In a recent speech in Washington, D.C., Federal Reserve Bank of Boston President and CEO Eric Rosengren artfully illustrated the difficulties faced at the community level in trying to alleviate foreclosure and REO pressures.
How and through what lens the problem is viewed, Rosengren argued – as a foreclosure problem rooted in the housing bubble, as a housing policy problem or as a symptom of broader problems affecting certain hardscrabble neighborhoods – dictates appropriate responses and solutions.
We took the most interest in his comments on solutions to problems inherent in viewing the foreclosure and REO problem through the final, community lens. The solutions, he said, "may be to have more general revenues available for nonprofits and local governments to address the problem in a more holistic fashion."
On this point, Rosengren went on to say, "Changes in revenue sharing are critical to helping those communities address their problems. Potentially, a federal revenue sharing program at the national level that focuses on these communities could help."
At this point, we think Rosengren might learn something from our national pastime.
Revenue sharing has been around for years in Major League Baseball. It is intended to promote competitiveness in the league by forcing high revenue teams to share some of their profits with smaller-market teams – the argument being that more money might allow smaller teams to afford bigger talent, and thus win more games.
It has had mixed results.
Perhaps most egregious is the case of the Pittsburgh Pirates, a storied franchise currently suffering through an 18-year streak without having a winning season.
It seems the team’s ownership hasn’t reinvested its revenue sharing windfalls into talented players, as was the intent. Instead, they’ve been content to lose and sit on the money, profiting to the tune of $29.3 million in 2007 and 2008 combined, while cashing revenue sharing checks of $69.3 million over the same period.
Apparently, for Pirates ownership, it’s enough to draw a modest number of fans every summer to a nice little ballpark on the shores of the Allegheny River and ride out losing season after losing season. And as the rules stand, there’s nothing stopping them from continuing the practice.
But the Pirates example isn’t the only one. Witness the once-lowly Tampa Bay Rays beating up on and biting the hand that feeds them in the Red Sox and New York Yankees. Or the Cincinatti Reds, this year making savvy use of limited resources to take advantage of the weakness of their rivals.
From a public policy perspective, there is a lot to be learned from these examples. While we salute Rosengren’s efforts at thinking beyond traditional means for alleviating the problems facing foreclosure-blighted neighborhoods, we would also urge him to heed these warnings.
Throwing money at a problem is ineffective without first uniting around a common set of priorities. But it is in determining those priorities where the real challenges lie.
In baseball, one team’s priorities are to keep making money, while another team’s priorities are to win championships. On a community level, one town’s priority might be acquiring a new fire truck, while another’s might lie in renovating a downtrodden housing block. Who’s to say who is right?
Is one town, then, denied federal revenue sharing monies simply because their own perceived needs don’t jibe with what the government would rather they spend their money on?
Rosengren does propose allowing some flexibility within communities to use funds as they see fit in the name of reaching the common goals of foreclosure prevention and remediation, and at no point does he claim his ideas are either perfect or fully conceived.
But we would only ask that he pay heed to the pitfalls of robbing from the rich and giving to the poor – one never knows if the aims of the latter are truly worth depriving the former.
