The impact of the Great Recession and the housing crisis on the financing of America's largest cities

Abstract

The housing crisis and the recession have placed tremendous fiscal pressure on the nation's central cities. Cuts in state government fiscal assistance to their local governments, plus shrinking property tax bases are challenging the ability of local governments to continue their current levels of public services. In this paper, we use data on the financing of the nation's largest central cities from 1997 to 2008 to forecast the impact of the recession and the housing crisis on central city expenditures between 2009 and 2013. Because expenditure responsibilities vary among city governments and because overlying governments play different roles, we develop the concept of constructed governments in order to allow us to compare the revenue-raising and spending policies of large central cities. We predict that real per capita spending in the average central city will be reduced by about seven percent during the forecast period, and that spending cuts will be substantially greater in cities hit hardest by the economic recession and the housing market collapse.