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MOVING THE CDBG PROGRAM FORWARD: A

LOOK AT THE ADMINISTRATION’S REFORM

PROPOSAL, WHERE DO WE GO FROM HERE?

HEARING

BEFORE THE

SUBCOMMITTEE ON FEDERALISM

AND THE CENSUS

OF THE

COMMITTEE ON

GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED NINTH CONGRESS

SECOND SESSION

JUNE 27, 2006

Serial No. 109–222

Printed for the use of the Committee on Government Reform

(

Available via the World Wide Web: http://www.gpoaccess.gov/congress/index.html

http://www.house.gov/reform

(II)

COMMITTEE ON GOVERNMENT REFORM

TOM DAVIS, Virginia, Chairman

CHRISTOPHER SHAYS, Connecticut

DAN BURTON, Indiana

ILEANA ROS-LEHTINEN, Florida

JOHN M. MCHUGH, New York

JOHN L. MICA, Florida

GIL GUTKNECHT, Minnesota

MARK E. SOUDER, Indiana

STEVEN C. LATOURETTE, Ohio

TODD RUSSELL PLATTS, Pennsylvania

CHRIS CANNON, Utah

JOHN J. DUNCAN, JR., Tennessee

CANDICE S. MILLER, Michigan

MICHAEL R. TURNER, Ohio

DARRELL E. ISSA, California

JON C. PORTER, Nevada

KENNY MARCHANT, Texas

LYNN A. WESTMORELAND, Georgia

PATRICK T. MCHENRY, North Carolina

CHARLES W. DENT, Pennsylvania

VIRGINIA FOXX, North Carolina

JEAN SCHMIDT, Ohio

——— ———

HENRY A. WAXMAN, California

TOM LANTOS, California

MAJOR R. OWENS, New York

EDOLPHUS TOWNS, New York

PAUL E. KANJORSKI, Pennsylvania

CAROLYN B. MALONEY, New York

ELIJAH E. CUMMINGS, Maryland

DENNIS J. KUCINICH, Ohio

DANNY K. DAVIS, Illinois

WM. LACY CLAY, Missouri

DIANE E. WATSON, California

STEPHEN F. LYNCH, Massachusetts

CHRIS VAN HOLLEN, Maryland

LINDA T. SANCHEZ, California

C.A. DUTCH RUPPERSBERGER, Maryland

BRIAN HIGGINS, New York

ELEANOR HOLMES NORTON, District of

Columbia

———

BERNARD SANDERS, Vermont

(Independent)

DAVID MARIN, Staff Director

LAWRENCE HALLORAN, Deputy Staff Director

TERESA AUSTIN, Chief Clerk

PHIL BARNETT, Minority Chief of Staff/Chief Counsel

SUBCOMMITTEE ON FEDERALISM AND THE CENSUS

MICHAEL R. TURNER, Ohio, Chairman

CHARLES W. DENT, Pennsylvania

CHRISTOPHER SHAYS, Connecticut

VIRGINIA FOXX, North Carolina

——— ———

WM. LACY CLAY, Missouri

PAUL E. KANJORSKI, Pennsylvania

CAROLYN B. MALONEY, New York

EX OFFICIO

TOM DAVIS, Virginia HENRY A. WAXMAN, California

JOHN CUADERES, Staff Director

SHANNON WEINBERG, Counsel

JULIANA FRENCH, Clerk

ADAM BORDES, Minority Professional Staff Member

(III)

C O N T E N T S

Page

Hearing held on June 27, 2006 ............................................................................... 1

Statement of:

Patenaude, Pamela Hughes, Assistant Secretary, Office of Community

Planning and Development, U.S. Department of Housing and Urban

Development; Stanley J. Czerwinski, Director, Intergovernmental Relations, Strategic Issues, U.S. Government Accountability Office; and Michael Springer, Assistant Director, Strategic Issues, U.S. Government

Accountability Office ..................................................................................... 7

Czerwinski, Stanley J. .............................................................................. 14

Patenaude, Pamela Hughes ...................................................................... 7

Letters, statements, etc., submitted for the record by:

Clay, Hon. Wm. Lacy, a Representative in Congress from the State of

Missouri, prepared statement of .................................................................. 30

Czerwinski, Stanley J., Director, Intergovernmental Relations, Strategic

Issues, U.S. Government Accountability Office, prepared statement of .. 16

Patenaude, Pamela Hughes, Assistant Secretary, Office of Community

Planning and Development, U.S. Department of Housing and Urban

Development, prepared statement of .......................................................... 9

Turner, Hon. Michael R., a Representative in Congress from the State

of Ohio, prepared statement of .................................................................... 4

(1)

MOVING THE CDBG PROGRAM FORWARD: A

LOOK AT THE ADMINISTRATION’S REFORM

PROPOSAL, WHERE DO WE GO FROM HERE?

TUESDAY, JUNE 27, 2006

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON FEDERALISM AND THE CENSUS,

COMMITTEE ON GOVERNMENT REFORM,

Washington, DC.

The committee met, pursuant to notice, at 10 a.m., in room 2154,

Rayburn House Office Building, Hon. Michael R. Turner (chairman

of the subcommittee) presiding.

Present: Representatives Turner, Clay, Dent, and Foxx.

Staff present: John Cuaderes, staff director; Shannon Weinberg,

counsel; Juliana French, clerk; Adam Bordes, minority professional

staff member; and Jean Gosa, minority assistant clerk.

Mr. TURNER. Good morning. We will call the hearing of the Subcommittee on Federalism and the Census to order. We welcome you

to the Subcommittee on federalism and the Census oversight hearing entitled, ‘‘Moving the CDBG Program Forward: A Look at the

Administration’s Reform Proposal, Where Do We Go From Here?’’

This is a followup to the subcommittee’s series of hearings held regarding the Community Development Block Grant [CDBG], program and our committee report on the hearings and the program.

The Community Development Block Grant program [CDBG], is

one of the largest Federal direct block grant programs in existence.

State and local governments use CDBG grant moneys to fund various housing, community development, neighborhood revitalization,

economic development, and public service provision projects. For

over 30 years, the CDBG program has been a critical tool in the

arsenal of cities to help create livable communities for individuals

and families. Without question, the program provides vital funds

for addressing poverty as well as community development needs,

from eradicating blight to providing building infrastructure.

While CDBG is a valuable tool that enables States and local governments to accomplish many of the objectives outlined in the

original authorization, the program exhibits several problems that

require remedy. Since 1978, the factors used in calculating poverty

and community development need have remained constant while

the demographic compositions of the Nation have changed dramatically. In particular, the number of entitlement communities has

grown.

In fiscal year 2004, there were more than 1,100 designated entitlement communities. More than 250 new entitlement communities

2

were certified since 1993 alone as compared to only 128 new entitlement community designations between 1982 and 1993. And

while the number of communities sharing the entitlement portion

of CDBG funds continues to grow, the overall funding of this program has not kept pace.

Thus, a larger portion of the population is sharing a relatively

static portion of CDBG funds, resulting in smaller per capita

grants per jurisdiction. At the same time, the number of non-entitlement communities grows smaller, effectively increasing their

share of the 30 percent portion of CDBG.

Additional questions of fundamental fairness have arisen in recent years. First, there are instances of ‘‘richer’’ communities receiving higher per capita awards than ‘‘poorer’’ communities. Second, similarly situated communities often get disparate per capita

awards.

The subcommittee held five hearings in 2005 examining the

CDBG program. Those hearings culminated in an extensive report,

which was unanimously voted out of the full committee in December. The report contained numerous findings on the effectiveness of

the program and recommendations for improved fairness, efficiency, efficacy, and program administration.

These recommendations were formed with significant government partner and stakeholder input. In particular, the report focused on the growing inequity of the grant formula over time, the

subjective nature of the needs index, and the apparent lack of

grantee performance measures and related enforcement capability.

In another attempt to address some of these issues, the administration proposed legislation to reform the CDBG program. This proposal, the Community Development Block Grant Reform Act of

2006, chiefly addresses three areas: the grant formula, performance

measures, and incentives for quality community development.

First, the act eliminates the two dualities of the grant formula.

Currently, grant funds are disbursed to entitlement and non-entitlement communities based on two formulas. By law, the collective

pot of CDBG funds must be split between the entitlement and nonentitlement communities 70 percent to 30 percent. Under the

CDBG Reform Act, all communities would be treated as ‘‘formula

grantees’’ rather than entitlement and non-entitlement communities with separate grant allocation calculations.

Second, the act directs the Secretary to establish new performance measures and grantee accountability standards. The act specifies that State grantees must submit for approval a housing affordability strategy. All other grantees must submit a ‘‘Performance

Plan,’’ which must include specific performance measure objectives.

The act also directs the Secretary to perform periodic reviews of

grantee activity and use of funds. If the Secretary finds grantee

performance inadequate, the Secretary may reduce or limit block

grant assistance.

Third, the act authorizes $200 million for a new grant program:

the Challenge Grant Fund. The Challenge Grant Fund would reward grantees with additional funds to be used ‘‘in neighborhood

revitalization strategy areas as a targeted strategy for activities eligible under this title that expand economic opportunities.’’ A grantee must demonstrate ‘‘measurable progress’’ toward certain goals

3

using CDBG funds. Eligible entities will be ranked on their performance and funds awarded accordingly.

We commend the administration for recognizing that CDBG

would be most effective remaining at HUD. We also applaud the

administration’s recognition that, while an important and beneficial program, there is room for improvement within the CDBG

program.

At the same time, we are concerned that formula reform is the

greatest and most complex of the reform challenges and cannot be

undertaken lightly. Additionally, there are a number of non-controversial reforms identified in this committee’s CDBG Report that

were not mentioned in the administration’s reform proposal. We

are here today to explore the administration’s reform proposal in

depth. We hope to discover more about the decisionmaking process

and the reasoning behind the choices made in crafting the reform

proposal.

To help us with these questions today, we have witnesses from

both HUD and GAO. We welcome the Honorable Pamela Hughes

Patenaude, Assistant Secretary of the Office of Community Planning and Development at the U.S. Department of Housing and

Urban Development; Stanley J. Czerwinski, Director of Intergovernmental Relations for Strategic Issues at the U.S. Government

Accountability Office; and Michael Springer, Assistant Director of

Strategic Issues at the U.S. Government Accountability Office.

I look forward to your expert testimony and I thank you all for

your time. I believe Mr. Clay has an opening statement which we

can give him an opportunity to provide us as the hearing progresses.

[The prepared statement of Hon. Michael R. Turner follows:]

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Mr. TURNER. We will begin with our witnesses. As it is the policy

of this committee, we do swear in all of our witnesses. I would ask

if you would please stand and raise your right hands.

[Witnesses sworn.]

Mr. TURNER. Please note that all the witnesses have responded

in the affirmative by saying I do. And we note that two additional

witnesses from HUD have also been sworn in who have not been

identified in our list but who might be called on by the Secretary.

We will now start with the witnesses. Each witness has kindly

prepared written testimony which will be included in the record of

this hearing. Each witness has also prepared an oral statement

summarizing their written testimony.

Witnesses will notice there is a timer with a light on the witness

table. In order to be sensitive to everyone’s time, we ask that witnesses cooperate with us in adhering to the 5-minute time allowance for their oral presentation. The green light indicates that you

should begin your remarks and the red light indicates that your

time has expired. The yellow light indicates that you have 1 minute

to conclude, and we will follow that with a question and answer period.

We begin with the Honorable Pamela Hughes Patenaude.

STATEMENTS OF PAMELA HUGHES PATENAUDE, ASSISTANT

SECRETARY, OFFICE OF COMMUNITY PLANNING AND DEVELOPMENT, U.S. DEPARTMENT OF HOUSING AND URBAN

DEVELOPMENT; STANLEY J. CZERWINSKI, DIRECTOR,

INTERGOVERNMENTAL RELATIONS, STRATEGIC ISSUES, U.S.

GOVERNMENT ACCOUNTABILITY OFFICE; AND MICHAEL

SPRINGER, ASSISTANT DIRECTOR, STRATEGIC ISSUES, U.S.

GOVERNMENT ACCOUNTABILITY OFFICE

STATEMENT OF PAMELA HUGHES PATENAUDE

Ms. PATENAUDE. Thank you, Mr. Chairman. I am pleased to be

here today on behalf of Secretary Jackson to discuss the administration’s proposal to reform the Community Development Block

Grant program.

The President’s fiscal year 2007 budget retains and consolidates

the CDBG program at HUD. We have proposed the reform because

the program’s intended purpose to the Nation’s neediest communities has decreased over time. Quite simply, the current formula

that allocates billions of dollars is no longer as fair as it used to

be.

Over the past three decades, demographic and socioeconomic

changes, development patterns and other factors have created significant distortions in the distribution of CDBG funds. There has

been a steady erosion in the ability of the formula to target funding

to places with the greatest needs.

The CDBG formula has been untouched since the 1970’s. Reform

is also necessary because HUD must be able to hold grantees accountable for performance and provide incentives to maximize the

impact of these limited and valuable funds. To address these

issues, the administration proposes the CDBG Reform Act of 2006.

The three main elements of the act are formula reform, the introVerDate 11-MAY-2000 14:05 Apr 04, 2007 Jkt 000000 PO 00000 Frm 00011 Fmt 6633 Sfmt 6633 C:\DOCS\33866.TXT HGOVREF1 PsN: HGOVREF1
8

duction of a challenge grant and enhanced performance measurement requirements.

To explain further, Mr. Chairman, I call your attention to the

first chart displayed on the screen. Chart One illustrates the current formula. These vertical jagged lines represent the 1,100 entitlement communities and their per capita grant. The solid line

from the lower left to the upper right is the measuring stick that

represents the community development needs index.

The least needy communities are shown on the left and the ones

with the most needs on the right. As you can see on the right,

under the current formula, many high need communities are receiving amounts far below their needs index. The biggest problem

with the current formula is that grantees with similar needs are

receiving significantly different per capita amounts. Based on the

needs index, these grantees should be receiving roughly the same

per capital amount.

Next slide, please. Chart Two shows a more equitable distribution of the Community Development Block Grant funds under the

new or proposed formula. It demonstrates the ability of the new

formula to more fairly target funds to communities with greater

needs.

Next slide, please. And finally, Chart Three provides an overlay

of the current formula with the proposed formula to demonstrate

how we intend to allocate grants in a way that more fairly ensures

funding to places that need it most.

Grantees with similar need profiles will receive a more equitable

amount per capital and most importantly, the proposed formula

will ensure funding to the most needy communities. The second

element of the CDBG Reform Act of 2006 is the introduction of a

$200 million competitive CDBG challenge grant. This fund would

give communities the opportunity to compete for additional funding

to carry out economic development revitalization in distressed

neighborhoods.

In order to be considered for the challenge grant, distressed entitlement communities are required to have both a strategy and a

track record of concentrating investment in distressed neighborhoods. Communities are selected based on objective criteria, including the extent to which they target their assistance to distressed

neighborhoods and expand economic opportunities for lower income

households. HUD will award challenge grants to communities that

achieve the greatest results in their neighborhood revitalization

strategies.

The third element of CDBG reform is to strengthen performance

measurement requirements to improve the effectiveness and viability of the program. HUD is currently implementing a new framework that clearly establishes measurable goals. The CDBG Reform

Act will give HUD the authority to hold grantees accountable.

CDBG has helped communities across the Nation address a variety of community and economic development needs. Reforms are

necessary to ensure the program’s continued ability to improve the

lives of low and moderate income Americans.

Thank you, Mr. Chairman, for the opportunity to discuss a proposal on CDBG reform.

[The prepared statement of Ms. Patenaude follows:]

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Mr. TURNER. Mr. Czerwinski.

STATEMENT OF STANLEY J. CZERWINSKI

Mr. CZERWINSKI. Mr. Chairman, Mr. Clay, thank you for the opportunity to be here to speak today about the administration’s reform proposal.

As you noted, Mr. Chairman, about 30 years of CDBG have resulted in many valuable things happening in this country. We see

communities revitalized, we see living conditions improved. The

committee’s examination today is very timely for several reasons.

First of all, as you know, we are facing a long-term fiscal crisis

characterized by growing deficits. Second, as you noted, Mr. Chair,

the economics and demographics of the country have changed significantly since the program began in the 1970’s.

And third, as you also know, Mr. Chairman, there has been a

continuous decline in funding for CDBG. For example, today the

per capita funding of the program is one-quarter what it was at its

inception. Our view is the best way to save this program is to improve its targeting. In that view, Mr. Chairman, the administration’s proposal is a step in the right direction. However, it is not

a final step. More needs to be done.

Today I would like to speak about two things. First of all, to give

you a quick reaction to the administration’s proposal, and second,

I would like to discuss the work that we are undertaking at the

subcommittee’s request. As you mentioned, last month the administration unveiled its latest proposal to reform the CDBG program.

I will not summarize the proposal, because Ms. Patenaude has already done an excellent job of that.

However, what I would like to do is share some observations.

First of all, the single formula that the administration proposes is

a significant step forward. It represents better targeting. For about

25 years, GAO has been noting problems with this area, and this

is the kind of problem that you noted in your opening statement,

Mr. Chairman, with sometimes communities that are more well off

actually get more benefits than those that are less well off.

The variables in the single formula that the administration proposes also represent improvement but they do raise some concerns.

Most significant is the inclusion of a cost of living adjustment.

Right now, CDBG is disbursed without regard to how expensive it

is to live in an area. We support HUD’s attempt to adjust for cost

of living. However, we are concerned with the way that HUD goes

about it. Because there may be some unintended consequences. The

proposal that HUD has would take the cost of living for a community and compare it to the cost of living for its neighbors. By doing

such, you run the risk of penalizing those communities with poor

neighbors while rewarding those with rich neighbors. For these

reasons, we will be evaluating both how the cost of living assessment is going to be made and other different measures of the cost

of living as we do the work for you.

I would now like to briefly describe the work that we are undertaking at the committee’s request. There are three primary tasks

that GAO will be undertaking. First, as I mentioned, an alternative

measure of need. Second is looking at the feasibility of measuring

capacity of local communities. Right now, as you know, CDBG is

15

allocated according to need only. It does not take into account the

capacity of the communities. This can have some distorting effects.

For example, those communities that have a strong local capacity

may be able to address some of their needs on their own, while

those with weaker capacity may have a greater need for Federal

help, and the current formula does not do that.

Finally, as you requested, what we will come up with are options

on the various formula decisions the committee will face. As you requested, we will not be making recommendations, because frankly,

that is the prerogative of Congress. As everyone knows, this is a

very technically demanding and sensitive area. We are just beginning our work. I estimate that it will take us about a year to complete that work.

Before closing, I would like to highlight two things that we will

be doing in that work. First of all, GAO has contracted with the

National Academies of Sciences to provide the technical expertise,

statisticians, economists and those with local government experience, i.e., hands-on understanding of the program. We expect these

expert panels to help us come up with ideas on variables to include

the formulas, how to evaluate those variables, and finally, to study

the implications of different formula options.

Second, and this may seem like a small point, but I actually

think it is an important one, is we will be working closely with representatives of State and local recipients. They are the ones most

affected by the program and any changes to the program. We have

already begun a dialog with representatives, and in fact, I see some

of them in the room behind me today. We will continue that dialog

throughout.

Finally, HUD has already been very cooperative and very helpful

with us as we have done our work. I would like to thank them for

their assistance, and we will continue to engage with them as the

work progresses.

In closing, we support the committee’s efforts to better target

CDBG. We stand by to help the committee as it does its work.

Frankly, this is probably the only way that we will preserve a very

valuable program, that is by better targeting to those who need it

the most.

That concludes my statement, Mr. Chairman. I will be glad to respond to questions that you may have.

[The prepared statement of Mr. Czerwinski follows:]

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Mr. TURNER. Mr. Springer.

Mr. SPRINGER. I have no testimony.

Mr. TURNER. Well, first, thank you so much for your participation today and for your preparation. This has been a topic throughout community development groups and organizations, as the administration has begun the process of identifying CDBG as a program that needs reform. And then the discussion as to how that

reform should take place.

As I stated in my opening statement, this act that would reform

CDBG but would retain it at HUD is certainly an improvement

over what we faced with the Strengthening America’s Communities

initiative that would have dismantled the CDBG program and

taken it to Commerce. This is at least a reflection of HUD’s expertise.

Obviously, this is just an initial hearing to begin the discussion

and the review of the act that is proposed. There are a number of

factors and impacts that will have to be reviewed and the communities that are affected will have to study its impacts and weigh in

as to the benefits or lack of benefits or negative impacts of this act.

So today, it is not our attempt to go exhaustively into each of the

aspects of this, but we are going to have to start, obviously, from

some of the discussion that began from the administration in targeting CDBG as a reformed program. In our first hearing on CDBG

reform, it was noted that the administration had targeted CDBG

as a program that needed reform, as a result of the PART analysis

that the administration undertakes in determining whether or not

a program is working.

The PART analysis that was applied to CDBG had this first assessment, and the question was under the PART performance

measurements used by the administration for evaluating programs,

is this program purpose clear. The sentence that follows says, the

program does not have a clear and unambiguous mission. Both the

definition of community development and the role CDBG plays in

that field are not well defined.

Ms. Patenaude, the first thing that I would like to start with of

course is, the administration has now, through HUD, proposed this

act, in part to address the lack of performance that is identified in

part. And in looking at the act, I note that it would now provide

to recipients of funds, to formula grantees, performance measures

objectives. And the first one is, foster a suitable living environment

within the community for families and individuals.

Could you please tell me how that is defined within the act and

how that might fare under a PART analysis?

Ms. PATENAUDE. If I may, Mr. Chairman, start with the PART

analysis. We obviously have taken OMB’s recommendation seriously, and have been addressing the PART score for more than 2

years. We don’t completely agree, because we think the statute is

clear and that the program is not ambiguous.

The performance measurement framework is an attempt to capture the outcomes. Obviously there is a tremendous amount of

flexibility with the program. There are numerous eligible activities

with the CDBG program, so these categories were designed to capture activities and outcomes that are certainly in accordance with

the statute and the purpose of the program.

26

Mr. TURNER. As a measurable outcome, how are you going to

measure delivering a suitable living environment within the community?

Ms. PATENAUDE. We will measure indicators in neighborhoods’

improvements.

Mr. TURNER. Such as?

Ms. PATENAUDE. Employment, reduced crime rate, the affordability of housing, jobs created.

Mr. TURNER. Turning to the chart that you provided us, you have

the graph of the needs index and then the entitlement grantees

and the disparity, if you will, between the different amounts that

communities receive. In the initial HUD review of the grant formulas, there were four different alternative formulas that were

presented before this committee last year. The proposal that we

have before us appears to more closely relate to alternative four.

Would you please give us the rationale for choosing that one over

the other three?

Ms. PATENAUDE. Sure. As you know, Mr. Chairman, there are

four formulas. The first three are very distinct. The fourth one is

a modification of the third alternative. The decision was made, obviously by Secretary Jackson, to go with alternative four. But based

on feedback that we received after the formula study was sent to

the Hill and from stakeholders, we modified the definition of poverty. So it is based on formula four, and we feel that it best targets

the community development need in line with what the statute intends for the program.

Mr. TURNER. I would like to walk you backward, then, to the description of the line that appears on the chart, the line of which

the grantees are plotted against, where it says low need and high

need. Could you please describe the factors that go into the determination of low need versus high need and how that plays, then,

into the graph that we see?

Ms. PATENAUDE. As I stated in the testimony, the solid line is the

needs index, or the measuring stick. There were 17 variables used

in the needs index and, Mr. Chairman, are we talking about the

proposed formula?

Mr. TURNER. We are talking about the 17 needs.

Ms. PATENAUDE. The 17 variables?

Mr. TURNER. You are right. You are going right down where I am

going to ask you questions about. So please continue.

Ms. PATENAUDE. The expert on the variables is behind me, but

I am going to take an attempt to answer your question, sir.

The 17 variables are grouped, the factors, to represent proxies for

community development need, such as poverty, unemployment,

crime rate, and the formula is measured against the community

needs index.

Mr. TURNER. My understanding is that you did not modify that

needs index. You are modifying the allocation of the grant formula,

but not the needs index, which, would you please tell me the rationale as to why you did not modify the needs index?

Ms. PATENAUDE. As you know, we partnered with the Office of

Policy Development and Research and the experts in PD&R believe

that the variables that they used when it comes to the needs index

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are time tested and reliable indicators. And the needs index is the

same needs index in the old formula as the new formula.

Mr. TURNER. Because if you have an assignment as a program

administrator to fashion a grant formula that more accurately approximates need, your outcome is going to be inherently biased by

what your underlying definition of need is. And so the reason why

I raise the question is that, without a significant review of where

the first line is, the need line, your process of narrowing the

variants between communities and the amounts that they receive

is going to be biased to a needs index that you have not undertaken

a review of.

Ms. PATENAUDE. As I said, the 17 variables were reviewed, so it

is obviously a very broad range of community development needs

in that measuring stick. And the data that was used is reliable

data that is consistent and available to at least 800 of the entitlement grantees that we can get consistent data from the census.

Mr. TURNER. Mr. Czerwinski, you were nodding. Perhaps you can

assist in this discussion more eloquently than I have as to describing the bias inherent in this process.

Mr. CZERWINSKI. Actually, Mr. Chairman, what I was thinking

about is the nature of your request to us was to do exactly that,

and that is examine the needs. I think there are two themes here,

one going back to your original question, the quality of the program. This program does match up with congressional intent. The

issue, though, is how you measure performance and how you then

allocate funds.

The second theme is that this is an effort that is going to take

quite a bit of time. We are in the early stages of it. HUD I think

is stepping in the right direction, but I would not say that the answer is final by any means. What we really need to do is really just

as you said, to reexamine the needs index, to calibrate the various

variables and formula for allocating funds against that needs

index, and then there is a whole dialog that has to go on with all

the different players and then finally, it really is a congressional

decision.

Mr. TURNER. Do you think there is a rationale that would justify

the review of that needs index prior to changing the grantee formula, since we would be performing the program to conform to a

needs index that was previously established?

Mr. CZERWINSKI. I would hope so, Mr. Chairman. Because GAO

has a protocol that when requests come in to us from the Congress,

we do evaluate whether they are worthy requests. And yours came

in and we said, oh, this is a really good one to do. So yes, I would

say there is a rationale.

Mr. TURNER. Great.

Mr. Patenaude, as you are aware, this subcommittee undertook

a review of CDBG last year. And the full committee passed out a

report with various recommendations as to issues that should be

addressed with CDBG. Could you please tell me to what extent

HUD took into consideration that bipartisan, unanimous committee

report prior to delivering the act to Congress?

Ms. PATENAUDE. Thank you, Mr. Chairman. The CDBG Reform

Act and the work that went into the act was actually on parallel

tracks with the committee’s work. Obviously we have read the comVerDate 11-MAY-2000 14:05 Apr 04, 2007 Jkt 000000 PO 00000 Frm 00031 Fmt 6633 Sfmt 6633 C:\DOCS\33866.TXT HGOVREF1 PsN: HGOVREF1
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mittee report and we have taken some of the things into consideration. But some of the work had begun before we actually saw the

report from the committee. And we obviously focused a tremendous

amount of our energy on the formula.

Mr. TURNER. One of the issues that was raised in the hearings

that we held on the proposed four formula changes that HUD was

reviewing was the concept that is adopted in the proposed act, looking at the ratio of per capita income between a recipient community and their metropolitan area. Could you please describe HUD’s

decision to include that ratio?

Ms. PATENAUDE. The fiscal capacity?

Mr. TURNER. Yes.

Ms. PATENAUDE. The fiscal capacity adjustment would measure

a community’s per capita income against that of the greater metropolitan area, and that is one of the variables that we use in the

proposed formula.

Mr. TURNER. Why?

Ms. PATENAUDE. I would have to defer to Mr. Richardson, Mr.

Chairman.

Mr. TURNER. Mr. Richardson.

Mr. RICHARDSON. Thank you, Mr. Chairman.

Mr. TURNER. Please note for the record Mr. Richardson was

sworn in at the beginning of the hearing.

Mr. RICHARDSON. This variable accomplishes three things. It captures a community’s tax base relative to the cost to provide services

in the area. It tends to address some of the inequities caused by

the poverty variable, it tends to actually deal with some of the cost

of living issues that GAO has discussed. And third, it significantly

increases funding for more needy communities over the less needy

communities.

We think that this is a very strong variable. There is past research that supports it. David Rusk has done previous work that

supports this variable. We very much look forward to the GAO

doing a careful review to see if they have any alternative approach.

Mr. TURNER. Could you just describe in the act how it is proposed to be utilized, how it applies to a grantee’s formula? You told

me your basis then for including it. Could you please tell me now

how it works?

Mr. RICHARDSON. How it works, I am sorry.

Mr. TURNER. No, that is my next question. You answered the

first one correctly. The second one is, how does that work?

Mr. RICHARDSON. So, let’s take Dayton, for example. Dayton’s per

capita income relative to its metro area is less than that of, it is

about 70 percent that of the metropolitan area. So Dayton’s grant

would be adjusted, you first do a flat allocation using the four variables that we are proposing, the poverty variable, the old housing

occupied by a poor family, the overcrowding variable, and the female head of households variable. You make an allocation based on

each community’s proportional share of those variables, using those

variables. And then you adjust that grant using this per capita adjustment.

So Dayton’s grant from after this flat grant would be increased

25 percent in this particular case, because the maximum that could

be increased is 25 percent, and Dayton’s grant would be increased

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the maximum amount. Whereas another community, Kettering, for

example, which has a higher per capita income than the metropolitan area, it would have its grants reduced.

Mr. TURNER. You mentioned the issue of housing occupied by an

individual that is in poverty. The previous grant formulas took into

consideration the age of the housing stock. By limiting the element

of the age of housing stock to only those that are occupied, you

have eliminated any recognition of communities that have abandoned housing stock.

Could you please describe to me, my understanding in our first

hearings on this matter was that HUD’s goal was to remove from

the grantee’s calculations housing that was greater in age of 50

years that might have been occupied by someone who in fact was

wealthy. So by then going to limiting the structures that have individuals that are in poverty, you are also then not recognizing in the

available housing stock those properties that are just vacant, for

which CDBG funds would be targeted.

Almost any mayor who has been before us will testify of an abandoned house that was a source of criminal activity, a blighting influence on a community and its desire to remove that, either having it renovated and placed in the hands of a family so that it can

be occupied once again, or removing it from the community by demolition and then looking hopefully to an in-fill opportunity. The impact on the community and community development is clear. In the

factors, though, it appears that it would not recognize a community’s distressed nature of abandoned housing.

Ms. PATENAUDE. Mr. Chairman, we obviously appreciate the impact that abandoned housing has on neighborhoods and particularly declining neighborhoods. But we did not have available resources that is consistent across the entitlement communities on

abandoned properties. I know that the Office of PD&R is working

with the Postal Service to try to develop consistent data so that it

is possible in the future we would be able to measure that. And by

substituting, as you said, the pre-1940 housing that was distorting

the formula, particularly in the northeast, by having the poverty

household, that is a good proxy for declining neighborhoods.

Mr. TURNER. In the midwest, the number of units that are abandoned in the inner cities by far exceeds the number of families that

are in those areas that are wealthy. So the desire to count abandoned housing units as a distressed or blunting influence factor

would be very high on the list of communities that are impacted

by abandoned housing.

At this point I am going to turn to Mr. Clay for his questions.

Mr. CLAY. Thank you, Mr. Chairman. I would appreciate if I

could forego my opening statement and use that time as part of my

questions.

[The prepared statement of Hon. Wm. Lacy Clay follows:]

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31

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Mr. CLAY. Ms. Patenaude, your proposal would cause a dramatic

shift of resources between grantees and jurisdiction. But it doesn’t

contain a transitional period for those that lose funding. Why was

this not included in your proposal?

Ms. PATENAUDE. Thank you, Congressman Clay. We acknowledge

that there will be winners and losers with the redistribution under

any of the formulas. We have provided for a 1-year transition period. And that in the first year, if a community is not eligible under

the minimum threshold, they will be eligible to receive 50 percent

of their previous year grant.

And at the same time, if they are no longer eligible under the

minimum threshold, they can either join an urban county or participate through the State CDBG program.

Mr. CLAY. OK. In that instance, in my home town of St. Louis,

it is slated to lose 31 percent of its funding under the proposed formula, while St. Louis County only gains 4 percent. Are there specific circumstances to indicate why St. Louis and its surrounding

communities are deserving of a 27 percent net loss in funding, and

do census population figures justify this?

Ms. PATENAUDE. Thank you, Congressman. We have used this

example of Miami, St. Louis and Detroit, all communities with

similar needs, not identical needs, but certainly similar needs. And

if you look on the chart, this is an example of entitlement communities with similar needs receiving vastly different grant amounts.

So those would be the jagged lines on the chart.

Currently, St. Louis is receiving $59 per capita, while Miami is

receiving $22 and Detroit $43. So yes, St. Louis would be losing

CDBG dollars, but it would bring the formula more in line, it

would be fairer treatment. There isn’t enough money gained from

the communities with low need to give to the high need communities.

Mr. CLAY. OK, well, help me understand now. Have we developed a new definition of poverty? Is there a new definition that you

all are operating under as far as what poverty is or what it looks

like? That is one of the factors that you consider, am I correct?

Ms. PATENAUDE. Yes, it is, Congressman. Currently, St. Louis is

funded under the formula B that measures growth lag, poverty and

pre-1940 housing. Under the proposed formula, the factors that are

being used measure the number of persons living in poverty, excluding college students. That was a distorting factor under the old

formula. The number of housing units 50 years or older headed by

a poverty household, the number of female-headed households with

children under 18, the extent of housing overcrowding, and finally,

there is a fiscal capacity adjustment.

Mr. CLAY. And that is the new formula, right?

Ms. PATENAUDE. Yes, it is, sir.

Mr. CLAY. Well, we fit into all of these categories. I am just bewildered of how we lost 31 percent. I mean, and don’t get me

wrong, I want transparency, I want accountability in the CDBG

program. That is one of the things that St. Louis suffers from now.

The supporters of CDBG can contest what I am saying, but I can

take them to St. Louis and show them that St. Louis has derived

these block grant moneys and has used them for other purposes,

OK?

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So here is what I need to know. Have you all consulted with any

other groups, like the National League of Cities or U.S. Conference

of Mayors? Have you gotten any input from them on this proposal?

Ms. PATENAUDE. The development of the formula was done, it

was released in February 2005, and I understand the study took

more than a year. I do believe that we did listen to our stakeholders. We have quarterly meetings with our stakeholders, and I am

sure that consideration was given to their thoughts and ideas.

Mr. CLAY. I have just received a list here that says you have the

U.S. Conference of Mayors, National Association of Counties, National League of Cities, National Association of Local Housing, Finance Agency, National Association for County, Community and

Economic Development, National Community Development Association do not support the proposal. And so I assume you bounced

off——

Ms. PATENAUDE. Congressman, I am not aware of them not supporting the proposal. I am aware of the opposition to the funding

level. But we called in all of those stakeholders in May when we

rolled out the CDBG reform proposal and briefed them thoroughly.

We have been tracking, obviously, their newsletters.

Mr. CLAY. Well, this is a statement to this committee on this day

that says, we wish to state at the outset that we do not, do not support this proposal. Let me go on to Mr. Czerwinski. And thank you

for your responses.

Please explain how using metropolitan per capita income in the

new formula can prove beneficial to higher income metropolitan

areas? Wouldn’t this leave older industrial cities at a disadvantage

to those with high-tech or finance-based economies?

Mr. CZERWINSKI. Mr. Clay, if I may start for a second with the

comment that HUD had about this being a measure of fiscal capacity, this may very well be a measure of fiscal capacity, it may not

be. We will have to see. I am sorry to digress for a second, but

when I was in junior high, I took a math test. I got the answer

right, but the teacher marked it down some and said, you didn’t

show how you got there. And I think that is part of the issue that

when you talk about how we got there, that is where your question

is going.

Mr. CLAY. Well, let us continue to digress, then—[laughter]—because when I was in law school, I got the answer right, but according to professor, it was wrong. Now, let me ask you about capacity.

Explain capacity of a community and what do you mean by targeting? Tell me what that means in layman’s terms.

Mr. CZERWINSKI. Sure. When we talk about capacity, we are

looking at the strength of the local government, the tax base, its

ability to carry out programs. Essentially when you want something done by your city or county, do they have the means to do

it.

Now, a great example of capacity is found in the Gulf Coast.

There was capacity there, after Hurricane Katrina, there is not capacity.

Mr. CLAY. OK, but now following that train of thought, won’t this

favor communities that are more well off? I mean, in the end, won’t

this formula favor those communities and won’t they eventually get

the lion’s share of the block grant money?

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Mr. CZERWINSKI. Well, the devil is in the details, Mr. Clay. And

it is a matter of how the variables come together and how they are

weighted. And HUD’s proposal just came out last month. We

haven’t had a chance to go through it. What we will do is look at

their proposal. We will also look at needs and then separate from

that capacity and then bring them together. It is almost like, to use

the analogy of a math problem, you go back and you do a proof to

see if you come up in the same place. At this point, I really can’t

say where their’s will come up.

Now, looking at cost of living, compared to the metropolitan cost

of living, in isolation, we can say that in that instance, it would

favor those communities who have richer neighbors, because by

comparison they will look poorer. But beyond that, I can’t say.

Mr. CLAY. Now, maybe, just maybe that accomplishes what I

would like to see, is that the money is actually targeted to those

neighborhoods that actually need the economic infusion, that actually need the block grant money to rebuild, like you said, houses

more than 50 years old. I can take you to St. Louis and show you

entire neighborhoods like that, where there are plenty of vacant

lots and few houses standing that are in good shape. Even business

districts, that were once thriving, that are now dilapidated.

Now, will this new formula, this new proposal help address that,

so that my city will not be able to take that money and put it into

downtown, thriving business communities, or even well to do neighborhoods, instead of using it where it really needs to be used? Will

this address that in any way?

Mr. CZERWINSKI. I don’t know whether my answer will satisfy

you, because we don’t know. What we do know is that HUD shares

your goal and ours to effectively target where the funds go. What

we don’t know is exactly how this works.

And getting back to the other point that you made about those

who are at the local level living with this, that the League of Cities, the Conference of Mayors, the NGA, etc., those stakeholders

were the starting point for our work. We were just beginning. But

that was the very first thing that we did, we called all those people

into a room and said, ‘‘OK, we are going to be looking at that, at

your request. What kinds of things should we be thinking about?’’

We didn’t guarantee that we would do what they want, we didn’t

guarantee that we would come out with options that they favor.

But we view them as a starting point, because ultimately they are

the end point also.

Mr. CLAY. And as the process continues, I think that there will

be a real need to put some strings on this money with local communities to ensure that the money goes to those targeted communities

that actually need it.

Mr. Chairman, I will stop there. I guess we will get another

round. But thank you very much, and thank you both for your responses.

Mr. TURNER. Mr. Dent.

Mr. DENT. Thanks, Mr. Chairman. Thanks for holding this hearing, too.

Questions on this formula change, and I am looking at my own

district in Pennsylvania. Clearly we don’t do very well. The Commonwealth of Pennsylvania’s numbers, other than Philadelphia, evVerDate 11-MAY-2000 14:05 Apr 04, 2007 Jkt 000000 PO 00000 Frm 00038 Fmt 6633 Sfmt 6633 C:\DOCS\33866.TXT HGOVREF1 PsN: HGOVREF1
35

erybody seems to take a cut. I represent the cities of Allentown,

Bethlehem and Easton. Allentown does get a slight increase, which

is a larger city than Bethlehem and Easton. But Bethlehem and

Easton both receive significant reductions, according to this.

I am just trying to understand the methodology of this formula.

Can you help me out with this? Allentown, for example, I guess

does well on the needs index here and receives a 9 percent increase. But there is another community in Pennsylvania, the city

of Chester, that has a 10 on the needs index but receives a 4 percent reduction.

Can you just explain to me what went into this thinking?

Mr. RICHARDSON. This is the most difficult thing about formula

reform. It is the very needy communities that might have a reduction in funding because of the proposed change. The way to look

at this is not, I know the first way to look, of course, is to see how

your community fares, if it is reduced or increased. But the way to

think about it in fairness is to look at your community’s per capita

grant relative to the per capita grants that will go to other communities you see as having similar needs as those jurisdictions.

Pennsylvania was developed some time ago, it has had a lot of

population loss. A lot of the communities in Pennsylvania have

done well because of the pre-1940 housing in growth lag variables,

whereas some communities with very high poverty have not done

well, they have been formulaic communities and had very small

grants.

To bring some parity to the grant amounts——

Mr. DENT. So you are saying because of population declines in

some cities, that has essentially increased the per capita grants to

those communities until this change?

Mr. RICHARDSON. That is right. The loss of population is a good

measure of need in a lot of communities. But the variable that is

used in the current formula is a very sensitive variable, so it only

takes very little difference between communities in terms of their

population loss to cause very large differences in grant funds. I

think a good example would be to compare Pittsburgh and Philadelphia.

Mr. DENT. Yes, Pittsburgh has had substantial decline, as has

Philadelphia.

Mr. RICHARDSON. Absolutely.

Mr. DENT. But Philadelphia increases. They have both had substantial population declines.

Mr. RICHARDSON. That is right. Let me go into that. Currently,

Philadelphia gets $36 per capita and currently Pittsburgh gets a

very different grant amount. They are right next to each other,

handily enough on that chart.

Mr. DENT. Yes. Philadelphia receives a 10 percent increase.

Mr. RICHARDSON. So Philadelphia’s grant would go up to about

$40 per capita, which is closer to how much Detroit gets. And Pittsburgh’s grant would fall to $30 per capita, which is closer to how

much New York or Chicago gets.

Mr. DENT. I guess the question, then, is this formula overall

geared more beneficially toward States with population increases?

Because I am looking at the overall list on page—I don’t know

what page, it is Roman numerals, 23, I guess, XXIII. Alternative

36

4, table ES 3, if I am looking at alternative 4, which I think is a

close comparison to what you have presented here today, it just

shows that the southeastern portion of the United States and the

southwestern portion of the United States overall seem to receive

substantial increases and it is safe to say those are areas of population increase in the recent years. And in Puerto Rico, too, and I

can’t explain that.

But the bottom line is it looks like the midwest and the mid-Atlantic region where I am, and certainly New York and New England all receive substantial reductions overall. Is it fair to say it

is because of the population growth in the south and the west?

That is what drives this funding formula?

Ms. PATENAUDE. If I may, Congressman, just answer. We made

a conscious choice on this new formula to target the communities

in decline. I do believe the northeast benefited in some instances,

perhaps unfairly because of the pre-1940 housing in wealthier communities. So the new formula definitely favors declining communities. And as Todd said, it is all relative to need. So comparing a

community with similar needs.

Mr. RICHARDSON. If I can add to that, on average, communities

that have, in the southwest, that have higher poverty rates, that

in the past, got fairly small grants under the formula, their grants

do go up, and that is why you see the increase in the southern region of the country. And on average, communities with population

loss and older housing in decline do see their grants decline.

But overall, the communities in decline still receive substantially

larger grants than the communities that have the high poverty and

population growth. I think if we, actually, chart two is a little

clearer about this. Could you put chart two up, please?

So the needs index doesn’t distinguish well between communities

in decline versus communities that have the high poverty. So if we

had targeted exactly to the needs index the lines would be much

closer to that solid line. But instead, by having the formula proposal target more closely to communities in decline, you still see

this difference between, so you see some communities well above

the line and some communities below the line. And those reflect

that difference between communities in decline versus communities

with the higher poverty. There is still a difference, but that gap is

narrowed from what that first chart showed about, so that you

went from gaps that were quite large to gaps that were smaller.

But there is still a favoring of communities in decline over communities with high poverty.

Mr. DENT. I am looking at the city of Easton, PA. I am trying

to understand how they receive, it is a city that is landlocked, it

has a lot of challenges to say the least. But it receives a 30 percent

reduction. It is not a big city, but an entitlement community, and

I just see a $294,000 reduction. I guess the per capita number is

still high, but it just strikes me as a significant reduction for that

community with that type of need. I see what you are attempting

to do here. But overall, it just doesn’t work very well where I live.

Can you just give me a comment on Easton, why they would

have seen such a dramatic decline? Is it because the population has

been pretty stagnant, maybe a slight decrease over the last 20

years, but not a huge decline?

37

Mr. RICHARDSON. Easton certainly is a community with distress,

it has 12 percent poverty. Its allocation would be on par with other

communities of similar types of distress, like Richmond, Virginia or

Toledo, OH. So that is what the allocation is doing, it is adjusting

the grants to be similar for communities of similar need. It is obviously difficult for a community that does have high needs to have

a reduction in funding, absolutely.

Mr. DENT. All right, then, well, I have no further questions. I

will yield back. Thank you.

Mr. TURNER. Mr. Richardson, I am going to go back to the per

capita income comparisons. You described Dayton as an example.

In my first question, with respect to the per capita income ratio,

I asked you, actually Ms. Patenaude deferred to you on the issue

of why you would include the ratios. Your answer was because it

would take into consideration the tax base to cost of services and

inequities in the cost of living.

Now, the provision of the act that the administration has been

put forward only does the comparison for the ratio of per capita income of the metropolitan area to the per capita income of the formula grantee within the metropolitan area. Then with the amount

that you indicated of the 25 percent cap for adjustment.

There is no element within that, or within this act that I see,

and I am asking you to point it out if it is there, of any indication

with respect to the elements that you told me as the why this is

here, there is no provision that relates to measuring the tax base

of cost of services. There is no element that relates to cost of living,

so there is nothing that would relate to the inequities of cost of living.

For tax base, for example, some communities are real estate tax

dependent. Some communities are income tax dependent. To take

into consideration tax base, you would actually have to have some

element that goes to the revenue generation of the community and

the cost of services. Again, you would have to go to some of the differences in each of the community as to those costs.

Cost of living, cost of services, of course are two different things.

You said inequities of cost of living. I don’t see anything in here

that relates to cost of living. So could you please tell me how it is

that by taking into consideration only the ratio per capita income

that you expect to capture tax base to cost of services and inequities of cost of living.

Mr. RICHARDSON. You have certainly hit on one of the most challenging things about trying to deal with fiscal capacity. I think

GAO will address this, too. Per capita income in itself tends to be,

well, I will start off by saying there aren’t very many good variables that allow you to capture a community’s taxing ability. But

per capita income, a measure of income, a community with higher

incomes tends to have more ability to tax than a community with

lower incomes. I think we can probably agree on that.

Mr. TURNER. If they are income tax based.

Mr. RICHARDSON. How the community chooses to tax itself is up

to that community. But if you find a community that has higher

incomes, that tends to have higher property values, so if you are

land based, that would lead to a higher taxing authority.

38

In any case, the concept here on the two fronts of fiscal capacity

and also on cost of living are as follows. So for fiscal capacity, the

concept is that per capita income for a metro area is a rough measure of what it costs to live in the area. Places with higher incomes

tend to have higher costs of living.

If you are a poorer community in an area with a high cost of living, you are going to have a harder time raising revenues to be

able to buy the services in that area, because the service is more

expensive. So you would have your grant increased to reflect that.

Mr. TURNER. Mr. Richardson, would you stop for a second? You

are making several statements which are assumptions of which you

do not have, from the information that we had presented to us, and

the information that GAO reviewed when we had this hearing last

time, that your data does not prove. Would you admit that per capita income does not, as a measuring factor, deliver statistical data

based upon tax base to cost of living ratio, or inequities of cost of

living?

Mr. RICHARDSON. I am sorry, you would like me to confirm what

comment?

Mr. TURNER. You are stating several assumptions as to how it

gets you close enough to your purposes and goals of measuring tax

base to cost of services and inequities of cost of living. But they do

not. And I am asking you to acknowledge that measuring per capita income as a ratio does not measure tax base to cost of services

or inequities of cost of living.

Mr. RICHARDSON. I disagree.

Mr. TURNER. OK. Well, the GAO and the other studies that we

have had before this committee says that it does not, and you have

been stating several assumptions. Could you please tell us what

data that you have that shows that, how per capita income measures tax base to cost of services or inequities of cost of living?

Mr. RICHARDSON. David Rusk, Cities Without Suburbs, uses this

measure extensively and looks at that issue. And so I would have

to refer you to that research.

In terms of what the GAO is looking for, I look forward to the

GAO reviewing this variable and seeing if it supports the position

that we have for the analysis, or if it supports the position that you

are stating. I think that would be an interesting analysis.

Mr. TURNER. Well, the committee is familiar with the Rusk studies and his information and data. And what I would like you to do

is take some time to supplement your answer after this hearing,

indicating how you believe that per capita income ratio measures

a tax base of a community or how it measures cost of services in

a community, or how it relates to cost of living in a community.

Mr. RICHARDSON. Absolutely.

Mr. TURNER. Along with Mr. Dent, I would like to acknowledge

that under this formula, Dayton, OH, my community, would be

slated to lose 16 percent of its overall funding in CDBG. That 16

percent loss is to a community that clearly has significant economic

distress factors and significant community development factors of

abandoned housing and community development needs, which

would lend me to question the basis of which this formula is to improve targeting in that, as with Mr. Dent, I can identify several

communities in this list that appear to receive additional funding

39

that have greater financial capacity and perhaps less community

development stress than one would see in Dayton, OH.

But in going to the issue of cuts, and Ms. Patenaude, this question is for you, in looking at the split in the previous funding formula between entitlement communities and non-entitlement communities, the amount of the pot of funds that were available to entitlement communities overall appears to be reduced by this proposal. In other words, the total pot of the formerly known entitlement communities has available to it is reduced. Therefore, those

communities that are gaining are actually gaining out of a pot that

is smaller, and those that are losing out of a pot that was already

diminished. Is that accurate?

Ms. PATENAUDE. Thank you, Mr. Chairman. The reform package

does eliminate the artificial 70–30 split that is statutory right now.

But the breakdown is actually very close to the 70–30. And the entitlement communities, the share to entitlement communities has

been shrinking because of the increase in the number of entitlement communities in the last decade. But I believe it is still very

close to the 70–30.

Mr. TURNER. But even with the 70–30 split, you have taken another $200 million out with the competitive grant formula. So the

overall pot itself is diminished, is that correct?

Ms. PATENAUDE. The challenge grant is only available to distressed entitlement communities. Communities participating

through the State program would not be eligible for that, so that

is still reserved for entitlement communities, and communities

such as Dayton that target their CDBG dollars to distressed communities would have an opportunity to actually gain funding with

the challenge grant.

Mr. TURNER. Can you go down the list of recommendations that

came out of this full committee in again, in unanimity on a bipartisan basis and the ones that are not addressed at all, I will just

identify them and move on, and the ones where we have a difference of opinion are the ones I want to highlight.

We first indicated, the full Committee of Government Reform,

not this subcommittee, indicated that HUD should acknowledge

that any proposed needs test may be inherently subjective by its

nature. Therefore the policy implications of new or additional needs

tests should be fully vetted before they are implemented. Ms.

Patenaude, you indicated that the needs test is not modified in this

recommendation, correct?

Ms. PATENAUDE. The needs index is the same index, that is correct, sir.

Mr. TURNER. The discussion that we had in previous hearings

concerning the impact of immigration and how that relates to impacts on communities, this act does not include any review by HUD

of the impacts of either legal of illegal, the total category of immigration, correct?

Ms. PATENAUDE. I believe in the proposed formula that we do

capture the immigrant growth population.

Mr. TURNER. But there is no other independent data that you

looked at with respect to the impact of immigrant populations on

distressed communities?

40

Ms. PATENAUDE. I believe it is considered in one of these factors.

Todd, do you want to answer?

Mr. RICHARDSON. I think your question is, have we done further

review to determine what the impact of immigrant populations are

on communities?

Mr. TURNER. Correct.

Mr. RICHARDSON. We haven’t done further review. The original

analysis and the analysis we still have to work from is the analysis

done by the National Academy of Sciences in 1997, where they did

the analysis on the fiscal impact of immigrant populations, which

showed a significant impact. The communities had a greater cost

than they returned in revenue generated.

Mr. TURNER. We have already dealt with the issue of the income

ratio. And the full Committee on Government Reform had a different recommendation than the act presents. The next category is

the vacant and abandoned housing stock. We had a recommendation that should be considered as an index factor, and abandoned

and vacant housing stock, Ms. Patenaude, is not included in the

act, correct?

Ms. PATENAUDE. That is correct, sir, but we are working to collect that data.

Mr. TURNER. The initial proposal for, from which this act is in

part derived, had taken out all single non-elderly populations in an

attempt to get to student populations. It is my understanding that

you did correct that in the act itself, you did instead exclude only

unrelated individuals enrolled in college?

Ms. PATENAUDE. That is correct, sir.

Mr. TURNER. The one recommendation that we had, obviously,

was that HUD work in conjunction with GAO. GAO’s report is not

completely finished, so I am assuming that HUD would continue

its commitment to work with the GAO as its findings are available

in looking at ways that this act might be able to improve?

Ms. PATENAUDE. We will fully cooperate with the GAO, Mr.

Chairman.

Mr. TURNER. One of the recognitions of the need to change the

grant formula is to look at the fact of the changing demographics

of communities. The committee had made a recommendation that

periodic review of the CDBG grant formula perhaps should be incorporated in any act reform that would cause as a trigger an automatic review. You have chosen not to set a time period for periodic

review. I am assuming that doesn’t mean that you are opposed to,

on a regular basis, this process being reviewed?

Ms. PATENAUDE. We did not include it in the legislation, but as

you know, we have reviewed the formula every 10 years, when we

have the decennial census data. But I agree that would be something that should be considered in the legislation.

Mr. TURNER. We had recommended that if the CDBG formula is

to be amended, that a phased-in period, to give communities an opportunity to modify their processes, because many communities

have advanced planning for community development, the act, from

what I understand, has a 2-year phase-in for grantees affected by

the minimum allocation threshold, those that would be, in effect,

de-funded, I believe.

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Do you have a consideration for the transition for all communities?

Ms. PATENAUDE. The communities that would no longer meet the

threshold?

Mr. TURNER. Yes.

Ms. PATENAUDE. Would be eligible to participate either as part

of an urban county or through the State program. And we have a

provision that they would be able to receive their grant the first

year, under the new formula, at 50 percent of the previous year

grant.

Mr. TURNER. But for communities like Dayton, OH, that under

this proposal would have a 16 percent reduction in funding, there

would not be a phase-in. Upon the adoption of the act, the funds

would be immediately reduced?

Ms. PATENAUDE. Cities like Dayton would qualify to participate

in the challenge grant program.

Mr. TURNER. Yes, they have an opportunity to apply to you to receive additional funding. But those funds that they would automatically receive under the act, the reduction that you have identified, HUD has identified as 16 percent, that would happen without

a phase-in immediately?

Ms. PATENAUDE. That is correct.

Mr. TURNER. We spent some time in this committee looking at

the issue of eligible activities for the use of funds. This act does not

address the issue of use of funds. We raised the issue of under the

current CDBG program, there is no limitation to the amount of dollars that a local community can spend on its own staff. There certainly is a limitation on administrative funding. But on overall

funding that a local community allocates to staff functions, that

there is not a limitation, this act does not address the issue of eligible activities, how a community spends their funds, correct?

Ms. PATENAUDE. That is correct. We did not change or suggest

a change to the eligible activities, but we certainly are open to that

discussion.

Mr. TURNER. Can you tell us why you didn’t look at the issue of

eligible activities?

Ms. PATENAUDE. The CDBG Reform Act of 2006 focuses on performance and results and obviously encourages communities to target their dollars and concentrate their dollars. And by offering the

opportunity to participate in the challenge grant, we believe that

communities will hopefully do a better job of using their resources

in a concentrated way.

We didn’t want to take away any flexibility, so that the local

elected officials can make those decisions based on their community

development needs. As you know, the three national objectives

stayed in place as well.

Mr. TURNER. I’ll refer to Mr. Clay for questions.

Mr. CLAY. Thank you, Mr. Chairman.

Ms. Patenaude, I am concerned that newly proposed performance

measures will become an expensive administrative exercise for

grantees. Should HUD provide technical assistance or supplemental administrative funds for these activities? Is HUD capable

of reviewing annual performance outcomes and assisting in remediation efforts for grantees?

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Ms. PATENAUDE. Thank you, Congressman. We are currently implementing the performance measurement framework. We have 15

trainings scheduled throughout the country. They are ongoing until

the end of August, so all of the entitlement and State grantees

have been invited to participate in this training.

We also had thorough discussions with all the stakeholders when

we were developing the performance measurement framework, and

it certainly is a consensus document. OMB was also part of that

working group. We acknowledge that IDIS can be cumbersome, but

we have invested a tremendous amount of time and energy in updating the IDIS system. The screens are available right now, and

the grantees are already inputting performance measures. By October we will require it and we believe that 1 year from now we will

be able to answer that question better. But we do not think it will

be an additional burden on grantees.

Mr. CLAY. If a grantee fails to meet benchmarks for performance,

what types of penalties should there be imposed?

Ms. PATENAUDE. The act provides for the Secretary of HUD to either withhold or reduce CDBG funding if the community does not

meet the targets that they have set in their performance plans.

Mr. CLAY. Thank you very much.

Mr. Czerwinski, I have two major concerns with the inclusion of

a new performance measurement requirement. First, will communities have appropriate technical assistance from HUD to comply

with these requirements? And I don’t want grantees wasting grant

money in order to comply with a paperwork exercise. And second,

what types of penalties or remediation requirements would HUD

prescribe if a grantee was not making adequate progress?

Mr. CZERWINSKI. Mr. Clay, GAO is about to issue a report later

this summer that looks at those very issues for this committee. We

are asked to look at the uses of CDBG funds as well as HUD’s

monitoring, which would tie into reporting and information system

requirements. So your question is right on target for what we are

talking about.

And speaking about a target, probably the key issue there is

technical assistance and how the information is used to help the

local governments increase their capacity to do what they need to

do to get the funds. So those should be the exact targets of such

an effort.

Mr. CLAY. OK. Let me lay out a scenario for both of you, and

both of you can take a stab at answering. St. Louis County, their

inner ring suburbs have become less affluent. City residents have

moved to these areas and have stretched the services of those municipalities that they have moved into. St. Louis County only gets

a 4 percent increase in CDBG funding. Perhaps we should take another look at population shifts and factor these population trends

into the proposed formula. And we should probably also look at this

new influx of new citizens, of immigrants that come to communities

like St. Louis. We have a large population of Bosnians who have

migrated to St. Louis over the last 10 or 15 years.

Would you all consider that once, since you have now gotten

some feedback from us, I mean, what would you do to change those

formulas?

Ms. PATENAUDE. Congressman, if Mr. Richardson——

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Mr. CLAY. Mr. Richardson, you can try to tackle it.

Mr. RICHARDSON. I’m sorry, would you repeat the question?

Mr. CLAY. We have influxes of new populations into St. Louis

County inner ring suburb, new immigrants like from the Bosnian

community. I am not sure that you factored those considerations

into this proposed formula.

Mr. RICHARDSON. There is not a direct measure of new immigrants into the community. But to the extent that new immigrants

bring new factors of distress such as increased poverty for a community or increased rates of overcrowding, those do come into account and would affect that community’s grant changing and increasing in that particular case, if the community is in decline, if

those factors would be measured to allow its grant to increase.

Mr. CLAY. So in the case of St. Louis city or county, that would

be an additional factor that you all would take into consideration?

Mr. RICHARDSON. The formula currently has four variables associated with need poverty, older housing occupied by poverty households, overcrowding and female head of households with children

under the age of 18. To the extent those variables increase, and to

the extent those variables increase at a higher rate for that community than they do for the rest of the country, that community’s

grant would go up.

If for example the whole country goes up at the same rate, the

grant would stay static.

Mr. CLAY. What if one of those factors were not present, like

overcrowding? Say you have a less densely populated city, but what

then?

Mr. RICHARDSON. To the extent that poverty is increasing, poverty gets weighted at 50 percent. It is the most important variable

in the proposed formula. Then your grant would go up.

Mr. CLAY. Thank you for that info. Thank you, Mr. Chairman.

I yield back.

Mr. TURNER. I have one final question, and then I want to open

it to any closing remarks. Obviously we have had a pretty extensive discussion, and you might have, those who have testified, some

thoughts that you want to add to the record or raise as questions

that we have not asked for additional review.

One of the things that has interested me, and this is my final

question, is the issue of looking at measurable objectives in community development block grant funds. The Strengthening America’s

Communities initiative that would have moved this CDBG funding

and other grant programs from HUD to Commerce had as its cornerstone an issue of trying to impose performance measures in

communities as to how they use these funds for community development.

Many times, the description of how a community would be rated

are elements of which a community either might not have any control or which do not relate to the effectiveness of their use of CDBG

funds. When I look to the list of the challenge grant fund, these

are the elements on which a community would be rated. The

change in employment rate of residents, income levels of residents,

enrollment rate of high school graduates into higher education institutions, date of resident ownership of homes and businesses, and

the change in residential real estate values.

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In looking at the formula grantees, the non-challenge grants

funding, the performance measurements objectives list, suitable living environment, development of decent affordable housing, fostering and creating economic development and opportunity. When I

look at these elements that are in the challenge grant, almost

every one of them you can go through and identify things that

could occur within a community that have nothing to do with the

community’s administration of its CDBG funds or even the effectiveness of its leadership in economic development strategies.

Ms. Patenaude, if you would please respond to that issue, it was

raised before, I believe, by GAO as we look to the proposed formulas and it had been raised in the Strengthening America’s Communities initiative. Do you similarly have a concern that the items

on which communities might be measured may not relate at all to

their community development efforts and their use of CDBG funds?

Ms. PATENAUDE. If I may, Mr. Chairman, clarify the question.

You are looking at the objective criteria under the challenge grant

versus the objective and outcome measures under the performance

measurement system? Comparing the two?

Mr. TURNER. Right. Which are somewhat similar. In looking at

both of them, let me give you one example scenario. If a community

has one large employer that exits in the community or ceases operations altogether, its impact on the community, and really the occurrence of its exit may not relate at all to how effective the community has been with their CDBG dollars, or in community development or revitalization. But it would significantly impact these

factors.

Similarly, change in residential real estate values, a metropolitan community is part of a larger metropolitan area that could see

a decline in residential real estate values as you can pick up almost

any newspaper and the discussion of what is going to happen in

the future of real estate values in some markets that have been

identified as overheating. Those are all areas that have nothing to

do with how a community uses their CDBG dollars or their effectiveness in community development.

Do you have a concern that these elements might penalize a community that has been very effective with CDBG by elements over

which they have no control?

Ms. PATENAUDE. We still have a very important measure, and

that is to be sure that the community development block grant

funds are targeted 70 percent low-mod income. As you know, more

than 70 percent is spent for low and moderate income persons. So

I think that is definitely one of the safety nets that we have to

measure a program that is as complex and flexible as the CDBG

program is difficult. I think some of the things that you were addressing were under the previous proposal, under the Strengthening America’s Communities initiative.

Mr. TURNER. Actually, I was reading from that.

Ms. PATENAUDE. Under the challenge grants, we have listed

some objective criteria, but we are certainly open to discussion on

that. The performance measurement framework was 2 years in the

making, working with the stakeholders. So the grantees had a tremendous amount of input. We did not design this in a vacuum.

45

And OMB participated. So a year from now, Mr. Chairman, I may

be able to answer that question better.

Mr. TURNER. Mr. Czerwinski.

Mr. CZERWINSKI. Mr. Chairman, your question cuts right to the

heart of performance measurement. There is a tension between trying to find the perfect measures of all the things that we want a

program to achieve or, going the exact opposite direction, saying,

well, let’s just measure the minute program outputs. The real challenge is to get some middle ground there. And I agree completely

with Ms. Patenaude, this is going to take some work.

There are measures in the middle, I would say, affordable housing, maybe one that a community has a little bit more control over

than some others and that is more closely linked to community development and its objectives in the projects within it. But frankly,

we are not there yet.

Mr. TURNER. So you do have some concerns that the elements

that are identified may be outside the control of a community and

unrelated to their CDBG performance?

Mr. CZERWINSKI. I wouldn’t want to be the mayor of some of

those communities saying I can control all those things.

Mr. TURNER. Thank you.

Are there any other questions from members of the subcommittee? If not, at this time, then, I will turn to each of you and ask

if you have any closing remarks that you would like to place in the

record. Also, please include any additional questions that you think

that we need to pursue. Even if you don’t have the answers for

them, they would be important for us to capture as additional

items for us to review in the future.

We will start with Ms. Patenaude.

Ms. PATENAUDE. Thank you, Mr. Chairman. We appreciate the

opportunity to share the administration’s proposal on CDBG reform, and we look forward to feedback from our stakeholders. We

feel that there is certainly an urgent need to address the formula

and to restore equity to the fairness in the formula. Again, thank

you for the opportunity to appear before you today.

Mr. TURNER. Mr. Czerwinski.

Mr. CZERWINSKI. Mr. Chairman, as you know, GAO is full of researchers. So we are policy wonks and we love this kind of discussion. So thank you for being able to give us that format.

There are a few things that came across to me in our discussion

today. First of all, it seems to me that we have pretty close to

agreement on the objectives of the program and what we want the

reforms to achieve. I think we also have a pretty clear, maybe not

100 percent, but pretty close agreement on what the issues and

challenges are. And in that regard, I want to make sure that I have

been adequately complimentary to HUD. Because they have really

advanced the ball here. They have done a lot of good, hard work.

I was struck by what you have to deal with. And I was thinking

about what Mr. Dent was saying about what is going to happen to

my community. Ultimately you have to decide what the right answer is and go back to the community and defend it.

Then I was thinking about the discussion that we had with you,

Mr. Clay, and you, Mr. Turner, on a couple of the variables. We

don’t get these discussions, I do a lot of testimony. I don’t get a

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chance to dig into variables, so I really am grateful that we did

that.

The two that jumped out at me were immigration and abandoned

housing. I was struck by Mr. Richardson’s answer, which I think

is the right one at this time, is that we don’t have direct measures.

So what we are coming up with by definition is proxies.

Well, the proxy may work and the proxy may not. But when you

make it a policy decision, you are going back to defend it to constituents, that is a really tough position to be in. And so what we

are hoping to do in our study is to go behind the variables, particularly those two that you outlined, and try to come up with, if there

are direct measures, what are the pros and cons of them, what

needs to be done to come up or refine the direct measures, and

then what the implications are.

So let’s take immigration for a second. When we talk about overcrowding, that may or may not be a good measure of immigration.

It may pick up some parts of it. But what we like to look at is what

are the characteristics of immigrants, and what kinds of pressures

do they bring on the community. And if there is a measure in

there, we will try to find it.

As I mentioned, we brought in the National Academy of sciences

to help us with the statistics and the local expertise. So what we

would like to do is go back and do our work and then consult with

HUD and then come back and talk with you about what we found,

what works, what doesn’t, and then try to give you something you

can work with. Abandoned housing is in that same area. Frankly,

there isn’t a good measure of abandoned housing. My guess is it

is going to be several years off before you have one. I do think

HUD has a good strategy for abandoned housing.

But it is just going to take time. No matter how good a strategy

is, it just takes time.

Mr. TURNER. Mr. Richardson, any closing comments?

Mr. RICHARDSON. Just thank you for your time.

Mr. TURNER. Before we adjourn, I would like to thank each of

you for participating today. I appreciate your willingness to share

your knowledge, experiences and thought with us today. Undoubtedly, CDBG has been a key component to the many triumphs cities

have had over poverty and community development need. We all

agree that the program provides vital funds to address critical

needs.

Thanks to CDBG, many individuals and families live in safer,

cleaner neighborhoods, with improved infrastructure such as street

lights, handicap accessible sidewalks and parks and playgrounds,

amenities to which everyone should have access. As we have all acknowledged, however, we recognize the need for CDBG funds and

applaud the success of the program, there remains room for improvement from the inequitable distribution of funds, and the definition of need, to the lack of performance measures and enforcement capabilities.

I am encouraged by the administration’s response to the need for

program modification and I look forward to continuing the dialog

with suggestions on how to improve the administration and distribution of these important dollars.

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I want to thank GAO for their efforts in continuing to review this

and I appreciate HUD’s thoughtful look and approach and willingness to continue to work on ways that even the administration’s

current proposal might be able to be improved. In the event that

there may be additional questions that we did not have time for

today, the record shall remain open for 2 weeks for submitted questions and answers.

I thank you all. We stand adjourned.

[Whereupon, at 11:35 a.m., the subcommittee was adjourned.]

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