[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]




 
 A TOP TO BOTTOM REVIEW OF THE THREE-DECADES-OLD COMMUNITY DEVELOPMENT 
 BLOCK GRANT PROGRAM: IS THE CDBG PROGRAM STILL TARGETING THE NEEDS OF 
                            OUR COMMUNITIES?

=======================================================================

                                HEARINGS

                               before the

                       SUBCOMMITTEE ON FEDERALISM
                             AND THE CENSUS

                                 of the

                              COMMITTEE ON
                           GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED NINTH CONGRESS

                             FIRST SESSION

                               __________

                  MARCH 1, APRIL 26, AND MAY 24, 2005

                               __________

                            Serial No. 109-7

                               __________

       Printed for the use of the Committee on Government Reform


  Available via the World Wide Web: http://www.gpo.gov/congress/house
                      http://www.house.gov/reform


                                 ______

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                     COMMITTEE ON GOVERNMENT REFORM

                     TOM DAVIS, Virginia, Chairman
CHRISTOPHER SHAYS, Connecticut       HENRY A. WAXMAN, California
DAN BURTON, Indiana                  TOM LANTOS, California
ILEANA ROS-LEHTINEN, Florida         MAJOR R. OWENS, New York
JOHN M. McHUGH, New York             EDOLPHUS TOWNS, New York
JOHN L. MICA, Florida                PAUL E. KANJORSKI, Pennsylvania
GIL GUTKNECHT, Minnesota             CAROLYN B. MALONEY, New York
MARK E. SOUDER, Indiana              ELIJAH E. CUMMINGS, Maryland
STEVEN C. LaTOURETTE, Ohio           DENNIS J. KUCINICH, Ohio
TODD RUSSELL PLATTS, Pennsylvania    DANNY K. DAVIS, Illinois
CHRIS CANNON, Utah                   WM. LACY CLAY, Missouri
JOHN J. DUNCAN, Jr., Tennessee       DIANE E. WATSON, California
CANDICE S. MILLER, Michigan          STEPHEN F. LYNCH, Massachusetts
MICHAEL R. TURNER, Ohio              CHRIS VAN HOLLEN, Maryland
DARRELL E. ISSA, California          LINDA T. SANCHEZ, California
GINNY BROWN-WAITE, Florida           C.A. DUTCH RUPPERSBERGER, Maryland
JON C. PORTER, Nevada                BRIAN HIGGINS, New York
KENNY MARCHANT, Texas                ELEANOR HOLMES NORTON, District of 
LYNN A. WESTMORELAND, Georgia            Columbia
PATRICK T. McHENRY, North Carolina               ------
CHARLES W. DENT, Pennsylvania        BERNARD SANDERS, Vermont 
VIRGINIA FOXX, North Carolina            (Independent)
------ ------

                    Melissa Wojciak, Staff Director
       David Marin, Deputy Staff Director/Communications Director
                      Rob Borden, Parliamentarian
                       Teresa Austin, Chief Clerk
          Phil Barnett, Minority Chief of Staff/Chief Counsel

               Subcommittee on Federalism and the Census

                   MICHAEL R. TURNER, Ohio, Chairman
CHARLES W. DENT, Pennsylvania        WM. LACY CLAY, Missouri
CHRISTOPHER SHAYS, Connecticut       PAUL E. KANJORSKI, Pennsylvania
VIRGINIA FOXX, North Carolina        CAROLYN B. MALONEY, New York
------ ------

                               Ex Officio

TOM DAVIS, Virginia                  HENRY A. WAXMAN, California
                     John Cuaderes, Staff Director
            Ursula Wojciechowski, Professional Staff Member
                       Shannon Weinberg, Counsel
                         Juliana French, Clerk
           David McMillen, Minority Professional Staff Member


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    March 1, 2005................................................     1
    April 26, 2005...............................................   107
    May 24, 2005.................................................   191
Statement of:
    Bernardi, Roy A., Deputy Secretary, U.S. Department of 
      Housing and Urban Development........................... 112, 197
    Bernardi, Roy A., Deputy Secretary, Department of Housing and 
      Urban Development; Clay Johnson III, Deputy Director for 
      Management, Office of Management and Budget; and David A. 
      Sampson, Assistant Secretary of Commerce for Economic 
      Development, Department of Commerce........................     6
        Bernardi, Roy A..........................................     6
        Johnson, Clay III........................................    20
        Sampson, David A.........................................    23
    Posner, Paul, Director, Federal Budget & Intergovernmental 
      Relations, Government Accountability Office; Jerry C. 
      Fastrup, Assistant Director, Applied Research and Methods, 
      Government Accountability Office; and Saul N. Ramirez, Jr., 
      executive director, National Association of Housing and 
      Redevelopment Officials....................................   144
        Posner, Paul.............................................   144
        Ramirez, Saul N., Jr.....................................   161
    Plusquellic, Don, president, U.S. Conference of Mayors; 
      Angelo D. Kyle, president, National Association of 
      Counties; Chandra Western, executive director, National 
      Community Development Association; and James C. Hunt, 
      Councilman, city of Clarksburg, WV, on behalf of National 
      League of Cities...........................................    49
        Hunt, James C............................................    62
        Kyle, Angelo D...........................................    59
        Plusquellic, Don.........................................    49
        Western, Chandra.........................................    60
    Schmitt, Ron, councilmember, city of Sparks, NV; Thomas 
      Downs, fellow, National Academy of Public Administration; 
      Lisa Patt-McDaniel, assistant deputy director, Community 
      Development Division, Ohio Department of Development, on 
      behalf of COSCDA; and Sheila Crowley, Ph.D., president, 
      National Low Income Housing Coalition......................   224
        Crowley, Sheila, Ph.D....................................   263
        Downs, Thomas............................................   232
        Patt-McDaniel, Lisa......................................   241
        Schmitt, Ron.............................................   224
Letters, statements, etc., submitted for the record by:
    Bernardi, Roy A., Deputy Secretary, Department of Housing and 
      Urban Development, prepared statements of............ 9, 116, 199
    Clay, Hon. Wm. Lacy, a Representative in Congress from the 
      State of Missouri, prepared statements of........... 85, 185, 218
    Crowley, Sheila, Ph.D., president, National Low Income 
      Housing Coalition, prepared statement of...................   265
    Downs, Thomas, fellow, National Academy of Public 
      Administration, prepared statement of......................   234
    Hunt, James C., Councilman, city of Clarksburg, WV, on behalf 
      of National League of Cities, prepared statement of........    65
    Johnson, Clay III, Deputy Director for Management, Office of 
      Management and Budget, prepared statement of...............    21
    Maloney, Hon. Carolyn B., a Representative in Congress from 
      the State of New York, prepared statement of...............   222
    Patt-McDaniel, Lisa, assistant deputy director, Community 
      Development Division, Ohio Department of Development, on 
      behalf of COSCDA, prepared statement of....................   244
    Posner, Paul, Director, Federal Budget & Intergovernmental 
      Relations, Government Accountability Office, prepared 
      statement of...............................................   147
    Plusquellic, Don, president, U.S. Conference of Mayors, 
      prepared statement of......................................    52
    Ramirez, Saul N., Jr., executive director, National 
      Association of Housing and Redevelopment Officials, 
      prepared statement of......................................   165
    Sampson, David A., Assistant Secretary of Commerce for 
      Economic Development, Department of Commerce, prepared 
      statement of...............................................    25
    Schmitt, Ron, councilmember, city of Sparks, NV, prepared 
      statement of...............................................   226
    Turner, Hon. Michael R., a Representative in Congress from 
      the State of Ohio, prepared statements of............ 4, 110, 194


   STRENGTHENING AMERICA'S COMMUNITIES: IS IT THE RIGHT STEP TOWARD 
            GREATER EFFICIENCY AND IMPROVED ACCOUNTABILITY?

                              ----------                              


                         TUESDAY, MARCH 1, 2005

                  House of Representatives,
         Subcommittee on Federalism and the Census,
                            Committee on Government Reform,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 10:03 a.m., in 
room 2154, Rayburn House Office Building, Hon. Michael R. 
Turner (chairman of the subcommittee) presiding.
    Present: Representatives Turner, Dent and Foxx.
    Staff present: John Cuaderes, staff director; Shannon 
Weinberg, counsel; Ursula Wojciechowski, professional staff 
member; Juliana French, clerk; Neil Seifring, Hon. Turner, 
legislative director; Stacy Barton, Hon. Turner, chief of 
staff; Erin Maguire, Hon. Dent, LC; David McMillen and Adam 
Bordes, minority professional staff members; Earley Green, 
minority chief clerk; and Cecelia Morton, minority office 
manager.
    Mr. Turner. Good morning. A quorum being present, this 
hearing of the Subcommittee on Federalism and the Census will 
come to order.
    Welcome to the Subcommittee on Federalism and the Census. 
This is the first oversight hearing entitled, ``Strengthening 
America's Communities: Is It the Right Step Toward Greater 
Efficiency and Improved Accountability?'' Today's hearing is 
the first meeting of this newly established subcommittee.
    Before I move on, I would like to thank our chairman Tom 
Davis for establishing this new subcommittee. As a former 
county administrator, Chairman Davis understands the importance 
of the intergovernmental dynamics between Federal, State and 
local governments, and I thank him for his leadership in 
establishing this subcommittee.
    On February 7, 2005, the administration unveiled a plan in 
the fiscal year 2006 budget to consolidate 18 existing direct 
grant, economic, and community programs managed by five Federal 
agencies into a single direct grant program within the 
Department of Commerce. The grants previously awarded under 
these programs would be awarded in the name of the newly formed 
Strengthening America's Communities grant program. The budget 
for these 18 programs would drop 30 percent, from $5.31 billion 
in fiscal year 2005 to $3.71 billion in fiscal year 2006.
    To underscore the enormous impact that this new proposal 
would have on State and local governments, consider that in 
fiscal year 2005, the Community Development Block Grant program 
alone was funded at $4.15 billion, $450 million more than the 
$3.7 billion requested for the new Strengthening America's 
Communities grant program in fiscal year 2006.
    The administration's Strengthening America's Communities 
initiative is described as a unified direct-grant program 
focusing on America's most economically distressed communities 
with the intent of creating the conditions for economic growth, 
robust job opportunities and livable communities. While these 
are certainly laudable goals, there is widespread concern and 
many unanswered questions about this wide-reaching proposal. 
The purpose of this hearing is to better understand the 
administration's proposal and to begin an important dialog on 
some of the strong concerns raised by stakeholders involved in 
administrating these programs.
    The rationale behind the reorganization of these 18 
programs is to refocus the grant moneys on the original intent 
of each of the programs. According to a review by the Office of 
Management and Budget, most of the 18 grant programs lack clear 
goals or sufficient accountability. Further, many of the grants 
overlap in key areas, resulting in duplicative efforts and 
wasted money. The goal of the administration's Saving American 
Communities proposal--Strengthening America's Communities 
proposal is to make these grant programs not only more 
efficient and effective but to improve the measures of success 
within a community and instill a greater accountability. 
Additionally, the administration aims to simplify access to 
these grant programs and set new eligibility criteria.
    I commend the administration for initiating a conversation 
about how to best utilize tax dollars to help distressed areas 
address the community and economic development challenges they 
face. There appears to be broad recognition that the programs 
targeted for elimination or consolidation need reform. However, 
there are several aspects of this proposal that concern me. 
Most significantly, the administration is proposing a massive 
realignment of programs associated with longstanding and 
complex programs, such as housing, job creation, business and 
community and economic development. We do not have specific 
details on this reorganization plan or a transition plan to 
move these programs to the Department of Commerce.
    Finally, the administration has not spelled out a clear 
rationale for reducing the historic role of HUD in addressing 
these issues. The Department of Commerce does not have historic 
successes in urban revitalization.
    One concern of our subcommittee will be determining if the 
proposal actually creates rather than diminishes duplication 
among Federal programs. Another will be focusing upon what, if 
any, metrics can be applied to the administration's proposal to 
determine the proposal's likely success.
    The administration has proposed a far-reaching 
restructuring of the role the Federal Government plays in 
improving our distressed areas. I look forward to an in depth 
discussion about this proposal and how it is expected to 
perform more effectively than the current programs in aiding 
our communities. I welcome the views of those who administer 
and analyze these programs in helping us understand the impact 
of the administration's plans.
    We have two panels of witnesses before us to help us 
understand the implications of the Strengthening America's 
Communities program. First, we will hear from Mr. Roy Bernardi, 
the Deputy Secretary of the Department of Housing and Urban 
Development. Because the CDBG program is a major component of 
the Strengthening America's Communities program, I have asked 
HUD to give the subcommittee an overview of how the current 
system is run and perhaps even ideas about how the current 
system can be improved.
    Also, on the first panel, we will hear from Mr. Clay 
Johnson III, Deputy Director for Management at the Office of 
Management and Budget; and from the Department of Commerce, Mr. 
David Sampson, Assistant Secretary of Commerce for Economic 
Development. OMB played a large role in creating the 
Strengthening America's Communities program while Commerce will 
be the chief implementer under the proposed plan.
    The second panel will consist of stakeholder 
representatives from the U.S. Conference of Mayors, the 
National League of Cities, the National Association of Counties 
and the National Community Development Association. We have the 
Honorable Don Plusquellic, mayor of Akron, OH, on behalf of the 
U.S. Conference of Mayors; Mr. Angelo Kyle, president of the 
National Association of Counties; on behalf of the National 
Community Development Association and the National Association 
for County Community and Economic Development, Chandra Western, 
the executive director.
    Last, but not least, we have the Honorable Mr. James Hunt, 
councilman for the city of Clarksburg, WV, testifying on behalf 
of the National League of Cities.
    I look forward to the expert testimony of our distinguished 
panels and the leadership that they will provide today. Welcome 
to you all.
    For additional information, today's hearing can be viewed 
via live Webcast at reform.house.gov on the multimedia link, 
live multimedia stream.
    I now yield to our vice chairman, Mr. Dent, for an opening 
statement.
    [The prepared statement of Hon. Michael R. Turner follows:]

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    Mr. Dent. Thank you, Mr. Chairman. I appreciate this 
opportunity.
    Last week, I had the opportunity to spend time with many of 
the housing advocates in my community who expressed to me their 
concerns and reservations about some aspects of the 
administration's proposal with respect to the consolidation and 
proposed cuts in HUD funding generally. So I just really look 
forward to hearing what you have to say.
    There is a great deal of concern about HOPE VI in 
particular as well as some other initiatives. So, with that, I 
will stop now, and just look forward to receiving your 
testimony. Thank you.
    Mr. Turner. We will now start with the witnesses. Each 
witness has kindly prepared written testimony which will be 
included in the record of this hearing. Each witness has also 
prepared an oral statement summarizing their written testimony. 
Witnesses will notice that there is a timer light on the 
witness table. The green light indicates you should begin your 
remarks, and the red light indicates that your time has 
expired. In order to be sensitive to everyone's time schedule, 
we ask that witnesses cooperate with us in adhering to the 5-
minute time allowance for their oral presentation, and we will 
follow that with a question-and-answer period. We will not 
strictly enforce the red light; if it comes on and you are in 
the middle of something, feel free to conclude.
    It is the policy of this committee that all witnesses are 
sworn in before they testify. So if you would please stand and 
raise your right hands.
    [Witnesses sworn.]
    Mr. Turner. Let the record show that all witnesses 
responded in the affirmative.
    And we will begin our testimony with Secretary Bernardi.

STATEMENTS OF ROY A. BERNARDI, DEPUTY SECRETARY, DEPARTMENT OF 
    HOUSING AND URBAN DEVELOPMENT; CLAY JOHNSON III, DEPUTY 
 DIRECTOR FOR MANAGEMENT, OFFICE OF MANAGEMENT AND BUDGET; AND 
DAVID A. SAMPSON, ASSISTANT SECRETARY OF COMMERCE FOR ECONOMIC 
              DEVELOPMENT, DEPARTMENT OF COMMERCE

                  STATEMENT OF ROY A. BERNARDI

    Mr. Bernardi. Good morning, Mr. Chairman, and members of 
the subcommittee.
    I am Roy Bernardi, Deputy Secretary of the Department of 
Housing and Urban Development. And on behalf of Secretary 
Alphonso Jackson, HUD appreciates the opportunity to appear 
today with regard to the Bush administration's Strengthening 
America's Communities Initiative.
    The goal of the initiative, Mr. Chairman, as you indicated, 
is to consolidate collection of 18 community and economic 
programs spread across five Federal departments. And I am sure 
we will get into that. The subcommittee has asked that I focus 
on providing an overview of how CDBG and related HUD programs 
are administered by the Department. In addition to CDBG, the 
proposed initiative would consolidate and replace other much 
smaller HUD programs, including brownfields development grants, 
grants to Round II Empowerment Zones, rural and economic 
development grants, and the Section 108 loan guarantee program. 
However, I will focus most of my attention on CDBG.
    The CDBG program is the Federal Government's largest single 
grant program to assist local jurisdictions in undertaking a 
variety of community development activities targeted to 
improving the lives of low and moderate-income Americans. For 
the past 30 years, CDBG has provided a steady source of funding 
for housing rehabilitation, public services, public facilities 
and infrastructure, and economic development activities 
benefiting millions of Americans.
    It's unique among Federal programs in that it may be 
counted as a local government match for funding under Federal 
programs that require local financial contributions. CDBG owes 
its existence to the Congress and is embodied in the Housing 
Community Development Act of 1974, and at that time, it 
consolidated 10 categorical urban development programs into a 
single, predictable, flexible program where ultimate funding 
decisions were reserved to local officials.
    The legislative purposes of the CDBG program have remained 
unchanged since 1974: The development of viable communities by 
providing decent housing; establishing suitable living 
environments; and expanding economic opportunities, all 
targeted principally to persons of low and moderate-income. 
Currently, the law requires that 70 percent of CDBG funds 
benefit low and moderate-income persons.
    In 1975, the CDBG's first year of operation, there were a 
total of about 600 entitlement communities. In 2005, there were 
about 1,100, including 165 urban counties that represent a 
funding conduit for more than 2,500 local governments. And the 
State portion of the appropriation is 30 percent. And, with 
that, the States allocate that money to towns and villages, 
over 3,000 grants annually.
    Each activity funded with these dollars must meet one of 
three of the program's national objectives: Funding to benefit 
low and moderate-income persons; elimination of slums and 
blight conditions; and the third one is meeting imminent health 
or safety threats. And, obviously, CDBG is employed by 
communities in many different ways. The CDBG funds are used to 
directly finance activities such as construction of public 
facilities and improvements, public services, economic 
development, and housing. Citing one example from fiscal year 
2004, the resources used by local governments to fund economic 
development activities at a level of $434 million, these 
investments served to create or retain 78,000 jobs, of which 76 
percent went to low and moderate-income persons. And we expect 
the successor to CDBG to be even more effective in this regard.
    Briefly, the administration of CDBG must comply with HUD's 
consolidated planning process that requires each jurisdiction 
to conduct a comprehensive assessment of its community 
development needs, and this is generally a 5-year plan, and 
then a coordinated effort is put into place to meet these 
needs.
    HUD's office of CPD through its field staff has the primary 
responsibility for working with the grantees and monitoring the 
grantee performance, use of funds, and compliance. This 
includes, for instance, the timeliness feature which I will 
talk about perhaps a little bit later of how we are able to 
bring down the untimeliness with the grantees.
    The Department currently monitors the use of funds and the 
accomplishments of its grantees through what's called 
Integrated Disbursement and Information Reporting System. HUD 
has studied the CDBG formula in light of concerns about 
targeting to the neediest individuals and communities. 
Obviously, over time, a formula study had to be done. It was 
completed on February 21st of this year, and that study 
provides four alternatives to the present formula that's in 
place.
    Over the last 28 years, since 1978, there have been many 
factors, many demographic changes that lead us to believe that 
a change in the formula is necessary.
    In closing, I appreciate the opportunity to describe the 
CDBG program and its highlights, strengths, and weaknesses. In 
my previous role as mayor of the city of Syracuse, I was 
obviously able to use those CDBG dollars in many positive ways. 
There are many pluses to the program, but like any program, it 
needs a reevaluation, a refresh if you will, to see if we can 
do it in a better way and in a more effective way.
    The circumstances that make a program right for a certain 
area do not continue indefinitely. We learn from experiences. 
How can we better target our resources? How can we operate 
effectively and set clear goals and performance measurements 
for the future? So, with that, I thank you for this 
opportunity, and I will be happy to answer any questions you 
have.
    [The prepared statement of Mr. Bernardi follows:]

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    Mr. Turner. Thank you.
    Now we will hear from Clay Johnson III, Office of 
Management and Budget.

                 STATEMENT OF CLAY JOHNSON III

    Mr. Johnson. Mr. Chairman, Congressman Dent, thank you for 
inviting me here today. I look forward to fielding your 
questions. I have a very, very brief oral statement here at the 
beginning.
    We want government programs to work. We are not in the 
business of getting rid of programs. We are in the business of 
making sure that programs work. We want the government's 
community and economic government programs to work to achieve 
their intended results. We believe we have an opportunity to 
better structure our community and economic development 
programs to get more of the intended results, which are to 
create vibrant communities that would not exist otherwise.
    We do not believe that the money that we are spending now 
is creating the satisfactory level of intended results that 
were intended by the original bills or the money that's been 
appropriated for the accomplishment of these goals. We think we 
have an opportunity to better target areas most in need of 
assistance, to spend more money on communities where the need 
is real. We think we have an opportunity to make it easier for 
needy communities to access the various forms of Federal 
assistance that are available to them as opposed to have them 
now shop the variety of programs that potentially offer them 
some assistance. And we think there is a tremendous opportunity 
to build more accountability into the programs to ensure that 
the focus is on what we get for the money, not on how much 
money we spend.
    We also think it's important that the Department of 
Commerce be the lead department for this, because their 
mission, which is to create conditions for economic growth and 
opportunity, is more consistent with the mission of these 
community and economic development programs.
    So, with that statement, sir, I look forward to handling, 
receiving and responding to any questions you might have.
    [The prepared statement of Mr. Johnson follows:]

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    Mr. Turner. Thank you.
    David Sampson, Department of Commerce.

                 STATEMENT OF DAVID A. SAMPSON

    Mr. Sampson. Mr. Chairman, it is a pleasure to join my 
colleagues today to brief you on the President's Strengthening 
America's Communities Initiative.
    President Bush has proposed an innovative strategy to help 
our most economically distressed communities get on the path to 
economic growth and opportunity. And what I will do is briefly 
highlight the underlying principles and then the main points of 
the initiative.
    While America's economy is strong and getting stronger, we 
all know that that economic strength is not felt equally 
throughout the Nation. As members of this committee are well 
aware, there are low-income communities and communities where 
traditional industries do not employ as many people as they did 
a generation ago where that economic opportunity can appear to 
be out of reach. President Bush believes that these communities 
can make the transition to vibrant broadbased, strong economies 
because of the entrepreneurial spirit, the vision and the hard 
work of those who live there.
    He also believes that the goal of Federal economic and 
community development programs should be to fundamentally 
create the conditions for economic growth, more and better jobs 
and livable communities, thereby reducing a community's 
reliance on perpetual Federal assistance.
    Why propose such a financial reform? Well, in total, the 
Federal Government administers 35 economic and community 
development programs housed in seven different Cabinet 
agencies. This proposal calls for the consolidation of 18 of 
those programs which are the direct-grant programs. Some of 
these programs, based on OMB analysis, duplicate and overlap 
one another. They lack clear accountability goals, and they 
cannot sufficiently demonstrate measurable impact on achieving 
improved community and economic performance. Many of the 
communities with relatively low poverty rates receive Federal 
funding at the expense of distressed communities, thereby 
undermining the purpose of the programs.
    The purpose of this program is to target Federal funds 
better, in a more customer-friendly, easily accessible manner. 
Let me explain briefly the actual components of the proposal.
    The new initiative calls for two components to the 
Strengthening America's Community grant program. The first is a 
formula-based economic and community development grant program 
which will represent the bulk of the funds. The second 
component is the Economic Development Challenge Fund which is a 
bonus program modeled on the concept of the Millennium 
Challenge Account which will focus on incentivizing those 
communities that have already taken substantial steps to 
improve economic conditions and have demonstrated a readiness 
for development.
    Now, finally, as we move forward, we recognize there is a 
lot of hard work ahead of us with regard to the implementation 
of this initiative. The administration will submit legislation 
for this initiative as part of a collaboration with Congress 
and with stakeholder groups, including State and local 
officials, and we look forward to continued collaboration with 
this committee as that legislation takes shape.
    I do want to share with you that a secretarial advisory 
committee is being created at the Department of Commerce. The 
notice of that is published in today's Federal Register, which 
will provide assistance with some of the most complex issues of 
the proposal, such as setting eligibility criteria and what 
accountability measures will be adopted. The administration 
seeks the widest possible input to help shape the legislation 
that we intend to send to Congress as soon as feasible.
    The President's proposed initiative will, we believe, 
position communities, regions and States to be more competitive 
in the worldwide economy, increasing opportunity, employment 
and creating more viable communities. And, with that, I will 
close. And I look forward to answering any questions that you 
may have.
    [The prepared statement of Mr. Sampson follows:]

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    Mr. Turner. Thank you, gentlemen.
    I appreciate the opportunity for us to discuss in a 
question format some of the important specifics of this 
program. As I said in my opening statement, certainly the 
issues that you have identified and the problems with these 
programs, I think, are widely recognized. The solutions as to 
how we go about reforming those or finding greater 
opportunities for those programs to be effective are really the 
important part of our discussion today.
    And Secretary Bernardi, having served as a mayor, both from 
the receiving end of CDBG and then having served in your 
position with HUD on the administrating side of CDBG, that many 
of the grants, moneys are used in the area of community 
development, quality-of-life type projects. For example, where 
an abandoned house may be burdening a neighborhood and the 
property is available perhaps for open-space use, the community 
was able to use CDBG moneys to address that abandoned building, 
increase the quality of life for the community, and the open 
space would be an amenity both for the children and the people 
who live in the community, providing a gathering place in some 
communities which have incredibly high density where that type 
of open space is not available.
    In your testimony, you indicate that CDBG has been used for 
housing rehabilitation programs, public services, public 
facilities, infrastructure, economic development activities. 
You go on to cite that some CDBG programs include child daycare 
centers, senior care programs, adult literacy and education and 
assistance for the homeless. The important part of CDBG has 
been that each community can tailor its needs in looking to 
CDBG. And what's good for Syracuse may not be good for Dayton, 
OH. What's good for Dayton, OH, might not be good for Austin, 
TX. In those quality-of-life projects, the types that you cite, 
how would you ever be able to fashion metrics to measure the 
impact on the community for those projects?
    Mr. Bernardi. Each entitlement community--and I will take 
Syracuse as an example. They all operate under a comprehensive 
plan. And along with that comprehensive plan there is an annual 
performance report. As you know, Mayor, to have that 5-year 
plan involves the entire community, the citizen participation, 
the advisory council boards for the CDBG program itself. And 
they put forth a 5-year plan, and that 5-year plan, each and 
every year with the start of the program year, they have what 
they call their annual performance plan. And that tells you 
what is going to occur during that particular point in time in 
the year. And then that money is accessed through the grant 
program, and then there is an annual performance report at the 
end of the year which we receive which lists the 
accomplishments and lists the goals and objectives that the 
community wanted to undertake.
    I understand full well we used some of our CDBG dollars for 
a senior citizens center, for adult literacy, for child care. 
We used it for infrastructure, for sidewalks, water, sewer. We 
used it for economic development; obviously, always making sure 
that it had a benefit to at least better than 70 percent of low 
and moderate-income individuals. I have utilized the area 
benefit, which perhaps you have, where it's 51 percent, 
utilized the jobs benefit and the housing benefit. People, if 
they qualify for housing, they have to be low-income. People 
that qualify for multifamily housing, that multifamily housing 
unit has to be better than 51 percent. So I'm familiar with the 
program, and the program has served us very well.
    At the same time, we understand that there are many 
communities in this country that are severely distressed. 
Everyone can point to distress. But the severely distressed 
communities, the focus of this plan will be to provide as many 
resources as we possibly can in communities that have high 
unemployment, communities that have higher poverty rates, in 
communities that have lost jobs because of severe distress. And 
this proposal will embody all of the community development 
programs into this new proposal that's proposed to Commerce.
    Mr. Turner. Of the projects that you listed where you had 
undertaken these community development projects as mayor and 
you used CDBG dollars, did you have readily available to you 
other sources of funds to accomplish those? I mean, did the 
CDBG moneys make those projects possible?
    Mr. Bernardi. Well, of course, the flexibility of the 
program is one of its strengths. And the fact is that you could 
utilize CDBG dollars as a match for other Federal funding. And 
I believe it's the only program you can do that with. And, yes, 
to utilize that money to begin an economic development 
initiative--for example, I used it for demolition. You spoke of 
that one house. We did an awful lot of demolition with CDBG 
dollars.
    Mr. Turner. You served as assistant secretary of the 
community planning and development, primarily responsible for 
administrating CDBG, prior to your current position. What type 
of staff structure, what are the number of people that are 
involved in order to administrate this program?
    Mr. Bernardi. In the community planning and development 
program area at the Department of HUD, there are approximately 
800 employees; 600 are in the 42 field offices, and 200 are 
headquartered here in Washington, DC. Of the 200 that are in 
headquarters, approximately 40 devote almost all of their time 
to the CDBG program and the loan rate loan guarantees. In the 
field, with those 600 employees, I would guess that all of them 
devote at least a third of their time meeting with the grantees 
and doing the things, the monitoring and doing what's necessary 
to ensure that the program is run correctly.
    I would like to say that one nice accomplishment that we 
had is that, back in 2001, there were 300 communities in this 
country that were not spending their money in a timely fashion. 
And by that, we define that as, if they have more than 1\1/2\ 
times their program year allocation in the line of credit, then 
they are not doing then what they should be doing. We have been 
able to bring that down to under 50 entitlement communities, 
and from $370 million that was left unspent, we are under $50 
million.
    So I think the program, there are good people that operate 
the program. And each 1 of those 42 field offices services the 
better than 6,000 or 7,000 recipients of those dollars.
    Mr. Turner. If Congress should agree that these programs 
need to be reformed but does not agree that they should be 
transferred to Commerce, does HUD have the capacity to 
undertake reform and administer these programs through a 
reformation of them?
    Mr. Bernardi. Well, Congressman, every program can be 
improved upon. And I believe that, obviously, we have good 
employees. They have the capacity, the experience, the 
institutional knowledge to improve on any program.
    I would like to add just a little something, if I could. 
The fact of the matter remains is that we are constantly 
looking, under difficult budget constraints, ways in which we 
can provide additional resources to those people that need it 
most. Congressman Dent mentioned the HOPE VI program, but I 
would like to just add as an aside, with the $1.1 billion 
increase that we have in our 2006 budget for our Section 8 
tenant voucher, that kind of pressure on HUD makes it very 
difficult--even if the program were to remain in HUD, the CDBG 
program--makes it very difficult to have the dollars that are 
necessary to do the things that you would like.
    Mr. Turner. Thank you.
    Mr. Johnson, one of the concerns obviously from the 
stakeholder community has been their participation in the 
formulation of this proposal. In your comments, you indicate 
that ``we worked with agencies and stakeholder groups to find 
ways to improve targeting as well as performance and 
accountability key elements of this proposal.'' Could you 
describe the process that you went through in looking for input 
from stakeholders in putting together this program and its 
recommendations?
    Mr. Johnson. I can't describe it in the detail you are 
asking for. The people that were involved are sitting here 
behind me. But I could give you a written description of it 
afterwards.
    But there are associations and interest groups that work 
with us, and they have meetings, and we have met with them and 
met with the Departments. And we evaluated these programs and 
determined what the opportunities were to do this better. But I 
don't have the detail that you are asking for.
    Mr. Turner. I would appreciate it if you would provide us 
that.
    Mr. Johnson. I would be glad to do so.
    Mr. Turner. Because most of the groups and organizations 
that we have been involved with in that have experience in 
working with these programs, who our recipient stakeholders, 
believe and feel that they have not been included, and they 
have not had an opportunity to participate in making 
recommendations in the formulation as planned.
    They obviously have an extensive amount of knowledge and 
expertise, and many of them hold an opinion similar to all of 
the testimony that you have given us today of the need for 
reform but have divergent opinions as to the current proposal 
that we have in front of us.
    Mr. Johnson. OK.
    Mr. Turner. Would you agree with Mr. Bernardi that if 
Congress' decision was to leave the programs in HUD but to work 
toward the goals of performing them, that HUD would have the 
capacity and the ability under the administration's leadership 
to accomplish that?
    Mr. Johnson. Well, there's the physical capacity. Do they 
have the bodies to administer the program. And I think the 
answer to that is yes. But I think the question is, is HUD's 
mission better aligned with the desired results intended by 
these community and economic development programs, or is 
Commerce's mission better aligned? And our proposal suggests 
that Commerce's mission is more in keeping with the intended 
results with these community and economic development programs. 
Housing is a means to an end. And the end is more vibrant, more 
vibrant economic conditions where they would not exist 
otherwise. That is the business the Commerce Department is in, 
and we think that it makes much more sense. Their mindset of 
what they do at the Commerce Department is much more consistent 
with what we want these programs to do.
    Mr. Turner. In your testimony, you talked about the 
accountability measures that are going to be applied here. And 
in that, one of the issues raised is housing, and other areas 
of economic development appear to relate to programs that are 
still going to remain in HUD. So it appears that by shifting a 
portion of these programs from HUD to Commerce and with HUD 
continuing to administrate a great deal of its programs that 
relate to urban development, that you are going to actually 
create some duplication. Do you have concerns there as to how 
these two agencies, having dual relationships and 
responsibilities, are going to operate together?
    Mr. Johnson. I don't have any concerns about it. We are 
reducing duplication with this proposal; we are not increasing 
duplication.
    Mr. Turner. Seeing my time is up, I will turn to Mr. Dent 
for another 10-minute question time period, and then we will go 
for a second round.
    Mr. Dent. Thank you, Mr. Chairman.
    I mentioned a few moments ago that I'd attended a public 
session last week with my Lehigh Valley Coalition on Affordable 
Housing. And their interpretation of the proposal, the 
administration's proposal, is that HUD's budget will be cut 
from $32.4 billion to $28.5 billion. They are just simply 
looking at the numbers and saying, this may be a consolidation, 
but they are trying to cut us in the meantime. And I guess 
where I am going with this question is this: By consolidating 
these 18 programs, I can see the logic in transferring perhaps 
some of these programs to Commerce--the Brownfields Economic 
Development Initiative, for example, and probably the Urban 
Empowerment Zones, those grant programs--I can see the logic in 
that, having come from a State like Pennsylvania where we took 
our Department of Commerce and merged it with what was then 
called our Department of Community Affairs, which was kind of 
like a housing and community development arm. We put them 
together and created one department. It worked pretty well.
    But we brought the expertise in housing and community 
development from what was community affairs to commerce. And I 
guess where I'm going with this is that, you know, have you in 
Commerce thought enough about your ability to deal with, for 
example, housing issues? Do you have the expertise there on 
staff to handle these types of programs?
    Mr. Sampson. Well, Congressman, the first response is the 
core housing programs remain at HUD under this proposal. And I 
think it's important to recognize that. And a number of those 
are even strengthened and plussed up in the President's 2006 
budget request.
    With respect to leveraging expertise, we clearly understand 
that in consolidating all 18 of these programs, the new entity 
is going to have to leverage subject matter experts within the 
different programs in creating this new entity within Commerce 
that will be responsible for administering Strengthening 
America's Communities.
    Commerce has a very extensive grant portfolio currently. We 
manage about a $2.3 billion grant portfolio of community and 
economic development grants currently. But we clearly will have 
to leverage the subject matter expertise and the lessons 
learned from other agencies and other programs in creating this 
new program.
    Mr. Dent. I guess, just drawing on my own experience, when 
we went through this in Pennsylvania, there was a lot of 
initial gnashing of teeth about merging these two programs or 
these two departments into one, a lot of opposition. And at the 
end of the day, it worked out pretty well. I guess this gets 
down to outreach. I mean, some of the folks that had initial 
reservations about merging programs like these were coalitions 
on affordable housing.
    Have you done any meaningful outreach to these groups and 
others like them around the country to let them know you are 
trying to strengthen their communities? Because they are simply 
seeing a consolidation and a cut, and they see this as an 
attack on their housing programs and homelessness initiatives.
    Mr. Sampson. Well, it's an excellent point. Let me say that 
we have already conducted, since the President released his 
budget on February 6th, a number of briefings for interest 
groups that were held at the White House in which many of the 
professional associations and groups were invited. We had 
conducted group briefings. I have conducted individual 
briefings for a number of specific associations. This past 
weekend, I was in Key West, FL. I briefed the executive 
committee of the U.S. Conference of Mayors.
    We are aggressively reaching out to discuss the underlying 
principles and the intent and the goals behind the President's 
proposal with all affected stakeholders around the country, 
even those that have expressed in very clear terms their 
opposition to it. We believe that dialog is essential. We are 
going further, as I mentioned in my oral testimony, that the 
White House has asked the Secretary of Commerce to establish a 
secretarial advisory committee, which will include a balanced 
geographic and interest group representation from around the 
country now that the proposal is out on the table and we move 
toward crafting the legislation that will be forwarded to 
Congress to deal with some of the most complex issues that you 
have identified.
    Mr. Dent. Thank you.
    With respect to CDBG--and perhaps, Secretary Bernardi, you 
might be able to help me with this. In my communities, my 
cities, I have Allentown, Bethlehem, and Easton. I know some of 
those municipalities currently utilize CDBG funds for example, 
code enforcement, to pay their code enforcement officers out of 
that. And they use it for other things. But are you finding 
that there are some communities that are not appropriately 
spending that CDBG funding? As you mentioned, there is a great 
deal of flexibility with the dollars, and that is sort of the 
beauty of it, in my view, and using those dollars--at least 
where I live, it seems to be for a lot of important community 
economic development issues. And I would put code enforcement 
under that. It is an important part of our housing and 
community development strategy.
    Mr. Bernardi. Congressman, as Mayor of Syracuse, we 
utilized CDBG dollars for code enforcement as well. The fact is 
that, with the entitlement communities, the urban counties and 
the States, as I mentioned earlier, there are 6,000 or 7,000 
entities that are receiving dollars, and there's over 100,000 
organizations that receive this kind of money each and every 
year. Our monitoring is extensive; it's intensified. We make 
sure that, where there is a difficulty, we quickly go in there 
and do what we have to do. And if we find that the money has 
not been spent according to the national objectives or 
appropriately, that money is taken back. It has to be paid back 
to the CDBG dollar program by other moneys. They can't use CDBG 
funding that they have or that they are going to receive.
    Mr. Dent. You mentioned about 1,100 or so communities are 
eligible for CDBG grants. I guess those are all entitlement 
communities?
    Mr. Bernardi. Those are entitlement communities, cities of 
a population of over 50,000.
    Mr. Dent. And what percentage of those communities will 
remain eligible under the Strengthening America's Communities 
program? Do you have any idea?
    Mr. Sampson. I can take a stab at that, Congressman. First 
of all, the eligibility criteria have not yet been determined. 
That is something that we believe is important to engage the 
stakeholder communities around the country as well as with 
Members of Congress before that eligibility criteria is 
determined. I can share with you what the intent of the 
proposal is. The intent of the proposal is that most 
entitlement communities will continue to remain eligible. The 
intent is to graduate from the program the wealthiest 
communities in America who are still entitlement communities. 
The intent is to graduate the wealthiest communities in America 
and redirect that funding so that those communities who remain 
eligible actually receive more money than they currently do. 
But the specific line where that eligibility criteria will be 
drawn has not yet been established.
    Mr. Dent. OK. I have no further questions at this time. 
Thank you.
    Mr. Turner. Mr. Sampson, I understand you are indicating 
that you cannot give us any information about the current 
eligibility criteria under this proposal; that you are going to 
be looking to a committee task force, if you will, that comes 
together for the purpose of advising you on that. However, both 
in your testimony and in written and oral, you make some 
statements about the outcome of that eligibility. You indicated 
that some wealthy communities will graduate from the program, 
meaning that they will lose their current CDBG eligibility in 
order to be able for you to focus on the most distressed 
communities. And you've indicated that there are communities 
that are currently entitlement communities that will receive 
more money even though the overall budget for this program has 
been cut--consolidate all the programs from the 2005 budget 
number; it's a reduction of 30 percent, which if you look at 
what the appreciation would have been, it's probably a greater 
cut than that. So you've got less money, but you're indicating 
that they are going to receive more money. But the eligibility 
criteria is not yet defined. It would seem to me that you have 
done some initial calculations to determine upon what you base 
that statement. Could you share with us or this committee what 
your assumptions are that you've undertaken to indicate to us 
that the entitlement communities that are distressed will be 
receiving more money, not less?
    Mr. Sampson. What I will share with you is that is the 
intended outcome of the consolidation and the restructuring. We 
think that can be achieved on a couple of levels: First of all, 
by reducing 18 bureaucracies to administer the current 18 
programs; second, by targeting the funds much more tightly to 
the most distressed communities in America, should enable us to 
achieve that goal. There simply has not been an effort at this 
point to draw the line on the eligibility criteria. What we 
have done is looked at spreadsheets of data where you look at 
multiple factors. You look at poverty rates. You look at 
unemployment rates. You look at the loss of firms as possible 
components of the new formula. Depending on how you weigh, any 
one of those criteria will change the eligibility outcome, and 
that simply hasn't been done yet. We are not sharing that with 
you, not because we don't want to share it with you; we are 
just telling you that hasn't been done yet. All we have is a 
spreadsheet of each community and those different factors.
    Now, I can tell you, as you look at that, there are clearly 
a number of communities in America where you have--I think the 
number is 38 percent of current HUD CDBG grants go to 
communities with poverty rates below the national average. And 
so that is the broadbrush picture on which we base that. I 
think that if you look at some of that data and you see 
communities with poverty rates of 2 to 3 percent, it's pretty 
clear to us that is a good candidate for retargeting those 
funds to communities with poverty rates of 20 to 26 percent.
    Mr. Turner. Secretary Bernardi and Congressman Dent have 
both indicated that code enforcement is one of the areas that 
CDBG moneys are currently used for by cities. Certainly, in the 
city of Dayton, that is an item that I am familiar with, that 
they have used CDBG moneys for. Not only is it an eligibility 
area, it is also an area that HUD has looked favorably upon 
cities utilizing their money for. Recognizing that, throughout 
this country, cities are currently under a budgetary crisis, 
you can't pick up a paper anywhere in this country where there 
is an urban core and not read an article about the struggles 
that the cities have undergone as a result of the economic 
downturn. And recognizing that some of the CDBG moneys 
currently have been directed toward code enforcement, which 
would be considered a basic service or operation of the city, 
it's clear that for these programs to terminate and a new 
program to begin with different eligibility criteria and 
different utilization standards, that the cities' bottom line 
of their operational budgets will be impacted, which of course 
will result in them making decisions on the staffing level for 
code enforcement and ultimately to basic services such as 
police and fire.
    Have you taken that into consideration in your proposal and 
looked to the issues of the cost of transition for communities?
    Mr. Sampson. That's an excellent question. Let me address 
it at two levels. First of all, the question presupposes that 
activities such as code enforcement would not be eligible 
activities, and I don't think that's a safe assumption. That 
determination has not been made. That's the sort of question 
that we want the input from the secretarial advisory committee 
and stakeholders around the country.
    What we are asking for is that there be a very clear 
connection between the local community's strategy for 
expenditure of those funds and how it is actually going to 
fundamentally, at the core improve the business environment and 
the community viability. And if that can be demonstrated and if 
there are performance metrics that can associate with that 
developed by the community, we would envision very broad 
flexibility in terms of how local communities can use those 
funds.
    With respect to the second part of your question, 
transition, clearly transition issues moving from an existing 
program to a new program have to be taken into account. And 
that is particularly one of the issues that the secretarial 
advisory committee will be charged with, is to look at the 
range of transition issues. The secretarial advisory committee, 
contemplating that there will be five ex officio members in 
addition to the 25 citizens from around the country, those ex 
officio members representing the five Cabinet agencies who will 
have programs consolidated. We believe that they need to be at 
the table so that all of those transition issues can be 
addressed and make sure that it is a seamless transition that 
does not disrupt communities nor their budgets.
    Mr. Turner. Are you familiar with the comprehensive 
planning process that Secretary Bernardi mentioned concerning 
HUD and the 5-year plan for home and CDBG dollars?
    Mr. Sampson. I'm familiar with the comprehensive plans at 
the city level, having worked with those in the past. I'm not 
sure that I understand the particular component that he 
referenced about HUD's----
    Mr. Turner. I was wondering if you could contrast for us 
what the planning process that you would expect in the 
Department of Commerce versus the comprehensive planning 
process that HUD currently uses.
    Mr. Sampson. I believe, sir, that we have to some degree an 
ability to mutually certify comprehensive plans from one agency 
to the other. I will be happy to go back and look at that. But 
what we envision is a community strategy that takes into 
account the fundamental market drivers of what is going to 
attract new private sector investment in the community that 
will drive new job creation, new tax revenue for those 
communities and make sure that it is a market-driven strategy.
    I think one of the clear lessons that we have learned, 
looking at the research data over the last decades, is that 
those communities that are making the most improvement in terms 
of their economic and community viability are those that have 
had a strong bias toward integrating and taking advantage of 
market opportunities. And so we envision a comprehensive 
strategy that will have strong connection with market 
opportunities to leverage private sector investment for 
community revitalization.
    Mr. Turner. In your testimony, you identify some categories 
that you see as potential metrics that would be applied to the 
program, both for the planning process and ultimately if the 
community is not successful in using the funds that might be 
available to them. Many of the topics that you identified in 
your testimony may be categories that are either unrelated to 
the grant possesses itself. For example, you identify violent 
crime. I don't know to what extent your program is going to be 
providing funding for police services or for criminal justice.
    And then the second is that you identify No Child Left 
Behind. And many communities have separate school boards and 
then separate city councils and county commissions, so that the 
receiver of the CDBG dollars, the reformulated dollars, the 
Strengthening America's Communities dollars would have no 
jurisdiction or ability to impact that. Are the items that you 
identify in your presentation, the metrics items that you 
intend to move forward with this? Is this also something that 
the community is going to determine as to what applies?
    Mr. Sampson. These are illustrative in nature and not 
definitive at this point or positive. What I would say, the 
criteria that you have mentioned are specifically those for the 
bonus fund or the community challenge fund, which is a bonus 
over and above the basic formula of funding grant opportunity. 
We know, first of all, that issues such as crime rates and 
educational performance are absolutely critical issues in 
building a positive business environment to attract new private 
investment into a community.
    Second, we would hope that by providing incentive funding, 
that in those cases that you have mentioned where you have 
separate governing bodies for schools and cities, that it would 
force a much closer or incentivize a much closer collaboration 
on addressing these fundamental issues to economic and 
community performance with the availability of incentive 
funding out there.
    Mr. Turner. For the core grant program, you identify 
increasing home ownership. And one of the discussions that 
we've had is that HUD will retain the responsibility over the 
housing grant programs that go to these communities. Isn't that 
going to result in duplication of effort between Commerce and 
HUD?
    Mr. Sampson. I don't believe so, sir. Clearly, one of the 
most important drivers in building a positive business 
environment is the availability of affordable housing. There 
are many communities around this country that simply cannot 
successfully attract new business investment because of the 
lack of affordable housing. The core mission of HUD remains the 
housing mission. But what this encourages is the development of 
an economic development strategy, to recognize the importance 
of housing and affordable housing as a component of building a 
comprehensive positive business environment.
    Mr. Turner. Thank you.
    Mr. Dent.
    Mr. Dent. Thank you.
    Mr. Sampson, I thought I heard you say something. Perhaps 
you could clarify the statement. You were talking about 
communities that had 2 or 3 percent poverty that were currently 
receiving CDBG funds. They were entitlement communities, I take 
it.
    Mr. Sampson. That's correct, sir.
    Mr. Dent. Could you get us a list of those communities? I 
would love to see those.
    Mr. Sampson. I can give you an illustrative list. I don't 
have a comprehensive list. But communities such as Palo Alto, 
CA; Boca Raton, FL, Scottsdale, AZ. Newton, MA, Neighborville, 
IA--or, Neighborville, IL. Neighborville, IL, for example, has 
a poverty rate of 2.2 percent. And when you look at other 
communities in that region, such as Gary, IN, with poverty 
rates of 26 percent, Chicago of 20 percent, the administration 
believes that it is time to reprioritize these poverty 
alleviation funds that are going to communities that do not 
have high rates of poverty.
    Mr. Dent. I would agree with you. How are you defining 
poverty? AFDC families? Or what's the criteria?
    Mr. Sampson. I don't know what--it's the standard 
definition, the Census definition of poverty. I'm sorry, sir.
    Mr. Dent. I just find that remarkable. Where I live, I 
guess cities of Allentown and Bethlehem would be considered 
entitlement communities, or 50,000 people, but the poverty 
rates are considerably higher. I find it remarkable that we 
have communities that are that relatively affluent that are 
receiving these programs. I see CDBG as a program that is 
supposed to support essentially, I won't use the term 
distressed, but declining or distressed communities I guess is 
the proper term.
    Mr. Sampson. Well, Congressman, we believe, the 
administration believes that it is fundamentally not defensible 
in this kind of environment.
    Mr. Dent. I would agree with that. There is also concern, 
too, with how Commerce adjusts this so-called regional bias, 
the regional bias. And poverty is considered as it is dictated 
by the Census Bureau. And as you just mentioned, most of the 
areas in poverty are found in the southwest region of this 
country. Will your Strengthening America's Communities program 
provide a substitute for poverty in calculating which cities 
and States are eligible for these grants to prevent that bias?
    Mr. Sampson. Congressman, I'm aware that there is an 
ongoing effort at the Department of Commerce and at the Census 
Bureau to look at modernizing the definition of poverty. I 
think that is something that is ongoing that I don't--it's not 
within my portfolio, so I can't speak definitively to that. But 
the goal of this program is to ensure that whatever measure 
that we determine the criteria, that it will clearly pass the 
sensibility test; that anyone could look at these communities 
and say these are some of the most impoverished communities in 
America. And while we might disagree at the margins or exactly 
where that line is drawn, I believe that when you look at the 
broad scope of entitlement communities, there is going to be 
broad consensus that there are communities that are wealthy 
communities, and then there are communities that are clearly 
economically distressed, and that we ought to be able to 
achieve broad consensus as to what those most distressed 
communities are.
    Mr. Dent. And when you send over that list of communities 
that are relatively affluent receiving these CDBG funds, I 
would also like to see how much funding they're actually 
receiving and how the formula plays out--I'm trying to 
understand this, I'm new here. I'd like to see where I am in 
Allentown, or Bethlehem, PA, where we have relatively poor 
communities; I would like to see what those numbers are that we 
receive compared to those communities and see if the funding is 
driven based on poverty, or just the fact that you're over 
50,000 people, does that entitle you what percentage of the 
funds?
    Mr. Sampson. I can tell you--I'm not the expert here on 
formula, but there are a number of factors. It is more than 
just population.
    Mr. Bernardi. That's true.
    Mr. Dent. I would just be curious to see what those 
relatively affluent communities are receiving.
    Mr. Bernardi. They receive, per capita, less than, 
obviously, the communities that are more distressed. It's based 
on formula A and formula B, and whichever formula benefits the 
community is the formula that HUD provides to that community.
    There are communities, as the Assistant Secretary 
indicated, that are affluent communities, but on a per capita 
basis they receive, based on the formula, considerably less 
amount of money.
    Mr. Sampson. And, Congressman, if I could just add to that, 
most of the discussion this morning has focused on urban areas. 
I would also point out that some of the most impoverished areas 
of our country are rural and small communities that are not 
entitlement communities, and we believe that there is a very 
compelling case to be made that we need to focus on those 
areas, and not just have the entire discussion on urban 
America.
    Mr. Bernardi. That's true; but if I can add, the States 
receive a CDBG allocation of 30 percent, and they provide 
resources to the towns and villages that are impoverished.
    Mr. Dent. Well, how about a bureau where I live; we have 
many municipalities--we're a very densely packed area, but 
multiple municipalities, many of them are not entitlement 
communities because of their population, below 50,000, small 
bureaus, for example, but are contiguous to the cities. How 
would they be impacted? I mean, they're not really rural 
communities.
    Mr. Bernardi. Well, the State of Pennsylvania----
    Mr. Dent. Pennsylvania would take the 30 percent, and 
then----
    Mr. Bernardi. The State of Pennsylvania receives an 
allocation from HUD, along with the other 49 States, and they 
disperse that money to the communities that they ascertain 
through a process that are in most need.
    Mr. Dent. Thank you. And again, I just wanted to finish 
where I began in the first round of questioning.
    Some of the consolidations may make some sense logically to 
me as I look at this, just from my experience, particularly in 
that brownfields area in the urban empowerment, because I 
believe that Congress should have the capacity to manage those 
types of programs; but I get back to the housing initiatives, 
and that's where my main concern is with the administration's 
proposal. By consolidating, will we have better programs if the 
capacity may or may not be there in Commerce to deal with these 
types of programs where HUD has had a great deal of expertise 
over the years?
    Mr. Bernardi. We have a home program, as you know, 
Congressman, and that's a $2 billion budget. It's an increase 
in 2006 over 2005 that we're requesting in the American Dream 
Downpayment Initiative, which is the President's initiative to 
provide first-time home ownership for minority home ownership 
in this country, and the goal is to have 5\1/2\ million more 
minority homeowners by the end of the decade; and we're at 2.2 
million right now, 40 percent of that goal, and we're very 
proud of that. The home program basically goes to the 
construction of affordable housing for low-income Americans. 
It's a very targeted program. Those that qualify have to be at 
80 percent or less median income.
    So we've done very well when it comes to home ownership in 
this country. As you know, it's at an all-time high of 69.2 
percent; minority home ownership is over 51 percent--first time 
ever over 50 percent--in the last quarter of 2003. So this 
administration, through the Department of Housing and Urban 
Development, Secretaries Martinez and Jackson have really 
concentrated on providing home ownership opportunities to 
deserving Americans, low-income Americans.
    Mr. Dent. And I would concur. And I would also just add 
that at least where I live, a lot of these types of funds have 
been used to help us lower the density of our populations where 
we have what were once unoccupied residences, rowhomes that 
became three multiunit apartments, raising the density, more 
trash in the streets, cars, kids in the schools and all that, 
and we've done a reasonably good job of trying to deconvert 
back to an owner-occupied setting. And so we've seen some 
success with that.
    I guess in conclusion the only thing I would say is that 
HOPE VI, I know your goal there, too--and this is a little off 
track, I guess, but HOPE VI, you propose to eliminate that 
program this year. I guess your goal is to try to reduce or 
eliminate the 100,000 or so what I call old housing 
developments, but people might call them projects, I guess. We 
have a very old one in my community, and we have a very 
aggressive plan, and the timing of this isn't great for us. You 
did a nice job of getting rid of 100,000 units apparently, but 
not where I live. And there is a great deal of interest in the 
cities of Allentown and Easton regarding HOPE VI, and I'm 
hoping that it can be continued at least for 1 more year.
    Mr. Bernardi. Congressman, the HOPE VI funding, there has 
been 120,000 distressed units during the life of that program 
that have been taken down, and 88,000 was the number that when 
that program initiated 5 years back or so that were considered 
distressed; so we've done over and above that.
    The fact of the matter is there is an awful lot of money 
that's in the pipeline, I believe it's over $2 billion, and we 
would like to see that money move forward and provide the 
opportunity to demolish those kinds of structures, and at the 
same time provide housing for the folks that live there. As you 
know, our budget for 2006 calls for the rescission of that $143 
million.
    Mr. Dent. And my only point is that the moneys intended--
we're going to spend it well in my community, should we get it; 
it's going to be some very aggressive rehabilitation of what 
have been distress areas, and we will do a great deal to 
enhance the community.
    Thank you.
    Mr. Turner. Thank you.
    Gentlemen, with that, we will end our questioning. I will 
ask you if you have any additional statements or any thoughts 
that you want to add to the record.
    Mr. Bernardi. Just thank you for the opportunity to be 
here, and we will continue the dialog.
    Mr. Turner. Great. We thank you for participating and for 
your input. This is certainly an important discussion.
    We will go to our panel two, then. Thank you, gentlemen.
    Turning to our second panel, then, which includes 
stakeholders from the U.S. Conference of Mayors, the National 
Association of Counties, National League of Cities, National 
Association of Local Housing Finance Agencies, the National 
Association for County Community and Economic Development, the 
National Community Development Association, the National 
Association of Housing and Redevelopment Officials, Council of 
State Community Development Agencies have submitted a joint 
testimony to our committee.
    We have appearing for oral testimony Mr. Don Plusquellic, 
president of the U.S. Conference of Mayors; Mr. Angelo D. Kyle, 
president, National Association of Counties; Chandra Western, 
the executive director of the National Community Development 
Association, on behalf of the NCDA and the National Association 
for County Community and Economic Development. We also have Mr. 
James C. Hunt, who is a councilman, city of Clarksburg, WV, who 
will be testifying on behalf of the National League of Cities.
    For the second panel, as you heard from the first panel, it 
is the policy of this committee that all witnesses be sworn in 
before they testify. I would ask that you please rise and raise 
your right hands.
    [Witnesses sworn.]
    Mr. Turner. Let the record show that all the witnesses 
responded in the affirmative.
    We want to welcome you, and we appreciate your testimony 
today and your participation in what obviously is going to be 
an important discussion on not only about the successes or the 
problems that these programs that have been targeted represent, 
but also the recommendations by the administration and other 
ideas or thoughts that you might have as to how these programs 
may be approved and the importance of them to your community.
    We will begin with Mayor Plusquellic, president of U.S. 
Conference of Mayors, and mayor of Akron, OH.

 STATEMENTS OF DON PLUSQUELLIC, PRESIDENT, U.S. CONFERENCE OF 
  MAYORS; ANGELO D. KYLE, PRESIDENT, NATIONAL ASSOCIATION OF 
    COUNTIES; CHANDRA WESTERN, EXECUTIVE DIRECTOR, NATIONAL 
     COMMUNITY DEVELOPMENT ASSOCIATION; AND JAMES C. HUNT, 
   COUNCILMAN, CITY OF CLARKSBURG, WV, ON BEHALF OF NATIONAL 
                        LEAGUE OF CITIES

                  STATEMENT OF DON PLUSQUELLIC

    Mr. Plusquellic. Thank you. Thank you very much, Chairman 
Turner.
    First I would like to thank you and the other members of 
the subcommittee for inviting the Conference of Mayors to share 
our thoughts about this proposal to virtually eliminate the 
Community Development Block Grant Program.
    You were a strong leader with the Conference when you were 
mayor of Dayton, and we appreciate your continued leadership in 
addressing the issues before the communities of our Nation.
    I am also very pleased to be here today with local 
government colleagues and others supporting this effort that we 
have undertaken to oppose, and I mean 100 percent unanimously 
oppose, the budget proposal that would eliminate the CDBG 
program by merging it with 17 other programs and moving it to 
the Commerce Department, and, as you pointed out in your 
opening statement, cutting the overall funding by 30 percent.
    We stated this position when the proposal was first 
mentioned and announced that we had no prior consultation with 
anyone on this issue, and we unanimously reaffirmed this 
position during the last week's winter meeting in Florida where 
we met with Dr. Sampson and told him directly of our 
opposition.
    CDBG has been successful for 30 years, and based on that 
success, the Nation's mayors urged Congress to continue the 
program's current funding and leave it in the Department of 
Housing and Urban Development. Our written statement, joint 
statement, has been previously submitted for the record, and it 
is replete with that, or it shows clearly the outstanding 
performance of CDBG over the 30 years. I won't bore you with 
those numbers, but it has created in just the last year 78,000 
jobs. Nearly 160,000 households receive housing assistance, and 
of that number 11,000 became new homeowners, a priority of 
President Bush. A number of other statistics that are in that 
report, they point out the proud record that we have of using 
these HUD funds wisely. I might also mention that the HUD Web 
site has further information on the success.
    In Akron we've used these funds to clear dilapidated or old 
houses that have outlived their usefulness, and we've helped 
leverage private sector developers to come in and build new 
housing in our oldest neighborhoods. We've helped induce the 
private owner of a grocery store chain to open in an area that 
was not served with a grocery store in many years. And we've 
helped senior citizens, assisted handicapped children, and, 
again, helped new homebuyers to purchase homes.
    Much has been said, and you heard today, about OMB's rating 
of CDBG and this perceived lack of performance outcome. First, 
I know the national organizations representing appointed 
officials and elected officials worked for a year with OMB to 
try to develop new performance outcome measurements, and we 
were very disappointed that OMB turned aside an agreed-upon 
framework of sound performance measures instead of the 
proposed--and instead proposed elimination of CDBG.
    And second--and I believe this is most important, it is to 
me--the performance ratings, talking about leveraging private 
sector funds in particular and looking at the outcome in just 
raw numbers is not only misleading, I use a clause that many 
have used: ``It may be factually correct, but it's 
inferentially wrong.'' It infers that somehow we're doing 
something with these moneys other than what was intended, and 
that we're not meeting some performance standard, that it would 
be easier to measure and to achieve if we were doing that out 
on some green pasture in some urban sprawl area. And I have 
made an analogy to two doctors, one working in sports medicine 
with 16, 17, 18-year-olds, and others working with old guys 
like me. How much time do you think it would take me to come 
back from an injury with all the arthritis I have--I was going 
to mention this to Mr. Johnson and compare him, and just 
suggest how our grandkids might respond to good doctoring. And 
if you measure that doctor working with a sports medicine 
clinic and the time that it takes elderly people to come back 
from injuries, clearly it's not the same scale. We're talking 
about two different situations.
    The CDBG money is used in some of the most distressed and 
difficult areas in the community, and yet they're some of the 
most important, because what we do is keep from allowing that 
decay from older buildings, older structures from spreading, 
and we thereby bring back the whole community.
    There are pockets of poverty in almost every community 
across this country, and it's important to remember that when 
they start talking about 38 percent going to communities that 
are below the poverty line, I think one of the most important 
things that we've done is reach out to the private sector, and 
the comments from groups like the Real Estate Round Table and 
International Council of Shopping Centers who are standing with 
us are most important because they recognize the benefit of 
these CDBG funds in doing the kinds of things that are vitally 
necessary to bring back those older neighborhoods.
    And so I hope this committee and the Congress will 
recognize the great work that's been done across our country. I 
look forward to working with you.
    And, Congressman Turner, as you know, in our time working 
together in Ohio, I have a pretty good record of managing the 
city of Akron for 19 years without raising city income tax for 
city activities or city purposes. During the 1990's when money 
seemed to be flowing into every city, we were right-sizing by 
cutting employees. I'm not one to look at programs and want to 
see a lot of waste.
    We are perfectly happy, when we save this program in HUD 
and save this funding level at $4.7 billion, to sit down with 
you and anyone else here in Washington to try to improve the 
program; but cutting it does no one any good and will harm the 
ability of communities across this country to address some of 
our most pressing needs.
    I thank you very, very much for the opportunity to testify, 
and I look forward to working with you, and certainly to the 
questions that you and the committee members may have. Thank 
you.
    Mr. Turner. Thank you, Mayor.
    [The prepared statement of Mr. Plusquellic follows:]

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    Mr. Turner. Next we will hear from Angelo D. Kyle, 
president, National Association of Counties.

                  STATEMENT OF ANGELO D. KYLE

    Mr. Kyle. Thank you, Mr. Chairman, Congressman Turner. We 
appreciate this opportunity to testify this afternoon.
    My name is Angelo Kyle. I am a county commissioner from 
Lake County, IL, and I currently serve as president of the 
National Association of Counties, representing the 3,066 
counties in the United States. We appreciate this opportunity 
to testify.
    Mr. Chairman, you have asked us to question and answer 
whether the Strengthening of America's Communities Initiative 
is the right step toward greater efficiency and improved 
accountability. Our answer is a resounding no.
    In our opinion, based on 30 years of experience in Federal 
community development programming, this initiative is not the 
right step. The right step is to maintain the CDBG program and 
incorporate the performance measures, negotiate it with OMB and 
HUD.
    HUD's own data tells us that in fiscal year 2004, over 23 
million people were assisted by the program. Most of these 
people are of low and moderate income, especially the elderly 
and the disabled.
    For more than 30 years the program has created a unique 
flexible and valuable partnership between the Federal, State 
and local governments that is both effective as well as 
beneficial. In fiscal year 2005, 177 county governments 
received over $600 million that will create and assist county 
governments with activities designed to create jobs, leverage 
private investments, rehabilitate housing units and improve the 
lives of citizens through a range of service programs.
    In Los Angeles County, CA, CDBG has been used to create the 
largest high-tech business incubator in California, the 
Business Technology Center. Since 1998, this center has created 
more than 475 jobs and revitalized a formally blighted 
neighborhood.
    My own home of Lake County, IL, will use its $2.9 million 
fiscal year 2005 allocation to assist with a range of programs 
and activities such as daycare, transitional housing, homeless 
assistance, fair housing, emergency food assistance, homeowner 
rehabilitation, first-time homebuyer assistance, and employment 
training, as well as for important infrastructure improvements, 
public services, and economic development activities.
    As president of the National Association of Counties, I 
have made home ownership one of my primary Presidential 
initiatives, especially for our first responders. The very 
people that we expect to pay the ultimate price, to serve and 
protect our communities, cannot pay the asking price to afford 
to own a home in the same communities in which they serve.
    The administration has chosen to completely eliminate CDBG 
by consolidating it along with 17 others in this new program. 
We oppose this proposed consolidation. First, the new program 
would focus solely on economic development. Activities 
undertaken with CDBG funds must meet at least one of three 
national objectives: to principally benefit low and moderate-
income persons, prevent slum or blight, or to meet urgent 
community development needs that pose a serious and immediate 
threat to the health, safety and welfare of the community. By 
emphasizing factors such as poverty and job loss, the 
consolidation is silent with respect to the myriad activities 
CDBG funds that meet those national objectives.
    The new consolidated initiative would leave these 
activities at the State and local level without a Federal 
funding stream, meaning that the Federal Government would be 
getting out of the business of community development. There is 
a vital role for the Federal Government to play in this arena.
    Community development is a related but essential complement 
to economic development activities. Congress must preserve the 
functions of both community and economic development at the 
Federal level to maintain effective intergovernmental 
partnerships that create and sustain viable communities.
    Second, criticisms of CDBG are largely as a result of an 
inaccurate assessment of the program, using the Office of 
Management and Budget's program rating assessment tool, also 
known as the PART. The PART fails to consider the broad and 
wide-range nature of the program, as well as the role of local 
governments in designing activities using CDBG that address 
challenges that are of particular value to their community.
    Third, the consolidation reflects a flawed assumption that 
the CDBG dollars are no longer needed in many of the Nation's 
blighted urban areas that are located in high-income counties. 
I can assure you that there is a need in every part of this 
country. NACo is concerned that the consolidation is funded at 
$3.71 billion, which is below the $4.15 billion allocated under 
the CDBG formula in fiscal year 2005 alone. How will the 
consolidation address more need with less resources?
    As local elected officials, we are on the ground level 
interacting with citizens on a daily basis. CDBG can and still 
does positively impact lives. There is simply no need to change 
the architecture of the Federal Community and Economic 
Development programming for one simple reason: CDBG works.
    In conclusion, I want to commend the committee for bringing 
attention to the CDBG program, and thank you for your 
leadership and inviting us to testify, and I would be happy to 
answer any questions. Thank you.
    Mr. Turner. Thank you, Mr. Kyle.
    Chandra Western.

                  STATEMENT OF CHANDRA WESTERN

    Ms. Western. Good morning, Chairman Turner.
    My name is Chandra Western, and I am the executive director 
of the National Community Development Association. I am pleased 
to be with you this morning to speak on behalf of NCDA and the 
National Association for County Community and Economic 
Development in support of the Community Development Block Grant 
Program. Together these two associations represent over 550 
communities which minister to the CDBG program locally.
    First and foremost, let me say that the CDBG program works; 
I know this personally. I have been a practitioner and an 
advocate for this program for over 20 years. CDBG provides 
State and local governments with the flexibility needed to 
provide an array of services and activities in over 1,100 
communities across America. It is often the carrot that brings 
in other investors, both public and private, to distressed and 
needy communities that would otherwise not be redeveloped.
    According to HUD, for every CDBG dollar, nearly $3 is 
leveraged in private funding. Because the program works so 
well, we vigorously, vigorously oppose the administration's 
Strengthening America's Communities Initiative, an initiative 
that is designed to replace CDBG and 17 other programs. To be 
frank, we were shocked to see CDBG eliminated in the 
administration's fiscal year 2006 budget, and this new 
initiative suggested in its place.
    The arguments the administration puts forward for this new 
initiative lend themselves to great scrutiny. One reason the 
administration gives for the creation of this new program is to 
develop one program that is focused on economic and community 
development funding in order to avoid the maze Federal 
departments and communities must navigate now in order to 
access community and economic development funding. This begs 
the question, why not fold the smaller economic development 
programs from the other Federal agencies into CDBG and HUD? 
CDBG, at $4.7 billion, is by far the largest of the 18 programs 
that is proposed for consolidation; and HUD already has a State 
and local government network in place to administer these 
programs.
    According to the administration, this new $3.71 billion 
consolidated grantmaking program will provide funding to 
communities most in need by setting eligibility criteria 
determined by job loss, unemployment levels and poverty. CDBG 
funds are already directed to those most in need. Currently 
over 95 percent of CDBG funds are allocated to low and 
moderate-income persons. In fiscal year 2004 alone, CDBG 
assisted over 23 million persons in households. It also 
assisted in the creation or retention of 78,000 jobs for low or 
moderate-income persons.
    Another reason given by the administration for the creation 
of this initiative is that most other programs that have been 
proposed for consolidation lack clear goals or accountability. 
We do not believe this is the case. Congress decided how the 
programs should have been administrated, how the program goals 
are to be defined. We think that Congress was right. We have 
addressed this issue for CDBG. NCDA, NACED and several other 
national associations spent the last 2 years working with OMB 
and HUD and reached a consensus on a performance outcome for 
CDBG. We worked in good faith with OMB and with HUD, and HUD is 
in the process right now of implementing the new performance 
measurement system that the group created. The administration's 
new initiative renders this considerably expensive and thought-
provoking effort useless.
    CDBG does more than the new initiative ever could. The new 
initiative focuses primarily on economic development 
activities, while CDBG is much broader, providing funding for 
affordable housing, public facilities, public services and 
economic development.
    How would existing communities fund these--CDBG programs 
continue to meet these other needs if this new initiative is 
enacted? The answer is they would not be able to meet these 
current needs. The beauty of CDBG is that it is a program that 
allows communities to decide how best to use their funds, 
whether it be for housing, neighborhood revitalization or 
economic development, or some other activity that the locality 
decides is a priority for it. The new initiative would take 
away this flexibility.
    CDBG was designed as a flexible program for locally 
determined needs that would address housing and community 
development activities within that community. We do not believe 
that this new program--or how many of the communities in this 
existing program would be funded under the America Communities 
Strengthening Initiative. We do not know, if the President 
proposes a significant cut in the funding of community 
development, how these programs would be funded. At $5.8 
billion now, the new program would be $3.71 billion. That is a 
30 percent cut to the existing economic and community 
development programs.
    In short, there are too many unknowns with the new program, 
and too many positive knowns within CDBG; therefore, we support 
continuation of CDBG within HUD at a funding level of $4.7 
billion in fiscal year 2006.
    Mr. Chairman, National Community Development Association 
and National Association for County Community and Economic 
Development appreciate the opportunity to testify before you 
today, and we offer ourselves for comments and questions as the 
hearing proceeds. Thank you very much.
    Mr. Turner. Thank you.
    I want to acknowledge that in addition to our Vice Chairman 
Dent, we also have with us Virginia Foxx from North Carolina. I 
also want to relate that our minority members of the 
subcommittee have largely not been able to attend as a result 
of the weather, which we all know by seeing the news the 
difficulty in travel, and I appreciate that each of you have 
made significant efforts to be here today. And we certainly 
will make certain that everybody in the subcommittee and the 
committee is aware of the testimony that we have received and 
the importance of what you've told us today.
    I would like to recognize James C. Hunt, National League of 
Cities.
    Mr. Hunt.

                   STATEMENT OF JAMES C. HUNT

    Mr. Hunt. Thank you, Mr. Chairman and members of the 
subcommittee, and I certainly feel that this is a historic 
first hearing for this subcommittee.
    My name is Jim Hunt, and I'm a city councilman and former 
mayor of Clarksburg, WV. I'm testifying today in my capacity as 
first vice president of the National League of Cities.
    The National League of Cities' concerns with the 
administration's Strengthening America's Communities Initiative 
are threefold. The proposal would drastically reduce community 
development funding that cannot be replaced. No. 2, the 
proposal would alter eligibility requirements to the 
disadvantage of some low and moderate-income communities. No. 
3, the proposal would narrow the mission of the CDBG program, 
which would reduce its flexibility and effectiveness.
    The administration's proposal would consolidate 18 current 
programs with a combined fiscal year 2005 budget of $5.6 
billion into a new two-part grant program with only $3.7 
billion in funding. That is a drastic cut, nearly $2 billion. 
What is even more alarming is the majority of the funding for 
this new and smaller program will come from CDBG.
    CDBG has played a critical role in rejuvenating distressed 
neighborhoods and alleviating economic decline in all types of 
communities. It is one of the best and only tools currently 
available to spur economic growth. However, CDBG is not just a 
jobs creator or economic development tool; it is also a 
catalyst for affordable housing and new public infrastructure.
    For example, my city of Clarksburg, WV, using CDBG grant 
funds, constructed a new water line that serves the FBI's new 
CEGIS Division in Clarksburg, which now has 2,700 employees in 
my community. This project also opened up hundreds of acres of 
land that are now a hotbed of economic development activity. 
Before the project these properties were idle because they had 
no reliable access to water. Today these lands generate jobs, 
spur economic activity and provide housing and greenspace. They 
also generate new revenue for the city, the State, and 
ultimately the Federal Government. Yet despite measurable 
successes such as these, the Office of Management and Budget 
proposes to gut CDBG in favor of the Strengthening America's 
Communities. What is the rationale?
    The details are still unclear as to which communities will 
be eligible for SAC grants, but it seems clear that they must, 
at the very least, have poverty and job rates above the 
national average. If this is so, then the administration has 
made the mistaken assumption that impoverished neighborhoods no 
longer exist in communities ranking above the national average 
on the poverty and job loss index. We at the local level, 
however, know that this is far from reality.
    Using national averages to measure assistance needs ignores 
the reality that our Nation is comprised of local economic 
regions that are unique. For example, the majority of families 
who earn below the regional medium household income in the 
greater Washington, DC-Baltimore metropolitan area may earn 
more than the national poverty rate, but they are just as much 
in need of assistance because of the cost of living, and this 
region is significantly higher than the national average.
    Second, OMB claims that the programs like CDBG have no 
measurable results. The administration's proposal suggests new 
performance standards like job creation, new business formation 
rates, commercial development and private sector investment as 
tools to determine whether the communities receiving the 
Strengthening America's Communities funds are achieving 
results. Unfortunately measuring results by these criteria 
makes little sense for the communities that are chronically 
impoverished, have little to offer in the way of resources, and 
are unlikely to show significant progress over a relatively 
short period. In short, they are being set up to fail.
    Clarksburg, WV, recently used a $250,000 Small Cities Grant 
to demolish vacant and dilapidated buildings in certain 
neighborhoods throughout our city. These structures were havens 
for crime, targets for vandalism and fire, and an attractive 
nuisance for children. We use the vacant lots created by the 
projects to expand businesses, as well as create space for 
larger yards and garages for our citizens. It is very difficult 
to assess the impact of removing a drug den from a neighborhood 
using economic criteria alone; moreover, it is difficult to 
assess the economic impact in relation to this type of project 
over a short period, yet the administration's proposal appears 
to try to do just that.
    Mr. Chairman, closing down a drug den may not immediately 
create job growth, spur new business formation or encourage new 
commercial and residential development; however, it will 
immediately increase the quality of life of its neighbors. That 
is measurable and is the foundational beginning for any plan to 
attract new commercial and residential development in the 
future. Throughout West Virginia, when you travel to virtually 
every city from large to small, you don't have to drive very 
far to find the areas of our cities and towns where poverty and 
despair reign.
    Mr. Chairman, the one-size-fits-all approach proposed by 
the administration will likely stifle the flexibility and 
effectiveness currently found in the CDBG. For these reasons 
the National League of Cities and its member cities throughout 
the country will aggressively advocate for the continued 
existence of a strong and distinct CDBG grant program. We hope 
that you will help us by urging your colleagues in the 
Appropriations Committee to fully fund CDBG formula grants at 
$4.35 billion, and $4.7 billion overall. Thank you for this 
opportunity to appear.
    Mr. Turner. Thank you.
    [The prepared statement of Mr. Hunt follows:]

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    Mr. Turner. We're going to go now to a round of 10-minute 
questions.
    One of the things that I think is most important for us, as 
we talk about CDBG, is the fact that each and every community 
can utilize these funds for different goals and objectives. I 
know that in the city of Dayton, for example, every 
neighborhood is different, so that our use of CDBG funds for 
economic development projects, community development projects, 
housing projects would each be different.
    Now, I would ask Mayor Plusquellic and Commissioner Kyle 
and Mr. Hunt, if you would each speak on that issue of--I am 
certain that all your communities are not the same, and that 
the varied needs of CDBG--varied needs of your community permit 
you, through CDBG, to tailor them to the needs of your 
community.
    Mr. Plusquellic. Thank you. Mr. Congressman, I would also 
add that the funding mechanisms are different and the available 
resources are different from community to community, State to 
State. Your county was very aggressive in starting a program to 
help provide economic development dollars for each community to 
share. There's a formula that's used. And so in some ways I 
would look at Dayton and Akron and say even within the same 
State, you might have additional resources to be used for 
economic development purposes that the city of Akron doesn't 
have because we chose to do something else along the way to 
provide extra money for housing on a countywide basis.
    So every situation is different, every community is 
different, and every funding resource formula is different. And 
so it adds to the need to have a program that is flexible and 
allows us not to just adopt this cookie cutter--as Jim Hunt had 
suggested earlier--that the Federal Government is attempting to 
do.
    I think that flexibility may be, in all honesty, the one 
that sort of gets us in trouble sometimes because some Members 
here on the Hill here have something that they don't 
necessarily agree with. They might not understand why that 
someone might use money for a certain purpose. But when you 
look at a neighborhood and you look at one--and I talk about 
spending money, for instance, on a grocery store. Most people 
probably in America can't even fathom that there isn't a 
grocery store right down the street somewhere from them.
    But if you look at the older neighborhoods where businesses 
have abandoned--and I love working with the private sector; I 
have a great relationship with our business community--but it's 
pretty hard for me to get them enticed to go in on some market 
basis to fix the roof of an elderly person's home just on a 
market basis. It's a matter of helping that senior citizen stay 
in her house or his house and have a better quality of life, 
which is exactly what many of these dollars do. And so having 
the opportunity for me to go in one neighborhood in Akron and 
say the most important thing that I can do here is to try to 
provide the incentive necessary to get a private developer to 
come in and put in a grocery store so the residents of that 
neighborhood that don't have a grocery store for miles can get 
their basic necessities, and go to another neighborhood where 
there is a high percentage of elderly people still living in 
their homes--and they want to do that--to help them live in a 
safe environment, putting a new roof on, maybe providing some 
extra wiring, new wiring that's needed to make the home not 
only more livable, quality of life, but safer, and help entice 
a new family to come in when that senior citizen leaves, I 
think, are two examples of how we in Akron use the dollars 
differently, which may be completely different, for instance, 
than the way Dayton might have used it for downtown development 
or other things.
    Mr. Turner. Commissioner Kyle.
    Mr. Kyle. Thank you, Mr. Chairman.
    In Lake County, IL, we utilize the CDBG funding in a 
variety of ways. And I think that has been one of the assets of 
the CDBG program is its flexibility. As you know, a lot of the 
Federal-funded programs are very stringent in what you can 
utilize those allocations for, so I think the flexibility is 
actually an asset to the program.
    We've utilized the funding for our Affordable Housing 
Commission in Lake County, IL, where we not only promote and 
market affordable housing opportunities, but we also provide 
funding to those community developers who specialize in the 
construction of affordable housing. Also, we utilize it for 
emergency food assistance programs.
    And I think what we must realize is that there are pockets 
of poverty in every community. You will identify homelessness 
and hunger in Palms Springs, CA, to Greenwich, CT, in 
Hollywood. In several of the most affluent capital cities and 
counties in the United States you will find pockets of poverty. 
So if we have a significant amount of the citizens of a 
particular community who will drive up the median income of 
that particular city or county, do we just ignore the pockets 
of poverty that will still exist in those communities? I think 
that's the important thing here.
    Also, we've utilized our funding for daycare services, and 
we would like to question whether or not those types of service 
delivery systems will continue out of the Department of 
Commerce. Will public services continue? Will infrastructure 
improvements continue? And I think we must realize and not just 
confine the Community Development Block Grant Program into just 
bricks-and-mortar type of a program. Community development 
programs also develop morale in a program--in a community. It 
also develops self-esteem, self-confidence, self-motivation. 
These types of programs actually produce productive citizens in 
a community, and I think that criteria is oftentimes not 
measured in the significance of these Community Development 
Block Grant Programs, and they cannot always be measured in 
bricks and mortar and hammers and nails.
    Mr. Turner. Thank you very much.
    Councilman Hunt.
    Mr. Hunt. Mr. Chairman, one of the things that when you 
look at why different neighborhoods have a different look with 
CDBG is I think one critical component of the CDBG is that we 
asked low and moderate-income persons to come to meetings on 
these planning; so what the needs in Dayton, OH, and in 
Clarksburg, WV, they're going to reflect the needs of these 
moderate and low-income persons that come out.
    And I think, as most of us will attest, that some of those 
meetings are the most critical ones we hold as public 
officials. And when you look at it in Akron, when they say we'd 
like a grocery store, in West Virginia that's not generally a 
problem, but when you look at community centers in rural areas, 
community centers are the lifeblood of the communities.
    So I think the one thing that you look at CDBG is the 
flexibility; the other is we've asked people, just according to 
the statute that we follow that says, what are your needs in 
your community? And that's why you're going to get a different 
face on it completely across the country. And I think it would 
be difficult to punish the CDBG recipients for doing exactly 
what the statute asked.
    Mr. Turner. I asked you that question in order to ask you 
this next one. One of the things that we have as justification 
for dismantling these programs and reconstituting them is that 
the performance measures that are currently being utilized in 
judging the CDBG program have not favorably reflected upon the 
program. The performance measure that is currently being used 
is the PART analysis, known as the Program Assessment Rating 
Tool. I'm going to read you one paragraph of it and I'd like 
you to respond to it because I think this is something that you 
might have a contrary view to.
    And the question is: Is the program designed so that it is 
not redundant or duplicative of any other Federal, State, local 
or private effort? And the answer in the measurement analysis 
here says, ``Federal, State and local programs, as well as 
other for-profit and nonprofits, address similar objectives. 
CDBG funds are rarely the only resource for the community 
development activities of public agencies or nonprofits.''
    Now, my experience and my understanding has been that of 
the types of projects that you are describing, that you don't 
have readily available to you another either Federal, State or 
local source to fund those. I would like your comments on that 
and I will start with the mayor.
    Mr. Plusquellic. Well, I think it's the leveraging issue. 
There's certainly other funding sources that we all have, 
depending on our State laws and local ordinances and the 
provision of--the level of political will that the local 
government leaders have to ask their own people to step to the 
table to provide resources. And we have different mental health 
levies that go on in Ohio, we have different school levies and 
needs of school. All of these issues someone could say somehow 
they're overlapping, but when we can use CDBG moneys to attract 
private sector investment in particular, but even if we have 
to, to make a project work, put some other local resources to 
work.
    We put some money in, city dollars, into the grocery store 
project. I'm not sure how somebody sitting in some office here 
in the Beltway thinks that's a bad thing that there are other 
sources out there. The question is are there other sources to 
make up for the significant cut here, even if you accept--which 
I don't, and the Conference of Mayors does not--that this is, 
you know, really fully funded to really meet the people that 
are the most neediest?
    If you look at the 30-something percent cut, and you look 
at the 30-something percent that they say are below the poverty 
line, if you wiped out that percentage just on a per capita 
basis, you would say there is no more money then for the 
neediest. I mean, I can do the math if I get the list that you 
have requested from OMB and from Dr. Sampson, but even if we 
were talking about the same level of funding, shifting and 
doing some things that are supposed to be for improving a 
program, we don't see it that way because the funding level is 
much lower.
    So bringing other funds, bringing other resources to the 
table is exactly what public-private partnerships are all like, 
and I think bringing in some of the public agencies, for 
instance, and having city governments or others put money into 
it--that could be a county, it could be a park district, 
depending on the State law--that have other resources, I don't 
see as a bad thing. I see it as a collaborative effort in each 
community to meet the needs of that community. And I go back to 
this flexibility that you mentioned earlier; that's why these 
funds are flexible and each community gets to decide what their 
priorities are.
    Mr. Turner. Commissioner.
    Mr. Kyle. Thank you.
    I think we could look at your question also in reverse. If 
we're looking at some potential duplication of services or 
deliveries out of the CDBG program and in the Department of 
Commerce, we can also look at it from the standpoint of if 
we're specifying the housing-related projects, we could also 
transfer the Housing and Economic Development-related projects 
from the Department of Commerce over to CDBG. And then we could 
also eliminate some duplications in reverse from that aspect 
also.
    But the significance of the CDBG program, as we have 
indicated, they provide certain unique programs like 
transitional programs, transitioning individuals who have, for 
example, been incarcerated. We have a recidivism program in 
Lake County, IL, where we're providing funding through CDBG to 
transition individuals that have been incarcerated back into 
the work force with job skills development and those types of 
issues; also individuals who have fallen into drug addiction 
and transitional programs to transition them back into the work 
force to make them productive citizens also.
    So these types of programs, they also produce an element of 
pride in your community, which would be a criteria that's 
lacking in a lot of other Federal-funded programs. And as I 
indicated, these types of things are difficult to measure, 
particularly with the criteria and the standards that are being 
utilized to measure these types of delivery systems.
    Mr. Turner. Thank you.
    Ms. Western.
    Ms. Western. I think that is a very good question, but what 
I would like to comment on really is looking at the proposal 
the administration has put forward in terms of consolidating 
programs from CDBG and 17 others into a new program. When CDBG 
was created as a consolidation of seven other programs because 
there was too much redundancy and too difficult in terms of 
applying for funding across the national--the Federal level--if 
you look at the program, CDBG has 28 eligible activities, and 
it allows for each community to determine its priority needs 
based on three national objectives that the Congress determined 
was what the program should undertake. And so when you look at 
duplication of effort, and you've already rolled in seven 
programs into one, and now you're looking at trying to roll in 
18 programs into 1, the Federal Government itself duplicates 
the effort; it's not that the program is duplicative of other 
efforts.
    I think CDBG is the program that should be the one that 
focuses on cities and communities and neighborhoods because it 
allows for locally determined, identified, prioritized needs 
based on what Congress intended them to do with these funds. 
And if you see everyone doing different things differently, 
that's why the program exists, because it supports every 
community's goals and objectives through this one source of 
funding, and HUD.
    Mr. Turner. Councilman Hunt.
    Mr. Hunt. Mr. Chairman, you know, the private sector does 
do affordable housing, they do have a very effective affordable 
housing program, and that is, if you can afford it, they will 
build it. And I think that's, in a nutshell, a little bit of 
the difference of when we talk about affordable housing. And 
that's why it's not an overlap with the private sector or other 
programs is that in many cases the private sectors had the 
opportunity to come into my town and into Akron and into other 
communities at any point and purchase these dilapidated 
properties. The taxpayers have already invested in water and 
sewer, sidewalks, streets, facilities that run right in front 
of these dilapidated properties. Any private developer can do 
it.
    One of the challenges, however, is when you add in asbestos 
regulations, when you add in the different costs of removing 
these properties, what the cheapest thing to do is and what's 
happening all over America is we go out to greenspace and we 
start putting in new roads and water and sewer. And I will tell 
you that the cost of putting in water and sewer for a 
neighborhood of 30 in a subdivision is clearly more expensive 
than tearing down a dilapidated house and salvaging the 
neighborhood for those other residents.
    And you have to look at it on a real-world basis, when you 
walk those neighborhoods and that house comes down, and all of 
a sudden--and I don't think there's any public official that 
can contest this, is when you tear down a house in a 
neighborhood, the building permits on the adjacent properties 
go up, and somebody who wasn't going to put a deck on now 
invests in a deck, somebody who wasn't going to put siding on 
now puts siding on.
    It's not even something you say it thinking, gee, somebody 
will argue with you because we will all see it. And when 
improvements are made in neighborhoods, no matter how bad they 
are--and that's why graffiti removal, when you start looking at 
gang activities in most of our communities--in West Virginia 
there was an article in the Charleston Gazette about gang 
activity in West Virginia, something I never thought we'd see--
when you look at it, it's signified by the graffiti that is 
growing out in these small little West Virginia towns. When we 
take an active role of graffiti removal--we're not going to 
eliminate gangs in West Virginia with methamphetamines, but we 
do have the tools that we can go after some of these 
activities.
    So I just say, I mean, when you look at neighborhood 
redevelopment, private sector is in there every day--predatory 
lending; there are a lot of nasty things in our neighborhoods. 
CDBG are funding the type of activities that work toward the 
betterment of those neighborhoods.
    Mr. Turner. Thank you.
    Mr. Dent.
    Mr. Dent. Yes, thank you.
    Mr. Hunt, you made a good point there about the uses of 
these CDBG funds. In my experience it's been very useful when 
moneys, public moneys, whether they be CDBG or other public 
moneys, be used for demolition or mediation or buying those 
power hoses to remove the graffiti, or whatever the case may 
be, or even tearing down an old dilapidated house and putting a 
little pocket park, or maybe even a parking lot, depending on 
the circumstances of a densely packed neighborhood.
    But the administration has a point, and I think, Mr. Kyle, 
you spoke to the issue a little bit, but I guess I have a 
problem with a community like Boca Raton, FL, getting the CDBG 
money if, in fact, it has the capacity in the local community 
to take care of some of those projects themselves. I would 
rather reserve those precious public dollars for those 
communities that are truly distressed, that do need to tear 
down that dilapidated, drug-infested house, whatever the case 
may be.
    But does the administration have a point; should we not be 
looking at those communities that are not very impoverished, 
but are somehow getting these dollars?
    Mr. Hunt. And we're not going there with guns getting the 
money; there are rules and regs that are portrayed for this.
    And there's no question, you make a good point; but it's 
like, let's reevaluate the program within the existing 
confines. It doesn't seem to make sense that if that's the one 
issue of which we haven't even clarified how much of those 
dollars and what they've been spent on, because there are 
eligible activities even within those communities, that they 
have to be targeted to low-income and moderate-income persons. 
But even if that's the case, then let's solve that problem 
without completely dismantling one of the most effective 
community development programs.
    And I think even through the testimony, like I said, we 
don't have a clear number of how much of that is actually 
occurring when you look at clearly you do have examples of 
communities, of low and moderate-income communities, that are 
using these funds.
    Mr. Plusquellic. I think it would be difficult for me to 
give testimony on behalf of a wealthy community. Akron is not a 
wealthy community in that measurement. But I'm sure one of the 
things they would say is they send more than their share of 
taxes here to Washington, and they ought to get some of it 
back; I'm sure that would be their first argument. And if, in 
fact, there are still people who meet the requirements--because 
keep in mind, Congress established the requirement that the 
moneys still have to be spent 70 percent low and moderate. If 
they don't meet that requirement, they can't get the funds.
    So, I mean, I think there is a protection there, I guess, 
from wealthy communities spending these dollars on wealthy 
people, which is sort of the inference in that 38 percent, 
which I said is so, in my opinion, misleading; it's probably 
accurate, factually correct, but inferentially wrong. It infers 
that they're spending it on wealthy people in wealthy 
neighborhoods, and that just can't be by the regulations 
themselves.
    Mr. Dent. OK. And finally I guess, Mr. Kyle, you had 
mentioned something about, I guess, measuring the program, you 
talked about capital funding. I thought you made some reference 
to capital funding shouldn't be the primary emphasis. Did you 
say that? I was trying to get a clarification. I've always 
liked using these public dollars for capital purposes because I 
could see the results in my community, whether you're tearing 
down the building, removing the graffiti, even if you are going 
to hire a couple code enforcement officers. Whatever the case, 
I want to make sure there is something tangible as opposed to 
paying for something that's less measurable.
    Mr. Kyle. Sure. I appreciate the question. We utilize the 
funding, our CDBG funding, in Lake County, IL for programs like 
emergency food assistance, to provide food in food pantries 
throughout various blighted and dilapidated neighborhoods. We'd 
also used the funding, as I'd indicated, for day care, for 
those individuals who cannot afford day care but still have to 
go to work every day. We utilize the funding also for a 
recidivism program, which is a program to make those 
individuals who have been incarcerated, teaching them job 
skills, development, job training, and transition them back 
into productive citizens. We also utilize that program also for 
a drug transitional program, to counsel and train individuals 
of how to stay off of drugs and how to make them more 
productive citizens.
    So these are the types of programs that are not necessarily 
brick and mortar but they are pragmatic in nature and systemic, 
whereas we don't necessarily have to build a building to 
provide these programs.
    Mr. Dent. I guess just from my experience with the program, 
where I live at least, it seems that those programs you 
mentioned, while they are worthy, whether it's child care or 
helping people return from prison back to the mainstream of 
life, they are worthy initiatives, but I am just not aware of, 
like where I live, of community development funds, for example, 
being used for that type of initiative. It's more in line with 
what Mr. Hunt had talked about.
    Mr. Kyle. Sure.
    Mr. Dent. And that's where I would like to see the focus.
    Mr. Kyle. Sure.
    Mr. Plusquellic. May I comment? Many of these programs 
connect up with other things we are doing. Let me give you an 
example, and I can't speak for 1,100 communities across the 
country, but if we are helping a new homeowner, single mother, 
purchase a first home, and, for whatever reason our system, 
whatever, whoever is responsible for not allowing every person 
19, 21, 25, 30 years old to know and understand how to get good 
credit and keep good credit, we have a credit counseling agency 
that works with them for some period of time so that we are not 
just encouraging go buy a new home, we will give you some down 
payment, you can work in there, and then you go back and charge 
everything on credit card and you lose your home, that we in 
our community believe strongly and the President of the United 
States has said he believes strongly in home ownership. So it 
may be a social service agency and money spent for that, but we 
try to connect it up.
    We've supported home delivery, a local group raises a lot 
of donations locally, but we have supported at various times 
for home meal delivery for senior citizens, that we fix the 
roof and add the safe wiring, so that it connects up with 
helping seniors stay where they want to stay and not feel 
afraid to live in that neighborhood.
    So I think many of these things that you look at are 
connected up to the hard types of capital investment that you 
are suggesting. And I am not sure what the percentage--in Akron 
we only spend about a half a million out of the 13 million on 
those social service agencies. So in most communities it's a 
small part.
    Mr. Dent. That is fine. That would be my thinking as well.
    And I want to conclude just by saying the administration, 
as I mentioned a few minutes ago, I believe there is some logic 
to taking some of these programs they've identified--and, 
again, I'm looking at the brownfields in particular and maybe 
urban empowerment zone grants, just to name two--but there 
might be some logic in consolidating them or shifting them into 
commerce, based on my experience, that it might look more like 
economic development activities as opposed to perhaps community 
development or housing activities. And I would just like to 
hear what your thoughts would be.
    I am not suggesting that CDBG be moved over, but what do 
you think? Are they onto something here with some of these 
programs, whether they come out of HUD, or perhaps agricultural 
or wherever the program may be, should they not be moved to 
Commerce?
    Mr. Plusquellic. Well, let me say something first of all 
that I meant to say. I have personally deep respect for Dr. 
Sampson. We have worked in Akron with Dr. Sampson and EDA, the 
Commerce Department, on several things including an incubator 
project. I believe he is a very knowledgeable professional, and 
competent, and knows and understands economic development.
    I think much of the testimony we have heard is there are so 
many other ways that community development block grant moneys 
are used that improve the communities that don't go into these 
numbers that OMB pumps out and the statistics. You just can't 
measure those things on straight job development.
    So I believe he is sincere in trying to make this work, but 
in our meeting he mentioned that EDA--I believe the numbers are 
correct, I'm sure someone in the room will correct me if I'm 
wrong--EDA administers a program right now at about $370 
million. And first and foremost, to stick this HUD program of 
$4.7 billion into a program and compare the efficiency and 
effectiveness of a program that primarily deals with business 
people, and now you are dealing with elderly and low-income 
folks in dilapidated neighborhoods, and all that just doesn't 
make sense at all. Is there a piece of the--I don't have the 
agencies here. Is there some piece?
    Someone mentioned brownfields. Could that be moved under 
Commerce because it's dealing with business and revitalizing? 
This is my own personal--this isn't the Conference of Mayors; 
we haven't taken a position on that. But I think, like you, 
that might make some logic for some small part of those 17 
programs that you are talking about. We believe strongly that 
CDBG should not be moved, and that's the--you don't move a big 
program, doing a lot of other things, into one over here that's 
only dealt with business development.
    Mr. Dent. I understand. The main concern here today is 
CDBG, and the other programs, well, we could have a discussion 
perhaps another time.
    Mr. Plusquellic. I was trying to say yes without giving in 
completely, Mr. Congressman. I hope you understood.
    Mr. Dent. Thank you.
    Mr. Hunt. I think one thing is important to look at the 
arithmetic, though, on the proposal, is that clearly CDBG is 
going to bear the brunt of the cuts. So the other 18 programs 
combined, even if they all went to Commerce, CDBG was retained 
as funding. I mean, you are paying for all those 18 programs 
out of the current CDBG program. And I would make the comment a 
lot of times the brownfields' perception is that this is an 
urban issue and it's not.
    We just last week took ownership of a former glass factory 
in our town that was put up for public auction that had gone 
through the Federal brownfields remediation. And, to be quite 
honest, one of the challenges and one reason that CDBG might 
have a role there is the private sector are very leery of going 
in the first owner of a brownfields site. We had a courthouse 
sale. We had over $400,000 of liens in our community against 
this site where we'd expended cleanup, and no private sector or 
person came up for a property that's valued well over $1 
million. So from what our understanding is and talking to the 
private sector is that you may well have to expend CDBG money 
to make it attractive enough for the private sector to stay.
    Mr. Dent. I agree with you 100 percent on that. I represent 
the largest brownfield site in America in Bethlehem Steel, the 
old Bethlehem Steel site. I know what you are talking about. 
And that public money, whether it's CDBG or other funds, you 
have to put it in there because nobody is going to take their 
private dollars and remediate that site and accept the 
liabilities. We have a good brownfield program where I live.
    Mr. Kyle. And if I could just add, Congressman, is that 
when we talk about brownfield funding, if you would look at the 
objectives of the brownfield funding out of CDBG, which is 
primarily for redevelopment purposes, and the brownfield 
funding out of the EPA is for cleanup. So therefore you have 
the same type of funding, but the funding has different 
objectives and different goals.
    Ms. Smith. I would just like to say that all the programs 
that are being proposed for consolidation and be moved over at 
Commerce are already eligible under CDBG. In fact, brownfields 
used to be a part of CDBG before it became a separate program 
that identified specific activities in conjunction with other 
funding. And brownfields are still eligible under CDBG as a 
part of the CDBG program. So I would think that the economies 
of scale would be more readily maximized if you put everything 
over in the CDBG and at HUD, already an existing infrastructure 
for delivery. It goes directly to communities where the 
programs are going to be funded anyway, and it provides 
communities with parameters in what they can spend the funds 
on, based on how they have identified their needs to public 
participation process so they can determine what to spend the 
money on, when, and why.
    So, I mean, I think that the whole proposal is 
counterproductive in terms of maximizing efficiency to move the 
big program and what it's been doing for 30 years over to 
Commerce without any infrastructure or any idea how the 
distribution of funds is going to take place to accomplish the 
same things we are already doing, and doing very well.
    Mr. Turner. With that, that ends our questioning. And like 
the panel before you, I will give you an opportunity if there 
is any closing remarks or additional thoughts that you would 
like to provide for the record.
    Mr. Plusquellic. Thank you. I would like to thank you once 
again, Congressman Turner, and the others, for allowing us an 
opportunity to state as strongly, hopefully, as we can here 
today how important CDBG funds are. I would like to make an 
offer that when this is settled and everybody realizes that HUD 
has done a good job, every program can be improved and we can 
look at working together, that we get some of the folks from 
inside the Beltway here who run numbers to get on a bus--I 
didn't say a plane because that would be wasteful government 
spending--but get on a bus and take a tour of America and go 
through eastern and western Pennsylvania where the Governor 
gets $55 million of CDBG to distribute to the small 
communities. Come to Ohio and see what all the cities there are 
doing with the CDBG. And continue across the country to 
actually see from year to year, and measure those neighborhoods 
that cannot statistically ever measure up to some green 
pasture. And if they would do that and see some of the great 
things that go on, they would have a better way of sitting here 
in front of Congress testifying on what's really going on in 
America thanks to the partnership that has existed since 
Richard Nixon was President of the United States in a program 
that he proposed to Congress and they accepted.
    And so I make that offer on behalf of the U.S. Conference 
of Mayors to work with your committee, work with anyone else 
here in Washington, even the folks at OMB, to show them what's 
really going on. We appreciate the opportunity for us to 
express what we believe is the success story of CDBG, and thank 
you for that opportunity, and look forward to working with you 
in the future.
    Mr. Kyle. Thank you very much. And on behalf of the 
National Association of Counties, we also appreciate the 
opportunity to testify this afternoon. And we wanted to, of 
course, reiterate how vital and crucial the sustainability of 
the community development block grant is to counties across 
this country. It has been a most successful program throughout 
counties throughout the United States, and we wanted to point 
out the significance.
    Even if you look here in Washington, DC, the capital of the 
United States, the most powerful city in the world, there is 
homelessness right outside of the gates of the White House, 
there is hunger right around Capitol Hill. These types of 
social-oriented issues cannot go ignored, and we cannot go into 
a state of denial about these issues. These issues are most 
prevalent throughout all the parts of this country. So we want 
to reiterate the importance and significance of the community 
development block grant to counties across the country and to 
this Nation. Thank you.
    Mr. Hunt. And once again I would like to thank you for 
holding this hearing. If you talk sometimes about did we do 
anything wrong--and probably with CDBG you go to an apartment 
complex when they are cutting the ribbon and you let the owners 
and the residents puff their chests out and say what a great 
project this is. Very seldom do you see a big banner that says 
CDBG.
    And I think when we look across America what is has done 
for us at the National League of Cities, and, I'm sure with our 
sister organizations, is that now we do know where those four 
initials go on a lot of these projects. And I think that's 
something that says that, you know, if you have to brag about 
it, sometimes something's wrong. And we weren't bragging about 
CDBG; we were doing the work that CDBG was intended, and these 
projects were cropping up all over America and with not a whole 
lot of applause at that point. And I don't think we want to 
change that to where poor residents throughout America have to 
know that their own initiative has kind of been superseded by a 
Federal program, but it certainly has worked well throughout 
America. Thank you.
    Mr. Turner. I want to thank the panel. In the near term 
this subcommittee will continue its oversight of the many 
issues discussed today. Over the coming months we will delve 
into these programs to ascertain their strengths, weaknesses, 
and what impediments exist to their efficient and effective 
implementation. The subcommittee will also explore what 
legislative modifications Congress should consider to improve 
the administration of these programs. I look forward to taking 
an in-depth look at these issues, and hope it will lead us down 
a path to solutions beneficial to the stakeholders and working 
with each of you in that.
    I want to thank members of our first panel also for taking 
their time today, as with our second panel. And in the event 
that there may be additional questions either from members who 
are present or not present and for questions we didn't have 
time for today, the record will remain open for 2 weeks for 
submitted questions and answers.
    Thank you. And with that, we will stand adjourned.
    [Whereupon, at 12:12 p.m., the subcommittee was adjourned.]
    [The prepared statement of Hon. Wm. Lacy Clay and 
additional information submitted for the hearing record 
follow:]

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 THE 1970's LOOK: IS THE DECADES-OLD COMMUNITY DEVELOPMENT BLOCK GRANT 
                 FORMULA READY FOR AN EXTREME MAKEOVER?

                              ----------                              


                        TUESDAY, APRIL 26, 2005

                  House of Representatives,
         Subcommittee on Federalism and the Census,
                            Committee on Government Reform,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 10:05 a.m., in 
room 2154, Rayburn House Office Building, Hon. Michael R. 
Turner (chairman of the subcommittee) presiding.
    Present: Representatives Turner and Dent.
    Staff present: John Cuaderes, staff director; Shannon 
Weinberg and Jon Heroux, counsels; Peter Neville, fellow; 
Juliana French, clerk; Erin Maguire, LC/Mr. Dent; Adam Bordes, 
minority professional staff member; and Cecelia Morton, 
minority office manager.
    Mr. Turner. A quorum being present, this hearing of the 
Subcommittee on Federalism and the Census will come to order.
    Welcome to the subcommittee's oversight hearing entitled 
``The 1970's Look: Is the Decades-Old Community Development 
Block Grant Program Formula Ready for an Extreme Makeover?''
    In March this subcommittee held a hearing reviewing the 
Bush administration's Strengthening America's Communities 
Initiative. During that hearing we learned that HUD had 
undertaken certain in-house initiatives to improve the 
administration of the program. It is one of those initiatives 
that brings us here today, a review of the CDBG formula and the 
development of four possible grant formula reforms. This is the 
first in a series of oversight hearings dedicated to the review 
of the Community Development Block Grant Program at the 
Department of Housing and Urban Development.
    The Community Development Block Grant Program [CDBG], is 
one of the largest Federal direct block grant programs in 
existence. For fiscal year 2005, Congress appropriated $4.71 
billion for the CDBG program, including $4.15 billion for CDBG 
formula grants alone.
    State and local governments use CDBG grant moneys to fund 
various housing, community development, neighborhood 
revitalization, economic development and public service 
provision projects. Such projects must address at least one of 
three projectives: One, to principally benefit low and 
moderate-income individuals; two, eliminate or prevent blight; 
and three, remedy urgent threats to the health or safety of the 
community when no other financial resources are available.
    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. Without question, the program 
provides vital funds for addressing poverty as well as 
community development means, 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.
    The formula for which the bulk of CDBG funds are 
distributed to entitlement communities and nonentitlement 
communities is quite complex. The 1974 legislation creating the 
CDBG program identified poverty, blight, deteriorating housing, 
physical and economic distress, decline, living environment 
suitability and isolation of income groups as some of the 
factors to be considered in determining community development 
need.
    The original formula specified in the CDBG statute only 
considered three variables to assess and target these needs; 
poverty, population and overcrowding. However, Congress also 
intended for the CDBG program to address housing, economic 
development, neighborhood revitalization, and other community 
development activities not exclusively associated with poverty.
    Analysis of the formula shortly after 1974 showed that 
while the CDBG formula targeted poverty populations fairly 
well, it failed to adequately address older and declining 
communities. Accordingly, in 1997 Congress amended the law by 
creating a second parallel formula. The original formula became 
known as Formula A, the new formula became known as Formula B. 
Formula B was designed to target older and declining 
communities by using the new variables of growth lag and pre-
1940 housing. Jurisdictions received the greater sum of the two 
formula calculations.
    The last modification of the grant formula came in 1981. 
Congress amended the formula by adding the 70/30 split 
requiring that funds be split 70 percent to 30 percent between 
entitlement and nonentitlement areas respectively. Since 1978, 
the factors used in these calculations have remained constant, 
while the demographic composition of the Nation has changed 
dramatically. In particular, the number of entitlement 
communities has grown drastically. In fiscal year 2004, there 
were more than 1,100 designated entitlement communities. More 
than 250 new entitlement communities were certified since 1993 
alone, as compared to only 128 new entitlement community 
designations between 1982 and 1993. And while the number of 
entitlement communities sharing the 70 percent portion of CDBG 
funds continues to grow, the overall funding of the program has 
not kept pace. Thus, a larger portion of the population is 
sharing a relatively static portion of CDBG funds, resulting in 
smaller per capita grants per jurisdiction. At the same time, 
the number of nonentitlement communities grows smaller, 
effectively increasing their share of the 30 percent portion of 
CDBG.
    Additional questions of fundamental fairness have arisen in 
recent years. First, there are numerous instances of richer 
communities receiving higher per capita awards than poorer 
communities. Second, similarly situated communities often get 
disparate per capita awards.
    The purpose of this hearing is to consider two basic 
questions regarding the structure of the allocation formula. 
First, is the current formula, last modified in 1981, still 
applicable and effective today? And second, if the answer to 
the first question is no, what factors should Congress 
consider, and what changes to the formula would be appropriate?
    To help us answer these questions we have the Honorable Roy 
Bernardi, the current Deputy Secretary of the Department of 
Housing and Urban Development and former Assistant Secretary of 
Community Planning and Development.
    On February 21, 2005, HUD published a document entitled 
CDBG Formula Targeting to Community Development Need, the 
result of a study on the declining effectiveness of the current 
grant formula in targeting a need, as compared to the study. 
The study demonstrates that the current formula continues to 
target need. The top 10 percent of communities with the 
greatest community development need to receive 4 times as much 
as the lowest 10 percent of communities. Further, the per 
capita grants awarded to the most needy of communities have 
decreased, while the per capita grants awarded to the least 
needy of communities have increased. To address these 
deficiencies the document details four alternative formulas. 
The subcommittee looks forward to hearing more of those details 
from Mr. Bernardi on this study.
    Following Mr. Bernardi, we will hear from Mr. Paul Posner, 
Director of Federal Budget and Intergovernmental Relations at 
the Government Accountability Office.
    Joining Mr. Posner from GAO is Mr. Jerry C. Fastrup, 
Assistant Director of Applied Research and Methods.
    Rounding out our second panel of witnesses, we are pleased 
to welcome Mr. Saul Ramirez, Jr., executive director of 
National Association of Housing and Redevelopment Officials. 
Mr. Ramirez served as the Deputy Secretary of HUD during the 
Clinton administration, as well as the Assistant Secretary of 
Community Planning and Development from 1997 to 1998.
    I look forward to the expert testimony our distinguished 
panel of leaders will provide us today, and I thank all of you 
for your time and welcome you.
    [The prepared statement of Hon. Michael R. Turner follows:]

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    Mr. Turner. And I want to recognize--Mr. Dent from 
Pennsylvania, who is here with us today, and ask if he has any 
opening comments.
    Mr. Dent. I thank you, Mr. Chairman.
    My only comment is that I look forward to receiving your 
testimony. I have a lot of questions on this issue. Thank you.
    Mr. Turner. Thank you. We will now start with the 
witnesses. Each witness has kindly prepared written testimony, 
which will be included in the record of this hearing.
    Witnesses will notice there is a timer light at the witness 
table. The green light indicates that you should begin your 
prepared remarks, and the red light indicates that your time 
has expired. The yellow light will indicate when you have 1 
minute left in which to conclude your remarks.
    It is the policy of this committee that all witnesses be 
sworn in before they testify. Swearing in the first panel, Mr. 
Bernardi, if you would rise and raise your right hands.
    [Witness sworn.]
    Mr. Turner. Let the record show that the witness has 
responded in the affirmative. And beginning then with Mr. 
Bernardi's testimony.

STATEMENT OF ROY A. BERNARDI, DEPUTY SECRETARY, U.S. DEPARTMENT 
                OF HOUSING AND URBAN DEVELOPMENT

    Mr. Bernardi. Well, thank you, Chairman Turner, Congressman 
Dent. On behalf of the President and Secretary Jackson, I 
appreciate the opportunity to speak with you today about a 
recently released HUD report on the CDBG formula and how it 
performs relative to community development need.
    As you are aware, the President, via his 2006 budget, has 
proposed to consolidate 18 programs from 5 agencies within the 
Department of Commerce, and that's including the CDBG program. 
These programs would be consolidated into one program, the 
Strengthening America's Communities Initiative. This initiative 
would support communities' efforts to meet the goal of 
improving their economic conditions through, among other 
things, the creation of jobs. Therefore, under the President's 
proposal, the CDBG program would be eliminated. 
Notwithstanding, I offer the following testimony on the 
proposed CDBG formula targets, which may be helpful in your 
review of the Strengthening America's Communities Initiative.
    This is the fifth time HUD has prepared a report like this 
since 1974 on how the CDBG formula targets the need. Like our 
previous reports, we generally ask the question, how is the 
CDBG program doing in terms of meeting the community 
development need in this country?
    The first report provided the framework for creation of the 
dual formula that first allocated funds, as you mentioned, Mr. 
Chairman, in 1978. The current formula is comprised of Formula 
A and Formula B. HUD calculates the amount of each grantee 
under both formulas. The grantees are then assigned the larger 
of the two grant amounts. Generally communities with poverty 
and overcrowding get higher grants under Formula A, while 
communities with old housing and slow population growth get 
higher grants under Formula B.
    In 1983 and 1995, we found that CDBG formulas had become 
increasingly less effective in targeting need. The problem is 
that while the variables and the formulas have not changed 
since 1978, this country has. I'm sure it comes as no surprise 
to anyone here in the United States, it is a significantly 
different country than it was 30 years ago. We have seen 
significant demographic and economic change. Some communities 
experience tremendous growth, while others are facing decline. 
Not surprisingly, when we began to crunch the numbers from the 
latest census, we noticed that the CDBG formula continues to be 
a less effective vehicle for targeting need.
    Today I'd like to outline our findings and offer some 
options, should you consider changing the program's formula to 
meet today's needs.
    As with prior studies, we designed an index to try to rank 
each community based on its relative level of community 
development need. This needs index uses variables that relate 
directly to the statutory objectives of the CDBG program, such 
as poverty, crime, unemployment and population loss. A total of 
17 variables were identified for entitlement communities; those 
are cities and large urban counties that receive direct 
funding. For the States, or the nonentitlement program, we 
created a needs index using 10 variables. Applying techniques 
used in the previous four studies, those variables are combined 
into a single score for each community.
    When we compare how the current formula is allocated 
against this needs index, we see some stark examples of funding 
disparity. For example, communities with similar need may 
receive significantly more or less funding on a per capita 
basis. We also find examples of communities with less need 
receiving roughly the same amount of funding as higher-need 
areas. Exhibit 1 illustrates this point. And I apologize for 
the complexity, but I think this will become clear shortly.
    This chart shows how CDBG's current formula is targeted 
today. You will see along the bottom of this chart communities 
are ranked by their relative community development need, 
starting with the lowest need communities on the left, and 
ending with the highest need communities on the right. The 
solid line represents an appropriate funding level relative to 
the need for the per capita grant amount of the grantee 
community. The jagged line represents the per capita allocation 
for grantees under the current formula.
    This chart on my right demonstrates that CDBG's current 
formula is far from perfect. For example, some low need 
communities, such as Newton, MA; Portsmouth, NH; Royal Oak, MI 
are allocated more than $25 per person, while other low-need 
communities are receiving $5 to $7 per capita.
    The starkest contrast, however, is among the high need 
communities on the right side of the chart, and I will use 
three communities as an example. The cities of St. Louis, Miami 
and Detroit have similar needs according to the needs index, 
but get very different grant amounts. St. Louis receives $73 
per capita, well above the needs index line; Detroit gets about 
$50 per capita, which is right about at the needs index line, 
and Miami receives $26 per capita, well below the needs index.
    Now why is this? There are several reasons, and, Chairman 
Turner, you mentioned some of those. Two big reasons are with 
respect to the pre-1940 housing variable and the growth lag 
variable in Formula B. As distressed communities have 
demolished their older housing, and less distressed communities 
renovated their older housing, the pre-1940 housing shifted 
money from distressed communities to less distressed 
communities.
    In terms of growth lag, the relatively few communities that 
get funding under this variable get a lot of funding, because 
the growth lag here is at 20 percent, so it is pegged with 
communities' population in 1960. It is the communities with 
growing lag that represent the spikes you'll see in the chart; 
like I mentioned, St. Louis at about $70 per capita--St. Louis 
lost an awful lot of population, from about 780,000 down to 
about 330,000, so that growth lag differential, that 20 
percent, they receive a large portion of that.
    There are other elements to the CDBG current formula that 
tend to benefit smaller college towns with a high population of 
students earning little or no income. When you consider these 
students in measuring poverty, which we do under the present 
formula, it is misleading, as many receive funds from parents 
and others. You get a relatively higher grant as compared with 
similar communities with no significant student population, but 
with absolutely higher poverty.
    Finally, the dual formula structure tends to provide 
greater funding to communities funded under Formula B, 
developed for declining areas, than equally needy Formula A 
grantees, which was developed for growing areas.
    Let me also take a moment to talk on the nonentitlement 
formula that allocates 30 percent of the CDBG funding to the 
States. The nonentitlement formula does not have the wild 
swings in funding as the formula our cities and counties use. 
As a result, there are no stark differences in funding between 
States, no matter their need. With the exception of Puerto 
Rico, the formula for the 50 States doesn't really target need 
at all. But Puerto Rico obviously probably is a Formula--I'm 
sure is a Formula A grantee because 50 percent of it is 
poverty.
    The report considers four alternatives, and they all 
improve targeting to need, and I will just do a brief summary 
of each one, if I may, please.
    Alternative 1 on the left, it keeps the current dual 
formula, but corrects some of the most serious problems. For 
example, it defines the age of the housing stock a little more 
precisely. Instead of counting just the number of units built 
before 1940, this option would measure housing older than 50 
years--and here is the key--and occupied by a person of 
poverty.
    By establishing a means test on this housing variable, 
alternative 1 generally redistributes funds from less needy 
communities to communities in decline, correcting that 
imbalance that you see in the present formula. Exhibit 2 shows 
the impact of these corrections; that would be alternative 1. 
It substantially reduces the overfunding of low-need 
communities like Newton, Portsmouth and Royal Oak, and only 
modestly reduces the funding difference between Miami and St. 
Louis. Similar changes to the nonentitlement formula also have 
positive effects on targeting.
    Alternative 2. Now, this is a very simple approach designed 
to minimize differences in funding among places with similar 
need. It is a single formula that uses four measures of need, 
poverty, female-headed households with children, housing 50 
years and older and occupied by a poverty household, and 
overcrowding. As Exhibit 3 shows, this alternative greatly 
improves the fairness of the formula by reducing the per capita 
grant variation, so you don't have those fluctuations and those 
lines. The disadvantage of alternative 2 is that the high-need 
communities tend to fall below the needs line. Miami, St. Louis 
and Detroit all receive the same amount of money; however, 
they're below the needs line.
    Now alternative 3, that adjusts alternative 2 to increased 
fundings for communities in decline and exhibiting fiscal 
distress. As shown on exhibit 4, this does improve targeting to 
the most needy, compared to alternative 2. For example, under 
alternative 3, Detroit and St. Louis would receive grants of 
approximately $50 per capita, and Miami would receive a grant 
of about $44 per capita. Alternative 3 has somewhat greater 
variation between similar needy grantees relative to 
alternative 2; however, alternative 3 achieves greater 
targeting to the most needy communities.
    Now, the last alternative, alternative 4, resembles 
alternative 3, but what we've done here is it eliminates the 
70/30 funding split between the entitlement and nonentitlement 
communities, and that's the funding obviously for the 
nonentitlement areas and the entitlement areas would be 
allocated under a single formula. This approach would currently 
result in a split of approximately 69/31, 69 to the 
entitlements, 31 to the nonentitlements. A chart for 
alternative 4 would show that the same distribution as the 
chart for alternative 3.
    In conclusion, today's formula--again, a formula that 
hadn't been modified since 1978--places great emphasis on 
certain variables that may not be a true reflection of today's 
need.
    I want to thank the committee for allowing me to make this 
presentation, and I will be happy to attempt to answer any of 
your questions.
    Mr. Turner. Thank you.
    [The prepared statement of Mr. Bernardi follows:]

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    Mr. Turner. And unfortunately we're going to have a lot of 
questions between the two of us, and I know that some of it you 
may need to provide us additional information after the 
hearing, or you might have someone else who you might be able 
to consult in providing us the specific questions.
    In looking at this issue on community block grants, one of 
the things that I recalled was that when I was a student at 
Ohio Northern University in political science from 1978 until 
1982, one of the textbooks that I had actually had a discussion 
of the CDBG formula allocation as it was occurring through 
1978--through 1981, as you referenced in your testimony. And it 
was interesting because the discussions that they have--and 
this textbook is from 1978 it goes through the various 
allocation formulas that were considered and its impacts. And 
it talks about some of the allocation formulas that were 
rejected and some of the elements that were considered and 
accepted. And it talks about the ailing Northeastern and 
Midwestern cities, such as St. Louis, Buffalo and Detroit, and 
the least needy cities such as Dallas, Albuquerque and Phoenix.
    Now, this sentence is from 1978, but if we look at the 
information that we have before us today, intuitively I think 
that most of us would agree that if you take out of that list 
Detroit and Dallas, we would all have an understanding that in 
any comparative need that you might structure, we would want a 
comparison where the need of Detroit is recognized versus the 
need of Dallas in a weighting. Dallas has needs, Dallas has 
poverty; but intuitively we all know that if you drive through 
Detroit, and if you drive through Dallas, and you have the 
issues of community development as a topic that you want to 
remedy, your view of the needs of those two communities would 
have Detroit expressing a higher need and Dallas expressing a 
lesser need, as just stated even in 1978 as this was discussed 
in this textbook.
    In looking at the four formulas that HUD has prepared, in 
two out of the four Detroit loses, and in all of the four 
Dallas wins. So we would have, in that intuitive comparison, 
formulas before us where we're trying to say in these four 
formulas that the community needs of Detroit are perhaps 
lessened, and the community needs and development of Dallas are 
increased. That's kind of troubling to me.
    And so I've looked to the issue then of how the proposals 
are structured, and with your charts, you have mapped less need 
versus high need based upon some assumptions that are used then 
to structure your formula. And it's those assumptions, not 
necessarily the four examples, that I would like to ask my 
questions about predominantly, because it seems as if the 
moment that you define a low need and a high need, based upon 
factors that you put together here, that the outcomes of your 
four recommendations are going to be, of course, biased toward 
those. And in looking at them, there are a few things that 
jumped out at me.
    One, obviously, is immigration. It appears to me, in 
reading these materials--and obviously this is a very complex 
report, so I'm going to need your assistance in deciphering it, 
but it appears that immigration, being identified as a new 
element of an expression of need, is reflected in your charts 
at a weighting of what percentage? From the materials that I 
saw here, I believe it's 15 percent. Is that accurate?
    Mr. Bernardi. That's correct.
    Mr. Turner. OK. The part that troubled me the most was when 
I read this, it said a new dimension of community distress that 
surfaced as a result of the rapid growth in the immigration 
population. And certainly immigration has not been a new 
phenomenon. Our committee is the Federalism and the Census, and 
so I had a visit from census people the other day, and they 
gave me this great big, thick book, which I looked into the 
issues of immigration. And if you look at a chart from 1900 to 
2003, there is definitely a spike that occurred around 1990 in 
immigration. But there is, then, a capping that occurs in the 
amount of immigration that is permitted, legal immigration. And 
then if you look in the Statistical Abstract of the United 
States, 2004, 2005, the National Data Book, if you look at 
immigration from 1901 to 2002, it shows that the rate of 
immigration per thousand population--immigration population in 
contrast to the U.S. citizen population in thousands--that we 
do have a peak in the 1980's and 1990's, but that we have 
returned to a pace that is similar to the current--the pace 
that was experienced back when I was in college and they were 
discussing redoing this formula.
    For example, from 1971 to 1980, this report indicates that 
our rate per thousand is 2.1. From 1981 to 1990, it rises to 
3.1; 1991 to 2000, 3.4; spikes in the 1990's, 6.1, 7.2; but it 
has fallen such that it goes below 3 from 1995 forward to 
through 1999, and then hovers around 3, 3.7 in the beginning of 
2000.
    So it seems to me that when we start with the assumption 
that it's a new phenomenon, it's not. The new phenomenon was we 
had a temporary spike--and you guys probably can't, because I 
don't have as big a graph as you do, but we had a temporary 
spike, and that certainly was a phenomenon that did occur. But 
it's not new, and we've always had immigration. It's maybe new 
in certain concentrations in areas of the South, and it may be 
new in the composition of that population that are immigrants--
certainly poverty is not new in concentrations in immigrants. 
And since our census statistical data shows that it has leveled 
off and returned to the same levels as when we first put this 
formula together, I'm wondering if we would be making a mistake 
at this point to now weight the formula by 15 percent on 
something that we know from this point going forward should be 
about the same as we experienced from 1978 until the early 
1990's. Your thoughts.
    Mr. Bernardi. As you mentioned, the immigrant population 
increased in the 1970's and 1980's, I believe you're 
indicating, up into the 1990's, and you feel it's leveled off--
--
    Mr. Turner. According to the census data, it is now at the 
same level----
    Mr. Bernardi. What we did with this study is we took 17 
variables and we related these variables back to the primary 
objective of the CDBG formula program. The variables measured 
decent housing, suitable living environment, economic 
opportunities, and low and moderate income. And as they used a 
factor analysis with these 17 variables, this analysis 
basically groups these variables down to several individual 
factors, and those individual factors in the previous studies 
were poverty, problems in aging communities and communities in 
decline. The present formula has an 80 percent single factor 
for poverty, age of housing and decline; and that, as you 
mentioned, the 15 percent factor related to the fiscal--stress 
related to immigrant growth; in here, the Santa Ana, Anaheim, 
CA.
    This material was done on information, I believe, right up 
through 2004. And the overcrowding number in the alternatives 
has been substantially reduced. If you look at the current 
formula, overcrowding in Formula A is at 25 percent, and 
alternative 1 takes it to 30 percent, but then it goes to 20 
percent in alternative 2, and down to 10 percent for 
alternative 3.
    The overcrowding takes place in cities like Miami and areas 
like you mentioned in the South and the Southwest, but our 
folks felt that percentage would be an accurate indication of 
what the stress would be because of overcrowding.
    Mr. Turner. Well, and that actually goes to my next area of 
questions concerning the immigrant population, because there is 
a weighting for overcrowding, there is a weighting for density 
of population. It seems to me perhaps as double-counting when 
you factor in immigration, because what you're doing is you're 
saying these are expressions of poverty in a community, 
overcrowding, density, poverty itself, the make-up of the 
households, but then when you overlay immigration upon it, 
you're, it seems to me--especially with the weighting of 15 
percent in your charts--double-counting what you're going to 
find in those communities as a result of the impact of 
immigration.
    Mr. Bernardi. Overcrowding--a great deal of the immigrant 
population utilizes, as far as I understand it, more of the 
services than they contribute into the services. And the fact 
is the overcrowding number is more than 1.01 person per room. 
And you find that the overcrowding number--and then when you 
cap it with the low-density places with a high concentration of 
poverty, they put a 5 percent weight on that. I don't see it as 
double-counting, but that's open for discussion.
    Mr. Turner. The next question I have with regard to 
immigration--and then we'll turn to Mr. Dent, and then I have 
another series of questions of the other factors--is that if we 
are to accept that it's new, a proposition that I don't 
necessarily accept, and we are to accept that the migration of 
immigrant populations are a factor that needs to be taken into 
consideration, the type of aid that is provided to cities, I 
wonder whether or not the Community Development Block Grant 
Program is the appropriate place to do that in that you already 
have, by the understanding that immigrant populations are going 
to migrate to areas of the country that have growth, jobs and 
opportunity--that, in fact, you aren't then shifting Community 
Development Block Grant funds which are stability in focus, in 
part, to address issues of growth where there is also economic 
growth that might be available to remedy some of those needs.
    Mr. Bernardi. True. But as I mentioned earlier, a larger 
percentage of the immigrant population utilized more services 
than they provide in services. And that's only a part of the 
needs index, as we indicated, as 15 percent. I think the 
strength of this is that 80 percent is on the poverty, age of 
household and communities in decline.
    Mr. Turner. My question was is it possible that the topic 
that you're trying to remedy is one that--of immigration and 
the burdens of needs that are being placed on communities that 
are seeing large migration--immigration populations might be 
best served not by modifying CDBG, but by looking at what 
specific needs and assistance should be provided separately 
from the CDBG program?
    Mr. Bernardi. Of course. I mean, you could look at any 
segment of our society and create a new program if you wanted 
to, Congressman, as to how you would address that.
    As far as we're concerned, though, when we did this report 
in 1983 and 1995--we were mandated by Congress to do this 
report--we did this as part of our 2004 budget submission. And 
I think everyone feels very strongly that the formula program 
does not target strongly the need as it was intended at the 
inception of the program in 1974. And there's many different 
ways in which you can change this formula, but I mean, there is 
a formula 5 that I didn't bring with me today, and that is a 
little bit of a tweak between alternative 2 and alternative 3. 
You can reduce or increase any of these factors to compensate 
for an area in which you feel perhaps there is an overweight.
    Mr. Turner. Thank you.
    Mr. Dent.
    Mr. Dent. Thanks, Mr. Chairman.
    Good morning, Mr. Secretary.
    Mr. Bernardi. Good morning.
    Mr. Dent. I enjoyed your presentation.
    I guess my question is in order to make this system more 
fair, you can probably write a lot of formulas, but what is 
really driving the iniquities? Why are some of these lower-need 
communities getting their greater share per capita spending 
than the higher-need communities? Is it population decline? Is 
it the student population, housing stock? What factors are 
really driving this disparity, particularly in the entitlement 
communities more so than the nonentitlement communities?
    Mr. Bernardi. As I indicated in my presentation, you take a 
look at Newton, MA; Portsmouth, NH; and Royal Oak, MI they all 
receive between $28 and $37 per capita, and they do that 
because they're a Formula B community. And in a Formula B 
community----
    Mr. Dent. Is that older housing stock?
    Mr. Bernardi. That is correct. They have the older housing 
stock, the Formula B provides a higher dollar amount to them, 
and that's the pre-1940 housing. So by adjusting that, by not 
just having it pre-1940 housing as it is under the present 
formula, under these new proposals it's 50-year housing or 
older, which would make it 1955--and that would be on a growth 
basis, in 5 years it would be 1960--but what we do is those 
houses 50 years or older would have to be occupied by a person 
in poverty, a person in poverty defined as two people making a 
certain amount of money, three people----
    Mr. Dent. So it is not just the age of the house, but the 
age of the house plus the person living in poverty. I take it 
Newton, MA, has a lot of older homes, but they're not 
necessarily lower-income people living in those homes.
    Mr. Bernardi. Exactly.
    Mr. Dent. Other factors in determining this formula, tax-
exempt property or rental housing, is that a factor you use in 
determining any of the needs of communities? Many communities 
have higher--larger percentage of rental property, you probably 
have higher cases of poverty, for example. Or a lot of 
communities, older cities, have probably larger amounts of tax-
exempt properties, which may include colleges and universities, 
which again skews the formula. So I guess my question is do you 
use any of those indicators in determining the wealth of the 
community?
    Mr. Bernardi. The indicator of housing was not used. As a 
matter of fact, we have a grant program called the Home 
Program, which deals with affordable housing in this country. 
So housing was not used, and rent in and of itself was not used 
as a tabulation for the formulas that have been presented.
    In alternative 3, the one difference that was used there is 
they used a per capita income basically to make a determination 
when it comes to the wealth of a community, for example. If a 
local jurisdiction's per capita income is lower than the per 
capita income of the metropolitan area, that local jurisdiction 
would receive additional dollars. If their per capita income, 
conversely, is higher than the per capita income of that 
metropolitan area, by a factor analysis that our people put 
together, they would receive less.
    So what you do with alternative 3 that you don't do with 
alternative 2 is you put in that per capita income caveat.
    Mr. Dent. On a related question; do any of these 
alternative proposals use cost of living as an evaluator of 
need? Do you use that at all?
    Mr. Bernardi. I don't believe so, no.
    Mr. Dent. OK. And I guess it would be fair to say, if I 
heard your original testimony correctly and clearly, that it 
seems that the disparities are less among the nonentitlement 
grantees than the entitlement grantees; is that a fair 
statement?
    Mr. Bernardi. That is correct.
    Mr. Dent. Let me ask another question I have. On page 4 of 
your testimony, you're showing some of the disparities. I think 
you said the disadvantage of alternative 2 is that high-need 
communities tend to fall below our needs line. Miami, St. Louis 
and Detroit all would get the same amount; however, they would 
fall below the needs index. And I was trying to understand why 
those communities would fall under the needs index under that 
alternative. Do you see where I am in your testimony?
    Mr. Bernardi. Yes.
    Mr. Dent. You were pointing out the disadvantage of 
alternative 2.
    Mr. Bernardi. Well, alternative 2, if you look at the 
chart, it basically brings all of the communities together, and 
it doesn't provide additional dollars to the highest-need 
communities. The highest needs tend to fall below that needs 
index line. As you can look at that chart to the right where it 
says highest needs under alternative 2, the majority of those 
communities are below the needs index line. And then when you 
take alternative 3, you can see that a majority of them go from 
below the needs index line to above it.
    Alternative 2 does a nice job, and it brings the 
communities that receive a higher per capita, because, as I 
indicated to you earlier with Formula B with that pre-1940 
housing, those three examples that we used, those communities, 
that brings them back down to a $5 to $7 per capita range as 
opposed to when they were a $20 to $30, but it does not provide 
a greater percentage of dollars to the higher-need communities 
as alternative 3 does.
    Mr. Dent. OK. You do a lot with these formulas. Here is the 
bottom-line question for me. Is there any way I could see how 
my communities in my district fare under the current formulas 
that are used to distribute the CDBG dollars, particularly for 
the entitlement communities, versus how they would do under the 
various alternatives you've outlined here today? You might not 
have it in front of you here, I understand----
    Mr. Bernardi. I do have it in front of me.
    Mr. Dent. You do? Wow, I'm really impressed.
    Mr. Bernardi. It indicates here that the majority of your 
communities will lose funding. All of your communities are 
Formula B.
    Mr. Dent. These are the entitlement communities, or these 
are the nonentitlements?
    Mr. Bernardi. Both.
    Mr. Dent. Both, OK.
    Mr. Bernardi. Both Burkes County and Montgomery County 
receive more than--I can get this to you if you'd like.
    Mr. Dent. Yeah, I'd like to see that. Lehigh and 
Northampton Counties, and Berks and Montgomery, would you break 
it out into county-by-county basis? Is that how you have it 
broken down?
    Mr. Bernardi. We do have it that way, yes.
    Mr. Dent. That would be great. Thank you.
    Mr. Turner. Mr. Bernardi, a clarification. In the 
discussion on housing, you talked about the age of housing, and 
that the pre-1940 standard versus rolling 50 years, and you 
went further to say occupied by an individual. And actually, 
according to what your standards are, it's not really an 
individual, it's a family in poverty, because you don't count 
individuals in poverty, which we will get to in a minute, which 
I believe is a mistake. But by counting the households that are 
greater than 50 years that are occupied by a family that's in 
poverty, do you have a factor of counting abandoned housing 
stock? Because certainly that would be an element representing 
a blighting influence, and I didn't note that anywhere.
    Mr. Bernardi. We don't. But you're correct, that obviously 
is a blight to the community. As the mayor of Syracuse and 
yourself, as mayor of Dayton, we realize the number of 
abandoned homes that we have.
    Mr. Turner. You and I have had this discussion about 
abandoned housing--frequently abandoned housing does not 
necessarily just represent migration trends. It doesn't 
necessarily mean that a neighborhood is no longer desirable or 
suitable. Sometimes it means the lifecycle transition of a 
house or a building, having gone from owner-occupied to a 
rental unit, from a rental unit to abandonment with title 
problems where acquisition is inhibited. And the community's 
ability to go in and rehabilitate that unit, thereby returning 
a family or an individual to the neighborhood, would be limited 
to the extent that you reduce their community development block 
grant funds by the vacancy of the house. You are, in fact, then 
penalizing them--removing a funding source for housing 
rehabilitation based on the fact that they're experiencing 
abandoned housing.
    Mr. Bernardi. Well, as you know, Congressman, the CDBG 
moneys can be used for acquisition and demolition; and a great 
deal of that is done in the high-distressed communities, 
Northeast, the areas where pre-1940 housing under the present 
formula is taken down. And what that does, obviously, it hurts 
your number as far as the allocation because of the pre-1940 
housing percentage.
    Mr. Turner. But everyone would agree that one of the goals 
and objectives of CDBG is the acquisition and renovation of 
abandoned housing units, which are a blighting influence, and 
this ranking of need would specifically remove those units 
which are targeted for CDBG funds from the indication or the 
assessment of need.
    Mr. Bernardi. I'm sorry, I didn't follow you.
    Mr. Turner. We all agree that CDBG for funds--or one of 
their intended uses is to address the blighting influence of 
abandoned housing in communities, correct? So I'm just asking 
you to recognize that your graphs of low need to high need 
removes an element of need of abandoned housing that the 
program is specifically designed to try to address.
    Mr. Bernardi. Well, I've just been informed that we're 
doing research on vacant housing, and it's something to be 
considered.
    Mr. Turner. OK. The next topic which is identified in the 
GAO report is the issue of using metropolitan per capita 
income. And I found it interesting because I'm familiar with 
David Rusk's work, and I didn't quite get the nexus between his 
work and utilizing the metropolitan per capita income element 
here. But in your testimony, Mr. Dent asked you if you take 
cost of living into consideration, and you indicated you did 
not.
    Mr. Bernardi. No.
    Mr. Turner. By taking metropolitan per capita income into 
consideration and not taking costs, aren't you taking--aren't 
you heavily weighting toward what could be low-cost, wealthy 
communities?
    Mr. Bernardi. Low-cost wealthy areas.
    Mr. Turner. Yes. Because if you take metropolitan per 
capita income--and I believe from my reading from this--and 
please correct me if I'm misunderstanding this--in reading this 
paragraph it seems to me that you're saying communities that 
have a high metropolitan per capita income are burdened with 
higher costs in being able to deliver services and 
accomplishing community development projects; and therefore, 
you're taking that as an element into consideration and 
providing them funding. But if you don't take costs into 
consideration, you're rewarding communities that may have high 
per capita income and low costs, I believe. Am I incorrect 
there? Is there some adjustment that you're making?
    Mr. Bernardi. High per capita income and low costs, 
personally I don't see how they go hand in hand----
    Mr. Turner. Well, high-growth areas where there is a 
significant amount of opportunities will have wages that have 
upward pressure that may not yet have expressed high cost of 
living in either housing or other elements of family support.
    Mr. Bernardi. Initially; but eventually that catches up, 
and catches up in a hurry.
    I think what we've done here is to look for jurisdictions 
where the per capita income is lower, obviously, than the per 
capita income in that metropolitan area. That would demonstrate 
to me that's a community that has some concerns, has some 
decline. And that's why that community would receive, according 
to alternative 3, additional funding.
    Mr. Turner. And I guess I don't quite understand, then, to 
what extent that is taking into consideration how that is 
applied. It would seem to me that a community that has low per 
capita income, and it is also in a metropolitan economy that 
has low per capita income, would have less opportunity, not 
more opportunity, because we know in metropolitan regions they 
tend to be--they are not hard-set boundaries in metropolitan 
regions for an economy. So that the individuals who are in 
poverty, who are in a community where the regional per capita 
income is higher, would have economic mobility greater than 
someone living in a community where they're in poverty and the 
per capita income around them is lower.
    Mr. Bernardi. True. You would have more of an opportunity 
if you're in a region where the per capita income in that 
region is higher even if your jurisdiction is lower, yes.
    Mr. Turner. Which goes to my questioning. This is a new 
element that had not been there before.
    Mr. Bernardi. If I may, you can look at a city that has a 
low per capita income, and then look to the metropolitan area 
and you see a higher per capita income, and the fact is that 
the people who put this together were looking for a way to 
weight, if you will, those individuals living just a few miles 
from other individuals who, because of many varied 
circumstances, that per capita income is extremely lower.
    Mr. Turner. And I think certainly the disparity that those 
individuals experience would be greater, but the economic 
community development, economic opportunity that that community 
has, is not necessarily impacted by that. It might actually be 
enhanced. You might have a greater opportunity for regional 
resources rather than a lesser opportunity if your region has a 
lower per capita income, but that is just my thoughts on that. 
And I appreciate you explaining it to me because it did not 
make sense to me at first.
    I'd like to turn next to the issue of looking to family 
households and excluding the single poverty individual who is a 
nonsenior, nonelderly single population. Am I correct that is 
occurring? There is a huge footnote down here that I do not 
understand. I understand the intent, that there was a concern 
that off-campus college students in college towns might have an 
impact in the overall numbers.
    Getting back to intuition, it would just seem to me 
nationally that we probably have more individuals who are 
living in poverty in single households than we have in single 
off-campus college students. Now, I could be wrong, but that's 
just my guess.
    And to go the next step of then just excluding all single, 
nonelderly households in order to get to the off-campus college 
students seems extreme. Your footnote goes on to explain the 
rationale and the basis for it, and claims statistically that 
it does parallel itself, but it seems to me that the footnote 
said, in order to prove that eliminating all single, nonelderly 
households that are in poverty to get to the off-campus college 
students, we prove that it doesn't have that much of an impact 
if we globally do it; and you went, I think, by going to go and 
look at the population of off-campus college students.
    If you can look at the population of off-campus college 
students, why aren't we just doing that instead of eliminating 
all single poverty households that are not elderly?
    Mr. Bernardi. As we mentioned earlier regarding those 
communities that are affluent communities, if you will, that 
receive above the line in the need index, the Portsmouths and 
the Newtons, there that is older housing, and just by having to 
indicate that it's pre-1940 housing, they receive a benefit 
there. And there are many, many individuals that reside in 
those properties that are anything but poor people in need.
    Mr. Turner. I understand your point----
    Mr. Bernardi. In other words, I don't believe you could 
just do it for the university areas and not have the desired 
outcome that you would want, the weighted under Formula B right 
now that provides to those affluent communities with the pre-
1940 housing.
    Mr. Turner. And perhaps you need to provide me more 
information on this, but let me read these next two sentences 
to explain my question. It says that, because this variable 
excludes single, nonelderly persons in poverty, there is a 
sense that it may misrepresent the needs of communities with 
particularly high portions of their population made up of non-
college students who are single, nonelderly and in poverty. 
That is my sense----
    Mr. Bernardi. It would be nice to get everyone into the 
mix----
    Mr. Turner. The next sentence, though, says, to test this, 
HUD requested a special tabulation of census data that 
specifically excluded full-time college students from the 
poverty count. And my question, which perhaps you can provide 
me information later, is if you can do that, why not just do 
that instead of excluding all non-college students, single 
nonelderly in poverty? Because it seems that the footnote says 
we're going to exclude all these non-college students, single, 
poverty, nonelderly, because we have tested it with the census 
data, and it gives us the same number as if we just exclude 
full-time college students. And it goes on to say that people 
aren't necessarily going to believe that or trust that. I'm one 
of those. So if you can, why don't you just eliminate full-time 
college students? And perhaps that is something that you can 
provide us information.
    Mr. Bernardi. I'll be happy to do that.
    But as I mentioned a moment ago, you still have to address 
the pre-1940 housing and those affluent communities that 
presently operate under Formula B and receive a 
disproportionate share per capita based on pre-1940 housing. 
Then you would have to add another caveat, if you will, to 
address that.
    Mr. Turner. I understand your housing point.
    Mr. Dent, further questions?
    Mr. Dent. Thanks, Mr. Chairman.
    When you're driving these formulas, have you looked at tax 
effort or a community's fiscal capacity in determining grant 
levels? In other words, some communities that are quite poor 
have very high tax efforts, and some of those communities that 
are of perhaps lower need may have much lower tax efforts. Have 
you ever looked at that as a potential component to the 
formula?
    Mr. Bernardi. I don't believe so. I don't believe that the 
taxes of a particular jurisdiction come into play at the 
ability of the community, if you will, to provide for services 
that some communities could not because of their ability to 
have the higher sales tax or to have a higher property tax 
base.
    Mr. Dent. I guess the reason I'm asking is in my State of 
Pennsylvania, we used to run these complicated school subsidy 
formulas, and we always tried to throw in a tax effort whenever 
we could. Do you measure poverty here by TANF families, or what 
is the definition of poverty under this?
    Mr. Bernardi. The definition of poverty is a family--an 
individual with a certain income, two people with a certain 
income, three people with a certain income.
    Mr. Dent. OK. Is that essentially--is that the TANF 
criteria, more or less?
    Mr. Bernardi. I believe so.
    Mr. Dent. OK. And the next question I have is, you know, 
we're doing two things here. We're trying to look at the 
formula that drives the money out to the various communities, 
but the question I have is how are these CDBG funds generally 
spent by the neediest communities, and how would they be spent 
generally by the lower-need communities, and what's the 
difference? In the communities that Chairman Turner and I 
represent, a lot of those dollars are being used for 
demolition, deconverting rental units back down to owner-
occupied settings, and all types of what I would consider 
legitimate community development, putting money into areas 
where we would not be able to invest, be able to draw private 
sector investment, but basically preparing sites, preparing 
land, preparing housing.
    What do you see the difference of how the moneys are spent 
between these high-need communities versus the low-need 
communities?
    Mr. Bernardi. Well, as you know, Congressman, the 
flexibility of the program within parameters allows each 
community to basically spend the money within the guidelines of 
the rules and regulations.
    I can tell you, with the 2004 expenditures, basically, oh, 
I think it was $1.6 billion out of the $4.1 billion, about 26 
percent was used for housing rehabilitation. And I think the 
low-need communities, as Congressman Turner mentioned earlier, 
when you have to do an awful lot of rehabilitation, maybe do 
some demolition housing, housing is maybe the highest 
expenditure.
    There are also communities that can use it for public 
services, like adult literacy, child day care, but there's a 
cap of 15 percent. So the communities would look at their 
priorities and make a determination as to how they want to 
utilize those dollars. There's also public facilities, 
percentages used for sidewalks, streets, sewers. Economic 
development is another area where resources are used.
    Mr. Dent. I guess the final question I have, do you think 
it will be difficult for Congress to come to some kind of 
consensus on this given the complexities of the methodologies 
that you are using? Because at the end of the day, if most 
Congressmen are like me, they will look at their communities 
and see how they will do under the old system, look how they 
will do under the new system and that will drive a lot of their 
decisionmaking. Have you thought about that at all?
    Mr. Bernardi. We have. That's why we have four alternatives 
that are in front of you. Regardless of which alternative you 
were to choose, if you were to choose a change in the system, 
there are going to be communities that will receive more 
dollars and there will be communities--everyone will be 
affected.
    But, then again, the variables that are being used here, 
it's how close you want to target to need the objectives of the 
program, decent housing, economic opportunity, quality of life 
and providing dollars for people of low and moderate income. 
The communities right now spent about 95 percent of their 
allocations to benefit low and moderate income individuals; 
that was 60 percent. It was raised to 70, then to 80 by 
Congress just 10 years ago.
    But the communities, in your previous question, communities 
utilize the moneys. I think, to help the people that they think 
need it the most, depending on what areas they want to do, 
whether it's housing or whether it's a program for senior 
citizens through the public service cap.
    Mr. Dent. When you talk about those communities, I don't 
want to talk about winners and losers, but those communities 
may do better than others. I have a good sense of which 
communities would need a greater boost through CDBG than some 
others that might not fare as well or do worse or could afford 
perhaps to do a little worse. Would these formulas be able to 
break these, break this down by municipality? I know you have a 
county-by-county analysis. But you could actually break it down 
by municipality in my district so I could see the----
    Mr. Bernardi. Yes. We do all that information. We can 
provide for you exactly what would occur with each urban 
county, for example, for an entitlement community, for your 
non-entitlement communities. Also, when the program went from a 
categorical grant program to the formula here back in the 
1970's, there was a phase-in period that was put into place by 
Congress. I think it was anywhere from 3 to 5 years.
    If you choose to change the formula, you could do the same 
thing here so that the community would be phased in to 
receiving that extra money so they have the capacity and the 
wherewithal how to use the capacity at the same time if they 
were to lose those dollars.
    Mr. Dent. That would help me quite a lot. I could pick at 
you all day in terms of the formula--what form it should be in 
and shouldn't be in--but if I could look at all four 
alternatives and break it down, I could get a sense of what is 
the fairest for my district. I am trying to drive the money to 
the communities most in need. That would be helpful to me and 
in my decisionmaking process if we went forward with some kind 
of formal funding.
    Mr. Bernardi. We have that information and would be happy 
to provide it to you.
    Mr. Dent. That would help me to see what is more equitable 
versus what is less equitable. So thank you.
    Mr. Turner. Well, Mr. Secretary, for just a moment, I want 
to get back to the immigration issue, because, as we were 
talking about the David Rusk issue of the inelasticity or 
elasticity of metropolitan areas--basically your document, as 
it reflects David Rusk, is talking about the ability for a 
metropolitan area to grow into a regional metropolitan 
government type versus those that are geographically frozen, 
small central cities, perhaps growing affluent suburbs.
    Taking into consideration, as you do, the disparity of per 
capita income between the metropolitan area and the urban core, 
as a percentage, I indicated that I believe that may be 
incorrect, because you are an individual who is in poverty in a 
community where that is not that great disparity, has less of 
an overall economic opportunity than a person who is in a 
situation where the metropolitan area is significantly higher 
than the urban core.
    But getting back to immigration. We have here percentage 
point change in poverty rate as an element that you consider. 
And we have in here metropolitan per capita income disparity 
between the urban core and the suburban area, and we have in 
here concentration of poverty. Those are weighted, and then as 
we discussed immigration, I was indicating--I believe that some 
of the factors that you have double count the expression of 
immigration and opportunity--and I just want to walk through 
that.
    I am not asking you a question, but you can comment on it 
if you would like. It would seem to me that if you have an 
area, if we have a small urban core that geographically is 
frozen but cannot grow, but a successful metropolitan area, 
where the per capita income is higher in the suburbs than in 
the urban core, significantly, which is what you are trying to 
register and capture, that would be an area that would attract 
immigrants, and that, again, the urban core, not having an 
ability to grow and probably having the less expensive housing 
options available would attract that immigrant population.
    Because it's under David Rusk's model, geographically 
unable to grow to capture the economic growth in its suburbs, 
it would have a percentage change in poverty that would go up. 
It would have, because its population is growing, a higher 
concentration of poverty than it had before, and it would 
remain in an area where its per capita income is in a 
significant disparity to its metropolitan area.
    So that's one of the reasons I am concerned that you used 
these elements that are things that I believe will occur in an 
area that's experiencing immigration, and then you go back in 
and weight your system an additional 15 percent for 
immigration, when, I think in the elements that you are 
capturing, the expression of immigration is already going to be 
reflected.
    Mr. Bernardi. So, if I may, you are looking to localize 
this then. You are saying immigration would tend to be in areas 
where there's a low per capita income, but we estimate the 
metropolitan area is high income. There's more opportunity. 
There's less expensive housing, so these individuals--I don't 
know how you capture that.
    Mr. Turner. My concern is that your factors, by then going 
back and adding immigration, what you are doing is saying, we 
are going to look at poverty and community development needs. 
Then you are factoring over on top of those an expression of 
certain types of poverty by the individual whose impoverished, 
the immigrant.
    I think that double counts the expression of poverty in the 
community that probably does not serve us. And that's my 
analysis of this, and any other additional analysis and 
comments that you make or further discussion, I would love to 
hear.
    Mr. Bernardi. I appreciate what you are saying. It also 
seems to me that when you talked about the college towns and 
making a separate distinction as to why we can't just make the 
adjustment in the way the university housing is or the college 
housing is--and I would like to say that these are just 
alternatives.
    Mr. Turner. I understand.
    Mr. Bernardi. I told you I have an alternative five that I 
like even better than the first four alternatives.
    Mr. Turner. I would love to see it.
    Mr. Bernardi. But you can tweak these numbers, and you can 
eliminate, like, for example, between two and three, as I 
mentioned, what we did there to provide additional dollars to 
the high-need communities is we took the overcrowding, the 
number that you are talking about, that would tend to come with 
an immigrant population and reduce that by 10 percent, and at 
the same time, we increased by 10 percent housing 50 years or 
older. So there are ways in which you can even make more 
distinctions than we have made here.
    Mr. Turner. OK. When you were present for the Strengthening 
America's Communities Hearing, David Sampson from Commerce gave 
us some initial discussions concerning how that program, if it 
were to be approved, would allocate its community development 
to dollars.
    And his discussion was that a task force is going to be 
formed that would flush out what these elements or factors were 
to be considered. But his testimony here pretty much focused on 
poverty only and looking at communities that had a poverty 
expression greater than the national average.
    I didn't see in yours, and it may be there, and I just 
don't see it, that where you have communities that have a 
poverty in excess of the national average, that there's an 
additional weighting toward them versus just the expression of 
poverty generally. Is that accurate?
    Mr. Bernardi. Well, the numbers that Mr. Samson provided 
you, I believe, he said that 38 percent of the cities that 
received CBDG resources were below the poverty number. That's 
not the case. It's more like 22 percent.
    The fact of the matter is, I think this particular formula 
that we presently operate under and the alternatives that we 
proposed, I think, target more of a need. As you can see by the 
numbers here, I think the poverty of family and elderly poverty 
is 50 percent in formulas two and three.
    Mr. Turner. Going back to the factors again. When you 
identify what the factors are--and, by the way, the report, I 
do want to compliment you on your report. This is an excellent 
report in being able to read and digest it and being able to 
look at the extent of data analysis that has gone on this. 
Whether or not anyone agrees with the outcomes or the specific 
recommendations, the work that is done here is just excellent 
work.
    Getting to, then, once you have identified these factors 
that you believe and the new demographics could be taken into 
consideration--when you go to put that chart together of less 
need and high need, you then weight these factors. We just had 
discussions whether or not the elements as a factor should even 
be considered. The next process is the weighting of those 
factors.
    The discussion in the document pretty much, that I got from 
it, in discussing how that weighting occurred, is a judgment 
based on this factor is either higher and lower, and so then a 
number higher or lower is picked.
    But I didn't get any information as to how the exact number 
was picked: 80 percent for factor one; 15 percent for factor 
two; 5 percent for factor three. Do you have information that 
tells us what that process was in determining that?
    Mr. Bernardi. I am sure we do, and I can get that to you. 
But as I mentioned, the 17 variables taken into consideration 
break down into four areas. There were three variables on 
decent housing, three on unsuitable living environment, four 
for economic opportunities, and then low and moderate income 
had the remainder. I will be happy to get you that information 
as to how they weighted it so that it came down to the number 
that we have.
    Mr. Turner. I know Mr. Dent was asking for additional 
information on how the four formulas are applied to 
communities. I don't recall specifically if he also asked in 
looking at how the alternatives are applied to cities and then 
looking at the equation that is in the front. I don't think we 
have the data of the actual application of the equation to each 
city so that a city could pick it up and see how their number 
was decided based on the data that was in front of them. Could 
we have that information given to us?
    Mr. Bernardi. Well, we can give you the information right 
now as to what I know each community would receive or would not 
receive based on each one of the alternatives. Now, to give you 
the information behind how that was calibrated?
    Mr. Turner. Right.
    Mr. Bernardi. We will do it, sure. I should say, my people 
behind me will do it.
    Mr. Turner. Grandfathering has been a question that comes 
up frequently. GAO makes note in the written testimony, 
grandfathering provisions in the current law which allow 
communities that no longer meet eligibility requirements to 
remain entitled.
    Some of the questions that we have here are, how many 
communities fall into this category right now and how long 
really is grandfathering permanent, and is there a geographical 
trend that shows certain areas falling out of entitlement 
status and into grandfathering status?
    Mr. Bernardi. I don't believe we have too many areas that 
are falling out of entitlement. We have had a significant 
increase in entitlement communities, as you mentioned in your 
opening statement. But I would be happy to tell you how we 
grandfather.
    Mr. Turner. Or if you could tell us who is, what is the 
time period and give information about that process.
    Perhaps you could give us your thoughts on the issue of 
rural areas. I mean, throughout this report and also through 
the GAO report, they have identified the issue of rural areas 
and their needs being different than urban areas. If you could 
give us your thoughts as to how that might be taken into 
consideration and what we might need to do in looking at the 
needs of rural areas.
    Mr. Bernardi. There were 10 variables used for the non-
entitlement communities. The non-entitlement communities are 
the States that represent those rural areas that you mentioned 
here. I believe that the alternatives here address the 
disparities that occur from it. From the beginning, though, 
there was not as much of a fluctuation and a shift between 
States and non-entitlement communities as there were within 
entitlement communities.
    Mr. Turner. Any closing remarks for us, Mr. Bernardi?
    Mr. Bernardi. Just that seated behind me here, there's a 
gentleman named Harold Bunce, and he did the report first 
report back in 1976. And the gentleman to his left is Kevin 
Neary, and he participated in the reports in 1983 and 1995. And 
Todd Richardson is right off my left shoulder here; he just 
basically is the architect for this report.
    I would like to say, this is the third full report that HUD 
has taken a look at when it has come to redoing the formula. 
You know, regardless, Congressman Dent indicated that we all--
everyone wants to know what is going to happen in their area.
    It's a difficult decision as to whether or not you make the 
determination to change this formula. There's going to be, 
obviously, some swings regardless of which alternative you 
choose.
    But it still targets the need, as you mentioned, Mr. 
Chairman, in your opening statement, still targets those that 
are most in need, but the disparities have grown over the 
years.
    And I want to thank you for the opportunity, and we will be 
happy to answer all the questions in writing that we have not 
answered here today. If you have any followup, just let us 
know. Thank you.
    Mr. Turner. Thank you so much for the time and effort and 
the time and effort of your staff. What a great service you 
have done in putting this report together. I am certain this is 
going to result in a great discussion as we look forward to the 
topic of CDBG, whether or not there needs to be changes in the 
formula, and, if so, how that might occur in an equitable 
manner for our country.
    Mr. Bernardi. Thank you.
    Mr. Turner. We will take a 5-minute recess as we bring 
forward the second panel.
    [Recess.]
    Mr. Turner. I will call the subcommittee on Federalism and 
the Census back to order beginning with panel two.
    Panel two includes Paul Posner, Director, Federal Budget & 
Intergovernmental Relations, Government Accountability Office; 
Jerry Fastrup, Assistant Director, Applied Research Methods, 
Government Accountability Office; and Saul N. Ramirez, Jr., 
executive director, National Association of Housing and 
Redevelopment Officials.
    I believe, Mr. Posner, we are starting with you.
    I'm sorry, gentlemen, I was just reminded we need to swear 
the committee in because this committee does swear in 
witnesses.
    [Witnesses sworn.]
    Mr. Turner. Please note on the record that all witnesses 
have responded in the affirmative.
    Again, Mr. Posner, I believe we are starting with you.

     STATEMENTS OF PAUL POSNER, DIRECTOR, FEDERAL BUDGET & 
INTERGOVERNMENTAL RELATIONS, GOVERNMENT ACCOUNTABILITY OFFICE; 
  JERRY C. FASTRUP, ASSISTANT DIRECTOR, APPLIED RESEARCH AND 
METHODS, GOVERNMENT ACCOUNTABILITY OFFICE; AND SAUL N. RAMIREZ, 
 JR., EXECUTIVE DIRECTOR, NATIONAL ASSOCIATION OF HOUSING AND 
                    REDEVELOPMENT OFFICIALS

   STATEMENT OF PAUL POSNER, ACCOMPANIED BY JERRY C. FASTRUP

    Mr. Posner. Thank you, Mr. Chairman, and Congressman Dent.
    I want to begin by referring to a report GAO issued 
February 16th of this year, and we call it, 21st Century 
Challenges: Reexamining the Base of the Federal Government. I 
think it is very pertinent to what we are talking about here.
    Because what we say in that report is, we do have a fiscal 
problem. We know we have deficits, but over the longer term, we 
are going to have a real fiscal crisis. We are on an 
unsustainable fiscal path, really not just at the Federal level 
but our local States and governments, as you well know, are 
facing significant structural pressures on both the revenue and 
spending sides of the budget.
    The point of all of this is that, at some point, all major 
program activities at the Federal level--arguably, the States 
have been through this in the recent crucible of fiscal 
crisis--are going to have to be on the table, not to be changed 
at the margin, like we often do, but really fundamentally 
reexamining the base to test their relevance, for a 21st 
Century period, and then new economy, to test their 
effectiveness.
    And one of the things we talk about in here is to test 
their targeting. Programs are going to have to justify why they 
should be exempt from such a process. As we are fond of saying, 
in this process, fiscal necessity may, in fact, become a mother 
of reform and reinvention in the public sector.
    We think the HUD study, in fact, should generate and 
provide us a good basis to generate this kind of reexamination 
basis for the CDBG formula. In fact, this hearing, and I 
commend you for holding this hearing, is a good example of how 
such a process can get under way.
    I think that the questions about the formula that have just 
been illustrated in the previous discussion are germane and 
whether or not this program is consolidated and whether or not, 
frankly, fundings are changed.
    Now, first, I want to say, my testimony is based on years 
of formula design work that GAO has done. I have made sure that 
Jerry Fastrup accompanies me here at the table. He is our 
senior public finance economist with--I don't want to tip off 
his age--but maybe 30 years of experience of working with the 
Congress on formula design. And not only is he an extremely 
knowledgeable and sharp technician, but he understands how to 
explain these issues to various audiences over the many years.
    Again, in our view, targeting is always in season to talk 
about. But the fiscal impetus we have arguably provides a more 
important impetus. The declining Federal resources is clearly 
challenging politically, but it does provide an important 
window to have this discussion. For example, if you are facing 
cuts, you can provide cuts across the board. But targeting 
enables you to hold harmless those communities and others with 
least capacity to absorb the cuts. More targeting, arguably, 
when you have less resources is needed to address the fiscal 
gaps between those with high and those with low needs.
    In our view, targeting generally entails two kinds of 
dimensions or two kinds of design decisions. One is the 
eligibility, what grantees are eligible for the program in the 
first place and how to allocate money among those grantees. In 
our testimony, we talk about two general evaluation criteria 
that are useful to think about this and other programs.
    One is treating equals equally. In other words, low-income 
communities with high needs should be expected to have similar 
per capita allocations under a well-targeted formula. And two, 
allocating proportionally greater funds to those areas with 
higher needs and lower capacity to fund the program on their 
own.
    As the HUD report suggests--and I do want to echo your 
point, Mr. Chairman, we think the HUD report is a well-done 
piece of policy analysis--that the CDBG formula does target 
based on needs, but longstanding inequities exist. And the HUD 
report does a very good job, I think, of laying out how such 
factors skew the targeting in such areas as the definition of 
older housing, lagging growth. The use of two formulas and 
poverty measures that measure individuals rather than families 
tend to skew the formula both by providing dissimilar or highly 
disparate allocations to places with similar needs.
    For example, Buffalo with the same score in the same index 
as New York: Buffalo gets $68 per capita; New York gets $27 per 
capita. And places with higher needs can get lower amounts than 
places with lower needs.
    I like one sentence in this report to quote, because I 
think it's very apt. HUD says it's desirable to capture the 
concept of age without overly rewarding communities that have 
aged gracefully. I think that captures well some of the issues 
of the formula design that we are having here.
    All of these longstanding problems have been exacerbated by 
funding declines in real dollar terms after inflation, that 
there's been a decline in the per capita grant by about two-
thirds over the year.
    What this says is, when you have a shrinking pool of money, 
it makes targeting arguably more important to address the high 
needs communities' needs. And with regard to the alternatives, 
HUD's report and all the charts you have seen offers the four 
options from modest to substantial reallocation. The first two 
provide technical improvements in redefining needs indicators 
by addressing such factors as age of housing and how a student 
issues greater targeting for poverty--going to one rather than 
two formulas, which we think eliminates a lot of the imbalances 
between communities within similar needs baskets.
    The third formula introduces an entirely different element 
into the equation, which is the issue of income and measuring 
the relative income of communities, measured by two factors. 
One is the community's own income, and second, as you indicated 
in your previous discussion, the metropolitan area's income.
    As HUD's analysis shows, this factor substantially improves 
targeting, but additional analysis is needed, because as our 
statement indicates, these two specific measures tend to offset 
one another, that lower-income communities in higher 
metropolitan area income areas, their income needs get offset.
    And so as we think about how we introduce income into this 
formula, there's some substantial design issues that have to be 
further flushed out.
    But I don't want to lose the main point here, is that 
fiscal capacity is an important element to consider for this 
formula, as it is for most other Federal formulas, particularly 
as we triage scarce Federal funds.
    The relative capacity of areas in local governments to fund 
their open needs should become more important. In a world of 
unlimited resources, we might never have to make these choices. 
But in the world of greater and ever shrinking resources, 
arguably we do.
    In fact, communities with lower tax bases will have to 
raise higher taxes to fund the same level of needs as others. 
So if we were to close the gaps between the lower-income 
communities and the higher-income communities, some recognition 
of the relevant capacity as well as the relevant needs among 
these communities, in our view, is important to put on the 
table.
    Key questions remain: How do we do this? How much targeting 
to low-income places do we really want compared to other 
balancing considerations? And how should this kind of targeting 
be done?
    If we are going to include fiscal capacity as a factor, for 
example, should we do it solely through the allocation formula, 
or should we rethink the whole eligibility criteria which is 
defined solely by population to move beyond population, in 
other words, to needs or to fiscal capacity/income or both is a 
real question, I think, facing you and the Congress.
    I think the important point here is that we are having this 
debate now. Recognizing the changes in funding is always 
controversial, always difficult, always challenging. The more 
time we have to make and phase in adjustments before, you know, 
fiscal issues really come to be more pressing, why, the better 
off we will all be.
    Thank you.
    [The prepared statement of Mr. Posner follows:]

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    Mr. Turner. Mr. Ramirez.

               STATEMENT OF SAUL N. RAMIREZ, JR.

    Mr. Ramirez. Thank you, Mr. Chairman. Thank you for having 
us here to testify on such an important issue. I am Saul 
Ramirez, executive director for the National Association of 
Housing and Redevelopment Officials or NAHRO. We were 
established in 1933, and we have more than 21,000 agency and 
associate members that are involved in housing, community 
development, redevelopment, not-for-profits and for-profits.
    I also want to recognize and appreciate the privilege and 
opportunity to speak on behalf of the following national 
organizations. The National League of Cities, the National 
Association of Counties, the National Conference of Black 
Mayors, the Council of State Community Development Agencies, 
the National Association of County, Community and Economic 
Development, the National Association of Local Housing Finance 
Agencies and the National Community Development Association.
    Mr. Chairman, in particular, we want to thank you for your 
advocacy on behalf of important Federal community and economic 
development policies and programs. We especially appreciate the 
leadership you have shown in asking tough but necessary 
questions of the administration regarding the President's 
proposal to eliminate the community development block grant 
program. There are better ways to examine important 
longstanding Federal programs than to call for their total 
elimination and replacement with new untested initiatives.
    CDBG is effective and successful, but there is always room 
for improvement. For example, NAHRO, along with others, have 
joined us in testifying today as well as the National Council 
of State Housing Agencies worked with HUD and OMB to design a 
new outcome-based performance measure system to evaluate HUD's 
formula grant programs, including CDBG. We would hope that this 
committee would encourage the Department to begin implementing 
this system as soon as possible.
    Like you, Mr. Chairman, I am a former mayor, in my case, 
Laredo, TX. And like you, I believe CDBG is one of the most 
powerful and versatile fuels for the engines that motor 
economic growth as well as a catalyst for affordable housing, 
community development and infrastructure improvements.
    An Assistant Secretary for Community Planning and 
Development, and also Deputy Secretary of the Department of 
Housing and Urban Development, the Department worked with 
communities and interest groups to improve the timeliness of 
the expenditures of the CDBG funds. Over the past several years 
and under two administrations, untimely grantees have been 
reduced from over 300 to less than 50.
    And I bring this up to make an important point. When 
stakeholders agree, CDBG can be improved. Interest groups and 
grantees are more than willing to come to the table with 
Congress and the Department to work toward responsible change.
    Mr. Chairman, we also believe that introducing major 
changes to the community development block allocation and its 
formula, no matter how well intended, will divide America's 
communities. Is the CDBG formula in need of an extreme 
makeover? Well, if by extreme makeover, you mean an immediate 
and radical redistribution of funds, NAHRO and our partners 
would say no.
    We do support, though, the notion of a fair and equitable 
distribution of CDBG dollars, but urge you to proceed with 
caution. If Congress feels change is truly necessary, then we 
would think likely that change could happen in a way that 
mitigates uncertainty and avoids sudden and substantial losses 
in funding.
    Let's note also that CDBG is not strictly an antipoverty 
program. The statute requires that at least 70 percent of all 
CDBG funds expended go toward activities to benefit low and 
moderate-income persons. However, communities are, in fact, 
targeting much more aggressively than the statute requires.
    In 2004, approximately 95 percent of funds expended by 
entitlement communities and 96 percent of State CDBG funds 
expended were for activities that principally benefited low and 
moderate-income persons, as you highlighted earlier, Mr. 
Chairman.
    In previous studies, HUD also is mentioned, ``the ability 
to target funds to needy communities.'' HUD states in their 
report, ``HUD determined that the data continued to target the 
funds to the neediest communities and recommended continuing 
the dual formula as specified in the statute.''
    HUD's current formula study is an interesting jumping-off 
point, as has been brought out by others, for what should be a 
thoughtful, deliberative conversation on targeting. Even the 
new study declares, as you have highlighted, Mr. Chairman, that 
current entitlement communities that are targeted, an average 
of 10 percent of communities with the most need get 4 times 
larger per capita grants than the 10 percent communities with 
the least need.
    Abandoning a system that continues to target the need is 
not a decision that should be made slightly, especially when 
the decision will result in, and I will quote the report again, 
in significant redistribution of funds.
    Dramatically changing the formula structure in a swift 
manner would create uncertainty and inhibit CDBG's current 
ability to leverage billions of dollars of both private and 
public investment in some of our poorest neighborhoods.
    For example, the New England region would be hit under all 
four alternatives dramatically. The whole New England region 
would lose substantially. In talking to local officials for a 
large New England community, we asked what this impact would 
be, and the answer was quite grim. Scheduled physical 
improvements as well as going forward with repair and 
rebuilding streets, sidewalks, parks and playgrounds, as well 
as the acquisition of blighted properties would be greatly 
diminished, and under each of these four alternatives, 
neighborhood facility projects would not go forward.
    These facilities are the types that help communities meet 
the needs of those low and moderate-income individuals and 
families.
    Mr. Chairman, if and when we proceed to change the current 
formula, hard choices would have to be made in communities 
throughout the Nation. In fact, in the Districts of both you 
and the vice chair and the ranking member of the subcommittee, 
significant changes would occur. For example, Dayton would lose 
a substantial amount of money under this proposal, as well as 
the State of Ohio. The program that distributes money to 
smaller non-entitlement communities, again, would be severely 
impacted.
    There are other areas that would be severely impacted as 
well. For example, St. Louis would lose anywhere from 15 to 50 
percent, and the city of Bethlehem loses, under all four 
alternatives, ranging from 13 to 34 percent. Adopting and 
immediately implementing any of the four alternatives outlined 
in the study will produce massive funding shifts.
    Simply by signaling an intention to move quickly on one of 
these alternatives, Congress could introduce tremendous 
uncertainty into the required consolidated planning process as 
well as those that communities employ for strategic planning 
throughout our Nation. As I mentioned earlier in my statement, 
we urge Congress to proceed with caution on this matter. And if 
you choose to move forward at all, we would be prepared to work 
with you in whatever was necessary to carry that out.
    The pursuit of a more equitable system must be balanced by 
a desire to avoid the kinds of sudden and dramatic shifts that 
create uncertainty and undermine a community's ability to, 
again, strategically plan improvements for the long-term to 
improve the quality of life of their citizens.
    If a subcommittee decides to forward a recommendation on to 
the Financial Services Committee and the subcommittee of 
jurisdiction, then we must underscore the fact that any 
subsequent review undertaken by that committee must involve a 
fully deliberative process that includes participation from 
local and State governments, public interest groups and 
community development professionals.
    In short, Mr. Chairman, in this respect, I urge you and 
others interested and affected parties to not let over 30 years 
of accumulated experience in this field to go by the way side 
in a discussion as critical and as important as this one is.
    In conclusion, under the current formula structure, the 
CDBG program continues to make real and positive differences in 
communities throughout America. For example, in 2004, it 
created or retained more than 90,000 jobs around our Nation. It 
created over 130,000 rental units and single family homes that 
were rehabbed; 85,000 individuals received employment training. 
Over 1.5 million youth were served by after-school enrichment 
programs and other activities like child care services, which 
are provided to over 100,000 of these kids in over 205 
communities across the country. Nearly 700 crime prevention and 
awareness programs were funded with these very flexible and 
available dollars.
    Half the persons directly benefiting from community 
development assistance were minorities that included African-
Americans, Hispanics, Asians and American Indians. More than 
11,000 Americans were able to reach homeownership through the 
program, and these are just some of the fruits of the success 
that this current formula structure has provided our great 
Nation.
    Programs should evolve over time as this one has. Those who 
oversee them should also buildupon past successes and pay close 
attention to what is already working well.
    We thank you for the opportunity to testify before you here 
today, and NAHRO, as well as the other interest groups that 
have participated in this testimony, stand ready to be of 
further assistance to the subcommittee to be able to answer any 
questions you may have in addressing this critical issue.
    Thank you very much, Mr. Chairman.
    [The prepared statement of Mr. Ramirez follows:]

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    Mr. Turner. Thank you, gentlemen.
    Mr. Ramirez.
    Mr. Ramirez. Yes.
    Mr. Turner. As you know and as you noted in your comments, 
this committee of Government Reform has oversight over both 
Commerce and HUD. This specific subcommittee has oversight over 
HUD. As you are aware, we began the process of looking at the 
administration's Strengthening America's Communities Initiative 
and are continuing our review of HUD- generated proposals for 
looking at the allocation formula.
    Your statement of wanting to participate in that discussion 
is exactly, of course, why you are here and why you were 
invited.
    I have to tell you that I am a little disappointed in your 
presentation in that I would pretty much summarize it to say 
that we should use caution, look to the overall impact, that 
this is a valuable program, that any changes would result in 
uncertainty, and that if we are going to have a discussion 
about it, you would like to be involved.
    We are having a discussion about it now. You are involved. 
We had Mr. Bernardi here and had what I thought was a fairly, 
highly substantive discussion of HUD-generated four 
recommendations of merit for which this formula could be 
adjusted.
    I would appreciate if you had a policy and substantive 
response and analysis to those--which I believe had been made 
available to you prior to the hearing----
    Mr. Ramirez. Yes.
    Mr. Turner [continuing]. As to the elements of those 
recommendations and your evaluation of them.
    You made a statement in your testimony, which is not 
necessarily accurate from HUD's perspective, in that you said 
that to abandon focusing on the issue of need would be wrong, 
basically, I am paraphrasing.
    The whole purpose of this hearing is to look at HUD under 
these four different recommendations, definition of need, which 
then drive the elements that are represented in the four 
different recommendations.
    Could you please speak a moment about HUD's document----
    Mr. Ramirez. Yes.
    Mr. Turner [continuing]. And their factors that they 
utilize----
    Mr. Ramirez. Yes.
    Mr. Turner [continuing]. In identifying need.
    Mr. Ramirez. I would be glad to. First, let me apologize 
for any disappointment that we may have caused you, Mr. 
Chairman, or the committee. Perhaps we are a little jittery 
considering that, outside of your interest, there's been little 
interest for enhancing open dialog on this matter. And we 
appreciate the opportunity, sir.
    Mr. Turner. Mr. Ramirez, that's obviously--that's one of 
the reasons we are doing this.
    Mr. Ramirez. Thank you for the opportunity.
    Mr. Turner. I appreciate you doing that--because this 
document that was produced inside of HUD was released in 
February, a significant amount of work within the 
administration occurred on this.
    Mr. Ramirez. Yes.
    Mr. Turner. I think it's appropriate for us to then take a 
look at it, take it apart, and turn to your groups and 
organizations and say, this document is out there. Somebody has 
taken a look at these issues. We should all take a look at 
these issues so we can make the best decisions.
    Mr. Ramirez. Yes, sir, and you are absolutely right. And to 
answer the question on the substantive piece of policy behind 
this. We believe that the alternatives that have been presented 
are weighed too heavily on what we would call creating the 
equivalent of an antipoverty program.
    We believe that when President Nixon created this program 
with the authorization of Congress to move forward with it, 
that it was dedicated primarily to help low and moderate-income 
areas for very specific needs that those areas needed within 
local jurisdictions and to create maximum flexibility to 
accomplish that. I think that the statistics would reflect that 
communities have taken on that charge and have been quite 
effective in dealing with it.
    We believe that looking at what works within the formula is 
a much more prudent way of addressing the redistribution 
question than to go out and to dramatically shift the intent of 
the redistribution of these dollars and what this program was 
originally intended to do, which was to be very specific about 
creating certain kinds of opportunities, to create activities 
within those communities, to deal with those needs that they 
may have, whether it's to remove blighted areas from 
neighborhoods to deal with the very poor in certain pockets of 
their community, or to deal with the community-wide initiative 
that is necessary for economic development.
    And so the short answer is that the tweaks that have been 
proposed, although a great jumping off point to have a much 
deeper discussion as to how to deal with it, we believe it's 
more a question of actual weighting of what is currently in the 
formula and trying to meet what the intent of Congress is, in 
this case, as you see fit to be able to accomplish certain 
activities most effectively.
    And as you would know as a former mayor, CDBG is one of the 
most flexible tools that we have to address some very specific 
needs within our respective communities in our prior lives and 
those that are currently trying to address them now.
    Mr. Turner. You are absolutely right--and in the hearing 
concerning the value of CDBG and its importance and its 
effectiveness in addressing issues of blight and poverty, both 
in terms of its importance and achievement and in terms of its 
ability to be improved, and that's what everyone in this 
community has said.
    Mr. Ramirez. Yes, sir.
    Mr. Turner. And I really look forward to working with you 
on that.
    So going to the issue of HUD, obviously, in these charts, 
and trying to propose alternatives for shifting the eligibility 
formula, redefines, as you indicated, the issue of need. 
Whether you agree with those elements or not is obviously one 
element of this hearing. Another is whether or not there's any 
interest or need, if you will, of looking at changing the 
formula.
    Are there current inequities in the current formula? We 
know that entitlement communities have gone from 606 to 1,100. 
We know that funding has not kept pace with the entitlement 
community, such that we have communities that are having 
declining, diminished CDBG receipts and effectiveness. That 
seems to be in part an issue, not just an issue of the 
allocation of funding, but the eligibility is causing portions 
of that--we had testimony from Mr. Bernardi concerning like 
communities that were treated inequitably.
    So let's start first, not with the proposal we have in 
front of us, but just with the issue of if you believe that 
there are inequities that do occur in the system, and if those 
inequities are an item that would be important for us to 
review?
    Mr. Ramirez. Well, let me carry out my answer on that to 
say that there may be particulars to my answer that some of the 
interest groups that I have testified on behalf of have not 
fully vetted some of the answers I have been giving to their 
membership, and it may not reflect their position on this 
issue.
    But you brought up some very interesting points. For 
example, the grandfathering and perpetuity of communities that 
are no longer eligible is a growing drag on the intent of the 
formula in trying to meet the distribution potential of that 
formula. Close to almost 200 communities now are grandfathered 
into the current formula that under the guidelines do not 
qualify any longer to receive these resources under the current 
definition. And I do believe that GAO does address that as one 
of the points that should be looked at and perhaps considered 
by this committee as part of looking at what it does.
    The other is that the ability to effectively redistribute 
the resources on whether it's an annual or biannual basis has 
always been a challenge under the existing formula. And it's 
not necessarily that the weights are--that the factors are 
incorrect; it's how quickly those weights can be adjusted to 
accurately reflect the condition that the dollars are looking 
to address within communities around the country. That has been 
a constant challenge in trying to redistribute these resources.
    We do not agree that the college town comment is accurate. 
And if it is, it's not accurate enough to really factor in 
other families that live within those communities, singles that 
are below the poverty line, disabled that are below the poverty 
line that are within those communities that are not accurately 
accounted for in any of these four alternatives that are before 
us as another weakness that exists within the redistribution 
proposals that are there.
    We also feel that we have been able to effectively address 
some of the--through the formula, as it is currently weighted 
for issues such as dealing with blighted properties throughout 
the community, and how that helps redevelop neighborhoods and 
communities as a whole.
    And so there are factors in there, by and large, that we 
believe are critical to the success of any funding 
distribution.
    The question that we believe needs to be asked is that, in 
looking at prior analysis of the formula that HUD has 
conducted, that both analyses that had several years in between 
them recognize the validity of the formula itself and its 
effectiveness to the point of, again, as you mentioned, 10 
percent of the poorest were getting four times as much, and 10 
percent of the richest were getting less.
    If we want to increase that number, of whether it's at the 
low end, which is what we are looking at to accomplish, we need 
to see what those factors at the top end are that are causing 
that 10 percent of overfunding for those that are not as needy 
within that.
    And so this formula is somewhat of a left turn from the two 
prior analyses that HUD has made in trying to figure out a more 
effective way to distribute these dollars under the formula. We 
think that one of the biggest weights that has been 
incorporated into these four alternatives shifts the focus of 
the program and its intent and pushes the program more toward 
being an antipoverty program--which I don't believe was the 
original intent and has not been the intent of 30 years of use 
of these resources.
    Mr. Turner. Thank you very much. I appreciate your comments 
there. That was an excellent description of the issue of what I 
believe you said, that there may be some inequities--there are 
issues that we need to look at, the solutions that are 
currently here--here are some of the concerns that you have 
about them.
    Mr. Ramirez. Thank you, sir.
    Mr. Turner. There are two reasons to take a look at this 
from what I am hearing from people who are testifying, one of 
which is just the issue of time and datedness, which raises the 
issue of perhaps this is something we need to look at because 
of the amount of time that has gone by--the issue of 
inequalities that can be expressed or inherent fact in the fact 
of passage of time and demographic change.
    Mr. Posner, the questions--the issue that you raise which 
is another topic is the issue of the fiscal pressure of the 
program.
    For this analysis, the HUD recommendations do not really 
attempt to provide us with any savings. They merely provide a 
reallocation of whatever number of dollars are allocated.
    But, certainly, as we look to our fiscal pressures, we are 
always going to take a look at the effectiveness of our 
programs. And, certainly, effectiveness is one element of 
eligibility.
    I would like, if you will, to talk for a moment about the 
issue of immigration. I didn't notice in your report whether or 
not you had looked at that issue. My understanding, in looking 
at their report, is that they talk about immigration and its 
pressure on communities and what results as being a host of 
other--a migration of immigration population. Then they also 
talk about the expression of poverty in a community. And I 
believe those things that they then weight as expressions of 
poverty are the same that they say that a community, having 
expressions of immigration, migration, will have. So, to me, it 
sounds like double counting.
    And then when you get to this less need/more need chart, 
and they weight immigration by 15 percent, it also seems, not 
only simple accounting, but it's a rather arbitrary allocation 
of weight and need.
    Have you thought about that issue?
    Mr. Posner. I am going to turn to Mr. Fastrup for the 
detailed comments on it. Let me make one overall point about 
the fiscal issue and some lessons learned, if you will.
    We had a program that is no longer with us called General 
Revenue Sharing, and General Revenue Sharing went away in the 
fiscal crisis of the 1980's or the fiscal crunch of the 1990's.
    And I think one of the things that disturbed people was the 
untargeted way the money went to every unit of local government 
regardless. It was somewhat weighted for per capita income and 
fiscal efforts as well as population.
    But, nonetheless, there were significant concerns that, as 
the Federal budget got tighter, we were sending money to 
wealthier communities, and there were proposals to cap and 
better target that program, which never could reach political 
agreement.
    I think at some point, when you are an advocate of 
programs, and you are facing a fiscal situation like we are 
coming into, you have to start being concerned about whether 
the formula starts undermining your support. So I think, from 
many perspectives, in addition to just wise money management 
and good government as well as potential sustainability of 
support, you know, looking at this is an important issue.
    With regard to immigration, let me ask Jerry to comment on 
it.
    Mr. Fastrup. Well, the first thing that I would note is 
that to make a clear distinction between HUD's need criteria 
and the actual formula alternatives they present, they are two 
separate distinct things.
    In their need criteria, the immigrant population doesn't 
come into their need index directly. It only comes into it 
indirectly, and it comes in indirectly in two ways: One through 
the poverty measure, to the extent these immigrants are low-
income people that get picked up in the census counts, they are 
reflected in that.
    The other way it's picked up is in their second factor that 
you point out that's weighted 15 percent in their overall needs 
index. The only things in there that capture that immigration 
is overcrowded housing, which the study says is correlated with 
high immigrant populations, and to the extent that correlation 
is there, their need index picks up immigration in that way. 
But it's a very indirect effect.
    With regard to the actual allocations and how well their 
allocations--how much their allocations are affected by 
immigration in the actual four alternatives they put forward, 
that only shows up in the use of an overcrowded housing factor 
in the formula. And that factor is already there in the 
formula.
    And under the current formula, the overcrowded factoring 
gets a weight of 25 percent. In your alternatives, they have 
alternatives that reduce that weight and increase that weight. 
So looking at--depending on the particular formula you look at, 
to the extent that overcrowded housing reflects immigration, 
you get--you put a greater emphasis or a lesser emphasis on 
that factor, depending on which particular alternative you are 
looking at.
    The other point that we made in our statement is that if 
you are looking at the CDBG program as a program that's trying 
to compensate for fiscal distress and economic decline and the 
need to rehabilitate dilapidated housing and those kinds of 
things, but just strikes us that overcrowded housing is a sign 
of a tight labor market and housing market and upward pressure 
in the housing market, that's usually a sign of strong growth 
rather than decline.
    So our take on it is that the need criteria that's both 
built into the HUD criteria and the weight that is put on 
overcrowded housing in the formula are not what I would call 
one of the stronger points there.
    I think, as the Secretary pointed out, their need criteria 
and the formula is heavily directed toward poverty, which is a 
more generally agreed upon criterion there.
    Mr. Ramirez. May I followup on that, Mr. Chairman, real 
quick, as an additional point, that one of the things--and I 
would agree with what Jerry has just mentioned, that what we 
see also is that rent costs do need to be somehow factored into 
this calculation in hot markets, because that does tend to push 
out the low and moderate-income families from safe, decent 
affordable housing.
    So there does need to be some weight attached to it. And I 
didn't want the record to go without that being in included in 
there that that is our position.
    Mr. Turner. Excellent. Thank you.
    Mr. Dent.
    Mr. Dent. Thank you.
    Mr. Ramirez, my only question deals with some of the things 
that Chairman Turner talked about.
    I do appreciate the effort that the Department went through 
to put together a process and methodology to come up with a new 
need-based system of CDBG grants. As you pointed out in your 
testimony, clearly entitlement communities in my district do 
not fare particularly well under this, and I would just ask 
that your organization come back to us at some point with some 
type of alternative proposal that you think would be reflective 
of a--would be an equitable basis of distributing those grants.
    Based on my analysis of the appendix here, it seems that 
maybe the Northeastern States don't do very well. I notice 
Pennsylvania and Ohio don't appear to do very well; you 
mentioned New England doesn't do very well. It appears that the 
Southern and Western States for whatever reasons are the 
beneficiaries of this new formula. It seems in all four 
alternatives, that would be the case.
    So I guess that's my request of you, which is to come back 
to me and to the committee with some alternatives that you 
would find acceptable.
    Mr. Ramirez. We will, Congressman. Thank you.
    Mr. Turner. Mr. Ramirez, one of the discussions that you 
noted that we had with Mr. Bernardi was the issue of housing, 
and specifically the issue of vacant housing. I'm concerned 
that by targeting or by only counting in a need those units 
that are occupied by what, according to this analysis, 
constitutes--or they have identified as constituting a family, 
that you are missing the issue of the blighting influence of 
abandoned residential structures. CDBG obviously is a program 
that we attempt to utilize the dollars to target abandoned 
structures for rehabilitation and restoration and eliminating 
the blighting influence.
    Could you talk about that for a moment as to how you would 
see that would be an impact that would not be beneficial for 
communities?
    Mr. Ramirez. Well, first off, the quick response is we 
agree with your concerns. We think that by removing an accurate 
assessment of those types of dwellings, that it will only 
accelerate the condition of that neighborhood and the overall 
blight of a community if it's not addressed effectively.
    In a prior life, me in the prior life, as a mayor, I can 
tell you that during my 8 years as a mayor, I was able to 
eliminate well in excess of 3,500 blighted properties around 
our community during that 8-year period that in essence 
revitalized or regenerated neighborhood pride and viability.
    So we share your concerns, Mr. Chairman, that those are 
issues that need to be weighed carefully. They are already in 
the current formula. Again, we believe that there is always 
room for improvement, but we have seen substantial success in 
trying to address it. It's a matter of where we weigh the 
factors that we want to incorporate into this formula, and how 
effectively we can redistribute those dollars, once those 
weights are applied, that will maximize the effectiveness of 
this distribution of dollars, sir.
    Mr. Turner. Mr. Ramirez, I'd also like you to comment on--
and then Mr. Posner--the issue of the metropolitan per capita 
income. Mr. Posner, the GAO report identifies areas where there 
is a wide disparity of the per capita income between the urban 
core and the metropolitan area may actually reflect communities 
of economic growth and communities where there is little 
difference than you're looking at a community that overall 
might not have the opportunity economically for those who are 
experiencing poverty.
    In the GAO report, it's on page 9. You would have heard the 
discussions that we had with Mr. Bernardi. Mr. Ramirez, what 
are your thoughts on that?
    Mr. Ramirez. We believe that communities, even those that 
have a higher per capita income, do have pockets of poverty 
within them. In fact, many of those communities struggle with 
their labor force that services those communities around the 
country in providing safe and decent housing, and not forcing 
many of the service-oriented labor force to seek shelter and 
grow their communities within blighted areas.
    And so we do believe that's the balance, to some degree, 
that this formula has struck. It does allow for communities, 
high per capita communities to deal with these pockets of 
poverty and address the low and moderate-income families within 
those communities.
    Can it be improved? Well, we believe it can, but I am not 
prepared at this point to tell you how, because we would have 
to run several different scenarios to find the optimum level of 
distribution. But it is an effective way of dealing with that 
particular problem, sir.
    Mr. Turner. Mr. Posner.
    Mr. Posner. I'll refer to Mr. Fastrup in a minute. But 
overall I think we saw the two factors in alternative 3 kind of 
offsetting one another. On the one hand, you're trying to 
target aid proportionately to cities and areas that have lower 
incomes to raise on their own; on the other hand, you're 
providing greater aid to those communities if they happen to be 
nested in higher-income metropolitan areas. This is something I 
think that needs a lot more thinking. I think they're headed in 
the right direction by trying to capture the element of 
capacity and wealth.
    Mr. Fastrup. I would say that the HUD study proposes 
putting the metropolitan and local community per capita 
increment formula as a means of ratcheting up the degree to 
which funding is targeted to high-need communities. And to the 
extent that the committee wants to do that, that's one means of 
doing it.
    However, when we look at the use of both metropolitan per 
capita income and comparing that to the community's per capita 
income, the effect is the low-income communities would get more 
money targeted to them, but by putting the metropolitan per 
capita income in there, it offsets that degree of targeting to 
a significant degree so that two communities with the same per 
capita income, the one living in the higher-income metropolitan 
area, which generally is going to be an area that is better off 
economically, that community gets more money than the community 
with the same income located in a poorer metropolitan area. And 
we question whether that's an effective way to produce the kind 
of targeting to low-income areas, and taking into account the 
economic capacity of the various areas across the country.
    Now, one rationale that one could offer for doing that is 
to argue that areas with high metropolitan incomes tend to be 
high-cost-of-living areas; that's a legitimate position to 
take. However, the particular method by which HUD does this, it 
basically assumes that all of the difference in per capita 
income between a low-income metropolitan area and a high-income 
metropolitan area, they're implicitly assuming that's all cost 
of living differences, and that's not true.
    So I think that method of putting metropolitan income into 
the formula is overdoing it to some extent. But the real nexus 
of the problem is the fact that the Federal Government does not 
have good statistics on just what these differences in cost of 
living are in order to be able to more precisely take them into 
account in the formula. And if you wish, we can talk about that 
some more, too.
    Mr. Turner. At this point, actually, I don't have any 
further questions, and I was going to ask if you had anything 
else that you wanted to comment on to add to the record, in 
your thoughts to both the questions that have been asked, 
comments that you've heard from others.
    Mr. Ramirez.
    Mr. Ramirez. Just in conclusion, Mr. Turner, we want to 
thank you for airing out these issues on such an important item 
of import to communities throughout the country. And we will 
take your charge and dispatch it accordingly to bring back to 
you different alternatives that we see that may be viable 
within the existing formula to better enhance its methodology 
in trying to hit the marks that Congress intended it to hit or 
intends to hit, and look forward to working with you in this 
committee, and others, in making that happen, sir.
    Mr. Turner. Mr. Posner.
    Mr. Fastrup.
    Mr. Posner. Just to thank you for holding this hearing, and 
to illustrate how, as those of us who are talking about the 
fiscal choices facing us frequently talk about the hard choices 
we face, and this hearing very well illustrates that.
    Mr. Fastrup. I would just like to commend the HUD study for 
what it has accomplished here because I think what it's showing 
for the first time is that in these charts here, those jagged 
edges indicate that communities with similar needs are 
receiving widely disparate funding levels that can't be 
justified on the basis of income differences, cost of living 
differences, or anything else; and that simple equity--whether 
or not you want to direct more funding to high-need communities 
or not, simple equity would argue for narrowing those wide 
disparate differences.
    I think the HUD study has identified the key factors that 
are the cause of that, namely the growth lag factor and the 
pre-1940 housing that doesn't take into account the income 
status of the households that are living in those houses are 
largely responsible for that, along with the use of two 
formulas that work at cross purposes with one another, and that 
the biggest single improvement would come by just using a 
single formula largely based on poverty and housing conditions 
and the kinds of things that are in these two formulas.
    And I would add that because of the poor targeting of the 
program, you do run the risk, in tight fiscal times, of 
following the way that the general revenue-sharing program of 
perceptions of poor targeting, leading people to ask is this 
really the highest priority use of Federal dollars or not. And 
to the extent that the targeting of this program is improved, 
it strengthens the rationale for having this program; to the 
extent that it's not, you run the risk of people saying is this 
really the best use of Federal money.
    Mr. Turner. Mr. Fastrup, I think that you have given us the 
most excellent summary of the purposes of this hearing and the 
importance of it, so thank you for that. And I want to thank 
GAO for your efforts in reviewing this program.
    We all know the importance of CDBG, the importance of 
strengthening it and making sure that we preserve it. We know 
there have been discussions about its effectiveness. And 
looking at the HUD proposals helps us begin the discussion on 
what are the elements that can make it effective and more 
effective so that we can ensure its long-term viability, 
knowing, Mr. Ramirez, as you had said, of both of us being 
former mayors and the importance it has in the lives of people 
in our communities.
    With that, I want to thank you for your time, and we will 
be adjourned.
    [Whereupon, at 12:20 p.m., the subcommittee was adjourned.]
    [The prepared statement of Hon. Wm. Lacy Clay and 
additional information submitted for the hearing record 
follow:]

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 BRINGING COMMUNITY DEVELOPMENT BLOCK GRANT PROGRAMS SPENDING INTO THE 
  21ST CENTURY: INTRODUCING ACCOUNTABILITY AND MEANINGFUL PERFORMANCE 
               MEASURES INTO THE DECADES-OLD CDBG PROGRAM

                              ----------                              


                         TUESDAY, MAY 24, 2005

                  House of Representatives,
         Subcommittee on Federalism and the Census,
                            Committee on Government Reform,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 10:05 a.m., in 
room 2154, Rayburn House Office Building, Hon. Michael R. 
Turner (chairman of the subcommittee) presiding.
    Present: Representatives Turner, Dent, Maloney, and Clay.
    Staff present: John Cuaderes, staff director; Shannon 
Weinberg and Jon Heroux, counsels; Juliana French, clerk; Neil 
Siefring, Representative Turner/LA; Susan Stoner, 
Representative Dent/LA; Adam Bordes, minority professional 
staff member; and Jean Gosa, minority assistant clerk.
    Mr. Turner. A quorum being present, this hearing of the 
Subcommittee on Federalism and the Census will come to order.
    Welcome to the subcommittee's oversight hearing entitled, 
``Bringing Community Development Block Grant Programs Spending 
into the 21st Century: Introducing Accountability and 
Meaningful Performance Measures into the Decades-Old CDBG 
Program.''
    In March, this subcommittee held a hearing reviewing the 
Bush administration's ``Strengthening America's Communities'' 
initiative. During that hearing, we learned that HUD had 
undertaken certain in-house initiatives to improve the 
administration of the program. One of those initiatives was to 
implement an improved set of performance measures.
    CDBG is one of the largest Federal direct block grant 
programs in existence. In fiscal year 2005, Congress 
appropriated $4.71 billion for the CDBG program, including 
$4.15 billion for CDBG formula grants alone. State and local 
governments use CDBG grant moneys to fund various housing, 
community development, neighborhood revitalization, economic 
development, and public service provision projects.
    To receive their annual CDBG grant, grantees must develop 
and submit to HUD a consolidated plan. In their consolidated 
plan, each grantee must identify its goals for its use of CDBG 
moneys. These goals then serve as the criteria against which 
HUD evaluates each grantee's plan and the performance of each 
activity under the plan.
    Grant recipients may use CDBG funds for a wide variety of 
activities. For example, CDBG funds can be used for the 
acquisition of real property, the relocation and demolition of 
buildings, the rehabilitation of residential and non-
residential structures, the provision of public services, and 
the construction and improvement of public facilities.
    In contrast, grant recipients may not use CDBG funds for 
the acquisition of buildings used for the general conduct of 
government. Nor may grantees use CDBG funds for political 
activities, certain types of income payments, or the 
construction of new housing by local governments.
    Following approval of a grantee's consolidated plan, HUD 
will make a full grant award unless it has determined that the 
grantee failed to implement its plan in a timely manner and in 
a way that is consistent with the Housing and Community 
Development Act.
    Critics, as well as some proponents of the program, have 
questioned whether the consolidated plan is an adequate system 
for assessing whether certain uses of grant funds are 
consistent with the goals of the Nation and whether grant 
recipients are actually administering the funds properly.
    Currently, the consolidated plan is the only means by which 
HUD can measure the performance and outcome of grantee 
activities. With that said, some observers have questioned 
whether HUD takes the consolidated plan process seriously 
enough. Critics of the program have even questioned whether HUD 
reads each consolidated plan, suggesting that HUD simply does 
not have the time or manpower to review the more than 1,100 
consolidated plans within the 45-day period mandated by the 
statute.
    A primary justification used by the administration for 
proposing its Strengthening America's Communities Initiative 
earlier this year is that CDBG received very low scores on the 
Office of Management and Budget's Program Assessment Rating 
Tool [PART]. The fundamental question, however, is whether PART 
is any better of a performance measurement tool for CDBG than 
is the consolidated plan.
    Many CDBG stakeholders attributed CDBG's low PART score to 
evaluation limitations inherent in the PART tool itself. They 
argue that PART lacks the proper assessment matrix tools to 
score block grant programs like CDBG effectively and 
accurately. These stakeholders also claim that it may be 
impossible for evaluators to effectively measure the CDBG 
program because of its multifaceted nature and because grant 
moneys can be spent on a wide variety of activities that may 
have ``non-tangible'' benefits.
    With those questions and arguments in mind, today's hearing 
will specifically explore: one, how communities spend CDBG 
moneys; two, whether HUD and grantees effectively target funds 
toward the needs identified in the program's authorization 
language; and, three, how, if at all, Congress can measure 
these expenditures for effectiveness of use.
    To help us answer these questions, we have on our first 
panel the Honorable Roy Bernardi, Deputy Secretary of the 
Department of Housing and Urban Development and former 
Assistant Secretary of Community Planning and Development.
    On our second panel we have four distinguished witnesses. 
First, we have the Honorable Ron Schmitt, city councilman from 
Sparks, NV and a founding member of the Human Services Advisory 
Board in Washoe County. The Human Services Advisory Board led 
to the creation of the Washoe County Human Services Consortium, 
the public/private entity that decides how the area will spend 
its combined CDBG funds.
    We will next hear from Thomas Downs, fellow at the National 
Academy of the Public Administration. Earlier this year, the 
Academy published specific recommendations on how to improve 
reporting and performance measurement systems for the CDBG 
program.
    Next, we will hear from Lisa Patt-McDaniel, assistant 
director of the Community Development Division of the Ohio 
Department of Development. Ms. Patt-McDaniel is testifying 
today on behalf of the Council of State Community and Economic 
Development Agencies.
    Last, we have Dr. Sheila Crowley, president of the National 
Low Income Housing Coalition.
    I look forward to the expert testimony our distinguished 
panel of leaders will provide the subcommittee, and we thank 
all of you for your time here today.
    [The prepared statement of Hon. Michael R. Turner follows:]

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    [GRAPHIC] [TIFF OMITTED] T0219.111
    
    Mr. Turner. We will now start with the witnesses. Each 
witness has kindly prepared written testimony, which will be 
included in the record of this hearing. Witnesses will notice 
that there is a timer light at the table. The green light 
indicates that you should begin your comments; the yellow light 
will indicate you have 1 minute left in which to conclude your 
remarks; and the red light indicates that your time has 
expired.
    It is the policy of the committee that all witnesses be 
sworn in before they testify.
    Mr. Bernardi, would you please rise and raise your right 
hand?
    [Witness sworn.]
    Mr. Turner. Let the record show that the witness has 
responded in the affirmative.
    Mr. Bernardi, if you would now begin your comments.

STATEMENT OF ROY A. BERNARDI, DEPUTY SECRETARY, U.S. DEPARTMENT 
                OF HOUSING AND URBAN DEVELOPMENT

    Mr. Bernardi. Thank you. Good morning, Mr. Chairman and all 
the individuals in attendance. Thanks for the opportunity to 
address the subcommittee's inquiry into the three specific 
Community Development Block Grant issues that you just 
mentioned: how communities spend their CDBG moneys; whether the 
funds are effectively targeted toward identified needs; and how 
these expenditures can be measured for effectiveness.
    The Housing and Community Development Act of 1974 allows 
grantees to determine their own local needs, to set their local 
priorities, and design programs to address both. There are two 
limits that help target the use of CDBG funds. First, every 
assisted activity must either benefit low and moderate-income 
persons, or prevent and eliminate slums or blight, or meet an 
urgent community development need the grantee does not have the 
financial resources to address. And the second condition is a 
grantee must spend at least 70 percent, over 3 years, of its 
funds for activities that benefit low and moderate-income 
persons.
    HUD field offices monitor grantees' use of funds to meet 
these conditions. For the last 4 years, these assisted 
activities, as reported and categorized, have remained stable. 
Approximately 95 percent of the funds go to activities 
benefiting low and moderate-income persons.
    We also monitor whether grantees have carried out their 
CDBG-assisted activities in a timely manner. The timeliness 
standard provides that 60 days before the end of its current 
program year a grantee may not have more than 1\1/2\ times its 
current grant in its line of credit. Because the amount of 
funds above this standard remaining in grantees' lines of 
credit was increasing, in the fall of 2001, when I was then 
Assistant Secretary for CPD, we established a new policy giving 
untimely grantees 1 year to meet the standard or risk a grant 
reduction in the amount equal to the amount by which it 
exceeded the 1\1/2\ standard.
    This policy has been extremely successful. The number of 
untimely grantees fell from over 300 to approximately 60, and 
the amount of excess, undistributed funds fell from $370 
million to approximately $30 million. This was a winner for the 
taxpayers, for HUD, for the grantees, and obviously for the low 
and moderate-income persons that we serve.
    HUD's Integrated Disbursement and Information System 
[IDIS], is used to report information on grantees' use of 
funds. Obtaining consistency in reporting and improving data 
quality are challenges because of the large number of both the 
grantees--better than 1,100--and also the assisted activities. 
Nevertheless, HUD's recent efforts to address data quality have 
yielded great improvements. To modernize our information 
system, HUD has contracted to develop a more user-friendly IDIS 
by spring of 2006. Further improvements will also make the 
front-end application process and the completion and reporting 
process consistent.
    Can the expenditure of CDBG funds be measured for 
effectiveness? Yes, they can. In January 2003, my office began 
encouraging recipients of CPD's four formula grant programs--
that are, CDBG, HOME, ESG, and HOPWA by issuing a notice to 
develop performance measurement systems. Since local choice 
drives the use of these funds, HUD believes performance-based 
measurement systems should be developed at the same level. To 
date, 246 grantees have reported using performance measurement 
systems, while 225 are developing them. That is adding up to 
approximately 43 percent of all CDBG grantees.
    As we have reported previously, HUD has been working with 
the stakeholders, including the key grantee representatives, in 
OMB to help develop outcome measures. This effort formed the 
basis for a proposed measurement system that will soon be 
completed and published in the Federal Register Notice, a draft 
of this. In 90 days it will be there for public comment and 
input, and after we review that public comment and input, we 
will then publish a final notice after that 90-day period of 
time.
    The proposed outcome performance measurement system will 
produce data to identify the results of formula grant 
activities. It will allow the grantees and HUD to provide a 
broader, more accurate picture. The goal is to have a system 
that will aggregate results across the spectrum of the programs 
at the city level, the county, State. We are committed to 
improving the way we track performance and show results for our 
program.
    These are significant challenges, but I am convinced that 
we can get the measurable information and reliable results 
taxpayers are entitled to. And I thank you, Mr. Chairman, for 
the opportunity to be here in front of your committee.
    [The prepared statement of Mr. Bernardi follows:]

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    Mr. Turner. Thank you, Mr. Secretary.
    First off, let me begin by recognizing the accomplishment 
that you noted in your testimony of the issue where communities 
were not expending their funds in a timely manner. Your efforts 
to obtain compliance from communities, working with them and 
making certain that the funds were expended timely, and that 
you looked toward a greater enforcement of that requirement 
clearly showed results, and you ought to be commended for that 
effort.
    Mr. Bernardi. Thank you. We are very proud of that.
    Mr. Turner. We began this series of CDBG hearings with the 
notation that the PART performance measurements had indicated 
that CDBG did not have a clear purpose as a program. And I am 
going to read the first assessment under PART of CDBG, where it 
says: ``Is the program purpose clear?'' It says: ``The program 
does not have a clear, unambiguous mission. Both the definition 
of community development and the role CDBG plays in that field 
are not well defined.''
    Much of the testimony that we are going to receive today, 
like yours, describes ways in which we can track or measure the 
activities undertaken through CDBG. The PART performance 
measurement, however, begins by saying that the purpose of the 
program is not clear and that, as a result of that flaw, mere 
measurement or study of the expenditure of CDBG may not be the 
answer. In fact, from this the justification of the 
Strengthening America's Communities proposal came forward.
    Do you think we just need a better system to track 
effectiveness, or do you think the program itself could be made 
more effective, thereby producing data that would show its 
having an impact on communities?
    Mr. Bernardi. Well, the PART score that we receive from 
OMB, there were four sections to it, and as you pointed out, 
Mr. Chairman, the program purpose and design we received a zero 
score. Candidly, the program purpose and design I think is 
spelled out in the Community Development Block Grant Act of 
1974. The program was meant to be utilized by local officials 
with determination after a tremendous amount of community input 
as to how best they would utilize those resources, and there 
were seven fundamental areas in which those resources would be 
used with another 25 indicators. So it is a very flexible 
program; it is a program that was meant to be utilized at the 
local level.
    However, they are absolutely correct in some of the other 
areas. It is very difficult to have a strategic plan and there 
are program management results that you would like and program 
results and activities. The program scored ineffective when you 
start with the score of zero on program purpose and design, 
obviously, even though we received a 67 for program management. 
And I feel very strongly, having worked with the good folks in 
CDBG both at headquarters and in the 42 field offices, that 
they do a very good job in administering the program.
    Could the goals and objectives be looked at again and 
perhaps be spelled out in more clarity and detail? Absolutely. 
Can we measure better than we do now? Yes, we can. You 
mentioned the consolidated plan. That is a 5-year plan, and 
that is where the communities list their goals and objectives 
and what they hope to accomplish within that 5-year period of 
time. Then there is an annual action plan, and that is at the 
end of each program year, where that community indicates how 
much of that 5-year plan they have actually accomplished. Then 
there is a CAPER Report that is at the end. That is an 
evaluation performance and that indicates what they have 
actually done. I believe that we have been able to indicate 
outputs fairly regularly. Through our Information Disbursement 
Information System. Each grantee is able to indicate to us the 
number of jobs that have been created, the number of units that 
have been assisted, the number of loans that have been 
recorded.
    But those are outputs. And what OMB and I believe others 
are looking for is to make sure that we can have outcomes: Has 
the quality of live been improved? Has that neighborhood been 
served? Has the community been enhanced because of the 
expenditures of those dollars? As an example, if you go into a 
neighborhood and you create some business opportunities or you 
provide more business opportunities for the people that are 
presently there, how does that reflect in your sales tax 
revenue; is it higher, is it lower? How do you capture that 
information? It is very difficult to do. Has crime been reduced 
by utilizing CDBG dollars in a certain neighborhood? Again, 
very difficult to measure.
    But the fact of the matter is that we are putting together 
with, what I mentioned earlier, this notice that will be 
published very soon, and where many, many stakeholders were 
involved in putting this all together as to how we can have a 
national measurement system, but at the same time allow the 
communities to have their local performance measurement system 
be part of that.
    Mr. Turner. You mentioned in your testimony, and many 
others following you will also mention, the Integrated 
Disbursement and Information System. There have been some 
problems with that system in its implementation. Could you 
elaborate more on the status of that and discuss the 
resolutions of some of the problems that people were 
experiencing?
    Mr. Bernardi. Well, the system has been in existence since 
1996, and it allows grantees to enter information on their 
activities and to draft funds for individual activities. The 
system has worked very well when it accounts for the dollars, 
obviously. Over $7 billion each year go through that system. 
However, we are looking to improve that system by the spring of 
2006. We are going to require more complete information on 
accomplishments; we are going to allow grantees to submit 
information via the Federalgrants.gov; we are going to improve 
the type and content of reports available to HUD for 
monitoring. We want to make it easier to reduce the grantees' 
time and at the same time be able to consolidate, if you will, 
into one format the consolidated plan, the annual performance 
plan, the CAPER plan so that the individuals at HUD that are 
looking at all this can ascertain what has happened over a 5-
year period, over a 1-year period of accomplishments. This IDIS 
system has worked very, very well, but it needs some 
improvements, and we are in the process of making those.
    Mr. Turner. You mentioned the consolidated plan process, 
and we discussed the issue of HUD's review of those in both 
your testimony and my opening statement. Has HUD rejected 
consolidated plans from communities; and what is the process 
for rejection of a consolidated plan if one is to be rejected; 
and what type of discussion, feedback, or interaction occurs 
with the community if a consolidated plan is viewed as either 
deficient or could be improved?
    Mr. Bernardi. Well, the consolidated plan is reviewed by 
each one of our field offices for all of our entitlement 
grantees, and as long as it adheres to the national 
objectives--providing the majority of the resources for low and 
moderate-income individuals; to eliminate slum and blight; and 
obviously the third objective is, in the event of an emergency, 
to utilize those funds for that emergency--the consolidated 
plan I believe works very well. There is not a rejection of the 
consolidated plan per se, as long as the goals and objectives 
that are spelled out in that consolidated plan meet the goals 
and objectives of the CDBG program.
    We do have what we call risk monitoring. Each and every 
year our personnel takes a look at how everyone is performing, 
and there is a matrix, if you will, of areas, whether it is 
financial, whether it is capacity, and they look at that and 
they say to themselves, OK, this year who are we going to 
monitor either onsite or offsite? Of our 1,100 approximate 
grantees, we monitor about a third of those every year to see 
that they are in accordance with the consolidated plan, that 
they are spending their money in a timely way, that their goals 
and objectives and their annual action plan are being realized. 
This is a very good system, and I feel that our employees, CDBG 
employees out there in those field offices, they know full well 
who is performing, who is not, who needs information 
technology, who needs additional capacity, and our staff is 
always ready and willing and is out there providing it for 
these folks.
    Mr. Turner. In the consolidated plan review process, is 
there a feedback loop for best practices? Certainly HUD, in the 
period of time that this program has been in existence, has 
seen throughout the country programs and either services or 
community development projects that are more successful than 
others. And when a community puts forth a consolidated plan 
where the goals and objectives of the program could be 
enhanced, perhaps with knowledge of what another community's 
success has been, does HUD undertake that discussion with the 
community in the consolidated plan process to help enhance the 
success of the projects that those funds are invested in?
    Mr. Bernardi. In the early years I believe we were more 
engaged in the preparation of the consolidated plan. Now we 
pretty much leave it to the communities to make the 
determinations that they can justify, obviously, as to how they 
want to utilize their dollars. We feel very strongly that they 
know best. Of course, we look at those consolidated plans to 
make sure that they adhere to the rules that are in place.
    At the same time, if a community ends up in trouble with a 
particular project, if the plan is not being adhered to, we can 
take action. We don't like to reclaim dollars unless we 
absolutely have to. What we try to do is maybe sit down with 
the community. Our folks in the field OK, this is an ineligible 
objective or you are not going to be able to reach this 
objective because you don't have the capacity; whatever the 
reasons are. We try to work with the grantee so that either the 
objective can be met or the objective can be changed to 
something else. In the final analysis, if they are not able to 
do what they have to do according to the rules and regulations, 
then we will take that money back. However, the way we do that 
is they are not able to repay us with additional CDBG dollars, 
it has to be their own local dollars. Or, in some cases, in the 
next grant that they are going to receive, we reduce the amount 
of money that they have spent in an eligible way.
    Mr. Turner. From your answer, it would appear that HUD's 
view of the consolidated plan is more an issue of compliance 
rather than an issue of consultation on degree of likelihood of 
success.
    Mr. Bernardi. By and large, that is what it is about too, 
yes.
    Mr. Turner. In your testimony you talked about the 
different categories for which the funds could be used and 
limitations upon the expenditures by categories and the 
limitation for a government entity or a community in spending 
those funds on its own staff or functions within public 
service. There doesn't appear to be a limitation, though, on 
whether a government entity receiving CDBG funds would make the 
decision to spend all of its CDBG moneys on its own staff 
functions in the eligible criteria. Is that correct or is there 
a limitation?
    Mr. Bernardi. The way it breaks down is that there are caps 
in two areas. There are caps on administration and planning, 
and that cap is 20 percent. There is also a cap on public 
service, which is 15 percent. I can report that, on an average, 
on administration and planning, the average is about 14 
percent. So you can see that the grantees spend less on 
administration and planning, and, obviously, we feel that is a 
good thing. When it comes to public services, the cap used to 
be 10 percent. That was changed to 15 percent in the 1980's, 
but I believe around 62 or 63 entitlement communities were 
grand-fathered in at a higher number. But 15 percent is the cap 
on public services.
    The other areas the communities can pretty much make the 
determination as to how they want to spend their dollars, in 
what areas. As an example of the 2004 appropriation, on an 
average, about 33 percent of the dollars were spent on public 
facilities and improvements; on housing activities 
approximately 25 percent; administration and planning, as I 
indicated, 14 percent; economic development 9 percent; 
acquisition 5\1/2\; and then 108 loan guarantees about 2\1/2\ 
percent. Those numbers, as we have looked at those, have not 
fluctuated to any large degree since 2000 in the last 4 years.
    And did you notice, I am sure, Congressman, a community 
finds a need for those dollars, and I know Dayton is an example 
of this, and I looked at the expenditures of Dayton in the 
early part of this decade, and those moneys were spent for code 
enforcement, approximately 30 percent. So you will find that 
communities, once they develop a consolidated plan, an annual 
action plan, they make the determination as to how best they 
can utilize those moneys that are going to affect low and 
moderate-income persons.
    Mr. Turner. There are no restrictions, though, overall that 
would prevent a community, a local government entity from going 
down the smorgasbord, if you will, of eligible uses and 
allocating 100 percent of its CDBG money for its own staff 
functions within those eligible uses?
    Mr. Bernardi. When you say staff functions within those 
eligible uses, it would still have to be a 20 percent. They 
could not spend more than that for administration and planning.
    Mr. Turner. Well, it is administration and planning, but in 
other areas, for example, as you indicated, code enforcement, 
code inspection. That is not necessarily administration and 
planning, so additional funds--and there you cited a figure 
that was higher than the 20 percent. One of the criticisms that 
we hear about CDBG is the opportunity for local governments to 
utilize the funds rather than for community development, but to 
fund what many people consider local government activities that 
perhaps the local tax base should be supporting rather than 
CDBG.
    Mr. Bernardi. As long as the dollars are used to provide 
goods and services for individuals who meet the low and 
moderate-income threshold. The flexibility of the program 
allows the entities to use the money as they see fit.
    Now, let us take the example of code enforcement. If that 
money was not being utilized through the CDBG program, would a 
particular community have the local capacity to provide the 
kind of inspections to make sure that housing stock in their 
poor neighborhoods was being addressed? Now, that is a local 
decision that is made, and, basically, as long as it can be 
justified that it is benefiting people of low and moderate-
income, we are not going to be disapproving of that.
    Mr. Turner. And I understand that there are many times very 
good reasons and justifications for a community to utilize 
those funds to support the actual local government activities 
in the eligible use categories, but my question is there is no 
overall limitation. A government entity could, in going down 
the smorgasbord of eligible uses, allocate 100 percent of its 
CDBG moneys for staff functions within those eligible uses and 
not be in violation of the restrictions placed upon CDBG.
    Mr. Bernardi. I believe you are correct. But as a former 
mayor myself, as you know, when you deal with your legislative 
body in your public hearings, the chances of 100 percent of the 
money going to any one particular activity obviously are 
remote. I don't know that any communities do that, offhand.
    Mr. Turner. That goes to my next question. To what extent 
do you track the percent of CDBG moneys that are utilized by a 
community for its own staff functions? When you told me the 
different categories that the funds break down into and what 
communities are likely to spend them on, do you go the next 
step and an eligible expenditure in that category to have a 
definition as to what the actual funds went for? If I were to 
ask you could you tell me of the top 100 cities that receive 
CDBG funds in population size, what overall percentage that 
they spend on their staff functions, do you track it so you 
could provide that number?
    Mr. Bernardi. Yes. The Consolidated Annual Performance 
Evaluation Report that each grantee submits through the IDIS 
system to HUD indicates exactly the percentages and the dollars 
that go to each category.
    Mr. Turner. Could you provide that to our committee for the 
top 100?
    Mr. Bernardi. Sure.
    Mr. Turner. It would be very good to take a look at that. 
One of the reoccurring criticisms of CDBG is whether or not the 
funds have been co-opted for government operations rather than 
community development functions, even if those government 
operations support community development functions. That is a 
criticism that I think might impact the ability to measure 
effectiveness. We would love to take a look at the information.
    The proposal for Strengthening America's Communities and 
the Commerce Department review of what criteria would go into 
Strengthening America's Communities in determining eligible 
uses and eligible communities, my understanding is that work is 
proceeding with the Commerce Department in looking at what 
their proposal might be. I wondered if you could talk to us a 
moment about HUD's participation in that process in assisting 
Commerce in reviewing both eligible communities and eligible 
uses that they might propose for the Strengthening America's 
Communities.
    Mr. Bernardi. The legislation is being written obviously by 
the folks at Commerce, but we do provide consultation and 
provide them with any information that they may need.
    Mr. Turner. Could you provide to our committee copies of 
whatever you have provided to the Commerce Department as they 
have reviewed this issue of eligible communities and eligible 
uses?
    Mr. Bernardi. Any information that we have, Congressman, 
that you would like, if we have it, we will provide it.
    Mr. Turner. Thank you. I want to go back to the question 
again on the issue of measuring effectiveness. As you go 
forward in looking at ways to more effectively measure the 
results of the expenditures of CDBG funds, one of the things I 
think people would hope that would occur is not just a proof or 
justification that CDBG moneys are having an impact, but also a 
process of determining whether or not the CDBG program could be 
enhanced or modified. The data might prove effectiveness, but 
it also might show in areas of non-performance or less 
effectiveness.
    What is HUD currently doing in looking at the data that it 
has, and in the data that it intends to generate or hopes to 
generate, for enhancing the performance of CDBG funds?
    Mr. Bernardi. The first notice that we issued was in 
January 2003. As I mentioned in my testimony, we asked 
communities to provide us with performance measurement system, 
and we have approximately 43 percent of those communities that 
are doing so. But also as I mentioned, we have a notice that is 
going to be published in the Federal Register very soon, and 
that notice was really a collaboration, if you will, with many 
different organizations, Council of State Development 
associations took the lead, but others are involved in that; 
OMB was involved in it. And that particular performance 
measurement system that is going to be presented will not 
require, but it will strongly encourage all grantees to utilize 
a system that everyone can work with. But at the same time we 
do not want to have local initiative be deterred in any way. If 
they have their own performance measurement system, we want it 
to be part of that.
    We are going to be looking at objectives. We are going to 
be looking at outcomes. We are going to have indicators for 
this system to cover every possible area. And where we can 
measure, obviously, we need to do so. We need to be able to 
make sure that the number of jobs created are retained, the 
number of units that have made accessible, number of jobs with 
healthcare benefits. Right now we don't have that kind of 
information, but when this comes forward, we believe very 
strongly that after the 90-day period and everyone has had a 
chance to comment on it, hopefully, when you take a look at 
OMB, you take a look at the grantees, you take a look at HUD, 
you take a look at NAPA, you take a look at COSCDA and all of 
the other organizations that are represented behind me here. We 
can come together with a performance measurement system that 
not only locally, but as I mentioned in the counties, States, 
and nationally, that we can have aggregate outcomes. We are 
able to ascertain how the dollars are being spent better today 
than they were yesterday.
    Mr. Turner. One of the phrases in management that I always 
think is important is the one of if you are not measuring it, 
you are not managing it, and a lot of what we are hearing in 
your testimony goes to the issue of measurement. Even if you 
get the best measurement system, if it is only a system 
intended to produce data, and not a system intended to produce 
data that then results in management of the system, it is data 
for the sake of data. What does HUD intend to do as it gets 
additional information from the performance measures with that 
data?
    Mr. Bernardi. Well, right now we can measure, as I 
mentioned, outputs, but we don't have the outcomes. We need to 
make sure with the performance measurement system that we are 
able to go right from the beginning of the goals and the 
objectives to the outcome indicators to the outputs and then to 
the outcomes. And when we receive that information, that is 
when we will be able to ascertain whether a community or 
communities are utilizing their dollars in the best possible 
way. We will have something to compare it to, which we don't 
have now.
    Mr. Turner. And then you will work with that community in a 
consultation manner? You will look at changing----
    Mr. Bernardi. Sure. We do that now, but we will have more 
of a yardstick, if you will. We will be able to tell their 
strengths and weaknesses more than we can now.
    Mr. Turner. Will it still be, as your review of the 
consolidated plan process is, limited to compliance, or will it 
actually be geared toward enhancement of success?
    Mr. Bernardi. It will be always toward compliance, but at 
the same time toward performance outcomes: have you been 
utilizing your resources in a particular activities, do the 
indicators point out that not only have you reached certain 
numbers that you said you would reach in your annual report, 
but at the same time we want to know exactly if that person, if 
that entity has improved the quality of life for those 
individuals and that neighborhood. As I mentioned earlier, what 
has an activity done to reduce crime? What has an activity done 
in a certain neighborhood to create more jobs or to provide 
more sales tax dollars or to provide more real estate tax 
dollars? These are the kinds of outcomes I think we need and 
that we can point to, you are on the right course, community A, 
you are doing the right things; we see measurable improvement 
each and every year with the utilization of these dollars for 
that particular activity or activities.
    Mr. Turner. I would like for you to speak for a moment, if 
you will, on the issue of the difficulty of measurement of 
success in a community. One of the things that we heard with 
Strengthening America's Communities was an attempt almost to 
put an economic bubble around a community and do economic/
environmental data analysis to determine whether or not the 
community is advancing.
    As you mentioned in your opening comments and in our first 
couple of questions, for some communities it may be very 
difficult to measure progress and success. Sometimes progress 
can be slowing decline or decay, not necessarily that the 
community, in a very measurable or obvious way, economically 
advances. Could you speak for a moment to the difficulty of 
what you are trying to measure? I hear very often from 
community development people that I know what community 
development is when I see it. But that doesn't go very well on 
a measurement application. So could you talk about the 
difficulty of doing that for a community?
    Mr. Bernardi. Well, the genesis of the program was to 
provide flexibility, was to provide local initiative, and the 
fact that you have 23 to 30 activities that you can fund makes 
measuring those activities difficult, but it doesn't make it 
impossible. And I think OMB, in their analysis, and other 
people taking a look at it say when you are going to expend 
better than $4 billion a year to help 1,100 and some 
entitlement communities, all 50 States, with another maybe 
3,000, 3,500 communities within those States, we had better be 
sure that we provide to the taxpayers of this country not just 
numbers, but how has it enhanced the quality of life; has it 
really done the job that it needed to do to make it a better 
community.
    Certainly, many challenges. Very difficult to measure, for 
example, if you put in sidewalks or streetlights, how does that 
benefit the community. If it is an area benefit and 51 percent 
of those people are low and moderate-income, obviously it is an 
eligible activity. But at the same time, how do you measure 
that? It is very difficult. But I believe that what we are 
putting together with this new notice will go further toward 
making sure that we can capture as much information and as many 
outcomes as we can.
    Mr. Turner. The previous hearing that this committee had, 
reviewed the formula change options that HUD had been 
reviewing, four different categories of how the formula would 
be modified with respect to entitlement communities. Has HUD 
similarly undertaken any type of study or consideration for 
changing the eligible uses for the expenditure of CDBG moneys?
    Mr. Bernardi. Well, the eligibility, as I mentioned, is 
very broad. That can always be looked at in conjunction with 
the Congress and with our grantees, and ascertain whether or 
not you might want to reconsider some areas of eligibility, add 
some areas or modify some.
    Mr. Turner. But at this point you have not undertaken a 
study? You do not have a staff report that looks at possible 
recommendations for modifying or discussing proposing to 
Congress changes in eligible uses?
    Mr. Bernardi. Well, take eligible uses. If you expand them, 
it is going to be even more difficult to do the kind of 
measurement you want. If you reduce them, then you will do more 
targeting. And if you do more targeting, obviously there is not 
as much participation, then you will be able to measure 
significantly better.
    Mr. Turner. But is this something that HUD is taking a look 
at?
    Mr. Bernardi. Well, we look at everything, but as far as 
the eligibility, change in eligibility, no, I don't believe so.
    Mr. Turner. OK.
    I want to recognize that we have Mr. Dent from Pennsylvania 
with us, and Mr. Clay has joined us.
    Mr. Clay, would you like to, either, at this time, make any 
questions or opening comment?
    Mr. Clay. Sure. Thank you, Mr. Chairman. If I could, I 
would like to ask Mr. Bernardi about the CDBG program, if that 
is OK.
    One of the recommendations in the NAPA report addressed the 
establishment of an incentive for communities to participate in 
furthering the national goals and objectives of CDBG. Should 
such an incentive program be based on benefits, as opposed to 
penalties, for communities? If you were to implement a new 
evaluation system today, would it reward communities which 
demonstrate progress, or simply burden those communities not 
demonstrating progress?
    Mr. Bernardi. Well, Congressman, obviously, you could go 
either way with that: you could penalize and you could benefit. 
We are looking at the notice that will be published in the 
Federal Register very soon as to performance measurements, and 
that is something with public comment, if the stakeholders and 
others would like to take a look at perhaps providing 
incentives for communities that utilize their resources to the 
ultimate capacity, we would be happy to look at that, sure.
    Mr. Clay. The administration's PART evaluation graded the 
CDBG program as ineffective according to various criteria 
utilized. If possible, could you offer us your opinion of using 
PART to evaluate the CDBG program and if the criteria used to 
evaluate a program were an appropriate measurement tool for 
program goals and objectives?
    Mr. Bernardi. Well, the OMB PART program scored the CDBG 
program as ineffective, but the only area that I feel we felt a 
little uncomfortable with was in the first section. There were 
four functions and we were rated a zero for program purpose and 
design. The program purpose and design was the Community 
Development Act of 1974, and we feel very strongly that we have 
been following the program purpose and design to make it 
flexible, to make it local-oriented, if you will. However, 
there were good recommendations in the PART program for how we 
can improve our performance measurement systems, and we have 
our own performance measurement system, a notice that we sent 
out to all of our grantees last year, and almost half of those 
grantees are providing us with performance measurement system 
outcomes. And as I mentioned just earlier, we are in the 
process right now of publishing in the Federal Register a 
combination of thoughts and suggestions from individuals as to 
how we can better improve our system.
    Mr. Clay. Doesn't the nature of a block grant with few 
strings attached make assessment more challenging than other 
programs with more stringent requirements? Could you detail for 
me the types of methods or metrics that communities could use 
to evaluate the performance of their CDBG funds?
    Mr. Bernardi. Well, you are absolutely right. When you have 
that kind of flexibility, the measurement of those programs 
becomes more of a challenge. But we have in place a 
Consolidated Annual Performance Evaluation Report, and that 
pretty much lists outputs, if you will, Congressman; it will 
tell you the number of jobs a community has created, it will 
tell you the number of units that have been assisted, the 
number of loans that have been processed. We need and are in 
the process of putting together an evaluation report that will 
deal with outcomes; how does that affect that neighborhood or 
that community by utilizing these dollars for a certain 
activity.
    Mr. Clay. Just from your response, how would you evaluate, 
say, a city like St. Louis, MO, which gets block grant funding 
annually, a pretty good portion of it? Does it target the 
neighborhoods that it is really intended for, that the city 
qualifies for? Does it actually make a difference in those 
communities where you have plenty of blighted property, 
property owned by the city, and really a very disadvantaged 
community? Have you seen St. Louis yet?
    Mr. Bernardi. I have been to St. Louis on a number of 
occasions. The block grant program, Congressman, is a 
consolidated plan and the community spells out what it wants to 
do over a 5-year period of time. There is also an annual action 
plan, and each year they have to submit to HUD what they have 
actually done as part of this overall consolidated plan. They 
have to stay within the guidelines and the objectives of the 
CDBG program, but the flexibility of that program leaves it to 
the officials in that community, to the legislative body, to 
the administrative body after public hearings to make the 
determination in many of these eligible areas of activity how 
they want to spend their money. But they have to spend it to 
benefit people of low and moderate income. At least by the 
books, about 70 percent of it has to be spent that way, but we 
find on an average about 95 percent of the communities utilize 
their CDBG dollars for low and moderate-income individuals. I 
don't have the exact number for St. Louis, but maybe I could 
find that for you.
    Mr. Clay. Would you be willing to share that with me? And 
please don't miss the point that St. Louis qualifies for this 
funding based on poor citizens. We don't want to lose sight of 
that.
    Mr. Bernardi. Sure. The need obviously is there, of course.
    Mr. Clay. Thank you for your response.
    [The prepared statement of Hon. Wm. Lacy Clay follows:]

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    Mr. Turner. Mrs. Maloney, do you have any questions?
    Mrs. Maloney. Sure. First of all, I would like to place my 
statement in the record.
    I just want to state that I have very strong reservations 
about the administration's dramatic funding cuts for 18 key 
missions by 35 percent, and reprogramming it to Commerce, 
funding for so many programs that fall outside of the mission 
of the Department of Commerce, and I have expressed that in a 
letter, along with my Democratic colleagues, to the Budget 
Committee.
    I want to state that my city, New York City, CDBG provided 
over $207 million, and it was used for a variety of programs 
that help the community, and the $1.42 billion budget cut for 
CDBG will have a devastating impact for these efforts.
    The housing mission of the CDBG program was a very 
important one in New York, and I truly believe that housing 
cannot take place, particularly for low-income and moderate-
income, without a Federal role. And under the administration's 
proposal, there is absolutely no assurance that the housing 
mission of CDBG will have any future. Can you comment on that? 
On top of that, the housing in general--vouchers, public 
housing--the Federal role has been scaled back in the proposed 
budget before us.
    But I do want to say that I support valid performance 
measurements, I think they are very important--transparency, 
performance measurements are very important--but I doubt that 
eliminating the program is the right solution, and there is no 
assurance for the housing and really no assurance that the 
mission will be continued if it is in fact transferred over to 
Commerce.
    Mr. Bernardi. Congresswoman Maloney, the CDBG program was 
zeroed out of HUD's budget and, as you indicated, that money 
will go to Commerce for the Strengthening America's Communities 
Initiative. Presently, the Department of Commerce is putting 
together the legislation for their program, and that should be 
forthcoming soon. The Section 8 program that we have----
    Mrs. Maloney. But my question specifically was in the 
language that I read that transferred it over to Commerce with 
a 35 percent cut in funding, there was no assurance the housing 
mission of CDBG would have a future. See, CDBG has a history of 
supporting housing and programs in public housing or around 
housing in poor communities, and that was not included in the 
language that went over to Commerce.
    Mr. Bernardi. Well, the language to Commerce is not 
available; it will be soon, as I understand it. When they put 
forth their legislation, they will address how they are going 
to utilize those dollars. I understand that they want to 
provide for the communities that have extreme distress, 
communities that have lost jobs, communities that have high 
unemployment. But I have not seen and I am not privy to how 
they are going to disburse those dollars.
    Mrs. Maloney. See, that is what is so difficult. What is 
HUD doing to preserve the housing mission of CDBG, are they 
working with Commerce to preserve the housing mission that has 
historically served urban areas so well?
    Mr. Bernardi. We have individuals at HUD who are working 
with the folks at Commerce to put together the legislation.
    Mrs. Maloney. So what do you think should be in that 
legislation?
    Mr. Bernardi. Well, that will have to be up to the folks at 
Commerce to make a determination; it was zeroed out of our 
budget.
    Mrs. Maloney. But you said people at HUD are over there 
working to help them put it together.
    Mr. Bernardi. Well, we are providing information that they 
request. We are providing counsel, if they seek it.
    Mrs. Maloney. See, what is, to me, so disturbing is that 
after revenue-sharing, probably CDBG was the only program that 
came into local governments that gave them the discretion to 
use it for what they thought were the priorities in their 
communities. In New York, and probably in all localities, there 
is a very detailed community input, leadership from the poor 
communities--and this all goes to poor communities--on how the 
dollars should be used. And now it is being shifted to Commerce 
with this sort of floating around in ether, no one knows what 
it is going to be, with a 35 percent cut, and it is very 
troubling to me. And I certainly don't think we should vote on 
the budget until we know exactly what is going to be the 
framework, and I, for one, believe that the housing mission 
that CDBG really led on in many ways is still preserved.
    I do want to say we have been called for a vote, but the 
Chairman, Mr. Turner, has shown a lot of interest on this, and 
I want to thank him for his sincere interest on trying to 
preserve things for local communities. I understand you are a 
former mayor from an urban area, and I hope your expertise will 
help sort this thing out. So thank you. We are called for a 
vote.
    [The prepared statement of Hon. Carolyn B. Maloney 
follows:]

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    Mr. Turner. Thank you so much.
    Mr. Bernardi, let me give you just one opportunity if you 
have any closing statement to make to enter it now. Upon the 
conclusion of those remarks, we are going to adjourn, go and 
vote, and we will come back into session for the second panel.
    Mr. Bernardi. I just want to thank you for the opportunity, 
members, and happy birthday, Congressman Dent. I wish you a 
wonderful day. I like the fact you didn't ask me any questions.
    Mr. Dent. Well, thank you. I am depressed; I am half way to 
90, so I am thinking about that.
    Mr. Bernardi. Thank you, sir. And if you have any 
additional questions from us, just kindly let us know and we 
will be happy to respond.
    Mr. Turner. Well, thank you so much for all of the great 
participation that you have had with this committee's work and 
all the work of your staff. Being a former mayor yourself, you 
bring to this a great deal of knowledge, and I appreciate your 
commitment to these programs and to community development in 
our urban areas. Thank you.
    Mr. Bernardi. Thank you very much.
    Mr. Turner. With that, we will be adjourned, and after this 
vote we will begin with the second panel. Thank you.
    [Recess.]
    Mr. Turner. We are going to go ahead and get started while 
my colleagues are returning.
    As I noted in the beginning of this hearing, it is the 
policy of the committee that all witnesses be sworn in before 
they testify. Therefore, as we look to our second panel, would 
you please stand to be sworn in? Rise and raise your right 
hands.
    [Witnesses sworn.]
    Mr. Turner. Let the record show that all the witnesses have 
responded in the affirmative.
    I want to begin by thanking all of you for taking your time 
both in preparing for this committee and then attending today 
to testify. This, as you know, is an important issue for many 
communities, and that is the effectiveness of CDBG and how we 
might be able to make it more effective. Your perspective on 
CDBG and HUD's performance is certainly helpful for us, as 
everyone looks to these issues.
    We have with us today the Honorable Ron Schmitt, 
councilmember of the city of Sparks, NV; Mr. Thomas Downs, a 
fellow from the National Academy of Public Administration; Ms. 
Lisa Patt-McDaniel, assistant deputy director, Community 
Development Division, Ohio Department of Development, on behalf 
of COSCDA; and Sheila Crowley, Ph.D., president, National Low 
Income Housing Coalition.
    We will begin with Mr. Schmitt.

 STATEMENTS OF RON SCHMITT, COUNCILMEMBER, CITY OF SPARKS, NV; 
       THOMAS DOWNS, FELLOW, NATIONAL ACADEMY OF PUBLIC 
ADMINISTRATION; LISA PATT-MCDANIEL, ASSISTANT DEPUTY DIRECTOR, 
COMMUNITY DEVELOPMENT DIVISION, OHIO DEPARTMENT OF DEVELOPMENT, 
  ON BEHALF OF COSCDA; AND SHEILA CROWLEY, PH.D., PRESIDENT, 
             NATIONAL LOW INCOME HOUSING COALITION

                    STATEMENT OF RON SCHMITT

    Mr. Schmitt. Thank you, Mr. Chairman. Good morning. Thank 
you for the opportunity to speak to you about this very 
important concern to our community. I am Ron Schmitt, 
councilman of the city of Sparks, NV, and president of the 
Nevada League of Cities and Municipalities.
    The community of Reno, Sparks, and Washoe County comprises 
approximately 380,000 citizens. Sparks is one of the fastest 
growing cities in the State of Nevada, with Nevada being the 
fastest growing State in the Nation since 1990.
    I was a founding member of our Human Services Advisory 
Board in 1996. I became involved with this process after a 
focus group of citizens decided there had to be a better way to 
distribute Federal, State, and local funds dedicated to our 
human services providers. The process in place at that time was 
very inefficient, time-consuming, and, above all, not getting a 
large percent of the funds to those who needed the services. 
This resulted in the formation of the Washoe County Human 
Services Consortium.
    The Consortium includes a board comprised of three 
appointed citizens from each entity: the city of Reno, the city 
of Sparks, and Washoe County. I served as a citizen for 5 
years. A safety net was built into the process by making this 
an advisory board who submits their recommendations of funding 
to the triumvirate. The triumvirate consists of one elected 
official from each entity. They have the option of ratifying or 
making adjustments to the board's recommendations. With this 
new process, service providers no longer had to submit three 
different applications or attend three different hearings; 
there was one application, one board hearing.
    The old system created many inequities; some services going 
unfunded, while others receiving a windfall of revenue. This 
new system encourages collaboration between service providers. 
A set of seven child care providers, each submitting an 
application, they would submit one application for all seven 
and then work together to monitor the needs and the 
distribution of the funds. This has lowered the cost to monitor 
the program, increased the services to the public, and 
stretched our limited dollars to help our community become a 
better place to live.
    A successful applicant must include objectives and 
measurable outcomes in their application, which become a 
component of their contract. These contracts are monitored and 
verified during the course of the program year. An example from 
a recent application from the C-A-R-E Chest of the Sierra 
Nevada, a group that provides medical equipment and supplies to 
the elderly in our community, two of their primary objectives 
include the reduction in the number of individuals living in 
assisted care facilities and prevent in-home accidents by 
providing durable medical equipment such as grab bars and 
shower chairs.
    Some of the measurable outcomes for this application period 
were as follows: 1,548 people were assisted with 2,852 medical 
equipment items; 334 people were assisted with 601 cases of 
liquid nutrition. These outcomes were monitored and reported to 
the board at the end of each year, when the next application 
period started. This has raised the bar for our service 
providers and made them review their programs for more 
effective ways of doing business in order to get more service 
to our community. This process has made our providers more 
accountable for the dollars they receive.
    Let me tell you a story about Jonelle, one of C-A-R-E 
Chest's clients. She is an inspiring, unforgettable woman. Born 
with cerebral palsy, the doctors thought she was never going to 
speak. ``I showed them and haven't stopped talking since,'' she 
boasted. Recently she moved to Nevada to be close to her 
adopted family. While her MediCal is being switched to Nevada 
Medicaid, Jonelle came to C-A-R-E Chest for help. She was 
loaned an electric wheelchair, and upon receiving the 
wheelchair, Jonelle sped off to the bus stop, thrilled to 
explore her new neighborhood. She is slowly but determinedly 
fulfilling her long-time dream of teaching special needs 
children ``like me'' she adds.
    Without the continuation of CDBG funds, many of the service 
providers to our community could not continue. I again want to 
thank you, Mr. Chairman, for allowing me to speak to you today 
on this very important issue of our community, and thank you 
for all that you do for our country.
    [The prepared statement of Mr. Schmitt follows:]

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    Mr. Turner. Thank you.
    Mr. Downs.

                   STATEMENT OF THOMAS DOWNS

    Mr. Downs. Thank you, Mr. Chairman. I am here on behalf of 
a panel of the National Academy of Public Administration.
    CDBG officials asked the Academy to recommend performance 
measures that would satisfy CDBG management, State and local 
grantees, and the Office of Management and Budget, while being 
consistent with the requirements of the 1974 Housing Act, the 
1973 Government Performance and Results Act [GPRA], and the 
President's management agenda under PART. In addition, CDBG 
officials asked the panel to recommend ways to incorporate 
performance measurement into its management information system, 
the Integrated Disbursement and Information System [IDIS].
    The Academy panel produced two reports and requests 
respectfully that both be included in the record. A list of 
panel members and their backgrounds is attached to the 
statement. The views presented here are those of the panel and 
its members.
    I would like to highlight the findings that most directly 
relate to the CDBG issues under consideration by this 
subcommittee, specifically: assessing CDBG performance under 
PART, reporting CDBG performance under GPRA, incorporated 
performance into IDIS, developing performance measures, and 
leading the CDBG program.
    The panel notes that there is considerable difference of 
opinion among CDBG management, grantees, OMB, policy experts, 
and, indeed, this Congress about what CDBG really is. So we 
applaud your effort to address some of these issues.
    I would like to begin with CDBG's PART assessment.
    A PART assessment yielded an overall rating of 
``ineffective'' in 2003-2004. The panel agrees with OMB that 
CDBG did not effectively demonstrate performance results for 
the program over its 30-year history, and that it resisted 
gathering and/or reporting performance data related either to 
short or long-term goals and objectives. The panel believes 
that CDBG's effectiveness has not yet been established.
    However, the panel disagrees with OMB that CDBG's mission 
and purpose are unclear. The 1974 Housing Act clearly gives 
wide latitude--intentionally, I might add--to States and 
communities to spend CDBG moneys to meet the needs of poor 
people and distressed communities.
    The panel also disagrees with OMB's criticisms that CDBG is 
not geographically or place targeted. Although the panel 
appreciates OMB's view that directing funding to distressed 
areas may provide greater benefits to poor people, the 1974 
Housing Act has no such requirements to be geographically 
targeted. Therefore, the panel believes that OMB criticized 
grantees for something they were not required to be doing. 
There is some disagreement in the field as to whether the 
Secretary of HUD can compel communities to geographically 
target. Perhaps this is an issue that the Congress should or 
could clarify.
    Next I would like to focus on several aspects of 
performance reporting.
    In our study, we found that some officials in HUD and in 
the CDBG grantee community believe that performance reporting 
under GPRA does not apply to them. Indeed, CDBG is a $4 billion 
program, yet contributes only three performance measures to 
HUD's Strategic Plan, even though the program funds nearly 100 
different kinds of activities. The panel believes that CDBG 
management and grantees have an obligation to contribute 
adequate performance data to the GPRA process.
    Much of the frustration in performance-based management in 
CDBG relates to the IDIS management information system. It 
works poorly, if at all, by most standards for the broader 
purposes that it claims. The panel applauds CDBG for its recent 
initiatives to clean up grantee data reported in IDIS so that 
it can be used for management and analysis purposes. It is 
essentially now an expenditure control system, not a 
performance management system. The panel commends CDBG for its 
recent efforts to upgrade the system and its data bases. The 
panel urges Congress to encourage CDBG to fully upgrade IDIS if 
performance-based management is to be taken seriously. And 
Congress should monitor CDBG's progress on this issue. If, in 
reality, this is going to be taken seriously, it needs some 
specific performance targets itself that are closely monitored.
    After careful review of the state-of-the-art in performance 
measurement, and extensive consultation with CDBG, grantee 
stakeholders and OMB, the panel proposed a set of performance 
measures for consideration by CDBG that would satisfy both PART 
and GPRA. While the panel was engaged in its effort, a Working 
Group comprised of CDBG staff, OMB staff, and grantee 
stakeholders developed their own set of performance measures, 
which is a far preferred outcome. The panel strongly supports 
this collaborative effort and urges the Congress and OMB to 
adopt both the process and the outcome measures produced by 
this Working Group.
    Finally, the panel is concerned about the leadership of the 
CDBG program. We acknowledge that OMB did not find fault with 
CDBG's management under PART. But, although the panel did not 
formally study this issue, it was clear that much of the 
controversy about the program, like performance measurement and 
a computer system, stem directly from a lack of attention in 
setting program direction and holding all parties accountable 
for performance, not just recently, but for years and perhaps 
decades. The panel believes that until the program becomes 
better led at all levels at HUD, it will continue to be the 
subject of controversy.
    The panel also believes that management issues resulted in 
part from the low national priority afforded community 
development. In spite of billions spent, there has been 
insufficient attention to what the funding is being spent on 
and its effectiveness. It is probably a good time for Congress 
and the administration to have a harder look at the Nation's 
urban policy goals and the role of CDBG. Debates about 
Strengthening America's Communities is a place to start.
    Mr. Chairman, thank you again for the opportunity to share 
our views. I would be pleased to answer any questions you might 
have.
    [The prepared statement of Mr. Downs follows:]

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    Mr. Turner. Thank you.
    Ms. Patt-McDaniel.

                STATEMENT OF LISA PATT-MCDANIEL

    Ms. Patt-McDaniel. Good morning, Mr. Chairman. My name is 
Lisa Patt-McDaniel. I am the assistant deputy director of the 
Community Development Division in the State of Ohio's Ohio 
Department of Development. The Division administers over $300 
million in Federal and State funds, including CDBG, CSBG, 
LIHEAP, HOPWA, HOME, and Emergency Shelter funds. I have been 
involved in developing outcome measures for Ohio community 
development programs and homeless programs, both Federal and 
State-funded, for the past 5 years.
    I am here today to testify about Community Development 
Block Grant outcome measures before your subcommittee on behalf 
of organizations that represent CDBG grantees: cities, 
counties, and States, along with elected official 
organizations. These organizations are listed in our written 
submissions.
    On behalf of our organizations, we would like to thank you 
for your interest in the CDBG program. We look forward to 
working with this subcommittee and the Subcommittee on Housing 
and Community Opportunity to address issues of concern about 
the CDBG program. We would also like to thank you for your 
leadership on other important community development issues, 
such as brownfields revitalization, planning and census issues, 
and the Saving America's Cities Coalition.
    You have received a copy of the Joint Grantee/HUD/OMB 
Consensus Document on Outcome Measures for the CDBG, HOME, 
HOPWA, and ESG programs. I would like to take this opportunity 
to explain to the subcommittee how and why this document came 
about, the rationale behind the chosen outcomes, and why we 
believe implementation of this outcome measurement system will 
benefit the CDBG program and its beneficiaries.
    Joint Consensus Document grew out of an outcome framework 
originally created by community development agency members of 
the Council of State Community Development Agencies [COSCDA]. 
We were assisted in our efforts by the Renssalaerville 
Institute, a nationally recognized expert in outcome framework 
thinking. Our goal was to develop common outcome measures that 
States could use in their programming that could also be 
reported to HUD and aggregated in useful ways that would enable 
us to tell Congress and our constituents of the results and 
benefits of the CDBG program, while at the same time 
encouraging our members to establish additional measures 
specifically for their own programs and initiatives.
    The national grantee organizations proposed to HUD and OMB 
that they join us in an innovative consensus building process 
that would build on the COSCDA framework and develop common 
outcome measures that all grantees--cities, counties, and 
States--could use and report on to HUD. Our goal was to answer 
the question: In what way can we best demonstrate that the CDBG 
program does achieve the results that Congress intended for the 
program?
    For our new outcome measurement system, we purposely 
developed outcomes and indicators for the four programs covered 
by the consolidated plan--CDBG, HOME, HOPWA, and ESG--because 
these programs often represent an integrated approach to 
addressing a community's or State's needs.
    Mr. Chairman, I am pleased to report that our Working Group 
succeeded. We found that indeed grantees at all levels of 
government do have common outcomes that we seek to achieve in 
our funding decisions and priorities. As you will see, these 
outcomes, decisions, and priorities are all clearly linked to 
the authorizing statute. To us, this means the program is 
working as Congress intended it to. The outcome measurement 
system is a way to understand how these outputs benefit the 
communities or low-income people participating in these 
projects and activities.
    Now I would like to explain the outcome measurement system 
a bit more.
    There is a flow chart on the screen that shows the way in 
which the outcomes of many of the activities of these four core 
community development programs can be reported. There are three 
overarching objectives, three outcome categories, and 17 output 
indicators. The three objectives are: creating a suitable 
living environment; providing decent affordable housing; and 
creating economic opportunities, which are directly taken from 
the CDBG statute, but also are applicable to the three other 
programs--HOME, ESG, and HOPWA--covered by the outcome 
measurement system.
    In general, suitable living environment relates to 
activities that are designed to benefit communities or the 
people who live there by addressing issues in their living 
environment. The objective of decent affordable housing would 
include activities that typically cover the wide range of 
housing assistance that is possible under HOME, HOPWA, or ESG. 
It focuses on housing programs where the purpose of the program 
is to meet an individual's, family's, or community's housing 
needs. The objective of creating economic opportunities applies 
to the types of activities related to economic development, 
commercial revitalization, or job creation.
    The outcome category ``availability/accessibility'' applies 
to activities which makes services, such as infrastructure, 
housing, and/or shelter available or accessible to low-income 
people. A key obstacle for low and moderate-income people is 
that basic community services and facilities are not available 
or accessible to them.
    The outcome category of ``affordability'' applies to 
activities which provide affordability of a tangible service or 
product in a variety of ways to low and moderate-income 
persons. Sometimes the outcome a grantee is seeking is to make 
an available community service more affordable to the low and 
moderate-income people where they live.
    Sustainability is the other outcome that has emerged as a 
common result of CDBG and other programs. This outcome applies 
to projects where the activities or activity are aimed at 
improving a neighborhood by helping to make it livable for low 
and moderate-income people, often times through multiple 
activities or providing a particular service that can sustain a 
section of the community.
    How will this outcome measurement system help the CDBG 
program? We believe that when this outcome measurement system 
is implemented, we will begin to more clearly tell Congress and 
OMB more about the benefits of CDBG and the other consolidated 
plan programs. Aggregating the results by outcomes can help 
Federal policymakers assess whether the statutory intent of the 
program is being met, and the system can be an important 
management tool at both the grantee and Federal level.
    If we all agree that achieving these outcomes will improve 
communities--and it appears that we do--we now have a common 
framework within which to assess our progress and results at 
the local, State, and Federal levels. And, certainly, our 
organizations and HUD can and should encourage grantees to 
develop specific outcomes and indicators for their own local 
initiatives.
    It is my understanding that this subcommittee is charged 
with addressing issues of government accountability. In that 
role, we would urge that in any report generated by this 
subcommittee about CDBG, that you recommend that this outcome 
measurement system be implemented as soon as possible. We also 
ask that Congress ensure that sufficient funding is available 
to modernize the IDIS system so that this new kind of reporting 
can be implemented with minimal burden to our grantees.
    Outcome measurement for the CDBG program will also shape 
how CDBG funds are spent, both in what kinds of activities are 
selected to be funded and how these decisions are made. The 
current CDBG statute authorizes a menu of eligible activities 
that recognizes the differences in the types of communities to 
be served by the program and provides communities with 
appropriate tools to address their unique problems.
    I appreciate the opportunity to talk to you today and am 
happy to answer any questions.
    [The prepared statement of Ms. Patt-McDaniel follows:]

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    Mr. Turner. Thank you.
    Ms. Crowley.

               STATEMENT OF SHEILA CROWLEY, PH.D.

    Ms. Crowley. Chairman Turner and Mr. Dent, thank you for 
the invitation to testify today.
    There can be no doubt that the Community Development Block 
Grant has been a force for enormous good at every low-income 
community in the country. The resources that the Federal 
Government has distributed through the CDBG program in the last 
30 years have contributed to the improved well-being of untold 
numbers of Americans.
    There is no policy justification for reducing the level of 
funding for CDBG. Moreover, the National Low Income Housing 
Coalition adamantly opposes the proposed consolidation of CDBG 
and 17 other programs in a single block grant housed at the 
Department of Commerce. However, any public program should be 
appraised periodically to assure that the program is responsive 
to contemporary needs and emerging problems.
    I want to take my time today to focus on two areas of 
potential change. The first has to do with accountability. As 
has been noted, OMB has been critical of CDBG based on the 
assessment that grantees cannot demonstrate results that have 
been achieved with CDBG funds. However, the congressional 
intent is that: grantees have wide latitude in how they choose 
to spend their funds; the range of eligible activities are 
considerable; the income targeting is higher than in other 
Federal housing and community development programs; the 
planning requirements are limited; and the reporting 
requirements are perfunctory.
    The 1974 Housing and Community Development Act, which 
created CDBG, also required the grantees prepare a Housing 
Assistance Plan, do housing plan; and that did in fact result 
in a linkage between housing needs and use of CDBG funds in the 
early years. However, in the 1980's, the HAPs were no longer 
required. Planning requirements were re-established in 1990 in 
the National Affordable Housing Act, with the creation of the 
Comprehensive Housing Affordable Strategy [CHAS]. The CHAS is 
the primary statutory basis for the consolidated plan, which 
HUD created in 1994.
    The consolidated plan streamlined what was required of 
entitlement jurisdictions to receive Federal Housing and 
Community Development funds. As has been noted, the Conplan 
combines into one document the CHAS and the annual applications 
for the four block grants. The intent of the Conplan was to 
increase both the autonomy and the accountability of 
entitlement jurisdictions in use of Federal block grants. The 
Conplan includes an assessment of the full range of housing and 
community development needs in the community submitting the 
Conplan.
    The Conplan has the potential of being a mechanism by which 
CDBG communities can be held more accountable for how their 
funds are used, but there are two serious flaws. The first--and 
this is a huge one--there is no statutory requirement that 
jurisdictions actually spend their Federal block grant dollars, 
including CDBG, on any of the needs that they identify in the 
Conplan. The second flaw is that HUD has limited capacity to 
monitor what jurisdictions do with their funds and hold 
jurisdictions accountable for less than adequate performance.
    HUD's work force was cut in half in the 1990's, without a 
concomitant reduction in HUD's statutory duties. Moreover, the 
political fallout from HUD challenging how a jurisdiction 
spends its funds has the potential of being unpleasant, to say 
the least. If Congress wants to assure that jurisdictions spend 
their Federal block grant dollars appropriately, HUD needs 
enough of the right staff who have the right authority to do 
so.
    Another improvement that would go a long way to making the 
CDBG program more effective would be to lower the income 
targeting requirements. Current income targeting is that 70 
percent of CDBG funds benefit people with incomes at or less 
than 80 percent of the area median. On a national basis, that 
is approximately $40,000 a year; it is $47,000 a year in 
Dayton, almost $53,000 a year in St. Louis, $49,000 a year in 
Allentown. The remaining 30 percent of the funds have no income 
limitations.
    One of the purposes of CDBG, as defined in the statute is 
the conservation expansion of the Nation's housing stock in 
order to provide a decent home and a suitable living 
environment for all persons. Currently, about a quarter of the 
CDBG funds are used for housing. According to the 2003 American 
Community Survey, on a national basis, there are 6.3 million 
households with incomes at or less than 30 percent of the area 
median who pay more than half of their income for their 
housing. This income group is by far those with the most 
serious housing problems, yet none of the Federal programs that 
provide funds for housing production, preservation, or 
rehabilitation are targeted to those with the most need.
    In the very least, all CDBG funds should be directed to 
benefit people with incomes at or less than 80 percent of area 
median income and further deeper income targeting of some 
portion of CDBG and a requirement that a greater portion of 
CDBG funds be used for housing are in order.
    Another way to more directly target the CDBG funds to needs 
would be to consider housing cost burden as a factor in the 
CDBG formula. Housing cost burden is by far the most serious 
housing problem today. The housing factors currently in the 
CDBG formula--overcrowding and the age of housing stock--are 
much less relevant indicators of need than they were 20 to 30 
years ago.
    Again, thank you for the opportunity to testify today.
    [The prepared statement of Ms. Crowley follows:]

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    Mr. Turner. Again, I want to thank each of you for your 
testimony, for the preparation that you put into this, for your 
coming here today and participating, and for all of the staff 
input.
    I want to begin my questions with something very general 
and broad, and go back to a question that I was asking Mr. 
Bernardi, about this whole process of measuring. Again, to 
reiterate, there is this philosophy of if you are not measuring 
it, you are not measuring it.
    But then there has to be the question of why are you 
measuring it. Are you measuring it for compliance? And here, 
with CDBG, we hear that the compliance requirements are very 
broad, so it certainly we will find some people who will be out 
of compliance and be able to move them back in. But generally 
the criteria appear to be so broad that measuring for 
compliance is not going to result in much usefulness in the 
information.
    Then there is measuring to prove effectiveness, and that is 
really can we prove in the measurement information that we have 
that this program is effective so that we can use that to 
justify the sustainability of the program. We can sustain the 
program by having measured it and improved its effectiveness, 
something that each of your testimonies identify as something 
that we are not quite yet able to achieve. And I appreciate all 
the work that you have done in trying to assist us in being 
able to prove the effectiveness through enhanced measuring.
    The next category would be measuring to enhance 
effectiveness. Once we get all this data and information, 
actually using it as a management tool so that we can look at 
what does it tell us about what uses of CDBG funds return the 
greatest impact on low and moderate-income families, what 
things have communities done that have not proved to be 
effective.
    And I am beginning this question, in part, from a comment 
at the end of Ms. Patt-McDaniel's testimony that says, ``If 
Congress is interested in addressing the issue of 
effectiveness, it should direct HUD to find ways to train local 
governments on best practices on community planning and citizen 
involvement in that kind of planning.'' I was surprised, in the 
testimony that we had from Mr. Bernardi, that there is not a 
significant amount of effort in reviewing consolidated plans 
and reviewing the information submitted by communities to 
assist and enhance them in their process of expending CDBG 
funds.
    So I am going to ask if each of you would comment on the 
issue of once we perfect this measurement, what should we be 
doing with the information.
    Mr. Schmitt.
    Mr. Schmitt. Thank you, Mr. Chairman. I think that is a 
great question. I believe in 1996, when we started, the purpose 
for the outcomes and performance measures was an educational 
tool for our nonprofits. Normally, most nonprofits do not 
receive the same as the private sector in wages, so, therefore, 
there is a lot of training going on. And it was a process of 
beginning to help to show the nonprofits what they were out 
there doing, where were they measuring their impact in the 
community and being able to report back to the board.
    I think that from that point it has evolved to another tool 
to exactly what you are talking about: what does it mean to the 
community; what is our overall in the community. I believe we 
are in the process of developing that right now, that the 
community can say, as in the case of the number of people in 
assisted living, in a population that is growing in age, it is 
a very critical item for us to continue focusing on, so it will 
become a tool of how effective we have been in the past in 
spending that money and where do we put more money as those 
percentages either slip or increase in that area.
    I hope I answered that question to you in what you were 
looking for in the answer.
    I do believe, in talk of best practices, that is the 
solution for this particular issue. In 1998 we won a best 
practices award for this program, and I don't believe that it 
has been marketed very well to the rest of the community. In my 
5 years as an elected official, there is tremendous great 
talent out there in our local communities to be able to teach 
and educate providers and other local governments, and I think 
through some of the national coalitions of groups best 
practices can be a great form of being able to pass this 
information on. My recommendation to our city council and our 
community is that we are not spending enough money on education 
to be able to find out what best practices have worked across 
the country and promoting those within our organization.
    Mr. Turner. Mr. Downs.
    Mr. Downs. Mr. Chairman, I think, as I said, there is a 
history at HUD of feeling that the Community Development Block 
Grant program is exempt from GPRA and PART, and I think in part 
it was a feeling on the part of the professional staff that the 
specific performance requirements would lead to micro-
management of a program that was intended to be community 
decision-based. I think that is an error on the part of the 
staff, and I think they are gradually disabusing themselves of 
the assumption that they are exempt from performance 
accounting. They are not; the law is clear.
    It is harder with Community Development Block Grant funds 
to develop performance measures, particularly outcome measures, 
not output measures. I think that the real argument for 
performance measurement with Community Development Block Grant 
funds is unless you can show the American public what the $4 
billion a year buys, they don't support it.
    And it is clear that this approach to it being a thousand 
flowers that we don't count leads to a vulnerability for the 
program. I think everybody agrees to the value itself of the 
program; it is the responsibility of HUD and the recipients to 
participate in a performance process.
    Not sounding cynical, but I would say that best practices 
has to start at HUD. The inability of the IDIS to absorb 
performance data cannot be overstated. It is basically an 
accounting system that is used to show where the money goes, it 
doesn't necessarily have the structure to support performance 
recording. It has been that way since the beginning, and to 
have some of the HUD staff that for years data simply comes in, 
it is untouched by human hands, it is put on a giant tape and 
shipped off to Suitland, MD for the archives. It is basically 
untouched by any human mind for analysis. I hope that is 
changing.
    This system is so fundamentally broken that the recipients 
know that they spend a lot of time and effort, including 
contractor time, to try to put together reporting requirements 
that go to HUD and go into a memory hold. That breeds cynicism, 
it breeds a lack of trust in the partnership between the 
national government and the local recipients. It has to be 
fixed. It has to be fixed for this program to actually have 
legitimate performance measures that are accepted both in the 
community and nationally.
    So if I was urging any state-of-the-art fix, it would start 
at HUD.
    Mr. Turner. Ms. Patt-McDaniel.
    Ms. Patt-McDaniel. Well, your initial question was are we 
measuring for compliance, are we measuring for effectiveness, 
are we measuring for enhancement of programs. I think that 
depends on the sophistication of the program. I would like to 
think that Ohio's State program is sophisticated enough that we 
are looking at the enhancement of what we are trying to do, 
because I believe that myself and my staff want to wake up 
every day knowing that we have spent the money in a way that 
has made a real difference in the constituents for the State.
    Also, whether or not HUD would have been asking us to come 
up with performance measures, the Department of Development is 
already deep into that process as a whole, using the balance 
scorecard, which is a particular model. But even before that we 
have a pretty intense citizen participation process that starts 
the minute we get our grant agreement for the current fiscal 
year, we start again going through our citizen participation 
process.
    I do believe that there is a need for technical assistance 
to local governments and States on how best to implement and 
look at performance measures and look at what the results are 
for their own management of the programs. Certainly, it is 
important to aggregate some key outcome factors so that you can 
assess whether we are meeting the statutory intent.
    But for any good administrator, they want to look at the 
performance measures to see are they making a difference in 
what they are trying to achieve, as well being in compliance, 
which is step one; effectiveness, basic effectiveness, which is 
step two. But, as I said, most importantly is once you become 
effetcive, you want to always be looking at what you are doing 
and can you do it better.
    So I guess I would say that it is important for us, whether 
we were being asked to do it or not, and I would have to agree 
that many of the States and the entitlements who are on the 
task force with me that COSCDA started, I would think that they 
all felt the same way, and that is why they were engaged in the 
task force.
    Mr. Turner. Ms. Crowley.
    Ms. Crowley. Well, I think that the question of 
effectiveness has to come back to intent. And you can't say you 
are going to measure effectiveness if you haven't started from 
the beginning saying what it is that you want to do. And part 
of the problem, as everybody has said, with the CDBG program is 
that it has this huge array of things that folks can do, and 
can do little bits of all of that or can concentrate on one 
thing or another.
    But is the amount of money that a jurisdiction gets from 
the CDBG program actually going to turn the tide on some 
specific problem that they have? First of all, it is 
questionable if there is enough money to do that, but the 
second thing is there has to be a conscious decision on behalf 
of the community to actually do that; and there is simply no 
requirement of that.
    My sort of metaphor for these kind of programs is if you go 
on bus tours through low-income neighborhoods and you find here 
is a block that has been completely renovated, and then there 
is a sea of blight, and then there is another house that is 
sort of brightly colored. And that is the effect of this, is 
that you have these little pieces of improvement, but that you 
don't have an overall systemic change that is going on in the 
community. And that would require that there be some 
expectation that in the planning process that communities 
actually pay attention to the structural problems in their 
community and make a very concerted effort to address those.
    Right now it is all over the place. Some folks have 
described it as Balkanized, that if you have a city council 
with nine members, and they all get a piece of the CDBG fund to 
spend in their jurisdiction, then there is no particular way to 
hold anybody accountable for what the outcome of that is.
    Mr. Turner. Thank you so much.
    Mr. Clay.
    Mr. Clay. Thank you, Mr. Chairman. Thank you for holding 
this hearing, as well.
    I want to thank both panels for being here today.
    Let me start with Mr. Downs. How are you?
    Mr. Downs. Fine. Good to see you again.
    Mr. Clay. You too. As you know, the fiscal year 2006 budget 
transfers CDBG to the Commerce Department and shifts the block 
grants focus away from community development toward economic 
development purposes. If Congress agreed to this proposal, 
wouldn't the types of performance measures being developed by 
HUD and stakeholders be useless under the new Department of 
Commerce administered block grants? Can you comment on that?
    Mr. Downs. No. I don't know the framework that they are 
actually proposing for legislative purpose within Commerce. I 
think if the program itself has the same framework of an open 
trust between the national government, State and local 
governments for broad purposes, which is the framework for 
this, it is based on an assumption about federalism, that you 
have to allow local decisionmakers to make decisions about 
their own communities, and that as a partnership, you would 
have the same dilemmas about reporting requirements around that 
performance, whether it was at HUD or at Commerce.
    It is unclear that you could use the current IDIS in any 
way, shape, fashion, or form in a broader arena, and it would 
probably mean rebuilding from the ground up a new information 
system at the national level.
    Mr. Clay. Thank you for that response.
    Dr. Crowley, you mentioned in your testimony that one of 
the methods Congress ought to study is the useless restrictive 
thresholds for income targeting among communities. Could you 
explain in greater detail how this would improve program 
accountability? Wouldn't this negatively impact the number of 
low and moderate-income persons the program is trying to 
assist? And do you see entire communities benefiting from a 
lower threshold, as opposed to neighborhoods or specific areas?
    Ms. Crowley. Well, I think if the intent is to improve the 
well-being of low-income communities and people in those 
communities, then the more deeply you can target the CDBG 
dollars, the better off you are. And at this point the 
targeting requirements, I think, are relatively broad, they are 
very high, much higher than any other of the programs that HUD 
administers, and I think they create the room for local elected 
officials to make decisions to spend CDBG dollars on things 
that some of us would consider questionable, you know, with 
this broad notion that somehow it is going to improve the 
overall community. I think the more targeted you can be, the 
more accountability you will get.
    Mr. Clay. So you are suggesting to target the funding, the 
block grants toward the lower income census tracks.
    Ms. Crowley. No, I am saying that all the funds should 
benefit people who are at low income, at least. At this point 
is only 70 percent of them. And that if you could more deeply 
target who benefits from the funds, not necessarily individual 
census tracks, but who benefits from the funds, then you would 
be better off.
    Mr. Clay. OK. Thank you for that response.
    Ms. McDaniel, a major concern with block grants like CDBG 
is that some communities are using Federal funds to supplant 
their local community development budgets, therefore not 
improving upon past development effort. Can you tell us what 
mechanisms, if any, have been included in the new outcome 
framework to ensure that CDBG funds do not supplant local 
program funding streams?
    Ms. Patt-McDaniel. Well, Congressman Clay, let me clarify 
for you that I am in a State program, so most of our 
communities don't have community development staffs. But from 
my knowledge of the block grant program broadly, all the 
activities that can be undertaken with community development 
block grant have to be done by somebody. So a small portion of 
those funds in any activity are going to go to the labor of 
getting it accomplished, whether that is housing rehab, 
downtown revitalization, public service.
    In the outcome framework, we were looking at actual 
benefits of what we did, and not what percentage of that 
particular activity would end up paying for staff time.
    Mr. Clay. Excuse me. What parts of the outcome do you 
really favor, I mean, does it create jobs, does it create 
beautification in the community? Which parts do you favor?
    Ms. Patt-McDaniel. Do I favor?
    Mr. Clay. Yes. Or do you like to see accomplished, so to 
say.
    Ms. Patt-McDaniel. Well, the beauty of the Community 
Development Block Grant program is its incredible flexibility. 
But everything that is done under the program comes down to the 
three overarching objectives, which is: creating a suitable 
living environment, creating decent affordable housing, or 
creating economic opportunity.
    And I would put forth that community development requires 
all three of those things to be successful, and programs in--
and this is my own opinion--in programs that spend their block 
grant in only one of the three areas, unless they have 
resources to address the other two areas, you are not going to 
be able to turn the corner, as was said, in getting an area to 
prosper.
    And I can't say that I favor one over the other; I think 
all three are important and have to be addressed, whether it is 
addressed with Community Development Block Grant, whether you 
are using HOME or State funds. It has to be a comprehensive 
effort.
    Mr. Clay. Thank you for that response.
    Thank you, Mr. Chairman.
    Mr. Turner. Mr. Dent.
    Mr. Dent. Thank you, Mr. Chairman.
    Good afternoon. In your written testimony, Ms. Crowley, you 
state, in reference to the consolidated plan, ``If Congress 
wants HUD to assure that jurisdictions spend their Federal 
block grant dollars appropriately, HUD needs enough of the 
right staff who have the right authority to be able to do so.'' 
Is it your opinion that HUD does have enough staff to 
undertaken this particular task?
    Ms. Crowley. Well, I haven't done any careful study of the 
HUD manpower stuff, but I can tell you that it did see a rapid 
downsizing of HUD in the 1990's with no change in what it is 
that HUD was supposed to do. So something has to give 
someplace. And I think that it would be time and money well 
spent to actually look at what it is that Congress requires HUD 
to do, expects HUD to do, and what the staffing patterns are 
that need to be in place in order to carry that out. And it 
seems self-evident that there is a mismatch on that at this 
point.
    The other thing is that in terms of the use of the funds, 
HUD staff are very limited in what they can do to effect 
consequences on jurisdictions that don't use the funds 
effectively or appropriately. There is very little that HUD can 
actually do with that. They probably could do more than they 
do, but actually they have very little authority to carry that 
out.
    Mr. Dent. So you are saying the compliance staff lacks 
authority?
    Ms. Crowley. The basis upon which you can disapprove a 
consolidated plan, there is a broad thing about how it not 
being consistent with the intent of the statute, but that is 
huge. So it would be very hard to do that. And then the other 
way you can disapprove is that it is substantially incomplete, 
which is that you haven't filled out every form and you haven't 
gone through every step that is required, and you haven't 
signed every certification, and those kinds of things.
    But that is sort of like can you complete the package, as 
opposed to is what you are proposing to do in the packet does 
it mean anything. So I think that there are some limitations on 
what it is that HUD can do.
    Having said that, there is a lot more that HUD could do. I 
think that we have utterly forgotten the fair housing 
requirements that jurisdictions have, and HUD's responsibility 
to assure the affirmatively furthering of fair housing. Many of 
the issues that need to be resolved in terms of housing in 
community development have fair housing implications, and if we 
had those programs better integrated, those processes better 
integrated, HUD may in fact be able to exercise more authority.
    But nobody really wants HUD to exercise much authority. We 
want them to hold people accountable, but we also don't want 
them to rock the boat. So I think HUD staff are sort of in a 
really precarious position under any administration.
    Mr. Dent. You have also suggested that there should be 
consequences for failure. Failure by whom, HUD for not 
monitoring closely enough, for the grantees, or for both?
    Ms. Crowley. Well, I think that consequences for failure 
mean that you somehow or another don't use your funds for what 
you are supposed to do and you can't in any way demonstrate 
that you are going to, that the funds are going to what it is 
that they are supposed to go to. That is simply a matter of 
monitoring and being able to determine precisely what happens 
with that.
    Part of the problem is that we give money to jurisdictions 
and then jurisdictions subcontract with other folks to be able 
to do that. There are levels and layers of accountability that 
need to be in place. But the reality is that the grants go out 
year after year without anybody really checking on that.
    I am not saying that should be used as a reason not to have 
the grants. I am saying what we should do is have a system in 
place so that there is a way for us to be assured that the 
money is being used as effectively as possible.
    Mr. Dent. What consequences would you suggest that Congress 
enact?
    Ms. Crowley. Well, I think a basic thing that Congress 
could do that would be essential is to tie the expectation that 
you actually spend your dollars on what it is that you identify 
are the biggest problems in your community. And that would be a 
consulting process with everybody in your community, that you 
actually engage in a genuine, serious citizen participation 
process; that there be actual consultation with a wide range of 
folks; and that you come to some agreement about what it is you 
want to tackle this year and then the next 5 years, and how 
your dollars can best be spent.
    There is no reason why Congress can't do that. That 
interferes with the notion of local autonomy making decisions, 
but you are actually not taking away autonomy, you are simply 
asking people to use their autonomy in a more effective and 
targeted way.
    Mr. Dent. Thank you.
    No further questions.
    Mr. Turner. Mr. Schmitt, in your testimony you talked about 
the successes of your community and the processes that you put 
in place for approving CDBG funds. You talked about previous 
inequities. I would love to hear some anecdotal statements 
about some of those inequities that you saw.
    And then I would like you to go into, if you would, the 
issue of have there been requests for funding that this process 
has resulted in rejecting? And whether or not this process has 
resulted in identifying some activities or uses that are 
currently eligible under the act that your community is not 
likely to fund.
    And I am going to broaden the question as it goes to the 
rest of the panel and I am going to tell you what that is so 
you can understand the other point that I am interested in 
here, and that is one of the things we tout with CDBG is local 
control and the issue of flexibility. When we talk about 
effectiveness, Mr. Downs, as you had said, to prove that these 
$4 billion plus funds are being used in a way that is 
beneficial for taxpayers, we inevitably come to the conclusion 
that there is some difficulty in measuring something that is so 
broad.
    So my question goes to in balancing flexibility and then 
the reality of knowing that we have to have accountability, is 
the program too broad? And if it is too broad, do you have some 
thoughts in areas where the fact that the scope is so broad 
might be able to be improved?
    So, Mr. Schmitt, the inequities, any applications that are 
rejected, and the issue of activities or uses that are not 
likely to be seen favorably with your community.
    Mr. Schmitt. Thank you, Mr. Chair. The issue of inequities, 
each community--the three entities: Reno, Sparks, and Washoe 
County--would have as many as 50 to 60 service providers that 
would be submitting applications all roughly the same time 
period of the year for funding. If you were the last entity--
and usually the city of Sparks would be the last entity to do 
their funding--the applicants would come forward and say, well, 
the city of Reno and Washoe County gave us funding, so if you 
want to see your citizens' of Sparks services taken care of, 
you need to fund us also.
    In many cases we only had $100,000 in the city of Sparks, 
and we would have as many as 50 applications for those moneys. 
So it would become that in order to make sure that the 
residents of our community in the coalition got funded, the 
CDBG money was funded, we would have to give them a little bit 
of money, which meant that 50 agencies were getting $100,000, 
which meant that probably most of that money was going to staff 
members filing the quarterly reports and trying to take care of 
the reporting process.
    Also, agencies would come forward and say we didn't get 
funding from Reno or Washoe County, and if you don't give us 
funding, we are going to have to close our doors, which then 
put the burden on one community. It kind of created a circuit 
ride, if you will, of people going around to the agencies. With 
each office being no more than 5 miles apart from one another, 
it made it very inequitable. And some organizations that had 
good lobbying firms would be able to get the higher percentage 
of the funds from each of the communities, and some agencies 
who were really struggling and didn't have the professional 
staff to do that would not receive any money.
    And by all the three entities coming together and turning 
it to a citizens group, a focus group to be able to take care 
of that, a lot of those issues got worked on out.
    The issue of getting rejected, in the 9-years this process 
has been going forward, there have been several agencies that 
have been rejected for their funding, and it is because we now 
have in place what is called a scoring system. Throughout the 
process, each application is scored. If they don't receive a 
passing score, then their application is most likely to get 
rejected. It could still be in the pile for help improvement, 
if we felt that there was some motivation of the management 
there in the agency to be improved, then they could get some 
funding on it.
    After 9 years of this process, we see very little 
applications coming forward to the staff because the process is 
known throughout the nonprofit community that they don't apply 
for these funds if they are not eligible for the funds. So I 
believe that probably everything under the CDBG program is 
eligible, but we don't have all the applications come forward; 
they won't come forward because it is so well known throughout 
the community of what that process is and what those moneys are 
eligible for.
    I believe very strongly in the issue of local control, of 
being able to control the funds that are there. In many 
communities I think it is used very, very wisely. The citizens 
can come forward and talk about those, the elected officials 
can come forward and talk about it. It does become a political 
situation at times that you have certain things in the 
community, but I think most elected officials understand the 
good of the whole and will work for the common good and 
distribute from those funds.
    Accountability, we have had that throughout the very 
beginning. We ask our service providers to be accountable and 
we are also asking our councils and our elected officials to be 
accountable to the community for those funds, and we think we 
have built in some safeguards to be able to have that 
accountability.
    Mr. Turner. Mr. Downs.
    Mr. Downs. Part of the genius of the program is its breadth 
of decisionmaking that allows State and local jurisdictions to 
solve problems that are unique within their community. And we 
have discovered long ago that there is a fundamental difference 
been Minot, ND and Miami. That is built into the program.
    What is not built into the program, and what is causing it 
grief now, is an easy way for communities to articulate their 
program and their plan in an information system that is easily 
accessible for those recipients at HUD and that the reporting 
for performance and outcomes is pretty easy and transparent for 
those jurisdictions.
    It is not unusual, apparently, for some communities to have 
four or five people who do nothing but data management, 
manipulation, and entry. That is dead loss overhead for the 
program. The lack of that information system at HUD doesn't 
allow best practices to rise to the top so that HUD can push it 
back out and say look at what Minot did in this area; this is 
something that you ought to think about about how you use your 
own funds.
    If this communication process between the recipients and 
the national government stays as broken as it is, you cannot 
get realistic, timely, painless performance outcomes. You can't 
hold the communities accountable for what they are producing 
because you don't know what the information is.
    And you can't help them understand what is new and creative 
that people are using around the rest of the country. That 
system is so critical, and it ought to be ease of access, it 
ought to be transparent, it ought to be programmable so that 
you fill in a screen, it has categories not unlike this on a 
screen, you hit enter, it goes to HUD. They can then pull this 
data back and begin to give feedback back about you are not 
living up to your plan. It says here you are supposed to do X 
and Y. You are only doing X. Why is that? That system doesn't 
exist at the national level.
    The information won't set all of us free of these 
criticisms, but facts actually help in the decisionmaking 
process here.
    Ms. Patt-McDaniel. OK, well, why the statutory purposes of 
this program haven't changed. As community problems have 
changed and new community problems have come up, Congress has 
added new eligible activities over time like brownfields, 
energy efficiency, economic opportunity. These get added to the 
program and make more eligible activities.
    But certainly not every community eligible for block grants 
needs assistance with all those issues and chooses to do all 
those activities. But this approach recognizes that a broad 
menu of activities must be available in order for communities 
to address their community development needs.
    So, with that, I think Congress got that part right. I 
think you will find that--and I need to clarify that I am in a 
State program. The State, the way we run our program, is so 
much different from the way the city of Dayton would run its 
program. But, in general, I would surmise that most grantees, 
whether they are States or whether they are cities or counties, 
are doing a menu of a few of those activities where they are 
trying to get accomplishments. So in that effect it is not too 
broad. They are picking out of that broad menu a group of 
activities that they need for their community.
    In the State of Ohio we have 10 programs across the four 
funding sources that are our primary things that we are trying 
to achieve. And this is a problem with performance measurement. 
There are some key factors that we can roll up nationally that 
might be able to tell you about those programs, but really the 
performance measures in my mind that are going to matter the 
most are the ones that a local community, a county, or a State 
put on themselves based on the narrow group of activities they 
have chosen to do out of the program. And then those outcome 
measurements is what will provide the accountability to how 
that money was spent and what we are trying to achieve.
    So I don't think that the Community Development Block Grant 
is too broad. I think it is broad in that it gives you several 
opportunities to address your community's needs. And every 
community is different. You know that what was important in the 
city of Dayton is not necessarily what was important in the 
city of Columbus or in the city of Cleveland, or in some of the 
smaller communities.
    So I think local communities need to have that flexibility 
to figure out what is unique about their community, what do 
they need to achieve. And then they should have measurements on 
what they need to achieve, and that is how you should look to 
see how effective the program is.
    As I said, there are some key outcomes that can be rolled 
up to the national level that may be able to tell you about the 
effectiveness of the program, but even more so it is those 
local performance measures that are going to tell you locally 
whether that particular program is being effective in what it 
is trying to achieve.
    Ms. Crowley. In terms of the number or the breadth of 
activities, I think the other panelists are right that it has 
to be decisions that are made at the local level. However, I 
think you could probably fine tune it a bit to make sure that 
you do not allow things that are standard municipal functions 
anyway. So if you can afford to do sewers and sidewalks in rich 
neighborhoods, you shouldn't be spending your CDBG dollars to 
do sewers and sidewalks in poor neighborhoods. You should be 
spending your general fund dollars to do that.
    So I think that where you can differentiate on what are the 
things that the jurisdiction would do anyway, and how does CDBG 
add to some things that the jurisdiction couldn't normally do, 
wouldn't normally do for all of its citizens to be able to 
benefit, to improve the well-being of low-income folks.
    I do think, as I said, that there is too much flexibility 
in the income targeting and that you could help a lot if you 
reduce that. The thing that I think will ultimately make a 
difference, though, is if there is a much better process for 
the local decisionmaking to occur.
    And we struggle with all sorts of different ways to do that 
because there is 1,100 different jurisdictions and there is a 
wide range of talent and skill and capacity at the local level, 
on staff and of local elected officials. Some people can do 
this very well and other people botch it completely. The folks 
from Nevada sound like it is just wonderful, and I wish you 
could replicate that all over the place.
    And, of course, then everybody says, well, if they don't do 
it right, then we want HUD to make them to do it right. Well, 
HUD can't make them do it right; it doesn't have the power, the 
authority, or the manpower to do that, or doesn't have the 
ability to track everything that is going on.
    One thought that folks have raised and that we have talked 
about--that seems a little pie-in-the-sky, but now that we are 
talking about it, I will raise it--is the idea of creating some 
sort of alternative force at the local level that was funded by 
HUD so that there would be money going directly to some 
community entity whose job it was to basically monitor what 
happened with Federal funds in that jurisdiction.
    Do you spend your public housing dollars right? Do you 
spend your vouchers right? Do you actually do what it is that 
the Federal Government intends you to do with these? And to 
actually have a monitoring and collaborative process that, 
first of all, folks would know that there is somebody watching 
and, second of all, there is somebody to elevate attention to 
that from HUD officials if in fact that is warranted.
    That is a pretty loose idea at this point, but it may be a 
way of getting at the kind of dilemma that you have articulated 
with local flexibility and then how do you make folks 
accountable.
    Mr. Turner. I just want to acknowledge that I think you 
have made a very important point when you mentioned the 
infrastructure expenditures. If there is a government function 
that the government is going to do anyway, but yet they 
sequester or shell game, if you will, the use of CDBG funds for 
a function that doesn't really advance the low and moderate-
income community, you are going to diminish the effectiveness 
of the program.
    If there is something that you are going to pay for in 
areas of your community that you don't have poverty, but you 
use CDBG funds to do that in the area where you have poverty, 
you are supplanting your own government functions with Federal 
dollars that are intended to advance your impoverished areas; 
to eliminate blight, to actually improve the conditions and not 
just be a budgetary line item where you go to a pot of money to 
let the Federal Government take responsibility for where you 
are taking responsibility for the whole rest of the city.
    Ms. Crowley. Right.
    Mr. Turner. And I think that is a very important point. I 
don't know exactly how to get to that, but I know that there is 
a sense that does occur in some communities, and you have to 
acknowledge that there are people who do have that concern 
about CDBG moneys.
    Ms. Crowley. I think a rule of thumb would be if you can 
afford to put a tennis court in this neighborhood, you can 
afford to put a tennis court in this neighborhood. I think you 
look at where it is that has happened. Now, you know, what are 
the unintended consequences of those kinds of rules? We would 
have to think those through.
    Mr. Turner. Right. I think it is very difficult to capture 
from a policy perspective how you would address that. But that 
is a criticism that you do hear of CDBG.
    Does anyone else want to comment on this?
    Ms. Patt-McDaniel. Congressman Turner, I would like to 
respond to that, because I am also married to somebody who is 
in local government, and I don't know very many local 
governments right now who are operating at huge, huge 
surpluses, or even slight surpluses.
    And I am guessing that if you have a city--and I am trying 
to think of one in Ohio--which might be considered to have some 
nicer areas and some poorer areas, my guess is that a local 
government has a menu of infrastructure or parks, a whole menu 
of activities that they want to do, and they have resources. 
They have their own GRF, they have CDBG, they may have some 
State resources, but they have a variety of resources. But the 
total of those resources doesn't add up to all the 
infrastructure needs of that community.
    So it only makes good management sense to match the 
appropriate resource to the appropriate neighborhood so that if 
you have CDBG, you are in desperate need of replacing the 
sewer, which typically could be across the whole community, you 
are going to use the CDBG funds where you could benefit the low 
to moderate-income people and use the GRF in the areas where 
they may not make the low to moderate-income standards.
    And you may have some examples. I don't know of any 
communities in Ohio who are just spending their GRF in the 
richer areas of their community and using the CDBG because they 
have GRF that is sitting there in a surplus and using the CDBG 
to replace their infrastructure. And I am certainly not 
questioning that could be the case, but if that was the case, 
it was in the early 1990's, and certainly not now.
    So I don't know that is a key problem with the expenditure 
of CDBG funds, and I just wanted to comment on that.
    Mr. Turner. Ms. Patt-McDaniel, you have done an excellent 
job in responding to the complexity of the issue. I think it 
was important that Ms. Crowley make that statement because it 
is a concern that we do hear in communities where there is 
citizen participation. And there is in every community citizen 
participation with CDBG fund expenditure.
    But during that process you do hear what Ms. Crowley said 
in that process, that some people are concerned as to how those 
funds are utilized with respect to general operating funds. And 
you very well articulated that there is not a great surplus of 
those sitting around, so a community is trying to balance all 
its needs and resources.
    But I do think the point-counterpoint, if you will, of the 
issues that you two have just described was very important for 
us to discuss, because it is something that you do hear in 
community activist discussions about CDBG and its 
effectiveness.
    Mr. Schmitt or Mr. Downs, do you have anything you would 
like to comment on that?
    Mr. Schmitt. I would be more than happy to, Mr. Chairman.
    In the State of Nevada, city of Sparks, we only have 
basically two sources of revenues for local government: 
property taxes and sales taxes. And I've given an example of 
where taxes are generated and taxes are consumed. I have just 
approved a new police beat, in fact, the first police beat for 
a residential neighborhood of approximately 5,000 homes that 
started in 1994, and we now have our first cop that is in that 
area, because the need wasn't there, but it is homes of 
$300,000 or $400,000.
    And the majority of our funds are consumed in our lower-
income neighborhoods, both in street repair, sewer repairs, 
police protection, fire protection, medical aid. So we already 
are funding to a great extent a lot of our funds are going to 
low-income and medium-income neighborhoods. So these funds are 
only being used to help supplement those costs, when we are 
already transferring revenues to those neighborhoods.
    Thank you, Mr. Chair.
    Mr. Turner. Mr. Downs.
    Mr. Downs. It is possible to establish with better data 
scorecards about how communities are actually spending their 
funds by category and by type, over time, which is impossible 
with the system right now. I am not sure that you need to 
control them, but you can make their decisions and outcomes 
more visible to the citzens of the communities, and even their 
State, about how individual jurisdictions are handling it.
    But the system has to be better than it is now, because you 
can't even get to a scorecard about how communities are 
defective or not about their expenditures. You could rank 
communities by percent of administrative cost. You could rank 
communities by how much of it they are putting into water and 
sewer or roads. You could rank them by how much they are 
putting into housing. You could do it by State, you could do it 
by region. None of that is available now in this system.
    Mr. Turner. I do not have any more questions, so I am going 
to ask if any of you have any other additional comments that 
you would like to place in the record as a result of the 
questions or comments that you have heard.
    Mr. Schmitt. Thank you very much, Mr. Chairman, and the 
entire panel for their time and dedication to this issue. It is 
a very important issue to our community and communities all 
over the Nation. I thank you for it.
    Mr. Downs. Thank you, Mr. Chairman.
    Ms. Patt-McDaniel. Thank you. And I think an outcomes 
framework will solve some of these problems and should be 
pushed.
    Ms. Crowley. Thank you for the invitation today.
    Mr. Turner. Well, I want to thank you all. I know that you 
have spent a tremendous amount of effort in preparing and time 
out of your daily lives to be here. I want to thank also the 
HUD for its participation in the earlier hearing.
    As we know, CDBG has been a key component in making our 
Nation's cities more viable. It has led to many triumphs cities 
have had over poverty and community development need. We can 
all agree the program provides vital funds to address urban 
critical needs. I appreciate the additional information that 
you have provided us as we look to the issue of the 
effectiveness and preserving CDBG. I want to thank you.
    And with that, we will be adjourned.
    [Whereupon, at 12:40 p.m., the subcommittee was adjourned.]
    [Additional information submitted for the hearing record 
follows:]

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