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HUD's FY 99 Budget
Congressional Justifications
Community Planning and Development

Community Development Block Grants

PROGRAM HIGHLIGHTS

NA = Not Applicable

a/ P.L. 105-65 appropriated $4.675 billion for CDBG; however, two items totaling $1,015,000 with the Economic Development Initiative were canceled under line-item veto authority, thereby reducing the total available in this account.

SUMMARY OF BUDGET ESTIMATES

1. SUMMARY OF BUDGET REQUEST

The Budget proposes $4.725 billion for Community Development Block Grants (CDBG) in 1999, including $100 million for the Regional Connections initiative which will enable States and localities to develop and implement strategic plans that address key regional issues facing the nation's metropolitan areas and rural communities. CDBG funds are provided to entitlement cities, urban counties and States based on the highest of two formulae, and may be used for community and economic development activities, thereby increasing State and local capacity for economic revitalization, job creation, neighborhood revitalization, public services, community development and renewal of distressed communities, and for leveraging of non-Federal sources. It is the primary vehicle for the revitalization of our Nation's cities and neighborhoods, thereby providing opportunities for self-sufficiency to millions of Americans. A commitment level of $1.261 billion is requested for the Section 108 loan guarantee program in 1999. It is anticipated that the funds proposed for the CDBG and Section 108 Loan Guarantee programs in 1999 will support approximately 171,100 rehabilitated housing units and approximately 276,000 new jobs.

A 1995 Urban Institute evaluation of the CDBG program found that:
    • CDBG was the largest source of non-tax Federal assistance for the construction or rehabilitation of privately-owned housing, amounting to $839 million in 1990 (in 1997, CDBG continues to be one of the largest Federal sources of assistance for these activities);

    • there was a clear relationship between CDBG "level-of-effort" and improvement or stability in the census tract poverty rate. Poverty tracts that improved did so as a result of CDBG assistance; those that remained stable typically received less CDBG attention;

    • use of CDBG funds for housing were concentrated in rehabilitation (81 percent of housing funds), and supported renovation of an estimated 132,000 units per year;

    • funds for housing were leveraged at an average of $2.31 for every CDBG dollar;

    • the CDBG program for economic development was overwhelmingly a small business program, with 99 percent of assisted businesses reporting revenues in 1993 of under $6 million; and

    • more than half of all CDBG-assisted businesses employed five persons or fewer, and minority-owned businesses appeared in the pool of CDBG-assisted businesses at about three times the expected rate, based on their national share of all businesses.

The Report found that jobs supported by CDBG assistance met basic tests of job quality: 89 percent of created positions remained after 4 years; 96 percent were full-time; 90 percent paid more than the minimum wage; and neighborhood residents held 32 percent of jobs created by assisted businesses.

This Budget eliminates all but a few set-asides, thus increasing the funding available for Entitlement Communities and States by $237.8 million to $4.43 billion. The following are the only set-asides proposed within CDBG:
    • coordinated regional approaches to economic growth, housing and community $100 million for a Regional Connections initiative to facilitate existing and new development, and to encourage and stimulate the development of coordinated regional strategies that promote economic empowerment of a region's low- and moderate-income residents.

    • $67 million for Native Americans (although most of HUD's housing and community development programs for Native Americans have been consolidated by enactment of the Native American Housing and Self-Determination Act, the Native American CDBG program continues to be funded under this account);

    • $55 million for supportive services activities, including the Resident Opportunity and Supportive Services (ROSS) program (formerly Economic Development and Suppotive Services and Tenant Opportunity Program) and congregate services and service coordinators for elderly and disabled residents;

    • $50 million for Section 107 Grants, including funding for Insular areas, University and technical assistance programs, and community development management information systems support; and

    • $20 million for Habitat for Humanity.

The Budget proposes a Regional Connections initiative at $100 million. Regional Connections will make funds available to States and localities to develop and implement strategic plans that address key regional issues facing the nation's metropolitan areas and rural communities. The initiative will help communities address the significant demographic and economic shifts that are taking place in metropolitan regions by encouraging regional strategies that emphasize coordinated metropolitan economic growth and regional solutions to a range of environmental and social equity issues.

Regional Connections will enable communities to address one or more of the following topics: regional economic development strategies that tap the competitive advantage or location efficiency of the inner city; sustainable growth or compact development strategies; regional job training and access to work initiatives; regional affordable housing strategies; or other regional concerns identified by communities themselves. Proposed outcomes include: strengthened partnerships between city and suburban governments and their private sector partners; enhanced regional coordination of Federal resources and planning requirements; expanded use of HUD's existing Consolidated Planning process; and increased community capacity to implement more comprehensive, regional solutions to local problems.

Funds for this initiative will be distributed by competition, and are intended to maximize local innovation and creativity; maximize participation by local partners, including multiple jurisdictions and private sector and community stakeholders; and maximize and enhance coordination with existing planning and regional development efforts. HUD will undertake this initiative in close cooperation with other Federal agencies, and will utilize the expertise of an Advisory Board of distinguished urban planners, economists and regional experts to implement the program.

Finally, the Budget proposes a $1.261 billion commitment level for the Section 108 loan guarantee program in 1999. This is the same level that was provided in 1998. This commitment level will support a portion of the Section 108 loan guarantees made in conjunction with an enhanced Economic Development Initiative/Community Empowerment Fund (EDI/CEF) program, for which $400 million is proposed (see separate justification), and with the accelerated Brownfields Redevelopment Program, for which $50 million is proposed (see separate justification), as well as all other loan guarantee applications received under the regular CDBG program. The focus of the 1999 EDI grants will continue to be the need to create employment opportunities for former welfare recipients as part of the President's Welfare Reform program. The Brownfields Redevelopment program is intended to provide grants in conjunction with loan guarantees for the clean-up and economic redevelopment of contaminated sites. Based on historical data, it is estimated that the funds requested for EDI/CEF and Brownfields will leverage $2.25 billion in Section 108 loan guarantee commitments over time. EDI funds have previously resulted in loan guarantee commitments with ratios as high as 1:10, with $1 in grant funds leading to $10 in loan guarantees commitments. Depending on the types of projects being assisted, however, this ratio may be significantly lower. For this Budget, a 1:5 ratio is estimated. However, not all of this commitment activity will take place in 1999. Since the EDI and Brownfields programs will both require competitions, and grant awards will be made when that process is completed, it would be unrealistic to expect that all grantees will have the capacity to submit loan guarantee applications for the awards made during 1999. Rather, the demand and workload will spread out over 2 to 3 years. Therefore, it is anticipated that approximately $1.261 billion in loan guarantees will be required in 1999.

As required by the Credit Reform Act of 1990, credit subsidy budget authority of $29 million is requested for the Section 108 loan guarantee program. In addition, administrative funds totaling $1 million will be needed for administrative costs. This is the same level of funding provided in 1998. In addition to staff and related costs, a portion of these funds will be used to contract for certain functions. Financial and legal services are required to handle the increased volume of projects and the increasing complexity of structuring loan arrangements, particularly security requirements, in order to provide financing of loans under approved commitments. Additional administrative funds are required to pay for costs associated with underwriting, loan documentation, and structuring of pooling arrangements. It is also anticipated that additional third party services will be required to monitor compliance by Section 108 recipients with credit security arrangements.

2. CHANGES FROM 1997 ESTIMATES INCLUDED IN 1998 BUDGET

Obligations decreased by a net of $521.9 million from the previous 1997 estimate reflecting two changes. The first is a change in the assumption that all available funds would be obligated in that year. The majority of CDBG funds go to Entitlement communities which have program years beginning anywhere from January to October. For those communities that begin their program years in October, obligation of grant funds occurs in the subsequent fiscal year. Second, the 1997 Emergency Supplemental Appropriation Act (P.L. 105-18) provided $500 million for CDBG disaster assistance, of which $250 million became available immediately and the remaining $250 million became available on October 1, 1997. These funds are to be used only for buyouts, relocation, long-term recovery, and mitigation in communities affected by the flooding in the upper Midwest and other disasters in fiscal year 1997 and such natural disasters designated 30 days prior to the start of fiscal year 1997. The use of funds for buyouts and relocation will reduce dangers and liabilities to both citizens and the Federal government in the future. As of September 30, 1997, $170.4 million of the $250 million made available in 1997 was obligated. Outlays of $4.517 billion in 1997 were $320 million, or approximately 7 percent, lower than projected in the 1998 Budget, reflecting the lower obligation level and related lower expenditure of funds by grantees.

Section 108 loan guarantee commitments totaled approximately $278 million in 1997, significantly lower than the $1.4 billion originally anticipated. This is due largely to the absence of EDI funds in 1997 and the change in underwriting requirements under Credit Reform guidelines. This highlights the need for such funds for the securitization of Section 108 loans. Outlays of credit subsidy budget authority were significantly lower as well, reflecting the lower level of commitments. Outlays were lower due to the lower level of commitments as well as a slower spendout rate.

3. CHANGES FROM ORIGINAL 1998 BUDGET ESTIMATES

The 1998 Current Estimate reflects the enactment of $4.675 billion (adjusted by the line-item veto cancellations), an increase of $75 million above the original Budget request. In addition, the Current Estimate displays the $250 million provided under P.L. 105-65 that became available on October 1, 1997.

Overall obligations are expected to increase significantly above the Budget Estimate, mainly due to the higher appropriation in 1998, as well as the anticipation that all funds will be obligated by the end of 1998. The Current Estimate further reflects the obligation of the remaining $330 million in Disaster Assistance provided under P.L. 105-65.

The increase of $347 million in outlays reflects both the spendout of the emergency disaster supplemental appropriation and obligated balances.

The Section 108 outlays decrease by $18 million to reflect a recalculation of spendout rates. An analysis of expenditures over several years showed a slower spendout than had been used in the past.

EXPLANATION OF INCREASES AND DECREASES

The Budget proposes $4.725 billion for CDBG in 1999, including $100 million for the Regional Connections initiative. This is an increase of $50 million over the 1998 level, excluding supplemental Disaster Assistance funding. The proposal for CDBG minimizes set-asides and maximizes funds available to Entitlement Communities and States.

Obligations are expected to decrease by $1.1 billion from 1998 to 1999, reflecting that all available funds, including disaster funds, will be obligated in 1998 and that there will be no carryover of budget authority into 1999. Outlays are expected to decrease slightly, by $29.3 million, from 1998 to 1999, less than 1 percent from the 1998 estimate.

Section 108 outlays increase slightly, by $2.9 million, reflecting the recalculation of the spendout rate referred to earlier.

PROGRAM DESCRIPTION AND ACTIVITY

1. Legislative Authority. CDBG is authorized by Title I of the Housing and Community Development Act of 1974, as amended. The Budget proposes appropriations language which would enable the implementation of the Regional Connections initiative in 1999.

2. Program Area Organization. The Community Development Block Grant (CDBG) program provides flexible funding for communities across the Nation to develop and implement community and economic development strategies that primarily benefit low- and moderate-income individuals. It is the primary vehicle for the revitalization of our Nation's cities and neighborhoods, thereby providing opportunities for self-sufficiency to millions of Americans.

Grantees access their CDBG funding through the Consolidated Plan process, under which States and localities establish their local priorities and specify how they will measure their performance. A locality's Consolidated Plan serves as the planning, application and reporting mechanism for CDBG funds. The Consolidated Plan is the vehicle by which communities identify community and neighborhood development needs, actions to address those needs (including specific activities on which CDBG dollars will be spent), and the measures against which their performance will be judged. The Consolidated Plan also provides a means for identifying key low-income neighborhoods for targeted multiyear investment strategies. Communities establish performance measurement systems to evaluate progress toward meeting locally established priorities and objectives. HUD works closely with States and localities to facilitate comparison of performance among jurisdictions, and publicizes "best practices" so that communities can learn from one another.

The CDBG program directly advances the Department's Strategic Plan Objective #1, "Empower Communities to meet local needs," by providing funding for community and economic development needs," and Strategic Plan Objective #6, "Provide economic opportunities for low and moderate-income persons by supporting the creation and retention of jobs." Through consolidated planning for CDBG and other program funds, HUD has instituted a unified and streamlined process for creating locally driven strategies for housing and community development. CDBG funds can be used for a variety of activities that are directed toward neighborhood revitalization, economic development, and improved community facilities and services. CDBG also supports Strategic Plan Objective #3, "Increase access by families and individuals to affordable housing in standard condition," by providing funding for a full range of housing and support activities, principally for housing rehabilitation. Finally, CDBG supports Strategic Plan Objective #5, "Provide empowerment and self-sufficiency opportunities to support low-income individuals and families as they make the transition from dependency to work," by funding the provision of services for public housing residents.

a. Program Purpose. Title I of the Housing and Community Development (HCD) Act of 1974, as amended, authorizes the Secretary to make grants to units of general local government and States for the funding of local community development programs. The program's primary objective is to develop viable urban communities by providing decent housing and a suitable living environment and by expanding economic opportunities, principally for persons of low- and moderate-income. This objective is achieved by limiting activities to those which carry out one of the following broad national objectives: (1) benefit low- and moderate-income persons; (2) aid in the prevention or elimination of slums and blight; or (3) meet other particularly urgent community development needs. At least 70 percent of all CDBG funds received by a grantee must be used for activities that benefit persons of low- and moderate-income over a period of up to 3 years. Historically, communities have actually used more than 90 percent of their CDBG funds for such activities.

The program is based on the principle that recipients have the knowledge and responsibility for selecting eligible activities most appropriate to their local circumstances. In addition, instead of competing for categorical project dollars each year, the entitlement communities and States have a basic grant allocation so they know in advance the approximate amount of Federal funds they will receive annually.

b. Eligible Recipients and Activities

   Eligible Recipients. Eligible CDBG grant recipients include States, units of general local government (city, county, town, township, parish, village or other general purpose political subdivision determined to be eligible for assistance by the Secretary), the District of Columbia, Puerto Rico, Guam, the Virgin Islands, American Samoa, the Commonwealth of the Northern Marianas, the Trust Territory of the Pacific Islands (Palau) (through 1998 only), and recognized Native American tribes and Alaskan Native villages.

   Eligible Activities. Section 105 of the HCD Act of 1974, as amended, permits a broad range of activities to be undertaken by communities assisted under the program, ranging from the provision of public facilities or services to economic development or residential rehabilitation and, in some cases, substantial reconstruction of housing. In addition, this Budget includes a proposal (under the Administrative Provisions) to permit State grantees under the CDBG program to retain up to .25 percent or $50,000, whichever is greater, to administer HUD's Integrated Disbursement and Information System, the integrated financial and management information system, in addition to any other amounts used for this purpose from amounts authorized to be retained for administrative expenses.

c. Fund Distribution. CDBG funds are allocated to States and localities based on the formulae described below. After deducting designated amounts for set-asides, 70 percent of funds go to entitlement communities and 30 percent go to States for nonentitlement communities (small cities).

The following table shows the distribution of the 1997 and 1998 appropriations, and the projected distribution of the proposed appropriation for 1999:

    a/In 1997, the Supportive Services Grants included $5 million for Moving to Work and up to $5 million for the Tenant Opportunity Program. The 1998 Appropriations Act included $5 million for Moving to Work and at least $7 million for Service Coordinators and Congregate Services.
    b/Funding for Youthbuild requested as a separate appropriation in 1999.
    c/In 1997 and in HUD's request for 1999, the Community Outreach Partnerships program is funded within Section 107 grants. The 1998 Appropriations Act funded this program as a separate set-aside within CDBG, but outside of Section 107 Grants.
    d/P.L. 105-65 appropriated $138 million for EDI grants, including $100 million for specified projects, as a set-aside within CDBG. Two of the specific projects were canceled under line-item veto authority, reducing the set-aside as well as the entire appropriation. The 1999 Budget requests funding for EDI as a separate appropriation.
    e/Funding for the Lead-Hazard Control Program is requested as a separate appropriation in 1999.
    f/In 1997, NCDI was funded through a transfer from the Homeownership and Opportunity for People Everywhere into the separate NCDI account.

         d. Explanation of Funds Allocated by Recipient Category

      1. Formula Entitlement. The HCD Act of 1974, as amended, provides for the distribution of funds to eligible recipients (metropolitan cities and urban counties) for community purposes utilizing the higher of two formulas, as shown:

      ORIGINAL FORMULASECOND FORMULA
      Poverty - 50 percentPoverty - 30 percent
      Population - 25 percentPopulation growth lag
      Overcrowded housing - 25 percent(1960-1990) - 20 percent
      Age of housing stock - 50 percent

      "Age of housing stock" means the number of existing year-round housing units constructed before 1940, based on Census data. "Population growth lag" means the extent to which the current population of a metropolitan city or urban county is less than the population it would have had if its population growth rate between 1960 and the date of the most recent population count had been equal to the growth rate of all metropolitan cities over the same period.

      Metropolitan Cities. Cities in Metropolitan Statistical Areas (MSAs) with a population of 50,000 and over and central cities of MSAs are entitled to funding on the basis of one of the formulas. For 1998, 841 metropolitan cities are eligible to receive grants. Of these, 22 have elected to enter into joint grant agreements with their urban counties.

      Urban Counties. The statute also entitles urban counties to formula grants. In 1998, 145 counties met the required population threshold and were eligible for formula funding. These urban counties include over 3,300 cooperating local incorporated units receiving funding under the program. A test for designation as an urban county requires that the county be authorized under State law to undertake essential community development and housing assistance activities in its unincorporated areas which are not units of general local government.

      The urban county must have authority to perform such functions in its participating incorporated communities either under State law or through cooperative agreements. These agreements must express the intention of the urban county and its incorporated jurisdictions to cooperate in essential community development and housing assistance activities, specifically urban renewal and publicly assisted housing. Participation by any included unit of government is voluntary. An urban county's qualification is valid for a 3-year period.

           2. Nonentitlement (States and Small Cities Program). Nonentitlement funds are allocated among the States according to a dual formula, with the allocation being the higher of amounts determined under the original formula or a second formula which is identical to that used for entitlement communities except that population is substituted for growth lag.

      Presently, States have the option of administering the program and awarding grants to nonentitled units of government. Where the State does not so elect, HUD distributes the funds. HUD currently administers the State CDBG program for New York and Hawaii. Under the HCD Act of 1974, as amended, any State that elects to administer the Small Cities program in fiscal year 1985 or thereafter shall be considered to have assumed this responsibility permanently and, if it fails to provide an annual submission, funds will be reallocated among all other States in the succeeding year.

           3. Youthbuild. The Youthbuild program, which was funded within CDBG in 1996, 1997, and 1998, is authorized by Section 164 of the Housing and Community Development Act of 1992 (P.L. 102-550), which amended Title IV of the Cranston-Gonzalez National Affordable Housing Act by adding subtitle D, "HOPE for Youth: Youthbuild." Youthbuild is fully discussed in a separate justification. A separate appropriation is requested for Youthbuild in 1999.

           4. Section 107 Grants. The Housing and Community Development Act of 1992 (P.L. 102-550) expanded Section 107 to include Community Outreach Partnership Act funding, Community Adjustment Planning, assistance to joint State/local government/university programs, and Regulatory Barrier Removal Act funding. Section 107 grants have also included five program categories providing assistance for Insular Areas; Historically Black Colleges and Universities; Community Development Work Study; funding to States and units of general local government to correct any miscalculation of their share of funds under section 106; and technical assistance in planning, developing and administering programs under Title I.

      A total of $50 million is requested for Section 107 grants in 1999. These amounts are subtracted from the total appropriation prior to allocating funds that are provided directly to States and units of local government. The proposed distribution of Section 107 Grants follows.

      • $19 million for three University programs: $6.5 million for Historically Black Colleges and Universities (HBCU), $5 million (with a $2 million set-aside for Hispanic serving institutions) for Community Development Work Study, and $7.5 million for the Community Outreach Partnerships program (COPs);

      • $14 million for management information systems support for community development programs;

      • $10 million for Technical Assistance; and

      • $7 million for Insular Areas.

      Management Information Systems Support. Funding for the development, implementation, operation and refinement of management information systems is critical to establishing and maintaining a national database on local needs and program performance, as well as to providing localities and other community members with the necessary software to plan and track performance. As the necessary systems are implemented and refined, funds needed for this purpose are anticipated to decrease over time.

      Funding for the refinement and continued user support for the management information systems is critical in 1999. In 1997, HUD completed development of the Integrated Disbursement and Information System (IDIS) and the Grants Management Process System. These systems provide planning services for grantees and capture meaningful data about the housing and community development needs and achievements of State and local governments. As of January 15, 1998 nearly all Entitlement grantees are using IDIS. Further funding is needed to refine the system, stay current with emerging technologies, train and assist users, and modify the system to respond to legislative and regulatory changes.

      University Programs. HUD grants to universities have assisted institutions of higher education in forming partnerships with the communities in which they are located to undertake a range of activities to foster and achieve neighborhood revitalization. The HBCU and Community Outreach Partnerships programs have received funding for these purposes. Another program, Community Development Work Study, provides assistance to economically disadvantaged and minority students earning degrees in community building disciplines. This Budget proposes to fund the HBCU, CD Work Study and Community Outreach Partnerships within Section 107 of the CDBG account. The HBCU program is administered by HUD's Office of Community Planning and Development, and the COPS and CD Work Study programs are administered by HUD's Office of Policy Development and Research.

      Technical Assistance. Technical assistance projects have assisted States, communities and Native American tribes in planning, developing and administering Title I assistance. The technical assistance program enables the Department to provide assistance both directly and through contractors in the following areas:

      • increasing grantee effectiveness to plan and implement Title I assistance, including special assistance to grantees who are not achieving locally established performance goals;

      • improving the economic development potential of governmental units and increasing the participation of the private sector in community and economic development assisted under Title I;

      • leveraging non-Title I funding sources in the use of Title I assistance; and

      • support for Best Practices efforts for peer-to-peer assistance.

      This will provide for community development and job creation training for localities and capacity building (including operating and project costs) of neighborhood-based and community development organizations that wish to participate in local community development.

           5. Insular Areas. Section 107 Grants are the source of funding for community development activities in the Insular areas. Insular areas that have been funded include the Virgin Islands, American Samoa, Guam, the Commonwealth of the Northern Marianas, and the Trust Territory of the Pacific (Palau). (NOTE: On October 1, 1994, Palau became an independent Nation, and funding will be terminated after 1998.) Typical projects include construction or reconstruction of public works and facilities; housing rehabilitation; economic development; and public services.

           6. Economic Development Initiative. EDI grants are authorized by Section 108(q) of the Housing and Community Development Act of 1974, as amended. A separate Budget request proposes to use $400 million in 1999 for the EDI/Community Empowerment Fund (CEF) and is more fully described in a separate justification.

           7. Lead Hazard Control Program. Title X of the Housing and Community Development Act of 1992 (P.L. 102-550) authorizes a Lead-Based Paint Hazard Reduction program to address lead-hazard reduction activities in privately owned housing. This program is discussed in greater detail in a separate justification. Funding for this program is not requested under CDBG in 1999.

           8. Habitat for Humanity. The Housing Opportunity Program Extension Act of 1996 (P.L. 104-120) authorized the Secretary to make a $25 million grant to Habitat for Humanity International under the Self-Help Housing Opportunity Program (SHOP) during 1996. No funding was provided during 1997. The 1998 Appropriations Act provided $16.7 million for SHOP within CDBG, including $10 million for Habitat. This Budget proposes an additional $20 million for Habitat in 1999. Habitat received funding requests from more than half of their 1,300 affiliates. Of these requests, 336 applications for more than $51 million were submitted, indicating an existing demand substantially in excess of the SHOP funds already provided for Habitat. Habitat would use this grant to provide additional innovative homeownership opportunities through the provision of self-help housing, under which a homeowner would contribute a significant amount of sweat equity toward the construction of the new dwelling. These decent, safe and sanitary nonluxury dwellings must be made available to eligible homeowners at prices below prevailing market prices. Eligible activities include land acquisition (including financing and closing costs) and infrastructure improvement (installing, extending, constructing, rehabilitating or otherwise improving utilities and other infrastructure).

           9. Capacity Building for Community Development and Affordable Housing. The Capacity Building for Community Development and Affordable Housing program provides funding to build the capacity of community-based development corporations and housing development organizations, and to assist such entities in carrying out community development and affordable housing activities. The Housing Opportunity Program Extension Act of 1996 (P.L. 104-120) authorized the Secretary to make a $10 million grant to the National Community Development Initiative (NCDI) for this program in 1996. During 1997, $30.2 million was provided under the 1997 Emergency Supplemental Appropriations Act (P.L. 105-18) for NCDI, and amended the authorizing statute to include Habitat for Humanity and Youthbuild USA as eligible recipients of NCDI funds. Prior to this amendment, only the Local Initiatives Support Corporation (LISC) and The Enterprise Foundation had been eligible recipients. The 1998 Appropriations Act provided $15 million for this program within CDBG, but limited the distribution of those funds to the original two eligible organizations. Funding for this program is not requested in 1999. This program is more fully described in a separate justification.

           10. Resident Opportunity and Supportive Services. Funding of $55 million is requested for the Resident Opportunity and Supportive Services (ROSS) program. Formerly called Economic Development and Supportive Services (EDDS) and Tenant Opportunity Program (TOP), ROSS is intended to fuse the objectives of the two predecessor programs. It addresses the expanded needs among residents and housing authorities brought by welfare reform legislation which sets time limits on how long recipients can receive welfare assistance. Principally for the benefit of public and assisted housing residents, ROSS grants are intended to help the elderly and disabled, and families with children where the head of the household is working, seeking work, or participating in job training or educational programs. Eligible services under ROSS include academic skills training, residential management, microenterprise and small business development and start-ups, and social service support programs. In addition, funds within this program are utilized to continue congregate services and service coordinators for elderly and disabled residents. A description of these activities is included in Housing's Congregate Services portion of these justifications. During 1998, $20 million of the EDSS funds were allotted for these activities to serve the needs of public and assisted housing residents.

           11. Disaster Assistance. The 1997 Emergency Supplemental Appropriations Act (P.L. 105-18) provided $500 million for CDBG disaster assistance (buyouts, relocation, long-term recovery, and mitigation) in communities affected by the flooding in the upper Midwest and other disasters in fiscal year 1997, as well as other natural disasters designated 30 days prior to the start of that fiscal year. Half of this money was made available in 1997, and the remainder became available on October 1, 1997. As of September 30, 1997, $170 million of available funds had been obligated.

e. Reallocation of Entitlement Funds. CDBG amounts allocated to a metropolitan city or urban county in a fiscal year which become available for reallocation as a result of a grant reduction are first reallocated in the succeeding fiscal year to other metropolitan cities and urban counties in the same Metropolitan Statistical Area (MSA). These communities must follow a simple certification process to qualify for receipt of these funds.

f. Reallocation of Nonentitlement Funds. Existing law requires that amounts allocated for use in a State in a fiscal year which become available for reallocation must be reallocated according to the following criteria:

    • in the case of actions against small cities, amounts that become available for reallocation are to be added to amounts available for distribution in the State in the fiscal year in which the amounts become available;

    • in the case of actions against a State, these amounts will be allocated among all States in the succeeding fiscal year.

g. Loan Guarantee Authority. Section 108 of the Housing and Community Development Act of 1974, as amended, authorizes the Secretary to issue Federal loan guarantees of private market loans used by entitlement and nonentitlement communities (the latter beginning in 1991 pursuant to the Cranston-Gonzalez National Affordable Housing Act) to cover the costs of acquiring real property, rehabilitating publicly owned real property, housing rehabilitation, and certain economic development activities. In addition, guaranteed loan funds have been used to finance construction of housing by nonprofit organizations when undertaken as part of a project that is also financed under the Rental Housing Development Grants or Nehemiah Housing Opportunity Grants programs.

A 1994 amendment makes the acquisition, construction or reconstruction of public facilities an eligible use of these loan funds. The 1994 amendments also authorized the "Economic Revitalization Grants" program to assist the financing of economic development projects in conjunction with loans under the Section 108 program. Since 1994, more than $400 million has been awarded for Economic Development Initiative (EDI) grants under this authority. In 1999, $400 million is requested for the EDI program and $50 million is requested for Brownfields Redevelopment. Both of these grant programs must be used in conjunction with Section 108 loan guarantees to leverage private investment in urban economic development projects.

Beginning in 1996, budget authority for credit subsidy and administrative costs were requested to comply with the Federal Credit Reform Act of 1990. For 1999, $29 million is requested for credit subsidy budget authority and $1 million is requested for administrative costs of operating the Section 108 loan guarantee program. These amounts are required to be scored, in accordance with the Federal Credit Reform Act of 1990, to measure more accurately the cost of this loan guarantee program to the Federal Government. Administrative costs are used for staff and related requirements, as well as to contract out for certain credit extension functions. Financial and legal services are required to handle the increased volume of projects and the increasing complexity of structuring loan arrangements, particularly security requirements, in order to provide financing of loans under approved commitments. Aministrative funds are also needed to pay for costs associated with underwriting, loan documentation, and structuring of pooling arrangements. It is also anticipated that additional third party services will be required to monitor compliance by Section 108 recipients with security arrangements.

This Section 108 loan guarantee program uses a credit subsidy rate of 2.3 percent, which takes many factors into account, the fact that the borrowers are units of general local government, and the fact that there has not been a default under the 108 program to date. During 1997, HUD studied innovative risk management techniques such as loan pooling and risk sharing arrangements that will make Section 108 a more valuable tool, particularly for economic development financing. These guidelines will assist grantees in developing their loan guarantee applications. Such guidelines will help recipients adequately securitize their projects such that, in the event of a default, projects will not exceed the credit subsidy rate of 2.3 percent.

     h. Consolidated Plan Requirement. In order to receive CDBG entitlement funds, a grantee must develop and submit to HUD its Consolidated Plan, which is a jurisdiction's comprehensive planning document and application for funding under the following Community Planning and Development formula grant programs: CDBG, HOME, Housing Opportunities for Persons With AIDS (HOPWA), and Emergency Shelter Grants (ESG). In its Consolidated Plan, the jurisdiction must identify its goals for these community planning and development programs, as well as for housing programs. In addition, the Consolidated Plan must include the jurisdiction's projected use of funds and required certifications. These certifications include that the grantee is following a current HUD-approved Consolidated Plan, that not less than 70 percent of the CDBG funds received over a 1-, 2- or 3-year period specified by the grantee, will be used for activities that benefit persons of low- and moderate-income, and that the grantee is following other applicable laws, regulations, and OMB circulars. A Consolidated Plan submission will be approved by HUD unless the Plan (or a portion of it) is inconsistent with the purposes of the National Affordable Housing Act or it is substantially incomplete.

States participating in the State CDBG program must also develop and submit to HUD a Consolidated Plan similar to those required of entitlement communities. However, in place of a listing of proposed funded activities, each State must merely describe its funding priorities and must describe the method it intends to use to distribute funds among communities in nonentitlement areas. Each participating State must submit certifications that it will: follow the Act's citizen participation requirements and require assisted local governments to follow citizen participation; conduct its program in accordance with the Civil Rights Act of 1964 and the Fair Housing Act of 1988 and affirmatively further fair housing; set forth and follow a method of distribution that ensures that each of the funded activities will meet one or more of the three broad national objectives of the program; consult with affected local governments in determining the method of distribution and identifying community development needs; and comply with Title I of the HCD Act and all other applicable laws. It must also certify that each housing activity funded will be consistent with the State's Consolidated Plan.

HUD-administered Small Cities in the State of New York are required to submit an application to HUD in response to the annual Notice of Fund Availability (NOFA) published by the Department. Such application also requires the submission of an abbreviated Consolidated Plan. The applications are subject to a competitive review and selection process described in the NOFA.

     i. Performance Review. CDBG grantees (entitlement communities and states) that have approved Consolidated Plans must annually review and report to HUD on its progress in carrying out its strategic and action plans for community development. This includes a description of CDBG, HOME, ESG and HOPWA funds made available to the grantee, the activities funded, the geographic distribution and location of the activities and the types of families or persons assisted (beneficiaries), and a report of the actions taken to affirmatively further fair housing. The report is an assessment by the grantee of the relationship of its use of funds to the specific objectives identified in the Consolidated Plan.

   HUD is required to review grantees' performance, at least annually, to determine whether activities have been carried out in a timely manner; whether activities and certifications have been carried out in accordance with all applicable laws and whether the grantee has continuing capacity to carry out the program. In the case of States, HUD performs reviews to determine if the state has distributed funds in a timely manner, consistent with its method of distribution, is in compliance with CDBG requirements and other applicable laws and whether appropriate reviews of grants awarded to local governments have been conducted by the State. HUD is authorized to terminate, reduce or limit the availability of the funds of a grantee according to review findings following the opportunity for an administrative hearing. For nonentitlement grants made by HUD to small cities, HUD may adjust, reduce, or withdraw such funds, or take other action as appropriate according to review findings.

   The Department is completing development of an integrated reporting system under which performance information for all programs covered in the Consolidated Plan would be collected by HUD as program expenditures occur. This new system is currently operational on a limited basis, and will be expanded as resources and development activities permit.

3. Performance Indicators.

   a. Mission. To empower communities, to provide economic opportunities, and to encourage empowerment and self-sufficiency.

   b. Objectives and Benchmarks. The objectives of the CDBG program are to provide decent, safe and affordable housing; to revitalize distressed neighborhoods and communities; to promote self-sufficiency and economic opportunities; to expand opportunities principally for low- and moderate-income persons; and to eliminate impediments to fair housing choice. Benchmarks are estimates of expected activity. Actual accomplishments depend on local decisions on the use of CDBG funds, as well as the use of funds from other sources. Benchmarks which may be used to measure performance include the percentage of funds used for housing activities; the number of jobs created; and the extent to which communities incorporate milestones with timetables (measures of performance) in their Consolidated and Action Plans that demonstrate progress in improving locally defined conditions in their neighborhoods and communities; and the percentage of funds used for activities which benefit low- and moderate-income persons.

STATUS OF FUNDS

Balances Available

a. Unobligated balances. The following table compares program obligations with funds available for distribution by year:

b. Obligated Balances. The status of obligated balances is as follows:

NOTE: Actual outlays are governed by the rate at which communities expend funds which have been made available to them.

DISTRIBUTION OF FUNDS BY STATE

The following table shows combined entitlement and nonentitlement allocations, by State, for 1997, 1998 and 1999 appropriations. The 1999 amounts represent preliminary estimates which are subject to change.

Content Archived: January 20, 2009

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