<DOC>
[109th Congress House Hearings]
[From the U.S. Government Printing Office via GPO Access]
[DOCID: f:33866.wais]
MOVING THE CDBG PROGRAM FORWARD: A LOOK AT THE ADMINISTRATION'S REFORM
PROPOSAL, WHERE DO WE GO FROM HERE?
=======================================================================
HEARING
before the
SUBCOMMITTEE ON FEDERALISM
AND THE CENSUS
of the
COMMITTEE ON
GOVERNMENT REFORM
HOUSE OF REPRESENTATIVES
ONE HUNDRED NINTH CONGRESS
SECOND SESSION
__________
JUNE 27, 2006
__________
Serial No. 109-222
__________
Printed for the use of the Committee on Government Reform
Available via the World Wide Web: http://www.gpoaccess.gov/congress/
index.html
http://www.house.gov/reform
______
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COMMITTEE ON GOVERNMENT REFORM
TOM DAVIS, Virginia, Chairman
CHRISTOPHER SHAYS, Connecticut HENRY A. WAXMAN, California
DAN BURTON, Indiana TOM LANTOS, California
ILEANA ROS-LEHTINEN, Florida MAJOR R. OWENS, New York
JOHN M. McHUGH, New York EDOLPHUS TOWNS, New York
JOHN L. MICA, Florida PAUL E. KANJORSKI, Pennsylvania
GIL GUTKNECHT, Minnesota CAROLYN B. MALONEY, New York
MARK E. SOUDER, Indiana ELIJAH E. CUMMINGS, Maryland
STEVEN C. LaTOURETTE, Ohio DENNIS J. KUCINICH, Ohio
TODD RUSSELL PLATTS, Pennsylvania DANNY K. DAVIS, Illinois
CHRIS CANNON, Utah WM. LACY CLAY, Missouri
JOHN J. DUNCAN, Jr., Tennessee DIANE E. WATSON, California
CANDICE S. MILLER, Michigan STEPHEN F. LYNCH, Massachusetts
MICHAEL R. TURNER, Ohio CHRIS VAN HOLLEN, Maryland
DARRELL E. ISSA, California LINDA T. SANCHEZ, California
JON C. PORTER, Nevada C.A. DUTCH RUPPERSBERGER, Maryland
KENNY MARCHANT, Texas BRIAN HIGGINS, New York
LYNN A. WESTMORELAND, Georgia ELEANOR HOLMES NORTON, District of
PATRICK T. McHENRY, North Carolina Columbia
CHARLES W. DENT, Pennsylvania ------
VIRGINIA FOXX, North Carolina BERNARD SANDERS, Vermont
JEAN SCHMIDT, Ohio (Independent)
------ ------
David Marin, Staff Director
Lawrence Halloran, Deputy Staff Director
Teresa Austin, Chief Clerk
Phil Barnett, Minority Chief of Staff/Chief Counsel
Subcommittee on Federalism and the Census
MICHAEL R. TURNER, Ohio, Chairman
CHARLES W. DENT, Pennsylvania WM. LACY CLAY, Missouri
CHRISTOPHER SHAYS, Connecticut PAUL E. KANJORSKI, Pennsylvania
VIRGINIA FOXX, North Carolina CAROLYN B. MALONEY, New York
------ ------
Ex Officio
TOM DAVIS, Virginia HENRY A. WAXMAN, California
John Cuaderes, Staff Director
Shannon Weinberg, Counsel
Juliana French, Clerk
Adam Bordes, Minority Professional Staff Member
C O N T E N T S
----------
Page
Hearing held on June 27, 2006.................................... 1
Statement of:
Patenaude, Pamela Hughes, Assistant Secretary, Office of
Community Planning and Development, U.S. Department of
Housing and Urban Development; Stanley J. Czerwinski,
Director, Intergovernmental Relations, Strategic Issues,
U.S. Government Accountability Office; and Michael
Springer, Assistant Director, Strategic Issues, U.S.
Government Accountability Office........................... 7
Czerwinski, Stanley J.................................... 14
Patenaude, Pamela Hughes................................. 7
Letters, statements, etc., submitted for the record by:
Clay, Hon. Wm. Lacy, a Representative in Congress from the
State of Missouri, prepared statement of................... 30
Czerwinski, Stanley J., Director, Intergovernmental
Relations, Strategic Issues, U.S. Government Accountability
Office, prepared statement of.............................. 16
Patenaude, Pamela Hughes, Assistant Secretary, Office of
Community Planning and Development, U.S. Department of
Housing and Urban Development, prepared statement of....... 9
Turner, Hon. Michael R., a Representative in Congress from
the State of Ohio, prepared statement of................... 4
MOVING THE CDBG PROGRAM FORWARD: A LOOK AT THE ADMINISTRATION'S REFORM
PROPOSAL, WHERE DO WE GO FROM HERE?
----------
TUESDAY, JUNE 27, 2006
House of Representatives,
Subcommittee on Federalism and the Census,
Committee on Government Reform,
Washington, DC.
The committee met, pursuant to notice, at 10 a.m., in room
2154, Rayburn House Office Building, Hon. Michael R. Turner
(chairman of the subcommittee) presiding.
Present: Representatives Turner, Clay, Dent, and Foxx.
Staff present: John Cuaderes, staff director; Shannon
Weinberg, counsel; Juliana French, clerk; Adam Bordes, minority
professional staff member; and Jean Gosa, minority assistant
clerk.
Mr. Turner. Good morning. We will call the hearing of the
Subcommittee on Federalism and the Census to order. We welcome
you to the Subcommittee on federalism and the Census oversight
hearing entitled, ``Moving the CDBG Program Forward: A Look at
the Administration's Reform Proposal, Where Do We Go From
Here?'' This is a followup to the subcommittee's series of
hearings held regarding the Community Development Block Grant
[CDBG], program and our committee report on the hearings and
the program.
The Community Development Block Grant program [CDBG], is
one of the largest Federal direct block grant programs in
existence. State and local governments use CDBG grant moneys to
fund various housing, community development, neighborhood
revitalization, economic development, and public service
provision projects. For over 30 years, the CDBG program has
been a critical tool in the arsenal of cities to help create
livable communities for individuals and families. Without
question, the program provides vital funds for addressing
poverty as well as community development needs, from
eradicating blight to providing building infrastructure.
While CDBG is a valuable tool that enables States and local
governments to accomplish many of the objectives outlined in
the original authorization, the program exhibits several
problems that require remedy. Since 1978, the factors used in
calculating poverty and community development need have
remained constant while the demographic compositions of the
Nation have changed dramatically. In particular, the number of
entitlement communities has grown.
In fiscal year 2004, there were more than 1,100 designated
entitlement communities. More than 250 new entitlement
communities were certified since 1993 alone as compared to only
128 new entitlement community designations between 1982 and
1993. And while the number of communities sharing the
entitlement portion of CDBG funds continues to grow, the
overall funding of this program has not kept pace.
Thus, a larger portion of the population is sharing a
relatively static portion of CDBG funds, resulting in smaller
per capita grants per jurisdiction. At the same time, the
number of non-entitlement communities grows smaller,
effectively increasing their share of the 30 percent portion of
CDBG.
Additional questions of fundamental fairness have arisen in
recent years. First, there are instances of ``richer''
communities receiving higher per capita awards than ``poorer''
communities. Second, similarly situated communities often get
disparate per capita awards.
The subcommittee held five hearings in 2005 examining the
CDBG program. Those hearings culminated in an extensive report,
which was unanimously voted out of the full committee in
December. The report contained numerous findings on the
effectiveness of the program and recommendations for improved
fairness, efficiency, efficacy, and program administration.
These recommendations were formed with significant
government partner and stakeholder input. In particular, the
report focused on the growing inequity of the grant formula
over time, the subjective nature of the needs index, and the
apparent lack of grantee performance measures and related
enforcement capability.
In another attempt to address some of these issues, the
administration proposed legislation to reform the CDBG program.
This proposal, the Community Development Block Grant Reform Act
of 2006, chiefly addresses three areas: the grant formula,
performance measures, and incentives for quality community
development.
First, the act eliminates the two dualities of the grant
formula. Currently, grant funds are disbursed to entitlement
and non-entitlement communities based on two formulas. By law,
the collective pot of CDBG funds must be split between the
entitlement and non-entitlement communities 70 percent to 30
percent. Under the CDBG Reform Act, all communities would be
treated as ``formula grantees'' rather than entitlement and
non-entitlement communities with separate grant allocation
calculations.
Second, the act directs the Secretary to establish new
performance measures and grantee accountability standards. The
act specifies that State grantees must submit for approval a
housing affordability strategy. All other grantees must submit
a ``Performance Plan,'' which must include specific performance
measure objectives.
The act also directs the Secretary to perform periodic
reviews of grantee activity and use of funds. If the Secretary
finds grantee performance inadequate, the Secretary may reduce
or limit block grant assistance.
Third, the act authorizes $200 million for a new grant
program: the Challenge Grant Fund. The Challenge Grant Fund
would reward grantees with additional funds to be used ``in
neighborhood revitalization strategy areas as a targeted
strategy for activities eligible under this title that expand
economic opportunities.'' A grantee must demonstrate
``measurable progress'' toward certain goals using CDBG funds.
Eligible entities will be ranked on their performance and funds
awarded accordingly.
We commend the administration for recognizing that CDBG
would be most effective remaining at HUD. We also applaud the
administration's recognition that, while an important and
beneficial program, there is room for improvement within the
CDBG program.
At the same time, we are concerned that formula reform is
the greatest and most complex of the reform challenges and
cannot be undertaken lightly. Additionally, there are a number
of non-controversial reforms identified in this committee's
CDBG Report that were not mentioned in the administration's
reform proposal. We are here today to explore the
administration's reform proposal in depth. We hope to discover
more about the decisionmaking process and the reasoning behind
the choices made in crafting the reform proposal.
To help us with these questions today, we have witnesses
from both HUD and GAO. We welcome the Honorable Pamela Hughes
Patenaude, Assistant Secretary of the Office of Community
Planning and Development at the U.S. Department of Housing and
Urban Development; Stanley J. Czerwinski, Director of
Intergovernmental Relations for Strategic Issues at the U.S.
Government Accountability Office; and Michael Springer,
Assistant Director of Strategic Issues at the U.S. Government
Accountability Office.
I look forward to your expert testimony and I thank you all
for your time. I believe Mr. Clay has an opening statement
which we can give him an opportunity to provide us as the
hearing progresses.
[The prepared statement of Hon. Michael R. Turner follows:]
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Mr. Turner. We will begin with our witnesses. As it is the
policy of this committee, we do swear in all of our witnesses.
I would ask if you would please stand and raise your right
hands.
[Witnesses sworn.]
Mr. Turner. Please note that all the witnesses have
responded in the affirmative by saying I do. And we note that
two additional witnesses from HUD have also been sworn in who
have not been identified in our list but who might be called on
by the Secretary.
We will now start with the witnesses. Each witness has
kindly prepared written testimony which will be included in the
record of this hearing. Each witness has also prepared an oral
statement summarizing their written testimony.
Witnesses will notice there is a timer with a light on the
witness table. In order to be sensitive to everyone's time, we
ask that witnesses cooperate with us in adhering to the 5-
minute time allowance for their oral presentation. The green
light indicates that you should begin your remarks and the red
light indicates that your time has expired. The yellow light
indicates that you have 1 minute to conclude, and we will
follow that with a question and answer period.
We begin with the Honorable Pamela Hughes Patenaude.
STATEMENTS OF PAMELA HUGHES PATENAUDE, ASSISTANT SECRETARY,
OFFICE OF COMMUNITY PLANNING AND DEVELOPMENT, U.S. DEPARTMENT
OF HOUSING AND URBAN DEVELOPMENT; STANLEY J. CZERWINSKI,
DIRECTOR, INTERGOVERNMENTAL RELATIONS, STRATEGIC ISSUES, U.S.
GOVERNMENT ACCOUNTABILITY OFFICE; AND MICHAEL SPRINGER,
ASSISTANT DIRECTOR, STRATEGIC ISSUES, U.S. GOVERNMENT
ACCOUNTABILITY OFFICE
STATEMENT OF PAMELA HUGHES PATENAUDE
Ms. Patenaude. Thank you, Mr. Chairman. I am pleased to be
here today on behalf of Secretary Jackson to discuss the
administration's proposal to reform the Community Development
Block Grant program.
The President's fiscal year 2007 budget retains and
consolidates the CDBG program at HUD. We have proposed the
reform because the program's intended purpose to the Nation's
neediest communities has decreased over time. Quite simply, the
current formula that allocates billions of dollars is no longer
as fair as it used to be.
Over the past three decades, demographic and socioeconomic
changes, development patterns and other factors have created
significant distortions in the distribution of CDBG funds.
There has been a steady erosion in the ability of the formula
to target funding to places with the greatest needs.
The CDBG formula has been untouched since the 1970's.
Reform is also necessary because HUD must be able to hold
grantees accountable for performance and provide incentives to
maximize the impact of these limited and valuable funds. To
address these issues, the administration proposes the CDBG
Reform Act of 2006. The three main elements of the act are
formula reform, the introduction of a challenge grant and
enhanced performance measurement requirements.
To explain further, Mr. Chairman, I call your attention to
the first chart displayed on the screen. Chart One illustrates
the current formula. These vertical jagged lines represent the
1,100 entitlement communities and their per capita grant. The
solid line from the lower left to the upper right is the
measuring stick that represents the community development needs
index.
The least needy communities are shown on the left and the
ones with the most needs on the right. As you can see on the
right, under the current formula, many high need communities
are receiving amounts far below their needs index. The biggest
problem with the current formula is that grantees with similar
needs are receiving significantly different per capita amounts.
Based on the needs index, these grantees should be receiving
roughly the same per capital amount.
Next slide, please. Chart Two shows a more equitable
distribution of the Community Development Block Grant funds
under the new or proposed formula. It demonstrates the ability
of the new formula to more fairly target funds to communities
with greater needs.
Next slide, please. And finally, Chart Three provides an
overlay of the current formula with the proposed formula to
demonstrate how we intend to allocate grants in a way that more
fairly ensures funding to places that need it most.
Grantees with similar need profiles will receive a more
equitable amount per capital and most importantly, the proposed
formula will ensure funding to the most needy communities. The
second element of the CDBG Reform Act of 2006 is the
introduction of a $200 million competitive CDBG challenge
grant. This fund would give communities the opportunity to
compete for additional funding to carry out economic
development revitalization in distressed neighborhoods.
In order to be considered for the challenge grant,
distressed entitlement communities are required to have both a
strategy and a track record of concentrating investment in
distressed neighborhoods. Communities are selected based on
objective criteria, including the extent to which they target
their assistance to distressed neighborhoods and expand
economic opportunities for lower income households. HUD will
award challenge grants to communities that achieve the greatest
results in their neighborhood revitalization strategies.
The third element of CDBG reform is to strengthen
performance measurement requirements to improve the
effectiveness and viability of the program. HUD is currently
implementing a new framework that clearly establishes
measurable goals. The CDBG Reform Act will give HUD the
authority to hold grantees accountable.
CDBG has helped communities across the Nation address a
variety of community and economic development needs. Reforms
are necessary to ensure the program's continued ability to
improve the lives of low and moderate income Americans.
Thank you, Mr. Chairman, for the opportunity to discuss a
proposal on CDBG reform.
[The prepared statement of Ms. Patenaude follows:]
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Mr. Turner. Mr. Czerwinski.
STATEMENT OF STANLEY J. CZERWINSKI
Mr. Czerwinski. Mr. Chairman, Mr. Clay, thank you for the
opportunity to be here to speak today about the
administration's reform proposal.
As you noted, Mr. Chairman, about 30 years of CDBG have
resulted in many valuable things happening in this country. We
see communities revitalized, we see living conditions improved.
The committee's examination today is very timely for several
reasons. First of all, as you know, we are facing a long-term
fiscal crisis characterized by growing deficits. Second, as you
noted, Mr. Chair, the economics and demographics of the country
have changed significantly since the program began in the
1970's.
And third, as you also know, Mr. Chairman, there has been a
continuous decline in funding for CDBG. For example, today the
per capita funding of the program is one-quarter what it was at
its inception. Our view is the best way to save this program is
to improve its targeting. In that view, Mr. Chairman, the
administration's proposal is a step in the right direction.
However, it is not a final step. More needs to be done.
Today I would like to speak about two things. First of all,
to give you a quick reaction to the administration's proposal,
and second, I would like to discuss the work that we are
undertaking at the subcommittee's request. As you mentioned,
last month the administration unveiled its latest proposal to
reform the CDBG program. I will not summarize the proposal,
because Ms. Patenaude has already done an excellent job of
that.
However, what I would like to do is share some
observations. First of all, the single formula that the
administration proposes is a significant step forward. It
represents better targeting. For about 25 years, GAO has been
noting problems with this area, and this is the kind of problem
that you noted in your opening statement, Mr. Chairman, with
sometimes communities that are more well off actually get more
benefits than those that are less well off.
The variables in the single formula that the administration
proposes also represent improvement but they do raise some
concerns. Most significant is the inclusion of a cost of living
adjustment. Right now, CDBG is disbursed without regard to how
expensive it is to live in an area. We support HUD's attempt to
adjust for cost of living. However, we are concerned with the
way that HUD goes about it. Because there may be some
unintended consequences. The proposal that HUD has would take
the cost of living for a community and compare it to the cost
of living for its neighbors. By doing such, you run the risk of
penalizing those communities with poor neighbors while
rewarding those with rich neighbors. For these reasons, we will
be evaluating both how the cost of living assessment is going
to be made and other different measures of the cost of living
as we do the work for you.
I would now like to briefly describe the work that we are
undertaking at the committee's request. There are three primary
tasks that GAO will be undertaking. First, as I mentioned, an
alternative measure of need. Second is looking at the
feasibility of measuring capacity of local communities. Right
now, as you know, CDBG is allocated according to need only. It
does not take into account the capacity of the communities.
This can have some distorting effects.
For example, those communities that have a strong local
capacity may be able to address some of their needs on their
own, while those with weaker capacity may have a greater need
for Federal help, and the current formula does not do that.
Finally, as you requested, what we will come up with are
options on the various formula decisions the committee will
face. As you requested, we will not be making recommendations,
because frankly, that is the prerogative of Congress. As
everyone knows, this is a very technically demanding and
sensitive area. We are just beginning our work. I estimate that
it will take us about a year to complete that work.
Before closing, I would like to highlight two things that
we will be doing in that work. First of all, GAO has contracted
with the National Academies of Sciences to provide the
technical expertise, statisticians, economists and those with
local government experience, i.e., hands-on understanding of
the program. We expect these expert panels to help us come up
with ideas on variables to include the formulas, how to
evaluate those variables, and finally, to study the
implications of different formula options.
Second, and this may seem like a small point, but I
actually think it is an important one, is we will be working
closely with representatives of State and local recipients.
They are the ones most affected by the program and any changes
to the program. We have already begun a dialog with
representatives, and in fact, I see some of them in the room
behind me today. We will continue that dialog throughout.
Finally, HUD has already been very cooperative and very
helpful with us as we have done our work. I would like to thank
them for their assistance, and we will continue to engage with
them as the work progresses.
In closing, we support the committee's efforts to better
target CDBG. We stand by to help the committee as it does its
work. Frankly, this is probably the only way that we will
preserve a very valuable program, that is by better targeting
to those who need it the most.
That concludes my statement, Mr. Chairman. I will be glad
to respond to questions that you may have.
[The prepared statement of Mr. Czerwinski follows:]
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Mr. Turner. Mr. Springer.
Mr. Springer. I have no testimony.
Mr. Turner. Well, first, thank you so much for your
participation today and for your preparation. This has been a
topic throughout community development groups and
organizations, as the administration has begun the process of
identifying CDBG as a program that needs reform. And then the
discussion as to how that reform should take place.
As I stated in my opening statement, this act that would
reform CDBG but would retain it at HUD is certainly an
improvement over what we faced with the Strengthening America's
Communities initiative that would have dismantled the CDBG
program and taken it to Commerce. This is at least a reflection
of HUD's expertise.
Obviously, this is just an initial hearing to begin the
discussion and the review of the act that is proposed. There
are a number of factors and impacts that will have to be
reviewed and the communities that are affected will have to
study its impacts and weigh in as to the benefits or lack of
benefits or negative impacts of this act.
So today, it is not our attempt to go exhaustively into
each of the aspects of this, but we are going to have to start,
obviously, from some of the discussion that began from the
administration in targeting CDBG as a reformed program. In our
first hearing on CDBG reform, it was noted that the
administration had targeted CDBG as a program that needed
reform, as a result of the PART analysis that the
administration undertakes in determining whether or not a
program is working.
The PART analysis that was applied to CDBG had this first
assessment, and the question was under the PART performance
measurements used by the administration for evaluating
programs, is this program purpose clear. The sentence that
follows says, the program does not have a clear and unambiguous
mission. Both the definition of community development and the
role CDBG plays in that field are not well defined.
Ms. Patenaude, the first thing that I would like to start
with of course is, the administration has now, through HUD,
proposed this act, in part to address the lack of performance
that is identified in part. And in looking at the act, I note
that it would now provide to recipients of funds, to formula
grantees, performance measures objectives. And the first one
is, foster a suitable living environment within the community
for families and individuals.
Could you please tell me how that is defined within the act
and how that might fare under a PART analysis?
Ms. Patenaude. If I may, Mr. Chairman, start with the PART
analysis. We obviously have taken OMB's recommendation
seriously, and have been addressing the PART score for more
than 2 years. We don't completely agree, because we think the
statute is clear and that the program is not ambiguous.
The performance measurement framework is an attempt to
capture the outcomes. Obviously there is a tremendous amount of
flexibility with the program. There are numerous eligible
activities with the CDBG program, so these categories were
designed to capture activities and outcomes that are certainly
in accordance with the statute and the purpose of the program.
Mr. Turner. As a measurable outcome, how are you going to
measure delivering a suitable living environment within the
community?
Ms. Patenaude. We will measure indicators in neighborhoods'
improvements.
Mr. Turner. Such as?
Ms. Patenaude. Employment, reduced crime rate, the
affordability of housing, jobs created.
Mr. Turner. Turning to the chart that you provided us, you
have the graph of the needs index and then the entitlement
grantees and the disparity, if you will, between the different
amounts that communities receive. In the initial HUD review of
the grant formulas, there were four different alternative
formulas that were presented before this committee last year.
The proposal that we have before us appears to more closely
relate to alternative four. Would you please give us the
rationale for choosing that one over the other three?
Ms. Patenaude. Sure. As you know, Mr. Chairman, there are
four formulas. The first three are very distinct. The fourth
one is a modification of the third alternative. The decision
was made, obviously by Secretary Jackson, to go with
alternative four. But based on feedback that we received after
the formula study was sent to the Hill and from stakeholders,
we modified the definition of poverty. So it is based on
formula four, and we feel that it best targets the community
development need in line with what the statute intends for the
program.
Mr. Turner. I would like to walk you backward, then, to the
description of the line that appears on the chart, the line of
which the grantees are plotted against, where it says low need
and high need. Could you please describe the factors that go
into the determination of low need versus high need and how
that plays, then, into the graph that we see?
Ms. Patenaude. As I stated in the testimony, the solid line
is the needs index, or the measuring stick. There were 17
variables used in the needs index and, Mr. Chairman, are we
talking about the proposed formula?
Mr. Turner. We are talking about the 17 needs.
Ms. Patenaude. The 17 variables?
Mr. Turner. You are right. You are going right down where I
am going to ask you questions about. So please continue.
Ms. Patenaude. The expert on the variables is behind me,
but I am going to take an attempt to answer your question, sir.
The 17 variables are grouped, the factors, to represent
proxies for community development need, such as poverty,
unemployment, crime rate, and the formula is measured against
the community needs index.
Mr. Turner. My understanding is that you did not modify
that needs index. You are modifying the allocation of the grant
formula, but not the needs index, which, would you please tell
me the rationale as to why you did not modify the needs index?
Ms. Patenaude. As you know, we partnered with the Office of
Policy Development and Research and the experts in PD&R believe
that the variables that they used when it comes to the needs
index are time tested and reliable indicators. And the needs
index is the same needs index in the old formula as the new
formula.
Mr. Turner. Because if you have an assignment as a program
administrator to fashion a grant formula that more accurately
approximates need, your outcome is going to be inherently
biased by what your underlying definition of need is. And so
the reason why I raise the question is that, without a
significant review of where the first line is, the need line,
your process of narrowing the variants between communities and
the amounts that they receive is going to be biased to a needs
index that you have not undertaken a review of.
Ms. Patenaude. As I said, the 17 variables were reviewed,
so it is obviously a very broad range of community development
needs in that measuring stick. And the data that was used is
reliable data that is consistent and available to at least 800
of the entitlement grantees that we can get consistent data
from the census.
Mr. Turner. Mr. Czerwinski, you were nodding. Perhaps you
can assist in this discussion more eloquently than I have as to
describing the bias inherent in this process.
Mr. Czerwinski. Actually, Mr. Chairman, what I was thinking
about is the nature of your request to us was to do exactly
that, and that is examine the needs. I think there are two
themes here, one going back to your original question, the
quality of the program. This program does match up with
congressional intent. The issue, though, is how you measure
performance and how you then allocate funds.
The second theme is that this is an effort that is going to
take quite a bit of time. We are in the early stages of it. HUD
I think is stepping in the right direction, but I would not say
that the answer is final by any means. What we really need to
do is really just as you said, to reexamine the needs index, to
calibrate the various variables and formula for allocating
funds against that needs index, and then there is a whole
dialog that has to go on with all the different players and
then finally, it really is a congressional decision.
Mr. Turner. Do you think there is a rationale that would
justify the review of that needs index prior to changing the
grantee formula, since we would be performing the program to
conform to a needs index that was previously established?
Mr. Czerwinski. I would hope so, Mr. Chairman. Because GAO
has a protocol that when requests come in to us from the
Congress, we do evaluate whether they are worthy requests. And
yours came in and we said, oh, this is a really good one to do.
So yes, I would say there is a rationale.
Mr. Turner. Great.
Mr. Patenaude, as you are aware, this subcommittee
undertook a review of CDBG last year. And the full committee
passed out a report with various recommendations as to issues
that should be addressed with CDBG. Could you please tell me to
what extent HUD took into consideration that bipartisan,
unanimous committee report prior to delivering the act to
Congress?
Ms. Patenaude. Thank you, Mr. Chairman. The CDBG Reform Act
and the work that went into the act was actually on parallel
tracks with the committee's work. Obviously we have read the
committee report and we have taken some of the things into
consideration. But some of the work had begun before we
actually saw the report from the committee. And we obviously
focused a tremendous amount of our energy on the formula.
Mr. Turner. One of the issues that was raised in the
hearings that we held on the proposed four formula changes that
HUD was reviewing was the concept that is adopted in the
proposed act, looking at the ratio of per capita income between
a recipient community and their metropolitan area. Could you
please describe HUD's decision to include that ratio?
Ms. Patenaude. The fiscal capacity?
Mr. Turner. Yes.
Ms. Patenaude. The fiscal capacity adjustment would measure
a community's per capita income against that of the greater
metropolitan area, and that is one of the variables that we use
in the proposed formula.
Mr. Turner. Why?
Ms. Patenaude. I would have to defer to Mr. Richardson, Mr.
Chairman.
Mr. Turner. Mr. Richardson.
Mr. Richardson. Thank you, Mr. Chairman.
Mr. Turner. Please note for the record Mr. Richardson was
sworn in at the beginning of the hearing.
Mr. Richardson. This variable accomplishes three things. It
captures a community's tax base relative to the cost to provide
services in the area. It tends to address some of the
inequities caused by the poverty variable, it tends to actually
deal with some of the cost of living issues that GAO has
discussed. And third, it significantly increases funding for
more needy communities over the less needy communities.
We think that this is a very strong variable. There is past
research that supports it. David Rusk has done previous work
that supports this variable. We very much look forward to the
GAO doing a careful review to see if they have any alternative
approach.
Mr. Turner. Could you just describe in the act how it is
proposed to be utilized, how it applies to a grantee's formula?
You told me your basis then for including it. Could you please
tell me now how it works?
Mr. Richardson. How it works, I am sorry.
Mr. Turner. No, that is my next question. You answered the
first one correctly. The second one is, how does that work?
Mr. Richardson. So, let's take Dayton, for example.
Dayton's per capita income relative to its metro area is less
than that of, it is about 70 percent that of the metropolitan
area. So Dayton's grant would be adjusted, you first do a flat
allocation using the four variables that we are proposing, the
poverty variable, the old housing occupied by a poor family,
the overcrowding variable, and the female head of households
variable. You make an allocation based on each community's
proportional share of those variables, using those variables.
And then you adjust that grant using this per capita
adjustment.
So Dayton's grant from after this flat grant would be
increased 25 percent in this particular case, because the
maximum that could be increased is 25 percent, and Dayton's
grant would be increased the maximum amount. Whereas another
community, Kettering, for example, which has a higher per
capita income than the metropolitan area, it would have its
grants reduced.
Mr. Turner. You mentioned the issue of housing occupied by
an individual that is in poverty. The previous grant formulas
took into consideration the age of the housing stock. By
limiting the element of the age of housing stock to only those
that are occupied, you have eliminated any recognition of
communities that have abandoned housing stock.
Could you please describe to me, my understanding in our
first hearings on this matter was that HUD's goal was to remove
from the grantee's calculations housing that was greater in age
of 50 years that might have been occupied by someone who in
fact was wealthy. So by then going to limiting the structures
that have individuals that are in poverty, you are also then
not recognizing in the available housing stock those properties
that are just vacant, for which CDBG funds would be targeted.
Almost any mayor who has been before us will testify of an
abandoned house that was a source of criminal activity, a
blighting influence on a community and its desire to remove
that, either having it renovated and placed in the hands of a
family so that it can be occupied once again, or removing it
from the community by demolition and then looking hopefully to
an in-fill opportunity. The impact on the community and
community development is clear. In the factors, though, it
appears that it would not recognize a community's distressed
nature of abandoned housing.
Ms. Patenaude. Mr. Chairman, we obviously appreciate the
impact that abandoned housing has on neighborhoods and
particularly declining neighborhoods. But we did not have
available resources that is consistent across the entitlement
communities on abandoned properties. I know that the Office of
PD&R is working with the Postal Service to try to develop
consistent data so that it is possible in the future we would
be able to measure that. And by substituting, as you said, the
pre-1940 housing that was distorting the formula, particularly
in the northeast, by having the poverty household, that is a
good proxy for declining neighborhoods.
Mr. Turner. In the midwest, the number of units that are
abandoned in the inner cities by far exceeds the number of
families that are in those areas that are wealthy. So the
desire to count abandoned housing units as a distressed or
blunting influence factor would be very high on the list of
communities that are impacted by abandoned housing.
At this point I am going to turn to Mr. Clay for his
questions.
Mr. Clay. Thank you, Mr. Chairman. I would appreciate if I
could forego my opening statement and use that time as part of
my questions.
[The prepared statement of Hon. Wm. Lacy Clay follows:]
[GRAPHIC] [TIFF OMITTED] T3866.019
[GRAPHIC] [TIFF OMITTED] T3866.020
Mr. Clay. Ms. Patenaude, your proposal would cause a
dramatic shift of resources between grantees and jurisdiction.
But it doesn't contain a transitional period for those that
lose funding. Why was this not included in your proposal?
Ms. Patenaude. Thank you, Congressman Clay. We acknowledge
that there will be winners and losers with the redistribution
under any of the formulas. We have provided for a 1-year
transition period. And that in the first year, if a community
is not eligible under the minimum threshold, they will be
eligible to receive 50 percent of their previous year grant.
And at the same time, if they are no longer eligible under
the minimum threshold, they can either join an urban county or
participate through the State CDBG program.
Mr. Clay. OK. In that instance, in my home town of St.
Louis, it is slated to lose 31 percent of its funding under the
proposed formula, while St. Louis County only gains 4 percent.
Are there specific circumstances to indicate why St. Louis and
its surrounding communities are deserving of a 27 percent net
loss in funding, and do census population figures justify this?
Ms. Patenaude. Thank you, Congressman. We have used this
example of Miami, St. Louis and Detroit, all communities with
similar needs, not identical needs, but certainly similar
needs. And if you look on the chart, this is an example of
entitlement communities with similar needs receiving vastly
different grant amounts. So those would be the jagged lines on
the chart.
Currently, St. Louis is receiving $59 per capita, while
Miami is receiving $22 and Detroit $43. So yes, St. Louis would
be losing CDBG dollars, but it would bring the formula more in
line, it would be fairer treatment. There isn't enough money
gained from the communities with low need to give to the high
need communities.
Mr. Clay. OK, well, help me understand now. Have we
developed a new definition of poverty? Is there a new
definition that you all are operating under as far as what
poverty is or what it looks like? That is one of the factors
that you consider, am I correct?
Ms. Patenaude. Yes, it is, Congressman. Currently, St.
Louis is funded under the formula B that measures growth lag,
poverty and pre-1940 housing. Under the proposed formula, the
factors that are being used measure the number of persons
living in poverty, excluding college students. That was a
distorting factor under the old formula. The number of housing
units 50 years or older headed by a poverty household, the
number of female-headed households with children under 18, the
extent of housing overcrowding, and finally, there is a fiscal
capacity adjustment.
Mr. Clay. And that is the new formula, right?
Ms. Patenaude. Yes, it is, sir.
Mr. Clay. Well, we fit into all of these categories. I am
just bewildered of how we lost 31 percent. I mean, and don't
get me wrong, I want transparency, I want accountability in the
CDBG program. That is one of the things that St. Louis suffers
from now. The supporters of CDBG can contest what I am saying,
but I can take them to St. Louis and show them that St. Louis
has derived these block grant moneys and has used them for
other purposes, OK?
So here is what I need to know. Have you all consulted with
any other groups, like the National League of Cities or U.S.
Conference of Mayors? Have you gotten any input from them on
this proposal?
Ms. Patenaude. The development of the formula was done, it
was released in February 2005, and I understand the study took
more than a year. I do believe that we did listen to our
stakeholders. We have quarterly meetings with our stakeholders,
and I am sure that consideration was given to their thoughts
and ideas.
Mr. Clay. I have just received a list here that says you
have the U.S. Conference of Mayors, National Association of
Counties, National League of Cities, National Association of
Local Housing, Finance Agency, National Association for County,
Community and Economic Development, National Community
Development Association do not support the proposal. And so I
assume you bounced off----
Ms. Patenaude. Congressman, I am not aware of them not
supporting the proposal. I am aware of the opposition to the
funding level. But we called in all of those stakeholders in
May when we rolled out the CDBG reform proposal and briefed
them thoroughly. We have been tracking, obviously, their
newsletters.
Mr. Clay. Well, this is a statement to this committee on
this day that says, we wish to state at the outset that we do
not, do not support this proposal. Let me go on to Mr.
Czerwinski. And thank you for your responses.
Please explain how using metropolitan per capita income in
the new formula can prove beneficial to higher income
metropolitan areas? Wouldn't this leave older industrial cities
at a disadvantage to those with high-tech or finance-based
economies?
Mr. Czerwinski. Mr. Clay, if I may start for a second with
the comment that HUD had about this being a measure of fiscal
capacity, this may very well be a measure of fiscal capacity,
it may not be. We will have to see. I am sorry to digress for a
second, but when I was in junior high, I took a math test. I
got the answer right, but the teacher marked it down some and
said, you didn't show how you got there. And I think that is
part of the issue that when you talk about how we got there,
that is where your question is going.
Mr. Clay. Well, let us continue to digress, then--
[laughter]--because when I was in law school, I got the answer
right, but according to professor, it was wrong. Now, let me
ask you about capacity. Explain capacity of a community and
what do you mean by targeting? Tell me what that means in
layman's terms.
Mr. Czerwinski. Sure. When we talk about capacity, we are
looking at the strength of the local government, the tax base,
its ability to carry out programs. Essentially when you want
something done by your city or county, do they have the means
to do it.
Now, a great example of capacity is found in the Gulf
Coast. There was capacity there, after Hurricane Katrina, there
is not capacity.
Mr. Clay. OK, but now following that train of thought,
won't this favor communities that are more well off? I mean, in
the end, won't this formula favor those communities and won't
they eventually get the lion's share of the block grant money?
Mr. Czerwinski. Well, the devil is in the details, Mr.
Clay. And it is a matter of how the variables come together and
how they are weighted. And HUD's proposal just came out last
month. We haven't had a chance to go through it. What we will
do is look at their proposal. We will also look at needs and
then separate from that capacity and then bring them together.
It is almost like, to use the analogy of a math problem, you go
back and you do a proof to see if you come up in the same
place. At this point, I really can't say where their's will
come up.
Now, looking at cost of living, compared to the
metropolitan cost of living, in isolation, we can say that in
that instance, it would favor those communities who have richer
neighbors, because by comparison they will look poorer. But
beyond that, I can't say.
Mr. Clay. Now, maybe, just maybe that accomplishes what I
would like to see, is that the money is actually targeted to
those neighborhoods that actually need the economic infusion,
that actually need the block grant money to rebuild, like you
said, houses more than 50 years old. I can take you to St.
Louis and show you entire neighborhoods like that, where there
are plenty of vacant lots and few houses standing that are in
good shape. Even business districts, that were once thriving,
that are now dilapidated.
Now, will this new formula, this new proposal help address
that, so that my city will not be able to take that money and
put it into downtown, thriving business communities, or even
well to do neighborhoods, instead of using it where it really
needs to be used? Will this address that in any way?
Mr. Czerwinski. I don't know whether my answer will satisfy
you, because we don't know. What we do know is that HUD shares
your goal and ours to effectively target where the funds go.
What we don't know is exactly how this works.
And getting back to the other point that you made about
those who are at the local level living with this, that the
League of Cities, the Conference of Mayors, the NGA, etc.,
those stakeholders were the starting point for our work. We
were just beginning. But that was the very first thing that we
did, we called all those people into a room and said, ``OK, we
are going to be looking at that, at your request. What kinds of
things should we be thinking about?''
We didn't guarantee that we would do what they want, we
didn't guarantee that we would come out with options that they
favor. But we view them as a starting point, because ultimately
they are the end point also.
Mr. Clay. And as the process continues, I think that there
will be a real need to put some strings on this money with
local communities to ensure that the money goes to those
targeted communities that actually need it.
Mr. Chairman, I will stop there. I guess we will get
another round. But thank you very much, and thank you both for
your responses.
Mr. Turner. Mr. Dent.
Mr. Dent. Thanks, Mr. Chairman. Thanks for holding this
hearing, too.
Questions on this formula change, and I am looking at my
own district in Pennsylvania. Clearly we don't do very well.
The Commonwealth of Pennsylvania's numbers, other than
Philadelphia, everybody seems to take a cut. I represent the
cities of Allentown, Bethlehem and Easton. Allentown does get a
slight increase, which is a larger city than Bethlehem and
Easton. But Bethlehem and Easton both receive significant
reductions, according to this.
I am just trying to understand the methodology of this
formula. Can you help me out with this? Allentown, for example,
I guess does well on the needs index here and receives a 9
percent increase. But there is another community in
Pennsylvania, the city of Chester, that has a 10 on the needs
index but receives a 4 percent reduction.
Can you just explain to me what went into this thinking?
Mr. Richardson. This is the most difficult thing about
formula reform. It is the very needy communities that might
have a reduction in funding because of the proposed change. The
way to look at this is not, I know the first way to look, of
course, is to see how your community fares, if it is reduced or
increased. But the way to think about it in fairness is to look
at your community's per capita grant relative to the per capita
grants that will go to other communities you see as having
similar needs as those jurisdictions.
Pennsylvania was developed some time ago, it has had a lot
of population loss. A lot of the communities in Pennsylvania
have done well because of the pre-1940 housing in growth lag
variables, whereas some communities with very high poverty have
not done well, they have been formulaic communities and had
very small grants.
To bring some parity to the grant amounts----
Mr. Dent. So you are saying because of population declines
in some cities, that has essentially increased the per capita
grants to those communities until this change?
Mr. Richardson. That is right. The loss of population is a
good measure of need in a lot of communities. But the variable
that is used in the current formula is a very sensitive
variable, so it only takes very little difference between
communities in terms of their population loss to cause very
large differences in grant funds. I think a good example would
be to compare Pittsburgh and Philadelphia.
Mr. Dent. Yes, Pittsburgh has had substantial decline, as
has Philadelphia.
Mr. Richardson. Absolutely.
Mr. Dent. But Philadelphia increases. They have both had
substantial population declines.
Mr. Richardson. That is right. Let me go into that.
Currently, Philadelphia gets $36 per capita and currently
Pittsburgh gets a very different grant amount. They are right
next to each other, handily enough on that chart.
Mr. Dent. Yes. Philadelphia receives a 10 percent increase.
Mr. Richardson. So Philadelphia's grant would go up to
about $40 per capita, which is closer to how much Detroit gets.
And Pittsburgh's grant would fall to $30 per capita, which is
closer to how much New York or Chicago gets.
Mr. Dent. I guess the question, then, is this formula
overall geared more beneficially toward States with population
increases? Because I am looking at the overall list on page--I
don't know what page, it is Roman numerals, 23, I guess, XXIII.
Alternative 4, table ES 3, if I am looking at alternative 4,
which I think is a close comparison to what you have presented
here today, it just shows that the southeastern portion of the
United States and the southwestern portion of the United States
overall seem to receive substantial increases and it is safe to
say those are areas of population increase in the recent years.
And in Puerto Rico, too, and I can't explain that.
But the bottom line is it looks like the midwest and the
mid-Atlantic region where I am, and certainly New York and New
England all receive substantial reductions overall. Is it fair
to say it is because of the population growth in the south and
the west? That is what drives this funding formula?
Ms. Patenaude. If I may, Congressman, just answer. We made
a conscious choice on this new formula to target the
communities in decline. I do believe the northeast benefited in
some instances, perhaps unfairly because of the pre-1940
housing in wealthier communities. So the new formula definitely
favors declining communities. And as Todd said, it is all
relative to need. So comparing a community with similar needs.
Mr. Richardson. If I can add to that, on average,
communities that have, in the southwest, that have higher
poverty rates, that in the past, got fairly small grants under
the formula, their grants do go up, and that is why you see the
increase in the southern region of the country. And on average,
communities with population loss and older housing in decline
do see their grants decline.
But overall, the communities in decline still receive
substantially larger grants than the communities that have the
high poverty and population growth. I think if we, actually,
chart two is a little clearer about this. Could you put chart
two up, please?
So the needs index doesn't distinguish well between
communities in decline versus communities that have the high
poverty. So if we had targeted exactly to the needs index the
lines would be much closer to that solid line. But instead, by
having the formula proposal target more closely to communities
in decline, you still see this difference between, so you see
some communities well above the line and some communities below
the line. And those reflect that difference between communities
in decline versus communities with the higher poverty. There is
still a difference, but that gap is narrowed from what that
first chart showed about, so that you went from gaps that were
quite large to gaps that were smaller. But there is still a
favoring of communities in decline over communities with high
poverty.
Mr. Dent. I am looking at the city of Easton, PA. I am
trying to understand how they receive, it is a city that is
landlocked, it has a lot of challenges to say the least. But it
receives a 30 percent reduction. It is not a big city, but an
entitlement community, and I just see a $294,000 reduction. I
guess the per capita number is still high, but it just strikes
me as a significant reduction for that community with that type
of need. I see what you are attempting to do here. But overall,
it just doesn't work very well where I live.
Can you just give me a comment on Easton, why they would
have seen such a dramatic decline? Is it because the population
has been pretty stagnant, maybe a slight decrease over the last
20 years, but not a huge decline?
Mr. Richardson. Easton certainly is a community with
distress, it has 12 percent poverty. Its allocation would be on
par with other communities of similar types of distress, like
Richmond, Virginia or Toledo, OH. So that is what the
allocation is doing, it is adjusting the grants to be similar
for communities of similar need. It is obviously difficult for
a community that does have high needs to have a reduction in
funding, absolutely.
Mr. Dent. All right, then, well, I have no further
questions. I will yield back. Thank you.
Mr. Turner. Mr. Richardson, I am going to go back to the
per capita income comparisons. You described Dayton as an
example. In my first question, with respect to the per capita
income ratio, I asked you, actually Ms. Patenaude deferred to
you on the issue of why you would include the ratios. Your
answer was because it would take into consideration the tax
base to cost of services and inequities in the cost of living.
Now, the provision of the act that the administration has
been put forward only does the comparison for the ratio of per
capita income of the metropolitan area to the per capita income
of the formula grantee within the metropolitan area. Then with
the amount that you indicated of the 25 percent cap for
adjustment.
There is no element within that, or within this act that I
see, and I am asking you to point it out if it is there, of any
indication with respect to the elements that you told me as the
why this is here, there is no provision that relates to
measuring the tax base of cost of services. There is no element
that relates to cost of living, so there is nothing that would
relate to the inequities of cost of living.
For tax base, for example, some communities are real estate
tax dependent. Some communities are income tax dependent. To
take into consideration tax base, you would actually have to
have some element that goes to the revenue generation of the
community and the cost of services. Again, you would have to go
to some of the differences in each of the community as to those
costs.
Cost of living, cost of services, of course are two
different things. You said inequities of cost of living. I
don't see anything in here that relates to cost of living. So
could you please tell me how it is that by taking into
consideration only the ratio per capita income that you expect
to capture tax base to cost of services and inequities of cost
of living.
Mr. Richardson. You have certainly hit on one of the most
challenging things about trying to deal with fiscal capacity. I
think GAO will address this, too. Per capita income in itself
tends to be, well, I will start off by saying there aren't very
many good variables that allow you to capture a community's
taxing ability. But per capita income, a measure of income, a
community with higher incomes tends to have more ability to tax
than a community with lower incomes. I think we can probably
agree on that.
Mr. Turner. If they are income tax based.
Mr. Richardson. How the community chooses to tax itself is
up to that community. But if you find a community that has
higher incomes, that tends to have higher property values, so
if you are land based, that would lead to a higher taxing
authority.
In any case, the concept here on the two fronts of fiscal
capacity and also on cost of living are as follows. So for
fiscal capacity, the concept is that per capita income for a
metro area is a rough measure of what it costs to live in the
area. Places with higher incomes tend to have higher costs of
living.
If you are a poorer community in an area with a high cost
of living, you are going to have a harder time raising revenues
to be able to buy the services in that area, because the
service is more expensive. So you would have your grant
increased to reflect that.
Mr. Turner. Mr. Richardson, would you stop for a second?
You are making several statements which are assumptions of
which you do not have, from the information that we had
presented to us, and the information that GAO reviewed when we
had this hearing last time, that your data does not prove.
Would you admit that per capita income does not, as a measuring
factor, deliver statistical data based upon tax base to cost of
living ratio, or inequities of cost of living?
Mr. Richardson. I am sorry, you would like me to confirm
what comment?
Mr. Turner. You are stating several assumptions as to how
it gets you close enough to your purposes and goals of
measuring tax base to cost of services and inequities of cost
of living. But they do not. And I am asking you to acknowledge
that measuring per capita income as a ratio does not measure
tax base to cost of services or inequities of cost of living.
Mr. Richardson. I disagree.
Mr. Turner. OK. Well, the GAO and the other studies that we
have had before this committee says that it does not, and you
have been stating several assumptions. Could you please tell us
what data that you have that shows that, how per capita income
measures tax base to cost of services or inequities of cost of
living?
Mr. Richardson. David Rusk, Cities Without Suburbs, uses
this measure extensively and looks at that issue. And so I
would have to refer you to that research.
In terms of what the GAO is looking for, I look forward to
the GAO reviewing this variable and seeing if it supports the
position that we have for the analysis, or if it supports the
position that you are stating. I think that would be an
interesting analysis.
Mr. Turner. Well, the committee is familiar with the Rusk
studies and his information and data. And what I would like you
to do is take some time to supplement your answer after this
hearing, indicating how you believe that per capita income
ratio measures a tax base of a community or how it measures
cost of services in a community, or how it relates to cost of
living in a community.
Mr. Richardson. Absolutely.
Mr. Turner. Along with Mr. Dent, I would like to
acknowledge that under this formula, Dayton, OH, my community,
would be slated to lose 16 percent of its overall funding in
CDBG. That 16 percent loss is to a community that clearly has
significant economic distress factors and significant community
development factors of abandoned housing and community
development needs, which would lend me to question the basis of
which this formula is to improve targeting in that, as with Mr.
Dent, I can identify several communities in this list that
appear to receive additional funding that have greater
financial capacity and perhaps less community development
stress than one would see in Dayton, OH.
But in going to the issue of cuts, and Ms. Patenaude, this
question is for you, in looking at the split in the previous
funding formula between entitlement communities and non-
entitlement communities, the amount of the pot of funds that
were available to entitlement communities overall appears to be
reduced by this proposal. In other words, the total pot of the
formerly known entitlement communities has available to it is
reduced. Therefore, those communities that are gaining are
actually gaining out of a pot that is smaller, and those that
are losing out of a pot that was already diminished. Is that
accurate?
Ms. Patenaude. Thank you, Mr. Chairman. The reform package
does eliminate the artificial 70-30 split that is statutory
right now. But the breakdown is actually very close to the 70-
30. And the entitlement communities, the share to entitlement
communities has been shrinking because of the increase in the
number of entitlement communities in the last decade. But I
believe it is still very close to the 70-30.
Mr. Turner. But even with the 70-30 split, you have taken
another $200 million out with the competitive grant formula. So
the overall pot itself is diminished, is that correct?
Ms. Patenaude. The challenge grant is only available to
distressed entitlement communities. Communities participating
through the State program would not be eligible for that, so
that is still reserved for entitlement communities, and
communities such as Dayton that target their CDBG dollars to
distressed communities would have an opportunity to actually
gain funding with the challenge grant.
Mr. Turner. Can you go down the list of recommendations
that came out of this full committee in again, in unanimity on
a bipartisan basis and the ones that are not addressed at all,
I will just identify them and move on, and the ones where we
have a difference of opinion are the ones I want to highlight.
We first indicated, the full Committee of Government
Reform, not this subcommittee, indicated that HUD should
acknowledge that any proposed needs test may be inherently
subjective by its nature. Therefore the policy implications of
new or additional needs tests should be fully vetted before
they are implemented. Ms. Patenaude, you indicated that the
needs test is not modified in this recommendation, correct?
Ms. Patenaude. The needs index is the same index, that is
correct, sir.
Mr. Turner. The discussion that we had in previous hearings
concerning the impact of immigration and how that relates to
impacts on communities, this act does not include any review by
HUD of the impacts of either legal of illegal, the total
category of immigration, correct?
Ms. Patenaude. I believe in the proposed formula that we do
capture the immigrant growth population.
Mr. Turner. But there is no other independent data that you
looked at with respect to the impact of immigrant populations
on distressed communities?
Ms. Patenaude. I believe it is considered in one of these
factors. Todd, do you want to answer?
Mr. Richardson. I think your question is, have we done
further review to determine what the impact of immigrant
populations are on communities?
Mr. Turner. Correct.
Mr. Richardson. We haven't done further review. The
original analysis and the analysis we still have to work from
is the analysis done by the National Academy of Sciences in
1997, where they did the analysis on the fiscal impact of
immigrant populations, which showed a significant impact. The
communities had a greater cost than they returned in revenue
generated.
Mr. Turner. We have already dealt with the issue of the
income ratio. And the full Committee on Government Reform had a
different recommendation than the act presents. The next
category is the vacant and abandoned housing stock. We had a
recommendation that should be considered as an index factor,
and abandoned and vacant housing stock, Ms. Patenaude, is not
included in the act, correct?
Ms. Patenaude. That is correct, sir, but we are working to
collect that data.
Mr. Turner. The initial proposal for, from which this act
is in part derived, had taken out all single non-elderly
populations in an attempt to get to student populations. It is
my understanding that you did correct that in the act itself,
you did instead exclude only unrelated individuals enrolled in
college?
Ms. Patenaude. That is correct, sir.
Mr. Turner. The one recommendation that we had, obviously,
was that HUD work in conjunction with GAO. GAO's report is not
completely finished, so I am assuming that HUD would continue
its commitment to work with the GAO as its findings are
available in looking at ways that this act might be able to
improve?
Ms. Patenaude. We will fully cooperate with the GAO, Mr.
Chairman.
Mr. Turner. One of the recognitions of the need to change
the grant formula is to look at the fact of the changing
demographics of communities. The committee had made a
recommendation that periodic review of the CDBG grant formula
perhaps should be incorporated in any act reform that would
cause as a trigger an automatic review. You have chosen not to
set a time period for periodic review. I am assuming that
doesn't mean that you are opposed to, on a regular basis, this
process being reviewed?
Ms. Patenaude. We did not include it in the legislation,
but as you know, we have reviewed the formula every 10 years,
when we have the decennial census data. But I agree that would
be something that should be considered in the legislation.
Mr. Turner. We had recommended that if the CDBG formula is
to be amended, that a phased-in period, to give communities an
opportunity to modify their processes, because many communities
have advanced planning for community development, the act, from
what I understand, has a 2-year phase-in for grantees affected
by the minimum allocation threshold, those that would be, in
effect, de-funded, I believe.
Do you have a consideration for the transition for all
communities?
Ms. Patenaude. The communities that would no longer meet
the threshold?
Mr. Turner. Yes.
Ms. Patenaude. Would be eligible to participate either as
part of an urban county or through the State program. And we
have a provision that they would be able to receive their grant
the first year, under the new formula, at 50 percent of the
previous year grant.
Mr. Turner. But for communities like Dayton, OH, that under
this proposal would have a 16 percent reduction in funding,
there would not be a phase-in. Upon the adoption of the act,
the funds would be immediately reduced?
Ms. Patenaude. Cities like Dayton would qualify to
participate in the challenge grant program.
Mr. Turner. Yes, they have an opportunity to apply to you
to receive additional funding. But those funds that they would
automatically receive under the act, the reduction that you
have identified, HUD has identified as 16 percent, that would
happen without a phase-in immediately?
Ms. Patenaude. That is correct.
Mr. Turner. We spent some time in this committee looking at
the issue of eligible activities for the use of funds. This act
does not address the issue of use of funds. We raised the issue
of under the current CDBG program, there is no limitation to
the amount of dollars that a local community can spend on its
own staff. There certainly is a limitation on administrative
funding. But on overall funding that a local community
allocates to staff functions, that there is not a limitation,
this act does not address the issue of eligible activities, how
a community spends their funds, correct?
Ms. Patenaude. That is correct. We did not change or
suggest a change to the eligible activities, but we certainly
are open to that discussion.
Mr. Turner. Can you tell us why you didn't look at the
issue of eligible activities?
Ms. Patenaude. The CDBG Reform Act of 2006 focuses on
performance and results and obviously encourages communities to
target their dollars and concentrate their dollars. And by
offering the opportunity to participate in the challenge grant,
we believe that communities will hopefully do a better job of
using their resources in a concentrated way.
We didn't want to take away any flexibility, so that the
local elected officials can make those decisions based on their
community development needs. As you know, the three national
objectives stayed in place as well.
Mr. Turner. I'll refer to Mr. Clay for questions.
Mr. Clay. Thank you, Mr. Chairman.
Ms. Patenaude, I am concerned that newly proposed
performance measures will become an expensive administrative
exercise for grantees. Should HUD provide technical assistance
or supplemental administrative funds for these activities? Is
HUD capable of reviewing annual performance outcomes and
assisting in remediation efforts for grantees?
Ms. Patenaude. Thank you, Congressman. We are currently
implementing the performance measurement framework. We have 15
trainings scheduled throughout the country. They are ongoing
until the end of August, so all of the entitlement and State
grantees have been invited to participate in this training.
We also had thorough discussions with all the stakeholders
when we were developing the performance measurement framework,
and it certainly is a consensus document. OMB was also part of
that working group. We acknowledge that IDIS can be cumbersome,
but we have invested a tremendous amount of time and energy in
updating the IDIS system. The screens are available right now,
and the grantees are already inputting performance measures. By
October we will require it and we believe that 1 year from now
we will be able to answer that question better. But we do not
think it will be an additional burden on grantees.
Mr. Clay. If a grantee fails to meet benchmarks for
performance, what types of penalties should there be imposed?
Ms. Patenaude. The act provides for the Secretary of HUD to
either withhold or reduce CDBG funding if the community does
not meet the targets that they have set in their performance
plans.
Mr. Clay. Thank you very much.
Mr. Czerwinski, I have two major concerns with the
inclusion of a new performance measurement requirement. First,
will communities have appropriate technical assistance from HUD
to comply with these requirements? And I don't want grantees
wasting grant money in order to comply with a paperwork
exercise. And second, what types of penalties or remediation
requirements would HUD prescribe if a grantee was not making
adequate progress?
Mr. Czerwinski. Mr. Clay, GAO is about to issue a report
later this summer that looks at those very issues for this
committee. We are asked to look at the uses of CDBG funds as
well as HUD's monitoring, which would tie into reporting and
information system requirements. So your question is right on
target for what we are talking about.
And speaking about a target, probably the key issue there
is technical assistance and how the information is used to help
the local governments increase their capacity to do what they
need to do to get the funds. So those should be the exact
targets of such an effort.
Mr. Clay. OK. Let me lay out a scenario for both of you,
and both of you can take a stab at answering. St. Louis County,
their inner ring suburbs have become less affluent. City
residents have moved to these areas and have stretched the
services of those municipalities that they have moved into. St.
Louis County only gets a 4 percent increase in CDBG funding.
Perhaps we should take another look at population shifts and
factor these population trends into the proposed formula. And
we should probably also look at this new influx of new
citizens, of immigrants that come to communities like St.
Louis. We have a large population of Bosnians who have migrated
to St. Louis over the last 10 or 15 years.
Would you all consider that once, since you have now gotten
some feedback from us, I mean, what would you do to change
those formulas?
Ms. Patenaude. Congressman, if Mr. Richardson----
Mr. Clay. Mr. Richardson, you can try to tackle it.
Mr. Richardson. I'm sorry, would you repeat the question?
Mr. Clay. We have influxes of new populations into St.
Louis County inner ring suburb, new immigrants like from the
Bosnian community. I am not sure that you factored those
considerations into this proposed formula.
Mr. Richardson. There is not a direct measure of new
immigrants into the community. But to the extent that new
immigrants bring new factors of distress such as increased
poverty for a community or increased rates of overcrowding,
those do come into account and would affect that community's
grant changing and increasing in that particular case, if the
community is in decline, if those factors would be measured to
allow its grant to increase.
Mr. Clay. So in the case of St. Louis city or county, that
would be an additional factor that you all would take into
consideration?
Mr. Richardson. The formula currently has four variables
associated with need poverty, older housing occupied by poverty
households, overcrowding and female head of households with
children under the age of 18. To the extent those variables
increase, and to the extent those variables increase at a
higher rate for that community than they do for the rest of the
country, that community's grant would go up.
If for example the whole country goes up at the same rate,
the grant would stay static.
Mr. Clay. What if one of those factors were not present,
like overcrowding? Say you have a less densely populated city,
but what then?
Mr. Richardson. To the extent that poverty is increasing,
poverty gets weighted at 50 percent. It is the most important
variable in the proposed formula. Then your grant would go up.
Mr. Clay. Thank you for that info. Thank you, Mr. Chairman.
I yield back.
Mr. Turner. I have one final question, and then I want to
open it to any closing remarks. Obviously we have had a pretty
extensive discussion, and you might have, those who have
testified, some thoughts that you want to add to the record or
raise as questions that we have not asked for additional
review.
One of the things that has interested me, and this is my
final question, is the issue of looking at measurable
objectives in community development block grant funds. The
Strengthening America's Communities initiative that would have
moved this CDBG funding and other grant programs from HUD to
Commerce had as its cornerstone an issue of trying to impose
performance measures in communities as to how they use these
funds for community development.
Many times, the description of how a community would be
rated are elements of which a community either might not have
any control or which do not relate to the effectiveness of
their use of CDBG funds. When I look to the list of the
challenge grant fund, these are the elements on which a
community would be rated. The change in employment rate of
residents, income levels of residents, enrollment rate of high
school graduates into higher education institutions, date of
resident ownership of homes and businesses, and the change in
residential real estate values.
In looking at the formula grantees, the non-challenge
grants funding, the performance measurements objectives list,
suitable living environment, development of decent affordable
housing, fostering and creating economic development and
opportunity. When I look at these elements that are in the
challenge grant, almost every one of them you can go through
and identify things that could occur within a community that
have nothing to do with the community's administration of its
CDBG funds or even the effectiveness of its leadership in
economic development strategies.
Ms. Patenaude, if you would please respond to that issue,
it was raised before, I believe, by GAO as we look to the
proposed formulas and it had been raised in the Strengthening
America's Communities initiative. Do you similarly have a
concern that the items on which communities might be measured
may not relate at all to their community development efforts
and their use of CDBG funds?
Ms. Patenaude. If I may, Mr. Chairman, clarify the
question. You are looking at the objective criteria under the
challenge grant versus the objective and outcome measures under
the performance measurement system? Comparing the two?
Mr. Turner. Right. Which are somewhat similar. In looking
at both of them, let me give you one example scenario. If a
community has one large employer that exits in the community or
ceases operations altogether, its impact on the community, and
really the occurrence of its exit may not relate at all to how
effective the community has been with their CDBG dollars, or in
community development or revitalization. But it would
significantly impact these factors.
Similarly, change in residential real estate values, a
metropolitan community is part of a larger metropolitan area
that could see a decline in residential real estate values as
you can pick up almost any newspaper and the discussion of what
is going to happen in the future of real estate values in some
markets that have been identified as overheating. Those are all
areas that have nothing to do with how a community uses their
CDBG dollars or their effectiveness in community development.
Do you have a concern that these elements might penalize a
community that has been very effective with CDBG by elements
over which they have no control?
Ms. Patenaude. We still have a very important measure, and
that is to be sure that the community development block grant
funds are targeted 70 percent low-mod income. As you know, more
than 70 percent is spent for low and moderate income persons.
So I think that is definitely one of the safety nets that we
have to measure a program that is as complex and flexible as
the CDBG program is difficult. I think some of the things that
you were addressing were under the previous proposal, under the
Strengthening America's Communities initiative.
Mr. Turner. Actually, I was reading from that.
Ms. Patenaude. Under the challenge grants, we have listed
some objective criteria, but we are certainly open to
discussion on that. The performance measurement framework was 2
years in the making, working with the stakeholders. So the
grantees had a tremendous amount of input. We did not design
this in a vacuum. And OMB participated. So a year from now, Mr.
Chairman, I may be able to answer that question better.
Mr. Turner. Mr. Czerwinski.
Mr. Czerwinski. Mr. Chairman, your question cuts right to
the heart of performance measurement. There is a tension
between trying to find the perfect measures of all the things
that we want a program to achieve or, going the exact opposite
direction, saying, well, let's just measure the minute program
outputs. The real challenge is to get some middle ground there.
And I agree completely with Ms. Patenaude, this is going to
take some work.
There are measures in the middle, I would say, affordable
housing, maybe one that a community has a little bit more
control over than some others and that is more closely linked
to community development and its objectives in the projects
within it. But frankly, we are not there yet.
Mr. Turner. So you do have some concerns that the elements
that are identified may be outside the control of a community
and unrelated to their CDBG performance?
Mr. Czerwinski. I wouldn't want to be the mayor of some of
those communities saying I can control all those things.
Mr. Turner. Thank you.
Are there any other questions from members of the
subcommittee? If not, at this time, then, I will turn to each
of you and ask if you have any closing remarks that you would
like to place in the record. Also, please include any
additional questions that you think that we need to pursue.
Even if you don't have the answers for them, they would be
important for us to capture as additional items for us to
review in the future.
We will start with Ms. Patenaude.
Ms. Patenaude. Thank you, Mr. Chairman. We appreciate the
opportunity to share the administration's proposal on CDBG
reform, and we look forward to feedback from our stakeholders.
We feel that there is certainly an urgent need to address the
formula and to restore equity to the fairness in the formula.
Again, thank you for the opportunity to appear before you
today.
Mr. Turner. Mr. Czerwinski.
Mr. Czerwinski. Mr. Chairman, as you know, GAO is full of
researchers. So we are policy wonks and we love this kind of
discussion. So thank you for being able to give us that format.
There are a few things that came across to me in our
discussion today. First of all, it seems to me that we have
pretty close to agreement on the objectives of the program and
what we want the reforms to achieve. I think we also have a
pretty clear, maybe not 100 percent, but pretty close agreement
on what the issues and challenges are. And in that regard, I
want to make sure that I have been adequately complimentary to
HUD. Because they have really advanced the ball here. They have
done a lot of good, hard work.
I was struck by what you have to deal with. And I was
thinking about what Mr. Dent was saying about what is going to
happen to my community. Ultimately you have to decide what the
right answer is and go back to the community and defend it.
Then I was thinking about the discussion that we had with
you, Mr. Clay, and you, Mr. Turner, on a couple of the
variables. We don't get these discussions, I do a lot of
testimony. I don't get a chance to dig into variables, so I
really am grateful that we did that.
The two that jumped out at me were immigration and
abandoned housing. I was struck by Mr. Richardson's answer,
which I think is the right one at this time, is that we don't
have direct measures. So what we are coming up with by
definition is proxies.
Well, the proxy may work and the proxy may not. But when
you make it a policy decision, you are going back to defend it
to constituents, that is a really tough position to be in. And
so what we are hoping to do in our study is to go behind the
variables, particularly those two that you outlined, and try to
come up with, if there are direct measures, what are the pros
and cons of them, what needs to be done to come up or refine
the direct measures, and then what the implications are.
So let's take immigration for a second. When we talk about
overcrowding, that may or may not be a good measure of
immigration. It may pick up some parts of it. But what we like
to look at is what are the characteristics of immigrants, and
what kinds of pressures do they bring on the community. And if
there is a measure in there, we will try to find it.
As I mentioned, we brought in the National Academy of
sciences to help us with the statistics and the local
expertise. So what we would like to do is go back and do our
work and then consult with HUD and then come back and talk with
you about what we found, what works, what doesn't, and then try
to give you something you can work with. Abandoned housing is
in that same area. Frankly, there isn't a good measure of
abandoned housing. My guess is it is going to be several years
off before you have one. I do think HUD has a good strategy for
abandoned housing.
But it is just going to take time. No matter how good a
strategy is, it just takes time.
Mr. Turner. Mr. Richardson, any closing comments?
Mr. Richardson. Just thank you for your time.
Mr. Turner. Before we adjourn, I would like to thank each
of you for participating today. I appreciate your willingness
to share your knowledge, experiences and thought with us today.
Undoubtedly, CDBG has been a key component to the many triumphs
cities have had over poverty and community development need. We
all agree that the program provides vital funds to address
critical needs.
Thanks to CDBG, many individuals and families live in
safer, cleaner neighborhoods, with improved infrastructure such
as street lights, handicap accessible sidewalks and parks and
playgrounds, amenities to which everyone should have access. As
we have all acknowledged, however, we recognize the need for
CDBG funds and applaud the success of the program, there
remains room for improvement from the inequitable distribution
of funds, and the definition of need, to the lack of
performance measures and enforcement capabilities.
I am encouraged by the administration's response to the
need for program modification and I look forward to continuing
the dialog with suggestions on how to improve the
administration and distribution of these important dollars.
I want to thank GAO for their efforts in continuing to
review this and I appreciate HUD's thoughtful look and approach
and willingness to continue to work on ways that even the
administration's current proposal might be able to be improved.
In the event that there may be additional questions that we did
not have time for today, the record shall remain open for 2
weeks for submitted questions and answers.
I thank you all. We stand adjourned.
[Whereupon, at 11:35 a.m., the subcommittee was adjourned.]
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