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March 29, 2019 12:02PM

Sanctuary Jurisdictions in Florida Do Not Have Higher Crime Rates

Florida state Senator Joe Gruters (R-Sarasota) introduced a bill (SB 168) earlier this year to ban so-called sanctuary jurisdictions in Florida and require local governments to cooperate fully with Immigration and Customs Enforcement (ICE).  A sanctuary jurisdiction is any state or local government that has a policy to comply with fewer than 100 percent of ICE detainers, which are ICE requests for the local government to release an arrested or imprisoned person into ICE custody for deportation.  Local and state governments still prosecute illegal immigrants for crimes in sanctuary jurisdictions, but they only turn some illegal immigrants over to ICE and uniformly if they are charged with or convicted of serious crimes. 

The complaint over sanctuary jurisdictions is that they result in increased crime, but the limited research on the topic finds no increase in crime in sanctuary jurisdictions relative to non-sanctuary jurisdictions.  Regardless, the methods employed in that paper, the potential for sample selection bias, and the poor quality of national crime data have impeded research into how sanctuary jurisdictions impact crime. 

Regardless, we decided to do our best in looking at how sanctuary jurisdiction policies affect crime in Florida.  According to the Center for Immigration Studies, Clay and Alachua counties in Florida will not honor ICE detainers without a judicial order or a criminal warrant and their policies were enacted in December 2014 and September 2015, respectively. 

To compare whether the adoption of anti-detainer sanctuary policies had an impact on crime in Alachua and Clay Counties, we draw on crime data from the FBI’s Uniform Crime Reports (UCR) Return A file.  The Return A is the gold standard in crime data in the economics and criminal justice literature.  Since these data are provided at the reporting agency level, we aggregate the crime counts up to the county-year level to reflect the extent of geographic coverage for each anti-detainer policy.  As a basis for comparison, we identify counties neighboring Alachua and Clay as counterfactual counties using the county adjacency file from the National Bureau for Economic Research.  We then compute county crime rates per 100,000 to compare crime rates across counties.  For illustrative purposes, we compute an “adjacent counties” counterfactual crime rate as the sum of all crimes in surrounding counties normalized by their combined population.

Figure 1 shows that the crime rates in Clay and Alachua counties have fallen just like in their neighboring counties, except for Baker County, from 2010 through 2017.  If sanctuary policies in Clay and Alachua counties affected crime rates, there is no obvious indication of that in Figure 1.

Figure 1

Change in Crime Rates in Sanctuary Counties and Neighboring Counties

 

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Sources: FBI, Census Bureau TIGER/Line, and Center for Immigration Studies.

Figure 2 displays the crime rates in Alachua County relative to its neighboring counties before after the sanctuary policy was enacted.  The crime rates were roughly parallel before the enactment of the sanctuary policy and stayed parallel afterward, meaning that the change in policy likely had no effect on crime rates.  The results look nearly identical if trends in property or violent crime rates are compared separately.

Figure 2

Alachua and Neighboring Counties Crime Rates

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Sources: FBI and Center for Immigration Studies.

Figure 3 displays the crime rates in Clay County relative to neighboring counties.  The crime rates were roughly parallel before Clay County enacted its sanctuary policy and remained roughly parallel afterward.  Again, it looks as if the enactment of a sanctuary policy in Clay County had no effect on crime.  More time after the enactment of the sanctuary policies and more rigorous statistical methods are required to fully analyze these effects for both Clay and Alachua Counties, but Figures 2 and 3 are convincing on their own.  The results look nearly identical if trends in property or violent crime rates are compared separately.

Figure 3

Clay and Neighboring Counties Crime Rates

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Sources: FBI and Center for Immigration Studies.

 

The small numbers of non-citizens in Alachua and Clay counties could explain why there was no effect on crime.  In 2017, only 5.2 percent of Alachua County’s population were non-citizens and 2.5 percent of Clay County’s population were non-citizens.  In different jurisdictions like Miami-Dade County, where 23.3 percent of the population were non-citizens in 2017, the effect of sanctuary city policies might be different although there is no evidence of that during the brief period when it had a sanctuary policy.

SB 168 was originally paired with a bill that would have mandated E-Verify on the state level.  E-Verify is a government electronic eligibility for employment verification system where employers run the identity information of new hires against government databases to see if they are legally able to work.  The goal of E-Verify is to exclude illegal immigrants from the workforce.  E-Verify doesn’t work well, but it looks to have increased crime in Arizona when that state government mandated it for all new hire.  Although SB 168 will have no effect on crime in Florida, at least the legislature ditched its effort to mandate E-Verify as that may well have increased crime.  

Florida currently has only two sanctuary jurisdictions according to the Center for Immigration Studies and is unlikely to have many more in coming years.  Furthermore, crime rates in those counties did not rise relative to neighboring counties after they adopted their sanctuary policies.  The effect of sanctuary policies on local crime rates is a subject screaming for more research, but the evidence so far shows that sanctuary policies don’t affect crime in Florida.  

March 28, 2019 12:44PM

Snatching Defeat from the Jaws of Victory

Sadly,

All the elements for swiftly legalizing marijuana in New Jersey seemed to be in place: A proposed bill was enthusiastically backed by Gov. Philip D. Murphy and had been endorsed by leaders of the Democratic-controlled State Legislature. Also, statewide polls showed support for the issue.

Then the plans unraveled.

Why?

Some lawmakers were unsure about how to tax marijuana sales. Others feared legalization would flood the state’s congested streets and highways with impaired drivers. Some would not be deterred from believing that marijuana was a dangerous menace to public health.

A disagreement existed among lawmakers about ... whether it was necessary to expunge criminal records for marijuana-related offenses for those found with as much as five pounds of the drug.

[And,]

For states like California and Massachusetts, legalizing marijuana has led to some negative results: underwhelming tax revenue; a host of public health and safety concerns, such as keeping the drug out of teenagers’ hands; and a burgeoning industry dominated by white corporate interests even as advocates in Hispanic and black communities say their neighborhoods have been most negatively affected by the drug.

Comments:

1. The claim that NJ could not figure out how to tax marijuana makes no sense. NJ taxes thousands of products, and ten states plus DC already tax MJ sales.

2. The concerns about impaired drivers, public health, and teens are no doubt real, but grossly overstated and based on misleading anecdotes or faulty statistics; the evidence from existing state legalizations finds little evidence of adverse effects.

3. Expungement of past marijuana offenses should be a separate issue from whether to legalize going forward.

4. Antipathy to "corporate" provision of legalized marijuana is mainly protectionism for existing marijuana sellers, whether underground or medical.  Legalization will likely drive out small, high cost suppliers; that is how capitalism works.

5. The failure of revenues to match expectations, in the more recent legalizations, was completely predictable. On the one hand, many revenue forecasts have been wildly optimistic.  On the other hand, the early legalizers collected substantial revenues because of limited competition from other states; as more states have legalized, the remaining demand is inevitably smaller.

Bottom line: New Jersey should just legalize.

March 28, 2019 9:38AM

Elizabeth Warren’s Economic Nationalism

Economic nationalism and pandering to farmers are two classic parts of presidential campaigning. In this post by Senator Elizabeth Warren, she does both at the same time:

Advancing the Interests of American Farmers

Washington has also bowed to powerful foreign interests instead of standing up for American farmers. Congress repealed mandatory country-of-origin labeling for beef and pork in 2015 after a series of World Trade Organization challenges from Canada and Mexico, and it hasn’t established a new rule to protect American farmers. The result is that beef and pork can be given a US origin label if it is processed in the United States — even if the animals are not born and raised here. This misleads consumers looking for American-grown meat and undermines American beef and pork producers.

That’s why I will push hard for new country-of-origin rules for beef and pork — and use the trade tools available to me as President to push Canada and Mexico to accept them. These new rules will not only be good for consumers because they promote transparency, but good for independent American farmers, who are otherwise undercut by global agribusinesses passing off foreign beef and pork as American.

We also must stop foreign governments and companies from buying up American farmland. Foreign companies and countries like China and Saudi Arabia already own 25 million acres of American farmland. That’s about the size of Virginia. And one in four American hogs has a Chinese owner. That jeopardizes our food security, which threatens our national security too.

Iowa has the right idea. It passed a law prohibiting foreign individuals or entities from purchasing farmland for the purpose of farming. I support a national version of that law, and as President, will use all available tools to restrict foreign ownership of American agriculture companies and farmland. And I’m committed to stronger beneficial ownership laws so that foreign purchasers can’t set up fake American buyers to get around these restrictions.

Her argument about country of origin labelling and the World Trade Organization channels Donald Trump ("Washington has ... bowed to powerful foreign interests"), but misunderstands the nature of the legislation/regulation at issue. Country of origin labelling requirements are not per se prohibited under WTO rules, but the rules do say that you can't use them as a disguised means of protectionism, as was the case with the U.S. legislation/regulation at issue. My colleague Inu Manak wrote about the COOL legislation/regulation here, and she and I did a case study of the issue for this book. We explained that the trade problem was not the labelling requirement itself, but rather the structure of the particular legislation/regulation at issue, which created an incentive for meat processors to use domestic rather than foreign beef and pork. We also found a good deal of evidence in the legislative history indicating that protectionism, rather than consumer information, was the real purpose.

As for Warren's reference to "countries like China and Saudi Arabia" buying up 25 millions acres of American farmland, that is a very creative use of the actual data. If you follow her links, you get to this explanation by the USDA:

Canadian investors own the largest amount of reported foreign held agricultural and non-agricultural land, with 28 percent, or 7,250,834 acres (report 1B). Foreign persons from an additional four countries, the Netherlands with 19 percent, Germany with 7 percent, the United Kingdom with 6 percent, and Portugal with 5 percent collectively hold 9,511,437 acres or 36 percent of the foreign held acres in the United States. The remaining 9,577,982 acres, or 36 percent of all reported foreign held agricultural and non-agricultural land, is held by various other countries.

But wait, where is Saudi Arabia in all of this? Her inclusion of a reference to that country seems designed to get people thinking about terrorism or human rights abuses, but here's what is actually going on and it's not all that scary: "Saudi Arabia and the UAE alone have acquired more than 15,000 acres in Arizona and Southern California to grow fodder for dairy cattle." 

Warren's attempt to appeal to economic nationalism is not surprising. But given recent polling showing that Democrats are more supportive of free trade these days, it might be smart if other Democrats took a different approach.

March 28, 2019 9:21AM

The Zero Lower Bound Is No Reason to Punish Currency Users

John Maynard Keynes once marveled at “how, starting with a mistake, a remorseless logician can end up in Bedlam.” (Bedlam was the nickname of a London madhouse.) Keynesian or New Keynesian macroeconomists who start with the mistaken premise that a central bank cannot fight recession except by lowering nominal interest rates have been remorseless logicians in Keynes’s sense. In the hope of further empowering central banks to fight recessions, presumably for the benefit of the public, they have ended up like mad social scientists with schemes that would deliberately punish the public for holding currency.

From the premise that nominal interest rates must be cut, together with the fact that nominal interest rates are currently low by historical fiat-currency standards, one readily finds that the “Zero Lower Bound” on nominal interest rates is a looming obstacle to anti-recession policy. At the ZLB the central bank supposedly “runs out of ammunition.” Economist Lawrence H. Summers, thinking of the US Federal Reserve’s policy-making under the nominal Fed Funds Rate targeting approach that it used in previous recessions, has warned that “typically interest rates come down 500 basis points to contain recessions” but “there isn’t going to be 500 basis points of room any time in the foreseeable future.” Thus central bankers “don’t really have the fuel in the tank to respond” to a new recession.

The new inflationist proposal

Some of the economists who are convinced that the central bank needs the ability to cut rates deeply propose to restore sufficient “room” above the ZLB by pushing short-term nominal interest rates back above 5%, where the nominal Fed Funds Rate could be found between 1968 and 1991. Why was the nominal Fed Funds rate almost continuously above 5% during those years, but not before or after? Because expected inflation was higher during those years. Thus Olivier Blanchard, Giovanni Dell’Ariccia, and Paolo Mauro (2010), and other authors whom I have called “The New Inflationists,” logically enough – discovering a new benefit of higher inflation while downplaying its costs – have suggested however tentatively that central banks should raise their inflation-rate targets. Blanchard et al. wrote:

The inflation tax is clearly distortionary, but so are the other, alternative, taxes. Many of the distortions from inflation come from a tax system that is not inflation neutral, for example, from nominal tax brackets or from the deductibility of nominal interest payments. These could be corrected, allowing for a higher optimal inflation rate.

The “optimality” of a higher inflation rate is clearly not a Pareto-optimality in which ordinary currency-holders are no worse off. When currency pays zero interest, a higher inflation rate clearly makes ordinary members of the public worse off by reducing their net benefits from holding currency.

Making cash more costly to store

Other New Keynesians do not want to raise the central bank’s inflation-rate target, but instead want to provide more room for nominal rate-cutting by pushing the Lower Bound on the nominal interest rate below zero. They note that the current ZLB exists because deposit-holders and bond-holders can reject yields much below zero (farther below than the percentage cost of storing currency) by switching wealth into currency hoards that pay a zero nominal yield. By doing so they can keep deposit and bond yields above zero. The freedom to flee into currency having thus been identified as an obstacle to negative interest rates, Kenneth Rogoff and other currency prohibitionists have seriously put forth schemes to eliminate the use of paper currency, or at least to make its storage more costly by making the currency notes worth any large nominal sum more bulky. They propose to abolish large (and then medium-sized) notes to make cash storage more costly (think of storing $10 bills instead of $100 bills) and thereby enable deeper negative nominal interest rates in recession before cash storage is triggered.

Alternatively, Rogoff could have proposed to print $100 on cardboard 10 times as thick as a present-day $100 bill. When I offered this idea to him during a debate we had in December, he dryly remarked that he’d heard it before.

Measures to raise the cost of storing currency potentially damage the welfare of ordinary currency users no less than a raising the price of holding currency through higher inflation.

Paying a negative nominal return on currency

Two IMF staff economists, Katrin Assenmacher and Signe Krogstrup, have recently revived a third proposed way to combat the ZLB, this time without raising inflation and without abolishing currency. Namely: Make currency unattractive to hold relative to bank deposits by imposing a negative nominal return on currency. Under the system they consider, currency notes and coins would be progressively devalued against the unit of account. To penalize the holding of a $100 bill by 3.65% per year, for example, the bill would be scheduled to decline in value by one cent per day until it reached only $96.35 in redemption value one year hence. I borrow this example from historical Confederate States $100 bonds that were designed to gain one cent per day, thus 3.65% per annum, to make their present values relatively easy to compute. To make a currency note’s redemption value today discoverable at other rates of decline, modern notes might come equipped with magnetic read-only stripes or bar codes, as once suggested by Marvin Goodfriend (2000). Redemption in terms of what? In terms of a unit of bank reserve deposits on the books of the central bank. Commercial banks would only give $97 of deposit credit for a note on a particular day when that is all the central bank would give them.

Assenmacher and Krogstrup’s proposal is neither novel nor derived from historical examples. They correctly trace its lineage to Silvio Gesell, who was admired by Keynes but generally considered a crank by other economists, and his 1916 scheme of punishing currency holders by imposing a “demurrage fee.” Under Gesell’s scheme, “money would need to be stamped at regular intervals to remain valid and that these stamps would have to be purchased.” Among modern economists they cite earlier proposals by Goodfriend (2000), by Willem H. Buiter (2009)—who discusses all three devices for punishing currency-holders—and by Ruchir Agarwal and Miles Kimball (2015). The device of paying a negative return on currency is potentially just as harmful to currency-holders’ welfare as the previous two devices.

Indirectly, proposals to pay a negative nominal return on currency also build on the earlier monetary economics literature that discussed how to pay a positive real return on currency with the goal of achieving an “optimum quantity of money” in the sense of Milton Friedman’s much-discussed concept. Proposals to pay a negative nominal return (and given a 2% inflation target, a negative real) return on money may accordingly be considered policies for achieving an inefficiently small a stock of real money balances.

Still more distantly, paying a negative nominal return on currency in circulation by changing its unit-of-account value recalls the medieval mint practices of “crying up” and “crying down” debased silver coins, that is, increasing or reducing their official unit-of-account value without reminting them to add or subtract silver. The aim of the medieval mints was to enhance the prince’s seigniorage revenue, rather than macroeconomic policy. But their method, although discontinuous, was similar.

The mistaken starting point

The mistake that all these proposals start from is the premise that monetary policy can’t be expansionary unless it lowers nominal interest rates. But a lower nominal interest rate is at most something temporarily achieved by a surprisingly expansionary monetary policy, thus at most a short-run indicator of the stance of policy. It is a poor and misleading indicator at that, for reasons that Scott Sumner has spelled out. A lower nominal interest rate is neither necessary nor sufficient for a more expansionary monetary policy that would help raise an economy out of recession.

We can judge whether a monetary policy is stabilizing only by gauging its effect on moving the economy toward a stable goal. A monetary policy helps to stabilize, in one well-established and coherent view, if it helps to move the economy toward a smooth target path for the level of nominal GDP. Monetary policy-makers should thus worry about the level of NGDP, not about the nominal interest rate. From the equation of exchange, MV=Py, we know that NGDP (or Py) equals total spending on final goods (MV). The central bank can increase MV by expanding the money stock in the hands of the public M (and taking no offsetting action to reduce the turnover or velocity of money, V).

As Leland Yeager taught, the problem of unsold goods and unemployed labor in a recession has its counterpart in an unsatisfied excess demand to hold money. The problem can be relieved slowly and painfully by waiting for prices and wages to fall and thereby raise the level of real balances, or more promptly by a timely and well-measured expansion of money in the hands of the public. If the problem of too-low MV has come about through a sudden drop in M, the obvious solution is to restore M. If the problem has come about from a fall in velocity V, the central bank can offset it by increasing M to restore NGDP. To expand money held by the public, a drop in the nominal interest rate is neither necessary nor sufficient. A Fed purchase of non-financial assets could do the trick without lowering interest rates.

Negative interest rates on deposits and currency can be seen as a way to try to raise V by penalizing money-holding. But the actual effectiveness of deeply negative interest rates at raising V is empirically unclear, the experiment not having been run. One obvious concern is that a tax on holding money of all kinds may not prompt the public to spend more on final goods, but rather prompt them to attempt to preserve their wealth by shifting it out of negative-yielding deposit and currency balances and into nonfinancial assets like gold and other commodities. In the process, the banking system will shrink in real terms, which will constrain rather than stimulate real investment. If the aim is to restore NGDP to its reference path, the central bank should focus on known and reliable ways to raise NGDP.

[Cross-posted from Alt-M.org]

March 27, 2019 3:14PM

FAIR’s Confused Criticism of Our Immigration Crime Research

Spencer Raley at the Federation for American Immigration Reform (FAIR) recently wrote a criticism of a recent Cato brief that estimates illegal immigrant incarceration rates in the United States.  Much of Raley’s critique is perplexing as following his methodology advice would not only lead to an erroneous result but it would reduce illegal immigrant incarceration rates – which is the opposite result that he and his organization desire.  Raley’s points are quoted below, my responses follow.

The authors rely on faulty, voluntary data from the Census Bureau’s American Community Survey (ACS).  Even mainstream organizations like Pew Research acknowledge that many illegal aliens are slow to volunteer information about themselves to the federal government.  That’s why reputable research organizations assume a certain undercount when relying on ACS data.  Hesitation to self-report personal information is only increased when surveys include questions about criminal history. So, from the start, the primary source used in this study will yield an undercount of incarcerated illegal aliens because it relies on self-reported data.

The responses of prisoners are recorded by Census officials who interview a sample under the supervision of prison officials who also supply information like immigration status and country of birth.  Although it’s easy for people outside of prison to avoid a Census official, it’s quite difficult for a prisoner to do so if he or she has been selected for an interview by the ACS.  Since the ACS doesn’t ask about the respondent’s criminal histories, Raley’s criticism here is perplexing.  If anything, using the ACS would yield an undercount of the illegal immigrant population – which would increase the illegal immigrant incarceration rate in our brief. 

They also misstate illegal alien crime data from Texas. The authors sliced and diced data from Texas’ Department of Public Safety, claiming that the original data offered by the state was far too high, and that illegal aliens in Texas are half as likely to be incarcerated as U.S. citizens. The real numbers, however, tell a different story. Based on data compiled between June 2011 and February 2019, 25,000 illegal aliens are booked into Texas state and local jails annually, on average.

Raley makes several errors in summarizing my Texas crime research.  First, I didn’t “slice and dice” any data from Texas.  I took the numbers released by the Texas Department of Public Safety, divided them by the relevant subpopulation of Texas in 2015, and then multiplied the result by 100,000 to get a criminal conviction rate.  Second, I didn’t compare illegal immigrants to U.S. citizens.  I compared illegal immigrants to native-born Americans and legal immigrants separately.  Third, my Texas study did not analyze incarceration rates.  My Texas study looked at criminal conviction rates.  Incarceration rates and criminal conviction rates are different. 

Raley’s other criticisms are answered by reading the methodology section of our brief.  This is the most relevant section here which explains why we looked at the 18-54 population:

Another limitation of the ACS data is that not all inmates in group quarters are in correctional facilities. Although most inmates in the public-use microdata version of the ACS are in correctional facilities, the data also include those in mental health and elderly care institutions, as well as those in institutions for people with disabilities. These inclusions add ambiguity to our findings about the illegal immigrant population but not about the immigrant population as a whole, because the ACS releases macrodemographic snapshots of inmates in correctional facilities, which allows us to check our work.

The ambiguity in illegal immigrant incarceration rates mentioned above prompted us to narrow the age range to those who are ages 18-54. This age range excludes most inmates in mental health and retirement facilities. Few prisoners are under age 18, many in mental health facilities are juveniles, and many of those over age 54 are in elderly care institutions. Additionally, few illegal immigrants are elderly, whereas those in elderly care institutions are typically over age 54. As a result, narrowing the age range does not exclude many individuals from our analysis. We are more confident that our methods do not cut out many prisoners because winnowing the 18-54 age range reduces their numbers to about 4.5 percent above that of the ACS snapshot. Natives in our results include both those born in the United States and those born abroad to American parents.

 

March 27, 2019 12:23PM

A.I. Needed to Decipher Tax Code

The 2017 Tax Cuts and Jobs Act included numerous pro-growth provisions, but it did little to simplify the tax code. Business taxation is particularly complex, partly because of the many tax credits that politicians have embedded to incentivize favored activities.

The research and development (R&D) tax credit is a good example. You may think that it is straightforward for businesses to add up the total they spend on R&D and multiple by a factor to find their credit amount. But the credit is so complicated that the largest and most sophisticated corporations hire specialists at the major accounting firms to calculate their claims. This guide to R&D tax credits is more than 700 pages long.

I received the following advertisement in my inbox today from a public relations company. Apparently, corporations contract with KPMG to calculate their R&D tax credits, then KPMG subcontracts with artificial intelligence experts at IBM Watson to help them out.

I wanted to get in touch today to share a recent success story from KPMG Research Credit Services. This particular division of KPMG works with IBM Watson to infuse the specialized knowledge of KPMG tax professionals with artificial intelligence capabilities with IBM’s artificial intelligence technology. This approach automates much of the qualitative analysis required to support an R&D tax credit claim by reviewing a variety of structured and unstructured data (i.e., R&D documentation) and then comparing the documents to relevant tax rules. The end result is more thorough and higher-quality documentation for a company’s IRS filings. And it saves time on research so that a company’s R&D professionals minimize their time on tax compliance activities.

KPMG’s tax professionals are feeding Watson with information so that it can learn to correctly and consistently pinpoint the right data that can help them assess a company’s qualifying R&D – often saving them cash along the way. Using intelligent automation in this way is a dramatically new approach to problem-solving for tax departments, which in the past have had to muscle their way through such challenges by adding staff. It’s also just one example of the way KPMG is taking advantage of intelligent automation, both internally to improve our own processes and externally to help their clients sharpen theirs.

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March 27, 2019 8:31AM

Could HUD Help Fix Zoning By Withholding Community Development Block Grant (CDBG) Funds?

Secretary Carson’s Department of Housing and Urban Development (HUD) is in the process of revising Affirmatively Furthering Fair Housing (AFFH), an Obama-era regulation. The idea is to reform the regulation to simplify and streamline it, and encourage local beneficiaries to liberalize zoning regulations in order to qualify for funding. Peter Van Doren and I outline one way of doing this in a public comment, here.

Under the reform scenario, CDBG funding would act as a federal carrot to induce communities to rethink counterproductive local zoning policies that reduce housing affordability. CDBG funds are supposed to improve housing affordability, but they can’t do that when local government policies actively and effectively undermine affordability goals.

In order for AFFH reform to work, CDBG must be a politically popular program with local politicians and policymakers. By all accounts, it is highly popular with politicians and policymakers (for evidence, witness the political reaction to the White House’s proposal to cut CDBG funding the last three years). If politicians and policymakers value CDBG funding as much as they say they do, withholding CDBG or other HUD funding in the absence of local reform may act as a powerful incentive for change.

However, the idea has been challenged in some places, including this Brookings article from last year. The article suggests that 1) many of the HUD jurisdictions that recieve funding are counties, rather than cities, and counties don’t have control over zoning and 2) the most exclusionary jurisdictions don’t receive much CDBG money, so the reform might have minimal impact.

These arguments warrant a second look. First, it is accurate that HUD awards some CDBG money to counties (and states, too). However, this probably constitutes an advantage, rather than a disadvantage under the reform. Indeed, effectively liberalizing zoning regulations likely benefits from aligning pro-growth city incentives with higher levels of government, including county and state governments.

If county or state funding is contingent on liberalizing zoning, it seems only natural that counties and states would pass those incentives down to municipalities where projects are built. After all, as the Brookings article mentions, “counties and states have considerable discretion over how to divide CBDG funds among smaller communities.” Furthermore, counties have county zoning ordinances they can and should liberalize, and the reform should give them an incentive to do so.

The second criticism of the reform is that the most exclusionary jurisdictions would not be impacted by it. However, this finding hinges on the author’s definition of exclusionary places as those with a low proportion of multifamily housing and high rents. This biases the definition towards expensive suburbs (which, no doubt, can be exclusionary but don't have a monopoly on exclusivity).

Though the paper suggests urban areas like San Francisco, Los Angeles, and San Jose are “less exclusive” relatively, these locales are extremely exclusive compared to the rest of the country. For example, low income workers and minorities have been fleeing San Francisco’s high rents  for years, as I point out here and here. The median rent in the city of San Francisco is $4,324, or 3x as expensive as the national median, while San Jose and Los Angeles median rents aren’t far behind at $3,460 and $2,955.

And although San Francisco, San Jose, and Los Angeles have more multi-family housing than many suburbs, it isn’t obvious how that helps if the multifamily housing they contain isn't affordable. As Kevin Erdmann writes in his new book Shut Out, San Francisco, San Jose, and Los Angeles are “closed access” cities that “have become enclaves of privilege for high earning workers where … service workers who would have followed high earning workers into the cities so that they could also capture some of the gains of new economic growth are locked out of that opportunity for lack of homes.”

Setting these criticisms of the reform aside, are there reasons to think AFFH reform may work? Well, similar to other housing subsidies, CDBG per capita funding is correlated with zoning restrictiveness at the state level. That is certainly counterproductive from a policy standpoint, but it does suggest that the places with the greatest zoning problems would have the greatest incentive to relax their zoning under AFFH reform.

Graph 1: CDBG Spending by Zoning Restrictiveness (2015)

 

graph 1 cdbg zoning

 

 

Of course, this doesn't mean that just any reform to AFFH would have its intended effect, and without more information about the particulars it's hard to guess at the outcome. Moreover, states and local municipalities would be smart to tackle zoning themselves, rather than wait for a federal agency to bribe them to. Finally, arguably many of the concerns that apply to AFFH would apply to AFFH reform (namely, it isn't obvious that the Fair Housing Act, which AFFH is based on, supports either version of the regulation).

 

Still, concerns that AFFH reform wouldn't work because HUD spends CDBG money on counties, or because HUD spends CDBG money on supposedly less-exclusionary locations, seem exaggerated.