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Statement before the
U.S. House of Representatives
Subcommittee on the District of Columbia
Committee on Government Reform
by Nelson Rapha�l Breg�n
Deputy Assistant Secretary for Grants Programs
Office of Community Planning and Development
March 8, 2002
Good morning Chairwoman Morella and Members of the Subcommittee:
My name is Nelson Rapha�l Breg�n and I am the Deputy Assistant
Secretary for Grant Programs in the Office of Community Planning
and Development. Thank you for the opportunity to be here this morning
as part of the Subcommittee's examination of the District of Columbia's
community and economic development activities.
I am here, at your request, to discuss one of HUD's most important
tools for community and economic development -- the Community Development
Block Grant (CDBG) program-- and our review of the city's use of
CDBG funds to assist community development corporations (CDCs).
Secretary Mart�nez and Assistant Secretary Bernardi are as concerned
as you are regarding the District of Columbia's CDCs, HUD's recent
monitoring findings and the reports published by the Washington
Post. For this reason, my colleagues and I would like to provide
you the information that we have on this matter.
Before I begin, I would like to introduce Mr. Richard J. Kennedy,
Director of the Office of Block Grant Assistance at HUD Headquarters.
Mr. Kennedy reports to me and is responsible for developing policies
and procedures related to the CDBG program.
And also with me is Mr. Ronald Herbert, Director of the Office
of Community Planning and Development in our HUD District of Columbia
Field Office. Mr. Herbert is responsible for assisting and working
directly with our program grantees, such as the District of Columbia.
The Community Development Block Grant (CDBG) program is a $4.4
billion program that provides annual grants on a formula basis to
states, as well as entitlement metropolitan cities and urban counties.
Each entitlement community, such as the District of Columbia, may
use CDBG funds for a variety of community, housing and economic
development activities focused on neighborhood revitalization, economic
development and the provision of improved community facilities and
services for low- and moderate-income residents. CDBG activities
are initiated at the local level based on a community's identified
local needs, priorities, and benefits to the community. Each entitlement
community receiving a grant is free to determine what activities
it will fund as long as certain requirements are met, including
that the activity is eligible and meets one of the following three
national objectives: 1) benefits low- and moderate-income persons;
2) aids in the prevention or elimination of slums or blight; or
3) meets urgent community needs that the community is unable to
finance on its own.
The responsibility for ensuring that local CDBG programs meet Federal
requirements rests with the executive authority (e.g., Mayor, County
Commissioner) of each CDBG grantee. As in the case of the District
of Columbia, many executive authorities delegate CDBG program administration
responsibilities to local community development departments. In
addition, those local community development departments may provide
assistance to nonprofit organizations to carry out CDBG-funded activities.
In fact, 17 percent of all CDBG funds are passed through nonprofit
organizations. Thus, nonprofit organizations are an important conduit
for neighborhood-based program delivery. It is important to note
that nonprofit organizations, such as community development corporations
(CDCs), are often asked to undertake projects that are inherently
risky because of factors such as location, crime, poverty and disinvestment;
cities utilize CDCs because they have skills and neighborhood acceptance.
It is important to note, however, that the responsibility for ensuring
that CDBG funds are used to revitalize low- and moderate-income
neighborhoods belongs to the CDBG grantee, including the District
of Columbia.
The District of Columbia provides approximately $4 million of CDBG
funds to CDCs as part of the District's Neighborhood Development
Assistance Program (NDAP). The goal of the Neighborhood Development
Assistance Program is to assist CDCs by providing funds for financial
support and capacity building as part of the CDCs' efforts to implement
community development activities and, as a result, revitalize low-
and moderate-income neighborhoods, such as Anacostia and Columbia
Heights. The District's grant agreements with CDCs indicate that
CDCs will undertake administrative and technical activities to pursue,
for example, joint ventures with developers, secure project financing,
and apply for grants or loans from other sources.
After reviewing the District's annual performance reports, and
based on HUD's risk management approach to monitoring, the HUD District
of Columbia Office conducted a monitoring review of the city's Neighborhood
Development Assistance Program in August 2001. During that monitoring,
HUD reviewed several project files for CDCs and conducted site-visits
to several CDCs. The HUD District of Columbia staff found that the
city provided funds to CDCs to carry out CDBG-eligible activities.
However, the District's grant agreements with CDCs and program files
lacked sufficient budget details to link the sub-allocation of the
CDC grant award to specific projects and activities cited in CDC
grant agreement. In addition, it did not appear that the city conducted
any cost analyses for the items purchased with CDBG funds. Moreover,
CDC grant agreements failed to specify measurable outcomes for each
project or activity to be assisted. Finally, the HUD District of
Columbia Office found that CDC grant awards were renewed for a second
year without competition or an evaluation of performance in the
prior year. The HUD Field Office was particularly concerned about
the inefficient and ineffective use of Federal resources, and the
possibility of questionable costs. Tracking CDBG activities was
further complicated by the fact that these organizations often leverage
resources and may be receiving funds from private, public, city
and Federal sources, making it difficult to isolate which activities
were funded with Federal dollars.
HUD's monitoring review also concluded that the current design
of the NDAP program lacked detailed policies and internal management
controls for governing the use of CDBG funds. As part of the monitoring
finding, HUD advised the city to discontinue funding under the existing
Neighborhood Development Assistance Program and especially all "core
funding" awards to CDCs for projects that were not directly related
to carrying out eligible CDBG activities. HUD also advised the District
to revise the NDAP application funding process to include a review
and analysis of all proposed costs to ensure that each project was
eligible, met a national objective, and that the costs were reasonable
and appropriate. Finally, the Department advised the city to provide
a copy of the city's FY 2002 Neighborhood Development Assistance
Program's Request for Applications (RFA) as well as internal procedures
and guidelines for pre- and post-award reviews and monitoring.
In response to HUD's monitoring letter, the District indicated
that, effective with the city's 2002 fiscal year, the city would
discontinue disbursements to CDCs for "core funding" using CDBG
funds and that the District would use CDBG funds to pay for costs
that are directly related to project delivery.
These monitoring findings and advisories are in addition to the
on-going technical assistance and guidance the District receives
from the HUD District of Columbia Field Office to assist the District
with implementing CDBG activities, including the Neighborhood Development
Assistance Program. In June 2000, HUD advised the city to incorporate
outcome measures and performance indicators to ensure that CDCs
carrying out community development activities produce tangible results
that impact low- and moderate-income neighborhoods. In January 2001,
HUD again advised the city to review the Neighborhood Development
Assistance Program procedures to ensure that CDBG assistance to
CDCs were for eligible activities and that the program incorporated
performance measures and tangible outcomes.
HUD is concerned that the District's use of CDBG funds to assist
CDCs cannot be linked to activities that achieve tangible neighborhood
development in its communities. HUD continues to advise the District
to either discontinue funding community development corporations
or provide these organizations with funding that must be used for
specific community and economic development activities. HUD is currently
awaiting further information from the District of Columbia to demonstrate
that review guidelines and procedures are in place that will correct
program deficiencies. If the city's response is not satisfactory,
HUD will be forced to take further sanctions, including possible
grant reductions.
The CDBG program statute and regulations require that grantees
identify eligible activities that will provide benefits to communities,
especially low- and moderate-income communities. It is important
to note, however, that the flexibility of the CDBG program allows
grantees to implement community development activities based on
local decisions. Communities may choose to provide assistance to
nonprofit organizations for neighborhood development initiatives,
as they deem necessary. But, the success of any community development
initiative must include accountability, and the District of Columbia
is responsible for ensuring that CDBG funds are used to create tangible
results in its neighborhoods.
Thank you very much and this statement concludes my opening remarks.
Content Archived: June 25, 2010
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