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US cities expect to be favoured
by economic stimulus package

By Tony Favro, USA Editor

30 December 2008: US mayors are buoyed by the prospect of an unprecedented partnership with Washington. Barack Obama has said that he hoped to sign an economic stimulus package into law shortly after taking office on 20 January 2009. While full details of the stimulus plan are not yet known, Obama says that it will be “a plan big enough to meet the challenges we face.” Many observers expect the massive economic recovery plan will total several hundred billion dollars. A large portion of the total is expected to be funneled to cities.

Like Franklin D Roosevelt
During his campaign, Obama emphasized the need for a fiscal stimulus that includes tax cuts for lower- and middle-class workers, incentives for energy alternatives and environmentally-friendly technologies to create “green” jobs, and, especially, rebuilding neglected infrastructure.

Obama’s strategy for stimulating an economic recovery in the US is largely centered around infrastructure. His plan would fund a backlog of projects in cities and, according to Salt Lake City Mayor Ralph Becker, “give the economy a shot in the arm” by immediately creating a significant number of jobs. The US economy lost 1.2 million jobs in 2008 and is expected to lose at least that many more in 2009. Obama promises that his plan will create or save 2.5 million jobs over two years.

Obama’s approach to stimulating economic recovery is similar to that used by President Franklin Delano Roosevelt in the 1930s to lift the US out of the Great Depression. It’s the idea that investment in infrastructure on a massive scale not only strengthens cities, but also puts money in the pockets of struggling Americans.

Federal investment in infrastructure would lead to new jobs in engineering, construction, and other fields where wages are higher and workers thus have more disposable income. Rebuilding roads, sewers, bridges, water works, and telecommunications systems would also position cities to be more competitive in the future.

Shovel-ready projects
An economic stimulus plan based on infrastructure investment depends on “shovel ready” projects, which US mayors are busy identifying. The United States Conference of Mayors recently released a list of over 13,000 ready-to-go projects in 640 cities. These projects would cost US$90 billion and would generate 1.2 million jobs by 2010, the mayors estimate. “We have so many initiatives we feel could help move forward his [Obama’s] agenda,” said Baltimore Mayor Sheila Dixon.

Growing support
According to a December 2008 Los Angeles Times/Bloomberg poll, 64 per cent of Americans favor the idea of Washington intervening to prevent any further collapse of the nation's economy. This represents a dramatic shift in perspective from just a few years ago when most Americans agreed with former President Ronald Reagan that “government is the problem, not the solution.”

Democrats in the US Congress agree with Obama on the need for federal assistance to middle-class families and local governments. Congressional Republicans could block Obama’s proposal, but appear to be at least tentatively on board for some kind of stimulus package. Roy Blunt, a leading Republican congressman, has stated, “A stimulus plan that makes sense is something that I’ll be helpful with.”

Cities at the forefront
There are periodic economic downturns in the United States, as there are in all capitalist nations. While the causes of the downturns in America have varied, one common thread is that cities have been seen generally as burdens on the American economy, draining tax dollars to pay for welfare, high crime, and failing schools. Cities, in the popular imagination, made the economy worse, not better.

The current economic crisis is the first since the Great Depression in which cities present an opportunity to help an entire nation recover. Obama’s bold proposal to stimulate the economy by partnering with mayors to rebuild the urban infrastructure may again put US cities at the forefront of the nation’s growth and regeneration.


US cities hope to benefit from economic stimulus package


On other pages
US subprime mortgage crisis hurts individuals and whole communities
Homeownership has long been the basis of community revitalization efforts in American cities. Homeowners bring well-documented stability and investment to neighborhoods. The recent rise in mortgage foreclosures, fueled by subprime lending, seriously threatens neighborhood stability and revitalization.

Home purchases in the United States are typically financed by mortgage loans. Home mortgages are indexed to the prime rate, that is, the interest rate commercial banks charge their most creditworthy customers.

Mortgages with the lowest interest rates are available to customers whose creditworthiness, or ability to repay the loan, is so high that there is little risk to the lender. “Subprime” mortgages are offered to borrowers who don’t meet the credit standards for borrowing in the prime market. These loans are more expensive for borrowers with rates higher than prevailing prime rates, presumably to compensate lenders for the additional risks associated with lending to less creditworthy borrowers. Subprime loans are characterized by low ‘introductory’ interest rates, usually for the first two or three years. These rates frequently rise rapidly in subsequent years, resulting in payments that can increase hundreds of dollars each month.

The subprime mortgage market has expanded dramatically in the US, growing at an annual rate of 25 per cent between 1994 and 2005, a tenfold increase in a decade. In 2005, the number of homeowners defaulting on their subprime mortgages began to soar. More