Earmarks and Federal Grants

January 5, 2011

Federal taxpayers helping foot the tab for renovations to a local wine bar? It sounds crazy, but that’s par for the course with HUD’s Community Development Block Grant program. 

A Connecticut newspaper recently ran an article on CDBG money being used to spruce up storefronts in the town of Putnam: 

The Small Cities Community Development Block Grant money slated for Cohen’s building comes shortly after a similar grant project finished across the street, said Economic Development Director Delpha Very.
Facade improvements to the Glimpse of Gaia florist, Pangaea Wine Bar and Panache consignment shop finished last month, said building owner Sean Marchionte, of Providence-based Blue Dog Investments. 
The building’s owner – go figure – thinks it’s just great: 
“It’s very encouraging when you get help from the town. That’s what helps developers like myself make improvements to our buildings, attract tenants and keep the economic ball rolling in the right direction,” he said. 
First, the help came from federal taxpayers – not the town. Second, robbing from Peter to pay Paul, which is what federal grant programs accomplish, does not keep the “economic ball rolling.”
The building owner either does not recognize – or does not care – that when the government picks winners, it also creates losers. And as is unfortunately all too common when it comes to local reporting, the uncritical nature of article results in a de facto press release for the economic planners in Washington.
Last week I discussed why it’s time to move beyond the anti-earmark crusade. As I explained, earmarks are a symptom of a deeper problem:the existence of programs that enable the federal government to spend money on properly local activities: 
There just isn’t much difference between the activities funded via earmarking and the activities funded by standard bureaucratic processes. The means are different, but the ends are typically the same: federal taxpayers paying for parochial benefits that are properly the domain of state and local governments, or preferably, the private sector. As a federal taxpayer, I’m no better off if the U.S. Dept. of Transportation decides to fund a bridge in Alaska or if Alaska’s congressional delegation instructs the DOT to fund the bridge. 
In a related op-ed, I cited the example of the $8 billion CDBG program, which provides grants to localities for a range of development projects such as parking lots, museums and street repairs – the same sorts of activities that members of Congress are fond of funding with earmarks: 
Just as earmarks have achieved notoriety for wasteful and ineffective spending, community development programs funded through traditional means have had the same problem…
Even if CDBG funds went entirely to “worthy” projects, federal funding is still an inefficient way to foster local economic development because of the excessive bureaucracy that results from funneling money through multiple levels of government.
Federal administration costs are about 5 percent of the value of CDBG grants, with local and state governments taking a 17 percent and 8 percent cut, respectively. A large share of the CDBG budget disappears before any actual work is done.
See this Cato essay for more on community development programs at HUD, including the CDBG program.


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