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The Public Policy

It's almost a D.C. truism that anytime Congress creates a "trust fund" for a certain policy issue, the money flowing into the fund will be diverted to something else.

Government trust funds are set up with special taxes and fees so that they will be less subject to normal budget constraints. That makes them desirable for future Congresses to divert their proceeds to spend on pork.

Payroll tax money in the Social Security Trust Fund has for decades been emptied out to fund general government programs. Similarly, the Highway Trust Fund set up to build and improve roads from the federal gasoline tax has also seen raids on its purse for other priorities.

The 800 pound gorilla of all phony government trust funds may be soon enacted in housing bailout legislation before Congress. The so-called Affordable Housing Trust Fund is part of the legislation that passed the Senate Banking Committee in May that's poised to come to the Senate floor as early as this week.

This trust fund is not to be trusted. It is almost set up from the beginning to be diverted to purposes other than affordable housing.

THE HOLES IN the fund would allow the money to be easily siphoned off to liberal activist groups such as Association of Community Organizations for Reform Now (ACORN) for lobbying and political campaigning.

Long a priority of groups on the Left, the fund would get its revenues from a legislatively fixed share of the surpluses of the government's Federal Housing Administration or the profits from the government-chartered enterprises Fannie Mae and Freddie Mac.

The latest version -- in the housing and GSE oversight bill that cleared the Senate Banking Committee in May -- would establish the fund by taking 1.2 basis points of interest from Fannie and Freddie's loan portfolio -- about $500 million a year.

Enacting an off-budget funding entity for housing is a high priority of Rep. Barney Frank. Since he became chairman of the powerful House Financial Services Committee when the Democrats took Congress back a year and a half ago, he has inserted several versions of the this into many housing bills.

"Given our severely constrained fiscal realities," Frank has argued, there needs to be "a low income housing trust fund that will be paid for in ways that do not draw from federal tax revenues."

Yet given how important low-income housing supposedly is to Frank and other advocates, there are relatively few safeguards to ensure that most of the Trust Fund proceeds are actually spent on affordable housing.

There are pro forma prohibitions on using the funds for lobbying and political activity, but the bills -- including the Banking Committee package -- contain virtually no teeth in enforcing the bans.

There are no explicit requirements for recipients of the grants to fill out timesheets for housing activity, or restrictions on groups using grant money to pay employees who also happen to do other things -- such as lobbying and political campaigning. And there are really no penalties other than being forced to give the money back and being disqualified for a new grant.

SAFEGUARDS ARE IMPORTANT because some of the biggest "housing advocates" also have politics in their portfolios. These groups would include ACORN and the National Council of La Raza, both of which provide housing counseling as well as lobby for liberal causes and politicians.

ACORN has an especially dubious history concerning both election fraud and misuse of federal funds. Several ACORN workers have been indicted and/or convicted of voter registration fraud with phony signatures. In Washington state, seven ACORN employees were indicted in what the Democratic Secretary of State called the worst case of voter fraud in the state's history.

topics:
Taxes, Social Security