By Yuriy Dyudyuk, USCM Intern
March 6, 2006

Signed into law by President Gerald R. Ford August 22, 1974, the Department of Housing and Urban Development (HUD) Community Development Block Grant (CDBG) has been a staple for the cities of the United States for thirty years.

The highly flexible annual allocation of funds is used to stimulate community and economic development, and address the needs of low and moderate income residents in U.S. cities and counties.

The proposed Presidential budget for FY2007 calls for significant cuts in other federal programs to cities, and also calls for a 25 percent reduction in the CDBG formula grants, which provide direct annual funds to cities with a population in excess of 50,000. Opposing these cuts is a major priority of the Conference of Mayors and the coalition formed with other public interest groups.

CDBG Program’s origins are rooted in an earlier program, Model Cities, which passed in 1966 and was part of President Lyndon B. Johnson’s national “War on Poverty.”

The new program was championed by President Richard M. Nixon and merged a variety of categorical aid programs that were available to cities. These scattered “categorical” programs were merged into the proposed “block grant” for cities and counties under Title I of the Housing and Community Development Act. These categorical programs of the 1960s and 70s included initiatives such as Neighborhood Program grants, Historic Preservation grants, and the Urban Renewal program.

Popular in the mid-1960s, these categorical programs were intended to attack social problems as well as infrastructure in communities, urban counties, and special districts. Funds were allocated to each categorical program and were then federally distributed to states and communities to provide assistance for projects including open'space, historic preservation, and water and sewer grants. In order to continue to meet the specific problems plaguing cities, counties, and special districts, the number of categorical grants increased throughout the 1960s.

The new Block Grant program was a major shift in how the U.S. Department of Housing and Urban Development provided funds to cities and states for housing and neighborhood preservation, and for improving the quality of life. The original intent of the CDBG program was to streamline and increase the efficiency of existing federal aid to cities by targeting aid to low and mid-income citizens. However, in the wake of what many considered ineffective categorical grants, CDBG also became an effort to downsize bureaucracy and to delegate responsibilities for housing and community development programs to states and local governments, away from the Federal Government’s direct involvement.

Under the CDBG program, there is no federal project-by-project application and approval process as in the past. Instead, an entitlement community can develop a flexible, locally designed, comprehensive community development strategy.

Under the current guidelines, 70 percent of the funds go directly from HUD to cities with populations of 50,000, or more. The remaining 30 percent of the funds go to state governments, which must submit an annual state plan to HUD, describing the allocation process. Cities with smaller populations and counties that have a non-metropolitan population under 200,000, and are not eligible for direct funding from HUD, apply for these funds from their states.

All projects funded through the CDBG program typically meet the first national objective (out of three in total), to benefit low- and moderate-income persons by benefiting at least 51 percent low- to moderate-income persons, which are defined as those, who:

• Earn equal to or less than 80 percent of the area median family income figure (where the area is a metropolitan statistical area or a non-metropolitan county) or

• Earn equal to or less than less than 80 percent of the statewide non-metropolitan median family income figure, as defined under the US Department of Housing and Urban Development Section 8 Housing Assistance Program.

Some projects of cities may meet the second national objective of aiding in the prevention or elimination of slum or blight, with the remainder of CDBG projects falling under the third national objective. This one is designed to meet community development needs having a particular urgency, which the CDBG Program describes as Disaster Relief and Urgent Need Fund projects.

CDBG currently provides funds to almost 1,000 cities, states and counties with HUD as the administrating agency responsible for overseeing distribution of the grants. Under HUD guidelines, cities are required to undergo a rigorous planning process to determine need. The regulations governing the funds to cities require that the resources be used to develop primary assistance to low or moderate income persons, 70 percent of the funds must be used for this purpose. When considering how much funding should be allocated to individual cities, HUD uses a formula that consists of factors such as the prevalence of overcrowded housing, poverty rate and population.

Projects funded by the CDBG have been of a neighborhood nature. These kinds of small'scale initiatives have tended to be the type most valued by communities benefiting from the program. In addition, the grants have helped fund traditional projects such as public works, financial support to small or minority-owned businesses, services for low-income persons, such as welfare-to work, and adult literacy programs. The most common use of CDBG funds, however, has been to revitalize affordable housing for low-income people.

Over the years, cities have come to depend on the annual grant to assist them in providing valuable services to their citizenry. The flexibility of the funds allows local governments to decide where the money might best be spent; thereby allowing the program to be customized to meet the differing needs communities face. Cities may choose to perform CDBG projects themselves or to award the funds to public and private groups. Both non-profit and for-profit groups can apply to receive money.

Another trend of the CDBG has been for communities to allocate large sums of their funds to neighborhood-based projects rather then citywide initiatives. This has historically been the case in cities with large levels of poverty. In fact, CDBG funds used to benefit low-income people have often gone beyond the level originally established by Congress.

While the 1990 census showed that roughly one-third of areas receiving CDBG money reported increased poverty rates, research determined that in sixteen studied cites almost all of the neighborhoods that improved in those cities were recipients of CDBG projects. The CDBG has had a positive impact on local economies, creating an estimated 161,000 new jobs all over the country in Fiscal Year 2001.

Cities are not the only benefactors. In Texas, for example, the Office of Rural and Community Affairs (ORCA), is the state agency dedicated solely to rural Texas and has a CDBG program that is, according to them, the largest in its reach in the nation. The rural-focused program serves approximately 1,017 eligible rural communities, 245 rural counties, and provides services to over 375,000 low- to moderate-income beneficiaries each year. Of the 1,017 cities eligible for CDBG funds, 740 have a population of less than 3,000 and 424 have a population of less than 1,000. The demographics and rural characteristics of Texas have shaped a program that focuses on providing basic human needs and sanitary infrastructure to small rural communities in outlying areas.