[Senate Hearing 109-964]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 109-964
 
                  COMMUNITY DEVELOPMENT BLOCK GRANTS: 
                          THE CASE FOR REFORM 
=======================================================================
                                HEARING

                               before the

                FEDERAL FINANCIAL MANAGEMENT, GOVERNMENT
                     INFORMATION, AND INTERNATIONAL
                         SECURITY SUBCOMMITTEE

                                 of the

                              COMMITTEE ON
                         HOMELAND SECURITY AND
                          GOVERNMENTAL AFFAIRS
                          UNITED STATES SENATE


                       ONE HUNDRED NINTH CONGRESS

                             SECOND SESSION

                               __________

                             JUNE 29, 2006

                               __________

        Available via http://www.access.gpo.gov/congress/senate

       Printed for the use of the Committee on Homeland Security
                        and Governmental Affairs
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        COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS

                   SUSAN M. COLLINS, Maine, Chairman
TED STEVENS, Alaska                  JOSEPH I. LIEBERMAN, Connecticut
GEORGE V. VOINOVICH, Ohio            CARL LEVIN, Michigan
NORM COLEMAN, Minnesota              DANIEL K. AKAKA, Hawaii
TOM COBURN, Oklahoma                 THOMAS R. CARPER, Delaware
LINCOLN D. CHAFEE, Rhode Island      MARK DAYTON, Minnesota
ROBERT F. BENNETT, Utah              FRANK LAUTENBERG, New Jersey
PETE V. DOMENICI, New Mexico         MARK PRYOR, Arkansas
JOHN W. WARNER, Virginia

           Michael D. Bopp, Staff Director and Chief Counsel
             Michael L. Alexander, Minority Staff Director
                  Trina Driessnack Tyrer, Chief Clerk


FEDERAL FINANCIAL MANAGEMENT, GOVERNMENT INFORMATION, AND INTERNATIONAL 
                         SECURITY SUBCOMMITTEE

                     TOM COBURN, Oklahoma, Chairman
TED STEVENS, Alaska                  THOMAS CARPER, Delaware
GEORGE V. VOINOVICH, Ohio            CARL LEVIN, Michigan
LINCOLN D. CHAFEE, Rhode Island      DANIEL K. AKAKA, Hawaii
ROBERT F. BENNETT, Utah              MARK DAYTON, Minnesota
PETE V. DOMENICI, New Mexico         FRANK LAUTENBERG, New Jersey
JOHN W. WARNER, Virginia             MARK PRYOR, Arkansas

                      Katy French, Staff Director
                 Sheila Murphy, Minority Staff Director
            John Kilvington, Minority Deputy Staff Director
                       Liz Scranton, Chief Clerk

























                            C O N T E N T S

                                 ------                                
Opening statements:
                                                                   Page
    Senator Coburn...............................................     1
    Senator Coleman..............................................     6
    Senator Akaka................................................     8
    Senator Carper...............................................    13

                               WITNESSES
                        Thursday, June 29, 2006

Hon. Pamela H. Patenaude, Assistance Secretary, Office of 
  Community Planning and Development, U.S. Department of Housing 
  and Urban Development, accompanied by Todd Richardson..........    10
Hon. Kenneth M. Donohue, Inspector General, Department of Housing 
  and Urban Development..........................................   110
Eileen Norcross, M.A., Senior Research Fellow for the Government 
  Accountability Project, Mercatus Center, George Mason 
  University.....................................................    25
Cardell Cooper, Executive Director, National Community 
  Development Association........................................    27

                     Alphabetical List of Witnesses

Cooper, Cardell:
    Testimony....................................................    27
    Prepared statement...........................................    79
Donohue, Hon. Kenneth M.:
    Testimony....................................................    11
    Prepared statement...........................................    44
Norcross, Eileen, M.A.:
    Testimony....................................................    25
    Prepared statement...........................................    53
Patenaude, Hon. Pamela H.:
    Testimony....................................................    10
    Prepared statement...........................................    39

                                APPENDIX

Questions and responses for the Record from:
    Ms. Patenaude................................................    88
    Ms. Norcross.................................................    97
    Mr. Cooper...................................................    99
Letters submitted for the record by Senator Coleman..............   100
National Association of Housing and Redevelopment Officials, 
  prepared statement.............................................   120
Charts submitted for the record by Senator Coburn................   131


        COMMUNITY DEVELOPMENT BLOCK GRANTS: THE CASE FOR REFORM

                              ----------                              


                        THURSDAY, JUNE 29, 2006

                                     U.S. Senate,  
            Subcommittee on Federal Financial Management,  
        Government Information, and International Security,
                            of the Committee on Homeland Security  
                                          and Governmental Affairs,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 2:30 p.m., in 
room SD-342, Dirksen Senate Office Building, Hon. Tom Coburn 
(Chairman of the Subcommittee) presiding.
    Present: Senators Coburn, Coleman, Carper, and Akaka.

              OPENING STATEMENT OF SENATOR COBURN

    Senator Coburn. The hearing will come to order.
    This is a hearing on Community Development Block Grants: 
The Case for Reform. It is not a hearing on the elimination of 
CDBG, in spite of the buttons I see out there, which leads me 
to conclude that oftentimes, when somebody wants to distort 
somebody's position that they may, in fact, have a problem.
    When you have a goal of flexibility and consensus, you will 
have different results than if you have your goal of 
accountability and efficiency, and when you allow those two 
separate things, you never get to what we are looking for, 
which is accountability. And I do not think we are going to 
have any of the witnesses' testimony today that is going to say 
they do not want accountability, and I do not think we are 
going to have any of the witnesses say they do not want 
transparency. And I am sure we are not going to hear any of the 
witnesses say we do not have results.
    So the purpose of this hearing is to have a frank and open 
discussion about how do we do the best job with the money that 
we put in CDBG to make the greatest different in the most 
number of people's lives who are deserving? That is what it is 
about. It is not about playing games. It is not about politics. 
It is about an honest look at: Can we do this better? Can we 
account for it better? Can we get better results? And can we 
measure those results?
    The Community Development Block Grant program is a 
multibillion-dollar program that has exceptional flexibility 
compared to most other grant programs. That is one of the 
reasons it is liked so well. It operated out of the Department 
of Housing and Urban Development. It gives local officials 
broad discretion on the use of funds for housing, economic 
development activities, social services, and infrastructure. 
The authorizing legislation requires that the activity meet one 
of the following goals: To principally benefit low and moderate 
income individuals; to eliminate or prevent slums; or remedy 
urgent threats to the health or safety of the community. That 
is what the legislation says.
    When the program first began in 1975, HUD advertised that 
CDBG funds could be used anywhere within a local government's 
jurisdiction to serve the needs of and provide better living 
environments for low and moderate income persons. This 
flexibility continues today, and it helps our communities meet 
localized needs that change on a case-by-case basis. That is a 
laudable goal. It is a great goal.
    Perhaps the first and most fundamental problem with the 
program is its lack of sunshine. And I want to redirect you to 
the accountability poster that this Subcommittee uses. When 
there is no sunshine, there is great opportunity for 
mischievous behavior. Transparency is the first and necessary 
step towards accountability. One of the interesting things our 
Subcommittee has found that we have asked for months to find 
out how CDBG funds are used, and no one can tell us. No one has 
accumulated all that. Nobody knows for total, if we take $3 
billion or $4 billion, where did it go? Nobody knows that 
answer.
    HUD does not compile this information, much less make the 
information available to the public. That lack of transparency 
is simply unacceptable in the fiscal situation that we find 
ourselves today. How can supporters make a serious claim that 
the program as a whole is accomplishing its goals when nobody 
knows how the money is spent? Nobody is measuring the goals.
    Not surprisingly, with no transparency, other performance 
problems are inevitable. Critics of Community Development Block 
Grants, and I am not a critic; I am supportive; I just want 
them to be more effective and more efficient, argue that while 
flexibility abounds, the program has no standardized outcome 
indicators, insufficient accountability, and it has ambiguity 
goals. In the 39 hearings I have chaired in this Subcommittee, 
I have found that when these factors coalesce within a Federal 
program, opportunities for waste, fraud, and abuse of tax 
dollars abound. For example, right here in Washington, DC, it 
has been reported $100 million in CDBG block grant funds were 
spent over a decade on revitalization projects, and there is 
little to nothing to show for it. That is $100 million.
    According to the Washington Post's assessment, the City's 
use of this Federal funding is characterized by overspending, 
cronyism, and conflicts of interest. Another example is CDBG 
funds were appropriated to help in the September 11 aftermath 
in New York City. But due to the program's lack of meaningful 
guidelines and enforcement, some of this desperately needed 
money went to fund very questionable projects that do not meet 
those three guidelines.
    Illustrating the lack of policy direction and management in 
the program, the Manhattan Institute reports that CDBG loans 
referred to as Section 108 loans have a 59 percent default 
rate. That is three out of every five loans default. Why are we 
looking at it? If that is the case, why are we not putting the 
loans into areas that will make a difference and continue to 
make a difference rather than default and make a short period 
different? Critics say that even though HUD has specific 
guidelines, transparency and oversight for its other lending 
programs under HUD, it has nothing similar for Section 108 
loans. For example, after the 1992 Los Angeles riots, the Los 
Angeles Community Development Bank was created with CDBG funds. 
In that came a $6 million loan that nobody would give to this 
group for any other thing, and in the end of that, they put $24 
million into it; lost all of it; and it closed with no effect, 
no positive long-term effect for the community that it was 
intended to help.
    A key flaw in the program, I believe, is its outdated 
funding formula. These formulas have not been updated since the 
midseventies, meaning the program has not updated its funding 
structure to reflect changes in poverty or community 
realization and need over the last 30 years. The grants are not 
consistently targeted to communities in need, and as a result, 
there are numerous funding anomalies. For example, the posters 
to my right, to your left,\1\ shows a great example: Temple, 
Texas has under $20,000 per year per capita income; receives 
$15 per capita in CDBG block grant funds. Then, if you look at 
Oak Park, Illinois, where they have almost double the per 
capita income, and they have $39 per capita in CDBG block 
grants.
---------------------------------------------------------------------------
    \1\ The charts referred to appears in the Appendix on page 131.
---------------------------------------------------------------------------
    Now, if we go back to what the program was intended for, to 
help poor and moderately low-income communities to help an ever 
present health situation, how do we meet that when you see 
these kind of funding disparities? You can also see that 
Newton, Massachusetts, has three times the income of Hopewell, 
Virginia, but this wealthy community receives three times more 
CDBG funding per capita than Hopewell. These are just two of 
hundreds of examples that we have discovered as we have gone 
through and looked at this program, illustrating that different 
communities are receiving the exact opposite of funds that you 
would expect from the requirements of the legislation that 
authorizes this program.
    We all know that the communities that we live in have 
changed in the past few decades. Some have improved 
miraculously. Some have declined. There is no way for a 
community that was needy in the seventies but is now wealthier 
to graduate out of the program. Once a community is placed on 
the list, no matter how wealthy the community becomes over 
time, it is guaranteed a funding of CDBG block grants, no 
matter what: Even if it has no need, it is still guaranteed. 
And that means that somebody who has a more legitimate need is 
denied those funds.
    I value the goals of this program. I have several 
questions, and when we get into full transparency, where anyone 
can see on a public website how the money is spent; that is 
called accountability, and anybody who wants this program to 
survive and grow cannot adequately create a case to oppose 
sunshine for where the money is spent. When will the program 
adopt standardized performance measures that have teeth with 
the ability to compare success from city to city? I think the 
program is overdue for some reform. I believe the funds must be 
targeted based on need, which means the formulas need to be 
revised. I believe there needs to be transparency in 
enforcement of the planned use of grants under this program, 
which means that you have to publish a community's proposal and 
the actual disbursements so that the community, as well as 
everybody else, can see where the money went.
    Potential waste, fraud, and abuse of funds needs to be 
averted before high risk plans are enacted and undertaken 
rather than afterwards. Funding must be conditioned also on 
performance. Performance measures need to be better defined, 
and grantees that consistently fail to perform need to face 
real and immediate consequences and maybe intervention, not 
taking away the money but intervention to show them how to use 
the money better. The question is not to eliminate CDBG but to 
make the dollars be more effective in the original intent of 
the authorizing legislation.
    Since 2000, the Administration, to its credit, has 
identified these program weaknesses and has attempted some 
reform. But these attempts have been met with open hostility in 
Congress. I am afraid that many of my colleagues view the 
program as an entitlement for their home districts. Last month, 
HUD delivered the latest Community Development Block Grant 
reform proposal to Congress. I hope that Congress will take our 
responsibility to Americans seriously and work to make this 
program for the needy communities it was created to help. As 
more and more accounts of waste and abuse surface, we simply 
cannot neglect our duty to the next generation in favor of the 
next election.
    [The prepared statement of Senator Coburn follows:]
                  PREPARED STATEMENT OF SENATOR COBURN
    The Community Development Block Grant (CDBG) program is a multi-
billion dollar program that has exceptional flexibility compared to 
most other grant programs. Operated out of the Department of Housing 
and Urban Development (HUD), CDBG gives local officials broad 
discretion on the use of the funds for housing, economic development 
activities, social services, and infrastructure. The authorizing 
legislation requires that the activity meet one of the following goals: 
To principally benefit low- and moderate-income individuals, eliminate 
or prevent slums, or remedy urgent threats to the health or safety of 
the community. When the program first began in 1975, HUD advertised 
that CDBG funds could be used anywhere within a local government's 
jurisdiction to serve the needs of and provide better living 
environments for low- and moderate-income persons. This flexibility 
continues today, and it helps communities meet localized needs that 
change on a case by case basis.
    Perhaps the first and most fundamental problem with the program is 
the lack of sunshine. Transparency is the first and necessary step 
towards accountability. We asked for months to fund out how CDBG funds 
are used and no one knows. HUD does not compile this information, much 
less make that information public. That lack of transparency is simply 
unacceptable. How can supporters make a serious claim that the program 
as a whole is accomplishing its goals when nobody knows how the money 
is spent.
    Without transparency other performance problems are inevitable. 
Critics of Community Development Block Grants argue that while 
flexibility abounds, the program has ambiguous goals, insufficient 
accountability, and lacks standardized outcome indicators. In the 39 
hearings I have chaired in this Subcommittee, I have found that when 
these factors coalesce within a Federal program, opportunities for 
waste, frauds, and abuse of tax dollars abound. For example, right here 
in Washington, DC, the Washington Post reported in 2002 that more than 
$100 million in CDBG funds were spent over a decade on revitalization 
projects--and there is little to show for it. According to the Post's 
assessment, the city's use of this Federal funding is characterized by 
overspending, cronyism, and conflicts of interest. As another example, 
CDBG funds were appropriated to rebuild New York City in the aftermath 
of 9/11, but due to the program's lack of meaningful guidelines and 
enforcement, some of this desperately needed money went to fund 
questionable projects like the Tribeca Film Festival.
    Illustrating the lack of policy direction and management in the 
program, the Manhattan Institute reports that CDBG loans, referred to 
as Section 108 loans, have a 59 percent default rate. Critics say that 
even though HUD has specific guidelines, transparency and oversight for 
its other lending program, they have nothing similar for Section 108 
loans. For example, after the 1992 Los Angeles riots, the Los Angeles 
Community Development Bank was created using CDBG funds. This program 
initially awarded a $6 million loan to an individual who was turned 
down by every commercial lender he met with due to his extremely risky 
business plan. Violating its own spending limit, the CDBG funded bank 
ended up pouring $24 million dollars into this unsound business in a 
misguided attempt to keep the business afloat. While politicians were 
congratulating themselves, the business defaulted and was forced to 
shut down. Two-thirds of the businesses assisted through this loan 
program failed to create the required number of jobs and only a meager 
11 percent created jobs that went to the area's residents.
    A key flaw in the program is the outdated funding formula. These 
formulas haven't been updated since the 70's--meaning the program has 
not updated its funding structure to reflect changes in poverty over 
the past 30 years. The grants are not consistently targeted to 
communities in need, and as a result, there are numerous funding 
anomalies. For example, Temple, Texas has just under $20,000 per capita 
income and receives $15 per capita in CDBG funds. But Oak Park, 
Illinois has almost double the average per capita income of Temple and 
receives $39 per capita from the program. Newton, Massachusetts has 
three times the income level of Hopewell, Virginia but this community 
receives three times more CDBG funding per capita. These are just two 
of hundreds of examples illustrating that different communities are 
receiving the exact opposite amount of funds you'd expect.
    We all know that the communities we live in have changed in the 
past few decades--some have improved, some have deteriorated. There's 
no way for a community that was needy in the 70's but is now wealthy to 
``graduate'' from the program. Once a community is placed on the list, 
no matter how wealthy the community becomes over time, it is guaranteed 
a portion of the CDBG funding every year.
    Even though I value the goals of the program, I have several 
questions. When will we get full transparency with a public website 
where anyone can see how the money is spent? When will the program 
adopt standardized performance measures to be used in comparing 
successes from city to city? The program is long overdue for meaningful 
reform. There are several key points that must be addressed in order 
for this program to be both effective and accountable.

      Funds must be targeted based on need. This means the 
formulas need to be updated and wealthy communities need to graduate 
from eligibility.
      There must be transparency and enforcement of the planned 
use of grants under this program--publish a community's proposal and 
actual disbursements on a public website. HUD needs to provide 
consistent oversight and transparent monitoring of what goes into a 
plan and how it is carried out. Communities must be able to comment on 
a grantee's planned use of CDBG funds. Potential waste, fraud, and 
abuse of funds need to be averted before high-risk plans are enacted.
      Funding must be conditioned on performance. Performance 
measures need to be better defined, and grantees that consistently fail 
to perform need to face real and immediate consequences.

    Since 2000, the Administration, to its credit, has identified these 
program weaknesses and attempted reform. But, these attempts have been 
met with open hostility in Congress. I'm afraid that many of my 
colleagues view the program as an entitlement for their home districts. 
Last month, HUD delivered the latest Community Development Block Grant 
reform proposal to Congress. I hope that Congress will take our 
responsibility to Americans seriously and finally make this program 
work for the needy communities it was created to help. As more and more 
accounts of waste and abuse surface, we simply cannot neglect our duty 
to the next generation in favor of the next election.
    I want to thank all the witnesses for being with us here today. I 
look forward to hearing your testimony.

    Senator Coburn. I want to personally thank all of our 
witnesses for being here and the efforts that you put into your 
testimony. I welcome my two companions on the panel, and I will 
go on the order of first here, first to speak. Senator Coleman, 
you are recognized.

              OPENING STATEMENT OF SENATOR COLEMAN

    Senator Coleman. Thank you very much, Mr. Chairman. Let me 
first start by applauding your passion and your focus to deal 
with fraud and to try to ensure transparency and accountability 
in government programs. In your time in the Senate, you have 
been a true champion. As a former prosecutor, and as the 
Chairman of the Permanent Subcommittee on Investigations, I 
think if we totaled it up, we would identify about $11 billion 
in fraud and mismanagement that we have been in the process of 
correcting, and by the way, even for government, that is a lot 
of money.
    I share a similar passion, and I also am appreciative of 
what you stated that the goal here is not to eliminate CDBG. I 
think we all agree on that. But a couple of observations, and I 
have a fuller statement I will enter into the record. No 
program is sacrosanct. Clearly, spending government dollars, 
there needs to be accountability. There needs to be 
transparency. I would like to commend the efforts of the HUD 
Inspector General to fight CDBG waste, fraud, and abuse. There 
are bad characters who fail their communities through criminal 
acts, and we have to kind of root those out. There is no 
question about that.
    My concern is, and let me just be very blunt here: For 
those of us who have seen CDBG work, as a former mayor, and I 
have, and we have seen the incredible positive things that they 
do in communities, urban communities, rural communities, that 
without them, we would lose the opportunity for jobs. We would 
lose the opportunity for economic development. Our communities 
would be much worse off. This is an important program. And part 
of the concern as we look at the last year, where the 
Administration was, for instance, last year, which was 
essentially to combine CDBG, kind of lump it in with a number 
of programs, that raises, I think, a degree of cynicism out 
there as to what the intention is towards this program, which 
across the board, and I appreciate the Assistant Secretary 
being with us today; my colleagues have spoken loud and clear. 
I think we had 65-plus votes last year to oppose the 
Administration's proposal to essentially eliminate CDBG at 
least in its present form by combining it with a multitude of 
other programs and cutting its funding.
    So you have a very clear will of the Congress here, which 
is not inconsistent with anything the Chairman has talked 
about. Those of us who are passionate about this program and 
who know its successes are also passionate about it working 
effectively. And so, the issue becomes how do you do that? How 
do you get there? One of the challenges that we have that if we 
make any changes, and I am very sensitive as a former mayor, is 
you have to look at the impact it has on communities and give 
people the opportunity to kind of weigh that and to measure it. 
And if we are going to change it, you have to understand that.
    I am a great believer in public-private partnership. I am a 
great believer in folks working together. We have had 
cooperation between OMB, HUD, CDBG stakeholders, and they have 
produced an increased, improved performance system. We have to 
get about implementing that, that improved performance system, 
and improved performance measures. But I have serious 
reservations with HUD's reform plan. I have serious 
reservations with respect to the formula change. I have serious 
reservations with respect to the minimum grant threshold 
proposals. I would hope that we would, as we go about doing the 
reform that we all agree needs to take place, we want a better 
system, that we work closely with the shareholders; that we 
work closely with those who are impacted, and we figure out the 
right way to do it. We just want to do it the right way here.
    [The prepared statement of Senator Coleman follows:]
                 PREPARED STATEMENT OF SENATOR COLEMAN
    Thank you Mr. Chairman. I appreciate the opportunity to be a part 
of this hearing on a most important program for communities all across 
this country.
    Mr. Chairman, as you know, I have been a strong champion of the 
Community Development Block Grant (CDBG) program. I come to this 
afternoon's hearing to tout the vital importance of this program to our 
communities. CDBG is a community development program that helps State 
and local governments tackle their most serious community development 
challenges. CDBG and public-private partnerships like it are the 
cornerstone for the economic revitalization occurring across the 
country and in many of our urban and rural communities in recent years.
    But just as importantly I also come to this hearing as someone who 
believes any government program can improve its performance and 
accountability.
    I can personally attest that dollar for dollar there is no better 
program to help States and localities renew and rebuild their 
communities and economies than CDBG. For every one CDBG dollar, nearly 
three dollars are leveraged from the private sector. I know CDBG works 
because I was the mayor of St. Paul before coming to Washington. During 
my time as Mayor, over 18,000 jobs were created in St. Paul and CDBG 
was undoubtedly a part of that success.
    CDBG grows jobs; CDBG builds communities. Whenever I talk to the 
folks back in Minnesota--to city administrators, mayors, or county 
commissioners, they all tell me the same thing--that CDBG is the 
lifeblood of their communities.
    That said, Mr. Chairman, I share the President's goal of reducing 
the deficit and exercising strong fiscal accountability in Washington. 
As a former mayor, I know something about the challenges of crafting 
fiscally responsible budgets. during my time as mayor I streamlined the 
city's bureaucracy and helped to turn budget deficits into surpluses--
all without raising taxes.
    In my view CDBG is a fiscally responsible program that 
exponentially produces more than it costs and it is a truly 
conservative initiative enabling local leaders to meet local needs. I 
believe that government is beholden to the people. That individuals 
with the help of their local representatives can plan their lives 
better than bureaucrats in some distant capital. CDBG is a very 
conservative idea that we should not have command and control programs 
run out of Washington. Rather, we should help communities meet those 
needs and priorities through one block grant.
    With that in mind, I have respectfully disagreed with the 
Administration's decision to eliminate the program last year and to 
effectively starve the program of the funding necessary to undertake 
its mission. Mr. Chairman, I do find it strange that while the 
Administration is seeking to undermine this successful program it is at 
the same turning to this program to provide emergency reconstruction 
relief to the Gulf Coast in the amount of $16.7 billion or more than 
five and a half times more than its FY 2007 budget request.
    I see that the Assistant Secretary is with us today and I would 
just like to relate to her that the Administration needs to accept the 
political reality here that there is overwhelming bipartisan support 
for this program and that it is unnecessary to fight a battle that it 
will consistently lose. As I am fond of saying, it is better to measure 
twice before cutting once.
    That said, Mr. Chairman, I also come to this hearing as a strong 
advocate for reasonable and appropriate reform of CDBG. Despite its 
past success, I do believe there is room for improvement within CDBG. 
On that account, I applaud the efforts of HUD, OMB and CDBG friends on 
developing a new performance measurement system for CDBG. I believe 
this new performance system is a significant step towards improving the 
transparency and accountability of CDBG.
    I would also like to commend the efforts of the HUD inspector 
general's efforts against CDBG waste, fraud, and abuse. Unfortunately 
there are some bad characters who are failing their communities through 
their criminal acts. As a former prosecutor and Chairman of the 
Permanent Subcommittee on Investigations, I take very seriously waste, 
fraud, and abuse of taxpayer's dollars. I have worked with my 
colleagues on identifying $11 billion in waste, fraud, and abuse. We 
must be the best stewards of taxpayer dollars and to the end I 
appreciate the efforts of HUD's IG.
    Now while I am supportive of efforts to improve the performance, I 
do have serious reservations with HUD's reform plan with respect to the 
formula change and minimum grant threshold proposals.
    According to HUD projections, my State's CDBG program would 
experience a 31 percent reduction in funding, and entitlement cities 
such as Minneapolis and St. Paul would respectively experience a 54 and 
44 percent reduction in CDBG funding in FY 2007. Furthermore, the 
proposal would no longer provide guaranteed funding for Bloomington, 
Eden Prairie, Moorhead and several other smaller communities. These 
reductions would have a devastating impact on the ability of the State 
and communities to effectively undertake vital community development 
programs.
    Mr. Chairman, I have heard from the State, many of the affected 
communities such as Coon Rapids, Duluth, and St. Paul, and the U.S. 
Conference of Mayors and many other organizations as to the importance 
of this program. I request these letters be made a part of the record.
    Now I do believe that it is important to have a serious discussion 
regarding the formula. However we should not act in haste given the 
significant impact such a change would have on communities across this 
country. It is my understanding that GAO is currently studying this 
issue and is expected to issue a report within the year.
    I would say that since CDBG is a public-private partnership, all 
stakeholders should be brought together to address difficult issues 
such as a formula change. We have seen how cooperation between OMB, 
HUD, and CDBG stakeholders produced an improved performance system. I 
am optimistic that under a similar model we can also appropriately 
address the difficult issue of formula change and other reform issues.
    Mr. Chairman, I thank you for holding this hearing and I look 
forward to hearing from the witnesses.

    Senator Coleman. Mr. Chairman, I have a number of the 
affected communities in my State, 13 communities plus the State 
itself have submitted letters in support of the program, and we 
have a good conservative Governor in Minnesota, and his 
principal has submitted a letter in support of this program. So 
I would like to have those entered into the record.\1\
---------------------------------------------------------------------------
    \1\ The letters submitted for the record by Senator Coleman appears 
in the Appendix on page 100.
---------------------------------------------------------------------------
    Senator Coburn. Without objection, so ordered.
    Senator Coleman. And then, again, I want to thank you for 
holding this hearing. I want to thank you for your diligence is 
pursing these matters, and I just hope that we can work 
together in a way that continues to build strong communities, 
that recognizes that if something works, that is a thing you 
have got to keep. We have got enough that does not work in the 
Federal Government. CDBG works. It is working well, and if we 
need to make it more transparent, more effective, we will do 
that, but let us do it the right way with the right folks at 
the table.
    Senator Coburn. Thank you, Senator Coleman.
    I would make note that the reform proposal that is before 
us today does not combine CDBG with other grant programs, and I 
would also make note that if you got CDBG where it was 
transparent and working well, what you might see is those grant 
programs would be folded into CDBG rather than the other way.
    Senator Akaka.

               OPENING STATEMENT OF SENATOR AKAKA

    Senator Akaka. Thank you very much, Mr. Chairman, for 
holding this hearing, and I want to add my welcome to our 
witnesses as well. As you know, the Community Development Block 
Grant program provides essential Federal resources to help meet 
the specific needs of communities, and this is a special 
program, because it empowers communities in determining their 
priorities.
    In Hawaii, our counties have recently used CDBG resources 
to help provide affordable housing, assist the homeless, expand 
day care facilities, provide meals to low-income families, 
strengthen our medical infrastructure by making physical 
improvements to our community health centers, and expand 
opportunities to help individuals with disabilities find 
employment. As a former director of the Hawaii Office of 
Economic Opportunity, I care deeply about the success of these 
programs. I did work in and work on it and did help people in 
Hawaii over the years.
    Today, we face a severe shortage of affordable housing in 
Hawaii. In addition, increased construction costs have made 
building houses, apartments, community health centers, and 
other structures much more costly. Without Federal support, 
these programs will no longer be possible, as construction 
costs continue to rise. With CDBG facing cuts, we should be 
advocating for additional resources to provide our communities 
to meet their unique needs instead of having a formula fight to 
divide whatever scarce resources we have. I will continue to 
work to protect my home State of Hawaii and the CDBG program.
    We need to give our communities more resources to meet 
their needs, not less. As our counties struggle to meet the 
increased costs of providing housing, ensure that low and 
moderate income individuals have access to quality health care, 
and help expand access to economic opportunities, the Federal 
Government has an obligation to support these programs. Instead 
of misconceived tax cuts that benefit a small number of wealthy 
taxpayers, we must find the resources necessary to help our 
local communities find the solutions to their problems.
    It has been mentioned by the Chairman that there are 
problems and in some cases that reflect mismanagement. These, 
we need to take care of, but there are these communities that 
really need the help, and CDBG can help to do it.
    Thank you very much, Mr. Chairman.
    Senator Coburn. Thank you, Senator Akaka. I appreciate you 
being here.
    I am going to recognize our first two witnesses and 
introduce them. Your full testimony will be made a part of the 
record, and I have read your full testimony. I have spent a 
great deal of time looking at this program, and I recognize its 
value. Pamela Patenaude became Assistant Secretary for 
Community Planning and Development at the Department of Housing 
and Urban Development. Prior to this appointment, she served as 
HUD's Assistant Deputy Secretary for Field Policy and 
Management, and before coming to HUD, she served as State 
Director and Deputy Chief of Staff for U.S. Senator Bob Smith.
    Kenneth Donohue is the Inspector General of Housing and 
Urban Development. Before serving at HUD, he had a 
distinguished 21-year career with the U.S. Secret Service as a 
Special Agent, culminating with the Assistant Director assigned 
to the CIA's Counterterrorism Unit.
    Ms. Patenaude, we will recognize you now, and as you 
finish, we will then recognize Mr. Donohue.

TESTIMONY OF HON. PAMELA H. PATENAUDE,\1\ ASSISTANT SECRETARY, 
COMMUNITY PLANNING AND DEVELOPMENT, U.S. DEPARTMENT OF HOUSING 
     AND URBAN DEVELOPMENT, ACCOMPANIED BY TODD RICHARDSON.

    Ms. Patenaude. Thank you, Mr. Chairman. Good afternoon, 
Senator Coburn, Senator Akaka, and Senator Coleman. I am 
pleased to be here today on behalf of Secretary Jackson to 
share the Administration's proposal on the CDBG reform. The 
President's fiscal year 2007 budget retains and consolidates 
the CDBG program at HUD. We have proposed the reform because 
the program's intended impact to the Nation's neediest 
communities has decreased over time. Quite simply, the current 
formula that allocates billions of dollars is no longer fair.
---------------------------------------------------------------------------
    \1\ The prepared statement of Ms. Patenaude appears in the Appendix 
on page 39.
---------------------------------------------------------------------------
    Over the past three decades, demographic and socioeconomic 
changes, development patterns, and other factors have created 
significant distortions in the distribution of CDBG funds. 
There has been a steady erosion in the ability of the formula 
to target funding to places with greatest needs. The CDBG 
formula has remained untouched since the 1970s. Reform is also 
necessary because HUD must be able to hold grantees accountable 
for performance and provide incentives to maximize the impact 
of these limited and valuable funds.
    To address these issues, the Administration proposes the 
CDBG Reform Act of 2006. The three main elements of the Act are 
formula reform, the introduction of a competitive challenge 
grant, and enhanced performance measurement requirements. To 
explain further, Dr. Coburn, I call your attention to the 
irregular EKG on the chart to my right. [Laughter.]
    Senator Coburn. That patient is dead. [Laughter.]
    Ms. Patenaude. We have three charts here: Chart one, the 
solid red line on the chart indicates the community index 
needs. The jagged lines, the irregular lines, represent the 
more than 1,100 entitlement grantees, and each individual line 
represents the per capita grant for the entitlements. The 
Community Development Needs Index was developed as a measuring 
stick.
    On the left hand side of the chart, we have our low need 
grantees. On the right side, we have our high need grantees, 
and the numbers on our left are the actual per capita grant 
amounts. As you can see on the right, under the current 
formula, many high need grantees are receiving significantly 
smaller grants relative to the needs index. The biggest problem 
with the current formula is that grantees with similar needs 
are receiving widely different grant amounts, and that is where 
you see the swings.
    Chart two shows a more equitable distribution of the 
Community Development Block Grants under the new formula or the 
proposed formula. It demonstrates the ability of the new 
formula to more fairly target funds to communities with 
greatest needs.
    And finally, the lightly shaded area represents the current 
formula, and the dark vertical jagged lines represent the 
entitlement grantees under the proposed formula. As you can 
see, there is significantly better targeting to communities 
with the greatest need. Grantees with similar need profiles 
will receive a more equitable amount per capita, and most 
importantly, the proposed formula will ensure more funding to 
the most needy communities.
    The second element of the CDBG Reform Act is the 
introduction of a $200 million competitive challenge grant. 
This fund would give communities the opportunity to compete for 
additional funding to carry out economic development and 
revitalization for distressed neighborhoods. In order to be 
considered for the challenge grant, distressed entitlement 
communities are required to have both a strategy and a track 
record of concentrating investment in distressed neighborhoods. 
Communities are selected based on objective criteria, including 
the extent to which they target assistance to distressed 
neighborhoods. HUD will award the challenge grants to 
communities that achieve the greatest results in their 
neighborhood revitalization strategies.
    And finally, the third element of CDBG reform strengthens 
the performance measurement requirements to improve the 
effectiveness and the viability of the program. HUD is 
currently implementing this new framework that clearly 
establishes measurable goals. The CDBG Reform Act of 2006 
reaffirms the national objectives of the program and preserves 
local flexibility. By revising the formula, adding a challenge 
fund, and implementing performance measurement frameworks, we 
will improve the effectiveness of the program.
    Thank you, Mr. Chairman, for this opportunity to present 
the Administration's proposal.
    Senator Coburn. Madam Secretary, thank you very much. Mr. 
Donohue.

  TESTIMONY OF HON. KENNETH M. DONOHUE,\1\ INSPECTOR GENERAL, 
          DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

    Mr. Donohue. Senator Coburn, Senator Coleman, and Senator 
Akaka, thank you for inviting me to testify today on this 
important topic. Through our audits and investigative efforts, 
the OIG hopes to strengthen HUD programs such as CDBG grants 
into a more targeted, unified program that sets accountability 
standards in exchange for the flexible use of the funds. The 
CDBG program provides annual grants to 1,180 general units of 
local governments and States, and results reflect each 
community's ideas of a good use for the money that will, at 
least in the design, result in the elimination of slum and 
blight and foster economic development.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Donohue appears in the Appendix 
on page 44.
---------------------------------------------------------------------------
    Some community projects, however, do not always match the 
intent of their paper submission. We continue year after year 
to identify the same problems in our audit investigative 
efforts for the program and CPD activities in general. HUD OIG 
audit reports show that repeated problems fall into the 
following six categories: The improper use of funds; the lack 
of capacity; requirements are not followed, a lack of adequate 
management; national objectives not met; and a lack of 
monitoring and reviews.
    Over the past 2\1/2\ years, we have issued over 35 audit 
reports. We have among other things identified $100 million in 
questionable costs and funds that could be put to a better use. 
We have indicted 159 individuals, pursued administrative 
actions against 143 individuals, and made over $120 million in 
recoveries.
    An example of the lack of policy or adequate management is 
a community association in Kansas City, Missouri, that 
squandered CDBG funds to include company picnics, Christmas 
tree lighting ceremonies, luncheons, gifts, and bonuses. You 
see by the first chart, the poor recordkeeping, and that was 
one example of the office recordkeeping.
    An example of the entity now following HUD requirements is 
a nonprofit corporation in San Juan, Puerto Rico, which could 
not demonstrate that activities met at least one of the three 
block grant national objectives: That it directly benefits low 
and moderate income persons, that it aid in the elimination and 
prevention of slums or blight, and that it met other community 
needs that have a particular urgency.
    In another review, the Department repeatedly warned Utica, 
New York, that construction of a boat marina and ski chalet 
were not eligible activities. The city incurred $903,000 in 
ineligible costs and $214,000 in questionable costs for the 
marina. The city is still trying to establish that $255,000 of 
the ski chalet was an eligible activity; as you see in the 
right, a picture of the ski chalet.
    In reference to the lack of monitoring reviews, we found 
that CPD has management controls to minimize the risks that 
grantees and some grantees lacking capacity receive funding; 
however, unverified assumptions, incomplete and outdated 
guides, and limited ongoing monitoring undermine these 
controls. I have seen the success of active monitoring efforts 
with monitors used by the Lower Manhattan Development 
Corporation in preventing waste and fraud in post-September 11 
rebuilding activities, and I have testified previously to this 
effective concept for use in disaster relief efforts in the 
Gulf States.
    Our investigative activities show there are five major 
fraudulent types of schemes affecting the program: False 
claims, soliciting bribes and kickbacks, procurement and 
contracting, theft or embezzlement, and public corruption. The 
City of Springfield, Massachusetts, was especially hard hit by 
the public corruption. In the past several years, a number of 
officials, including the public housing authority director and 
the directors of at least two CDBG-funded nonprofits or public 
agencies have been indicted and/or convicted of crimes that run 
the gamut, including conspiracy to defraud the United States, 
obstruction of justice, extortion, false statements, perjury, 
criminal contempt, and witness tampering.
    We endorse efforts to improve performance and 
accountability within the CDBG program and support some of the 
proposed changes by the Assistant Secretary. For example, I 
believe it is a worthy endeavor to give policy makers the 
opportunity to weigh new proposals to more fairly distribute 
the funds to address inequities that have arisen as 
demographics have changed. This said, I must say that we are 
concerned that what appears to be language designed to insert 
objective performance criteria into grant language by the 
Administration will be undermined by the implementation of 
vague criteria and a failure to improve deficient enforcement 
tools.
    These criteria may not be adaptable to quantitative 
measurement. CPD has not always established a consistent 
history in performance monitoring, specifically between its 
headquarters staff and field sites. I am concerned that this 
may set standards that are simply achievable rather than 
accountable. In some instances, CPD refused to pursue any type 
of sanctions against grantees on the ground that they should 
not be held responsible for the lack of success of the proposed 
activities as long as those activities are consistent with the 
statutory objective of the grant. In addition, if a grantee has 
not performed for 2 years, then, HUD should be required to 
intervene. Moreover, this legislation also appears to lack 
adequate enhancement to improve CPD enforcement tools under 42 
U.S.C. Section 5311.
    In regards to 42 U.S.C. Section 5311, we also believe it 
needs to be amended to eliminate the requirement for a formal 
hearing. In my view, without the authority to take prompt 
enforcement action, grantee noncompliance will not be deterred, 
and performance will not be encouraged. Alternatively, the CDBG 
program should retain the process of giving notice to the 
community of a grant and allow the community to comment on 
proposals. This check and balance and transparency appears to 
have been deleted in the proposed amendment, 42 U.S.C. Section 
5304 (e).
    That concludes my testimony. I thank the Subcommittee for 
holding this important hearing. I look forward to answering any 
questions you may have.
    Senator Coburn. Thank you, Mr. Donohue.
    I want to welcome my co-chairman, Senator Carper from 
Delaware. I know he has a lot of experience with this program. 
We have already established that this is not a hearing about 
eliminating CDBG block grants, and we did that from the outset. 
And if you would care to say something, Ms. Patenaude, you are 
welcome to.

              OPENING STATEMENT OF SENATOR CARPER

    Senator Carper. First, let me say that I am delighted to 
hear that. The second thing I want to say is welcome to our 
witnesses. I apologize for having missed all of your testimony 
and part of yours, Mr. Douglas.
    Senator Coburn and I were part of a discussion that went 
well into the night last night trying to figure out what we can 
do to rein in our very large Federal budget deficits, and I 
think in the end, we have to look at everything and figure out 
what is working well and what is not, and programs I support as 
much as CDBG, we need to look at these programs, too, and 
figure out what we can do better. And so, we approach it with 
that spirit.
    I have a statement for the record, and I just look forward 
to the opportunity to question our witnesses and to maybe hear 
from some others. Thank you.
    Senator Coburn. Thank you.
    Madam Secretary, can you give me some examples of wealthy 
communities receiving larger CDBG grants than those given to 
poorer communities with much higher needs?
    Ms. Patenaude. Yes, I can. Thank you, Mr. Chairman. As a 
native New Englander, I think a very obvious example is Newton, 
Massachusetts, and Lawrence, Massachusetts, which is a 
declining community, an old mill town. Newton, Massachusetts is 
a wealthy community, a suburb of Boston, and under the proposed 
formula, it would be corrected, and we would restore equity.
    Senator Coburn. Do you think the resistance to restoring 
equity is that there are going to be some losers in terms of 
total dollars to communities? Is that the resistance that you 
are hearing as you talk about your reform plans?
    Ms. Patenaude. The most difficult part of the CDBG reform 
proposal is that some communities with high needs will lose, 
but it is relative to the needs index, and until 2 days ago, we 
had not received any formal feedback from our stakeholders, but 
we are in receipt of that now.
    Senator Coburn. So if a community, based on your minimum 
grant criteria, did not have enough to get the minimum grant, 
what happens to that money that they did not get? Where does it 
go?
    Ms. Patenaude. As you know, we have proposed a minimum 
threshold, which is a percentage of the appropriation, so that 
we will not have entitlement communities coming in and out of 
the program and that based on 2006 appropriations is 
approximately $500,000. So communities that do not meet the 
minimum threshold will be eligible to participate either 
through the State program or join an urban county. The 
demographics is not going to be a one-for-one, but the money 
should be redistributed based on that population and the 
poverty of the entitlement community.
    Senator Coburn. But the State does not really lose the 
money.
    Ms. Patenaude. No, I do not believe they do.
    Senator Coburn. The State still gets the money; the money 
just gets redirected in a priority that the State then makes a 
decision; is that correct?
    Ms. Patenaude. That is correct, Mr. Chairman.
    Senator Coburn. So even though you have a very wealthy 
community, and they fall out of this direct block grant does 
not mean they are not going to get money, correct? Because if 
the State decides to take that money through their State 
allocation, the State could very well still give it to them.
    Ms. Patenaude. That is correct.
    Senator Coburn. OK; when my staff attempted to obtain 
grantee-level spending data, it became evident that there is no 
consistent data collection process. Some cities have their 
reports online, while others have them only in paper format. 
Some even had them in the form that what we saw from Mr. 
Donohue, which is not in any format at all. Each city had a 
different process for sharing information. Furthermore, the 
data was not collected in a central location at your 
headquarters but rather stored all around the country. Most of 
the time, it was not computerized, even though it may have been 
computerized originally.
    Why does HUD not have a consistent reporting requirement 
for the grants today?
    Ms. Patenaude. Senator, I believe we do. All grantees are 
required to enter data into the IDIS system, and that system is 
currently going through a reengineering to make it more user-
friendly. We are moving to a web-based platform. But all 
grantees are required, with the new performance measurement 
framework that we are currently implementing, and we are 
training all of our grantees this summer in 10 locations 
throughout the country, we will obviously be requiring grantees 
to enter additional data under the performance measurement 
framework.
    Senator Coburn. What about Mr. Donohue's idea that the 
language that you all have floated before the Congress is that 
you may intercede when there are vague criteria, lax 
enforcement, or problems versus should or shall? Why did you 
choose the option of could? Why should you not intercede? Why 
should you not intervene if somebody is failing? And why should 
the language not be that you have to intercede?
    Ms. Patenaude. The proposed legislation does give the 
Secretary the authority to take----
    Senator Coburn. But it does not say they have to.
    Ms. Patenaude. It does say he may, but I do believe that 
Secretary Jackson was instrumental in the development of this 
legislation, and I believe that we interpret that the Secretary 
will take action when appropriate.
    Senator Coburn. Well, I certainly do not read it that way. 
I read it that it is an out. You do not have to enforce it if 
you do not want to. And I think it should be if you are going 
to have that type of program, you certainly ought to have that.
    Mr. Donohue, are there outstanding recommendations for 
increased accountability that your office has made to HUD which 
could be immediately enacted by Congress, by action from 
Congress, that would result in improvements in both the fraud, 
the lax enforcement, the vague criteria, and other things? Have 
you all made recommendations that we could act on? Rather than 
a reform, could we do something that would help us get more 
bang for the buck
    Mr. Donohue. Senator, we submit proposed legislation to the 
Hill annually, and two of the issues that we have spoken to is 
the ones that Madam Secretary has spoken about. One is the 
formal hearing requirement. I would submit to you that the 
Secretary should, as you indicated, should have the right to 
weigh in on programs that are ineffective and misspent funds 
and whatever. And I think that as the request indicated that if 
there were going to be hearings required and an appeal, I think 
that could take place, and there is ample room to go back and 
address those matters that might come back up.
    The other matter is the national objectives. The way it is 
designed right now is the applicant applies for a national 
objective, and then, what we found in some cases were they 
either did not meet that objective, or at the time of our audit 
or thereof, the objectives were reapplied. One of the other 
objectives was reflected. And we feel as though that if these 
objectives are part of the application process that at least 
the grantee should go back and submit a change at some 
appropriate time for HUD's approval to go forward on the 
applied grant that they have now changed to.
    Senator Coburn. Senator Carper.
    Senator Carper. Thanks, Mr. Chairman. I hate to 
mispronounce the names of our witnesses, and I pronounce your 
last name Donohue.
    Mr. Donohue. That is right, sir.
    Senator Carper. I have no idea how to pronounce your last 
name. Would you just say it for me? Is it Patenaude?
    Ms. Patenaude. Patenaude.
    Senator Carper. OK; good. I missed your testimony, as I 
said earlier. And would you just take the a minute and just 
give me my take-aways? If we remember nothing else from what 
you have had to say today, what are the couple of things that 
you would have us remember?
    Ms. Patenaude. The three elements of the CDBG reform: The 
proposed formula revision, the introduction of a competitive 
challenge grant, and the performance measurement requirements.
    Senator Carper. OK; take a few more seconds and maybe 
another minute and talk about the three elements.
    Ms. Patenaude. Under the proposed formula revision, we 
believe it would restore equity. The current formula, as you 
can see from the chart, if we could put Chart One back up, that 
demonstrates the lack of targeting under the proposed formula.
    Senator Carper. And how does it do so?
    Ms. Patenaude. The solid red line is a community needs 
index that was developed as a measuring stick. The light or the 
pink vertical jagged lines represent each entitlement 
community, more than 1,100 communities are laid out on this 
chart.
    Senator Carper. Somewhere on that continuum, one of those 
spikes, probably right along the solid line, is Delaware?
    Ms. Patenaude. Todd, can you point out Delaware? 
[Laughter.]
    Senator Carper. That is OK, Todd. I think she was kidding.
    Ms. Patenaude. Well, we could. It is in the 30--right 
there.
    Senator Carper. Above average?
    Mr. Richardson. It is above the line.
    Senator Carper. That is pretty impressive. [Laughter.]
    Senator Carper. OK; what else would you have me know about 
what you had to say?
    Ms. Patenaude. That HUD needs the ability to hold grantees 
accountable with this new performance measurement framework and 
also that the performance measurement framework was not 
developed in a vacuum. It was a 2-year process working with 
stakeholders and the Office of Management and Budget, and it 
was very much a consensus document. And because the program has 
such flexibility, it was obviously a very difficult framework 
to come up with.
    Senator Carper. Does the new formula take into account the 
cost of housing and services in the local areas?
    Ms. Patenaude. Under the proposed formula, we have a fiscal 
capacity adjustment, and I believe that the fiscal capacity 
adjustment----
    Senator Carper. When we say fiscal capacity adjustment, can 
you just kind of translate that for me?
    Ms. Patenaude. I am going to attempt to.
    Senator Carper. And you are welcome to bring somebody up to 
the desk who can translate it for me as well, just in layman's 
language.
    Ms. Patenaude. That is the most complicated part of the 
formula, but we have the variables that play into the formula. 
And at the end, a fiscal capacity adjustment is applied so that 
communities with high per capita incomes we believe would have 
high cost of services, there is an adjustment made but no more 
than 25 percent based on the per capita income.
    Senator Carper. OK; I will have Senator Coburn explain it 
further to me later. [Laughter.]
    Senator Coburn. Does that mean there is a minimal penalty 
for the lower needs but yet higher income communities?
    Ms. Patenaude. Can you clarify what you mean by penalty?
    Senator Coburn. Well, the adjustment, it is limited to 25 
percent, right?
    Ms. Patenaude. Todd, do you want to address that, please?
    Senator Carper. And you may want to identify yourself, sir.
    Mr. Richardson. My name is Todd Richardson. I am an analyst 
at HUD.
    The per capita adjustment essentially says that if you are 
a community whose per capita incomes are higher than the per 
capita incomes of the metro area, your grant is adjusted 
downwards, and if you are a community where your per capita 
incomes are lower than the metro area, your grant is adjusted 
upward. So if you are a particularly poor community--think 
about Camden, New Jersey, in the Philadelphia metro area--your 
grant, there is a base grant that is provided, and that grant 
gets adjusted upward, because your average per capita incomes 
are lower than the metro area.
    Whereas, if you were a wealthy suburb, for example, your 
grant would be reduced to reflect having higher per capita 
incomes relative to the metro area.
    Senator Carper. My first reaction to that is that seems to 
make sense. What do you all think?
    Ms. Patenaude. Todd is the author of the formula study, so 
I think he would agree. [Laughter.]
    Senator Carper. All right. Todd, who is your boss? 
[Laughter.]
    Ms. Patenaude. It is actually another Assistant Secretary. 
I am not his boss.
    Senator Carper. Just checking. [Laughter.]
    Senator Carper. Sort of a follow-up, because I want to make 
sure I got this right. So somebody in Delaware at the median 
income has to pay more relative to housing costs both to buy 
and to rent a home from someone in Oklahoma, for example? 
Delaware loses money, and Oklahoma gains? I am told by my staff 
that this gap could be even more pronounced in places like 
Hawaii, with very high housing costs. And I would just ask if 
that is true, and also, might it make more sense to consider 
the purchasing power of the grants, not just the absolute 
amounts of the grants themselves?
    Ms. Patenaude. I am looking at the numbers for Delaware and 
Oklahoma, and again, it is relative to the community needs 
index, so if a community was receiving a higher per capita 
grant under the current formula, they will lose under the 
proposed formula so that it is closer to the community needs 
index.
    Senator Carper. Does the formula take into account other 
things that a State may try to do to address poverty, such as 
what we spend on education, on our schools, what we are 
spending on health care, Medicaid, and other things or spending 
on housing itself? And if so, how?
    Ms. Patenaude. Well, the formula is based on persons in 
poverty, excluding college students, female-headed households 
with children under 18, housing overcrowding, and housing 50 
years or older occupied by a poverty household. And then, the 
fiscal capacity adjustment is applied. So I do not believe that 
the items that you listed would come into plan in the proposed 
formula. Perhaps they are recognized in the 17 variables that 
are used for the community needs index.
    Senator Carper. OK; thanks very much. Thanks, Mr. Chairman.
    Senator Coburn. Senator Coleman.
    Senator Coleman. Thank you, Mr. Chairman.
    First, I have to ask you a question, Mr. Donohue: Are you 
aware of a GAO review of CDBG?
    Mr. Donohue. I believe I am, sir, and I looked over it a 
bit as well.
    Senator Coleman. And I read somewhere that there was an OMB 
PART evaluation. Do you know what that is?
    Mr. Donohue. I do know what that is.
    Senator Coleman. And are you familiar with that regarding 
CDBG?
    Mr. Donohue. I cannot recall, sir.
    Senator Coleman. Can you just tell me briefly what an OMB 
PART evaluation is?
    Mr. Donohue. I am going to have to bring one of my staff up 
to explain that if I can, sir.
    Senator Coburn. Can I answer that?
    Senator Coleman. Yes.
    Senator Coburn. It is a Program Assessment Rating Tool, and 
this program has a 17 score out of 100, 100 being running the 
program grant based on performance measurements--27 out of 100; 
I am sorry, not 17--which means this, in terms of measurement 
tools, we do not have measurement there. And that is part of 
the management, trying to get measurement to see if we are 
effective in how we are spending money.
    Senator Coleman. Assistant Secretary Patenaude; is that----
    Ms. Patenaude. That is correct.
    Senator Coleman. When you are talking about the change in 
the program, one of the changes is in the amount of funding for 
CDBG under the Administration's request. Was CDBG appropriated 
$3.7 billion last year?
    Ms. Patenaude. This fiscal year, 2006, that is correct.
    Senator Coleman. And that the Reform Act of 2006 posits a 
$200 million set aside, so if you take that, so we put the 
challenge grants aside, then, you have $2.7 billion. You talk 
about one of the concerns, you are starting out with a 25 
percent cut.
    Ms. Patenaude. Well, they are separate issues. The 
President's fiscal year 2007 budget does propose a cut for the 
CDBG program.
    Senator Coleman. Is it about 25 percent? Are the numbers I 
have given you----
    Ms. Patenaude. They are correct, sir.
    Senator Coleman. And so, and I am one who measure twice, 
cut once. [Laughter.]
    Measure before you do your cuts. And I think that is part 
of the issue here. I think the work being done by the Inspector 
General in terms of performance measures, formal hearings, 
giving the Secretary a chance to be involved when there are 
problems, I do not think anyone is going to argue with that. So 
when you kind of look at the hallmarks of this, it is not just 
fairness in the program. One of the hallmarks of it is a 
substantial cut in the program before we even begin. That 
raises a level of concern.
    I think there is also a level of concern, at least I read 
it. I have had a chance to review the National Association of 
Housing and Redevelopment Officials' document which is now part 
of the record.\1\ I cannot tell you whether it is gospel or 
not, but they give figures here in terms of the impact of these 
cuts that are pretty substantial. And in fact, every grantee in 
Minnesota, which sees its allocation decline by at least 18 
percent; all three of Delaware's entitlement communities would 
lose at least one-third of their funding.
---------------------------------------------------------------------------
    \1\ The prepared statement of the National Association of Housing 
and Redevelopment Officials appears in the Appendix on page 120.
---------------------------------------------------------------------------
    Senator Coburn. Do we lose any money?
    Senator Coleman. Norman, Oklahoma would experience a 35 
percent reduction in CDBG grant. One of the concerns here, and 
I say this as a former mayor, is these kind of ups and downs. 
You cannot plan a city's future, you cannot do long-term 
development unless you have a process by which you look at 
these and you measure the impact. That is why the GAO has a 
study. And the GAO report, as I understand it, is working with 
stakeholders. I think it may be a good model. Did you work with 
the Conference of Mayors when you proposed the Reform Act of 
2006?
    Ms. Patenaude. The performance measurement framework that 
was----
    Senator Coleman. No, the funding of the other formula. You 
are talking about getting fairness. Let me say that one of my 
concerns is that mayors who deal with this thing--I have to 
tell you, they have not been knocking on my door about lack of 
fairness. And so, you have the folks who are most directly 
impacted, who are your stakeholders, and I think the GAO is 
working with them; I think it is a good model, and I am just 
not sure whether HUD has had that same kind of consultation, 
discussion. Can you help me on that?
    Ms. Patenaude. Sure; I do not believe that HUD consulted 
with the stakeholders on the actual funding proposed in the 
President's budget, but we did have consultations over a 2-year 
process developing the performance measurement framework.
    Senator Coleman. One of the other issues, and it goes to 
this question of why there are concerns. I think there are 
concerns about the real impact. One of the great sins in 
Congress is the law of unintended consequences. We say we are 
going to do something, and then, we get an impact and then try 
correcting it afterwards. Again, I am just relating to this 
report. They cite your testimony before the Subcommittee on 
Housing and Community Opportunity held on the House side, 
Financial Services Committee, Housing and Community 
Opportunity, in which you indicated you gave an example of two 
cities, Santa Monica and Santa Maria. And this is your quote: 
``Under the current formula, they receive about $1.3 million. 
In terms of need, they are very different. Santa Monica, large 
per capita income; Santa Maria, low per capita income. Under 
the formula the Administration will propose, Santa Maria's 
grant would increase to $1.6 million, while Santa Monica's 
would fall to $750,000.'' That sounds reasonable.
    Their analysis says Santa Monica received a CDBG formula 
grant in the amount of $1.382 million for fiscal year 2006; 
Santa Maria received $1.307 million. If Congress were to adopt 
the Administration's proposal exactly as written, Santa 
Monica's grant would in fact fall to $558,000, while Santa 
Maria's grant would fall to $1.180 million.
    So in other words, what you have there is a 60 percent cut 
for Santa Monica, and you have a 10 percent cut for Santa 
Maria.
    Ms. Patenaude. I believe they are using two fiscal years, 
though. They are not using level appropriations for 2006. They 
are comparing 2006 to proposed 2007.
    Senator Coleman. Right; so they are looking at your 2007 
budget. And your 2007 budget, this community that has great 
need, they are going to also get a cut. And I have trouble with 
that. And so, I think we agree on the goals, but we are looking 
at communities that have need that are going to be cut, and I 
have trouble explaining that.
    And so, I think as we go forward in this, let's bring in 
the mayors. Let's bring in the folks who are supposedly 
impacted by the lack of fairness and other local officials and 
have them talk about this and see if we get where the Chairman 
and the Ranking Member want us to go, because that is where I 
want to go: Transparency and accountability. But I do not want 
to see cuts if something is working. And that is my trouble: If 
it is working, if it is actually growing jobs and doing the 
housing things and growing our communities, cut somewhere else 
where it is not working.
    But this program and this proposal cuts, using your own 
example, you are going to see a cut in a program that you are 
touting perhaps as something that has the need. And I just find 
that problematic.
    Ms. Patenaude. Senator, if I may, we do have an increase in 
other areas in CPD. There was an increase in the proposed 2007 
budget for the homeless and for the Home Program.
    Senator Coleman. I am just saying I know this program, and 
I have seen the impact in communities across Minnesota, rural 
as well as urban, and my deep concern is--again, I spend my 
time fighting fraud and abuse. But if I have something that is 
working, and my mayor is telling me they are getting something 
out of this, I want to be real careful about what we cut.
    Senator Coburn. I want us to go back and clarify. The 
Administration proposes a budget, and that does not mean we are 
going to do it. And you know we are not going to probably do it 
on CDBG grants. So I want us to clarify what the reform 
proposal is outside of what that is. Because if we get caught 
up in what the Administration is proposing in terms of their 
total budget, which they get the right to recommend; we get the 
right to legislate what it will be. If we get caught up in 
that, we take our eye off the ball. The problem is you cannot 
measure whether this program is effective. You can on an 
anecdotal basis, and that is the whole point of trying to get 
some measurement data to see if what we are accomplishing is 
worth the value of what we are putting into it. And I think 
that is important.
    The other thing, the point I would make is one of the 
reasons that the Administration comes by and cuts this is 
because of what the IG says in terms of fraud, what the GAO 
says, what the PART analysis says, says that it is not working. 
There is no measurement goal. So the whole purpose for thinking 
about reform--and I will tell you right now, I do not think 
this reform proposal as it is written is probably not going to 
go anywhere in Congress, but that does not mean that we do not 
need to have some reform in terms of measurements and 
refinements and how do we measure outcomes, and how do our 
grandchildren, since we are borrowing this money from them, get 
the best value for their dollar?
    And so, I would hope that what we would do from the basis 
of this hearing is establish a way to--how do we measure 
fairness? How do we measure the effectiveness of the program? 
There is no measurement. That is one of the reasons we are 
having this hearing is we need to find out. We have less than 9 
years before this program is really going to get crunched. I 
mean, everybody can deny that is all they want, but we are on a 
path to where discretionary spending is going to get squeezed. 
And the way to protect CDBG is to put in a system that shows 
how effective it is so it will be able to compete for the 
dollars that should be there to help these very communities.
    And so, I hope we will keep our focus on measuring--maybe 
we do not need to reform it at all until we have measured it. 
Maybe what our reform needs is let us put in good measurement 
criteria, performance criteria, reporting criteria, and 
sunshine criteria so we can really find out what we are doing.
    Senator Carper, your turn.
    Senator Carper. Mr. Donohue, I think you may have mentioned 
before I came in something about a project in Utica, New York, 
that may have involved a chalet. And would you just go back and 
just tell me again what you were talking about?
    Mr. Donohue. Well, sir, this was a program funded in Utica. 
It was, I believe, a CDBG program, and the money turned up 
based on our audit. We did, as was mentioned, about 1,180 
grants that were awarded in the past year, we have done 35 
audits over the past 2\1/2\ years, which is very few, actually. 
One is this Utica. What we found in the case was this was a 
sampling and a photograph, we found the ski chalet and a marina 
being built and completed on that same money. That was not its 
intended purpose as designed and did not fit into the 
application in any way whatsoever.
    Senator Carper. The project did not marry up with the 
application?
    Mr. Donohue. That is correct, sir.
    Senator Carper. And is there no way under current laws or 
regulation that could have been caught?
    Mr. Donohue. Well, that is the whole question, sir, is that 
what happens is when we go back and take a look at these, and 
we have just got into this about 2\1/2\ years ago on the CPD 
program, the ones we have seen is--really, the concern that I 
have is at the subgrantee level, and their application process, 
what they are asking to do, it seems to change at times.
    And when we look at these audits, we find more times than 
not that it is used for criminal activity often the case. We 
have had a host of indictments. But we also find that there is 
a lack of capacity in many of these audits as well.
    Senator Carper. I am sorry; lack of----
    Mr. Donohue. Lack of capacity; lack of being able to 
deliver on what their intended purpose was, particularly on the 
subgrants.
    Senator Carper. So, it seems to me that you have a 
jurisdiction; they applied for a grant for a particular 
purpose. Somebody, presumably HUD, reviews that grant 
application and decides whether or not it has merit and comes 
up with a dollar value. Later on, once the project is underway 
or completed, who has responsibility to make sure that what is 
being done with the money is what was initially proposed?
    Mr. Donohue. Well, that really gets to the heart of my 
point today, sir, is that what I believe, one of the things I 
found, a classic example was the Lower Manhattan Development 
Corporation. We went in there and took a proactive approach to 
the expenditures of about $2.5 billion, and one of the things 
we came away with was the need and the success of monitors. I 
truly believe that if I leave anything with you today, it is 
the idea that I believe that in the disbursement of these 
funds, the administrative funds or some of these funds of those 
grants need to include a monitor or monitors that will 
literally look at these programs, development utilization of 
the funds, and report back to us in this case to let us know it 
is being effectively applied.
    It has been a success, I believe, in the Lower Manhattan 
Development Corporation, and it is one of the things I am 
trying to spearhead in the Gulf States region.
    Senator Carper. Ms. Patenaude, would you respond to that 
recommendation, please?
    Ms. Patenaude. Thank you, Senator Carper. Under the current 
statute, if an activity is eligible, the grantee can change the 
activity as long as it still meets one of the three national 
objectives. And if I could comment on the ski chalet, the 
creation of jobs that benefit low and moderate income, that is 
eligible under the statute, so we would have to respectfully 
disagree that we do not have the authority to tell a grantee 
they cannot do something if it is an eligible activity.
    Senator Carper. Whose job is it to catch it if it is not?
    Ms. Patenaude. We have very effective monitoring in place. 
We monitor more than one-third of the 1,100-plus grantees a 
year. We do front-end risk assessments to identify activities 
that could be high-risk, and we have more than 600 employees 
located in 45 field offices that conduct these. And if I may 
comment on the application, grantees are required to submit a 
consolidated plan. And then, we look at the reports at the end 
of the year to compare them, and there is a requirement to hold 
a public hearing.
    Senator Carper. Mr. Donohue, would you respond to that?
    Mr. Donohue. Yes, I would, sir. I have looked at my audit 
report. It states the fact that the grantee in a case with 
regard to the ski chalet used the CDBG funds to help finance 
the renovation of a ski chalet in spite of a warning by HUD 
that the activity may not have been a national objective of the 
CDBG program. And that was not its intended purpose, and yet, 
it went ahead and built it anyway.
    Senator Carper. Last word, Ms. Patenaude.
    Ms. Patenaude. I think we have a wonderful partnership, and 
we cooperate fully with the IG. We have, since Labor Day, been 
working with the IG on the appropriations. Now, there are the 
two supplementals for the Gulf Coast. We do follow up. We take 
their audits very seriously, and oftentimes, there is some 
disagreement at the end whether or not an activity was 
eligible.
    Senator Carper. All right. My colleagues, Mr. Chairman and 
Senator Coleman, sounds like we have a difference of opinion 
here.
    Senator Coburn. We have a vote on. What we are going to do 
is give you an opportunity, if you like.
    Senator Coleman. I just wanted to put a couple of things in 
the record. I know the Chairman raised a concern about Section 
108. I went back; I used Section 108. I thought it was a pretty 
good program, and I am going to have to check the record on 
this, but your figure was pretty substantial before. At least 
in Minnesota, I do not have any default rate. I have got to go 
back and find any; so there is a huge----
    Senator Coburn. That is why you are from Minnesota. 
[Laughter.]
    Senator Coleman. That is why I do not want to kill the 
program.
    Senator Coburn. Again, there is no intention to kill 
programs here. And that is the problem. And there is a real 
structural problem. You get accused that you want to eliminate 
a program if you want to make it efficient. And that is a 
political bushwhack that belies what we need to do for our 
kids. The fact is if we spend $10 million on something we 
should not be spending, that is $10 million that did not go to 
help somebody accomplish something better and give jobs. But it 
is also lost opportunity to do it right, get it right, and make 
it meet one of the three goals.
    Senator Coleman. Just for the record, the two other things, 
because I have a copy of the OMB program evaluation. And on the 
question has the program taken meaningful steps to correct its 
strategic planning deficiencies? The answer is yes. And they 
are saying that HUD is actually in the process of correcting 
these. Are all funds, Federal and partners, obligated in a 
timely manner and spent for the intended purpose? And the 
answer to that is yes.
    There are challenges in this. And we are in fundamental 
agreement on the need to fix this program. My big concern, 
Assistant Secretary, is the process. My big concern is moving 
forward with a significant budget cut in a program that 
universally among cities and throughout this country, urban and 
rural, I think it is making a big difference. It is growing 
jobs; which, by the way, HUD says that in its own--I think I 
have the 2004 highlight accomplishments of fiscal year 2004 
CDBG, ``this is a HUD document, approximately 95 percent of the 
funds expended by entitlement grantees and 96 percent of State 
CDBG funds were expended for activities that principally 
benefited low and moderate income persons; overall, a full half 
of persons directly benefitted from CDBG assisted activities, 
minorities, including African-American, Hispanic, Asian-
Americans, or American Indians.''
    This is a program that is making a difference. And so, I 
think we have a shared interest. I am going to work with the 
Chairman to make sure that we put in place, make sure there are 
strong performance measures; make sure that we can root out the 
specific instances of abuse. But I am also going to urge the 
agency to work with your shareholders. If you are going to talk 
about redistributing funds that are going to have a significant 
impacts on the communities of all of us, and make it very 
difficult to plan long-term to meet the economic and housing 
needs in those communities, you have got to work with them.
    And I do not think that has been done to date, and I think 
that is the need that changed. And then, we do that and work 
with the GAO, then, I think we can agree, Mr. Chairman, on some 
changes that need to be made.
    Senator Coburn. One comment I would make is there is no way 
HUD can make that statement, because they do not have the 
performance criteria or measurements as stated by PART, as 
stated by IG, as stated by GAO. So there is no way that they 
know that, for sure, that 95 percent of the funds were spent in 
the way that they were intended, and that is the whole purpose 
of the hearing is let us put the measurement--and much like you 
said, measure twice, cut once--and let us put the measurement 
functions in in terms of reforming so that we can know what we 
are getting and then move from there.
    It is important to know, I think we need to reform the 
program. In declining dollars, we are going to have to redirect 
some of the funds to the poorer communities. We have to have 
some change in the funding formula if, in fact, we are going to 
accomplish the purposes of this program, which means the 
wealthier communities may have to take a little bit less so 
that those who are most dependent can have more, and we can 
really create more opportunity.
    I am going to ask, if we could, if both of you could have 
someone stick around for our second panel; we will empanel the 
second group when we come back from the vote, and we will 
recess until that time. Thank you.
    [Recess.]
    Senator Coburn. The hearing will reconvene.
    For the record, I want to make sure we clarify that the 
information submitted for the record by Senator Coleman on the 
cuts for the cities reflected, the cuts in the Administration's 
requests for total CDBG and they were not necessarily 
reflective of the cuts from the reform bill before us.
    Eileen Norcross is a Research Fellow at the Mercatus Center 
at George Mason University, where she works on the Government 
Accountability Project. Before coming to the Mercatus Center, 
she was a fellow in journalism at the Competitive Enterprise 
Institute, a consultant with KPMG, and a research analyst with 
Thompson Financial Securities Data.
    Cardell Cooper is the Executive Director of the National 
Community Development Association. He is the former mayor of 
East Orange, New Jersey, and served as the Assistant Secretary 
for Community Planning and Development at the Department of 
Housing and Urban Development in the Clinton Administration.
    Ms. Norcross, you are recognized. Your complete testimony 
has been made a part of the record.

 TESTIMONY OF EILEEN NORCROSS, M.A.,\1\ SENIOR RESEARCH FELLOW 
FOR THE GOVERNMENT ACCOUNTABILITY PROJECT, THE MERCATUS CENTER 
                   AT GEORGE MASON UNIVERSITY

    Ms. Norcross. Thank you, Senator Coburn, Senator Carper, 
and Members of the Subcommittee for inviting me to testify on 
the Community Development Block Grant case for reform. I am 
currently engaged in a study to determine whether Federal 
economic development programs are able to meet their intended 
goals. Our research does not reflect an official opinion of 
George Mason University.
---------------------------------------------------------------------------
    \1\ The prepared statement of Ms. Norcross appears in the Appendix 
on page 53.
---------------------------------------------------------------------------
    According to its statute, CDBG was created to increase the 
viability of urban communities by addressing housing needs and 
creating healthy living environments by expanding economic 
opportunity, primarily for low and moderate income persons. The 
activities grantees engage in must principally benefit low and 
moderate income people, eliminate or prevent slums, and remedy 
urgent threats to the health or safety of the community.
    CDBG faces several barriers to assessing its impact. First, 
it is difficult to obtain data. For now, only aggregate data is 
available on HUD's website. Grantee-level data is available 
from local HUD offices. We tried to get this information for 71 
cities and could obtain most reports online or through the 
mail, though 15 cities did not return our calls, and several 
cities could not mail or upload the report due to the size of 
the document exceeding 1,000 to 2,000 pages in some cases.
    Providing grantee-level data in a more easily accessible 
format allows citizens to better understand how the program 
operates in their community as well as throughout the Nation. 
It permits enhanced monitoring of how funds are used, and it 
improves oversight, and it also permits researchers to analyze 
the program's effects.
    Second, outcome measures will better enable data 
collection. HUD has developed and is beginning to use more 
measures, though many are still output-oriented, and must also 
show that grantee-reported outputs serve the program's goals.
    I applaud HUD's efforts but caution that a simple count of 
jobs or businesses assisted is not enough. We need to know if 
the creation of jobs or businesses led to economic 
revitalization that would not have occurred in the absence of 
CDBG dollars in order to truly assess the program's 
effectiveness.
    And third, determining the effects of CDBG rests not only 
on the quality and consistency of the data but also on the 
difficulty of establishing what would have happened in the 
absence of funding. We can use econometric studies or case 
studies. These should rely on good economic theory. If done 
correctly, empirical studies that involve field work, 
interviews, and surveys can be valuable and complement 
statistical inference. Case studies are not anecdotes. The 
hazard with anecdotes is that the experience of one community 
is offered as evidence for what all communities are 
accomplishing nationwide. Depending on their quality, they may 
not tell the full story.
    The following is not a case study but an example of how 
CDBG dollars are spent in Madison, Wisconsin, highlighting the 
need to dig deeper behind the current measures in order to get 
a picture of its effects. In 2005, Madison, Wisconsin spent 
over $1.4 million of its CDBG funds on economic development, 
claiming the creation of 99 jobs, including jobs for two 
coffeehouses, a bakery, restaurant, several biotech firms, and 
information technology companies.
    Madison, Wisconsin is a college town. Fifty-nine percent of 
its students are classified as living in poverty, and the 
current formula does not exclude them. Eight percent of 
Madison's residents are actually in poverty. According to the 
CDBG statute, these loans in Madison are legitimate uses of 
CDBG funds, and these 99 jobs went towards HUD's 2005 total of 
91,237 jobs created.
    The deeper question is was CDBG created to create 
coffeehouse jobs for college students in relatively wealthy 
communities? Did the biotech firms create jobs for truly low to 
moderate income people as envisioned by the statute's intent or 
for graduate students? Did taxpayers subsidize private 
businesses to do something they would have done anyway?
    Are these negative outcomes? It depends on whether you 
consider this an effective use of CDBG dollars. Could these 
funds have been used to help with disaster relief in the Gulf, 
an area in urgent need of revitalization?
    Madison, Wisconsin, was legitimately awarded funds 
according to the current formula to legitimately fund economic 
development activities to serve the objective of job creation. 
Congress must determine if this is the outcome they are seeking 
to achieve with this program.
    CDBG was created with a particular outcome in mind: 
Alleviate slums and blight to revitalize communities and 
generate economic opportunity for residents. However, it has 
drifted from its original mission. I believe Congress should 
change the formula recommended by HUD, improve transparency, 
and make grantee-level data publicly available; require the 
measures designed by HUD; and consider what aims Congress is 
trying to accomplish when it created this program to determine 
if current activities are serving that aim.
    Further empirical testing of this program is needed to know 
its effects. This is only possible with better data collection. 
The measures offered by HUD will facilitate this. HUD is to be 
commended for identifying structural and management 
deficiencies in the CDBG program. Better targeting of funds, 
data collection, and empirical evaluation of this program will 
help HUD and the public identify what activities are best 
serving the communities this program was designed to help. 
Thank you.
    Senator Coburn. Thank you, Ms. Norcross.
    Mr. Cooper, welcome. We are glad you are here. You 
obviously have a great deal of experience with this, and we 
look forward to your testimony.

 TESTIMONY OF CARDELL COOPER,\1\ EXECUTIVE DIRECTOR, NATIONAL 
               COMMUNITY DEVELOPMENT ASSOCIATION

    Mr. Cooper. Thank you very much, Chairman Coburn. It is an 
honor to be before the Subcommittee today, to Senator Coleman; 
I always affectionately called him mayor. We served together as 
colleagues during my tenure as mayor. It is good to see you, 
and certainly, Senator Carper hopefully will be back for the 
rest of the hearing.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Cooper appears in the Appendix on 
page 79.
---------------------------------------------------------------------------
    As the Executive Director of the National Community 
Development Association, I am pleased to appear before you 
today. I have served previously, as you know, as an Assistant 
Secretary of Community Planning and Development at U.S. 
Department of Housing and Urban Development. And it is sort of 
interesting: You are seeing the person who has to do it now and 
the person who was there. I have spent time in various 
hearings, and we tend to have a need to change things and fix 
things, and clearly, when they are broken, they ought to be 
fixed. There is no question. I commend the Assistant Secretary 
for her presentation. However, I do not necessarily agree that 
the answer is that CDBG is in need of reform.
    I believe, Senator, that you made a very cogent point, as 
other Members did. There is no one who can disagree with that 
accountability chart, and agreeing with the accountability 
chart, if there was enforcement and monitoring is done 
correctly, we can achieve that goal. Back in January 2001, the 
GAO submitted a report to the Congress specifically about HUD 
being on the high-risk list as an agency within the Federal 
Government. At the same time, during that report, it submitted 
that CPD programs, in particular CDBG, had made significant 
strides and improvements that warranted it to be taken off of 
the high-risk list.
    That was done with a combination of partners, both mayors 
and practitioners as well as the Department, to come up with a 
better tool of how we measure and monitor those programs. I 
commend the U.S. Department of Housing and Urban Development 
for working on performance measures. That was a time where 
partnership did exist. The Conference of Mayors, the NCDA, a 
number of other national organizations were all involved in 
having a candid discussion about how do you best measure a 
program for the 30 years that it has been in existence, has 
proven results, but at the same time, the data collection to 
support that and back that up needed to be improved? And that 
is what the performance measures under their proposal would do.
    That does not require reform. That was a partnership. It is 
being implemented. They are starting, as we speak, to train the 
various communities how to access that system, how to use it, 
how to report the very data, Mr. Chairman, that you talked 
about. And I believe that if we give that an opportunity to 
work, then, some of the underlying questions automatically get 
answered.
    Let me for the record also state I heard the IG talk about 
the anecdotal stories of people who have done some things that 
quite frankly, if they do not meet the smell test and are 
against the laws of this land, there is enforcement capability 
in that Department, and I know Senator Coleman as a former 
prosecutor would agree. When people violate the law, and it is 
proven that they have violated the law, there are measures that 
can be taken to deal with that.
    Unfortunately, when we use anecdotal stories on the 
negative side, it gives the general appearance of waste, fraud, 
and abuse. The issue of waste, fraud, and abuse for any 
community, if it is monitored correctly on the front end and 
enforced on the back end, I think you could limit that problem, 
and over the years, that has been the tool that has been used 
and constructively. I also want to add that as we talk about 
CDBG and its flexibility, over the 30 years of being a 
practitioner as a mayor and one who had to govern in a very 
difficult community under deep financial constraints and as a 
former Assistant Secretary who has traveled around the country 
in both urban and rural areas, large cities and small cities, 
for the majority of people who are involved in this program, 
they are doing the job, and they are doing it well.
    And what is being produced is lifting people who are low-
income and moderate income people to a level where they can 
sustain themselves. We are talking about families where two 
parents are working. CDBG was not designed as a poverty program 
only, and I think sometimes, we get caught up in that side of 
it. And the reality is that we have lifted people up and moved 
them to a point where they are contributing to society. They 
are paying taxes. The neighborhoods are improving. And I think 
that it is important for us as we make these efforts to enforce 
the accountability issue that we not lose sight that we do not 
need to reinvent the wheel and reform something that works. We 
need to enforce that which is working, and we need to hold 
those who are accountable for the things that they do that are 
not within the construct of what CDBG was designed for.
    We also recognize that CDBG is flexible because the answer 
to Hurricane Katrina was let's use CDBG because of its 
flexibility on the grounds to help those who were devastated by 
this major disaster in our Nation. In New York City, when 
September 11 happened, CDBG was one of the answers. The point I 
want to make, though, in New York City, because it was labeled 
a disaster, as many of these other issues are, the Department 
has the authority to grant waivers, and when they grant those 
waivers, it changes how those regulations are employed, and I 
think they need to be very honest about when that occurs, 
whether a waiver was granted that allowed them to do an 
activity that may be out of the general scope under those 
rules.
    I do believe that if we talk about winners and losers, the 
American people lose when we make disinvestment. We have 
finally gotten to a point where you have the business community 
and bankers and developers who are willing to step deep into 
the pool because of the Federal investment in neighborhoods and 
communities around this country. They have been our partners; 
they continue to be our partners; the money is spent wisely; it 
helps produce jobs; it changes the face of neighborhoods.
    The losers in this deal, quite frankly, are all of America. 
We look at the various States. I will give you an example: In 
Alaska, 16 percent decrease; Ohio, 10 percent; Utah, 13 
percent; Michigan, 6 percent; Hawaii, 19 percent; Minnesota, 26 
percent; New Jersey, 11 percent. I could go down the list. And 
where we are making what appears to be increases, at the same 
time, we are reducing the budget on the other side; it is going 
to have some devastating consequences.
    So I ask you and implore you on behalf of the people who 
are the practitioners to ask HUD, in fact, if we work together 
so well on the performance measures, and we all agree that is a 
proper way to go, then, they need to sit down and talk to the 
practitioners and those who are responsible on the ground and 
come up with a workable way to deal with this formula issue. 
And the answer is not in this reform package. There are so many 
things that are going on right now. The GAO has a study. 
Congressman Turner has a study. The Department is rolling out 
reform. The Department rolled out reform and had not had one 
conversation, as my dear friend Assistant Secretary Patenaude 
said, and not that that makes them bad people; it is just that 
if that dialogue had taken place, we might be here talking 
about how we get to the accountability pieces without going 
through a reform track but simply enforcing and holding people 
accountable for their responsibility, because after all, the 
Federal dollars belong to the American people, and we should be 
good stewards of the public trust.
    Let me conclude by saying that our partners stand ready, as 
we always have, to work closely with the Department, but there 
are many mixed signals that are being sent. And I appreciate 
the fact this Subcommittee has this hearing today, but then, 
again we do not always have to reinvent something in order to 
correct it. I do believe that the rules and the tools are in 
the Department to correct the very things that the Secretary 
and the Department are trying to cure.
    Having sat in that seat, I know it is easier said than 
done. But the independent remarks of GAO over the last few 
years of where we are headed make sense, and the GAO, to their 
credit, called in all of the stakeholders most recently, all of 
the stakeholders, spent an entire morning with them----
    Senator Coburn. Could you summarize, if you would?
    Mr. Cooper. I will summarize by saying that if we want to 
get to the heart of the issue and to use the public funds in 
the way they were designed, to continue the most flexible 
program in the Federal portfolio that was created out of a 
Republican Administration and enacted by a Democratic Congress 
in a bipartisan spirit, delivering services to America and 
improving these communities, then, CDBG reform is not the 
answer. It is a matter of working together collectively on the 
accountability issues.
    Thank you, Mr. Chairman.
    Senator Coburn. I am a little bit confused because of your 
written statement that says, ``holding grantees accountable for 
performance is redundant, and you oppose the accountability 
provisions in the reform package.''
    Mr. Cooper. No, I said it is redundant in the sense that 
the Secretary needs a special provision to enforce that which 
they have already enacted. That is the point. The performance 
measures were part of the Department of Housing and Urban 
Development and the list of organizations who helped develop 
those standards. And they are now training people to put those 
standards into place. To say that now, in addition to that, 
there should be another review by the Secretary, give the 
standards that they have put into place that OMB agrees with an 
opportunity to work.
    Senator Coburn. One of the things, and it is important, and 
I tried to define this with Senator Coleman a little bit, and 
the last part of your testimony, not just the most recent but 
before, confused a declining request for CDBG funds with 
reform. My goal would be that we could measure performance and 
that measurement--accountability without teeth, accountability 
without the ability to change things is not accountability. If, 
in fact, you have to report, but there is no problem if you are 
not reporting accurately or the fact that, which is my greatest 
worry, is there is great flexibility in this program, and it 
does accomplish a great deal of good.
    In a declining budget, and everybody here in this room; you 
can kid yourself, but 10 years from now, there is not going to 
be a $5.2 billion CDBG supplemental, and there is not going to 
be a $3.7 billion CDBG appropriation, because the money is not 
going to be there. So the way to assure that it is more likely 
that the money is going to be there is to design a measurement 
and management assessment program that assures that this money 
is well spent. And I do not think anybody would disagree with 
that, and I do not think your testimony disagrees with that.
    Mr. Cooper. My testimony does not disagree with that at 
all.
    Senator Coburn. You do not oppose outcome measures.
    Mr. Cooper. I am a firm believer in outcome measures. I 
think during my tenure as the Assistant Secretary, of all 
reports submitted by GAO and OMB that yes, indeed, we do 
support that. What I am saying is that you have the ability 
within the Department, as they have stated, and we support, we 
were part of developing these outcome measures. So, yes, we are 
on the same page.
    Senator Coburn. And you would not oppose online data 
collection for the materials associated with the CDBG block 
grants so that what is out there is easily accessible not only 
by HUD but by the members of the community that know where 
their tax dollars are going?
    Mr. Cooper. What I am saying to you is that they have to 
have a system to do that. The IDIS system has been that four-
letter word that has plagued everyone on the Hill and in the 
Department for so many years as a corrective system and the 
data that is entered into the system; the data which is public 
information ought to be able to be made available.
    Senator Coburn. OK.
    Mr. Cooper. The question that I think the Assistant 
Secretary, if she was here, would agree, any sensitive data as 
it relates to individual people and that kind of thing ought 
not be there.
    Senator Coburn. We are not talking about that. I want to 
get a yes or no answer. Your group and you do not oppose online 
data collection for CDBG grants, protecting privacy 
information----
    Mr. Cooper. As long as it protects privacy information. 
That information is public information.
    Senator Coburn. You would support that.
    Mr. Cooper. That is public information.
    Senator Coburn. And you all would support that.
    Mr. Cooper. I have no objections to it.
    Senator Coburn. Would you also, and Ms. Norcross, comment, 
if you have outcome measures, and there is no consequences to 
the outcome measures, what good are the outcome measures 
theoretically?
    Mr. Cooper. It is not a theoretical question. It is a very 
honest question. The Department has within its ability that 
when people are not meeting the standards that are set by the 
Department, there are certain actions the Department can take. 
The question that I would have is why not on the enforcement 
end through the Department? If the issue is capacity, and I 
heard that argument, then, we have in the past, you work with 
those communities to give them assistance in capacity-building.
    Senator Coburn. OK; but the Department can. My question is 
should the Department? And that is the difference between the 
authority they have now versus what I would like to see is I 
would like to mandate that the Department help those people be 
compliant. I would like to mandate if their outcome is not good 
that there is a consequence to it.
    Mr. Cooper. I always believed, at least in my tenure, that 
was the case, and that is what they did. I do not know why they 
believe they cannot do it.
    Senator Coburn. They did not testify they could not do it. 
That was not their testimony. What I am saying is something 
very different, and that is having oversight to where they have 
to so that we can hold the Department accountable of doing the 
best management techniques. They can do it, and I agree. I am 
saying they should do it.
    Mr. Cooper. I believe in many cases, they do, but perhaps 
they need to document for this Subcommittee where they have 
enforced those things, and I think you will find that for the 
most part, they can. And if you are suggesting that language is 
placed there that says they shall or they must, I would think 
that should apply to every Department in this country.
    Senator Coburn. Don't worry. I am getting to all of them.
    Mr. Cooper. I figured you would be.
    Senator Coburn. This Subcommittee is getting to all of 
them.
    Under the current formula, East Orange, New Jersey, is a 
very distressed community with high needs and currently 
receives about $25 per capita. Bloomfield, New Jersey, on the 
other hand, according to HUD's need index, is not as needy. I 
am not saying they are not needy; I am just saying they are not 
as needy, about half as needy as East Orange by their index. 
The City of Bloomfield receives the same amount per capita as 
East Orange.
    As the former mayor, do you really think that meets the 
intent of what was intended when this legislation was 
originally put into effect, that somebody who has less need 
gets the same amount of money as somebody who has more need?
    Mr. Cooper. It all depends on how you identify need, 
Senator. Bloomfield, New Jersey is located directly next to 
East Orange, New Jersey. I represented both East Orange and 
Bloomfield in the county legislature. There are pockets of 
poverty in very wealthy communities, and those pockets of 
poverty that are in those communities are just as entitled, the 
low and moderate income people in those communities, to benefit 
from this program as any other community.
    Senator Coburn. So therefore, the assumption would then be 
that every community ought to get the exact same amount per 
capita.
    Mr. Cooper. No, that is not what I am saying, Senator. If 
we want to get to the heart of the issue, I think if 
appropriate funding was made, we could eliminate this debate 
because----
    Senator Coburn. That is not going to happen.
    Mr. Cooper. Whether it happens or not is not my call. I can 
only express to you how I see it. If we address the 
accountability issues, get the data that is required, that 
everyone wants to see and let the performance measures work 
once they implement them, and to say that--you mentioned that 
in 10 years, the program will not be here unless people can 
defend it, well, let's do the first part right first.
    Senator Coburn. That is not the question I am asking. The 
question I am asking you: Is it fair or is it appropriate, let 
me ask it that way, is it appropriate; take fairness out that 
if we have a community that gets $45 per capita, that has twice 
the per capita income as the community over here that gets $22 
and has one-half the per capita income, is that an appropriate 
response for the needs in terms of CDBG block grants?
    Mr. Cooper. If you talk about low and moderate income 
people.
    Senator Coburn. I am talking about low and moderate----
    Mr. Cooper. No, because----
    Senator Coburn. So you are saying that it is an appropriate 
response?
    Mr. Cooper. They are targeting down, and we are turning the 
issue to having CDBG no longer as a low and moderate income 
program but a program that will address the poverty in the 
Nation. It was not created as a poverty program, and perhaps we 
need to look at what we are doing to tackle poverty overall in 
the Nation. But if that is the case, low and moderate income is 
the standard in which CDBG----
    Senator Coburn. So the answer is either yes, it is 
appropriate, or no, it is appropriate.
    Mr. Cooper. I believe that it is the will of the people in 
those communities to provide for the people under current law, 
and that is the law, so I do not support the HUD Reform Act as 
defined----
    Senator Coburn. I am not talking about the Reform Act. I am 
just asking you is it appropriate? Do you believe it is 
appropriate?
    Mr. Cooper. Senator, I have answered your question. For the 
record, I believe that people at the local community under the 
rules of this program have the right to deal with low and 
moderate income people in their community who are in need. That 
is the answer, and that is what the program has done for 30 
years.
    Senator Coburn. So it is appropriate, and we will let the 
record show that.
    Mr. Cooper. In your words.
    Senator Coburn. Senator Coleman.
    Senator Coleman. Thank you, Mr. Chairman. First, a general 
statement. I think we are in agreement about 90 percent of 
things here. I think we are in agreement about transparency; I 
think we are in agreement about performance standards. I think 
we are in agreement about outcome measures. I think we are in 
agreement about accountability. It is how you get there.
    My frustration has been how we have gotten there. As the 
Secretary said, there has not been a conversation with the 
stakeholders.
    Mr. Cooper. No, there has not.
    Senator Coleman. GAO is doing it, but there has not been 
that.
    And as I look at the bottom line, not philosophical 
discussions about East Orange versus somewhere else. If you 
took the change in this Department that was recommended, Anoka 
County, Minnesota, 34 percent reduction; Dakota County, 41 
percent; Duluth, 57 percent; Hennepin County, 45 percent; 
Minneapolis, 54 percent; Webster County, 42 percent, in all of 
these, there are some communities that are strong, and there 
are some that are very weak.
    Senator Coburn. Senator Coleman, is that relationship to 
the formula?
    Senator Coleman. To the formula.
    Senator Coburn. Or the reduction plus the formula?
    Senator Coleman. It is proposed 2007 appropriation based on 
the formula that is there.
    Senator Coburn. But that is based on a decreased funding. I 
will make that real clear in the record.
    Senator Coleman. A decrease overall of 25 percent; in many 
cases, almost double that. And these are communities, every one 
of them have--and I do not want to debate; just to say that you 
look at that, well, we have agreement on these things. How do 
we get there?
    And the other issue I want to talk about, I think there is 
agreement, and Ms. Norcross, I was going over your 
recommendations, which actually, as I kind of went through 
them, I am for changing the formula, but I want to have a 
discussion about how you get there. I do not want to impose 
upon communities massive reductions, 54 percent, when they have 
not been part of the conversation. I think it is the arrogance 
of Washington. I think it is the arrogance of the Federal 
Government to come in and to tell communities this is what we 
are doing without having them at the table.
    I agree with your recommendations, but I have one, Ms. 
Norcross, I want to ask you about: Improved transparency; 
require performance measures; we can reconsider what the 
mission is, take a look at that; the question about 
infrastructure, I do want to stress that. I have a community, 
Brewster, Minnesota; got a half million dollar CDBG grant for 
infrastructure. As a result of that grant, they were able to 
accommodate a soybean oil processing plant about, I do not 
know, about $30 million worth of new investment and jobs in a 
small rural community.
    Ms. Norcross, the one thing I have to ask about your 
testimony is, at least in your testimony, you talk about San 
Jose State economist Benjamin Powell summarizes the misguided 
idea behind the government directly financing job creation. 
What I want to understand, does that mean 7(a) loans, small 
business loans? Is that directly financing job creation?
    Ms. Norcross. That is correct; if you are subsidizing job 
creation in that way, by handing a loan to business rather than 
the----
    Senator Coleman. So you would think that is misguided.
    Ms. Norcross. I think that first, you would want to 
identify there is a market failure.
    Senator Coleman. We may have a disagreement.
    Ms. Norcross. I respect that.
    Senator Coleman. And again, I think there are a number of 
things government does, and government does not grow jobs. The 
private sector grows jobs. We shape an environment. We do 
infrastructure; that is pretty clear. But there are other 
things we do to support, I think, the entrepreneurs. And you 
look at some companies, I mean, they start in a garage because 
they got a 7(a) loan or something like that. They are producing 
a lot. So we may just have a philosophical disagreement about 
that.
    I hope where we go from here, Mr. Chairman, is that we take 
a look at these things upon which we agree and that we engage 
the communities that are impacted, that we make sure that we do 
not impose drastic cuts on folks without having them part of 
the conversation. And I want to work with the GAO, work with 
some others, and I think we can have a better program. But I do 
think it is one in which job creation is part of it, and that 
is where we disagree.
    Mr. Cooper.
    Mr. Cooper. Senator Coleman and Senator Coburn, perhaps 
some of the contentions that you see is because as part of a 
major reform without having had a meeting with the stakeholders 
and the providers, it leads to a bit of distrust, whether it is 
imaginary or not. There are those who believe that when the 
Department was scheduled to--and I know this meeting is not for 
that, but when it was scheduled to go to Commerce, there was 
almost a closing out of CDBG; then, the cuts. And people began 
to think that it is being bled to death quietly. And then, when 
you have this massive reform that is introduced without the 
dialogue without any partners involved, it does send very bad 
signals.
    Senator Coburn. That is an absolutely legitimate criticism.
    Mr. Cooper. And I think your point you made earlier to the 
Secretary that if, in fact, the kind of dialogue that has taken 
place, we might really be here getting to the accountability 
questions that you want to get to. Because I think in that kind 
of meeting with mayors who are practitioners and community 
activists and other people, they would absolutely agree that 
there are priorities here that need to be corrected. So again, 
just for the record, I just want to state that if in fact we 
are talking about accountability, let us wrestle with the 
accountability issue and come up with the kind of 
accountability that we all know is required, but at the same 
time, you cannot do that if your partner is not dialoguing at 
all.
    So you have some people who are feeling pretty blue about 
this these days, because for the last 3 years, there has been 
this consistent sort of slicing away, bleeding, if you will, of 
a program.
    Senator Coleman. And if I could say just one more thing for 
the record, Mr. Chairman, as I sit here and defend this 
program, I was a mayor for 8 years. I did not raise taxes in 8 
years; cut my economic development agency at least by a third. 
And I was a conservative mayor. I merged, consolidated units of 
government. I was a conservative mayor, and those principles 
work. But as a conservative mayor, one of the things that I 
saw, and this was where we simply philosophically disagree: I 
think there are things that we do, infrastructure being part of 
it, some others that CDBG does, housing for first-time 
employees; you cannot grow jobs unless folks have a place to 
live that in the end made my community much stronger, much less 
reliant in the end.
    I tell people I may have Senator in front of my name. I 
still have mayor stitched in my underwear. You do not forget 
where you come from. And I think CDBG is a conservative program 
that allows--and my concern is I think there is an arrogance in 
the way this proposal was laid out there, that the Federal 
Government telling people here is what we are going to do; 
major shift in a program without being part of the 
conversation. And I think that has to change.
    Senator Coburn. Thank you. First of all, Mr. Cooper, you 
have a legitimate complaint.
    Mr. Cooper. It is just an observation.
    Senator Coburn. No, it is a legitimate criticism. And the 
fact is that is what is wrong with the Federal Government. Just 
to clarify for the record, the SBA 7(a) program has never been 
measured effectively. How it is measured is how many dollars it 
has loaned, not how many jobs it has created. So we are trying 
to do that. We are trying to get how do you measure the 
effectiveness? Because the problem is with the 7(a) loan, we 
know that we have got $70 billion on the hook for loans, but 
nobody has ever actually done the matrix to make the 
measurements is did those loans create those jobs?
    We ought to know whether or not that did that. So the whole 
purpose of this hearing is not to endorse or not endorse a 
reform movement. The purpose of this hearing is not to say we 
want CDBG to go away. The real purpose of this hearing is like 
in every other hearing is how do we put measurements on so we 
know how to make the best decisions with the limited dollars 
that are going to be coming forward?
    And I believe that Senator Coleman has hit it right, and I 
think everybody agrees: The question is what are the parameters 
that we measure? What are the teeth that we put into those so 
that if somebody is not working, not appropriately responding, 
that we can measure, can we send the money somewhere where it 
will? In other words, the whole goal, if this is a legitimate 
function of the Federal Government, and I believe it to be, if 
it is, how do we make it the best it can be, and how do we 
assume to move to that point?
    And I think Senator Coleman and I agree, and I think 
Senator Carper would agree, and we are looking forward and how 
do we put the type of parameters and measures on. I am not 
convinced that the performance measures that they have now have 
any teeth with them. And I also am not convinced that they 
create the proper expectation from the grantees to comply. What 
I would like to see is not create a burden on them but make it 
easy, make it streamlined and easy for them to do it and have a 
program that has some teeth.
    Because what happens is when you change expectations that 
you are going to be accountable in a program, people become 
accountable, because there is a consequence to it. If there is 
no consequence to it, and you are not accountable, then they 
will not be. And so, the goal is not to micromanage but is to 
set out some parameters and make sure that we get some--and I 
agree with you that once we get the measurements, then we can 
know what to do, and then we have to work with the agencies to 
do that.
    There are some good ideas in this program of reform. I am 
not saying there are not some. I think the idea, if we 
increased CDBG block grants $200 million so we could create 
this challenge, there are things you could have done in East 
Orange, New Jersey, where you were doing better, and you could 
have gotten some extra money for that to make it even better. 
So that idea is not necessarily a bad one. It is a bad one 
because you are taking it away from the shrinking pool. Would 
you agree with that?
    Mr. Cooper. Well, there were other incentives that we 
granted to communities who were doing well, and just for the 
record, and I think it is good work of the Senate as well as 
the House some years ago; remember the issue years ago was that 
people were not spending their money out at a certain rate. We 
could not figure out why, and we got together with all of the 
partners involved, and we did the analysis. We found out that 
there were certain communities who had phase one, two, and 
three of projects that, for example, in land acquisition, they 
purchased the land, so they got that part done, and they went 
to develop, and they found out they had environmental problems, 
and then they got a lawsuit.
    So those things are real problems that communities have, 
and it should not be viewed that we cannot fix those things. 
There is enforcement, and I agree with you: If you really think 
about this whole accountability issue, and I know you have, I 
do not think there is an argument anywhere against that. I 
would just like us to be able to get to those measurement tools 
so when OMB raises the question of how can we account for the 
number of jobs developed, and how do we know the impact of 
this, that we have a series of accountability tools to get 
there, and I just do believe that there are enough wheels on 
the wagon, quite frankly, right now to do that, and let us get 
that part fixed first, and then, we can determine where we go 
from there, because right now, we are sort of chasing budget 
fights and reforms and hearings----
    Senator Coburn. We do not want to confuse the two.
    Mr. Cooper. Exactly, and I think the safest way not to do 
that, and you could attach, I believe that you can have the 
accountability discussion, but if you get into the reform 
discussion, particularly if you look at how the dollars are 
going to be generated in and out in any given community; 
politically, it may be a difficult job for the Congress and the 
Senate to deal with, but in reality, it is even a greater 
difficulty for mayors on the ground to deal with, because if 
you are losing money, and you still have people who are in need 
of services, and if you are gaining money, people go where the 
services are provided, Senator. And we have seen that.
    Senator Coburn. A couple of final questions for Ms. 
Norcross.
    Ms. Norcross, in your testimony, you make the important 
point that jobs do not create economic growth but rather the 
exact opposite: Economic growth creates jobs. Besides the 
number of jobs created, what performance measures do you think 
would best gauge whether or not the use of CDBG funds is 
stimulating economic development in communities?
    Ms. Norcross. I would like to see if unaided capital 
investment came into that community; what were the overall 
economic effects, the macroeconomic effects; what does 
employment look like; the number of people on public 
assistance. And I am glad that HUD is going down the road of 
establishing these outcome measures, jobs created, businesses 
assisted but want us to go further and show that these measures 
are having overall macroeconomic effects in a community, and I 
think that is the way they need to go.
    Senator Coburn. And you do not disfavor the Federal 
Government having a role in that. What you are saying is you 
ought to measure it to make sure the dollars go to the best 
place to get the greatest impact?
    Ms. Norcross. That is correct; I think there is 
disagreement among economists as to whether job creation should 
be a goal, but that is for Congress to decide. If that is to be 
a goal, then, let us try to tease out whether CDBG dollars are 
having larger economic effects. Are they leading to increased 
prosperity in that community? And that would be HUD's role to 
take the grantee data that is being reported on jobs created 
and try to demonstrate if that is having a larger impact, 
economic impact, on that community.
    Senator Coburn. Are there ways a grantee could game a new 
performance measurement system and appear to be meeting goals 
when, in fact, they are not?
    Ms. Norcross. I do not know if I would use the word game. 
When I looked more closely at Madison, Wisconsin, what I saw 
was here, we have HUD reporting it created 91,000 jobs last 
year. I looked a little deeper at Madison, Wisconsin, and I 
inferred that these jobs were going to potentially college 
students in that town. Here is a case where, looking at the 
macro number, we get the impression that HUD is creating jobs 
for low to moderate income people. When you look a little more 
deeply behind the numbers, is that necessarily the case?
    So I think with a job creation figure, you want to be 
certain that you go a little deeper, make sure that these jobs 
are actually going to low to moderate income people as 
envisioned by the program's intent. Are these temporary jobs?
    Senator Coburn. How do you differentiate a job created by a 
CDBG program versus a job created by somebody coming in at the 
same time with capital and then assessing, either rightly or 
wrongly, that came from the CDBG money? As an economist, can 
you have metrics or statistics where you can ferret that out?
    Ms. Norcross. I think it would be fairly difficult to 
establish the counterfactual, but I think there are ways around 
that, and certainly, that was one of my motivations in trying 
to get HUD data. So I think there are methods, econometrics you 
can use.
    Senator Coburn. I want to thank all our witnesses for being 
here today. We will be submitting questions to each of you that 
I would very much appreciate that you would answer, questions 
that I would like to ask but we do not have the time here today 
to do it.
    Mr. Cooper, thank you for your experience. Thank you for 
your service in the Clinton Administration and serving our 
country, and thank you for serving the people that you 
represent today. We appreciate it very much.
    Mr. Cooper. Thank you very much, Senator.
    [Whereupon, at 4:36 p.m., the Subcommittee adjourned.]

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