This week on The Learning Curve, guest co-hosts Charlie Chieppo and Minnesota Supreme Court Justice Barry Anderson interview UCLA’s classical historian, Prof. Ronald Mellor. Dr. Mellor delves into the enduring influence of Tacitus, the great Roman historian, on both America’s Founding Fathers and contemporary understanding of politics and government. He discusses Tacitus’s insights on the early Roman emperors, unchecked authority, moral judgment of leadership, and the decline of the Roman Republic, as well as ancient lessons for modern governance. Prof. Mellor closes with a reading from his book, Tacitus.
Stories of the Week: Charlie discussed an article from Forbes about successful charter schools in the District of Columbia; Justice Anderson analyzed an article from The Wall Street Journal on how the Education Department botches college federal aid once again.
Guest:
Dr. Ronald Mellor is a distinguished professor of History at UCLA, where he’s taught Greek and Roman History and previously served as chair of the department. Prof. Mellor first taught Classics at Stanford University and has been a visiting fellow/scholar at the University College London; the Humanities Research Centre of the Australian National University; the American Academy in Rome; and Princeton’s Institute of Advanced Studies. His books include: From Augustus to Nero: The First Dynasty of Imperial Rome, (1990); Tacitus, (1993); Tacitus: The Classical Heritage, (1995); The Historians of Ancient Rome, (1997 and 2013); The Roman Historians, (1999); Augustus and the Creation of the Roman Empire, (2005); and The Annals of Tacitus, (2012). Mellor studied Classics and philosophy at the University of Louvain, Belgium, and earned his A.B. at Fordham University, and received his Ph.D. in Classics from Princeton University.
Tweet of the Week:
Ballot Initiative NO. 23-34 An Act expressly authorizing the Auditor to audit the
Legislature (House, No. 4251).
March 26, 2024
Thank you. My name is Mary Connaughton and I am the Director of
Government Transparency at Pioneer Institute.
The Massachusetts’ Constitution, an inspiration for other states, the
nation and other countries, came from the pen of John Adams. Among
his political writings was an early work, A Dissertation on the Canon
and Feudal Law, which laid out the principles of modern, democratic
conceptions of liberty. In it, Adams makes the case for accountability
to the people:
Liberty cannot be preserved without a general knowledge among
the people, who have a right…and a desire to know; but besides
this, they have a right, an indisputable, unalienable, indefeasible,
divine right to that most dreaded and envied kind of knowledge, I
mean of the characters and conduct of their rulers.
The Legislature has failed in its constitutional duty to be accountable
to the people “at all times,” as required under Article V of the
Massachusetts Declaration of Rights, by exempting itself from public
records laws. That’s not the way it works in the vast majority of states
— as documented in the Senate’s 2018 report resulting from the
Special Legislative Commission on Public Records.
This Legislature operates with minimal public disclosure. Most states
require policy makers to file financial disclosure forms that any
member of the public can easily inspect. In Massachusetts, by the
legislature’s own crafting, individuals must show proof of identity to the
Ethics Commission to access the disclosures, and the legislator is
informed of who is making the request. That is
intimidation.
Once obtained, Statements of Financial Interest offer little insight. The
forms haven’t been updated in decades. The highest category for real
estate holdings is “$100,000+.” Seriously? But updating these isn’t up
to the Ethics Commission, it’s up to the legislature. Why are we so far
behind states like Mississippi, New Jersey and Iowa in this regard?
Bills impacting the Bay State’s 7 million residents are largely crafted
behind closed doors. The state constitution declares that it is the right
of the people to give instructions to their representatives. But how can
we do so when we don’t know what our representatives are doing —
or not doing? A comprehensive state audit is the perfect way to find
out.
While Auditor DiZoglio has launched this effort, it would be foolhardy
to think this is about Diana DiZoglio. This is about preserving the
constitutional principles we all hold dear. We are nothing without an
engaged citizenry and an engaged citizenry requires the public trust
that goes hand in hand with transparency.
Thank you.
Click here to read a transcript
Poor Housing Incentives: Tax Credits Reward Politicians Not Neighbors in Need
[00:00:00] Joe Selvaggi: This is Hubwonk. I’m Joe Selvaggi. Welcome to Hubwonk, a podcast of Pioneer Institute, a think tank in Boston. Few public initiatives offer as enticing a photo opportunity as a ribbon-cutting ceremony for a low-income housing project. With funding from federal, state, and local agencies in the form of low-income housing tax credits, or LIHTC, homes are constructed to provide housing options that advocates argue wouldn’t be available through the private sector, particularly in regions where housing costs are prohibitively high.
[00:00:33] However, closer examination of the incentives reveals a complex web of standards that discourage competition among contractors and impose politically motivated green or social justice criteria, resulting in the cost to build low-cost housing exceeding twice its private market alternative. For housing advocates striving to promote home accessibility for low-income tenants and lower prices for all consumers, the acknowledged high cost of so-called low-cost housing, maybe in practice, reduce the number of rental units produced, and crowd out private residential production, thereby driving up costs for those seeking market-rate properties. This prompts questions about how the low-income housing program operates, who benefits from its complex structure, and what the actual outcomes are in terms of the number and quality of units produced, and the ultimate costs borne by taxpayers.
[00:01:29] Joining us today is Chris Edwards, the Kiltz Family Chair in Fiscal Studies at Cato and a leading expert on fiscal and state tax and budget issues. With his extensive research on the LIHTC program, Mr. Edwards will shed light on what this nearly 40-year-old initiative, which allocates over 9 billion annually, truly delivers.
[00:01:52] We’ll delve into whether the program’s objectives align with the outcomes and explore how its incentives may favor financiers, contractors, and politicians over the low-income renters it claims to assist. When I return, I’ll be joined by Cato Chair of Fiscal Studies, Chris Edwards. Okay, we’re back.
[00:02:13] This is Hubwonk. I’m Joe Selvaggi, and I’m now pleased to be joined by the Kilts Family Chair in Fiscal Studies at Cato Institute, Chris Edwards. Welcome back to Hubwonk, Chris.
[00:02:23] Chris Edwards: Hey, thanks a lot for having me,
[00:02:24] Joe Selvaggi: Joe. Okay, great. Well, I’m thrilled to have you. I don’t often admit to being completely ignorant about a particular massive public policy issue, but here we are.
[00:02:32] I’m going to admit my ignorance. I stumbled across this idea because it’s in pending legislation here and at the federal level. We’re going to be talking today about low-income housing tax credits, or LIHTC. Which, again, I knew about them. I didn’t know much about the details, but I’ll just paint in broad strokes.
[00:02:47] What I had thought at its base is a well-intentioned effort by the government to address the unmet, unneeded, unmet need in the market to build and provide homes for those whose income, frankly, is not enough to afford market-rate rents. So, okay, that’s, I’ve set the table for what we’re going to talk about.
[00:03:06] Let’s start at the beginning. What is LIHTC, the Low-Income Housing Tax Credit? For our listeners, what is it?
[00:03:12] Chris Edwards: Well, as just about everyone knows, housing has become very expensive in many parts of the United States, and public policymakers want to do something like that. That’s certainly reasonable, and they go about trying to create more affordable housing in two ways.
[00:03:27] For a long time, there’s been a program operated by the Federal Department of Housing and Urban Development called Section 8. where they give individuals vouchers and, in order to go, help them pay for the cost of apartments, buildings, or apartment units. but at the same time for the last few decades, the federal government has had a giant subsidy program, to, increase the supply of low-income housing units.
[00:03:51] This is called the low-income housing tax credit. It’s a 13 billion dollar-a-year subsidy to developers. of low-income apartment buildings. Uh, now the supporters of this subsidy program claim that it works and increases the supply of low-income housing. I’m very skeptical of that. I think it mainly displaces private market development of low-income housing.
[00:04:15] And not only that, but this federal government program, low-income housing tax credit, or LIHTC as it’s called, is enormously complex and mainly benefits the financial middlemen and not low-income tenants. Thank you.
[00:04:28] Joe Selvaggi: So, I want to take that apart. Great, you’ve defined it in broad terms. Let me just say, we’re addressing the supply of housing for people who, maybe, don’t have income from market rents.
[00:04:40] The economist in me says, more supply generally means lower prices, so that sounds good. What’s an example of how a builder earns a low-income tax credit, or low-income housing tax credit?
[00:04:54] Chris Edwards: Well, the federal government doles out this 13 billion low-income housing tax credits every year to state governments.
[00:05:00] Then the state governments either allocate them directly or they pass them on to city councils in order to dole out these credits to favored developers. One of the problems that creates right off the bat is that Local governments and developers, there’s long been a corruption problem there, so city councils have these tax credits that are worth a lot of money, they only give them to favored developers, that has encouraged developers to bribe city council members in many cities across the country to get these credits.
[00:05:33] So that’s one of the problems with this program. But then a bigger problem is that these credits are enormously complex. In order to get the credits, the developers must give to city or state governments, these long, detailed financial plans. And, and the state governments, these are called Qualified Allocation Plans.
[00:05:55] The state governments have all this complex point system and rule system for the developers developing these low-income apartment buildings. where they essentially micromanage the development of these apartment buildings. So, this micromanagement tends to boost costs, and so the low-income apartment buildings developed with this federal tax credit end up costing a lot more than private market development.
[00:06:24] To put numbers on that, a Wall Street Journal story a week ago profiled California’s low-income housing tax credits. They profiled some private market developers who were developing apartment buildings for 300, 000 per unit. They compared that to apartment buildings developed with this low-income housing tax credit.
[00:06:46] They cost 600,000 per unit or even more. So, when we see this often, the federal government or state government subsidizes something, but it ends up pushing up and inflating costs for the end product. And that’s what we see with this, with these housing tax credits.
[00:07:05] Joe Selvaggi: So, let’s take that apart.
[00:07:06] In preparation for our conversation, I looked up our Massachusetts QAP. It’s 165 pages long. I invite all our listeners. It’s very easy, Massachusetts QAP, and you can read it yourself. and it’s a compendium of, in my humble view, contradictions that seem, either to practically assure that no project is ever built, or as you mentioned, if they are built, they’re built, you cited numbers that seem as if they’re 100 percent more expensive than their market rate counterparts.
[00:07:35] So, let’s just break some of those things down. I, in 165 pages, my head was spinning and all the apparent contradictions that it sets out to build more units, which is a wonderful goal. And then. It’s 164 pages of why it’s almost impossible to satisfy these criteria. Share with our listeners some of the typical criteria that might affect the cost and frequency of these projects.
[00:07:59] Chris Edwards: Right. So, state governments, create these QAPs or Qualified Allocation Plans, as you said, and developers must follow these state rules if they want to get these valuable tax credits. So, there’s enormous micromanagement in these QAP plans. developers, there are all kinds of energy efficiency standards for toilets and lighting systems and HVAC systems.
[00:08:25] They even micromanage that, these low-income housing apartments must have USB ports in every room. That’s what my, the Virginia QAP says. There’s diversity requirements. There’s all kinds of requirements for developers about the sort of people they can hire and this sort of thing. So, all of these mandates and requirements add costs.
[00:08:46] So, in the end, the low-income tenants don’t actually end up, benefiting much because the cost of these projects is so high, and careful economic studies have found that a lot of the benefits end up actually going to the financial middlemen, and frankly, the lawyers that deal with all this complexity, and not the low-income tenants.
[00:09:07] Joe Selvaggi: Yeah, I saw a lot of contradictions in our QAP, as I mentioned, of course, environmental concerns, even dictating how much of the construction waste must be recycled, they go to great lengths to talk about how, all contractors must comply with, equal opportunity employment law, but also then mandate, literally affirmative action to choose, contractors, based on, status in a, a particular group.
[00:09:27] So, it’s a very strange universe. Right.
[00:09:31] Chris Edwards: And in addition, I would add in here that, so this is the state government complexity, for this low-income housing tax credit. On top of that is a massive amount of federal government complexity. This is a federal tax credit. And so, the federal government imposes complex rules as well, and as I’ve documented, the IRS audit guide for this tax credit is 350 pages long.
[00:09:55] It’s remarkable. In a recent post at Cato, I added up all the federal tax rules for this tax credit. The original statute is only 59 pages, but there are 2,000 pages of IRS regulations and rulings and procedures and other rules. that must be followed if you want to get these tax credits. The HUD guide that the Department of Housing and Urban Development, their guide for this tax credit is 800 pages long it’s remarkable. One reason for that is that developers get these credits for building these low-income housing apartment buildings, but then they must follow federal rules for 30 years after the construction of these buildings to make sure that. The tenant, there’s a proper mix of low-income tenants, and what the tenant’s expenses are, and income levels are, and all this sort of thing.
[00:10:48] So, developers, they’ve got to follow these rules to construct the building, and then the building owners have to follow all these complex rules for 30 years. It’s, again, this is a bonanza for the lawyers. It doesn’t really, end up benefiting the low-income tenants very much.
[00:11:04] Joe Selvaggi: So, again, I, we’re talking about this labyrinth of layers and layers of regulation, and that, of course, when you layer regulation, what, the regulation that attaches is the, the most restrictive, meaning, if they’re contradictory, you just take the one that’s the most restrictive, and that prevails, right?
[00:11:18] So, given all these complexities, who in the heck is, well, let’s first stipulate, of course, this complexity means fewer of these projects are going to happen. Of course, there’s, these are a lot of hoops that only a few, project managers or, contractors can get through. Who are the people who are, who ultimately do navigate this, Gordian knot of nonsense?
[00:11:39] Chris Edwards: So, you raised an interesting question, Joe. And this, a common problem with over-regulation is that the businesses that end up, benefiting sort of a small group of insider businesses that have figured out all the complex rules, they hire all the lawyers. So it’s really the larger developers that have become experts on these complex rules that end up benefiting, smaller developers in cities, they, avoid programs like this, like the plague, because they can’t figure out all the complicated rules.
[00:12:08] So, again, there’s been careful economic studies that have found that actually, it’s these insider middlemen. and the investors in these projects make most of the benefits and not the low-income tenants. So you can compare these studies, for example, compare a market-based and non-subsidized, low, low rental apartment buildings to ones built with these subsidies.
[00:12:32] And, low-income tenants can get almost a similar deal in the market-based, developments, compared to these, government-subsidized developments. and that, leads to the, the, one of the conclusions here is that we’ve got this giant, complex government system here, but we don’t need it if the government just got out of the way, there’d be more market-based, low-income development, and that’s really where we ought to be headed.
[00:12:55] Joe Selvaggi: Indeed, okay, I think you and I both are more sympathetic to market solutions than government solutions, but I just say for our listeners who are, keeping score at home, if you create these, 1000 rules for, building a low-income property, and it’s the city or the state that is in charge of enforcing it, as you say, there’s a couple of, let’s say, choose firms that, let’s say, are preferred, isn’t this inviting a collusion between politicians and developers?
[00:13:21] In other words, you’re saying, well, politicians, they really care about low-income housing, they wouldn’t go down this road, but what if they benefit greatly from incentivizing certain developers? For essentially supporting their campaign or their political ambition.
[00:13:36] Chris Edwards: That’s right. Well, Joe, you touched on this.
[00:13:37] There has been a major corruption problem with the low-income housing tax credits. Your listeners, if they want to follow up on this, a great example is California had a massive scandal regarding these housing tax credits. So, if you google housing tax credits and corruption in California, you’ll see all these stories.
[00:13:54] And basically, the federal government is giving state and local governments this valuable, tax credit item, which is in limited supply. And it’s the local politicians who get to dole it out to their favored, contractors or developers. In theory, it’s supposed to be a fair competition system where the developer with the best project ideas gets these tax credits.
[00:14:19] In reality, there’s a big incentive to bribe the state and local politicians, and that’s what happened in California, to get at the front of the line for the handing out of these tax credits. You actually, by the way, as a, on a tangent, you see a similar problem. When local governments hand out alcohol licenses, for example, or they hand out marijuana grower licenses, as in California, you get a big corruption problem.
[00:14:45] When governments keep things in artificially limited supply, they dole the benefits out to their favored, businesses, you get a corruption problem and you see this with the housing tax credits.
[00:14:58] Joe Selvaggi: I want to shift our conversation to the housing cost. You already stipulated it’s more than a market rate, so it costs more to build one of these properties.
[00:15:06] In your case, you were describing something that costs 100 percent more or double what it would otherwise cost. But why does a market rate builder constrain costs? They ultimately have to make a profit, right? What they build has to be worth more than what they paid to build it. They, ultimately, someone’s going to buy it or rent it, so they don’t have unlimited resources to build whatever.
[00:15:25] In this case, if we’re building a low-income, project, and ultimately the people who are going to move into this are people who have subsidies, and ultimately those subsidies are going to be, paid and I’m going to get my subsidy to build it, what’s going to be the rent that, where is the profit?
[00:15:39] Is it in the tax credit or can they also enjoy some sort of guaranteed tenant when it’s all over?
[00:15:46] Chris Edwards: Yeah, it’s in the tax credits. The tax credits pay most of the costs. for developing these buildings. And the costs are much higher. construction experts, which I am not, point to two main costs of construction.
[00:16:00] There’s what’s called a hard cost, the actual cost of materials and that sort of stuff, and the soft cost, which is the cost of financing. Both of those costs are higher. In these government-subsidized tax credit projects, the hard costs are higher, because they often, for example, have labor union requirements, and, all kinds of requirements for, superior quality, goods and products and that sort of stuff.
[00:16:26] And so that raises the actual hard cost of construction, but the soft cost of financing is higher too, because the government, when you bring in government subsidies, the deals get a lot more complex, you need a lot more lawyers, and there’s a lot more delays. And in the construction business, time is money.
[00:16:42] So these government, if you take the government subsidies, your project will be delayed probably months or years as you try to figure out all the, how to get these, credits and other subsidies. and so, if projects get delayed, that costs developers more money. So, for all these reasons, government projects cost a lot more.
[00:17:02] And, so if, there’s been many, states and the federal government have done studies on this, and there is general agreement that these when government affordable housing projects cost a lot more than market-based, housing, market-based developers, they don’t have to deal with all these complex rules like labor union requirements, they can just go build, projects, in the fastest and most efficient ways, and so their projects end up costing a lot less.
[00:17:28] Joe Selvaggi: Well, and it’s interesting, another point, this is a project I saw in my reading, they were talking about the fact that ultimately the tenants in these, buildings are people with, housing subsidies. now we’ve got a tenant who, or a landlord who’s getting these subsidies and ultimately maintaining the property, but ultimately some, in a market rate where there are no subsidized, tenants, the landlord has an incentive to keep that building, lest our listeners hear that.
[00:17:53] Markets cut corners and subsidized builders do it right. The owners of these buildings, when they’re getting these housing subsidies, ultimately, whereas many landlords will use some of the rent to maintain the building and keep it ready for, to attract, to keep the existing tenants or attract new ones.
[00:18:13] If you’ve essentially got a low-income project and every tenant in there is a low-income tenant, I’ve read whereby 20 or 30 years later, that building has so much deferred maintenance that the project that had been subsidized with tax credits is so bad that it needs to either be torn down and rebuilt and enjoy new tax credits or be refurbished and enjoy tax credits.
[00:18:36] In other words, there are some real perverse incentives once you’re hooked on these subsidies, which says, rather than markets Governing and having me as a landlord keep my property nice for future tenants. These subsidized buildings seem to have so many perverse incentives that they’re built more expensively but ultimately go to shambles because they’re not maintained.
[00:18:56] Chris Edwards: That’s right. You put your finger on something very important, Joe. And a week or so ago, the Wall Street Journal story on the housing tax credits quoted A, a liberal activist who supports the housing credit claiming that market-based housing, is not kept up well because the landlords, fill their pockets with the profits rather than investing in the housing project.
[00:19:19] The reality is exactly the worst. the experts on, the housing tax credit program know that there’s this long-term problem that the developers who are the building owners do not have incentives, to maintain these low-income housing tax credit buildings because they can’t earn a decent return in years down the road.
[00:19:42] They get the benefits up front with the tax credit and then there isn’t enough of an incentive for them to maintain buildings down the road. And so, again, it’s, the market here that works. Market construction is lower cost and market buildings are maintained, better over time because landlords have strong incentives to maintain their own building and are to earn, to continue earning a good return.
[00:20:08] Joe Selvaggi: You’ve mentioned something that often folks, I’ll say like us, I’ll flatter myself, who believe in markets that talk about this concept of Projects like these crowding out private competitors, right? You, there’s only so much land. We’re here in Boston where it’s constrained in land, and we’ve got a piece of the land or a potential project and you’ve got two people bidding on it.
[00:20:27] One is a market developer, and the other is one with a subsidy. I’m thinking, whereas there’s no subsidy for the land purchase, there is a subsidy for the ultimate development. So if I am someone who’s going to enjoy, I’ve cracked the code, I figured out how to get my tax credit, I’m competing with a private developer, I can afford to pay much more for that property because ultimately I’m going to make that back in, in tax credits.
[00:20:49] In other words, that private project isn’t going to happen because I’ve been able to outbid him because I know ultimately what I build will be subsidized. The private person can’t do that. Is that what you mean by crowding out, private, competition?
[00:21:02] Chris Edwards: That’s right. When, as a general matter, when the government expands, it displaces, the private activity that used to be there.
[00:21:09] So we see this with many government programs. When Medicaid expands, we see less private health care. and when housing subsidies expand, we see less market-based housing. So, there’s been careful economic studies on the low-income housing tax credit. and they find that a substantial share of private market-based housing is displaced or crowded out, with government-subsidized housing.
[00:21:33] In other words, a lot of the housing would have been built anyway, even without the government subsidy. in my 2017 study on the low-income housing tax credit available at Cato under Chris Edwards, I go into some detail about why that’s the case. so, the low-income housing tax credit, and the subsidized development crowd out, it partly crowds out private development.
[00:21:56] But in addition, you have to think about if the government were to deregulate and make other policy reforms, we would get additional private market housing. And that’s why I think Actually, we’re no further ahead with affordable housing with all these subsidies than we would otherwise be if we let markets work and we got governments out of the way.
[00:22:19] Joe Selvaggi: So, to tie it up a bit, again, you mentioned studies and you were in the egghead world, you’re in the think tank world, studying this stuff. you and I have established that tax credits for these projects make for far more expensive cost to build, it invites corruption, fewer properties will be built so there’s less supply, and therefore even for those of us who have no, connection to these subsidies have to pay higher rents.
[00:22:41] Is the jury still out on this? Are there, there are, studies that show it’s valuable or in the research world is it an, open and shut case?
[00:22:51] Chris Edwards: The experts in the low-income housing area including the experts who generally support this program, recognize these problems, the high-cost problem, the fraud and corruption problem, many, centrists, and housing economists, don’t favor demand-side subsidies for housing.
[00:23:10] The main one in the United States is the Section 8 program where the federal government gives individuals vouchers, and they can go to apartment buildings of their choice and use these vouchers. Most economists, both conservative and libertarian and centrist economists, think that is actually a better way, to subsidize housing, if you’re going to subsidize housing by the low-income housing tax credit gives the subsidies to the developers. That is really the wrong way to go. It’s the developers and the lawyer’s benefit. It’s more efficient to give subsidies to the housing consumers, and low-income tenants themselves. I think an even better solution than that is the free market solution.
[00:23:52] where we deregulate housing markets and we let housing developers develop buildings, for individuals at all income levels. I think markets work. I don’t think there’s any big government failure here where you need government intervention. It is the government itself with excessive building requirements, overly restrictive zoning requirements, and high taxes.
[00:24:14] Those are the barriers we need to get out of the way if we want more affordable housing.
[00:24:19] Joe Selvaggi: Okay, good. So, you’ve jumped the gun, you’ve anticipated my next question, which is to say, I don’t want to, no more despair with, this is a pretty dark podcast, but I just want to say, look, I live in Boston. We have very high prices here.
[00:24:31] I’m sympathetic to anybody who is just trying to raise a family anywhere near the city center. So, they’re too high. We’re going to look; we’re going to talk about some alternatives. but let’s give our listeners just basic economics 101. things are expensive because they’re scarce.
[00:24:46] Not how, diamonds are expensive because they’re scarce, not because they’re necessary. And water is free, not because it’s not necessary, but because it’s abundant. How do we make housing abundant? And if you’ll take the leap with me, therefore, if it’s abundant, it will naturally be more affordable.
[00:25:02] Go ahead and just reframe what you recommended in your last statement.
[00:25:07] Chris Edwards: Well, it’s widely recognized that local governments restrict the supply of housing, all types of housing, including multifamily housing and apartment buildings with excessively tight zoning rules. There are all kinds of ways we can loosen those zoning rules.
[00:25:24] So, for example, right now, we’ve got a massive excess supply in many cities of office buildings, but zoning codes generally prevent that, the transfer of, office zone space into residential space. Some cities I understand are starting to change that. I think New York has recently loosened the rules to allow building owners to convert office buildings to residential buildings.
[00:25:46] That’s the type of zoning rule we need to loosen. Excessive building requirements. Economists have written about how a lot of cities have excessive parking requirements for apartment buildings in cities, but these may raise the cost of apartment buildings unnecessarily. A lot of young people, especially live downtown, in big cities like Boston or Washington or New York, don’t need or want cars and yet they’re forced essentially to pay for parking spaces that they don’t want.
[00:26:15] So there’s these excessive building requirements. And yet another area that I think needs reform is property taxes. Interestingly, the property taxes on apartment buildings are far higher than the property taxes on single-family homes. Indeed, the Lincoln Land Institute, which studies these issues, found that property taxes on apartment buildings averaged 44 percent higher than property taxes on single-family homes.
[00:26:41] So this is a bias that, harms low-income tenants, because of course, property taxes on apartment buildings, are pushed forward onto the tenants, so we are unnecessarily raising, the tax costs on low-income tenants here by having these high property taxes. So, some of the reforms here we need are deregulation and we need lower property taxes, in urban areas in particular.
[00:27:07] Joe Selvaggi: Okay, well, I understand, and I essentially agree with what you are arguing for, which is, to throw open the gates and let more houses be built. But let’s just stipulate that, there are still folks out there, even in a, where market rates come down. down dramatically, who have very low income?
[00:27:25] I’m thinking about the elderly or people with disabilities or, we know of these people who will never be able to pay market rates. What would we do for those people to ensure that they are, their needs are met, wherever you fall on that issue?
[00:27:41] Chris Edwards: Well, for those, folks, I think that the proper level of government to deal with those issues is state and local government.
[00:27:48] Right now, we’ve got a massive, federal government, program, Section 8, that provides these subsidies to individuals for affordable housing. I don’t, I think there are all kinds of problems with the federal government running these programs because every city and every state is different.
[00:28:04] Local needs are different. I think if cities and states, want to, subsidize or help low-income tenants, the way to do it is direct vouchers to tenants and not supply-side, subsidies like we’ve been talking about with the low-income housing tax credit.
[00:28:20] Joe Selvaggi: So rather than the producer of low-income, properties, it’s the consumer of the low-income properties, which provides, in my mind, a little bit of accountability, and it also takes away that incentive for corruption.
[00:28:30] I suppose someone could corruptly apply for a Section 8 housing voucher. That’s a different level of corruption than a very sophisticated developer who’s commanding, at the helm of a 50 million project. Is that fair?
[00:28:42] Chris Edwards: That’s right. I think generally you get a more efficient outcome and less corruption, if you’re going to subsidize not the producers, but subsidize the consumers.
[00:28:52] Another example here is Medicare. the federal Medicare program, a trillion-dollar program, It’s massive subsidies to the providers, to the hospital systems, to the doctors, and the like. There’s an enormous amount of corruption there. people, submit hundreds of billions of dollars, literally, of fake and exaggerated, excessive claims to federal Medicare. It’s an ongoing problem. Something like 15 percent or so of all Medicare claims from providers are exaggerated or fake or improper as they call it. for the Medicare program, the much better solution is to give individuals vouchers to buy health care.
[00:29:31] That way it reduces corruption, and you increase competition in markets. I think the same is true with housing. If we’re going to subsidize housing, I think it ought to be state and local programs, and I think the subsidies ought to go to individual consumers, not to the businesspeople, the providers.
[00:29:48] Joe Selvaggi: Yeah, I don’t know what, what we would have to say in this conversation to help the scales fall from the eyes of those who think government is the solution. You and I both want to see more affordable housing, more abundant housing. and we care about those people who can’t afford houses.
[00:30:01] Well, we’re not arguing whether affordable housing is a good idea. We’re arguing about the way to get there, right? We’re saying what we’re doing now has the absolute opposite intended effect, wastes, wastes a huge amount of money and subsidizes already wealthy developers with the sophistication to navigate this sort of labyrinth of regulation.
[00:30:20] This is a dinner bell for the most corrupt intentions.
[00:30:23] Chris Edwards: as a general matter, as Joe, the, it’s reasonable for the government to intervene in markets where there’s some sort of clear market failure. In my view, there’s no clear market failure in housing, just like private markets provide automobiles for people at all income levels.
[00:30:38] I bought a new automobile myself, a couple of years ago for 30,000. My daughter just bought herself an automobile for 10,000. It’s not as good as my 30,000 car, but she’s young, and it’s good enough for her, and as she earns more money, she’ll be able to buy better automobiles. The market works. I think the same is true for housing.
[00:30:59] When I was young and you were young, Joe, we, we lived in group houses, we had lower cost, housing. Markets provided that. I think markets can provide decent housing for people at all income levels. I don’t think that there’s a market failure here. And I think subsidies come with all these, they create all these additional problems.
[00:31:18] That we’ve been discussing. The crowding out, the corruption, and the high cost. We don’t need it.
[00:31:24] Joe Selvaggi: Well, this is a terrific conversation. I think we’ve whet the appetite of our listeners who wanted to learn more. Again, I will admit, I was completely unaware of this whole sort of a feature of low-income housing.
[00:31:35] I’m like, well, Good Anya, if you want to help the poor find a house. and I realize this is terrible. Where can our listeners, I want to read more about your research, but also, maybe we’ll link to a different, think tank. You did a presentation over at AEI with a couple of other scholars.
[00:31:49] It’s three hours long. I suffered through it, but I think not everybody’s willing to do it, but let’s give a shout-out both to your research and the recent, presentation that you gave at AEI
[00:31:58] Chris Edwards: Well, you can read my research on this and other matters simply Chris Edwards at Cato Institute. I’ve made a lot of posts recently on this housing tax credit issue because the issue is right in front of Congress right now.
[00:32:10] Not only is there a bipartisan group that wants to expand the tax credit we’re talking about, they want to add new tax credits. I think that would be a terrible direction for Congress to go. So, you can look under Chris Edwards at Cato and also, the American Enterprise Institute, AEI. org. they’ve got a great group of scholars there that look at these housing issues as well.
[00:32:30] Joe Selvaggi: Good. And again, as you say, these credits have bipartisan support, but, perhaps it’s, you know, on both sides, sheer ignorance about the complexity and the counterproductive nature of these things that make it, so well supported. So, maybe our representatives will have watched this or your presentation or this podcast, and we may change some hearts and minds.
[00:32:49] Thank you again, for joining me, Chris, you’ve been a great resource. And I think we’ve educated both me and our listeners about an important topic. Thank you for joining me on Hubwonk today, Chris. Thank you, Joe. This has been another episode of Hubwonk. If you enjoyed today’s show, there are several ways to support Hubwonk and Pioneer Institute.
[00:33:06] It would be easier for you and better for us if you subscribe to Hubwonk on your iTunes Podcatcher. It would make it easier for others to find Hubwonk if you offered a five-star rating or a favorable review. We’re grateful if you share Hubwonk with friends. If you have ideas, comments, or suggestions for me about future episode topics.
[00:33:24] You’re certainly welcome to email me at hubwonk@pioneer institute.org. Please join me next week for a new episode of Hubwonk.
Joe Selvaggi interviews Chris Edwards, Chair of Fiscal Studies at CATO Institute, about his research on the 40-year history of Low-Income Housing Tax Credits. They delve into its features, effects, and potential alternatives that could provide greater benefits at lower costs to taxpayers.
Guest:
Chris Edwards occupies the Kilts Family Chair in Fiscal Studies at Cato and is the editor of downsizinggovernment.org. He is a top expert on federal and state tax and budget issues. Before joining Cato, Edwards was a senior economist on the congressional Joint Economic Committee, a manager with PricewaterhouseCoopers, and an economist with the Tax Foundation. Edwards has testified to Congress on fiscal issues many times, and his articles on tax and budget policies have appeared in the Washington Post, the Wall Street Journal, and other major newspapers. He is the author of Downsizing the Federal Government and coauthor of Global Tax Revolution. Edwards holds a BA in economics from the University of Waterloo and an MA in economics from George Mason University. He was a member of the Fiscal Future Commission of the National Academy of Sciences.
“She’s a good girl. She helps me a lot. She has big, big dreams. I don’t have the money, but she has big dreams. I hope she’s going to get everything, but she works so hard. She works so hard in school.”
“Our family is needing to make some really big sacrifices because we believe this is important, and so, we’re basically going to do whatever it takes… Sometimes we look at each other and go ‘I don’t know if I can do it again another month…’”
“A lot of the families have to sacrifice and work multiple jobs… And just scraping together enough money to just make tuition, just the basics.”
“It is discriminatory, that parents who want to choose an alternative to public school for their children, would not in any way receive any compensation for that, whether it be tax credit, whether it be a voucher…”
In the 1840s, nativist movement leaders formed official political parties and local chapters of the national Native American Party (later the American Party), although they continued to be commonly known as the Know-Nothing Party. Politicians sought to insert provisions into state constitutions against Catholics who refused to renounce the pope. The Know-Nothing movement brought bigotry and hatred to a new level of violence and organization.
The party’s legacy endured in the post-Civil War era, with laws and constitutional amendments it supported, still today severely limiting parents’ educational choices. A federal constitutional amendment was proposed by Speaker of the House James Blaine prohibiting money raised by taxation in any State to be under the control of any religious sect; nor shall any money so raised or lands so devoted be divided between religious sects or denominations. These were then named the Blaine Amendments of 1875.
in recent decades, often in response to challenges to school choice programs, the U.S. Supreme Court has demonstrated great interest in examining the issues of educational alternatives and attempts limit parental options. Massachusetts plays a key role in this debate. The Bay State was a key center of the Know-Nothing movement and has the oldest version of Anti-Aid Amendments in the nation, as well as a second such amendment approved in 1917. Two-fifths of Massachusetts residents are Catholic, and its Catholic schools outperform the state’s public schools, which are the best in the nation.
This week on The Learning Curve, guest co-hosts Charlie Chieppo and Minnesota Supreme Court Justice Barry Anderson interview UCLA’s classical historian, Prof. Ronald Mellor. Dr. Mellor delves into the enduring influence of Tacitus, the great Roman historian, on both America’s Founding Fathers and contemporary understanding of politics and government. He discusses Tacitus’s insights on the early Roman emperors, unchecked authority, moral judgment of leadership, and the decline of the Roman Republic, as well as ancient lessons for modern governance. Prof. Mellor closes with a reading from his book, Tacitus.
Stories of the Week: Charlie discussed an article from Forbes about successful charter schools in the District of Columbia; Justice Anderson analyzed an article from The Wall Street Journal on how the Education Department botches college federal aid once again.
Guest:
Dr. Ronald Mellor is a distinguished professor of History at UCLA, where he’s taught Greek and Roman History and previously served as chair of the department. Prof. Mellor first taught Classics at Stanford University and has been a visiting fellow/scholar at the University College London; the Humanities Research Centre of the Australian National University; the American Academy in Rome; and Princeton’s Institute of Advanced Studies. His books include: From Augustus to Nero: The First Dynasty of Imperial Rome, (1990); Tacitus, (1993); Tacitus: The Classical Heritage, (1995); The Historians of Ancient Rome, (1997 and 2013); The Roman Historians, (1999); Augustus and the Creation of the Roman Empire, (2005); and The Annals of Tacitus, (2012). Mellor studied Classics and philosophy at the University of Louvain, Belgium, and earned his A.B. at Fordham University, and received his Ph.D. in Classics from Princeton University.
Tweet of the Week:
Ballot Initiative NO. 23-34 An Act expressly authorizing the Auditor to audit the
Legislature (House, No. 4251).
March 26, 2024
Thank you. My name is Mary Connaughton and I am the Director of
Government Transparency at Pioneer Institute.
The Massachusetts’ Constitution, an inspiration for other states, the
nation and other countries, came from the pen of John Adams. Among
his political writings was an early work, A Dissertation on the Canon
and Feudal Law, which laid out the principles of modern, democratic
conceptions of liberty. In it, Adams makes the case for accountability
to the people:
Liberty cannot be preserved without a general knowledge among
the people, who have a right…and a desire to know; but besides
this, they have a right, an indisputable, unalienable, indefeasible,
divine right to that most dreaded and envied kind of knowledge, I
mean of the characters and conduct of their rulers.
The Legislature has failed in its constitutional duty to be accountable
to the people “at all times,” as required under Article V of the
Massachusetts Declaration of Rights, by exempting itself from public
records laws. That’s not the way it works in the vast majority of states
— as documented in the Senate’s 2018 report resulting from the
Special Legislative Commission on Public Records.
This Legislature operates with minimal public disclosure. Most states
require policy makers to file financial disclosure forms that any
member of the public can easily inspect. In Massachusetts, by the
legislature’s own crafting, individuals must show proof of identity to the
Ethics Commission to access the disclosures, and the legislator is
informed of who is making the request. That is
intimidation.
Once obtained, Statements of Financial Interest offer little insight. The
forms haven’t been updated in decades. The highest category for real
estate holdings is “$100,000+.” Seriously? But updating these isn’t up
to the Ethics Commission, it’s up to the legislature. Why are we so far
behind states like Mississippi, New Jersey and Iowa in this regard?
Bills impacting the Bay State’s 7 million residents are largely crafted
behind closed doors. The state constitution declares that it is the right
of the people to give instructions to their representatives. But how can
we do so when we don’t know what our representatives are doing —
or not doing? A comprehensive state audit is the perfect way to find
out.
While Auditor DiZoglio has launched this effort, it would be foolhardy
to think this is about Diana DiZoglio. This is about preserving the
constitutional principles we all hold dear. We are nothing without an
engaged citizenry and an engaged citizenry requires the public trust
that goes hand in hand with transparency.
Thank you.
Click here to read a transcript
Poor Housing Incentives: Tax Credits Reward Politicians Not Neighbors in Need
[00:00:00] Joe Selvaggi: This is Hubwonk. I’m Joe Selvaggi. Welcome to Hubwonk, a podcast of Pioneer Institute, a think tank in Boston. Few public initiatives offer as enticing a photo opportunity as a ribbon-cutting ceremony for a low-income housing project. With funding from federal, state, and local agencies in the form of low-income housing tax credits, or LIHTC, homes are constructed to provide housing options that advocates argue wouldn’t be available through the private sector, particularly in regions where housing costs are prohibitively high.
[00:00:33] However, closer examination of the incentives reveals a complex web of standards that discourage competition among contractors and impose politically motivated green or social justice criteria, resulting in the cost to build low-cost housing exceeding twice its private market alternative. For housing advocates striving to promote home accessibility for low-income tenants and lower prices for all consumers, the acknowledged high cost of so-called low-cost housing, maybe in practice, reduce the number of rental units produced, and crowd out private residential production, thereby driving up costs for those seeking market-rate properties. This prompts questions about how the low-income housing program operates, who benefits from its complex structure, and what the actual outcomes are in terms of the number and quality of units produced, and the ultimate costs borne by taxpayers.
[00:01:29] Joining us today is Chris Edwards, the Kiltz Family Chair in Fiscal Studies at Cato and a leading expert on fiscal and state tax and budget issues. With his extensive research on the LIHTC program, Mr. Edwards will shed light on what this nearly 40-year-old initiative, which allocates over 9 billion annually, truly delivers.
[00:01:52] We’ll delve into whether the program’s objectives align with the outcomes and explore how its incentives may favor financiers, contractors, and politicians over the low-income renters it claims to assist. When I return, I’ll be joined by Cato Chair of Fiscal Studies, Chris Edwards. Okay, we’re back.
[00:02:13] This is Hubwonk. I’m Joe Selvaggi, and I’m now pleased to be joined by the Kilts Family Chair in Fiscal Studies at Cato Institute, Chris Edwards. Welcome back to Hubwonk, Chris.
[00:02:23] Chris Edwards: Hey, thanks a lot for having me,
[00:02:24] Joe Selvaggi: Joe. Okay, great. Well, I’m thrilled to have you. I don’t often admit to being completely ignorant about a particular massive public policy issue, but here we are.
[00:02:32] I’m going to admit my ignorance. I stumbled across this idea because it’s in pending legislation here and at the federal level. We’re going to be talking today about low-income housing tax credits, or LIHTC. Which, again, I knew about them. I didn’t know much about the details, but I’ll just paint in broad strokes.
[00:02:47] What I had thought at its base is a well-intentioned effort by the government to address the unmet, unneeded, unmet need in the market to build and provide homes for those whose income, frankly, is not enough to afford market-rate rents. So, okay, that’s, I’ve set the table for what we’re going to talk about.
[00:03:06] Let’s start at the beginning. What is LIHTC, the Low-Income Housing Tax Credit? For our listeners, what is it?
[00:03:12] Chris Edwards: Well, as just about everyone knows, housing has become very expensive in many parts of the United States, and public policymakers want to do something like that. That’s certainly reasonable, and they go about trying to create more affordable housing in two ways.
[00:03:27] For a long time, there’s been a program operated by the Federal Department of Housing and Urban Development called Section 8. where they give individuals vouchers and, in order to go, help them pay for the cost of apartments, buildings, or apartment units. but at the same time for the last few decades, the federal government has had a giant subsidy program, to, increase the supply of low-income housing units.
[00:03:51] This is called the low-income housing tax credit. It’s a 13 billion dollar-a-year subsidy to developers. of low-income apartment buildings. Uh, now the supporters of this subsidy program claim that it works and increases the supply of low-income housing. I’m very skeptical of that. I think it mainly displaces private market development of low-income housing.
[00:04:15] And not only that, but this federal government program, low-income housing tax credit, or LIHTC as it’s called, is enormously complex and mainly benefits the financial middlemen and not low-income tenants. Thank you.
[00:04:28] Joe Selvaggi: So, I want to take that apart. Great, you’ve defined it in broad terms. Let me just say, we’re addressing the supply of housing for people who, maybe, don’t have income from market rents.
[00:04:40] The economist in me says, more supply generally means lower prices, so that sounds good. What’s an example of how a builder earns a low-income tax credit, or low-income housing tax credit?
[00:04:54] Chris Edwards: Well, the federal government doles out this 13 billion low-income housing tax credits every year to state governments.
[00:05:00] Then the state governments either allocate them directly or they pass them on to city councils in order to dole out these credits to favored developers. One of the problems that creates right off the bat is that Local governments and developers, there’s long been a corruption problem there, so city councils have these tax credits that are worth a lot of money, they only give them to favored developers, that has encouraged developers to bribe city council members in many cities across the country to get these credits.
[00:05:33] So that’s one of the problems with this program. But then a bigger problem is that these credits are enormously complex. In order to get the credits, the developers must give to city or state governments, these long, detailed financial plans. And, and the state governments, these are called Qualified Allocation Plans.
[00:05:55] The state governments have all this complex point system and rule system for the developers developing these low-income apartment buildings. where they essentially micromanage the development of these apartment buildings. So, this micromanagement tends to boost costs, and so the low-income apartment buildings developed with this federal tax credit end up costing a lot more than private market development.
[00:06:24] To put numbers on that, a Wall Street Journal story a week ago profiled California’s low-income housing tax credits. They profiled some private market developers who were developing apartment buildings for 300, 000 per unit. They compared that to apartment buildings developed with this low-income housing tax credit.
[00:06:46] They cost 600,000 per unit or even more. So, when we see this often, the federal government or state government subsidizes something, but it ends up pushing up and inflating costs for the end product. And that’s what we see with this, with these housing tax credits.
[00:07:05] Joe Selvaggi: So, let’s take that apart.
[00:07:06] In preparation for our conversation, I looked up our Massachusetts QAP. It’s 165 pages long. I invite all our listeners. It’s very easy, Massachusetts QAP, and you can read it yourself. and it’s a compendium of, in my humble view, contradictions that seem, either to practically assure that no project is ever built, or as you mentioned, if they are built, they’re built, you cited numbers that seem as if they’re 100 percent more expensive than their market rate counterparts.
[00:07:35] So, let’s just break some of those things down. I, in 165 pages, my head was spinning and all the apparent contradictions that it sets out to build more units, which is a wonderful goal. And then. It’s 164 pages of why it’s almost impossible to satisfy these criteria. Share with our listeners some of the typical criteria that might affect the cost and frequency of these projects.
[00:07:59] Chris Edwards: Right. So, state governments, create these QAPs or Qualified Allocation Plans, as you said, and developers must follow these state rules if they want to get these valuable tax credits. So, there’s enormous micromanagement in these QAP plans. developers, there are all kinds of energy efficiency standards for toilets and lighting systems and HVAC systems.
[00:08:25] They even micromanage that, these low-income housing apartments must have USB ports in every room. That’s what my, the Virginia QAP says. There’s diversity requirements. There’s all kinds of requirements for developers about the sort of people they can hire and this sort of thing. So, all of these mandates and requirements add costs.
[00:08:46] So, in the end, the low-income tenants don’t actually end up, benefiting much because the cost of these projects is so high, and careful economic studies have found that a lot of the benefits end up actually going to the financial middlemen, and frankly, the lawyers that deal with all this complexity, and not the low-income tenants.
[00:09:07] Joe Selvaggi: Yeah, I saw a lot of contradictions in our QAP, as I mentioned, of course, environmental concerns, even dictating how much of the construction waste must be recycled, they go to great lengths to talk about how, all contractors must comply with, equal opportunity employment law, but also then mandate, literally affirmative action to choose, contractors, based on, status in a, a particular group.
[00:09:27] So, it’s a very strange universe. Right.
[00:09:31] Chris Edwards: And in addition, I would add in here that, so this is the state government complexity, for this low-income housing tax credit. On top of that is a massive amount of federal government complexity. This is a federal tax credit. And so, the federal government imposes complex rules as well, and as I’ve documented, the IRS audit guide for this tax credit is 350 pages long.
[00:09:55] It’s remarkable. In a recent post at Cato, I added up all the federal tax rules for this tax credit. The original statute is only 59 pages, but there are 2,000 pages of IRS regulations and rulings and procedures and other rules. that must be followed if you want to get these tax credits. The HUD guide that the Department of Housing and Urban Development, their guide for this tax credit is 800 pages long it’s remarkable. One reason for that is that developers get these credits for building these low-income housing apartment buildings, but then they must follow federal rules for 30 years after the construction of these buildings to make sure that. The tenant, there’s a proper mix of low-income tenants, and what the tenant’s expenses are, and income levels are, and all this sort of thing.
[00:10:48] So, developers, they’ve got to follow these rules to construct the building, and then the building owners have to follow all these complex rules for 30 years. It’s, again, this is a bonanza for the lawyers. It doesn’t really, end up benefiting the low-income tenants very much.
[00:11:04] Joe Selvaggi: So, again, I, we’re talking about this labyrinth of layers and layers of regulation, and that, of course, when you layer regulation, what, the regulation that attaches is the, the most restrictive, meaning, if they’re contradictory, you just take the one that’s the most restrictive, and that prevails, right?
[00:11:18] So, given all these complexities, who in the heck is, well, let’s first stipulate, of course, this complexity means fewer of these projects are going to happen. Of course, there’s, these are a lot of hoops that only a few, project managers or, contractors can get through. Who are the people who are, who ultimately do navigate this, Gordian knot of nonsense?
[00:11:39] Chris Edwards: So, you raised an interesting question, Joe. And this, a common problem with over-regulation is that the businesses that end up, benefiting sort of a small group of insider businesses that have figured out all the complex rules, they hire all the lawyers. So it’s really the larger developers that have become experts on these complex rules that end up benefiting, smaller developers in cities, they, avoid programs like this, like the plague, because they can’t figure out all the complicated rules.
[00:12:08] So, again, there’s been careful economic studies that have found that actually, it’s these insider middlemen. and the investors in these projects make most of the benefits and not the low-income tenants. So you can compare these studies, for example, compare a market-based and non-subsidized, low, low rental apartment buildings to ones built with these subsidies.
[00:12:32] And, low-income tenants can get almost a similar deal in the market-based, developments, compared to these, government-subsidized developments. and that, leads to the, the, one of the conclusions here is that we’ve got this giant, complex government system here, but we don’t need it if the government just got out of the way, there’d be more market-based, low-income development, and that’s really where we ought to be headed.
[00:12:55] Joe Selvaggi: Indeed, okay, I think you and I both are more sympathetic to market solutions than government solutions, but I just say for our listeners who are, keeping score at home, if you create these, 1000 rules for, building a low-income property, and it’s the city or the state that is in charge of enforcing it, as you say, there’s a couple of, let’s say, choose firms that, let’s say, are preferred, isn’t this inviting a collusion between politicians and developers?
[00:13:21] In other words, you’re saying, well, politicians, they really care about low-income housing, they wouldn’t go down this road, but what if they benefit greatly from incentivizing certain developers? For essentially supporting their campaign or their political ambition.
[00:13:36] Chris Edwards: That’s right. Well, Joe, you touched on this.
[00:13:37] There has been a major corruption problem with the low-income housing tax credits. Your listeners, if they want to follow up on this, a great example is California had a massive scandal regarding these housing tax credits. So, if you google housing tax credits and corruption in California, you’ll see all these stories.
[00:13:54] And basically, the federal government is giving state and local governments this valuable, tax credit item, which is in limited supply. And it’s the local politicians who get to dole it out to their favored, contractors or developers. In theory, it’s supposed to be a fair competition system where the developer with the best project ideas gets these tax credits.
[00:14:19] In reality, there’s a big incentive to bribe the state and local politicians, and that’s what happened in California, to get at the front of the line for the handing out of these tax credits. You actually, by the way, as a, on a tangent, you see a similar problem. When local governments hand out alcohol licenses, for example, or they hand out marijuana grower licenses, as in California, you get a big corruption problem.
[00:14:45] When governments keep things in artificially limited supply, they dole the benefits out to their favored, businesses, you get a corruption problem and you see this with the housing tax credits.
[00:14:58] Joe Selvaggi: I want to shift our conversation to the housing cost. You already stipulated it’s more than a market rate, so it costs more to build one of these properties.
[00:15:06] In your case, you were describing something that costs 100 percent more or double what it would otherwise cost. But why does a market rate builder constrain costs? They ultimately have to make a profit, right? What they build has to be worth more than what they paid to build it. They, ultimately, someone’s going to buy it or rent it, so they don’t have unlimited resources to build whatever.
[00:15:25] In this case, if we’re building a low-income, project, and ultimately the people who are going to move into this are people who have subsidies, and ultimately those subsidies are going to be, paid and I’m going to get my subsidy to build it, what’s going to be the rent that, where is the profit?
[00:15:39] Is it in the tax credit or can they also enjoy some sort of guaranteed tenant when it’s all over?
[00:15:46] Chris Edwards: Yeah, it’s in the tax credits. The tax credits pay most of the costs. for developing these buildings. And the costs are much higher. construction experts, which I am not, point to two main costs of construction.
[00:16:00] There’s what’s called a hard cost, the actual cost of materials and that sort of stuff, and the soft cost, which is the cost of financing. Both of those costs are higher. In these government-subsidized tax credit projects, the hard costs are higher, because they often, for example, have labor union requirements, and, all kinds of requirements for, superior quality, goods and products and that sort of stuff.
[00:16:26] And so that raises the actual hard cost of construction, but the soft cost of financing is higher too, because the government, when you bring in government subsidies, the deals get a lot more complex, you need a lot more lawyers, and there’s a lot more delays. And in the construction business, time is money.
[00:16:42] So these government, if you take the government subsidies, your project will be delayed probably months or years as you try to figure out all the, how to get these, credits and other subsidies. and so, if projects get delayed, that costs developers more money. So, for all these reasons, government projects cost a lot more.
[00:17:02] And, so if, there’s been many, states and the federal government have done studies on this, and there is general agreement that these when government affordable housing projects cost a lot more than market-based, housing, market-based developers, they don’t have to deal with all these complex rules like labor union requirements, they can just go build, projects, in the fastest and most efficient ways, and so their projects end up costing a lot less.
[00:17:28] Joe Selvaggi: Well, and it’s interesting, another point, this is a project I saw in my reading, they were talking about the fact that ultimately the tenants in these, buildings are people with, housing subsidies. now we’ve got a tenant who, or a landlord who’s getting these subsidies and ultimately maintaining the property, but ultimately some, in a market rate where there are no subsidized, tenants, the landlord has an incentive to keep that building, lest our listeners hear that.
[00:17:53] Markets cut corners and subsidized builders do it right. The owners of these buildings, when they’re getting these housing subsidies, ultimately, whereas many landlords will use some of the rent to maintain the building and keep it ready for, to attract, to keep the existing tenants or attract new ones.
[00:18:13] If you’ve essentially got a low-income project and every tenant in there is a low-income tenant, I’ve read whereby 20 or 30 years later, that building has so much deferred maintenance that the project that had been subsidized with tax credits is so bad that it needs to either be torn down and rebuilt and enjoy new tax credits or be refurbished and enjoy tax credits.
[00:18:36] In other words, there are some real perverse incentives once you’re hooked on these subsidies, which says, rather than markets Governing and having me as a landlord keep my property nice for future tenants. These subsidized buildings seem to have so many perverse incentives that they’re built more expensively but ultimately go to shambles because they’re not maintained.
[00:18:56] Chris Edwards: That’s right. You put your finger on something very important, Joe. And a week or so ago, the Wall Street Journal story on the housing tax credits quoted A, a liberal activist who supports the housing credit claiming that market-based housing, is not kept up well because the landlords, fill their pockets with the profits rather than investing in the housing project.
[00:19:19] The reality is exactly the worst. the experts on, the housing tax credit program know that there’s this long-term problem that the developers who are the building owners do not have incentives, to maintain these low-income housing tax credit buildings because they can’t earn a decent return in years down the road.
[00:19:42] They get the benefits up front with the tax credit and then there isn’t enough of an incentive for them to maintain buildings down the road. And so, again, it’s, the market here that works. Market construction is lower cost and market buildings are maintained, better over time because landlords have strong incentives to maintain their own building and are to earn, to continue earning a good return.
[00:20:08] Joe Selvaggi: You’ve mentioned something that often folks, I’ll say like us, I’ll flatter myself, who believe in markets that talk about this concept of Projects like these crowding out private competitors, right? You, there’s only so much land. We’re here in Boston where it’s constrained in land, and we’ve got a piece of the land or a potential project and you’ve got two people bidding on it.
[00:20:27] One is a market developer, and the other is one with a subsidy. I’m thinking, whereas there’s no subsidy for the land purchase, there is a subsidy for the ultimate development. So if I am someone who’s going to enjoy, I’ve cracked the code, I figured out how to get my tax credit, I’m competing with a private developer, I can afford to pay much more for that property because ultimately I’m going to make that back in, in tax credits.
[00:20:49] In other words, that private project isn’t going to happen because I’ve been able to outbid him because I know ultimately what I build will be subsidized. The private person can’t do that. Is that what you mean by crowding out, private, competition?
[00:21:02] Chris Edwards: That’s right. When, as a general matter, when the government expands, it displaces, the private activity that used to be there.
[00:21:09] So we see this with many government programs. When Medicaid expands, we see less private health care. and when housing subsidies expand, we see less market-based housing. So, there’s been careful economic studies on the low-income housing tax credit. and they find that a substantial share of private market-based housing is displaced or crowded out, with government-subsidized housing.
[00:21:33] In other words, a lot of the housing would have been built anyway, even without the government subsidy. in my 2017 study on the low-income housing tax credit available at Cato under Chris Edwards, I go into some detail about why that’s the case. so, the low-income housing tax credit, and the subsidized development crowd out, it partly crowds out private development.
[00:21:56] But in addition, you have to think about if the government were to deregulate and make other policy reforms, we would get additional private market housing. And that’s why I think Actually, we’re no further ahead with affordable housing with all these subsidies than we would otherwise be if we let markets work and we got governments out of the way.
[00:22:19] Joe Selvaggi: So, to tie it up a bit, again, you mentioned studies and you were in the egghead world, you’re in the think tank world, studying this stuff. you and I have established that tax credits for these projects make for far more expensive cost to build, it invites corruption, fewer properties will be built so there’s less supply, and therefore even for those of us who have no, connection to these subsidies have to pay higher rents.
[00:22:41] Is the jury still out on this? Are there, there are, studies that show it’s valuable or in the research world is it an, open and shut case?
[00:22:51] Chris Edwards: The experts in the low-income housing area including the experts who generally support this program, recognize these problems, the high-cost problem, the fraud and corruption problem, many, centrists, and housing economists, don’t favor demand-side subsidies for housing.
[00:23:10] The main one in the United States is the Section 8 program where the federal government gives individuals vouchers, and they can go to apartment buildings of their choice and use these vouchers. Most economists, both conservative and libertarian and centrist economists, think that is actually a better way, to subsidize housing, if you’re going to subsidize housing by the low-income housing tax credit gives the subsidies to the developers. That is really the wrong way to go. It’s the developers and the lawyer’s benefit. It’s more efficient to give subsidies to the housing consumers, and low-income tenants themselves. I think an even better solution than that is the free market solution.
[00:23:52] where we deregulate housing markets and we let housing developers develop buildings, for individuals at all income levels. I think markets work. I don’t think there’s any big government failure here where you need government intervention. It is the government itself with excessive building requirements, overly restrictive zoning requirements, and high taxes.
[00:24:14] Those are the barriers we need to get out of the way if we want more affordable housing.
[00:24:19] Joe Selvaggi: Okay, good. So, you’ve jumped the gun, you’ve anticipated my next question, which is to say, I don’t want to, no more despair with, this is a pretty dark podcast, but I just want to say, look, I live in Boston. We have very high prices here.
[00:24:31] I’m sympathetic to anybody who is just trying to raise a family anywhere near the city center. So, they’re too high. We’re going to look; we’re going to talk about some alternatives. but let’s give our listeners just basic economics 101. things are expensive because they’re scarce.
[00:24:46] Not how, diamonds are expensive because they’re scarce, not because they’re necessary. And water is free, not because it’s not necessary, but because it’s abundant. How do we make housing abundant? And if you’ll take the leap with me, therefore, if it’s abundant, it will naturally be more affordable.
[00:25:02] Go ahead and just reframe what you recommended in your last statement.
[00:25:07] Chris Edwards: Well, it’s widely recognized that local governments restrict the supply of housing, all types of housing, including multifamily housing and apartment buildings with excessively tight zoning rules. There are all kinds of ways we can loosen those zoning rules.
[00:25:24] So, for example, right now, we’ve got a massive excess supply in many cities of office buildings, but zoning codes generally prevent that, the transfer of, office zone space into residential space. Some cities I understand are starting to change that. I think New York has recently loosened the rules to allow building owners to convert office buildings to residential buildings.
[00:25:46] That’s the type of zoning rule we need to loosen. Excessive building requirements. Economists have written about how a lot of cities have excessive parking requirements for apartment buildings in cities, but these may raise the cost of apartment buildings unnecessarily. A lot of young people, especially live downtown, in big cities like Boston or Washington or New York, don’t need or want cars and yet they’re forced essentially to pay for parking spaces that they don’t want.
[00:26:15] So there’s these excessive building requirements. And yet another area that I think needs reform is property taxes. Interestingly, the property taxes on apartment buildings are far higher than the property taxes on single-family homes. Indeed, the Lincoln Land Institute, which studies these issues, found that property taxes on apartment buildings averaged 44 percent higher than property taxes on single-family homes.
[00:26:41] So this is a bias that, harms low-income tenants, because of course, property taxes on apartment buildings, are pushed forward onto the tenants, so we are unnecessarily raising, the tax costs on low-income tenants here by having these high property taxes. So, some of the reforms here we need are deregulation and we need lower property taxes, in urban areas in particular.
[00:27:07] Joe Selvaggi: Okay, well, I understand, and I essentially agree with what you are arguing for, which is, to throw open the gates and let more houses be built. But let’s just stipulate that, there are still folks out there, even in a, where market rates come down. down dramatically, who have very low income?
[00:27:25] I’m thinking about the elderly or people with disabilities or, we know of these people who will never be able to pay market rates. What would we do for those people to ensure that they are, their needs are met, wherever you fall on that issue?
[00:27:41] Chris Edwards: Well, for those, folks, I think that the proper level of government to deal with those issues is state and local government.
[00:27:48] Right now, we’ve got a massive, federal government, program, Section 8, that provides these subsidies to individuals for affordable housing. I don’t, I think there are all kinds of problems with the federal government running these programs because every city and every state is different.
[00:28:04] Local needs are different. I think if cities and states, want to, subsidize or help low-income tenants, the way to do it is direct vouchers to tenants and not supply-side, subsidies like we’ve been talking about with the low-income housing tax credit.
[00:28:20] Joe Selvaggi: So rather than the producer of low-income, properties, it’s the consumer of the low-income properties, which provides, in my mind, a little bit of accountability, and it also takes away that incentive for corruption.
[00:28:30] I suppose someone could corruptly apply for a Section 8 housing voucher. That’s a different level of corruption than a very sophisticated developer who’s commanding, at the helm of a 50 million project. Is that fair?
[00:28:42] Chris Edwards: That’s right. I think generally you get a more efficient outcome and less corruption, if you’re going to subsidize not the producers, but subsidize the consumers.
[00:28:52] Another example here is Medicare. the federal Medicare program, a trillion-dollar program, It’s massive subsidies to the providers, to the hospital systems, to the doctors, and the like. There’s an enormous amount of corruption there. people, submit hundreds of billions of dollars, literally, of fake and exaggerated, excessive claims to federal Medicare. It’s an ongoing problem. Something like 15 percent or so of all Medicare claims from providers are exaggerated or fake or improper as they call it. for the Medicare program, the much better solution is to give individuals vouchers to buy health care.
[00:29:31] That way it reduces corruption, and you increase competition in markets. I think the same is true with housing. If we’re going to subsidize housing, I think it ought to be state and local programs, and I think the subsidies ought to go to individual consumers, not to the businesspeople, the providers.
[00:29:48] Joe Selvaggi: Yeah, I don’t know what, what we would have to say in this conversation to help the scales fall from the eyes of those who think government is the solution. You and I both want to see more affordable housing, more abundant housing. and we care about those people who can’t afford houses.
[00:30:01] Well, we’re not arguing whether affordable housing is a good idea. We’re arguing about the way to get there, right? We’re saying what we’re doing now has the absolute opposite intended effect, wastes, wastes a huge amount of money and subsidizes already wealthy developers with the sophistication to navigate this sort of labyrinth of regulation.
[00:30:20] This is a dinner bell for the most corrupt intentions.
[00:30:23] Chris Edwards: as a general matter, as Joe, the, it’s reasonable for the government to intervene in markets where there’s some sort of clear market failure. In my view, there’s no clear market failure in housing, just like private markets provide automobiles for people at all income levels.
[00:30:38] I bought a new automobile myself, a couple of years ago for 30,000. My daughter just bought herself an automobile for 10,000. It’s not as good as my 30,000 car, but she’s young, and it’s good enough for her, and as she earns more money, she’ll be able to buy better automobiles. The market works. I think the same is true for housing.
[00:30:59] When I was young and you were young, Joe, we, we lived in group houses, we had lower cost, housing. Markets provided that. I think markets can provide decent housing for people at all income levels. I don’t think that there’s a market failure here. And I think subsidies come with all these, they create all these additional problems.
[00:31:18] That we’ve been discussing. The crowding out, the corruption, and the high cost. We don’t need it.
[00:31:24] Joe Selvaggi: Well, this is a terrific conversation. I think we’ve whet the appetite of our listeners who wanted to learn more. Again, I will admit, I was completely unaware of this whole sort of a feature of low-income housing.
[00:31:35] I’m like, well, Good Anya, if you want to help the poor find a house. and I realize this is terrible. Where can our listeners, I want to read more about your research, but also, maybe we’ll link to a different, think tank. You did a presentation over at AEI with a couple of other scholars.
[00:31:49] It’s three hours long. I suffered through it, but I think not everybody’s willing to do it, but let’s give a shout-out both to your research and the recent, presentation that you gave at AEI
[00:31:58] Chris Edwards: Well, you can read my research on this and other matters simply Chris Edwards at Cato Institute. I’ve made a lot of posts recently on this housing tax credit issue because the issue is right in front of Congress right now.
[00:32:10] Not only is there a bipartisan group that wants to expand the tax credit we’re talking about, they want to add new tax credits. I think that would be a terrible direction for Congress to go. So, you can look under Chris Edwards at Cato and also, the American Enterprise Institute, AEI. org. they’ve got a great group of scholars there that look at these housing issues as well.
[00:32:30] Joe Selvaggi: Good. And again, as you say, these credits have bipartisan support, but, perhaps it’s, you know, on both sides, sheer ignorance about the complexity and the counterproductive nature of these things that make it, so well supported. So, maybe our representatives will have watched this or your presentation or this podcast, and we may change some hearts and minds.
[00:32:49] Thank you again, for joining me, Chris, you’ve been a great resource. And I think we’ve educated both me and our listeners about an important topic. Thank you for joining me on Hubwonk today, Chris. Thank you, Joe. This has been another episode of Hubwonk. If you enjoyed today’s show, there are several ways to support Hubwonk and Pioneer Institute.
[00:33:06] It would be easier for you and better for us if you subscribe to Hubwonk on your iTunes Podcatcher. It would make it easier for others to find Hubwonk if you offered a five-star rating or a favorable review. We’re grateful if you share Hubwonk with friends. If you have ideas, comments, or suggestions for me about future episode topics.
[00:33:24] You’re certainly welcome to email me at hubwonk@pioneer institute.org. Please join me next week for a new episode of Hubwonk.
Joe Selvaggi interviews Chris Edwards, Chair of Fiscal Studies at CATO Institute, about his research on the 40-year history of Low-Income Housing Tax Credits. They delve into its features, effects, and potential alternatives that could provide greater benefits at lower costs to taxpayers.
Guest:
Chris Edwards occupies the Kilts Family Chair in Fiscal Studies at Cato and is the editor of downsizinggovernment.org. He is a top expert on federal and state tax and budget issues. Before joining Cato, Edwards was a senior economist on the congressional Joint Economic Committee, a manager with PricewaterhouseCoopers, and an economist with the Tax Foundation. Edwards has testified to Congress on fiscal issues many times, and his articles on tax and budget policies have appeared in the Washington Post, the Wall Street Journal, and other major newspapers. He is the author of Downsizing the Federal Government and coauthor of Global Tax Revolution. Edwards holds a BA in economics from the University of Waterloo and an MA in economics from George Mason University. He was a member of the Fiscal Future Commission of the National Academy of Sciences.
UCLA’s Ronald Mellor on Tacitus, Roman Emperors, & Despotism
/in Education, Featured, Learning Curve, News, Podcast /by Editorial StaffRead a transcript
The Learning Curve UCLA’s Ronald Mellor on Tacitus, Roman Emperors, & Despotism
[00:00:00] Charlie: Hello, and welcome to The Learning Curve podcast. My name is Charlie Chieppo. I’m a senior fellow at Pioneer Institute, and this week I’ll be hosting with Justice Barry Anderson of the Minnesota Supreme Court Justice Anderson. Welcome. Glad to have you here.
[00:00:17] Barry: Delighted to be here. We’re going to have a great conversation, and I’m very much looking forward to We’ll have a chance to talk about not only issues of the day, but one of my favorite topics, which is, of course, our Roman origins to our Constitution, Bill of Rights, and the Declaration of Independence.
[00:00:33] Charlie: Yeah, I suspect today that I may learn a few things that I probably should have learned in school but didn’t. I guess better late than never. So, Justice Anderson, do you have a story of the week you’d like to talk about
[00:00:44] Barry: Yeah, I’ve got a story that appeared in the Wall Street Journal earlier this week entitled The Education Department Botches College Financial Aid Again.
[00:00:52] Barry: And what it covers is and I’ll just read a sentence or two from the article because that’s a pretty good description of the problem here. The [00:01:00] disastrous rollout of this year’s federal financial aid applications hit a new snag on Friday with the education department saying that roughly 200, 000 of the a half million plus applications processed and shared with schools and states will need to be recalculated.
[00:01:15] Barry: The lesson here is the longstanding lesson that we seem to refuse to want to learn, which is centralized control of anything, whether it’s education or various other kinds of public policy is not a recipe for success. This is the second go around with problems with the education department calculating the application for federal student aid.
[00:01:35] Barry: And of course, it’s inconvenient to students. Both students and schools and for those students who are in the process of attempting to decide what school they want to attend, now have this additional burden of they don’t really know how their various choices in higher education are going to evaluate their financial needs.
[00:01:55] Barry: You know, the article goes on to talk a little bit about the problems, there are going to be more errors found and so forth. [00:02:00] But I think the more general lesson that we should take from this is well, and this is, this is often the case, I go back to first principles and the first principle is subsidiarity, which is trying to push as much as we can, decision making to the lowest responsible group and why this particular issue isn’t handled more responsibly and more effectively is because by the colleges themselves or perhaps involving states and thus avoiding this kind of problem, or at least cabining it is a mystery to me.
[00:02:30] Barry: But we do seem to live in an era where let’s go to Washington and fix things. And very often we find we haven’t in fact fixed things. So there are some larger lessons to learn from this, but the principal short-term lesson is that the federal government screwed up again.
[00:02:47] Charlie: You know, it’s interesting as you say this my thought as well, even if you’re one who would tend to Agree or tend to think that perhaps more things should be done at the federal level seems to me [00:03:00] that Thinking right now in the current political environment that anything’s gonna get fixed in Washington would seem rather, I don’t know, the more polite word would be hopeful.
[00:03:10] Charlie: But I don’t know.
[00:03:12] Barry: Unduly optimistic. I think unduly optimistic.
[00:03:13] Charlie: That’s better. Yes. Thank you. Great. Thank you. So I suppose you have an article as well. I do. And mine comes from Forbes. And I have to confess that I get caught up. I observe things that are going on around me and I have my own, sometimes correct, sometimes incorrect impressions of those things.
[00:03:36] Charlie: And then I see something that confirms ’em and it really kind of gets me going. And that’s what’s. happening here. I have become obsessed with this fact that, well, what is in my mind, the fact that in many cases the worst thing you can do in public education is to succeed, that nothing will bring down more problems on you than that.
[00:03:56] Charlie: And there’s an article in [00:04:00] written by one founder of a charter school and one former member of an independent board that oversees charter schools in Washington, D. C. Basically 25 years ago, D. C. public schools were really in chaos there, books not delivered, you know, the doors were locked on the first day of schools, there were no supplies.
[00:04:19] Charlie: teachers didn’t show up. And what happened is what happens in so many cases, which is the families who could either send their kids to DC public schools in the wealthiest neighborhoods of the city, or they send them to private schools. So charters first appeared in the mid to late nineties in DC and Since then, city graduation rates have improved, neighborhoods are stronger both public safety and the economy have improved and, interestingly and now as a result of all this, it’s not surprising that charters educate people.
[00:04:54] Charlie: Nearly half of all DC students the rise of the charter schools also triggered [00:05:00] failing district schools. So by 2015, DC had the fastest-improving traditional public school system in the United States. Teacher salaries and overall funding rose to record levels. Well, now comes a new study done by a deputy mayor that recommends restrictions on how and when charters are permitted to enroll students.
[00:05:23] Charlie: And one of the things, the thing that really caught my eye lines from the authors near the end of the piece was, it’s hard to believe that success could be so threatening. And my reaction to that was, well, You know, look around. No, it’s not, sadly. And I certainly hope that that sort of punishing success will not carry the day in D.C.
[00:05:46] Barry: When you talk about the charter schools, I, reflect back on a political figure that Probably very, isn’t very popular these days on the right seen as maybe as a member of a past era, but I think of John Boehner because [00:06:00] Boehner was an enormous supporter at great personal political cost of education choice for students living in the District of Columbia.
[00:06:09] Barry: These weren’t. Constituents of his didn’t support his political party. And yet he was willing to go do battle and battle. He did with the Obama administration and others in support of giving students more choices. And he didn’t see any reason why the mere fact because they lived in the district of Columbia, they should have.
[00:06:29] Barry: So, I think it’s worth recalling him in the context of this article that you just summarized for us.
[00:06:35] Charlie: Yeah, I also think back to recently Boehner attending a ceremony marking Nancy Pelosi stepping down from being speaker he came, not only did he come, he was incredibly warm towards Speaker Pelosi and he, spoke to a time of more comedy and, keeping personal and policy differences separate that looks awfully appealing in the current environment.
[00:07:00] Charlie: After the break, we are going to have our interview with Ronald Miller, who’s a distinguished professor of history at UCLA and the author of Tacitus.
[00:07:41] Charlie: Dr. Ronald Miller is a distinguished professor of history at UCLA, where he’s taught Greek and Roman history and previously served as chair of the department. Professor Miller first taught classics at Stanford University and has been a visiting fellow or scholar at the University College, London, the Humanities Research Center of the Australian National [00:08:00] University, the American Academy in Rome, and Princeton’s Institute of Advanced Studies.
[00:08:05] Charlie: His book, and there are a number of them include From Augustus to Nero, the First Dynasty of Imperial Rome in 1990, Tacitus in 1993, Tacitus, the Classical Heritage in 1995, the Historians of Ancient Rome in 1997 and 2013, The Roman historians 1999 Augustus in the creation of the Roman Empire in 2005, and the annals of Tacitus 2012 Miller studied classics and philosophy at the University of Louvain, Belgium, and earned his a B in history at Fordham University, and received his PhD in Classics from Princeton University.
[00:08:44] Charlie: Well, Professor Miller, it’s great to have you today. Cornelius Tacitus was a Roman senator who is regarded as one of the greatest Roman historians. Tacitus and other classical authors also widely influenced the historical knowledge of our founding fathers. Would you briefly [00:09:00] share with our listeners who Tacitus was and why his histories of the early Roman Empire and its emperors remain so important?
[00:09:06] Ronald: Yes, thank you for asking me. I would say he is the greatest Roman historian. He doesn’t give us only facts, which we expect from historians, but he gives us political and moral analysis. And that I think kept him vibrant and alive for many generations. many centuries after his own life. He was born in the reign of Nero, about 55 CE, in southern Gaul to a Gallo Roman father.
[00:09:36] Ronald: That means a Gaul who had become Romanized and served as an administrator there in the equestrian class. After the civil wars of 69, the death of Nero, Year of the Four Emperors. The successor was a new emperor, and he brought in promising young provincials from Gaul and Spain into administrative posts in Rome.[00:10:00]
[00:10:00] Ronald: And with the patronage of another Gallo Roman, Julius Agricola, whose name we’ll be mentioning later, Tacitus excelled in a career in the law courts. He married Agricola’s daughter. He reached political office in the Senate and after service as a military commander, he was named consul in 97 and was later governor of the very large and important province of Asia.
[00:10:25] Ronald: His close contact with the imperial court gave him deep insights. into the tyrannical nature of imperial rule. Tyrants can control the present, he says at one point, but not the future. And so the chief function of history is to reward virtue and to frighten evildoers. With the damnation of posterity, his literary and rhetorical training and his legal career prepared him to do exactly that.
[00:10:53] Ronald: He gives us a picture of the decline of Roman virtue driven by his own anger [00:11:00] and knowledge of what he called the arcana imperii. Latin for the secrets of rule, how this system really works. So we’re left with a great pessimist, the story of decline. It’s a kind of counterpoint to Virgil’s. Aeneid, the great story of Rome’s foundation.
[00:11:22] Charlie: it sounds like he’s not just a historian. He actually, had experience you operating in a political environment himself, which I’m sure, contributed to his insights. Very interesting. I didn’t realize that.
[00:11:35] Charlie: So, in Tacitus, you wrote, A deeply engaged public man. Tacitus saw his work as a continuation of his political life, and like Cicero, he believed that history should be both useful and moral. The historian was both a teacher and a judge.
[00:11:48] Charlie: Can you help us appreciate Tacitus’s gifts as a writer, as well as what his withering assessments of unchecked authority can teach us about human nature, political power, and the dangers of [00:12:00] despotism?
[00:12:00] Ronald: a great French writer said that personality is revealed in style. Well, that may be true at certain times, but what we see in Tacitus is that his rhetorical training allowed him to write nice, smooth Ciceronian Latin.
[00:12:15] Ronald: We see that in one of his shorter works called The Dialogue of the Orators. But in his historical works. which we call the annals and the histories. Those are names given by modern scholars, but he avoided the elegant prose that earlier writers like Livy and Cicero used. He preferred an abiding acerbic style with the hidden truths of power revealed, not sugar-coated.
[00:12:43] Ronald: So he’s filled, his work is filled with punchy aphorisms that we today might expect from a journalist. He says the later Emperor Galba played the slave to become the master, or he calls another character [00:13:00] occultio non mellior. That means more secretive, not better. And in another line, he actually uses his Latin to convey the rush, the rush into servitude by consuls, senators and knights.
[00:13:15] Ronald: No ands, just pum pum pum. So he’s capable of using his style to enforce. What he thinks, one of my favorites, he seduced the soldiers with bonuses. This is referring to Augustus, the first emperor. He seduced the soldiers with bonuses, the people with food, and everyone with the sweetness of peace. Now you might hear that and say, Gee, that sounds all pretty good.
[00:13:43] Ronald: But in the Latin. Tacitus uses the word pelexit, which is a sexual seduction. He’s seduced with a dark side. And he does that powerfully with his style. And [00:14:00] also with his dramatic effects. He was later used by playwrights, even on television. Claudius, you know. He was very good at painting people.
[00:14:07] Ronald: Pictures,
[00:14:09] Charlie: you know, as a writer. I love that. I just love that image. That’s great. Tacitus, I consider the first writer in the world without a single exception. His book is a compound of history and morality of which we have no other example. Thomas Jefferson wrote to his granddaughter.
[00:14:25] Charlie: Would you talk about the wide influence classical learning had on the founding fathers and education in the early American Republic?
[00:14:32] Ronald: Well, there are lots of things that the founding fathers could look toward. They were not looking for democracy. Democracy never occurs in most of their, discussions.
[00:14:43] Ronald: They were looking for liberty, freedom from King George, whatever. Democracy they might have been nervous with. The mob rule in Athens, they were looking for models for an aristocratic republic in which the [00:15:00] landowning class would run things. And that’s what most of the founding fathers were.
[00:15:07] Ronald: and they looked back to Rome And Tacitus had already been used in early modern times for moral instruction. Francis Bacon in England in the 17th century said he was more, a more important moralist than Plato and Aristotle. Edward Gibbon called him the most philosophical historian, and what I really love is that John Milton in Paradise Lost uses certain traits of Emperor Tiberius in his portrait.
[00:15:36] Ronald: of Satan. So you have this in the background. What is Tacitus’ appeal to the colonists? His hostility to tyranny, his wit, and his moral outrage. So the morality of patriotism the Romans are not looking toward religion. They’re looking toward the noble deeds of the [00:16:00] past. What the Romans called the mos maiorum, the way our ancestors behaved.
[00:16:05] Ronald: And that word mos is the root of moral. Some of the lines that Tacitus comes up with appear almost untouched by the founding fathers. In Agricola, he refers to the Britons, who his father-in-law was off conquering and subduing. And here’s the quote, as long as they fought separately, they were conquered together.
[00:16:33] Ronald: And Benjamin Franklin wrote to John Hancock, we must hang together or we will most assuredly hang separately. Guess who he was reading. And another question that comes up frequently is how, how to be a tester, how to be a good man under a tyranny, like his father-in-law, Agricola. And that’s hard. [00:17:00] And it’s one of the things that as the founding fathers were coming out of control by the Kings of England, they had to try to figure out how do we now be good.
[00:17:11] Ronald: Another thing that’s asked this is very powerful, and I think this has been picked up at certain periods in modern times is the way that the corruption of language is connected to the corruption of power. People throw around words to hide that we really are in the midst of a decline of virtue.
[00:17:36] Ronald: This is Of course, Tacitus is a great theme in the annals and Thomas Jefferson argued that Tacitus in ancient history should be in the curriculum of the University of Virginia. , they really believed in it. Now, Tacitus had, through the centuries before the founding fathers, he had collected all the right enemies.
[00:17:58] Ronald: He was denounced [00:18:00] 18th century by popes. by kings, by emperors, and even by the Tories in the 18th century. Rulers distrust his cynicism and his honesty. Later, just after the American Revolution, we have Napoleon goes on a rant at a party in Germany in the presence of the great German writer Goethe. He calls, why is everyone talking about Tacitus?
[00:18:27] Ronald: He’s a slanderer of humanity. He said bad things about the emperors that we all know the Roman people loved. Okay, if you’re a poet and Napoleon who’s just conquered your country is going on like that, I think what you do is you say, yes, sir.
[00:18:46] Charlie: That would be advisable. Yes, that’s interesting. Julia Caesar was assassinated by about 40 Roman senators on the Ides of March and 44 BC, ultimately resulting in the death of the Roman Republic and the [00:19:00] birth of the Roman Empire under Emperor Augustus. Could you briefly explain this history and how the decline of the authority of the Roman Senate shaped the political behavior, diminished freedom, and autocratic rule that would follow in Rome?
[00:19:13] Charlie: Yes, indeed,
[00:19:14] Ronald: that Romans first had kings Etruscan kings, and they overthrew them in about if we believe the early sources, about 509 BCE. And we then had five centuries of Republican government. Republican meaning comes from the two Latin words, res publica, the thing that belongs to the people. So the republic was something that belonged to the people, not to a king.
[00:19:44] Ronald: And there were assemblies of men, of course, there were soldiers who were entitled to come to these assemblies, who elected the magistrates, including the top magistrates, the consuls, then served as generals. And these top magistrates formed the [00:20:00] Roman Senate. Again, I hate to be too etymological, but I do with students have to be.
[00:20:06] Ronald: The word Senate is derived from the Latin word cenex, old man. that was fine, but in the first century, b, CE, after Rome had conquered Italy after Rome had conquered Carthage after Rome had conquered the Greeks, city-states. The armies came to be used by individual leaders. They became in a way what I like to call personal armies.
[00:20:34] Ronald: They were not armies of the Senate and the Roman people. They were being paid for by their generals out of the booty. And so we have a series of men, Marius and Sulla, you may know the names of Pompey, Julius Caesar, Mark Antony, and Octavian, all of them had armies that were loyal mostly to them. The Senate became subservient, [00:21:00] and the troops were loyal to those who paid them, their generals.
[00:21:05] Ronald: And then we move then, To these generals fighting against each other, producing a civil war. The result of that civil war was the rise of Julius Caesar, who had been the governor of Gaul, had conquered Gaul, had taken, sometimes it’s estimated, a million Gauls as prisoners of war that could be sold as slaves.
[00:21:30] Ronald: That’s how he financed his payment to the troops. He was named dictator and after his assassination and another civil war, his great-nephew Octavian took the name of Augustus. The empire had begun. The Republic was over with Tiberius, who’s probably the most complex character in testis.
[00:21:54] Ronald: We see a man who was manipulated by his courtiers. He had personal grievances [00:22:00] for having been in the shadow of Augustus for so long. And we’re beginning to see. That big problem and Tacitus wanted to tell this to the Founding Fathers, even if he didn’t know they were going to be Founding Fathers.
[00:22:15] Ronald: The danger of hereditary monarchy, the complications of transitions. We can look at that in, you know, pick up the newspaper and read about the British royal family. Or also read about possibly the transition after Vladimir Putin. How do you do a transition? And even in our own country, it’s not easy.
[00:22:38] Ronald: And Tacitus is giving us some Warnings.
[00:22:41] Charlie: Yeah, boy. Warnings that too many of us modern folk have not heeded, unfortunately, very interesting. This is the annals is a history of the Roman Empire from the reign of the emperor Tiberius. to that of Emperor Nero, which is the years A. D. 14 to [00:23:00] 68. This narrative is vital for understanding the overall history of the Roman Empire during the first century A.
[00:23:06] Charlie: D. Would you give us a very brief overview of this work and the key dramatic warnings Tacitus is teaching posterity about Rome’s imperial politics? I think you probably just gave us one of those warnings.
[00:23:18] Ronald: I’m afraid I, I overlapped. some of these questions, but The annals begin with the death of Augustus 14 and go to, in theory, the death of Nero or the beginning of the civil war in 69.
[00:23:35] Ronald: One of the problems for us is that books seven to 10 are missing.
[00:23:41] Charlie: Ah, interesting. Okay.
[00:23:42] Ronald: And that is the entire reign of Caligula. We learn about Caligula only in bits and pieces. in Tacitus. Otherwise, we have to go to, say Suetonius’s Lives of the Caesars. And books 17 [00:24:00] and 18, the end of it, is missing.
[00:24:04] Ronald: There’s a man called Henry Saville, who was the Latin tutor to Queen Elizabeth I. And he translated The histories was knighted for translation. That was a different time and place. And he decided to write the missing parts. 1718. It’s interesting to read it because Henry Saville writing around 1600 had read Machiavelli.
[00:24:31] Ronald: And so that transition at the death of Nero into the civil war is a little bit more Machiavellian than because he rewrote it. He wrote the missing link. And he gives it a Machiavellian spin. But even with Fastus, the first Book, so to speak, the first hexad, a group of three books, might begin about the sixth paragraph, where Tacitus says, the first [00:25:00] act of the new principate was the murder of Agrippa Postumus.
[00:25:04] Ronald: Agrippa Postumus was the surviving grandson of Augustus and the new principate. regime thought it would be better if he wasn’t around. In Book 13, which is the beginning of the third Hexad, the third group of three books, the first line is, that the first death of the new regime was Junius Salanus, also a great-great grandson of Augustus.
[00:25:31] Ronald: This sense of doom is Put out there, we don’t have the beginning of the second Hexad, book seven is lost, but he is in a literary way, putting these deaths, which might not be that important politically, finally, dramatically, and rhetorically, he gives you that sense of doom. We get in this book, the prejudice of the senatorial class, of [00:26:00] course.
[00:26:00] Ronald: The corruption of senators. is one of Tacitus’ big themes, and he’s an outsider who’s become a senator. So he looks at the decline of virtue. One of the warnings is that we have two very powerful speeches in Tacitus’ works, one by a Roman in favor of Roman imperialism, saying to the Gauls, if it wasn’t for us, the Germans would be in here and run all over you.
[00:26:33] Ronald: And the other by the British chieftain Kalgakos, for which the only evidence we really have is in the Agricola, who argues against Roman imperialism with his great line, they brought devastation and they call it peace. Is that not a line that can be used through the ages?
[00:26:56] Barry: Professor, as you note in your book, these are not biographies, but [00:27:00] Tacitus’s interests never wandered far from the imperial palace and Rome itself. Could you quickly sketch for us his portraits of the emperors Tiberius, Caligula, Claudius, and Nero?
[00:27:12] Barry: And what we can learn from how he characterizes their political leadership.
[00:27:17] Ronald: The lives of the emperors that Tacitus provides are different from the lives of the emperors that Suetonius. Suetonius is interested in the gory details, how much body odor someone had, and whether he was bald. All of those kinds of interesting, sometimes slightly unpleasant characteristics.
[00:27:40] Ronald: Tacitus was interested much more in the politics. Thank you. and the morality of things. the creation of Tiberius seems to be that of Tacitus looking at the psychopathology of a monster. He distrusts the [00:28:00] Hellenization of Nero. They’re surrounding themselves with these Greek freedmen.
[00:28:07] Ronald: Who, in Tacitus’ view, he’s a Western Provincial, sees these Eastern Provincials as untrustworthy. Tacitus finds, of course, vice more compelling than virtue. He’s not producing Livian heroes like Scipio, Romulus or Cato. He’s producing, on the whole, monsters. And he has a very negative view of women.
[00:28:31] Ronald: The power of the women in his first books is that they loom over weak men like Claudius. We also have in his portraits of the emperors, their performative elements. Now, we have fortunately or unfortunately been deluged in recent decades with the performability of our leaders in this country and abroad?
[00:28:59] Ronald: [00:29:00] Of course, television and social media have brought that in. So we have that as Nero plays a King, he dresses himself up as a singer, he didn’t play the liar when Rome burned, according to Testis, he simply played the lute and sang of Troy burning in the past. So all of this kind of. Performance rule, is part of what Pastis brings to his analysis.
[00:29:29] Ronald: He’s biased against Claudius. It’s a general senatorial bias. In fact, if you look at the facts that he gives us, Claudius administered the empire better and gave better speeches than Pastis. most of the other emperors. But nonetheless, there is that bias. He’s crippled. He had probably had polio as a child.
[00:29:53] Ronald: In general, Tacitus is not looking for sordid stories. He’s looking for true [00:30:00] causes. He’s looking for historical causation, and that’s something that we admire him for.
[00:30:06] Barry: he’s writing for the ages, not for the tabloids, would be another way to put that, I suspect. That’s right. Let’s go a little more current with our next question. John Adams rights to his then-young son, John Quincy Adams the following. In company with Solus, Cicero, Tacitus, and Livy, you will learn wisdom and virtue. You will see them represented with all the charms that language and imagination can exhibit, and vice and folly painted in all their deformity and horror.
[00:30:36] Barry: What are some of the ways in which Tacitus and the Roman historians influence the constitutionalism that is so much a part of our founding era?
[00:30:46] Ronald: Well, John Quincy Adams himself in his oration at Plymouth, long before he became president, he gave an oration at Plymouth commemorating the arrival of the pilgrims.
[00:30:57] Ronald: he quoted Tacitus. He [00:31:00] said, Tacitus says, think of our ancestors and our descendants. Now, those of you who read my book with great care, which I doubt is anybody, since my wife proofread it will notice that I dedicated it to my only living at that point, my ancestor, my mother, and my only living descendant, my son.
[00:31:27] Ronald: The great thing that I think the task is taught ancestors, the American framers is freedom of speech.
[00:31:31] Ronald: You cannot have freedom when you have censorship. One of the greatest speeches in Tacitus is by a man called Cormutius Cordus, who otherwise we would not know, and he is a historian. His works had been burned, and he later starved himself to death. But in his speech, he laughs at the stupidity of those who try to silence memory.
[00:31:57] Ronald: You can’t silence memory [00:32:00] by simply burning the books. We have, later, the death of Seneca, under Seneca, who was a great philosopher, who was a tutor of Nero. And he committed suicide in the midst of a conspiracy theory, false persecutions. At the beginning of the annals, is revealed to have reinstituted something from the remote past of Roman history.
[00:32:25] Ronald: The Lex Maestatis. That is to say, the law on Well, the Romans would call it maestas. If you had harmed the standing of a consul, or even I think of a judge or pro consul that is cause for persecution. You wrote satires, you wrote histories, and all could be persecuted now. And one of the great lines, I think, in Tacitus.
[00:32:54] Ronald: Which was quoted by a 19th century Brit who was running for office in London at the [00:33:00] funeral in 23, a D junior at the age of 90, a woman who was once the wife of Cassius and the daughter of Brutus, remember who assassinated the Caesar or who, who were involved in the civil wars, I should say at the funeral procession, 20 busts of famous families were carried.
[00:33:25] Ronald: But as Tacitus says, conspicuous by their absence were the busts of Brutus and Cassius. Conspicuous by its absence, if you look it up in the English, Oxford English Dictionary, you will find the reference to Lord John Russell using that in a political campaign in the 19th century.
[00:33:48] Barry: Fascinating. the work of Tacitus echoes down the centuries.
[00:33:54] Barry: Among his works, though, were three minor books, three minor writings Agricola, a biography of his [00:34:00] father-in-law, the Germanic, the Barbarian tribes of northern Europe, and the Dialogus about the art of rhetoric. Are there a few quick things we can learn from these lesser-known books?
[00:34:10] Ronald: Well, I think so.
[00:34:11] Ronald: I think the Agricola is a biography that looks at the cost of virtue. His father in law, he has resentment of the treatment of this man by Domitian. And it talks about the costs of conquest. Conquest is never just simple. We get their stuff. And the Britons in this book are rather heroic. Because they have to be heroic to be a foil for Agricola.
[00:34:43] Ronald: A Roman is going to conquer somebody, he has to be a tough guy. and so that’s what we get out of the Agricola. The Germania, well, Chris Krebs, up at Stanford now, published a book. called The Most Dangerous Book. It was a phrase [00:35:00] used by, earlier by a great historian, Momigliano, because that Germania has come down through the ages.
[00:35:08] Ronald: In Tacitus, she portrays the Germans as noble savages and a pure, unmixed race. Sound familiar? Again, a praise of virtue because he wants to use that to critique Roman immorality. He’s much less sympathetic to the Germans in his historical annals and histories, but here in this monograph about these people who he had never visited he begins the trope of the pure race.
[00:35:41] Ronald: Which is then taken up by the Germans in the Reformation, big time, and subsequently. The Dialogues, less important for historical things, it’s a book of the intersection, you might say, of literature and society. How literature can change. [00:36:00] As society changes, I might call it a book of literary criticism.
[00:36:05] Barry: Tacitus also wrote the following, No honor was left for the gods when Augustus chose to be himself, worshipped with temples and statutes like those of the deities. What role did religion play in the early Roman Empire? And how the political leaders were worshipped as gods? Talk about that a bit if you can.
[00:36:23] Barry: And how did this harm Roman politics?
[00:36:27] Ronald: The original Roman deities were gods of the countryside, gods of the household, they call them lares or penates. And then they brought in Olympians from Greece via Etruria, because the Romans initially were, in Etruscan culture. They were part of the Etruscan Etrorean, that is to say world.
[00:36:53] Ronald: And we get some names, I can just give you one. The chief god of the Greeks was [00:37:00] Zeus. We all know about Zeus. And if you pray to Zeus, Zeus the father, what you say is Zeus the father.
[00:37:10] Ronald: So they were taking over these gods and sometimes making their names more convenient In the second century BCE, the Greeks began to worship proconsuls. Why? Because after Alexander the Great, the Greek kings who controlled Egypt and the Ptolemies or other parts of the Eastern world were worshipped as gods.
[00:37:33] Ronald: So when the Romans came and conquered, the Greek cities didn’t quite know what to do about this, so they worshipped the proconsul who conquered them. But not in Rome did this happen, until after the death of Caesar. And they called a deified god, Deus, and you can see it if you have a Roman coin in your pocket.
[00:37:57] Ronald: You might see Deus [00:38:00] Augustus, Deus Julius. Not Deus, which is the ordinary for God. So they were beginning to worship the gods when they were dead, not while they were still alive.
[00:38:14] Barry: We turn now to the conclusion of your Tacitus book, you write the following. The Annals and the Histories are a brilliant and angry analysis of his class, his age, the moral condition of imperial Rome, of the ageless corruption of politics. As a classical historian, and this is not by no means, the only book you’ve written, we covered that earlier with your biography, but also as a citizen, what do you draw from his works that helps you better understand American politics and government today?
[00:38:46] Ronald: one of the things that I drew, and when I first taught Tacitus, in Latin. It was in the middle of the Vietnam War. I was teaching at Stanford at that time. And the angry analysis [00:39:00] of the lies that were being told was something that the students were very familiar with.
[00:39:06] Ronald: The corruption of language that we are fighting for freedom is something that Tacitus really is very powerful on. He says it leads to the corruption of politics and even today. We have words thrown around that in 50 years will be seen to be empty, empty rhetoric. he also said one thing at the beginning of his history about Emperor Galba.
[00:39:35] Ronald: Qhapaq’s imperii, nisi imperacet, a great Latin line, he would have been thought capable of ruling If only he had never ruled,
[00:39:48] Ronald: it’s been said about some presidents in our country that they had all of them on paper on paper, he would have been a great CEO, but then he [00:40:00] got the power and it didn’t work. So this desire was not for democracy but instead for emperors. He wanted virtuous rulers. Democracy might lead to mob rule.
[00:40:14] Ronald: And he wants to tell you, the cost of hereditary monarchy. We have to choose the best man, which happened after the death of Domitian in 96, there were a series of emperors whom Pastus himself calls good emperors, referring to the first two, and there were about five. In fact, one of them, Marcus Aurelius, the philosopher, revoked the censorship laws.
[00:40:43] Barry: Professor. If you would read a paragraph for us.
[00:40:46] Ronald: I’m reading really almost at the peroration of this book. Here we go. Tacitus recreated the truth of the early Roman Empire, the truth of our lost freedom, the [00:41:00] truth of intellectual and moral decline, the truth of sycophancy and dissimulation of court politics, the truth of cowardice and collaboration, the truth of evil. He survived, and even prospered under that regime, and his burden of guilt made his perceptions all the more acute. All historical writing is a recreation of the past through the consciousness of the historian who often reads his own life into his subject. He knew the worst, and like so many great artists, Tacitus was trying in a healing work of self-revelation to exercise his own demons. His books are, to some degree, a study of his own troubled soul.
[00:41:46] Charlie: Professor, that was wonderful. Yeah, that was great, Professor. Thank you so much. Appreciate it. Thank you for having me.
[00:43:20] Charlie: Well, that was certainly an interesting interview with Professor Meller, certainly got me thinking and taught me a lot of stuff. I probably should have known, but I didn’t. And now we’re going to move on to the tweet of the week, which came from Phil McRae on March 22nd about an issue that is close to all of us who are parents and that’s smartphones.
[00:43:39] Charlie: He wrote a smartphone ban. In the U. S., a teacher, Mary Garza, instructed her students to set their phones to loud mode. Each time a notification was received, they’d stand up and tally it under a suitable category. This occurred during one class period. Each mark is a learning disruption. So, very [00:44:00] interesting insights from Phil McKay.
[00:44:02] Charlie: Well, Justice Anderson, thank you very much. It was really a pleasure to do this, to finally get to meet you, at least over Skype. Thanks for joining us. Thanks for inviting me to participate. I thoroughly enjoyed the conversation. Next week The Learning Curve, our guest will be Eva Moskowitz, certainly somebody who is often in the news, head of Success Academies in New York City, and who is certainly in the midst of a lot of high-profile battles on behalf of the charter school movement.
[00:44:29] Charlie: So, I hope you’ll join us next week. Thanks very much, and thanks for tuning in.
This week on The Learning Curve, guest co-hosts Charlie Chieppo and Minnesota Supreme Court Justice Barry Anderson interview UCLA’s classical historian, Prof. Ronald Mellor. Dr. Mellor delves into the enduring influence of Tacitus, the great Roman historian, on both America’s Founding Fathers and contemporary understanding of politics and government. He discusses Tacitus’s insights on the early Roman emperors, unchecked authority, moral judgment of leadership, and the decline of the Roman Republic, as well as ancient lessons for modern governance. Prof. Mellor closes with a reading from his book, Tacitus.
Stories of the Week: Charlie discussed an article from Forbes about successful charter schools in the District of Columbia; Justice Anderson analyzed an article from The Wall Street Journal on how the Education Department botches college federal aid once again.
Guest:
Tweet of the Week:
https://x.com/philmcrae/status/1771175996605276232?s=20
Testimony – Special Joint Committee on Initiative Petitions
/in Better Government, Public Testimony, Public Testimony, Transparency /by Mary ConnaughtonBallot Initiative NO. 23-34 An Act expressly authorizing the Auditor to audit the
Legislature (House, No. 4251).
March 26, 2024
Thank you. My name is Mary Connaughton and I am the Director of
Government Transparency at Pioneer Institute.
The Massachusetts’ Constitution, an inspiration for other states, the
nation and other countries, came from the pen of John Adams. Among
his political writings was an early work, A Dissertation on the Canon
and Feudal Law, which laid out the principles of modern, democratic
conceptions of liberty. In it, Adams makes the case for accountability
to the people:
Liberty cannot be preserved without a general knowledge among
the people, who have a right…and a desire to know; but besides
this, they have a right, an indisputable, unalienable, indefeasible,
divine right to that most dreaded and envied kind of knowledge, I
mean of the characters and conduct of their rulers.
The Legislature has failed in its constitutional duty to be accountable
to the people “at all times,” as required under Article V of the
Massachusetts Declaration of Rights, by exempting itself from public
records laws. That’s not the way it works in the vast majority of states
— as documented in the Senate’s 2018 report resulting from the
Special Legislative Commission on Public Records.
This Legislature operates with minimal public disclosure. Most states
require policy makers to file financial disclosure forms that any
member of the public can easily inspect. In Massachusetts, by the
legislature’s own crafting, individuals must show proof of identity to the
Ethics Commission to access the disclosures, and the legislator is
informed of who is making the request. That is
intimidation.
Once obtained, Statements of Financial Interest offer little insight. The
forms haven’t been updated in decades. The highest category for real
estate holdings is “$100,000+.” Seriously? But updating these isn’t up
to the Ethics Commission, it’s up to the legislature. Why are we so far
behind states like Mississippi, New Jersey and Iowa in this regard?
Bills impacting the Bay State’s 7 million residents are largely crafted
behind closed doors. The state constitution declares that it is the right
of the people to give instructions to their representatives. But how can
we do so when we don’t know what our representatives are doing —
or not doing? A comprehensive state audit is the perfect way to find
out.
While Auditor DiZoglio has launched this effort, it would be foolhardy
to think this is about Diana DiZoglio. This is about preserving the
constitutional principles we all hold dear. We are nothing without an
engaged citizenry and an engaged citizenry requires the public trust
that goes hand in hand with transparency.
Thank you.
Poor Housing Incentives: Tax Credits Reward Politicians Not Neighbors in Need
/in Featured, Housing, News, Podcast Hubwonk /by Editorial StaffClick here to read a transcript
Poor Housing Incentives: Tax Credits Reward Politicians Not Neighbors in Need
[00:00:00] Joe Selvaggi: This is Hubwonk. I’m Joe Selvaggi. Welcome to Hubwonk, a podcast of Pioneer Institute, a think tank in Boston. Few public initiatives offer as enticing a photo opportunity as a ribbon-cutting ceremony for a low-income housing project. With funding from federal, state, and local agencies in the form of low-income housing tax credits, or LIHTC, homes are constructed to provide housing options that advocates argue wouldn’t be available through the private sector, particularly in regions where housing costs are prohibitively high.
[00:00:33] However, closer examination of the incentives reveals a complex web of standards that discourage competition among contractors and impose politically motivated green or social justice criteria, resulting in the cost to build low-cost housing exceeding twice its private market alternative. For housing advocates striving to promote home accessibility for low-income tenants and lower prices for all consumers, the acknowledged high cost of so-called low-cost housing, maybe in practice, reduce the number of rental units produced, and crowd out private residential production, thereby driving up costs for those seeking market-rate properties. This prompts questions about how the low-income housing program operates, who benefits from its complex structure, and what the actual outcomes are in terms of the number and quality of units produced, and the ultimate costs borne by taxpayers.
[00:01:29] Joining us today is Chris Edwards, the Kiltz Family Chair in Fiscal Studies at Cato and a leading expert on fiscal and state tax and budget issues. With his extensive research on the LIHTC program, Mr. Edwards will shed light on what this nearly 40-year-old initiative, which allocates over 9 billion annually, truly delivers.
[00:01:52] We’ll delve into whether the program’s objectives align with the outcomes and explore how its incentives may favor financiers, contractors, and politicians over the low-income renters it claims to assist. When I return, I’ll be joined by Cato Chair of Fiscal Studies, Chris Edwards. Okay, we’re back.
[00:02:13] This is Hubwonk. I’m Joe Selvaggi, and I’m now pleased to be joined by the Kilts Family Chair in Fiscal Studies at Cato Institute, Chris Edwards. Welcome back to Hubwonk, Chris.
[00:02:23] Chris Edwards: Hey, thanks a lot for having me,
[00:02:24] Joe Selvaggi: Joe. Okay, great. Well, I’m thrilled to have you. I don’t often admit to being completely ignorant about a particular massive public policy issue, but here we are.
[00:02:32] I’m going to admit my ignorance. I stumbled across this idea because it’s in pending legislation here and at the federal level. We’re going to be talking today about low-income housing tax credits, or LIHTC. Which, again, I knew about them. I didn’t know much about the details, but I’ll just paint in broad strokes.
[00:02:47] What I had thought at its base is a well-intentioned effort by the government to address the unmet, unneeded, unmet need in the market to build and provide homes for those whose income, frankly, is not enough to afford market-rate rents. So, okay, that’s, I’ve set the table for what we’re going to talk about.
[00:03:06] Let’s start at the beginning. What is LIHTC, the Low-Income Housing Tax Credit? For our listeners, what is it?
[00:03:12] Chris Edwards: Well, as just about everyone knows, housing has become very expensive in many parts of the United States, and public policymakers want to do something like that. That’s certainly reasonable, and they go about trying to create more affordable housing in two ways.
[00:03:27] For a long time, there’s been a program operated by the Federal Department of Housing and Urban Development called Section 8. where they give individuals vouchers and, in order to go, help them pay for the cost of apartments, buildings, or apartment units. but at the same time for the last few decades, the federal government has had a giant subsidy program, to, increase the supply of low-income housing units.
[00:03:51] This is called the low-income housing tax credit. It’s a 13 billion dollar-a-year subsidy to developers. of low-income apartment buildings. Uh, now the supporters of this subsidy program claim that it works and increases the supply of low-income housing. I’m very skeptical of that. I think it mainly displaces private market development of low-income housing.
[00:04:15] And not only that, but this federal government program, low-income housing tax credit, or LIHTC as it’s called, is enormously complex and mainly benefits the financial middlemen and not low-income tenants. Thank you.
[00:04:28] Joe Selvaggi: So, I want to take that apart. Great, you’ve defined it in broad terms. Let me just say, we’re addressing the supply of housing for people who, maybe, don’t have income from market rents.
[00:04:40] The economist in me says, more supply generally means lower prices, so that sounds good. What’s an example of how a builder earns a low-income tax credit, or low-income housing tax credit?
[00:04:54] Chris Edwards: Well, the federal government doles out this 13 billion low-income housing tax credits every year to state governments.
[00:05:00] Then the state governments either allocate them directly or they pass them on to city councils in order to dole out these credits to favored developers. One of the problems that creates right off the bat is that Local governments and developers, there’s long been a corruption problem there, so city councils have these tax credits that are worth a lot of money, they only give them to favored developers, that has encouraged developers to bribe city council members in many cities across the country to get these credits.
[00:05:33] So that’s one of the problems with this program. But then a bigger problem is that these credits are enormously complex. In order to get the credits, the developers must give to city or state governments, these long, detailed financial plans. And, and the state governments, these are called Qualified Allocation Plans.
[00:05:55] The state governments have all this complex point system and rule system for the developers developing these low-income apartment buildings. where they essentially micromanage the development of these apartment buildings. So, this micromanagement tends to boost costs, and so the low-income apartment buildings developed with this federal tax credit end up costing a lot more than private market development.
[00:06:24] To put numbers on that, a Wall Street Journal story a week ago profiled California’s low-income housing tax credits. They profiled some private market developers who were developing apartment buildings for 300, 000 per unit. They compared that to apartment buildings developed with this low-income housing tax credit.
[00:06:46] They cost 600,000 per unit or even more. So, when we see this often, the federal government or state government subsidizes something, but it ends up pushing up and inflating costs for the end product. And that’s what we see with this, with these housing tax credits.
[00:07:05] Joe Selvaggi: So, let’s take that apart.
[00:07:06] In preparation for our conversation, I looked up our Massachusetts QAP. It’s 165 pages long. I invite all our listeners. It’s very easy, Massachusetts QAP, and you can read it yourself. and it’s a compendium of, in my humble view, contradictions that seem, either to practically assure that no project is ever built, or as you mentioned, if they are built, they’re built, you cited numbers that seem as if they’re 100 percent more expensive than their market rate counterparts.
[00:07:35] So, let’s just break some of those things down. I, in 165 pages, my head was spinning and all the apparent contradictions that it sets out to build more units, which is a wonderful goal. And then. It’s 164 pages of why it’s almost impossible to satisfy these criteria. Share with our listeners some of the typical criteria that might affect the cost and frequency of these projects.
[00:07:59] Chris Edwards: Right. So, state governments, create these QAPs or Qualified Allocation Plans, as you said, and developers must follow these state rules if they want to get these valuable tax credits. So, there’s enormous micromanagement in these QAP plans. developers, there are all kinds of energy efficiency standards for toilets and lighting systems and HVAC systems.
[00:08:25] They even micromanage that, these low-income housing apartments must have USB ports in every room. That’s what my, the Virginia QAP says. There’s diversity requirements. There’s all kinds of requirements for developers about the sort of people they can hire and this sort of thing. So, all of these mandates and requirements add costs.
[00:08:46] So, in the end, the low-income tenants don’t actually end up, benefiting much because the cost of these projects is so high, and careful economic studies have found that a lot of the benefits end up actually going to the financial middlemen, and frankly, the lawyers that deal with all this complexity, and not the low-income tenants.
[00:09:07] Joe Selvaggi: Yeah, I saw a lot of contradictions in our QAP, as I mentioned, of course, environmental concerns, even dictating how much of the construction waste must be recycled, they go to great lengths to talk about how, all contractors must comply with, equal opportunity employment law, but also then mandate, literally affirmative action to choose, contractors, based on, status in a, a particular group.
[00:09:27] So, it’s a very strange universe. Right.
[00:09:31] Chris Edwards: And in addition, I would add in here that, so this is the state government complexity, for this low-income housing tax credit. On top of that is a massive amount of federal government complexity. This is a federal tax credit. And so, the federal government imposes complex rules as well, and as I’ve documented, the IRS audit guide for this tax credit is 350 pages long.
[00:09:55] It’s remarkable. In a recent post at Cato, I added up all the federal tax rules for this tax credit. The original statute is only 59 pages, but there are 2,000 pages of IRS regulations and rulings and procedures and other rules. that must be followed if you want to get these tax credits. The HUD guide that the Department of Housing and Urban Development, their guide for this tax credit is 800 pages long it’s remarkable. One reason for that is that developers get these credits for building these low-income housing apartment buildings, but then they must follow federal rules for 30 years after the construction of these buildings to make sure that. The tenant, there’s a proper mix of low-income tenants, and what the tenant’s expenses are, and income levels are, and all this sort of thing.
[00:10:48] So, developers, they’ve got to follow these rules to construct the building, and then the building owners have to follow all these complex rules for 30 years. It’s, again, this is a bonanza for the lawyers. It doesn’t really, end up benefiting the low-income tenants very much.
[00:11:04] Joe Selvaggi: So, again, I, we’re talking about this labyrinth of layers and layers of regulation, and that, of course, when you layer regulation, what, the regulation that attaches is the, the most restrictive, meaning, if they’re contradictory, you just take the one that’s the most restrictive, and that prevails, right?
[00:11:18] So, given all these complexities, who in the heck is, well, let’s first stipulate, of course, this complexity means fewer of these projects are going to happen. Of course, there’s, these are a lot of hoops that only a few, project managers or, contractors can get through. Who are the people who are, who ultimately do navigate this, Gordian knot of nonsense?
[00:11:39] Chris Edwards: So, you raised an interesting question, Joe. And this, a common problem with over-regulation is that the businesses that end up, benefiting sort of a small group of insider businesses that have figured out all the complex rules, they hire all the lawyers. So it’s really the larger developers that have become experts on these complex rules that end up benefiting, smaller developers in cities, they, avoid programs like this, like the plague, because they can’t figure out all the complicated rules.
[00:12:08] So, again, there’s been careful economic studies that have found that actually, it’s these insider middlemen. and the investors in these projects make most of the benefits and not the low-income tenants. So you can compare these studies, for example, compare a market-based and non-subsidized, low, low rental apartment buildings to ones built with these subsidies.
[00:12:32] And, low-income tenants can get almost a similar deal in the market-based, developments, compared to these, government-subsidized developments. and that, leads to the, the, one of the conclusions here is that we’ve got this giant, complex government system here, but we don’t need it if the government just got out of the way, there’d be more market-based, low-income development, and that’s really where we ought to be headed.
[00:12:55] Joe Selvaggi: Indeed, okay, I think you and I both are more sympathetic to market solutions than government solutions, but I just say for our listeners who are, keeping score at home, if you create these, 1000 rules for, building a low-income property, and it’s the city or the state that is in charge of enforcing it, as you say, there’s a couple of, let’s say, choose firms that, let’s say, are preferred, isn’t this inviting a collusion between politicians and developers?
[00:13:21] In other words, you’re saying, well, politicians, they really care about low-income housing, they wouldn’t go down this road, but what if they benefit greatly from incentivizing certain developers? For essentially supporting their campaign or their political ambition.
[00:13:36] Chris Edwards: That’s right. Well, Joe, you touched on this.
[00:13:37] There has been a major corruption problem with the low-income housing tax credits. Your listeners, if they want to follow up on this, a great example is California had a massive scandal regarding these housing tax credits. So, if you google housing tax credits and corruption in California, you’ll see all these stories.
[00:13:54] And basically, the federal government is giving state and local governments this valuable, tax credit item, which is in limited supply. And it’s the local politicians who get to dole it out to their favored, contractors or developers. In theory, it’s supposed to be a fair competition system where the developer with the best project ideas gets these tax credits.
[00:14:19] In reality, there’s a big incentive to bribe the state and local politicians, and that’s what happened in California, to get at the front of the line for the handing out of these tax credits. You actually, by the way, as a, on a tangent, you see a similar problem. When local governments hand out alcohol licenses, for example, or they hand out marijuana grower licenses, as in California, you get a big corruption problem.
[00:14:45] When governments keep things in artificially limited supply, they dole the benefits out to their favored, businesses, you get a corruption problem and you see this with the housing tax credits.
[00:14:58] Joe Selvaggi: I want to shift our conversation to the housing cost. You already stipulated it’s more than a market rate, so it costs more to build one of these properties.
[00:15:06] In your case, you were describing something that costs 100 percent more or double what it would otherwise cost. But why does a market rate builder constrain costs? They ultimately have to make a profit, right? What they build has to be worth more than what they paid to build it. They, ultimately, someone’s going to buy it or rent it, so they don’t have unlimited resources to build whatever.
[00:15:25] In this case, if we’re building a low-income, project, and ultimately the people who are going to move into this are people who have subsidies, and ultimately those subsidies are going to be, paid and I’m going to get my subsidy to build it, what’s going to be the rent that, where is the profit?
[00:15:39] Is it in the tax credit or can they also enjoy some sort of guaranteed tenant when it’s all over?
[00:15:46] Chris Edwards: Yeah, it’s in the tax credits. The tax credits pay most of the costs. for developing these buildings. And the costs are much higher. construction experts, which I am not, point to two main costs of construction.
[00:16:00] There’s what’s called a hard cost, the actual cost of materials and that sort of stuff, and the soft cost, which is the cost of financing. Both of those costs are higher. In these government-subsidized tax credit projects, the hard costs are higher, because they often, for example, have labor union requirements, and, all kinds of requirements for, superior quality, goods and products and that sort of stuff.
[00:16:26] And so that raises the actual hard cost of construction, but the soft cost of financing is higher too, because the government, when you bring in government subsidies, the deals get a lot more complex, you need a lot more lawyers, and there’s a lot more delays. And in the construction business, time is money.
[00:16:42] So these government, if you take the government subsidies, your project will be delayed probably months or years as you try to figure out all the, how to get these, credits and other subsidies. and so, if projects get delayed, that costs developers more money. So, for all these reasons, government projects cost a lot more.
[00:17:02] And, so if, there’s been many, states and the federal government have done studies on this, and there is general agreement that these when government affordable housing projects cost a lot more than market-based, housing, market-based developers, they don’t have to deal with all these complex rules like labor union requirements, they can just go build, projects, in the fastest and most efficient ways, and so their projects end up costing a lot less.
[00:17:28] Joe Selvaggi: Well, and it’s interesting, another point, this is a project I saw in my reading, they were talking about the fact that ultimately the tenants in these, buildings are people with, housing subsidies. now we’ve got a tenant who, or a landlord who’s getting these subsidies and ultimately maintaining the property, but ultimately some, in a market rate where there are no subsidized, tenants, the landlord has an incentive to keep that building, lest our listeners hear that.
[00:17:53] Markets cut corners and subsidized builders do it right. The owners of these buildings, when they’re getting these housing subsidies, ultimately, whereas many landlords will use some of the rent to maintain the building and keep it ready for, to attract, to keep the existing tenants or attract new ones.
[00:18:13] If you’ve essentially got a low-income project and every tenant in there is a low-income tenant, I’ve read whereby 20 or 30 years later, that building has so much deferred maintenance that the project that had been subsidized with tax credits is so bad that it needs to either be torn down and rebuilt and enjoy new tax credits or be refurbished and enjoy tax credits.
[00:18:36] In other words, there are some real perverse incentives once you’re hooked on these subsidies, which says, rather than markets Governing and having me as a landlord keep my property nice for future tenants. These subsidized buildings seem to have so many perverse incentives that they’re built more expensively but ultimately go to shambles because they’re not maintained.
[00:18:56] Chris Edwards: That’s right. You put your finger on something very important, Joe. And a week or so ago, the Wall Street Journal story on the housing tax credits quoted A, a liberal activist who supports the housing credit claiming that market-based housing, is not kept up well because the landlords, fill their pockets with the profits rather than investing in the housing project.
[00:19:19] The reality is exactly the worst. the experts on, the housing tax credit program know that there’s this long-term problem that the developers who are the building owners do not have incentives, to maintain these low-income housing tax credit buildings because they can’t earn a decent return in years down the road.
[00:19:42] They get the benefits up front with the tax credit and then there isn’t enough of an incentive for them to maintain buildings down the road. And so, again, it’s, the market here that works. Market construction is lower cost and market buildings are maintained, better over time because landlords have strong incentives to maintain their own building and are to earn, to continue earning a good return.
[00:20:08] Joe Selvaggi: You’ve mentioned something that often folks, I’ll say like us, I’ll flatter myself, who believe in markets that talk about this concept of Projects like these crowding out private competitors, right? You, there’s only so much land. We’re here in Boston where it’s constrained in land, and we’ve got a piece of the land or a potential project and you’ve got two people bidding on it.
[00:20:27] One is a market developer, and the other is one with a subsidy. I’m thinking, whereas there’s no subsidy for the land purchase, there is a subsidy for the ultimate development. So if I am someone who’s going to enjoy, I’ve cracked the code, I figured out how to get my tax credit, I’m competing with a private developer, I can afford to pay much more for that property because ultimately I’m going to make that back in, in tax credits.
[00:20:49] In other words, that private project isn’t going to happen because I’ve been able to outbid him because I know ultimately what I build will be subsidized. The private person can’t do that. Is that what you mean by crowding out, private, competition?
[00:21:02] Chris Edwards: That’s right. When, as a general matter, when the government expands, it displaces, the private activity that used to be there.
[00:21:09] So we see this with many government programs. When Medicaid expands, we see less private health care. and when housing subsidies expand, we see less market-based housing. So, there’s been careful economic studies on the low-income housing tax credit. and they find that a substantial share of private market-based housing is displaced or crowded out, with government-subsidized housing.
[00:21:33] In other words, a lot of the housing would have been built anyway, even without the government subsidy. in my 2017 study on the low-income housing tax credit available at Cato under Chris Edwards, I go into some detail about why that’s the case. so, the low-income housing tax credit, and the subsidized development crowd out, it partly crowds out private development.
[00:21:56] But in addition, you have to think about if the government were to deregulate and make other policy reforms, we would get additional private market housing. And that’s why I think Actually, we’re no further ahead with affordable housing with all these subsidies than we would otherwise be if we let markets work and we got governments out of the way.
[00:22:19] Joe Selvaggi: So, to tie it up a bit, again, you mentioned studies and you were in the egghead world, you’re in the think tank world, studying this stuff. you and I have established that tax credits for these projects make for far more expensive cost to build, it invites corruption, fewer properties will be built so there’s less supply, and therefore even for those of us who have no, connection to these subsidies have to pay higher rents.
[00:22:41] Is the jury still out on this? Are there, there are, studies that show it’s valuable or in the research world is it an, open and shut case?
[00:22:51] Chris Edwards: The experts in the low-income housing area including the experts who generally support this program, recognize these problems, the high-cost problem, the fraud and corruption problem, many, centrists, and housing economists, don’t favor demand-side subsidies for housing.
[00:23:10] The main one in the United States is the Section 8 program where the federal government gives individuals vouchers, and they can go to apartment buildings of their choice and use these vouchers. Most economists, both conservative and libertarian and centrist economists, think that is actually a better way, to subsidize housing, if you’re going to subsidize housing by the low-income housing tax credit gives the subsidies to the developers. That is really the wrong way to go. It’s the developers and the lawyer’s benefit. It’s more efficient to give subsidies to the housing consumers, and low-income tenants themselves. I think an even better solution than that is the free market solution.
[00:23:52] where we deregulate housing markets and we let housing developers develop buildings, for individuals at all income levels. I think markets work. I don’t think there’s any big government failure here where you need government intervention. It is the government itself with excessive building requirements, overly restrictive zoning requirements, and high taxes.
[00:24:14] Those are the barriers we need to get out of the way if we want more affordable housing.
[00:24:19] Joe Selvaggi: Okay, good. So, you’ve jumped the gun, you’ve anticipated my next question, which is to say, I don’t want to, no more despair with, this is a pretty dark podcast, but I just want to say, look, I live in Boston. We have very high prices here.
[00:24:31] I’m sympathetic to anybody who is just trying to raise a family anywhere near the city center. So, they’re too high. We’re going to look; we’re going to talk about some alternatives. but let’s give our listeners just basic economics 101. things are expensive because they’re scarce.
[00:24:46] Not how, diamonds are expensive because they’re scarce, not because they’re necessary. And water is free, not because it’s not necessary, but because it’s abundant. How do we make housing abundant? And if you’ll take the leap with me, therefore, if it’s abundant, it will naturally be more affordable.
[00:25:02] Go ahead and just reframe what you recommended in your last statement.
[00:25:07] Chris Edwards: Well, it’s widely recognized that local governments restrict the supply of housing, all types of housing, including multifamily housing and apartment buildings with excessively tight zoning rules. There are all kinds of ways we can loosen those zoning rules.
[00:25:24] So, for example, right now, we’ve got a massive excess supply in many cities of office buildings, but zoning codes generally prevent that, the transfer of, office zone space into residential space. Some cities I understand are starting to change that. I think New York has recently loosened the rules to allow building owners to convert office buildings to residential buildings.
[00:25:46] That’s the type of zoning rule we need to loosen. Excessive building requirements. Economists have written about how a lot of cities have excessive parking requirements for apartment buildings in cities, but these may raise the cost of apartment buildings unnecessarily. A lot of young people, especially live downtown, in big cities like Boston or Washington or New York, don’t need or want cars and yet they’re forced essentially to pay for parking spaces that they don’t want.
[00:26:15] So there’s these excessive building requirements. And yet another area that I think needs reform is property taxes. Interestingly, the property taxes on apartment buildings are far higher than the property taxes on single-family homes. Indeed, the Lincoln Land Institute, which studies these issues, found that property taxes on apartment buildings averaged 44 percent higher than property taxes on single-family homes.
[00:26:41] So this is a bias that, harms low-income tenants, because of course, property taxes on apartment buildings, are pushed forward onto the tenants, so we are unnecessarily raising, the tax costs on low-income tenants here by having these high property taxes. So, some of the reforms here we need are deregulation and we need lower property taxes, in urban areas in particular.
[00:27:07] Joe Selvaggi: Okay, well, I understand, and I essentially agree with what you are arguing for, which is, to throw open the gates and let more houses be built. But let’s just stipulate that, there are still folks out there, even in a, where market rates come down. down dramatically, who have very low income?
[00:27:25] I’m thinking about the elderly or people with disabilities or, we know of these people who will never be able to pay market rates. What would we do for those people to ensure that they are, their needs are met, wherever you fall on that issue?
[00:27:41] Chris Edwards: Well, for those, folks, I think that the proper level of government to deal with those issues is state and local government.
[00:27:48] Right now, we’ve got a massive, federal government, program, Section 8, that provides these subsidies to individuals for affordable housing. I don’t, I think there are all kinds of problems with the federal government running these programs because every city and every state is different.
[00:28:04] Local needs are different. I think if cities and states, want to, subsidize or help low-income tenants, the way to do it is direct vouchers to tenants and not supply-side, subsidies like we’ve been talking about with the low-income housing tax credit.
[00:28:20] Joe Selvaggi: So rather than the producer of low-income, properties, it’s the consumer of the low-income properties, which provides, in my mind, a little bit of accountability, and it also takes away that incentive for corruption.
[00:28:30] I suppose someone could corruptly apply for a Section 8 housing voucher. That’s a different level of corruption than a very sophisticated developer who’s commanding, at the helm of a 50 million project. Is that fair?
[00:28:42] Chris Edwards: That’s right. I think generally you get a more efficient outcome and less corruption, if you’re going to subsidize not the producers, but subsidize the consumers.
[00:28:52] Another example here is Medicare. the federal Medicare program, a trillion-dollar program, It’s massive subsidies to the providers, to the hospital systems, to the doctors, and the like. There’s an enormous amount of corruption there. people, submit hundreds of billions of dollars, literally, of fake and exaggerated, excessive claims to federal Medicare. It’s an ongoing problem. Something like 15 percent or so of all Medicare claims from providers are exaggerated or fake or improper as they call it. for the Medicare program, the much better solution is to give individuals vouchers to buy health care.
[00:29:31] That way it reduces corruption, and you increase competition in markets. I think the same is true with housing. If we’re going to subsidize housing, I think it ought to be state and local programs, and I think the subsidies ought to go to individual consumers, not to the businesspeople, the providers.
[00:29:48] Joe Selvaggi: Yeah, I don’t know what, what we would have to say in this conversation to help the scales fall from the eyes of those who think government is the solution. You and I both want to see more affordable housing, more abundant housing. and we care about those people who can’t afford houses.
[00:30:01] Well, we’re not arguing whether affordable housing is a good idea. We’re arguing about the way to get there, right? We’re saying what we’re doing now has the absolute opposite intended effect, wastes, wastes a huge amount of money and subsidizes already wealthy developers with the sophistication to navigate this sort of labyrinth of regulation.
[00:30:20] This is a dinner bell for the most corrupt intentions.
[00:30:23] Chris Edwards: as a general matter, as Joe, the, it’s reasonable for the government to intervene in markets where there’s some sort of clear market failure. In my view, there’s no clear market failure in housing, just like private markets provide automobiles for people at all income levels.
[00:30:38] I bought a new automobile myself, a couple of years ago for 30,000. My daughter just bought herself an automobile for 10,000. It’s not as good as my 30,000 car, but she’s young, and it’s good enough for her, and as she earns more money, she’ll be able to buy better automobiles. The market works. I think the same is true for housing.
[00:30:59] When I was young and you were young, Joe, we, we lived in group houses, we had lower cost, housing. Markets provided that. I think markets can provide decent housing for people at all income levels. I don’t think that there’s a market failure here. And I think subsidies come with all these, they create all these additional problems.
[00:31:18] That we’ve been discussing. The crowding out, the corruption, and the high cost. We don’t need it.
[00:31:24] Joe Selvaggi: Well, this is a terrific conversation. I think we’ve whet the appetite of our listeners who wanted to learn more. Again, I will admit, I was completely unaware of this whole sort of a feature of low-income housing.
[00:31:35] I’m like, well, Good Anya, if you want to help the poor find a house. and I realize this is terrible. Where can our listeners, I want to read more about your research, but also, maybe we’ll link to a different, think tank. You did a presentation over at AEI with a couple of other scholars.
[00:31:49] It’s three hours long. I suffered through it, but I think not everybody’s willing to do it, but let’s give a shout-out both to your research and the recent, presentation that you gave at AEI
[00:31:58] Chris Edwards: Well, you can read my research on this and other matters simply Chris Edwards at Cato Institute. I’ve made a lot of posts recently on this housing tax credit issue because the issue is right in front of Congress right now.
[00:32:10] Not only is there a bipartisan group that wants to expand the tax credit we’re talking about, they want to add new tax credits. I think that would be a terrible direction for Congress to go. So, you can look under Chris Edwards at Cato and also, the American Enterprise Institute, AEI. org. they’ve got a great group of scholars there that look at these housing issues as well.
[00:32:30] Joe Selvaggi: Good. And again, as you say, these credits have bipartisan support, but, perhaps it’s, you know, on both sides, sheer ignorance about the complexity and the counterproductive nature of these things that make it, so well supported. So, maybe our representatives will have watched this or your presentation or this podcast, and we may change some hearts and minds.
[00:32:49] Thank you again, for joining me, Chris, you’ve been a great resource. And I think we’ve educated both me and our listeners about an important topic. Thank you for joining me on Hubwonk today, Chris. Thank you, Joe. This has been another episode of Hubwonk. If you enjoyed today’s show, there are several ways to support Hubwonk and Pioneer Institute.
[00:33:06] It would be easier for you and better for us if you subscribe to Hubwonk on your iTunes Podcatcher. It would make it easier for others to find Hubwonk if you offered a five-star rating or a favorable review. We’re grateful if you share Hubwonk with friends. If you have ideas, comments, or suggestions for me about future episode topics.
[00:33:24] You’re certainly welcome to email me at hubwonk@pioneer institute.org. Please join me next week for a new episode of Hubwonk.
Joe Selvaggi interviews Chris Edwards, Chair of Fiscal Studies at CATO Institute, about his research on the 40-year history of Low-Income Housing Tax Credits. They delve into its features, effects, and potential alternatives that could provide greater benefits at lower costs to taxpayers.
Guest:
Chris Edwards occupies the Kilts Family Chair in Fiscal Studies at Cato and is the editor of downsizinggovernment.org. He is a top expert on federal and state tax and budget issues. Before joining Cato, Edwards was a senior economist on the congressional Joint Economic Committee, a manager with PricewaterhouseCoopers, and an economist with the Tax Foundation. Edwards has testified to Congress on fiscal issues many times, and his articles on tax and budget policies have appeared in the Washington Post, the Wall Street Journal, and other major newspapers. He is the author of Downsizing the Federal Government and coauthor of Global Tax Revolution. Edwards holds a BA in economics from the University of Waterloo and an MA in economics from George Mason University. He was a member of the Fiscal Future Commission of the National Academy of Sciences.