Good Reporting on Federal Subsidies to State and Local Government

Tad DeHaven

Reporters who cover state and local government should heed the example of theTopeka-Capital Journal’s Andy Marso. It’s my opinion that reporters often insufficiently examine how state and local politicians spend federal tax dollars. Heck, I’m even surprised when a reporter mentions that the money originated from Uncle Sam to begin with.

Marso recently looked at the use of federal Community Development Block Grant money by Osage City in Kansas (see this Cato essay for more on the CDBG program). In particular, $750k from federal taxpayers that was wasted on a now defunct modular home builder:

 Osage City Mayor Quintin Robert says John Samples and his modular housing company Kan Build Inc. was about as safe an investment as a company could be in 2006.

Samples owned Kan Build when the city council and Kansas Department of Commerce approved funneling $750,000 in federal money to the company through the Community Development Block Grant program. The business had nearly closed one year earlier, but Samples stepped in, leading a group of investors in buying the manufacturing facility.

Samples was a successful businessman who had bought and rehabilitated the company once before. Despite the turmoil, Robert, who was on the city council at the time, said betting on Samples seemed like a good play.

“I think the decision was based on, ‘Hey, this guy bought this plant when it closed, got multiple grants, was one of the only people to pay them back and had an award, an entrepreneur of year award,’ ” Robert said in a recent phone interview. “He got a lot of accolades, because it is a big deal in a small community. A couple hundred jobs are a big deal.”

Then the housing market crashed, and by February 2011 the plant closed and the 108 jobs it had when it got the grant money disappeared.

Mayor Robert’s simple-minded comments on the deal demonstrate the folly of allowing politicians to play economic planner with other people’s money. It’s even worse when a politician uses money that he or she didn’t have to first collect from his or her voters/taxpayers, which is a fundamental problem with federal subsidies to state and local government. Under that arrangement, local citizens have little incentive to pay attention to how their elected officials are spending money.

As Marso notes, the Osage City City Council’s spent all of three minutes on the decision to give Kan Build the money. If that wasn’t bad enough, it turns out that Mayor Robert “worked for Kan Build in various capacities in the early 1980s, early 1990s and from 1999 until it closed.” The Office of the Inspector General for the Department of Housing and Urban Development might want to look into that.

Anyhow, great work by Marso. There are a lot of similar stories out there waiting to be told.