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In Los Angeles County, cities are buying federal stimulus funds from each other at deep discounts, turning what was supposed to be a targeted infusion of cash into a huge auction.

It all started when the county’s Metropolitan Transportation Agency decided to hand out $44 million from the federal stimulus package in the form of $500,000 transportation grants to each of the county’s 88 cities. But some cities didn’t have any shovel-ready transportation projects. So with MTA’s blessing, they’re selling the grants to the highest bidder:

La Habra Heights, a city of 6,000, has sold its $500,000 in federal funds to the city of Westlake Village for $310,000 cash. Irwindale, population 1,500, also sold its $500,000 to Westlake Village, for $325,000 cash.

The city of Rolling Hills, population 1,900, sold its $500,000 share to the city of Rancho Palos Verdes for $305,000 cash. The city of Avalon has reached an agreement to swap its $500,000 with L.A. County.

This is Southern California that we’re talking about–the land of eternal gridlock. MTA could have redirected the money to a nearly infinite list of other transportation projects. But chief planning officer Carol Inge told the Pasadena Star-News that the agency didn’t want to do that because “our board wanted to give every city at least a chance to benefit from the stimulus package.”

I’m sure many cities have higher priorities than transportation. And I would have liked to have seen more direct aid to ailing local governments in the stimulus bill. Still, MTA’s approach strikes me as a bit too creative. What’s next, stimuls money credit default swaps?

UPDATE: After this post appeared, MTA reversed course and invalidated these sales. It now says that the stimulus funds can only be swapped for other county money targeted for transit projects. But this probably won’t end the controversy. MTA is still handing out a half million bucks to all 88 cities in the county, including the tiny Irwindale, population 1,446. That’s $345 per Irwindalian, just for transportation. With that they could hire a worker to dig through the yellow pages and dial up free limos for everyone. H/T to TotalCapitol in the comments.