[House Report 109-365]
[From the U.S. Government Publishing Office]



109th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 2d Session                                                     109-365
_______________________________________________________________________

                                     

                                     

                                     

                                                 Union Calendar No. 196

 
 BRINGING COMMUNITIES INTO THE 21ST CENTURY: A REPORT ON IMPROVING THE 
               COMMUNITY DEVELOPMENT BLOCK GRANT PROGRAM

                               __________

                              FIFTH REPORT

                                 by the

                     COMMITTEE ON GOVERNMENT REFORM


                                     


                                     

  Available via the World Wide Web: http://www.gpoaccess.gov/congress/
                               index.html
                      http://www.house.gov/reform

January 31, 2006.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed


                     COMMITTEE ON GOVERNMENT REFORM

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

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

               Subcommittee on Federalism and the Census

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

                               Ex Officio

TOM DAVIS, Virginia                  HENRY A. WAXMAN, California
                     John Cuaderes, Staff Director
                       Shannon Weinberg, Counsel
                          Jon Heroux, Counsel
            Ursula Wojciechowski, Professional Staff Member
             Linda Caron, Ph.D., Professional Staff Member
                         Juliana French, Clerk
            Adam Bordes, Minority Professional Staff Member
?

                         LETTER OF TRANSMITTAL

                              ----------                              

                                  House of Representatives,
                                  Washington, DC, January 31, 2006.
Hon. J. Dennis Hastert,
Speaker of the House of Representatives,
Washington, DC.
    Dear Mr. Speaker: By direction of the Committee on 
Government Reform, I submit herewith the committee's fifth 
report to the 109th Congress. The committee's report is based 
on a study conducted by its Subcommittee on Federalism and the 
Census.
                                                 Tom Davis,
                                                          Chairman.

                                 (iii)

                                     
?

                            C O N T E N T S

________________________________________________________________________
                                                                   Page
  I. Executive Summary................................................1
 II. Background.......................................................3
        A. History of CDBG.......................................     3
        B. CDBG Current Formula..................................     5
        C. CDBG Eligible Use of Funds............................     7
        D. Current CDBG Performance Measures.....................     8
        E. U.S. Census Bureau Data and CDBG Formula Calculations.     9
        F. Strengthening America's Communities Initiative........    11
        G. HUD Proposed Changes to CDBG Formula..................    13
        H. National Academy of Public Administration Study and       25
            Recommendations Pertaining to CDBG Performance 
            Measures.
        I. Integrated Disbursement and Information Systems [IDIS]    26
        J. Proposed Outcome Measurement System...................    27
III. Hearings........................................................28
        A. Hearing on the Strengthening America's Communities        28
            Initiative, March 1, 2005.
        B. Hearing on CDBG Formula Alternatives, April 26, 2005..    33
        C. Hearing on Use of CDBG Funds and Performance Measures,    40
            May 24, 2005.
 IV. Findings & Recommendations......................................51
        A. Strengthening America's Communities Initiative [SACI].    51
        B. HUD Proposed CDBG Formula Targeting Reform............    56
        C. Current CDBG Formula Grants...........................    63
        D. CDBG Eligible Uses of Funds...........................    66
        E. Performance Measures..................................    70
        F. Census Bureau Products................................    72

                                  (v)

  
                                                 Union Calendar No. 196
109th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 2d Session                                                     109-365

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


 BRINGING COMMUNITIES INTO THE 21ST CENTURY: A REPORT ON IMPROVING THE 
               COMMUNITY DEVELOPMENT BLOCK GRANT PROGRAM

                                _______
                                

January 31, 2006.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

 Mr. Tom Davis, from the Committee on Government Reform submitted the 
                               following

                              FIFTH REPORT

    On December 15, 2005, the Committee on Government Reform 
approved and adopted a report entitled, ``Bringing Communities 
into the 21st Century: A Report on Improving the Community 
Development Block Grant Program.'' The chairman was directed to 
transmit a copy to the Speaker of the House.

                          I. Executive Summary

    In February 2005, the Bush administration submitted its 
fiscal year 2006 budget recommendation to the U.S. Congress. 
Within the budget submission was a new initiative, the 
Strengthening America's Communities Initiative [SACI], 
consolidating 18 existing Federal community and economic 
development direct-grant programs managed by five different 
agencies into a single program under the oversight of the U.S. 
Department of Commerce (Commerce). Seven of the 18 programs are 
currently administered by the Department of Housing and Urban 
Development [HUD]. Each of the 18 programs would cease to exist 
independently under the initiative.
    In fiscal year 2005, Congress appropriated $5.7 billion for 
the combined suite of 18 programs. The seven HUD programs 
account for approximately 84 percent of the funding for all 18 
grant programs. The Community Development Block Grant [CDBG] 
program alone accounts for approximately 82 percent of that 
combined $5.7 billion in funding with an individual 
appropriation of $4.71 billion. Highlighting the enormous 
impact SACI will have on State and local governments and the 
citizens served by the 18 grant programs, the President's 
proposed fiscal year 2006 appropriation for the SAC grant 
program totals only $3.71 billion.
    Considerable stakeholder opposition arose in reaction to 
the President's proposal. Consequently, the Subcommittee on 
Federalism and the Census (the Subcommittee), chaired by Mr. 
Michael R. Turner, devised an oversight agenda to investigate 
two basic questions regarding CDBG: \1\
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    \1\ Clause 3 of Rule X of the Rules of the U.S. House of 
Representatives relates to the oversight functions of the committees 
organized within the House of Representatives. Paragraph (e) of Clause 
3 states that ``The Committee on Government Reform shall review and 
study on a continuing basis the operation of Government activities at 
all levels with a view to determining their economy and efficiency.'' 
Rules of the Committee on Government Reform: Together with Selected 
Rules of the House of Representatives and Selected Statutes of 
Interest, House of Representatives, 109th Cong., 1st sess. (March 
2005).
---------------------------------------------------------------------------
        (1) Should Congress consolidate CDBG with the 17 other 
        direct-grant programs as proposed in the President's 
        fiscal year 2006 budget request and transfer the 
        administration of the program from HUD to Commerce?
        (2) Notwithstanding SACI, should Congress or HUD 
        consider making certain reforms to the CDBG program, 
        either by legislation or by rulemaking?
    The Subcommittee held three hearings on these issues. The 
first hearing, entitled, ``Strengthening America's Communities: 
Is It the Right Step Toward Greater Efficiency and Improved 
Accountability?,'' was held on March 1, 2005. The hearing's 
purpose was to review the proposed SACI and explore the reasons 
for its creation.
    The Subcommittee held its second hearing, entitled, ``The 
1970s Look: Is the Decades-Old Community Development Block 
Grant Formula Ready for an Extreme Makeover?,'' on April 26, 
2005. Based on a February 2005 HUD study, the Subcommittee 
explored the first area of potential reform: the block grant 
formula. Specifically, the Subcommittee explored: (1) whether 
the 30-year old formula was appropriate for continued use in 
today's world; and (2) whether funds are distributed fairly 
among similarly situated communities.
    The Subcommittee held its third hearing, entitled, 
``Bringing Community Development Block Grant Programs Spending 
into the 21st Century: Introducing Accountability and 
Meaningful Performance Measures into the Decades-Old CDBG 
Program,'' on May 24, 2005. In that hearing, the Subcommittee 
examined: (1) how communities spend CDBG moneys (i.e., 
eligibility of use of funds); (2) whether HUD and grantees 
effectively target funds toward the needs identified in the 
program's authorizing legislation; and (3) how, if at all, 
Congress can measure these expenditures for effectiveness 
through the institution of performance measures.
    This report will first summarize the materials examined by 
the Subcommittee in chronological order by date of publication. 
Part II, Background, thus provides a short history of the CDBG 
program and a summary of various studies suggesting changes to 
the program. In Part III, Hearings, each of the three 
Subcommittee hearings that discussed proposed changes will be 
reviewed. Findings and recommendations are discussed in Part 
IV.

                             II. Background


      A. HISTORY OF THE COMMUNITY DEVELOPMENT BLOCK GRANT PROGRAM

    Congress authorized the creation of the CDBG program during 
the Ford administration with the enactment of the Housing and 
Community Development Act of 1974 [HCDA].\2\ CDBG is an 
offshoot of President Nixon's Better Communities proposal, 
which combined seven individual direct-grant programs into one 
community development block grant program. The reorganization 
of these grant programs was the result of ``[l]arge-scale 
dissatisfaction with many [of their] components . . . [leading] 
to a discussion about how federal community development funds 
should be allocated.'' \3\
---------------------------------------------------------------------------
    \2\ Housing and Community Development Act of 1974, 42 U.S.C. 
Sec. Sec. 5301-5321 (2004).
    \3\ Todd Richardson et al., Office of Policy and Development 
Research, U.S. Housing and Urban Development, Redistribution Effect of 
Introducing Census 2000 Data Into the CDBG Formula at 11 (2003) 
[hereinafter Census Data Study].
---------------------------------------------------------------------------
    The vision of Nixon's ``New Federalism'' included a plan 
combining existing grant-in-aid programs into a single block 
grant program that distributed funds directly to local 
governments--those agencies in the best position to assess 
local needs.\4\ Along with this local decisionmaking came an 
``unprecedented degree of local control'' over the use of 
Federal dollars on community development programs, ``offering 
city and county officials broad discretion to fund housing, 
economic development activities, social services, and 
infrastructure.'' \5\ In 1975, HUD advertised that CDBG funds 
could be ``used anywhere within a local government's 
jurisdiction to serve the needs of low- and moderate-income 
persons.'' \6\
---------------------------------------------------------------------------
    \4\ Id.
    \5\ Id. at 12, quoting U.S. Department of Housing and Urban 
Development, Federal Funds, local choices: An evaluation of the 
Community Development Block Grant Program (1995).
    \6\ Id., quoting U.S. Department of Housing and Urban Development, 
Community Development Block Grant Program: A provisional Report (1975).
---------------------------------------------------------------------------
    Among the programs unified within CDBG were the Urban 
Renewal program, the Model Cities program, open space 
acquisition and beautification grants, neighborhood facilities 
grants, and water and sewer facilities grants.\7\ The roots of 
CDBG can be traced directly to these grant programs, which 
focused on restoring urban neighborhoods through acquiring 
land, clearing blight, and encouraging private development; 
providing physical development and human services; providing 
health, welfare, social, and recreational services; and 
improving existing and developing new low- and moderate-income 
housing.\8\ All of these services function to create better 
living environments for low- to moderate-income persons, the 
primary purpose of the HCDA.\9\
---------------------------------------------------------------------------
    \7\ See id. at 9.
    \8\ See id.
    \9\ See id. at 11. ``The underlying purpose of title I of the 
Community Development Act is 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.''
---------------------------------------------------------------------------
    State and local governments use CDBG grant moneys to fund 
various housing, community development, neighborhood 
revitalization, economic development, and public service 
provision projects. Such projects must serve at least one of 
three requirements: (1) to principally benefit low- and 
moderate-income individuals; (2) eliminate or prevent slums; or 
(3) remedy urgent threats to the health or safety of the 
community. At least 70 percent of CDBG funds distributed to the 
States and local governments must be spent on activities for 
the first requirement--to principally benefit low- and 
moderate-income individuals.
    CDBG funds were originally distributed based upon a single 
formula that assessed community need using population, poverty, 
and overcrowded housing data as indicators of community 
development need.\10\ In a 1976 study, HUD determined that the 
formula ``was highly responsive to the poverty dimension but 
unresponsive to the non-poverty dimensions of community 
development need.'' \11\ As a result, a second formula was 
devised using the factors of pre-1940 housing and loss of 
population to target those communities experiencing decline 
rather than poverty need alone.\12\ These two formulas remain 
in use today and are now known as ``Formula A'' and ``Formula 
B,'' respectively.
---------------------------------------------------------------------------
    \10\ See Census Data Study at 12.
    \11\ Id. at 14.
    \12\ See id.
---------------------------------------------------------------------------
    In 1981, Congress amended the HCDA once again. The original 
CDBG formula required 80 percent of CDBG funds be reserved for 
the formula grant and 20 percent of funds be set aside for non-
entitlement jurisdictions. HUD administered this 20 percent 
through a categorical competition for non-entitlement 
communities, known then as the CDBG Small Cities Program.\13\ 
In keeping with the idea that local administration of block 
grant funds is more effective than centralized administration 
by the Federal Government, HUD granted States the option of 
directly administering the Small Cities Program in fiscal year 
1982. Concurrent with this program change, Congress amended the 
CDBG formula by adjusting the entitlement community/non-
entitlement community split to 70 percent/30 percent.\14\ \15\ 
Only these two changes have been made to the formula grant over 
the 30-year life of the program.
---------------------------------------------------------------------------
    \13\ See id.
    \14\ See id.
    \15\ See 42 U.S.C. 5302(a). Entitlement jurisdictions are defined 
by one of five criteria: (1) Central cities of metropolitan areas 
(MAs); (2) cities located in a MA with a current population of 50,000 
or more; (3) cities that previously met criteria for metropolitan 
cities; (4) urban counties with a population of 200,000 or more 
excluding the populations of metropolitan cities and eligible Indian 
tribes; or (5) counties that previously met criteria for metropolitan 
urban counties.
---------------------------------------------------------------------------
    Today, CDBG is one of the largest Federal direct block 
grant programs in existence. HUD's Office of Community Planning 
and Development [CPD] administers the program through 800 full-
time employees located in Washington, DC, and throughout the 
country in 42 field offices. In fiscal year 2005, Congress 
appropriated $4.71 billion for the CDBG program; $4.15 billion 
of that amount was reserved for CDBG formula grants.\16\
---------------------------------------------------------------------------
    \16\ See Consolidated Appropriations Act, 2005 Fiscal Year Public 
Law No. 108-447, 118 Stat. 2810 (2004).
---------------------------------------------------------------------------
    Despite the fact that Congress has generally increased 
appropriations for CDBG formula grants since the early 
1990s,\17\ less money in terms of ``real dollars'' has been 
available to entitlement and non-entitlement jurisdictions over 
that same period. This can be attributed to two factors: (1) 
Congressional allocation of more money for set-asides and 
earmarks, thereby decreasing the funds available for 
distribution under the formula grant; and (2) the growing 
number of entitlement communities due to natural population 
growth and other factors.\18\
---------------------------------------------------------------------------
    \17\ Congressional appropriations for CDBG formula grants have 
remained relatively static over the past six budget cycles. However, 
since fiscal year 2001, Congress has reduced funding for formula grants 
by roughly $300 million. In fiscal year 2005, Congress reduced funding 
by nearly $200 milling. This reduction accounted for the program's 
first ``real dollar'' decrease in a number of years.
    \18\ See Eugene Boyd, American National Government Division, 
Congressional Research Service, Report No. 96-503 GOV, Community 
Development Block Grants: An Overview at 4, 5 (1998). In fiscal year 
1997, set-asides accounted for 6.3 percent of the total CDBG 
appropriation. In fiscal year 1998, that percentage increased to 10.3 
percent, and to 11.1 percent in fiscal year 1999. Id. at i.
---------------------------------------------------------------------------
    In addition to the fiscal constraints on the program, 
commentators have criticized the CDBG program in recent years 
as cumbersome, inefficient, and unaccountable. During a Senate 
Budget Committee hearing in February 2000, the Comptroller 
General of the United States, David M. Walker, suggested that 
formula-based programs like CDBG are ``not well targeted to 
jurisdictions with high programmatic needs but comparatively 
low funding capacity.'' \19\
---------------------------------------------------------------------------
    \19\ Federal Spending Priorities: Exercising Oversight,'' hearing 
before the Senate Committee on the Budget, 106th Cong. (2000) 
(statement of David M. Walker, Comptroller of the United States); see 
also David M. Walker, U.S. General Accounting Office, GAO/T-AIMD-00-73, 
BUDGET ISSUES, Effective Oversight and Budget Discipline Are 
Essential--Even in a Time of Surplus at 7 (2000).
---------------------------------------------------------------------------
    Criticism of the program has come from within the 
administration as well. The Office of Management and Budget 
[OMB] assessed CDBG in 2004 using the Program Assessment Rating 
Tool [PART]. The administration developed PART to assess the 
management and performance of individual programs--evaluating 
the purpose, design, planning, results, and accountability of a 
program.\20\ Based on a weighted average, a program is rated 
effective, moderately effective, adequate, or ineffective. 
Under the PART assessment tool, OMB determined that most of the 
community and economic development programs evaluated ``were 
not accomplishing their intended results'' and could not 
demonstrate ``that they [were] having any positive impact on 
the communities they serve.'' \21\ In particular, OMB rated the 
CDBG program as ineffective, stating, ``The Program does not 
have a clear, unambiguous mission. Both the definition of 
community development and the role CDBG plays in that field are 
not well defined.'' \22\
---------------------------------------------------------------------------
    \20\ See Executive Office of the President, Office of Management 
and Budget, Fiscal Year 2006 Budget of the U.S. Government Analytical 
Perspectives, H. Doc. 109-2, Vol. III at 10 (2005).
    \21\ ``A Top to Bottom Review of the Three-Decades-Old Community 
Development Block Grant Program: Is the CDBG Program Still Targeting 
the Needs of our Communities?'' Hearings before the Subcommittee on 
Federalism and the Census of the House Committee on Government Reform, 
109th Cong. 21 (Serial No. 109-7) (2005) [hereinafter CDBG Hearings] 
(statement of Clay Johnson III, Deputy Director for Management, Office 
of Management of Budget).
    \22\ Office of Management and Budget, Department of Housing and 
Urban Development PART Assessments 3 (2004) . See also Executive Office of the 
President, Office of Management and Budget, Fiscal Year 2006 Budget of 
the U.S. Government Analytical Perspectives, H. Doc. 109-2, Vol. III at 
26 (2005).
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          B. COMMUNITY DEVELOPMENT BLOCK GRANT CURRENT FORMULA

    HUD allocates the 70 percent of CDBG funds reserved for the 
grant portion of the program to entitlement jurisdictions using 
a dual formula system. Formula A allocates funds based on each 
entitlement community's share of population, poverty, and 
housing overcrowding as compared to all entitlement 
communities. Formula B allocates funds based on each 
entitlement community's share of poverty, aged housing (built 
prior to 1940), and the lag in population growth rate as 
compared to the total for all entitlement communities since 
1960. Entitlement jurisdictions receive the greater sum of the 
two formula calculations.
    HUD distributes the remaining 30 percent of CDBG formula 
funds to 49 States and the Commonwealth of Puerto Rico.\23\ The 
statute requires these jurisdictions to re-distribute the funds 
to non-entitlement communities (i.e., those communities that do 
not meet the definition of an entitlement community).\24\ These 
funds are also allocated according to a dual formula system 
whereby States receive the greater sum of the two formula 
calculations. Here, however, Formula A allocates funds based on 
a State's percentage of population, poverty, and housing 
overcrowding as compared to the aggregate of all non-
entitlement areas in all States. Formula B allocates funds 
based on poverty, age of housing, and population (not 
population growth or lag) relative to all non-entitlement areas 
in all States.
---------------------------------------------------------------------------
    \23\ The State of Hawaii opts not to participate in the program.
    \24\ See supra n. 16.
---------------------------------------------------------------------------
    The CDBG program, while enabling States and local 
governments to accomplish many objectives outlined in the 
original authorization, exhibits several problems that require 
remedy. A study of the formula allocations reveals two main 
fairness issues. First, there are numerous instances of 
``richer'' communities receiving higher per capita awards than 
``poorer'' communities. For instance, Wauwatosa, WI, receives a 
per capita grant of $30.63 though it is assessed as one of the 
Nation's communities with lowest need.\25\ In contrast, 
Compton, CA, has one of the highest needs of the Nation's 
communities and yet receives a per capita grant of only 
$26.18.\26\ Second, similarly situated communities often get 
disparate per capita awards. While Compton, CA, receives a per 
capita grant of $26.18, St. Louis, MO, a community with a 
similar (yet lower) need index score receives a per capita 
grant of $73.58.\27\
---------------------------------------------------------------------------
    \25\ See Todd Richardson, Office of Policy Development and 
Research, Department of Housing and Urban Development, CDBG Formula 
Targeting to Community Development Need at B-80 (2005) [hereinafter 
CDBG Formula Study].
    \26\ See id. at B-8.
    \27\ See id. at B-46.
---------------------------------------------------------------------------
    While the formula has undergone five major assessments 
since 1974, only two changes have been made to the program. 
During this same period, the country's demographics and 
population trends have shifted dramatically. In particular, the 
number of entitlement communities has grown substantially. In 
fiscal year 2004, there were more than 1,100 designated 
entitlement communities, up from 732 in 1982 when the 70/30 
split was first instituted. From 1982 to 1993, an additional 
128 jurisdictions qualified as new entitlement communities. 
Since 1993, more than 250 more communities came online, 
demonstrating a vast increase in population growth rate. While 
the number of communities sharing the 70 percent portion of 
CDBG funds continues to grow, the overall funding has not kept 
pace. Thus, a larger portion of the population is sharing a 
relatively static piece of the CDBG pie, resulting in fewer 
funds per jurisdiction. At the same time, the number of non-
entitlement communities declines, effectively increasing their 
share of the 30 percent portion of CDBG funds.

                     C. CDBG ELIGIBLE USE OF FUNDS

    CDBG-funded activities must satisfy a two-part eligibility 
test. First, these activities must align with 1 of the 25 
eligible uses for CDBG funds as authorized by the HCDA.\28\ 
Second, these activities must satisfy one of three national 
objectives stated in the HCDA.\29\
---------------------------------------------------------------------------
    \28\ See 42 U.S.C. Sec. Sec. 5305(a)1-25 (2003).
    \29\ See 42 U.S.C. Sec. 5304(b)(3).
---------------------------------------------------------------------------

1. The Eligible Activities Test

    The HCDA lists 25 activities for which grantees can expend 
CDBG funds. HUD classifies these activities into two groups: 
(1) basic eligible activities and (2) eligible rehabilitation 
and preservation activities.
            a. Basic Eligible Activities
    There are 17 basic eligible activities: (1) acquisition; 
(2) disposition; (3) public facilities and improvements; (4) 
clearance activities; (5) public services; (6) interim 
assistance; (7) payment of non-Federal share of a grant-in-aid 
program; (8) urban renewal completion; (9) relocation; (10) 
loss of rental income; (11) housing services; (12) support of 
privately owned utilities; (13) construction of housing; (14) 
homeownership assistance; (15) economic development; (16) 
technical assistance; and (17) assistance to institutions of 
higher education.\30\
---------------------------------------------------------------------------
    \30\ See 24 C.F.R. Sec. 570.201 (2005).
---------------------------------------------------------------------------
    The more common uses of CDBG funds fall within the 
categories of acquisition, disposition, public facilities and 
improvements, clearance, and public services.

            b. Eligible Rehabilitation and Preservation Activities

    In addition to the specifically enumerated activities 
above, CDBG moneys may be used to fund a broad range of 
rehabilitation and preservation activities, including the 
rehabilitation and improvement of buildings, code enforcement, 
historic preservation, the renovation of closed buildings, and 
the removal of lead based paint.\31\ CDBG grantees may use 
funds for such purposes as assistance to private individuals 
and entities in acquiring and rehabilitating properties for 
personal use or resale as residences; \32\ funding labor, 
materials, and other costs associated with the rehabilitation 
of properties; \33\ and rehabilitation activities that increase 
energy and water consumption efficiency.\34\
---------------------------------------------------------------------------
    \31\ See 24 C.F.R. Sec. 570.202 (2005).
    \32\ See 24 C.F.R. Sec. 570.202(b)(1) (2005).
    \33\ See 24 C.F.R. Sec. 570.202(b)(2) (2005).
    \34\ See 24 C.F.R. Sec. 570.202(b)(4), (5) (2005).
---------------------------------------------------------------------------
    With regard to code inspections and enforcement activities, 
the regulations permit expenditures so long as the enforcement 
activities are in deteriorating or deteriorated areas when such 
activity, coupled with private and public improvements, 
rehabilitation, or services, would obstruct further 
decline.\35\ Within this category, grantees may use funds for 
``salaries and related expenses of code enforcement inspectors 
and legal proceedings.'' \36\ Grantees, however, may not use 
the funds to cover the costs of correcting code violations.\37\
---------------------------------------------------------------------------
    \35\ See 24 C.F.R. Sec. 570.202(c) (2005).
    \36\ Id.
    \37\ See id.
---------------------------------------------------------------------------

2. The National Objectives Test

    Though the HCDA may specifically permit an activity, the 
activity must also meet at least one of the three national 
objectives outlined in the statute before CDBG funds may be 
expended upon it. Activities must (1) ``benefit low- and 
moderate-income families;'' (2) ``aid in the prevention or 
elimination of slums or blight;'' or (3) ``meet other community 
development needs having a particular urgency because existing 
conditions pose a serious and immediate threat to the health or 
welfare of the community. . . .'' \38\
---------------------------------------------------------------------------
    \38\ 24 C.F.R. Sec. 570.200(a)(2) (2005).
---------------------------------------------------------------------------
    These criteria are broad in scope and nearly any activity 
could be creatively described to meet the ``benefit low- and 
moderate-income persons'' objective. Therefore, HUD requires 
grant recipients ``certify that their projected use of funds 
has been developed so as to give maximum feasible priority to 
activities which will carry out one of the national objectives. 
. . .'' \39\ Moreover, grant recipients must also ensure that 
70 percent of the CDBG grant is expended over a period of 1, 2, 
or 3 years, as specified in their certification, for activities 
meeting one of the specified national objectives.\40\ These 
certifications must be included in the grantee's Consolidated 
Plan.
---------------------------------------------------------------------------
    \39\ 24 C.F.R. Sec. 570.200(2); see also 42 U.S.C. Sec. 5305 
(2005).
    \40\ See id. See also 24 C.F.R. Sec. 570.208 (2005) for the 
criteria used to determine whether an activity satisfies one or more of 
the national objectives.
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                  D. CURRENT CDBG PERFORMANCE MEASURES

    HUD requires that each grantee submit a Consolidated Plan 
(``Conplan''), a comprehensive planning document that doubles 
as an application for funding under several Community Planning 
and Development formula grant programs.\41\ The Conplan 
describes a jurisdiction's strategy to pursue the overall goals 
of the HUD community and economic development programs. These 
goals include ``develop[ing] viable urban communities by 
providing decent housing and a suitable living environment and 
expanding economic opportunities principally for low- and 
moderate-income persons.'' \42\ HUD will evaluate a 
jurisdiction's Conplan and its performance under the plan 
against these goals.\43\
---------------------------------------------------------------------------
    \41\ See 24 C.F.R. Sec. Sec. 91.1(b), 91.2(a)-(b) (2005).
    \42\ 24 C.F.R. Sec. 91.1(a) (2005).
    \43\ See 24 C.F.R. Sec. 91.1(a)(2) (2005).
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    The Conplan is the tool by which HUD determines whether 
CDBG-funded activities meet the second part of the two-part 
test for eligibility. Once HUD asks whether the activities 
described in the Conplan are eligible for use of funds under 
the HCDA, HUD then uses the Conplan to evaluate whether the 
activities satisfy one of the three national objectives. Prior 
to acceptance of a jurisdiction's annual certifications, HUD 
also uses the Conplan to determine whether the grantee complied 
with its HUD-approved plan and whether CDBG-funded activities 
were consistent with that plan.\44\
---------------------------------------------------------------------------
    \44\ See 24 C.F.R. Sec. 570.903(a) (2005).
---------------------------------------------------------------------------
    According to its own regulations, HUD will accept or reject 
a jurisdiction's Conplan within 45 days of the date of 
submission.\45\ Additionally, the HCDA generally requires that 
HUD approve a Conplan submission unless the plan (or a portion 
of it) is inconsistent with the purposes of the Act or is 
substantially incomplete.\46\
---------------------------------------------------------------------------
    \45\ See 24 C.F.R. Sec. 91.500(a) (2005).
    \46\ See 24 C.F.R. Sec. 91.500(b) (2005).
---------------------------------------------------------------------------
    In addition to the Conplan, grantees must develop a plan 
that encourages citizen participation in developing the 
Conplan, particularly by persons of low- or moderate-income 
living in areas CDBG funds are to be used.\47\
---------------------------------------------------------------------------
    \47\ See 24 C.F.R. Sec. 91.105(a)(2) (2005).
---------------------------------------------------------------------------

        E. U.S. CENSUS BUREAU DATA AND CDBG FORMULA CALCULATIONS

    HUD presently uses five variables in its block grant 
formulas. These variables include (1) total resident 
population; (2) the number of persons living below poverty 
level; (3) overcrowding (defined as more than 1.01 persons per 
room in a housing unit); (4) the number of housing units built 
before 1940; and (5) population growth lag compared to all 
metropolitan cities since 1960. HUD relies primarily on the 
decennial census to provide this data objectively and 
consistently. In years subsequent to the decennial census, HUD 
relies upon the annual Boundary and Annexation Survey [BAS] for 
revised population estimates, incorporations of new cities, and 
major boundary changes.\48\ By law, HUD must use ``the latest 
data consistently available for all areas as of 90 days before 
the start of the fiscal year.'' \49\
---------------------------------------------------------------------------
    \48\ The U.S. Census Bureau conducts an annual survey called the 
Boundary and Annexation Survey [BAS] to collect information about 
selected legally defined geographic areas. The BAS provides information 
documenting the creation of new and dissolution of old incorporated 
municipalities, minor civil divisions [MCDs], and counties and 
equivalent areas, and changes in the boundaries of municipalities, 
MCDs, counties, and federally recognized American Indian areas [AIAs], 
which include reservations and off-reservation trust lands. See U.S. 
Census Bureau, Boundary and Annexation Survey (last modified Apr. 29, 
2005) .
    \49\ CDBG Formula Study at 8.
---------------------------------------------------------------------------
    The decennial census of population traditionally included 
two questionnaires: the short form and the long form. The 
Census Bureau uses the short form for a complete population 
count with basic characteristics such as name, sex, age, and 
race. The long form, sent to approximately one in six 
households, collects detailed characteristic data including the 
poverty and housing data required by HUD for CDBG formula 
calculations. The strength of using the decennial census data 
is the near-complete population counts and the very large 
sample size of the short form. Consequently, the data is 
statistically sound. The weakness of using decennial census 
data in CDBG formula allocations is that the Federal Government 
only collects it once every 10 years.
    The Census Bureau provides estimated updates of the 
population or ``short form'' data between decennial censuses 
with information found in the annual administrative records of 
Federal and State agencies. The Census Bureau and its State 
partners use statistical models that combine information 
derived from census and administrative records to produce 
current population estimates. This information is then 
benchmarked against the last decennial census counts.\50\ These 
intercensal population estimates are available at the county 
level \51\ and are used by HUD to make CDBG formula 
calculations.
---------------------------------------------------------------------------
    \50\ See U.S. Census Bureau, FSCPE History (last modified Nov. 19, 
2003) .
    \51\ See U.S. Census Bureau, Population Estimates (visited Aug. 25, 
2005) .
---------------------------------------------------------------------------
    While the Census Bureau updates population estimates based 
on the decennial census short form, it does not update the 
extensive population characteristics data provided by the 
decennial long form over the course of the intervening decade. 
Because no other nationally consistent data is available, HUD 
has had no choice but to use the aging data between decennial 
censuses. For example, by 2001, shortly before the Census 
Bureau released its Census 2000 long form data, HUD would have 
had to allocate any CDBG funds for that year based on 11-year-
old data.\52\ HUD draws data for three of the five formula 
variables from the long form, basing its formula calculations 
on consistently old data, thereby risking accurate targeting of 
funds.
---------------------------------------------------------------------------
    \52\ See U.S. Census Bureau, Census 2000 Data Products at a Glance 
(last modified Apr. 6, 2005) .
---------------------------------------------------------------------------
    The Congress, the administration, HUD, the Census Bureau, 
and many other Federal agencies recognize this problem of aging 
long form data between censuses. With congressional support and 
funding, the Census Bureau launched the American Community 
Survey [ACS] as a solution. The ACS will produce annual 
estimates of long form-type data and will replace the decennial 
long form in 2010. The Bureau successfully implemented the 
program in the fourth quarter of fiscal year 2004 and the 
agency is currently conducting the first full year of data 
collection. Data for areas with a population of 65,000 or more 
will be available in 2006, data for areas of 20,000 or more 
will be available in 2008, and data for all areas will be 
available in 2010. Accordingly, HUD could more accurately 
target CDBG funds between censuses even if it or Congress made 
no other changes the program.
    The smallest level of delineated geographic areas for which 
the Bureau provides ACS is the census tract.\53\ As a result of 
the small size of census tracts, there will not be sufficient 
sample size to annually develop statistically sound estimates. 
Consequently, the Census Bureau will develop multi-year 
estimates by averaging data collected over 3 or 5 years 
depending on the population density. This means that ACS will 
annually provide updated estimates based on the average of 3 or 
5 years of data. The Census Bureau refers to these estimates as 
``rolling estimates.''
---------------------------------------------------------------------------
    \53\ Census tracts are small, relatively permanent statistical 
subdivisions of a county. The Census Bureau delineates Census tracts 
for most metropolitan areas [MA's] and other densely populated 
counties. Census tracts usually have between 2,500 and 8,000 persons 
and, when first delineated, are designed to be homogeneous with respect 
to population characteristics, economic status, and living conditions. 
Census tracts do not cross county boundaries. The spatial size of 
census tracts varies widely depending on the density of settlement. 
Census tract boundaries are delineated with the intention of being 
maintained over a long time so that statistical comparisons can be made 
from census to census. However, physical changes in street patterns 
caused by highway construction, new development, etc., may require 
occasional revisions; census tracts occasionally are split due to large 
population growth, or combined as a result of substantial population 
decline. See U.S. Census Bureau, Census Tracts and Block Numbering 
Areas (last modified Nov. 14, 2000) .
---------------------------------------------------------------------------
    Discussions between the Subcommittee and HUD staff revealed 
that HUD has yet to determine how it will adapt ACS data, the 
rolling averages in particular, into CDBG calculations.

           F. STRENGTHENING AMERICA'S COMMUNITIES INITIATIVE

    The administration publicized the proposed SACI as ``a 
unified direct-grant program focusing on America's most 
economically distressed communities.'' \54\ The administration 
contends SACI would build upon ``existing economic and 
community development efforts.'' \55\
---------------------------------------------------------------------------
    \54\ U.S. Department of Commerce, Strengthening America's 
Communities (February 2005) (unpublished PowerPoint presentation, on 
file with the Department of Commerce).
    \55\ Office of Management and Budget, President Bush Proposes 
Strengthening America's Communities Initiative at 1 (last modified Feb. 
3, 2005) .
---------------------------------------------------------------------------
    The President's proposal consolidates 18 existing direct 
grant economic and community development programs, managed by 
five Federal agencies, into a single office within the 
Department of Commerce. The targeted programs include:

    Department of Housing and Urban Development Programs

     Community Development Block Grants [CDBG]
     Community Development Block Grants Set-Asides 
[CDBG SA]
     National Community Development Initiative [NCDI]
     Brownfields Economic Development Initiative [BEDI]
     Rural Housing and Economic Development [RHEC]
     Urban Empowerment Zones Round II Grants [UEZ]
      Community Development Loan Guarantees (Section 
108) [CDLG]

    Department of Agriculture Programs

     USDA Rural Business Enterprise Grants
     USDA Rural Business Opportunity Grants
     USDA Economic Impact Grants
      USDA Rural Empowerment Zones [EZ]/Enterprise 
Communities [EC]

    Department of Treasury Programs

      Community Development Financial Institutions 
[CDFI] Program
     Bank Enterprise Award [BEA] Program
     CDFI Native Initiatives

    Department of Health and Human Services Programs

     HHS Community Services Block Grant
     Community and Economic Development
     Rural Community Facilities

    Department of Commerce Programs

     Economic Development Assistance Programs

    Collectively, these 18 grant programs amounted to $5.7 
billion in appropriations for fiscal year 2005. Of the 18 
direct-grant programs included in SACI, the largest is the 
CDBG. With an overall fiscal year 2005 funding level of roughly 
$4.71 billion, $1 billion more than the President's $3.71 
billion request for SACI, CDBG is the largest direct-grant 
program to local governments for community and economic 
development activities.\56\
---------------------------------------------------------------------------
    \56\ See Consolidated Appropriations Act, 2005, Public Law No. 108-
447, 118 Stat. 2810 (2004).
---------------------------------------------------------------------------
    Under SACI, each grant program would cease to exist 
independently. The grants previously awarded under these 
programs would be awarded by the Department of Commerce through 
the newly created Strengthening America's Communities [SAC] 
Grant Program. Under the administration's proposal, funding 
would drop to a combined $3.71 billion for all programs in 
fiscal year 2006, a decrease of 31 percent or roughly $1.64 
billion.
    The administration states its primary goal in this 
initiative is to ensure grant moneys further Congress' original 
intent: ``to create the conditions for economic growth, robust 
job opportunities, and livable communities.'' \57\ According to 
an OMB review, most of the 18 direct grant programs lack clear 
goals or sufficient accountability. Further, OMB contends that 
many of the grants overlap in key areas, resulting in 
duplicative efforts and wasted money. According to the 
administration, the current system of Federal programs ``forces 
communities to navigate a maze of Federal departments, 
agencies, and programs in order to access economic development 
assistance programs, each imposing a separate set of standards 
and reporting requirements.'' \58\ The new $3.71 billion 
initiative, the administration argues, would ``help strengthen 
America's transitioning and most needy communities, while 
making better use of taxpayer dollars by reforming and 
restructuring many of the existing Federal economic and 
community development programs.'' \59\ The SAC grant program 
would ``simplify access to the Federal system, set new 
eligibility criteria, and establish strong accountability 
standards all in exchange for the flexible use of the funds so 
that communities most in need will be assisted.'' \60\ Thus, 
SACI intends to: (1) improve the efficiency of community and 
economic development grant programs; (2) create greater 
accountability for program success; and (3) simplify access to 
these grant programs.
---------------------------------------------------------------------------
    \57\ Office of Management and Budget, President Bush Proposes 
Strengthening America's Communities Initiative at 1 (last modified Feb. 
3, 2005).
    \58\ Id.
    \59\ Id.
    \60\ Id.
---------------------------------------------------------------------------
    The administration has not yet presented a detailed plan 
for the program or a legislative proposal for codifying the 
initiative. However, the administration stated that the new 
eligibility criteria would be based upon job loss, unemployment 
levels, and poverty. The new accountability measures would 
include increased job creation, new business formation rates, 
increased homeownership, commercial development, and private 
sector investment. If a community fails to meet such measures, 
the SACI proposal calls for the Commerce Department to work 
with the community to develop an action plan and to provide 
technical assistance in the effective use of funds. If a 
community consistently fails to meet the accountability 
standards, it may lose future funding.

              G. HUD PROPOSED CHANGES TO THE CDBG FORMULA

    On February 21, 2005, HUD published a document entitled, 
CDBG Formula Targeting to Community Development Need, the 
result of a study on the declining effectiveness of the current 
grant formula in targeting need. The study demonstrates that 
the current formula continues to target need: the top 10 
percent of communities with the greatest need receive four 
times as much as the 10 percent of communities with the lowest 
need.\61\ However, this targeting is based on poverty need. The 
study shows that the current formula's ability to target 
community development need has substantially declined over the 
last 30 years. A growing number of communities with similar 
needs today receive substantially different grants. Further, 
the per capita grants awarded to the neediest of communities 
have decreased while the per capita grants awarded to the least 
needy of communities have increased.\62\
---------------------------------------------------------------------------
    \61\ See CDBG Formula Study at x.
    \62\ See id. at 37.

    
    
    The above entitlement grantee chart (left) demonstrates 
that the amount of funds jurisdictions currently receive (the 
jagged line) is only slightly in accord with the amount of 
funds that should be allocated according to the need index (the 
solid line), but it also demonstrates that similarly situated 
communities receive vastly differing grant awards (differing 
heights of the peaks).\63\ HUD posits that one explanation for 
these two anomalies is the flatness of Formula A and the 
inequity of Formula B.\64\ Formula A places a 25 percent weight 
on the population variable, resulting in the most needy of 
grantees not getting substantially more funds than the least 
needy of grantees simply because two cities may have similar 
population counts regardless of the need of that population. 
Conversely, Formula B grantees often receive substantial grants 
because of the large numbers of pre-1940 housing even though 
there may be little community or economic need. The non-
entitlement grantee chart (right) demonstrates that there is 
little to no relationship between the need of a community and 
the funds allocated under CDBG.\65\
---------------------------------------------------------------------------
    \63\ See id. at x chart ES-1.
    \64\ See id. at xi.
    \65\ See id. at xii chart ES-2.
---------------------------------------------------------------------------
    To address these deficiencies, HUD proposed four 
alternative formulas. Three of the four alternatives maintain 
the 70/30 (entitlement community/nonentitlement community) 
split.\66\ The fourth alternative eliminates the 70/30 split. 
Only one of the four alternatives maintains the Formula A and 
Formula B duality \67\ while the remaining alternatives 
simplify the calculation by using one formula each for 
entitlement communities and non-entitlement communities.
---------------------------------------------------------------------------
    \66\ See supra p. 5.
    \67\ See id.
---------------------------------------------------------------------------
            Alternative 1
    Alternative 1 adjusts the existing formula by changing the 
weights of the variables in the current formula.\68\ Under 
Formula A, population is weighted at 10 percent (currently 25 
percent), poverty is weighted at 60 percent (currently 50 
percent), and overcrowding is weighted at 30 percent (currently 
25 percent). Under Formula B, the age of housing is calculated 
as housing 50 years or older occupied by a poverty household 
(currently pre-1940 housing, without regard to household need) 
and weighted at 50 percent (currently also 50 percent), poverty 
is calculated by family and elderly poverty (currently 
calculated as poverty without regard to family status or age, 
thus incorporating large student populations) and is weighted 
at 40 percent (currently 30 percent), and growth lag is 
weighted at 10 percent (currently 20 percent).
---------------------------------------------------------------------------
    \68\ See CDBG Formula Study at xiii-xv, 62-65.

    
    
    Alternative 1 improves the targeting of each formula (the 
bouncing line follows the solid need index line more closely) 
but does not correct the disparities that occur between Formula 
A recipients and Formula B recipients (the spiking remains 
similar to the current formula chart).\69\ This alternative 
also results in the least disruption of funds.\70\
---------------------------------------------------------------------------
    \69\ See id. at xiv-xvi charts ES-3 and ES-4.
    \70\ See id. at xiv, 61.
---------------------------------------------------------------------------
            Alternative 2
    Alternative 2 eliminates the dual formula system and 
replaces it with one formula.\71\ For entitlement communities, 
allocation is calculated using family and elderly poverty 
weighted at 50 percent, female-headed households with children 
under 18 years weighted at 10 percent, overcrowding weighted at 
20 percent, and housing 50 years or older occupied by a poverty 
household weighted at 20 percent. Non-entitlement community 
allocation is calculated using family and elderly poverty 
weighted at 60 percent, female-headed households with children 
under 18 years weighted at 10 percent, and housing 50 years or 
older occupied by a poverty household weighted at 30 percent. 
The overcrowding variable is eliminated in the non-entitlement 
calculation as it bears a high correlation to poverty in non-
entitled communities, which is accounted for in the other 
variables.
---------------------------------------------------------------------------
    \71\ See id. at xvi-xviii, 62, 66-71.

    
    
    The allocations using Alternative 2 closely match the need 
index (the solid line) and address the inequities between 
similarly situated communities by eliminating the dual formula 
(less spiking in the line representing actual allocation).\72\ 
However, because the allocation so closely matches the need 
index thereby improving fairness, without increasing funding, 
some very needy Formula B communities suffer dramatic decreases 
in funding.\73\ Likewise, some high-need communities that are 
relatively over-funded by Formula A (as compared to the need 
index) suffer significant funding decreases as well (e.g., St. 
Louis drops from $74 per capita to $37 per capita). At the same 
time, high-need communities that were under-funded are awarded 
larger per capita grants more closely aligned with their needs.
---------------------------------------------------------------------------
    \72\ See id. at xvii-xviii charts ES-5 and ES-6.
    \73\ See id. at xvii, 62, 70.
---------------------------------------------------------------------------
            Alternative 3
    Alternative 3 is very similar to Alternative 2.\74\ For 
entitlement communities, the allocation is calculated using the 
same formula as in Alternative 2 but with more weight on older 
housing occupied by a poverty household and less weight on 
overcrowding. Family and elderly poverty is weighted at 50 
percent, female-headed households with children under 18 years 
is weighted at 10 percent, overcrowding is weighted at 10 
percent, and housing 50 years or older occupied by a poverty 
household is weighted at 30 percent. This shift in weight 
places more emphasis on communities plagued by aged housing or 
decline versus communities with growing immigrant populations. 
The formula also allows for an upward adjustment of up to 25 
percent for communities with low per capita income or a 
downward 25 percent adjustment for areas with a high per capita 
income, both relative to the metropolitan area per capita 
income. Additionally, the formula permits a pro rata reduction 
to ensure aggregate grant allocations do not exceed the 
program's appropriated funds. The non-entitlement community 
formula is identical to the formula used in Alternative 2.
---------------------------------------------------------------------------
    \74\ See id. at xviii-xx, 62, 71-73.

    
    
    Alternative 3 addresses the need index by following the 
solid line but with a steeper slope, meaning more funds are 
allocated to higher need communities and less funds are 
allocated to less needy communities.\75\ However, as indicated 
by the spiking of the allocated per capita grant, there is more 
variation in the amounts allocated between similarly situated 
communities than in Alternative 2. While some relatively over-
funded high-need communities still suffer decreases in their 
per capita grant, the decrease is not as significant as under 
Alternative 2.
---------------------------------------------------------------------------
    \75\ See id. at xix chart ES-7.
---------------------------------------------------------------------------
            Alternative 4
    Alternative 4 is a single formula approach. There is no 
differentiation between entitlement and non-entitlement 
communities (currently, the 70/30 split).\76\ The formula is 
identical to the formula used for entitlement communities under 
Alternative 3. Allocations are calculated based upon family and 
elderly poverty weighted at 50 percent, female-headed 
households with children under 18 years weighted at 10 percent, 
overcrowding weighted at 10 percent, and housing 50 years or 
older occupied by a poverty household weighted at 30 percent. 
As in Alternative 3, the allocation may be adjusted upward or 
downward by 25 percent based upon per capita income relative to 
the metropolitan area per capita income and a pro rata 
reduction is permitted to match the grant allocations to the 
program appropriations. Using this formula and fiscal year 2004 
figures, the end result is a de facto split of 69 percent of 
CDBG funds granted to entitlement communities and 31 percent 
granted to non-entitlement communities. Targeting is improved 
in the same way as under Alternative 3 as demonstrated by the 
grant allocation line closely matching the need index line but 
with a greater slope. Thus, higher need communities receive 
more funds and lower need communities receive fewer funds.\77\
---------------------------------------------------------------------------
    \76\ See id. at xx-xxi.
    \77\ See id. at xxi chart ES-8.

    
    
            Summary of Impact
    Alternative 1 makes only minor modifications to the current 
formula, resulting in fewer large losses and gains than the 
other alternatives. Alternatives 1, 3, and 4 result in 
redistribution of funds from the least needy entitlement 
communities to the most needy communities, with Alternative 4 
causing the largest redistribution. Alternative 2 addresses the 
anomaly created by using a dual formula system (Formula A 
versus Formula B), replacing the two formulas with a single 
formula. However, this leads to significant per capita grant 
reductions to very needy entitlement communities, a consequence 
that Alternative 3 attempts to address. Alternative 4 has 
almost an identical impact as Alternative 3--the upside being 
the most significant simplification of allocation calculation 
(one formula without a 70/30 split), with the downside being 
slightly more losers than winners in the allocation because the 
share of funds for entitlement communities is effectively 
reduced to 69 percent.
    The following tables demonstrate the effect on 
jurisdictions under each of the four Alternative formulas. 
Table ES-1 \78\ shows the effect on entitlement communities, 
table ES-2 \79\ shows the effect on non-entitlement communities 
(States), and table ES-3 \80\ shows the redistribution of funds 
by region.
---------------------------------------------------------------------------
    \78\ See id. at xxii.
    \79\ See id.
    \80\ See id. at xxiii.

    
    
      H. THE NATIONAL ACADEMY OF PUBLIC ADMINISTRATION STUDY AND 
        RECOMMENDATIONS PERTAINING TO CDBG PERFORMANCE MEASURES

    In 2003, the National Academy of Public Administration 
[NAPA] contracted with QED Group to develop a set of 
performance measures for the CDBG program. In February 2005, 
the NAPA panel (the ``Panel'') published its findings and 
recommendations for developing performance measures for the 
CDBG program. The Panel concluded:

        [T]here is sufficient common ground among [CDBG 
        stakeholders] to construct a performance measurement 
        system that can satisfy them and be consistent with the 
        Housing and Community Development Act of 1974, GPRA, 
        and PART. The Panel found that virtually all parties in 
        this discussion, ranging from OMB to HUD to stakeholder 
        groups, are committed to arriving at a viable approach 
        that reflects common agreement.

        Generally, entitlement communities and states support 
        CDBG performance reporting as long as it is non-
        intrusive, extensively used, cost effective, and 
        compatible with existing management systems. Grantees 
        want maximum programmatic flexibility to tailor the 
        investments to their local needs. At the federal level, 
        HUD wants a system that reflects and maintains CDBG's 
        flexibility, and complies with its statutory 
        responsibilities as an executive agency. Meanwhile, OMB 
        wants one that encourages HUD and grantees to 
        demonstrate conclusively that the investments 
        contribute to the development of viable communities and 
        to low- and moderate income beneficiaries. To 
        accomplish this, it wants entitlement communities and 
        states to target CDBG funding to a limited number of 
        neighborhoods.

           *         *         *         *         *

        To illuminate shared practices in the field, the Panel 
        examined a wide-ranging sample of performance 
        measurement reports issued by federal programs, 
        communities and states, think tanks, university 
        research centers, public interest groups, citizen 
        groups and foundations. . . . The more closely that a 
        CDBG performance measurement system conforms to 
        practices in the field, the more likely entitlement 
        communities and states will be to report performance 
        results and use them in management. The Panel believes 
        that a system proposed for negotiation with grantees 
        must distinguish clearly between realistic expectations 
        of what grantees can reasonably be expected to report 
        and the progress toward national results that HUD 
        should be responsible for determining. The Panel calls 
        on HUD to demonstrate a relationship between locally 
        reported data and accountability standards for grantee 
        performance. In turn, grantees should hold HUD 
        accountable for an effective research and evaluation 
        program that demonstrates the value that taxpayers 
        receive from their investment in CDBG.

           *         *         *         *         *

    The Panel recommends that performance indicators should:

          Have stakeholder consensus on what should be 
        measured.

          Focus on things that can be quantified--
        people, businesses or even organizations, rather than 
        notions of community and neighborhood betterment where 
        considerable conceptual ambiguity exists.

          Always report frequencies, rather than 
        percentages or rates, to facilitate aggregation of data 
        across communities and states.

          Avoid use of baselines or benchmarks in 
        reporting due to the sporadic, often one time only 
        nature of CDBG investments (e.g., a single investment 
        in a water system).

          Avoid any arbitrary time qualifiers as much 
        as possible, but should report annual results.

          Allow aggregation from the local to national 
        level.

          Overlap as much as possible with other 
        community planning and development program indicators 
        so that HUD can demonstrate performance across related 
        activities.

          Avoid double counting of benefits across 
        CDBG, ESG, HOPWA and HOME programs if there are any. 
        (footnote omitted)

          Be valid in measuring consistently and 
        correctly over time.

           *         *         *         *         *

        CDBG's existing performance measurement system relies 
        on data gathering and reporting systems that are common 
        in the department, the field and elsewhere. The Panel 
        is aware of other systems that might complement or 
        supplement performance information reported in more 
        traditional practice. For example, social science 
        findings could be used to impute outcomes to CDBG 
        beneficiaries when it proves cost prohibitive to gather 
        outcome information directly from beneficiaries 
        themselves. It recommends that HUD explore some of 
        these alternative systems, perhaps through a series of 
        demonstration projects, as a way to measure program 
        accomplishments.\81\
---------------------------------------------------------------------------
    \81\ National Academy of Public Administration, Developing 
Performance Measures for the Community Development Block Grant at xi-xv 
(2005) [hereinafter NAPA Performance Measures Report].
---------------------------------------------------------------------------

     I. THE INTEGRATED DISBURSEMENT AND INFORMATION SYSTEMS [IDIS]

    Grant recipients currently report their CDBG data to HUD 
through the Integrated Disbursement and Information System 
[IDIS]. A companion system known as Community 2020, once 
considered innovative by stakeholders, has become 
technologically obsolete and incompatible with newer 
software.\82\ Consequently, the Community 2020 system is now 
seldom used. According to the NAPA study, ``neither system has 
worked well and past efforts to fix each one has failed or been 
executed in a piecemeal fashion.'' \83\
---------------------------------------------------------------------------
    \82\ See National Academy of Public Administration, Integrating 
CDBG Performance Measures Into IDIS at vii (2005).
    \83\ Id.
---------------------------------------------------------------------------
    HUD posits that much of the problem with the reporting 
system results from the use of COBAL, a programming language 
first developed in 1960. Consequently, COBAL and programs 
developed using COBAL are antiquated and incompatible with 
today's technologies. HUD indicates that it is reengineering 
the IDIS in an effort to resolve these problems. To that end, 
NAPA and other observers have commended HUD for its efforts to 
upgrade its information management systems.\84\
---------------------------------------------------------------------------
    \84\ Interview with HUD staff, in Washington, DC (Apr. 1, 2005).
---------------------------------------------------------------------------
    Commissioned by HUD, NAPA reviewed IDIS and published a 
report entitled, Integrating CDBG Performance Measures into 
IDIS. NAPA offers several suggestions therein for upgrades to 
improve existing performance measurement and reporting systems.

                 J. PROPOSED OUTCOME MEASUREMENT SYSTEM

    In June 2004, a Joint Grantee/HUD/OMB Outcome Measurement 
Working Group (the ``working group'') convened to develop an 
Outcome Measurement System for key Federal community 
development programs, including CDBG. The Council of State 
Community Development Agencies [COSCDA], National Community 
Development Association [NCDA], National Association for County 
and Community Economic Development [NACCED], National 
Association of Housing and Redevelopment Officials [NAHRO], 
HUD's CPD office, and OMB were partners in this effort.
    In October 2004, the working group drafted a consensus 
document on a proposed Outcome Measurement System. According to 
the proposal, ``grantees would use this System in their five-
year Consolidated Plans and Annual Action Plans, but are free 
to add objectives, outcomes and indicators specific to their 
state or local initiatives or priorities.'' \85\ Under the 
plan, HUD will alter existing reporting requirements and 
mechanisms to ``include . . . outcomes, indicators and 
appropriate variable data'' proposed by the working group.\86\
---------------------------------------------------------------------------
    \85\ Consensus Document: Joint HUD/OMB/Grantee Outcome Measurement 
Working Group at 1 (last modified Nov. 20, 2004)  [hereinafter 
Working Group Consensus Document].
    \86\ Id.
---------------------------------------------------------------------------
    HUD published a Notice in the Federal Register on June 10, 
2005 regarding the Performance Measurement Outcome System to 
obtain input from the public to operationalize the 
proposal.\87\ The comment period closed on September 8, 2005 
and HUD expects to issue a Final Notice by December 2005. HUD 
also held regional input sessions in five cities across the 
country drawing more than 1,000 attendees. HUD plans to provide 
training to grantees in 2006 and will then phase in the new 
system by 2007 as the Department's information system is 
adjusted according to the proposal.\88\
---------------------------------------------------------------------------
    \87\ See Notice of Draft Outcome Performance Measurement System for 
Community Planning and Development Formula Grant Programs; Request for 
Comments, 70 Federal Register 34,044 (2005).
    \88\ See id. at 34,045.
---------------------------------------------------------------------------
    The proposal includes three overarching objectives: (1) 
``Creating Suitable Living Environments,'' (2) ``Providing 
Decent Affordable Housing,'' and (3) ``Creating Economic 
Opportunities.'' \89\ Within each objective, there are three 
outcome categories including availability and accessibility, 
affordability, and sustainability. Under the new system:
---------------------------------------------------------------------------
    \89\ Id. at 34,046.

        Based on their intent when funding them, Grantees would 
        determine under which of the three objectives to report 
        the outcomes of their projects and activities. 
        Similarly, once the objective is chosen, then the 
        Grantee would also choose which of the three outcome 
        categories best reflects what they are seeking to 
        achieve (the results) in funding a particular activity. 
        Next, Grantees would choose from a list of indicators 
        (also known as outputs) to report on, and supply the 
---------------------------------------------------------------------------
        data for those indicators to HUD.

        The System maintains the flexibility of the block 
        grants [sic] programs, as the objectives and outcomes 
        are determined by the grantees based on the intent of 
        the project and activity. While program flexibility is 
        maintained, the System offers a specific menu of 
        objectives, outcomes and indicators so that reporting 
        can be standardized and the achievements of these 
        programs can be aggregated to the national level.\90\
---------------------------------------------------------------------------
    \90\ Id.
---------------------------------------------------------------------------

                             III. Hearings


A. HEARING ON THE STRENGTHENING AMERICA'S COMMUNITIES INITIATIVE, MARCH 
                                1, 2005

    Given the administration's critique of the CDBG program 
and, conversely, given the overwhelming opposition to SACI by 
the stakeholder community, the Subcommittee held its initial 
oversight hearing into the CDBG program and its proposed 
consolidation under SACI on March 1, 2005.
    This hearing was entitled, ``Strengthening America's 
Communities: Is It the Right Step Toward Greater Efficiency and 
Improved Accountability?'' The Subcommittee received testimony 
from a number of parties representing a diversity in interests 
and viewpoints regarding both the CDBG program and SACI.
    A total of seven witnesses testified in two panels. The 
first panel consisted of the Honorable Roy A. Bernardi, Deputy 
Secretary of HUD; the Honorable Clay Johnson III, Deputy 
Director of OMB; and the Honorable David Sampson, Assistant 
Secretary for Economic Development of the Department of 
Commerce. The second panel, consisting of non-Federal CDBG 
stakeholders, included U.S. Conference of Mayors President 
Donald Plusquellic, National Association of Counties President 
Angelo D. Kyle, National Community Development Association 
Executive Director Chandra Western, and National League of 
Cities First Vice President Jim Hunt.
    The panel of Federal witnesses centered its attention on 
the proposed SACI and the administration's argument that the 18 
direct grant programs affected are duplicative and ineffective 
and should therefore be consolidated into one program.
    Assistant Secretary Sampson testified that the 
administration's proposal ``calls for the consolidation of 18 
of [the 35 Federal economic and community development] programs 
which are the direct-grant programs. Some of these programs, 
based on OMB analysis, duplicate and overlap one another.'' 
\91\ According to OMB, ``[w]ith no administration-wide approach 
to guide these efforts, many of these investments are: largely 
uncoordinated, too loosely targeted, weakly leveraged, and not 
achieving results. Most important, these programs often cannot 
demonstrate they are having any positive impact on the 
communities they serve.'' \92\
---------------------------------------------------------------------------
    \91\ CDBG Hearings at 23 (statement of David A. Sampson, Assistant 
Secretary of Commerce for Economic Development, Department of 
Commerce).
    \92\ Id. at 21 (statement of Clay Johnson III, Deputy Director for 
Management, Office of Management of Budget).
---------------------------------------------------------------------------
    Assistant Secretary Sampson likewise criticized the direct 
grant programs because they allegedly ``lack clear 
accountability goals, and . . . cannot sufficiently demonstrate 
measurable impact on achieving improved community and economic 
performance.'' \93\ In addition to improving what the 
administration considers questionable impact, Sampson 
continued, the administration intended SACI to reduce 
duplication and confusion:
---------------------------------------------------------------------------
    \93\ Id. at 23 (statement of David A. Sampson, Assistant Secretary 
of Commerce for Economic Development, Department of Commerce).

        [T]he current system forces communities to navigate a 
        maze of Federal departments, agencies and programs--
        each imposing a separate set of standards and reporting 
        requirements--in order to access Federal assistance. 
        Some of these programs duplicate and overlap one 
        another, and some have inconsistent criteria for 
        eligibility and little accountability for how funds are 
        spent.\94\
---------------------------------------------------------------------------
    \94\ Id. at 26-27.

According to the Department of Commerce, ``Success is often 
hampered by this fragmented, and often duplicative, set of 
programs. In some instances, programs act in isolation from one 
another, even though they share the exact same purpose . . . 
[a]s a result, funding is spread thinly and not strategically 
targeted to have any impact on communities in need.'' \95\ 
Deputy Director Clay Johnson testified that the administration 
believes SACI will ``better structure our community and 
economic development programs to get more of the intended 
results, which are to create vibrant communities that would not 
exist otherwise.'' \96\
---------------------------------------------------------------------------
    \95\ Id. at 28.
    \96\ Id. at 20 (statement of Clay Johnson III, Deputy Director for 
Management, Office of Management of Budget).
---------------------------------------------------------------------------
    While the administration has yet to propose specific 
details of changes to the program concomitant with 
consolidation under SACI, Mr. Sampson testified that the 
eligibility criteria will change in order to improve targeting 
of funds:

        The intent of the proposal is that most entitlement 
        communities will continue to remain eligible. The 
        intent is to graduate from the program the wealthiest 
        communities in America and redirect that funding so 
        that those communities who remain eligible actually 
        receive more money than they currently do. But the 
        specific line where that eligibility criteria will be 
        drawn has not yet been established.\97\
---------------------------------------------------------------------------
    \97\ Id. at 41 (statement of David A. Sampson, Assistant Secretary 
of Commerce for Economic Development, Department of Commerce).

Sampson continued, ``[T]here are clearly a number of 
communities in America where you have--I think the number is 38 
percent of current HUD CDBG grants go to communities with 
poverty rates below the national average.'' \98\ ``[I]f you 
look at some of that data and you see communities with poverty 
rates of 2 to 3 percent, it's pretty clear to us that is a good 
candidate for retargeting those funds to communities with 
poverty rates of 20 to 26 percent,'' Sampson concluded.\99\
---------------------------------------------------------------------------
    \98\ Id. at 42.
    \99\ Id.
---------------------------------------------------------------------------
    Mr. Johnson characterized SACI as ``a tremendous 
opportunity to build more accountability into the programs to 
ensure that the focus is on what we get for the money, not on 
how much money we spend.'' \100\ The administration posited 
that in the new SAC grant program, ``communities [will] be 
required to meet specific accountability measures[.]'' \101\ 
Mr. Sampson explained that ``[a]ssisted communities [will be 
required] to track progress toward certain goals, including 
such things as increasing job creation, new business formation, 
and private sector investment from an economic development 
standpoint; and increasing homeownership . . . and commercial 
development from a community development standpoint.'' \102\ 
``For those communities that show inadequate progress meeting 
the program's goals,'' Johnson explained, ``a plan of action 
will be developed and technical assistance will be provided to 
ensure that future funds are strategically targeted and 
invested in proven activities. Communities that are 
consistently unable to use taxpayer dollars to meet the 
accountability measures would stand to lose future funding.'' 
\103\
---------------------------------------------------------------------------
    \100\ Id. at 20 (statement of Clay Johnson III, Deputy Director for 
Management, Office of Management of Budget).
    \101\ Id. at 22.
    \102\ Id. at 30 (statement of David A. Sampson, Assistant Secretary 
of Commerce for Economic Development, Department of Commerce).
    \103\ Id. at 22.
---------------------------------------------------------------------------
    In a later hearing, when asked directly whether the 
administration's assessment was an accurate characterization of 
the CDBG program, Deputy Secretary Bernardi argued that the 
purpose and design of the program are clear, contrary to the 
PART assessment. The program was purposely designed with great 
flexibility in order to best address local needs:

        [On] the program purpose and design [element of the 
        PART score], we received a zero score. Candidly, the 
        program purpose and design, I think, is spelled out in 
        the Community Development Block Grant Act of 1974. The 
        program was meant to be utilized by local officials 
        with determination after a tremendous amount of 
        community input as to how best they would utilize those 
        resources . . . . So it is a very flexible program; it 
        is a program that was meant to be utilized at the local 
        level.\104\
---------------------------------------------------------------------------
    \104\ Id. at 208 (statement of Roy A. Bernardi, Deputy Secretary of 
the Department of Housing and Urban Development).

    Touting the flexibility of the program, CDBG stakeholders 
recounted a wide assortment of activities funded by program 
dollars. Mayor Plusquellic related Akron's use of funds to 
demolish dilapidated housing and funds leveraged funds to 
encourage private sector developers to build new housing in old 
neighborhoods.\105\ The city also used its grant dollars ``to 
induce the private owner of a grocery store chain to open in an 
area that was not served with a grocery store in many years. 
And we've helped senior citizens, assisted handicapped 
children, and . . . helped new homebuyers[.]'' \106\ NACO 
President Angelo Kyle cited CDBG funds as the enabler creating 
the largest high-tech business incubator in California, 
creating 475 jobs and revitalizing a blighted community.\107\ 
Kyle also ran down the list of programs on which CDBG funds are 
used in his hometown of Lake County, IL, which include a 
variety of activities and projects including ``daycare, 
transitional housing, homeless assistance, fair housing, 
emergency food assistance, homeowner rehabilitation, first-time 
homebuyer assistance, and employment training, as well as for 
important infrastructure improvements, public services, and 
economic development activities.'' \108\ As Councilman Hunt 
described CDBG, ``[It] is not just a jobs creator or economic 
development tool;'' CDBG is also a catalyst for many other 
types of projects.\109\
---------------------------------------------------------------------------
    \105\ See id. at 49 (statement of Don Plusquellic, president, U.S. 
Conference of Mayors).
    \106\ Id.
    \107\ See id. at 59 (statement of Angelo D. Kyle, president, 
National Association of Counties).
    \108\ Id.
    \109\ Id. at 63 (statement of James C. Hunt, first vice president, 
National League of Cities).
---------------------------------------------------------------------------
    In reaction to the administration's primary reason for 
consolidating the direct grant programs, reducing duplication 
and increasing efficiency, members of the Subcommittee 
questioned whether the Department of Commerce has the expertise 
to manage a program the size of CDBG alone, with an overall 
fiscal year 2005 appropriation of $4.71 billion, and whether 
they have the institutional knowledge to administer what is 
essentially a housing and urban development program. There is a 
significant internal infrastructure at HUD supporting the 
administration of the CDBG program--one of many programs HUD 
administers. Deputy Secretary Bernardi reported that there are 
approximately 800 employees devoted to the community planning 
and development program--200 employees are located at HUD 
headquarters with the remaining 600 employees stationed across 
the country in 42 field offices.\110\ Approximately 40 
employees of the 200 stationed in Washington, DC, work full 
time on the CDBG program in conjunction with the Section 108 
Loan Guarantee Program.\111\ On average, the 600 field 
employees ``devote at least a third of their time'' to 
administering the CDBG program.\112\
---------------------------------------------------------------------------
    \110\ See id. at 37 (statement of Roy A. Bernardi, Deputy 
Secretary, Department of Housing and Urban Development).
    \111\ See id.
    \112\ Id.
---------------------------------------------------------------------------
    Conversely, Commerce manages a portfolio of grants totaling 
$2.3 billion.\113\ Asked directly whether the Department has 
the expertise to handle the CDBG program, Deputy Secretary 
Sampson responded, ``we clearly understand that in 
consolidating all 18 of these programs, the new entity is going 
to have to leverage subject matter experts within the different 
programs in creating this new entity within Commerce that will 
be responsible for administering Strengthening America's 
Communities.'' \114\ Sampson further stated, ``Commerce has a 
very extensive grant portfolio currently . . . [b]ut we clearly 
will have to leverage the subject matter expertise and the 
lessons learned from other agencies and other programs in 
creating this new program.'' \115\
---------------------------------------------------------------------------
    \113\ See id. at 40 (statement of David A. Sampson, Assistant 
Secretary of Commerce for Economic Development, Department of 
Commerce).
    \114\ Id.
    \115\ Id.
---------------------------------------------------------------------------
    Stakeholders likewise questioned the wisdom of moving a 
grant program the size of CDBG to Commerce. National League of 
Cities First Vice President Jim Hunt argued,

        The Administration claims that it is seeking to 
        ``retarget and refocus'' these funds to create new 
        program efficiencies. However, from a practical 
        standpoint, NLC questions whether moving the programs 
        from HUD, where administrative and professional 
        infrastructures already exist and function well, to the 
        Department of Commerce will generate any real savings 
        because building the agency's capacity to administer 
        the programs alone would likely consume any cost 
        savings derived from consolidating these programs.\116\
---------------------------------------------------------------------------
    \116\ Id. at 69 (statement of James C. Hunt, first vice president, 
National League of Cities).

    Stakeholders also testified to the accomplishments of the 
CDBG program and panned OMB's criticisms resulting from its 
PART assessment. In a joint written statement to the 
Subcommittee, the stakeholders noted that one of the primary 
criticisms of the PART was the program's alleged lack of 
performance outcome measures.\117\ However, these organizations 
worked with both HUD and OMB in a joint working group, the 
purpose of which was to create performance outcome measures and 
reporting criteria. The stakeholders questioned the credibility 
of OMB's PART assessment given that ``OMB helped develop [the 
performance and outcome matrix] and . . . signed off on the 
framework and the outcome measures.'' \118\
---------------------------------------------------------------------------
    \117\ See id. at 56 (statement of Don Plusquellic, president, U.S. 
Conference of Mayors).
    \118\ Id.
---------------------------------------------------------------------------
    The stakeholders further attacked the PART as an 
inappropriate tool for measuring performance of a block grant 
program, positing the tool is better suited for the assessment 
of categorical programs.\119\ Conference of Mayors president, 
Mayor Don Plusquellic, surmised that the PART ``may be 
factually correct, but it's inferentially wrong.'' \120\ 
Plusquellic continued that the PART ``infers that somehow we're 
doing something with these moneys other than what was intended, 
and that we're not meeting some performance standard . . .'' 
but he warned the Subcommittee that CDBG funds are ``used in 
some of the most distressed and difficult areas in the 
community, and yet they're some of the most important, because 
what we do is keep from allowing that decay from older 
buildings . . . from spreading, and we thereby bring back the 
whole community.'' \121\
---------------------------------------------------------------------------
    \119\ See id. at 57.
    \120\ Id. at 50.
    \121\ Id.
---------------------------------------------------------------------------
    Councilman James Hunt, testifying on behalf of the National 
League of Cities, emphasized that the performance measures 
utilized by the administration in the PART analysis were 
inapplicable in most circumstances in which CDBG funds are 
used. ``[M]easuring results by [the PART] criteria makes little 
sense for the communities that are chronically impoverished, 
have little to offer in the way of resources, and are unlikely 
to show significant progress over a relatively short period.'' 
\122\ Additionally, Hunt offered, CDBG funds are used on 
projects the impact of which is difficult to measure in terms 
of economics. For instance, the removal or demolition of vacant 
or dilapidated buildings, which were once crime havens, result 
in the expansion of businesses or in additional land for 
garages and yards of private citizens.\123\ ``It is very 
difficult to assess the impact of removing a drug den from a 
neighborhood using economic criteria alone; moreover, it is 
difficult to assess the economic impact in relation to this 
type of project over a short period, yet the [A]dministration's 
proposal appears to do just that.'' \124\
---------------------------------------------------------------------------
    \122\ Id. at 63 (statement of James C. Hunt, first vice president, 
National League of Cities).
    \123\ See id. at 64.
    \124\ Id.
---------------------------------------------------------------------------
    At the same time it attacked the decision to move CDBG to 
Commerce and applauded the successes of the program, the 
stakeholder community admitted that there is room for 
improvement within the CDBG program. Deputy Secretary Bernardi 
acknowledged this fact and testified that HUD had demonstrated 
both willingness and an ability to address the weaknesses in 
the program. ``[E]very program can be improved upon . . . we 
have good employees. They have the capacity, the experience, 
[and] the institutional knowledge to improve on any program.'' 
\125\ Further emphasizing HUD's willingness to better the CDBG 
program, Bernardi offered, ``[W]e are constantly looking, under 
difficult budget constraints, ways in which we can provide 
additional resources to those people that need it most.'' \126\
---------------------------------------------------------------------------
    \125\ Id. at 38 (statement of Roy A. Bernardi, Deputy Secretary, 
Department of Housing and Urban Development).
    \126\ Id.
---------------------------------------------------------------------------
    Emphasizing that change is possible without eliminating the 
program entirely, in a later hearing, Saul Ramirez, Jr. of 
NAHRO testified, ``CDBG is effective and successful, but there 
is always room for improvement'' and ``[w]hen stakeholders 
agree, CDBG can be improved. Interest groups and grantees are 
more than willing to come to the table with Congress and the 
Department to work toward responsible change.'' \127\
---------------------------------------------------------------------------
    \127\ Id. at 161 (statement of Saul N. Ramirez, Jr., executive 
director, National Association of Housing and Redevelopment Officials).
---------------------------------------------------------------------------
    To date, the administration has not transmitted further 
information detailing its SACI proposal.

        B. HEARING ON CDBG FORMULA ALTERNATIVES, APRIL 26, 2005

    A second hearing was held on April 26, 2005, entitled, 
``The 1970s Look: Is the Decades-Old Community Development 
Block Grant Formula Ready for an Extreme Makeover?'' The 
hearing primarily focused on HUD's report, CDBG Formula 
Targeting to Community Development Need. The report, prepared 
for the Department's 2004 budget submission,\128\ analyzed the 
distribution of program funds under the current formula as well 
as four HUD-proposed alternative formulas. Additionally, the 
report detailed changes to the program's need index analysis, 
through which HUD assigns a numeric score to entitlement 
communities based on relative need. This need index score is 
the basis for the determination of a community's annual CDBG 
funding.
---------------------------------------------------------------------------
    \128\ See id. at 132 (statement of Roy A. Bernardi, Deputy 
Secretary, Department of Housing and Urban Development).
---------------------------------------------------------------------------
    In examining the formula alternatives presented by HUD, the 
Subcommittee requested the participation of individuals 
representing varied groups of CDBG stakeholders including 
Federal and State government officials, interest groups, 
associations, and CDBG users. Testifying before the 
Subcommittee were the Honorable Roy A. Bernardi, Deputy 
Secretary of HUD; Paul Posner, Director of Federal Budget & 
Intergovernmental Relations at GAO; Jerry C. Fastrup, Assistant 
Director of Applied Research and Methods at GAO; and Saul N. 
Ramirez, Jr., now the executive director of the National 
Association of Housing and Redevelopment Officials, formerly 
the Deputy Secretary of HUD in the Clinton administration.
    The primary factor for considering a change to the formula 
is the perceived inequitable distribution of program funds. 
HUD's analysis revealed ``stark examples of funding disparity . 
. . communities with similar need may receive significantly 
more or less funding on a per capita basis [and there are] 
examples of communities with less need receiving roughly the 
same amount of funding as higher-need areas.'' \129\ According 
to Deputy Secretary Bernardi, ``[i]n 1983 and 1995, [HUD] found 
that CDBG formulas had become increasingly less effective in 
targeting need. The problem is that while the variables and the 
formulas have not changed since 1978, [the] country has.'' 
\130\ ``[T]oday's formula-- . . . a formula that [had not] been 
modified since 1978--places great emphasis on certain variables 
that may not be a true reflection of today's need,'' Bernardi 
concluded.\131\ The goal, he continued, is to ``chang[e] the 
program's formula to meet today's needs.'' \132\ According to 
Jerry Fastrup of GAO, HUD ``identified the key factors that are 
the cause of [widely disparate funding levels], namely the 
growth lag factor and the pre-1940 housing that [does not] take 
into account the income status of the households that are 
living in those houses . . . along with the use of two formulas 
that work at cross purposes with one another[.]'' \133\
---------------------------------------------------------------------------
    \129\ Id. at 113.
    \130\ Id.
    \131\ Id. at 115.
    \132\ Id. at 113.
    \133\ Id. at 184 (statement of Jerry C. Fastrup, Assistant Director 
of Applied Research and Methods, Government Accountability Office).
---------------------------------------------------------------------------
    HUD proposes altering the formula variables employed in 
calculating a community's grant award. Those changes in the 
proposed formulas involve both changes to the underlying 
variables themselves and a variance in weight. For example, HUD 
proposes calculating the grant amount based on housing 50 years 
or older and occupied by a poverty household. Currently, aged 
housing is defined as built before 1940, without regard to the 
need of the household. Other new variables include family and 
elderly poverty and female-headed households with minor 
children.
    Members of the Subcommittee questioned whether HUD's 
proposed changes to variables accurately captured community 
development need. Chairman Turner explained his concern:

        Dallas has needs, Dallas has poverty[] but intuitively 
        we all know that if you drive through Detroit, and if 
        you drive through Dallas, [with] the issues of 
        community development [in mind], [one would expect] 
        Detroit expressing a higher need and Dallas expressing 
        a lesser need. . . . [However, i]n looking at the four 
        formulas that HUD has prepared, in two out of the four 
        [alternatives] Detroit loses, and in all of the four 
        [alternatives] Dallas wins.\134\
---------------------------------------------------------------------------
    \134\ Id. at 129 (statement of Subcommittee Chairman Michael R. 
Turner).

    In exploring how disparities still occur under the proposed 
alternative formulas, the Subcommittee turned to a discussion 
of the need assumptions. In order to assess ``today's needs,'' 
HUD ``designed an index to try to rank each community based on 
its relative level of community development need . . . us[ing] 
variables that relate directly to the statutory objectives of 
the CDBG program[] such as poverty, crime, unemployment and 
population loss.'' \135\ HUD employs a number of criterions to 
calculate this need score. In its 2005 analysis of the CDBG 
formula, HUD introduces new criterions which it proposes 
capture new elements of community need, such as that resulting 
from immigrant population growth. At the same time, other 
elements that may accurately depict community need are ignored, 
such as cost of living.
---------------------------------------------------------------------------
    \135\ Id. at 113 (statement of Roy A. Bernardi, Deputy Secretary, 
Department of Housing and Urban Development).
---------------------------------------------------------------------------
    The discussion first turned to the concern that the new 
need index counts the growing immigration population twice. The 
need index calculates overcrowding, the occupation of more than 
1.01 person per room.\136\ However, under the new need index, 
HUD also includes a separate factor for immigration, weighted 
at 15 percent of the calculation.\137\ As GAO's Jerry Fastrup 
explained,
---------------------------------------------------------------------------
    \136\ See id. at 131.
    \137\ See id. at 129 (statement of Subcommittee Chairman Michael R. 
Turner).

        In [HUD's] need criteria, the immigrant population 
        doesn't come into [the] need index directly. It only 
        comes into it indirectly, and it comes in indirectly in 
        two ways: one through the poverty measure, to the 
        extent these immigrants are low-income people that get 
---------------------------------------------------------------------------
        picked up in the census counts . . .

        The other way it's picked up is in [HUD's] second 
        factor . . . that's weighted 15 percent in [the] 
        overall need index. The only things in there that 
        capture immigration is overcrowded housing, which the 
        study says is correlated with high immigrant 
        populations, and to the extent that correlation is 
        there, [HUD's] need index picks up immigration in that 
        way.\138\
---------------------------------------------------------------------------
    \138\ Id. at 180 (statement of Jerry C. Fastrup, Assistant Director 
of Applied Research and Methods, Government Accountability Office).

    Members of the Subcommittee also questioned whether the 
CDBG program was the correct tool for addressing the growing 
needs of the immigration population, what HUD called a ``new 
dimension of community distress.'' \139\ As Chairman Turner 
stated, ``[immigration is] not new . . . we've always had 
immigration. [It is] maybe new in certain concentrations in 
areas of the South, and it may be new in the composition of 
that population that are immigrants [but] certainly poverty is 
not new in concentrations in immigrants.'' \140\ Further, while 
the Nation experienced a brief immigration surge in the 1990s, 
the pace of immigration is now similar to that experienced 
during the formula analyses of the prior two decades.\141\ 
Given that ``immigrant populations are going to migrate to 
areas of the country that have growth, jobs, and 
opportunity[,]'' financing the type of aid required in 
immigrant communities through CDBG may be shifting CDBG funds 
to areas of economic growth rather than targeting to 
communities in decline.\142\ Jerry Fastrup later echoed this 
point when he indicated ``overcrowded housing is a sign of a 
tight labor market and housing market and upward pressure in 
the housing market . . . is usually a sign of strong growth 
rather than decline.'' \143\
---------------------------------------------------------------------------
    \139\ CDBG Formula Study at 27.
    \140\ CDBG Hearings at 130 (statement of Subcommittee Chairman 
Michael R. Turner).
    \141\ See id.
    \142\ Id. at 131.
    \143\ Id. at 180 (statement of Jerry C. Fastrup, Assistant Director 
of Applied Research and Methods, Government Accountability Office).
---------------------------------------------------------------------------
    Of additional concern to the Subcommittee was the 
introduction of a ratio comparing community per capita income 
to metropolitan area income without factoring a ratio of the 
cost of living in a community versus the greater metropolitan 
area. The new need index incorrectly assumes that the greater 
the disparity between a CDBG eligible community's per capita 
income and its metropolitan area per capita income, the greater 
the community and economic development need. According to 
Deputy Secretary Bernardi, ``[i]f a local jurisdiction's per 
capita income is lower than the per capita income of the 
metropolitan area, that local jurisdiction would receive 
additional dollars.'' \144\ Without accounting for living 
costs, however, the new need index builds-in a bias toward 
communities with a lower cost of living and high area per 
capita income. GAO indicated that, by not accounting for cost 
of living, ``both the current formula and the two alternatives 
probably overstate needs in communities with relatively low 
cost-of-living and understate [needs] in communities with a 
higher cost-of-living.'' \145\
---------------------------------------------------------------------------
    \144\ Id. at 113 (statement of Roy A. Bernardi, Deputy Secretary, 
Department of Housing and Urban Development).
    \145\ Id. at 157 (statement of Paul L. Posner, Managing Director of 
Federal Budget Analysis and Intergovernmental Relations, Government 
Accountability Office).
---------------------------------------------------------------------------
    According to Paul Posner of GAO, ``this [per capita income] 
factor improves targeting, but additional analysis is needed, 
because . . . these two specific measures [of per capita 
income] tend to offset one another[.]'' \146\ As explained in 
GAO's written testimony, ``[w]hile these two factors do direct 
more funding to high-need communities, they also widen rather 
than narrow differences in funding among communities with 
similar needs, in effect, increasing the error rate if measured 
simply in terms of targeting need.'' \147\ Mr. Posner explains 
further in his testimony:
---------------------------------------------------------------------------
    \146\ Id. at 146.
    \147\ Id. at 157.

        Community per capita income [PCI] is used to increase 
        funding for low-income communities and reduce funding 
        for higher income communities. The metropolitan PCI 
        factor partly offsets the effect of community PCI by 
        increasing funding for communities in high-income 
        metropolitan areas. The net effect of both factors is 
        that the two factors, to some extent, work at cross 
        purposes. For example, if two communities located in 
        different metropolitan areas had the same PCI, the 
        community located in the metropolitan area with a lower 
        area-wide income would receive less aid than the 
        community located in the high-income metropolitan 
        area.\148\
---------------------------------------------------------------------------
    \148\ Id.

    While Deputy Secretary Bernardi stated it is an indicator 
of a community in decline when a community has a per capita 
income less than the greater metropolitan area, he later 
conceded that individuals ``would have more of an opportunity . 
. . in a region where the per capita income in that region is 
higher even if [their] jurisdiction [per capita income] is 
lower.'' \149\ Further, the Subcommittee discussed the fact 
that metropolitan regions with a higher ratio may also have 
greater regional resources to address their need than 
communities with a lesser ratio between community versus 
metropolitan per capita incomes.\150\
---------------------------------------------------------------------------
    \149\ Id. at 136 (statement of Roy A. Bernardi, Deputy Secretary, 
Department of Housing and Urban Development).
    \150\ See id. (statement of Subcommittee Chairman Michael R. 
Turner).
---------------------------------------------------------------------------
    Mr. Posner likewise commented that although the 
introduction of an income variable must be further explored, 
``fiscal capacity is an important element to consider . . . 
particularly as [the Federal Government tries to] triage scarce 
Federal funds.'' \151\ Mr. Posner explained ``high income 
communities generally have stronger tax bases from which to 
fund program needs without relying on Federal assistance 
compared to lower income areas.'' \152\ To provide the same 
services, communities with lower tax bases will raise taxes, 
further burdening an already distressed population and 
increasing the need gap between the communities that have and 
those communities that have not. Mr. Posner continued, ``So if 
we [are] to close the gaps between the lower-income communities 
and the higher-income communities, some recognition of the 
relevant capacity as well as the relevant needs among these 
communities . . . is important [to discuss.]'' \153\ However, 
Mr. Posner also reminded the committee that ``areas faced with 
a high cost-of-living . . . would need to pay more for the 
workers who actually deliver services at the local 
level.''\154\
---------------------------------------------------------------------------
    \151\ Id. at 146 (statement of Paul L. Posner, Managing Director of 
Federal Budget Analysis and Intergovernmental Relations, Government 
Accountability Office).
    \152\ Id. at 151.
    \153\ Id. at 146.
    \154\ See id. at 151.
---------------------------------------------------------------------------
    The Members continued questioning the validity of the new 
need index because of the exclusion of all single, non-elderly 
poverty households. According to HUD, use of the Census 
variable captures off-campus college students who may benefit 
from family support, skewing the poverty variable for a 
community.\155\ However, in excluding all single, non-elderly 
households, a number of individuals in need are excluded in the 
need index calculation. Members of the Subcommittee directly 
questioned the wisdom in excluding all single, non-elderly 
poverty individuals when HUD can request a tabulation 
specifically excluding college students alone.\156\ Similarly, 
Saul Ramirez, Jr. of NAHRO argued that even if the college town 
phenomenon exists, the resulting skew of including off-campus 
students in the need assessment is not enough to outweigh the 
skewing caused by failing to accurately account for other 
single and disabled individuals living in poverty by excluding 
all single, non-elderly individuals living in poverty.\157\
---------------------------------------------------------------------------
    \155\ See CDBG Formula Study at 16.
    \156\ See CDBG Hearings at 137 (statement of Subcommittee Chairman 
Michael R. Turner).
    \157\ See id. at 178 (statement of Saul N. Ramirez, Jr., executive 
director, National Association of Housing and Redevelopment Officials).
---------------------------------------------------------------------------
    After debating the new need index criteria at length, the 
Subcommittee turned to a discussion of whether the variables 
comprising the current and proposed formulas are objective and 
whether they operate contrary to the intent of the HCDA. Deputy 
Secretary Bernardi conceded the existence of ``affluent 
communities . . . that receive above the line in the need 
index'' \158\ and that this result can be attributed to 
disparities in the formula variables. Deputy Secretary Bernardi 
and other witnesses cited several examples of these 
disparities.
---------------------------------------------------------------------------
    \158\ Id. at 137 (statement of Roy A. Bernardi, Deputy Secretary, 
Department of Housing and Urban Development).
---------------------------------------------------------------------------
    Designed to improve the targeting of CDBG funds, rather 
than ``counting just the number of units built before 1940, 
[the new formulas] would measure housing older than 50 years . 
. . and occupied by a person of poverty.'' \159\ Chairman 
Turner objected to the new criterion because by mandating that 
only old homes occupied by a family in need would be counted, 
the new formulas would penalize communities by ``removing a 
funding source for housing rehabilitation based on the fact 
that [a community is] experiencing abandoned housing.'' \160\ 
As an additional reason abandoned housing stock should not be 
discounted in the need index and formula alternatives, Chairman 
Turner pointed to the original intent of the statute--``one of 
the goals and objectives of CDBG is the acquisition and 
renovation of abandoned housing units, which are a blighting 
influence, and this ranking of need would specifically remove 
those units which are targeted for CDBG funds from the 
indication or the assessment of need.'' \161\ Mr. Ramirez 
commented that the stakeholder community believes ``by removing 
an accurate assessment of [abandoned] dwellings, . . . it will 
only accelerate the condition of . . . overall blight of a 
community[.]'' \162\
---------------------------------------------------------------------------
    \159\ Id. at 114.
    \160\ CDBG Hearings at 135 (statement of Subcommittee Chairman 
Michael R. Turner).
    \161\ Id.
    \162\ Id. at 181-182 (statement of Saul N. Ramirez, Jr., executive 
director, National Association of Housing and Redevelopment Officials).
---------------------------------------------------------------------------
    Moving to the issue of instituting changes to the formula 
grant, Subcommittee Vice-Chairman Charles W. Dent questioned 
whether Congress could agree to any of the changes proposed in 
HUD's study or discussed during the hearing because ``most 
Congressmen . . . will look at their communities and see how 
they will do under the old system, look how they will do under 
the new system and that will drive a lot of their 
decisionmaking [sic].'' \163\ Deputy Secretary Bernardi noted 
that Congress phased-in the changes transforming the program 
from a categorical grant program to a formula-based program in 
the 1970s and suggested the same could be done with formula 
changes in the future:
---------------------------------------------------------------------------
    \163\ Id. at 139 (statement of Subcommittee Vice-Chairman Charles 
Dent).

        [W]hen the program went from a categorical grant 
        program to the formula . . . back in the 1970s, there 
        was a phase-in period that was put into place by 
        Congress . . . If [Congress] choose[es] to change the 
        formula, [it] could do the same thing here so that the 
        community would be phased into receiving that extra 
        money so they have the capacity and the wherewithal to 
        use [that extra] capacity at the same time if they were 
        to lose those dollars [they could adjust 
        accordingly].\164\
---------------------------------------------------------------------------
    \164\ Id. at 139 (statement of Roy A. Bernardi, Deputy Secretary, 
Department of Housing and Urban Development).

    While the stakeholders ``support . . . the notion of a fair 
and equitable distribution of CDBG dollars,'' they strongly 
objected to an ``immediate and radical'' change in the 
formula.\165\ Mr. Ramirez expressed concern on behalf of the 
stakeholder community, commenting, ``Dramatically changing the 
formula structure in a swift manner would create uncertainty 
and inhibit CDBG's current ability to leverage billions of 
dollars of both private and public investment in some of our 
poorest neighborhoods.'' \166\ Ramirez further urged, ``[t]he 
pursuit of a more equitable system must be balanced by a desire 
to avoid the kinds of sudden and dramatic shifts that create 
uncertainty and undermine a community's ability to . . . 
strategically plan improvements for the long-term to improve 
the quality of life of their citizens.'' \167\
---------------------------------------------------------------------------
    \165\ Id. at 162 (statement of Saul N. Ramirez, Jr., executive 
director, National Association of Housing and Redevelopment Officials).
    \166\ Id.
    \167\ Id. at 163.
---------------------------------------------------------------------------
    Finally, the Subcommittee questioned the practice of 
``grandfathering'' communities thereby allowing communities 
that no longer meet the statute's eligibility requirements to 
remain entitled.\168\ Chairman Turner inquired how many 
communities no longer meet the requirements of an entitlement 
community yet continue to receive funds under the grandfather 
provisions.\169\ In a post-hearing response, HUD identified 114 
communities no longer meeting the statutory requirements of an 
entitlement community receiving more than $75 million in the 
aggregate under the entitlement community (the 70 percent) 
portion of the CDBG formula grant allocation. During the 
question and answer period, Mr. Ramirez touched briefly on the 
practice, criticizing the direction of funds to these 
communities through the grant formula and urging the committee 
to investigate the issue.
---------------------------------------------------------------------------
    \168\ See id. at 142 (statement of Subcommittee Chairman Michael R. 
Turner).
    \169\ See id.

        [T[he grandfathering and perpetuity of communities that 
        are no longer eligible is a growing drag on the intent 
        of the formula in trying to meet the distribution 
        potential of that formula. Close to almost 200 
        communities now are grandfathered into the current 
        formula that under the guidelines do not qualify any 
        longer to receive these resources under the current 
        definition.\170\
---------------------------------------------------------------------------
    \170\ Id. at 178 (statement of Saul N. Ramirez, Jr., executive 
director, National Association of Housing and Redevelopment Officials).

    These grandfathered communities receive a significant share 
of a shrinking portion of money intended for the use of a 
growing number of entitlement communities. According to GAO, 
the number of entitlement communities can be expected to grow 
because population will continue to grow.\171\ At the same 
time, ``[w]hen population growth is factored in, the decline in 
real per capita spending has declined by two-thirds[,]'' 
leaving less money for more entitlement communities to 
share.\172\
---------------------------------------------------------------------------
    \171\ See id. at 153 (statement of Paul L. Posner, Managing 
Director of Federal Budget Analysis and Intergovernmental Relations, 
Government Accountability Office).
    \172\ Id.
---------------------------------------------------------------------------
    At the close of the hearing, Mr. Fastrup, summarizing the 
importance of considering changes to the CDBG grant formula, 
stated, ``because of poor targeting of the program, you do run 
the risk, in tight fiscal times . . . of perceptions of poor 
targeting, leading people to ask [whether] this [is] really the 
highest priority use of Federal dollars or not.'' \173\ Fastrup 
further opined, ``to the extent that the targeting of this 
program is improved, it strengthens the rationale for having 
this program[.]'' \174\ As Mr. Posner testified, ``when [there 
is] a shrinking pool of money, it makes targeting arguably more 
important to address the high-needs communities' needs.'' \175\ 
With improved targeting of funds, the government can ``hold 
harmless those communities and others with [the] least capacity 
to absorb the cuts.'' \176\
---------------------------------------------------------------------------
    \173\ Id. at 184 (statement of Jerry C. Fastrup, Assistant Director 
of Applied Research and Methods, Government Accountability Office).
    \174\ Id.
    \175\ Id. at 145 (statement of Paul L. Posner, Managing Director of 
Federal Budget Analysis and Intergovernmental Relations, Government 
Accountability Office).
    \176\ Id.
---------------------------------------------------------------------------
    The hearing raised several additional issues that are 
discussed later in this report.

 C. HEARING ON USE OF CDBG FUNDS AND PERFORMANCE MEASURES, MAY 24, 2005

    The Subcommittee held its third CDBG hearing May 24, 2005, 
entitled, ``Bringing Community Development Block Grant Programs 
Spending into the 21st Century: Introducing Accountability and 
Meaningful Performance Measures into the Decades-Old CDBG 
Program.'' As a consequence of the Subcommittee's prior 
hearings on the administration's Strengthening America's 
Communities Initiative and the ensuing criticisms of the CDBG 
program, the Subcommittee held this third hearing to 
investigate current performance measures in the CDBG program 
and what improvements, if any, could be made in those measures. 
In particular, the Subcommittee explored HUD's use of the 
Consolidated Plan (Conplan) as a tool to track an eligible 
community's plan to spend grant funds as well as use of the 
IDIS system to track funds after expenditure. The Subcommittee 
further considered the recommendations of the Joint Grantee/
HUD/OMB Outcome Measure Working Group to strengthen the use of 
these complementary tools to measure program performance. 
Additionally, the Subcommittee reviewed how eligible 
communities may currently spend CDBG funds. Specifically, the 
Subcommittee studied the issues of supplanting funds (the use 
of CDBG funds on projects for which general revenue funds are 
typically used) and the apparent lack of limitation on use of 
CDBG funds for staff functions.
    Appearing before the Subcommittee were two panels of 
witnesses. The Honorable Roy A. Bernardi, Deputy Secretary of 
HUD, testified on the first panel. Witnesses on the stakeholder 
panel included the Honorable Ron Schmitt, city councilman of 
Sparks, NV; Thomas Downs, fellow at the National Academy of 
Public Administration; Lisa Patt-McDaniel, assistant deputy 
director of the Community Development Division of the Ohio 
Department of Development; and Shelia Crowley, Ph.D., president 
of the National Low Income Housing Coalition.
    Beginning its discussion of performance measurement of CDBG 
grantees, the Subcommittee first focused on the flexibility of 
the CDBG program and the value of that flexibility to local 
governments. Numerous commentators have noted that while it is 
the flexibility of the program that makes CDBG so successful in 
community and economic development, flexibility is also the 
reason grantee performance is difficult to measure.
    CDBG stakeholders universally agree that ``the beauty of 
the Community Development Block Grant program is its incredible 
flexibility.'' \177\ This flexibility is necessary to 
adequately address the problems afflicting communities, which 
vary from one neighborhood to the next, Lisa Patt-McDaniel 
testified:
---------------------------------------------------------------------------
    \177\ Id. at 291 (statement of Lisa Patt-McDaniel, assistant deputy 
director, Community Development Division, Ohio Department of 
Development, on behalf of the Council of State Community Development 
Agencies).

        CDBG is a program that was designed to help many 
        different kinds of communities--those that are growing, 
        those that are fighting off decay and those that are 
        already deteriorated. The current CDBG statute 
        authorizes a menu of eligible activities that 
        recognizes the differences in the types of communities 
        to be served by the program and provides communities 
        with appropriate tools to address their unique 
---------------------------------------------------------------------------
        problems.

        The original list of eligible activities was enacted to 
        enable communities to meet the statutory purposes of 
        the program. While those statutory purposes have not 
        changed, and over the years whenever new community 
        problems have emerged, such as brownfields, energy 
        efficiency, economic opportunity, Congress has added 
        eligible activities to help communities address these 
        issues. Certainly not every community eligible for CDBG 
        needs assistance with those issues, but again, this 
        approach recognizes that a broad menu of activities 
        must be available in order for communities to address 
        their community development needs.\178\
---------------------------------------------------------------------------
    \178\ Id. at 250-251.

    Describing the flexibility of the program, Deputy Secretary 
Bernardi testified that the HCDA ``allows grantees to determine 
their own local needs, to set their local priorities, and 
design programs to address both.'' \179\ Local jurisdictions' 
use of their CDBG funds is not unfettered, however. Bernardi 
continued, ``There are two limits that help target the use of 
CDBG funds. First, every assisted activity must [meet one of 
the statutory objectives]. And the second condition is a 
grantee must spend at least 70 percent, over 3 years, of its 
funds for activities that benefit low and moderate-income 
persons.'' \180\
---------------------------------------------------------------------------
    \179\ Id. at 197 (statement of Roy A. Bernardi, Deputy Secretary, 
Department of Housing and Urban Development).
    \180\ Id.
---------------------------------------------------------------------------
    While flexibility is the key component to the success of 
the CDBG program, it is a double-edged sword that hinders 
measuring grantee performance and accomplishments. Mr. Bernardi 
explained, ``The flexibility of CDBG is of great importance to 
grantees because it allows them to use the funds in so many 
different ways to address their needs. However, that 
flexibility also created difficulty in getting consistency in 
accomplishments reported by individual grantees.'' \181\
---------------------------------------------------------------------------
    \181\ Id. at 204.
---------------------------------------------------------------------------
    HUD currently monitors CDBG grantees' use of funds through 
the Consolidated Planning process.\182\ HUD created the 
Consolidated Plan (Conplan) as a method of combining the 
applications for CPD's formula grant programs.\183\ The Conplan 
was intended for use as a tool describing how CDBG funds will 
be spent, thus a tool for monitoring the quality of a 
community's planned use of funds. According to Mr. Bernardi, 
however, as a result of numerous congressional mandates, 
``HUD's major review focus for administration of the CDBG 
program is [now] monitoring grantees' [actual] use of funds.'' 
\184\ Bernardi explained the evolution of HUD's role from 
front-end review to back-end review:
---------------------------------------------------------------------------
    \182\ See supra p. 9 for a description of the Consolidated Plan and 
the planning process.
    \183\ See CDBG Hearings at 202 (statement of Roy A. Bernardi, 
Deputy Secretary, Department of Housing and Urban Development).
    \184\ Id.

        [P]rior to 1981, the law required HUD to make a more 
        qualitative, front end review of a grantee's 
        application to determine whether the activities 
        identified to be undertaken addressed the needs 
        described. In 1981, Congress determined that it would 
        be better for HUD to basically accept what the 
        application said and concentrate its review on after 
        the fact monitoring to be sure that requirements were 
---------------------------------------------------------------------------
        met.

    In 1990, Congress passed the Cranston-Gonzales National 
Affordable Housing Act. Congress described therein ``a more 
complete outline of what must be included'' in a community's 
grant planning submission. With this new law, ``the front-end 
HUD review was limited [by Congress] to whether this plan met 
the broad purposes of the law and was complete.'' \185\ In 
1995, HUD created the Consolidated Plan as a combined 
application and planning process for the CPD formula grant 
programs, one of which is CDBG.\186\ By this time, HUD's 
grantee review process had transitioned from monitoring the 
quality of planned expenditures on the front-end to a back-end 
review to ensuring compliance in how funds were spent.\187\
---------------------------------------------------------------------------
    \185\ Id.
    \186\ See id.
    \187\ See id.
---------------------------------------------------------------------------
    Mr. Bernardi's statements support numerous critics' claims 
that the Conplan is merely a report--completed with sometimes 
meaningless numbers--that HUD will ``rubberstamp'' so long as 
all elements are complete. The Subcommittee directly questioned 
the effectiveness of HUD's use of grantees' Conplans. 
Specifically, Chairman Turner asked Deputy Secretary Bernardi 
about the Department's rejection of Conplans: ``Has HUD 
rejected consolidated plans from communities; and what is the 
process for rejection of a consolidated plan if one is to be 
rejected and what type of discussion, feedback, or interaction 
occurs with the community if a consolidated plan is viewed as 
either deficient or could be improved?'' \188\ Bernardi 
responded, ``[T]he consolidated plan is reviewed by each one of 
our field offices for all of our entitlement grantees, and as 
long as it adheres to the national objectives . . . [t]here is 
not a rejection of the consolidated plan per se[.]'' \189\
---------------------------------------------------------------------------
    \188\ Id. at 209-210 (statement of Subcommittee Chairman Michael R. 
Turner).
    \189\ Id. at 210 (statement of Roy A. Bernardi, Deputy Secretary, 
Department of Housing and Urban Development).
---------------------------------------------------------------------------
    While the Department may ``rubberstamp'' Conplans and not 
undertake an in-depth review of all submitted plans, HUD 
engages in risk monitoring for the grantees deemed at highest 
risk of non-compliance. ``Of our 1,100 approximate grantees, we 
monitor about a third of those every year to see that they are 
in accordance with the consolidated plan, that they are 
spending their money in a timely way, that their goals and 
objectives and their annual action plan are being realized,'' 
Bernardi testified.\190\ He continued, ``[O]ur [field office] 
employees . . . know full well who is performing, who is not, 
who needs information technology, who needs additional 
capacity, and our staff is always ready and willing and is out 
there providing it for these folks.'' \191\ When asked directly 
whether there is a ``feedback loop'' for Conplans, whether HUD 
engages grantees in a discussion if their Conplan could be 
enhanced, Bernardi responded:
---------------------------------------------------------------------------
    \190\ Id.
    \191\ Id.

        In the early years I believe we were more engaged in 
        the preparation of the consolidated plan. Now we pretty 
        much leave it to the communities to make the 
        determinations they can justify . . . as to how they 
        want to utilize their dollars. We feel very strongly 
        that they know best. Of course, we look at those 
        consolidated plans to make sure that they adhere to the 
---------------------------------------------------------------------------
        rules that are in place.

        At the same time, if a community ends up in trouble 
        with a particular project, if the plan is not being 
        adhered to, we can take action. We don't like to 
        reclaim dollars unless we absolutely have to . . . We 
        try to work with the grantee so that either the 
        objective can be met or the objective can be changed to 
        something else. In the final analysis, if they are not 
        able to do what they have to do according to the rules 
        and regulations, then we will take that money 
        back.\192\
---------------------------------------------------------------------------
    \192\ Id. at 210-211.

    Commenting on the current HUD review process, Chairman 
---------------------------------------------------------------------------
Turner observed:

        [T]here has to be a question of why are you measuring 
        it. Are you measuring it for compliance? And here, with 
        CDBG, we hear that the compliance requirements are very 
        broad, so it [is certain] we will find some people who 
        will be out of compliance and be able to move them back 
        in. But generally the criteria appear to be so broad 
        that measuring for compliance is not going to result in 
        much usefulness in the information.\193\
---------------------------------------------------------------------------
    \193\ Id. at 287 (statement of Subcommittee Chairman Michael R. 
Turner).

    Turner further noted his surprise at Deputy Secretary 
Bernardi's description of the Department's limited consultation 
with grantees on their Conplan. ``I was surprised . . . that 
there is not a significant amount of effort in reviewing 
consolidated plans and reviewing the information submitted by 
communities to assist and enhance them in their process of 
expending CDBG funds.'' \194\
---------------------------------------------------------------------------
    \194\ Id.
---------------------------------------------------------------------------
    While the Conplan apparently serves only as a tool for HUD 
to verify that grantees comply with the law on what activities 
CDBG funds may be expended, there is no requirement that 
grantees spend their funds in accordance with their submitted 
Conplan. Consequently, HUD is unable to enforce compliance with 
the approved Conplan. Further, because of existing weaknesses 
in HUD's monitoring mechanisms, HUD has limited ability to 
supervise grantee actions. These two weaknesses result in 
narrowed capacity to hold communities accountable for their use 
of funds. Dr. Crowley explained:

        [T]here are two serious flaws. The first--and this is a 
        huge one--there is no statutory requirement that 
        jurisdictions actually spend their Federal block grant 
        dollars, including CDBG, on any of the needs that they 
        identify in the Conplan. The second flaw is that HUD 
        has limited capacity to monitor what jurisdictions do 
        with their funds and hold jurisdictions accountable for 
        less than adequate performance.\195\
---------------------------------------------------------------------------
    \195\ Id. at 263-264 (statement of Sheila Crowley, Ph.D., 
president, National Low Income Housing Coalition).

    In addition to its limited use of Conplans as a performance 
measurement tool, another reason HUD cannot engage in 
meaningful performance-based management of CDBG is the 
Department's IDIS information management system. Deputy 
Secretary Bernardi testified, ``The concept of IDIS was and is 
a great idea: it links financial information, i.e., amount of 
funds used, with actual accomplishments.'' \196\ Where the 
Conplan is a tool to monitor intended use of funds, IDIS is the 
complementary tool to track actual expenditure of funds. 
Describing the use of the system, Bernardi explained, 
``Grantees enter information directly into IDIS on the 
activities they carryout with their CDBG funds and the 
accomplishments they achieve, by activity. Also, because CDBG 
funds are drawn through IDIS, information on funds disbursed, 
by activity, is readily available.'' \197\
---------------------------------------------------------------------------
    \196\ Id. at 204 (statement of Roy A. Bernardi, Deputy Secretary, 
Department of Housing and Urban Development).
    \197\ Id.
---------------------------------------------------------------------------
    Thomas Downs of NAPA presented the view of most IDIS 
critics: ``[IDIS] works poorly, if at all, by most standards 
for the boarder purposes that [HUD] claims. The [NAPA] panel 
applauds [HUD] for its recent initiatives to clean up grantee 
data reported in IDIS so that it can be used for management and 
analysis purposes. It is essentially now an expenditure control 
system, not a performance management system.'' \198\ Downs 
later emphasized, ``The inability of the IDIS to absorb 
performance data cannot be overstated. It is basically an 
accounting system that is used to show where the money goes, it 
doesn't necessarily have the structure to support performance 
recording.'' \199\ Ms. Patt-McDaniel echoed Mr. Downs:
---------------------------------------------------------------------------
    \198\ Id. at 233 (statement of Thomas Downs, fellow, National 
Academy of Public Administration).
    \199\ Id. at 288.

        Until now, reporting and capturing many of the 
        achievements of the CDBG program and the others 
        included in the Consolidated Plan have been greatly 
        hampered by HUD's IDIS system. In the Consolidated 
        Annual Performance and Evaluation Report [CAPER], a 
        part of the required Consolidated Plan, citizens are 
        informed about the results of the program's 
        expenditures in a narrative format, but the current 
        IDIS system does not allow this kind of reporting.\200\
---------------------------------------------------------------------------
    \200\ Id. at 250 (statement of Lisa Patt-McDaniel, assistant deputy 
director, Community Development Division, Ohio Department of 
Development, on behalf of the Council of State Community Development 
Agencies).

    Bernardi conceded there are limitations to the system but 
---------------------------------------------------------------------------
that HUD is in the process of improving the system:

        Obtaining consistency in reporting and improving the 
        quality of the data on CDBG activities in IDIS has 
        taken years because of both the large number of 
        grantees and the large number of activities that may be 
        assisted under the CDBG program. The flexibility of 
        CDBG is of great importance to grantees because it 
        allows them to use the funds in so many different ways 
        to address their needs. However, that flexibility also 
        created difficulty in getting consistency in 
        accomplishments reported by individual grantees, but 
        HUD has made a concerted effort to address data quality 
        in recent years.\201\
---------------------------------------------------------------------------
    \201\ Id. at 204 (statement of Roy A. Bernardi, Deputy Secretary, 
Department of Housing and Urban Development).

    In agreement with Mr. Bernardi's comment, Mr. Downs 
suggested the difficulty in measuring performance arises 
because of the type of information that a block grant program 
lends itself to gathering. ``It is harder with Community 
Development Block Grant funds to develop performance measures, 
particularly outcome measures, not output measures.'' \202\
---------------------------------------------------------------------------
    \202\ Id. at 288 (statement of Thomas Downs, fellow, National 
Academy of Public Administration).
---------------------------------------------------------------------------
    To address the performance measurement deficiencies of both 
the Conplan and IDIS, CDBG stakeholders formed a working 
alliance with HUD and OMB--the Joint Grantee/HUD/OMB Outcome 
Measurement Working Group--to develop a framework of common 
outcome measures that grantees of all government levels could 
use to report data and demonstrate results to HUD. The 
stakeholders agreed that while it is difficult to create 
outcome measures rather than just output measures, it is not an 
impossible feat. According to Ms. Patt-McDaniel:

        The CDBG program is an inherently flexible program, 
        designed that way by Congress because of the complex 
        and varying natures of our Nation's communities. We 
        believe Congress got it right--we need the flexibility 
        of eligible activities we have to address our 
        communities' problems, achieve the outcomes described 
        above and meet the statutory intent of the program. 
        While that flexibility sometimes makes it difficult to 
        measure the effectiveness of the activities, it can be 
        done and we are confident that the [Joint Working 
        Group's] proposed outcome measurement system will make 
        that possible.\203\
---------------------------------------------------------------------------
    \203\ Id. at 251 (statement of Lisa Patt-McDaniel, assistant deputy 
director, Community Development Division, Ohio Department of 
Development, on behalf of the Council of State Community Development 
Agencies).

    Speaking to the joint effort in creating the outcome 
performance measurement system, Ms. Patt-McDaniel described the 
group's aim as creating a tool which would answer the question, 
``In what way can we best demonstrate that the CDBG program 
does achieve the results that Congress intended for the 
program?'' \204\ Elaborating on the process, Ms. Patt-McDaniel 
continued:
---------------------------------------------------------------------------
    \204\ Id. at 241.

        Our goal was to develop common outcome measures that 
        States could use in their programming that could also 
        be reported to HUD and aggregated in useful ways that 
        would enable us to tell Congress and our constituents 
        of the results and benefits of the CDBG program, while 
        at the same time encouraging our members to establish 
        additional measures specifically for their own programs 
        and initiatives.\205\
---------------------------------------------------------------------------
    \205\ Id.

    The group achieved this goal by ``begin[ing] with the end 
in mind . . . why did we fund that project, what are we trying 
to achieve?'' \206\ The group found that while grantees use 
CDBG funds for many different kinds of projects, ``at the heart 
of these activities, there are common outcomes that most 
communities are trying to achieve.'' \207\ Patt-McDaniel 
continued, ``We believe that when this outcome measurement 
system is implemented, we will begin to more clearly tell 
Congress and OMB more about the benefits of CDBG and the other 
consolidated plan programs.'' \208\ According to Patt-McDaniel, 
``Aggregating the results by outcomes can help Federal 
policymakers assess whether the statutory intent of the program 
is being met, and the system can be an important management 
tool at both the grantee and Federal level.'' \209\
---------------------------------------------------------------------------
    \206\ Id. at 246.
    \207\ Id.
    \208\ Id. at 242-243.
    \209\ Id. at 243.
---------------------------------------------------------------------------
    HUD is working to strengthen the IDIS system following the 
Joint Working Group's outcome measurement system proposal. 
Bernardi advised the Subcommittee, ``[HUD is] committed to 
improving the way we track performance and show results for our 
program.'' \210\ Bernardi touted the results of the working 
group as striking a crucial balance of maintaining the 
flexibility of the program yet gathering information necessary 
for meaningful outcome performance management. ``While program 
flexibility is maintained, the [outcome measurement] system 
offers a specific menu of objectives, outcomes and indicators 
so that reporting can be standardized and the achievements can 
be aggregated to the national level,'' Bernardi advised the 
Subcommittee.\211\ Further, with the new measurement system, 
HUD wants ``to make [reporting] easier[,] to reduce the 
grantees' time and at the same time be able to consolidate . . 
. into one format the consolidated plan, the annual performance 
plan, [and] the CAPER plan so that individuals at HUD . . . can 
ascertain what has happened over a 5-year period, over a 1-year 
period of accomplishments.'' \212\ According to Bernardi, the 
proposed matrix ``will produce data to identify the results of 
formula grant activities. It will allow the grantees and HUD to 
provide a broader, more accurate picture. The goal is to have a 
system that will aggregate results across the spectrum of the 
programs at the city level, the county, [and] State,'' \213\ 
thereby ``improve[ing] the type and content of reports 
available to HUD for monitoring.'' \214\ ,\215\
---------------------------------------------------------------------------
    \210\ Id. at 198 (statement of Roy A. Bernardi, Deputy Secretary, 
Department of Housing and Urban Development).
    \211\ Id. at 206.
    \212\ Id. at 209.
    \213\ Id. at 198.
    \214\ Id. at 209.
    \215\ A final rule implementing the new performance measurement 
system is expected in late December 2005.
---------------------------------------------------------------------------
    Praising the Working Group's product, Mr. Downs reported, 
``The [NAPA] panel strongly supports this collaborative effort 
and urges the Congress and OMB to adopt both the process and 
the outcome measures produced by [the] Working Group.'' \216\
---------------------------------------------------------------------------
    \216\ Id. at 233 (statement of Thomas Downs, fellow, National 
Academy of Public Administration).
---------------------------------------------------------------------------
    Turning away from the issue of performance management, the 
Subcommittee explored two specific issues regarding grantees' 
use of funds. The Subcommittee first discussed the supplanting 
of funds whereby a grantee uses CDBG dollars on projects and 
activities which are normally paid for out of the grantee's 
general revenue fund. For example, ``if you can afford to do 
sewers and sidewalks in rich neighborhoods, you shouldn't be 
spending your CDBG dollars to do sewers and sidewalks in poor 
neighborhoods. You should be spending your general fund dollars 
to do that.'' \217\ The Subcommittee then turned to the 
question of how much of their grant dollars a grantee may use 
to fund staff functions as opposed to bricks-and-mortar 
activities and programs.
---------------------------------------------------------------------------
    \217\ Id. at 296 (statement of Sheila Crowley, Ph.D., president, 
National Low Income Housing Coalition).
---------------------------------------------------------------------------
    CDBG was never meant as a pool of money to replace general 
revenue funds on projects a community should underwrite, 
regardless of whether grant dollars are available. According to 
Dr. Crowley, ``The CDBG statute expressly addresses supplanting 
by stating that Congress intends that CDBG funds `not be 
utilized to reduce substantially the amount of local financial 
support for community development activities below the level of 
such support prior to' the enactment of CDBG.'' \218\ Despite 
specific prohibition of supplanting in the statue, ``[o]ne of 
the reoccurring criticisms of CDBG is whether or not the funds 
have been co-opted for government operations rather than 
community development functions, even if those government 
operations support community development functions.'' \219\
---------------------------------------------------------------------------
    \218\ Id. at 267.
    \219\ Id. at 213 (statement of Subcommittee Chairman Michael R. 
Turner).
---------------------------------------------------------------------------
    In response to Dr. Crowley's comments, Ms. Patt-McDaniel 
offered the Subcommittee a counterpoint: ``I don't know very 
many local governments right now who are operating at huge, 
huge surpluses, or even slight surpluses.'' \220\ Patt-McDaniel 
continued, offering an example:
---------------------------------------------------------------------------
    \220\ Id. at 298 (statement of Lisa Patt-McDaniel, assistant deputy 
director, Community Development Division, Ohio Department of 
Development, on behalf of the Council of State Community Development 
Agencies).

        [I]f you have a city . . . which might be considered to 
        have some nicer areas and some poorer areas, my guess 
        is that a local government has a menu of infrastructure 
        or parks, a whole menu of activities that they want to 
        do, and they have resources. They have their own 
        [general revenue fund], they have CDBG, they may have 
        some State resources, but they have a variety of 
        resources. But the total of those resources doesn't add 
---------------------------------------------------------------------------
        up to all the infrastructure needs of that community.

        So it only makes good management sense to match the 
        appropriate resource to the appropriate neighborhood so 
        that if you have CDBG, you are in desperate need of 
        replacing the sewer [system], which typically could be 
        across the whole community, you are going to use the 
        CDBG funds where you could benefit the low to moderate-
        income people and use the [general revenue fund] in the 
        areas where they may not make the low to moderate-
        income standards.\221\
---------------------------------------------------------------------------
    \221\ Id.

    In either case, it is difficult to determine whether a city 
is supplanting general revenue dollars with CDBG dollars due to 
the flexibility of the program--the range of permissible 
activities is broad. Dr. Crowley opined, ``[S]upplanting can 
only be prevented if HUD is capable of monitoring how funds are 
used and take action if it occurs.'' \222\ Following that line 
of thought, Ranking Member Wm. Lacy Clay inquired ``what 
mechanisms, if any, have been included in the new outcome 
framework to ensure that CDBG funds do not supplant local 
program funding streams?'' \223\ According to Ms. Patt-
McDaniel, ``In the outcome framework, we were looking at actual 
benefits of what we did, and not what percentage of that 
particular activity would end up paying for staff time.'' \224\
---------------------------------------------------------------------------
    \222\ Id. at 267 (statement of Sheila Crowley, Ph.D., president, 
National Low Income Housing Coalition).
    \223\ Id. at 291 (statement of Subcommittee Ranking Member Wm. Lacy 
Clay).
    \224\ Id. at 291 (statement of Lisa Patt-McDaniel, assistant deputy 
director, Community Development Division, Ohio Department of 
Development, on behalf of the Council of State Community Development 
Agencies).
---------------------------------------------------------------------------
    Closely related to the issue of supplanting, the 
Subcommittee moved to a discussion of grantee use of funds. 
Specifically, the Subcommittee asked how much of its CDBG 
allotment a grantee may expend on staff functions. Not all 
expenditures on staff functions are impermissible. Congress 
instituted a 20 percent cap on administration and planning 
functions to settle the debate of how much money is required 
for those functions.\225\ According to Mr. Bernardi, ``There 
are caps on administration and planning, and that cap is 20 
percent. There is also a cap on public service, which is 15 
percent. . . . The other areas the communities can pretty much 
make the determination as to how they want to spend their 
dollars, in what areas.'' \226\
---------------------------------------------------------------------------
    \225\ See id. at 201 (statement of Roy A. Bernardi, Deputy 
Secretary, Department of Housing and Urban Development). The spending 
cap on administration and planning functions is located in the CDBG 
appropriation laws.
    \226\ Id. at 211.
---------------------------------------------------------------------------
    Chairman Turner questioned the apparent lack of an overall 
limitation on how much money may be spent on staff functions. 
``One of the criticisms that we hear about CDBG is the 
opportunity for local governments to utilize the funds rather 
than for community development, but to fund what many people 
consider local government activities that perhaps the local tax 
base should be supporting rather than CDBG,'' Turner 
stated.\227\ Conceivably, the chairman continued, a grantee 
could spend all of its grant dollars on staff functions in the 
eligible criteria categories.\228\ ``As long as the dollars are 
used to provide goods and services for individuals who meet the 
low and moderate-income threshold[, the] flexibility of the 
program allows the entities to use the money as they see fit,'' 
Bernardi assented.\229\
---------------------------------------------------------------------------
    \227\ Id. at 212 (statement of Subcommittee Chairman Michael R. 
Turner).
    \228\ See id. at 211.
    \229\ Id. at 212 (statement of Roy A. Bernardi, Deputy Secretary, 
Department of Housing and Urban Development).
---------------------------------------------------------------------------
    Accordingly, grantees may circumvent the 20 percent cap on 
administration and planning activities by categorizing 
particular staff functions as one of the enumerated 25 eligible 
activities. ``A government entity could, in going down the 
smorgasbord of eligible uses, allocate 100 percent of its CDBG 
moneys for staff functions within those eligible uses and not 
be in violation of the restrictions placed upon CDBG,'' 
Chairman Turner concluded.\230\ ``I believe you are correct,'' 
Bernardi concurred.\231\
---------------------------------------------------------------------------
    \230\ Id. at 212 (statement of Subcommittee Chairman Michael R. 
Turner).
    \231\ Id. at 212 (statement of Roy A. Bernardi, Deputy Secretary, 
Department of Housing and Urban Development).
---------------------------------------------------------------------------
    In order to determine the overall percentage of grant funds 
spent on staff functions, the chairman requested information 
detailing staff-related expenditures by the 100 most populated 
cities receiving CDBG funds.\232\ Subsequent to the hearing, 
Mr. Bernardi submitted a spreadsheet detailing the 
administrative expense information as requested. The 
information provided recounts, in the aggregate, significant 
portions of grant awards allocated to staff and administrative 
functions. Although the administrative and planning cap is 20 
percent, 19 of the 100 entitlement communities exceeded that 
cap. According to Mr. Bernardi:
---------------------------------------------------------------------------
    \232\ See id.

        CPD's investigation of these results indicates the 
        primary factor contributing to this level of 
        performance is the impact of unliquidated obligations 
        from the prior program year. In order to provide a more 
        accurate picture of the planning and administrative 
        costs for these 100 grantees, CPD will collect and 
        forward to the committee additional information based 
        upon the data used to calculate compliance with the 
        twenty percent cap on planning and administrative 
        expenses.\233\
---------------------------------------------------------------------------
    \233\ Id. at 302 (statement of Roy A. Bernardi, Deputy Secretary, 
Department of Housing and Urban Development).

    In addition to the information detailing administrative and 
planning expenditures, the Department also included data for 
housing rehabilitation administration and code enforcement, the 
only two categories outside of administrative and planning 
which exclusively constitute staff expenditures.\234\ Fifteen 
of the 100 grantees expended in excess of 10 percent for the 
program year 2003 for housing rehabilitation administration. 
Four of those 15 grantees expended in excess of 15 percent. 
Fewer exceeded those amounts for code enforcement. Five of the 
100 grantees disbursed greater than 10 percent while an 
additional two grantees disbursed greater than 20 percent.\235\
---------------------------------------------------------------------------
    \234\ See id. at 303.
    \235\ See id.
---------------------------------------------------------------------------
    Finally, Mr. Bernardi informed the Subcommittee that 
``direct project delivery costs may include the costs of staff 
carrying out the activity as well as other costs such as 
architectural and engineering services for construction 
activities or rent and utilities related to an eligible public 
service[.]'' \236\ Unfortunately, Bernardi was unable to detail 
those expenditures: ``such specificity cannot be isolated 
within the data available to HUD.'' \237\ As a result, HUD is 
unable to determine what percentage of CDBG funds are expended 
on staff functions by the 100 most populated entitlement 
communities.
---------------------------------------------------------------------------
    \236\ Id.
    \237\ Id.
---------------------------------------------------------------------------
    Mr. Bernardi pointed out, however, that HUD regulations 
permit the use of funds for ``reasonable administrative costs 
and charges related to the planning and execution of activities 
assisted with CDBG funds.'' \238\ He continued, ``This 
provision clearly states that staff and overhead costs directly 
related to carrying out activities eligible under the CDBG 
program are eligible as part of those activities.'' \239\
---------------------------------------------------------------------------
    \238\ Id.
    \239\ Id.
---------------------------------------------------------------------------
    The congressional prohibition against supplanting 
notwithstanding, HUD lacks the ability to determine whether 
funds are supplanted for general revenue funds because it does 
not collect the necessary data. Anecdotal evidence suggests 
numerous communities spend beyond the 20 percent cap on program 
administration functions. Further, HUD is unable to verify or 
invalidate crtitics' claims concerning communities directing 
CDBG dollars to support staff functions because it is unable to 
calculate an overall percentage of CDBG funds expended on staff 
functions spanning all eligible activity categories with the 
current data collected.

                    IV. Findings and Recommendations


      A. THE STRENGTHENING AMERICA'S COMMUNITIES INITIATIVE [SACI]

1. Findings

        a.  HUD has initiated several in-house measures to 
        improve internal administration of the CDBG program, an 
        indication that reform of CDBG can be accomplished 
        within HUD.

    HUD initiated numerous in-house efforts to improve the 
administration of the CDBG program. With the development of 
performance measures by the Joint Grantee/HUD/OMB Outcome 
Measurement Working Group as well as the research and study 
resulting in the CDBG Formula Targeting to Community 
Development Need publication, HUD demonstrates recognition of 
the need for improvement and willingness to effect change 
within its program.

        b.  HUD's institutional history, capacity, and 
        expertise enhance the agency's ability to administer 
        the CDBG program. That expertise and capacity is 
        lacking at the Department of Commerce.

    In testimony before the Subcommittee, several stakeholders 
criticized SACI as fiscally illogical. The stated purpose of 
SACI is to improve the administration and management of the 18 
grant programs, including CDBG. With an overall fiscal year 
2005 appropriation of $4.71 billion, CDBG is more than double 
the size of the Department of Commerce's current grant 
portfolio, necessitating the development of an infrastructure 
capable of overseeing such an enormous program.
    During the March 1, 2005 hearing, Subcommittee Vice-
Chairman Dent questioned whether the Department of Commerce has 
the housing and community development expertise to manage the 
program.\240\ In response, Assistant Secretary Sampson, 
acknowledged the agency would have a ramping-up period before 
it could effectively manage the program:
---------------------------------------------------------------------------
    \240\ See id. at 39 (statement of Subcommittee Vice-Chairman 
Charles Dent).

        Commerce has a very extensive grant portfolio 
        currently. We manage about a $2.3 billion grant 
        portfolio of community and economic development grants 
        currently. But we clearly will have to leverage the 
        subject matter expertise and the lessons learned from 
        other agencies and other programs in creating this new 
        program.\241\
---------------------------------------------------------------------------
    \241\ Id. at 40 (statement of David A. Sampson, Assistant Secretary 
of Commerce for Economic Development, Department of Commerce).

    National League of Cities first vice president, Jim Hunt, 
echoed Representative Dent in questioning the wisdom of moving 
such a large program to an agency that does not have the 
---------------------------------------------------------------------------
existing infrastructure to support it:

        The administration claims that it is seeking to 
        ``retarget and refocus'' these funds to create new 
        program efficiencies. However, from a practical 
        standpoint, NLC questions whether moving the programs 
        from HUD, where administrative and professional 
        infrastructures already exist and function well, to the 
        Department of Commerce will generate any real savings 
        because building the agency's capacity to administer 
        the programs alone would likely consume any cost 
        savings derived from consolidating these programs.\242\
---------------------------------------------------------------------------
    \242\ Id. at 69 (statement of James C. Hunt, first vice president, 
National League of Cities).

    Chandra Western, executive director of the National 
Community Development Association, likewise doubted the 
efficiency of moving to Commerce a program twice the size of 
---------------------------------------------------------------------------
its current portfolio:

        [A]ll the programs that are being proposed for 
        consolidation and [to] be moved over . . . [to] 
        Commerce are already eligible under CDBG . . . I think 
        that the whole proposal is counterproductive in terms 
        of maximizing efficiency to move [a] big program and 
        what it's been doing for 30 years over to Commerce 
        without any infrastructure or any idea [of] how the 
        distribution of funds is going to take place to 
        accomplish the same things we are already doing, and 
        doing very well.\243\
---------------------------------------------------------------------------
    \243\ Id. at 82 (statement of Chandra Western, executive director, 
National Community Development Association).

    The administration has not yet provided enough details on 
SACI enabling an evaluation determining whether the proposal 
would enhance the program's effectiveness. The only SACI 
details provided to Congress for evaluation of the proposal are 
that it reduces program funding, consolidates programming, and 
transfers program administration from HUD to the Department of 
Commerce.
    Until additional information is furnished to the committee 
that would better justify moving the CDBG program to the 
Department of Commerce, the committee will continue questioning 
the value of moving the program from HUD.

        c.  The administration's PART analysis, while 
        successful in identifying key opportunities for reform 
        of some programs, may not be an appropriate evaluative 
        tool for the Community Development Block Grant program 
        because of its flexibility. The administration should 
        consider whether alternative analytical tools exist 
        that can better measure the CDBG program.

    One of OMB's chief criticisms of the CDBG program resulting 
from the PART analysis is that ``[t]he program does not have a 
clear and unambiguous mission. Both the definition of 
`community development' and the role CDBG plays in that field 
are not well defined.'' \244\ Over the course of the series of 
hearings detailed within this report, witnesses often 
questioned whether the PART analysis is an appropriate tool for 
evaluating large, flexible grant programs administered 
cooperatively among Federal, State, and local agencies. For 
example, Angelo Kyle, president of the National Association of 
Counties, commented, ``PART fails to consider the broad and 
wide-range nature of the [CDBG] program, as well as the role of 
local governments in designing activities using CDBG [funds] 
that address challenges that are of a particular value to their 
community.'' \245\
---------------------------------------------------------------------------
    \244\ Office of Management and Budget, Department of Housing and 
Urban Development PART Assessments 3 (2004) .
    \245\ CDBG Hearings at 60 (statement of Angelo D. Kyle, president, 
National Association of Counties).
---------------------------------------------------------------------------
    Deputy Secretary Bernardi strongly disagreed with OMB's 
assessment of CDBG's purpose, stating that the difficulty in 
measuring the program arises in its great flexibility:

        [On] the program purpose and design [element of the 
        PART score], we received a zero score. Candidly, the 
        program purpose and design . . . is spelled out in the 
        Community Development Block Grant Act of 1974. The 
        program was meant to be utilized by local officials 
        with determination after a tremendous amount of 
        community input as to how best they would utilize those 
        resources . . . . So it is a very flexible program; it 
        is a program that was meant to be utilized at the local 
        level.\246\
---------------------------------------------------------------------------
    \246\ Id. at 208 (statement of Roy A. Bernardi, Deputy Secretary, 
Department of Housing and Urban Development).

    Ranking Member Clay observed that a program like CDBG may 
be difficult to measure using PART because ``a block grant 
program with few strings attached make[s] assessment more 
challenging than other programs with more stringent 
requirements.'' \247\ Deputy Secretary Bernardi agreed, ``[Y]ou 
are absolutely right. When you have that kind of flexibility, 
the measurement of those programs becomes more of a 
challenge.'' \248\
---------------------------------------------------------------------------
    \247\ Id. at 217 (statement of Subcommittee Ranking Member Wm. Lacy 
Clay).
    \248\ Id. (statement of Roy A. Bernardi, Deputy Secretary, 
Department of Housing and Urban Development).
---------------------------------------------------------------------------
    When Congress created CDBG in 1974, it identified four 
programmatic goals. Three of those goals include the provision 
of ``[d]ecent housing, suitable living environment[s], and 
economic opportunities for persons of low and moderate 
income[.]'' \249\ Congress identified the fourth goal in its 
direction that CDBG funds be used ``for the support of 
community development activities'' which are intended to: (1) 
eliminate slums and blight; (2) remove conditions detrimental 
to the health, safety and welfare of the public; (3) conserve 
and expand the Nation's housing stock; (4) expand and improve 
the quality of community services for persons of low and 
moderate income; (5) create a more rational utilization of land 
and other resources; (6) reduce the isolation of low and 
moderate income groups and create greater diversity in 
neighborhoods; (7) restore and preserve historical and other 
properties of special value; (8) stimulate private investment 
in underserved areas; and (9) improve energy efficiency in an 
effort to preserve scarce energy resources.\250\
---------------------------------------------------------------------------
    \249\ 42 U.S.C. Sec. 5301(c).
    \250\ Id.
---------------------------------------------------------------------------
    Congress also sought to create a program that would provide 
financial assistance to communities of varying sizes and needs. 
Specifically, it sought to create a program that:

        (1) provides assistance on an annual basis, with 
        maximum certainty and minimum delay, upon which 
        communities can rely in their planning;

        (2) encourages community development activities which 
        are consistent with comprehensive local and areawide 
        [sic] development planning;

        (3) furthers achievement of the national housing goal 
        of a decent home and a suitable living environment for 
        every American family; and

        (4) fosters the undertaking of housing and community 
        development activities in a coordinated and mutually 
        supportive manner by Federal agencies and programs, as 
        well as by communities.\251\
---------------------------------------------------------------------------
    \251\ 42 U.S.C. Sec. 5301(d).

    Throughout the Subcommittee's hearings on CDBG, witnesses 
referenced numerous projects furthering the statutory goals. 
For example, one of the primary goals of the program is to 
benefit individuals and groups of low- and moderate-incomes. 
National Association of Housing and Redevelopment Officials 
executive director, Saul Ramirez, Jr. noted, ``In 2004, 
approximately 95 percent of funds expended by entitlement 
communities and 96 percent of State CDBG funds expended were 
for activities that principally benefited low and moderate-
income persons.'' \252\
---------------------------------------------------------------------------
    \252\ CDBG Hearings at 162 (statement of Saul N. Ramirez, Jr., 
executive director, National Association of Housing and Redevelopment 
Officials).
---------------------------------------------------------------------------
    OMB's PART assessment also identifies ``weak targeting of 
funds by the CDBG formula and by grantees to areas of greatest 
need.'' \253\ The National Academy of Public Administration's 
report on CDBG points out, however, that ``there is no 
targeting requirement in the legislation.'' \254\ The report 
continues, ``Making CDBG more categorical by concentrating and 
focusing investments to places seems to contradict the 
statute's intent.'' \255\ In his testimony, Thomas Downs 
explained:
---------------------------------------------------------------------------
    \253\ Executive Office of the President, Office of Management and 
Budget, Fiscal Year 2006 Budget of the U.S. Government Analytical 
Perspectives, H. Doc. 109-2, vol. III at 118 (2005).
    \254\ NAPA Performance Measures Report at 29.
    \255\ Id.

        The panel also disagrees with OMB's criticisms that 
        CDBG is not geographically or place targeted. Although 
        the panel appreciates OMB's view that directing funding 
        to distressed areas may provide greater benefits to 
        poor people, the 1974 Housing Act has no such 
        requirements to be geographically targeted. Therefore, 
        the panel believes that OMB criticized grantees for 
        something they were not required to be doing.\256\
---------------------------------------------------------------------------
    \256\ CDBG Hearings at 232 (statement of Thomas Downs, fellow, 
National Academy of Public Administration).

    There appears to be support for NAPA's contention in the 
statute. Specifically, the statute implies that CDBG's 
objective is to protect ``the future welfare of the Nation and 
the well-being of its citizens.'' \257\ The statute expressly 
states that, among other objectives, CDBG funds are to be 
directed toward the provision of ``a decent home and suitable 
living environment for all persons, but principally those of 
low and moderate income.'' \258\ CDBG funds are therefore meant 
to benefit all persons, especially if they are of low and 
moderate income, regardless of where they are located. As Mr. 
Downs noted, ``There is some disagreement in the field as to 
whether the Secretary of HUD can compel communities to 
geographically target. Perhaps this is an issue that Congress 
should or could clarify.'' \259\
---------------------------------------------------------------------------
    \257\ 42 U.S.C. Sec. 5301(b).
    \258\ 42 U.S.C. Sec. 5301(c)(3).
    \259\ CDBG Hearings at 232 (statement of Thomas Downs, fellow, 
National Academy of Public Administration).
---------------------------------------------------------------------------
    The committee believes that the PART tool, while effective 
in measuring programmatic success in other government programs, 
is ineffective at qualitatively measuring the success of 
flexible block grant programs. Block grant programs that are 
inherently flexible in order to best address an array of issues 
do not have a prescriptive set of outcomes by which grantee 
accomplishments can be easily measured.

        d.  Over recent years, the CDBG formula grant program 
        has suffered an aggregate funding reduction, resulting 
        in many communities receiving less funding. The 
        administration's SACI proposal would further reduce 
        appropriations for the consolidated programs without 
        substantiating cost savings or efficiencies.

    In fiscal year 2002, Congress appropriated $4.3 billion for 
the CDBG formula grant program, down from $4.4 billion in 
fiscal year 2001.\260\ Congress again reduced the CDBG formula 
grant appropriation in each of the three succeeding fiscal 
years. In the Fiscal Year 2005 Consolidated Appropriations Act, 
Congress appropriated only $4.15 billion for the program.\261\ 
In comparison, the administration's fiscal year 2006 budget 
request for the direct grant portion of SACI was $3.7 billion.
---------------------------------------------------------------------------
    \260\ See Department of Housing and Urban Development, Community 
Development Allocations and Appropriations (last modified Dec. 22, 
2004) .
    \261\ See Public Law 108-447, House Rept. 108-792.
---------------------------------------------------------------------------
    Arguing that the drastic cut in CDBG funding would be 
irrecoverable, James Hunt of the National League of Cities 
summarized the potential impact of the SACI proposal:

        The Administration's SAC proposal collapses 18 current 
        programs, whose combined fiscal year 2005 budgets total 
        approximately $5.5 billion, into a single grant program 
        funded at $3.7 billion. The Administration's proposed 
        budget for SAC grants represents a funding cut of 
        nearly 35 percent from what Congress allocated in 
        fiscal year 2005 for all 18 programs. This cut 
        disproportionately harms CDBG funding because CDBG's 
        [overall] fiscal year 2005 level of $4.7 billion 
        represents nearly 80 percent of the $5.5 billion of 
        combined funding. Moreover, the proposed $3.7 billion 
        for SAC grants is $1 billion short of CDBG's current 
        funding level.\262\
---------------------------------------------------------------------------
    \262\ CDBG Hearings at 68 (statement of James C. Hunt, first vice 
president, National League of Cities).
---------------------------------------------------------------------------

2. Recommendations

        a.  Congress should refrain from enacting any 
        legislation in the 109th Congress that would either 
        eliminate the CDBG program or move it from the 
        Department of Housing and Urban Development to the 
        Department of Commerce.

        b.  HUD should continue efforts to improve the internal 
        administration of the CDBG program by addressing the 
        issues identified throughout this document.

        c.  The administration should consider reviewing the 
        applicability of the PART analysis for block grant 
        programs that are designed to have broad programmatic 
        goals, provide a high degree of flexibility to 
        recipients, and are administered cooperatively among 
        State and local stakeholders.

        d.  Sustaining funding for the CDBG program should 
        remain a Federal government priority.

             B. HUD PROPOSED CDBG FORMULA TARGETING REFORM

1. Findings

        a.  The process of selecting the needs index criteria, 
        designed and utilized by HUD in determining the current 
        CDBG formula grant and in HUD's proposed alternatives, 
        is inherently subjective. As a result, the need index 
        may not accurately capture a community's need.

    Studies of the current formula allocations reveal two main 
fairness issues. First, there are many examples where 
economically wealthier communities receive higher per capita 
awards than economically poorer communities. For instance, 
Wauwatosa, WI, currently receives a per capita grant of $30.63. 
The city, however, has been ranked by HUD as one of the 
Nation's lowest need communities.\263\ In other words, 
Wauwatosa is an economically wealthy community. In comparison, 
Compton, CA, has one of the highest needs ratings in the 
Nation, yet it only receives a per capita grant of $26.18.\264\ 
The contrast between these two examples highlights a 
fundamental unfairness.
---------------------------------------------------------------------------
    \263\ See CDBG Formula Study at B-80.
    \264\ See id. at B-8.
---------------------------------------------------------------------------
    A second issue is that the current formula produces a 
result where similarly situated communities will often be 
awarded disparate per capita grants. As noted above, Compton, 
CA, receives a per capita grant of $26.18. St. Louis, MO, 
however, a community with a slightly lower need score than 
Compton, CA, receives a greater per capita grant of 
$73.58.\265\
---------------------------------------------------------------------------
    \265\ See id. at B-46.
---------------------------------------------------------------------------
    These results point to a significant problem with how HUD 
weights certain need index variables. In the current CDBG 
formula, HUD heavily weights the existence of pre-1940 housing 
within a community, treating it as a proxy of need. This 
variable alone results in disparate grant awards because it 
results in a regional bias usually benefiting Northeastern and 
Midwestern communities. Communities in these areas are more 
likely to have older housing stock compared to communities in 
the West and South for two reasons. First, communities in the 
Northeast and Midwest are typically older communities than 
those established in the West and South. Second, older homes 
are routinely restored in wealthier communities whereas 
communities with fewer resources are more likely to demolish 
older housing stock. Deputy Secretary Bernardi explained:

        [There] are affluent communities . . . that receive 
        above the line in the need index, the Portsmouths and 
        the Newtons . . . and just by having to indicate that 
        it's pre-1940 housing, they receive a benefit there. 
        And there are many, many individuals there that reside 
        in those properties that are anything but poor people 
        in need.\266\
---------------------------------------------------------------------------
    \266\ CDBG Hearings at 137 (statement of Roy A. Bernardi, Deputy 
Secretary, Department of Housing and Urban Development).

Although the existence of older housing stock within a 
community may have served as an indicator of need at one time, 
the nature and quality of older housing stock in a particular 
community can change over time due to restoration efforts. The 
current CDBG formula has no mechanism to account for these 
changes.
    The proposed CDBG formula alternatives also contain other 
elements that would inappropriately skew funding allocations. 
By not counting single households living in poverty, the 
proposed formula alternatives could place communities with a 
large number of non-elderly, poor, single households at a 
disadvantage. Similarly, the use of per capita income as a 
variable without considering cost-of-living pressures, among 
other variables may also inappropriately skew grant 
allocations. It is the view of the committee that while the 
need index criteria are objectively applied, the process by 
which those criteria are selected by HUD is inherently 
subjective. Consequently, the need index score may not 
accurately reflect a community's need.

        b.  The proposed need index counts twice a community's 
        immigrant population in need by measuring a community's 
        aggregate expression of poverty as well as its 
        immigrant population, captured by measuring 
        overcrowding.

    HUD's proposed need index measures poverty in factor 1, 
which captures a community's immigrant population living in 
need. That factor is weighted at 80 percent. Additionally, 
factor 2 of the need index measures overcrowding, which 
according to HUD ``represents a new dimension of community 
need, growing immigrant populations.'' \267\ HUD posits, ``Much 
of the growing immigrant population is moving into expensive 
housing markets for work, the consequence is a shortage of 
[affordable] housing that leads to overcrowding.'' \268\ The 
need index places a 15 percent weight on the factor 2 score. As 
GAO points out in its testimony, poverty is a characteristic 
alone that would capture an immigrant population living in 
need:
---------------------------------------------------------------------------
    \267\ CDBG Formula Study at 27.
    \268\ Id.

        In [HUD's] need criteria, the immigrant population 
        doesn't come into their need index directly. It only 
        comes into it indirectly, and it comes in indirectly in 
        two ways: one through the poverty measure, to the 
        extent these immigrants are low-income people that get 
---------------------------------------------------------------------------
        picked up in the census counts . . .

        The other way [immigrant population is] picked up is in 
        [HUD's] second factor . . . that's weighted 15 percent 
        in [HUD's] overall need index. The only things in there 
        that capture immigration is overcrowded housing, which 
        the study says is correlated with high immigrant 
        populations, and to the extent that correlation is 
        there, [HUD's] need index picks up immigration in that 
        way.\269\
---------------------------------------------------------------------------
    \269\ CDBG Hearings at 180 (statement of Jerry C. Fastrup, 
Assistant Director of Applied Research and Methods, Government 
Accountability Office).

    By considering separately poverty and overcrowding (as an 
indicator of poverty), the proposed need index essentially 
counts twice the need resulting from the existence of an 
---------------------------------------------------------------------------
immigrant population living in need.

        c.  HUD proposes separately acknowledging increased 
        immigrant populations as a unique stress on community 
        development and recommends providing increased CDBG 
        funding to such communities. Immigration and its 
        resulting community pressures are not new, though 
        impacted communities have changed. Immigration poses 
        unique community challenges that may not be appropriate 
        to address using the CDBG program.

    HUD asserts the population growth and economic activity 
associated with a growing immigrant population ``come at the 
cost of increased fiscal stress associated with providing 
community services for the growing population of low-wage 
workers.'' \270\
---------------------------------------------------------------------------
    \270\ CDBG Formula Study at 27.
---------------------------------------------------------------------------
    A growing population will likely increase the financial 
burden of any city, but a growing population may also indicate 
a growing community. As Jerry Fastrup, Assistant Director of 
Applied Research and Methods at GAO, summarized:

        [I]f you are looking at the CDBG program as a program 
        that's trying to compensate for fiscal distress and 
        economic decline and the need to rehabilitate 
        dilapidated housing and those kinds of things, [it] 
        strikes us that overcrowded housing is a sign of a 
        tight labor market and housing market and upward 
        pressure in the housing market [is] usually a sign of 
        strong growth rather than decline.\271\
---------------------------------------------------------------------------
    \271\ CDBG Hearings at 180 (statement of Jerry C. Fastrup, 
Assistant Director of Applied Research and Methods, Government 
Accountability Office).

    Given the budget realities facing the Federal Government--
as well as States and municipalities--it is plausible that 
Congress would soon be faced with tough policy decisions 
resulting from the potentially serious drain on CDBG funds 
caused by this new variable. Therefore, in addition to 
determining whether HUD's suggested alternatives accurately 
assess community need created by a growing immigrant 
population, Congress should also consider whether the CDBG 
---------------------------------------------------------------------------
program is the correct vehicle for addressing those needs.

        d.  The need index designed and utilized by HUD in 
        formulating its recommendations assumes that a greater 
        disparity in the ratio between a CDBG eligible 
        community's per capita income and its metropolitan area 
        per capita income is an expression of greater need. 
        That assumption may be too simplistic and does not 
        consider other factors that could be at work in any 
        given community. Therefore, HUD's need assumption based 
        on this factor may not accurately express community 
        need.

    In its study proposing changes to the grant formula, HUD 
proposed considering the relative income of communities. This 
new element would be calculated by comparing a community's per 
capita income to the metropolitan area's per capita income. 
According to Paul Posner, this introduces ``an entirely 
different element into the equation, which is the issue of 
income and measuring the relative income of communities.'' 
\272\
---------------------------------------------------------------------------
    \272\ Id. at 146 (statement of Paul L. Posner, Managing Director of 
Federal Budget Analysis and Intergovernmental Relations, Government 
Accountability Office).
---------------------------------------------------------------------------
    While this element may capture disparity in per capita 
income, it does not consider factors impacting the resources 
available to address community need. Chairman Turner inquired, 
``By taking metropolitan per capita income into consideration 
and not taking [into consideration] costs . . . aren't you 
heavily weighting toward what could be low-cost, wealthy 
communities?'' \273\ Chairman Turner continued, noting, 
``[H]igh-growth areas where there is a significant amount of 
opportunities will have wages that have upward pressure that 
may not yet have expressed high cost-of-living in either 
housing or other elements of family support.'' \274\
---------------------------------------------------------------------------
    \273\ Id. at 135 (statement of Subcommittee Chairman Michael R. 
Turner).
    \274\ Id.
---------------------------------------------------------------------------
    Deputy Secretary Bernardi disagreed, arguing:

        Initially [there would be high wages and low costs]; 
        but eventually [cost] catches, and catches up in a 
        hurry.'' I think what we've done here is to look for 
        jurisdictions where the per capita income is lower, 
        obviously, than the per capita income in that 
        metropolitan area. That would demonstrate to me that's 
        a community that has some concerns, has some decline. 
        And that is why that community would receive, according 
        to alternative 3, additional funding.\275\
---------------------------------------------------------------------------
    \275\ Id. at 136 (statement of Roy A. Bernardi, Deputy Secretary, 
Department of Housing and Urban Development).

Deputy Secretary Bernardi indirectly acknowledged, however, 
that the use of per capita income as a variable in alternative 
3 is an imperfect attempt at weighting an assortment of 
variables in an effort to compensate for disparities between 
populations that live relatively close to one other. 
---------------------------------------------------------------------------
Specifically, Bernardi said:

        [One] can look at a city that has a low per capita 
        income, and then look to the metropolitan area and see 
        a higher per capita income, and the fact is that the 
        people who [designed the alternatives] were looking for 
        a way to weight, if you will, those individuals living 
        just a few miles from other individuals who, because of 
        many varied circumstances, that [sic] per capita income 
        is extremely lower.\276\
---------------------------------------------------------------------------
    \276\ Id.

    Expressing support for HUD's approach, Mr. Ramirez 
---------------------------------------------------------------------------
testified:

        We believe that communities, even those that have a 
        higher per capita income, do have pockets of poverty 
        within them. In fact, many of those communities 
        struggle with their labor force that service those 
        communities around the country in providing safe and 
        decent housing, and not forcing many of the service-
        oriented labor force to seek shelter and grow their 
        communities within blighted areas. . . . And so we do 
        believe that's that balance, to some degree, that this 
        formula has struck. It does allow for communities, high 
        per capita communities to deal with these pockets of 
        poverty and address the low and moderate-income 
        families within those communities.\277\
---------------------------------------------------------------------------
    \277\ Id. at 182 (statement of Saul N. Ramirez, Jr., executive 
director, National Association of Housing and Redevelopment Officials).

    Mr. Posner, however, questioned the effectiveness of HUD's 
---------------------------------------------------------------------------
approach:

        [O]verall I think we [see] the two factors in 
        alternative 3 . . . offsetting one another. On the one 
        hand, you're trying to target aid proportionately to 
        cities and areas that have lower incomes to raise on 
        their own; on the other hand, you're providing greater 
        aid to those communities if they happen to be nested in 
        higher-income metropolitan areas. This is something I 
        think that needs a lot more thinking. I think [HUD is] 
        heading in the right direction by trying to capture the 
        element of capacity and wealth.\278\
---------------------------------------------------------------------------
    \278\ Id. (statement of Paul L. Posner, Managing Director of 
Federal Budget Analysis and Intergovernmental Relations, Government 
Accountability Office).

    Concurring with Mr. Posner, Mr. Fastrup opined that HUD's 
method of taking into account the differences between high- and 
low-cost-of-living areas by measuring per capita income assumes 
areas of high per capita income have a correspondingly high 
cost of living. ``[HUD] basically assumes that all of the 
difference in per capita income between a low-income 
metropolitan area and a high-income metropolitan area . . . 
[is] all cost of living differences, and that's not true,'' 
Fastrup told the Subcommittee. ``So I think that method of 
putting metropolitan income into the formula is overdoing it to 
some extent,'' he concluded.\279\
---------------------------------------------------------------------------
    \279\ Id. at 184 (statement of Jerry C. Fastrup, Assistant Director 
of Applied Research and Methods, Government Accountability Office).
---------------------------------------------------------------------------
    The Committee agrees with the conclusions articulated by 
GAO. The need index designed and utilized by HUD in formulating 
its recommendations relies too heavily on a potentially flawed 
assumption that a greater disparity in the ratio between a CDBG 
eligible community's per capita income and the per capita 
income of its metropolitan area is an expression of greater 
need. The committee believes that HUD's assumptions may be too 
simplistic and does not consider other factors that may be at 
work in a given community. Consequently, the committee also 
finds that HUD's assumptions may not accurately express 
community need.

        e.  A community's abandoned and vacant housing stock 
        may represent a significant contributing factor to 
        community blight. However, the need index considers 
        only the condition of occupied structures in a 
        community, ignoring the quality and condition of 
        abandoned and vacant housing stock.

    The elimination of community blight is one of CDBG's 
enumerated goals. In 1974, Congress found that ``the Nation's 
cities, towns, and smaller urban communities face[d] critical 
social, economic, and environmental problems arising [in part] 
from . . . inadequate public and private investment and 
reinvestment in housing and other physical facilities, and 
related public and social services, resulting in the growth and 
persistence of urban slums and blight[.]'' \280\ In order to 
address the issue, Congress declared the primary objective of 
the Housing and Urban Development Act to be the ``development 
of viable urban communities, by providing decent housing and a 
suitable living environment and expanding economic 
opportunities'' through the use of CDBG funds on, in part, 
``the elimination of slums and blight and the prevention of 
blighting influences and the deterioration of property and 
neighborhood and community facilities[.]'' \281\
---------------------------------------------------------------------------
    \280\ 24 C.F.R. Sec. 5301(a).
    \281\ 24 C.F.R. Sec. 5301(c).
---------------------------------------------------------------------------
    While Deputy Secretary Bernardi acknowledged the 
``obvious'' blight created abandoned and vacated housing in 
communities across the Nation, HUD's formula alternatives 
ignore the blighting influence of abandoned residential 
structures.\282\ In assessing need, the formula alternatives 
only count housing units occupied by poverty-stricken 
families.\283\ By not providing for a valuation of these 
dwellings, HUD ignores the probability that the blighted 
condition of a neighborhood and the overall community would be 
accelerated.\284\
---------------------------------------------------------------------------
    \282\ See CDBG Hearings at 134 (statement of Roy A. Bernardi, 
Deputy Secretary, Department of Housing and Urban Development).
    \283\ See id. (statement of Subcommittee Chairman Michael R. 
Turner).
    \284\ See id. at 181-182 (statement of Saul N. Ramirez, Jr., 
executive director, National Association of Housing and Redevelopment 
Officials).
---------------------------------------------------------------------------
    In effect, Deputy Secretary Bernardi acknowledged that the 
current formula penalizes communities for having blighted 
housing because need is based upon the residence of poverty-
stricken families within the community.\285\ The committee is 
concerned that the current formula therefore removes a source 
funding for housing rehabilitation solely because poverty-
stricken households do not occupy abandoned or vacant 
properties. The committee views this approach as incomplete and 
urges HUD to recognize vacant and abandoned housing stock as a 
contributing factor to community blight in its need index.
---------------------------------------------------------------------------
    \285\ See id. at 134-135 (statement of Roy A. Bernardi, Deputy 
Secretary, Department of Housing and Urban Development).

        f.  In order to compensate for distortions caused by 
        student populations in some communities, HUD proposes 
        excluding all single occupant households from the 
        poverty variable in the formula alternatives. In doing 
        so, however, HUD may exclude a significant population 
        of non-elderly individuals living in poverty that 
---------------------------------------------------------------------------
        should be served by the CDBG program.

    In its formula alternatives, HUD excluded all single, non-
elderly households living in poverty to compensate for the 
distortion in assessing need caused by the presence of off-
campus college students. In so doing, HUD also excludes single 
individuals living in poverty, including the disabled.
    In order to verify that the exclusion of single, non-
elderly persons in poverty would not ``misrepresent the needs 
of communities with particularly high portions of their 
population made up of non-college students who are single, non-
elderly, and in poverty . . . HUD requested a special 
tabulation of census data that specifically excluded full-time 
college students from the poverty count.'' \286\ HUD found that 
little difference in the need score index results when using a 
factor discounting student populations versus counting only 
poverty-stricken elderly or family households, thereby 
excluding all single, non-elderly households living in 
poverty.\287\ By its own analysis, however, HUD states that a 
small number of communities would in fact be harmed.\288\ Those 
communities would see as much as a 10 percent reduction in 
their share of the national poverty total when the poverty-
stricken elderly or family household factor is used over the 
factor discounting student population.\289\
---------------------------------------------------------------------------
    \286\ CDBG Formula Study at 16, n. 13
    \287\ See id.
    \288\ See id.
    \289\ See id.
---------------------------------------------------------------------------
    Consequently, it is the view of the committee that if data 
is available to exclude the off-campus student population 
without also discounting non-elderly single households living 
in poverty, that data should be used to more accurately capture 
a community's need.

2. Recommendations

        a.  HUD should acknowledge that any proposed ``needs 
        test'' may be inherently subjective by its nature. 
        Therefore, the policy implications of new or additional 
        ``needs tests'' should be fully vetted before they are 
        implemented.

        b.  HUD should not count more than once, directly or 
        indirectly, any single element of community need.

        c.  HUD should undertake further study of the community 
        stresses caused by immigrant population growth to 
        determine if the resulting needs should be addressed by 
        a program other than CDBG.

        d.  HUD should reevaluate the use of the ratio between 
        a community's per capita income and its corresponding 
        metropolitan area's per capita income in the CDBG need 
        index.

        e.  HUD should recognize the contributing factor of 
        vacant and abandoned housing stock to community blight 
        in its need index.

        f.  HUD should determine if data is available to 
        exclude off-campus student populations without also 
        discounting non-elderly, single households living in 
        poverty. If that data exists, it should be used to 
        create a more accurate reflection of a community's 
        needs.

                     C. CURRENT CDBG FORMULA GRANTS

1. Findings

        a.  HUD does not operate continuous formula review 
        under a structured program to ensure the CDBG formula 
        grant program keeps pace with rapid changes in the 
        Nation's demographic composition and economic needs. 
        There are factors that would improve the assessment of 
        need and the targeting of funds in addition to those 
        reviewed in the HUD study.

    The current formula grant remains largely unchanged since 
its inception 30 years ago. Meanwhile, the Nation's 
demographics have changed dramatically during that same period. 
Over the previous three decades, HUD only studied the formula 
five times--in 1976, 1979, 1983, 1995, and 2005.\290\ HUD 
initiated the majority of these studies in-house to ask the 
question: ``[H]ow is the CDBG program doing in terms of meeting 
the community development need in this country?'' \291\ The 
committee believes a more frequent and structured periodic 
review would keep the formula contemporary with the changes in 
demographics and need across the country.
---------------------------------------------------------------------------
    \290\ See id.
    \291\ CDBG Hearings at 112 (statement of Roy A. Bernardi, Deputy 
Secretary, Department of Housing and Urban Development).
---------------------------------------------------------------------------
    In June 2005, Chairman Turner and Representative Robert 
Ney, chairman of the House Financial Services Subcommittee on 
Housing and Community Opportunity, requested a GAO study on the 
CDBG grant formula. The request solicited: (1) a review of the 
current needs criteria as well as recommendations for new 
criteria to calculate a more accurate need index; (2) an 
evaluation of formula options that includes consideration of a 
community's fiscal capacity to address its needs; (3) an 
assessment of alternative formulas which distribute funds based 
on the prevalence of low-income citizens, (4) alternate need 
criterions and formula options that narrowly focus the 
targeting of CDBG funds; and (5) an evaluation of whether the 
current 70/30 split should be maintained, altered, or 
eliminated. Representatives Turner and Ney expect GAO will 
finalize this report during the second session of the 109th 
Congress.

        b.  Numerous communities are ``grandfathered'' by the 
        Housing and Community Development Act of 1974 and thus 
        continue receiving funds through the entitlement 
        portion of the CDBG formula grant despite no longer 
        meeting the definition of an ``entitlement community.'' 
        This results in a lower per capita grant per 
        entitlement jurisdiction and therefore less effective 
        targeting of CDBG funds.

    By statute, only entitlement communities may receive 
allocations from the 70 percent portion of funds reserved for 
entitlement communities under the CDBG formula grant. 
Entitlement communities are defined as central cities of 
metropolitan areas, cities with populations of 50,000 or more, 
and statutorily defined urban counties.\292\ At the program's 
inception, there were 506 entitlement communities.\293\ In 
fiscal year 2005, there were 1,112 entitlement communities, an 
increase of 606 communities.\294\ During this same time, the 
amount of funds shared by these communities--that is, the 70 
percent portion of grant funds--has remained relatively static. 
Conversely, the numbers of non-entitlement communities, which 
share the 30 percent portion of grant funds, dwindled. 
Consequently, entitlement communities receive shrinking per 
capita grants while non-entitlement communities receive growing 
per capita grants.
---------------------------------------------------------------------------
    \292\ See 42 U.S.C. Sec. 5302.
    \293\ See letter from Roy A. Bernardi, Deputy Secretary, Department 
of Housing and Urban Development to the Honorable Michael R. Turner, 
chairman of the Subcommittee on Federalism and the Census of the House 
Committee on Government Reform 2 (June 1, 2005) (on file with 
Subcommittee) [hereinafter HUD Letter].
    \294\ See id.
---------------------------------------------------------------------------
    Under the HCDA, entitlement communities benefit from 
grandfathering protection when they drop below a population of 
50,000 or lose their classification as a central or principal 
city.\295\ At present, there are eight urban counties and 106 
central cities grandfathered in the CDBG formula grant 
program.\296\ Collectively, these 114 communities receive more 
than $75 million in formula dollars that would otherwise fund 
community and economic development activities in the nearly 
1000 other certified entitlement communities.\297\
---------------------------------------------------------------------------
    \295\ See 42 U.S.C. Sec. 5302.
    \296\ See HUD Letter at 2.
    \297\ See HUD Letter at 4-6.
---------------------------------------------------------------------------
    The committee finds that grandfathered communities do not 
meet the statutory definition of communities eligible to 
receive moneys from the entitlement community portion of funds. 
Therefore, they are not the recipients Congress originally 
intended for those funds. To address the non-entitlement 
communities' needs, Congress adopted the 70/30 split thereby 
reserving funds for non-entitlement communities' use. The 
grandfathered communities, as they are no longer entitlement 
communities, should only receive funds from that pool. In 
specifying a grandfather provision, however, one may reasonably 
infer that Congress intended to prevent significant disruption 
in grant funds to communities and the services those funds 
enable. Not only would ``de-grandfathering'' these 114 
communities result in more funds available for the growing 
number of entitlement communities, but by moving the 
communities to the 30 percent portion of the CDBG program, they 
would share funds with a decreasing number of other non-
entitlement communities.

        c.  Any change in the formula grant will lead to 
        significant disruption in funding for some communities.

    The stakeholder community argues that any change to the 
formula grant will result in significant and abrupt funding 
changes to already fiscally troubled communities. In 
challenging the proposition that the current CDBG formula grant 
no longer effectively targets the needs identified in the HCDA, 
Saul Ramirez, Jr., executive director of the National 
Association of Housing and Redevelopment Officials, argued:

        The statute requires that at least 70 percent of all 
        CDBG funds expended go toward activities to benefit 
        low- and moderate-income persons. However, communities 
        are, in fact, targeting much more aggressively than the 
        statute requires. In 2004, approximately 95 percent of 
        funds expended by entitlement communities and 96 
        percent of State CDBG funds expended were for 
        activities that principally benefited low- and 
        moderate-income persons.\298\
---------------------------------------------------------------------------
    \298\ CDBG Hearings at 162 (statement of Saul N. Ramirez, Jr., 
executive director, National Association of Housing and Redevelopment 
Officials).

    The committee does not disagree with these statistics. 
Communities currently receiving CDBG funds expend those dollars 
as legally required by the 70 percent statutory threshold. 
However, the committee believes that while funds are targeted 
as required within the community to which they are awarded, 
CDBG funds as a whole are not targeted to those communities 
with the greatest need.
    The committee recognizes that any change in the formula 
grant will result in decreased funds to numerous communities 
and thus disrupt those communities' plans for community and 
economic development. The stakeholder community supports ``the 
notion of a fair and equitable distribution of CDBG dollars, 
but urge[s] [Congress] to proceed with caution'' and advises 
that ``[i]f Congress feels change is truly necessary, then we 
would think likely that change could happen in a way that 
mitigates uncertainty and avoids sudden and substantial losses 
in funding.'' \299\ The committee fully agrees with this 
assessment and heeds these cautions. Consequently, the 
committee suggests a phase-in of any formula changes and the 
resulting funding adjustments to ease the transition, a tool 
not foreign to the CDBG program. According to Deputy Secretary 
Bernardi, Congress instituted a phase-in period when it 
transformed the program from a categorical grant program to a 
formula-based program in the 1970s.
---------------------------------------------------------------------------
    \299\ Id.

        [W]hen the program went from a categorical grant 
        program to the formula . . . back in the 1970's, there 
        was a phase-in period that was put into place by 
        Congress . . . . If [Congress] choose[es] to change the 
        formula, [it] could do the same thing here so that the 
        community would be phased in to receiving that extra 
        money so they have the capacity and the wherewithal how 
        [sic] to use the [extra] capacity at the same time if 
        they were to lose those dollars [they could adjust 
        accordingly].\300\
---------------------------------------------------------------------------
    \300\ Id. at 139 (statement of Roy A. Bernardi, Deputy Secretary, 
Department of Housing and Urban Development).
---------------------------------------------------------------------------

2. Recommendations

        a.  Congress should institute a mandatory, periodic 
        review of the CDBG formula grant. Further, HUD should 
        actively work in concert with GAO in the requested 
        study of alternative need index and formula criteria. 
        Any formula grant modifications should respond to two 
        expressed congressional goals: increasing the 
        effectiveness of CDBG targeting and achieving cost 
        savings and efficiencies.

        b.  Congress should consider whether ``de-
        grandfathering'' communities that no longer meet the 
        definition of metropolitan city or urban county would 
        result in increased cost savings and more effective 
        targeting to need. If Congress determines to go forward 
        with de-grandfathering, HUD should be tasked with 
        undertaking a review and recommending the least 
        disruptive method.

        c.  If Congress amends the CDBG grant formula, HUD 
        should design a plan to phase in those formula changes 
        over time so that communities marked for funding 
        reductions will experience minimal revenue disruptions.

                        D. PERFORMANCE MEASURES

1. Findings

        a.  Performance measurement for the CDBG program is 
        currently limited to HUD's use of the Consolidated Plan 
        (Conplan), which will more likely than not be approved 
        by HUD if the plan is ``complete'' or ``substantially 
        complete.'' The Conplan can potentially serve as a 
        mechanism for holding CDBG communities accountable for 
        their program performance. As currently utilized by 
        HUD, however, the Conplan serves no apparent purpose.

    The Conplan was intended for use as a tool describing how 
CDBG funds will be spent, thus a tool for monitoring the 
quality of a grantee's planned use of funds. As a result of 
numerous congressional mandates, however, ``HUD's major review 
focus for administration of the CDBG program is [now] 
monitoring grantees' [actual] use of funds.'' \301\ Because the 
statute can be loosely interpreted to require approval unless 
the plan is incomplete, critics assert that HUD essentially 
``rubber stamps'' most Consolidated Plans. ``[A]s long as it 
adheres to the national objectives . . . [t]here is not a 
rejection of the consolidated plan per se,'' Bernardi informed 
the Subcommittee.\302\ Bernardi further conceded that the 
Department only thoroughly reviews plans that appeared to be 
``high risk'' while approving others that are complete or 
substantially complete.\303\
---------------------------------------------------------------------------
    \301\ Id. at 202 (statement of Roy A. Bernardi, Deputy Secretary, 
Department of Housing and Urban Development).
    \302\ Id. at 210 (statement of Roy A. Bernardi, Deputy Secretary, 
Department of Housing and Urban Development).
    \303\ See id.
---------------------------------------------------------------------------
    Observers also question whether HUD actually reads each 
Conplan, suggesting that HUD simply does not have the time or 
manpower to review 1,100 Consolidated Plans within the 45-day 
time period.\304\ In the event they do read every submitted 
Conplan, there is no process in place to assist communities and 
enhance their ability to expend their CDBG funds.\305\
---------------------------------------------------------------------------
    \304\ See id. at 292 (statement of Sheila Crowley, Ph.D., 
president, National Low Income Housing Coalition).
    \305\ See id. at 287 (statement of Subcommittee Chairman Michael R. 
Turner).
---------------------------------------------------------------------------
    While the Conplan apparently serves only as a tool for HUD 
to verify that grantees comply with the law on what activities 
CDBG funds may be expended, there is limited utility in 
monitoring according to the Conplan because there is no 
requirement that grantees spend their funds in accordance with 
their submitted Conplan. Consequently, HUD is unable to enforce 
compliance with a community's approved grant activities and 
programs.\306\
---------------------------------------------------------------------------
    \306\ See id. at 263 (statement of Sheila Crowley, Ph.D., 
president, National Low Income Housing Coalition).
---------------------------------------------------------------------------
    Accordingly, the utility of the Conplan, which is approved 
unless substantially incomplete, is unclear to the committee 
when there is no requirement to comply with an approved Conplan 
and consequently no ability to enforce expenditures on approved 
activities and programs.

        b.  HUD's IDIS information management system is based 
        on an operating language written over 40 years ago. The 
        program has become obsolete and incompatible with many 
        end-user systems. Even if IDIS was not obsolete, it 
        does not lend itself well to the collection of 
        performance measuring data.

    According to Deputy Secretary Bernardi, ``The concept of 
IDIS was and is a great idea: it links financial information, 
i.e., amount of funds used, with actual accomplishments.'' 
\307\ Where the Conplan is a tool to monitor intended use of 
funds, IDIS is the complementary tool to track actual 
expenditure of funds. The National Academy of Public 
Administration concluded, however, ``[IDIS] works poorly, if at 
all, by most standards for the boarder purposes that [HUD] 
claims.'' \308\ Past efforts to fix the system have either 
failed or ``been executed in a piecemeal fashion.'' \309\ Most 
witnesses concurred with NAPA's view that the program was time 
consuming, limited, and inefficient in its use.
---------------------------------------------------------------------------
    \307\ Id. at 204 (statement of Roy A. Bernardi, Deputy Secretary, 
Department of Housing and Urban Development).
    \308\ Id. at 233 (statement of Thomas Downs, fellow, National 
Academy of Public Administration).
    \309\ Id.
---------------------------------------------------------------------------
    While HUD is currently upgrading the system, the process 
has been slowed for a wide variety of reasons--some 
attributable to HUD and others attributable to outside factors. 
However, even if upgrades to the IDIS system were more rapid, 
the system functions as nothing more than an accounting system. 
``The inability of the IDIS to absorb performance data cannot 
be overstated. It is basically an accounting system that is 
used to show where the money goes, it doesn't necessarily have 
the structure to support performance recording,'' reported 
Thomas Downs.\310\ According to Lisa Patt-McDaniel, reporting 
CDBG achievements captured in the Conplan has been difficult 
due in great part to IDIS. ``[In] part of the Consolidated 
Plan, citizens are informed about the results of the program's 
expenditures in a narrative format, but the current IDIS system 
does not allow this kind of reporting.'' \311\
---------------------------------------------------------------------------
    \310\ Id. at 288 (statement of Thomas Downs, fellow, National 
Academy of Public Administration).
    \311\ Id. at 250 (statement of Lisa Patt-McDaniel, assistant deputy 
director, Community Development Division, Ohio Department of 
Development, on behalf of the Council of State Community Development 
Agencies).
---------------------------------------------------------------------------
    In essence, IDIS is a tool to track where grantees spend 
their grant dollars. It is not a tool to measure how 
effectively those funds are being spent.
    The committee is concerned that the IDIS system, as is, 
does not lend itself well to the collection and analysis of 
data used to measure performance. Additionally, because the 
IDIS and other HUD performance measuring computer programs are 
obsolete, they are proving an impediment to the local 
jurisdictions in their efforts to create their own performance 
measures. Accordingly, the committee finds that despite recent 
efforts to upgrade the IDIS system, more work remains if there 
is to be meaningful performance measurement and accountability 
inserted in the CDBG program.

        c.  HUD should consider acting on the recommendations 
        of the Joint Working Group and those published by the 
        National Academy of Public Administration in its 
        February 2005 report on performance measures for the 
        CDBG program.

    The committee agrees with NAPA's report that stakeholders 
``support CDBG performance reporting as long as it is non-
intrusive, extensively used, cost effective, and compatible 
with existing management systems.'' \312\ According to the NAPA 
report, any successful performance measurement system must be 
multi-faceted to meet the differing needs of grantees, HUD, and 
OMB:
---------------------------------------------------------------------------
    \312\ NAPA Performance Measures Report at xii.

        Grantees want maximum programmatic flexibility to 
        tailor the investments to their local needs. At the 
        Federal level, HUD wants a system that reflects and 
        maintains CDBG's flexibility, and complies with its 
        statutory responsibilities as an executive agency. 
        Meanwhile, OMB wants one that encourages HUD and 
        grantees to demonstrate conclusively that the 
        investments contribute to the development of viable 
        communities and to low- and moderate-income 
        beneficiaries. To accomplish this, it wants entitlement 
        communities and states to target CDBG funding to a 
        limited number of neighborhoods.\313\
---------------------------------------------------------------------------
    \313\ Id.

    According to Lisa Patt-McDaniel, the Joint Working Group 
``succeeded'' in developing performance measures upon which all 
stakeholders can agree.\314\
---------------------------------------------------------------------------
    \314\ See id. at 242 (statement of Lisa Patt-McDaniel, assistant 
deputy director, Community Development Division, Ohio Department of 
Development, on behalf of the Council of State Community Development 
Agencies).
---------------------------------------------------------------------------
    To address the performance measurement deficiencies of both 
the Conplan and IDIS as detailed heretofore, CDBG stakeholders 
formed a working alliance with HUD and OMB--the Joint Grantee/
HUD/OMB Outcome Measurement Working Group--to develop a 
framework of common outcome measures that grantees of all 
government levels could use to report data and demonstrate 
results to HUD. According to Patt-McDaniel, ``The CDBG program 
is an inherently flexible program, designed that way by 
Congress because of the complex and varying natures of our 
Nation's communities,'' however, it is ``that flexibility 
[that] sometimes makes it difficult to measure the 
effectiveness of the activities[.]'' \315\
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    \315\ Id. at 251.
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    In designing an outcome performance measurement system, Ms. 
Patt-McDaniel described the group's aim as creating a tool 
which would answer the question, ``In what way can we best 
demonstrate that the CDBG program does achieve the results that 
Congress intended for the program?'' \316\ Their goal was to 
create measures that would result in the aggregation of data, 
demonstrating the results and benefits of the CDBG program.
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    \316\ Id. at 241.
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    Beginning with the question, ``why did we fund that 
project, what are we trying to achieve?,'' the group found that 
while grantees use CDBG funds for many different kinds of 
projects, ``at the heart of these activities, there are common 
outcomes that most communities are trying to achieve.'' \317\ 
With the implementation of this system, Patt-McDaniel believes 
grantees will be able to report data that can be aggregated by 
outcomes to ``help Federal policymakers assess whether the 
statutory intent of the program is being met, and the system 
can be an important management tool at both the grantee and 
Federal level.'' \318\
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    \317\ Id. at 246.
    \318\ Id. at 243.
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    According to Deputy Secretary Bernardi, ``While program 
flexibility is maintained, the outcome measurement system 
offers a specific menu of objectives, outcomes and indicators 
so that reporting can be standardized and the achievements can 
be aggregated to the national level.'' \319\ Further, advised 
Bernardi, the proposed matrix ``will produce data to identify 
the results of formula grant activities. It will allow the 
grantees and HUD to provide a broader, more accurate picture. 
The goal is to have a system that will aggregate results across 
the spectrum of the programs at the city level, the county, 
[and] State,'' \320\ thereby ``improv[ing] the type and content 
of reports available to HUD for monitoring.'' \321\ \322\
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    \319\ Id. at 206 (statement of Roy A. Bernardi, Deputy Secretary, 
Department of Housing and Urban Development).
    \320\ Id. at 198.
    \321\ Id. at 209.
    \322\ As noted previously, a Final Rule implementing the new 
outcome performance measurement system is expected in late December 
2005.
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    The committee applauds HUD's collaborative effort with the 
Joint Working Group to develop a new performance measure matrix 
for the CDBG program. The Subcommittee also commends HUD for 
its impending Notice of Final Rule on this matter. The 
committee acknowledges, however, that upgrading the 
Consolidated Plan or any performance measure system with the 
introduction of rigorous performance indicators could represent 
a significant technical challenge for many jurisdictions.

2. Recommendations

        a.  Congress should consider revising or eliminating 
        the statue which requires how Consolidated Plans are 
        used in monitoring CDBG targeting and accountability.

        b.  HUD should work closely with OMB to replace the 
        current IDIS system with a system that will measure 
        performance in addition to functioning as an auditing 
        and accounting tool.

        c.  In addition to its efforts implementing the Joint 
        Grantee/HUD/OMB Working Group Outcome Measurement 
        System, HUD should adopt and implement the 
        recommendations presented by the National Academy of 
        Public Administration on performance measures.

                 E. CURRENT ELIGIBLE USES OF CDBG FUNDS

1. Findings

        a.  CDBG programmatic success has been effectively 
        linked to the flexibility of the use of funds. Such 
        broad flexibility should be maintained.

    Flexibility has been the key feature of the CDBG program 
most often lauded by end-users and other stakeholders. 
According to the James Hunt, the flexible nature of the program 
has ``allowed local government broad latitude in how it uses 
grant funds, and whether that use is for the creation of new 
economic development opportunities, affordable housing, public 
facilities, or services.'' \323\ Councilman Hunt argued that 
because of this flexibility, the CDBG program has ``given 
cities the latitude to address `urgent needs' like eliminating 
drug dens and other cancers on our communities--latitude not 
found with other programs.'' \324\ ``It is because of CDBG's 
flexibility and autonomy of local control that the CDBG program 
has become, from the local perspective, the most effective form 
of Federal assistance currently available,'' Hunt 
concluded.\325\
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    \323\ Id. at 72 (statement of James C. Hunt, first vice president, 
National League of Cities).
    \324\ Id.
    \325\ Id.
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    Thomas Downs of the National Academy of Public 
Administration also applauded the flexibility of the program, 
stating, ``The 1974 Housing Act clearly gives wide latitude--
intentionally, I might add--to States and communities to spend 
CDBG moneys to meet the needs of poor people and distressed 
communities.'' \326\ Mr. Downs explained:
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    \326\ Id. at 232 (statement of Thomas Downs, fellow, National 
Academy of Public Administration).

        Part of the genius of the program is its breadth of 
        decision making that allows State and local 
        jurisdictions to solve problems that are unique within 
        their community. And we have discovered long ago that 
        there is a fundamental difference between Minot, ND, 
        and Miami. That is built into the program.\327\
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    \327\ Id. at 295.

    The committee agrees with stakeholders that the fundamental 
element of the CDBG program is its flexibility in the use of 
funds. While this flexibility may create accountability 
problems, it also provides local communities the latitude they 
require to expend the funds necessary to quickly and reliably 
address local needs. It has consistently been shown that the 
Federal Government cannot effectively and efficiently 
anticipate local needs from inside the Beltway. State and local 
governments are often far more responsive to the needs of its 
citizens. Therefore, it is the view of the committee, based on 
the notion and concept of federalism, that the broad 
flexibility inherent within the CDBG program should be 
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maintained for the foreseeable future.

        b.  Observers routinely criticize the CDBG program 
        because entitlement communities may spend significant 
        portions of their CDBG funds on staff positions and 
        other administrative costs. Although CDBG grantees 
        operate under a spending cap specifically on the 
        administrative and planning activities category, there 
        is not a cap on aggregate spending--spanning all 
        eligible activity categories--for these functions.

    Congress instituted a 20 percent spending cap on items 
falling within the administration and planning activities 
category to limit the amount of funds that could be expended on 
non-program activities, including staff functions. HUD reported 
that 19 of the 100 most populated entitlement communities 
exceeded the 20 percent spending cap on administrative and 
planning activities category. Further, CDBG frequently endures 
criticism, that grantees spend well beyond that 20 percent on 
staff functions alone, merely by categorizing a particular 
function as an eligible activity.
    Deputy Secretary Bernardi testified, ``As long as the 
dollars are used to provide goods and services for individuals 
who meet the low and moderate-income threshold[, the] 
flexibility of the program allows the entities to use the money 
as they see fit.'' \328\ Accordingly, grantees could 
conceivably spend 100 percent of its grant dollars on staff 
functions by categorizing particular functions as 1 of the 25 
eligible activities and not be in violation of the spending 
restrictions.
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    \328\ Id. at 212 (statement of Roy A. Bernardi, Deputy Secretary, 
Department of Housing and Urban Development).
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    There are two additional categories outside of 
administrative and planning activities that exclusively 
constitute staff expenditures. In program year 2003, 15 
grantees expended more than 10 percent (4 of which exceeded 15 
percent) on housing rehabilitation administration while 7 
grantees expended more than 10 percent (2 of which exceeded 20 
percent) on code enforcement. HUD does not collect the 
appropriate data, however, to determine the overall amount of 
CDBG funds spent on staff functions falling outside of the 20 
percent spending cap on administrative and planning activities.
    Further, Mr. Bernardi testified, ``direct project delivery 
costs may include the costs of staff carrying out the activity 
as well as other costs such as architectural and engineering 
services for construction activities or rent and utilities 
related to an eligible public service[.]'' \329\ Bernardi was 
unable to provide details on those activities, however, because 
``such specificity cannot be isolated within the data provided 
to HUD.'' \330\ Consequently, HUD is unable to determine what 
percentage of CDBG funds are expended on staff functions by the 
100 most populated entitlement communities.
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    \329\ Id. at 303.
    \330\ Id.
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    The committee finds that it is probable some CDBG grantees 
permissibly spend an excessive amount of grant dollars on 
administrative and staff functions that could be categorized as 
an eligible activity. In doing so, these communities spend 
irreplaceable dollars on functions other than those which are 
necessary to accomplish the tangible goals of CDBG programs and 
activities. Because HUD does not have the data necessary to 
precisely determine the amount of funds expended on such 
functions, the committee cannot state with certainty how 
egregious the problem may be.

2. Recommendations

        a.  Congress should review and consider revising the 
        eligible activities enumerated in Sec. 5305 of Title 42 
        of the United States Code to maintain a wide degree of 
        flexibility of use within the CDBG program.

        b.  An aggregate cap on spending, applicable to all 
        administrative and staff functions spanning all 
        eligible activity categories, is necessary to ensure 
        CDBG funds are available for the ``bricks and mortar'' 
        community development functions targeted by the 
        program.

                       F. CENSUS BUREAU PRODUCTS

1. Findings

        a.  The decennial census is the primary source of data 
        currently used for CDBG formula calculations. It 
        currently provides data for all five of the CDBG 
        formula variables. The decennial census long form 
        provides data for three of the five formula variables 
        and other useful data to HUD and State and local 
        planners but has shortcomings because this data is 
        updated once every 10 years and quickly becomes dated. 
        The U.S. Census Bureau, using the American Community 
        Survey, is now providing similar data updated annually. 
        If HUD were to better use this and other Census 
        products it could greatly enhance the targeting 
        accuracy and fairness of CDBG formula allocations.

    Discussions between Subcommittee and HUD staff have 
revealed that HUD has yet to determine how it will adapt 
American Community Survey [ACS] data and the rolling averages 
in particular, into CDBG calculations. Some observers argue 
that HUD should begin now to examine how it can best use ACS 
data in the design of its community development policies and 
formula calculations.
    In a separate hearing entitled, ``Life in the Big City: 
What is Census Data Telling Us About Urban America and Are 
Policymakers Really Listening?,'' held on May 10, 2005, the 
Federalism and Census Subcommittee examined the diverse data 
provided by the U.S. Census Bureau and how it is used by public 
and private sector planners. For example, the new Longitudinal 
Employer Household Dynamics [LEHD] program is linking shifts in 
industrial sectors and workforce requirements. The Bureau also 
is significantly improving GIS information nation-wide. GIS is 
becoming an increasingly important planning tool. HUD, in 
cooperation with the U.S. Census Bureau, should explore 
opportunities for innovative applications of Census Bureau data 
to improve the targeting of CDBG funds allocations and for 
measuring the performance of CDBG projects.
    Another issue raised in the May 10, 2005, hearing was the 
ongoing need for data user education for improved use of Census 
Bureau data products--simply because the data is available, 
does not mean that the data is effectively used. In the 
Subcommittee's May 24, 2005, hearing on CDBG performance 
measures, Lisa Patt-McDaniel testified that if Congress wishes 
to address the issue of CDBG program effectiveness, ``it should 
direct HUD to find ways to train local governments on best 
practices on community planning . . .. \331\ The committee 
understands HUD requires that CDBG applicants and recipients 
use Census Bureau data and somewhat facilitates that use 
through certain types of technical assistance. Nonetheless, it 
is clear from both the May 10, 2005 and May 24, 2005 hearings 
that there are opportunities for more effective application of 
the wide variety of data provided by the Census Bureau for 
community planning purposes. To accomplish that goal, 
practitioners need more training. This especially holds true in 
smaller communities where a dedicated demographer may not be on 
staff. HUD should, in cooperation with the U.S. Census Bureau, 
explore opportunities for innovative applications of Census 
Bureau data to improve community development programs.
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    \331\ Id. at 287 (statement of Lisa Patt-McDaniel, assistant deputy 
director, Community Development Division, Ohio Department of 
Development, on behalf of the Council of State Community Development 
Agencies).
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2. Recommendations

        a.  The committee recommends that HUD, in cooperation 
        with the U.S. Census Bureau, explore opportunities for 
        innovative applications of Census Bureau data to 
        improve community development programs.

                                 
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