Bridges - Winter 2008

8/9/2019 Bridges - Winter 2008

1/12

PUBLISHED QUARTERLY

BY THE COMMUNITY

development

DEPARTMENT OF

THE FEDERAL RESERVE

BANK OF ST. LOUIS

L i n k i n g L e n d e r s A n d C o m m u n i t i e s Winter 2008-2009

Bridges w w w . s t l o u i s f e d . o r g

By Amy Simpkins andRoby Brock

The economic situationover the last ew monthshas been tumultuous.

Fannie Mae and Freddie Macentered government conserva-torship. The potential ailureso Bear Stearns and insurancegiant AIG required large-scale

intervention to minimizemarket disruption. And theFed introduced aggressive newliquidity measures to addressthe seemingly daily changes ineconomic markets.

This national and global eco-nomic crisis hit close to homeor proessionals working in

community economic develop-ment. The entire eld has beenaected by tightening creditand capital markets. Individu-als, neighborhoods and cities

alike continue to ace dicultchallenges to nding nancing

or community economic devel-opment initiatives.

In September, communitydevelopment organizations,nancial institutions, privatedevelopers and representativesrom state and local govern-ments gathered in Conway, Ark.,to discuss the implications.

National Impact

The meeting, co-sponsoredby the Federal Reserve Banko St. Louis and the Universityo Central Arkansas Commu-nity Development Institute,assessed the rapidly developingsituation by ocusing on the

direct impact such changeswere having on communityeconomic development.

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William Emmons gives an overview of the credit crisis during a meeting in Conway, Ark.Emmons is an economist at the Federal Reserve Bank of St. Louis.continued on Page 2

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Federal Reserve Bank econo-mist William Emmons kickedo the event with an overviewo the credit crisis, its originsand implications or the uture.Emmons said the crisis stemsrom over-leveraging, resultingin increased risk. As he seesit, the challenge acing the Fedand other decision-makers is tonot only ensure that the bank-ing system remains viable, but

to recognize that every institu-tion may not survive.

Though realistic about thewidespread repercussions o thecrisis, Emmons was nonethelessoptimistic that a rebound couldbe realized more quickly, giventhe level o attention rom bothpolicymakers and the public.

By bringing this situation tothe oreront o the dialogue, wecan hopeully come to a quickersolution or stability, he said.Ultimately, condence in the sys-tem and trust in banks is neededto resolve the crisis, he said.

Conversations throughoutthe day looked at the breadth

o implications that the crisishas or individual homeowners,community development orga-nizations, municipal and statenances, and private developers.

Community developmentorganizations are ghting tomake sure the progress madein neighborhood revitaliza-

tion and homeownership isnot lost as a result o dramaticincreases in oreclosures.

Don Phoenix o Neighbor-Works America said nonprot

organizations that are key toneighborhood stabilization arebeing orced to look at alterna-tive business models, such asee-based systems and lease-purchase products, to survivein an era o declining subsidiesand deal volume. Nonprotscan be an integral part o thesolution, Phoenix said, but theymust be responsive to the reali-ties o the changing market.

Cities and counties ace chal-lenges in both the short andlong term. The most immedi-

ate implication is in the bondand tax credit markets wherethere are ew buyers, resultingin a pent-up supply with verylittle demand. In the long run,municipalities and states bothexpect revenue and tax receiptsto drop. In addition, help romthe ederal government likely

will decrease.

The Response

In the midst o these chal-lenges to traditional develop-ment nancing mechanisms,states have been respondingto the crisis through eorts tocombat oreclosures.

Across the country, states arehelping consumers avoid oreclo-sure and stay in their homes bypassing oreclosure interventionregulations or laws, preventingrescue scams, unding renanceprograms, creating loan-modi-cation programs, initiating state-wide counseling campaigns, and

supporting oreclosure hotlines.(To read more about stateresponses to oreclosure, visitthe Pew Center on the States atwww.pewcenteronthestates.org.)

Whats Happening in Arkansas

Local Arkansans working inthe eld added a note o opti-mism to the meeting, sayingthat, while economic times arechallenging, there are brightspots o opportunity.

Scott Beardsley o First Secu-rity Bank/Crews & Associates,a national lease corporationwith broker-dealer operations,works with municipalities andschool districts nationwide.Beardsleys rm does plainvanilla public nance or proj-

ects like school buildings andwater system bonds, as well aslease-purchase agreements orgovernment entities.

Weve seen a dramatic impacton the national leasing stage,said Beardsley, who suggestedthat rising interest rates basedon ear o the unknown are

complicating deals. But in ourbroker-dealer operations, ironi-cally, weve seen no change.

Beardsley noted that earlierin September, 17 bond issueswere on the ballot in Arkansas.Despite market turmoil, 13measures passed. That 76-percent passage rate was

slightly higher than the 70percent traditional average.

With voter approval, thebonds are ready or place-ment, but Beardsley warnedthat those higher interest rateswould be a actor.

Anytime theres uncertainty,people are unsure o whats going

to happen, and so they will otenpad the interest rates, he said.Were still seeing projects goorward. We do expect all o thebonds that were approved this

week to be sold between nowand Dec. 1.

Greg Nabholz is a commer-cial real estate developer whosecompany is aliated with anational brokerage rm anda amily-owned constructionbusiness. Nationwide, com-mercial property transactionsell about 74 percent in the rstsix months o 2008 comparedwith the same period in 2007,he said. In Arkansas, the year-over-year transaction declinehas topped 50 percent. Youre

seeing the number o dealsshrinking and thus the com-mission revenue, Nabholz said.

He also said three actorshave undamentally altered hisbusiness model.

First, lending standards havetightened while greater investorequity is required to jump-start

projects.Second, appraisals are com-

ing in lower because surveyorsare being more conservative asthey ace unparalleled scrutiny.

Third, rising constructioncosts, rom raw materials tolabor, and fat leasing rateshave compounded the dimin-

ishing situation.Weve had to be creative in

putting deals together, Nab-holz said.

Amidst the volatility, GeneEagle, vice president o the

Arkansas Development FinanceAuthority (ADFA), said he sees awindow o opportunity or more

public-private partnerships.My concern is that we gettoo conservative because o theproblems that the rest o thecountry is experiencing, Eagle

continued from Page 1

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said. I see it as an opportunityor the state to make an invest-ment in its people, in educationand economic developmentopportunities.

ADFA is an Arkansas stateagency that can issue bondsand direct loans or publichousing and limited industrialprojects. In recent years, theagency also has been a catalystor developing pools o riskcapital to develop and recruitknowledge-based companiesin Arkansas. However, only

a narrow range o projectsqualiy or this type o undingdue to state restrictions.

Eagle agreed that marketuncertainty was creating higherinterest rates or dealsto thepoint that ewer deals mightmake sense. He sees it as anopportunity or the state to

leverage its low debt and solidcredit rating.

I think we need to utilizeour own credit rating as a state,and its time to take some riskin order to try to build andgrow companies and grow ourtax base, Eagle said. He sup-ports more investment rom the

state in private, seedling com-panies with growth potential.

Panelists agreed that Arkan-sas is not likely to see the dra-matic economic downturn inhousing that states like Floridaor Nevada are experiencing, inlarge part because Arkansashousing market didnt accel-

erate as rapidly as housingmarkets in those states.Nor is Arkansas likely to

see a nancial meltdown likeWall Street did. By and large,

community banks in the stateremained conservative in theirlending habits. There was,however, an overextension ohousing credit in northwest

Arkansas that led to one bankscollapse and some stern warn-ings rom ederal regulators orother banks.

Panelist Paul Young, nancedirector or the ArkansasMunicipal League, a nonprotorganization representing morethan 500 cities across the state,said banks in Arkansas havenot only remained relativelystrong, but have supportedthe credit underwriting that

nances inrastructure projects.Arkansas has always beensupported by a strong appetiteamong banks in Arkansas or

Arkansas paper, Young said.

While a lot o these transac-tions these days are done insome sort o rated ormat, I seea lot o bonds that are beingdone on a nonrated basis, asthey always have been. This isbecause community banks arecomortable with the credit wor-thiness o the issuers, he said.

Beardsley sees a bit ovindication or rms like his.Weve gone in and evalu-ated each deal based upon themerits o whether or not theyregoing to pay. We havent useda lot o synthetic derivativesor investment swaps or otheritems, he said.

Ive had some rustration inthe past when clients have cho-sen to use a Wall Street rm todo a transaction where theyvepromised them a lot o bells

and whistles, and now wereseeing some o that comingback to bite them, he added.

He concluded that there issome uncertainty in the market,but were ready to take advan-tage o the core values thatweve always thr ived on.

Amy Simpkins is a communitydevelopment specialist at theLittle Rock Branch of the FederalReserve Bank of St. Louis.Roby Brock is a freelance businessreporter based in Little Rock, Ark.He is the host of a weekly state-wide business news program,Talk Business, and is editor of

www.talkbusiness.net.

States with high-cost lending regulations or laws

States pushing for regulations or laws to respond

directly to the subprime crisis

States that align brokers interest with borrowers

States with foreclosure task forces

Source: Pew Center on the States 2008, based on research by PolicyLab Consulting

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A commentary by Yvonne S. Sparks

But love is blind, and lovers

cannot see the pretty follies

that themselves commit

When William Shakespeare penned

these amous words, he clearly did not

have nonprot organizations in mindbuthe could have. Most nonprots are, ater

all, started by passionate people with a

deep love or what they do. And, surpris-

ingly, that love, that passion is oten their

downall. I call it passion blindness.

Creating a nonprot organization

requires passion. Nonprot organiza-

tions are by denition mission-driven.

Put another way, the reason that people

orm nonprot organizations, particu-larly those that serve people or places

in need, is that ounders o ten believe it

is their calling to create an organization

that allows them to transorm deeply

elt passion into action.

To bring an organization into being

is an act o great aith, sheer will and

tenacit y. It is the intensity o this call-

ing that may cause those in the eld

to overlook opportunities and to ail torespond soon enough when trouble is

on the horizon.

Surviving the Current Economy

We oer this call to action now dur-

ing a time when the nonprot sector is

at a crossroadsdependent or its very

lie upon the generosity o others (i.e.,

individuals, oundations, members or

government programs). The sources ounds that the sector is so dependent

on are themselves at stake in the cur-

rent nancial environment. Individu-

als and institutions, like oundations

Pa Blth sv daly s npf oaza

and governments, are tightening their

belts as they watch assets shrink.

That means that most nonprots must

tighten their belts as well.

Organization executives are oten

so busy meeting current needs t hey

neglect to plan or an unoreseennancial crisis. In addition, it is oten

dicult to convince board members

and supporters to create and donate

to a rainy day und, even though

or decades experts have advised

organizations to have six months o

operating expenses on hand. An even

more daunting challenge is creating a

worst-case operational plan. By devel-

oping various operating scenarios thatrefect ewer sta and less money, an

organization would know exactly what

services it could continue to provide

during a crisis.

According to a 2007 report by the

Third Sector, a Boston-based think tank

devoted to research on the nonprot

sector, there are more than 1.4 million

nonprot organizations in the United

States. They account or 5.2 percent

o the gross domestic product and ormore than 8 percent o salaries and

wages paid in the nation. This does

not include the more than 350,000

churches that are also nonprot orga-

nizations. Moreover, private sources

invested more than $250 billion in

nonprots in 2006, individuals nearly

$200 billion and volunteers gave the

equivalent o more than $65 billion in

donated services.There is no question that pressures

on the nonprot sector will almost

certainly result in job losses, in ewer

services to those most in need and in

decreased economic and community

development activity at a time when

demand or such services and activities

will no doubt be growing. Generally

speaking, making preparations to miti-

gate the impact o predicted nancial

contraction is a unction o leadership.

Organizations that have a chance to

survive will do so only i their board

and sta leadership have the courage

to ace the current and worsening eco-

nomic climate head-on and prepare.

Compounding the nancial issues

is the unortunate act that many, i

not most, nonprot organizations

regardless o t heir constituency, size

or industryare not prepared or hard

times. They are already struggling with

internal problems that make lie dicult

during good times. Add those to a

crisis, and trouble is inevitable.

The Seven Deadly SinsThe problems that oten plague

nonprots come down to seven things

Seven Deadly Sins, i you will. Mind

you, these are known in theology as

Cardinal or Capital Sins. They are

mortal, and they particularly may aect

the mortality rate o the organizations

during economic downturns. They are

as ollows:

Pride: Many o those who join boards

are doing it out o the desire to have

their name listed on the letterhead and

adding it to their resume to prove how

involved they are in the community.

They are not there to oer expertise or

raise unds or take on the challengeso governance. They are, essent ially,

nonessential to the organization. They

take up a seat that could be occupied

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5/12O N T h E I N T E R N E T A T w w w . S T L O U I S f E D . O R G#5

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Yvonne S. Sparks recently joined the

Federal Reserve Bank o St. Louis as

senior manager in the Community

Development Oce.

Sparks has more than 30 years

o experience as a nonprot and

community development manager,

executive, trainer and consultant.

Her areas o expertise include non-

prot board and executive training,

community engagement process

design and management, strategic

planning, community building, and

neighborhood leadership training.

Her volunteer and civic involvement

includes a three-year term on and

serving as chair o the Consumer

Advisory Council o the Board o

Governors o the Federal Reserve

System and service on the boards

o directors o numerous nonprotsand public organizations.

Sparks earned a masters degree

in public administration rom

St. Louis University and an under-

graduate degree in administration

o justice rom the University o

Missouri-St. Louis. She also earned

a certicate rom the Kennedy

School o Government at HarvardUniversitys Program or Senior

Executives in government and did

post-graduate work in public aairs

at the University o Texas, Dallas.

Sparks

to oer the organization. According to

theological sources, the opposite o

pride is humility. Service to the commu-

nity, no matter what it is, should evoke

a sense o responsibility that is humble.

This is particularly so when the people

served by an organization are thoseleast able to help themselves. That is

why nonprot organizations have an

obligation to be as ecient as possible.

Sloth: There is nothing worse or a

nonprot executive than to have a lazy

board, lazy sta or to be lazy them-

selves. Executi ves who do not routinely

and vigilantly scan their environments

or potential threats and board members

who reuse committee service, do not

come to meetings, and, worse, dont

contribute nancially or raise money or

the organization all into this category.

By denition, this is their duty. The cor-

responding virtue is diligence. Boards

must demand diligence rom executives

and the executives rom their boards.

Another expression o this virtue is zeal

or integrit y. Sta members cannot belet out, either. Some people want to

do as little as possible, but claim to be

passionate about the cause. Passion

is no substitute or integrity, and your

name on the letterhead and the payroll

puts your integrity on the line.

luSt: I know this must sound strange

in this context; however, the opposite

o lust is purity o soul and motive. I

the motive is the mission, then this sin

can easily be avoided. Suce it to

say that i everyone is mission-ocused

and mindul o the business o the

organization, lusting ater something

other than carrying out the mission and

protecting the organization rom harm

can be avoided or at least mitigated.

People may lust over positions, money

or recognition, but good leadership that

is pure in its motivation is the antidote.

Gluttony: Overindulgence in anything

usually leads to illness. Taking on

more clients than you can handle when

nances are tight and accepting dona-

tions with strings attached just to pump

up the budget can lead to no good end.

Gluttony is balanced by temperance or

sel-restraint. Gains born o competi-

tion, hubris or avarice almost inevitably

lead to ailure. Focus on mission isessential, along with the honest assess-

ment o organizational capacity which,

these days, may have to be scaled back

so that the organization might be saved.

Greed: Lusting or being bigger and

better than the other guy (i.e., gluttony

and lust combined) is probably one

o the worst and most common sins.

Nonprots desperate or operating capi-

tal oten make deals with the devil

to get a grant or to satis y a donor who

wants them to veer away rom their

core mission or take on something

totally beyond their actual capacity.

Obviously, this sin is closely related

to gluttony, but its opposing orce is

dierent. It is charity. Remaining true

to the organizations charitable purpose

with steadast discipline will oten

eectively steer an organization away

rom the path o greed. Giving time,

energy, thought, hard work and treasure

(money) to the cause is charity o the

kind that can trump greed.

Wrath: Wrath or anger most oten

occurs when personalities and egos

clash in the context o the organization.

Whether it is among board members, the

board and executive or among the sta,anger eats away the energy that should

be ocused on the work or repositioning

the organization to weather the storm in

hard times. Some o the most vitriolic

and vicious battles I have witnessed

have taken place in sta and board

meetings o nonprot organizations when

the time comes to bite the proverbial

bullet and cut services or lay people o.

People seem to orget that there isno ownership here. You may disagree,

but the collective responsibility is to get

the job done. It is here where board

leadership is most important. The chair

o a board o directors has the responsi-

bility to ensure that anger among board

members does not escalate to the point

o inaction, wrong action and damage

to the organization. The executive has

the same responsibility at the sta

level. The balancing characteristic iscomposure. It is incumbent upon the

board and sta leadership to maintain

their own composure and that o the

sta so that they can carry out their

work and the organization may survive

to serve another day.

envy: Last, but certainly not least, is

envy or jealousy. I you vote or some-

one to be chair o the board, then youare accepting the role o ollower. I have

oten heard board members who, having

been given the opportunity to serve,

decline in avor o another, then talk

about how much better a job they could

have done. The same is true among

sta members. Another unction o

leadership is to ensure that, when sta

members get reshufed in reorganiza-

tion eorts, they do not allow jealousy to

poison the organizational environment.

Jealousy in any context is destructive.

Its opposing orce is kindness and/or

admiration. People who take on the

challenging work, who do the hard part

with integrity, commitment and results,

deserve both.

No amount o passion, compassion

or even need can substitute or clear-

headed thinking, planning and prepara-

tion. In other words, board members

and executives cannot aord to be

blinded to the threats to their existence

by their passion or the work.

In todays environment, it is crucial

that nonprot organizations embrace

the act that, just because you are

nonprot, does not mean you are not in

business. Itis a business. Successulbusiness people plan and make hard

decisions and the best ones execute

those plans and decisions to survive

hard times. So must nonprots.



JANUArY

12-16

Indiana Economic Development CourseMuncie, Ind.

Sponsor: Center or Economic and

Community Development, Ball State

University

765-285-1628

www.bsu.edu/cecd/edc

MArCH

1-3

CDFI InstituteWashington, D.C.Sponsor: Coalition o Community

Development Finance Institutions

703-294-6970

http://cd.org

1-4

The National Main Streets Conference

Chicago

Sponsor: National Trust or Historic

Preservation

202-588-6219

http://mainstreet.org

5-6The Tax Credit Finance Course

Washington, D.C.

Sponsor: Council o Development Finance

Agencies

216-920-3073

www.cda.net

APriL

15-17

Social Enterprise 2.0: Dare to Dream,

Dare to DoNew Orleans

Sponsor: Social Enterprise Alliance

202-375-7774www.se-alliance.org

CALeNdAr

Scam Offers ConsumersLoans from the Fed

Consumers need to be aware that

solicitations promising personal loans

through a Federal Reserve lending

program are a hoax.

Targeted consumers are told they

can work with a broker to receive a

sizable, secured loan rom the Fed.

However, the consumer must rst

deposit large sums o money in a

bank account as a security deposit.The Federal Reserve has no involve-

ment in these solicitations and does

not directly sponsor consumer lending

programs.

Consumers with questions about

solicitations they suspect may be

raudulent should contact the Fed-

eral Reserve Board Consumer Help

Center at 1-888-851-1920 or at

www.ederalreserveconsumerhelp.gov.

Fed Adjusts Dollar Amount

Of Fee-Based Trigger

Eective Jan. 1, 2009, home

mortgage loan ees o $583 or more

will trigger additional disclosure

requirements under the Truth in Lend-

ing Act. This adjustment in the dollar

amount o the ees is based on the

annual percentage change refected

in the Consumer Price Index that was

in eect on June 1, 2008.

The adjustment does not aect

new rules adopted by the Federal

Reserve Board in July 2008 or

higher-priced mortgage loans. Cov-

erage o mortgage loans under the

July 2008 rules is determined using a

dierent rate-based trigger.

The Home Ownership and Equity

Protection Act o 1994 restricts credit

terms, such as balloon payments,

and requires additional disclosures

when total points and ees exceed

the ee-based trigger or 8 percent o

the total loan, whichever is larger.

Have you

HeArd In light o the economic crisis, and with tax seasonright around the corner, the Federal Reserve Bank o

St. Louis wants to make sure taxpayers know about

two new tax breaks and one that has been around

or awhile.

The two new provisions include a tax credit or

rst-time homebuyers and an additional tax deduc-

tion or property owners. These are temporary

tax breaks that were included in the Housing and

Economic Recovery Act o 2008. The act, signed

into law in July, is meant to help homeowners and to

boost the housing industry.

The new tax credit is a loan or rst-time homebuyers

who have purchased a house between April 9, 2008

and July 1, 2009. The loan must be repaid over the

course o 15 years. However, it is interest-ree and pro-

vides the homeowner with immediate access to capital.

The temporary tax deduction is or homeowners

who do not itemize deductions on their tax returns.

The deduction will benet low-income taxpayers,

young amilies and those who are close to paying

o their mortgages and who do not have signicant

reason to itemize their tax returns. The deduction will

be in addition to the standard deduction claimed by

those who do not itemize their ederal tax returns.

For details on either o these tax credits, go to

www.irs.gov.

A third tax break that regularly goes unclaimed

by many taxpayers is the Earned Income Tax Credit

(EITC) . Millions o low-income, working-class Ameri-

cans are unaware that they are eligible to receive

thousands o dollars through the ederal EITC.

A booklet rom the St. Louis

FedYouve Earned It! What the

Earned Income Tax Credit Can

Do for Youexplains how the tax

credit works and who qualies.

Eligible taxpayers can receive up

to $4,500 with their income tax

reund. The typical reund in the

Banks Eighth District has been

about $2,000.

Copies o the booklet are

ree and may be ordered by calling

314-444-8761 in St. Louis; 501-324-8296 in Little

Rock, Ark.; 502-568-9202 in Louisville, Ky.; and

901-579-4101 in Memphis, Tenn.

The booklet also is available online at

www.stlouised.org/community/other_pubs.html.

Homeowners, Low-Income Workers Eligible for Federal Tax Breaks



By Thomas A. Garrett andLesli S. Ott

Local governments andeconomic development

ocials, especially thosein urban areas, know that highcrime rates adversely aect

residential and business immi-gration to their communities.They know that crime ratesalong with educational quality,inrastructure and employ-ment opportunityare parto what determines whether acity or region is attractive andwhether it is an economic suc-

cess. Research on the eects ocrime on the general economicgrowth o local areas generallynds that areas with highercrime rates experience lowerrates o economic growth anddevelopment.1

Economists explain an indi-viduals propensity to com-

mit a crime by examining theexpected costs and benets ocriminal activity. Empiricalresearch on crime has modeledthe direct cost to an individualas the probability o arrestand incarceration (i.e., deter-rence) and the direct benetas the value o the illegallyacquired goods.2

Criminal behavior alsodepends upon other cost com-parisons, such as orgone wagesand employment opportunities.

The reasoning is that higherwages and employment oppor-tunities decrease the attractive-ness o acquiring assets throughcriminal activity. Much workhas been done to estimate theeect o deterrence and eco-nomic conditions on crime, but

the mixed results rom thesestudies do not allow a denitiveconclusion.3

Crime in the Eighth District

We recently completed areport that explores the eectso deterrence and economicconditions on crime in U.S. cit-

ies. Part o the report presentsdescriptive statistics on crimesand arrests or seven majorcrimes (murder, rape, rob-bery, assault, burglary, larcenyand motor vehicle thet) inthe Eighth District cities oSt. Louis, Little Rock, Memphis,and Louisvil le. These data are

shown in the Table. Crimerates and arrest rates are per100,000 in population and havebeen normalized by each citys1990 population, thus provid-ing average crime and averagearrest rates or each city overthe respective sample period.(See notes to Table or thesample periods or each city.)

Some dierences across thecities are worth noting. O theour cities, St. Louis has thehighest average murder rate

(3.5 per 100,000), robbery rate(81.2 per 100,000), assault rate(312.1 per 100,000), burglaryrate (224.1 per 100,000) andmotor vehicle thet rate (170.9per 100,000). The rate o rapesin Memphis (9.7 per 100,000)is higher than the rate o the

other three cities. Little Rock

has the highest rate o larcenyat 582.8 per 100,000.

Deterrence and Business Cycles

It appears that, at least whencomparing averages across cities,there is a positive relationship

mhly B Cycl, A rashw Ll ec Cal Acvy

continued on Page 8

Average Crime and Arrest Rates for Eighth District CitiesRate per 100,000 Population (1990)

St. Louis Louisville Little Rock Memphis

Murder 3.53 1.48 1.69 2.10

Rape 5.55 3.34 8.47 9.69

Robbery 81.17 40.77 42.92 63.18

Assault 312.09 101.91 285.17 166.75

Burglary 224.11 125.26 220.80 214.25

Larceny 538.97 254.60 582.77 335.11

Vehicle Thet 170.92 77.82 69.46 153.34

Murder Arrests 2.77 0.74 1.69 1.62

Rape Arrests 3.78 1.11 5.08 5.17

Robbery Arrests 20.42 11.49 14.12 13.73

Assault Arrests 209.49 58.55 198.77 76.59

Burglary Arrests 28.23 24.46 32.75 26.18

Larceny Arrests 79.91 46.69 85.83 70.13

Vehicle Thet Arrests 20.67 14.45 9.6 14.38

Note: The rates shown above were found by normalizing the mean values from the sam-ple of each city by the 1990 population (per 100,000) for each city. The sample periodfor each city is: St. LouisDecember 1983 to December 2004; LouisvilleJanuary 1993to December 2002; Little RockDecember 1983 to December 2004; MemphisJanuary1985 to December 2004. The 1990 population for each city was: St. Louis396,685;Louisville269,838; Little Rock177,086; Memphis618,894.



ENDNOTES

1 Greenbaum, Robert T. and Tita,George E. The Impact o ViolenceSurges on Neighborhood Business

Activity. Urban Studies, December2004, 41(13), pp. 2495 -514; Mauro,Luciano and Carmeci, Gaetano.

A Poverty Trap o Crime andUnemployment. Review of Devel-opment Economics, August 2007,11(3), pp. 450-62.

2 Ehrlich, Isaac. Crime, Punish-ment, and the Market or Oenses.Journal of Economic Perspectives,Winter 1996, 10(1), pp. 43-67;Levitt, Steven. Using ElectoralCycles in Police Hiring to Estimatethe Eect o Police on Crime.American Economic Review, June1997, 87(3), pp. 270-90.

3 Cornwall, Christopher and Trum-bull, William N. Estimating theEconomic Model o Crime withPanel Data. Review of Economicsand Statistics, May 1994, 76(2),pp. 360-6; Lee, David S. andMcCrary, Justin. Crime, Punish-ment, and Myopia. NBER Work-ing Paper 11491, National Bureauo Economic Research, 2005.

4 Wilson, James Q. and Herrnstein,

Richard. Crime and HumanNature, 1985. New York: Simonand Schuster.

5 The broken windows hypoth-esis suggests that preventingmore minor crimes can lead to areduction in more serious criminaloenses. See Wilson, James Q.and Keeling, George. Broken

Windows. Atlantic Monthly, March1982, pp. 29-38; Corman, Hopeand Mocan, H. Naci. Carrots,Sticks, and Broken Windows.

Journal of Law and Economics, April2005, 48(1), pp. 235-66.

6 Benson, Bruce; Iljoong, Kim; andRasmussen, David W. E stimatingDeterrence Eects: A Public ChoicePerspective on the Economics oCrime L iterature. Public Choice,

July 1994, 61(1), pp. 161-8.

7 Garoupa, Nuno. The Theory oOptimal Law Enorcement. Jour-nal of Economic Surveys, September1997, 11(3), pp. 267-95.

8 Miceli, Thomas J. Crim inalSolicitation, Entrapment, and theEnorcement o Law. InternationalReview of Law and Economics, June2007, 27(2), pp. 258-68.

between arrest rates and crimerates. O course, this positiverelationship does not revealany causal relationship. It maycertainly be the case that along-run negative relationshipbetween arrests and crime existsand that the direction o causal-ity is not rom arrests to crime,but rather rom crime to arrestsas police allocate more resourcesto combat an increase in crime.

We also conducted statisti-cal analyses to explore whetherchanges in each o the sevencriminal oenses can beexplained by changes in thecitys business cycle (as mea-sured by changes in unemploy-ment and real wages), as wellas changes in deterrence (as

measured by arrests).Unlike previous time series

studies that looked at long-run relationships (i.e., 20-yeartrends) between economic con-ditions and crime, the currentstudy explores whether short-run (i.e., month-to-month)changes in city economic

conditions and deterrenceinfuence changes in citycrime growth rates. We usedmonthly data or 23 large citiesin the United States, as well asthe Eighth Federal Reserve Dis-trict cities o St. Louis, Louis-ville and Little Rock (Memphisis included in the top 23). Inaddition, we empirically testedthe hypothesis that arrests ol-low an increase in crime.

Our study ound weakevidence across U.S. cities that

changes in economic conditionssignicantly infuence short-run changes in crime. How-ever, we did nd that short-runchanges in economic conditionsinfuence property crimes in agreater number o cities. Thislikely refects the act thatnonviolent property crimes aremore likely to result in nancialgain than more violent crimes.

In addition, we ound littleevidence to support the deter-rence hypothesis in the shortrun, as changes in arrests had

no infuence on crime in manyU.S. cities. It may be thatarrests are not the best measureo deterrence, and thus the lacko a large number o statisti-cally signicant relationshipsbetween arrests and criminalactivity refects this act. Thissupports the suggestion by pre-

vious authors that criminals aremyopic with regard to changingprobabilities o arrest and donot consider the likelihood othe negative consequences ocommitting a crime.4 Simi-larly, the results may refectthe reasonable possibility thatcriminals do not have perect

inormation regarding changesin deterrence and thus are notable to adjust their criminalactivity accordingly.

The hypothesis that arrestsrespond to increases in crimewas also empirically tested.

We ound much stronger evi-dence that, in many U.S. cities,an increase in the growth rateo crime results in an increasein the growth o arrests or thatcrime. In other words, arrestsollow crimes. This supports

the notion that law enorce-ment reallocates its resourcesin response to increases incrime. One interesting ndingwas that the causal relationshiprom robbery to robbery arrestswas statistically signicantor 17 o the 23 cities, and therelationship rom vehicle thetsto vehicle thet arrests wasstatistically signicant or 12 othe 23 cities in the sample.

It is reasonable to expectthat, over time, an increasein all types o crimes would

garner an increased responserom law enorcement, espe-cially the more violent crimeso murder and rape. Severalactors explain why increasesin less violent crimes garner alaw enorcement response inthe short run while increases inthe most violent crimes do not.

First, violent crimes are com-mitted with less orethoughtthan property crimes and areoten part o an overall increasein criminal activity, suchas drugs and gangs. Theseactivities may require yearso law enorcement planningand strategy via task orces

and interagency cooperationto reduce. A classic exampleis New York City in the 1980s.Second, preventing less violentcrimes may also reduce thenumber o more violent crimes,as suggested by the brokenwindows hypothesis o lawenorcement.5 Thus, combat-ing a rise in less violent crimesis relatively less costly in termso law enorcement resourcesand may, in act, reduce thenumber o violent crimes.

continued from Page 7

C



Innovation in Changing Times

April 22 24, 2009

Chase Park Plaza St. Louis, Mo.

The Federal Reserve Bank of St. Louis,

Community Development Ofce, is proud to announceour planning partners for this event:

Changing economic conditions are presenting unique challengesto those in the community development field. This conference will

focus on resiliency, sustainability and innovative programs that

can improve your organizations performance and have a positive

impact on your community.

Registration will begin in January 2009. Watch your mail and our

web site for updates. www.exploringinnovation.org

Innovation: Anyone can do it!

A Conference on Community Development

Exploring Innovation

Finally, it seems reasonablethat crimes that are more vis-ible to businesses and tour-istssuch as robbery, vehiclethet and assaultare likelyto result in greater attentionrom law enorcement in theshort run, possibly through arelatively inexpensive increasein police presence.

The degree to which theeect o crime on arrests per-sists over time is quite dier-ent across cities. For example,robbery arrests are a result o

the change in robberies romonly the prior month in somecities to the last 10 months inother cities. This may refectdierences in the eectivenesso law enorcement across citiesto respond to crime.

Two points should be consid-ered, however, when attempt-

ing to iner the eectiveness olaw enorcement.

First, the initial level ocrime and arrests is an impor-tant actor in evaluating theeectiveness o changes in lawenorcement. For a city thatis already allocating a largepercentage o its law enorce-

ment resources to combatrobberies, or example, theopportunity cost o allocatingurther resources to robberiesis much higher than it wouldbe in cities that have a lowerlevel o initial law enorce-ment resources allocated tocombat robberies.6 Thus, citiesalready having a relatively largepercentage o their resourcesallocated to combat robberiesmay be unwilling (or unable) inthe short run to allocate urther

resources to combat a urtherincrease in robberies.

Second, our analysis does notconsider the optimal allocationo law enorcement resources tocombat other crimes.7 Clearly,zero crime in a city is not anoptimal level o crime, giventhe nearly innite resources itwould require to achieve thisobjective, i it could be achievedat all. The optimal level o eachcrime and the desired level oresources to combat each crimecertainly dier across cities and

are based on the preerenceso the citizenry, public ocialsand law enorcement, as wellas dierent law enorcementstrategies.8

Thomas A. Garrett is an assistantvice president and economist at theFederal Reserve Bank of St. Louis.

Lesli S. Ott is a senior researchassociate at the Federal ReserveBank of St. Louis.

The report, Local Crime andLocal Business Cycles, is avail-able online at www.stlouisfed.org/community/other_pubs.html#research. Print copies are

available by calling Cynthia Davisat 314-444-8761.


10/120L I N K I N G L E N D E R S A N D C O M M U N I T I E S

The region served by the Federal Reserve Bank of

St. Louis encompasses all of Arkansas and parts of Illinois,

Indiana, Kentucky, Mississippi, Missouri and Tennessee.

SpANNING tHe regioN

Habitat To Build Green

Subdivision in Memphis

Habitat or Humanity oGreater Memphis will startwork this year on Trinity Park,its rst aordable housing

subdivision.The 38-home development

in the Oakhaven neighborhoodjust south o Memphis Inter-national Airport will eatureall green, or energy-ecient,homes. The development is theresult o a partnership betweenHabitat or Humanity Inter-

national and the Home DepotFoundation. The two organiza-tions teamed up to create Part-ners in Sustainable Building, a$30 million nationwide grantprogram to make 5,000 Habitathouses sustainable and energyecient over the next ve years.

The Memphis Habitat

chapter is one o 30 aliatesselected or the pilot program.The pilot will target a varietyo markets, including rural andurban areas, warm and coldclimates, and new constructionand rehabilitation. Ground-breaking or the Memphisdevelopment will occur in2009. The project is slated orcompletion in 2011.

Green building is not new toHabitat or Humanity o GreaterMemphis. Since 2006, Habitat

has completed 22 EcoBUILDcertied homes. EcoBUILDis a voluntary green buildingprogram created by MemphisLight, Gas and Water to stimu-late energy and environmental

awareness through the use oenergy-ecient and environ-mentally r iendly technology,materials and techniques innew home construction.

Arkansas Offers Teachers

Housing, Rental Incentives

High-perorming teachers

who are willing to work indistressed Arkansas school dis-tricts may be eligible or rentaland homeownership incentives.

The Arkansas Teacher Hous-ing Development Foundation,a state agency established in2003, oversees the program.It works with school districts

that have diculty recruitingand retaining high-perormingteachers or grades K through12, have a critical shortageo teachers qualied to teachany grades K through 12, andhave 50 percent or more odistrict students perormingbelow procient on any or allbenchmark examinations.

Since October 2007, whenthe agency rst began takingapplications, 18 teachers havereceived down payment and

closing cost assistance under thehomeownership incentive pro-gram. Another 30 teachers havereceived rental assistance. Therecipients are predominantly inrural areas o the state where the

majority o the distressed schooldistricts are located.

For more inormation, con-tact Melanie R. Yelder, ounda-tion director, at 501-683-5401or by e-mail at [email protected].

Neighbors Help Neighbors

Repair, Clean Up HomesNeighbors Assisting Neigh-

bors (NAN) has recently comeinto the spotlight as a grass-roots, nonprot organization inSt. Louis County, Mo., workingon problem properties. Thegroups mission is to stabilizeneighborhoods by empowering

residents to interact with eachother and to help their neigh-bors with cleanup, home repairand vacant property issues.

Target neighborhoods areselected in partnership withcounty government and existingneighborhood organizations.NAN has been active or sometime, but just recently receivedits 501(c)3 tax exempt status.

With oreclosures and vacantproperty problems in the news,NAN emphasizes that, i these

problems can be addressed byneighbors in a timely manner,more serious issues like crimeand alling property values maybe prevented.

The organization is seeking

support or operating expensesand is planning to add a stamember who can provide plan-ning expertise.

For more inormation aboutthe NAN model, visit:www.nanstl.org.

St. Louis Business Incubator

Designed To Help HomelessA new business incubator in

St. Louis is drawing nationalattention because o the clientsit serves. The BEGIN New Ven-ture Center is the rst businessincubator in the nation to ocuson the homeless or those at risko homelessness. The center is

an innovative community part-nership program o businessincubation and entrepreneur-ship, skills and trades training.

The incubator is the brain-child o ocials at St. PatrickCenter, the largest providero services to the homelessin Missouri. The incubatorbuilds on St. Patricks existingconcept o providing a one-stopcare acility to those in need.

The acronym BEGINexpresses project goals to


11/12#O N T h E I N T E R N E T A T w w w . S T L O U I S f E D . O R G

stimulate business, employ-ment, growth, incomes andneighborhoods. The missionis to provide training, educa-tion and mentorship that resultin sustainable employment and

entrepreneurial opportunities.The BEGIN Center has our

critical components:

The BEGIN New VentureCenter is the business incu-bator within the homelesscenter. It will provide newventure creation.

The BEGIN Training &Education Center will providepre-training assessment, pre-incubation assessment, trades/skills training and business/entrepreneurial training.

Clients will have a complete

network o wraparoundsocial support services avail-able to them.

The operation o socialenterprises will provideclients with transitional jobstraining and employmentopportunities.

For additional inormation,visit www.BEGINSTL.orgor contact Jan DeYoung at314-802-0995.

Indianas Homebuyer Course

Exceeds Expectations

The Indiana Housing andCommunity Development

Authority (IHCDA) announcedin September that Indianas

latest tool to educate prospec-tive homebuyers has sur-passed expectations. The reeonline homebuyer educationcourse, IHCDA University,has attracted twice as manyregistered users than projectedduring its rst ve months ooperation.

IHCDA ocials originallyanticipated that 1,500 prospec-tive homebuyers would usethe program in the rst year.Instead, in the rst ve monthsit was available, the programexceeded that expectation with2,438 prospective homeownersregistered in the system. O

that number, 1,800 have suc-cessully completed the course;and, o those, 803 are in theprocess o closing or havealready closed on their homes.

IHCDA University wasdesigned as a tool to educateprospective homeowners tomake smart purchasing deci-sions. The course is ree andavailable 24 hours a day via theInternet to allow prospectivehomebuyers to take it at theirleisure. IHCDA University

Bridges

Bridges is a publication o the Commu-nity Development Oce o the FederalReserve Bank o St. Louis. It is intendedto inorm bankers, community develop-

ment organizations, representatives ostate and local government agencies andothers in the Eighth District about cur-rent issues and initiatives in communityand economic development. The EighthDistrict includes the state o Arkansasand parts o Illinois, Indiana, Kentucky,Mississippi, Missouri and Tennessee.

Glenda WilsonAssistant Vice Presidentand Managing Editor314-444-8317

Yvonne SparksSenior Manager314-444-8650

Linda FischerEditor314-444-8979

Community Development staff

St. Louis: Matthew Ashby314-444-8891Jean Morisseau-Kuni314-444-8646Eileen Wolngton314-444-8308

Memphis: Teresa Cheeks901-579-4101Kathy Moore Cowan901-579-4103

Little Rock: Lyn Haralson501-324-8240Amy Simpkins501-324-8268

Louisville: Lisa Locke502-568-9292Faith Weekly502-568-9216

The views expressed in Bridges are notnecessarily those o the Federal ReserveBank o St. Louis or the Federal ReserveSystem. Material herein may be reprintedor abstracted as long as Bridges is credited.Please provide the editor with a copy oany reprinted articles.

Free subscriptions and additional copies

are available by calling 314-444-8761 orby e-mail to [email protected].

takes about six to eight hoursto complete and walks poten-tial buyers through several les-sons, including getting ready tobuy a home, managing money,understanding credit and get-

ting the right mortgage loanto meet their needs. Comple-tion o the course also satis-es the homebuyer educationrequirement that is necessaryor all homebuyers seeking the0.125 percent mortgage ratereduction oered through theagencys single-amily purchas-

ing programs.For more inormation about

IHCDA University, visit http://ihcda.knowledgeactor.com.


12/12

Post Oce Box 442St. Louis, MO 63166-0442

PRSRT STD

U.S. PoSTage

paid

ST. LoUiS, Mo

PeRMiT No. 444

A new report rom the Community

Aairs oces o the Federal Reserve Sys-

tem and the Brookings Institution exam-

ines the issue o concentrated poverty.

The Enduring Challenge of Concentrated

Poverty in America: Case Studies from

Communities Across the U.S. proles 16

high-poverty communities, including immi-

grant gateway, Native American, urban

and rural communities.

One o the case studies ocuses on Holmes County, Miss., located

in the district served by the Federal Reserve Bank o St. Louis. With

a poverty rate that stood at more than 41 percent in 2000, HolmesCounty is both geographically and economically isolated. It has lost

many jobs during past decadesand continues to do so.

The inormation collected on all the communities in this report

contributes to an understanding o the dynamics o poor people

living in poor communities and the policies that will be needed to

bring both into the economic mainstream.

t p s b www.ssf.g/cmm.

The Enduring Challenge ofConcentrated Poverty in America:

Case Studies from Communities Across the U.S.

A JOINT P ROJEC T OF THE C OM M UNITY AFFAIRS OFFIC ES OF THE FEDERAL RESERV E

SY STEM AND THE M ETROP OLITAN P OLIC Y P ROGRAM AT THE BROOKINGS INSTITUTION

Case Studies Shed Light on Poverty in America

Save the Dateail 16-17, 2009 | Wsig, D.C.

Keynote SpeaKer: B S. BkCim, Bd f Gs, Fdl rs Ssm

The Federal Reserve Systems Sixth Biennial CommunityAairs Research Conerence will eature original researchinto fnancial services issues aecting low- and moderate-income people and communities.

Documents

Bridges - Winter 2008