By this:
Suppose the federal government gave you and your neighbor $500 each to buy a new bike, but what you really wanted was a $250 shopping spree for running gear instead. So you offered to sell your $500 federal check to your neighbor for $250 in cash so everyone’s dreams could be realized.
That is essentially what several cities in Los Angeles County planned to do with federal stimulus money, until the local transportation authority, its face slightly reddened, pulled the plug on the plans. A spokeswoman in Washington for the House Committee on Transportation and Infrastructure said Wednesday that the swaps would be illegal.
“We have already put governors, transit agencies and large metropolitan planning associations on notice that we intend to aggressively oversee that the funding is utilized as Congress intended,” the spokeswoman, Mary A. Kerr, said by e-mail.
Under the federal stimulus package intended to improve the nation’s infrastructure, the Los Angeles County Metropolitan Transit Authority was set to dole out roughly $215 million in sums of at least $500,000 each to the county’s 88 cities to get their projects moving.
Many cities on the list, however, did not have qualifying projects because they are too small or cannot move as quickly as the stimulus law stipulated. So the transit agency encouraged the cities to do with the stimulus money what they often do with other money — swap it with other cities at a discounted rate.
These swaps sounded innocuous enough:
Irwindale, which has roughly 1,500 residents, agreed to sell its $500,000 allocation to the city of Westlake Village — 9,000 residents — for $310,000 in cash, which would go into Irwindale’s general fund.
“We have a general fund deficit this year,” said Robert Griego, the city manager of Irwindale, which got offers from a half-dozen cities for its money. “So we probably would have used it to avoid people getting laid off.”
Torrance, a city in southern Los Angeles County, moved to snap up transportation dollars to spruce up major arteries, and planned to buy a $500,000 share from Bradbury, another small city, for about $315,000.“We thought it was kosher,” said Eric Tsao, the finance director of Torrance. “We could have leveraged more for our projects, and the other cities would have had some money to do what they would like. You can’t do much with $500,000 in infrastructure anyway.”
But when the exchanges were brought to light on Monday by The Pasadena Star-News, the transit agency quickly intervened. It sent letters to cities clarifying that the only swapping allowed would be federal money for equal amounts of state transportation money.
I understand why the federal government wants its transportation dollars spent on transportation projects. But unless the Times left out part of the story, the cities purchasing the "transportation dollars" intended to use the dollars for transportation projects. If they hadn't, they presumably wouldn't have been able to buy the transportation dollars at such steep discounts.
The feds' intervention was not necessary to protect the stimulus. Stimulus dollars do not have to be spent as efficiently as private investments, but that does not mean they have to be spent as inefficiently as possible. For example, paying 100 guys $10 an hour to dig holes in a desert might be stimulative but it wouldn't provide as much stimulus as paying 50 bus drivers $20 per hours to keep the buses running. The bus drivers provide a social benefit, which leverages the stimulus dollars; the hole diggers do not.
The cities' swaps obviously made everyone better off. The cities that sold the dollars got cash to offset budget deficits and cuts in city services and employment. The cities that bought the dollars got more transportation than the sellers would have gotten for much more money. The feds, almost by definition, got more stimulus and more transportation. Thus, I'm baffled.
