[ Reply ]
From: Ed Gramlich
email: mailto:gramliche@commchange.org
link: http://www.communitychange.org
date: April 2, 2001
Date: 4/2/01
Time: 11:07:15 AM
Remote Name: 216.135.217.149
DETAILED DESCRIPTION
The Community Development Block Grant Renewal Act of 2001 March 16, 2001
A. Raising the "Primary Objective" to 80% Benefit to Low and Moderate Income People
The Problem
Given the increasingly severe shortage of affordable housing, the growing loss of public housing units, and the changes in welfare law, pressures on low income people are more acute than ever. Yet CDBG, a key resource for helping to address the affordable housing and other needs of low and moderate income people, is too often used in ways that do not meet their needs.
CDBG is used to support the development of U.S. Post Office facilities (Newark, NJ, Jersey City NJ, Ft. Lauderdale FL, and St. Mary's County, MD), repair airport runways ($200,000 in Riverside County, CA), renovate museums ($243,000 in Scranton PA), and pour miles of concrete in many many jurisdictions.
Current Law
Since its inception in 1974, the "Primary Objective" of CDBG has been to improve communities by providing decent housing, a suitable living environment, and expanding economic opportunities -- all "principally for low and moderate income people". The statute currently requires that, at a minimum, 70% of a jurisdiction's CDBG be used to benefit low and moderate income people.
Proposed Change
The bill will raise the "Primary Objective" to 80% from 70%.
How the Change Will Help Low Income People
This highlights and strengthens Congress' intent that CDBG "principally" benefit lower income people, and signals to jurisdictions that uses for activities such as airport runways, post offices, and museums are not consistent with that intent.
A. Raising the "Primary Objective" to 80% Benefit to Low and Moderate Income People
Anticipated Objection #1
Cities, counties, and states will argue that they already spend 94% of the CDBG money in ways that benefit low and moderate income people, and have been achieving such high rates for many years. (HUD's 1998 Consolidated Report, page 16). If they are truly serving low and moderate income people at these levels, then they should have no objection to the change to 80%. However, low income residents of cities and towns all across the nation counter that they do not see such benefits.
Jurisdictions can claim that 94% of CDBG benefits low and moderate income people because the law and regulations are written in such a way that inflates the accounting, giving the impression that low and moderate income people are benefiting.
The first factor inflating the benefit claim is the definition of "low and moderate income": 80% of the areawide median income. This figure can be very high. In FY 2000 (the latest information available) the median income nationally was $50,200. The areawide median income in Stamford CT was $102,400. In Washington, D.C. it was $82,810. By comparison, the poverty level for a four-person household was $17,000. Nevertheless, this bill does not propose to address this aspect of the problem.
The second factor inflating the benefit claim is the methodology HUD's regulations use to determine the extent of benefit to low and moderate income people for a given activity. This bill seeks to eliminate accounting inflation. See the topic B below.
Anticipated Objection #2
Some jurisdictions might also argue that raising the "Primary Objective" to 80% will limit their flexibility to use CDBG money as they see fit. The only other option available in the law is to use CDBG to address "slums and blight". [Technically, there is a third option, meeting an "urgent need", which is essentially limited to natural disasters.]
However, given the affordable housing crisis and other acute needs of low income people, it is imperative that Congress ensure that CDBG be used to "principally" address their critical needs. The use of CDBG to address "slums and blight" tends to harm low income people. For instance:
· St. Mary's County, MD has applied to the State of Maryland for nearly $600,000 of CDBG to demolish affordable housing units in order to create commercial office buildings. No provision is made for low income residents who face an increasingly expensive housing market.
· Slums and blight is used for repairs to museums and theaters. Nearly $600,000 was used to renovate the Ritz Theater in downtown Sanford FL, where theater tickets cost $35. Public housing residents nearby fear development pressure resulting from this use of CDBG will lead to the demolition of their homes.
· A decorative design was placed in the surface of a highway intersection in Dunkirk, NY at the cost of $90,000 (out of an annual allocation of $700,000).
B. Proportional Treatment of Benefit to Low and Moderate Income People
The Problem
There are actually two related problems, one in the statute and one in HUD's regulations.
Statutory Problem
One reason that many jurisdictions can claim that over 90% of their CDBG expenditures benefit low and moderate income people is because the law's silence allows 100% of CDBG money spent on non-housing activities to count as benefiting lower income people, even if only 51% of the beneficiaries are low or moderate income. This waters down the spirit of targeting in the statute.
For example, if a jurisdiction spends $500,000 on a road improvement in a census tract where 51% of the households are low or moderate income, that jurisdiction reports to HUD that all $500,000 of its CDBG benefits low and moderate income people, rather than the proportionate amount of $255,000 ($500,000 x .51). This lack of proportional treatment "inflates" the benefit report by 51%.
Regulatory Problem
For housing activities, the statute is not silent; it does require proportional treatment. However, HUD's regulations contribute to "benefit inflation" in the use of CDBG for housing activities by calculating "benefit to low and moderate income people" using "total development cost" (not just the amount of CDBG in the activity). For example, consider a 100-unit project with a total development cost of $1 million, but with only $700,000 of the total development cost coming from CDBG (meaning that the remaining $300,000 comes from other non-CDBG sources). If 60 units of the total 100 units (60%) are occupied by low and moderate income people, then (using HUD's regs) $600,000 ($1 million x .60) is counted as benefiting low or moderate income people. In this example, the jurisdiction gets to count 43% more money as benefiting low and moderate income people than if the spirit of the law was adhered to by counting 60 percent of the $700,000 of CDBG actually spent ($420,000).
Activity by activity, without clear proportional treatment, jurisdictions can readily give the impression that 94% of the money is benefiting low and moderate income people, when in fact it might really be far less.
Current Law
The statute is currently silent regarding proportional treatment regarding CDBG activities either serving an area generally or claiming to provide job opportunities. Specifically, the statute does not directly require that the "benefit" to low income people be measured by the percentage of CDBG funds actually benefiting low and moderate income people for any given non-housing activity. While the law does require proportional treatment regarding housing activities, HUD regulations dilute the law's intent.
Proposed Change
The bill explicitly requires that "benefit" to low income people be measured by the percentage of CDBG funds actually benefiting low and moderate income people for any given housing, jobs, or area benefit activity.
How the Change Will Help Low Income People
The bill proposes a clear proportional treatment of activities in order to diminish "benefit inflation", reinforcing the desire of Congress to target CDBG money "principally" to low and moderate income people.
C. Limit Use of the "Area Benefit Test" to Residential Areas in order to Increase Targeting to Low and Moderate Income People
The Problem
Generally, downtown areas have relatively few residents, but because most of those residents are low income, it was possible for jurisdictions to assert that downtown areas were "primarily" lower income. Consequently, CDBG money financed roads, parking garages, parks, and streetscapes which clearly did not serve the low income residents of downtown areas.
To correct this, many years ago HUD's regulations limited the use of the "area benefit test" to areas which are "primarily residential in character". Despite the HUD regulation, jurisdictions continue to use CDBG in downtown areas for roads, parks, fire protection, streetscapes, etc., justifying the use as benefiting low and moderate income people -- when in fact they primarily serve daytime business visitors downtown.
For example, Binghamton NY spent $311,954 on repairing a major arterial street in its central business district, and Wheeling WV spent $275,000 for bridges into and out of the central business district. Bakersfield CA has allotted $200,000 for the first phase of its "Downtown Streetscape".
Current Law
When assessing whether an activity is considered to benefit low and moderate income people, HUD utilizes one of four tests, depending on the nature of the activity. Many activities serve people directly, such as housing; but others benefit the population broadly by serving an area in general. For example roads and parks can be used by anyone. The statute requires that activities serving an area generally be "clearly designed to meet identified needs" of low and moderate income people in the area.
To determine whether an activity like a road might primarily benefit low and moderate income people, HUD uses the "area benefit test" which looks at the relative proportion of low and moderate income people living in the area served by the road. If 51% of the residents in the service area are low and moderate income people, then HUD assumes, absent evidence to the contrary, that low and moderate income people benefit. In the spirit of the law, HUD's regulations specify that the area must be "primarily residential in character".
Proposed Change
The bill introduces the current regulatory language into the law, limiting the "area benefit test" to those areas which are "primarily residential in character".
How the Change Will Help Low Income People
The bill signals Congressional intent to better target CDBG to low and moderate income people by highlighting current regulatory language in the statute.
D. Looking at Who Really Benefits in order to Increase Targeting to Low and Moderate Income People
The Problem
Just because an activity is located in a service area where a minimum of 51% of the households are low and moderate income, that does not necessarily mean that low and moderate income people are the "primary" beneficiaries.
For example, a $225,805 CDBG street in Benton Harbor MI ran from a major arterial road (linked to the interstate) through a very poor neighborhood and straight to a pleasure boat marina. In Scranton PA, $130,000 was allotted to repair a bridge which, while in a lower income census tract, is primarily used by downtown workers to get to a major highway. Binghamton NY, allocated zero CDBG dollars for homeless activities, but spent $75,000 to cover a 1920s-era carousel in the middle of that town's central park. Fresno CA has allocated $532,000 for streets and sidewalks in its central park which features a zoo and other attractions promoted on hotel television channels.
Current Law
CDBG law currently declares that if an activity is to serve an area generally, it must also "clearly be designed to meet identified needs of persons of low and moderate incomes in such areas". HUD regulations do a good job of interpreting this feature of the law by saying that in assessing any claim that an activity benefits low and moderate income people, "the full range of direct effects of the assisted activity will be considered".
HUD and jurisdictions have ignored the law, and HUD has avoided implementing its own regulations when low income people have offered compelling evidence that when looking at the "full range of direct effects", low income people were not the primary beneficiaries.
Proposed Change
The bill will reinforce targeting to low and moderate income people by introducing the language from HUD's regulations into the statute.
E. Ensuring that Low and Moderate Income People Benefit from Economic Development Activities
The Problem
In general, the law requires that businesses getting CDBG assistance ensure that 51% of any jobs created or retained be for low and moderate income people. However, there is an exception that can undermine the intent to target CDBG to principally benefit low and moderate income people by "presuming" benefit in certain situations.
Current Law
The law "presumes" low and moderate income people benefit from the use of CDBG money used by businesses if those businesses are located in a census tract that meets the definition of a federal empowerment zone. The law also presumes anyone hired by a CDBG-assisted business is a low or moderate income person if the employee lives in a census tract that meets that empowerment zone definition or is tract with at least 70% low and moderate income residents.
Proposed Change
The bill will eliminate the presumption of low and moderate income benefit.
How the Change Will Help Low Income People
Mere location of a business is not a sufficient indicator of benefit to low and moderate income people. Likewise, where a person lives is not a reliable indicator of whether they are low or moderate income.
HUD does not require unduly detailed documentation of someone's household income prior to employment at a CDBG-assisted business. A simple self-certification on the part of the potential employee is adequate, and is not a significant burden to the firm.
Eliminating the "presumption" of low income benefit, will strengthen the Congressional intent that CDBG be used in ways that principally benefit low and moderate income people. It will also allow low income residents and advocates an opportunity to ensure that firms and jurisdictions are accountable to the public. continues E. Ensuring that Low and Moderate Income People Benefit from Economic Development Activities continued
Anticipated Objections
· "This is a paperwork burden on businesses." (A simple self-certification should be easy to administer.)
· "HUD requires W-2 forms" (The regulations do not require such detailed documentation.)
· "This will scare away business I." (If all jurisdictions must comply, businesses can not exploit CDBG to take advantage of jurisdictions' tendency toward "smoke-stack chasing".)
· "This will scare away business II." (In return for a grant or a below market interest rate loan from the federal government and local government, the business, as a good corporate citizen, should be willing to cooperate at this modest level and ensure the public benefit of job opportunities for low income people.)
· "This is invading the privacy of the job applicant." (Low income people have their "means" tested every which way, and are accustomed to income verification. Low income people seeking employment opportunities will gladly sign a paper saying that their household income is below 80% of the areawide median.)
F. Introduce a Second Tier of Targeting to "Low" Income People in order to Enhance Targeting
The Problem
Currently there is no mechanism to prevent jurisdictions from spending all or most of their CDBG money for households at the relatively high level of 80% of the areawide median income. In doing so, jurisdictions evade addressing the more severe needs of "extremely low" income people (those with income below 30% of the median) and "low" income people (income between 30% and 50% of the median). Jurisdictions' Consolidated Plans universally identify the needs of those with incomes below 50% of the median as being by far the greatest needs.
Housing advocates across the nation note that CDBG money is not allocated for extremely low income and low income households commensurate with their housing and homeless needs.
Current Law
There is nothing in the current statute to preclude jurisdictions from ignoring their Consolidated Plans and allocating CDBG funds in a fashion that fails to fairly address the housing and community development needs of those with the most severe needs.
Regulations have long included an admonition to ensure that activities do not benefit moderate income people to the exclusion of low income people. However, these words are the only parenthetical expression in the entire set of CDBG regulations. Consequently, neither HUD nor jurisdictions embrace it. In addition, a literal reading of that regulatory comment implies that spending $1 for a low income person would release a jurisdiction from further obligation to use CDBG for people with the greatest need.
Proposed Change
The bill adds a second tier of targeting, ensuring that (at a minimum) 40% of CDBG funds directly benefit people with incomes below 50% of the areawide median income.
How the Change Will Help Low Income People
This will help to prevent "creaming" in the CDBG program. At a minimum, a modest, albeit inadequate, amount of a jurisdiction's CDBG funds will be used in ways that directly address the problems of those with the greatest needs.
Anticipated Objections
Jurisdictions will object vociferously. Among the kinds of objections I've heard in the past include:
"Moderate income people need help too." "This discriminates against moderate income people."
G. Improve Public Participation by Defining "Public Hearing"
The Problem
Low income people and advocates often complain that "public hearings" are conducted by staff of a jurisdiction, that local elected officials are not present. This undermines the intent of a public hearing. (In Dubuque Iowa several years ago, jurisdiction staff were not even present; they merely set up a video camera for the public to "speak" to.) Elected officials are the ones who are accountable to the public and who are ultimately responsible for CDBG. When "public hearings" are conducted without elected officials present, the ideas, concerns, and priorities of low income people are not conveyed to those most responsible -- elected officials.
Written comments do not convey to the reader the number of people truly concerned, and do not always effectively hint at the gravity of concern. In addition, many low income people do not feel as confident about writing as they do about speaking. Sometimes written comments do not get forwarded to elected officials.
Current Law
The statute declares that one of the purposes of the various public participation provisions is "to enhance the public accountability of grantees". The law also calls on jurisdictions to "encourage" public participation. In addition, the statute requires jurisdictions to "provide public hearings to obtain citizen views and to respond to proposals and questions at all stages of the community development program, including at least the development of needs, the review of proposed activities, and review of program performance".
In response to the problem of the failure of many "public hearings" to be conducted by local elected officials, advocates wrote comments to HUD regarding proposed regulations. HUD responded in the preamble to the final regulations, "Formal public hearings in local government require city council members to be present and for comments to be tape recorded. The requirement for public hearing has been in the CDBG statute for many years, and HUD has not found it necessary to define what this means. Public hearings are governed by state and local law." The regulations, do not define "public hearing".
Proposed Change
The bill will ensure that the required public hearings are more meaningful by explicitly referring to local or state law.
How the Change Will Help Low Income People
Public hearings are one component of basic democratic practice. Public hearings conducted by elected officials are especially for low income residents if they are to have a modest impact on public decision-making. Elected officials must know what people are thinking and must sense the degree of public enthusiasm or discontent. Public hearings, conducted by elected officials, are an extremely important vehicle for empowering low income people. At public hearings, not all people will necessarily want to speak, but they can be present in support of those speaking -- showing support by wearing buttons or ribbons, etc. Numbers do count in local public decision-making.
Anticipated Objections
· "Public hearings are not the best way to have a dialogue." (But elected officials are the ones with the power who must be influenced by the public.) · "No one shows up at public hearings." (See remarks in the next section.)
H. Improve Public Participation by Making the Use of CDBG for Monitoring or Conducting Public Participation Activities by Nonprofits Specifically Eligible Activities.
The Problem
Low income community groups do not have enough resources to help low income people fully participate in the CDBG public participation process. Although CDBG can be given to nonprofits to provide information to residents and to monitor a jurisdiction's CDBG program, few groups secure funding for this purpose.
The main problem is that this use of CDBG is "eligible" under the category of "administration" or "planning", which are subject to an overall cap of 20% of a jurisdiction's CDBG amount. Because jurisdictions pay their staff out of the 20% cap, allocating CDBG money to nonprofits to monitor the jurisdiction or to foster public participation is doubly resented by jurisdictions' staff. First, it is perceived as taking money out of their pockets. Second, it is annoying to jurisdiction's staff to be accountable to the public. Given that double-whammy, it is very difficult for groups to get CDBG money to monitor their jurisdictions or to foster public participation.
In addition, low income people and advocates across the nation continue to encounter resistance to full and genuine public participation. The hostility and antagonism from jurisdictions that is experienced by low income people works to actively discourage participation.
Current Law
Public participation has been a core feature of the CDBG program since its inception. In the statute Congress declares that it seeks to "enhance public accountability" through various public participation activities. The statute also requires jurisdictions to not only provide for public participation, but to "encourage" public participation, particularly participation by low income people.
Current law allows CDBG to be used for providing information to the public so that low income people can more fully participate in the planning for and carrying out of CDBG activities. However, no more than 20% of a jurisdiction's CDBG amount can be used for overall administration and planning, the category under which resources to foster public participation is currently lodged. Jurisdictions pay their own staff out of this category. continued
Proposed Change
The bill makes as a specifically eligible activity, the allocation of CDBG to private, nonprofit groups representative of low income people to promote or provide public participation, and/or to monitor a jurisdiction's CDBG program. The bill also removes this use of CDBG from any of the "caps" in CDBG (the 20% administration and planning limit, and the 15% public service limit).
How the Change Will Help Low Income People
In order to improve democratic practices, increase civic involvement by low income people, and to build a constructive partnerships, it must be easier for nonprofit organizations representative of low and moderate income people to obtain and use CDBG for the purposes of promoting and providing public participation activities. The bill will remove one practical hindrance to jurisdictions deciding to use CDBG in this fashion.
Anticipated Objections
· Jurisdictions might say that despite their efforts, low income people do not attend meetings, hearings, or otherwise participate. · It will be said that the only ones "participating" are nonprofits seeking CDBG money.
To the extent these claims are accurate, they can be overcome by fostering public participation through funding of nonprofits that are trusted by low income people and that seem to better understand concerns and frustrations experienced by low income people.
March 16, 2001