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A CULTURE OF INCOMPETENCE
BUFFALO'S MISMANAGEMENT OF LOAN PROGRAM IS ARGUMENT FOR A NEW FORM OF GOVERNMENT

Question: Is Buffalo the worst-run city in the country's worst-run state? It's a designation no one would want, but the case just about makes itself.

That the New York State Legislature is the nation's No. 1 public-sector abomination has already been documented in a by-the-numbers study published this year by the Brennan Center for Justice at the New York University School of Law. This week's Buffalo News series on the city's appalling misuse of hundreds of millions of dollars in federal aid makes a compelling argument for Buffalo's status as the worst-functioning city in the state. This is America's municipal ground zero, a case study in how to hold off progress.

The series, by News reporter James Heaney, exposes a record of mismanagement that makes you wonder why Washington continues to send any money at all to a municipality that has repeatedly proved itself to be a sinkhole of incompetence. Half-a-billion dollars over three decades scratched many a political itch, but wrought little improvement in one of the nation's poorest cities, all while other municipalities were using these grants to rejuvenate themselves. Indeed, more than half that money went to covering such unproductive costs as bad loans, City Hall salaries and a bloated system of neighborhood agencies.

Most depressing was the series' revelation that the default rate on business loans was a soaring 39 percent, more than four times the national average of 9 percent. The Section 108 loans, as they are known, are backed by federal Community Block Grant Funds, which means that instead of being used to improve the lives of Buffalo's poor or revitalizing areas throughout the city, a large part of the city's grants are covering loans that were either made improvidently or administered poorly - or both. In addition, the distribution was scattershot, undermining the possibility that a cumulative impact could have a decisive effect on any given neighborhood.

The problem isn't simply that these were risky loans. A program such as this presupposes the kind of risk a bank would not take alone; otherwise, the borrower could simply go to the bank. But the risks were often more foolish than calculated, and the city's process for granting them turned the process on its head.

While, in other areas, borrowers line up other sources of funding before trying to make up the difference with Section 108 loans, Buffalo allowed borrowers to make the federal program their first resort. The greater the public-sector financing, the lesser the risk for the borrower, who may have less reason to be diligent in the management of his business. And making matters worse, not only did the city give out bad loans, it didn't bother to monitor the businesses to whom it lent the money.

Not all losses are equal, of course, and while the series observed that Buffalo's Theater District is one of Western New York's most highly subsidized strips, it's hard to argue that the effort to reenergize the district wasn't crucial to downtown, even in light of more than $15 million worth of loan defaults. Indeed, at least by one measure, the investment is working: The area is jumping on performance nights.

With last year's hiring of Timothy Wanamaker as executive director of the city's office of strategic planning, Buffalo shows signs of growing out of its prolonged administrative adolescence. But this leopard's spots will not easily change. Municipal government in Buffalo is an insular operation, prone to repeating the only practices it knows.

The depressing record revealed in this series gives impetus to arguments that the city needs a fundamental change in the way it is run. The fact that this abuse ran for three decades under two different mayors is compelling evidence of a culture of carelessness and inefficiency. That culture argues for a different way of governing this city, whether it be a city manager form of government, a consolidated city-county merger or some other permutation. But whatever it is, it needs to be a system that places some greater value on the virtue of competence.