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Washington Examiner


Politicians Win, Taxpayers Lose As Government Funds Failed Projects

October 08, 2010

By Steven Malanga

Part five in a five-part series

In 2005, the Bush administration proposed to eliminate one of the last and least effective vestiges of the War on Poverty: aid to cities doled out in the form of community-development block grants. The effort failed, even though for 30 years the program has expended some $120 billion in thousands of communities, with little to show for the effort.

Over the years, officials have squandered billions of taxpayer dollars by financing unworkable projects that often went bust, investing in new businesses that couldn't survive in depressed neighborhoods, and funding social programs with little idea of how they might actually strengthen their communities. But the block grant program has powerful friends in Washington who continue to protect it.

President Obama, himself a product of government-funded community groups, has promised to vigorously expand block grants.

How has the program spent taxpayer money? It has poured hundreds of millions of dollars into businesses in poor communities, often financing companies that had difficulty repaying their debts, backing projects that went bust, and rarely creating jobs in the distressed areas at which they were targeted.

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.

Like Los Angeles, Buffalo has received huge infusions of federal urban aid--more than half a billion dollars in community-development block-grant money alone in 30 years. If this kind of urban aid truly worked, Buffalo would be a shining star in the economic-development constellation because it has gotten more block-grant money per capita than any other U.S. city.

But as a series in the Buffalo News revealed, the city has almost nothing to show for its massive block grant aid, having squandered it on a succession of failed projects, including nearly $60 million into trying to revive its theater district, with numerous loans and grants to private businesses that then defaulted.

Over time, local officials and Congress have allowed billions in block grant aid to go to politically connected groups--a far cry from the original intention of using the money to revive depressed neighborhoods.

In recent years, for instance, congressmen have lavished millions of dollars for grants to zoos, for opera houses in Connecticut, Michigan, and Washington State, for the Southern New Mexico Fair and Rodeo, the Alabama Quail Trail, and the Iao Theater in Wailuku, Hawaii.

In addition, well-off municipalities have used the program to build tennis courts, to finance arts centers, or to pretty up their downtown shopping districts. Bergen County, New Jersey, where annual household income is 55 percent above the national average, spent nearly $280,000 in block-grant money to keep alive a privately owned arts center less than half an hour from Broadway.

The block-grant program is a tiny part of our now huge national budgetary problems. But there is a larger message in the survival of block grants.

For 30 years, critics have been unable to reform or eliminate a program that is ineffective at best, with no clear goals, and a clear patronage machine for politicians and community groups at worst. The block grant effort illustrates how difficult reform becomes once a government program becomes entrenched.

Original Source:



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