LET’S FIX That BY George Lumley, CPA

How More is Less?

In a recent discussion with an Evansville Department of Metropolitan Development (DMD) employee, I came across one of those situations where more $$$ equals less accomplished.   The DMD employee gave me a very nice rendition of the Blight Elimination Program’s great proposed achievements in demolition of zombie homes.  She emphasized how lucky Evansville is to have the program so we can get more zombie houses cleaned up with the infusion of the state funding.  I wish I could have agreed with her and went on about my business happily ever after.  That would have been politically correct but not very productive, in my opinion.  I am working to force a more efficient use of available funding, and being politically correct does not get results.

I just had to introduce the idea that the state-infused money was not being used to demolish zombie houses but was actually diverted to other City uses, and we are ending up with fewer demolitions than if the program had not come along.   Well, that certainly threw cold water on a very good, fired-up sell of a program that she certainly believes in and has spent countless hours working on, probably donating hours of her personal time from a busy schedule to maintain exemplary records.

I then tried to explain the justification for my offensive statement.   I did not get very far.  The conversation reminded me of a pinball machine.  The ball is bouncing all around on its own and the points are racking up, and then the ball rolls down where you can send it back into action.  It comes almost straight down and as you hit the flapper and give the machine a little push – TILT—GAME OVER—GAME OVER—.  I just have not figured out how to tell someone that their program is not working efficiently or effectively without offending them.

Yes, the program they claimed “could eliminate more blight in 18 months than we normally do in years” has issues that no one wants to admit.  You can spin it many different ways to make it sound good, but with a little research of the facts, it is plain to see that if the goal was to help eliminate the blighted zombie houses in the neighborhoods, this program did not help.

This particular program is an odd one.  It is a legally maneuvered mutation to give Midwest States another chance to spend money they failed to spend on a program to keep people in their homes during the recent recession.  As part of the stimulus package, the U.S. Department of Treasury had a program to supplement mortgage payments in an effort to assist families who were falling on hard times to stay in their homes.  We had this program available in Evansville.  The Indiana Housing and Community Development Authority (IHCDA) administered the program, but according to evaluations, they did a lousy job of getting the money out to the families in need.  One of the main criticisms was the exorbitant amount going to administration versus the aid actually delivered to the applicants.  The other criticism focused on the lack of outreach to find and inform the needy families.  The program failed and left behind unspent resources.  Because the economy recovered but left in its wake an infectious spackling of blighted homes, some forward thinkers came up with the idea to use the leftover, already approved by Congress, funds to remediate the blighted houses scattered throughout the neighborhoods.

Using the funding to clear the blighted homes in Indiana, Illinois, Michigan, and Ohio was a great idea with lots of support; so, Indiana was allocated 75 million dollars to abate “blighted, vacant, and abandoned” homes. Now is where things go wrong.  The money is given to the same organization, IHCDA, that messed up getting the money to the needy in the first place.  IHCDA, a monster of an organization that feeds on administrative cost and big development projects, was given the picnic basket.  In addition, very few guidelines were provided (an effort to save administrative expense), so now the IHCDA has a big chunk of money with little guidance.  Being the IHCDA was born out of the Indiana Department of Commerce and keen on focusing on economic development and HUD guidelines, they set forth with their own mission.

Meanwhile, back in Evansville, there is word that the “blight” money is coming to tear down the abandoned houses.  Well, the first thought of some city leader is, well if that money is going to fix our blight problem we can quit spending our own.

Now, this is where the tricky analogy comes in, but bear with me.  Let’s say your unmarried son has three children, one going to an expensive private school costing him $6,000 a year and the other two are going to public school.  The younger 2 could go to the private school for only $3000 each.  You are uneasy about telling him how to spend his money and don’t always approve, but you would like to see all your grandchildren going to the private school.  So you decide to give him a $6,000 per year voucher payable to the private school.  Your son is very gracious and thanks you, saying that now that he doesn’t have to pay that $6,000 a year in tuition, he can take an annual vacation to Europe with his girlfriend and asks if you could watch the kids.

So upon word that the city is looking to receive some federal money for blight, the normal annual appropriation from the Riverboat Fund is cut by $500,000 per year ($1 million in previous years down to $500,000).  The funding once going to tear down the falling down houses is diverted to the city’s least worthy cause.

In addition, because of the IHCDA’s penchant for economic development, much of the funding is not going to tearing down the Zombie houses within the neighborhoods but is used to take out blocks of average homes for commercial development.  Would we have used our own money for that?

Add another kicker in the fact that the cost per demolition using our own funds was averaging around $5,000, but with the federal program the demolitions are averaging close to $20,000 (averages from Courier & Press news articles).

Now let’s do the math.  Without the infusion, we would have had the usual $1 million of our funds going to demolish 160 homes in the neighborhoods each year (using a generous average cost of just over $6,000 each for these small, dilapidated structures).  Three years at 160 homes a year would be 480 dilapidated zombie houses removed.  Now with the cash infusion, our normal domestic funds are cut in half, resulting in approximately 240 homes (480/2=240), and the added $2.5 million resulted in 85 homes ($2.5 million less $800,000 for the commercial lot leaving $1.7 million for houses in the neighborhoods divided by the average demolition cost under the program of $20,000 = 85 homes) for a total of 325 homes with the grant infusion.  So with the grant we get 165 fewer homes (480 under original plan – 325 under grant = 165).

Evansville has an estimated 1800 homes that need demolished and we get a $2.5 million dollar demolition program (more) specifically targeting the problem that is supposed to help neighborhoods by taking out these blighted, vacant and abandoned homes but that extra money results in 165 fewer (less) zombie homes remediated  in the neighborhoods than our existing program would have accomplished. That is not right.  It is a shame that the city has dedicated employees that strive to make our programs the best, but our leaders, the decision makers at the local and state level, let special interest derail the best of intentions.  We are so misled on this program that “would eliminate more blight in 18 months than we normally do in years”.  We are misled on many such programs.  Let’s fix that.

GEORGE LUMLEY-CPA