In the heady years before the Great Recession, did cities and municipalities get carried away with boomtime spending? Once the downturn hit, how prepared were local governments to face suddenly pressing needs in their communities?
Urban Planning professors Paavo Monkkonen  and Michael Lens  plan to address these questions as they lead a three-year, $610,000 study aiming to better understand the behavior of local governments during times of economic upheaval. By painting a clearer picture of how local leaders spent in the good times – and how they cut back in the bad – the researchers aim to help smooth the impacts of future booms and busts on local economies.
The project team includes Larry Rosenthal , of UC Berkeley’s Goldman School of Public Policy, and Tracy Gordon of the White House Council of Economic Advisers.
Since cities and municipalities provide basic services such as police, fire, streets, parks and schools, their financial health has a direct impact on their ability to deliver high-quality housing and neighborhoods for their residents. As the housing bubble grew, local governments may have been tempted by rising property tax revenues and the perception that growth would continue to make unsustainable spending and investment decisions. As these revenues disappear, the shock to overextended resources is resulting in drastic cuts, possibly deepening the recession’s impact and slowing long-term growth.
The project, officially titled “Irrational Exuberance at City Hall: Local Government Resilience during Housing Booms and Busts,” is funded by the John D. and Catherine T. MacArthur Foundation . The foundation is in its fifth and final year of a $25 million series of grants  dedicated to identifying how housing matters to families and communities.
Although the study will look at housing across the country, and will include a database of changes in housing prices for each incorporated city in the U.S., the researchers have identified some fiscally troubled California cities deserving of special attention.
“The California State Controller recently released a series of audits on the City of Stockton, which confirm our suspicion that ambitious spending and borrowing without proper consideration of future revenue streams was a major cause of its current problems,” Monkkonen says. “These case by case efforts to differentiate causes suggest a more systematic evaluation of the phenomenon is needed.”
MacArthur’s grantmaking in this area “has already revealed that stable, quality housing matters in ways critical for children's emotional and physical development, improves school performance, and diminishes psychological stress,” said Julia Stasch, MacArthur’s vice president for U.S. programs. “Arming policymakers and practitioners with evidence of what works and what does not is vital to drive innovation and more effectively target scarce resources to meet the housing, social, and economic needs of families and communities.”