June 29, 2006 5:21PM

Uncle Sam Wants to Sell You a Latte

In a college town like Madison, Wisconsin, I suspect you can’t throw a copy of Das Kapital without hitting a coffee shop or a drum circle. But the federal government insists upon subsidizing that city’s grandé mocha makers. (It hasn’t found a way to subsidize the drum circles … yet.)

First, some background: Every year, the federal government socks taxpayer money into the Community Development Block Grant program. According to the program’s website, the goal is to encourage “viable urban communities” and expand “economic opportunities” across the nation and, in particular, within “entitled communities.” 

This is done by funneling loan guarantees and direct grants to local businesses. It’s considered a form of “economic development.” Or, to translate from bureaucratese into plain English, it’s a form of grass‐​roots corporate welfare. 

In 2004 the CDBG program funded loan guarantees for projects such as the Tempe Market Place project in Arizona (described as “a retail facility anchored by six nationally known retailers”) to the tune of $7 million. It gave guarantees in the amount of $1.9 million to the Noah Hotel project in Kingston, New York, to build a 50‐​room “boutique hotel,” with a 16,500-square foot ballroom, a restaurant, meeting rooms, and commercial retail space. $2.5 million went to a downtown parking garage in Watsonville, California, and $2.2 million to the redevelopment of the 427‐​acre Colorado Industrial Park in Lorain, Ohio.

Now back to Madison, Wisconsin. As the Mercatus Center’s Eileen Norcross explained today in testimony to Congress, last year the feds spent roughly $1.5 million on loan guarantees to help underwrite two coffee shops, a bakery, and a restaurant in that city, just to name a few. 

How do the HUD managers justify this sort of thing? They claim the money helps “create” jobs for low‐ and middle‐​income residents. And who do those residents happen to be? As Norcross notes, they are college students who are classified as below the poverty line because the money they receive from their parents while attending school in Madison doesn’t count as income. 

So, if you’re a local business owner it sounds like a pretty good deal, eh? Now you can open your doors in a college town and get loan guarantees from the government to hire the kind of employee (read: college students) you would have probably hired anyway.

Many members of Congress will ask, “How can we fix this program?” Only a handful – including Sen. Tom Coburn of Oklahoma, the head of the subcommittee that held the hearing on CDBG this afternoon – ever ask, “Why do we even fund this stuff in the first place?”