Tag: community development block grants

Republican Freshmen Protect Big Government

The Community Development Block Grant program is a perfect example of the blurring of responsibility between the federal government and the states. The program’s roots go back to the Great Society and the wishful belief that the problems of urban Americans could be solved with handouts from Washington. Instead, the program “has degenerated into a federal slush fund for pet projects of local politicians and politically connected businesses.”

That quote comes from Rep. Tom McClintock (R-CA) who introduced an amendment this week to terminate CDBGs. As McClintock explained to his House colleagues, it is not the federal government’s responsibility to fund purely parochial activities:

Even in the best of circumstances, these are all projects that exclusively benefit local communities or private interests and ought to be paid for exclusively by those local communities or private interests. They are of such questionable merit that no city council is willing to face its constituents and say, this is how we’ve spent your local taxes.  But they are more than happy to spend somebody else’s federal taxes.

Unfortunately, McClintock’s words fell upon deaf ears as his amendment was voted down 80 to 342.  Not a single Democrat supported the amendment. But it was the 156 Republicans who voted against the amendment that doomed it. Among those Republicans voting “no” was House Budget Committee chairman Paul Ryan (R-WI). Worse, only 33 percent of the GOP “Tea Party Freshmen” voted to terminate a program that is completely at odds with the principles of limited government.

As I noted back in May, many of the GOP freshmen have switched from tea to Beltway Kool-Aid. Take, for example, tea party favorite Allen West of Florida. On West’s congressional website, he states that “As your Congressman, I will curb out of control Government spending.” He also says that “we need to challenge the status quo in Washington and stop the floodgates of government spending” and that he will “carry the torch of conservative, small government principles with me to Washington.” West, however, voted to save the CDBG program and he also voted back in May to save the Economic Development Administration, which is another parochial slush fund. In April, he accused Democrats of being communists. That’s pretty rich given that he proceeded to vote to protect programs that engage in central planning.

Strong Cities, Strong Communities: Bad Idea

When government officials come up with what they claim to be a wonderful new idea, I often think of an old Saturday Night Live skit from 1990 poking fun at commercials for blue jeans. The skit’s scene is a group of middle-aged buddies getting ready to play basketball in their new “Bad Idea Jeans.” Each guy optimistically announces a plan to do something that is actually a “bad idea.” For example, a character says “I don’t know the guy but I’ve got two kidneys and he needs one, so I figured…” and “BAD IDEA” flashes across the screen. (The skit can be watched here.)

The White House’s new “Strong Cities, Strong Communities” initiative had that BAD IDEA screen shot flashing repeatedly in my mind as I read the press release:

Today, the Obama Administration launched Strong Cities, Strong Communities (SC2), a new and customized pilot initiative to strengthen local capacity and spark economic growth in local communities while ensuring taxpayer dollars are used wisely and efficiently. To accomplish this, federal agencies will provide experienced staff to work directly with six cities: Chester, PA; Cleveland, OH; Detroit, MI; Fresno, CA; Memphis, TN; and New Orleans, LA. These teams will work with local governments, the private sector, and other institutions to leverage federal dollars and support the work being done at the local level to encourage economic growth and community development.

Additionally, communities nationwide will be eligible to compete for comprehensive economic planning assistance through a grant competition designed to spark local innovation. By integrating government investments and partnering with local communities, SC2 channels the resources of the federal government to help empower cities as they develop and implement their vision for economic growth.

The Wall Street Journal reports that federal officials from HUD, Labor, Commerce, Transportation, and the Small Business Administration will be “deployed” to the cities. In other words, the Obama administration wants to send bureaucrats from federal agencies that are notorious for wasting other people’s money to help local bureaucrats do a more “efficient” job of spending other people’s money. That’s like asking Anthony Weiner to fix your Twitter account.

A couple of the cities chosen by the administration are ironic. Seriously, hasn’t the federal government done enough to New Orleans already? Detroit is an example of why decades of federal subsidies to urban centers in decline have been a failure. As I note in a Cato essay on HUD community development subsidies, of which Detroit has been the fifth largest recipient since 2000, federal handouts create a disincentive for local officials to pursue sound policy reforms:

Despite all the abuses, perhaps policymakers believe that Community Development Block Grants are nonetheless effective at stimulating growth. After 30 years and more than $100 billion it should be easy to demonstrate the program’s success, but it’s hard to find any examples of city rejuvenation created by the program. Instead, numerous cities, such as Detroit, which have been major CDBG recipients, have fallen further into decline. The reality is that no amount of federal money can overcome the local hurdles to growth in cities such as Detroit—including political corruption and destructive tax and regulatory policies. Indeed, just like international development aid, federal aid to the cities likely increases corruption and stalls much-needed local reforms.

Some people will view this initiative as a crass effort to shore up urban support for the president’s reelection campaign. There’s probably a good bit of truth to that criticism. But both parties have been using subsidies to state and local government to curry political support for decades. Therefore, Republicans who raise a stink over the administration’s initiative should be prepared to work for the involved programs to be abolished. Otherwise, the complaints will amount to little more than political hot air.

See this Cato essay for more on federal subsidies to state and local government.

Some Thoughts on Federal Rental Housing Assistance

Last week I participated on a panel on federal rental housing policy, organized by Harvard’s Joint Center for Housing Studies in conjunction with the release of their new report on conditions in the rental market.  In their defense, the report does attempt to avoid offering policy prescriptions.  But the report does come pretty close to suggesting that we spend more on federal rental housing assistance.  In the post-housing bubble  environment, many, myself included, have dared suggest that there’s nothing wrong with someone being a renter, and that maybe we pushed too many into homeownership.

But saying we overdid homeowneship is not the same as saying we ignored rental.  In fact the federal government has spent massive amounts on rental housing, yet according to the new Harvard report, rent burdens have gotten worse over the last 50 years not better.  While the report doesn’t take this step, I think we have to ask: if you’ve spent hundresds of billions of dollars on an issue and it then gets worse, maybe there’s something wrong with what you are doing?

Perhaps my friends on the Left (and/or in the real estate industry) don’t believe we’ve spend all that much on rental housing.  Consider these facts:  in nominal terms the sum of all money spent by HUD, which is almost exclusively rental or “community development,” has been close to a trillion dollars.  By my estimate (based upon the American Housing Survey and the Residential Finance Survey) the current value of all rental housing in the US is about $3.6 trillion.  So the federal taxpayer has paid enough to outright buy almost a third of all rental housing.

Also consider that if we took the approximately $50 billion we now annually spend on rental housing, we could pay 100% of the rent of the almost 4 million households currently paying the lowest rents.  This translates to being able to pay all the rent for every family earning about $22,000 or less.   If we choose to only pay 50% of their rent, we could serve another 2.5 million. 

My point here is not to say we should spend all this money, for I still don’t see this as the proper role of the federal government; the point is that we already spend a huge amount.  Now why might all this money not have made a huge difference in helping renters?  Maybe because most of it gets eaten up by the providers.  For instance a recent paper in Real Estate Economics estimates that only a third of the value of the Low Income Housing Tax Credit actually makes it to the renter in the form of lower rents.  The remaining two-thirds goes to benefit the developers, owners and others who live off the process.  So before we even think about spending more on federal rental assistance, how about making sure what we do spend actually goes to help the poor and not the special interests?

More HUD Community Development Duds

Local officials, like their federal and state counterparts, spend other people’s money. Policymakers are naturally unlikely to spend other people’s money as carefully as they would their own. This situation is exacerbated when local officials spend money obtained from federal taxpayers. At least when local taxpayers foot the bill, they have an incentive to keep an eye on how their money is spent. That incentive is largely nonexistent when the money comes from Washington.

HUD community development programs illustrate what happens when the federal government severs the relationship between local officials and local taxpayers. Originally targeted to large cities in decline, community development funding is spread widely to communities rich and poor, large and small.

Local officials love these programs because they amount to a free lunch. As a result, they lobby Washington hard for these subsidies, which means federal policymakers generally only hear wonderful tales of the “economic growth” and “job creation” fostered by the programs. However, a Cato essay on HUD community development programs explains that in addition to complexity and wasteful bureaucracy, these programs are susceptible to financial abuses.

Recent stories in the news provide further evidence.

First, years of mismanaging federal community development funds have caught up to the City of Buffalo. The Buffalo News reports that a HUD inspector general audit says the city “could not provide assurance that more than $20.1 million in transactions was properly accounted for.” According to the article, the audit findings are not surprising:

An investigation published in The News in 2004 found the city had frittered away much of its block grant money through parochial politics and bureaucratic ineptitude.

More than half the spending went to “soft costs” that include covering bad loans, paying city salaries and subsidizing an overblown network of neighborhood agencies, The News found. Relatively little went to brick-and-mortar projects, and what was spent to revitalize downtown and neighborhoods was haphazard, with money sometimes going to risky and futile projects.

The mayor and Common Council failed to make major reforms in the program in recent years, and problems have persisted. Two years ago, a HUD monitoring report found continued shortcomings that included too much spending on bureaucrats, questionable financing for upscale housing developments and sloppy fiscal management of several programs.

Next, LA Weekly reports that the City of Los Angeles plans to give $1 million in federal community development funds to the global architecture firm designing the downtown’s proposed NFL football stadium:

Gensler plans to move from Santa Monica to downtown L.A., where it will use the $1 million in federal community-development block grant funds to create a hip, new atmosphere for its relocated employees at the “jewel box,” a three-story building nestled between two skyscrapers at City National Plaza.

Unfortunately, the “hip, new atmosphere” paid for by federal taxpayers probably won’t be the “job creator” that city officials are claiming:

[Mayor] Villaraigosa and City Council members since February have claimed that enticing Gensler from Santa Monica to downtown L.A. is a job creator. But that’s debatable. Some temporary jobs will be created for the jewel box renovation, but Gensler is moving its offices just 20 miles. Many economists would describe L.A.’s action as merely shifting jobs within an intricately intertwined economic area.

A HUD official called the situation “entirely healthy.”

Finally, HUD recently informed the City of Montebello (California) that it had uncovered 31 violations regarding the city’s use of HOME program funds, which are to be used for affordable housing. According to the Whittier Daily News, the report “was so damning it brought interim city administrator Peter Cosentini to tears”:

Last year, HUD demanded that Montebello repay $1.3 million because the city gave a developer HOME money to help build a housing project with affordable units and reported to the federal agency the project was complete, but construction hasn’t started. And a key document submitted to HUD appeared to have been forged, according to the report.

In February, HUD notified city officials that Montebello must also repay nearly $900,000 it used to purchase another parcel of land. The city failed to give HUD needed documents on the property acquisition, including an appraisal, documentation of expenditures and current ownership, according to a Feb. 18 letter from [HUD official] Vasquez to the city.

Cosentini responded in writing, saying city staff has been sent to training as recommended by HUD. Montebello is also conducting an internal investigation into the possible document forgery. The city’s internal investigation of the $1.3 million has been slowed because the developer isn’t cooperating and is “stonewalling” city staff, he wrote. Cosentini also asked for more time to repay the money.

But the city missed a March 1 deadline to submit a repayment plan, according to a letter from Vasquez. And HUD will seek an additional repayment of $2.7 million, Cosentini wrote in the memo.

Take heart federal taxpayers – Montebello city bureaucrats are being “sent to training” per HUD’s recommendation!

Local Officials Fight for ‘Free Lunch’

Everybody likes a free lunch. Local government officials really like a free lunch, particularly when that lunch is paid for by federal taxpayers. Spend other people’s money on projects that you don’t have to tax your constituents to pay for? What a deal!

The U.S. Conference of Mayors, the National League of Cities and the National Association of Counties aren’t happy that House Republicans want to trim funding for the Community Development Block Grant program. The CDBG program in particular is cherished by local officials because it affords them wide latitude on how they can spend the money.

The local government lobbies hired IHS Global Insight, a prominent consulting firm, to prepare a study on the economic impact of the CDGB program. The preliminary report — and this is truly shocking — finds that the CDBG program has had a positive economic impact on the 10 cities it surveyed. That’s because it appears to have only considered one side of the coin: the benefits (jobs, economic output, etc.) that resulted from the money being spent in a particular geographic area.

There’s another side to the coin: the cost. While the lunch might be free for local officials, it came at a cost to the country because the resources to pay for these projects had to be taxed or borrowed out of the economy. Those costs have a negative ripple effect on the economy, just as proponents will argue that the benefits have a positive ripple effect.

A Cato essay on community development programs explains that the cost of federal subsidies to local government outweigh the benefits. Ineffectiveness, waste and abuse, politicization, and excessive bureaucracy are just a few of the problems. Most importantly, these programs represent a morally dubious redistribution of resources from federal taxpayers to parochial interests. If the projects were as beneficial to the communities as the IHS report says, then the burden of paying for them should have been borne by local taxpayers.

Community Development Booze Grants

In a recent post on earmarks and federal grants, I cited the crazy example of HUD’s Community Development Block Grant program funding facade renovations for a wine bar in Connecticut. Now a Michigan newspaper reports that Bell’s Brewery in Kalamazoo is looking for $220,000 in CDBG money to expand its facilities.

I consider Bell’s to be one of the finest breweries in the United States. Bell’s desire to expand its production facilities reflects its success in getting people to part with their money voluntarily in exchange for their products. Now federal taxpayers, whether they like Bell’s or beer, could effectively be forced to give their money to Bell’s.

There are over 1,500 craft breweries in the United States. Those breweries must pay federal taxes, so if Bell’s were to receive its grant, then the federal government would basically be forcing the other breweries to subsidize a competitor. Should the federal government therefore be in the business of subsidizing all craft breweries in the United States? It’s doubtful that any federal politician would answer in the affirmative. Why then the special treatment for Bell’s?

This is a perfect illustration of why government subsidies for economic development are immoral. Politicians and their benefactors justify the redistribution by pointing to the jobs and development created (often allegedly) by the subsidies. But they completely ignore the fact that the handouts cannot occur without money being taken out of somebody else’s hand first. Therefore, what politicians innocuously label as “economic development” can also accurately be labeled as “theft.”

As a Cato essay on community development programs states, “Community development is a local concern, and only local leaders and businesses using their own funds can make sound cost-benefit decisions on projects.”