HUD’s CDBG, HOME, and HOPE VI programs and Treasury’s CDFI, Low- Income Housing Tax Credit, and New Markets Tax Credit programs are among a number of federal programs that fund housing and community and economic development. In varying degrees, these programs leverage other funds to help finance their initiatives and projects. As we reported in a May 2007 report, some of these programs define leveraging as using one source of funds to attract additional sources of funds, while others define leveraging more broadly as the layering or combining of different sources of funds. Further, and as described below, some of these programs leverage at the institutional and project levels, while some leverage only at the project level. At the institutional level, an organization (such as a group of investors or a community or other development authority) pools funds from multiple sources, which are then used to finance a portfolio of projects. At the project level, an organization (such as a state or local agency) leverages funds as necessary to finance discrete projects. We highlight below the purpose, structure, and activities of the three HUD programs and three Treasury programs that we reviewed. Appendix II describes in more detail how leveraging occurs in the selected Treasury programs. The CDBG program is the federal government’s principal community development program. It provides annual grants on a formula basis to entitlement communities—principal cities of metropolitan statistical areas, other metropolitan cities with populations of at least 50,000, and qualified urban counties—and states to develop viable urban communities by providing decent housing and a suitable living environment, and by expanding economic opportunities, principally for low- and moderate- income persons. Under the CDBG program, communities and states develop their own programs and funding priorities. However, all funded activities must meet one of three national objectives: primarily benefit low- and moderate-income persons, aid in the prevention or elimination of slums and blight, or meet community development needs of particular urgency (because existing conditions pose a serious and immediate threat to the health or welfare of the community and other financial resources are not available to meet such needs). Although the CDBG program has no statutory or regulatory leveraging requirement, some projects funded under the program use CDBG funds to leverage additional funds to finance development costs. In fiscal year 2007, Congress appropriated approximately $3.7 billion to the CDBG program for formula distribution, and HUD allocated these funds to 1,133 entitlement communities, 49 states, and Puerto Rico. HOME provides formula grants to states and localities—certain cities, counties, or consortiums of cities and counties—to fund a wide range of activities to benefit low-income people. Under the HOME program, states and localities may use program funds to finance a broad range of activities, such as providing eligible homeowners and new homebuyers with home purchase or rehabilitation financing assistance and building or rehabilitating housing for rent or ownership. States and localities also may use HOME funds to provide tenant-based rental assistance. The program requires states and localities to match 25 percent of expended program funds with monetary or certain in-kind contributions, such as donated materials or voluntary labor. This match requirement was designed to elicit local resources in support of affordable housing. Like the CDBG program, the HOME program has no statutory or regulatory leveraging requirement; however, some projects funded under the program use HOME funds to leverage additional funds to finance development costs. In fiscal year 2007, Congress appropriated approximately $1.8 billion to the HOME program, and HUD allocated these funds to 589 localities, the 50 states, and Puerto Rico. HOPE VI is part of HUD’s effort to transform public housing. By providing funds for a combination of capital improvements and community and supportive services, the HOPE VI revitalization grant program seeks to (1) improve the living environment for residents of severely distressed public housing through the demolition, rehabilitation, reconfiguration, or replacement of obsolete units; (2) revitalize sites on which such severely distressed public housing is located, and contribute to the improvement of the surrounding neighborhood; (3) provide housing that will avoid or decrease the concentration of very-low income families; and (4) build sustainable communities. Any public housing agency (PHA) that has severely distressed public housing units in its inventory is eligible to apply for a HOPE VI revitalization grant. Recipients of revitalization grants must match 5 percent of the grant with other funds, and HUD awards PHAs that demonstrate an ability to leverage additional points in the HOPE VI application process. In fiscal year 2006, HUD made four HOPE VI revitalization grants totaling approximately $72 million. Through the CDFI program, Treasury’s CDFI Fund provides CDFIs with financial assistance in the form of grants, loans, equity investments, and deposits to enhance their ability to make loans and investments and provide services for the benefit of designated investment areas, targeted populations, or both. CDFIs must match (leverage) their financial assistance awards dollar-for-dollar with funds of the same type (equity investment, loan, deposit, or grant) from nonfederal sources. CDFI funds can be used for economic development (job creation, business development, and commercial real estate development), affordable housing (housing development and homeownership), and community development financial services (provision of basic banking services to underserved communities and financial literacy training). In 2007, Treasury made approximately $26 million in financial assistance awards to 49 CDFIs. Under the Low-Income Housing Tax Credit program, states are authorized to allocate federal tax credits to private investors as an incentive to develop rental housing for low-income households. The equity generated by the sale of the credits is used to lower the financing costs of housing developments by reducing the debt or equity the developer otherwise would incur or contribute. Investors who purchase the tax credits may claim the credits annually for 10 years. To receive Low-Income Housing Tax Credit financing, properties must meet certain rent and tenant income requirements: (1) at least 20 percent of the units in the property must be reserved for individuals or families with incomes of 50 percent or less of the area median income, or at least 40 percent of the units must be reserved for individuals or families with incomes of 60 percent or less of the area median income; and (2) rents for affordable units are restricted to 30 percent of the applicable income limit (that is, 50 percent or 60 percent of the area median income). Each state receives an allocation of the greater of $1.75 per capita or $2 million annually, adjusted by a cost of living factor ($1.95 or $2.275 million in 2007). The program costs the federal government an estimated $5 billion annually in forgone tax revenue and is the government’s largest housing production program. The New Markets Tax Credit program permits taxpayers to receive a credit against federal income taxes for making qualified equity investments in designated Community Development Entities (CDE), which must in turn make investments in low-income communities. Qualified low-income community investments include (1) any capital or equity investment in, or loan to, any qualified, active, low-income community business; (2) the purchase from another CDE of any loan made by such entity that is a qualified low-income community investment; (3) financial counseling and other services to businesses located in, and residents of, low-income communities; and (4) certain equity investments in, or loans to, a CDE. The credit provided to the investor totals 39 percent of the cost of the investment and is claimed over a 7-year period. In addition, Treasury scores those applications in which CDEs demonstrate an ability to leverage additional funds more favorably. In fiscal year 2007, Treasury awarded $3.9 billion in New Markets Tax Credits (totaling approximately $1.5 billion in forgone federal tax revenue) to 61 CDEs. The leverage measures (such as ratios) HUD and Treasury reported for the selected programs in performance, budget, and other documents lacked transparency because the agencies generally did not disclose the limitations of the data or the methods used to calculate them. Based on our review of available leveraging data and interviews with HUD and Treasury officials, we found that the leverage measures the agencies reported for the selected programs were based on incomplete data and thus did not capture the actual extent of leveraging in the programs. We also found that while the agencies generally reported measures that described the ratio of all other funds (federal, state, local, and private funds) to program funds, alternative measures that described the total federal investment or total private investment in a program provided considerably different results—also potentially of value to decision makers—about the extent of leveraging in a program. Further, no agency- specific or governmentwide guidance directs what agencies should disclose about the leverage measures they report for the selected programs; however, we regularly have reported that clearly communicating data limitations and their potential impact may foster appropriate use of data. Consequently, absent specific information on how these measures were calculated and their limitations, decision makers would not have sufficient information to understand their meaning and determine how they could and should be used in performance assessment, budgeting, and other contexts. Based on our review of available leveraging data and interviews with HUD and Treasury officials, we found that the leverage measures the agencies reported for the selected programs were based on incomplete data and did not capture the actual extent of leveraging that may have occurred in each of the programs. We also found that HUD and Treasury did not always disclose these limitations when they published the measures. Table 1 describes the limitations associated with the underlying data used for determining leverage measures for each of the selected programs.