With the City of Detroit heading toward bankruptcy, The Hill reports that Mayor Dave Bing has signed a $330,000 contract with a Washington lobbying firm to help the city grab more money from federal taxpayers. At the same time, Rep. Hansen Clarke (D‑MI) wants up to a $1 billion in “emergency aid” (i.e., bailout) for Detroit from Uncle Sam.
I typed “federal funds Detroit” in a Google search and the following headlines popped up on the first page:
“Cockrel: ‘Idiotic Management of Federal Funds Cost Needy Detroit Resident a Chance at Jobs”
“Detroit Poorly Managed Federal Funds”
“Detroit Could Lose $20 Million in Federal Funds Due to Mismanagement”
“State Seeks Better Oversight of Detroit’s Federal Funds”
“Officials Examining Detroit’s Finances Find Federal Funds Poorly Managed”
As I clicked through the search pages a pattern emerged: most of the articles are either about Detroit receiving federal funds or Detroit mismanaging federal funds. And Mayor Bing and Rep. Clarke think the rest of the country should give Detroit more money?
Federal subsidies create a disincentive for local governments to prudently manage their financial affairs. Just like an unemployment check creates a disincentive for an unemployed worker to take a less desirable job that would at least get them back in the workforce, federal handouts allows local officials to avoid pursuing reforms that aren’t politically desirable in the short term, but that would be good for the city in the long‐term. In short, Detroit ultimately has to be responsible for Detroit.
A recent piece in the Wall Street Journal from David Beito and Daniel J. Smith, which compared the post‐tornado recovery efforts in Joplin, Missouri to Tuscaloosa, Alabama, is illustrative. According to Beito and Smith, “Joplin is enjoying a renaissance while Tuscaloosa’s recovery has stalled.” Why? Whereas Tuscaloosa has pursued central planning and federal aid, Joplin has taken a decentralized, bottom‐up approach that has enabled local businesses to spur the recovery.
Beito and Smith conclude:
In an age of mounting deficits and limited federal attention spans, hoping for more subsidies from Washington, D.C. is a risky bet at best. Joplin’s safer wager is in the good sense and independently generated resources of those individuals and businesses most directly affected by nature’s fury.
Detroit and other cities that are in financial trouble should take note.