Empowerment Zone Data - A report from the City Manager

This is a report from David E Rager, the City Manager. The second page has a section that details the expenditures of the Cincinnati Empowerment Corporation.

“During the report period, the City disbursed a total of $2,944,801.00 of Empowerment Zone grant funds to the CEC for the following programs, services and projects that are directly administered by the CEC:

CEC Administrative Costs: $1,728,032
Loans to homeowners and businesses: $69,891;
Job training, job placement, and apprenticeship programs; $802,058
Business technical assistance in financial management, marketing, administration, and e-commerce: $39,245
Down payment assistance: $16,509
Youth recreation and internship programs: $253,286
Leadership skills of Empowerment Zone organizations and residents: $35,780

That is the way the City described it. I will try a few of my own:

CEC Administrative Costs: $1,728,032
All CEC programs combined: $1,216,769
Total Spending $2,944,801

59% of the money given to the Empowerment Zone doesn’t even make it out of the office. They spent 59% of the federal funds on administration, and 41% on the actual programs.

Put another way, it cost us $1,728,032.00 just to have them give away the other $1,216,769.00. Can anyone say “Time to shut it down.” This is outrageous.

What about development and job creation? Let’s take another look at the numbers:

CEC Administrative Costs: 59% of budget
Loans to Homeowners and Businesses 2% of budget
For every $1 they spent towards developmental loans, they spent $25 on Administrative Costs.

The CEC has a paid staff consisting of six people.
CEC Administrative Costs: $1,728,032
CEC Costs divided by number of staff: $288,005
Total Loans to homeowners and businesses: $69,891;

The administrative cost per staff member is over four times the amount of the total developmental loans given to businesses and homeowners.

The Empowerment Zone program came to be during the Clinton administration. A major push of the zone was attracting jobs to depressed areas to stimulate economic development. An overriding concern was how urban areas were being left behind. The goal was to attract more businesses and jobs into the urban core.

Looking at these numbers is sad. The Empowerment Zone in Cincinnati only seems to empower the current administration that gets to divvy up that fat budget.

Let's look at the numbers again.

Good non profits generally spend around 20% of the budget in administrative expenses. If you are a non profit and you go to the United Way for instance, they demand a written explanation if these expenses exceed 25%.

An important note is that most non-profits spend a good chunk of their administrative expenses on fundraising. They have to get the word out on who they are and what they do, and they have to solicit people to give them money so that they can continue to carry out their mission. But the CEC doesn’t even have fundraising expenses, because they are fully funded by the Federal Government and your tax dollars. Even with this obvious advantage they are still spending three out of every five dollars disbursed on administrative expenses.

It is disgusting. You don’t need to find fraud or embezzlement to shut this baby down. The fraud is on the taxpayer and the EZ residents, and it is hiding in plain sight.

Soft Programs

Of the money that did make it out of the office ($1,216,769), 90% (or $1,091,124) of that went to “soft programs”.

Job training, job placement, and apprenticeship programs; $802,058
Youth recreation and internship programs: $253,286
Leadership skills of Empowerment Zone organizations and residents: $35,780
Total Soft Spending: $1,091,124

This is a good example of mission creep. An agency that was founded for urban economic redevelopment is spending three and a half times more on youth recreation than it spends on economic development loans. Is youth recreation a good thing? Yes. Is that the mission of an organization committed to economic redevelopment? No.

The biggest line item in their budget (outside the 59% for administrative expenses) is for job training and placement. I would bet they find that Markus “fat-mouth” Jenkins gets a piece of that action. That would be the same Markus Jenkins who apparently lives in one of Dale Mallory’s abandoned buildings.

One of the advantages (to the CEC) of funding “soft” programs is that it is difficult to tell if these programs succeed in doing anything. What are the defined benefits vs. the opportunity costs? It is almost impossible to judge, and if you can’t judge success you can’t judge failure.

Another disturbing facet of these soft programs is that they are plagued with yet another layer of “Administrative Costs”. That means that the $1,728,032 that was previously pegged as the total administrative costs is actually substantially understated.

I will put it another way. The CEC spent $35,780 on enhancing Leadership Skills of EZ residents. That probably entailed paying one of their friends $35 grand to go round and talk to people. How do you judge the success of that? Were leadership skills of EZ residents improved? You can’t objectively measure that fact one way or the other.

Which leads to a political aspect of soft programs; Who can be against job training, youth recreation, or enhancing leadership skills? They sound great and that makes them politically viable. And since the success is never measured they can’t possibly fail.

On the other hand, “hard” programs have defined benefits for Empowerment Zone residents. If a loan or a grant is made for development, you can come along later and measure the progress in jobs created, increased tax base, as well as the physical bricks and mortar and other physical improvements to the infrastructure in the zone. This is what local activists mean when they say they want “Jobs, not job training”.

CityLink was going to provide job training, but such training isn’t effective if there aren’t any jobs. One of the pressing demographic problems in the urban core is the migration of jobs and people moving outside of our cities. The EZ program was initially designed to bring back companies and jobs. Grants and loans made in that respect provide actual and measurable economic development, bringing it back into the EZ communities.

The Sad Tale of the Tax Payer

Let’s say you send Uncle Sam a dollar in taxes. He won’t send you a thank you letter.

The Federal government is a big bureaucratic behemoth. Let’s say your dollar gets slated for the Department of Housing and Urban Development, which itself is a massive government bureaucracy. Then HUD decides to send your dollar to the Cincinnati Empowerment Corporation for economic development.

The first obvious thing is, your dollar won’t be a dollar anymore. Once you send it to Washington, the Feds and HUD have to take their cut. They have administrative expenses of their own. So let's say 85 cents of your original tax dollar makes it out of HUD and on its way to the CEC.

While at the CEC, they take 59% of your remaining 85 cents and spend it on administrative expenses. That money never makes it out of Harold Cleveland’s office. This further whittles your original dollar down to 35 cents.

As for the money that actually makes it out the CEC door, 90% of that goes to soft programs with no measurable economic impact. That takes your George Washington down to less than 4 cents of the dollar.

So you just sent a tax dollar to Washington and they earmarked it for economic development in the urban core. Expect less than a nickel to actually go to that intended purpose.

If you would have kept that dollar and either saved it, invested it or spent it, the economic impact would have been far greater that having it gutted and sliced up by Harold Cleveland and crew.

“Stop the Madness!” This program needs to be stopped cold in its tracks.