[1]In 1975, Iowa’s elected so-and-so’s felt inclined to establish the Iowa Finance Authority, giving it the mission of assisting the people of Iowa in acquiring affordable housing. I guess Iowans tended to live in mud shacks prior to 1975, but no matter, the government is here to help.
Except, it doesn’t help. The Iowa Finance Authority’s own website (http://www.iowafinanceauthority.gov/ [2]) tells the tale, and affordability is not the goal of our state-level state corporatists. According to the talking points, IFA helps low-income Iowans, the disabled, and the otherwise strained in the task of obtaining affordable housing, which is simply not true. Nothing the IFA does is aimed at helping citizens afford anything, all they do is encourage easy credit.
Getting easy credit is not the same as being able to afford something. What IFA is doing is helping people borrow too much money for assets that are priced too highly for them to otherwise afford, thus allowing more people to overspend on housing. With more people able to arrange the credit for higher priced assets, the prices of the assets (in this case, housing) are able to stay higher than they otherwise would. They even provide direct cash subsidies for down payments. Â Imagine the housing market as a giant auction. If the bidders are on a budget, the winning bids will trend downwards. If the bidders are flush with cash and anxious to buy, bids will trend upwards.
Thus, IFA is working to make housing expensive, not affordable. So, pat yourselves on the back, IFA, for making it easier for the disadvantaged to borrow too much to purchase assets that are overpriced; that‘s compassion in action.
There has also been some mission creep at IFA over the past thirty seven years, with the agency taking on financing of apartment blocks, renovations, and a shadowy, ill-defined activity called “economic development.â€
Considering that we don’t have one any more, efforts to develop an economy are uniquely popular among voters, and this popularity allows government to push any issue it wishes under the guise of being an economic development initiative. Economic development, then, is anything politicians say it is, period.
Considering the vague nature of economic development programs, the Iowa Finance Authority is surprisingly straightforward with its role in the economic development process. On the IFA website, by clicking a tab marked “Economic Development,†we can get the clear picture:
“The Iowa Finance Authority (IFA) issues tax-exempt bonds for a wide range of projects.â€
Well, there you have it. Not content with helping to arrange mortgages for people who can’t afford them, IFA has branched into the tax-exempt bond market. They also arrange revenue bonds for private projects, and although the State of Iowa isn’t legally on the hook if the project fails, any default would affect the credit ratings of future revenue bonds, and it is a virtual certainty that the state would opt to pay in the end.
So, IFA arranges bonds for economic development projects, diverting your taxes and user’s fees towards providing tax-exempt income to rich people in the process.
The Authority’s defenders will say that it is self-sufficient. There’s a reason to keep an odious program. Might I suggest the immediate establishment of the Iowa Cocaine Authority; that will be financially self-sufficient.
IFA isn’t really a line-item on the state budget, but the state is the ultimate guarantor of the debts being incurred by this program, and while perhaps not legally obligated to make good, the state will do so in a pinch, lest the ratings of future bonds be damaged. Thus, there is potential downside risk which the Authority’s champions in the legislature have not bothered to consider.
The Iowa Finance Authority is a detrimental, utterly unnecessary political boondoggle and economic white elephant. Its rhetoric and its effects do not match up, and its only redeeming feature – financial self-sufficiency – belies potential risks that have not been properly explored. It is an agent of expanding municipal bond debt, and Iowa’s own contribution to the ongoing assault on thrift that is being conducted by governments at all levels.
Therefore, the time has come that we do away with this middle-aged, miniature HUD. Iowa did without it for better than one hundred years, and we can do so again.