by Pamela Sosne Kond?

NLC, along with other local government groups, has committed to working with Congress as it reviews changes to the funding formula for the Community Development Block Grant (CDBG) program.

The House of Representatives Subcommittee on Federalism and the Census held a hearing last week on potential changes to the funding formula allocations.  The formula has not been reviewed or changed since the 1970s, said Subcommittee Chairman Mike Turner (R-Ohio). 

Exercising its oversight responsibility over all housing and community development matters, the subcommittee began a deliberative process to fully study potential changes to the existing formulas. This action is separate from proposals to eliminate CDBG by consolidating it with 17 other programs, create a new program in the Department of Commerce and cut the funding.

?For over 30 years, the CDBG program has been a critical tool in the arsenal of cities to help create livable communities for individuals and families,? Turner said.

?Without question, the program provides vital funds for addressing poverty as well as community development needs, from eradicating blight to providing potable water and building sewers.  And while CDBG enables states and local governments to accomplish many of the objectives outlined in the original authorization, the program exhibits several problems that require remedy,? Turner said.

The hearing included discussion on ?CDBG Formula Targeting to Community Development Need,? published by the Department of Housing and Urban Development (HUD) in February 2005.  The report, which makes suggestions to change the funding formula, was a result of a study on the declining effectiveness of the current grant formula in targeting the neediest communities. 

Saul Ramirez Jr., executive director, National Association of Housing and Redevelopment Officials (NAHRO) and former mayor of Laredo, Texas, testified on behalf of NAHRO, NLC and other local government organizations. 

In addition to discussing HUD?s proposed funding formula changes, Ramirez urged caution in proceeding too quickly with any dramatic changes to the current formula, which is used to distribute more than $4.7 billion annually to cities and towns across the country.

In earlier testimony in front of the same subcommittee on March 1, NLC First Vice President James Hunt, councilmember, Clarksburg, W.Va., commented that NLC policy indicates that CDBG is the most successful federal block grant program.   It is such a success for local governments because it provides a flexible, steady source of funds. 

?One can always tweak and improve good programs,? Hunt said. ?NLC is committed to working closely with Congress and HUD to ensure that CDBG funds are being distributed in the most effective and equitable manner possible.?

The four alternative proposed formula changes in HUD?s February report could have dramatic redistribution effects for certain cities. For example, under one proposed alternative formula, Washington, D.C., could receive $7 million less in CDBG funds annually but Miami, Fla. could receive almost $6 million more in CDBG funds annually. 

NLC cautioned that this type of change to the formula may create uncertainty and inhibit CDBG?s current ability to leverage billions of dollars of private investment in some of the poorest communities, and implementation of any changes must proceed cautiously with a full understanding of the consequences.

Last week?s hearing included testimony by HUD Deputy Secretary Roy Bernardi, who spoke about the department?s CDBG report.

As modified in 1978, a dual formula is now employed by HUD to distribute CDBG funds to entitlement communities and to states. 

For entitlement communities, Formula A is based on population (25 percent), poverty (50 percent), and overcrowding (25 percent). Formula B is based on share of growth lag (20 percent), poverty (30 percent), and pre-1940 housing (50 percent). 

Bernardi mentioned a few particular problems with the current formula.  For example, cities that receive more funding under Formula B, which includes the ?pre-1940 housing? factor, may be receiving more than their ?fair share.? 

Many cities have historic downtowns with pre-1940 housing stock and higher-income residents that, because of revitalization and location, are no longer indicative of poverty at all. 

Also, in communities with large college student populations, those ?poor? full-time students may be counted under the poverty factor in both Formula A and Formula B, using census data, but in reality are dependent upon high-income parents.  
This could also create an inequity in the distribution system, where higher-income communities could be getting a larger share of CDBG funds per capita than those with higher community development needs, suggested Bernardi.

Examples such as these caused HUD to conduct its study of the formulas and propose alternative formulas. Instead of using the current formulas, HUD created an index of community development need based on 17 variables for entitlement communities and 10 variables for state CDBG programs. 

Using this needs index, it proposed four alternative formulas.

During the hearing, representatives of the Government Accountability Office (GAO) also commented about the HUD study and made some recommendations. 

GAO found that HUD?s report on the CDBG formula provided a ?thoughtful and sophisticated analysis of those elements of the formula that impede effective and equitable targeting of limited federal resources.? 

While GAO questioned some of the factors in HUD?s index of community need, its representatives ?believe that it serves as a reasonable basis for evaluating CDBG targeting.?  GAO representatives concluded that, while HUD formula options improve needs targeting, additional options should also be explored before deciding on a particular reform strategy.?

The HUD study is available on its website at http://www.huduser.org/ Publications/pdf/CDBGAssess.pdf

Entitlement cities and states may want to refer to the HUD study, Appendix B (Impact of Alternatives on Individual Grantees), to see a listing of cities and their comparable funding amounts according to the four proposed alternatives.
The NLC Community and Economic Development Policy and Advocacy Steering Committee will be discussing HUD?s report at its spring meeting, and welcomes input from member cities.   Please contact Pamela Kond? at 202-626-3068 or submit comments or questions to konde@nlc.org.