It's almost a
D.C. truism that anytime Congress creates a "trust fund" for a certain policy
issue, the money flowing into the fund will be diverted to something
Government trust funds are set up with special taxes and fees so
that they will be less subject to normal budget constraints. That makes them
desirable for future Congresses to divert their proceeds to spend on
Payroll tax money in the Social Security Trust Fund has for decades
been emptied out to fund general government programs. Similarly, the Highway
Trust Fund set up to build and improve roads from the federal gasoline tax has
also seen raids on its
purse for other priorities.
The 800 pound gorilla of all phony government
trust funds may be soon enacted in housing bailout legislation before Congress.
The so-called Affordable Housing Trust Fund is part of the legislation
trust fund is not to be trusted. It is almost set up from the beginning to be
diverted to purposes other than affordable housing.
THE HOLES IN the
fund would allow the money to be easily siphoned off to liberal activist groups
such as Association of Community Organizations for Reform Now (ACORN) for
lobbying and political campaigning.
Long a priority of groups on the
Left, the fund would get its revenues from a legislatively fixed share of the
surpluses of the government's Federal Housing Administration or the profits from
the government-chartered enterprises Fannie Mae and Freddie Mac.
latest version -- in the housing and GSE oversight bill that cleared the Senate
Banking Committee in May -- would establish the fund by taking 1.2 basis points
of interest from Fannie and Freddie's loan portfolio -- about $500 million a
Enacting an off-budget funding entity for housing is a high
priority of Rep. Barney Frank. Since he became chairman of the powerful House
Financial Services Committee when the Democrats took Congress back a year and a
half ago, he has inserted several versions of the this into many housing
"Given our severely constrained fiscal realities," Frank has argued, there needs to be "a low income housing trust fund that
will be paid for in ways that do not draw from federal tax revenues."
given how important low-income housing supposedly is to Frank and other
advocates, there are relatively few safeguards to ensure that most of the Trust
Fund proceeds are actually spent on affordable
There are pro
forma prohibitions on using the funds for lobbying and political
activity, but the bills -- including the Banking Committee package -- contain
virtually no teeth in enforcing the bans.
There are no explicit
requirements for recipients of the grants to fill out timesheets for housing
activity, or restrictions on groups using grant money to pay employees who also
happen to do other things -- such as lobbying and political campaigning. And
there are really no penalties other than being forced to give the money back and
being disqualified for a new grant.
SAFEGUARDS ARE IMPORTANT because
some of the biggest "housing advocates" also have politics in their portfolios.
These groups would include ACORN and the National Council of La Raza, both of
which provide housing counseling as well as lobby for liberal causes and
ACORN has an especially dubious history concerning both
election fraud and misuse of federal funds. Several ACORN workers have been indicted and/or convicted of voter registration fraud with
phony signatures. In Washington state, seven ACORN employees were
indicted in what the Democratic Secretary of State called the worst case of
voter fraud in the state's history.
As Wall Street Journal columnist and election
fraud expert John Fund reported,
"The list of 'voters' registered in Washington state included former House
Speaker Dennis Hastert ... actress Katie Holmes and nonexistent people with
nonsensical names such as Stormi Bays and Fruto Boy."
And ACORN has also
been sanctioned specifically for misuse of federal housing funds. In 1994, the ACORN Housing
Corporation (AHC) received a grant from the newly created Americorps to assist
low-income families at finding housing. In applying for the grant, the AHC
claimed its activities were completely separate from ACORN.
But one year
later, the Americorps Inspector General would testify
GIVEN THIS HISTORY of the fungibility of housing grant
money, Republicans had so far blocked the creation of the new housing trust
No bill containing the fund had been passed by the Senate, and
White House issued a statement containing a veto threat last fall, citing concerns
that the fund would "be susceptible to political influences that could
compromise the goals of assisting as many low income families in need as
But just after Senate Banking's ranking Republican Richard
Shelby announced he had reached a "compromise" with committee chairman Chris
Dodd on the housing fund and other issues, most committee Republicans followed
suit. The bill passed the committee 19-2 just before the Memorial Day
Part of the "compromise" that Dodd and Shelby announced was that
money from the "trust fund" would be used to fund the bill's main action of
bailing out troubled homeowners through FHA guarantees of modified loans. This
way, there would be somewhat less direct costs to taxpayers than in Frank's
House bill, which relies solely on general tax revenues for the
But as they were rushing out for recess, perhaps the GOP members
didn't notice the many devils in the details of the Senate Banking package.
In addition to unrelated items such as a bizarre requirement for a fingerprint registry for much of the mortgage industry, the
bill hardly gave any ground on the trust fund.
Only part of the revenue
would go toward the bailout, the rest would continue to go to grants that could
find their way to groups like ACORN. And after two years, all of the money would
go to the fungible housing grants.
ALTHOUGH FRANK HAS been described as angry about the compromise, it's hard to see why.
The Senate committee has already given him about four-fifths of what he has
The bill will help start an unaccountable slush fund
that could be used for dubious purposes. Advocates have never really explained a
policy rationale for having an off-budget entity for housing. At the very least,
the "trust fund" proceeds would go to what states and the federal government are
Frank has lamely cited assistance to renters as a
justification. But as the White House noted in its statement last fall, the
federal Home Investment Partnerships Program of the Department of Housing and
Urban Development already serves this goal, making a trust fund for this purpose
Forcing Fannie and Freddie to divert money to this
fund also threatens the solvency reforms contained in the same Senate banking
package. Heritage Foundation economist David John calls
it "very worrying" for our elected representatives "to treat the GSEs as a
piggy bank that can fund specific projects without going through the normal
Another untrustworthy trust fund we can do
without. that passed the Senate Banking Committee in May
that's poised to come to the Senate floor as early as this week. that "AHC used Americorps grant funds to benefit ACORN
either directly or indirectly." She found several instances of cost-shifting
from ACORN's lobbying group to the housing entity, and also found several
instances of the steering of recipients of housing counseling into ACORN