Stimulating Conditions

Let me make a simple prediction: After all is said and done and we have spent a trillion dollars authorized by the federal American Recovery and Reinvestment Act (ARRA), also known as stimulus money, we will not know whether it recovered our economy. What we will know is that our public debt will be one of the highest in our history and remain with us for decades to come. (Let's just hope China remains a willing investor, economic partner, and political ally).

Let's take a look closer at how stimulus spending affects our city government. A case in point is the latest recommendations by the Community Development Block Grant (CDBG) committee to fund local projects (legislative file 15482) with federal stimulus money. Unlike past requests for proposals (RFP) from CDBG, this time for-profit companies were eligible to apply based on the written guidelines issued by the federal department of Housing and Urban Development (HUD).

As a result the City received one application from a for-profit company, the Higher Ground Urban Farm, Inc. (HGUF). Its mission is to grow food sustainably in a protected greenhouse environment on Madison's Northside utilizing renewable energy resources.

HGUF is a newly created company with apparently no active operations, employees, or physical location yet. While it has a tentative agreement with a local property owner, I learned that the exact location on the proposed premise will not happen until the end of August, 2009. Furthermore, the company plans to hire three to four local minorities and train them in greenhouse agriculture.

Yet, according to their financial projections that I received as a City Council member on July 9, 2009, their projected gross sales for November 2009 is $17,500 and for December $28,000. Are we to conclude that within three months this business will sign a lease, build a green house, hire and train staff, set up all the typical business operations, line up customers, and sell agricultural goods in excess of $17,000 per month?

All this during economic times when small businesses are defaulting in higher numbers in Madison and across the country according to an article in the Wisconsin State Journal on July 27, 2009.

At the last Board of Estimates meeting several Council members had concerns about this application and decided to send it back to the CDBG committee. I trust they will share their concerns at the upcoming Council meeting where the CDBG recommendations for funding will be on the agenda.

Though I have written many business proformas and worked with investors and banks to secure private financing, I do not have the knowledge to evaluate the feasibility of this particular business without more market research. At the same I feel compelled to raise the question whether this project is ripe, or in Council's language, soup to receive a $53,000 grant and a $53,000 loan at zero percent interest. HGUF is, after all, a start-up company with no track record.

Therefore, I went to the last CDBG meeting with the hope committee members would consider adding a job creation claw-back clause. My thinking is that since job creation is one of the primary reasons for stimulus money, perhaps we could impose a condition that HGUF should retain three full-time employees for two years for receiving $106,000 taxpayer money. I recommended that if HGUF does, they would receive the $53k grant and $53k loan as recommended by CDBG in a previous meeting. If they wouldn't, the $53k grant would become a loan and we could leverage the loan repayments for other projects in the future. In either scenario the taxpayer would be protected while providing an opportunity for a local entrepreneur to start a new business. Sort of a win-win situation. Right?

Was I ever so wrong to assume that committee members would find the two-year job condition to be reasonable in light of the concerns with this particular application. They, including alders who typically advocate for job creation claw-backs in other city policy areas (such as Tax Incremental Financing), decided against any additional conditions. Instead I got the impression that the CDBG committee was eager to award money to a for-profit company to counter long-standing criticism that CDBG money goes only to not-for-profits.

Incidentally, I also learned that HUD counts job creation as of the date employees are hired regardless of how long these jobs exist. Isn't this classical bean counting to meet politically-driven quotas? HUD officials can report to Congress and the White House that stimulus money has created x-amount of jobs regardless of whether they are sustainable after taxpayer money has been spent. Mission Accomplished, right?

Public decisions to spend money in the private sector are common. But stimulus spending may be somewhat of a different animal. At the national level political careers depend on producing results to claim a quick victory. At the local level, staff and committee members, who experience the constraints of inadequate resources frequently, may feel a sudden delight in spending other people's money (OPM) to help our communities. And, according to the Wall Street Journal, there is considerable pressure to release stimulus money as quickly as possible. When these dynamics converge chic trend-du-jour projects or well-written but perhaps overpromising applications could easily get stimulus money.

In instances where there are serious questions about sustainable outcomes and unsubstantiated claims, let's not gamble with taxpayer money. Let's be certain we get what we pay for. Because CDBG committee members and local officials come and go, their decisions are easily forgotten. And since most citizens do not have the time and resources to track the outcomes of the many promises made, accountability is minimal.

Multiply these decisions taking place by the thousands, if not millions in local communities all across the country and a disturbing picture emerges. Could we be creating a "Great Corporate Welfare Society" in the process? Yet, in a few years the public will hear the many accolades of how great the stimulus effect has been on our economy. While there may be some truth in them, remember the Feds are not shy to base results on sanitized data derived from meaningless bean counting. If we are going to incur great public debt, we owe it to ourselves to get the greatest value for the public good.

I recommend we impose reasonable conditions on all projects whenever necessary to guarantee the outcomes that are stated in the business proposals. In my first term I requested conditions on the proposed Mallards project to prevent the City and taxpayers from future financial liability. Given the downturn in the economy, the Mallards ended up having difficult times obtaining financing. On a broader level, it seems we need to review our funding criteria more carefully and create guidelines or policies for city committees that are involved in disbursing public money.

The role of a Council member is to advocate for and protect the public's interest. I will certainly be scrutinizing RFPs, funding recommendations, and decisions by CDBG more closely now that stimulus money (OPM) is hitting the local scene. I hope the public will, too. Otherwise my prediction may come true in Madison!

I would be remiss if I didn't mention that the owner of Higher Ground Urban Farming is a constituent of mine. She owns a successful business and volunteers in our community. She has all the indications of a caring entrepreneur with a social conscience. My comments should not be construed as a criticism of her and her dreams, of urban agriculture, or the local food movement. I wish the owner of HGUF all the best in achieving her business goals.