The Stimulator

President Bush's proposal to change the way urban grants work raises questions about local economic development that have been ignored for too long.
June 2005
William Fulton
By William Fulton  |  Columnist
Director of the Kinder Institute for Urban Research at Rice University and former mayor of Ventura, Calif.

Several years ago, a small city near where I live had big plans to redevelop its downtown. The quaint little main-street area was primed to go: It was in a redevelopment zone. An excellent plan was worked up by a fine set of urban designers. The city was considering the usual financing options: tax-increment funds? federal Community Development Block Grant money?

The answer wasn't clear, but nature intervened. A large earthquake hit the town hard, causing the city to red-tag several downtown buildings. The late Ron Brown, President Bill Clinton's secretary of commerce, arrived in town in a hard hat to inspect the damage. As a result, the town soon had all the money it needed to implement the pre-earthquake downtown redevelopment plan--thanks to a grant from the Economic Development Administration designed to rebuild the city in the wake of earthquake damage.

The earthquake didn't change the town's plans. It just changed the town's strategy for obtaining federal funds. Instead of stemming urban decay, the town was now reviving its economy in the wake of a natural disaster. The net result on the ground was the same, but the city got to use its local tax-increment and federal block-grant dollars for something else instead.

This kind of story illustrates the core issue in President George W. Bush's proposal--unsuccessful for the moment--to eliminate the Community Development Block Grant program and replace it with a set of "categorical" grant programs in the Department of Commerce. This proposal is sure to be revived next year and sure to be continually opposed by cities of all sizes throughout the country. But that doesn't mean it's not worth considering, because it raises fundamental questions about the federal government's role in local economic policy that have not been addressed for decades.

In proposing a Commerce-based "Strengthening America's Communities Initiative," the president wants to target funds to specific programs designed to stimulate specific business-oriented goals, rather than dole out dollars to cities on a formula basis through the Department of Housing and Urban Development. The Bush administration argues that CDBG and similar programs "currently lack clear goals or accountability measures."

This shouldn't be surprising. When the Nixon administration created the block-grant program in 1974, it was designed as a sop to the emerging suburban constituencies of the time. The "Great Society" effort of the 1960s had created a passel of "categorical" urban aid programs--federal programs designed to address specific categories of urban problems. Among other things, these programs provided aid directly to Democratic mayors, bypassing Republican state governments.

The Bush proposal would reestablish strong federal control over the goals and purposes of community and economic development programs by using the money to target specific development strategies in specific distressed communities. In this way, the Bush administration proposal represents an eerie mirror image of the Johnson administration's original vision of urban aid. No less than Lyndon Johnson, George Bush is determined to exercise the power of his office to its fullest in order to promote a strong and specific vision of the future.

But would it do any good--or, more to the point, would it do more good than the present system? That depends what the overall goal of the federal programs is supposed to be. And here is where the president deserves credit for putting a tough question on the table. Traditionally, of course, there are two answers to the question: the Republican answer (federal aid programs are meant to stimulate local economies) and the Democratic answer (federal aid programs are meant to revitalize our rotting urban cores). Both have some legitimacy.

The political genius of the CDBG program was that it threaded this needle and allowed the federal purpose to be defined by local officials. But after 30-plus years, this Nixonian approach has created a strong constituency of local officials who don't want to answer the question above because they like the idea of getting federal money with few strings attached. So we never get much of a debate about the goal.

But the question deserves to be answered, at least in the context of 2005. When the Bush administration pushes the idea again next year, it would behoove all of us to take a fresh look at what the overarching economic problems in cities and towns are, and whether the federal government should be more aggressive and targeted in trying to solve them. Otherwise, we'll just get more urban redevelopment with earthquake aid--or vice versa--for the foreseeable future.