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Rank 1 2 3 4 5 6 7 8 9 10

2008 New York-NorthernNew Jersey-Long Island,NY-NJ-PA Los Angeles-Long Beach-Santa Ana, CA Dallas-Fort Worth-Arlington, TX Washington-Arlington-Alexandria, DC-VA-MD-WV Chicago-Naperville-Joliet, IL-IN-WI San Francisco-Oakland-Fremont, CA Detroit-Warren-Livonia, MI Boston-Cambridge-Quincy, MA-NH Philadelphia-Camden-Wilmington, PA-NJ-DE-MD Riverside-San Bernardino-Ontario, CA

Revised Real GMP Growth, %

Loss in Real GMP Growth, %

Loss of GMP, Millions

2.13 1.67 3.26 2.79 2.23 1.88 1.30 2.16 1.85 3.51

-0.65 -0.95 -0.83 -0.60 -0.56 -1.07 -0.97 -0.99 -0.63 -1.05

-$10,372 -$8,302 -$4,022 -$3,957 -$3,906 -$3,607 -$3,203 -$3,022 -$2,597 -$2,372

Table 2: Metros with Largest Loss of GMP

STATE AND LOCAL GOVERNMENT FISCAL STRESS

In Table 3 we describe the direct fiscal impacts of the mortgage crisis for 10 states. The ten states represent a cross section of the U.S. The experience of most other states will be simi- lar. For these ten, the aggregate loss in tax revenue equals $6.6 billion. There are three di- rect channels through which state and local revenues will be impacted.

First, local property tax growth generated from rising real estate values will slow signifi- cantly, and indeed contract in many places.

Second, consumer spending on taxable goods will decline as households retrench in light of the wealth effect from decreased home equity expectations. The projected decline in home values in 2008 is $1.2 trillion. Assuming a wealth effect of six cents on the dollar, consumer spending would be reduced by 0.6%, or $72 billion. Moreover, as credit conditions tighten, homeowners are less likely to finance purchases through home equity loans or mortgage refinance. Net spending from home equity credit decreased to 5.5% of disposable income in the second quarter of 2007, from 7.9% a year earlier, and is certain to fall further.

Third, with the sharp contraction in home sales, state revenues from realty transfer fees will be diminished.

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