The Housing and Community Development Act of 1974 created the CDBG program to develop viable urban communities by providing decent housing and a suitable living environment and by expanding economic opportunities, principally for LMI persons. Program funds can be used for housing, economic development, neighborhood revitalization, and other community development activities. After funds are set aside for special statutory purposes—the Indian Community Development Block Grant program and allocated insular areas—the annual CDBG appropriation is allocated to entitlement communities and states. Entitlement communities generally are principal cities of metropolitan statistical areas, other metropolitan cities with populations of at least 50,000, and qualified urban counties with populations of 200,000 or more (excluding the populations of entitlement cities). States distribute their allocated CDBG funds to nonentitlement communities. After the set-asides, 70 percent of CDBG funds are allocated to entitlement communities, and the remaining 30 percent are allocated to states to distribute to nonentitlement communities. In fiscal year 2015, Congress appropriated about $3.1 billion for the Community Development Fund, $66 million of which was set aside for Native American tribes. Of the remaining amount, roughly $2.1 billion was allocated to entitlement communities, roughly $900 million was allocated to states to distribute to nonentitlement communities, and roughly $7 million was set aside for insular areas. Both entitlement and nonentitlement communities must use CDBG funds toward one of three national objectives: (1) benefitting LMI persons, (2) aiding in the prevention or elimination of slums or blight, or (3) meeting urgent community development needs. At least 70 percent of all funds allocated to entitlement communities and states must be used toward the first objective over a period of 1, 2, or 3 years (as specified by the grantee). Figure 1 illustrates the distribution of CDBG funds. For the LMI national objective, HUD defines an activity to be principally benefitting LMI persons if at least 51 percent of the population of the community or 51 percent of project beneficiaries meet HUD’s LMI definition, which we discuss in detail later. There are several ways a community can qualify for CDBG funds under the objective of principally benefitting LMI persons: If a project is designed to serve the entire community or a smaller area within a community—for example, a waste water project—the community or project area would need to qualify by showing that the entire community or project area is majority LMI persons. HUD refers to these projects as area-benefit activities. If a project is designed to serve a smaller area within a community— for example, a sidewalk for a neighborhood—the community may need to conduct a local income survey to demonstrate that the majority of residents to be served by that project are LMI persons. We refer to this type of survey as a local income survey since it is used to collect income data from a community or individuals that reside in a project service area. If a project is designed to serve a specific clientele—for example, a senior center or homeless shelter—the community may be able to qualify for funding under the LMI objective by showing that the beneficiaries of the project fall under one of the population categories that HUD presumes to be LMI, such as the elderly or homeless. If a project directly benefits LMI persons—for example, rehabilitation of single-family housing that will be occupied by a LMI household or a job creation activity that will create jobs the majority of which will be held by LMI persons—the community can qualify for funding under the LMI objective by showing that the direct beneficiaries are LMI. For the portion of funds that are allocated to states to distribute to nonentitlement communities, HUD provides states with flexibility in determining specific requirements, including those related to program oversight and selecting activities to fund. Specifically, HUD’s CDBG regulations state that HUD will give “maximum feasible deference” to the state's interpretation of the statutory and regulatory requirements, provided that these interpretations are not plainly inconsistent with the statute. States formulate community development objectives for their state and determine how to distribute funds among nonentitlement communities, which submit applications for funding to their respective state. States can use a formula, competition, open application, or a combination of methods to distribute funds to nonentitlement communities. For projects designed to serve either the entire community or a smaller area within a community, HUD produces the LMI summary data to help states and communities determine whether at least 51 percent of a proposed project’s service area is comprised of LMI persons. The LMI summary data draw income data from ACS and provide estimates of the number and percentage of persons in a proposed project’s service area who can be considered low or moderate income. Specifically, a person is considered to be of low income if he or she is a member of a family whose income is at or below 50 percent of area median income. Similarly, CDBG moderate income level is generally tied to 80 percent of area median income. Unrelated individuals in a household are considered one-person families for CDBG purposes. Historically, HUD used data collected by the decennial census long form as the basis for the LMI summary data. However, after the 2000 decennial census, the Census Bureau discontinued the long form and began collecting detailed demographic and income information using ACS. As a result, the current LMI summary data, which were released in July 2014, are based on aggregated 2006–2010 ACS data. In contrast to the decennial census, which was conducted once every 10 years, ACS is an ongoing survey, and the Census Bureau updates its publicly available data annually. In addition, ACS sample sizes (which changed in 2011) and the geographic level at which data are available differ from those of the decennial census long form. See table 1 for a comparison of selected features of the decennial census long form, ACS before 2011, and ACS after 2011. Differences between the two surveys have resulted in differences between the LMI summary data values that are based on each survey, including the following examples: Smaller sample size and larger error rates: ACS has a smaller sample size than the decennial census long form, so the LMI estimates are based on a sample of fewer households. The 2000 decennial census long form was mailed to approximately 20.9 million housing unit addresses, all completed within several months of April 2000. The 2006–2010 5-year ACS estimates included 2.9 million housing unit addresses per year, for a total of 14.5 million addresses over the 2006–2010 5-year period, and surveys were mailed to 250,000 addresses each month. Because the ACS sample size is smaller, HUD uses a 5-year ACS average for its LMI summary data, with the current LMI summary data based on 2006–2010 ACS estimates. Even using 5 years of data, the ACS sample currently used by HUD is still smaller, reaching about 12.5 percent of all addresses, compared with the roughly 17.1 percent of addresses that received the long form of the 2000 decennial census. As a result of smaller sample sizes, ACS generally has higher sampling errors, and its estimates are less precise (see app. II for more details on ACS confidence intervals and their potential effects). HUD and Census Bureau officials noted that unlike the decennial census long form, ACS publishes margins of error with its public data for greater transparency. In 2011, the Census Bureau increased ACS’s overall sample sizes, as well as the sample sizes of small areas. These improvements will be reflected in HUD’s next update of the LMI summary data, which will be based on 2011–2015 data. According to Census Bureau analysis, for a poverty estimate of 10 percent in an average-sized tract and at the 90 percent confidence level, increasing the sample size from 2.9 million to 3.54 million would result in a 9.2 percent improvement in margins of error. More frequent LMI summary data updates: Another difference between the decennial census long form and ACS is that the long- form survey was conducted every 10 years; therefore, HUD updated its LMI summary data every 10 years as well. In contrast, the Census Bureau updates ACS’s 5-year estimates annually. Since switching to ACS data, HUD has chosen to update its LMI summary data once every 5 years. HUD officials said this approach allows communities to develop long-term plans and limit uncertainty related to gaining or losing LMI status from year to year, but still allows for more timely information than the decennial census long form did. Different geographic areas: HUD was able to produce its LMI summary data at a smaller geographic area with the decennial census long form than with ACS. Specifically, the LMI summary data were available at the smaller split-block group-level with the decennial census long form and are only available at the block group-level with ACS. HUD’s and states’ primary policy for nonentitlement communities that disagree with their CDBG eligibility determination based on census data is to allow communities to conduct local income surveys. In addition, some state and local officials said that because the ACS-based LMI summary data are not available at as small a geographic level as the prior LMI summary data, projects’ service areas more often do not align with HUD’s data. As a result, more communities have had to conduct local income surveys to demonstrate eligibility. State and local officials we interviewed said that conducting a local income survey can be a challenge for small communities due to resource constraints and high costs. Other options include applying for funding under one of the other national objectives or for a project targeted to beneficiaries that are presumed to be low income. However, state and community officials said these options can be difficult to use because they may not allow for projects that meet the needs of their communities.