Statement of Deputy Secretary Roy A. Bernardi
March 1, 2005
United States House of Representatives
Committee on Government Reform
Subcommittee on Federalism and the Census
Mr. Chairman and Members of the Committee:
am Roy A. Bernardi, Deputy Secretary of the Department of Housing
and Urban Development (HUD), and on behalf of Secretary Alphonso
Jackson, I wish to thank you for the opportunity to appear today,
as the Committee begins its deliberations on the Strengthening America's
Communities (SAC) Initiative advanced as part of the Administration's
FY 2006 budget.
goal of the Initiative is to consolidate a collection of 18 community
and economic development programs spread across five federal departments
into a single, more effective program. The new program will be more
flexible and it will be easier for communities to access than the
current set of overlapping and, at times, duplicative programs.
It will be administered by the Department of Commerce, which has
considerable experience and a central mission in this area, and
it will build on the experience of HUD and the other departments
with related programs. The Committee, in requesting HUD's testimony
at this hearing, has asked that I focus on providing an overview
of how the Community Development Block Grant (CDBG) and related
programs are currently administered. I will focus most of my testimony
on the CDBG program. The Administration's proposal builds on the
CDBG program in ways that are fundamental and important.
CBDG program is the Federal government's largest single grant program
to assist local governments in undertaking a wide range of community
development activities targeted to improving the lives of low- and
moderate-income persons across America. It is one of 17 grant programs
in the consolidation, and it accounts for about one quarter of the
funding of the 35 community and economic development programs that
were considered by the Administration's review. In the course of
its thirty-year history, CDBG has provided a ready source of funding
for housing rehabilitation programs, public services, public facilities
and infrastructure, and economic development activities benefiting
millions of Americans. We have analyzed this experience and see
a way to improve the effectiveness of the federal government's efforts
while retaining CDBG's strengths.
CDBG program was enacted as part of the Housing and Community Development
Act of 1974 (HCD Act) and was notable for the fact that it consolidated
ten categorical urban development grant programs and replaced them
"with a single, more comprehensive, flexible and soundly financed"
program as stated in the Senate committee report accompanying the
original legislation. Since that time the federal government's programs
for community development have again become somewhat fragmented
and in need of consolidation.
established a formula-driven program for larger cities and urban
counties that were designated as "entitlement communities" under
the CDBG program. In 1975, the CDBG program's first year of operation,
there were a total of 594 entitlement grantees. For FY 2005, the
CDBG program has a total of 1,168 city, state and other governmental
number of communities qualifying for CDBG entitlement status has
grown 87 percent over three decades due to demographic changes,
with significant increases experienced in those years (1982, 1993,
and 2004) when updated decennial census data became available. One
reason for reform is to better target limited federal resources
to places without the fiscal capacity to meet their own needs.
legislative purposes of the CDBG program have remained unchanged
to this day: the development of viable urban communities by providing:
decent housing, a suitable living environment, and expanding economic
opportunities principally for persons of low and moderate income.
However, these purposes lack a clear set of benchmarks by which
to judge the results of this spending and accompanying local efforts
to strengthen low-income communities.
the law requires that 70 percent of CDBG funds benefit low and moderate-income
persons. Grantees report that 95 percent of all CDBG expenditures
in FY 2004 were devoted to activities that provided at least one-half
of their benefits to low- and moderate-income persons.
is employed by communities in many different ways. In its simplest
form, CDBG funds are used to directly finance activities such as
the construction of public facilities and improvements.
is also source of funding for subrecipients such as non-profit organizations,
community-based organizations, and faith-based organizations. These
entities utilize CDBG to deliver public services such as child day-care,
senior citizen programs, adult literacy and education, and assistance
for the homeless.
CDBG was used by local government to fund economic development activities
at a level of $434 million in FY 2004. These investments served
to create or retain more than 78,000 jobs, of which 76 percent went
to low- and moderate-income persons. We expect the successor to
CDBG and other current programs will be even more effective in this
addition to CDBG, the Administration's proposal would consolidate
and replace other, much smaller HUD programs including Brownfields
development grants, grants to Round II Empowerment Zones, Rural
and Economic Development grants, and the Section 108 guarantee program.
The Section 108 program has been used by a relatively small fraction
of CDBG recipient communities to leverage their CDBG funds to pursue
physical and economic revitalization projects that can renew entire
neighborhoods or provide affordable housing to low- and moderate-income
Administration of CDBG
In order for an eligible jurisdiction to receive its CDBG grant,
it must comply with HUD's consolidated planning process that requires
each jurisdiction to conduct a comprehensive assessment of its community
development needs generally every five years and map out a coordinated
strategy for addressing those needs.
field staff has the primary responsibility for working with our
CDBG grantees. They not only serve as an expert resource for those
grantees but they execute HUD's critical functions in managing the
CDBG program. They perform risk analyses of grantees in order to
establish priorities for monitoring and review of grantee activities.
They carry out the hard work of monitoring grantee performance and
compliance, and criticize grantee administration and recommend and
enforce remedial actions and sanctions.
CPD field staff also serves to educate and inform our grantees of
critical issues in the CDBG program. Let me now address a few of
those critical issues for the benefit of the Committee.
expenditure of CDBG funds
104(e)(1) of the HCDA requires HUD to review CDBG grantees to determine
if they have carried out their CDBG assisted activities in a timely
manner. As a result, a grantee may not have more than 1.5 times
its current grant in its Line of Credit.
1999, the amount of CDBG funds remaining unexpended in grantees'
lines of credit due to the lack of timely expenditures was a growing
concern to HUD, as well as to Congress and the Government Accountability
Office (GAO). In early 1999, there were over 300 untimely grantees,
with a relatively small percentage of those that were untimely being
responsible for the largest percent of funds that exceeded the 1.5
standard. Therefore, as Assistant Secretary of CPD at the time,
I established a grant reduction policy for untimely CDBG grantees
that was announced in the fall of 2001, with implementation starting
in March 2002.
Implementation of the timeliness policy has succeeded in reducing
in both the number of grantees that are currently untimely - from
over 300 to approximately 50 -- and the amount of CDBG funds above
the 1.5 standard that is undisbursed in grantees' lines of credit
- from a high point of $370 million, now down to roughly $30 million.
Study/Targeting of Funds
HUD has studied the CDBG formula in light of concerns about targeting
to the neediest individuals and communities. To establish the formula
basis for allocating each year's appropriation, the statute identifies
poverty, neighborhood blight, deteriorated housing, physical and
economic distress, decline, suitability of one's living environment,
and isolation of income groups, among others, as important components
of community development need. The statute prescribes both the components
of the formula calculation and its application. Two alternative
formula calculations are made initially, each using variables identified
in the 1970s that proxy these dimensions of community development
needs, including population, poverty, overcrowded housing, age of
housing and growth lag. Each formula uses three of these variables
(both use poverty) with each weighted separately. These core variables
in the formula have not been changed since 1978. The calculations
and the determination of which formula allocation is used for each
grantee are quite complex.
CDBG formula has undergone five major assessments since 1974. On
February 21, 2005, HUD released a new assessment based on the introduction
of 2000 Census data into the CDBG formula. In addition to estimating
how well the formula allocates to community development need after
introduction of the 2000 Census data, it provides four alternative
formulas for targeting funding. This analysis of the CDBG formula
will help to inform decisions about how federal resources can be
better targeted in the proposed initiative.
operates on the premise that a community with high need should get
a larger per capita grant than a community with low need. As designed,
the formula was targeted to need, but that targeting has weakened
substantially since 1978. This result is not surprising or unexpected
given that the same factors have been used, without change, for
28 years, while the demographics of the country have changed dramatically
during that time.
major part of HUD's administration of the CDBG program is monitoring
grantees' use of funds. In addition to requiring HUD to determine
that grantees are carrying out their CDBG assisted activities in
a timely manner, the HCD Act requires HUD to review and audit CDBG
grantees to determine whether they have:
- Carried out CDBG assisted activities and certifications in
accordance with the requirements and primary objectives of the
Act and other applicable laws; and
- Have a continuing capacity to carry out those activities in
a timely manner.
order to implement this requirement, HUD performs risk analyses
to determine which grantees to review on-site and conducts an assessment
of each grantee at the end of the program year. Grantees are also
required to have an annual audit pursuant to OMB Circular A-133.
risk analysis process identifies high-risk CDBG grantees and ensures
that HUD's resources are targeted to monitoring those grantees on
site. In FY '04, HUD performed on-site monitoring for 380 of its
1162 CDBG grantees. As a result of this program monitoring effort,
HUD staff identified 465 concerns and 610 findings. This led to
130 sanctions in which grantees were advised to reimburse their
CDBG programs with non-federal funds due to their failure to carry
out activities in accordance with the statute and regulations.
The regulations identify a range of corrective actions that may
be used when a finding of non-compliance is made. Corrective actions
recommended by HUD are to be "designed to prevent a continuation
of the performance deficiency; mitigate, to the extent possible,
the adverse effects or consequences of the deficiency; and prevent
a recurrence of the deficiency. As specified in regulations, HUD
monitors to consider each finding on a case-by-case basis and determine
the most appropriate corrective action to recommend when a finding
is made. Advising a grantee to reimburse its CDBG program with non-federal
funds always gets a grantee's attention, but reimbursement is not
the most appropriate remedy in every case. You will note that HUD
does not monitor the extent to which CDBG has improved community
conditions, increased opportunity, or otherwise strengthened low
income communities, nor is funding contingent on demonstrating progress
and results. On the other hand, these will be central elements of
the Administration's new approach.
I appreciate the opportunity provided by the Committee to describe
our administration of the CDBG program and to highlight some of
its strengths and weaknesses. CDBG has remained true to its roots
over the past three decades with the principles of consolidation
and local flexibility and responsibility being constant. In my previous
role as mayor of Syracuse, New York, I experienced both the joys
and frustrations that go along with the CDBG territory. I understand
the esteem with which some view the CDBG program and have seen the
good it has achieved within my own community and across America.
At the same time, I can also recognize the frustrations of local
officials trying to implement activities within the interlocking
webs of local politics and federal requirements.
circumstances that make a program right for a certain era do not
continue indefinitely. We can learn from our experience and do things
better. In the future, our support for these communities will be
improved if we better target funds to communities in greater need
of assistance, consolidate our programs, set clear goals for our
efforts at the federal level, and hold ourselves and recipients
accountable for progress and results consistent with those goals.
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