Tag: department of housing and urban development

HUD’s ‘Wastelands’

A year-long investigation by the Washington Post into the Department of Housing & Urban Development’s HOME affordable housing program uncovered systemic waste, fraud, and abuse. The tale is yet another example of why the federal government should extricate itself from housing policy and allow the states to chart their own course.

The piece is lengthy and should be read by interested readers in its entirety, so I’ll just excerpt the Post’s findings:

  • Local housing agencies have doled out millions to troubled developers, including novice builders, fledgling nonprofits and groups accused of fraud or delivering shoddy work.
  • Checks were cut even when projects were still on the drawing boards, without land, financing or permits to move forward. In at least 55 cases, developers drew HUD money but left behind only barren lots.
  • Overall, nearly one in seven projects shows signs of significant delay. Time and again, housing agencies failed to cancel bad deals or alert HUD when projects foundered.
  • HUD has known about the problems for years but still imposes few requirements on local housing agencies and relies on a data system that makes it difficult to determine which developments are stalled.
  • Even when HUD learns of a botched deal, federal law does not give the agency the authority to demand repayment. HUD can ask local authorities to voluntarily repay, but the agency was unable to say how much money has been returned.

In a Cato essay on HUD community development programs, I cite similar examples of HOME funds being wasted. And an essay on HUD scandals shows that mismanagement and corruption in federal housing programs is hardly new. Indeed, a follow-up story from the Post that focuses on related affordable housing shenanigans in the DC area explains that housing speculators who bilked HUD in the 1980s are involved in the current troubles:

All three were convicted in a scheme in the 1980s that involved getting straw buyers to purchase properties in the District at inflated prices using fraudulent appraisals. HUD backed the loans and ultimately lost millions of dollars. The Post called it the largest real estate fraud of its kind in the city’s history; about 30 people were convicted.

The response from Congress to the Post’s expose isn’t any more surprising than the findings: it’s time for a probe! This is where members of Congress point the finger at everybody else except themselves, promise to “fix” the problems, and pay lip-service to the concerns of taxpayers.

From the statement issued by Senate Banking Committee chairman Tim Johnson (D-SD) and ranking member Richard Shelby (R-AL):

We are deeply concerned by these reports, particularly at a time when so many Americans are in need of affordable housing. Many communities across the country have successfully used HUD programs to create vital housing opportunities for their citizens. However, the Department of Housing and Urban Development, like any government agency, has a duty to safeguard taxpayer funds. The Committee takes its oversight responsibilities very seriously, and we plan to get to the bottom of this issue.

Republicans are having a difficult time naming federal programs to abolish, while Democrats would have us believe that only the federal government can take care of the “less fortunate.” For Republicans who are serious about spending cuts, HUD’s latest black eye offers an opportunity to challenge the existence of federal housing programs. For Democrats, well, perhaps one or two will start to question the sanctity of these programs.

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.”

New HUD Same as Old

U.S. Department of Housing and Urban Development Secretary Shaun Donovan recently gave a speech in New York in which he spoke of a “new direction in housing.” If there’s one constant with cabinet secretaries, it’s that they all promise that their department will be new and improved. The following are a few of Donovan’s lines that deserve comment.

The Federal Housing Administration is providing another critical bridge to economic stability…And with nearly half of first-time buyers using FHA loans, it is clear that the FHA has been central to recovery.

Thanks to his predecessor, Alphonso Jackson, who was “absolutely emphatic about winning back our share of the market,” the FHA’s willingness to pick up the subprime lending slack when the housing bubble burst has opened the door for a potentially huge taxpayer bailout. In fact, the government hasn’t just come to dominate the housing finance market – it practically is the housing finance market. Thus, there are plenty of doubts as to whether the housing “recovery” Donovan speaks of is sustainable without the government crutch.

In crisis comes enormous opportunity for change – as Rahm Emanuel says, ‘a crisis is a terrible thing to waste.’ Ensuring we don’t starts with getting the government back into the business of building and preserving affordable housing. Homeownership is incredibly important. But if this crisis has taught us anything, it’s that it is long past time we had a balanced, comprehensive national housing policy – one that supports homeownership, but also provides affordable rental opportunities, and ensures nobody falls through the cracks.

Like his boss, Donovan’s use of the word “change” is just a euphemism for bigger government. His contention that the government needs to get “back” into affordable housing is laughable. When did it leave?

This crisis has illustrated that only the Federal government has the scale and mechanisms to deal effectively with some of the forces that caused it.

It was the federal government’s “scale and mechanisms” that helped cause the crisis! Only powerful institutions with national “scale” such as the Federal Reserve, Fannie and Freddie, and HUD had the power and potential to create such a nation-wide bubble, bust, and recession. Donovan wants the arsonist to put out the fire.

The Federal government can be a key partner in helping communities foster the kinds of synergies between housing, education, public safety, and health you’ve helped nurture at the neighborhood level.

Words like “synergy”, “nurture”, and “foster” are vacuous bureaucratic rhetoric. They are supposed to imply that the federal government can turn decaying urban centers into utopias with gobs of taxpayer money and bureaucratic meddling. That’s just bunk.

In my recent paper on three decades of scandals, mismanagement, and policy failures at HUD, I show that little has changed at HUD other than the individuals occupying the throne. The history of Shaun Donovan’s tenure is yet to be written, but his speech makes me pessimistic.

Public Housing for the Dead

The HUD Inspector General’s Office released an audit earlier this week on the department’s progress in making sure local public housing agencies aren’t subsidizing the deceased. According to the report, local “agencies made an estimated $15.2 million in payments on behalf of deceased tenants that they should have identified and corrected.”

The audit found the following “significant weaknesses:”

  • HUD and local agencies did not have effective policies related to deceased tenants.
  • Local agencies did not provide accurate and reliable information to HUD.
  • HUD and local agencies did not safeguard assets to ensure correct assistance payments.

This report is a small illustration of the fundamental problems with the federal government subsidizing local governments. The local public housing agencies are supposed to be monitoring how money is spent and reporting to HUD. HUD is supposed to be monitoring the local public housing agencies. But no one does a very good monitoring job, despite the piles of regulations and paperwork that every level of government has to deal with for such subsidies. The muddled web of responsibilities also makes it easy for fraud artists to take advantage.

Last week, HUD’s IG reported that the department is sending $220 million in stimulus funds to local agencies already known to misspend taxpayer dollars.

From USA Today:

The government is sending millions of dollars in stimulus aid to communities and housing agencies that federal watchdogs have concluded are unable to spend it appropriately, increasing the risk that the money will be wasted.

Since July, auditors working for the Department of Housing and Urban Development’s inspector general have scrutinized at least 22 cities, counties and housing authorities in 15 states and Puerto Rico to measure whether they can handle stimulus funds effectively. Only six, they found, could do so.

The rest — in line to receive more than $220 million in stimulus aid — had shortcomings ranging from poor management to inadequate staffing that threatened their ability to spend the money quickly and appropriately, a series of audit reports show.

According to a HUD spokesperson, the department is “spending millions of dollars to help local officials spend stimulus money effectively.” Maybe that’s true, but all monitoring help is a pure loss to taxpayers and the private sector economy.

Even when the federal oversight does find problems, the money often keeps flowing anyway. As the article notes:

USA TODAY reported in April that HUD planned to send $300 million in stimulus money to public housing authorities that had been repeatedly faulted by outside auditors for mishandling other forms of federal aid. Congress gave the Obama administration permission to withhold stimulus money from some of those agencies, but HUD opted earlier this year not to do so.

For more on fraud and abuse in federal programs, including housing subsidies, see this essay.

The Week in Government Failure

Cato Launches New Web Site Exposing Wasteful Government Spending

Did you know that the average American family spends $1,000 each year on the U.S. Department of Agriculture, whether or not it consumes that agency’s services?  Or that the federal government annually spends $1,500 per household on net interest costs alone?

In an ongoing effort to shed light on runaway government spending and expose wasteful government programs, Cato launched a new Web site today that examines the federal budget department-by-department to see which agencies can be reformed or terminated. DownsizingGovernment.org describes which programs are wasteful, damaging and obsolete in an era of trillion-dollar deficits.

The research exposes that many public outlays—though vigorously defended by the politicians who created them and the constituencies they purport to help—are remarkably ineffective at achieving their core aims.

Here are just a few examples:

Appearing on CNBC Monday, DownsizingGovernment.com editor Chris Edwards explained more about the site:

Plus, keep track of where your tax dollars are going by following DownsizingGovernment.com on Twitter (@DownsizeTheFeds) and Facebook.

The GOP Is Not Serious about Cutting Down Spending

A month ago, President Obama issued a list of proposed spending cuts that I dismissed as “unserious” due to the fact that they were trivial when compared to his proposed spending and debt increases.  Today, the House Republican leadership released a list of proposed spending cuts.

I’d love to say I’m impressed, but I can’t.

Both proposals indicate that neither side of the aisle grasps the severity of the country’s ugly fiscal situation, or at least has the guts to do anything concrete about it.

The GOP proposal claims savings of more than $375 billion over five years, the bulk of which ($317 billion) would come from holding non-defense discretionary spending increases to no more than inflation over the next five years.

First, it should be cut – period.  Second, non-defense discretionary spending only amounts to about 17% of all the money the federal government spends in a year, so singling out this pot of money misses the bigger picture.  At least, defense spending, which is almost entirely discretionary, should be included in any cap.  But it has become an article of faith in the Republican Party that reining in defense spending is tantamount to putting a white flag in the Statue of Liberty’s hand.

The second biggest chunk of savings would come from directing $45 billion in repaid TARP funds to deficit reduction instead of allowing the money to be used for further bailing out.  That’s a sound idea as far it goes, but I can’t help but point out that the signatories to the document, House Republican Leader John Boehner and Minority Whip Eric Cantor, voted for the original $700 billion TARP bailout. Proposing to rescind the Treasury’s power to release the remaining funds, about $300 billion I believe, should have been included.

According to the proposal, the rest of the cuts and savings comes out to around $25 billion over five years.  Like the specific cuts in the president’s proposal, they’re all good cuts.  But the president detailed $17 billion in cuts for one year and I generously called it “measly.”  What am I to call the House Republican leadership specifying $5 billion a year in cuts?

Take for example, proposed cuts to the Department of Housing and Urban Development (HUD), which is likely to spend around $65 billion this year.  Having recently spent a couple months analyzing HUD’s past and present, I can state unequivocally that it’s one of the sorriest bureaucracies the world has ever seen.  Yet, the House Republican leadership comes up with only one proposed elimination: a $300,000 a year program that gives “$25,000 stipends for 12 students completing their doctoral dissertation on issues related to housing and urban development.”  The only other proposed cut to HUD would be $1.7 billion over five years to the Community Development Block Grant (CDBG) program.  This notoriously wasteful program is projected to spend over $8 billion this year alone.  Eliminate it!

The spending cuts the country needs must be substantial, serious, and put forward in the spirit of recognizing that the federal government’s role in our lives must be downsized.  Half-measures are not enough, and from the Republican House leadership, wholly insufficient for winning back the support of limited-government voters who have come to associate the GOP with runaway spending and debt.  For a more substantive guide to cutting federal spending, policymakers should start with Cato’s Handbook chapter on the subject.