Imagine a situation in which an existing state agency is both unnecessary and relatively ineffective. It maintains a massive bureaucracy at public expense and, in the name of aiding the poor, actually spends considerable resources helping those who are not poor. Taxpayers are on the hook if any of its projects turn sour. And all the while, what little good it does is done in direct competition with private-sector firms that employ real people with real families. What should legislators do about this?

A. Expand the program;
B. Scale the program back and/or fix its deficiencies; or
C. Eliminate the program

While "A" would seem nonsensical to most people who have to pay government's bills, it's all too often the preferred course of action for the legislators who run those bills up. A classic example is playing itself out in Lansing right now.

The Michigan State Housing Development Authority (MSHDA) is a state agency that sells bonds and uses the proceeds to provide loans to developers who erect low-income housing and subsidies in the form of loans and mortgage credit certificates to individuals who buy houses. That may be a laudable purpose on its face, but as former MSHDA board member Gary Wolfram has pointed out ("Privatizing the Poor: How to Expand Low-Income Housing in Michigan," MPR, spring 2000), MSHDA protects its bond rating by essentially lending its money for low-income housing projects that the private sector would finance anyway. It uses its tax-free government status to compete with standard, taxpaying for-profit lenders and subsidizes well-off developers with loans at artificially low rates of interest. But does it substantially increase the stock of low-income housing? Wolfram says no—the private sector provides about 93 percent of the low-income housing in Detroit, for example, which suggests that MSHDA would hardly be missed if it were eliminated and its functions turned over entirely to private developers.

Now comes House Bill 5538, sponsored by Rep. Paul DeWeese (R-Williamston). Of the "A," "B," and "C" options mentioned above, the DeWeese bill does "A." It expands MSHDA by increasing the income and purchase price limits of the single family housing portion of the program and requires that those limits be raised every year hereafter.

Under current law, to qualify for a MSHDA-subsidized single family home, family income cannot exceed $43,575. The DeWeese bill would raise that to "100 percent of the statewide median family income," the practical effect of which means that nearly half of Michigan families would ultimately qualify for this "low-income" assistance. Also under current law, the purchase price of the unit cannot exceed $80,000 for an existing home or $100,000 for a newly constructed one. The DeWeese bill would raise those limits to $99,000 and $120,000, respectively. These purchase price limits would then rise automatically in the future "at a rate of five percent compounded annually." Five percent is roughly double the rate of inflation in recent years.

In the past when MSHDA collected the proceeds from its bond sales, priority was given for low-income applicants for 120 days. This bill would strike that prioritizing custom, which will direct more of MSHDA's limited pool of funds toward higher income families.

All these changes embraced in the DeWeese bill would not only expand MSHDA's activity in direct competition with private, taxpaying lenders, but it also would expand the agency's original mission, which was simply to spur the development of housing for low-income people. This bill would put MSHDA in the business of subsidizing housing for people who, arguably, are hardly destitute and indeed, would be regarded as middle-class.

Helping Michigan families is a worthy objective, but that objective is eviscerated if the route to achieving it involves redistributing wealth, expanding government, and leaving more people in a state of dependency. The objective is further undermined if the families that are "helped" by subsidies are offset by families that pay the bill or who must be concerned about their future because they work for a private firm against which the government program unfairly competes.

Families are strengthened when we remove obstacles to self-reliance without creating new ones. Before expanding the reach of public bureaucracies, officials should do more to address the many ways existing government policies, including high taxes and job-killing minimum wage laws, make life difficult for low-income people.

Lawrence Reed is an economist and president of the Mackinac Center for Public Policy.

Editor's Note: As MPR went to press, committee action on House Bill 5538 began to change the nature of the bill, modifying or eliminating some of the more objectionable features identified by the author in a May 4 Detroit News commentary. MPR will issue an update of the changes in its next edition.