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Statement of Roy A. Bernardi, Deputy Secretary, United States
Department of Housing and Urban Development, before the United States
House of Representatives, Committee on Government Reform, Subcommittee
on Federalism and the Census
May 24, 2005
HOW
CDBG FUNDS ARE SPENT & TARGETING TOWARDS NEED, AS REQUIRED BY LEGISLATION
The
Housing and Community Development Act of 1974, as amended, (HCD
Act) authorizes the CDBG program and provides the framework for
how the funds can be used. The law provides great flexibility for
grantees to determine what their community development needs are,
as well as the ability to set local priorities and design local
programs to address those needs. The law describes the federal objectives
for the use of funds, which are the development of viable urban
communities by providing decent and safe housing and a suitable
living environment, and expanding economic opportunities, principally
for persons of low and moderate income. The law then says that,
over a period of up to three years, each grantee must assure that
at least 70% of the funds are used for activities that principally
benefit low- and moderate-income persons. The
law further sets the framework by listing eligible activities and
requiring that each activity meet one of three national objectives.
This gives us a two-part test on which activities may be funded.
As you can see, most CDBG requirements focus on the types of activities
are eligible. Communities are also given wide discretion on where
to fund activities, which often results in communities spreading
activities across their district which makes it difficult for the
program to achieve results at the neighborhood or community level.
The first activity test is found at section 105(a) of the statute
and specifies that only the 25 activities identified in that section
may be assisted. This section is quite expansive, making eligible
all the activities originally eligible in the 7 categorical programs
consolidated in 1974 by the CDBG program. Congress has, over the
years, added additional eligible activities or clarified how activities
are eligible. For purposes of reporting on the types of activities
grantees carry out each year, HUD's Office of Community Planning
and Development (CPD) sorts the use of CDBG funds into seven broad
categories. Those categories and the percent of funds spent for
each in fiscal year 2004 by all grantees - metropolitan cities,
urban counties, and states - are:
Housing activities - 24.1%
Public
facilities and improvements - 33.1%
Public services - 11.4%
Economic development - 9.0%
Acquisition - 5.5%
Administration and planning - 14.5%
Repayment
of Section 108 loans - 2.5%
These
uses have remained stable since 2001, with the largest percent of
change in any category being less than two percent. HUD's web site
also provides data on how each individual CDBG grantee has spent
its CDBG funds, broken out by 90 different categories.
There
are two additional statutory limitations that apply to specific
CDBG activities. Grantees may not obligate more than 15 percent
for public service activities and they may not obligate more than
20 percent for administration and planning. The public service limit
was established by Congress in 1981 at 10% and raised to 15% in
1983. Previously, the law only allowed public service activities
when they were integrally related with and necessary to accomplish
neighborhood community development objectives. The percent cap was
developed to provide a clear limit to public services. It is noted
that there are 63 communities that had a higher percentage use of
public services in 1982 or 1983 and they are grandfathered in at
their higher percentage. The administration and planning cap was
added by Congress to settle a debate on how much money is needed
for administration and planning and is found in the CDBG appropriation
laws.
The
second activity test for CDBG is the national objective test, found
at section 104. This section requires each grantee to certify that
it will essentially limit its funding to activities that principally
benefit low- and moderate-income persons, address or prevent slums
or blight, or address a particularly urgent need. In general, activities
can qualify as benefiting low- and moderate-income persons in two
ways: 1) benefiting a low-income area - 51% or more of the residents
of an area must be low-and moderate-income (the statute lowers this
threshold for higher income grantees) or 2) benefiting persons -
all funds for an activity are counted as benefiting low- and moderate-income
persons if 51% or more of the beneficiaries of an activity are low-
and moderate income. To qualify as low-and moderate income a family's
income must be below 80% of the area median income level. As I indicated
earlier, the law requires that at least 70% of each grantee's funds
must be used for activities that benefit low- and moderate-income
persons. Reports from our grantees show that, year after year, about
95% of the funds are used for activities that benefit low- and moderate-income
persons.
While
I have indicated the statutory basis for the two main components
of eligibility and national objectives, HUD publishes rules in the
federal register to implement these statutory requirements. We have
found it necessary over the years to provide clear guidance on standards
on how eligibility and particularly national objectives may be met.
The regulations are found at 24 CFR Part 570.
It
is important to describe how HUD determines that these requirements
are met. The law describes what must be included in the application
and that is found at section 104 of the HCD Act. That provision
is brief. It is important to note that prior to 1981, the law required
HUD to make a more qualitative, front end review of a grantee's
application to determine whether the activities identified to be
undertaken addressed the needs described. In 1981, Congress determined
that it would be better for HUD to basically accept what the application
said and concentrate its review on after the fact monitoring to
be sure that requirements were met. This approach was also continued
in 1990 in the Cranston-Gonzales National Affordable Housing Act.
This law replaced the previously required Housing Assistance Plan
for CDBG and created the Comprehensive Housing Affordability Strategy
(called the CHAS) as a requirement for the newly established HOME
program, as well as CDBG and many other housing related programs.
This law established a more complete outline of what must be included
in the submission of the CHAS, and the front-end HUD review was
limited to whether this plan met the broad purposes of the law and
was complete. In 1995, HUD created what is called the Consolidated
Plan as a combined and coordinated application process for CPD's
four formula grant programs: CDBG, HOME Investment Partnerships
(HOME), Emergency Shelter Grants (ESG) and Housing Opportunities
for Persons with AIDS (HOPWA), using the CHAS and the other application
components.
As
a result, HUD's major review focus for 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.
In order to implement this requirement, HUD performs risk analysis
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.
The risk analysis process identifies high-risk CDBG grantees and
ensures that HUD's resources are targeted to monitoring those grantees
on-site. In FY 2004, about $4.1 billion was allocated through the
CDBG program. 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.
It should be noted that 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." Hence, the range of
corrective actions identified in the regulations and the need for
HUD monitors to consider each finding on a case-by-case basis in
determining the most appropriate corrective action to recommend
when a finding is made. Granted, 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.
In addition to finding and stopping improper expenditures of CDBG
funds, on-site monitoring is valuable in preventing future fraud,
waste, and mismanagement, as grantees are less likely to engage
in statutory and regulatory violations if they know they will be
monitored. The monitoring visits also provide an opportunity for
grantees to receive technical assistance so they will not engage
in inadvertent improper actions in the future.
There is one other program review responsibility that HUD has from
the law: section 104(e)(1) of the HCD Act requires HUD to review
CDBG grantees to determine if they have carried out their CDBG assisted
activities in a timely manner. As a result, HUD has developed regulations
that provide that an entitlement grantee will be considered to be
carrying out its CDBG program in a "timely" manner if, 60 days before
the start of its next program year, it has an amount of no more
than 1.5 times its current grant available to be disbursed from
its CDBG line of credit. While this standard has been in place since
1988, if a grantee did not meet this standard, HUD had not pursued
aggressive corrective action.
By 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.
The number of untimely grantees and the amount of funds unexpended
appeared to be continuing to grow. Failure of grantees to meet the
standard means that low and moderate income persons are not benefiting
from the availability of these funds. Therefore, as then Assistant
Secretary for CPD, I established a grant reduction policy for untimely
CDBG grantees that was announced in the fall of 2001.
The policy operates as follows: when a grantee is first identified
as untimely based on its 60-day test, it has one year (until the
next 60 day test) to become timely. If, at the next 60 day test,
the grantee again fails to meet the 1.5 standard, it will have its
next grant reduced by an amount equal to that by which it exceeded
the 1.5 standard, unless HUD determines that the untimeliness was
due to factors beyond the grantee's control.
Implementation of the timeliness policy has been extremely successful,
resulting in significant reductions in both the number of grantees
that are currently untimely - from over 300 to approximately 60,
as well as 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. The success of
the policy is also evidenced by the fact that only a few grantees
actually face a potential grant reduction each year (approximately
5 per year), and only a few grants have actually been reduced because
of a grantee's failure to meet the standard. Grantees have been
working more diligently to complete activities in a timely manner
and have improved the management of their use of funds by reprogramming
funds from slow-moving or delayed activities to one or more other
eligible activities that are ready to go. This is a win-win for
HUD, the grantee, and low- and moderate-income persons being assisted.
HOW CDBG FUNDS ARE MEASURED FOR EFFECTIVENESS
CDBG grantees have long reported on their use of funds and most
have reported the number of beneficiaries of such use. For many
years in the 1990's, a HUD contractor input data from hard copies
of Grantee Performance Reports (GPRs) into a database that allowed
HUD to aggregate information on the use of funds at the national
level, generally for the purpose of reporting to Congress.
HUD introduced use of the Integrated Disbursement and Information
System (IDIS) for reporting on CPD's four formula programs in 1996.
Grantees enter information directly into IDIS on the activities
they carryout with their CDBG funds and the accomplishments they
achieve, by activity. Also, because CDBG funds are drawn through
IDIS, information on funds disbursed, by activity, is readily available.
The concept of IDIS was and is a great idea: it links financial
information, i.e., amount of funds used, with actual accomplishments.
It provides "real-time" information on a grantee's program: grantees
can input data regularly and it is immediately available to HUD,
rather than HUD receiving a single document from each grantee approximately
90 days after the end of the grantee's program year. But, as could
be expected with such an ambitious undertaking, the development
and implementation of this great idea has experienced many difficulties
and growing pains since 1996. For one thing, in HUD's rush to move
the system into operation, HUD chose to use a tested but dated computer
program language. That legacy platform has made the system very
difficult to change and update, frustrating both HUD and our grantees.
Obtaining consistency in reporting and improving the quality of
the data on CDBG activities in IDIS has taken years because of both
the large number of grantees and the large number of activities
that may be assisted under the CDBG program. The flexibility of
CDBG is of great importance to grantees because it allows them to
use the funds in so many different ways to address their needs.
However, that flexibility also created difficulty in getting consistency
in accomplishments reported by individual grantees, but HUD has
made a concerted effort to address data quality in recent years.
Beginning in late 2001, HUD initiated an IDIS data clean-up effort
that, while still on going, resulted in great improvements to data
during 2003 and 2004. HUD has also added edits to IDIS to help prevent
grantees from entering inaccurate CDBG data, and issued written
guidance for grantees on reporting CDBG accomplishments in IDIS.
This was done primarily to help achieve better on-going consistency
in reporting on the various types of activities eligible to be assisted
and to help grantees avoid double-counting of accomplishments. These
actions have improved the information available in IDIS on the outputs
achieved by grantees' use of CDBG funds. Information on the activities
for which CDBG funds have been disbursed and accomplishments achieved
are now available, grantee by grantee and in national profiles,
on HUD's website.
HUD has contracted for the development of a more user-friendly
IDIS, e.g., web-based vs. mainframe, that will be more easily navigated
by users and revised by HUD, as needed, and will improve HUD's data
aggregation capabilities. This is a two-phase effort and we plan
the first phase to be ready to roll out by the winter of 2006. This
will represent a huge step forward in modernizing our information
system. Beyond that is a phase two improvement that will fully integrate
the front-end application process and the completion or reporting
phase.
While this discussion has focused on HUD's statute and regulations,
recent efforts have focused more on the results and outcomes of
these program dollars for communities. In January 2003, CPD began
an effort to encourage the development of performance measurement
systems by the recipients of CPD's four formula grants: CDBG, the
HOME Improvement Partnership Program (HOME), Emergency Shelter Grants
(ESG), or Housing Opportunities for Persons with AIDS (HOPWA). During
this process, input was solicited from throughout HUD, including
CPD field offices, and from public interest groups to develop a
CPD Notice that would promote performance measurement.
Because the CPD formula block grant programs promote maximum flexibility
in program design and since the use of these funds is driven by
local choice, HUD believed that performance based measurement systems
should be developed at the state and local level. For CPD's broad-based
formula grant programs, this offered new opportunities to integrate
grantees' program evaluation responsibilities, program flexibility,
and a need to nationally evaluate program performance in addressing
broad national goals and issues.
Reporting some program performance is not new to grantees; however,
moving toward more outcome-oriented measures will be a shift for
most CDBG grantees. Grantees regularly monitor their outputs and
report them to HUD. The outputs are measured in terms of what is
produced (i.e. housing units, jobs created, persons served). The
CDBG program requires that each grantee submit a Consolidated Annual
Performance and Evaluation Report (CAPER) that describes the use
of CDBG funds, together with an assessment by the grantee of the
relationship of the use of their formula funds to the objectives
identified in the grantee's Consolidated Plan. The CDBG accomplishments
and disbursements are reported to HUD in the Integrated Disbursements
and Information System (IDIS) and are available to the public on
HUD's CDBG website.
CPD Notice #03-09 was issued in September 2003 to every program
grantee. The notice stated the rationale for radically improving
our efforts in performance measurement. The notice served as a comprehensive
introduction to the concept of performance measurement and also
described the benefits of substantiating results. It provided information
to help grantees begin developing their own local systems and gave
examples of common outcomes that grantees might be able to use for
their own activities. The notice also asked that grantees report
their status in using or developing a performance measurement system
and so far, 246 grantees have reported using such systems and 225
are developing systems. This combined number indicates that about
43 percent of all CDBG grantees are in some stage of being able
to show the results of their CDBG program expenditures. Thus, much
work remains.
Following the issuance of the notice, a working group of stakeholders,
organized by the Council of State Community Development Agencies
(COSCDA) and made up of grantee representatives from key national
housing and community development associations, as well as HUD and
the Office of Management and Budget (OMB), began working to develop
outcome measures for the CPD formula block grant programs. The effort,
which began in March 2004 and continued until November, formed the
basis for a proposed outcome performance measurement system. We
will be publishing a notice with the proposed system in the Federal
Register shortly. The publication solicits input and comments, particularly
from grantees, on the implementation of this system and its inclusion
in IDIS.
The proposed outcome performance measurement system has three overarching
objectives: (1) Creating Suitable Living Environments, (2) Providing
Decent Affordable Housing, and (3) Creating Economic Opportunities.
There are three outcomes under each objective: (1) Availability/Accessibility,
(2) Affordability, and (3) Sustainability. Thus, the three objectives,
each having three possible outcomes, will produce nine possible
"outcome/objective statements" within which to categorize the formula
grant activities. Grantees will complete an outcome/objective statement
in IDIS by entering data in the form of an output indicator. The
system also provides enriched data that will allow grantees and
HUD to tell a more complete story on the results of the formula
funding. The goal is to have a system that will aggregate results
across the broad spectrum of the formula grant programs at the city,
county and state levels. Such a system is necessary for HUD to be
able to demonstrate how activities, funded by the CPD formula programs,
achieve department-wide goals in housing, community development,
and economic development. There are numerous and mutually valid
ways to measure performance, and the system developed by the working
group maintains the flexibility of the block grant programs, as
the objectives were determined by the grantees based on the intent
of the project and activity. While program flexibility is maintained,
the system offers a specific menu of objectives, outcomes and indicators
so that reporting can be standardized and the achievements of these
programs can be aggregated to the national level.
"Developing Performance Measures for the Community Development
Block Grant Program," a report prepared by a Panel of the National
Academy of Public Administration (NAPA) for HUD's Office of Community
Planning and Development, was released in February 2005. The report
emphasized that adopting a performance measurement system for CDBG
is a daunting task, and recognized the work being done by the stakeholders
in the working group and endorsed that initiative.
The NAPA report also acknowledged that it is extraordinarily challenging
to craft a performance measurement system for the CDBG program,
as well as other block grants, which promote flexible investment
in people, places, and organizations, based on locally determined
needs. Developing and implementing such a system involves reconciling
conflicting views about what should be accomplished locally and
what national goals might be, given the statutory flexibility of
the program. Moreover, practical and technical issues must be resolved.
The report said that perhaps the most important challenge is to
distinguish between performance information that can be realistically
reported by state and local grantees, and the net impact information
that only nation-wide studies can produce.
Also, to help community development grantees better assess their
performance in carrying out community development programs, HUD's
Office of Policy Development and Research commissioned a report
to identify and document promising performance measurement practices
in a small number of jurisdictions. Five communities that have developed
systems to measure and assess performance were studied. They are
very different in terms of jurisdiction size, community development
objectives, and experience with performance measurement. The report
also stated that community development is among the most difficult
of enterprises in which to gauge success, mirroring the NAPA statement;
however, the report concluded that both the agencies that administer
programs and the communities that benefit from them will be better
off with good performance data and informed decisions based on that
information. The report then provided detailed descriptions of the
methods each of the jurisdictions use to show results.
CONCLUSION
These hearings have focused attention on CDBG, and on how best
to deliver increasingly limited federal dollars for community and
economic development for the greatest results. The two things I
believe we must do are face the question of how to increase the
formula and local targeting of community development funds to areas
of greatest need and continue to make advances in performance measurement.
The Administration is committed to improving the way we track performance
and show results either through the CDBG program or the proposed
Strengthening America's Communities Initiative. We can and must
continue to improve and do better. I am pleased to have had the
opportunity to meet with you, I thank you for your time and support
of our efforts, and I look forward to your questions and suggestions.
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