to look to global partners to help restore economic growth.  Perhaps in certain places at certain times this is justified, as noted by Neal Peirce in his recent column. We know Federal government resources and vision are sorely lacking in this arena, but as with most critical community issues, it is the work of cities, the innovations of those at the grassroots, which drive change.

The paradigm is changing. Cities and regions are increasingly embracing greater global economic linkages.  Last month, over 100 U.S. local officials, including mayors, council members, city managers, county commissioners, economic development and international trade staff, chamber of commerce representatives, members of tech councils, university leaders, business leaders and other key community stakeholders representing 53 cities and regions attended NLC’s Leadership Academy on Local Economic Competitiveness. The purpose: to increase their communities’ position in the global economy.  Cities as diverse as Saline, Mich. and Salt Lake City sat side-by-side talking international trade and foreign investment, meeting with Chinese businesses interested in investing in U.S. communities and learning new strategies from national experts and peers leading in the field.

Local officials across the country welcome the value of international sources of growth to strengthen the long-term viability of their communities.  In a recent NLC survey of local officials, 83% say that expanding trade opportunities and attracting foreign investment is important to the success of their local economy.  Take Anderson, Ind., which after setting a 5 year commitment to developing international sources of growth, established strong relations with Chinese local governments and businesses and is about to close a deal to bring new investment and jobs from China to Anderson. Or Tacoma, Wash., whose mayor, Marilyn Strickland, makes annual trips abroad to showcase local businesses to help them break into new markets. Or Chattanooga, Tenn., where the city and county have actively worked with the private sector to improve the quality of life and sustainable development of their community.  In the process,  Chattanooga’s leaders realized that building a quality place for those already part of the community also attracts economic investment, most recently, German auto giant Volkswagen.

These communities represent an evolving local culture that is favorable to global trade and investment.  Their success also illustrates that the nation’s regional powerhouses are not the only winners in the global economy.  The makers of strong regions are local leaders with the political will to adapt, to see a new economic future for their communities, to cross political boundaries, and to work with new partners.  These leaders are emerging in cities and towns across the country, and in the regional powerhouses of the not-so-distant future.

Those of us in the “chattering classes,” that comment, write and analyze trends in cities need to do a better job of telling the stories of Anderson, Tacoma and Chattanooga.  Doing so may be a matter of securing our economic future.  Businesses and governments around the world are hesitant to invest in or do business with people they feel are parochial and do not respect them. A recent NBC story reported, “The U.S. could lose out on $1-2 trillion of investment from China in the years ahead. Why? Fear mongering about China by American politicians and businessmen like Donald Trump has made Chinese think twice about investing in the U.S.” The consequence of how we portray America’s cities and local leadership is real. In cities and regions across the country, the paradigm is changing; the time has come to update our story.

Author’s Note: The White House has proclaimed this week, May 15-21, World Trade Week 2011 and encourages “all Americans to observe this week with events, trade shows and educational programs that celebrate and inform Americans about the benefits of trade to our Nation and the global economy.”

An Immigrant’s Perspective: The Importance of Resource Access Programs

This post is by Michelle Burgess of NLC’s Center for Research and Innovation’s Municipal Action for Immigration (MAII) program.

Imagine for a moment that you are an immigrant to the United States. You hope to make this new country your home, and yet, many of the customs and culture confuse you. Most likely, you have a limited grasp of the English language, and like 20% of the American population, you speak a language other than English at home. Despite your efforts to absorb the language, you face a steep learning curve and struggle to communicate in this new environment.  Simple processes and ways of doing things no longer make sense, as they do not match your cultural expectations. Amidst all of these adjustments, you’re trying to start a new life and provide for your family. Yet, in many cases, you do not know where or how to start.

Depending on where you have come from, you may distrust authorities as you’re accustomed and expecting entrenched abuses of corruption, inefficiency or violence. Alternatively, you may be unaware that government or community services even exist. If you do know about certain community resources, you most likely remain unaware of the process required to access or sign up for them.

This is where resource access programs can play a role in immigrant integration. While direct services in health care, education, housing, etc., help transition and settle immigrants into an area, resource access strategies of referrals, multilingual outreach and availability are equally important in connecting new arrivals with these existing resources. NLC’s Municipal Action for Immigrant Integration (MAII) program’s new city practice brief, Immigrant Integration: Resource Access and Cultural Exchange profiles some of these successful city and community programs that connect immigrants into existing city resources. This framework of outreach and education teaches immigrants not only about city resources, but also about civic responsibilities.

The new brief also highlights successful strategies to build support and understanding within the established community. Integration works two ways, and these cultural exchange initiatives strengthen the other side of resource access – having a community that recognizes and provides for the diversity and integration within its neighborhoods.

As a new immigrant, you face a multitude of challenges to adapt and integrate into the United States. Programs like the ones profiled in Immigrant Integration: Resource Access and Cultural Exchange can help make that transition easier through guidance and support. For cities facing demographic change, these programs can also ease the transition, not only by strengthening immigrant integration but also by informing long-term residents about the changes occurring within their communities.