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									                                                                                         No. 68 Spring/Summer 2008

              PUBLISHED BY THE

                                                A C O MMU NI TY DEVELO P MENT P U BLI CAT ION


             DEPARTMENT OF THE


               OF PHILADELPHIA

                                  A Blueprint for American Prosperity
                                  By Dede Myers, Vice President and Community Affairs Officer
2 — Message from the
Community Affairs Officer
                                  Bruce Katz is a man with a vision – and
3 — Mayors: Reinventing           a plan – and if he’s right, the United
Begins with Planning              States will change the way it competes
                                  in the new global economy. Katz, who
4 — Urban Anchors Fuel            leads the Metropolitan Policy Program
Economic Growth and Civic         at the Brookings Institution, opened
Progress                          the Federal Reserve Bank of Philadel-
                                  phia’s third conference on reinventing
6 — How Can Foundations           older communities with a challenge:
Change Urban Markets?             stop thinking of our neighbors as the
                                  competition; join forces at the metro-
8 — The Federal Reserve           politan level to compete against China,
System’s Response to Subprime     India, Brazil, and Russia; and enlist
Mortgage Challenges               our federal government as an active
                                  participant in the process. Katz thinks
10 — Research Examines            we shouldn’t limit our viability in a
Schools and Uneven                global economy by thinking small. One
Opportunities                     town competing with another is not the Philadelphia Mayor Michael A. Nutter and Bruce Katz, Vice
                                                                             President and Director, Metropolitan Policy Program, The
                                  point. Our neighbors’ strengths and        Brookings Institution
13 — Research Perspective:        problems are ours as well, and we need
How Does Place Matter?            to work together to make ourselves
                                  more competitive.                                 believes, if the individual parts of U.S.
15 — District News                                                                  metropolitan areas do not start competing
                                  Katz reported that while we may think             together (rather than against each other)
20 — Calendar of Events           of ourselves as a nation of 50 states and         we will have much to lose. He also believes
                                  countless individual counties and towns,          the federal government has to be a partner
                                  he views the United States as 363 metro-          in making this change.
                                  politan areas. The top 100 metro areas are
                                  the economic engine of this country, home         Katz cited the Chicago metropolitan area
                                  to almost two-thirds of its total popula-         as an example of the complexity of think-
                                  tion, and producer of three-quarters of its       ing the old way, i.e., along municipal
                                  gross domestic product, although com-             boundaries. The Chicago area comprises
                                  prising only 12 percent of the land area.         one large city, six satellite cities, and 544
                                  These same metro areas are the drivers            municipalities in 14 counties in three
                                  of the world economy, but he believes our         states. As long as governments ignore the
                                  competitive advantage is shrinking. Coun-         reality that economic development and
                                  tries like China and India are becoming           growth are regional, not municipality
                                  increasingly dominant players and, Katz           specific, we will be forever limited.
                                                                                                                  ...continued on page 16
CASCADE                    No. 68
                           Spring/Summer 2008
CASCADE is published three times a year by the
Federal Reserve Bank of Philadelphia’s Commu-
nity Affairs Department and is available on the
Bank’s website

Material may be reprinted or abstracted provided
                                                     Message from the
CASCADE is credited. Please send the Commu-
nity Affairs Department a copy of reprints of Cas-   Community Affairs Officer
cade articles. The views expressed in Cascade are
not necessarily those of the Federal Reserve Bank
of Philadelphia or the Federal Reserve System.       At the end of March of this year, the       chapter for a book that will be pub-
Cascade has been published since 1984.
                                                     Federal Reserve Bank of Philadelphia        lished by Penn Press.
Send comments and suggestions to Keith L. Rol-       hosted its third biennial conference
land at (215) 574-6569 or keith.rolland@phil.        on reinventing older communities.           The second new feature was continu- Send address changes and requests for
subscriptions or additional copies to Kenyatta       We had great speakers, an engaged           ing education credits for planners.
Burney at (215) 574-6037 or kenyatta.burney@         audience, and terrific cosponsors, all of   While the audience is typically a mix                                        whom share our interest in rebuilding       of community developers, bankers,
                                                     big and small towns that are central        and government officials, many of the
COMMUNITY AFFAIRS DEPARTMENT                         to our metropolitan areas. The con-         issues discussed are important to city
Kenyatta Burney
                                                     ference, which drew more than 525           and town planners. Recognizing that
Senior Staff Assistant                               people – including speakers – from          point, the American Planning Associa-
(215) 574-6037                                       29 states, was entitled Reinventing         tion, at the request of the Pennsylva-
                                                     Older Communities: How Does Place           nia Planning Association, agreed to
Jeri Cohen-Bauman                                    Matter?                                     provide credits to planners for most of
Secretary                                                                                        the conference sessions.
(215) 574-6458
                                                     We could not have done it without the
                                                     help of our cosponsors: the William         A third new feature was a partnership
Christy Chung Hevener                                Penn Foundation, the Brookings Insti-       with the German Marshall Fund of the
Consumer Specialist
(215) 574-6461
                                                     tution’s Metropolitan Policy Program,       United States that enabled the audi-                         the University of Pennsylvania’s Insti-     ence to get a European perspective on
                                                     tute for Urban Research (Penn IUR),         reinventing cities. European cities face
Andrew T. Hill, Ph.D.
Economic Education Advisor
                                                     the Local Initiatives Support Corpora-      many of the same challenges as their
(215) 574-4392                                       tion, The Reinvestment Fund, the Fed-       American counterparts, and some                             eral Home Loan Bank of Pittsburgh,          have made remarkable strides toward
Amy B. Lempert
                                                     the New York and Cleveland Fed-             developing a sense of place while
Community Development Advisor and Manager            eral Reserve Banks, the George Gund         strengthening their economic competi-
(215) 574-6570                                       Foundation, the Heinz Endowments,           tiveness.
                                                     the Surdna Foundation, the National
Erin Mierzwa                                         Housing Institute, the Delaware Valley      Now, if you were not able to attend
Community Development Specialist                     Regional Planning Commission, the           the conference, even for a short period
(215) 574-6641
                                                     Pennsylvania Planning Association,          of time, we have tried to describe the
                                                     10,000 Friends of Pennsylvania, and the     highlights in this issue of Cascade. If
Dede Myers                                           German Marshall Fund of the United          this is not enough, please go to www.
Vice President and Community Affairs Officer
(215) 574-6482
                                                     States. Still others, such as Isles Inc.,                              PlanSmartNJ, and the Chicago and            html, where you will find the speakers’
                                                     Richmond Feds, helped by sending            presentations. In a few cases, we also
Harriet Newburger, Ph.D.
Community Development Research Advisor
                                                     the invitation brochure to their mail-      have MP3 recordings of the plenary
(215) 574-3819                                       ing lists. All of this help enabled us to   sessions. You will enjoy first hand the                       reach a diverse group of people.            words of Bruce Katz of the Brookings
Keith L. Rolland
                                                                                                 Institution, as well as Amy Gutmann,
Community Development Advisor                        This year the two-and-a-half-day            president of the University of Penn-
(215) 574-6569                                       conference had three additional fea-        sylvania; Michael Nutter, mayor of
                                                     tures. We added a research track with       Philadelphia; and Valentino Castellani,
Marvin M. Smith, Ph.D.                               the help of Penn’s IUR that included        a former mayor of Turin, Italy, home of
Community Development Research Advisor               nationally recognized researchers           the 2006 Winter Olympics.
(215) 574-6393
                                                     who have analyzed how education,
                                                     social networks, crime, and health are      If you couldn’t join us this year, I hope
John J. Wackes                                       influenced by the place in which we         we will see you in 2010.
Community Development Specialist
(215) 574-3810
                                                     live. The sessions were well attended,                           and the researchers agreed to write a
Todd Zartman
Economic Education Specialist
(215) 574-6457
Mayors: Reinventing Begins with Planning
By Amy B. Lempert, Community Development Advisor and Manager

The idea that a city is part of a great-     that key factors that have
er metropolitan area was embraced            enabled Turin to rein-
by the mayors and the municipal              vent itself are the city’s
official who spoke at the plenary            cultural heritage, a long
sessions of the conference.1 Each            history of planning, and
understood how his city matters              the fact that it is a key
within its larger region. A common           transportation node with
theme about reinventing these cities         connections to western
was the need to involve the commu-           and eastern Europe.
nity in actively planning to enhance
assets and minimize liabilities. Each        Stamford, Connecticut;
of the cities is in a different stage        Mayor Dannel P. Malloy
of reinventing itself, but all have          Currently in his 13th
a shared experience of decades of            year as mayor of Stam-
industrial decline.                          ford, Connecticut,                      An urban renewal project in Turin, Italy, has renovated the
                                             Malloy is keenly aware                  north-south rail line, moved half of it underground, and cre-
Turin, Italy; Valentino Castellani,          of the physical assets                  ated a wide boulevard on the surface. The boulevard, known
Former Mayor                                 of his city. He noted                   as La Spina (the backbone), is lined with tall white light
                                                                                     fixtures and can be seen in the background. In the foreground
The mayor of Turin for two terms,            that Stamford, a city of
                                                                                     is a small park adjacent to the boulevard that contains a walk-
from 1993 to 2001, Castellani pre-           approximately 125,000                   through sculpture of a tree.
sented the city as one that has              residents, is the fastest
reinvented itself many times during          growing city in New
its 2,000-year history. Turin, which         England. Stamford’s
has a current population of approxi-         location on Long Island
mately 900,000, has had significant          Sound, 30 miles from
ups and downs in the last 150 years          New York City, is a
as it lost its status as capital of Italy,   major factor in the city’s
became an automotive capital, lost           transformation. Malloy
some 80,000 manufacturing jobs,              also credits a conscious
and hosted the 2006 winter Olympic           planning effort and clear
Games. Most recently, Turin has been         vision of what the city
the beneficiary of new public and            wants to be. In the face
private investment that aims at diver-       of industrial decline a
sifying the city’s economic base and         half-century ago and
maintaining the euphoria created by          with good commuter                      Completed in 1921, the Fiat Lingotto factory in Turin, known
hosting the Olympics. Castellani said        and national rail service2              for its roof-top test track shown here, is a prominent example
                                             and a major interstate                  of modernist architecture. After Fiat closed the factory
                                             highway (I-95) running                  in 1982, architect Renzo Piano was chosen to transform
                                             through it, Stamford fo-                the building. Today, Lingotto is a multifunctional complex
                                                                                     containing a trade center, convention center, auditorium,
                                             cused on office develop-                art museum, 11-theater cinema complex, two hotels, shops,
                                             ment. To prevent sprawl                 and offices. The exterior of the building remains as originally
                                             and reinforce its effort to             designed. The Olympic Arch is in the background. Lingotto is
                                             create a vibrant 24-hour                at the southernmost tip of La Spina.
                                                        ...continued on page 17

                                              Valentino Castellani, a former mayor of Turin, Italy, and president of the Organizing Commitee for the 2006
                                             Olympic Games in Turin, spoke on Wednesday morning, addressing the topic “Rebuilding a Sense of Place
                                             in Older Industrial Cities.” Mayor Dannel P. Malloy of Stamford, Conn., Mayor Jay Williams of Youngstown,
                                             Ohio, and Christopher Warren, chief of regional development of the city of Cleveland, participated on a panel
Valentino Castellani                         Friday morning moderated by Mayor Michael A. Nutter of Philadelphia.

Urban Anchors Fuel Economic Growth and Civic Progress
By James L. Gardner, Special Assistant to the President, University of Pennsylvania

University of Pennsylvania Presi-           citizens, beginning with measures         Gutmann devoted the rest of her talk
dent Amy Gutmann addressed the              to put a Penn education within reach      to Penn’s economic impact on the
2008 reinventing older communi-             of talented, aspiring students who        city and region. She began by noting
ties conference on the evolving role        otherwise could not afford to attend      the sea change that universities have
that urban anchors, including large         college. Penn now waives tuition for      undergone since the 1950s. “When
teaching and research universities,         families making less than $90,000         universities needed to grow back
are playing in driving economic             and pays the full freight for families    in the ‘50s and ‘60s,” she said, “they
growth and civic progress in their          making $40,000 or less.                   seldom took social or environmental
communities.                                                                          consequences into account. Basically,
                                            “In keeping with Bruce Katz’s recog-      they saw, they planned, and they
She focused on three specific path-         nition of the urgent need to strength-    flattened any obstacles in their path.
ways for reinventing older commu-           en the links between K-12 and higher      That was the old-school way of cam-
nities: producing innovative schol-         education, Penn also has helped to        pus planning. “Penn is new-school,”
arships that can be translated into         improve the educational prospects         she continued. “We are an anchor
effective policy; putting educational       of local school children in Philadel-     that employs more than 24,000
values into practice; and leveraging        phia,” Gutmann said. “Our partner-        people and generates almost $7
knowledge and other resources to            ship with the Penn Alexander School       billion for the Philadelphia economy
foster economic development. “To            has produced the highest performing       through our purchases, capital in-
realize our full potential,” Gutmann        racially diverse neighborhood K-8         vestments, and research. We realize
said, “Penn depends on the creative         public school in the city – and one       we can help build a stronger city and
mingling of scholars, students,             of the best schools of its kind in the    region best by partnering with the
and ideas across all disciplines,           nation. Eighty-five percent of Penn       private and public sectors.”
backgrounds, and perspectives. For          Alexander eighth-grade graduates
example, interdisciplinary research         go on to selective magnet schools in      Gutmann then described the uni-
at Penn has helped policymakers             Philadelphia that send high propor-       versity’s campus development plan
address disparities in health, educa-       tions of graduates to college.”           to reinvent and transform a 24-acre
tion, and economic mobility that                                                      property purchased from the U.S.
have afflicted the urban underclass.”       Gutmann then summarized some of           Postal Service – “a dead and ugly
                                            the ways that Penn delivers a variety     parcel of land” – into beautiful
Gutmann then described steps Penn           of innovative health services to our      Penn Park and a vibrant mixed-use
has taken toward improving the              community, including:                     neighborhood that forges seamless
life prospects of less advantaged           • Clinical and preventive health          connections with Philadelphia and
                                                 care to Sayre High School stu-       fuels progress throughout the re-
                                                 dents, their families, and other     gion. Penn, Gutmann said, is boost-
                                                 members of the West Philadel-        ing its housing stock for all students,
                                                 phia community at the school;        adding recreational green space, and
                                            • Comprehensive dental treatment          building state-of-the-art facilities for
                                                 to West Philadelphia children,       medicine, neuroscience, and nano-
                                                 provided in a fully equipped mo-     technology.
                                                 bile van known as PennSmiles.
                                            • Integrated nursing, medical, and        Penn, according to Gutmann, ulti-
                                                 rehab care that allows elderly       mately wants to help reinvent Phila-
                                                 residents to continue living inde-   delphia by creating a new, mixed-use
                                                 pendently in their homes and         neighborhood “that extends William
                                                 saves the Commonwealth of            Penn’s original urban grid across the
                                                 Pennsylvania 15 percent to 20        Schuylkill River, connects Penn and
                                                 percent in Medicaid reimburse-       West Philadelphia to Center City, and
Amy Gutmann, President, University of            ment costs.                          transforms the riverfront itself into a
Pennsylvania                                                                          source of civic pleasure and pride.”
       The University of
       Pennsylvania is
       transforming a 24-acre
       property purchased from
       the U.S. Postal Service
       into Penn Park and a
       mixed-use neighborhood.
       A present-day view of
       the site is contrasted
       with a rendering of the
       completed project.

                                                            and research            tionships, like politics, are ultimately
                                                            complex, begin-         local,” she said. “They are shaped by
                                                            ning with the           specific histories, circumstances, and
                                                            Perelman Center         constraints. We can agree that large
                                                            for Advanced            urban universities have good rea-
Gutmann added: “To pull this off,         Medicine, which will begin offering       sons to partner with their neighbors
however, we have to remove what           advanced cancer and cardiac care          to boost educational capacity and
urban visionary Jane Jacobs called        later this year.                          improve the long-term health and
‘the curse of the border vacuums,’                                                  prosperity of their neighbors.
which creates dead zones for social       Gutmann stressed that all capital
interaction and commerce. Examples        projects will meet the highest stan-      “At our best, urban universities
of borders include railroad tracks,       dards of energy conservation and          are more than large employers and
expressways, rivers, surface parking      environmental design. Penn also           major economic players. We are
lots, ugly old buildings, and uncul-      will heavily reuse stone and paving       good citizens and neighbors, bound
tivated parcels of land.” Gutmann         materials, choose native plants for       by our mission to pursue integrated
proceeded to show slides that             landscaping, and provide for effec-       knowledge and understanding for
contrasted several border vacuums         tive storm-water management.              the sake of serving society, begin-
as they appear today with transfor-                                                 ning with our own neighboring
mations that will “create a mixed-use     Gutmann then discussed the jobs           communities.
neighborhood with a steady flow of        and entrepreneurial opportunities
foot traffic and energy.”                 that Penn’s expansion will create         “A university such as Penn connects
                                          for local residents. Penn already         more than our scholarship to policy,
Gutmann said: “Today’s warehouses         purchases tens of millions of dollars     more than theory to practice, and
become tomorrow’s laboratories, ra-       worth of products and services each       more than our campus to our city.
dio stations, restaurants, cafes, bars,   year from local businesses. And it        Ultimately, we connect people to one
bike shops, hair salons, performing       has awarded up to a quarter of all        another in the rewarding work of re-
arts venues, and apartments. Park-        construction contracts to minority-       inventing our communities. Through
ing lots become playing fields and        and women-owned businesses while          our connections, we will replace bor-
parks, increasing green space on our      making sure that at least a quarter of    der vacuums with lively neighbor-
campus by 20 percent.” For example,       all construction jobs go to minority      hoods. Through our connections, we
the moribund site of the Philadel-        and women workers.                        will make our urban communities
phia Civic Center across the street                                                 highly desirable places to study, live,
from the Hospital of the University       Gutmann, a political philosopher,         work, and play. And through our
of Pennsylvania and Children’s            concluded her talk with a reflection      connections, we will bring good, new
Hospital will be the site of an $833      on ties that bind urban universities to   life to this most glorious of human
million state-of-the-art medical care     their home cities. “Town-gown rela-       inventions – the city.”

How Can Foundations Change Urban Markets?
By Keith L. Rolland, Community Development Advisor

Leaders of two regional founda-             Progress,3 a nonprofit that seeks                        In addition, the Gund Foundation
tions who spoke at the reinventing          “market recovery” through invest-                        is trying to encourage real estate
older communities conference                ments in housing, safety, and schools                    developers to learn from nonprofits
described their organizations’ efforts      in six Cleveland neighborhoods,                          that have expertise in sustainability,
to strengthen neighborhoods by              Abbott said. The neighborhoods are                       green space development, and public
pursuing market-based strategies,           neither the best nor the worst ones in                   art. The foundation is funding Build-
and a prominent urban developer             Cleveland.                                               ing Cleveland by Design,4 which al-
explained that foundations could
play a critical role in spurring urban      1
                                             MBS’s mission is to rebuild neighborhoods in central cities across the U.S. Since 1973, MBS has developed
development.                                124 projects in 33 cities; the projects include more than 13,895 housing units.

                                             FEF, formed in 2004 and chaired by Abbott, operates through grantmaking, research, and civic engagement.
David T. Abbott, executive director         The fund has about 100 members, which are primarily foundations but membership also includes banks, other
of the George Gund Foundation in            businesses, and universities. For information, go to
Cleveland, and Feather O. Hous-             3
                                                For information, see
toun, president of the William Penn
Foundation (WPF) in Philadelphia,           4
                                                For information, see
spoke on a panel with
Richard D. Baron, chairman
and CEO of McCormack
Baron Salazar (MBS)1 in
St. Louis. Jeremy Nowak,
president and CEO of The
Reinvestment Fund (TRF) in
Philadelphia, moderated the

Abbott explained that the
Gund Foundation has a
regional focus on economic
change and has been instru-
mental in organizing the
Fund for Our Economic Fu-
ture (FEF),2 which promotes

                                                                                                                                                    Map courtesy of The Reinvestment Fund
regional economic develop-
ment in northeastern Ohio.
The fund is trying to stimu-
late economic change by
investing in areas such as
bioscience development and
entrepreneurialism, Ab-
bott said. About half of the
$60 million raised through
FEF has been disbursed, he
                                 The William Penn Foundation (WPF) has been a major supporter of community investment in targeted
Most of the Gund Founda-         neighborhoods throughout the region, providing strategic investments to support development. With
tion’s community develop-        WPF support, The Reinvestment Fund (TRF) has developed neighborhood plans with LaSalle University.
                                 The red arrows identify negative market forces and the blue circles identify strong investment opportuni-
ment efforts are focused
                                 ties. A new TRF-funded supermarket is planned in the top set of concentric circles.
through Neighborhood
                                               The George Gund Foundation at Work
                                               The Gund Foundation supports community development in Cleveland primarily through
                                               a local intermediary, Neighborhood Progress Inc. (NPI), which is funding 14 community
lows nonprofits to help builders and           development corporations and has designated six areas for a strategic investment. The
developers design more eco-friendly            investment aims at restoring private markets, including real estate, in Cleveland neighbor-
buildings.                                     hoods that have undergone decline but show potential to recover. The photos are in two
                                               of the investment areas.
Abbott said that foundations often
find involvement in real estate
projects “uncomfortable,” but he
encouraged these organizations to
“step out of their comfort zone.” He
invited nonprofits and others to tell
foundations “how we can partner
with you.”

Houstoun explained that WPF and
some other foundations are follow-

                                                                                                                                              Photo courtesy of C. Rafalke
ing a market-based strategy in which
their funding is intended “to trigger
the kinds of investment that can ac-
tually turn a neighborhood around.
It doesn’t mean we abandon needy
neighborhoods; we think differ-
ently about what we can accomplish
there.”                                        In the photo above, workers are landscaping a market-rate newly constructed house
                                               developed by NPI and the City of Cleveland. NPI owns and plans to renovate historic Saint
                                               Luke’s Hospital, which is shown in the background.
A market-based strategy may be
able to turn around a city neighbor-
hood that has anchor institutions
and is only in the early stages of
decline, whereas funding services
for high-risk youth may make sense
in the more deteriorated areas of the
same city, she suggested. Sometimes
foundations need to “speak truth to
hope” and explain that some fund-
ing requests in distressed neighbor-
hoods “aren’t going to turn the tide,”
she said.
                                                                                                                                             Photo courtesy of Julie VanWagonen

Both Abbott and Houstoun said
that their respective foundations
complement a market-based strategy
with advocacy on national and state

Baron, who has developed urban
projects for the past four decades,
observed that foundations lack
“institutional memory” of what                 In this photo, a construction worker is shown amid 190 mixed-income units being built in
                                               a HOPE VI development.
                     ...continued on page 18

The Federal Reserve System’s Response
to Subprime Mortgage Challenges
By Christy Chung Hevener, Consumer Specialist

The issue of rising foreclosures                       ers could engage in principal write-                 mortgage loans.2 This information
across the nation was addressed by                     downs under some circumstances,                      can help community organizations,
Sandra F. Braunstein, director of the                  such as when homeowners owe                          policymakers, and local govern-
Division of Consumer and Commu-                        more on their mortgages than their                   ments identify the areas that are
nity Affairs of the Federal Reserve                    homes are worth, which may be less                   most vulnerable to foreclosure by
System’s Board of Governors, at the                    costly for lenders than foreclosure.1                showing areas with high foreclosure
reinventing older communities con-                                                                          rates, large shares of loans that are
ference. In light of high foreclosure                  Through its community affairs offices                90 or more days’ delinquent, and
rates, the Federal Reserve is using its                at the Board and the 12 regional                     high proportions of adjustable-rate
full range of powers – supervising                     Banks, the Federal Reserve is col-                   mortgages (ARMs) that are sched-
and regulating banking institutions,                   laborating with regulators, commu-                   uled to reset in the next 12 months.
writing and enforcing regulations,                     nity groups, policy organizations,
and directing monetary policy to                       and public officials to identify local               Near-Term Responses
stabilize markets – to mitigate the                    strategies that help homeowners and                  Braunstein pointed out that there
current foreclosure crisis and to                      communities prevent or mitigate the                  has been a significant increase in
address issues of concern in mort-                     effects of mortgage delinquencies and                lending by nondepository mortgage
gage lending that will help prevent a                  foreclosures. According to Braun-                    lenders, institutions that fall outside
recurrence of the current situation.                   stein, since May 2007 community                      the supervisory purview of the
                                                       affairs offices have sponsored more                  Federal Reserve, the Office of the
Immediate Responses                                    than 50 foreclosure-related events                   Comptroller of the Currency, the
The Federal Reserve has undertaken                     with nearly 5,000 attendees.                         Office of Thrift Supervision, and the
a number of initiatives — immedi-                                                                           Federal Deposit Insurance Corpora-
ate, near-term, and long-term — in                     By making data and other research                    tion. To help provide insight into the
response to the foreclosure crisis.                    resources available, the Federal                     policies and practices of such entities
One immediate goal is to identify                      Reserve hopes to help organizations                  and their compliance with consumer
ways to assist delinquent borrow-                      make decisions that will benefit                     protection laws and regulations, the
ers and help them remain in their                      borrowers and local communities.                     Federal Reserve is participating in a
homes when possible. Toward                            Braunstein noted that Neighbor-                      multi-agency initiative that is con-
this end, the Federal Reserve has                      Works America used data from the                     ducting reviews of selected institu-
engaged key industry participants                      Federal Reserve to identify areas of                 tions. This pilot program is focusing
to discuss responses to the current                    greatest need for the allocation of                  on nondepository subsidiaries of
crisis and, along with other regula-                   $130 million in congressional funds                  bank and thrift holding companies,
tors, has issued guidance strongly                     that the nonprofit received to in-                   as well as mortgage brokers doing
urging lenders and servicers to assist                 crease housing counselor capacity.                   business with, or working for, these
borrowers by adopting a range of                                                                            entities. Additionally, the state agen-
loss-mitigation options, including                     She also explained that the Federal                  cies participating in the program
refinancing, loan modifications, for-                  Reserve has provided data analyses                   will conduct coordinated examina-
bearance, and short sales. In a recent                 and maps that show regional varia-                   tions of independent state-licensed
speech, Federal Reserve Chairman                       tion in the condition of securitized                 subprime lenders and their associ-
Ben S. Bernanke proposed that lend-                    owner-occupied subprime and alt-A                    ated mortgage brokers. The agencies

 “Reducing Preventable Mortgage Foreclosures,” speech by Chairman Ben S. Bernanke, Independent Community Bankers of America Annual Convention, Orlando,
Fla., March 4, 2008,

    “Dynamic Maps of Nonprime Mortgage Conditions in the United States,”

will share information about the                             lenders and not just to depository
reviews and investigations, take                             institutions.
action as appropriate, collaborate on
the lessons learned, and seek ways                           The proposal is two-pronged. It
to better cooperate in ensuring effec-                       would provide additional protection
tive and consistent reviews of these                         for higher-priced mortgages, but it
institutions.3                                               also contains provisions that would
                                                             apply to all home-secured loans. For
The Federal Reserve is also con-                             higher-priced mortgages,4 the pro-
cerned about housing vacancies                               posal would prohibit lenders from
in neighborhoods and the impact                              engaging in a pattern or practice of
they have on communities. A large                            making loans without considering
number of vacant homes, including                            the ability of borrowers to repay and
real-estate-owned properties (REO)                           would require lenders to verify the
held by loan servicers, can result in                        borrowers’ income and assets that
                                                                                                                   Sandra F. Braunstein of the Federal Reserve
a deterioration of a neighborhood’s                          are relied on when making the loan.                   Board of Governors
property values or other negative                            Lenders would be required to es-
effects, Braunstein observed. To                             crow property taxes and homeown-
establish an effective approach for                          ers’ insurance (with the option for                   from coercing or encouraging an
the treatment of REOs, the Federal                           lenders of allowing borrowers to opt                  appraiser to misrepresent the value
Reserve has partnered with Neigh-                            out after 12 months). The use of pre-                 of a home. The Federal Reserve has
borWorks America to evaluate                                 payment penalties in higher-priced                    also proposed additional disclosure
options such as rehabilitating homes                         mortgages would be restricted and                     rules for mortgage advertising, and
for first-time homeowners, creating                          the prepayment penalties would                        certain misleading or deceptive
good-quality rental units, or selling                        have to expire at least 60 days before                advertising practices would be pro-
homes to community land trusts to                            the interest rate on the loan resets.                 hibited, including the advertisement
help promote neighborhood stabili-                                                                                 of ARMs as fixed-rate loans.
zation in communities with numer-                            The proposal also includes new
ous foreclosures.                                            consumer protections that would                       The Federal Reserve has reacted to
                                                             apply to most mortgage loans. The                     this current foreclosure crisis by pro-
Long-Term Responses                                          proposal would require early disclo-                  moting a balanced mortgage market
Finally, the Federal Reserve has                             sure to the borrower of a mortgage                    that supports access to mortgages,
used its rulemaking authority to ban                         broker’s total compensation, and the                  including responsible subprime
certain unfair and deceptive prac-                           lender would be prohibited from                       loans, and a range of consumer op-
tices and to require that consumers                          making payments to the broker that                    tions within the market. Its actions
receive disclosures earlier, in an                           would exceed the disclosed amount.5                   represent a constant balancing act
effort to make the mortgage lend-                            Loan servicers would be required                      between “enabling innovation and
ing process more understandable to                           to promptly credit payments to a                      flexibility while ensuring meaning-
borrowers. On December 18, 2007,                             consumer’s account and provide                        ful consumer protections,” a point
the Federal Reserve proposed new                             payoff statements within a reason-                    that Braunstein emphasized. She
rules under the Home Ownership                               able period of time. Servicers would                  also noted that the Federal Reserve
Equity Protection Act (HOEPA) and                            also be banned from pyramiding late                   will monitor and continue to re-
the Truth in Lending Act. The rules,                         fees. Under the proposed rules lend-                  spond to unfolding events in the
if adopted, will apply to all mortgage                       ers and brokers would be prohibited                   mortgage market.

    See Federal Reserve press release,

 According to the rule, “higher-priced mortgages would be those whose annual percentage rate exceeds the yield on Treasury securities of comparable maturity by at
least three percentage points for first-lien loans, or five percentage points for subordinate-lien loans.”

    A fee paid by a lender to a broker for a higher-rate loan is known as a “yield spread premium.”

Research Examines Schools and Uneven Opportunities
By Harriet Newburger, Ph.D., Community Development Research Advisor

The three research sessions dis-         outcomes in areas like earnings or                     of the within-school environment
cussed in this article provide           criminal activity, even when test-                     and the neighborhood environment
evidence on the ways in which the        score gains fade over time.                            tend to be highly correlated, but
residential neighborhood environ-                                                               Jargowsky and his co-author draw
ment may affect individual and           Ludwig also discussed three in-                        on a multiyear data set compiled by
household well-being. They also          terventions aimed at increasing                        the Texas Schools Project whose large
examine what we know about               the efficiency with which available                    size helps to mitigate this problem.
policies and programs that might         inputs are used. Some “whole school                    Preliminary findings indicate that
potentially improve outcomes for         reforms,” which attempt to restruc-                    the within-school environment
households whose options are             ture the learning process, appear to                   has a larger direct effect on student
negatively affected by their neigh-      provide benefits of the type already                   performance than the neighborhood
borhoods. The first session considers    discussed. Teacher accountability                      environment. Nonetheless, neighbor-
education; the other two look at         policies are associated with gains on                  hood characteristics such as poverty
strategies specifically designed to      performance measures but may have                      rate and percent of neighborhood
provide households with a neighbor-      unintended consequences, such as                       residents with college degrees do
hood environment that offers better      misconduct by those administering                      have a direct and significant effect.
opportunities.                           exams. Increasing the percentage of                    Moreover, Jargowsky notes that
                                         effective teachers in schools serving                  neighborhood characteristics are
Schools and Neighborhoods:               disadvantaged children requires                        a key determinant of a number of
Research and Policy                      administrators to identify teaching                    aspects of the within-school environ-
                                         effectiveness and follow hiring prac-                  ment, such as the student’s school
Jens Ludwig reviewed research on         tices leading to the desired result.                   peers, and thus have a further, indi-
interventions that attempt to nar-                                                              rect effect on a student’s performance.
row the performance gap between          Despite some caveats on program
students from disadvantaged and          design, Ludwig and his co-author                       Dealing with Uneven
affluent backgrounds. Two interven-      are cautiously optimistic that                         Geographies of Opportunity,
tions he discussed, early childhood      expanded implementation of some                        Strategy 1:
education and class-size reduction,      of the interventions would provide                     Neighborhood Revitalization
increase educational inputs for          results justifying their costs. They
disadvantaged children. Both appear      stress, however, that even successful                  Ingrid Gould Ellen presented
to boost test scores initially and       intervention will only narrow the                      preliminary results of research that
to generate positive long-term life      performance gap, not eliminate it.                     supports a widely held but previ-
                                                                                                ously untested perception that low-
                                         Paul Jargowsky’s research focused                      income central city neighborhoods
                                         on two factors that may contribute                     experienced a revival in the 1990s.
                                         to lower performance by disadvan-                      Ellen and her co-author examined
                                         taged children, the within-school                      the extent to which such neighbor-
                                         environment the student encounters                     hoods showed large economic gains
                                         – including both school resources                      or losses in each of the three decades
                                         and classmates – and the student’s                     between 1970 and 2000.1 (The authors
                                         neighborhood, which may affect                         designated a large change as one in
                                         achievement through such avenues                       which neighborhood income as a
                                         as the role models it provides or                      percentage of metropolitan income
                                         the values it fosters. Untangling the                  changes by at least 10 percentage
                                         effects of these factors has proven                    points.) In the 1990s, low-income
                                         difficult because the characteristics                  neighborhoods were about 2.5 times

Harriet Newburger, Ph.D.,                1
                                          They used census tracts as neighborhood units and defined low-income neighborhoods as tracts with mean
Community Development Research Advisor   income below 70 percent of metropolitan area income.

more likely to experience large                              opportunities might increase. Other                        receiving Section 8 housing vouchers
gains than large losses, a reversal                          early findings include the successful                      that could be used only in low pov-
from the two previous decades,                               marketing of mixed-income proj-                            erty areas; a Section 8 group receiv-
when large losses were about three                           ects to higher income households;                          ing vouchers with no geographical
times more likely than large gains.                          difficulties in marketing units to                         restrictions; and a control group that
Exploratory analysis suggests that                           households that were relocated from                        did not receive vouchers but contin-
large gains in the 1990s were more                           pre-HOPE VI public housing units                           ued to receive project-based housing
likely in metropolitan areas where                           during the redevelopment process;                          assistance.4
poverty and crime fell the most, the                         the complexity of the development
share of immigrants was largest, and                         process; and the dampening effect                          Lisa Gennetian discussed findings
low-income housing tax credit units                          of the current housing crisis on this                      from a 2003 interim evaluation of
increased the most. Ellen cautioned                          development process.                                       MTO, focusing on the comparison
that economic gain in a neighbor-                                                                                       between the experimental and
hood does not indicate whether low-                                                                                     control groups. Compared to those
income households who lived there                            Dealing with Uneven                                        in the control group, families in the
at the start of the decade are better or                     Geographies of Opportunity                                 experimental group tended to live in
worse off.                                                   Strategy 2:                                                lower-poverty and safer neighbor-
                                                             Programs That Move People Out                              hoods and experienced lower rates
Place-based investment in neigh-                             of Concentrated Poverty                                    of adult depression and obesity.
borhoods where opportunities are
limited is one strategy for alleviat-                        An alternative strat-
ing the uneven geography of op-                              egy to place-based              Economic gain in a neighborhood
portunity. Mark Joseph reviewed                              investment for im-
the literature on a particular form                          proving the options of          does not indicate whether low-
this strategy might take, mixed-                             households living in            income households who lived there
income housing development. He                               neighborhoods with
                                                             limited opportuni-
                                                                                             at the start of the decade are better
also discussed his Chicago-based
research on HOPE VI projects, public                         ties is to help them            or worse off.
housing projects typically redevel-                          move to places where
oped as mixed-income developments                            opportunities are
with fewer public housing units. He                          better. The final research session         Teenage girls in the experimental
conducted interviews with develop-                           was devoted to HUD’s Moving to             group had a lower incidence of psy-
ers, social service providers, other                         Opportunity Demonstration (MTO),           chological distress than their coun-
stakeholders, and residents of those                         which was set up to test the effects       terparts in the control group, though
sections of the developments that                            of this strategy on the well-being of      this was not the case for males. No
have reached occupancy stage. Low-                           poor families. Eligibility for the dem-    significant effects on employment
income residents reported improved                           onstration, conducted in five large        or earnings were found and there
quality of life, though a substantial                        cities,2 was restricted to families        was little difference between the
number did not expect the income                             living in subsidized housing projects      experimental and control groups in
mix to provide opportunities beyond                          in high-poverty neighborhoods.     3
                                                                                                        terms of children’s school achieve-
improved housing. Joseph found                               Participation was voluntary. Families      ment. Gennetian also provided an
little social interaction across income                      applied between 1994 and 1998 and          overview of the final evaluation of
groups, one mechanism by which                               were randomly assigned to one of           MTO, which is currently underway
it has been posited that low-income                          three groups: an experimental group        and which she co-manages.5 It will

    Baltimore, Boston, Chicago, Los Angeles, and New York.

 The term “subsidized housing projects” includes both public housing and privately owned, publicly subsidized projects. High-poverty neighborhoods are defined as
those with poverty rates of 40 percent or more, while low-poverty neighborhoods are defined as those with a poverty rate below 10 percent.

    Forty-seven percent of the experimental group and 68 percent of the Section 8 group actually used their vouchers to lease a unit.

 This evaluation is being undertaken by a team of researchers associated with the National Bureau of Economic Research, with support from HUD and a number of
other public and private agencies and foundations.

focus on long-term effects of MTO       by good public transportation or          The findings on psychological
and the mechanisms by which they        moved farther from areas experienc-       distress among teenagers described
play out. A particular area of inter-   ing entry level job growth. Difficul-     earlier in this section were based
est will be children who were very      ties in accessing employment were         on an analysis of survey data from
young at the start of the demonstra-    reinforced by difficulties in finding     all five MTO sites. Susan Clampet-
tion, since children who grow up in     accessible, affordable child care.        Lundquist repeated this analysis
low-poverty areas from infancy and                                                                     using survey data
early childhood would be expected                                                                      for a single site,
to show greater effects than children         Relocating enabled some young                            Baltimore. She
who move at age 10 or older.                  people to build more diverse                             found no mean-
                                                                                                       ingful difference
Xavier de Souza Briggs presented              friendships and a broader repertoire                     in psychological
research that integrated data from            of “soft skills” that they perceived                     distress between
interviews, ethnographic fieldwork,                                                                    girls in the
and quantitative sources to explore
                                              to be important for upward                               experimental and
the puzzle of finding no employment           mobility, notwithstanding some                           control groups,
effects in the interim MTO evalua-            pain in acculturating to new social                      but found that
tion. He noted that the expectation                                                                    boys in the ex-
that employment effects would be              expectations in the new locations.                       perimental group
found was based on three assump-                                                                       were more likely
tions.                                                                                                 to experience
                                        Second, families that moved to low-pov-   psychological distress than those in
First, the spatial mismatch between     erty areas would develop social networks  the control group.
residential location and the location   in their new neighborhoods that helped
of low-skilled jobs would be reduced    in finding and maintaining jobs. But      Clampet-Lundquist then used in-
for families that moved. But in some    interviews indicated that the casual      depth interview data collected from
cities, relocation actually decreased   interactions these families had with      two groups of Baltimore teenagers to
employment access as families that      their neighbors did not serve this        examine factors that might underlie
moved left areas with dense concen-     purpose.                                  psychological distress. One group
trations of low-wage jobs accessible                                              was a subset of experimental-group
                                        Third, social norms in the new neighbor-  teenagers whose families had
                                        hoods would encourage work. Briggs        used their vouchers to move from
                                         noted that relocating enabled some       their original neighborhoods; the
                                           young people to build more di-         other was a subset of control-group
                                              verse friendships and a broader     teenagers. There were strong differ-
                                               repertoire of “soft skills” that   ences in the experiences described
                                                  they perceived to be impor-     by the two groups. Sources of family
                                                   tant for upward mobility,      conflict tended to be more serious
                                                    notwithstanding some pain     for control-group teenagers, who
                                                   in acculturating to new        also reported abuse, problems with
                                                   social expectations in the     anger, and neighborhood violence
                                                   new locations. Briggs and      more frequently. Clampet-Lundquist
                                                  his co-authors argue that for   did not find pronounced gender
                                                 relocation to more effectively   differences among teenagers within
                                              foster positive labor force out-    the experimental group. She stressed
                                               comes, it must be supported by     the complementary nature of survey
                                                   programs providing access      and interview data for understand-
                                                   to jobs, training, child care, ing outcomes that might arise from
                                                    and transportation.           an MTO-like initiative.

Research Perspective: How Does Place Matter?
By Marvin M. Smith, Ph.D., Community Development Research Advisor

When a person considers a choice      behavior. In the first presentation,                                    lying the neighborhood-crime link: a
of residence (whether for purchase    Michael Stoll, of the University of                                     neighborhood’s physical attributes or
or rent), affordability and suitable  California, Los Angeles, reviewed                                       social interactions, or both. Accord-
living space are generally at or near the evidence on the neighborhood-                                       ing to Stoll, these issues should be
the top of the list. However, the     crime connection. Stoll pointed out                                     resolved before meaningful policy
neighborhood in which you live        that although crime has trended                                         initiatives are formed.
might influence critical aspects of   downward recently, we should still
your well-being. A neighborhood’s     be concerned because the monetary                                       The second presentation, by Robert
characteristics might be associated   losses resulting from crime amount                                      Sampson of Harvard University,
with the crime level, the social inter-
                                      to nearly 1 percent of the country’s                                    focused on how neighborhood social
actions that take place there could   gross domestic product.2 He noted                                       dynamics interact with outcomes of
affect criminal involvement, and the  that the scholarly literature on neigh-                                 neighborhood violence and pub-
conditions in a neighborhood may      borhoods and crime is not very ex-                                      lic safety. He also provided some
                                                          tensive, which has                                  valuable insights on the impact
                                                          resulted in policy                                  of immigrants on neighborhood
                                                          prescriptions that                                  crime. Sampson relied on extensive
The current racial and ethnic makeup                      are imprecise.                                      research he has done on Chicago, the
of a neighborhood could portend its                       Stoll stressed                                      results of which are useful for other
                                                          that a neighbor-                                    large cities. He found that crime
future racial composition, especially                     hood defined                                        tends to be concentrated in poor
whether segregated or integrated.                         by its amenities                                    neighborhoods, regardless of wheth-
                                                          (businesses, jobs,                                  er they are located in the inner city
                                                          schools, parks,                                     or the suburbs. This finding persists
                                                          etc.) can affect                                    over time, even though overall crime
have a profound effect on your phys-  crime differently than one defined in                                   declined during the 1990s. Sampson
ical and mental health. In addition,  terms of social interactions among                                      also pointed out that social networks
the current racial and ethnic makeup  families, peers, and networks. These                                    and interaction in a neighborhood
of a neighborhood could portend its   alternative definitions in turn yield                                   can produce both positive and nega-
future racial composition, especially different types of policy interven-                                     tive effects on neighborhood crime.
whether segregated or integrated.     tions.
These various neighborhood effects                                                                            In addition, Sampson commented on
were addressed in presentations       Stoll reported that cross-sectional                                     the structural changes taking place
made at the Philadelphia Fed’s        data reveal strong correlations                                         in cities through immigration. He
reinventing older communities         between indicators of disadvantaged
conference. What follows is a brief   neighborhoods and criminal propen-
summary of those presentations.1      sity and victimization. These strong
                                      relationships are as expected. For
Social Interactions and Crime         example, more poor metropolitan
Two presentations were offered that   areas and those with higher degrees
discussed the interplay of neighbor-  of racial segregation have more
hood attributes and crime as well as  violent crimes. But there is still the
the influence of social interactions  issue of causality. Also, it is difficult
in the neighborhood on criminal       to determine the mechanism under-

 All of the presentations summarized here can be found on the Federal Reserve Bank of Philadelphia’s web-

  This does not include other costs of combating crime, such as expenditures on criminal justice activities   Marvin M. Smith, Ph.D.,
(policing, judges, courts, and prisons).                                                                      Community Development Research Advisor

indicated that, in contrast to popular    (such as pollution and crime) be-        by differences in influential factors
stereotypes, neighborhoods of con-        cause they are less expensive. Currie    during childhood rather than adult
centrated immigration have lower          concluded, however, that there was       socioeconomic conditions and neigh-
rates of violence. Moreover, first- and   evidence that pollution and crime        borhood environment.
second-generation immigrants are          were attributes of neighborhoods
less likely to commit crimes than         that did have a causal effect on         Patterns of Segregation
third-generation Americans.               health.                                  Research has shown that racial mi-
                                                                                   norities that live in segregated neigh-
Neighborhoods and Health                  Rucker Johnson, of the University        borhoods tend to be disadvantaged
Janet Currie, of Columbia Universi-       of California, Berkeley, approached      in terms of access to jobs, quality
ty, was the first presenter to discuss    the relationship between neighbor-       education, medical care, and public
the connection between residential        hood and health from a long-term         amenities. One approach to improv-
location and health. Currie concen-       perspective. He observed that the        ing the prospects of minorities is to
trated her remarks on the possible        present health outcomes of individu-     promote racially mixed neighbor-
causal relationship between poor          als are a product of past and current    hoods. Key to the stability of newly
neighborhoods and bad health: Does        neighborhood exposures. Thus, it         established integrated neighbor-
the neighborhood cause poor health        is necessary to examine the role         hoods are the circumstances that
                                                                                   initially generated and perpetuated
                                                                                   the segregation. Alexandre Mas, of
     Research has shown that racial minorities that                                the University of California, Berke-
                                                                                   ley, presented his recent research on
     live in segregated neighborhoods tend to be                                   this issue. Originally it was thought
     disadvantaged in terms of access to jobs, quality                             (theoretically) that even if most
                                                                                   white residents individually have
     education, medical care, and public amenities.
                                                                                   relatively modest preferences for a
                                                                                   neighborhood with a small percent-
                                                                                   age of minorities, their aggregate
or do people with bad health cluster      played by neighborhood conditions        behavior in reaction to a small
in the same neighborhood? Thus,           over an entire lifetime, and it is       change in the percentage of minori-
she warned against assuming that a        especially important to look at how      ties could tip the neighborhoods’
correlation between neighborhood          conditions during childhood can          racial makeup either to all minorities
location and health implies causal-       affect health later in life. Johnson     through “white flight” or all white
ity. But Currie suggested several         discussed the results of his research    through “minority flight.” The
ways in which residential location        using a nationally representative        fraction at which this transforma-
can affect health. She noted that         longitudinal data set to assess the      tion takes place is the tipping point.
neighborhoods with few job oppor-         relative contributions of individual     This two-sided tipping suggests that
tunities and higher prices (for food      family and neighborhood factors on       racially mixed neighborhoods are
and transportation) can limit their       health over a lifetime. He chose the     inherently unstable.
residents’ investment in health. Also,    case of hypertension for his analysis.
neighborhoods with elevated levels        Johnson compared the adult health        Mas’s work has dealt with whether
of pollution, high crime rates, and a     status among siblings who grew           this notion of a tipping point has
lack of parks or other opportunities      up together and unrelated children       empirical relevance for the develop-
for recreation can adversely affect       who grew up in the same narrowly         ment of neighborhoods over time.
the health of residents. However, the     defined neighborhood. He found           He investigated whether or not
causal relationship is confounded         that neighborhood poverty during         integrated neighborhoods with a
by the well-documented connection         childhood increases the odds of          level of minorities below the tipping
between poverty and poor health.          the onset of hypertension through        point are perpetually stable. Using
People choose their locations, and        midlife (age 55) by 26 percent. He       census data for major metropolitan
poor people (with poor health) are        also determined that the greater part    areas during the 1970-2000 period,
more likely to live in neighborhoods      of the racial gap in the incidence       Mas determined that there appears
with undesirable characteristics          of hypertension can be explained         to be a tipping point present in most

cities and that these points tend to
vary across cities and over time. In
                                           District News
contrast to the view that integrated
neighborhoods are unstable and
                                           Federal Reserve Chairman Ben S. Bernanke delivered a speech on “Mort-
characterized by two-sided tipping,
                                           gage Delinquencies and Foreclosures,” on May 5, 2008. Federal Reserve
he found that they are semi-stable
with one-sided tipping (white flight).     Governor Randall S. Kroszner gave a speech entitled “Mitigating the
Thus, they can remain racially             Impact of Foreclosures on Neighborhoods,” on May 7, 2008. Governor
mixed as long as the minority share        Kroszner also spoke on “Developing Sustainable Capital for Community
remains below the tipping point.           Investments,” on April 21, 2008. The speeches may be found at www.
                                  Select News and Events; Speeches. (Note: The Federal
Fernando Ferreira, of the University       Reserve Board of Governors has an e-mail notification service that alerts
of Pennsylvania, approached this           subscribers to newly available testimonies, speeches, articles, reports, and
issue by focusing specifically on His-     other information. To subscribe, go to Select
panics. Ferreira observed that while       News and Events; Services; e-mail notification.)
Hispanics are the largest minority
group in the U.S., we know very little
about their preferences for living in      An article written by Tony E. Smith, Ph.D., University of Pennsylvania,
Hispanic neighborhoods. He inves-          and Marvin M. Smith, Ph.D., and John J. Wackes, of the Philadelphia Fed’s
tigated the relationship between His-      Community Affairs Department, “Alternative Financial Service Providers
panics, residential segregation, and
                                           and the Spatial Void Hypothesis,” was published in the May 2008 issue of
housing prices. Ferreira examined
                                           Regional Science & Urban Economics. To obtain a copy, contact marty.smith@
how housing prices change as the
share of Hispanics in the neighbor-
hood increases and the willingness
of Hispanics to pay for an increase in
the share of Hispanic neighbors. He        “Transit-Oriented Development in Philadelphia,” a report prepared by
pointed out the statistical difficulties   Econsult Corporation for NeighborhoodsNow, is available at www.
inherent in estimating Hispanics’
residential preferences and their
willingness to pay to live in His-
panic neighborhoods.                       A new centralized service has been established for consumer complaints
                                           and inquiries involving financial institutions. Complaints will be for-
Ferreira relied on two studies with        warded to the appropriate federal regulator. For information, go to www.
different approaches to the em-  , (888) 851-1920, or ConsumerHelp@
pirical complexities, both using data A Spanish-language version is available through the
pertaining to the San Francisco Bay        website.
Area. Both studies reached similar
results. Housing prices tended to
decline as more Hispanics moved
                                           Stephanie A. Wall has been named senior vice president of community
into predominately white neighbor-
                                           relations at Wachovia Bank and is based in Philadelphia.
hoods but tended to increase as more
Hispanics entered mostly Hispanic
neighborhoods. Also Hispanics have
strong preferences to live with other      Marilyn Jordan Taylor has been selected as the dean of the University of
Hispanics and are willing to pay a         Pennsylvania’s School of Design. Taylor has most recently been a partner
premium in terms of house price to         in charge of the urban design and planning practice at Skidmore, Owings
do so. Ferreira concluded that this        and Merrill LLP. During a 35-year career with the firm, she led many of
dynamic can result in self-segrega-        the firm’s largest and most complex projects around the world.
tion, as witnessed in some areas.

A Blueprint for American Prosperity                                  ...continued from page 1

Katz argued that this is the year to      The third asset Katz believes we                  •   build an educated and highly
convince the federal government           must leverage is our existing infra-                  skilled workforce that is racially
that a new model for economic de-         structure. It is not good enough to                   and ethnically diverse; and
velopment and growth is needed. He        build new systems and let the exist-              •   accommodate the next 120
noted that not since 1952 has there       ing ones – whether highways, rail                     million Americans in quality
been an election without an incum-        lines, or seaports – deteriorate. The                 communities.
bent president or vice president as       collapse in 2007 of the I-35W bridge
a candidate. This provides a great        in Minneapolis was a stark reminder               He thinks that with this informa-
opportunity to influence change,          that we cannot ignore the stresses                tion we can create a new federalist
particularly how the federal govern-      and strains of everyday use.                      compact to ensure that the federal
ment responds to the needs of states                                                        government: (1) leads where it must
and cities but most of all metro-         Quality of place, Katz’s fourth asset,            by providing national direction on
politan areas. He proposed that a         is something we all want – neigh-                 climate change, infrastructure, and
new partnership with the federal          borhoods that are safe, attractive,               wage stagnation; (2) empowers
government can leverage the assets        and affordable while also accessible              metropolitan areas where it should
needed for competition. Those assets      to parks, jobs, good schools, and a               by, for example, giving metro areas
fall into four categories: innovation,    range of cultural activities.                     the flexibility to tailor economic
human capital, infrastructure, and                                                          development policies to their own
quality of place.                         Katz believes that these four assets              clusters of economic activity; and
                                          can be leveraged best by changing                 (3) maximizes performance by
Innovation and human capital,             how we plan for economic growth.                  committing itself to evidence-based
the first two assets, are intricately     The federal government is an                      performance. Katz believes the
intertwined. Innovation is important      important partner in planning for                 federal government can be this force,
for new job growth, and researchers       large intra-metropolitan needs such               if it re-thinks its role in the current
studying comparative levels of in-        as railways, highways, airports, and              global economy.
novation find that a highly educated      seaports. But Katz believes the feder-
workforce and good research and           al government should only provide                 For more information, please visit www.
development facilities are essential.     incentives for metropolitan areas to    
Regions with a higher proportion of       determine all other needs, then step              html to hear a recording of Bruce Katz’s
college graduates are more likely to      out of the way. He describes this as              speech and see his slide presentation.
have higher levels of innovation.         “flipping the pyramid” on its head,
                                          meaning the federal government
Noting that “you earn what you            would respond to local needs rather
learn,” he suggested that all of us       than direct them.
must be involved in improving the
public education system throughout        To promote this change in thinking,
our metropolitan area, not just for       Brookings has created a leadership
reasons of equity but also for com-       council and is planning a series of
petitiveness. The fact that only 13       meetings between the party conven-
percent of Hispanics and 18 percent       tions and the elections to create a
of black Americans are college            “Blueprint for American Prosperity.”
graduates, compared to 34 percent         Starting with a summit scheduled
of whites and 59 percent of Asian         for June 12, 2008, Brookings will
Americans, is a competitive disad-        look to experienced leaders for their
vantage for all of us. While minorities   ideas. In the next year, Katz will ask
are only 25 percent of our workforce      these leaders how we can:
now, soon they will represent 40          • spur innovation in our firms
percent. If the U.S. workforce is not          and workers and create vast new
as well educated as China’s or India’s,        markets for high-value Ameri-
our economic advantage will suffer.            can products and services;                   Bruce Katz, The Brookings Institution

Mayors: Reinventing Begins with Planning                                                                        ...continued from page 3

downtown, Stamford currently uses                            Cleveland, Ohio;                                          city, public nuisance costs, and lost
tools such as zoning and density bo-                         Christopher Warren,                                       revenues. Warren explained that
nuses to keep big box retailers down-                        Chief of Regional Development                             the lawsuit is based on the belief
town and out of neighborhoods                                Warren was asked to address the                           that the financial institutions “could
and to encourage infill housing and                          impact of subprime lending and                            have, [and] should have foreseen the
mixed-use development.                                       foreclosure on the city of Cleveland.                     massive numbers of foreclosures and
                                                             He reported that 17,000 units were                        cataclysmic impacts that those fore-
Youngstown, Ohio;                                            in foreclosure in the city from 2005                      closures have had on [Cleveland].”
Mayor Jay Williams                                           to 2007 and that researchers at
Youngstown is located between                                Case Western Reserve University                           In response to questions about what
Pittsburgh and Cleveland, approxi-                           had found that 80 percent of these                        would be done with proceeds from
mately 65 miles from each city. This                         foreclosures were traced to subprime                      the lawsuit, Warren answered that
former steel-producing city, with a                          originators. In 2007, the city of Cleve-                  Cleveland has a citywide plan in
population of 170,000 at its peak, was                       land spent $12 million for demolition                     which citizens and community
laid out to accommodate a popula-                            in connection with foreclosed prop-                       groups are key partners and indi-
tion of 250,000. With an estimated                           erties, a fivefold increase over the                      cated that there are plans in place to
population of 83,000 in 2006, the                            cost in 2005. Warren explained that                       deal with land that comes into public
city, Mayor Williams explained, has                          Cleveland’s problems predated sub-                        ownership. The city will continue its
“finally come to terms with itself                           prime lending, but “those problems                        work with Neighborhood Progress
rather than looking in its rearview                          made Cleveland and similar muni-                          Inc. and the George Gund Founda-
mirror.” As a result of a plan known                         cipalities susceptible to subprime                        tion on stabilizing six of the city’s
as Youngstown 2010, the city now                             lending schemes.” He estimated that                       neighborhoods. On a regional level,
accepts that its size will range from                        at least 50 percent of the subprime                       the city is working with the Gund
80,000 to 85,000 residents; it is no lon-                    borrowing in Cleveland was done                           Foundation and nearly 100 other
ger the economic juggernaut in the                           by investors. Their purchases were                        entities in northeastern Ohio on a tax
regional economy; and it needs to                            “financed by hedge fund investment                        sharing plan to capture the benefits
address image and quality of life is-                        vehicles that provided mezzanine                          of growth in the region.
sues through land-use planning and                           financing for hundreds of one- and
economic development. Williams                               two-family houses at a clip.” Those                       Philadelphia, Pennsylvania;
cautioned that similar to a private                          loans and the subprime loans made                         Mayor Michael A. Nutter
enterprise, a city can downsize or                           to the ultimate home purchaser were                       Michael Nutter became mayor in
“right size” physically, but morally                         packaged and sold by Wall Street                          January 2008. As a moderator at the
and legally it must deliver certain                          firms as securitized investments.                         conference, Mayor Nutter decried the
goods and services. Youngstown has                                                                                     “lack of a national discussion among
become known for its effort to right                         In January 2007 the city, “in an effort                   current presidential candidates from
size, and the city is in the contem-                         to hold those parties responsible for                     either party of the role of the federal
plation and trial stages of limited                          the devastation in Cleveland,” filed                      government in cities, education,
decommissioning of roads, utilities,                         suit against 21 financial services                        public safety, and economic devel-
and other infrastructure, turning                            companies3 the city said had pur-                         opment.” The candidates, he said,
vacant and abandoned areas into                              chased investments backed by the                          were not focusing on the concerns of
parks and recreation areas. Finally,                         subprime mortgages. The lawsuit                           cities. Mayor Williams agreed and
Williams explained that the commu-                           claimed that the subprime lend-                           quoted former President John F. Ken-
nity is beginning to accept that “no                         ing practices had created a public                        nedy: “We will neglect our cities at
knight from Columbus or Washing-                             nuisance. The city is seeking dam-                        our peril, for in neglecting them we
ton, D.C., will save the city.”                              ages for the cost of rebuilding the                       neglect the Nation.”

    Stamford is a busy station on the regional Metro North train line and, according to Malloy, is second only to Grand Central Station in Manhattan.

    These companies include banks and bank holding companies, mortgage companies, and investment banks.

How Can Foundations Change Urban Markets?                                                                               ...continued from page 7

worked in neighborhood develop-                             Houstoun said that what’s
ment because of staff and board                             often needed is more col-
turnover and have made “a very                              laboration among different

                                                                                                                                                                      Photo courtesy of McCormack Baron Salazar
serious mistake” by over-reliance                           organizations in a commu-
on a capacity-building strategy. He                         nity and noted that foun-
added that many foundations “are                            dations can require such
insular, have a difficult time collabo-                     collaboration as a condition
rating with each other, and are often                       of funding.
                                                            In a discussion period,
Baron said that foundations “could                          Abbott and Houstoun were
make an enormous difference in                              asked how foundations
changing local communities” by                              keep themselves account-
filling financing gaps such as early-                       able and evaluate their
stage pre-development costs for                             progress. Nowak pointed
                                                                                             A girl plays piano in the music room of a new public
acquisition, environmental tests, and                       out that foundations, unlike
                                                                                             elementary school in Centennial Place, a mixed-income
architectural work. The early-stage                         private-sector firms, “don’t     HOPE VI project in Atlanta developed by McCormack
money is the hardest to find nowa-                          have customers with a set        Baron Salazar.
days, he said.                                              of expectations.” Abbott
                                                            said that the Fund for Our                      has worked with public, charter,
Foundations should invest in proj-                          Economic Future (FEF) retained                  and parochial schools. He added:
ects developed by nonprofit develop-                        several area economists to develop              “Dysfunctional school systems have
ers to enable the nonprofits to learn                       a dashboard of economic indica-                 a negative impact on real estate. In
the development business and how                            tors that measure the progress of               city after city, we struggle with try-
to use the myriad of complex, often-                        the regional economy. The Federal               ing to rebuild a neighborhood and at
changing government programs,                               Reserve Bank of Cleveland collabo-              the same time improve the quality
Baron said. The infrastructure                              rated in the effort. In addition, the           of a school so we can broaden the
of public agency staff trained in                           Gund Foundation retained the                    economic base of a neighborhood,
development has been lost, he said,                         Center for Effective Philanthropy5              give families a reason to come to the
adding: “One of the great deficien-                         to conduct anonymous surveys of                 neighborhood, and change the mar-
cies in the U.S. and Europe is that we                      grantees. Houstoun said that WPF                ket. We won’t build until we know a
have not trained a group of social                          has a strategic plan and that its staff         school is going to be rebuilt and that
entrepreneurs to take on the heavy                          meets every six months to evalu-                it will be a first-class school.”6
tasks of rebuilding neighborhoods.”                         ate progress. Like Gund, WPF also
                                                            receives anonymous grantee feed-                For information, contact: David T.
Nowak added that foundations                                back through the Center for Effective           Abbott at; www.
should provide “smart subsidies,”                           Philanthropy and routinely invests    ; Richard D. Baron
not substitute for money that is                            in external evaluations of its grant-           at;
already available or “obscure inef-                         making strategies by independent      ;
ficiencies.” He and the panelists                           experts.                                        Feather O. Houstoun at fhoustoun@
agreed that foundations incur re-                                                                 ; www.
putational risk if they get involved                        Baron said that school reform is a    ; and
in development projects, a factor that                      “critical ingredient” for revitalizing          Jeremy Nowak at nancy.horton@trfund.
inhibits their participation.                               urban neighborhoods and that he                 com;

    For information, go to

 Nowak said that charter schools represented TRF’s second largest loan portfolio with financing of $120 million provided to schools educating 23,000 youngsters and
added that “conventional philanthropy has been slow to respond” to the need for school-based management improvement reforms.

                                                                                 Left: Dede Myers, Vice President and Community
                                                                                 Affairs Officer, Federal Reserve Bank of Philadelphia;
                                                                                 Eugenie Birch, Lawrence C. Nussdorf Chair of Urban
                                                                                 Research and Education, University of Pennsylvania;
                                                                                 Amy Gutmann, President, University of Pennsylva-
                                                                                 nia; and Richard W. Lang, Executive Vice President,
                                                                                 Federal Reserve Bank of Philadelphia.

                                                                                 Below: Michael A. Nutter, Mayor of Philadelphia,
                                                                                 and Charles P. Pizzi, President and CEO, Tasty Baking
                                                                                 Co., Philadelphia, and Deputy Chairman, Board of
                                                                                 Directors, Federal Reserve Bank of Philadelphia.

Above: Jeremy Nowak, President and CEO, The Reinvestment Fund Inc., Phila-
delphia, and Member, Board of Directors, Federal Reserve Bank of Philadelphia;
Richard W. Lang, Executive Vice President, Federal Reserve Bank of Philadel-
phia; and George Galster, Hilberry Professor of Urban Affairs, Department of
Geography and Urban Planning, Wayne State University, Detroit.

Middle Right: Andrew D. Altman, Deputy Mayor for Planning and Economic
Development and Director of Commerce, City of Philadelphia; Ellen Pope,
Senior Program Officer, Comparative Domestic Policy, The German Marshall
Fund of the United States, Washington, D.C.; and Valentino Castellani, former
Mayor of Turin, Italy, and Professor Emeritus of Electrical Communications,
Turin Polytechnic.

Right: Kausar Hamdani, Vice President of Communications and Regional and
Community Affairs, Federal Reserve Bank of New York; Sandra F. Braunstein,
Director, Division of Consumer and Community Affairs, Federal Reserve Board
of Governors; and Dede Myers, Vice President and Community Affairs Officer,
Federal Reserve Bank of Philadelphia.
     Calendar of Events
 Financial Education Network of Southeastern Pennsylvania –
 Foreclosure Prevention Loans and Assistance
 June 25, 2008, 9 a.m. to 2 p.m., Federal Reserve Bank of Philadelphia
 This meeting focuses on new efforts in the Delaware Valley to assist homeowners facing foreclosure, refi-
 nancing options available from financial institutions and government agencies, and other assistance avail-
 able to community organizations and homeowners. Registration is required.
 For information, contact;

 2008 Governor’s Conference on Housing and Community Development
 September 23-24, 2008, Atlantic City Convention Center
 Conference topics include neighborhood revitalization, property management, green building, housing for
 special populations, financial resources, and innovations in housing planning, development, and preserva-
 For information, contact Mary Miller at (609) 278-7403 or;

 2008 Homes Within Reach Conference
 November 18-19, 2008, Harrisburg Hilton
 The Housing Alliance of Pennsylvania presents its fourth annual conference, featuring 30 workshops, eight
 three-hour institutes, and eight three-hour symposiums covering a wide range of housing and community
 development issues.
 For information, contact or visit

 Innovative Financial Services for the Underserved: Opportunities and Outcomes
 April 16-17, 2009; Renaissance Washington DC Hotel
 The Community Affairs officers of the Federal Reserve System are jointly sponsoring their sixth biennial
 research conference to encourage objective research on financial services issues affecting low- and moder-
 ate-income individuals, families, and communities. The officers are accepting proposals for papers to be
 presented at the conference.
 The call for papers is posted at

      CASCADE                                                                                PRESORTED STANDARD
      Federal Reserve Bank of Philadelphia
      100 N. 6th Street                                                                        U.S. POSTAGE PAID
      Philadelphia, PA 19106-1574                                                               Philadelphia, PA
                                                                                                PERMIT No. 529



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