Special Briefing on Transportation Opportunities & Challenges in the New Federalism

Special Briefing on War, Inflation, and the Impact on the Economy and State and Local Budgets

Economic uncertainty driven by geopolitical conflict and inflationary pressures has reshaped expectations for growth, public finance, and investment across the United States. Moderated by William Glasgall, Volcker Alliance Public Finance Adviser and Penn IUR Fellow, and Susan Wachter, Co-Director of Penn IUR, join our Special Briefing expert panel as we discuss how the war in Iran, elevated energy prices, and policy shifts are influencing economic growth and fiscal conditions for states and municipalities. Speakers include: • Natalie Cohen, President and Founder, National Municipal Research • Julia Coronado, President and Founder, MacroPolicy Perspectives LLC • Kim Norton, Mayor, Rochester, Minnesota • Brian Sigritz, Director of State Fiscal Studies, National Association of State Budget Officers (NASBO) • Mark Zandi, Chief Economist, Moody’s Analytics NOTABLE QUOTES Zandi: “The economy's growing. It's moving forward, but it's a very fragile growth.” Zandi: “to get a recession, we’re not that far away. Oil would have to rise to about 125 bucks a barrel… That would be enough to push this fragile economy into an economic downturn.” Coronado: “When we look at the structure of hiring, as it's all health care, and beyond health care, there’s very little in the way of sectors really adding jobs. It feels like we are resting on a very narrow pillar of a lot of AI enthusiasm holding the market up.” Norton: “We are not slowing down, [even as] projects are more expensive, more complex, and they require longer to deliver.” Sigritz: “While we're not seeing significant budget shortfalls right now, what we're seeing is that budget conditionings are tightening across states.” Cohen: “The Federal Reserve recently stated that for every $1,000 of student debt, there's a 1.8% decrease in home ownership.” Zandi: “Folks in the top 20% of the income distribution account for 60% of the personal outlays.”

Special Briefing on Transportation Opportunities & Challenges in the New Federalism

From handing environmental reviews to states and reshuffling federal funding to navigating a looming congressional reauthorization deadline, America's transportation network stands at a critical crossroads. Moderated by William Glasgall, Volcker Alliance Public Finance Adviser and Penn IUR Fellow, and Leslie Richards, Founder and Director of the Transportation Initiative at Penn (TRIP) and Weitzman School Professor of Practice of City & Regional Planning, join our Special Briefing expert panel as we discuss the sweeping realignment of federal fiscal support for states and localities—and what it means for the future of highways, transit, safety, and railroads across the country. Speakers include: • Eryn Hurley, Chief Government Affairs Officer, National Association of Counties • Baye Larsen, Vice President/Senior Credit Officer, Moody's • Robert Poole, Director of Transportation Policy and Searle Freedom Trust Transportation Fellow, Reason Foundation • Naomi Renek, Renek LLC, former Senior Advisor, NY MTA • Lauren Schapker, Vice President of Legislative Affairs, American Road and Transportation Builders Association (ARTBA) NOTABLE QUOTES Renek: "Traditionally, there was a common understanding that improved mobility is a public good. Anything that goes into transportation, operational safety, infrastructure, reduced pollution… Federal funding has been provided based on this very basic concept that these things are good for society." Renek: "Policies and funding programs that encourage transit, active transportation and denser land use are impactful to affordability." Larsen: "Even in the midst of turmoil and the changing federal, state, local funding relationships, our transportation issuers do have tremendous flexibility and independence that stabilizes their credit profiles." Larsen: "A rapid change in access to federal funds has caught folks by surprise, and that less predictable funding freeze is typically harder to respond to than the more gradual transitions." Hurley: "Counties are actually the single largest owner and operator of local infrastructure in the country." Hurley: "Counties and other local governments received on average 14% of federal formula transportation dollars… The counties that sometimes have the greatest infrastructure needs…have the least institutional support to access federal dollars." Schapker: "We are laser focused on finding a way to get another service transportation reauthorization bill done on time that continues this robust trajectory of investment." Schapker: “"The House and Senate are working in a real bipartisan way…any proposed transit cuts…are not going to make it across the finish line." Poole: "Congress cannot continue indefinitely bailing out the highway trust fund with borrowed money." Poole: "We really should look at the alternative of devolution—devolve the revenue and spending authority to the states and localities."

Special Briefing on Addressing the Housing Crisis: Innovative Solutions from Across America

From repurposing underused office buildings and shopping centers to making sweeping changes in zoning, cities from coast to coast are taking concrete steps to increase housing construction. Moderated by William Glasgall, Volcker Alliance Public Finance Adviser and Penn IUR Fellow, and Susan Wachter, Co-Director of the Penn IUR and Wharton Professor of Real Estate and Professor of Finance, join our Special Briefing expert panel as we discuss what the nation can do to alleviate housing shortages—one of the most critical issues facing the US economy in 2026. Speakers include: • Hannah Blitzer, Housing Sector Lead, S&P Global Ratings • Eric Goldywn, Program Director and Clinical Assistant Professor, Transportation and Land-Use, Marron Institute of Urban Management, New York University • Laurie Goodman, Institute Fellow and Founder of the Housing Finance Policy Center, The Urban Institute • Paul Steenhausen, Principal Fiscal & Policy Analyst, California Legislative Analyst's Office NOTABLE QUOTES Blitzer: “Our view is that the affordable housing sector will continue to grapple with a long-standing imbalance between limited supply and mounting demand. In the last year, home prices have stabilized slightly, but with inflation outpacing wage gains, we do expect the pressure on low-income households will continue to intensify.” Steenhausen: “I have 120 bosses, we like to say, in the Senate and Assembly. What have they been doing about it? There's a number of recent laws that makes it easier to build accessory dwelling units, ADUs, and making it more of a ministerial action if these ADUs meet a set of pre-established criteria, so it's not subject to discretion by local governments.” Goldwyn: “In New York, more than 50% of New Yorkers qualify as rent burdened, meaning that they spend more than 30% of their income on rent, and so we thought maybe we could combine the transportation goals and the housing goals to sort of make a better plan and tackle affordability more directly, so if we want to catalyze development, we think you have to expand the subway as we did more than 100 years ago.” Goodman: “The average family today buying the average house at today's interest rates, putting 3.5% down, will spend 34.7% of their income on their mortgage payments, taxes, and insurance. The average since 2000 has been 28%, so the reason housing is so unaffordable is because we have an acute housing supply shortage, which drives up both home prices and rents.” Goodman: “In 2024, ADUs were close to 20% of new housing units produced in the state of California. The rate of single-family homes with ADUs nationwide is 1.2%. It's 2.9% for California as a whole, and 4.6% for LA. If the country had the same rate of ADUs as California, we'd add 1.5 million units. If we had the same rate as LA, we would add 3 million units. This would go a long way toward closing the supply-demand gap. California has already given us the playbook to do this.” Blitzer: “I think that housing finance agencies are a great example of how states can be funneling more funding towards affordable housing. Often, HFAs are state entities and they're ultimately financially self-sufficient with the bonds they issue, but they do often also have strong relationships with the states that they're in, and in certain states, will get an additional allocation of funding from the state.” Steenhausen: “As far as housing for low-income people and extremely low income in California, there's only 24 units of housing that's available and affordable for every 100 extremely low-income households. And so it's almost like that game when we were kids of musical chairs. There's just not enough chairs, and so I think California needs to make sure we're leveraging the federal tax credits.” Goodman: “The solution to the affordability crisis is more supply. It would obviously be great to build more affordable. That oftentimes requires subsidy, but building more of anything helps bring down prices and rents.”

Special Briefing on The Year Ahead for Cities

Eighty percent of Americans live in urban areas, and for them, 2026 is likely to be a year of immense change as the federal government quickens the pace of trillions of dollars in funding cuts to cities, counties, and states expected over the next decade. Moderated by William Glasgall, Volcker Alliance Public Finance Adviser and Penn IUR Fellow, and Susan Wachter, Co-Director of the Penn Institute for Urban Research and Wharton Professor of Real Estate and Professor of Finance, our expert panel from government and Wall Street will dissect how urban America and its leaders will cope with this new brand of fiscal federalism. Speakers include: • Janet Cowell, Mayor of Raleigh, North Carolina • Fitzroy Lee, Deputy Chief Financial Officer and Chief Economist, Office of the Chief Financial Officer, District of Columbia • Sarah Parker, Senior Research and Strategy Officer for Infrastructure, Environmental and Economic Analysis, New York City's Independent Budget Office (IBO) • Nicholas Samuels, Senior Vice President, US Public Finance at Moody's Ratings and • Matthew Stitt, Managing Director, PFM Group Consulting LLC. NOTABLE QUOTES Cowell: “We feel optimistic that we're a growing community with a number of levers and ways we can accommodate that growth, good finances, but the risk does become that federal relationship and how they look at cities and fund cities. Parker: “The relationship of a city and a state is becoming even more crucial, and even that dynamic has shifted as the relationship between the federal government and states and cities has really become much more tenuous. […] Our partnerships with Albany, both Governor Hochul and the state legislature, are more important than ever.” Lee: “As the nation's capital, of course, we host a disproportionate amount of federal jobs. And so the federal workforce downsizing presents the biggest challenge to the district's economy for the year ahead.” Lee: “[The city] budget anticipated the fiscal impact of the federal workforce reduction and incorporated a revenue reduction of about $300 million per year. That's about 3% of the district's $11 billion local source revenue.” Stitt: “In regard to the funding challenges, many cities and/or counties are preparing for how to maintain service delivery despite federal cuts. This is partially being reflected in budgeting five-year plans/forecast by some cities placing more money into their reserves.” Samuels: In 3 of the 10 largest U.S. Cities, the combination of rent and childcare, transportation, and taxes consume more than 60% of household income. So, those kinds of rising living costs […] dampen consumer spending, they reduce tax revenues, they can influence migration patterns and workforce availability.” Parker: “The longer term [issue] is how a government itself addresses its own adaptation needs relative to its physical climate risk.” Cowell: “In North Carolina and in many states in the South, the State General Assembly has a lot of authority and power, and they have taken away a number of revenue sources for local government […] They are setting the rules, and it definitely impacts how we do our job as mayors.”

Special Briefing on the Outlook for 2026: How States & Cities Will Adapt to Wrenching Change

As a year marked by fiscal uncertainty and shifting federal priorities comes to a close, state and local governments are grappling with structural changes. For a discussion of how federal retrenchment, artificial intelligence(AI)-driven growth, and sharply rising municipal market borrowing market will shape state and local finances in the year ahead, Penn IUR and the Volcker Alliance convened a panel of experts for “Special Briefing on the Outlook for 2026: How States & Cities Will Adapt to Wrenching Change” on December 16, 2025. William Glasgall, Penn IUR Fellow and Public Finance Adviser at the Volcker Alliance, and Susan Wachter, Co‑Director of Penn IUR, co‑hosted the Special Briefing. Panelists include: • Torsten Slok, Partner and Chief Economist at Apollo Global Management • Matt Fabian, Partner at Municipal Market Analytics • Eric Kim, Senior Director for U.S. Public Finance Ratings at Fitch Ratings NOTABLE QUOTES Slok: “The outlook for 2026 is actually beginning to look better and better. GDP growth will begin to accelerate over the coming quarters, and perhaps most importantly for this conversation and for muni bonds, the level of yields and the level of inflation are likely going to stay higher for longer, simply because we still have an inflation level that is at around 3%, not quite back to the Fed's 2% target.” Slok: “the trade war was dragging things down, but at the same time, AI and data center build-out was pushing things in the opposite direction” Slok: “the biggest risk to this outlook is that it comes with a likelihood that the Federal Reserve will have to come back and raise interest rates again.”  Fabian: “I am optimistic that issuance will continue to grow. We think that there's going to be another record year ahead of us in 2026, as far as dollars of bonds sold. We think that the market will internally remain well lubricated, with nice flows of investor cash into the sector.” Fabian: “bullish on issuance, bullish on distribution, less bullish on prices.” Kim: “Our sector outlook for U.S. state and local governments in 2026 is neutral. We expect credit conditions to be generally in line with the environment we saw in 2025. That doesn't mean it's entirely benign, and it doesn't necessarily mean things will be easy.” Kim: “our house view is still for economic growth. We don't anticipate a recession…but there’s definitely risk there. We're anticipating 1.9% economic growth for 2026, picking up a little bit in 2027 at 2.1%.” Fabian: “State and local governments will have the option of backfilling federal spending withdrawals, and that is likely to happen in many cases. State and local taxes rising in order to help pay for this is a given.” Kim: “There are going to be more challenges in having state governments really fill all the holes that are potentially going to be left.” Glasgall: “To paraphrase [Supreme Court] Justice Louis Brandeis in the 1930s, states are the laboratories of democracy. We're going to see different solutions emerge. AI is going to be part of this in delivering services. We're going to see different ways to deliver services at a lower cost… There are going to be a lot of opportunities for experimentation and creativity.”