Community Development Block Grant Spending Is Poorly Targeted to Poor

Over the past two years, the White House budget called for eliminating Community Development Block Grants (CDBG) twice. If history is any indication, CDBG will once again be proposed for elimination when the budget is published next week. Most likely, Congress will afterward reject the White House’s suggestion, as it has in previous years.

If Congress cares about helping low-income people, it isn’t clear why they would reject the White House’s suggestion, or at least why Congress wouldn’t repurpose CDBG money for activities that address low-income needs directly.

Because “community development” is a broad and ambiguous goal, and CDBG is a flexible program, money is used on a variety of disparate activities with largely unmeasureable results. Simply reviewing a list of recently funded CDBG projects reveals exactly how disparate these activities are and how indirectly the program meets low-income people’s needs. Below are examples of projects that CDBG money has been used for in recent years:

  • Portions of a $432,400 hull repair for Kate “the lady of Moosehead lake” steamship in Greenville, Maine

  • $30,000 for LED lighting on a monument in Hamilton, Ohio

  • $500,000 to expand Niagara County brewing into North Tonawanda, New York

  • $515,000 for Northsiders Engaged in Sustainable Transformation (NEST) to purchase land for a grocery cooperative in Northside, Ohio

  • $20,000 for salaries for “Green Team” of highschool students and summer enrichment program, $15,000 to teach kids to sail and kayak in Lawrence, Massachusetts

  • $50,000 for a cinema that later foreclosed in Pittsfield, Massachusetts

  • $276,000 to fund a public skateboard park in North Adams, Massachusetts

  • $560,000 to fund the WNY (sustainable cheddar) Cheese Enterprise in Linwood, New York

  • $375,000 to open a burrito restaurant in Oneonta, NY

  • $225,000 for splash pad in Jacksonville, NC

  • $175,000 to fund a Jamaican cultural coalition in Queens, New York

  • $300,000 to revitalize a historic theater in Indianapolis, Indiana

  • $1 million to restore a historic hotel in Boyne City, Michigan

  • Up to $15,000 per eligible individual in Mobile, Alabama to pay for costs associated with historic homes

  • $2.7 million for “The Waterfront,” a 26,000 sf recreational facility that includes rock climbing walls, a golf simulator, etc. in Newark, New Jersey (plus $7 million through a HUD HOPE 6 grant)

  • $505,000 corporate subsidy to persuade Proctor & Gamble’s Natura acquisition to move to Fremont, California (part of a larger $1 million package of incentives)

  • (A portion of) $825,000 for a theatre feasibility study in North Adams, Massachusetts

Revitalizing historic buildings, expanding breweries, and teaching kids to sail are examples of spending that satisfy high-income preferences rather than low-income needs. At the very least, these are activities that local government should fund if they are important to local communities.

Economic Forecasts Are Fiction

The Wall Street Journal reports:

ECB economists have cut their economic growth forecast for 2019 to 1.1% from the 1.7% they had expected in December. 

The European Central Bank has decided that just three months ago it was overestimating growth by 55 percent. That is a big error for growth not years ahead but immediately ahead.

Media reports sometimes treat central bankers and other government experts as seers, but in predicting the future they seem quite useless. The ECB employs more than 2,500 presumably high-paid officials with high-tech models, and they can’t project accurately a few months ahead.

In his book examining government performance, Yale University’s Peter Schuck concluded that the government’s “endemic failure is rooted in an inescapable, structural condition: officials’ meager tools and limited understanding of the opaque, complex social world that they aim to manipulate.”

What is the upshot? If governments cannot predict our economic future, they will be hard-pressed to successfully manipulate it. Governments should focus on creating broad and neutral rules of the game, and not try to micromanagement.

For more on central planning, see here.

For more on central banking, see here.

68% of Americans Wouldn’t Pay $10 a Month in Higher Electric Bills to Combat Climate Change

Public opinion polls have long found that Americans say they are concerned about climate change. But does that mean people are willing to reduce their own standard of living and make personal sacrifices in efforts to do something about it? New survey data suggests not. An AP-NORC survey finds that 68% of Americans wouldn’t be willing to pay even $10 more a month in higher electric bills even if the money were used to combat climate change.

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Proposals that use government intervention in the economy to combat climate change, like the Green New Deal (GND), will require people make personal sacrifices. The GND resolution, introduced to Congress by Rep. Alexandria Ocasio-Cortez  (D-NY) and Sen. Ed Markey (D-MA), calls for the U.S. to undertake a 10 year national mobilization, on the scale of World War II, to overhaul its entire infrastructure and industry, including upgrading or replacing every single building in the US with new energy-efficient technology, and reach net-zero greenhouse gas emissions in 10 years with a goal of completely eliminating Americans use of gas, oil, and coal. Currently, about 80% of all the energy Americans use comes from fossil fuels like gas, oil, and coal. 

To say the least, the Green New Deal isn’t cheap. Most analyses estimate it will cost in the trillions of dollars and require Americans to make personal sacrifices. Both supporters and opponents of the plan agree that the environmental aspects of the plan would cost at least $10 trillion. That’s about three times the entire U.S. federal budget. Even when spread out over 10 to 30 years, these estimates indicate an annual price tag of thousands of dollars per U.S. household. Higher levels of government spending necessarily require higher taxes, either now or in the future. Advocates of the Green New Deal say it can be paid for with the government borrowing money (deficit spending.) But deficit spending today means higher taxes tomorrow.

Many 2020 Democratic hopefuls have signed on to the plan, including Kamala Harris, Elizabeth Warren, Cory Booker, Kirsten Gillibrand, Bernie Sanders, and Amy Klobuchar. They may believe this is a popular move with the public. Perhaps because surveys show the public is concerned about climate change. For instance, a 2018 Quinnipiac survey found that 69% of Americans say they are concerned about climate change.  And the same survey found that a smaller, but still substantial, share (50%) believe that climate change will personally affect them during their lifetimes.

But what people say they are concerned about and what they are actually willing to do about it are not the same thing.  An AP-NORC survey found that 68% of Americans wouldn’t be willing to pay $10 a month in high electric bills to combat climate change. The survey asked people if they would be willing to pay a fee in their electric bill every month that would be used to combat climate change. Then the survey asked about different potential fee amounts. The survey found overwhelming majorities of Americans opposed paying the fee to combat climate change if it cost:

  • $10 a month, 68% opposed
  • $20 a month, 69% opposed
  • $40 a month, 76% opposed
  • $75 a month, 83% opposed
  • $100 a month, 82% opposed

Was there any amount Americans were willing to pay to combat climate change? Yes, $1 dollar. Fifty-seven percent (57%) of Americans would be willing to pay a $1 a month fee in their electric bills to combat climate change.

Although Americans say they are worried about climate change, most clearly aren’t worried enough to spend their own money on it, or make personal sacrifices for the cause. Perhaps it might be that people know they are supposed to be concerned about climate change because this is a salient message they receive from trusted sources and thus say so on surveys. However, receiving these messages and cues hasn’t been enough to convince them to give up their own money, let alone lower their own standard of living, for the cause of combating global warming. However, significant personal sacrifices are what proposals like the Green New Deal will require. These data provide some indication that purported support for government interventions in the economy to deal with climate change may be inflated. Instead, Americans may be more supportive of public policies that foster an economic environment that allows for technological innovation and invention among rising entrepreneurs and private sector businesses competing to come up with the next big idea that makes our world cleaner, healthier, happier, and more productive. 

 

Jones Act Repeal Bill Introduced

Earlier today Senator Mike Lee introduced a bill to repeal the Jones Act. Such a move is long overdue. In place since 1920, the Jones Act mandates that goods transported by water between two points in the United States be done by vessels that are U.S.-flagged, U.S.-crewed, U.S.-owned, and U.S.-built. Ostensibly meant to bolster the U.S. maritime sector, the Jones Act has instead presided over its decline whether measured in the number of oceangoing ships, mariners to crew them, or shipyards to build them. 

While its benefits may be mythical, the law imposes very real burdens such as higher transportation costs, more highway congestion, more pollution, and even reduced access to U.S.-made products. In addition, the Jones Act’s rejection of competition and consumer choice should be considered an affront to cherished American principles. It’s time to rid ourselves of this antiquated law and chart a new course based on innovation and competition rather than discredited protectionism.

To learn more please visit www.cato.org/jonesact

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Lightbulb Efficiency Standards

The Washington Post recently criticized the Trump administration for proposing to eliminate an Obama administration rule that would extend minimum lightbulb energy efficiency standards to specialty bulbs and add them to a list of incandescent lights that will be effectively banned in 2020. The Post argues that the policy of imposing energy efficiency standards on lightbulbs “has no downside.” Energy efficiency regulations are often described as the equivalent of a free lunch, but these rules, like all regulations, have both benefits and costs.

Lightbulb efficiency standards were included in the Energy Independence and Security Act of 2007 (EISA), which established efficiency standards for “general service lamps.” These standards applied to various technologies, including traditional incandescent bulbs, CFLs, and LEDs, but excluded many types of specialty bulbs, such as decorative candelabra bulbs. The act also required the Department of Energy (DOE) to initiate procedures to determine whether the lightbulb standards should be increased and required a final rule to be published before 2017. If the DOE was unable to fulfill this requirement, the act created a backstop that would impose a 45 lumen (a measure of light intensity) per watt (lm/W) minimum on lightbulbs starting January 1, 2020. A traditional 100 watt incandescent bulb emits 1600 lumens of light, only 16 lumens per watt, and thus would be banned. 

After passage of the EISA, Republicans in Congress stymied implementation of the standards by inserting language in DOE appropriation bills prohibiting the use of federal money for their implementation and enforcement. During the Obama administration the DOE attempted to circumvent the appropriation restrictions by creating new rules that expand the lighting standards to include many of the originally exempted lightbulbs and apply the 45 lm/W backstop in 2020. These regulations were published shortly before Trump’s inauguration in January 2017. The new proposed rules eliminate the Obama revisions.

Despite the Post’s assertion, the Obama regulations do impose costs. As the 2017 rule notes,

DOE acknowledges that manufacturers may face a difficult transition if required to comply with a 45 lm/W standard. Manufacturers have voiced concern regarding the loss of domestic manufacturing jobs, the stranding of inventory, the ability to meet the demand for all general service lamps with lamps using LED technology, and the burden associated with testing and certifying compliance for all general service lamps.

The fact that manufacturers are upset by the rule indicates there are some costs. Furthermore, limiting consumer choice itself is costly; some specialized incandescent bulbs may not be available after 2020.

The benefits of the standards also may be small. The Post states that the lack of the mandate would cost consumers $12 billion per year and 140 billion kilowatt-hours in energy waste. But these estimates assume that consumers will not choose LED and more energy efficient lamps over incandescent bulbs on their own.

Ever since the first oil shocks in the 1970s there has been a debate about the necessity of energy efficiency standards for autos, trucks, and appliances. Consumer groups and engineers, often working at federal energy laboratories, have argued consumers fail to purchase vehicles and appliances that are more expensive initially but save money over time through less energy use. Economists have responded with evidence that consumers make appropriate tradeoffs between initial costs and savings over time and that public programs to promote energy conservation have costs that are greater than benefits.

As I have previously summarized, the most extensive evidence exists for cars. According to this research, consumers are quite willing to pay more initially for a vehicle that saves them money in gasoline costs over the ownership life. The same argument applies for appliances and lightbulbs. As the president of the Alliance to Save Energy, a pro-efficiency standard group, argued,

There aren’t many people out there clamoring for outdated light bulbs that use four or five times as much energy. Consumers have moved on and embraced high-efficiency bulbs like LEDs because prices are plummeting and because they’re getting a better-performing, longer-lasting product that saves them money.

I recently replaced the incandescent candelabra bulbs in the outdoor lights outside my front door that used 40 watts of electricity with LED equivalents that used 4. The market provided me with an energy saving option even though no regulation required it to do so. If the light is used 3 hours a day 365 days a year and the electricity costs 10 cents per kWh, then the annual savings is $3.94 per year ($4.38 annual costs for the 40 watt bulb vs. $.438 for the 4 watt) which pays for the $8.26 cost of the LED bulb in a little over 2 years.

As the economic literature, manufacturers, and even some proponents of efficiency standards recognize, I am not unique. Consumers understand the cost savings of LEDs, so the economic and environmental benefits propounded by the Post will occur without the tradeoffs required by government mandate.

Written with research assistance from David Kemp.

Philadelphia’s Ban on Cashless Stores

In an attempt to help lower-income consumers, Philadelphia has just become

the first major U.S. city to ban cashless stores, placing it at the forefront of a debate that pits retail innovation against lawmakers trying to protect all citizens’ access to the marketplace.

As with other regulation that allegedly helps the poor (e.g., restrictions on pay-day lending), this new regulation is misguided.

Some stores, in response to this ban, will keep accepting cash but raise prices. Other stores will close their Philadelphia locations entirely. Both effects harm lower-income consumers in particular.

Regulation adds costs, so it normally exacerbates rather than ameliorates poverty.

A better way to help “the unbanked” is to reduce regulation of debit cards and other non-cash payment mechanisms.

 

Subsidizing Passenger Rail Makes Little Sense

A Wall Street Journal article on an upgrade to a Midwest rail line illustrates the shortcomings of pumping tax dollars into passenger rail.

Amtrak’s route from Chicago to St. Louis would seem an ideal place for the U.S. to adopt high-speed rail such as in Europe and Asia, where passenger trains can race along at 200 miles an hour. The stretch in Illinois is a straight shot across mostly flat terrain.

In fact, a fast-rail project is under way in Illinois. Yet the trains will top out at 110 mph, shaving just an hour from what is now a 5½-hour train trip.

After it’s finished, at a cost of about $2 billion, the state figures the share of people who travel between the two cities by rail could rise just a few percentage points.

Behind such modest gains, for hundreds of millions of dollars spent, lie some of the reasons high-speed train travel remains an elusive goal in the U.S.

Laying dedicated track is expensive but relying on existing track owned by freight rail firms limits speed and on-time performance. The latter approach also undermines the freight rail system, which is an efficient and powerful engine of the U.S. economy.

Illinois didn’t have the money, or the right-of-way, to lay tracks that would be exclusively for a high-speed service. So its fast passenger trains will have to share the track with lumbering freight trains.

“To build the kind of infrastructure that is stand-alone—that is, just for high-speed passenger rail—it is just absurdly expensive and just takes years and years and years to get through the permitting and environmental process,” said Randy Blankenhorn, who was Illinois’s transportation secretary until this year.

“Land acquisition alone [would] take half a decade,” he said. “If we were to have said from the beginning, right off the bat go to 200-mile-an-hour service, we’d still be in the implementing and design phase.”

Illinois settled for weaving improvements along the route and rebuilding an existing single-track line that is owned by freight railroads. In effect, it chose higher-speed rail rather than actual high-speed.

… The Illinois rail project has consisted of making major improvements to the route on which Amtrak provides service. Work started in September 2010 and was supposed to finish in seven years. A federal mandate requiring trains to have an automatic mechanism to prevent certain accidents helped push back the timeline.

It has been a monumental undertaking that required dealing with railroad companies, cities and landowners, said John Oimoen, deputy director of railroads in the state transportation department. More than 300 road crossings had to have separate agreements covering upgrades or closures.

By late 2015, agency officials feared the project was dead, simply because so many deals needed to be negotiated before a deadline to spend the federal grant. The agency ultimately assigned its highway real-estate department to help finish the project.

Upgrading road crossings often meant rebuilding them, from drainage pipes up, to smooth passage for faster trains. Two extra signal arms were added to many crossings to keep drivers from going around them.

Another problem is federal micromanagement. Anything involving federal subsidies includes layers of regulations, which adds costs and delays.

[Illinois] also faced years of delays in getting new rail cars. Nippon Sharyo of Nagoya, Japan, landed a contract in 2012. Because the federal grant that funded the work required cars to be built in the U.S. from U.S.-made parts, the Japanese company expanded a 460,000-square-foot factory in Rochelle, Ill., and rebuilt its supplier network.

The company struggled to adapt designs and failed U.S. crashworthiness tests. In 2017 it withdrew from the contract and later closed the plant, meaning a side benefit Illinois hoped for—local jobs assembling rail cars—fizzled. The work moved to a Siemens AG facility in California.

Amtrak is plagued by lousy customer service. Trains do not run frequently and they have a poor on-time record.

Heidi Verticchio takes the train a few times a week between her home in Carlinville, Ill., north of St. Louis, and Bloomington-Normal, where she directs a speech and hearing clinic for Illinois State University. Because the trains don’t run frequently enough, she often has to drive the 120 miles when she needs more flexibility.

A higher speed won’t mean Ms. Verticchio will be taking the train more often. She estimates it might cut 10 to 15 minutes from her ride.

“It’s not going to make any difference,” she said.

Most of the Chicago-St. Louis train corridor remains a single track. Freight railroads Union Pacific and Canadian National own most of the route. They coordinate all traffic, including passenger trains.

In the year that ended with November, according to an Amtrak report, Canadian National caused 1,672 minutes of delay per 10,000 Amtrak train-miles logged on the route. Union Pacific caused 1,036 minutes of delay per 10,000 Amtrak train-miles, Amtrak said. Both exceeded Amtrak’s target of 900.

The report attributed about two-thirds of the delays to “freight-train interference.” It found that 73% of rail passengers arrived on time, but for those who faced delays, these averaged 45 minutes.

Finally, U.S. passenger rail is run by the government There is more private-sector involvement abroad, which is a better approach. So I agree with Puentes that the Florida and Texas projects bear watching.

Robert Puentes, president of the Eno Center for Transportation in Washington, notes that the U.S. has used just one approach to passenger rail since the 1970s, Amtrak. The government-owned corporation was cobbled together from remnants of major railroads’ passenger services. It is funded through fares and state and federal subsidies.

European rail networks feature a mix of government and business owners and operators. Mr. Puentes said new investor-owned passenger rail ventures in Florida and Texas bear watching.

More on Amtrak here.

Romance of the Rails can be ordered here.