NAHRO's CD Edge

Welcome to NAHRO's CD Edge, our free e-newsletter focused on federal community development programs.

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In This Issue:

The President's FY 2009 Budget Proposal
NAHRO Communicates FY 2009 Budget Priorities
NAHRO Continues Push for Emergency CDBG Funding
Secretary Jackson's Defense of CDBG Formula Change Raises Questions
GAO to NAHRO: Report on CDBG Formula Coming Soon
NAHRO Joins with Others to Support Increased CDBG Funding
HUD Posts CDBG Video Training Modules

Community Development Block Grant Program: The President's FY 2009 budget includes $3 billion for the Community Development Fund, with $2.934 billion proposed for operating the CDBG program. The FY 2008 omnibus appropriations bill funded CDBG formula grants at $3.593 billion. The President's FY 2009 proposal would therefore cut CDBG formula funding by $659 million, or 18 percent. A careful review of the budget's fine print, however, suggests that the proposed cut could be even greater.

Documents accompanying the President's FY 2009 proposal state that "the Budget re-proposes the CDBG Reform Act" and that "the proposal [will] be designed with a Challenge Grant Fund." As originally set forth in 2006, HUD's CDBG Reform Act would set aside $200 million in CDBG funding to support competitive "challenge grants" to entitlement communities that pursue targeted neighborhood revitalization. Under the President's FY 2009 budget, an additional set-aside of $200 million within the CDBG program would leave just $2.734 billion for CDBG formula grants, a 24 percent reduction from the FY 2008 level.

CDBG formula grants were funded at $3.711 billion for both FY 2007 and FY 2006, at $4.110 billion for FY 2005, and at $4.331 billion for FY 2004. A funding level of $2.934 billion would represent a 32 percent reduction compared to the amount appropriated for FY 2004, while a funding level of $2.734 billion would represent a reduction of 37 percent. NAHRO supports $4.5 billion for CDBG formula grants for FY 2009.

The President's FY 2009 budget states that the CDBG Reform Act will be retransmitted to Capitol Hill in early 2008. As NAHRO has reported on several occasions, the "reformed" CDBG program envisioned by this legislative proposal would feature "a new allocation formula to better target funds to communities most in need of assistance." The administration's 2006 legislative proposal failed to attract a single congressional sponsor during the 109th Congress. The proposal was retransmitted in 2007 to the Democratic-controlled 110th Congress, where it once again failed to attract interest. (NAHRO members: Click here for NAHRO's earlier full coverage of the CDBG Reform Act of 2006.)

It must be noted that for the third year in a row the administration's budgetary request for the Community Development Fund assumes a rescission, this time in the amount of $206 million, with the source of those funds being "unobligated balances remaining from funds appropriated in fiscal year 2008" for Economic Development Initiative and Neighborhood Initiative Demonstration grants. It is unlikely that members of Congress would agree to turn back over to the federal Treasury funds earmarked for special home district and state projects. Given the political impracticality of achieving the proposed rescission, HUD's budgetary request for the Community Development Fund is in reality insufficient to fully fund the CDBG program even at the dramatically reduced level proposed for FY 2009.

Economic Development: In what has become an annual tradition for the current administration, the budget proposes to eliminate the Section 108 Community Development Loan Guarantee program, the Brownfields Economic Development Initiative (BEDI), and the Rural Housing and Economic Development (RHED) program, arguing that "these programs are duplicative" and that "their activities are eligible to be funded by CDBG and other federal programs." Because they are valuable components of the federal community and economic development toolkit and should remain available to states and localities, NAHRO has consistently called upon Congress to fully fund HUD's economic development programs. All three programs received funding under the FY 2008 omnibus appropriations bill.

NAHRO disputes the administration's claim that the programs are duplicative and unnecessary. The Section 108 program, for example, allows an entitlement community to borrow up to five times the amount of its most recent CDBG formula allocation in order to finance large-scale physical improvement projects. HUD's own Office of Community Planning and Development, during a recent briefing for public interest groups, suggested that the Section 108 program could be valuable to communities as a "source of funding to address problems created by the subprime crisis." (NAHRO members: Click here for HUD's draft guidance on the potential roles CDBG and Section 108 can play in addressing the home mortgage and foreclosure crisis.) For FY 2009, NAHRO supports $7 million for Section 108 and $25 million apiece for BEDI and RHED.

HOME Program: Under the FY 2009 budget proposal, the HOME program account would receive a 15 percent increase over the FY 2008 appropriated level. HOME formula grants would be funded at approximately $1.902 billion, an increase of $274 million (17 percent) over the FY 2008 level of $1.628 billion. Funding for HOME formula grants has declined by 12 percent since FY 2004, when grants were funded at $1.854 billion. NAHRO supports $2 billion for HOME formula grants for FY 2009.

Set-asides under the HOME account in the President's budget include $9.9 million for HOME technical assistance and a transfer of up to $5.2 million to the Working Capital Fund. The budget also seeks $50 million for the American Dream Downpayment Initiative (ADDI) under the HOME account. ADDI was authorized to receive up to $200 million annually, but Congress has never come close to funding the program at that level. Although the program's authorization has expired, Congress chose to provide $10 million for the program for FY 2008.

NAHRO members: For NAHRO's in-depth analysis of the President's FY 2009 budget, including coverage of Section 8, Public Housing, and Homeless Assistance Grants, see our February 11 Direct News. Direct News is NAHRO's members-only email service providing breaking news and information on federal housing and community development programs.

"The administration's proposed budget for fiscal year 2009 contains deep cuts in the Department of Housing and Urban Development's affordable housing and community development programs. Many of these reductions would follow on the heels of dramatic cuts in recent years. For example, the President's budget request cuts funding for CDBG grants by nearly $700 million (18 percent) compared with FY 2008 enacted level and by $865 million (24 percent) if one considers the administration's unrealistic proposal to offset FY 2009 funding by rescinding prior-year, special-purpose grants. More alarming, the administration's request for FY 2009 represents a breathtaking 32 percent cut from CDBG funding for communities in FY 2004. The budget also eliminates several smaller but vital economic development programs, such as the Brownfields Economic Development Initiative, which has traditionally enjoyed bipartisan support. If enacted, these cuts represent an alarming retreat from the federal government's partnership with state and local entities to provide affordable housing and improve the quality of life for low- and moderate-income Americans. We recommend that Congress provide $4.5 billion in CDBG formula funding to revitalize our communities in FY 2009 while preserving funding for HUD's economic development programs. We also urge Congress to reverse the recent decline in HOME program funding by providing at least $2 billion for HOME formula grants."

The letter also outlines NAHRO's positions on funding for public housing and Section 8 while also calling for incremental resources to address the ongoing home mortgage and foreclosure crisis.

During earlier Congressional deliberations over economic stimulus legislation, NAHRO called for emergency CDBG funding to assist states and communities in their efforts to respond to the current home mortgage crisis. Although the final stimulus bill did not include CDBG funds, a number of Senators had expressed interest in adding CDBG to the bill or to future legislative vehicles addressing housing and infrastructure needs.

Under S. 2636 the emergency CDBG funding would be distributed according to a formula to be developed by HUD. The bill specifies three formula factors: the number and percentage of home foreclosures, the number and percentage of homes financed by a subprime mortgage related loan, and the number and percentage of homes in default or delinquency in each state or unit of general local government. HUD would have just 60 days after the legislation's enactment to establish the formula. Once the formula is established, HUD would be required to allocate the funding within 30 days.

States and local governments would have up to 18 months to use the emergency CDBG funding. Grantees would be required to "give priority emphasis and consideration" to areas with the greatest need as reflected in the three specified formula factors. Eligible activities under S. 2636's CDBG title include the following:

• Grants, loans, and other financing mechanisms to community development financial institutions, national intermediaries, and nonprofit housing or community development organizations to purchase and rehabilitate abandoned or foreclosed homes in order to sell, rent, or redevelop such homes;

• The establishment of financing mechanisms (soft-seconds, loan loss reserves, and shared-equity loans for low- and moderate-income homebuyers) for redeveloping foreclosed-upon homes;

• Purchasing and rehabilitating abandoned or foreclosed-upon homes in order to sell, rent, or redevelop such homes;

• Establishing land banks for homes that have been foreclosed upon; and

• Demolishing blighted structures.

Grantees and subrecipients using funds to purchase abandoned or foreclosed-upon homes would not be allowed to pay more than the appraised value of the home based on the most up-to-date appraisal. Unlike the regular CDBG program, the bill specifies that the emergency CDBG funding provided through the legislation shall be used to serve individuals whose income does not exceed 120 percent of area median income. S. 2636 would provide the HUD Secretary with broad waiver authority to specify alternative requirements to expedite or facilitate the expenditure of the emergency CDBG funds.

NAHRO is working with members of the National Foreclosure Prevention and Neighborhood Stabilization Task Force to urge passage of S. 2636. Other members of the task force include (among others) Enterprise Community Partners, Habitat for Housing International, Local Initiatives Support Corporation, National NeighborWorks Association, the National Council of State Housing Agencies, and the National Housing Conference.

S. 2636 came to the Senate floor on Thursday, February 28, but the Democratic leadership was unable to secure enough Republican votes to invoke cloture on the bill. Negotiations on the bill are expected to continue, particularly over a provision impacting bankruptcy laws.

As we noted above, the President's FY 2009 budget proposes just $2.934 billion for operating the CDBG formula program, an 18 percent cut compared to the $3.593 billion appropriated for formula grants for FY 2008. Documents accompanying the President's budget state that it "re-proposes the CDBG Reform Act" and that "the proposal [will] be designed with a Challenge Grant Fund." As originally presented in 2006, HUD's CDBG Reform Act would set aside $200 million in CDBG funding to support competitive "challenge grants" to entitlement communities that pursue targeted neighborhood revitalization. Under the President's FY 2009 budget, therefore, an additional set-aside of $200 million would leave just $2.734 billion for CDBG formula grants.

In response to a question on CDBG from Rep. Ciro Rodriguez (D-Texas) during the February 13 hearing, Jackson said, "We think that the reduction in the community development program is needed in the sense that many of the cities who are receiving block grant funds really don't need block grant funds." Jackson specifically cited Canton, Ohio as an example of "a city that has severe problems." Referencing the CDBG Reform Act, Jackson claimed that "if the legislation is passed, then we can make strides in certain cities, like Canton." Jackson also stated that his hometown of Dallas, Texas "still gets Community Development Block Grant funds and uses it in many cases for building inspectors." Information previously offered by HUD indicates, however, that Canton and Dallas are not particularly convincing illustrations of the secretary's point.

At the request of NAHRO and other interest groups then- Assistant Secretary for Community Planning and Development Pamela H. Patenaude provided in June 2006 a detailed breakdown of the formula allocations grantees could expect to receive if the CDBG Reform Act's revised formula were in effect and the program were funded at the President's proposed FY 2007 funding level of $2.775 billion for traditional formula grants. (NAHRO members can access HUD's projections here.)

Despite the Secretary's statement that Dallas was one of the "cities [that] are receiving block grant funds [that] really don't need block grant funds," HUD's 2006 projections show that Dallas's CDBG formula allocation would actually increase by approximately 21 percent in a level funding environment under the new formula central to the CDBG Reform Act. Meanwhile, HUD's projections show that in a level funding environment Canton would see its formula allocation decline by 16 percent should the Administration's proposed formula revision go into effect. It should also be noted that if funding for the CDBG program were reduced as recommended by the President's budget, Canton's allocation would erode even further under the proposed formula.

The February 13 hearing was not the first time HUD has offered puzzling choices while singling out communities to support the Administration's reform proposal. During a March 2006 hearing before the same subcommittee, Secretary Jackson stated that "Akron, Ohio, is suffering tremendously" and "getting less than we perceive that they would need to bring the industry back, to bring the economic development back." Nevertheless, HUD's own projections show that Akron's CDBG formula allocation would decrease by 16 percent under a scenario in which HUD's proposed formula revision is adopted while overall funding for the CDBG formula program remains constant.

A year later, during a March 2007 hearing before the subcommittee, Secretary Jackson suggested that "a number of Ohio cities," including Cleveland, "would benefit substantially" from passage of the CDBG Reform Act. Here again, however, HUD's projections show that under the proposed formula revision and in a level funding environment, Cleveland's allocation would decrease by 12 percent. Furthermore, HUD's projections also demonstrate that all 11 existing Ohio entitlement communities scored 8, 9, or 10 on HUD's Needs Decile (a measure of community development need developed by HUD for its February 2005 report on CDBG formula targeting) would have experienced a net loss in funding had HUD's legislative proposal been implemented and the program funded at the level proposed in the President's FY 2008 budget.

As noted above, NAHRO and its members will be pushing for $4.5 billion in CDBG formula funding for FY 2009, a figure that NAHRO believes better represents the ongoing need for these critical resources at the state and local level.

As NAHRO has previously reported, the GAO study was originally requested during the 109th Congress by Rep. Mike Turner (R-Ohio), former Chairman of the now defunct House Government Reform Subcommittee on Federalism and the Census, along with former Chairman of the House Financial Services Subcommittee on Housing and Community Opportunity Bob Ney (R-Ohio). The GAO effort assessed the current CDBG formula's ability to target resources to need while also exploring alternatives to the current formula structure.

NAHRO members: See NAHRO's August 14, 2007 Direct News for our complete summary of the August 2007 GAO briefing.

• Statute, Regulations and National Objectives

• State CDBG Program

• Administration, Planning and Financial Management

• Housing and Real Property

• Public Facilities, Public Services and Other Activities

• Economic Development

• Section 108 Loan Guarantee Program

• IDIS, Performance Measurement and Reporting.

According to HUD, each video module is approximately one hour long. The modules "can be used as a training tool for new grantees and new staff, as well as for subrecipients of CDBG funds." PowerPoint and PDF versions of the presentations featured in each module are also available through HUD's website.