Why Worry When You Have Taxpayers? Part II

The “geniuses” in Senate are going to put their housing bill on the floor on Tuseday April 8. It won’t do much for the housing market but will make homebuilders and local politicos erupt with glee. The Wall Street Journal points out some of the highlights.

Like 1990s’ dot-coms that went public with nothing more than a concept, federal programs today can triple their budgets with a single word: housing. But unlike the tech craze, the taxpayer investment in this project will not be voluntary.

Majority Leader Harry Reid’s bipartisan “housing stimulus package” hits the Senate floor on Tuesday afternoon, and what it proves is that, whatever their other differences, both parties can agree to throw good money after bad. The bill is a $15 billion list of subsidies that won’t do much for housing markets but will please the homebuilders, local politicians and other influential lobbies.

Among the largest items is $4 billion for notorious Community Development Block Grants. The money is intended to purchase and redevelop foreclosed properties. It’s hard to think of a less promising vehicle than the CDBG program, which is managed – after a fashion – by the Department of Housing and Urban Development. A February 2008 report from the White House budget office calls the program “ineffective,” which is putting it mildly. On a 100-point scale of achieving results, CDBG scored a 27. In 2005 and 2006, the Government Accountability Office recommended more oversight and better methods of targeting grant recipients.

In June 2006 Senate testimony, HUD Inspector General Kenneth Donohue summarized the results of recent audits: “CDBG-related reports identified over $100 million in questioned costs and funds that could be put to better use. During the same time period, the HUD OIG indicted 159 individuals, caused administrative actions against 143 individuals, had 5 civil actions, 39 personnel actions, and over $120 million in recoveries . . . ‘Improper use of funds’ is the largest repeat audit finding in our CDBG reviews.”

Another finding is what HUD euphemistically calls, “Lack of policy or adequate management.” Reported Mr. Donohue: “The East Meyer Community Association of Kansas City, Missouri, squandered nearly $800,000 of its CDBG money on company picnics, Christmas Tree lighting ceremonies, luncheons, gifts and bonuses.” Remember, this program theoretically exists to counter urban blight and rebuild neighborhoods. Mr. Donohue found more than $2.6 million in management fees providing little or no benefit in a single loan program at the Los Angeles Community Development Bank.

To put it bluntly, this may be the worst-run program in Washington. So why are Senators making it a centerpiece of this week’s housing splurge? Because just about every dollar of the $4 billion will not remain at HUD, but will instead be routed to state and local governments, which can then share the wealth with “nonprofit” (i.e., politically favored) organizations. And while state and local pols will get the money ASAP – within 90 days of the bill’s enactment into law – there is less urgency to address the housing crisis once these recipients cash the checks. They don’t have to buy the foreclosed properties for another 18 months.

Senator Richard Shelby (R., Ala.), mindful of the program’s appalling history, was able to secure a partial rewrite of the bill last week. Any profits from the resale of homes bought in foreclosure must now be recycled back into buying other foreclosed properties. What remains unclear is exactly how much of the $4 billion will stick to the various fingers touching these dollars along the way.

This CDBG fiasco is consistent with other provisions in this stinker of a bill. The main Republican contribution (thanks to Georgia’s Johnny Isakson) is a $7,000 tax credit for those buying homes out of foreclosure. This means that Americans who behaved responsibly and paid their mortgage but are now trying to sell their homes will have to cut their offering price by $7,000 to compete with foreclosed properties nearby. Thus does the Senate contribute once again to tax fairness and personal responsibility.

There’s also a new property tax deduction for non-itemizers, plus authority for states to issue another $10 billion in tax-exempt bonds. The bonds will fund – of course – subprime mortgages. Having witnessed this disaster for investors, states will now run the experiment again, except with taxpayers eating the losses.

Previous government efforts to subsidize housing did nothing but encourage the real estate bubble. The best that can be said of the Senate’s ideas is that they may be more feckless than destructive.

So let me see if I have this straight. Congress is holding hearings because of the lending practices of companies that underwrote lousy mortgages. At the same time they’re going to give money to the states to do exactly the same thing. After all, why should Congress worry? The taxpayers will foot the bill for this crap, just like they always have.

Thanks for nothing.

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