Yesterday Kansas Rep. Mike Pompeo introduced the “EDA Elimination Act,” a bill that would remove funding for the U.S. Department of Commerce’s Economic Development Administration. The agency represents all of the failed policies that the federal government has used to promote economic growth since President Johnson’s Great Society. As Rep. Pompeo wrote in his press release, “At its core, the EDA behaves as a wealth redistribution program… The EDA simply picks ‘winners and losers’ by region, by industry, and by community.”
Last week, Iain Murray and I issued our call in the Washington Times to end the EDA. Our article detailed how the EDA fails to create economic growth and wastes public dollars:
The agency’s largest grant ever, for $35 million, went to build a convention center in Cedar Rapids, Iowa, in 2010…. The Cedar Rapids project rapidly became a money pit, but the EDA kept paying for the digging. Project costs were estimated originally at $67 million, but in less than a year, they increased by $8.6 million. Rather than acknowledge a mistake in funding it, the EDA keeps funneling taxpayer dollars into the project. A year after the original $35 million grant, the EDA responded to the increased costs with another $2.9 million grant. The city’s own projections show the center losing almost $1.3 million by its fifth year.
When Heywood Sanders, an expert on convention-center economics, pointed out to a local paper that convention centers are economic losers, the city’s project manager was blasé. “It will lose money. He’s absolutely right,” he said. “We know that. The city knows that. The question is, how do you minimize the loss?” The city easily could have avoided the losses by not entering the failing convention-center industry. Instead, the city can treat the losses as incidental as long as it is receiving tens of millions of dollars from the federal government. That kind of money provides too strong an incentive to push forward projects that make no economic sense.
The EDA claims it is “guided by the basic principle that communities must be empowered to develop and implement their own economic development and revitalization strategies.” But its grants and interventions undermine this goal. In order to be able to claim that its projects have leveraged large amounts of public and private investment, the agency often encourages municipalities to create special development taxes to qualify for EDA matching grants.
Pueblo, Colo., for instance, was granted an Economic Adjustment Strategies award for raising $88 million to meet an EDA matching grant. In the Cedar Rapids case, a sales-tax increase to pay for the center was rejected by voters, but city planners went ahead with the project after the EDA intervened.
Meddling in local affairs that leads to tax increases and greater government spending will not create real economic development. Policymakers need to end their addiction to spending taxpayer money and admit they have a problem. A good first step would be to end the Economic Development Administration.