Tag: hud

Earmarks and Federal Grants

Federal taxpayers helping foot the tab for renovations to a local wine bar? It sounds crazy, but that’s par for the course with HUD’s Community Development Block Grant program.

A Connecticut newspaper recently ran an article on CDBG money being used to spruce up storefronts in the town of Putnam:

The Small Cities Community Development Block Grant money slated for Cohen’s building comes shortly after a similar grant project finished across the street, said Economic Development Director Delpha Very.

Facade improvements to the Glimpse of Gaia florist, Pangaea Wine Bar and Panache consignment shop finished last month, said building owner Sean Marchionte, of Providence-based Blue Dog Investments.

The building’s owner – go figure – thinks it’s just great:

“It’s very encouraging when you get help from the town. That’s what helps developers like myself make improvements to our buildings, attract tenants and keep the economic ball rolling in the right direction,” he said.

First, the help came from federal taxpayers – not the town. Second, robbing from Peter to pay Paul, which is what federal grant programs accomplish, does not keep the “economic ball rolling.”

The building owner either does not recognize – or does not care – that when the government picks winners, it also creates losers. And as is unfortunately all too common when it comes to local reporting, the uncritical nature of article results in a de facto press release for the economic planners in Washington.

Last week I discussed why it’s time to move beyond the anti-earmark crusade. As I explained, earmarks are a symptom of a deeper problem: the existence of programs that enable the federal government to spend money on properly local activities:

There just isn’t much difference between the activities funded via earmarking and the activities funded by standard bureaucratic processes. The means are different, but the ends are typically the same: federal taxpayers paying for parochial benefits that are properly the domain of state and local governments, or preferably, the private sector. As a federal taxpayer, I’m no better off if the U.S. Dept. of Transportation decides to fund a bridge in Alaska or if Alaska’s congressional delegation instructs the DOT to fund the bridge.

In a related op-ed, I cited the example of the $8 billion CDBG program, which provides grants to localities for a range of development projects such as parking lots, museums and street repairs – the same sorts of activities that members of Congress are fond of funding with earmarks:

Just as earmarks have achieved notoriety for wasteful and ineffective spending, community development programs funded through traditional means have had the same problem…

Even if CDBG funds went entirely to “worthy” projects, federal funding is still an inefficient way to foster local economic development because of the excessive bureaucracy that results from funneling money through multiple levels of government.

Federal administration costs are about 5 percent of the value of CDBG grants, with local and state governments taking a 17 percent and 8 percent cut, respectively. A large share of the CDBG budget disappears before any actual work is done.

See this Cato essay for more on community development programs at HUD, including the CDBG program.

Reflections on a Mortgage Summit

Yesterday the Treasury and HUD hosted a “Conference on the Future of Mortgage Finance.”  It was an invite-only of Washington insiders.  Somehow I found myself on the invite list, which was almost enough to make me believe that the Administration was finally serious about reforming Fannie and Freddie.

After getting over the nausea of being in a room full of people who I personally knew bore some responsibility for the mess we are in, I was then shocked that, compared to the rest of the room, Treasury Secretary Geithner came across as the radical.  On one hand Geithner was very clear that the Administration was going to push for some sort of government guarantee, but also that the current structure, particularly Fannie and Freddie, were broken.  He also went as far as admitting that Fannie and Freddie were a cause of the crisis.

Such statements only became radical in contrast to the rest of the room.  Maybe about 80 percent of the attendees were blindly and violently attached to the status quo.  Most offensive to those us who fight for free markets was that the industry representatives were the most vocal advocates for the status quo.  To even suggest that lenders should bear the risk of loans they make was crazy to this group.  It was a clear reminder that being pro-market and pro-business are generally two very different things.   In fairness, not all lenders were busy plotting to find ways to profit while dumping their risk onto the taxpayer; some, such as Wells Fargo, were far more supportive of the private sector actually bearing the risk.

Most of those who were not industry insiders were housing and community advocates.  While this group did seem a little less self-interested, they appear to have learned little about the risks of over-expanding homeownership.  Repeatedly, access to homeownership, as if it could solve every social ill, was pushed as the primary goal.  A few dissenters reminded us that rental is a viable option too, although they were mainly looking to continue/expand Fannie and Freddie’s support of the multifamily rental market.

If the Administration was hoping that this group was going to come up with answers, then they must have been sorely disappointed.  If Obama is serious about taking the taxpayer off the hook for risk in the mortgage market, then he is going to have to take on the special interests.  My fear is that the event was just the beginning of how health care reform played out:  cut a deal with the industry, pay off the Democratic base, and screw the taxpayer.  Let’s hope we actually see some change on this one.

“Smart Growth” from a Dumb Agency

The same federal agency that brought us monumental failures like public housing wants to play a bigger role in fostering so-called regional “smart growth.” HUD secretary Shaun Donovan recently traveled to Portland, Oregon to announce the Obama administration’s new Office of Sustainable Housing and Communities.

This new bureaucracy will distribute $140 million in grants for regional “smart growth” planning:

With OSHC’s grant programs, HUD will provide funding to a wide variety of multi-jurisdictional and multi-sector partnerships and consortia, from Metropolitan Planning Organizations and State governments, to non-profit and philanthropic organizations. These grants will be designed to encourage regions to build their capacity to integrate economic development, land use, transportation, and water infrastructure investments, and to integrate workforce development with transit-oriented development. Accordingly, OSHC’s grants will be coordinated closely with the Department of Transportation (DOT) and Environmental Protection Agency (EPA).

Donovan told a Portland State University crowd that “We at HUD are big admirers of what you’re doing here.” However, Randal O’Toole’s dismantling of the Portland planning utopia myth in a Cato Policy Analysis shows that the city is nothing to be emulated. That is unless other cities want less affordable housing, more congestion, higher taxes, and businesses relocating elsewhere.

Donovan then met up with his EPA and DOT colleagues in Seattle at smart growth conference. HUD isn’t the only one opening up the taxpayer’s wallet:

And the Department of Transportation is proposing $527 million to promote “livable communities” through grants to states and cities. Transportation secretary Ray LaHood says those grants, too, must meet the goals of his partner agencies.

LaHood: “It supports any new initiatives we develop on our own like expanding transit in low–income neighborhoods, or what our friends at HUD and EPA are working on in collaboration.”

Local coalitions are already forming to seek those federal dollars.

Let the rent-seeking begin.

The merits of Portland’s urban planning can be debated all day. But it stands federalism on its head when the federal government takes a particular city’s policies and then tries to shove it down the throats of the rest of the country. Based on what I know of Portland’s planning, I certainly wouldn’t want it where I live. Other cities, like Houston, have reached the same conclusion. But, I guess if Shaun Donovan likes it, then damnit, we’re all going to like it.

Monday Links

  • Michael D. Tanner on the Senate Sell-Outs: “At a time of 10.2 percent unemployment, they voted to make it more expensive to hire workers, especially low-wage workers. With the economy struggling, they voted for $485 billion in tax hikes. They voted to raise the payroll tax, limit your flexible spending account, and tax your health insurance plan. This is moderation?”

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.

ACORN Challenge for the GOP

Republicans are all over the ACORN scandal and calling for an end to federal subsidies for the group. Well that’s great, but it’s not exactly going out on a limb and pushing for a major budget reform.

Why doesn’t the GOP use this as an opportunity to call for completely ending the programs that funded ACORN? Wouldn’t it be better to save the $13 billion a year that HUD spends on so-called “community development” programs, rather than just the few million dollars a year that taxpayers spend on ACORN?

The federal programs that funded ACORN are particularly wasteful ones, including Community Development Block Grants, Housing Counseling Assistance, and others as Tad DeHaven has explained.

At a minimum, the GOP should be arguing that with deficits of $1 trillion the federal government cannot afford to intervene in classic local and private activities such as community development. Boehner and Canter want the IRS to cut ties with ACORN, but they should be leading the charge to end porky “community development” spending altogether.

Have Mexican Dishwashers Brought California to Its Knees?

workerAn article published this week by National Review magazine blames the many problems of California on—take a guess—high taxes, over-regulation of business, runaway state spending, an expansive welfare state? Try none of the above. The article, by Alex Alexiev of the Hudson Institute, puts the blame on the backs of low-skilled, illegal immigrants from Mexico and the federal government for not keeping them out.

Titled “Catching Up to Mexico: Illegal immigration is depleting California’s human capital and ravaging its economy,” the article endorses high-skilled immigration to the state while rejecting the influx of “the poorly educated, the unskilled, and the illiterate” immigrants that enter illegally from Mexico and elsewhere in Latin America.

Before swallowing the article’s thesis, consider two thoughts:

One, if low-skilled, illegal immigration is the single greatest cause of California’s woes, how does the author explain the relative success of Texas? As a survey in the July 11 issue of The Economist magazine explained, smaller-government Texas has avoided many of the problems of California while outperforming most of the rest of the country in job creation and economic growth. And Texas has managed to do this with an illegal immigrant population that rivals California’s as a share of its population.

Two, low-skilled immigrants actually enhance the human capital of native-born Americans by allowing us to move up the occupational ladder to jobs that are more productive and better paying. In a new study from the Cato Institute, titled “Restriction or Legalization? Measuring the Economic Benefits of Immigration Reform,” this phenomenon is called the “occupational mix effect” and it translates into tens of billions of dollars of benefits to U.S. households.

Our new study, authored by economists Peter Dixon and Maureen Rimmer, found that legalization of low-skilled immigration would boost the incomes of American households by $180 billion, while further restricting such immigration would reduce the incomes of U.S. families by $80 billion.

That is a quarter of a trillion dollar difference between following the policy advice of National Review and that of the Cato Institute. Last time I checked, that is still real money, even in Washington.