The CDBG program has two basic funding streams (see fig. 1). After funds are set aside for purposes such as the Indian CDBG program and allocated to insular areas, the annual appropriation for CDBG formula funding is split so that 70 percent is allocated among eligible metropolitan cities and urban counties (entitlement communities) and 30 percent among the states to serve non-entitlement communities. Entitlement communities are (1) principal cities of metropolitan areas, (2) other metropolitan cities with populations of at least 50,000, and (3) qualified urban counties with populations of at least 200,000 (excluding the population of entitled cities). HUD distributes funds to entitlement communities and states using a dual formula system in which grants are calculated under two different weighted formulas and grant recipients receive the larger of the two amounts. The formulas consider factors such as population, poverty, housing overcrowding, the age of the housing, and any change in an area’s growth (growth lag) in comparison with other areas. HUD ensures that the total amount awarded is within the available appropriation by reducing the individual grants on a pro rata basis. Entitlement communities and states can have more than one agency administer parts of the CDBG program but one agency must be designated the “lead” (typically a Department of Community Development or similar entity) and single point of contact with HUD. The entitlement communities may carry out activities directly or in the case of urban counties, they may award funds to other units of local government to carry out activities on their behalf. In addition, entitlement communities may award funds to subrecipients to carry out agreed-upon activities. Entitlement communities are subject to very few requirements relating to distribution of their CDBG funds. As long as entitlement communities fund projects that are eligible and meet a national objective, submit required plans and reports, and follow their stated citizen participation plans, they have a large amount of discretion as to how and what they fund. Unlike entitlement communities, states must distribute funds directly to recipients, which again are local units of government (non-entitlement cities and counties). The states’ major responsibilities are to (1) formulate community development objectives, (2) decide how to distribute funds among non-entitlement communities, and (3) ensure that recipient communities comply with applicable state and federal laws and requirements. Grant recipients are limited to 26 eligible activities for CDBG funding. For reporting purposes, HUD classifies the activities into eight broad categories—acquisition, administration and planning, economic development, housing, public improvements, public services, repayments of section 108 loans, and “other” (includes nonprofit organization capacity building and assistance to institutions of higher learning). Recipients may use up to 20 percent of their annual grant plus program income on planning and administrative activities and up to 15 percent of their annual grant plus program income on public service activities. Additionally, the act requires that recipients certify that they will use at least 70 percent of their funds for activities that principally benefit low- and moderate-income people over 1, 2, or 3 years, as specified by the recipient. Generally, an activity is considered to principally benefit low- and moderate-income people if 51 percent or more of those benefiting from the activity are of low- or moderate-income. To receive its annual CDBG entitlement grant, a recipient must submit a 3 to 5-year consolidated plan, a comprehensive planning document and application for funding, to HUD for approval. This document identifies a recipient’s goals, which serve as the criteria against which HUD will evaluate a recipient’s performance annually. The consolidated plan must include a citizen participation plan for obtaining public input on local needs and priorities, informing the public about proposed activities to be funded, and obtaining public comments on performance reports. Annually, recipients must submit an action plan that identifies the activities they will undertake to meet the goals and objectives identified in their consolidated plan as well as an evaluation of past performance and a summary of the citizen participation process. Moreover, on an annual basis, recipients must submit a consolidated annual performance and evaluation report (CAPER) that compares proposed and actual outcomes for each goal and objective in the consolidated plan and, if applicable, explains why the recipient did not make progress in meeting the goals and objectives. Similar to entitlement communities, states must submit their consolidated plans, annual action plans, and performance and evaluation reports (PER). However, the states’ action plans must describe methods for distributing funds to local governments to meet the goals and objectives in their consolidated plans instead of a list of activities as provided by entitlement recipients. HUD’s Office of Community Planning and Development (CPD) administers the CDBG program through program offices at HUD headquarters and 43 field offices located throughout the United States. Staff in the headquarters offices set program policy, while staff in the 43 field offices monitor entitlement recipients directly and monitor the states’ oversight of non-entitlement recipients. A CPD director heads each unit in the field offices. CPD field staff are responsible for grant management activities that include annual review and approval of consolidated plans and action plans, review of annual performance reports, preparation and execution of grant agreements, closeout activities, and technical assistance. Reflecting the flexibility of the CDBG program, entitlement communities used various methods to distribute their funds. For example, most of the medium and large communities in our sample of 20 entitlement communities used competitive processes for a portion of their CDBG funds. These communities aligned award decisions with local priorities and, in some cases, elected officials and the budget process factored strongly in funding decisions. Some local officials told us they could adjust their funding priorities and practices from year to year as needed. To solicit public input and communicate processes and award decisions, all the communities in our sample met the program requirement to hold at least two public hearings, and most took additional steps, including holding multiple community meetings, forming citizen advisory committees, conducting needs assessment surveys, and making information available online. Most of the representatives of community organizations with whom we spoke thought the cities clearly communicated their distribution practices, although some thought that newer or less sophisticated applicants might have more difficulty obtaining funding. Our interviews with 20 entitlement communities demonstrated that the sample grantees took advantage of the CDBG program’s flexibility to distribute their funds in the ways that the grantees felt fit their local needs and circumstances. Most of the medium and large entitlement communities with which we spoke had some level of competitive process for distributing CDBG funds, especially for public services such as childcare, senior services, or employment training. Some communities required government agencies to apply through the same process as nonprofits and other subrecipients. In several communities that distributed funds competitively, the CDBG administrators issued a request for proposal (RFP) describing the local funding priorities, eligible uses for CDBG funds, and, in some cases, specific selection criteria and related points for meeting those criteria. Processes for evaluating applications varied, but commonly involved some level of review by local staff, sometimes followed or accompanied by a review by program experts or a citizen committee. In several communities, the mayor, the local governing board (such as the city council), or both had input and final approval authority for funding recommendations. For example, in Los Angeles, CDBG administrative staff conducted a high-level review of all applications to ensure they were eligible and met a national objective. The departments that administered individual categories of funds then ran their own RFP processes and assembled teams of subject experts and department staff to evaluate proposals. The mayor and city council also had the opportunity to review projects that the departments recommended for funding. The city council issued the final approval following a public hearing at which council members, community organizations, and members of the general public could provide input on the funding recommendations. (See app. II for information on the methods used by all of the entitlement communities in our sample.) A few of the small and medium-sized entitlement communities in our sample used large proportions of their CDBG funds for housing activities or public works projects, and they directly spent those monies through local governmental departments. For instance, Lincoln Park, Michigan, planned to spend more than 70 percent of its 2010 CDBG allocation on infrastructure projects such as streets and utilities, which the public services department would carry out or bid to private contractors. The Lincoln Park official we interviewed stated that capital improvement needs, such as streets and utilities projects, were the city’s highest priority for CDBG funds due to a lack of other funds to carry out such projects. South Gate, California planned to direct about 50 percent of its 2010 allocation to the parks department, based on the results of a series of public and city staff meetings at which citizens and city officials agreed that their parks were the highest-priority need. In South Gate and a few other communities, the government agencies still had to submit letters of request or formal applications. In cases in which smaller communities distributed funds to subrecipients, they often used less formal application and review procedures than some of the larger communities. For example, in Bismarck, North Dakota, which primarily distributed its funds to subrecipients, the CDBG administrator sent application packages to organizations on the city’s mailing list and reached out directly to organizations of which she knew that might have had a CDBG-eligible funding need. A committee of two city officials and a nonprofit official reviewed the applications but did not use a formal ranking system. Gloucester Township, New Jersey, awarded funds based on a discussion between the council and mayor on how proposals met overall township needs. Some of the smaller communities in our sample did not receive applications from many more organizations than they could afford to fund. For instance, Bismarck funded 16 of 22 applications for 2010 and Dover, Delaware, funded 6 of 9 applications. Officials from Gloucester Township and Deltona, Florida, stated that they rarely rejected applications.