Local Officials Fight for "Free Lunch"

March 18, 2011

Everybody likes a free lunch. Local government officials really like a free lunch, particularly when that lunch is paid for by federal taxpayers. Spend other people’s money on projects that you don’t have to tax your constituents to pay for? What a deal!

The U.S. Conference of Mayors, the National League of Cities and the National Association of Counties aren’t happy that House Republicans want to trim funding for the Community Development Block Grant program. The CDBG program in particular is cherished by local officials because it affords them wide latitude on how they can spend the money.

The local government lobbies hired IHS Global Insight, a prominent consulting firm, to prepare a study on the economic impact of the CDGB program. The preliminary report – and this is truly shocking – finds that the CDBG program has had a positive economic impact on the ten cities it surveyed. That’s because it appears to have only considered one side of the coin: the benefits (jobs, economic output, etc) that resulted from the money being spent in a particular geographic area.

There’s another side to the coin: the cost. While the lunch might be free for local officials, it came at a cost to the country because the resources to pay for these projects had to be taxed or borrowed out of the economy. Those costs have a negative ripple effect on the economy, just as proponents will argue that the benefits have a positive ripple effect.

A Cato essay on community development programs explains that the cost of federal subsidies to local government outweigh the benefits. Ineffectiveness, waste and abuse, politicization, and excessive bureaucracy are just a few of the problems. Most importantly, these programs represent a morally dubious redistribution of resources from federal taxpayers to parochial interests. If the projects were as beneficial to the communities as the IHS report says, then the burden of paying for it should have been borne by local taxpayers.

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