Today a large group of mayors of cities throughout the nation met in D.C. to talk with President Obama and Vice President Biden. According to reports, the mayors’ most pressing concern is the fate of Community Development Block Grants (CDBGs), which Obama described as being at risk because of the Republican majority in the House of Representatives.
CDBGs are federal grants intended for localities to use for community-development and antipoverty measures. The Manhattan Institute’s Steven Malanga has waged a one-man crusade against CDBGs, arguing in his new book Shakedown (recommended) and elsewhere that CDGBs are actually little more than a vehicle for political patronage. Mayors use the funds for their own projects when budgets are tight, and in return provide support for congressional candidates.
With the recession taking a heavy toll on city budgets, the nation’s mayors are worried that they’ll be cut off from the roughly $4 billion in CDBGs that allow them to avoid practicing actual fiscal discipline.
Although CDBGs are not a major part of the federal budget (amounting to $120 since their inception during the War on Poverty according to Malanga), they are a great example of spending that could be cut without inflicting much pain. In fact, Malanga provides plenty of examples that suggest that CDBG spending is not only wasteful but actually harmful: grants to cities encourage corruption, destroy incentives for businesses, and generate unsustainable investments. For instance:
Nationwide, nearly 25 percent of block-grant-backed loans wind up in default, according to an analysis of dozens of community-lending portfolios.
In Los Angeles after the 1992 riots, for instance, the federal government plowed an astounding $430 million into a loan program. Since its crime-ridden target area remained an economically inhospitable place, the program had trouble finding companies to lend to.
Criticized for not making loans quickly enough, it then started pouring money into local businesses which racked up big losses. Eventually, the Los Angeles City Council shut down the costly program, supposedly a national model for lending in troubled areas.
Regardless of what mayors need for their own political purposes, CDBGs are not, by any stretch, a priority for the federal government. The costs of these handouts go far beyond the dollar amount accruing to the deficit. Ending the program would benefit its supposed beneficiaries as well as the budget.