The Waste of Tax Dollars Known as the CDBG

Our money down the drain

Nearly every politician running for office campaigns on cutting “waste, fraud, and abuse.” I’m not a politician, but here is some material for those running. I recently tried to help a widow here in Jefferson County that needed a mobile home by making use of the community and private sector. Her mobile home was in very bad shape, and in August, she had swallowed her pride to ask for help at a Commissioner meeting. She had been added to the government home-building program that is funded by the Community Development Block Grant, or CDBG. She was upset due to the amount of time it would take to get her some help (according to some documents I read this has been in process since at least June 2011). I believe our local officials were doing what they could and perhaps a little more to help her.
 
That’s not the problem. 
 
They told her that she was dealing with the government and would have to be patient.
 
That’s the problem.
 
In his first inaugural address, President Reagan stated, “government is not the solution to our problem, government is the problem.”  This is most certainly the case here.

He did say it, listen at around 4:24 minutes in.
 
To examine the problem, we must follow the money. First off, note that it is a grant, not a loan. A grant is never repaid while a loan is. The CDBG originates in the federal Department of Housing and Urban Development. After our tax dollars go there, they are then redistributed to the several states via the CDBG. The states then redistribute the money to the counties or cities, which redistribute it to local contractors via a contract agent. Here in Jefferson County that agent is Meridian Community Services Group Inc., who I’ll refer to as Meridian.
 
Meridian has submitted papers to the Board of County Commissioners for the October 6 morning meeting that on page 11 show the cost to rehabilitate or renovate the widow’s property was estimated as $65,500. This is in line with cost per square foot estimates in the Tallahassee area for 2010 that I found of around $75/foot for basic construction- an 875 square foot home would cost $65,625.
 
Now that the parameters are known, we need to look at administrative costs. A 2009 study titled “Community Development” by Tad DeHaven of the CATO Institute using numbers from the Government Accountability Office (GAO) showed the administrative costs of the CDBG were as follows:
Federal: 5%
State: 8%
City or County: 17% (due to numerous time spent filling out federal forms and reports)
Contractor: 10%
Total administrative cost: 40%
 
These are conservative numbers. In the HUD Publication entitled
The actual administrative limit is 20% for cities and counties (although by ‘the letter of the law’ there it appears the state could do this as well). The following is found on page 3 of 15:
The regulations at §570.200(g) limit CDBG expenditures for administration (§570.206) plus expenditures for planning (§570.205) to 20 percent of the annual grant plus program income.
 
Like our Congress, HUD publishes voluminous materials for those involved in administering the CDBG. A 2005 publication titled “Playing by the Rules A Handbook for CDBG Subrecipients on Administrative Systems” is 112 pages long.
 
This is all before one nail is hammered.
 
To illustrate the cost of this redistribution, I like to use the example of giving a friend money via several friends. You have $10 to give to your friend Adam. To get it to him, you pay it all to Frank Federal, who takes 50 cents. Frank then gives the $9.50 to Sam State, who takes another 80 cents to give it to Charles County. Charles had to fill out a bunch of forms for Frank in order to pay it to Mike Meridian, so Charles keeps $1.70 of the $8.70 he received. Charles gives the $7.00 to Mike, who charges $1.00 to pay it to Adam. Adam now has $6.00 of the $10 you wanted to give him.
 
If you do not believe the administrative costs are this high, please check the sources- the federal government’s own GAO along with the allowed amounts for the others. Lastly in this area, in the meeting packet titled “JEFFERSON COUNTY, FLORIDA CONTRACT FOR COMMUNITY DEVELOPMENT BLOCK GRANT PROGRAM ADMINISTRATION SERVICES”for the Board of County Commissioners on September 1, 2011, Meridian laid out their fee schedule (Attachment C on page 11):
Where grant funds cannot be used or for additional services the following schedule will be utilized:
Description Fee*
Principal $225.00 per hour
Project Manager $150.00 per hour
Financial Services Manager $140.00 per hour
Construction Manager $110.00 per hour
Construction Inspector $ 85.00 per hour
Accounting/Budget Specialists $ 85.00 per hour
Administrative Assistant $ 45.00 per hour
*Please note that all fees include overhead, profit, travel, office supplies, benefits, etc.
 
The lowest-paid employee is making $45/hour. Keep in mind that none of these positions constructs the home. They are the contract agent between the county and the contractor.
 
It’s worth noting in this document on page 4 the same person, a Meridian Vice President, represents Meridian and Jefferson County as their Project Manager. It is unusual in my experience to have the same person representing both parties in a contract. This is typically considered a conflict of interest.
 
Perhaps it is easiest to think of this as going to buy a home and the Realtor taking 40% of the money you have allocated just to find one. You then only have 60% left to pay for it.
 
I’ll close this section with a possible unintended consequence. If the widow ends up with a home valued at $65,000 on land valued at $5,000, she would then be paying property taxes, which could be a hardship on her fixed income. Due to the low value of the existing mobile home and land combined with exemptions, she currently has a zero taxable value. If the “renovation” falls under the “Save Our Homes” property tax provision, then this is not a factor. A similar event took place in 2004 when with good intentions Oprah Winfrey gave away 276 cars to her audience members. They found out they would be taxed on the value of the car as income and had a large unanticipated expense, in some cases $7,000. Oprah’s representatives said winners had three choices. They could keep the car and pay the tax, sell the car and pay the tax with the profits or forfeit the car.
 
Now for a couple of solutions-
I’ll start this portion by saying providing a home for citizens is not the function of the federal government. If doing so (along with other entitlements) provides for the general welfare of a few at a huge financial cost to the nation, then the general welfare has not been provided for- instead it has been diminished.
 
I am of the belief that we as citizens and good neighbors can in fact provide for the needs of those few in our county and country who have no family or other support network, but we’ve fallen into complacency and allowed the government to do so. Just as if you pay a plumber to fix a leak in your toilet, it will cost more than if your neighbor that is able to repair it does so or if you learn how to do it yourself. This is similar to the example Dr. Ron Paul cited at the Presidential debate recently when asked about health care. When the government got involved, the cost went up and the efficiency went down.

Listen starting at 1:15 in for how it used to be and why health care costs are so high, then apply that to the CDBG.
 
The gentleman I spoke to in Madison County that sells and refurbishes mobile homes believed he could do a lot of refurbishment for under $5,000 in a couple of weeks. Since I did not follow up on this plan after learning it would jeopardize the widow’s government home, I will not include it as a solution here. Conventional wisdom said it couldn’t be done, but like old wrecked motorcycles, it’s in the eye of the beholder. Some people can turn wrecks into viable vehicles at a modest expense. I ride one every so often.
 
1. Buy an existing home, demolish the unsafe structure, and sell the property to offset the cost.
A check of the site realtor.com tonight showed five properties for sale in the county all under the $65,500 figure used by Meridian. Keep in mind these are asking prices and would likely be negotiated lower. They ranged from a $45,000 mobile home on 5 acres to an older home on a city lot for $60,000. Figuring on another $5,000 to demolish the unsafe mobile home and then a sale of the land for $2,500, (half the assessed value) would add $2,500 to the cost. Just as the $3 billion federal boondoggle known as “Cash for Clunkers” compelled many people to buy an expensive new car when a used one would have sufficed, there is no need to build a new when there are homes on the market for less than the cost of the government home.
 
The advantages here are numerous-
  • The widow could move in quickly- the delay was her main complaint with the CDBG process.
  • The cost would be less than building a new home.
  • The paperwork and administrative costs would be far less.
  • The local real estate market would be helped.
  • If the home were vacant, there would be one less vacant home on the market.
  • She would not be as adversely affected by property taxes.
 
There are no disadvantages to this solution other than possibly the cost as compared to solution #2.
 
2. Replace the existing mobile home with a used mobile home
This was one of the options I looked into while trying to help the widow. I found it would cost over $9,000 just to remove the old home and prepare the site for a new one, and a replacement small used home would likely be another $5,000, for a total of close to $15,000. This is still far less than the $65,500 proposed by Meridian.
 
The advantages here are:
  • The cost would be far less than the $65,500 estimated by Meridian.
  • Local business would be “stimulated” for the removal and installation, as well as possibly the sale.
 
The disadvantage would be that the lifespan of a used mobile home might not be very long.
 
If we cannot break our dependency on the federal government for entitlement spending like this when there is a cost-effective alternative, our nation is doomed to financial failure.

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