Tag: economic development administration

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.

Economic Development Administration—Telling Votes in the House

My colleague Sallie James reported this morning on the looming vote in the House to reauthorize the Export-Import Bank. There are two other votes, which could come as soon as this evening, that would provide a similar indication of how serious the Republican-controlled House is about limiting government and supporting free markets.

An amendment to the House’s fiscal 2013 Commerce, Justice, and Science appropriations bill (H.R. 5326) introduced by Rep. Mike Pompeo (R-KS) would eliminate funding for the Economic Development Administration. An amendment introduced by Rep. Mike Michaud (D-ME) would give the EDA an additional $38 million. The House bill appropriates $219 million for the EDA, which is the same amount that President Obama requested.

It’s bad enough that the House Appropriations Committee wants to continue funding this relic of the “Great Society” at any level. However, the appropriations committees are a lost cause regardless of which party is in control. Thus, how the entire Republican House caucus votes on these two amendments will be the more important—and telling—story.

See this Cato essay for background on the Economic Development Administration.

Obama and Daniels Team Up to ‘Shovel’ Subsidies

(Credit: Westgate @ Crane)

(Credit: Westgate @ Crane)

The Indianapolis Star recently profiled local boy makes good (handing out other people’s money) John Fernandez, the ex-Bloomington mayor and Obama fundraiser who now heads up the Economic Development Administration. A reference to an EDA taxpayer handout to a technology park in southern Indiana caught my eye:

Southwestern Indiana got a $6.7 million boost from the EDA last year to create a multi-county technology park to tap into the research related to the Crane Division, Naval Surface Warfare Center in Martin County. At the July groundbreaking for the park, Gov. Mitch Daniels called it a ‘long-awaited development that will serve as an economic catalyst for the region.’

Why would Republican governor Mitch “Red Menace” Daniels want to help the Obama administration score public relations points with Hoosiers? One reason is Daniels’s favorite corporate welfare apparatus, the Indiana Economic Development Corporation, also handed out money from state taxpayers for the technology park.

From a WestGate @ Crane Technology Park press release:

The Indiana Economic Development Corporation offered WestGate @ Crane Authority, Inc. up to $1 million from the Technology Development Grand Fund as a local match to a U.S. Economic Development Administration grant commitment of $6.6 million.

So what is this technology park that U.S. and Indiana taxpayers are being forced to subsidize?

Qualified as a state Certified Technology Park (CTP) by the Indiana Economic Development Corporation (IEDC), the WestGate @ Crane Technology Park represents a natural marketplace for defense contractors currently providing technical support, and research and development services to the Naval Surface Warfare Center, Crane Division in southern Indiana. Operations of the $2 billion URS corporation, and SAIC, the nation’s 7th largest defense contractor, in addition to ITT, CACI, CSC, CLEC, MLE, Raydar & Associates, Novonics, NAVMAR, Stimulus Engineering and Technical Services Corporation (TSC), already maintain operations in the park.

Great. A high-tech playground for defense contractors—an industry that has enjoyed a taxpayer windfall thanks to Uncle Sam’s ten years of warring on terror.

In a blistering op-ed, Indiana Policy Review editor Craig Ladwig calls Daniels “more of an accountant than an economist, more Beltway than Hoosier” and says that “although he claims to admire the classical liberal philosophy, you strain to see any sign of it in his governing.” As evidence, Ladwig cites Daniels’s record of supporting “crony capitalist ventures.”

Craig is correct, but it’s not just Mitch Daniels. Support in the nation’s statehouses for crony capitalism is ubiquitous. And key enablers of state business subsidies are the numerous federal “economic development” programs—like the Economic Development Administration—that policymakers in Washington use to coddle special interests in the name of “job creation.”

As the Obama-Daniels tag-team demonstrates, corporate welfare is a bipartisan affliction. Indeed, back in February, Rep. Michael Michaud (D-ME) offered an amendment to restore $80 million in funding for the EDA. The amendment passed with 145 votes from Republicans and 160 from Democrats.

Oberstar Comes to the EDA’s Defense

When Rep. Jim Oberstar (D-MN) lost his bid for reelection in November, it brought to an end a congressional career that spanned nearly a half century. As a former chairman of the House Transportation Committee, Oberstar’s faith in the ability of the federal government to turn taxpayer water into wine was typical for a politician ensconced in the Washington Beltway bubble.

Oberstar reemerged this week to voice his support for legislation reauthorizing the Economic Development Administration, which is still being debated on the Senate floor. In an op-ed written for The Hill, Oberstar says that “It is disheartening to see that the agency I helped create more than 45 years ago which has had constant bipartisan support is now under unwarranted partisan attack in an economic environment when the kinds of jobs this agency helps create are needed more than ever.”

Oberstar says that it is “particularly troubling” that the EDA is receiving scrutiny after being unanimously reauthorized only three years ago. And without specifically naming him, Oberstar takes a shot at Sen. Jim DeMint (R-SC) for turning against the agency after having previously “supported and praised EDA investments in his home state.” Considering how rare it is for a member of Congress to admit to having made a mistake, I’d say that DeMint’s recent admission in the Wall Street Journal that he was wrong to have supported the EDA is refreshing.

DeMint correctly noted that the mistaken rationale behind the EDA’s creation during the Great Society is the same as the Democrat’s $814 billion stimulus bill: government programs can solve economic problems. Indeed, the longer the economic recovery remains sluggish and uncertain, the more the American people are questioning the ability of the federal government to simply turn on the money spigot and make the pain go away. For people like Jim Oberstar, that’s an unsettling development.

Many Americans are starting to understand what my colleagues and I have been repeatedly pointing out: there’s no free lunch when it comes to government programs. As a Cato essay on the Economic Development Administration explains, claims of the benefits from spending only look at half of the equation:

The EDA does create government jobs, and perhaps some private sector jobs, but that is only the visible effect. What is invisible, or ignored by policymakers, are the jobs never created because of the taxes that were raised to pay for EDA programs. Every dollar that the government extracts from the economy to pay for programs destroys more than a dollar of private sector economic activity. Taxation reduces the resources available for private sector job creation, and it also distorts the economy by altering price signals for working, saving, and other productive activities.

Oberstar offers anecdotal evidence of the EDA’s successes and trots out the familiar job creation and private sector leveraging claims often made by the agency’s proponents. For instance, he touts the EDA’s “exclusive mission of creating and retaining American jobs by leveraging private investment in the nation’s economically distressed communities and every dollar that the agency invests leverages another $6.90 in private/public investment to create the economic environment for small business to grow and prosper.”

One of the examples Oberstar cites as an example of an EDA success is support for “Washington State’s growing wine industry which currently employs more than 14,000 people and generates more than $3 billion to the state’s economy.” That’s an odd choice after touting the EDA’s assistance to the “nation’s economically distressed communities.” Besides, why should federal tax-paying winemakers in states other than Washington have to effectively subsidize their competition? And as the Cato essay notes, if the EDA is “generating real returns” as Oberstar states, then “surely local entrepreneurs and venture capitalists would be interested in funding such projects without government help.”

Finally, Oberstar singles out Cato for citing “three decade old GAO reports” in our criticism of the EDA. Actually, Cato’s essay on the EDA cites reports going back three decades.

DeMint on the Economic Development Administration

Last week, I wrote about reauthorization of the Economic Development Administration, which is currently being debated on the Senate floor. Sen. Jim DeMint (R-SC) wrote an op-ed in today’s Wall Street Journal that cites Cato’s work on the EDA.

DeMint correctly notes that the mistaken rationale behind the EDA’s creation during the Great Society is the same as the Obama administration’s $814 billion stimulus bill: government programs can solve economic problems. Instead, both have been massive wastes of taxpayer money.

After doing an able job of listing some of the EDA’s faults — and acknowledging that he was wrong to have supported the program in the past — DeMint concludes that members of Congress should be “actively finding ways to reduce spending” given the mounting debt problem. He’s absolutely right, although the EDA should be abolished even if the federal budget were in surplus.

Republicans in particular need to put more effort into targeting specific agencies and programs for termination instead of, say, just issuing constant press releases complaining about the Senate Democrats’ lack of a budget proposal. Note that the EDA reauthorization bill passed out of the Senate Environment & Public Works Committee on a voice vote. That means that all of the committee’s Republicans went along with it. See here for a list of the EPW committee’s members.

EDA’s Delusions of Grandeur

The U.S. Department of Commerce’s $400 million Economic Development Administration provides grants and loans to state and local governments, nonprofit groups, and businesses in regions that are supposed to be economically distressed. The EDA is a relic of the 1960s belief that the federal government can solve the problems of distressed urban centers. Its legacy is one of wasteful and politicized spending. Former EDA director Orson Swindle called it a “congressional cookie jar,” and the legendary anti-pork Democrat Senator William Proxmire argued that it “deserves to die.”

But the EDA did not die and its spending is as wasteful as ever. The EDA’s current administrator, John Fernandez, recently gave a speech on economic development under the Obama administration:

Over the past decade, we let our infrastructure crumble … our schools languish … our small businesses fend for themselves. Instead of building foundations, we chased bubbles.

Obama administration officials frequently blame current problems on the previous administration, and to some degree they are right. But it’s fallacious to imply that the Bush administration financially short-changed state and local infrastructure, schools, and small businesses — all of which are activities the federal government shouldn’t be funding to begin with. As Chris Edwards demonstrates, George W. Bush was the biggest spender since LBJ.

Fernandez continues:

By acting decisively, President Obama and his team pulled us back from the brink. Independent economists have just confirmed that the Recovery Act has saved or created more than 1.5 million jobs. The jobs picture is still sobering, but the unemployment trend is nowhere near as bad as it was when President Obama took office. One year ago, our economy was shrinking at rate of 6 percent. Today, it’s growing at a rate of 3 percent.

Regarding these claims, this graph says it all:

Here’s more lofty rhetoric from Fernandez:

As the president points out, we need to do more than get America back on its feet… We need to take big steps: we need to modernize our education system, revitalize our infrastructure, invest in industries of the future, and create a new entrepreneurial culture in which innovation can flourish… For centuries, we’ve attracted, developed, and nurtured the world’s best talent, and given our citizens a chance to build a better life for themselves and their families.

By “we need” Fernandez means the federal government, not the private sector. Yet this country didn’t become an economic powerhouse because of the Department of Commerce or any other federal bureaucracy. America’s rise to prosperity was fueled by entrepreneurship and the vast investment of private capital initially unhindered by a small and distant federal government. The “big steps” Fernandez wants to take would mean more taxes and debt, which would kill the entrepreneurship and innovation that he lauds.

Fernandez discusses the idea that state and local governments should think of economic development from a regional perspective. Competition for industry and jobs between neighboring jurisdictions should be subordinated to regional economies “planned” by government officials in conjunction with business and civic leaders. He makes a curious statement in this regard:

Our political system rewards mayors, members of Congress, and governors for how much good they did for their constituents in the short term — you don’t get credit for fostering long-term growth. And in recent years, a virtual cottage industry has developed in ranking states on how attractive they are as places to do business: who’s got the lowest labor costs, who’s got the lightest tax load or regulatory burden, and so on.

He would have a point if he were talking about narrow tax loopholes and government subsidies for companies to locate to a particular state or city. But broad-based reductions in tax and regulatory burdens most certainly foster long-term growth. And inter-jurisdictional competition over tax and regulatory burdens is an important factor promoting government restraint.

Unfortunately, the growing centralization of power at the state level at the expense of local autonomy, and similar unhealthy relationship between the federal government and the states, inhibits this healthy competition.

Although he denies it, it’s planning and centralization that Fernandez seems to view as the ideal. State and local officials should be “collaborating” on regional economic development because the real competition is foreigners. And who better to deal with foreigners than Uncle Sam?

[F]or the past decade, federal support for these regional efforts has been too limited. Too fragmented. Too inconsistent. The federal government has not been a reliable partner… What Washington can do — and under President Obama, what Washington has begun to do — is to facilitate collaboration. To provide a framework for that discussion among all the stakeholders. To help regions assess their competitive strengths. To help them design a strategy to bring together the technology, the human capital, and the financial capital it will take to compete. And to provide seed money for turning a region’s unique strategy into reality.

According to Fernandez, this is “where the Economic Development Administration comes in.” On cue, he proceeds to provide a litany of all the wonderful things his agency is doing. None of it is worth quoting, as it’s the same warmed-over subsidy ideas we’ve been hearing from federal officials for decades. The fact is the EDA is a $400 million economic development program in a $14 trillion economy. Even though that’s $400 million taxpayer dollars too many, it nonetheless amounts to a pothole on the nation’s economic superhighway.

See this essay for more on why the Economic Development Administration should be abolished.