Creating Jobs in the Recession

Thank you Senator Brown and members of the Subcommittee for the opportunity to testify before you this afternoon. I am Bruce Katz, vice president and director of the Metropolitan Policy Program at the Brookings Institution. I will also focus on highlights from my written testimony.

I will make three main points today that build on President Obama’s speech yesterday at Brookings and try to connect Macro Economy Policy to Metro Economic Realities.

First, the American economy, like most developed economies worldwide, is a network of metropolitan economies, which envelop not just cities and suburbs but a good portion of our rural areas. The 366 metro areas in the U.S. house 83 percent of our population and generate 88 percent of our GDP. Incredibly, 50 percent of our rural population lives in these metropolitan areas, due to the decentralization of people and jobs.

We are a Metro Nation, and we need to start acting like one with the kinds of smart policies and targeted investments that will enhance our competitiveness globally.

Second, the Great Recession has affected different metro economies in radically different ways. Metros like Austin, San Antonio, and Washington, D.C. have fared fairly well during this downturn, buoyed by strong health and education sectors and government. By contrast, bubble real estate economies such as Phoenix, Tampa, and Jacksonville have continued to lose jobs at two to three times the rate of the U.S. as a whole over the last quarter. “Motor metros” such as Youngstown and Akron have shed jobs two and three times faster than the United States, respectively, over the last quarter.

Bottom line: There is no single American economy. Even as economists talk about national recovery, a large number of our metropolitan economies are still mired in recession.

Third, federal efforts to bolster job creation need to connect “The Macro to the Metro.” Our research shows that metros need two kinds of federal responses.

Stop the Job Losses

First, metros need the federal government to intervene quickly to prevent further job losses from the collapse of general and specific tax revenues. One critical strategy for job retention is direct fiscal assistance to local governments, which employ 10 percent of the nation’s workforce.

There is always a fiscal lag to recessions. The massive decline in property values has not yet shown up in local government budgets, which derive about 70 to 75 percent of their revenue from property taxes. By one calculus, property tax revenues (for both local governments and school districts) could decline in the coming year by $35 billion. If the decline in state transfers to localities is as large as the decline in state revenue, local governments could lose another $74 billion.

In FY 2009, 67 percent of cities dealt with budget shortfalls through layoffs, furloughs, and hiring freezes. This will only get worse as revenues decline.

Fiscal aid to cities would keep municipal payrolls stable and also stall cuts in local spending on construction, procurement, and other areas that directly affect private sector firms.

The simplest form of local fiscal assistance is probably direct aid, in a new program modeled on the old general revenue sharing program. A second option would be to restructure the State Fiscal Stabilization Fund started in the Recovery Act to provide direct fiscal assistance to local governments through a pass-through.

In my written testimony, I also address a second strategy for stopping job losses, by enabling federal resources to be used for transit operating subsidies.

I also recommend in my testimony implementing immediate job creation strategies through CDBG [Community Development Block Grants] to address the hyper-unemployment levels among some categories of metropolitan workers, particularly young workers with low education and skills

Build the Next Economy

Metros also need the federal government’s support in creating jobs that build the economy of the future—one that is low carbon, innovation fueled and export oriented.

Investment in the next generation of infrastructure is critical here. I recommend that Congress expand funding for the U.S. DOT’s Transportation Investment Generating Economic Recovery (TIGER) Discretionary Grants, originally funded at $1.5 billion in the Recovery Act. TIGER uses job creation as a metric for evaluating applications. TIGER-funded infrastructure has a powerful ability to create well-paying jobs now and a stronger economy in the future.

TIGER disbursements are not expected until February 2010 but the program is attracting substantial demand. The nearly 1,400 applications received so far total $57 billion and come from every state. If even one-third of these applications are projects that adhere closely to the objectives of the program, that represents $20 billion in high-quality projects that are ready to start, but lack funding.

I believe that funding the qualified TIGER pipeline should be considered as part of any job creation effort. Congress should also consider making TIGER a permanent part of the DOT budget.

My written testimony also recommends federal support for a National Infrastructure Bank and industry clusters.

Conclusion

In conclusion, the time is long past due for national economic policy to align more closely with metropolitan economic realities, given the economic primacy of our metropolitan areas.

This necessary alignment will require congressional action to deal directly and forcibly with the coming fiscal storm in our nation’s metros. This metro focus also requires deliberate and purposeful action to build the economy and the future, which will happen in America’s metros.

I thank you again for the opportunity to testify here today and welcome any questions.