ai cunningham

							Hannah McKinney
Kalamazoo College


October 21, 2009



                    1
        Welcome to the New Normal
 The long term impacts of the current economic downturn are
  not well understood by anyone.
 Even while some economists believe that the recession has
  ended, foreclosure rates continue to rise, unemployment is
  increasing, and incomes continue to fall.
 Local governments struggle to keep their budgets balanced
  today knowing full well that their fiscal constraints will be even
  tighter tomorrow as the impacts of fall property values,
  reduced sales and income tax revenue, and an ever increasing
  demand for public and social services.
 Welcome to life in the “new normal.”
                                                                       2
Fundamental structural changes have
     occurred in the economy

 Financial sector
 Manufacturing sector
 Employment & Income
 Housing market




                                      3
Federal Reserve monetary policy still in crisis mode

                                                                                                        The Federal Reserve has
                                                                                                        taken on many of the
                                                                                                        functions of Wall Street

                                                                                                        On Aug. 17, the Fed
                                                                                                        announced that it would
                                                                                                        extend its Wall Street type
                                                                                                        programs until mid-2010.




A Year After Financial Crisis, the Consumer Economy is Dead, Kevin Hall, Sept. 8, 2009, McCatchy News

                                                                                                                                   4
     The number of problem banks continues to rise


                                                                81 banks have been
                                                                closed by the FDIC
                                                                so far this year

                                                                421 banks are on the
                                                                unofficial list of problem
                                                                banks




http://www2.fdic.gov/qbp/grgraph.asp
http://www.calculatedriskblog.com/2009/09/problem-bank-list-unofficial-sep-4-2009.html
                                                                                         5
      Manufacturing employment has been
              falling for 10 years




In the same period, Michigan has lost 1 million jobs (20% of all jobs in Michigan).   6
All private employment has fallen over the
           past decade in the U.S.




                                             7
Yves Smith, www.nakedcapitalism.com   8
Larry Summers, National Economic Council
            Director, says:

“The level of unemployment is unacceptably high and
 will, by all forecasts, remain unacceptably high for a
 number of years.”


 Read more: http://www.politico.com/news/stories/0909/27052.html#ixzz0R5s8BSnA, 9-11-2009.




                                                                                             9
      Slow job growth and sluggish wage
          increases will be the norm
 "Those things are likely to be subpar for a long period of time,"
  said Martin Regalia, the chief economist for the U.S. Chamber
  of Commerce. "I think it means that we probably see potential
  rates of growth that are in the 2-2.5 (percent) range, or maybe
  . . . 1.8-1.9 (percent)." (A growth rate of 3 percent to 3.5
  percent used to be considered average.)

 Regalia thinks that it could be five years before the U.S.
  economy generates enough jobs to overcome those lost and to
  employ the new workers entering the labor force.

                                                                    10
Dennis Lockhart, President of the Atlanta
Fed, describes the new normal:
 The economy that emerges from this recession may not
  fully resemble the pre-recession economy.
 It is unlikely that we will see a return of jobs lost in certain
  sectors such as manufacturing.
 In a similar vein, the recession has been so deep in
  construction that a reallocation of workers is likely to
  happen.
 I do not expect quick fixes for the unemployment
  challenge ahead.
Remarks by Dennis P. Lockhart, President, Federal Reserve Bank of Atlanta, August 26, 2009.

                                                                                              11
Middle class household incomes have
          been flat for years




                                      12
Middle class can no longer borrow to
             consume




                                       13
Consumer behavior: confidence & consumption




  Source: http://economistsview.typepad.com/timduy/2009/09/quick-note-on-confidence.html
                                                                                           14
 Net worth of households dropped by 20% in 18 months
  2007(2) to 2008(4) or $12.9 trillion

 Every $1 lost consumer wealth decreases spending by 5
  cents over the next two years ($322.1 billion per year)

 Home equity has fallen 43% ($5.9 trillion) from 2005 to
  the end of 2008 (Joint Center for Housing Studies)

 As many as 27% of homeowners with a mortgage owe
  more than their house is worth

                                                            15
The Mortgage Bankers Association reports:
 Delinquency rate for mortgage loans on 1-4 unit
  residential properties rose to 9.24% of all loans
  outstanding at the end of 2 nd quarter of 2009.
 The delinquency rate breaks the record set last quarter
  (records go back to 1972).
 The percent of loans in foreclosure at the end of the 1 st
  quarter of 2009 was 4.3%

Reported August 20, 2009



                                                               16
Paul Krugman, Nobel prize winning economist says:


     Even if the big bust is over, that doesn’t mean we’ll
     see a rebound; at best, this is the new normal. 2005
     isn’t coming back.



 New York Times, August 26, 2009, 10:04 am Housing prices




                                                             17
Michigan’s Budget problems
 Fiscal year 2009 marks the ninth consecutive year that
  state revenues have not been adequate to fund state
  services and programs

 Since the first decline in revenues in fiscal year 2001,
  Michigan has experienced cumulative deficits well in
  excess of $10 billion, has exhausted over $6 billion in
  fiscal reserves and has instituted over $4 billion in
  spending cuts.

                                                             18
Michigan’s Recessionary Experience




                                 19
U.S. & Michigan % Change in Employment
         May 2008 to May 2009




   U.S.




                                                     Michigan


   Source: Bureau of Labor Statistics, Michigan Fiscal Agency   20
          Michigan Job Growth




Source: Bureau of Labor Statistics, Michigan Fiscal Agency, August 2009   21
     Property Value Growth Slowing
             State Average




Source: Michigan State Fiscal Agency, August 2009.   22
                                             23
Realtytrac.com, accessed September 9, 2009
The market for new home construction has fallen even faster
in Michigan than in the rest of the nation.




                                                          24
               Michigan Per Capita Income
             Deviation from National Average




Source: Michigan State Fiscal Agency, August 2009. (Last 3 years of data are estimated.)   25
Michigan’s consumers faring poorly compared to most others

                                                                                             Michigan’s ranking
                                                                                             for per capita income
                                                                                             has dropped from 17th
                                                                                             in 2000 to 34th in 2008




Data from American Bankruptcy Institute and American Mortgage Bankers Association, data at Calculated riskblog.com
                                                                                                                     26
   88% of cities less able to meet financial needs




http://www.nlc.org/ASSETS/E0A769A03B464963A81410F40A0529BF/CityFiscalCon ditions_09%20(2).pdf

   Research Brief on America’s Cities, Chris Hoene and Michael Pagano, NLC, Sept. 2009,
                                                                                                27
Expenditures outpaced revenues in an
       unsustainable manner




                                       28
Tax collections show housing bubble impact




                                         29
Increasing fiscal pressures on U.S. cities due to:
   Large state government budget shortfalls in 2010-11


   Employee-related costs for health care coverage and
   pensions

   Tightened credit markets resulting in higher debt
   costs, particularly for infrastructure

                                                          30
 All sources of tax revenue have been affected
  negatively
   Property tax
   Sales tax
   Income tax
 All indications are that these sources of tax
  revenue will not grow at the rates we’ve grown
  accustomed to
                                                  31
Kiran Cunningham
Kalamazoo College


October 21, 2009



                    32
        The lived consequences
 Lower property values  lower property tax revenue
 Foreclosures  lower property taxes
 Foreclosures  more blight
 Lower incomes  lower sales tax revenue
 Higher unemployment  higher crime
 Higher unemployment  foreclosures
 Higher legacy costs  lower operating revenue
 Funds of all public entities have diminished can’t look
  to others for $$

                                                             33
       The lived consequences for
             decision-makers
 “the challenges we are facing are so significant it forces us
  out of our comfort zone”

 “how do we deal with this? Everyone looks to us to fix it,
  but we didn’t cause the problem. But we are the closest
  to the people so it is our problem now.”

 “there are a lot of immediate problems and no immediate
  answers”
                                                                  34
Dissonance catalyzes new ways of thinking

 Denial is an obstacle to new thinking
 While other states may be able to deny the problem,
  Michigan can’t (and isn’t)
 Opportunity to take advantage of the dissonance and
  come out the other end in a position of strength
 How do we use this dissonance to catalyze new, or
  transformative, ways of thinking?

                                                        35
The Process of Transformative Learning…

 … involves moving through a continuum – in a spiral sort of
   way – toward a fundamental change in one’s habit of
   mind (aka frame of reference or system of meanings or
   set of taken for granteds).
Six key points along the t-l continuum
  1.   Knowledge gains
  2.   Attitude changes
  3.   Changes in perspective
  4.   Deepening critical awareness of one’s assumptions
  5.   Deepening structural understanding of the context
  6.   Change in habit of mind
Central to attaining level 6 on the continuum…
… is the ability to connect
a) one’s experience with
b) a critical understanding of one’s assumptions and
c) a structural/theoretical understanding of the
     context of the experience.
                 Understanding
                      Your
                  Assumptions




Understanding   S TR UCTUR E D   Understanding
  Structural                         Your
   Context      R E F LE CTION    Experiences
Small group discussion
 Identify the old assumptions that continue to
  be played out in your communities. Consider
  assumptions about resources as well as about
  ways of operating.

 Which of these assumptions are especially
  problematic and why?

                                                  40
Small group discussion: Developing new
assumptions for operating in the new
normal

  What things do you think people engaged in the work
  of innovating and reinventing strong Michigan
  communities should keep in mind?




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