I never cease to be amazed at the naievete of some of our elected State officials to partake of such a crime ridden, frequently abused program such as the CDBG program! Have you ever seen such a desire by our elected leaders to take seemingly endless tax dollars and literally give it away to beuracrats and private partnerships all for the love of the little bit of money that will trickle into our community after “federal, state and local administrative costs” are administered! Where is the dignity of these elected officials to think that by contracting with a federal agency like HUD that after we jump through the many hoops to recieve the grants that they are convinced they have done anything good for our communities? Senator Bell and Representative Watson you have been put on notice that these grants and it’s distribution of funds will be closely monitored for effectiveness of use by the taxpayers that you supposedly represent. In the event of your over willingness to spend the taxpayers dollars irresponsibly there will be a huge accountability factor involved! Recklessly spending tax payers dollars can no longer be tolerated! Spending money we do not have and causing great discomfort to the community you represent by federal government regulation for you simply accepting theses grants is not a favorable position to be in and can no longer be accepted as the norm! Federal spending and waste of tax payer dollars must be stopped! Someone must stop the madness!
Community Development Block Grants are the largest community development activity in HUD. They were created by the Housing and Community Development Act of 1974, which combined several narrower grants into one formula-based block grant for local governments. The change stemmed from local frustrations with the complex web of federal aid that developed in the 1960s.6
In 2009, CDBG spending totaled $8 billion.7 The bulk (70 percent) of the funding goes to selected local governments that are called “entitlement communities.” The top five recipients of these funds since 2000 are the cities of New York ($1.6 billion), Chicago ($780 million), Los Angeles ($758 million), Philadelphia ($557 million), and Detroit ($412 million).8 The other 30 percent of CDBG funding goes to state governments as “nonentitlement community” funding. State governments dole out those funds to local governments and nonprofit groups.
CDBG activities are supposed to meet one of three objectives: (1) benefit low- and moderate-income persons, (2) prevent or eliminate slums or blight, or (3) address a serious need or threat that has particular urgency.9 A huge range of activities meet these criteria, including:
acquisition of property
construction or repair of streets, recreation facilities, and other public works
demolition and rehabilitation of public and private buildings
public services and planning activities
assistance to nonprofit and for-profit groups for community development purposes
While CDBG funds are initially handed out to state and local governments, the ultimate beneficiaries are usually private businesses and organizations working on particular projects, such as shopping malls, parking lots, museums, colleges, theaters, swimming pools, and auditoriums. Here is a small sampling of projects funded in 2008:10
$588,000 for a marina in Alexandria, Lousiana
$245,000 for the expansion of an art museum in Allentown, Pennsylvania
$147,000 for a canopy walk at the Atlanta Botanical Gardens in Georgia
$196,000 for expanding the Calvin Coolidge State historic site in Vermont
$294,000 for a community recreational facility in New Haven, Connecticut
$196,000 for the construction of an auditorium in Casper, Wyoming
$441,000 to replace a county exposition center in Umatilla, Oregon
$98,000 for the Pearl Fincher Museum of Fine Arts in Spring, Texas
$245,000 for renovations to awnings at a historical market in Roanoke, Virginia
$294,000 for the development of an educational program at the Houston Zoo in Texas
All these activities are purely local in nature, and there is no national interest in funding them. CDBG funding runs completely counter to the federalist model of American government.
Federal policymakers are supposed to make decisions on national issues such as defense and security; it makes no sense for them to be city planners, but that’s what the CDBG program effectively lets them do.
Battling over Formulas
Moving funding for local projects up to the federal level injects federal politics into local activities. The particular cities and counties that receive CDBG funding have long been fought over in Congress. While the program was created to help high-poverty areas improve basic services such as fire and police, the program currently spreads taxpayer largesse very widely, including to some of the wealthiest areas of the country.11
CDBG money is doled out based on complex formulas that do not target need very well. For example, the wealthy community of Madison, Wisconsin, receives a CDBG allotment of a similar size as low-income San Marcos, Texas, partly because a large group of temporarily low-income college kids in Madison are included in the formula.12 The 2009 federal budget noted that the CDBG “formula has not been updated in over 30 years and as a result, many lower-income communities receive less assistance than wealthier communities.”13 Experts occasionally try to fix such problems, but those reforms are usually blocked by politicians benefiting from the status quo.
One allocation item in the CDBG formula is “housing built before 1940.” How did that obscure item get into the CDBG formula? The Northeast-Midwest Institute, which is a lobby group for a regional group of states, got a member of Congress to insert it into legislation in 1977 in order to tilt aid toward older cities.14 The Bush administration wanted to change this formula item in 2006 because “many poor communities have torn down old, blighted housing while affluent communities have rehabbed theirs, giving them a leg up in the distribution of funds.”15 But the Bush proposal met stiff resistance from wealthier communities such as Oak Park, Illinois, which would have lost some of its CDBG subsidies.16
CDBG spending has gradually shifted from poorer to wealthier communities over time.17 For that reason, the Bush administration rated the CDBG program “ineffective” due to its “weak targeting of funds.”18 It noted, for example, that wealthy Greenwich, Connecticut, received five times more funding per low-income resident than poorer Camden, New Jersey.19 It should not be the role of the federal government to redistribute income between regions, but even if it was, the CDBG program is not very good at it.
One result of involving all three levels of government in funding local projects is rampant bureaucracy. Local governments that receive CDBG funds spend 17 percent on administration, on average, according to the Government Accountability Office.20 For the portion of CDBG funds that flow to state governments, state-level bureaucracies are an additional cost. The GAO found that state government administration consumed 8 percent of CDBG funds. On top of those costs are federal administration costs, which are about 5 percent of the value of grants.21
After the government bureaucracies take their share, CDBG monies get distributed to the private businesses and organizations that carry out funded projects. Federal rules usually specify the share of funding that may be used by recipients for administrative costs, and 10 percent seems to be common. Thus, considering all the administrative costs at all layers of government and private organizations, a large share of the CDBG budget disappears before any actual work is done.
One cause of high administration costs in grant programs is that governments and private groups must comply with complex federal regulations. Consider, for example, that the State of Virginia’s CDBG manual explaining the regulations is 170 pages long, and the state’s application package for grant applicants is 132 pages long.22
Waste and Abuse
Moving funding for local projects up to the federal level eliminates responsible city planning. When local funds are used for local projects, local officials have an interest in ensuring that the benefits of public projects outweigh the costs. But when the federal government is the source of funds, local governments tend to invest in a range of inefficient and wasteful activities.
The CDBG program also has a history of financial abuse and dubious project spending. In 2006, HUD’s inspector general found that fraud by CDBG grant recipients was common—and increasing.23 After recently auditing a sample of just 35 CDBG grantees, investigators found more than $100 million in improper or questionable spending, including:
An audit of redevelopment projects in San Diego found that $12.9 million was spent on activities there were ineligible or lacked proper records. For example, CDBG funds were used improperly for a festival to celebrate a shopping center.24
The City of Chicopee, Massachusetts, spent $4.3 million on projects that were ineligible or lacked proper records. Some of the funds went to the affluent neighborhood where the mayor lived. In 2005, the mayor was arrested on extortion charges related to illegal campaign contributions received in return for helping a developer obtain development funds.25
The City of Utica, New York, spent funds on a variety of improper uses, such as $902,799 on a marina and $255,158 on ski chalet renovations.26 That is not the targeting of funds to poor neighborhoods that CDBG supporters envisioned.
In 2006, HUD’s inspector general reported that in just two and a half years of CDBG investigations it had “indicted 159 individuals, caused administrative actions against 143 individuals, had 5 civil actions, 39 personnel actions, and over $120 million in recoveries.”27 The inspector general found that there were “repeated” problems with the program, including the improper use of funds, grantee inability to account for funds, and a lack of monitoring and oversight.
Here is a sampling of some of the local-level scandals to hit the CDBG program over the years:
The economic development agency of Essex County, New Jersey, spent $1.6 million on county administration in assisting just seven businesses.28
A government employee in East St. Louis pled guilty to income tax evasion after directing $158,000 in CDBG funds to her bank account.29 East St. Louis has long had corruption problems with federal grant monies.
Former South Dakota governor Bill Janklow directed $825,000 of CDBG funds to a shooting range, which HUD ruled was an improper use of funds.30 HUD found that 9 of 12 CDGB awards it examined in the state failed to meet low-income targeting requirements.
Miami officials used CDBG funds to back a $5.4 million low-interest loan for an investment company controlled by a wealthy Saudi Arabian sheik.31
Selected audits of CDBG grantees in 1995 produced 31 indictments and 21 convictions for misuse of funds.32 Auditors found that the owner of a Louisiana sawmill used funds to pay off personal debts, the city of Troy, New York used $1.6 million to lure a hockey team to the city, and a California Indian tribe used $404,000 to construct an off-track betting facility.
The head of the Multicultural Center in Modesto, California, who was a Democratic Party activist, used $47,500 of CDBG money for personal and political purposes.33
The government of Washington, DC, gave $1 million to a funeral home for a business expansion, which ended up never occurring. That prompted the Washington Times to note: “It’s an example of a repeated problem the city has administering its community development block grants.”34
Niagara Falls and Lockport, New York, used $12 million to build an amusement center, which shut down after just six months of operation. The company behind the project pled guilty to defrauding HUD.35
The CDBG program has been a poster child for waste and abuse for decades. Unfortunately, few members of Congress have shown any interest in cutting the program or even conducting oversight. A 1989 news article explains why:
GAO investigators have been trying to interest congressmen in scrutinizing the $3 billion Community Development Block Grant program. … Describing the program as the “next bombshell” waiting to hit HUD, investigators said it is rife with waste and mismanagement, but they got no takers. Lawmakers explained that since they had been struggling to save the grants from Reagan’s budget ax, they would be embarrassed by a scandal. In addition, many districts get money from the program, and legislators do not want to launch a probe that could turn off the spigot.36
Despite all the abuses, perhaps policymakers believe that CDBGs are nonetheless effective at stimulating growth. After 30 years and more than $100 billion it should be easy to demonstrate the program’s success, but it’s hard to find any examples of city rejuvenation created by the program.37 Instead, numerous cities, such as Detroit, which have been major CDBG recipients, have fallen further into decline. The reality is that no amount of federal money can overcome the local hurdles to growth in cities such as Detroit—including political corruption and destructive tax and regulatory policies. Indeed, just like international development aid, federal aid to the cities likely increases corruption and stalls much-needed local reforms.
With the federal government running huge deficits, it cannot afford to fund ineffective and often wasteful local development projects. Community development is a local concern, and only local leaders and businesses using their own funds can make sound cost-benefit decisions on projects. By providing local leaders with handouts from Washington, we simply encourage them to make irresponsible decisions. At the same time, experience has shown that federal politicians use local projects as political tools that are disconnected from sound economics.
Source of info:
Tad DeHaven, writer!
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