Wasteful Development Subsidies Among Cuts Proposed by Debt Commission

In its report yesterday, the National Commission on Fiscal Responsibility and Reform encouraged Congress to cut from the federal budget "wasteful spending, including subsidies that are poorly targeted or create perverse incentives..." People who care about making great neighborhoods, take notice. Unbeknownst to most, the federal government plays a massive role in the real estate market by subsidizing and enabling all kinds of development in our communities. With ballooning deficits, now seems like a good time to revisit these subsidies and make sure they are achieving a legitimate public purpose -and not, in the commission's words, "creating perverse incentives."

The Commission has already identified several federal programs that fit this description, zeroing in on:

  • Eliminating the mortgage-interest deduction for second homes. It makes sense to help people get into their first home. It doesn't make much sense to provide a subsidy to people looking for their second home so that they can drive prices up for people who are trying to get into their first home.

  • Focusing the use of Economic Development Administration (EDA) funds on critical locations. EDA funds are now thinly spread over a large number of locations, sometimes even subsidizing a business to move out of an existing community into a new location in the same region. This doesn't increase jobs but can create a need for costly new infrastructure burdening taxpayers and businesses alike. Targeting investment towards existing communities will give us a greater return for our federal investment.
  • Reforming the federal transportation program. The co-chairs say, "Before asking taxpayers to pay more for roads, rail, bridges, and infrastructure, we must ensure existing funds are not wasted. The Commission recommends significant reforms to control federal highway spending." Simply put, the current system demands little in the way of performance and accountability and as a result it costs too much, provides too few choices to too few people, and is slowly falling apart.

  • The federal government is deeply involved in shaping how communities grow and, in turn, whether they thrive. If Congress really wants to rebuild our economy and spur job growth they should start by cutting federal subsidies that incentivize wasteful development and bankrupt our communities. Instead, we need targeted transportation and economic development investments to encourage private sector reinvestment in our communities, create more jobs locally, and save taxpayers big money in the long run.

    At Smart Growth America, we believe great neighborhoods are the building blocks for a great economy and a great country. The Commission's recommendations are a key step toward rebuilding our economy, and we encourage the Commission and Congress to effectively support the needs of all our nation's communities in their budget decisions tomorrow and throughout the coming year.