Political Hay

House Flippers

The Senate version cuts Rep. Maxine Waters' favorite "neighborhood stabilization" provision. For how long?

By 2.12.09

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Congresswoman Maxine Waters won't be happy.

The California Democrat, known for her Freudian slips, has demanded that $4.19 billion be included in the stimulus package for Housing and Urban Development's Neighborhood Stabilization Program. In theory, the funds would enable local governments and nonprofits to purchase and then resell foreclosed homes, ostensibly avoiding blight. The House version, passed Jan. 28, included the earmark. The Senate version, passed Tuesday, did not.

The neighborhood stabilization program was one of several appropriations that got the axe before the Senate approved the package 61-37. Three Republicans broke ranks and joined Democrats in supporting the bill. The package is now in a conference committee where House and Senate leaders can hammer out differences.

Whether the stabilization funds will be included in the final version remains to be seen, as negotiators are aiming for a compromise in the $800,000,000,000 range. (Yes, it pains me to juxtapose the word compromise with a number that contains so many zeros.) But lawmakers would be wise to keep the funding out, given the probability that it will be ineffective and mismanaged.

Granted, that claim could be made about most of the porkulus bill. The federal government's last go at stimulating the economy produced some nice bonuses and parachutes for CEOs, but not much in the way of real economic relief. The potential for fraud is especially acute for the NSP, which essentially gets Uncle Sam into the house-flipping business.

The U.S. Office of Inspector General recognizes the danger of misuse -- it has identified NSP funds as "high risk." Republican lawmakers fear the funds could end up in the pockets of leftist nonprofits. Chief on that list is the Association of Community Organizations for Reform Now, or ACORN, infamous for voter fraud last year.

ACORN has denied all interest in the money. "We have not received neighborhood stabilization funds, have no plans to apply for such funds, and didn't weigh in on the pending rule changes," said Bertha Lewis, chief organizer for ACORN.

Even if you buy that line, hundreds of other nonprofits are applying (some of them clearly leftist), and plenty of money is already up for grabs. Congress allocated an initial $4 billion for the NSP in the mortgage industry bailout passed in July. That money is now in the coffers of state governments awaiting distribution to counties, municipalities, and nonprofits.

It isn't hard to imagine the myriad openings for fraud in this scheme. HUD has pledged to monitor where the money goes and hold organizations accountable for its use, but let's not kid around. Billions in taxpayer dollars are being spread to every corner of the country. Much of it will slip through the cracks.

Even if the money is used for its stated purpose, though, supporters ignore one inconvenient fact: devoting federal dollars to foreclosed homes has the unintended consequence of encouraging foreclosure.

That goes back to the left's inability to understand moral hazard, either in culture or the marketplace. Offering welfare incentives for working fewer hours or having a child out-of-wedlock will produce -- shockingly -- more people who work fewer hours and have children out-of-wedlock. Likewise, doling out government bucks to buy foreclosed homes gives incentive for banks to foreclose on more homes.

To boot, it's generally not a good idea to get the federal government involved in the real estate market. Congresswoman Virginia Foxx, a Republican from North Carolina, puts it well: "If you liked the way the federal government handled Hurricane Katrina relief, you'll love the way they handle real estate investments."

Aiding homeowners in tumultuous economic times is a noble goal, but it's critical to weigh the consequences. Lawmakers must think, not feel -- a tall order in a panic-stricken economic atmosphere, but an essential one. Here's hoping they have enough sense to keep at least this earmark out of the porkulus juggernaut.

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About the Author
David N. Bass is a journalist who writes from the Old North State. Follow him on Twitter.