City of Bell on Federal Dole

August 2, 2010

The city of Bell, CA recently made national headlines when it came to light that city officials have been receiving massive six-figure salaries. Bell taxpayers were so irate that police in riot gear were required to maintain control at a recent city council meeting. 

However, Bell taxpayers aren’t the only ones who pay for Bell city salaries and programs. The Census Bureau’s Federal Audit Clearinghouse database shows that Bell has spent almost $5 million in federal Community Development Block Grant funds over the past five years. The city also spent hundreds of thousands of dollars in subsidies received from other federal programs. Since money is fungible, bureaucrats in Bell and other cities can presumably operate in a more spendthrift fashion because they receive a large inflow of federal dollars.   

California controller John Chiang has opened an investigation to see if federal and state funds awarded to the city have been spent “lawfully.” That’s fine, but a better investigation would find out why Bell couldn’t find local support for all the various projects that the federal government is funding.
As a Cato essay on why the CDBG program should be abolished points out, federal subsidies encourage local fiscal irresponsibility: 
Moving funding for local projects up to the federal level eliminates responsible city planning. When local funds are used for local projects, local officials have an interest in ensuring that the benefits of public projects outweigh the costs. But when the federal government is the source of funds, local governments tend to invest in a range of inefficient and wasteful activities. 
In 2006, HUD’s inspector general reported that in just two and a half years of CDBG investigations it had “indicted 159 individuals, caused administrative actions against 143 individuals, had 5 civil actions, 39 personnel actions, and over $120 million in recoveries.” The inspector general found that there were “repeated” problems with the program, including the improper use of funds, grantee inability to account for funds, and a lack of monitoring and oversight. 
Democrats and Keynesian economists are arguing that more state and local subsidies are needed to keep the economy from slipping back into a recession. However, these subsidies merely move money around the map. As the Bell example shows, state and local governments need to get their fiscal houses in order. Federal subsidies will only postpone the overdue house cleaning.  



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