U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

1

24–999 PDF

" ! HOUSE OF REPRESENTATIVES 109TH CONGRESS

2d Session

REPORT

2006

109–365

Union Calendar No. 196

BRINGING COMMUNITIES INTO THE 21ST

CENTURY: A REPORT ON IMPROVING THE

COMMUNITY DEVELOPMENT BLOCK

GRANT PROGRAM

FIFTH REPORT

BY THE

COMMITTEE ON GOVERNMENT REFORM

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

index.html

http://www.house.gov/reform

JANUARY 31, 2006.—Committed to the Committee of the Whole House

on the State of the Union and ordered to be printed

(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)

MELISSA WOJCIAK, Staff Director

DAVID MARIN, Deputy Staff Director/Communications Director

KEITH AUSBROOK, Chief Counsel

ROB BORDEN, Parliamentarian/Counsel

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

JON HEROUX, Counsel

URSULA WOJCIECHOWSKI, Professional Staff Member

LINDA CARON, PH.D., Professional Staff Member

JULIANA FRENCH, Clerk

ADAM BORDES, Minority Professional Staff Member

LETTER OF TRANSMITTAL

HOUSE OF REPRESENTATIVES,

Washington, DC, January 31, 2006.

Hon. J. DENNIS HASTERT,

Speaker of the House of Representatives,

Washington, DC.

DEAR MR. SPEAKER: By direction of the Committee on Government Reform, I submit herewith the committee’s fifth report to the

109th Congress. The committee’s report is based on a study conducted by its Subcommittee on Federalism and the Census.

TOM DAVIS,

Chairman.

(III)

C O N T E N T S

Page

I. Executive Summary ....................................................................................... 1

II. Background .................................................................................................... 3

A. History of CDBG .................................................................................. 3

B. CDBG Current Formula ...................................................................... 5

C. CDBG Eligible Use of Funds .............................................................. 7

D. Current CDBG Performance Measures ............................................. 8

E. U.S. Census Bureau Data and CDBG Formula Calculations .......... 9

F. Strengthening America’s Communities Initiative ............................. 11

G. HUD Proposed Changes to CDBG Formula ...................................... 13

H. National Academy of Public Administration Study and Recommendations Pertaining to CDBG Performance Measures ......... 25

I. Integrated Disbursement and Information Systems [IDIS] .............. 26

J. Proposed Outcome Measurement System .......................................... 27

III. Hearings ......................................................................................................... 28

A. Hearing on the Strengthening America’s Communities Initiative,

March 1, 2005 ..................................................................................... 28

B. Hearing on CDBG Formula Alternatives, April 26, 2005 ................ 33

C. Hearing on Use of CDBG Funds and Performance Measures, May

24, 2005 ............................................................................................... 40

IV. Findings & Recommendations ...................................................................... 51

A. Strengthening America’s Communities Initiative [SACI] ................ 51

B. HUD Proposed CDBG Formula Targeting Reform ........................... 56

C. Current CDBG Formula Grants ......................................................... 63

D. CDBG Eligible Uses of Funds ............................................................ 66

E. Performance Measures ........................................................................ 70

F. Census Bureau Products ..................................................................... 72

(V)

Union Calendar No. 196

109TH CONGRESS REPORT " ! HOUSE OF REPRESENTATIVES 2d Session 109–365

BRINGING COMMUNITIES INTO THE 21ST CENTURY: A REPORT ON IMPROVING THE COMMUNITY DEVELOPMENT

BLOCK GRANT PROGRAM

JANUARY 31, 2006.—Committed to the Committee of the Whole House on the State

of the Union and ordered to be printed

Mr. TOM DAVIS, from the Committee on Government Reform

submitted the following

FIFTH REPORT

On December 15, 2005, the Committee on Government Reform

approved and adopted a report entitled, ‘‘Bringing Communities

into the 21st Century: A Report on Improving the Community Development Block Grant Program.’’ The chairman was directed to

transmit a copy to the Speaker of the House.

I. EXECUTIVE SUMMARY

In February 2005, the Bush administration submitted its fiscal

year 2006 budget recommendation to the U.S. Congress. Within the

budget submission was a new initiative, the Strengthening America’s Communities Initiative [SACI], consolidating 18 existing Federal community and economic development direct-grant programs

managed by five different agencies into a single program under the

oversight of the U.S. Department of Commerce (Commerce). Seven

of the 18 programs are currently administered by the Department

of Housing and Urban Development [HUD]. Each of the 18 programs would cease to exist independently under the initiative. In fiscal year 2005, Congress appropriated $5.7 billion for the

combined suite of 18 programs. The seven HUD programs account

for approximately 84 percent of the funding for all 18 grant programs. The Community Development Block Grant [CDBG] program

alone accounts for approximately 82 percent of that combined $5.7

billion in funding with an individual appropriation of $4.71 billion.

Highlighting the enormous impact SACI will have on State and

local governments and the citizens served by the 18 grant proVerDate 11-MAY-2000 07:50 Feb 02, 2006 Jkt 000000 PO 00000 Frm 00005 Fmt 6659 Sfmt 6602 D:\DOCS\24999.TXT HGOVREF1 PsN: HGOVREF1
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1 Clause 3 of Rule X of the Rules of the U.S. House of Representatives relates to the oversight

functions of the committees organized within the House of Representatives. Paragraph (e) of

Clause 3 states that ‘‘The Committee on Government Reform shall review and study on a continuing basis the operation of Government activities at all levels with a view to determining

their economy and efficiency.’’ Rules of the Committee on Government Reform: Together with Selected Rules of the House of Representatives and Selected Statutes of Interest, House of Representatives, 109th Cong., 1st sess. (March 2005).

grams, the President’s proposed fiscal year 2006 appropriation for

the SAC grant program totals only $3.71 billion.

Considerable stakeholder opposition arose in reaction to the

President’s proposal. Consequently, the Subcommittee on Federalism and the Census (the Subcommittee), chaired by Mr. Michael R.

Turner, devised an oversight agenda to investigate two basic questions regarding CDBG: 1

(1) Should Congress consolidate CDBG with the 17 other direct-grant programs as proposed in the President’s fiscal year

2006 budget request and transfer the administration of the

program from HUD to Commerce?

(2) Notwithstanding SACI, should Congress or HUD consider

making certain reforms to the CDBG program, either by legislation or by rulemaking?

The Subcommittee held three hearings on these issues. The first

hearing, entitled, ‘‘Strengthening America’s Communities: Is It the

Right Step Toward Greater Efficiency and Improved Accountability?,’’ was held on March 1, 2005. The hearing’s purpose was to review the proposed SACI and explore the reasons for its creation.

The Subcommittee held its second hearing, entitled, ‘‘The 1970s

Look: Is the Decades-Old Community Development Block Grant

Formula Ready for an Extreme Makeover?,’’ on April 26, 2005.

Based on a February 2005 HUD study, the Subcommittee explored

the first area of potential reform: the block grant formula. Specifically, the Subcommittee explored: (1) whether the 30-year old formula was appropriate for continued use in today’s world; and (2)

whether funds are distributed fairly among similarly situated communities.

The Subcommittee held its third hearing, entitled, ‘‘Bringing

Community Development Block Grant Programs Spending into the

21st Century: Introducing Accountability and Meaningful Performance Measures into the Decades-Old CDBG Program,’’ on May 24,

2005. In that hearing, the Subcommittee examined: (1) how communities spend CDBG moneys (i.e., eligibility of use of funds); (2)

whether HUD and grantees effectively target funds toward the

needs identified in the program’s authorizing legislation; and (3)

how, if at all, Congress can measure these expenditures for effectiveness through the institution of performance measures.

This report will first summarize the materials examined by the

Subcommittee in chronological order by date of publication. Part II,

Background, thus provides a short history of the CDBG program

and a summary of various studies suggesting changes to the program. In Part III, Hearings, each of the three Subcommittee hearings that discussed proposed changes will be reviewed. Findings

and recommendations are discussed in Part IV.

3

2 Housing and Community Development Act of 1974, 42 U.S.C. §§ 5301–5321 (2004).

3Todd Richardson et al., Office of Policy and Development Research, U.S. Housing and Urban

Development, Redistribution Effect of Introducing Census 2000 Data Into the CDBG Formula

at 11 (2003) [hereinafter Census Data Study]. 4 Id.

5 Id. at 12, quoting U.S. Department of Housing and Urban Development, Federal Funds, local

choices: An evaluation of the Community Development Block Grant Program (1995). 6 Id., quoting U.S. Department of Housing and Urban Development, Community Development

Block Grant Program: A provisional Report (1975). 7See id. at 9. 8See id.

9See id. at 11. ‘‘The underlying purpose of title I of the Community Development Act is to

increase the viability of urban communities by addressing housing needs and creating healthy

living environments by expanding economic opportunity primarily for low- and moderate-income

persons.’’

II. BACKGROUND

A. HISTORY OF THE COMMUNITY DEVELOPMENT BLOCK GRANT

PROGRAM

Congress authorized the creation of the CDBG program during

the Ford administration with the enactment of the Housing and

Community Development Act of 1974 [HCDA].2 CDBG is an offshoot of President Nixon’s Better Communities proposal, which

combined seven individual direct-grant programs into one community development block grant program. The reorganization of these

grant programs was the result of ‘‘[l]arge-scale dissatisfaction with

many [of their] components . . . [leading] to a discussion about

how federal community development funds should be allocated.’’ 3

The vision of Nixon’s ‘‘New Federalism’’ included a plan combining existing grant-in-aid programs into a single block grant program that distributed funds directly to local governments—those

agencies in the best position to assess local needs.4 Along with this

local decisionmaking came an ‘‘unprecedented degree of local control’’ over the use of Federal dollars on community development

programs, ‘‘offering city and county officials broad discretion to

fund housing, economic development activities, social services, and

infrastructure.’’ 5 In 1975, HUD advertised that CDBG funds could

be ‘‘used anywhere within a local government’s jurisdiction to serve

the needs of low- and moderate-income persons.’’ 6

Among the programs unified within CDBG were the Urban Renewal program, the Model Cities program, open space acquisition

and beautification grants, neighborhood facilities grants, and water

and sewer facilities grants.7 The roots of CDBG can be traced directly to these grant programs, which focused on restoring urban

neighborhoods through acquiring land, clearing blight, and encouraging private development; providing physical development and

human services; providing health, welfare, social, and recreational

services; and improving existing and developing new low- and moderate-income housing.8 All of these services function to create better living environments for low- to moderate-income persons, the

primary purpose of the HCDA.9

State and local governments use CDBG grant moneys to fund

various housing, community development, neighborhood revitalization, economic development, and public service provision projects.

Such projects must serve at least one of three requirements: (1) to

principally benefit low- and moderate-income individuals; (2) eliminate or prevent slums; or (3) remedy urgent threats to the health

4

10See Census Data Study at 12. 11 Id. at 14. 12See id. 13See id. 14See id. 15See 42 U.S.C. 5302(a). Entitlement jurisdictions are defined by one of five criteria: (1) Central cities of metropolitan areas (MAs); (2) cities located in a MA with a current population of

50,000 or more; (3) cities that previously met criteria for metropolitan cities; (4) urban counties

with a population of 200,000 or more excluding the populations of metropolitan cities and eligible Indian tribes; or (5) counties that previously met criteria for metropolitan urban counties. 16See Consolidated Appropriations Act, 2005 Fiscal Year Public Law No. 108–447, 118 Stat.

2810 (2004). 17 Congressional appropriations for CDBG formula grants have remained relatively static over

the past six budget cycles. However, since fiscal year 2001, Congress has reduced funding for

formula grants by roughly $300 million. In fiscal year 2005, Congress reduced funding by nearly

$200 milling. This reduction accounted for the program’s first ‘‘real dollar’’ decrease in a number

of years.

or safety of the community. At least 70 percent of CDBG funds distributed to the States and local governments must be spent on activities for the first requirement—to principally benefit low- and

moderate-income individuals.

CDBG funds were originally distributed based upon a single formula that assessed community need using population, poverty, and

overcrowded housing data as indicators of community development

need.10 In a 1976 study, HUD determined that the formula ‘‘was

highly responsive to the poverty dimension but unresponsive to the

non-poverty dimensions of community development need.’’ 11 As a

result, a second formula was devised using the factors of pre-1940

housing and loss of population to target those communities experiencing decline rather than poverty need alone.12 These two formulas remain in use today and are now known as ‘‘Formula A’’ and

‘‘Formula B,’’ respectively.

In 1981, Congress amended the HCDA once again. The original

CDBG formula required 80 percent of CDBG funds be reserved for

the formula grant and 20 percent of funds be set aside for non-entitlement jurisdictions. HUD administered this 20 percent through a

categorical competition for non-entitlement communities, known

then as the CDBG Small Cities Program.13 In keeping with the

idea that local administration of block grant funds is more effective

than centralized administration by the Federal Government, HUD

granted States the option of directly administering the Small Cities

Program in fiscal year 1982. Concurrent with this program change,

Congress amended the CDBG formula by adjusting the entitlement

community/non-entitlement community split to 70 percent/30 percent.14 15 Only these two changes have been made to the formula

grant over the 30-year life of the program.

Today, CDBG is one of the largest Federal direct block grant programs in existence. HUD’s Office of Community Planning and Development [CPD] administers the program through 800 full-time

employees located in Washington, DC, and throughout the country

in 42 field offices. In fiscal year 2005, Congress appropriated $4.71

billion for the CDBG program; $4.15 billion of that amount was reserved for CDBG formula grants.16

Despite the fact that Congress has generally increased appropriations for CDBG formula grants since the early 1990s,17 less money

in terms of ‘‘real dollars’’ has been available to entitlement and

non-entitlement jurisdictions over that same period. This can be attributed to two factors: (1) Congressional allocation of more money

5

18See Eugene Boyd, American National Government Division, Congressional Research Service, Report No. 96–503 GOV, Community Development Block Grants: An Overview at 4, 5 (1998).

In fiscal year 1997, set-asides accounted for 6.3 percent of the total CDBG appropriation. In fiscal year 1998, that percentage increased to 10.3 percent, and to 11.1 percent in fiscal year 1999.

Id. at i.

19Federal Spending Priorities: Exercising Oversight,’’ hearing before the Senate Committee on

the Budget, 106th Cong. (2000) (statement of David M. Walker, Comptroller of the United

States); see also David M. Walker, U.S. General Accounting Office, GAO/T–AIMD–00–73,

BUDGET ISSUES, Effective Oversight and Budget Discipline Are Essential—Even in a Time of

Surplus at 7 (2000). 20See Executive Office of the President, Office of Management and Budget, Fiscal Year 2006

Budget of the U.S. Government Analytical Perspectives, H. Doc. 109–2, Vol. III at 10 (2005). 21 ‘‘A Top to Bottom Review of the Three-Decades-Old Community Development Block Grant

Program: Is the CDBG Program Still Targeting the Needs of our Communities?’’ Hearings before

the Subcommittee on Federalism and the Census of the House Committee on Government Reform, 109th Cong. 21 (Serial No. 109–7) (2005) [hereinafter CDBG Hearings] (statement of Clay

Johnson III, Deputy Director for Management, Office of Management of Budget). 22Office of Management and Budget, Department of Housing and Urban Development PART

Assessments 3 (2004) <http://www.whitehouse.gov/omb/budget/fy2006/pma/hud.pdf>. See also

Executive Office of the President, Office of Management and Budget, Fiscal Year 2006 Budget

of the U.S. Government Analytical Perspectives, H. Doc. 109–2, Vol. III at 26 (2005).

for set-asides and earmarks, thereby decreasing the funds available

for distribution under the formula grant; and (2) the growing number of entitlement communities due to natural population growth

and other factors.18

In addition to the fiscal constraints on the program, commentators have criticized the CDBG program in recent years as cumbersome, inefficient, and unaccountable. During a Senate Budget

Committee hearing in February 2000, the Comptroller General of

the United States, David M. Walker, suggested that formula-based

programs like CDBG are ‘‘not well targeted to jurisdictions with

high programmatic needs but comparatively low funding capacity.’’ 19

Criticism of the program has come from within the administration as well. The Office of Management and Budget [OMB] assessed CDBG in 2004 using the Program Assessment Rating Tool

[PART]. The administration developed PART to assess the management and performance of individual programs—evaluating the purpose, design, planning, results, and accountability of a program.20

Based on a weighted average, a program is rated effective, moderately effective, adequate, or ineffective. Under the PART assessment tool, OMB determined that most of the community and economic development programs evaluated ‘‘were not accomplishing

their intended results’’ and could not demonstrate ‘‘that they [were]

having any positive impact on the communities they serve.’’ 21 In

particular, OMB rated the CDBG program as ineffective, stating,

‘‘The Program does not have a clear, unambiguous mission. Both

the definition of community development and the role CDBG plays

in that field are not well defined.’’ 22

B. COMMUNITY DEVELOPMENT BLOCK GRANT CURRENT FORMULA

HUD allocates the 70 percent of CDBG funds reserved for the

grant portion of the program to entitlement jurisdictions using a

dual formula system. Formula A allocates funds based on each entitlement community’s share of population, poverty, and housing

overcrowding as compared to all entitlement communities. Formula

B allocates funds based on each entitlement community’s share of

poverty, aged housing (built prior to 1940), and the lag in population growth rate as compared to the total for all entitlement comVerDate 11-MAY-2000 07:50 Feb 02, 2006 Jkt 000000 PO 00000 Frm 00009 Fmt 6659 Sfmt 6602 D:\DOCS\24999.TXT HGOVREF1 PsN: HGOVREF1
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23The State of Hawaii opts not to participate in the program. 24See supra n. 16. 25See Todd Richardson, Office of Policy Development and Research, Department of Housing

and Urban Development, CDBG Formula Targeting to Community Development Need at B–80

(2005) [hereinafter CDBG Formula Study]. 26See id. at B–8. 27See id. at B–46.

munities since 1960. Entitlement jurisdictions receive the greater

sum of the two formula calculations.

HUD distributes the remaining 30 percent of CDBG formula

funds to 49 States and the Commonwealth of Puerto Rico.23 The

statute requires these jurisdictions to re-distribute the funds to

non-entitlement communities (i.e., those communities that do not

meet the definition of an entitlement community).24 These funds

are also allocated according to a dual formula system whereby

States receive the greater sum of the two formula calculations.

Here, however, Formula A allocates funds based on a State’s percentage of population, poverty, and housing overcrowding as compared to the aggregate of all non-entitlement areas in all States.

Formula B allocates funds based on poverty, age of housing, and

population (not population growth or lag) relative to all non-entitlement areas in all States.

The CDBG program, while enabling States and local governments to accomplish many objectives outlined in the original authorization, exhibits several problems that require remedy. A study

of the formula allocations reveals two main fairness issues. First,

there are numerous instances of ‘‘richer’’ communities receiving

higher per capita awards than ‘‘poorer’’ communities. For instance,

Wauwatosa, WI, receives a per capita grant of $30.63 though it is

assessed as one of the Nation’s communities with lowest need.25 In

contrast, Compton, CA, has one of the highest needs of the Nation’s

communities and yet receives a per capita grant of only $26.18.26

Second, similarly situated communities often get disparate per capita awards. While Compton, CA, receives a per capita grant of

$26.18, St. Louis, MO, a community with a similar (yet lower) need

index score receives a per capita grant of $73.58.27

While the formula has undergone five major assessments since

1974, only two changes have been made to the program. During

this same period, the country’s demographics and population trends

have shifted dramatically. In particular, the number of entitlement

communities has grown substantially. In fiscal year 2004, there

were more than 1,100 designated entitlement communities, up

from 732 in 1982 when the 70/30 split was first instituted. From

1982 to 1993, an additional 128 jurisdictions qualified as new entitlement communities. Since 1993, more than 250 more communities came online, demonstrating a vast increase in population

growth rate. While the number of communities sharing the 70 percent portion of CDBG funds continues to grow, the overall funding

has not kept pace. Thus, a larger portion of the population is sharing a relatively static piece of the CDBG pie, resulting in fewer

funds per jurisdiction. At the same time, the number of non-entitlement communities declines, effectively increasing their share of the

30 percent portion of CDBG funds.

7

28See 42 U.S.C. §§ 5305(a)1–25 (2003). 29See 42 U.S.C. § 5304(b)(3). 30See 24 C.F.R. § 570.201 (2005). 31See 24 C.F.R. § 570.202 (2005). 32See 24 C.F.R. § 570.202(b)(1) (2005). 33See 24 C.F.R. § 570.202(b)(2) (2005). 34See 24 C.F.R. § 570.202(b)(4), (5) (2005). 35See 24 C.F.R. § 570.202(c) (2005). 36 Id.

C. CDBG ELIGIBLE USE OF FUNDS

CDBG-funded activities must satisfy a two-part eligibility test.

First, these activities must align with 1 of the 25 eligible uses for

CDBG funds as authorized by the HCDA.28 Second, these activities

must satisfy one of three national objectives stated in the HCDA.29

1. The Eligible Activities Test

The HCDA lists 25 activities for which grantees can expend

CDBG funds. HUD classifies these activities into two groups: (1)

basic eligible activities and (2) eligible rehabilitation and preservation activities.

a. Basic Eligible Activities

There are 17 basic eligible activities: (1) acquisition; (2) disposition; (3) public facilities and improvements; (4) clearance activities;

(5) public services; (6) interim assistance; (7) payment of non-Federal share of a grant-in-aid program; (8) urban renewal completion;

(9) relocation; (10) loss of rental income; (11) housing services; (12)

support of privately owned utilities; (13) construction of housing;

(14) homeownership assistance; (15) economic development; (16)

technical assistance; and (17) assistance to institutions of higher

education.30

The more common uses of CDBG funds fall within the categories

of acquisition, disposition, public facilities and improvements, clearance, and public services.

b. Eligible Rehabilitation and Preservation Activities

In addition to the specifically enumerated activities above, CDBG

moneys may be used to fund a broad range of rehabilitation and

preservation activities, including the rehabilitation and improvement of buildings, code enforcement, historic preservation, the renovation of closed buildings, and the removal of lead based paint.31

CDBG grantees may use funds for such purposes as assistance to

private individuals and entities in acquiring and rehabilitating

properties for personal use or resale as residences; 32 funding labor,

materials, and other costs associated with the rehabilitation of

properties; 33 and rehabilitation activities that increase energy and

water consumption efficiency.34

With regard to code inspections and enforcement activities, the

regulations permit expenditures so long as the enforcement activities are in deteriorating or deteriorated areas when such activity,

coupled with private and public improvements, rehabilitation, or

services, would obstruct further decline.35 Within this category,

grantees may use funds for ‘‘salaries and related expenses of code

enforcement inspectors and legal proceedings.’’ 36 Grantees, howVerDate 11-MAY-2000 07:50 Feb 02, 2006 Jkt 000000 PO 00000 Frm 00011 Fmt 6659 Sfmt 6602 D:\DOCS\24999.TXT HGOVREF1 PsN: HGOVREF1
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37See id. 38 24 C.F.R. § 570.200(a)(2) (2005). 39 24 C.F.R. § 570.200(2); see also 42 U.S.C. § 5305 (2005). 40See id. See also 24 C.F.R. § 570.208 (2005) for the criteria used to determine whether an

activity satisfies one or more of the national objectives. 41See 24 C.F.R. §§ 91.1(b), 91.2(a)–(b) (2005). 42 24 C.F.R. § 91.1(a) (2005). 43See 24 C.F.R. § 91.1(a)(2) (2005). 44See 24 C.F.R. § 570.903(a) (2005).

ever, may not use the funds to cover the costs of correcting code

violations.37

2. The National Objectives Test

Though the HCDA may specifically permit an activity, the activity must also meet at least one of the three national objectives outlined in the statute before CDBG funds may be expended upon it.

Activities must (1) ‘‘benefit low- and moderate-income families;’’ (2)

‘‘aid in the prevention or elimination of slums or blight;’’ or (3)

‘‘meet other community development needs having a particular urgency because existing conditions pose a serious and immediate

threat to the health or welfare of the community. . . .’’ 38

These criteria are broad in scope and nearly any activity could

be creatively described to meet the ‘‘benefit low- and moderate-income persons’’ objective. Therefore, HUD requires grant recipients

‘‘certify that their projected use of funds has been developed so as

to give maximum feasible priority to activities which will carry out

one of the national objectives. . . .’’ 39 Moreover, grant recipients

must also ensure that 70 percent of the CDBG grant is expended

over a period of 1, 2, or 3 years, as specified in their certification,

for activities meeting one of the specified national objectives.40

These certifications must be included in the grantee’s Consolidated

Plan.

D. CURRENT CDBG PERFORMANCE MEASURES

HUD requires that each grantee submit a Consolidated Plan

(‘‘Conplan’’), a comprehensive planning document that doubles as

an application for funding under several Community Planning and

Development formula grant programs.41 The Conplan describes a

jurisdiction’s strategy to pursue the overall goals of the HUD community and economic development programs. These goals include

‘‘develop[ing] viable urban communities by providing decent housing and a suitable living environment and expanding economic opportunities principally for low- and moderate-income persons.’’ 42

HUD will evaluate a jurisdiction’s Conplan and its performance

under the plan against these goals.43

The Conplan is the tool by which HUD determines whether

CDBG-funded activities meet the second part of the two-part test

for eligibility. Once HUD asks whether the activities described in

the Conplan are eligible for use of funds under the HCDA, HUD

then uses the Conplan to evaluate whether the activities satisfy

one of the three national objectives. Prior to acceptance of a jurisdiction’s annual certifications, HUD also uses the Conplan to determine whether the grantee complied with its HUD-approved plan

and whether CDBG-funded activities were consistent with that

plan.44

9

45See 24 C.F.R. § 91.500(a) (2005). 46See 24 C.F.R. § 91.500(b) (2005). 47See 24 C.F.R. § 91.105(a)(2) (2005). 48The U.S. Census Bureau conducts an annual survey called the Boundary and Annexation

Survey [BAS] to collect information about selected legally defined geographic areas. The BAS

provides information documenting the creation of new and dissolution of old incorporated municipalities, minor civil divisions [MCDs], and counties and equivalent areas, and changes in the

boundaries of municipalities, MCDs, counties, and federally recognized American Indian areas

[AIAs], which include reservations and off-reservation trust lands. See U.S. Census Bureau,

Boundary and Annexation Survey (last modified Apr. 29, 2005) <http://www.census.gov/geo/www/

bas/bashome.html>. 49 CDBG Formula Study at 8.

According to its own regulations, HUD will accept or reject a jurisdiction’s Conplan within 45 days of the date of submission.45 Additionally, the HCDA generally requires that HUD approve a

Conplan submission unless the plan (or a portion of it) is inconsistent with the purposes of the Act or is substantially incomplete.46

In addition to the Conplan, grantees must develop a plan that

encourages citizen participation in developing the Conplan, particularly by persons of low- or moderate-income living in areas CDBG

funds are to be used.47

E. U.S. CENSUS BUREAU DATA AND CDBG FORMULA CALCULATIONS

HUD presently uses five variables in its block grant formulas.

These variables include (1) total resident population; (2) the number of persons living below poverty level; (3) overcrowding (defined

as more than 1.01 persons per room in a housing unit); (4) the

number of housing units built before 1940; and (5) population

growth lag compared to all metropolitan cities since 1960. HUD relies primarily on the decennial census to provide this data objectively and consistently. In years subsequent to the decennial census, HUD relies upon the annual Boundary and Annexation Survey

[BAS] for revised population estimates, incorporations of new cities,

and major boundary changes.48 By law, HUD must use ‘‘the latest

data consistently available for all areas as of 90 days before the

start of the fiscal year.’’ 49

The decennial census of population traditionally included two

questionnaires: the short form and the long form. The Census Bureau uses the short form for a complete population count with basic

characteristics such as name, sex, age, and race. The long form,

sent to approximately one in six households, collects detailed characteristic data including the poverty and housing data required by

HUD for CDBG formula calculations. The strength of using the decennial census data is the near-complete population counts and the

very large sample size of the short form. Consequently, the data is

statistically sound. The weakness of using decennial census data in

CDBG formula allocations is that the Federal Government only collects it once every 10 years.

The Census Bureau provides estimated updates of the population

or ‘‘short form’’ data between decennial censuses with information

found in the annual administrative records of Federal and State

agencies. The Census Bureau and its State partners use statistical

models that combine information derived from census and administrative records to produce current population estimates. This information is then benchmarked against the last decennial census

10

50See U.S. Census Bureau, FSCPE History (last modified Nov. 19, 2003) <http://

www.census.gov/population/www/coop/history.html>. 51See U.S. Census Bureau, Population Estimates (visited Aug. 25, 2005) <http://

www.census.gov/popest/estimates.php>. 52See U.S. Census Bureau, Census 2000 Data Products at a Glance (last modified Apr. 6,

2005) <http://www.census.gov/population/www/censusdata/c2kproducts.html>. 53 Census tracts are small, relatively permanent statistical subdivisions of a county. The Census Bureau delineates Census tracts for most metropolitan areas [MA’s] and other densely populated counties. Census tracts usually have between 2,500 and 8,000 persons and, when first delineated, are designed to be homogeneous with respect to population characteristics, economic

status, and living conditions. Census tracts do not cross county boundaries. The spatial size of

census tracts varies widely depending on the density of settlement. Census tract boundaries are

delineated with the intention of being maintained over a long time so that statistical comparisons can be made from census to census. However, physical changes in street patterns caused

by highway construction, new development, etc., may require occasional revisions; census tracts

occasionally are split due to large population growth, or combined as a result of substantial population decline. See U.S. Census Bureau, Census Tracts and Block Numbering Areas (last modified Nov. 14, 2000) <http://www.census.gov/geo/www/cen—tract.html>.

counts.50 These intercensal population estimates are available at

the county level 51 and are used by HUD to make CDBG formula

calculations.

While the Census Bureau updates population estimates based on

the decennial census short form, it does not update the extensive

population characteristics data provided by the decennial long form

over the course of the intervening decade. Because no other nationally consistent data is available, HUD has had no choice but to use

the aging data between decennial censuses. For example, by 2001,

shortly before the Census Bureau released its Census 2000 long

form data, HUD would have had to allocate any CDBG funds for

that year based on 11-year-old data.52 HUD draws data for three

of the five formula variables from the long form, basing its formula

calculations on consistently old data, thereby risking accurate targeting of funds.

The Congress, the administration, HUD, the Census Bureau, and

many other Federal agencies recognize this problem of aging long

form data between censuses. With congressional support and funding, the Census Bureau launched the American Community Survey

[ACS] as a solution. The ACS will produce annual estimates of long

form-type data and will replace the decennial long form in 2010.

The Bureau successfully implemented the program in the fourth

quarter of fiscal year 2004 and the agency is currently conducting

the first full year of data collection. Data for areas with a population of 65,000 or more will be available in 2006, data for areas

of 20,000 or more will be available in 2008, and data for all areas

will be available in 2010. Accordingly, HUD could more accurately

target CDBG funds between censuses even if it or Congress made

no other changes the program.

The smallest level of delineated geographic areas for which the

Bureau provides ACS is the census tract.53 As a result of the small

size of census tracts, there will not be sufficient sample size to annually develop statistically sound estimates. Consequently, the

Census Bureau will develop multi-year estimates by averaging data

collected over 3 or 5 years depending on the population density.

This means that ACS will annually provide updated estimates

based on the average of 3 or 5 years of data. The Census Bureau

refers to these estimates as ‘‘rolling estimates.’’

11

54 U.S. Department of Commerce, Strengthening America’s Communities (February 2005) (unpublished PowerPoint presentation, on file with the Department of Commerce). 55Office of Management and Budget, President Bush Proposes Strengthening America’s Communities Initiative at 1 (last modified Feb. 3, 2005) <http://www.commerce.gov/SACI/

Talking%20PointslStrengthening%20Communities%20FINAL%202–03–05.pdf>.

Discussions between the Subcommittee and HUD staff revealed

that HUD has yet to determine how it will adapt ACS data, the

rolling averages in particular, into CDBG calculations.

F. STRENGTHENING AMERICA’S COMMUNITIES INITIATIVE

The administration publicized the proposed SACI as ‘‘a unified

direct-grant program focusing on America’s most economically distressed communities.’’ 54 The administration contends SACI would

build upon ‘‘existing economic and community development efforts.’’ 55

The President’s proposal consolidates 18 existing direct grant

economic and community development programs, managed by five

Federal agencies, into a single office within the Department of

Commerce. The targeted programs include:

Department of Housing and Urban Development Programs

• Community Development Block Grants [CDBG] • Community Development Block Grants Set-Asides [CDBG SA] • National Community Development Initiative [NCDI] • Brownfields Economic Development Initiative [BEDI] • Rural Housing and Economic Development [RHEC] • Urban Empowerment Zones Round II Grants [UEZ] • Community Development Loan Guarantees (Section 108)

[CDLG]

Department of Agriculture Programs

• USDA Rural Business Enterprise Grants • USDA Rural Business Opportunity Grants • USDA Economic Impact Grants • USDA Rural Empowerment Zones [EZ]/Enterprise Communities [EC]

Department of Treasury Programs

• Community Development Financial Institutions [CDFI] Program • Bank Enterprise Award [BEA] Program • CDFI Native Initiatives

Department of Health and Human Services Programs

• HHS Community Services Block Grant • Community and Economic Development • Rural Community Facilities

Department of Commerce Programs

• Economic Development Assistance Programs

Collectively, these 18 grant programs amounted to $5.7 billion in

appropriations for fiscal year 2005. Of the 18 direct-grant programs

included in SACI, the largest is the CDBG. With an overall fiscal

year 2005 funding level of roughly $4.71 billion, $1 billion more

than the President’s $3.71 billion request for SACI, CDBG is the

12

56See Consolidated Appropriations Act, 2005, Public Law No. 108–447, 118 Stat. 2810 (2004). 57Office of Management and Budget, President Bush Proposes Strengthening America’s Communities Initiative at 1 (last modified Feb. 3, 2005). 58 Id. 59 Id. 60 Id.

largest direct-grant program to local governments for community

and economic development activities.56

Under SACI, each grant program would cease to exist independently. The grants previously awarded under these programs would

be awarded by the Department of Commerce through the newly

created Strengthening America’s Communities [SAC] Grant Program. Under the administration’s proposal, funding would drop to

a combined $3.71 billion for all programs in fiscal year 2006, a decrease of 31 percent or roughly $1.64 billion.

The administration states its primary goal in this initiative is to

ensure grant moneys further Congress’ original intent: ‘‘to create

the conditions for economic growth, robust job opportunities, and

livable communities.’’ 57 According to an OMB review, most of the

18 direct grant programs lack clear goals or sufficient accountability. Further, OMB contends that many of the grants overlap in key

areas, resulting in duplicative efforts and wasted money. According

to the administration, the current system of Federal programs

‘‘forces communities to navigate a maze of Federal departments,

agencies, and programs in order to access economic development

assistance programs, each imposing a separate set of standards

and reporting requirements.’’ 58 The new $3.71 billion initiative, the

administration argues, would ‘‘help strengthen America’s

transitioning and most needy communities, while making better

use of taxpayer dollars by reforming and restructuring many of the

existing Federal economic and community development programs.’’ 59 The SAC grant program would ‘‘simplify access to the

Federal system, set new eligibility criteria, and establish strong accountability standards all in exchange for the flexible use of the

funds so that communities most in need will be assisted.’’ 60 Thus,

SACI intends to: (1) improve the efficiency of community and economic development grant programs; (2) create greater accountability for program success; and (3) simplify access to these grant programs.

The administration has not yet presented a detailed plan for the

program or a legislative proposal for codifying the initiative. However, the administration stated that the new eligibility criteria

would be based upon job loss, unemployment levels, and poverty.

The new accountability measures would include increased job creation, new business formation rates, increased homeownership,

commercial development, and private sector investment. If a community fails to meet such measures, the SACI proposal calls for the

Commerce Department to work with the community to develop an

action plan and to provide technical assistance in the effective use

of funds. If a community consistently fails to meet the accountability standards, it may lose future funding.

13

61See CDBG Formula Study at x. 62See id. at 37.

G. HUD PROPOSED CHANGES TO THE CDBG FORMULA

On February 21, 2005, HUD published a document entitled,

CDBG Formula Targeting to Community Development Need, the result of a study on the declining effectiveness of the current grant

formula in targeting need. The study demonstrates that the current

formula continues to target need: the top 10 percent of communities with the greatest need receive four times as much as the 10

percent of communities with the lowest need.61 However, this targeting is based on poverty need. The study shows that the current

formula’s ability to target community development need has substantially declined over the last 30 years. A growing number of

communities with similar needs today receive substantially different grants. Further, the per capita grants awarded to the neediest of communities have decreased while the per capita grants

awarded to the least needy of communities have increased.62

14

The above entitlement grantee chart (left) demonstrates that the

amount of funds jurisdictions currently receive (the jagged line) is

only slightly in accord with the amount of funds that should be alVerDate 11-MAY-2000 07:50 Feb 02, 2006 Jkt 000000 PO 00000 Frm 00018 Fmt 6659 Sfmt 6602 D:\DOCS\24999.TXT HGOVREF1 PsN: HGOVREF1
15

63See id. at x chart ES–1. 64See id. at xi. 65See id. at xii chart ES–2. 66See supra p. 5. 67See id. 68See CDBG Formula Study at xiii–xv, 62–65.

located according to the need index (the solid line), but it also demonstrates that similarly situated communities receive vastly differing grant awards (differing heights of the peaks).63 HUD posits

that one explanation for these two anomalies is the flatness of Formula A and the inequity of Formula B.64 Formula A places a 25

percent weight on the population variable, resulting in the most

needy of grantees not getting substantially more funds than the

least needy of grantees simply because two cities may have similar

population counts regardless of the need of that population. Conversely, Formula B grantees often receive substantial grants because of the large numbers of pre-1940 housing even though there

may be little community or economic need. The non-entitlement

grantee chart (right) demonstrates that there is little to no relationship between the need of a community and the funds allocated

under CDBG.65

To address these deficiencies, HUD proposed four alternative formulas. Three of the four alternatives maintain the 70/30 (entitlement community/nonentitlement community) split.66 The fourth alternative eliminates the 70/30 split. Only one of the four alternatives maintains the Formula A and Formula B duality 67 while

the remaining alternatives simplify the calculation by using one

formula each for entitlement communities and non-entitlement

communities.

Alternative 1

Alternative 1 adjusts the existing formula by changing the

weights of the variables in the current formula.68 Under Formula

A, population is weighted at 10 percent (currently 25 percent), poverty is weighted at 60 percent (currently 50 percent), and overcrowding is weighted at 30 percent (currently 25 percent). Under

Formula B, the age of housing is calculated as housing 50 years or

older occupied by a poverty household (currently pre-1940 housing,

without regard to household need) and weighted at 50 percent (currently also 50 percent), poverty is calculated by family and elderly

poverty (currently calculated as poverty without regard to family

status or age, thus incorporating large student populations) and is

weighted at 40 percent (currently 30 percent), and growth lag is

weighted at 10 percent (currently 20 percent).

16

Alternative 1 improves the targeting of each formula (the bouncing line follows the solid need index line more closely) but does not

correct the disparities that occur between Formula A recipients and

17

69See id. at xiv–xvi charts ES–3 and ES–4. 70See id. at xiv, 61. 71See id. at xvi–xviii, 62, 66–71.

Formula B recipients (the spiking remains similar to the current

formula chart).69 This alternative also results in the least disruption of funds.70

Alternative 2

Alternative 2 eliminates the dual formula system and replaces it

with one formula.71 For entitlement communities, allocation is calculated using family and elderly poverty weighted at 50 percent, female-headed households with children under 18 years weighted at

10 percent, overcrowding weighted at 20 percent, and housing 50

years or older occupied by a poverty household weighted at 20 percent. Non-entitlement community allocation is calculated using

family and elderly poverty weighted at 60 percent, female-headed

households with children under 18 years weighted at 10 percent,

and housing 50 years or older occupied by a poverty household

weighted at 30 percent. The overcrowding variable is eliminated in

the non-entitlement calculation as it bears a high correlation to

poverty in non-entitled communities, which is accounted for in the

other variables.

18

The allocations using Alternative 2 closely match the need index

(the solid line) and address the inequities between similarly situated communities by eliminating the dual formula (less spiking in

19

72See id. at xvii–xviii charts ES–5 and ES–6. 73See id. at xvii, 62, 70. 74See id. at xviii–xx, 62, 71–73.

the line representing actual allocation).72 However, because the allocation so closely matches the need index thereby improving fairness, without increasing funding, some very needy Formula B communities suffer dramatic decreases in funding.73 Likewise, some

high-need communities that are relatively over-funded by Formula

A (as compared to the need index) suffer significant funding decreases as well (e.g., St. Louis drops from $74 per capita to $37 per

capita). At the same time, high-need communities that were underfunded are awarded larger per capita grants more closely aligned

with their needs.

Alternative 3

Alternative 3 is very similar to Alternative 2.74 For entitlement

communities, the allocation is calculated using the same formula as

in Alternative 2 but with more weight on older housing occupied

by a poverty household and less weight on overcrowding. Family

and elderly poverty is weighted at 50 percent, female-headed

households with children under 18 years is weighted at 10 percent,

overcrowding is weighted at 10 percent, and housing 50 years or

older occupied by a poverty household is weighted at 30 percent.

This shift in weight places more emphasis on communities plagued

by aged housing or decline versus communities with growing immigrant populations. The formula also allows for an upward adjustment of up to 25 percent for communities with low per capita income or a downward 25 percent adjustment for areas with a high

per capita income, both relative to the metropolitan area per capita

income. Additionally, the formula permits a pro rata reduction to

ensure aggregate grant allocations do not exceed the program’s appropriated funds. The non-entitlement community formula is identical to the formula used in Alternative 2.

20

Alternative 3 addresses the need index by following the solid line

but with a steeper slope, meaning more funds are allocated to higher need communities and less funds are allocated to less needy

21

75See id. at xix chart ES–7. 76See id. at xx–xxi. 77See id. at xxi chart ES–8.

communities.75 However, as indicated by the spiking of the allocated per capita grant, there is more variation in the amounts allocated between similarly situated communities than in Alternative

2. While some relatively over-funded high-need communities still

suffer decreases in their per capita grant, the decrease is not as

significant as under Alternative 2.

Alternative 4

Alternative 4 is a single formula approach. There is no differentiation between entitlement and non-entitlement communities (currently, the 70/30 split).76 The formula is identical to the formula

used for entitlement communities under Alternative 3. Allocations

are calculated based upon family and elderly poverty weighted at

50 percent, female-headed households with children under 18 years

weighted at 10 percent, overcrowding weighted at 10 percent, and

housing 50 years or older occupied by a poverty household weighted at 30 percent. As in Alternative 3, the allocation may be adjusted upward or downward by 25 percent based upon per capita

income relative to the metropolitan area per capita income and a

pro rata reduction is permitted to match the grant allocations to

the program appropriations. Using this formula and fiscal year

2004 figures, the end result is a de facto split of 69 percent of

CDBG funds granted to entitlement communities and 31 percent

granted to non-entitlement communities. Targeting is improved in

the same way as under Alternative 3 as demonstrated by the grant

allocation line closely matching the need index line but with a

greater slope. Thus, higher need communities receive more funds

and lower need communities receive fewer funds.77

22

23

78See id. at xxii. 79See id. 80See id. at xxiii.

Summary of Impact

Alternative 1 makes only minor modifications to the current formula, resulting in fewer large losses and gains than the other alternatives. Alternatives 1, 3, and 4 result in redistribution of funds

from the least needy entitlement communities to the most needy

communities, with Alternative 4 causing the largest redistribution.

Alternative 2 addresses the anomaly created by using a dual formula system (Formula A versus Formula B), replacing the two formulas with a single formula. However, this leads to significant per

capita grant reductions to very needy entitlement communities, a

consequence that Alternative 3 attempts to address. Alternative 4

has almost an identical impact as Alternative 3—the upside being

the most significant simplification of allocation calculation (one formula without a 70/30 split), with the downside being slightly more

losers than winners in the allocation because the share of funds for

entitlement communities is effectively reduced to 69 percent.

The following tables demonstrate the effect on jurisdictions

under each of the four Alternative formulas. Table ES–1 78 shows

the effect on entitlement communities, table ES–2 79 shows the effect on non-entitlement communities (States), and table ES–3 80

shows the redistribution of funds by region.

24

25

H. THE NATIONAL ACADEMY OF PUBLIC ADMINISTRATION STUDY AND

RECOMMENDATIONS PERTAINING TO CDBG PERFORMANCE MEASURES

In 2003, the National Academy of Public Administration [NAPA]

contracted with QED Group to develop a set of performance measures for the CDBG program. In February 2005, the NAPA panel

(the ‘‘Panel’’) published its findings and recommendations for developing performance measures for the CDBG program. The Panel

concluded:

[T]here is sufficient common ground among [CDBG stakeholders] to construct a performance measurement system

that can satisfy them and be consistent with the Housing

and Community Development Act of 1974, GPRA, and

PART. The Panel found that virtually all parties in this

discussion, ranging from OMB to HUD to stakeholder

groups, are committed to arriving at a viable approach

that reflects common agreement.

Generally, entitlement communities and states support

CDBG performance reporting as long as it is non-intrusive,

extensively used, cost effective, and compatible with existing management systems. Grantees want maximum programmatic flexibility to tailor the investments to their

local needs. At the federal level, HUD wants a system that

reflects and maintains CDBG’s flexibility, and complies

with its statutory responsibilities as an executive agency.

Meanwhile, OMB wants one that encourages HUD and

grantees to demonstrate conclusively that the investments

contribute to the development of viable communities and

to low- and moderate income beneficiaries. To accomplish

this, it wants entitlement communities and states to target

CDBG funding to a limited number of neighborhoods.

*** To illuminate shared practices in the field, the Panel examined a wide-ranging sample of performance measurement reports issued by federal programs, communities and

states, think tanks, university research centers, public interest groups, citizen groups and foundations. . . . The

more closely that a CDBG performance measurement system conforms to practices in the field, the more likely entitlement communities and states will be to report performance results and use them in management. The Panel believes that a system proposed for negotiation with grantees

must distinguish clearly between realistic expectations of

what grantees can reasonably be expected to report and

the progress toward national results that HUD should be

responsible for determining. The Panel calls on HUD to

demonstrate a relationship between locally reported data

and accountability standards for grantee performance. In

turn, grantees should hold HUD accountable for an effective research and evaluation program that demonstrates

the value that taxpayers receive from their investment in

CDBG.

***

26

81 National Academy of Public Administration, Developing Performance Measures for the Community Development Block Grant at xi–xv (2005) [hereinafter NAPA Performance Measures Report]. 82See National Academy of Public Administration, Integrating CDBG Performance Measures

Into IDIS at vii (2005).

The Panel recommends that performance indicators should:

• Have stakeholder consensus on what should be measured.

• Focus on things that can be quantified—people, businesses or even organizations, rather than notions of community and neighborhood betterment where considerable

conceptual ambiguity exists.

• Always report frequencies, rather than percentages or

rates, to facilitate aggregation of data across communities and states.

• Avoid use of baselines or benchmarks in reporting due

to the sporadic, often one time only nature of CDBG investments (e.g., a single investment in a water system).

• Avoid any arbitrary time qualifiers as much as possible,

but should report annual results.

• Allow aggregation from the local to national level.

• Overlap as much as possible with other community planning and development program indicators so that HUD

can demonstrate performance across related activities.

• Avoid double counting of benefits across CDBG, ESG,

HOPWA and HOME programs if there are any. (footnote

omitted)

• Be valid in measuring consistently and correctly over

time.

***

CDBG’s existing performance measurement system relies

on data gathering and reporting systems that are common

in the department, the field and elsewhere. The Panel is

aware of other systems that might complement or supplement performance information reported in more traditional

practice. For example, social science findings could be used

to impute outcomes to CDBG beneficiaries when it proves

cost prohibitive to gather outcome information directly

from beneficiaries themselves. It recommends that HUD

explore some of these alternative systems, perhaps

through a series of demonstration projects, as a way to

measure program accomplishments.81

I. THE INTEGRATED DISBURSEMENT AND INFORMATION SYSTEMS [IDIS]

Grant recipients currently report their CDBG data to HUD

through the Integrated Disbursement and Information System

[IDIS]. A companion system known as Community 2020, once considered innovative by stakeholders, has become technologically obsolete and incompatible with newer software.82 Consequently, the

Community 2020 system is now seldom used. According to the

27

83 Id. 84 Interview with HUD staff, in Washington, DC (Apr. 1, 2005). 85 Consensus Document: Joint HUD/OMB/Grantee Outcome Measurement Working Group at

1 (last modified Nov. 20, 2004) <http://www.coscda.org/CDBGBattleCry2005/

CDBGOutcomeMeasures.pdf> [hereinafter Working Group Consensus Document]. 86 Id. 87See Notice of Draft Outcome Performance Measurement System for Community Planning

and Development Formula Grant Programs; Request for Comments, 70 Federal Register 34,044

(2005). 88See id. at 34,045.

NAPA study, ‘‘neither system has worked well and past efforts to

fix each one has failed or been executed in a piecemeal fashion.’’ 83

HUD posits that much of the problem with the reporting system

results from the use of COBAL, a programming language first developed in 1960. Consequently, COBAL and programs developed

using COBAL are antiquated and incompatible with today’s technologies. HUD indicates that it is reengineering the IDIS in an effort to resolve these problems. To that end, NAPA and other observers have commended HUD for its efforts to upgrade its information management systems.84

Commissioned by HUD, NAPA reviewed IDIS and published a

report entitled, Integrating CDBG Performance Measures into IDIS.

NAPA offers several suggestions therein for upgrades to improve

existing performance measurement and reporting systems.

J. PROPOSED OUTCOME MEASUREMENT SYSTEM

In June 2004, a Joint Grantee/HUD/OMB Outcome Measurement

Working Group (the ‘‘working group’’) convened to develop an Outcome Measurement System for key Federal community development programs, including CDBG. The Council of State Community

Development Agencies [COSCDA], National Community Development Association [NCDA], National Association for County and

Community Economic Development [NACCED], National Association of Housing and Redevelopment Officials [NAHRO], HUD’s

CPD office, and OMB were partners in this effort.

In October 2004, the working group drafted a consensus document on a proposed Outcome Measurement System. According to

the proposal, ‘‘grantees would use this System in their five-year

Consolidated Plans and Annual Action Plans, but are free to add

objectives, outcomes and indicators specific to their state or local

initiatives or priorities.’’ 85 Under the plan, HUD will alter existing

reporting requirements and mechanisms to ‘‘include . . . outcomes,

indicators and appropriate variable data’’ proposed by the working

group.86

HUD published a Notice in the Federal Register on June 10,

2005 regarding the Performance Measurement Outcome System to

obtain input from the public to operationalize the proposal.87 The

comment period closed on September 8, 2005 and HUD expects to

issue a Final Notice by December 2005. HUD also held regional

input sessions in five cities across the country drawing more than

1,000 attendees. HUD plans to provide training to grantees in 2006

and will then phase in the new system by 2007 as the Department’s information system is adjusted according to the proposal.88

The proposal includes three overarching objectives: (1) ‘‘Creating

Suitable Living Environments,’’ (2) ‘‘Providing Decent Affordable

28

89 Id. at 34,046. 90 Id.

Housing,’’ and (3) ‘‘Creating Economic Opportunities.’’ 89 Within

each objective, there are three outcome categories including availability and accessibility, affordability, and sustainability. Under the

new system:

Based on their intent when funding them, Grantees would

determine under which of the three objectives to report the

outcomes of their projects and activities. Similarly, once

the objective is chosen, then the Grantee would also choose

which of the three outcome categories best reflects what

they are seeking to achieve (the results) in funding a particular activity. Next, Grantees would choose from a list of

indicators (also known as outputs) to report on, and supply

the data for those indicators to HUD.

The System maintains the flexibility of the block grants

[sic] programs, as the objectives and outcomes are determined by the grantees based on the intent of the project

and activity. While program flexibility is maintained, the

System offers a specific menu of objectives, outcomes and

indicators so that reporting can be standardized and the

achievements of these programs can be aggregated to the

national level.90

III. HEARINGS

A. HEARING ON THE STRENGTHENING AMERICA’S COMMUNITIES

INITIATIVE, MARCH 1, 2005

Given the administration’s critique of the CDBG program and,

conversely, given the overwhelming opposition to SACI by the

stakeholder community, the Subcommittee held its initial oversight

hearing into the CDBG program and its proposed consolidation

under SACI on March 1, 2005.

This hearing was entitled, ‘‘Strengthening America’s Communities: Is It the Right Step Toward Greater Efficiency and Improved Accountability?’’ The Subcommittee received testimony from

a number of parties representing a diversity in interests and viewpoints regarding both the CDBG program and SACI.

A total of seven witnesses testified in two panels. The first panel

consisted of the Honorable Roy A. Bernardi, Deputy Secretary of

HUD; the Honorable Clay Johnson III, Deputy Director of OMB;

and the Honorable David Sampson, Assistant Secretary for Economic Development of the Department of Commerce. The second

panel, consisting of non-Federal CDBG stakeholders, included U.S.

Conference of Mayors President Donald Plusquellic, National Association of Counties President Angelo D. Kyle, National Community

Development Association Executive Director Chandra Western, and

National League of Cities First Vice President Jim Hunt.

The panel of Federal witnesses centered its attention on the proposed SACI and the administration’s argument that the 18 direct

grant programs affected are duplicative and ineffective and should

therefore be consolidated into one program.

29

91 CDBG Hearings at 23 (statement of David A. Sampson, Assistant Secretary of Commerce

for Economic Development, Department of Commerce). 92 Id. at 21 (statement of Clay Johnson III, Deputy Director for Management, Office of Management of Budget). 93 Id. at 23 (statement of David A. Sampson, Assistant Secretary of Commerce for Economic

Development, Department of Commerce). 94 Id. at 26–27. 95 Id. at 28. 96 Id. at 20 (statement of Clay Johnson III, Deputy Director for Management, Office of Management of Budget).

Assistant Secretary Sampson testified that the administration’s

proposal ‘‘calls for the consolidation of 18 of [the 35 Federal economic and community development] programs which are the directgrant programs. Some of these programs, based on OMB analysis,

duplicate and overlap one another.’’ 91 According to OMB, ‘‘[w]ith

no administration-wide approach to guide these efforts, many of

these investments are: largely uncoordinated, too loosely targeted,

weakly leveraged, and not achieving results. Most important, these

programs often cannot demonstrate they are having any positive

impact on the communities they serve.’’ 92

Assistant Secretary Sampson likewise criticized the direct grant

programs because they allegedly ‘‘lack clear accountability goals,

and . . . cannot sufficiently demonstrate measurable impact on

achieving improved community and economic performance.’’ 93 In

addition to improving what the administration considers questionable impact, Sampson continued, the administration intended SACI

to reduce duplication and confusion:

[T]he current system forces communities to navigate a

maze of Federal departments, agencies and programs—

each imposing a separate set of standards and reporting

requirements—in order to access Federal assistance. Some

of these programs duplicate and overlap one another, and

some have inconsistent criteria for eligibility and little accountability for how funds are spent.94

According to the Department of Commerce, ‘‘Success is often hampered by this fragmented, and often duplicative, set of programs.

In some instances, programs act in isolation from one another, even

though they share the exact same purpose . . . [a]s a result, funding is spread thinly and not strategically targeted to have any impact on communities in need.’’ 95 Deputy Director Clay Johnson testified that the administration believes SACI will ‘‘better structure

our community and economic development programs to get more of

the intended results, which are to create vibrant communities that

would not exist otherwise.’’ 96

While the administration has yet to propose specific details of

changes to the program concomitant with consolidation under

SACI, Mr. Sampson testified that the eligibility criteria will change

in order to improve targeting of funds:

The intent of the proposal is that most entitlement communities will continue to remain eligible. The intent is to

graduate from the program the wealthiest communities in

America and redirect that funding so that those communities who remain eligible actually receive more money

than they currently do. But the specific line where that eliVerDate 11-MAY-2000 07:50 Feb 02, 2006 Jkt 000000 PO 00000 Frm 00033 Fmt 6659 Sfmt 6602 D:\DOCS\24999.TXT HGOVREF1 PsN: HGOVREF1
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97 Id. at 41 (statement of David A. Sampson, Assistant Secretary of Commerce for Economic

Development, Department of Commerce). 98 Id. at 42. 99 Id. 100 Id. at 20 (statement of Clay Johnson III, Deputy Director for Management, Office of Management of Budget). 101 Id. at 22. 102 Id. at 30 (statement of David A. Sampson, Assistant Secretary of Commerce for Economic

Development, Department of Commerce). 103 Id. at 22. 104 Id. at 208 (statement of Roy A. Bernardi, Deputy Secretary of the Department of Housing

and Urban Development).

gibility criteria will be drawn has not yet been established.97

Sampson continued, ‘‘[T]here are clearly a number of communities

in America where you have—I think the number is 38 percent of

current HUD CDBG grants go to communities with poverty rates

below the national average.’’ 98 ‘‘[I]f you look at some of that data

and you see communities with poverty rates of 2 to 3 percent, it’s

pretty clear to us that is a good candidate for retargeting those

funds to communities with poverty rates of 20 to 26 percent,’’

Sampson concluded.99

Mr. Johnson characterized SACI as ‘‘a tremendous opportunity to

build more accountability into the programs to ensure that the

focus is on what we get for the money, not on how much money

we spend.’’ 100 The administration posited that in the new SAC

grant program, ‘‘communities [will] be required to meet specific accountability measures[.]’’ 101 Mr. Sampson explained that

‘‘[a]ssisted communities [will be required] to track progress toward

certain goals, including such things as increasing job creation, new

business formation, and private sector investment from an economic development standpoint; and increasing homeownership . . .

and commercial development from a community development

standpoint.’’ 102 ‘‘For those communities that show inadequate

progress meeting the program’s goals,’’ Johnson explained, ‘‘a plan

of action will be developed and technical assistance will be provided

to ensure that future funds are strategically targeted and invested

in proven activities. Communities that are consistently unable to

use taxpayer dollars to meet the accountability measures would

stand to lose future funding.’’ 103

In a later hearing, when asked directly whether the administration’s assessment was an accurate characterization of the CDBG

program, Deputy Secretary Bernardi argued that the purpose and

design of the program are clear, contrary to the PART assessment.

The program was purposely designed with great flexibility in order

to best address local needs:

[On] the program purpose and design [element of the

PART score], we received a zero score. Candidly, the program purpose and design, I think, is spelled out in the

Community Development Block Grant Act of 1974. The

program was meant to be utilized by local officials with determination after a tremendous amount of community

input as to how best they would utilize those resources

. . . . So it is a very flexible program; it is a program that

was meant to be utilized at the local level.104

31

105See id. at 49 (statement of Don Plusquellic, president, U.S. Conference of Mayors). 106 Id. 107See id. at 59 (statement of Angelo D. Kyle, president, National Association of Counties). 108 Id. 109 Id. at 63 (statement of James C. Hunt, first vice president, National League of Cities). 110See id. at 37 (statement of Roy A. Bernardi, Deputy Secretary, Department of Housing and

Urban Development). 111See id. 112 Id. 113See id. at 40 (statement of David A. Sampson, Assistant Secretary of Commerce for Economic Development, Department of Commerce).

Touting the flexibility of the program, CDBG stakeholders recounted a wide assortment of activities funded by program dollars.

Mayor Plusquellic related Akron’s use of funds to demolish dilapidated housing and funds leveraged funds to encourage private sector developers to build new housing in old neighborhoods.105 The

city also used its grant dollars ‘‘to induce the private owner of a

grocery store chain to open in an area that was not served with a

grocery store in many years. And we’ve helped senior citizens, assisted handicapped children, and . . . helped new

homebuyers[.]’’ 106 NACO President Angelo Kyle cited CDBG funds

as the enabler creating the largest high-tech business incubator in

California, creating 475 jobs and revitalizing a blighted community.107 Kyle also ran down the list of programs on which CDBG

funds are used in his hometown of Lake County, IL, which include

a variety of activities and projects including ‘‘daycare, transitional

housing, homeless assistance, fair housing, emergency food assistance, homeowner rehabilitation, first-time homebuyer assistance,

and employment training, as well as for important infrastructure

improvements, public services, and economic development activities.’’ 108 As Councilman Hunt described CDBG, ‘‘[It] is not just a

jobs creator or economic development tool;’’ CDBG is also a catalyst

for many other types of projects.109

In reaction to the administration’s primary reason for consolidating the direct grant programs, reducing duplication and increasing

efficiency, members of the Subcommittee questioned whether the

Department of Commerce has the expertise to manage a program

the size of CDBG alone, with an overall fiscal year 2005 appropriation of $4.71 billion, and whether they have the institutional

knowledge to administer what is essentially a housing and urban

development program. There is a significant internal infrastructure

at HUD supporting the administration of the CDBG program—one

of many programs HUD administers. Deputy Secretary Bernardi

reported that there are approximately 800 employees devoted to

the community planning and development program—200 employees are located at HUD headquarters with the remaining 600 employees stationed across the country in 42 field offices.110 Approximately 40 employees of the 200 stationed in Washington, DC, work

full time on the CDBG program in conjunction with the Section 108

Loan Guarantee Program.111 On average, the 600 field employees

‘‘devote at least a third of their time’’ to administering the CDBG

program.112

Conversely, Commerce manages a portfolio of grants totaling

$2.3 billion.113 Asked directly whether the Department has the expertise to handle the CDBG program, Deputy Secretary Sampson

responded, ‘‘we clearly understand that in consolidating all 18 of

32

114 Id. 115 Id. 116 Id. at 69 (statement of James C. Hunt, first vice president, National League of Cities). 117See id. at 56 (statement of Don Plusquellic, president, U.S. Conference of Mayors). 118 Id. 119See id. at 57. 120 Id. at 50.

these programs, the new entity is going to have to leverage subject

matter experts within the different programs in creating this new

entity within Commerce that will be responsible for administering

Strengthening America’s Communities.’’ 114 Sampson further stated, ‘‘Commerce has a very extensive grant portfolio currently . . .

[b]ut we clearly will have to leverage the subject matter expertise

and the lessons learned from other agencies and other programs in

creating this new program.’’ 115

Stakeholders likewise questioned the wisdom of moving a grant

program the size of CDBG to Commerce. National League of Cities

First Vice President Jim Hunt argued,

The Administration claims that it is seeking to ‘‘retarget

and refocus’’ these funds to create new program efficiencies. However, from a practical standpoint, NLC questions whether moving the programs from HUD, where administrative and professional infrastructures already exist

and function well, to the Department of Commerce will

generate any real savings because building the agency’s

capacity to administer the programs alone would likely

consume any cost savings derived from consolidating these

programs.116

Stakeholders also testified to the accomplishments of the CDBG

program and panned OMB’s criticisms resulting from its PART assessment. In a joint written statement to the Subcommittee, the

stakeholders noted that one of the primary criticisms of the PART

was the program’s alleged lack of performance outcome measures.117 However, these organizations worked with both HUD and

OMB in a joint working group, the purpose of which was to create

performance outcome measures and reporting criteria. The stakeholders questioned the credibility of OMB’s PART assessment given

that ‘‘OMB helped develop [the performance and outcome matrix]

and . . . signed off on the framework and the outcome measures.’’ 118

The stakeholders further attacked the PART as an inappropriate

tool for measuring performance of a block grant program, positing

the tool is better suited for the assessment of categorical programs.119 Conference of Mayors president, Mayor Don Plusquellic,

surmised that the PART ‘‘may be factually correct, but it’s inferentially wrong.’’ 120 Plusquellic continued that the PART ‘‘infers that

somehow we’re doing something with these moneys other than

what was intended, and that we’re not meeting some performance

standard . . .’’ but he warned the Subcommittee that CDBG funds

are ‘‘used in some of the most distressed and difficult areas in the

community, and yet they’re some of the most important, because

what we do is keep from allowing that decay from older buildings

33

121 Id. 122 Id. at 63 (statement of James C. Hunt, first vice president, National League of Cities). 123See id. at 64. 124 Id. 125 Id. at 38 (statement of Roy A. Bernardi, Deputy Secretary, Department of Housing and

Urban Development). 126 Id. 127 Id. at 161 (statement of Saul N. Ramirez, Jr., executive director, National Association of

Housing and Redevelopment Officials).

. . . from spreading, and we thereby bring back the whole community.’’ 121

Councilman James Hunt, testifying on behalf of the National

League of Cities, emphasized that the performance measures utilized by the administration in the PART analysis were inapplicable

in most circumstances in which CDBG funds are used.

‘‘[M]easuring results by [the PART] criteria makes little sense for

the communities that are chronically impoverished, have little to

offer in the way of resources, and are unlikely to show significant

progress over a relatively short period.’’ 122 Additionally, Hunt offered, CDBG funds are used on projects the impact of which is difficult to measure in terms of economics. For instance, the removal

or demolition of vacant or dilapidated buildings, which were once

crime havens, result in the expansion of businesses or in additional

land for garages and yards of private citizens.123 ‘‘It is very difficult

to assess the impact of removing a drug den from a neighborhood

using economic criteria alone; moreover, it is difficult to assess the

economic impact in relation to this type of project over a short period, yet the [A]dministration’s proposal appears to do just

that.’’ 124

At the same time it attacked the decision to move CDBG to Commerce and applauded the successes of the program, the stakeholder

community admitted that there is room for improvement within the

CDBG program. Deputy Secretary Bernardi acknowledged this fact

and testified that HUD had demonstrated both willingness and an

ability to address the weaknesses in the program. ‘‘[E]very program

can be improved upon . . . we have good employees. They have the

capacity, the experience, [and] the institutional knowledge to improve on any program.’’ 125 Further emphasizing HUD’s willingness

to better the CDBG program, Bernardi offered, ‘‘[W]e are constantly looking, under difficult budget constraints, ways in which

we can provide additional resources to those people that need it

most.’’ 126

Emphasizing that change is possible without eliminating the program entirely, in a later hearing, Saul Ramirez, Jr. of NAHRO testified, ‘‘CDBG is effective and successful, but there is always room

for improvement’’ and ‘‘[w]hen stakeholders agree, CDBG can be

improved. Interest groups and grantees are more than willing to

come to the table with Congress and the Department to work toward responsible change.’’ 127

To date, the administration has not transmitted further information detailing its SACI proposal.

B. HEARING ON CDBG FORMULA ALTERNATIVES, APRIL 26, 2005

A second hearing was held on April 26, 2005, entitled, ‘‘The

1970s Look: Is the Decades-Old Community Development Block

34

128See id. at 132 (statement of Roy A. Bernardi, Deputy Secretary, Department of Housing

and Urban Development). 129 Id. at 113. 130 Id. 131 Id. at 115. 132 Id. at 113. 133 Id. at 184 (statement of Jerry C. Fastrup, Assistant Director of Applied Research and

Methods, Government Accountability Office).

Grant Formula Ready for an Extreme Makeover?’’ The hearing primarily focused on HUD’s report, CDBG Formula Targeting to Community Development Need. The report, prepared for the Department’s 2004 budget submission,128 analyzed the distribution of program funds under the current formula as well as four HUD-proposed alternative formulas. Additionally, the report detailed

changes to the program’s need index analysis, through which HUD

assigns a numeric score to entitlement communities based on relative need. This need index score is the basis for the determination

of a community’s annual CDBG funding.

In examining the formula alternatives presented by HUD, the

Subcommittee requested the participation of individuals representing varied groups of CDBG stakeholders including Federal and

State government officials, interest groups, associations, and CDBG

users. Testifying before the Subcommittee were the Honorable Roy

A. Bernardi, Deputy Secretary of HUD; Paul Posner, Director of

Federal Budget & Intergovernmental Relations at GAO; Jerry C.

Fastrup, Assistant Director of Applied Research and Methods at

GAO; and Saul N. Ramirez, Jr., now the executive director of the

National Association of Housing and Redevelopment Officials, formerly the Deputy Secretary of HUD in the Clinton administration.

The primary factor for considering a change to the formula is the

perceived inequitable distribution of program funds. HUD’s analysis revealed ‘‘stark examples of funding disparity . . . communities

with similar need may receive significantly more or less funding on

a per capita basis [and there are] examples of communities with

less need receiving roughly the same amount of funding as higherneed areas.’’ 129 According to Deputy Secretary Bernardi, ‘‘[i]n 1983

and 1995, [HUD] found that CDBG formulas had become increasingly less effective in targeting need. The problem is that while the

variables and the formulas have not changed since 1978, [the]

country has.’’ 130 ‘‘[T]oday’s formula— . . . a formula that [had not]

been modified since 1978—places great emphasis on certain variables that may not be a true reflection of today’s need,’’ Bernardi

concluded.131 The goal, he continued, is to ‘‘chang[e] the program’s

formula to meet today’s needs.’’ 132 According to Jerry Fastrup of

GAO, HUD ‘‘identified the key factors that are the cause of [widely

disparate funding levels], namely the growth lag factor and the

pre-1940 housing that [does not] take into account the income status of the households that are living in those houses . . . along

with the use of two formulas that work at cross purposes with one

another[.]’’ 133

HUD proposes altering the formula variables employed in calculating a community’s grant award. Those changes in the proposed formulas involve both changes to the underlying variables

themselves and a variance in weight. For example, HUD proposes

calculating the grant amount based on housing 50 years or older

35

134 Id. at 129 (statement of Subcommittee Chairman Michael R. Turner). 135 Id. at 113 (statement of Roy A. Bernardi, Deputy Secretary, Department of Housing and

Urban Development). 136See id. at 131. 137See id. at 129 (statement of Subcommittee Chairman Michael R. Turner).

and occupied by a poverty household. Currently, aged housing is

defined as built before 1940, without regard to the need of the

household. Other new variables include family and elderly poverty

and female-headed households with minor children.

Members of the Subcommittee questioned whether HUD’s proposed changes to variables accurately captured community development need. Chairman Turner explained his concern:

Dallas has needs, Dallas has poverty[] but intuitively we

all know that if you drive through Detroit, and if you drive

through Dallas, [with] the issues of community development [in mind], [one would expect] Detroit expressing a

higher need and Dallas expressing a lesser need. . . .

[However, i]n looking at the four formulas that HUD has

prepared, in two out of the four [alternatives] Detroit loses,

and in all of the four [alternatives] Dallas wins.134

In exploring how disparities still occur under the proposed alternative formulas, the Subcommittee turned to a discussion of the

need assumptions. In order to assess ‘‘today’s needs,’’ HUD ‘‘designed an index to try to rank each community based on its relative

level of community development need . . . us[ing] variables that

relate directly to the statutory objectives of the CDBG program[]

such as poverty, crime, unemployment and population loss.’’ 135

HUD employs a number of criterions to calculate this need score.

In its 2005 analysis of the CDBG formula, HUD introduces new

criterions which it proposes capture new elements of community

need, such as that resulting from immigrant population growth. At

the same time, other elements that may accurately depict community need are ignored, such as cost of living.

The discussion first turned to the concern that the new need

index counts the growing immigration population twice. The need

index calculates overcrowding, the occupation of more than 1.01

person per room.136 However, under the new need index, HUD also

includes a separate factor for immigration, weighted at 15 percent

of the calculation.137 As GAO’s Jerry Fastrup explained,

In [HUD’s] need criteria, the immigrant population doesn’t

come into [the] need index directly. It only comes into it

indirectly, and it comes in indirectly in two ways: one

through the poverty measure, to the extent these immigrants are low-income people that get picked up in the

census counts . . .

The other way it’s picked up is in [HUD’s] second factor

. . . that’s weighted 15 percent in [the] overall need index.

The only things in there that capture immigration is overcrowded housing, which the study says is correlated with

high immigrant populations, and to the extent that corVerDate 11-MAY-2000 07:50 Feb 02, 2006 Jkt 000000 PO 00000 Frm 00039 Fmt 6659 Sfmt 6602 D:\DOCS\24999.TXT HGOVREF1 PsN: HGOVREF1
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138 Id. at 180 (statement of Jerry C. Fastrup, Assistant Director of Applied Research and

Methods, Government Accountability Office). 139 CDBG Formula Study at 27. 140 CDBG Hearings at 130 (statement of Subcommittee Chairman Michael R. Turner). 141See id. 142 Id. at 131. 143 Id. at 180 (statement of Jerry C. Fastrup, Assistant Director of Applied Research and

Methods, Government Accountability Office). 144 Id. at 113 (statement of Roy A. Bernardi, Deputy Secretary, Department of Housing and

Urban Development). 145 Id. at 157 (statement of Paul L. Posner, Managing Director of Federal Budget Analysis and

Intergovernmental Relations, Government Accountability Office). 146 Id. at 146.

relation is there, [HUD’s] need index picks up immigration

in that way.138

Members of the Subcommittee also questioned whether the

CDBG program was the correct tool for addressing the growing

needs of the immigration population, what HUD called a ‘‘new dimension of community distress.’’ 139 As Chairman Turner stated,

‘‘[immigration is] not new . . . we’ve always had immigration. [It

is] maybe new in certain concentrations in areas of the South, and

it may be new in the composition of that population that are immigrants [but] certainly poverty is not new in concentrations in immigrants.’’ 140 Further, while the Nation experienced a brief immigration surge in the 1990s, the pace of immigration is now similar to

that experienced during the formula analyses of the prior two decades.141 Given that ‘‘immigrant populations are going to migrate to

areas of the country that have growth, jobs, and opportunity[,]’’ financing the type of aid required in immigrant communities

through CDBG may be shifting CDBG funds to areas of economic

growth rather than targeting to communities in decline.142 Jerry

Fastrup later echoed this point when he indicated ‘‘overcrowded

housing is a sign of a tight labor market and housing market and

upward pressure in the housing market . . . is usually a sign of

strong growth rather than decline.’’ 143

Of additional concern to the Subcommittee was the introduction

of a ratio comparing community per capita income to metropolitan

area income without factoring a ratio of the cost of living in a community versus the greater metropolitan area. The new need index

incorrectly assumes that the greater the disparity between a CDBG

eligible community’s per capita income and its metropolitan area

per capita income, the greater the community and economic development need. According to Deputy Secretary Bernardi, ‘‘[i]f a local

jurisdiction’s per capita income is lower than the per capita income

of the metropolitan area, that local jurisdiction would receive additional dollars.’’ 144 Without accounting for living costs, however, the

new need index builds-in a bias toward communities with a lower

cost of living and high area per capita income. GAO indicated that,

by not accounting for cost of living, ‘‘both the current formula and

the two alternatives probably overstate needs in communities with

relatively low cost-of-living and understate [needs] in communities

with a higher cost-of-living.’’ 145

According to Paul Posner of GAO, ‘‘this [per capita income] factor

improves targeting, but additional analysis is needed, because . . .

these two specific measures [of per capita income] tend to offset one

another[.]’’ 146 As explained in GAO’s written testimony, ‘‘[w]hile

37

147 Id. at 157. 148 Id. 149 Id. at 136 (statement of Roy A. Bernardi, Deputy Secretary, Department of Housing and

Urban Development). 150See id. (statement of Subcommittee Chairman Michael R. Turner). 151 Id. at 146 (statement of Paul L. Posner, Managing Director of Federal Budget Analysis and

Intergovernmental Relations, Government Accountability Office). 152 Id. at 151. 153 Id. at 146. 154See id. at 151.

these two factors do direct more funding to high-need communities,

they also widen rather than narrow differences in funding among

communities with similar needs, in effect, increasing the error rate

if measured simply in terms of targeting need.’’ 147 Mr. Posner explains further in his testimony:

Community per capita income [PCI] is used to increase

funding for low-income communities and reduce funding

for higher income communities. The metropolitan PCI factor partly offsets the effect of community PCI by increasing

funding for communities in high-income metropolitan

areas. The net effect of both factors is that the two factors,

to some extent, work at cross purposes. For example, if two

communities located in different metropolitan areas had

the same PCI, the community located in the metropolitan

area with a lower area-wide income would receive less aid

than the community located in the high-income metropolitan area.148

While Deputy Secretary Bernardi stated it is an indicator of a

community in decline when a community has a per capita income

less than the greater metropolitan area, he later conceded that individuals ‘‘would have more of an opportunity . . . in a region

where the per capita income in that region is higher even if [their]

jurisdiction [per capita income] is lower.’’ 149 Further, the Subcommittee discussed the fact that metropolitan regions with a higher ratio may also have greater regional resources to address their

need than communities with a lesser ratio between community versus metropolitan per capita incomes.150

Mr. Posner likewise commented that although the introduction of

an income variable must be further explored, ‘‘fiscal capacity is an

important element to consider . . . particularly as [the Federal

Government tries to] triage scarce Federal funds.’’ 151 Mr. Posner

explained ‘‘high income communities generally have stronger tax

bases from which to fund program needs without relying on Federal assistance compared to lower income areas.’’ 152 To provide the

same services, communities with lower tax bases will raise taxes,

further burdening an already distressed population and increasing

the need gap between the communities that have and those communities that have not. Mr. Posner continued, ‘‘So if we [are] to

close the gaps between the lower-income communities and the

higher-income communities, some recognition of the relevant capacity as well as the relevant needs among these communities . . . is

important [to discuss.]’’ 153 However, Mr. Posner also reminded the

committee that ‘‘areas faced with a high cost-of-living . . . would

need to pay more for the workers who actually deliver services at

the local level.’’154

38

155See CDBG Formula Study at 16. 156See CDBG Hearings at 137 (statement of Subcommittee Chairman Michael R. Turner). 157See id. at 178 (statement of Saul N. Ramirez, Jr., executive director, National Association

of Housing and Redevelopment Officials). 158 Id. at 137 (statement of Roy A. Bernardi, Deputy Secretary, Department of Housing and

Urban Development). 159 Id. at 114. 160 CDBG Hearings at 135 (statement of Subcommittee Chairman Michael R. Turner). 161 Id. 162 Id. at 181–182 (statement of Saul N. Ramirez, Jr., executive director, National Association

of Housing and Redevelopment Officials).

The Members continued questioning the validity of the new need

index because of the exclusion of all single, non-elderly poverty

households. According to HUD, use of the Census variable captures

off-campus college students who may benefit from family support,

skewing the poverty variable for a community.155 However, in excluding all single, non-elderly households, a number of individuals

in need are excluded in the need index calculation. Members of the

Subcommittee directly questioned the wisdom in excluding all single, non-elderly poverty individuals when HUD can request a tabulation specifically excluding college students alone.156 Similarly,

Saul Ramirez, Jr. of NAHRO argued that even if the college town

phenomenon exists, the resulting skew of including off-campus students in the need assessment is not enough to outweigh the skewing caused by failing to accurately account for other single and disabled individuals living in poverty by excluding all single, non-elderly individuals living in poverty.157

After debating the new need index criteria at length, the Subcommittee turned to a discussion of whether the variables comprising the current and proposed formulas are objective and whether

they operate contrary to the intent of the HCDA. Deputy Secretary

Bernardi conceded the existence of ‘‘affluent communities . . . that

receive above the line in the need index’’ 158 and that this result

can be attributed to disparities in the formula variables. Deputy

Secretary Bernardi and other witnesses cited several examples of

these disparities.

Designed to improve the targeting of CDBG funds, rather than

‘‘counting just the number of units built before 1940, [the new formulas] would measure housing older than 50 years . . . and occupied by a person of poverty.’’ 159 Chairman Turner objected to the

new criterion because by mandating that only old homes occupied

by a family in need would be counted, the new formulas would penalize communities by ‘‘removing a funding source for housing rehabilitation based on the fact that [a community is] experiencing

abandoned housing.’’ 160 As an additional reason abandoned housing stock should not be discounted in the need index and formula

alternatives, Chairman Turner pointed to the original intent of the

statute—‘‘one of the goals and objectives of CDBG is the acquisition

and renovation of abandoned housing units, which are a blighting

influence, and this ranking of need would specifically remove those

units which are targeted for CDBG funds from the indication or the

assessment of need.’’ 161 Mr. Ramirez commented that the stakeholder community believes ‘‘by removing an accurate assessment of

[abandoned] dwellings, . . . it will only accelerate the condition of

. . . overall blight of a community[.]’’ 162

39

163 Id. at 139 (statement of Subcommittee Vice-Chairman Charles Dent). 164 Id. at 139 (statement of Roy A. Bernardi, Deputy Secretary, Department of Housing and

Urban Development). 165 Id. at 162 (statement of Saul N. Ramirez, Jr., executive director, National Association of

Housing and Redevelopment Officials). 166 Id. 167 Id. at 163. 168See id. at 142 (statement of Subcommittee Chairman Michael R. Turner). 169See id.

Moving to the issue of instituting changes to the formula grant,

Subcommittee Vice-Chairman Charles W. Dent questioned whether

Congress could agree to any of the changes proposed in HUD’s

study or discussed during the hearing because ‘‘most Congressmen

. . . will look at their communities and see how they will do under

the old system, look how they will do under the new system and

that will drive a lot of their decisionmaking [sic].’’ 163 Deputy Secretary Bernardi noted that Congress phased-in the changes transforming the program from a categorical grant program to a formula-based program in the 1970s and suggested the same could be

done with formula changes in the future:

[W]hen the program went from a categorical grant program to the formula . . . back in the 1970s, there was a

phase-in period that was put into place by Congress . . .

If [Congress] choose[es] to change the formula, [it] could do

the same thing here so that the community would be

phased into receiving that extra money so they have the

capacity and the wherewithal to use [that extra] capacity

at the same time if they were to lose those dollars [they

could adjust accordingly].164

While the stakeholders ‘‘support . . . the notion of a fair and equitable distribution of CDBG dollars,’’ they strongly objected to an

‘‘immediate and radical’’ change in the formula.165 Mr. Ramirez expressed concern on behalf of the stakeholder community, commenting, ‘‘Dramatically changing the formula structure in a swift manner would create uncertainty and inhibit CDBG’s current ability to

leverage billions of dollars of both private and public investment in

some of our poorest neighborhoods.’’ 166 Ramirez further urged,

‘‘[t]he pursuit of a more equitable system must be balanced by a

desire to avoid the kinds of sudden and dramatic shifts that create

uncertainty and undermine a community’s ability to . . . strategically plan improvements for the long-term to improve the quality

of life of their citizens.’’ 167

Finally, the Subcommittee questioned the practice of

‘‘grandfathering’’ communities thereby allowing communities that

no longer meet the statute’s eligibility requirements to remain entitled.168 Chairman Turner inquired how many communities no

longer meet the requirements of an entitlement community yet continue to receive funds under the grandfather provisions.169 In a

post-hearing response, HUD identified 114 communities no longer

meeting the statutory requirements of an entitlement community

receiving more than $75 million in the aggregate under the entitlement community (the 70 percent) portion of the CDBG formula

grant allocation. During the question and answer period, Mr. Ramirez touched briefly on the practice, criticizing the direction of funds

40

170 Id. at 178 (statement of Saul N. Ramirez, Jr., executive director, National Association of

Housing and Redevelopment Officials). 171See id. at 153 (statement of Paul L. Posner, Managing Director of Federal Budget Analysis

and Intergovernmental Relations, Government Accountability Office). 172 Id. 173 Id. at 184 (statement of Jerry C. Fastrup, Assistant Director of Applied Research and

Methods, Government Accountability Office). 174 Id. 175 Id. at 145 (statement of Paul L. Posner, Managing Director of Federal Budget Analysis and

Intergovernmental Relations, Government Accountability Office). 176 Id.

to these communities through the grant formula and urging the

committee to investigate the issue.

[T[he grandfathering and perpetuity of communities that

are no longer eligible is a growing drag on the intent of the

formula in trying to meet the distribution potential of that

formula. Close to almost 200 communities now are grandfathered into the current formula that under the guidelines do not qualify any longer to receive these resources

under the current definition.170

These grandfathered communities receive a significant share of

a shrinking portion of money intended for the use of a growing

number of entitlement communities. According to GAO, the number of entitlement communities can be expected to grow because

population will continue to grow.171 At the same time, ‘‘[w]hen population growth is factored in, the decline in real per capita spending has declined by two-thirds[,]’’ leaving less money for more entitlement communities to share.172

At the close of the hearing, Mr. Fastrup, summarizing the importance of considering changes to the CDBG grant formula, stated,

‘‘because of poor targeting of the program, you do run the risk, in

tight fiscal times . . . of perceptions of poor targeting, leading people to ask [whether] this [is] really the highest priority use of Federal dollars or not.’’ 173 Fastrup further opined, ‘‘to the extent that

the targeting of this program is improved, it strengthens the rationale for having this program[.]’’ 174 As Mr. Posner testified,

‘‘when [there is] a shrinking pool of money, it makes targeting arguably more important to address the high-needs communities’

needs.’’ 175 With improved targeting of funds, the government can

‘‘hold harmless those communities and others with [the] least capacity to absorb the cuts.’’ 176

The hearing raised several additional issues that are discussed

later in this report.

C. HEARING ON USE OF CDBG FUNDS AND PERFORMANCE MEASURES,

MAY 24, 2005

The Subcommittee held its third CDBG hearing May 24, 2005,

entitled, ‘‘Bringing Community Development Block Grant Programs

Spending into the 21st Century: Introducing Accountability and

Meaningful Performance Measures into the Decades-Old CDBG

Program.’’ As a consequence of the Subcommittee’s prior hearings

on the administration’s Strengthening America’s Communities Initiative and the ensuing criticisms of the CDBG program, the Subcommittee held this third hearing to investigate current performance measures in the CDBG program and what improvements, if

41

177 Id. at 291 (statement of Lisa Patt-McDaniel, assistant deputy director, Community Development Division, Ohio Department of Development, on behalf of the Council of State Community Development Agencies).

any, could be made in those measures. In particular, the Subcommittee explored HUD’s use of the Consolidated Plan (Conplan)

as a tool to track an eligible community’s plan to spend grant funds

as well as use of the IDIS system to track funds after expenditure.

The Subcommittee further considered the recommendations of the

Joint Grantee/HUD/OMB Outcome Measure Working Group to

strengthen the use of these complementary tools to measure program performance. Additionally, the Subcommittee reviewed how

eligible communities may currently spend CDBG funds. Specifically, the Subcommittee studied the issues of supplanting funds

(the use of CDBG funds on projects for which general revenue

funds are typically used) and the apparent lack of limitation on use

of CDBG funds for staff functions.

Appearing before the Subcommittee were two panels of witnesses. The Honorable Roy A. Bernardi, Deputy Secretary of HUD,

testified on the first panel. Witnesses on the stakeholder panel included the Honorable Ron Schmitt, city councilman of Sparks, NV;

Thomas Downs, fellow at the National Academy of Public Administration; Lisa Patt-McDaniel, assistant deputy director of the Community Development Division of the Ohio Department of Development; and Shelia Crowley, Ph.D., president of the National Low Income Housing Coalition.

Beginning its discussion of performance measurement of CDBG

grantees, the Subcommittee first focused on the flexibility of the

CDBG program and the value of that flexibility to local governments. Numerous commentators have noted that while it is the

flexibility of the program that makes CDBG so successful in community and economic development, flexibility is also the reason

grantee performance is difficult to measure.

CDBG stakeholders universally agree that ‘‘the beauty of the

Community Development Block Grant program is its incredible

flexibility.’’ 177 This flexibility is necessary to adequately address

the problems afflicting communities, which vary from one neighborhood to the next, Lisa Patt-McDaniel testified:

CDBG is a program that was designed to help many different kinds of communities—those that are growing, those

that are fighting off decay and those that are already deteriorated. The current CDBG statute authorizes a menu of

eligible activities that recognizes the differences in the

types of communities to be served by the program and provides communities with appropriate tools to address their

unique problems.

The original list of eligible activities was enacted to enable

communities to meet the statutory purposes of the program. While those statutory purposes have not changed,

and over the years whenever new community problems

have emerged, such as brownfields, energy efficiency, economic opportunity, Congress has added eligible activities

to help communities address these issues. Certainly not

every community eligible for CDBG needs assistance with

42

178 Id. at 250–251. 179 Id. at 197 (statement of Roy A. Bernardi, Deputy Secretary, Department of Housing and

Urban Development). 180 Id. 181 Id. at 204. 182See supra p. 9 for a description of the Consolidated Plan and the planning process. 183See CDBG Hearings at 202 (statement of Roy A. Bernardi, Deputy Secretary, Department

of Housing and Urban Development). 184 Id.

those issues, but again, this approach recognizes that a

broad menu of activities must be available in order for

communities to address their community development

needs.178

Describing the flexibility of the program, Deputy Secretary

Bernardi testified that the HCDA ‘‘allows grantees to determine

their own local needs, to set their local priorities, and design programs to address both.’’ 179 Local jurisdictions’ use of their CDBG

funds is not unfettered, however. Bernardi continued, ‘‘There are

two limits that help target the use of CDBG funds. First, every assisted activity must [meet one of the statutory objectives]. And the

second condition is a grantee must spend at least 70 percent, over

3 years, of its funds for activities that benefit low and moderateincome persons.’’ 180

While flexibility is the key component to the success of the

CDBG program, it is a double-edged sword that hinders measuring

grantee performance and accomplishments. Mr. Bernardi explained, ‘‘The flexibility of CDBG is of great importance to grantees

because it allows them to use the funds in so many different ways

to address their needs. However, that flexibility also created difficulty in getting consistency in accomplishments reported by individual grantees.’’ 181

HUD currently monitors CDBG grantees’ use of funds through

the Consolidated Planning process.182 HUD created the Consolidated Plan (Conplan) as a method of combining the applications for

CPD’s formula grant programs.183 The Conplan was intended for

use as a tool describing how CDBG funds will be spent, thus a tool

for monitoring the quality of a community’s planned use of funds.

According to Mr. Bernardi, however, as a result of numerous congressional mandates, ‘‘HUD’s major review focus for administration

of the CDBG program is [now] monitoring grantees’ [actual] use of

funds.’’ 184 Bernardi explained the evolution of HUD’s role from

front-end review to back-end review:

[P]rior to 1981, the law required HUD to make a more

qualitative, front end review of a grantee’s application to

determine whether the activities identified to be undertaken addressed the needs described. In 1981, Congress

determined that it would be better for HUD to basically

accept what the application said and concentrate its review on after the fact monitoring to be sure that requirements were met.

In 1990, Congress passed the Cranston-Gonzales National Affordable Housing Act. Congress described therein ‘‘a more complete

outline of what must be included’’ in a community’s grant planning

submission. With this new law, ‘‘the front-end HUD review was

43

185 Id. 186See id. 187See id. 188 Id. at 209–210 (statement of Subcommittee Chairman Michael R. Turner). 189 Id. at 210 (statement of Roy A. Bernardi, Deputy Secretary, Department of Housing and

Urban Development). 190 Id. 191 Id.

limited [by Congress] to whether this plan met the broad purposes

of the law and was complete.’’ 185 In 1995, HUD created the Consolidated Plan as a combined application and planning process for

the CPD formula grant programs, one of which is CDBG.186 By this

time, HUD’s grantee review process had transitioned from monitoring the quality of planned expenditures on the front-end to a backend review to ensuring compliance in how funds were spent.187

Mr. Bernardi’s statements support numerous critics’ claims that

the Conplan is merely a report—completed with sometimes meaningless numbers—that HUD will ‘‘rubberstamp’’ so long as all elements are complete. The Subcommittee directly questioned the effectiveness of HUD’s use of grantees’ Conplans. Specifically, Chairman Turner asked Deputy Secretary Bernardi about the Department’s rejection of Conplans: ‘‘Has HUD rejected consolidated plans

from communities; and what is the process for rejection of a consolidated plan if one is to be rejected and what type of discussion,

feedback, or interaction occurs with the community if a consolidated plan is viewed as either deficient or could be improved?’’ 188

Bernardi responded, ‘‘[T]he consolidated plan is reviewed by each

one of our field offices for all of our entitlement grantees, and as

long as it adheres to the national objectives . . . [t]here is not a

rejection of the consolidated plan per se[.]’’ 189

While the Department may ‘‘rubberstamp’’ Conplans and not undertake an in-depth review of all submitted plans, HUD engages in

risk monitoring for the grantees deemed at highest risk of non-compliance. ‘‘Of our 1,100 approximate grantees, we monitor about a

third of those every year to see that they are in accordance with

the consolidated plan, that they are spending their money in a

timely way, that their goals and objectives and their annual action

plan are being realized,’’ Bernardi testified.190 He continued, ‘‘[O]ur

[field office] employees . . . know full well who is performing, who

is not, who needs information technology, who needs additional capacity, and our staff is always ready and willing and is out there

providing it for these folks.’’ 191 When asked directly whether there

is a ‘‘feedback loop’’ for Conplans, whether HUD engages grantees

in a discussion if their Conplan could be enhanced, Bernardi responded:

In the early years I believe we were more engaged in the

preparation of the consolidated plan. Now we pretty much

leave it to the communities to make the determinations

they can justify . . . as to how they want to utilize their

dollars. We feel very strongly that they know best. Of

course, we look at those consolidated plans to make sure

that they adhere to the rules that are in place.

At the same time, if a community ends up in trouble with

a particular project, if the plan is not being adhered to, we

44

192 Id. at 210–211. 193 Id. at 287 (statement of Subcommittee Chairman Michael R. Turner). 194 Id. 195 Id. at 263–264 (statement of Sheila Crowley, Ph.D., president, National Low Income Housing Coalition).

can take action. We don’t like to reclaim dollars unless we

absolutely have to . . . We try to work with the grantee

so that either the objective can be met or the objective can

be changed to something else. In the final analysis, if they

are not able to do what they have to do according to the

rules and regulations, then we will take that money

back.192

Commenting on the current HUD review process, Chairman

Turner observed:

[T]here has to be a question of why are you measuring it.

Are you measuring it for compliance? And here, with

CDBG, we hear that the compliance requirements are very

broad, so it [is certain] we will find some people who will

be out of compliance and be able to move them back in.

But generally the criteria appear to be so broad that measuring for compliance is not going to result in much usefulness in the information.193

Turner further noted his surprise at Deputy Secretary Bernardi’s

description of the Department’s limited consultation with grantees

on their Conplan. ‘‘I was surprised . . . that there is not a significant amount of effort in reviewing consolidated plans and reviewing the information submitted by communities to assist and enhance them in their process of expending CDBG funds.’’ 194

While the Conplan apparently serves only as a tool for HUD to

verify that grantees comply with the law on what activities CDBG

funds may be expended, there is no requirement that grantees

spend their funds in accordance with their submitted Conplan.

Consequently, HUD is unable to enforce compliance with the approved Conplan. Further, because of existing weaknesses in HUD’s

monitoring mechanisms, HUD has limited ability to supervise

grantee actions. These two weaknesses result in narrowed capacity

to hold communities accountable for their use of funds. Dr. Crowley

explained:

[T]here are two serious flaws. The first—and this is a huge

one—there is no statutory requirement that jurisdictions

actually spend their Federal block grant dollars, including

CDBG, on any of the needs that they identify in the

Conplan. The second flaw is that HUD has limited capacity to monitor what jurisdictions do with their funds and

hold jurisdictions accountable for less than adequate performance.195

In addition to its limited use of Conplans as a performance measurement tool, another reason HUD cannot engage in meaningful

performance-based management of CDBG is the Department’s IDIS

information management system. Deputy Secretary Bernardi testified, ‘‘The concept of IDIS was and is a great idea: it links financial

information, i.e., amount of funds used, with actual accomplishVerDate 11-MAY-2000 07:50 Feb 02, 2006 Jkt 000000 PO 00000 Frm 00048 Fmt 6659 Sfmt 6602 D:\DOCS\24999.TXT HGOVREF1 PsN: HGOVREF1
45

196 Id. at 204 (statement of Roy A. Bernardi, Deputy Secretary, Department of Housing and

Urban Development). 197 Id. 198 Id. at 233 (statement of Thomas Downs, fellow, National Academy of Public Administration). 199 Id. at 288. 200 Id. at 250 (statement of Lisa Patt-McDaniel, assistant deputy director, Community Development Division, Ohio Department of Development, on behalf of the Council of State Community Development Agencies). 201 Id. at 204 (statement of Roy A. Bernardi, Deputy Secretary, Department of Housing and

Urban Development).

ments.’’ 196 Where the Conplan is a tool to monitor intended use of

funds, IDIS is the complementary tool to track actual expenditure

of funds. Describing the use of the system, Bernardi explained,

‘‘Grantees enter information directly into IDIS on the activities

they carryout with their CDBG funds and the accomplishments

they achieve, by activity. Also, because CDBG funds are drawn

through IDIS, information on funds disbursed, by activity, is readily available.’’ 197

Thomas Downs of NAPA presented the view of most IDIS critics:

‘‘[IDIS] works poorly, if at all, by most standards for the boarder

purposes that [HUD] claims. The [NAPA] panel applauds [HUD]

for its recent initiatives to clean up grantee data reported in IDIS

so that it can be used for management and analysis purposes. It

is essentially now an expenditure control system, not a performance management system.’’ 198 Downs later emphasized, ‘‘The inability of the IDIS to absorb performance data cannot be overstated. It is basically an accounting system that is used to show

where the money goes, it doesn’t necessarily have the structure to

support performance recording.’’ 199 Ms. Patt-McDaniel echoed Mr.

Downs:

Until now, reporting and capturing many of the achievements of the CDBG program and the others included in

the Consolidated Plan have been greatly hampered by

HUD’s IDIS system. In the Consolidated Annual Performance and Evaluation Report [CAPER], a part of the required Consolidated Plan, citizens are informed about the

results of the program’s expenditures in a narrative format, but the current IDIS system does not allow this kind

of reporting.200

Bernardi conceded there are limitations to the system but that

HUD is in the process of improving the system:

Obtaining consistency in reporting and improving the

quality of the data on CDBG activities in IDIS has taken

years because of both the large number of grantees and

the large number of activities that may be assisted under

the CDBG program. The flexibility of CDBG is of great importance to grantees because it allows them to use the

funds in so many different ways to address their needs.

However, that flexibility also created difficulty in getting

consistency in accomplishments reported by individual

grantees, but HUD has made a concerted effort to address

data quality in recent years.201

In agreement with Mr. Bernardi’s comment, Mr. Downs suggested the difficulty in measuring performance arises because of

46

202 Id. at 288 (statement of Thomas Downs, fellow, National Academy of Public Administration). 203 Id. at 251 (statement of Lisa Patt-McDaniel, assistant deputy director, Community Development Division, Ohio Department of Development, on behalf of the Council of State Community Development Agencies). 204 Id. at 241. 205 Id. 206 Id. at 246. 207 Id.

the type of information that a block grant program lends itself to

gathering. ‘‘It is harder with Community Development Block Grant

funds to develop performance measures, particularly outcome

measures, not output measures.’’ 202

To address the performance measurement deficiencies of both the

Conplan and IDIS, CDBG stakeholders formed a working alliance

with HUD and OMB—the Joint Grantee/HUD/OMB Outcome

Measurement Working Group—to develop a framework of common

outcome measures that grantees of all government levels could use

to report data and demonstrate results to HUD. The stakeholders

agreed that while it is difficult to create outcome measures rather

than just output measures, it is not an impossible feat. According

to Ms. Patt-McDaniel:

The CDBG program is an inherently flexible program, designed that way by Congress because of the complex and

varying natures of our Nation’s communities. We believe

Congress got it right—we need the flexibility of eligible activities we have to address our communities’ problems,

achieve the outcomes described above and meet the statutory intent of the program. While that flexibility sometimes makes it difficult to measure the effectiveness of the

activities, it can be done and we are confident that the

[Joint Working Group’s] proposed outcome measurement

system will make that possible.203

Speaking to the joint effort in creating the outcome performance

measurement system, Ms. Patt-McDaniel described the group’s aim

as creating a tool which would answer the question, ‘‘In what way

can we best demonstrate that the CDBG program does achieve the

results that Congress intended for the program?’’ 204 Elaborating on

the process, Ms. Patt-McDaniel continued:

Our goal was to develop common outcome measures that

States could use in their programming that could also be

reported to HUD and aggregated in useful ways that

would enable us to tell Congress and our constituents of

the results and benefits of the CDBG program, while at

the same time encouraging our members to establish additional measures specifically for their own programs and

initiatives.205

The group achieved this goal by ‘‘begin[ing] with the end in mind

. . . why did we fund that project, what are we trying to

achieve?’’ 206 The group found that while grantees use CDBG funds

for many different kinds of projects, ‘‘at the heart of these activities, there are common outcomes that most communities are trying

to achieve.’’ 207 Patt-McDaniel continued, ‘‘We believe that when

this outcome measurement system is implemented, we will begin to

47

208 Id. at 242–243. 209 Id. at 243. 210 Id. at 198 (statement of Roy A. Bernardi, Deputy Secretary, Department of Housing and

Urban Development). 211 Id. at 206. 212 Id. at 209. 213 Id. at 198. 214 Id. at 209. 215 A final rule implementing the new performance measurement system is expected in late

December 2005. 216 Id. at 233 (statement of Thomas Downs, fellow, National Academy of Public Administration).

more clearly tell Congress and OMB more about the benefits of

CDBG and the other consolidated plan programs.’’ 208 According to

Patt-McDaniel, ‘‘Aggregating the results by outcomes can help Federal policymakers assess whether the statutory intent of the program is being met, and the system can be an important management tool at both the grantee and Federal level.’’ 209

HUD is working to strengthen the IDIS system following the

Joint Working Group’s outcome measurement system proposal.

Bernardi advised the Subcommittee, ‘‘[HUD is] committed to improving the way we track performance and show results for our

program.’’ 210 Bernardi touted the results of the working group as

striking a crucial balance of maintaining the flexibility of the program yet gathering information necessary for meaningful outcome

performance management. ‘‘While program flexibility is maintained, the [outcome measurement] system offers a specific menu

of objectives, outcomes and indicators so that reporting can be

standardized and the achievements can be aggregated to the national level,’’ Bernardi advised the Subcommittee.211 Further, with

the new measurement system, HUD wants ‘‘to make [reporting]

easier[,] to reduce the grantees’ time and at the same time be able

to consolidate . . . into one format the consolidated plan, the annual performance plan, [and] the CAPER plan so that individuals

at HUD . . . can ascertain what has happened over a 5-year period, over a 1-year period of accomplishments.’’ 212 According to

Bernardi, the proposed matrix ‘‘will produce data to identify the results of formula grant activities. It will allow the grantees and

HUD to provide a broader, more accurate picture. The goal is to

have a system that will aggregate results across the spectrum of

the programs at the city level, the county, [and] State,’’ 213 thereby

‘‘improve[ing] the type and content of reports available to HUD for

monitoring.’’ 214 ,215

Praising the Working Group’s product, Mr. Downs reported, ‘‘The

[NAPA] panel strongly supports this collaborative effort and urges

the Congress and OMB to adopt both the process and the outcome

measures produced by [the] Working Group.’’ 216

Turning away from the issue of performance management, the

Subcommittee explored two specific issues regarding grantees’ use

of funds. The Subcommittee first discussed the supplanting of

funds whereby a grantee uses CDBG dollars on projects and activities which are normally paid for out of the grantee’s general revenue fund. For example, ‘‘if you can afford to do sewers and sidewalks in rich neighborhoods, you shouldn’t be spending your CDBG

dollars to do sewers and sidewalks in poor neighborhoods. You

48

217 Id. at 296 (statement of Sheila Crowley, Ph.D., president, National Low Income Housing

Coalition). 218 Id. at 267. 219 Id. at 213 (statement of Subcommittee Chairman Michael R. Turner). 220 Id. at 298 (statement of Lisa Patt-McDaniel, assistant deputy director, Community Development Division, Ohio Department of Development, on behalf of the Council of State Community Development Agencies). 221 Id.

should be spending your general fund dollars to do that.’’ 217 The

Subcommittee then turned to the question of how much of their

grant dollars a grantee may use to fund staff functions as opposed

to bricks-and-mortar activities and programs.

CDBG was never meant as a pool of money to replace general

revenue funds on projects a community should underwrite, regardless of whether grant dollars are available. According to Dr. Crowley, ‘‘The CDBG statute expressly addresses supplanting by stating

that Congress intends that CDBG funds ‘not be utilized to reduce

substantially the amount of local financial support for community

development activities below the level of such support prior to’ the

enactment of CDBG.’’ 218 Despite specific prohibition of supplanting

in the statue, ‘‘[o]ne of the reoccurring criticisms of CDBG is

whether or not the funds have been co-opted for government operations rather than community development functions, even if those

government operations support community development functions.’’ 219

In response to Dr. Crowley’s comments, Ms. Patt-McDaniel offered the Subcommittee a counterpoint: ‘‘I don’t know very many

local governments right now who are operating at huge, huge surpluses, or even slight surpluses.’’ 220 Patt-McDaniel continued, offering an example:

[I]f you have a city . . . which might be considered to have

some nicer areas and some poorer areas, my guess is that

a local government has a menu of infrastructure or parks,

a whole menu of activities that they want to do, and they

have resources. They have their own [general revenue

fund], they have CDBG, they may have some State resources, but they have a variety of resources. But the total

of those resources doesn’t add up to all the infrastructure

needs of that community.

So it only makes good management sense to match the appropriate resource to the appropriate neighborhood so that

if you have CDBG, you are in desperate need of replacing

the sewer [system], which typically could be across the

whole community, you are going to use the CDBG funds

where you could benefit the low to moderate-income people

and use the [general revenue fund] in the areas where

they may not make the low to moderate-income standards.221

In either case, it is difficult to determine whether a city is supplanting general revenue dollars with CDBG dollars due to the

flexibility of the program—the range of permissible activities is

broad. Dr. Crowley opined, ‘‘[S]upplanting can only be prevented if

HUD is capable of monitoring how funds are used and take action

49

222 Id. at 267 (statement of Sheila Crowley, Ph.D., president, National Low Income Housing

Coalition). 223 Id. at 291 (statement of Subcommittee Ranking Member Wm. Lacy Clay). 224 Id. at 291 (statement of Lisa Patt-McDaniel, assistant deputy director, Community Development Division, Ohio Department of Development, on behalf of the Council of State Community Development Agencies). 225See id. at 201 (statement of Roy A. Bernardi, Deputy Secretary, Department of Housing

and Urban Development). The spending cap on administration and planning functions is located

in the CDBG appropriation laws. 226 Id. at 211. 227 Id. at 212 (statement of Subcommittee Chairman Michael R. Turner). 228See id. at 211. 229 Id. at 212 (statement of Roy A. Bernardi, Deputy Secretary, Department of Housing and

Urban Development). 230 Id. at 212 (statement of Subcommittee Chairman Michael R. Turner). 231 Id. at 212 (statement of Roy A. Bernardi, Deputy Secretary, Department of Housing and

Urban Development).

if it occurs.’’ 222 Following that line of thought, Ranking Member

Wm. Lacy Clay inquired ‘‘what mechanisms, if any, have been included in the new outcome framework to ensure that CDBG funds

do not supplant local program funding streams?’’ 223 According to

Ms. Patt-McDaniel, ‘‘In the outcome framework, we were looking at

actual benefits of what we did, and not what percentage of that

particular activity would end up paying for staff time.’’ 224

Closely related to the issue of supplanting, the Subcommittee

moved to a discussion of grantee use of funds. Specifically, the Subcommittee asked how much of its CDBG allotment a grantee may

expend on staff functions. Not all expenditures on staff functions

are impermissible. Congress instituted a 20 percent cap on administration and planning functions to settle the debate of how much

money is required for those functions.225 According to Mr.

Bernardi, ‘‘There are caps on administration and planning, and

that cap is 20 percent. There is also a cap on public service, which

is 15 percent. . . . The other areas the communities can pretty

much make the determination as to how they want to spend their

dollars, in what areas.’’ 226

Chairman Turner questioned the apparent lack of an overall limitation on how much money may be spent on staff functions. ‘‘One

of the criticisms that we hear about CDBG is the opportunity for

local governments to utilize the funds rather than for community

development, but to fund what many people consider local government activities that perhaps the local tax base should be supporting rather than CDBG,’’ Turner stated.227 Conceivably, the chairman continued, a grantee could spend all of its grant dollars on

staff functions in the eligible criteria categories.228 ‘‘As long as the

dollars are used to provide goods and services for individuals who

meet the low and moderate-income threshold[, the] flexibility of the

program allows the entities to use the money as they see fit,’’

Bernardi assented.229

Accordingly, grantees may circumvent the 20 percent cap on administration and planning activities by categorizing particular staff

functions as one of the enumerated 25 eligible activities. ‘‘A government entity could, in going down the smorgasbord of eligible uses,

allocate 100 percent of its CDBG moneys for staff functions within

those eligible uses and not be in violation of the restrictions placed

upon CDBG,’’ Chairman Turner concluded.230 ‘‘I believe you are

correct,’’ Bernardi concurred.231

50

232See id. 233 Id. at 302 (statement of Roy A. Bernardi, Deputy Secretary, Department of Housing and

Urban Development). 234See id. at 303. 235See id. 236 Id. 237 Id. 238 Id.

In order to determine the overall percentage of grant funds spent

on staff functions, the chairman requested information detailing

staff-related expenditures by the 100 most populated cities receiving CDBG funds.232 Subsequent to the hearing, Mr. Bernardi submitted a spreadsheet detailing the administrative expense information as requested. The information provided recounts, in the aggregate, significant portions of grant awards allocated to staff and administrative functions. Although the administrative and planning

cap is 20 percent, 19 of the 100 entitlement communities exceeded

that cap. According to Mr. Bernardi:

CPD’s investigation of these results indicates the primary

factor contributing to this level of performance is the impact of unliquidated obligations from the prior program

year. In order to provide a more accurate picture of the

planning and administrative costs for these 100 grantees,

CPD will collect and forward to the committee additional

information based upon the data used to calculate compliance with the twenty percent cap on planning and administrative expenses.233

In addition to the information detailing administrative and planning expenditures, the Department also included data for housing

rehabilitation administration and code enforcement, the only two

categories outside of administrative and planning which exclusively

constitute staff expenditures.234 Fifteen of the 100 grantees expended in excess of 10 percent for the program year 2003 for housing rehabilitation administration. Four of those 15 grantees expended in excess of 15 percent. Fewer exceeded those amounts for

code enforcement. Five of the 100 grantees disbursed greater than

10 percent while an additional two grantees disbursed greater than

20 percent.235

Finally, Mr. Bernardi informed the Subcommittee that ‘‘direct

project delivery costs may include the costs of staff carrying out the

activity as well as other costs such as architectural and engineering services for construction activities or rent and utilities related

to an eligible public service[.]’’ 236 Unfortunately, Bernardi was unable to detail those expenditures: ‘‘such specificity cannot be isolated within the data available to HUD.’’ 237 As a result, HUD is

unable to determine what percentage of CDBG funds are expended

on staff functions by the 100 most populated entitlement communities.

Mr. Bernardi pointed out, however, that HUD regulations permit

the use of funds for ‘‘reasonable administrative costs and charges

related to the planning and execution of activities assisted with

CDBG funds.’’ 238 He continued, ‘‘This provision clearly states that

staff and overhead costs directly related to carrying out activities

51

239 Id. 240See id. at 39 (statement of Subcommittee Vice-Chairman Charles Dent).

eligible under the CDBG program are eligible as part of those activities.’’ 239

The congressional prohibition against supplanting notwithstanding, HUD lacks the ability to determine whether funds are supplanted for general revenue funds because it does not collect the

necessary data. Anecdotal evidence suggests numerous communities spend beyond the 20 percent cap on program administration

functions. Further, HUD is unable to verify or invalidate crtitics’

claims concerning communities directing CDBG dollars to support

staff functions because it is unable to calculate an overall percentage of CDBG funds expended on staff functions spanning all eligible activity categories with the current data collected.

IV. FINDINGS AND RECOMMENDATIONS

A. THE STRENGTHENING AMERICA’S COMMUNITIES INITIATIVE [SACI]

1. Findings

a. HUD has initiated several in-house measures to improve internal administration of the CDBG program, an indication

that reform of CDBG can be accomplished within HUD.

HUD initiated numerous in-house efforts to improve the administration of the CDBG program. With the development of performance measures by the Joint Grantee/HUD/OMB Outcome Measurement Working Group as well as the research and study resulting

in the CDBG Formula Targeting to Community Development Need

publication, HUD demonstrates recognition of the need for improvement and willingness to effect change within its program.

b. HUD’s institutional history, capacity, and expertise enhance

the agency’s ability to administer the CDBG program. That

expertise and capacity is lacking at the Department of Commerce.

In testimony before the Subcommittee, several stakeholders criticized SACI as fiscally illogical. The stated purpose of SACI is to improve the administration and management of the 18 grant programs, including CDBG. With an overall fiscal year 2005 appropriation of $4.71 billion, CDBG is more than double the size of the

Department of Commerce’s current grant portfolio, necessitating

the development of an infrastructure capable of overseeing such an

enormous program.

During the March 1, 2005 hearing, Subcommittee Vice-Chairman

Dent questioned whether the Department of Commerce has the

housing and community development expertise to manage the program.240 In response, Assistant Secretary Sampson, acknowledged

the agency would have a ramping-up period before it could effectively manage the program:

Commerce has a very extensive grant portfolio currently.

We manage about a $2.3 billion grant portfolio of community and economic development grants currently. But we

clearly will have to leverage the subject matter expertise

52

241 Id. at 40 (statement of David A. Sampson, Assistant Secretary of Commerce for Economic

Development, Department of Commerce). 242 Id. at 69 (statement of James C. Hunt, first vice president, National League of Cities). 243 Id. at 82 (statement of Chandra Western, executive director, National Community Development Association).

and the lessons learned from other agencies and other programs in creating this new program.241

National League of Cities first vice president, Jim Hunt, echoed

Representative Dent in questioning the wisdom of moving such a

large program to an agency that does not have the existing infrastructure to support it:

The administration claims that it is seeking to ‘‘retarget

and refocus’’ these funds to create new program efficiencies. However, from a practical standpoint, NLC questions whether moving the programs from HUD, where administrative and professional infrastructures already exist

and function well, to the Department of Commerce will

generate any real savings because building the agency’s

capacity to administer the programs alone would likely

consume any cost savings derived from consolidating these

programs.242

Chandra Western, executive director of the National Community

Development Association, likewise doubted the efficiency of moving

to Commerce a program twice the size of its current portfolio:

[A]ll the programs that are being proposed for consolidation and [to] be moved over . . . [to] Commerce are already eligible under CDBG . . . I think that the whole

proposal is counterproductive in terms of maximizing efficiency to move [a] big program and what it’s been doing

for 30 years over to Commerce without any infrastructure

or any idea [of] how the distribution of funds is going to

take place to accomplish the same things we are already

doing, and doing very well.243

The administration has not yet provided enough details on SACI

enabling an evaluation determining whether the proposal would

enhance the program’s effectiveness. The only SACI details provided to Congress for evaluation of the proposal are that it reduces

program funding, consolidates programming, and transfers program administration from HUD to the Department of Commerce.

Until additional information is furnished to the committee that

would better justify moving the CDBG program to the Department

of Commerce, the committee will continue questioning the value of

moving the program from HUD.

c. The administration’s PART analysis, while successful in

identifying key opportunities for reform of some programs,

may not be an appropriate evaluative tool for the Community

Development Block Grant program because of its flexibility.

The administration should consider whether alternative analytical tools exist that can better measure the CDBG program.

One of OMB’s chief criticisms of the CDBG program resulting

from the PART analysis is that ‘‘[t]he program does not have a

53

244Office of Management and Budget, Department of Housing and Urban Development PART

Assessments 3 (2004) <http://www.whitehouse.gov/omb/budget/fy2006/pma/hud.pdf>. 245 CDBG Hearings at 60 (statement of Angelo D. Kyle, president, National Association of

Counties). 246 Id. at 208 (statement of Roy A. Bernardi, Deputy Secretary, Department of Housing and

Urban Development). 247 Id. at 217 (statement of Subcommittee Ranking Member Wm. Lacy Clay). 248 Id. (statement of Roy A. Bernardi, Deputy Secretary, Department of Housing and Urban

Development). 249 42 U.S.C. § 5301(c).

clear and unambiguous mission. Both the definition of ‘community

development’ and the role CDBG plays in that field are not well defined.’’ 244 Over the course of the series of hearings detailed within

this report, witnesses often questioned whether the PART analysis

is an appropriate tool for evaluating large, flexible grant programs

administered cooperatively among Federal, State, and local agencies. For example, Angelo Kyle, president of the National Association of Counties, commented, ‘‘PART fails to consider the broad and

wide-range nature of the [CDBG] program, as well as the role of

local governments in designing activities using CDBG [funds] that

address challenges that are of a particular value to their community.’’ 245

Deputy Secretary Bernardi strongly disagreed with OMB’s assessment of CDBG’s purpose, stating that the difficulty in measuring the program arises in its great flexibility:

[On] the program purpose and design [element of the

PART score], we received a zero score. Candidly, the program purpose and design . . . is spelled out in the Community Development Block Grant Act of 1974. The program was meant to be utilized by local officials with determination after a tremendous amount of community input

as to how best they would utilize those resources . . . . So

it is a very flexible program; it is a program that was

meant to be utilized at the local level.246

Ranking Member Clay observed that a program like CDBG may

be difficult to measure using PART because ‘‘a block grant program

with few strings attached make[s] assessment more challenging

than other programs with more stringent requirements.’’ 247 Deputy

Secretary Bernardi agreed, ‘‘[Y]ou are absolutely right. When you

have that kind of flexibility, the measurement of those programs

becomes more of a challenge.’’ 248

When Congress created CDBG in 1974, it identified four programmatic goals. Three of those goals include the provision of

‘‘[d]ecent housing, suitable living environment[s], and economic opportunities for persons of low and moderate income[.]’’ 249 Congress

identified the fourth goal in its direction that CDBG funds be used

‘‘for the support of community development activities’’ which are intended to: (1) eliminate slums and blight; (2) remove conditions

detrimental to the health, safety and welfare of the public; (3) conserve and expand the Nation’s housing stock; (4) expand and improve the quality of community services for persons of low and

moderate income; (5) create a more rational utilization of land and

other resources; (6) reduce the isolation of low and moderate income groups and create greater diversity in neighborhoods; (7) restore and preserve historical and other properties of special value;

54

250 Id. 251 42 U.S.C. § 5301(d). 252 CDBG Hearings at 162 (statement of Saul N. Ramirez, Jr., executive director, National Association of Housing and Redevelopment Officials). 253 Executive Office of the President, Office of Management and Budget, Fiscal Year 2006

Budget of the U.S. Government Analytical Perspectives, H. Doc. 109–2, vol. III at 118 (2005). 254 NAPA Performance Measures Report at 29. 255 Id.

(8) stimulate private investment in underserved areas; and (9) improve energy efficiency in an effort to preserve scarce energy resources.250

Congress also sought to create a program that would provide financial assistance to communities of varying sizes and needs. Specifically, it sought to create a program that:

(1) provides assistance on an annual basis, with maximum

certainty and minimum delay, upon which communities

can rely in their planning;

(2) encourages community development activities which

are consistent with comprehensive local and areawide [sic]

development planning;

(3) furthers achievement of the national housing goal of a

decent home and a suitable living environment for every

American family; and

(4) fosters the undertaking of housing and community development activities in a coordinated and mutually supportive manner by Federal agencies and programs, as well

as by communities.251

Throughout the Subcommittee’s hearings on CDBG, witnesses

referenced numerous projects furthering the statutory goals. For

example, one of the primary goals of the program is to benefit individuals and groups of low- and moderate-incomes. National Association of Housing and Redevelopment Officials executive director,

Saul Ramirez, Jr. noted, ‘‘In 2004, approximately 95 percent of

funds expended by entitlement communities and 96 percent of

State CDBG funds expended were for activities that principally

benefited low and moderate-income persons.’’ 252

OMB’s PART assessment also identifies ‘‘weak targeting of funds

by the CDBG formula and by grantees to areas of greatest

need.’’ 253 The National Academy of Public Administration’s report

on CDBG points out, however, that ‘‘there is no targeting requirement in the legislation.’’ 254 The report continues, ‘‘Making CDBG

more categorical by concentrating and focusing investments to

places seems to contradict the statute’s intent.’’ 255 In his testimony, Thomas Downs explained:

The panel also disagrees with OMB’s criticisms that CDBG

is not geographically or place targeted. Although the panel

appreciates OMB’s view that directing funding to distressed areas may provide greater benefits to poor people,

the 1974 Housing Act has no such requirements to be geographically targeted. Therefore, the panel believes that

55

256 CDBG Hearings at 232 (statement of Thomas Downs, fellow, National Academy of Public

Administration). 257 42 U.S.C. § 5301(b). 258 42 U.S.C. § 5301(c)(3). 259 CDBG Hearings at 232 (statement of Thomas Downs, fellow, National Academy of Public

Administration). 260See Department of Housing and Urban Development, Community Development Allocations

and Appropriations (last modified Dec. 22, 2004) <http://www.hud.gov/offices/cpd/

communitydevelopment/budget/index.cfm>. 261See Public Law 108–447, House Rept. 108–792.

OMB criticized grantees for something they were not required to be doing.256

There appears to be support for NAPA’s contention in the statute. Specifically, the statute implies that CDBG’s objective is to

protect ‘‘the future welfare of the Nation and the well-being of its

citizens.’’ 257 The statute expressly states that, among other objectives, CDBG funds are to be directed toward the provision of ‘‘a decent home and suitable living environment for all persons, but

principally those of low and moderate income.’’ 258 CDBG funds are

therefore meant to benefit all persons, especially if they are of low

and moderate income, regardless of where they are located. As Mr.

Downs noted, ‘‘There is some disagreement in the field as to whether the Secretary of HUD can compel communities to geographically

target. Perhaps this is an issue that Congress should or could clarify.’’ 259

The committee believes that the PART tool, while effective in

measuring programmatic success in other government programs, is

ineffective at qualitatively measuring the success of flexible block

grant programs. Block grant programs that are inherently flexible

in order to best address an array of issues do not have a prescriptive set of outcomes by which grantee accomplishments can be easily measured.

d. Over recent years, the CDBG formula grant program has

suffered an aggregate funding reduction, resulting in many

communities receiving less funding. The administration’s

SACI proposal would further reduce appropriations for the

consolidated programs without substantiating cost savings

or efficiencies.

In fiscal year 2002, Congress appropriated $4.3 billion for the

CDBG formula grant program, down from $4.4 billion in fiscal year

2001.260 Congress again reduced the CDBG formula grant appropriation in each of the three succeeding fiscal years. In the Fiscal

Year 2005 Consolidated Appropriations Act, Congress appropriated

only $4.15 billion for the program.261 In comparison, the administration’s fiscal year 2006 budget request for the direct grant portion

of SACI was $3.7 billion.

Arguing that the drastic cut in CDBG funding would be irrecoverable, James Hunt of the National League of Cities summarized

the potential impact of the SACI proposal:

The Administration’s SAC proposal collapses 18 current

programs, whose combined fiscal year 2005 budgets total

approximately $5.5 billion, into a single grant program

funded at $3.7 billion. The Administration’s proposed

budget for SAC grants represents a funding cut of nearly

56

262 CDBG Hearings at 68 (statement of James C. Hunt, first vice president, National League

of Cities). 263See CDBG Formula Study at B–80. 264See id. at B–8.

35 percent from what Congress allocated in fiscal year

2005 for all 18 programs. This cut disproportionately

harms CDBG funding because CDBG’s [overall] fiscal year

2005 level of $4.7 billion represents nearly 80 percent of

the $5.5 billion of combined funding. Moreover, the proposed $3.7 billion for SAC grants is $1 billion short of

CDBG’s current funding level.262

2. Recommendations

a. Congress should refrain from enacting any legislation in the

109th Congress that would either eliminate the CDBG program or move it from the Department of Housing and Urban

Development to the Department of Commerce.

b. HUD should continue efforts to improve the internal administration of the CDBG program by addressing the issues

identified throughout this document.

c. The administration should consider reviewing the applicability of the PART analysis for block grant programs that are

designed to have broad programmatic goals, provide a high

degree of flexibility to recipients, and are administered cooperatively among State and local stakeholders.

d. Sustaining funding for the CDBG program should remain a

Federal government priority.

B. HUD PROPOSED CDBG FORMULA TARGETING REFORM

1. Findings

a. The process of selecting the needs index criteria, designed

and utilized by HUD in determining the current CDBG formula grant and in HUD’s proposed alternatives, is inherently subjective. As a result, the need index may not accurately capture a community’s need.

Studies of the current formula allocations reveal two main fairness issues. First, there are many examples where economically

wealthier communities receive higher per capita awards than economically poorer communities. For instance, Wauwatosa, WI, currently receives a per capita grant of $30.63. The city, however, has

been ranked by HUD as one of the Nation’s lowest need communities.263 In other words, Wauwatosa is an economically wealthy

community. In comparison, Compton, CA, has one of the highest

needs ratings in the Nation, yet it only receives a per capita grant

of $26.18.264 The contrast between these two examples highlights

a fundamental unfairness.

A second issue is that the current formula produces a result

where similarly situated communities will often be awarded disparate per capita grants. As noted above, Compton, CA, receives a per

capita grant of $26.18. St. Louis, MO, however, a community with

57

265See id. at B–46. 266 CDBG Hearings at 137 (statement of Roy A. Bernardi, Deputy Secretary, Department of

Housing and Urban Development).

a slightly lower need score than Compton, CA, receives a greater

per capita grant of $73.58.265

These results point to a significant problem with how HUD

weights certain need index variables. In the current CDBG formula, HUD heavily weights the existence of pre-1940 housing within a community, treating it as a proxy of need. This variable alone

results in disparate grant awards because it results in a regional

bias usually benefiting Northeastern and Midwestern communities.

Communities in these areas are more likely to have older housing

stock compared to communities in the West and South for two reasons. First, communities in the Northeast and Midwest are typically older communities than those established in the West and

South. Second, older homes are routinely restored in wealthier

communities whereas communities with fewer resources are more

likely to demolish older housing stock. Deputy Secretary Bernardi

explained:

[There] are affluent communities . . . that receive above

the line in the need index, the Portsmouths and the Newtons . . . and just by having to indicate that it’s pre-1940

housing, they receive a benefit there. And there are many,

many individuals there that reside in those properties that

are anything but poor people in need.266

Although the existence of older housing stock within a community

may have served as an indicator of need at one time, the nature

and quality of older housing stock in a particular community can

change over time due to restoration efforts. The current CDBG formula has no mechanism to account for these changes.

The proposed CDBG formula alternatives also contain other elements that would inappropriately skew funding allocations. By not

counting single households living in poverty, the proposed formula

alternatives could place communities with a large number of nonelderly, poor, single households at a disadvantage. Similarly, the

use of per capita income as a variable without considering cost-ofliving pressures, among other variables may also inappropriately

skew grant allocations. It is the view of the committee that while

the need index criteria are objectively applied, the process by which

those criteria are selected by HUD is inherently subjective. Consequently, the need index score may not accurately reflect a community’s need.

b. The proposed need index counts twice a community’s immigrant population in need by measuring a community’s aggregate expression of poverty as well as its immigrant population, captured by measuring overcrowding.

HUD’s proposed need index measures poverty in factor 1, which

captures a community’s immigrant population living in need. That

factor is weighted at 80 percent. Additionally, factor 2 of the need

index measures overcrowding, which according to HUD ‘‘represents

a new dimension of community need, growing immigrant popuVerDate 11-MAY-2000 07:50 Feb 02, 2006 Jkt 000000 PO 00000 Frm 00061 Fmt 6659 Sfmt 6602 D:\DOCS\24999.TXT HGOVREF1 PsN: HGOVREF1
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267 CDBG Formula Study at 27. 268 Id. 269 CDBG Hearings at 180 (statement of Jerry C. Fastrup, Assistant Director of Applied Research and Methods, Government Accountability Office). 270 CDBG Formula Study at 27.

lations.’’ 267 HUD posits, ‘‘Much of the growing immigrant population is moving into expensive housing markets for work, the consequence is a shortage of [affordable] housing that leads to overcrowding.’’ 268 The need index places a 15 percent weight on the

factor 2 score. As GAO points out in its testimony, poverty is a

characteristic alone that would capture an immigrant population

living in need:

In [HUD’s] need criteria, the immigrant population doesn’t

come into their need index directly. It only comes into it

indirectly, and it comes in indirectly in two ways: one

through the poverty measure, to the extent these immigrants are low-income people that get picked up in the

census counts . . .

The other way [immigrant population is] picked up is in

[HUD’s] second factor . . . that’s weighted 15 percent in

[HUD’s] overall need index. The only things in there that

capture immigration is overcrowded housing, which the

study says is correlated with high immigrant populations,

and to the extent that correlation is there, [HUD’s] need

index picks up immigration in that way.269

By considering separately poverty and overcrowding (as an indicator of poverty), the proposed need index essentially counts twice

the need resulting from the existence of an immigrant population

living in need.

c. HUD proposes separately acknowledging increased immigrant populations as a unique stress on community development and recommends providing increased CDBG funding to

such communities. Immigration and its resulting community

pressures are not new, though impacted communities have

changed. Immigration poses unique community challenges

that may not be appropriate to address using the CDBG program.

HUD asserts the population growth and economic activity associated with a growing immigrant population ‘‘come at the cost of increased fiscal stress associated with providing community services

for the growing population of low-wage workers.’’ 270

A growing population will likely increase the financial burden of

any city, but a growing population may also indicate a growing

community. As Jerry Fastrup, Assistant Director of Applied Research and Methods at GAO, summarized:

[I]f you are looking at the CDBG program as a program

that’s trying to compensate for fiscal distress and economic

decline and the need to rehabilitate dilapidated housing

and those kinds of things, [it] strikes us that overcrowded

housing is a sign of a tight labor market and housing marVerDate 11-MAY-2000 07:50 Feb 02, 2006 Jkt 000000 PO 00000 Frm 00062 Fmt 6659 Sfmt 6602 D:\DOCS\24999.TXT HGOVREF1 PsN: HGOVREF1
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271 CDBG Hearings at 180 (statement of Jerry C. Fastrup, Assistant Director of Applied Research and Methods, Government Accountability Office). 272 Id. at 146 (statement of Paul L. Posner, Managing Director of Federal Budget Analysis and

Intergovernmental Relations, Government Accountability Office). 273 Id. at 135 (statement of Subcommittee Chairman Michael R. Turner). 274 Id.

ket and upward pressure in the housing market [is] usually a sign of strong growth rather than decline.271

Given the budget realities facing the Federal Government—as

well as States and municipalities—it is plausible that Congress

would soon be faced with tough policy decisions resulting from the

potentially serious drain on CDBG funds caused by this new variable. Therefore, in addition to determining whether HUD’s suggested alternatives accurately assess community need created by a

growing immigrant population, Congress should also consider

whether the CDBG program is the correct vehicle for addressing

those needs.

d. The need index designed and utilized by HUD in formulating its recommendations assumes that a greater disparity in

the ratio between a CDBG eligible community’s per capita

income and its metropolitan area per capita income is an expression of greater need. That assumption may be too simplistic and does not consider other factors that could be at

work in any given community. Therefore, HUD’s need assumption based on this factor may not accurately express

community need.

In its study proposing changes to the grant formula, HUD proposed considering the relative income of communities. This new

element would be calculated by comparing a community’s per capita income to the metropolitan area’s per capita income. According

to Paul Posner, this introduces ‘‘an entirely different element into

the equation, which is the issue of income and measuring the relative income of communities.’’ 272

While this element may capture disparity in per capita income,

it does not consider factors impacting the resources available to address community need. Chairman Turner inquired, ‘‘By taking metropolitan per capita income into consideration and not taking [into

consideration] costs . . . aren’t you heavily weighting toward what

could be low-cost, wealthy communities?’’ 273 Chairman Turner continued, noting, ‘‘[H]igh-growth areas where there is a significant

amount of opportunities will have wages that have upward pressure that may not yet have expressed high cost-of-living in either

housing or other elements of family support.’’ 274

Deputy Secretary Bernardi disagreed, arguing:

Initially [there would be high wages and low costs]; but

eventually [cost] catches, and catches up in a hurry.’’ I

think what we’ve done here is to look for jurisdictions

where the per capita income is lower, obviously, than the

per capita income in that metropolitan area. That would

demonstrate to me that’s a community that has some concerns, has some decline. And that is why that community

60

275 Id. at 136 (statement of Roy A. Bernardi, Deputy Secretary, Department of Housing and

Urban Development). 276 Id. 277 Id. at 182 (statement of Saul N. Ramirez, Jr., executive director, National Association of

Housing and Redevelopment Officials). 278 Id. (statement of Paul L. Posner, Managing Director of Federal Budget Analysis and Intergovernmental Relations, Government Accountability Office).

would receive, according to alternative 3, additional funding.275

Deputy Secretary Bernardi indirectly acknowledged, however, that

the use of per capita income as a variable in alternative 3 is an

imperfect attempt at weighting an assortment of variables in an effort to compensate for disparities between populations that live relatively close to one other. Specifically, Bernardi said:

[One] can look at a city that has a low per capita income,

and then look to the metropolitan area and see a higher

per capita income, and the fact is that the people who [designed the alternatives] were looking for a way to weight,

if you will, those individuals living just a few miles from

other individuals who, because of many varied circumstances, that [sic] per capita income is extremely

lower.276

Expressing support for HUD’s approach, Mr. Ramirez testified:

We believe that communities, even those that have a higher per capita income, do have pockets of poverty within

them. In fact, many of those communities struggle with

their labor force that service those communities around

the country in providing safe and decent housing, and not

forcing many of the service-oriented labor force to seek

shelter and grow their communities within blighted areas.

. . . And so we do believe that’s that balance, to some degree, that this formula has struck. It does allow for communities, high per capita communities to deal with these

pockets of poverty and address the low and moderate-income families within those communities.277

Mr. Posner, however, questioned the effectiveness of HUD’s approach:

[O]verall I think we [see] the two factors in alternative 3

. . . offsetting one another. On the one hand, you’re trying

to target aid proportionately to cities and areas that have

lower incomes to raise on their own; on the other hand,

you’re providing greater aid to those communities if they

happen to be nested in higher-income metropolitan areas.

This is something I think that needs a lot more thinking.

I think [HUD is] heading in the right direction by trying

to capture the element of capacity and wealth.278

Concurring with Mr. Posner, Mr. Fastrup opined that HUD’s

method of taking into account the differences between high- and

low-cost-of-living areas by measuring per capita income assumes

areas of high per capita income have a correspondingly high cost

of living. ‘‘[HUD] basically assumes that all of the difference in per

capita income between a low-income metropolitan area and a highVerDate 11-MAY-2000 07:50 Feb 02, 2006 Jkt 000000 PO 00000 Frm 00064 Fmt 6659 Sfmt 6602 D:\DOCS\24999.TXT HGOVREF1 PsN: HGOVREF1
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279 Id. at 184 (statement of Jerry C. Fastrup, Assistant Director of Applied Research and

Methods, Government Accountability Office). 280 24 C.F.R. § 5301(a). 281 24 C.F.R. § 5301(c). 282See CDBG Hearings at 134 (statement of Roy A. Bernardi, Deputy Secretary, Department

of Housing and Urban Development). 283See id. (statement of Subcommittee Chairman Michael R. Turner). 284See id. at 181–182 (statement of Saul N. Ramirez, Jr., executive director, National Association of Housing and Redevelopment Officials).

income metropolitan area . . . [is] all cost of living differences, and

that’s not true,’’ Fastrup told the Subcommittee. ‘‘So I think that

method of putting metropolitan income into the formula is

overdoing it to some extent,’’ he concluded.279

The Committee agrees with the conclusions articulated by GAO.

The need index designed and utilized by HUD in formulating its

recommendations relies too heavily on a potentially flawed assumption that a greater disparity in the ratio between a CDBG eligible

community’s per capita income and the per capita income of its

metropolitan area is an expression of greater need. The committee

believes that HUD’s assumptions may be too simplistic and does

not consider other factors that may be at work in a given community. Consequently, the committee also finds that HUD’s assumptions may not accurately express community need.

e. A community’s abandoned and vacant housing stock may

represent a significant contributing factor to community

blight. However, the need index considers only the condition

of occupied structures in a community, ignoring the quality

and condition of abandoned and vacant housing stock.

The elimination of community blight is one of CDBG’s enumerated goals. In 1974, Congress found that ‘‘the Nation’s cities, towns,

and smaller urban communities face[d] critical social, economic,

and environmental problems arising [in part] from . . . inadequate

public and private investment and reinvestment in housing and

other physical facilities, and related public and social services, resulting in the growth and persistence of urban slums and

blight[.]’’ 280 In order to address the issue, Congress declared the

primary objective of the Housing and Urban Development Act to be

the ‘‘development of viable urban communities, by providing decent

housing and a suitable living environment and expanding economic

opportunities’’ through the use of CDBG funds on, in part, ‘‘the

elimination of slums and blight and the prevention of blighting influences and the deterioration of property and neighborhood and

community facilities[.]’’ 281

While Deputy Secretary Bernardi acknowledged the ‘‘obvious’’

blight created abandoned and vacated housing in communities

across the Nation, HUD’s formula alternatives ignore the blighting

influence of abandoned residential structures.282 In assessing need,

the formula alternatives only count housing units occupied by poverty-stricken families.283 By not providing for a valuation of these

dwellings, HUD ignores the probability that the blighted condition

of a neighborhood and the overall community would be accelerated.284

In effect, Deputy Secretary Bernardi acknowledged that the current formula penalizes communities for having blighted housing because need is based upon the residence of poverty-stricken families

62

285See id. at 134–135 (statement of Roy A. Bernardi, Deputy Secretary, Department of Housing and Urban Development). 286 CDBG Formula Study at 16, n. 13 287See id. 288See id. 289See id.

within the community.285 The committee is concerned that the current formula therefore removes a source funding for housing rehabilitation solely because poverty-stricken households do not occupy

abandoned or vacant properties. The committee views this approach as incomplete and urges HUD to recognize vacant and

abandoned housing stock as a contributing factor to community

blight in its need index.

f. In order to compensate for distortions caused by student populations in some communities, HUD proposes excluding all

single occupant households from the poverty variable in the

formula alternatives. In doing so, however, HUD may exclude a significant population of non-elderly individuals living in poverty that should be served by the CDBG program.

In its formula alternatives, HUD excluded all single, non-elderly

households living in poverty to compensate for the distortion in assessing need caused by the presence of off-campus college students.

In so doing, HUD also excludes single individuals living in poverty,

including the disabled.

In order to verify that the exclusion of single, non-elderly persons

in poverty would not ‘‘misrepresent the needs of communities with

particularly high portions of their population made up of non-college students who are single, non-elderly, and in poverty . . . HUD

requested a special tabulation of census data that specifically excluded full-time college students from the poverty count.’’ 286 HUD

found that little difference in the need score index results when

using a factor discounting student populations versus counting only

poverty-stricken elderly or family households, thereby excluding all

single, non-elderly households living in poverty.287 By its own analysis, however, HUD states that a small number of communities

would in fact be harmed.288 Those communities would see as much

as a 10 percent reduction in their share of the national poverty

total when the poverty-stricken elderly or family household factor

is used over the factor discounting student population.289

Consequently, it is the view of the committee that if data is

available to exclude the off-campus student population without also

discounting non-elderly single households living in poverty, that

data should be used to more accurately capture a community’s

need.

2. Recommendations

a. 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.

b. HUD should not count more than once, directly or indirectly,

any single element of community need.

63

290See id. 291 CDBG Hearings at 112 (statement of Roy A. Bernardi, Deputy Secretary, Department of

Housing and Urban Development).

c. HUD should undertake further study of the community

stresses caused by immigrant population growth to determine if the resulting needs should be addressed by a program other than CDBG.

d. HUD should reevaluate the use of the ratio between a community’s per capita income and its corresponding metropolitan area’s per capita income in the CDBG need index.

e. HUD should recognize the contributing factor of vacant and

abandoned housing stock to community blight in its need

index.

f. HUD should determine if data is available to exclude offcampus student populations without also discounting non-elderly, single households living in poverty. If that data exists,

it should be used to create a more accurate reflection of a

community’s needs.

C. CURRENT CDBG FORMULA GRANTS

1. Findings

a. HUD does not operate continuous formula review under a

structured program to ensure the CDBG formula grant program keeps pace with rapid changes in the Nation’s demographic composition and economic needs. There are factors

that would improve the assessment of need and the targeting

of funds in addition to those reviewed in the HUD study.

The current formula grant remains largely unchanged since its

inception 30 years ago. Meanwhile, the Nation’s demographics have

changed dramatically during that same period. Over the previous

three decades, HUD only studied the formula five times—in 1976,

1979, 1983, 1995, and 2005.290 HUD initiated the majority of these

studies in-house to ask the question: ‘‘[H]ow is the CDBG program

doing in terms of meeting the community development need in this

country?’’ 291 The committee believes a more frequent and structured periodic review would keep the formula contemporary with

the changes in demographics and need across the country.

In June 2005, Chairman Turner and Representative Robert Ney,

chairman of the House Financial Services Subcommittee on Housing and Community Opportunity, requested a GAO study on the

CDBG grant formula. The request solicited: (1) a review of the current needs criteria as well as recommendations for new criteria to

calculate a more accurate need index; (2) an evaluation of formula

options that includes consideration of a community’s fiscal capacity

to address its needs; (3) an assessment of alternative formulas

which distribute funds based on the prevalence of low-income citizens, (4) alternate need criterions and formula options that narrowly focus the targeting of CDBG funds; and (5) an evaluation of

whether the current 70/30 split should be maintained, altered, or

eliminated. Representatives Turner and Ney expect GAO will finalize this report during the second session of the 109th Congress.

64

292See 42 U.S.C. § 5302. 293See letter from Roy A. Bernardi, Deputy Secretary, Department of Housing and Urban Development to the Honorable Michael R. Turner, chairman of the Subcommittee on Federalism

and the Census of the House Committee on Government Reform 2 (June 1, 2005) (on file with

Subcommittee) [hereinafter HUD Letter]. 294See id. 295See 42 U.S.C. § 5302. 296See HUD Letter at 2. 297See HUD Letter at 4–6.

b. Numerous communities are ‘‘grandfathered’’ by the Housing

and Community Development Act of 1974 and thus continue

receiving funds through the entitlement portion of the CDBG

formula grant despite no longer meeting the definition of an

‘‘entitlement community.’’ This results in a lower per capita

grant per entitlement jurisdiction and therefore less effective

targeting of CDBG funds.

By statute, only entitlement communities may receive allocations

from the 70 percent portion of funds reserved for entitlement communities under the CDBG formula grant. Entitlement communities

are defined as central cities of metropolitan areas, cities with populations of 50,000 or more, and statutorily defined urban counties.292

At the program’s inception, there were 506 entitlement communities.293 In fiscal year 2005, there were 1,112 entitlement communities, an increase of 606 communities.294 During this same time,

the amount of funds shared by these communities—that is, the 70

percent portion of grant funds—has remained relatively static.

Conversely, the numbers of non-entitlement communities, which

share the 30 percent portion of grant funds, dwindled. Consequently, entitlement communities receive shrinking per capita

grants while non-entitlement communities receive growing per capita grants.

Under the HCDA, entitlement communities benefit from

grandfathering protection when they drop below a population of

50,000 or lose their classification as a central or principal city.295

At present, there are eight urban counties and 106 central cities

grandfathered in the CDBG formula grant program.296 Collectively,

these 114 communities receive more than $75 million in formula

dollars that would otherwise fund community and economic development activities in the nearly 1000 other certified entitlement

communities.297

The committee finds that grandfathered communities do not

meet the statutory definition of communities eligible to receive

moneys from the entitlement community portion of funds. Therefore, they are not the recipients Congress originally intended for

those funds. To address the non-entitlement communities’ needs,

Congress adopted the 70/30 split thereby reserving funds for nonentitlement communities’ use. The grandfathered communities, as

they are no longer entitlement communities, should only receive

funds from that pool. In specifying a grandfather provision, however, one may reasonably infer that Congress intended to prevent

significant disruption in grant funds to communities and the services those funds enable. Not only would ‘‘de-grandfathering’’ these

114 communities result in more funds available for the growing

number of entitlement communities, but by moving the communities to the 30 percent portion of the CDBG program, they would

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298 CDBG Hearings at 162 (statement of Saul N. Ramirez, Jr., executive director, National Association of Housing and Redevelopment Officials). 299 Id.

share funds with a decreasing number of other non-entitlement

communities.

c. Any change in the formula grant will lead to significant disruption in funding for some communities.

The stakeholder community argues that any change to the formula grant will result in significant and abrupt funding changes to

already fiscally troubled communities. In challenging the proposition that the current CDBG formula grant no longer effectively

targets the needs identified in the HCDA, Saul Ramirez, Jr., executive director of the National Association of Housing and Redevelopment Officials, argued:

The statute requires that at least 70 percent of all CDBG

funds expended go toward activities to benefit low- and

moderate-income persons. However, communities are, in

fact, targeting much more aggressively than the statute requires. In 2004, approximately 95 percent of funds expended by entitlement communities and 96 percent of

State CDBG funds expended were for activities that principally benefited low- and moderate-income persons.298

The committee does not disagree with these statistics. Communities currently receiving CDBG funds expend those dollars as legally required by the 70 percent statutory threshold. However, the

committee believes that while funds are targeted as required within the community to which they are awarded, CDBG funds as a

whole are not targeted to those communities with the greatest

need.

The committee recognizes that any change in the formula grant

will result in decreased funds to numerous communities and thus

disrupt those communities’ plans for community and economic development. The stakeholder community supports ‘‘the notion of a

fair and equitable distribution of CDBG dollars, but urge[s] [Congress] to proceed with caution’’ and advises that ‘‘[i]f Congress feels

change is truly necessary, then we would think likely that change

could happen in a way that mitigates uncertainty and avoids sudden and substantial losses in funding.’’ 299 The committee fully

agrees with this assessment and heeds these cautions. Consequently, the committee suggests a phase-in of any formula

changes and the resulting funding adjustments to ease the transition, a tool not foreign to the CDBG program. According to Deputy

Secretary Bernardi, Congress instituted a phase-in period when it

transformed the program from a categorical grant program to a formula-based program in the 1970s.

[W]hen the program went from a categorical grant program to the formula . . . back in the 1970’s, there was a

phase-in period that was put into place by Congress ....

If [Congress] choose[es] to change the formula, [it] could do

the same thing here so that the community would be

phased in to receiving that extra money so they have the

capacity and the wherewithal how [sic] to use the [extra]

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300 Id. at 139 (statement of Roy A. Bernardi, Deputy Secretary, Department of Housing and

Urban Development). 301 Id. at 202 (statement of Roy A. Bernardi, Deputy Secretary, Department of Housing and

Urban Development). 302 Id. at 210 (statement of Roy A. Bernardi, Deputy Secretary, Department of Housing and

Urban Development).

capacity at the same time if they were to lose those dollars

[they could adjust accordingly].300

2. Recommendations

a. Congress should institute a mandatory, periodic review of

the CDBG formula grant. Further, HUD should actively

work in concert with GAO in the requested study of alternative need index and formula criteria. Any formula grant

modifications should respond to two expressed congressional

goals: increasing the effectiveness of CDBG targeting and

achieving cost savings and efficiencies.

b. Congress should consider whether ‘‘de-grandfathering’’ communities that no longer meet the definition of metropolitan

city or urban county would result in increased cost savings

and more effective targeting to need. If Congress determines

to go forward with de-grandfathering, HUD should be

tasked with undertaking a review and recommending the

least disruptive method.

c. If Congress amends the CDBG grant formula, HUD should

design a plan to phase in those formula changes over time

so that communities marked for funding reductions will experience minimal revenue disruptions.

D. PERFORMANCE MEASURES

1. Findings

a. Performance measurement for the CDBG program is currently limited to HUD’s use of the Consolidated Plan

(Conplan), which will more likely than not be approved by

HUD if the plan is ‘‘complete’’ or ‘‘substantially complete.’’

The Conplan can potentially serve as a mechanism for holding CDBG communities accountable for their program performance. As currently utilized by HUD, however, the

Conplan serves no apparent purpose.

The Conplan was intended for use as a tool describing how

CDBG funds will be spent, thus a tool for monitoring the quality

of a grantee’s planned use of funds. As a result of numerous congressional mandates, however, ‘‘HUD’s major review focus for administration of the CDBG program is [now] monitoring grantees’

[actual] use of funds.’’ 301 Because the statute can be loosely interpreted to require approval unless the plan is incomplete, critics assert that HUD essentially ‘‘rubber stamps’’ most Consolidated

Plans. ‘‘[A]s long as it adheres to the national objectives . . .

[t]here is not a rejection of the consolidated plan per se,’’ Bernardi

informed the Subcommittee.302 Bernardi further conceded that the

Department only thoroughly reviews plans that appeared to be

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303See id. 304See id. at 292 (statement of Sheila Crowley, Ph.D., president, National Low Income Housing Coalition). 305See id. at 287 (statement of Subcommittee Chairman Michael R. Turner). 306See id. at 263 (statement of Sheila Crowley, Ph.D., president, National Low Income Housing Coalition). 307 Id. at 204 (statement of Roy A. Bernardi, Deputy Secretary, Department of Housing and

Urban Development). 308 Id. at 233 (statement of Thomas Downs, fellow, National Academy of Public Administration). 309 Id.

‘‘high risk’’ while approving others that are complete or substantially complete.303

Observers also question whether HUD actually reads each

Conplan, suggesting that HUD simply does not have the time or

manpower to review 1,100 Consolidated Plans within the 45-day

time period.304 In the event they do read every submitted Conplan,

there is no process in place to assist communities and enhance

their ability to expend their CDBG funds.305

While the Conplan apparently serves only as a tool for HUD to

verify that grantees comply with the law on what activities CDBG

funds may be expended, there is limited utility in monitoring according to the Conplan because there is no requirement that grantees spend their funds in accordance with their submitted Conplan.

Consequently, HUD is unable to enforce compliance with a community’s approved grant activities and programs.306

Accordingly, the utility of the Conplan, which is approved unless

substantially incomplete, is unclear to the committee when there is

no requirement to comply with an approved Conplan and consequently no ability to enforce expenditures on approved activities

and programs.

b. HUD’s IDIS information management system is based on an

operating language written over 40 years ago. The program

has become obsolete and incompatible with many end-user

systems. Even if IDIS was not obsolete, it does not lend itself

well to the collection of performance measuring data.

According to Deputy Secretary Bernardi, ‘‘The concept of IDIS

was and is a great idea: it links financial information, i.e., amount

of funds used, with actual accomplishments.’’ 307 Where the

Conplan is a tool to monitor intended use of funds, IDIS is the complementary tool to track actual expenditure of funds. The National

Academy of Public Administration concluded, however, ‘‘[IDIS]

works poorly, if at all, by most standards for the boarder purposes

that [HUD] claims.’’ 308 Past efforts to fix the system have either

failed or ‘‘been executed in a piecemeal fashion.’’ 309 Most witnesses

concurred with NAPA’s view that the program was time consuming, limited, and inefficient in its use.

While HUD is currently upgrading the system, the process has

been slowed for a wide variety of reasons—some attributable to

HUD and others attributable to outside factors. However, even if

upgrades to the IDIS system were more rapid, the system functions

as nothing more than an accounting system. ‘‘The inability of the

IDIS to absorb performance data cannot be overstated. It is basically an accounting system that is used to show where the money

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310 Id. at 288 (statement of Thomas Downs, fellow, National Academy of Public Administration). 311 Id. at 250 (statement of Lisa Patt-McDaniel, assistant deputy director, Community Development Division, Ohio Department of Development, on behalf of the Council of State Community Development Agencies). 312 NAPA Performance Measures Report at xii. 313 Id. 314See id. at 242 (statement of Lisa Patt-McDaniel, assistant deputy director, Community Development Division, Ohio Department of Development, on behalf of the Council of State Community Development Agencies).

ance recording,’’ reported Thomas Downs.310 According to Lisa

Patt-McDaniel, reporting CDBG achievements captured in the

Conplan has been difficult due in great part to IDIS. ‘‘[In] part of

the Consolidated Plan, citizens are informed about the results of

the program’s expenditures in a narrative format, but the current

IDIS system does not allow this kind of reporting.’’ 311

In essence, IDIS is a tool to track where grantees spend their

grant dollars. It is not a tool to measure how effectively those funds

are being spent.

The committee is concerned that the IDIS system, as is, does not

lend itself well to the collection and analysis of data used to measure performance. Additionally, because the IDIS and other HUD

performance measuring computer programs are obsolete, they are

proving an impediment to the local jurisdictions in their efforts to

create their own performance measures. Accordingly, the committee finds that despite recent efforts to upgrade the IDIS system,

more work remains if there is to be meaningful performance measurement and accountability inserted in the CDBG program.

c. HUD should consider acting on the recommendations of the

Joint Working Group and those published by the National

Academy of Public Administration in its February 2005 report on performance measures for the CDBG program.

The committee agrees with NAPA’s report that stakeholders

‘‘support CDBG performance reporting as long as it is non-intrusive, extensively used, cost effective, and compatible with existing

management systems.’’ 312 According to the NAPA report, any successful performance measurement system must be multi-faceted to

meet the differing needs of grantees, HUD, and OMB:

Grantees want maximum programmatic flexibility to tailor

the investments to their local needs. At the Federal level,

HUD wants a system that reflects and maintains CDBG’s

flexibility, and complies with its statutory responsibilities

as an executive agency. Meanwhile, OMB wants one that

encourages HUD and grantees to demonstrate conclusively

that the investments contribute to the development of viable communities and to low- and moderate-income beneficiaries. To accomplish this, it wants entitlement communities and states to target CDBG funding to a limited

number of neighborhoods.313

According to Lisa Patt-McDaniel, the Joint Working Group ‘‘succeeded’’ in developing performance measures upon which all stakeholders can agree.314

To address the performance measurement deficiencies of both the

Conplan and IDIS as detailed heretofore, CDBG stakeholders

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315 Id. at 251. 316 Id. at 241. 317 Id. at 246. 318 Id. at 243. 319 Id. at 206 (statement of Roy A. Bernardi, Deputy Secretary, Department of Housing and

Urban Development). 320 Id. at 198. 321 Id. at 209. 322 As noted previously, a Final Rule implementing the new outcome performance measurement system is expected in late December 2005.

formed a working alliance with HUD and OMB—the Joint Grantee/

HUD/OMB Outcome Measurement Working Group—to develop a

framework of common outcome measures that grantees of all government levels could use to report data and demonstrate results to

HUD. According to Patt-McDaniel, ‘‘The CDBG program is an inherently flexible program, designed that way by Congress because

of the complex and varying natures of our Nation’s communities,’’

however, it is ‘‘that flexibility [that] sometimes makes it difficult to

measure the effectiveness of the activities[.]’’ 315

In designing an outcome performance measurement system, Ms.

Patt-McDaniel described the group’s aim as creating a tool which

would answer the question, ‘‘In what way can we best demonstrate

that the CDBG program does achieve the results that Congress intended for the program?’’ 316 Their goal was to create measures

that would result in the aggregation of data, demonstrating the results and benefits of the CDBG program.

Beginning with the question, ‘‘why did we fund that project, what

are we trying to achieve?,’’ the group found that while grantees use

CDBG funds for many different kinds of projects, ‘‘at the heart of

these activities, there are common outcomes that most communities

are trying to achieve.’’ 317 With the implementation of this system,

Patt-McDaniel believes grantees will be able to report data that

can be aggregated by outcomes to ‘‘help Federal policymakers assess whether the statutory intent of the program is being met, and

the system can be an important management tool at both the

grantee and Federal level.’’ 318

According to Deputy Secretary Bernardi, ‘‘While program flexibility is maintained, the outcome measurement system offers a specific menu of objectives, outcomes and indicators so that reporting

can be standardized and the achievements can be aggregated to the

national level.’’ 319 Further, advised Bernardi, the proposed matrix

‘‘will produce data to identify the results of formula grant activities. It will allow the grantees and HUD to provide a broader, more

accurate picture. The goal is to have a system that will aggregate

results across the spectrum of the programs at the city level, the

county, [and] State,’’ 320 thereby ‘‘improv[ing] the type and content

of reports available to HUD for monitoring.’’ 321 322

The committee applauds HUD’s collaborative effort with the

Joint Working Group to develop a new performance measure matrix for the CDBG program. The Subcommittee also commends

HUD for its impending Notice of Final Rule on this matter. The

committee acknowledges, however, that upgrading the Consolidated Plan or any performance measure system with the introduction of rigorous performance indicators could represent a significant technical challenge for many jurisdictions.

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323 Id. at 72 (statement of James C. Hunt, first vice president, National League of Cities). 324 Id. 325 Id. 326 Id. at 232 (statement of Thomas Downs, fellow, National Academy of Public Administration). 327 Id. at 295.

2. Recommendations

a. Congress should consider revising or eliminating the statue

which requires how Consolidated Plans are used in monitoring CDBG targeting and accountability.

b. HUD should work closely with OMB to replace the current

IDIS system with a system that will measure performance in

addition to functioning as an auditing and accounting tool.

c. In addition to its efforts implementing the Joint Grantee/

HUD/OMB Working Group Outcome Measurement System,

HUD should adopt and implement the recommendations presented by the National Academy of Public Administration on

performance measures.

E. CURRENT ELIGIBLE USES OF CDBG FUNDS

1. Findings

a. CDBG programmatic success has been effectively linked to

the flexibility of the use of funds. Such broad flexibility

should be maintained.

Flexibility has been the key feature of the CDBG program most

often lauded by end-users and other stakeholders. According to the

James Hunt, the flexible nature of the program has ‘‘allowed local

government broad latitude in how it uses grant funds, and whether

that use is for the creation of new economic development opportunities, affordable housing, public facilities, or services.’’ 323 Councilman Hunt argued that because of this flexibility, the CDBG program has ‘‘given cities the latitude to address ‘urgent needs’ like

eliminating drug dens and other cancers on our communities—latitude not found with other programs.’’ 324 ‘‘It is because of CDBG’s

flexibility and autonomy of local control that the CDBG program

has become, from the local perspective, the most effective form of

Federal assistance currently available,’’ Hunt concluded.325

Thomas Downs of the National Academy of Public Administration also applauded the flexibility of the program, stating, ‘‘The

1974 Housing Act clearly gives wide latitude—intentionally, I

might add—to States and communities to spend CDBG moneys to

meet the needs of poor people and distressed communities.’’ 326 Mr.

Downs explained:

Part of the genius of the program is its breadth of decision

making that allows State and local jurisdictions to solve

problems that are unique within their community. And we

have discovered long ago that there is a fundamental difference between Minot, ND, and Miami. That is built into

the program.327

The committee agrees with stakeholders that the fundamental

element of the CDBG program is its flexibility in the use of funds.

While this flexibility may create accountability problems, it also

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328 Id. at 212 (statement of Roy A. Bernardi, Deputy Secretary, Department of Housing and

Urban Development). 329 Id. at 303.

provides local communities the latitude they require to expend the

funds necessary to quickly and reliably address local needs. It has

consistently been shown that the Federal Government cannot effectively and efficiently anticipate local needs from inside the Beltway. State and local governments are often far more responsive to

the needs of its citizens. Therefore, it is the view of the committee,

based on the notion and concept of federalism, that the broad flexibility inherent within the CDBG program should be maintained for

the foreseeable future.

b. Observers routinely criticize the CDBG program because entitlement communities may spend significant portions of

their CDBG funds on staff positions and other administrative costs. Although CDBG grantees operate under a spending cap specifically on the administrative and planning activities category, there is not a cap on aggregate spending—

spanning all eligible activity categories—for these functions.

Congress instituted a 20 percent spending cap on items falling

within the administration and planning activities category to limit

the amount of funds that could be expended on non-program activities, including staff functions. HUD reported that 19 of the 100

most populated entitlement communities exceeded the 20 percent

spending cap on administrative and planning activities category.

Further, CDBG frequently endures criticism, that grantees spend

well beyond that 20 percent on staff functions alone, merely by categorizing a particular function as an eligible activity.

Deputy Secretary Bernardi testified, ‘‘As long as the dollars are

used to provide goods and services for individuals who meet the

low and moderate-income threshold[, the] flexibility of the program

allows the entities to use the money as they see fit.’’ 328 Accordingly, grantees could conceivably spend 100 percent of its grant dollars on staff functions by categorizing particular functions as 1 of

the 25 eligible activities and not be in violation of the spending restrictions.

There are two additional categories outside of administrative and

planning activities that exclusively constitute staff expenditures. In

program year 2003, 15 grantees expended more than 10 percent (4

of which exceeded 15 percent) on housing rehabilitation administration while 7 grantees expended more than 10 percent (2 of

which exceeded 20 percent) on code enforcement. HUD does not collect the appropriate data, however, to determine the overall

amount of CDBG funds spent on staff functions falling outside of

the 20 percent spending cap on administrative and planning activities.

Further, Mr. Bernardi testified, ‘‘direct project delivery costs may

include the costs of staff carrying out the activity as well as other

costs such as architectural and engineering services for construction activities or rent and utilities related to an eligible public

service[.]’’ 329 Bernardi was unable to provide details on those activities, however, because ‘‘such specificity cannot be isolated withVerDate 11-MAY-2000 07:50 Feb 02, 2006 Jkt 000000 PO 00000 Frm 00075 Fmt 6659 Sfmt 6602 D:\DOCS\24999.TXT HGOVREF1 PsN: HGOVREF1
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330 Id.

in the data provided to HUD.’’ 330 Consequently, HUD is unable to

determine what percentage of CDBG funds are expended on staff

functions by the 100 most populated entitlement communities.

The committee finds that it is probable some CDBG grantees

permissibly spend an excessive amount of grant dollars on administrative and staff functions that could be categorized as an eligible

activity. In doing so, these communities spend irreplaceable dollars

on functions other than those which are necessary to accomplish

the tangible goals of CDBG programs and activities. Because HUD

does not have the data necessary to precisely determine the

amount of funds expended on such functions, the committee cannot

state with certainty how egregious the problem may be.

2. Recommendations

a. Congress should review and consider revising the eligible activities enumerated in Sec. 5305 of Title 42 of the United

States Code to maintain a wide degree of flexibility of use

within the CDBG program.

b. An aggregate cap on spending, applicable to all administrative and staff functions spanning all eligible activity categories, is necessary to ensure CDBG funds are available for

the ‘‘bricks and mortar’’ community development functions

targeted by the program.

F. CENSUS BUREAU PRODUCTS

1. Findings

a. The decennial census is the primary source of data currently

used for CDBG formula calculations. It currently provides

data for all five of the CDBG formula variables. The decennial census long form provides data for three of the five formula variables and other useful data to HUD and State and

local planners but has shortcomings because this data is updated once every 10 years and quickly becomes dated. The

U.S. Census Bureau, using the American Community Survey, is now providing similar data updated annually. If

HUD were to better use this and other Census products it

could greatly enhance the targeting accuracy and fairness of

CDBG formula allocations.

Discussions between Subcommittee and HUD staff have revealed

that HUD has yet to determine how it will adapt American Community Survey [ACS] data and the rolling averages in particular,

into CDBG calculations. Some observers argue that HUD should

begin now to examine how it can best use ACS data in the design

of its community development policies and formula calculations.

In a separate hearing entitled, ‘‘Life in the Big City: What is

Census Data Telling Us About Urban America and Are Policymakers Really Listening?,’’ held on May 10, 2005, the Federalism

and Census Subcommittee examined the diverse data provided by

the U.S. Census Bureau and how it is used by public and private

sector planners. For example, the new Longitudinal Employer

Household Dynamics [LEHD] program is linking shifts in indusVerDate 11-MAY-2000 07:50 Feb 02, 2006 Jkt 000000 PO 00000 Frm 00076 Fmt 6659 Sfmt 6602 D:\DOCS\24999.TXT HGOVREF1 PsN: HGOVREF1
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331 Id. at 287 (statement of Lisa Patt-McDaniel, assistant deputy director, Community Development Division, Ohio Department of Development, on behalf of the Council of State Community Development Agencies).

trial sectors and workforce requirements. The Bureau also is significantly improving GIS information nation-wide. GIS is becoming

an increasingly important planning tool. HUD, in cooperation with

the U.S. Census Bureau, should explore opportunities for innovative applications of Census Bureau data to improve the targeting

of CDBG funds allocations and for measuring the performance of

CDBG projects.

Another issue raised in the May 10, 2005, hearing was the ongoing need for data user education for improved use of Census Bureau data products—simply because the data is available, does not

mean that the data is effectively used. In the Subcommittee’s May

24, 2005, hearing on CDBG performance measures, Lisa PattMcDaniel testified that if Congress wishes to address the issue of

CDBG program effectiveness, ‘‘it should direct HUD to find ways

to train local governments on best practices on community planning . . .. 331 The committee understands HUD requires that

CDBG applicants and recipients use Census Bureau data and

somewhat facilitates that use through certain types of technical assistance. Nonetheless, it is clear from both the May 10, 2005 and

May 24, 2005 hearings that there are opportunities for more effective application of the wide variety of data provided by the Census

Bureau for community planning purposes. To accomplish that goal,

practitioners need more training. This especially holds true in

smaller communities where a dedicated demographer may not be

on staff. HUD should, in cooperation with the U.S. Census Bureau,

explore opportunities for innovative applications of Census Bureau

data to improve community development programs.

2. Recommendations

a. The committee recommends that HUD, in cooperation with

the U.S. Census Bureau, explore opportunities for innovative

applications of Census Bureau data to improve community

development programs.

Æ