diff --git "a/data/CHRG-109/CHRG-109hhrg20219.txt" "b/data/CHRG-109/CHRG-109hhrg20219.txt" new file mode 100644--- /dev/null +++ "b/data/CHRG-109/CHRG-109hhrg20219.txt" @@ -0,0 +1,7020 @@ + + - A TOP TO BOTTOM REVIEW OF THE THREE-DECADES-OLD COMMUNITY DEVELOPMENT BLOCK GRANT PROGRAM: IS THE CDBG PROGRAM STILL TARGETING THE NEEDS OF OUR COMMUNITIES? +
+[House Hearing, 109 Congress]
+[From the U.S. Government Publishing Office]
+
+
+
+
+ 
+ A TOP TO BOTTOM REVIEW OF THE THREE-DECADES-OLD COMMUNITY DEVELOPMENT 
+ BLOCK GRANT PROGRAM: IS THE CDBG PROGRAM STILL TARGETING THE NEEDS OF 
+                            OUR COMMUNITIES?
+
+=======================================================================
+
+                                HEARINGS
+
+                               before the
+
+                       SUBCOMMITTEE ON FEDERALISM
+                             AND THE CENSUS
+
+                                 of the
+
+                              COMMITTEE ON
+                           GOVERNMENT REFORM
+
+                        HOUSE OF REPRESENTATIVES
+
+                       ONE HUNDRED NINTH CONGRESS
+
+                             FIRST SESSION
+
+                               __________
+
+                  MARCH 1, APRIL 26, AND MAY 24, 2005
+
+                               __________
+
+                            Serial No. 109-7
+
+                               __________
+
+       Printed for the use of the Committee on Government Reform
+
+
+  Available via the World Wide Web: http://www.gpo.gov/congress/house
+                      http://www.house.gov/reform
+
+
+                                 ______
+
+                    U.S. GOVERNMENT PRINTING OFFICE
+20-219                      WASHINGTON : 2005
+_____________________________________________________________________________
+For Sale by the Superintendent of Documents, U.S. Government Printing Office
+Internet: bookstore.gpo.gov  Phone: toll free (866) 512-1800; (202) 512�091800  
+Fax: (202) 512�092250 Mail: Stop SSOP, Washington, DC 20402�090001
+
+                     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
+GINNY BROWN-WAITE, Florida           C.A. DUTCH RUPPERSBERGER, Maryland
+JON C. PORTER, Nevada                BRIAN HIGGINS, New York
+KENNY MARCHANT, Texas                ELEANOR HOLMES NORTON, District of 
+LYNN A. WESTMORELAND, Georgia            Columbia
+PATRICK T. McHENRY, North Carolina               ------
+CHARLES W. DENT, Pennsylvania        BERNARD SANDERS, Vermont 
+VIRGINIA FOXX, North Carolina            (Independent)
+------ ------
+
+                    Melissa Wojciak, Staff Director
+       David Marin, Deputy Staff Director/Communications Director
+                      Rob Borden, Parliamentarian
+                       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
+            Ursula Wojciechowski, Professional Staff Member
+                       Shannon Weinberg, Counsel
+                         Juliana French, Clerk
+           David McMillen, Minority Professional Staff Member
+
+
+                            C O N T E N T S
+
+                              ----------                              
+                                                                   Page
+Hearing held on:
+    March 1, 2005................................................     1
+    April 26, 2005...............................................   107
+    May 24, 2005.................................................   191
+Statement of:
+    Bernardi, Roy A., Deputy Secretary, U.S. Department of 
+      Housing and Urban Development........................... 112, 197
+    Bernardi, Roy A., Deputy Secretary, Department of Housing and 
+      Urban Development; Clay Johnson III, Deputy Director for 
+      Management, Office of Management and Budget; and David A. 
+      Sampson, Assistant Secretary of Commerce for Economic 
+      Development, Department of Commerce........................     6
+        Bernardi, Roy A..........................................     6
+        Johnson, Clay III........................................    20
+        Sampson, David A.........................................    23
+    Posner, Paul, Director, Federal Budget & Intergovernmental 
+      Relations, Government Accountability Office; Jerry C. 
+      Fastrup, Assistant Director, Applied Research and Methods, 
+      Government Accountability Office; and Saul N. Ramirez, Jr., 
+      executive director, National Association of Housing and 
+      Redevelopment Officials....................................   144
+        Posner, Paul.............................................   144
+        Ramirez, Saul N., Jr.....................................   161
+    Plusquellic, Don, president, U.S. Conference of Mayors; 
+      Angelo D. Kyle, president, National Association of 
+      Counties; Chandra Western, executive director, National 
+      Community Development Association; and James C. Hunt, 
+      Councilman, city of Clarksburg, WV, on behalf of National 
+      League of Cities...........................................    49
+        Hunt, James C............................................    62
+        Kyle, Angelo D...........................................    59
+        Plusquellic, Don.........................................    49
+        Western, Chandra.........................................    60
+    Schmitt, Ron, councilmember, city of Sparks, NV; Thomas 
+      Downs, fellow, National Academy of Public Administration; 
+      Lisa Patt-McDaniel, assistant deputy director, Community 
+      Development Division, Ohio Department of Development, on 
+      behalf of COSCDA; and Sheila Crowley, Ph.D., president, 
+      National Low Income Housing Coalition......................   224
+        Crowley, Sheila, Ph.D....................................   263
+        Downs, Thomas............................................   232
+        Patt-McDaniel, Lisa......................................   241
+        Schmitt, Ron.............................................   224
+Letters, statements, etc., submitted for the record by:
+    Bernardi, Roy A., Deputy Secretary, Department of Housing and 
+      Urban Development, prepared statements of............ 9, 116, 199
+    Clay, Hon. Wm. Lacy, a Representative in Congress from the 
+      State of Missouri, prepared statements of........... 85, 185, 218
+    Crowley, Sheila, Ph.D., president, National Low Income 
+      Housing Coalition, prepared statement of...................   265
+    Downs, Thomas, fellow, National Academy of Public 
+      Administration, prepared statement of......................   234
+    Hunt, James C., Councilman, city of Clarksburg, WV, on behalf 
+      of National League of Cities, prepared statement of........    65
+    Johnson, Clay III, Deputy Director for Management, Office of 
+      Management and Budget, prepared statement of...............    21
+    Maloney, Hon. Carolyn B., a Representative in Congress from 
+      the State of New York, prepared statement of...............   222
+    Patt-McDaniel, Lisa, assistant deputy director, Community 
+      Development Division, Ohio Department of Development, on 
+      behalf of COSCDA, prepared statement of....................   244
+    Posner, Paul, Director, Federal Budget & Intergovernmental 
+      Relations, Government Accountability Office, prepared 
+      statement of...............................................   147
+    Plusquellic, Don, president, U.S. Conference of Mayors, 
+      prepared statement of......................................    52
+    Ramirez, Saul N., Jr., executive director, National 
+      Association of Housing and Redevelopment Officials, 
+      prepared statement of......................................   165
+    Sampson, David A., Assistant Secretary of Commerce for 
+      Economic Development, Department of Commerce, prepared 
+      statement of...............................................    25
+    Schmitt, Ron, councilmember, city of Sparks, NV, prepared 
+      statement of...............................................   226
+    Turner, Hon. Michael R., a Representative in Congress from 
+      the State of Ohio, prepared statements of............ 4, 110, 194
+
+
+   STRENGTHENING AMERICA'S COMMUNITIES: IS IT THE RIGHT STEP TOWARD 
+            GREATER EFFICIENCY AND IMPROVED ACCOUNTABILITY?
+
+                              ----------                              
+
+
+                         TUESDAY, MARCH 1, 2005
+
+                  House of Representatives,
+         Subcommittee on Federalism and the Census,
+                            Committee on Government Reform,
+                                                    Washington, DC.
+    The subcommittee met, pursuant to notice, at 10:03 a.m., in 
+room 2154, Rayburn House Office Building, Hon. Michael R. 
+Turner (chairman of the subcommittee) presiding.
+    Present: Representatives Turner, Dent and Foxx.
+    Staff present: John Cuaderes, staff director; Shannon 
+Weinberg, counsel; Ursula Wojciechowski, professional staff 
+member; Juliana French, clerk; Neil Seifring, Hon. Turner, 
+legislative director; Stacy Barton, Hon. Turner, chief of 
+staff; Erin Maguire, Hon. Dent, LC; David McMillen and Adam 
+Bordes, minority professional staff members; Earley Green, 
+minority chief clerk; and Cecelia Morton, minority office 
+manager.
+    Mr. Turner. Good morning. A quorum being present, this 
+hearing of the Subcommittee on Federalism and the Census will 
+come to order.
+    Welcome to the Subcommittee on Federalism and the Census. 
+This is the first oversight hearing entitled, ``Strengthening 
+America's Communities: Is It the Right Step Toward Greater 
+Efficiency and Improved Accountability?'' Today's hearing is 
+the first meeting of this newly established subcommittee.
+    Before I move on, I would like to thank our chairman Tom 
+Davis for establishing this new subcommittee. As a former 
+county administrator, Chairman Davis understands the importance 
+of the intergovernmental dynamics between Federal, State and 
+local governments, and I thank him for his leadership in 
+establishing this subcommittee.
+    On February 7, 2005, the administration unveiled a plan in 
+the fiscal year 2006 budget to consolidate 18 existing direct 
+grant, economic, and community programs managed by five Federal 
+agencies into a single direct grant program within the 
+Department of Commerce. The grants previously awarded under 
+these programs would be awarded in the name of the newly formed 
+Strengthening America's Communities grant program. The budget 
+for these 18 programs would drop 30 percent, from $5.31 billion 
+in fiscal year 2005 to $3.71 billion in fiscal year 2006.
+    To underscore the enormous impact that this new proposal 
+would have on State and local governments, consider that in 
+fiscal year 2005, the Community Development Block Grant program 
+alone was funded at $4.15 billion, $450 million more than the 
+$3.7 billion requested for the new Strengthening America's 
+Communities grant program in fiscal year 2006.
+    The administration's Strengthening America's Communities 
+initiative is described as a unified direct-grant program 
+focusing on America's most economically distressed communities 
+with the intent of creating the conditions for economic growth, 
+robust job opportunities and livable communities. While these 
+are certainly laudable goals, there is widespread concern and 
+many unanswered questions about this wide-reaching proposal. 
+The purpose of this hearing is to better understand the 
+administration's proposal and to begin an important dialog on 
+some of the strong concerns raised by stakeholders involved in 
+administrating these programs.
+    The rationale behind the reorganization of these 18 
+programs is to refocus the grant moneys on the original intent 
+of each of the programs. According to a review by the Office of 
+Management and Budget, most of the 18 grant programs lack clear 
+goals or sufficient accountability. Further, many of the grants 
+overlap in key areas, resulting in duplicative efforts and 
+wasted money. The goal of the administration's Saving American 
+Communities proposal--Strengthening America's Communities 
+proposal is to make these grant programs not only more 
+efficient and effective but to improve the measures of success 
+within a community and instill a greater accountability. 
+Additionally, the administration aims to simplify access to 
+these grant programs and set new eligibility criteria.
+    I commend the administration for initiating a conversation 
+about how to best utilize tax dollars to help distressed areas 
+address the community and economic development challenges they 
+face. There appears to be broad recognition that the programs 
+targeted for elimination or consolidation need reform. However, 
+there are several aspects of this proposal that concern me. 
+Most significantly, the administration is proposing a massive 
+realignment of programs associated with longstanding and 
+complex programs, such as housing, job creation, business and 
+community and economic development. We do not have specific 
+details on this reorganization plan or a transition plan to 
+move these programs to the Department of Commerce.
+    Finally, the administration has not spelled out a clear 
+rationale for reducing the historic role of HUD in addressing 
+these issues. The Department of Commerce does not have historic 
+successes in urban revitalization.
+    One concern of our subcommittee will be determining if the 
+proposal actually creates rather than diminishes duplication 
+among Federal programs. Another will be focusing upon what, if 
+any, metrics can be applied to the administration's proposal to 
+determine the proposal's likely success.
+    The administration has proposed a far-reaching 
+restructuring of the role the Federal Government plays in 
+improving our distressed areas. I look forward to an in depth 
+discussion about this proposal and how it is expected to 
+perform more effectively than the current programs in aiding 
+our communities. I welcome the views of those who administer 
+and analyze these programs in helping us understand the impact 
+of the administration's plans.
+    We have two panels of witnesses before us to help us 
+understand the implications of the Strengthening America's 
+Communities program. First, we will hear from Mr. Roy Bernardi, 
+the Deputy Secretary of the Department of Housing and Urban 
+Development. Because the CDBG program is a major component of 
+the Strengthening America's Communities program, I have asked 
+HUD to give the subcommittee an overview of how the current 
+system is run and perhaps even ideas about how the current 
+system can be improved.
+    Also, on the first panel, we will hear from Mr. Clay 
+Johnson III, Deputy Director for Management at the Office of 
+Management and Budget; and from the Department of Commerce, Mr. 
+David Sampson, Assistant Secretary of Commerce for Economic 
+Development. OMB played a large role in creating the 
+Strengthening America's Communities program while Commerce will 
+be the chief implementer under the proposed plan.
+    The second panel will consist of stakeholder 
+representatives from the U.S. Conference of Mayors, the 
+National League of Cities, the National Association of Counties 
+and the National Community Development Association. We have the 
+Honorable Don Plusquellic, mayor of Akron, OH, on behalf of the 
+U.S. Conference of Mayors; Mr. Angelo Kyle, president of the 
+National Association of Counties; on behalf of the National 
+Community Development Association and the National Association 
+for County Community and Economic Development, Chandra Western, 
+the executive director.
+    Last, but not least, we have the Honorable Mr. James Hunt, 
+councilman for the city of Clarksburg, WV, testifying on behalf 
+of the National League of Cities.
+    I look forward to the expert testimony of our distinguished 
+panels and the leadership that they will provide today. Welcome 
+to you all.
+    For additional information, today's hearing can be viewed 
+via live Webcast at reform.house.gov on the multimedia link, 
+live multimedia stream.
+    I now yield to our vice chairman, Mr. Dent, for an opening 
+statement.
+    [The prepared statement of Hon. Michael R. Turner follows:]
+
+    [GRAPHIC] [TIFF OMITTED] T0219.001
+    
+    [GRAPHIC] [TIFF OMITTED] T0219.002
+    
+    Mr. Dent. Thank you, Mr. Chairman. I appreciate this 
+opportunity.
+    Last week, I had the opportunity to spend time with many of 
+the housing advocates in my community who expressed to me their 
+concerns and reservations about some aspects of the 
+administration's proposal with respect to the consolidation and 
+proposed cuts in HUD funding generally. So I just really look 
+forward to hearing what you have to say.
+    There is a great deal of concern about HOPE VI in 
+particular as well as some other initiatives. So, with that, I 
+will stop now, and just look forward to receiving your 
+testimony. Thank you.
+    Mr. Turner. 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 that there is a timer light on the 
+witness table. The green light indicates you should begin your 
+remarks, and the red light indicates that your time has 
+expired. In order to be sensitive to everyone's time schedule, 
+we ask that witnesses cooperate with us in adhering to the 5-
+minute time allowance for their oral presentation, and we will 
+follow that with a question-and-answer period. We will not 
+strictly enforce the red light; if it comes on and you are in 
+the middle of something, feel free to conclude.
+    It is the policy of this committee that all witnesses are 
+sworn in before they testify. So if you would please stand and 
+raise your right hands.
+    [Witnesses sworn.]
+    Mr. Turner. Let the record show that all witnesses 
+responded in the affirmative.
+    And we will begin our testimony with Secretary Bernardi.
+
+STATEMENTS OF ROY A. BERNARDI, DEPUTY SECRETARY, DEPARTMENT OF 
+    HOUSING AND URBAN DEVELOPMENT; CLAY JOHNSON III, DEPUTY 
+ DIRECTOR FOR MANAGEMENT, OFFICE OF MANAGEMENT AND BUDGET; AND 
+DAVID A. SAMPSON, ASSISTANT SECRETARY OF COMMERCE FOR ECONOMIC 
+              DEVELOPMENT, DEPARTMENT OF COMMERCE
+
+                  STATEMENT OF ROY A. BERNARDI
+
+    Mr. Bernardi. Good morning, Mr. Chairman, and members of 
+the subcommittee.
+    I am Roy Bernardi, Deputy Secretary of the Department of 
+Housing and Urban Development. And on behalf of Secretary 
+Alphonso Jackson, HUD appreciates the opportunity to appear 
+today with regard to the Bush administration's Strengthening 
+America's Communities Initiative.
+    The goal of the initiative, Mr. Chairman, as you indicated, 
+is to consolidate collection of 18 community and economic 
+programs spread across five Federal departments. And I am sure 
+we will get into that. The subcommittee has asked that I focus 
+on providing an overview of how CDBG and related HUD programs 
+are administered by the Department. In addition to CDBG, the 
+proposed initiative would consolidate and replace other much 
+smaller HUD programs, including brownfields development grants, 
+grants to Round II Empowerment Zones, rural and economic 
+development grants, and the Section 108 loan guarantee program. 
+However, I will focus most of my attention on CDBG.
+    The CDBG program is the Federal Government's largest single 
+grant program to assist local jurisdictions in undertaking a 
+variety of community development activities targeted to 
+improving the lives of low and moderate-income Americans. For 
+the past 30 years, CDBG has provided a steady source of funding 
+for housing rehabilitation, public services, public facilities 
+and infrastructure, and economic development activities 
+benefiting millions of Americans.
+    It's unique among Federal programs in that it may be 
+counted as a local government match for funding under Federal 
+programs that require local financial contributions. CDBG owes 
+its existence to the Congress and is embodied in the Housing 
+Community Development Act of 1974, and at that time, it 
+consolidated 10 categorical urban development programs into a 
+single, predictable, flexible program where ultimate funding 
+decisions were reserved to local officials.
+    The legislative purposes of the CDBG program have remained 
+unchanged since 1974: The development of viable communities by 
+providing decent housing; establishing suitable living 
+environments; and expanding economic opportunities, all 
+targeted principally to persons of low and moderate-income. 
+Currently, the law requires that 70 percent of CDBG funds 
+benefit low and moderate-income persons.
+    In 1975, the CDBG's first year of operation, there were a 
+total of about 600 entitlement communities. In 2005, there were 
+about 1,100, including 165 urban counties that represent a 
+funding conduit for more than 2,500 local governments. And the 
+State portion of the appropriation is 30 percent. And, with 
+that, the States allocate that money to towns and villages, 
+over 3,000 grants annually.
+    Each activity funded with these dollars must meet one of 
+three of the program's national objectives: Funding to benefit 
+low and moderate-income persons; elimination of slums and 
+blight conditions; and the third one is meeting imminent health 
+or safety threats. And, obviously, CDBG is employed by 
+communities in many different ways. The CDBG funds are used to 
+directly finance activities such as construction of public 
+facilities and improvements, public services, economic 
+development, and housing. Citing one example from fiscal year 
+2004, the resources used by local governments to fund economic 
+development activities at a level of $434 million, these 
+investments served to create or retain 78,000 jobs, of which 76 
+percent went to low and moderate-income persons. And we expect 
+the successor to CDBG to be even more effective in this regard.
+    Briefly, the administration of CDBG must comply with HUD's 
+consolidated planning process that requires each jurisdiction 
+to conduct a comprehensive assessment of its community 
+development needs, and this is generally a 5-year plan, and 
+then a coordinated effort is put into place to meet these 
+needs.
+    HUD's office of CPD through its field staff has the primary 
+responsibility for working with the grantees and monitoring the 
+grantee performance, use of funds, and compliance. This 
+includes, for instance, the timeliness feature which I will 
+talk about perhaps a little bit later of how we are able to 
+bring down the untimeliness with the grantees.
+    The Department currently monitors the use of funds and the 
+accomplishments of its grantees through what's called 
+Integrated Disbursement and Information Reporting System. HUD 
+has studied the CDBG formula in light of concerns about 
+targeting to the neediest individuals and communities. 
+Obviously, over time, a formula study had to be done. It was 
+completed on February 21st of this year, and that study 
+provides four alternatives to the present formula that's in 
+place.
+    Over the last 28 years, since 1978, there have been many 
+factors, many demographic changes that lead us to believe that 
+a change in the formula is necessary.
+    In closing, I appreciate the opportunity to describe the 
+CDBG program and its highlights, strengths, and weaknesses. In 
+my previous role as mayor of the city of Syracuse, I was 
+obviously able to use those CDBG dollars in many positive ways. 
+There are many pluses to the program, but like any program, it 
+needs a reevaluation, a refresh if you will, to see if we can 
+do it in a better way and in a more effective way.
+    The circumstances that make a program right for a certain 
+area do not continue indefinitely. We learn from experiences. 
+How can we better target our resources? How can we operate 
+effectively and set clear goals and performance measurements 
+for the future? So, with that, I thank you for this 
+opportunity, and I will be happy to answer any questions you 
+have.
+    [The prepared statement of Mr. Bernardi follows:]
+
+    [GRAPHIC] [TIFF OMITTED] T0219.003
+    
+    [GRAPHIC] [TIFF OMITTED] T0219.004
+    
+    [GRAPHIC] [TIFF OMITTED] T0219.005
+    
+    [GRAPHIC] [TIFF OMITTED] T0219.006
+    
+    [GRAPHIC] [TIFF OMITTED] T0219.007
+    
+    [GRAPHIC] [TIFF OMITTED] T0219.008
+    
+    [GRAPHIC] [TIFF OMITTED] T0219.009
+    
+    [GRAPHIC] [TIFF OMITTED] T0219.010
+    
+    [GRAPHIC] [TIFF OMITTED] T0219.011
+    
+    [GRAPHIC] [TIFF OMITTED] T0219.012
+    
+    [GRAPHIC] [TIFF OMITTED] T0219.013
+    
+    Mr. Turner. Thank you.
+    Now we will hear from Clay Johnson III, Office of 
+Management and Budget.
+
+                 STATEMENT OF CLAY JOHNSON III
+
+    Mr. Johnson. Mr. Chairman, Congressman Dent, thank you for 
+inviting me here today. I look forward to fielding your 
+questions. I have a very, very brief oral statement here at the 
+beginning.
+    We want government programs to work. We are not in the 
+business of getting rid of programs. We are in the business of 
+making sure that programs work. We want the government's 
+community and economic government programs to work to achieve 
+their intended results. We believe we have an opportunity to 
+better structure our community and economic development 
+programs to get more of the intended results, which are to 
+create vibrant communities that would not exist otherwise.
+    We do not believe that the money that we are spending now 
+is creating the satisfactory level of intended results that 
+were intended by the original bills or the money that's been 
+appropriated for the accomplishment of these goals. We think we 
+have an opportunity to better target areas most in need of 
+assistance, to spend more money on communities where the need 
+is real. We think we have an opportunity to make it easier for 
+needy communities to access the various forms of Federal 
+assistance that are available to them as opposed to have them 
+now shop the variety of programs that potentially offer them 
+some assistance. And we think there is a tremendous opportunity 
+to build more accountability into the programs to ensure that 
+the focus is on what we get for the money, not on how much 
+money we spend.
+    We also think it's important that the Department of 
+Commerce be the lead department for this, because their 
+mission, which is to create conditions for economic growth and 
+opportunity, is more consistent with the mission of these 
+community and economic development programs.
+    So, with that statement, sir, I look forward to handling, 
+receiving and responding to any questions you might have.
+    [The prepared statement of Mr. Johnson follows:]
+
+    [GRAPHIC] [TIFF OMITTED] T0219.014
+    
+    [GRAPHIC] [TIFF OMITTED] T0219.015
+    
+    Mr. Turner. Thank you.
+    David Sampson, Department of Commerce.
+
+                 STATEMENT OF DAVID A. SAMPSON
+
+    Mr. Sampson. Mr. Chairman, it is a pleasure to join my 
+colleagues today to brief you on the President's Strengthening 
+America's Communities Initiative.
+    President Bush has proposed an innovative strategy to help 
+our most economically distressed communities get on the path to 
+economic growth and opportunity. And what I will do is briefly 
+highlight the underlying principles and then the main points of 
+the initiative.
+    While America's economy is strong and getting stronger, we 
+all know that that economic strength is not felt equally 
+throughout the Nation. As members of this committee are well 
+aware, there are low-income communities and communities where 
+traditional industries do not employ as many people as they did 
+a generation ago where that economic opportunity can appear to 
+be out of reach. President Bush believes that these communities 
+can make the transition to vibrant broadbased, strong economies 
+because of the entrepreneurial spirit, the vision and the hard 
+work of those who live there.
+    He also believes that the goal of Federal economic and 
+community development programs should be to fundamentally 
+create the conditions for economic growth, more and better jobs 
+and livable communities, thereby reducing a community's 
+reliance on perpetual Federal assistance.
+    Why propose such a financial reform? Well, in total, the 
+Federal Government administers 35 economic and community 
+development programs housed in seven different Cabinet 
+agencies. This proposal calls for the consolidation of 18 of 
+those programs which are the direct-grant programs. Some of 
+these programs, based on OMB analysis, duplicate and overlap 
+one another. They lack clear accountability goals, and they 
+cannot sufficiently demonstrate measurable impact on achieving 
+improved community and economic performance. Many of the 
+communities with relatively low poverty rates receive Federal 
+funding at the expense of distressed communities, thereby 
+undermining the purpose of the programs.
+    The purpose of this program is to target Federal funds 
+better, in a more customer-friendly, easily accessible manner. 
+Let me explain briefly the actual components of the proposal.
+    The new initiative calls for two components to the 
+Strengthening America's Community grant program. The first is a 
+formula-based economic and community development grant program 
+which will represent the bulk of the funds. The second 
+component is the Economic Development Challenge Fund which is a 
+bonus program modeled on the concept of the Millennium 
+Challenge Account which will focus on incentivizing those 
+communities that have already taken substantial steps to 
+improve economic conditions and have demonstrated a readiness 
+for development.
+    Now, finally, as we move forward, we recognize there is a 
+lot of hard work ahead of us with regard to the implementation 
+of this initiative. The administration will submit legislation 
+for this initiative as part of a collaboration with Congress 
+and with stakeholder groups, including State and local 
+officials, and we look forward to continued collaboration with 
+this committee as that legislation takes shape.
+    I do want to share with you that a secretarial advisory 
+committee is being created at the Department of Commerce. The 
+notice of that is published in today's Federal Register, which 
+will provide assistance with some of the most complex issues of 
+the proposal, such as setting eligibility criteria and what 
+accountability measures will be adopted. The administration 
+seeks the widest possible input to help shape the legislation 
+that we intend to send to Congress as soon as feasible.
+    The President's proposed initiative will, we believe, 
+position communities, regions and States to be more competitive 
+in the worldwide economy, increasing opportunity, employment 
+and creating more viable communities. And, with that, I will 
+close. And I look forward to answering any questions that you 
+may have.
+    [The prepared statement of Mr. Sampson follows:]
+
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+    
+    Mr. Turner. Thank you, gentlemen.
+    I appreciate the opportunity for us to discuss in a 
+question format some of the important specifics of this 
+program. As I said in my opening statement, certainly the 
+issues that you have identified and the problems with these 
+programs, I think, are widely recognized. The solutions as to 
+how we go about reforming those or finding greater 
+opportunities for those programs to be effective are really the 
+important part of our discussion today.
+    And Secretary Bernardi, having served as a mayor, both from 
+the receiving end of CDBG and then having served in your 
+position with HUD on the administrating side of CDBG, that many 
+of the grants, moneys are used in the area of community 
+development, quality-of-life type projects. For example, where 
+an abandoned house may be burdening a neighborhood and the 
+property is available perhaps for open-space use, the community 
+was able to use CDBG moneys to address that abandoned building, 
+increase the quality of life for the community, and the open 
+space would be an amenity both for the children and the people 
+who live in the community, providing a gathering place in some 
+communities which have incredibly high density where that type 
+of open space is not available.
+    In your testimony, you indicate that CDBG has been used for 
+housing rehabilitation programs, public services, public 
+facilities, infrastructure, economic development activities. 
+You go on to cite that some CDBG programs include child daycare 
+centers, senior care programs, adult literacy and education and 
+assistance for the homeless. The important part of CDBG has 
+been that each community can tailor its needs in looking to 
+CDBG. And what's good for Syracuse may not be good for Dayton, 
+OH. What's good for Dayton, OH, might not be good for Austin, 
+TX. In those quality-of-life projects, the types that you cite, 
+how would you ever be able to fashion metrics to measure the 
+impact on the community for those projects?
+    Mr. Bernardi. Each entitlement community--and I will take 
+Syracuse as an example. They all operate under a comprehensive 
+plan. And along with that comprehensive plan there is an annual 
+performance report. As you know, Mayor, to have that 5-year 
+plan involves the entire community, the citizen participation, 
+the advisory council boards for the CDBG program itself. And 
+they put forth a 5-year plan, and that 5-year plan, each and 
+every year with the start of the program year, they have what 
+they call their annual performance plan. And that tells you 
+what is going to occur during that particular point in time in 
+the year. And then that money is accessed through the grant 
+program, and then there is an annual performance report at the 
+end of the year which we receive which lists the 
+accomplishments and lists the goals and objectives that the 
+community wanted to undertake.
+    I understand full well we used some of our CDBG dollars for 
+a senior citizens center, for adult literacy, for child care. 
+We used it for infrastructure, for sidewalks, water, sewer. We 
+used it for economic development; obviously, always making sure 
+that it had a benefit to at least better than 70 percent of low 
+and moderate-income individuals. I have utilized the area 
+benefit, which perhaps you have, where it's 51 percent, 
+utilized the jobs benefit and the housing benefit. People, if 
+they qualify for housing, they have to be low-income. People 
+that qualify for multifamily housing, that multifamily housing 
+unit has to be better than 51 percent. So I'm familiar with the 
+program, and the program has served us very well.
+    At the same time, we understand that there are many 
+communities in this country that are severely distressed. 
+Everyone can point to distress. But the severely distressed 
+communities, the focus of this plan will be to provide as many 
+resources as we possibly can in communities that have high 
+unemployment, communities that have higher poverty rates, in 
+communities that have lost jobs because of severe distress. And 
+this proposal will embody all of the community development 
+programs into this new proposal that's proposed to Commerce.
+    Mr. Turner. Of the projects that you listed where you had 
+undertaken these community development projects as mayor and 
+you used CDBG dollars, did you have readily available to you 
+other sources of funds to accomplish those? I mean, did the 
+CDBG moneys make those projects possible?
+    Mr. Bernardi. Well, of course, the flexibility of the 
+program is one of its strengths. And the fact is that you could 
+utilize CDBG dollars as a match for other Federal funding. And 
+I believe it's the only program you can do that with. And, yes, 
+to utilize that money to begin an economic development 
+initiative--for example, I used it for demolition. You spoke of 
+that one house. We did an awful lot of demolition with CDBG 
+dollars.
+    Mr. Turner. You served as assistant secretary of the 
+community planning and development, primarily responsible for 
+administrating CDBG, prior to your current position. What type 
+of staff structure, what are the number of people that are 
+involved in order to administrate this program?
+    Mr. Bernardi. In the community planning and development 
+program area at the Department of HUD, there are approximately 
+800 employees; 600 are in the 42 field offices, and 200 are 
+headquartered here in Washington, DC. Of the 200 that are in 
+headquarters, approximately 40 devote almost all of their time 
+to the CDBG program and the loan rate loan guarantees. In the 
+field, with those 600 employees, I would guess that all of them 
+devote at least a third of their time meeting with the grantees 
+and doing the things, the monitoring and doing what's necessary 
+to ensure that the program is run correctly.
+    I would like to say that one nice accomplishment that we 
+had is that, back in 2001, there were 300 communities in this 
+country that were not spending their money in a timely fashion. 
+And by that, we define that as, if they have more than 1\1/2\ 
+times their program year allocation in the line of credit, then 
+they are not doing then what they should be doing. We have been 
+able to bring that down to under 50 entitlement communities, 
+and from $370 million that was left unspent, we are under $50 
+million.
+    So I think the program, there are good people that operate 
+the program. And each 1 of those 42 field offices services the 
+better than 6,000 or 7,000 recipients of those dollars.
+    Mr. Turner. If Congress should agree that these programs 
+need to be reformed but does not agree that they should be 
+transferred to Commerce, does HUD have the capacity to 
+undertake reform and administer these programs through a 
+reformation of them?
+    Mr. Bernardi. Well, Congressman, every program can be 
+improved upon. And I believe that, obviously, we have good 
+employees. They have the capacity, the experience, the 
+institutional knowledge to improve on any program.
+    I would like to add just a little something, if I could. 
+The fact of the matter remains is that we are constantly 
+looking, under difficult budget constraints, ways in which we 
+can provide additional resources to those people that need it 
+most. Congressman Dent mentioned the HOPE VI program, but I 
+would like to just add as an aside, with the $1.1 billion 
+increase that we have in our 2006 budget for our Section 8 
+tenant voucher, that kind of pressure on HUD makes it very 
+difficult--even if the program were to remain in HUD, the CDBG 
+program--makes it very difficult to have the dollars that are 
+necessary to do the things that you would like.
+    Mr. Turner. Thank you.
+    Mr. Johnson, one of the concerns obviously from the 
+stakeholder community has been their participation in the 
+formulation of this proposal. In your comments, you indicate 
+that ``we worked with agencies and stakeholder groups to find 
+ways to improve targeting as well as performance and 
+accountability key elements of this proposal.'' Could you 
+describe the process that you went through in looking for input 
+from stakeholders in putting together this program and its 
+recommendations?
+    Mr. Johnson. I can't describe it in the detail you are 
+asking for. The people that were involved are sitting here 
+behind me. But I could give you a written description of it 
+afterwards.
+    But there are associations and interest groups that work 
+with us, and they have meetings, and we have met with them and 
+met with the Departments. And we evaluated these programs and 
+determined what the opportunities were to do this better. But I 
+don't have the detail that you are asking for.
+    Mr. Turner. I would appreciate it if you would provide us 
+that.
+    Mr. Johnson. I would be glad to do so.
+    Mr. Turner. Because most of the groups and organizations 
+that we have been involved with in that have experience in 
+working with these programs, who our recipient stakeholders, 
+believe and feel that they have not been included, and they 
+have not had an opportunity to participate in making 
+recommendations in the formulation as planned.
+    They obviously have an extensive amount of knowledge and 
+expertise, and many of them hold an opinion similar to all of 
+the testimony that you have given us today of the need for 
+reform but have divergent opinions as to the current proposal 
+that we have in front of us.
+    Mr. Johnson. OK.
+    Mr. Turner. Would you agree with Mr. Bernardi that if 
+Congress' decision was to leave the programs in HUD but to work 
+toward the goals of performing them, that HUD would have the 
+capacity and the ability under the administration's leadership 
+to accomplish that?
+    Mr. Johnson. Well, there's the physical capacity. Do they 
+have the bodies to administer the program. And I think the 
+answer to that is yes. But I think the question is, is HUD's 
+mission better aligned with the desired results intended by 
+these community and economic development programs, or is 
+Commerce's mission better aligned? And our proposal suggests 
+that Commerce's mission is more in keeping with the intended 
+results with these community and economic development programs. 
+Housing is a means to an end. And the end is more vibrant, more 
+vibrant economic conditions where they would not exist 
+otherwise. That is the business the Commerce Department is in, 
+and we think that it makes much more sense. Their mindset of 
+what they do at the Commerce Department is much more consistent 
+with what we want these programs to do.
+    Mr. Turner. In your testimony, you talked about the 
+accountability measures that are going to be applied here. And 
+in that, one of the issues raised is housing, and other areas 
+of economic development appear to relate to programs that are 
+still going to remain in HUD. So it appears that by shifting a 
+portion of these programs from HUD to Commerce and with HUD 
+continuing to administrate a great deal of its programs that 
+relate to urban development, that you are going to actually 
+create some duplication. Do you have concerns there as to how 
+these two agencies, having dual relationships and 
+responsibilities, are going to operate together?
+    Mr. Johnson. I don't have any concerns about it. We are 
+reducing duplication with this proposal; we are not increasing 
+duplication.
+    Mr. Turner. Seeing my time is up, I will turn to Mr. Dent 
+for another 10-minute question time period, and then we will go 
+for a second round.
+    Mr. Dent. Thank you, Mr. Chairman.
+    I mentioned a few moments ago that I'd attended a public 
+session last week with my Lehigh Valley Coalition on Affordable 
+Housing. And their interpretation of the proposal, the 
+administration's proposal, is that HUD's budget will be cut 
+from $32.4 billion to $28.5 billion. They are just simply 
+looking at the numbers and saying, this may be a consolidation, 
+but they are trying to cut us in the meantime. And I guess 
+where I am going with this question is this: By consolidating 
+these 18 programs, I can see the logic in transferring perhaps 
+some of these programs to Commerce--the Brownfields Economic 
+Development Initiative, for example, and probably the Urban 
+Empowerment Zones, those grant programs--I can see the logic in 
+that, having come from a State like Pennsylvania where we took 
+our Department of Commerce and merged it with what was then 
+called our Department of Community Affairs, which was kind of 
+like a housing and community development arm. We put them 
+together and created one department. It worked pretty well.
+    But we brought the expertise in housing and community 
+development from what was community affairs to commerce. And I 
+guess where I'm going with this is that, you know, have you in 
+Commerce thought enough about your ability to deal with, for 
+example, housing issues? Do you have the expertise there on 
+staff to handle these types of programs?
+    Mr. Sampson. Well, Congressman, the first response is the 
+core housing programs remain at HUD under this proposal. And I 
+think it's important to recognize that. And a number of those 
+are even strengthened and plussed up in the President's 2006 
+budget request.
+    With respect to leveraging expertise, we clearly understand 
+that in consolidating all 18 of these programs, the new entity 
+is going to have to leverage subject matter experts within the 
+different programs in creating this new entity within Commerce 
+that will be responsible for administering Strengthening 
+America's Communities.
+    Commerce has a very extensive grant portfolio currently. We 
+manage about a $2.3 billion grant portfolio of community and 
+economic development grants currently. But we clearly will have 
+to leverage the subject matter expertise and the lessons 
+learned from other agencies and other programs in creating this 
+new program.
+    Mr. Dent. I guess, just drawing on my own experience, when 
+we went through this in Pennsylvania, there was a lot of 
+initial gnashing of teeth about merging these two programs or 
+these two departments into one, a lot of opposition. And at the 
+end of the day, it worked out pretty well. I guess this gets 
+down to outreach. I mean, some of the folks that had initial 
+reservations about merging programs like these were coalitions 
+on affordable housing.
+    Have you done any meaningful outreach to these groups and 
+others like them around the country to let them know you are 
+trying to strengthen their communities? Because they are simply 
+seeing a consolidation and a cut, and they see this as an 
+attack on their housing programs and homelessness initiatives.
+    Mr. Sampson. Well, it's an excellent point. Let me say that 
+we have already conducted, since the President released his 
+budget on February 6th, a number of briefings for interest 
+groups that were held at the White House in which many of the 
+professional associations and groups were invited. We had 
+conducted group briefings. I have conducted individual 
+briefings for a number of specific associations. This past 
+weekend, I was in Key West, FL. I briefed the executive 
+committee of the U.S. Conference of Mayors.
+    We are aggressively reaching out to discuss the underlying 
+principles and the intent and the goals behind the President's 
+proposal with all affected stakeholders around the country, 
+even those that have expressed in very clear terms their 
+opposition to it. We believe that dialog is essential. We are 
+going further, as I mentioned in my oral testimony, that the 
+White House has asked the Secretary of Commerce to establish a 
+secretarial advisory committee, which will include a balanced 
+geographic and interest group representation from around the 
+country now that the proposal is out on the table and we move 
+toward crafting the legislation that will be forwarded to 
+Congress to deal with some of the most complex issues that you 
+have identified.
+    Mr. Dent. Thank you.
+    With respect to CDBG--and perhaps, Secretary Bernardi, you 
+might be able to help me with this. In my communities, my 
+cities, I have Allentown, Bethlehem, and Easton. I know some of 
+those municipalities currently utilize CDBG funds for example, 
+code enforcement, to pay their code enforcement officers out of 
+that. And they use it for other things. But are you finding 
+that there are some communities that are not appropriately 
+spending that CDBG funding? As you mentioned, there is a great 
+deal of flexibility with the dollars, and that is sort of the 
+beauty of it, in my view, and using those dollars--at least 
+where I live, it seems to be for a lot of important community 
+economic development issues. And I would put code enforcement 
+under that. It is an important part of our housing and 
+community development strategy.
+    Mr. Bernardi. Congressman, as Mayor of Syracuse, we 
+utilized CDBG dollars for code enforcement as well. The fact is 
+that, with the entitlement communities, the urban counties and 
+the States, as I mentioned earlier, there are 6,000 or 7,000 
+entities that are receiving dollars, and there's over 100,000 
+organizations that receive this kind of money each and every 
+year. Our monitoring is extensive; it's intensified. We make 
+sure that, where there is a difficulty, we quickly go in there 
+and do what we have to do. And if we find that the money has 
+not been spent according to the national objectives or 
+appropriately, that money is taken back. It has to be paid back 
+to the CDBG dollar program by other moneys. They can't use CDBG 
+funding that they have or that they are going to receive.
+    Mr. Dent. You mentioned about 1,100 or so communities are 
+eligible for CDBG grants. I guess those are all entitlement 
+communities?
+    Mr. Bernardi. Those are entitlement communities, cities of 
+a population of over 50,000.
+    Mr. Dent. And what percentage of those communities will 
+remain eligible under the Strengthening America's Communities 
+program? Do you have any idea?
+    Mr. Sampson. I can take a stab at that, Congressman. First 
+of all, the eligibility criteria have not yet been determined. 
+That is something that we believe is important to engage the 
+stakeholder communities around the country as well as with 
+Members of Congress before that eligibility criteria is 
+determined. I can share with you what the intent of the 
+proposal is. The intent of the proposal is that most 
+entitlement communities will continue to remain eligible. The 
+intent is to graduate from the program the wealthiest 
+communities in America who are still entitlement communities. 
+The intent is to graduate the wealthiest communities in America 
+and redirect that funding so that those communities who remain 
+eligible actually receive more money than they currently do. 
+But the specific line where that eligibility criteria will be 
+drawn has not yet been established.
+    Mr. Dent. OK. I have no further questions at this time. 
+Thank you.
+    Mr. Turner. Mr. Sampson, I understand you are indicating 
+that you cannot give us any information about the current 
+eligibility criteria under this proposal; that you are going to 
+be looking to a committee task force, if you will, that comes 
+together for the purpose of advising you on that. However, both 
+in your testimony and in written and oral, you make some 
+statements about the outcome of that eligibility. You indicated 
+that some wealthy communities will graduate from the program, 
+meaning that they will lose their current CDBG eligibility in 
+order to be able for you to focus on the most distressed 
+communities. And you've indicated that there are communities 
+that are currently entitlement communities that will receive 
+more money even though the overall budget for this program has 
+been cut--consolidate all the programs from the 2005 budget 
+number; it's a reduction of 30 percent, which if you look at 
+what the appreciation would have been, it's probably a greater 
+cut than that. So you've got less money, but you're indicating 
+that they are going to receive more money. But the eligibility 
+criteria is not yet defined. It would seem to me that you have 
+done some initial calculations to determine upon what you base 
+that statement. Could you share with us or this committee what 
+your assumptions are that you've undertaken to indicate to us 
+that the entitlement communities that are distressed will be 
+receiving more money, not less?
+    Mr. Sampson. What I will share with you is that is the 
+intended outcome of the consolidation and the restructuring. We 
+think that can be achieved on a couple of levels: First of all, 
+by reducing 18 bureaucracies to administer the current 18 
+programs; second, by targeting the funds much more tightly to 
+the most distressed communities in America, should enable us to 
+achieve that goal. There simply has not been an effort at this 
+point to draw the line on the eligibility criteria. What we 
+have done is looked at spreadsheets of data where you look at 
+multiple factors. You look at poverty rates. You look at 
+unemployment rates. You look at the loss of firms as possible 
+components of the new formula. Depending on how you weigh, any 
+one of those criteria will change the eligibility outcome, and 
+that simply hasn't been done yet. We are not sharing that with 
+you, not because we don't want to share it with you; we are 
+just telling you that hasn't been done yet. All we have is a 
+spreadsheet of each community and those different factors.
+    Now, I can tell you, as you look at that, there are clearly 
+a number of communities in America where you have--I think the 
+number is 38 percent of current HUD CDBG grants go to 
+communities with poverty rates below the national average. And 
+so that is the broadbrush picture on which we base that. I 
+think that if you look at some of that data and you see 
+communities with poverty rates of 2 to 3 percent, it's pretty 
+clear to us that is a good candidate for retargeting those 
+funds to communities with poverty rates of 20 to 26 percent.
+    Mr. Turner. Secretary Bernardi and Congressman Dent have 
+both indicated that code enforcement is one of the areas that 
+CDBG moneys are currently used for by cities. Certainly, in the 
+city of Dayton, that is an item that I am familiar with, that 
+they have used CDBG moneys for. Not only is it an eligibility 
+area, it is also an area that HUD has looked favorably upon 
+cities utilizing their money for. Recognizing that, throughout 
+this country, cities are currently under a budgetary crisis, 
+you can't pick up a paper anywhere in this country where there 
+is an urban core and not read an article about the struggles 
+that the cities have undergone as a result of the economic 
+downturn. And recognizing that some of the CDBG moneys 
+currently have been directed toward code enforcement, which 
+would be considered a basic service or operation of the city, 
+it's clear that for these programs to terminate and a new 
+program to begin with different eligibility criteria and 
+different utilization standards, that the cities' bottom line 
+of their operational budgets will be impacted, which of course 
+will result in them making decisions on the staffing level for 
+code enforcement and ultimately to basic services such as 
+police and fire.
+    Have you taken that into consideration in your proposal and 
+looked to the issues of the cost of transition for communities?
+    Mr. Sampson. That's an excellent question. Let me address 
+it at two levels. First of all, the question presupposes that 
+activities such as code enforcement would not be eligible 
+activities, and I don't think that's a safe assumption. That 
+determination has not been made. That's the sort of question 
+that we want the input from the secretarial advisory committee 
+and stakeholders around the country.
+    What we are asking for is that there be a very clear 
+connection between the local community's strategy for 
+expenditure of those funds and how it is actually going to 
+fundamentally, at the core improve the business environment and 
+the community viability. And if that can be demonstrated and if 
+there are performance metrics that can associate with that 
+developed by the community, we would envision very broad 
+flexibility in terms of how local communities can use those 
+funds.
+    With respect to the second part of your question, 
+transition, clearly transition issues moving from an existing 
+program to a new program have to be taken into account. And 
+that is particularly one of the issues that the secretarial 
+advisory committee will be charged with, is to look at the 
+range of transition issues. The secretarial advisory committee, 
+contemplating that there will be five ex officio members in 
+addition to the 25 citizens from around the country, those ex 
+officio members representing the five Cabinet agencies who will 
+have programs consolidated. We believe that they need to be at 
+the table so that all of those transition issues can be 
+addressed and make sure that it is a seamless transition that 
+does not disrupt communities nor their budgets.
+    Mr. Turner. Are you familiar with the comprehensive 
+planning process that Secretary Bernardi mentioned concerning 
+HUD and the 5-year plan for home and CDBG dollars?
+    Mr. Sampson. I'm familiar with the comprehensive plans at 
+the city level, having worked with those in the past. I'm not 
+sure that I understand the particular component that he 
+referenced about HUD's----
+    Mr. Turner. I was wondering if you could contrast for us 
+what the planning process that you would expect in the 
+Department of Commerce versus the comprehensive planning 
+process that HUD currently uses.
+    Mr. Sampson. I believe, sir, that we have to some degree an 
+ability to mutually certify comprehensive plans from one agency 
+to the other. I will be happy to go back and look at that. But 
+what we envision is a community strategy that takes into 
+account the fundamental market drivers of what is going to 
+attract new private sector investment in the community that 
+will drive new job creation, new tax revenue for those 
+communities and make sure that it is a market-driven strategy.
+    I think one of the clear lessons that we have learned, 
+looking at the research data over the last decades, is that 
+those communities that are making the most improvement in terms 
+of their economic and community viability are those that have 
+had a strong bias toward integrating and taking advantage of 
+market opportunities. And so we envision a comprehensive 
+strategy that will have strong connection with market 
+opportunities to leverage private sector investment for 
+community revitalization.
+    Mr. Turner. In your testimony, you identify some categories 
+that you see as potential metrics that would be applied to the 
+program, both for the planning process and ultimately if the 
+community is not successful in using the funds that might be 
+available to them. Many of the topics that you identified in 
+your testimony may be categories that are either unrelated to 
+the grant possesses itself. For example, you identify violent 
+crime. I don't know to what extent your program is going to be 
+providing funding for police services or for criminal justice.
+    And then the second is that you identify No Child Left 
+Behind. And many communities have separate school boards and 
+then separate city councils and county commissions, so that the 
+receiver of the CDBG dollars, the reformulated dollars, the 
+Strengthening America's Communities dollars would have no 
+jurisdiction or ability to impact that. Are the items that you 
+identify in your presentation, the metrics items that you 
+intend to move forward with this? Is this also something that 
+the community is going to determine as to what applies?
+    Mr. Sampson. These are illustrative in nature and not 
+definitive at this point or positive. What I would say, the 
+criteria that you have mentioned are specifically those for the 
+bonus fund or the community challenge fund, which is a bonus 
+over and above the basic formula of funding grant opportunity. 
+We know, first of all, that issues such as crime rates and 
+educational performance are absolutely critical issues in 
+building a positive business environment to attract new private 
+investment into a community.
+    Second, we would hope that by providing incentive funding, 
+that in those cases that you have mentioned where you have 
+separate governing bodies for schools and cities, that it would 
+force a much closer or incentivize a much closer collaboration 
+on addressing these fundamental issues to economic and 
+community performance with the availability of incentive 
+funding out there.
+    Mr. Turner. For the core grant program, you identify 
+increasing home ownership. And one of the discussions that 
+we've had is that HUD will retain the responsibility over the 
+housing grant programs that go to these communities. Isn't that 
+going to result in duplication of effort between Commerce and 
+HUD?
+    Mr. Sampson. I don't believe so, sir. Clearly, one of the 
+most important drivers in building a positive business 
+environment is the availability of affordable housing. There 
+are many communities around this country that simply cannot 
+successfully attract new business investment because of the 
+lack of affordable housing. The core mission of HUD remains the 
+housing mission. But what this encourages is the development of 
+an economic development strategy, to recognize the importance 
+of housing and affordable housing as a component of building a 
+comprehensive positive business environment.
+    Mr. Turner. Thank you.
+    Mr. Dent.
+    Mr. Dent. Thank you.
+    Mr. Sampson, I thought I heard you say something. Perhaps 
+you could clarify the statement. You were talking about 
+communities that had 2 or 3 percent poverty that were currently 
+receiving CDBG funds. They were entitlement communities, I take 
+it.
+    Mr. Sampson. That's correct, sir.
+    Mr. Dent. Could you get us a list of those communities? I 
+would love to see those.
+    Mr. Sampson. I can give you an illustrative list. I don't 
+have a comprehensive list. But communities such as Palo Alto, 
+CA; Boca Raton, FL, Scottsdale, AZ. Newton, MA, Neighborville, 
+IA--or, Neighborville, IL. Neighborville, IL, for example, has 
+a poverty rate of 2.2 percent. And when you look at other 
+communities in that region, such as Gary, IN, with poverty 
+rates of 26 percent, Chicago of 20 percent, the administration 
+believes that it is time to reprioritize these poverty 
+alleviation funds that are going to communities that do not 
+have high rates of poverty.
+    Mr. Dent. I would agree with you. How are you defining 
+poverty? AFDC families? Or what's the criteria?
+    Mr. Sampson. I don't know what--it's the standard 
+definition, the Census definition of poverty. I'm sorry, sir.
+    Mr. Dent. I just find that remarkable. Where I live, I 
+guess cities of Allentown and Bethlehem would be considered 
+entitlement communities, or 50,000 people, but the poverty 
+rates are considerably higher. I find it remarkable that we 
+have communities that are that relatively affluent that are 
+receiving these programs. I see CDBG as a program that is 
+supposed to support essentially, I won't use the term 
+distressed, but declining or distressed communities I guess is 
+the proper term.
+    Mr. Sampson. Well, Congressman, we believe, the 
+administration believes that it is fundamentally not defensible 
+in this kind of environment.
+    Mr. Dent. I would agree with that. There is also concern, 
+too, with how Commerce adjusts this so-called regional bias, 
+the regional bias. And poverty is considered as it is dictated 
+by the Census Bureau. And as you just mentioned, most of the 
+areas in poverty are found in the southwest region of this 
+country. Will your Strengthening America's Communities program 
+provide a substitute for poverty in calculating which cities 
+and States are eligible for these grants to prevent that bias?
+    Mr. Sampson. Congressman, I'm aware that there is an 
+ongoing effort at the Department of Commerce and at the Census 
+Bureau to look at modernizing the definition of poverty. I 
+think that is something that is ongoing that I don't--it's not 
+within my portfolio, so I can't speak definitively to that. But 
+the goal of this program is to ensure that whatever measure 
+that we determine the criteria, that it will clearly pass the 
+sensibility test; that anyone could look at these communities 
+and say these are some of the most impoverished communities in 
+America. And while we might disagree at the margins or exactly 
+where that line is drawn, I believe that when you look at the 
+broad scope of entitlement communities, there is going to be 
+broad consensus that there are communities that are wealthy 
+communities, and then there are communities that are clearly 
+economically distressed, and that we ought to be able to 
+achieve broad consensus as to what those most distressed 
+communities are.
+    Mr. Dent. And when you send over that list of communities 
+that are relatively affluent receiving these CDBG funds, I 
+would also like to see how much funding they're actually 
+receiving and how the formula plays out--I'm trying to 
+understand this, I'm new here. I'd like to see where I am in 
+Allentown, or Bethlehem, PA, where we have relatively poor 
+communities; I would like to see what those numbers are that we 
+receive compared to those communities and see if the funding is 
+driven based on poverty, or just the fact that you're over 
+50,000 people, does that entitle you what percentage of the 
+funds?
+    Mr. Sampson. I can tell you--I'm not the expert here on 
+formula, but there are a number of factors. It is more than 
+just population.
+    Mr. Bernardi. That's true.
+    Mr. Dent. I would just be curious to see what those 
+relatively affluent communities are receiving.
+    Mr. Bernardi. They receive, per capita, less than, 
+obviously, the communities that are more distressed. It's based 
+on formula A and formula B, and whichever formula benefits the 
+community is the formula that HUD provides to that community.
+    There are communities, as the Assistant Secretary 
+indicated, that are affluent communities, but on a per capita 
+basis they receive, based on the formula, considerably less 
+amount of money.
+    Mr. Sampson. And, Congressman, if I could just add to that, 
+most of the discussion this morning has focused on urban areas. 
+I would also point out that some of the most impoverished areas 
+of our country are rural and small communities that are not 
+entitlement communities, and we believe that there is a very 
+compelling case to be made that we need to focus on those 
+areas, and not just have the entire discussion on urban 
+America.
+    Mr. Bernardi. That's true; but if I can add, the States 
+receive a CDBG allocation of 30 percent, and they provide 
+resources to the towns and villages that are impoverished.
+    Mr. Dent. Well, how about a bureau where I live; we have 
+many municipalities--we're a very densely packed area, but 
+multiple municipalities, many of them are not entitlement 
+communities because of their population, below 50,000, small 
+bureaus, for example, but are contiguous to the cities. How 
+would they be impacted? I mean, they're not really rural 
+communities.
+    Mr. Bernardi. Well, the State of Pennsylvania----
+    Mr. Dent. Pennsylvania would take the 30 percent, and 
+then----
+    Mr. Bernardi. The State of Pennsylvania receives an 
+allocation from HUD, along with the other 49 States, and they 
+disperse that money to the communities that they ascertain 
+through a process that are in most need.
+    Mr. Dent. Thank you. And again, I just wanted to finish 
+where I began in the first round of questioning.
+    Some of the consolidations may make some sense logically to 
+me as I look at this, just from my experience, particularly in 
+that brownfields area in the urban empowerment, because I 
+believe that Congress should have the capacity to manage those 
+types of programs; but I get back to the housing initiatives, 
+and that's where my main concern is with the administration's 
+proposal. By consolidating, will we have better programs if the 
+capacity may or may not be there in Commerce to deal with these 
+types of programs where HUD has had a great deal of expertise 
+over the years?
+    Mr. Bernardi. We have a home program, as you know, 
+Congressman, and that's a $2 billion budget. It's an increase 
+in 2006 over 2005 that we're requesting in the American Dream 
+Downpayment Initiative, which is the President's initiative to 
+provide first-time home ownership for minority home ownership 
+in this country, and the goal is to have 5\1/2\ million more 
+minority homeowners by the end of the decade; and we're at 2.2 
+million right now, 40 percent of that goal, and we're very 
+proud of that. The home program basically goes to the 
+construction of affordable housing for low-income Americans. 
+It's a very targeted program. Those that qualify have to be at 
+80 percent or less median income.
+    So we've done very well when it comes to home ownership in 
+this country. As you know, it's at an all-time high of 69.2 
+percent; minority home ownership is over 51 percent--first time 
+ever over 50 percent--in the last quarter of 2003. So this 
+administration, through the Department of Housing and Urban 
+Development, Secretaries Martinez and Jackson have really 
+concentrated on providing home ownership opportunities to 
+deserving Americans, low-income Americans.
+    Mr. Dent. And I would concur. And I would also just add 
+that at least where I live, a lot of these types of funds have 
+been used to help us lower the density of our populations where 
+we have what were once unoccupied residences, rowhomes that 
+became three multiunit apartments, raising the density, more 
+trash in the streets, cars, kids in the schools and all that, 
+and we've done a reasonably good job of trying to deconvert 
+back to an owner-occupied setting. And so we've seen some 
+success with that.
+    I guess in conclusion the only thing I would say is that 
+HOPE VI, I know your goal there, too--and this is a little off 
+track, I guess, but HOPE VI, you propose to eliminate that 
+program this year. I guess your goal is to try to reduce or 
+eliminate the 100,000 or so what I call old housing 
+developments, but people might call them projects, I guess. We 
+have a very old one in my community, and we have a very 
+aggressive plan, and the timing of this isn't great for us. You 
+did a nice job of getting rid of 100,000 units apparently, but 
+not where I live. And there is a great deal of interest in the 
+cities of Allentown and Easton regarding HOPE VI, and I'm 
+hoping that it can be continued at least for 1 more year.
+    Mr. Bernardi. Congressman, the HOPE VI funding, there has 
+been 120,000 distressed units during the life of that program 
+that have been taken down, and 88,000 was the number that when 
+that program initiated 5 years back or so that were considered 
+distressed; so we've done over and above that.
+    The fact of the matter is there is an awful lot of money 
+that's in the pipeline, I believe it's over $2 billion, and we 
+would like to see that money move forward and provide the 
+opportunity to demolish those kinds of structures, and at the 
+same time provide housing for the folks that live there. As you 
+know, our budget for 2006 calls for the rescission of that $143 
+million.
+    Mr. Dent. And my only point is that the moneys intended--
+we're going to spend it well in my community, should we get it; 
+it's going to be some very aggressive rehabilitation of what 
+have been distress areas, and we will do a great deal to 
+enhance the community.
+    Thank you.
+    Mr. Turner. Thank you.
+    Gentlemen, with that, we will end our questioning. I will 
+ask you if you have any additional statements or any thoughts 
+that you want to add to the record.
+    Mr. Bernardi. Just thank you for the opportunity to be 
+here, and we will continue the dialog.
+    Mr. Turner. Great. We thank you for participating and for 
+your input. This is certainly an important discussion.
+    We will go to our panel two, then. Thank you, gentlemen.
+    Turning to our second panel, then, which includes 
+stakeholders from the U.S. Conference of Mayors, the National 
+Association of Counties, National League of Cities, National 
+Association of Local Housing Finance Agencies, the National 
+Association for County Community and Economic Development, the 
+National Community Development Association, the National 
+Association of Housing and Redevelopment Officials, Council of 
+State Community Development Agencies have submitted a joint 
+testimony to our committee.
+    We have appearing for oral testimony Mr. Don Plusquellic, 
+president of the U.S. Conference of Mayors; Mr. Angelo D. Kyle, 
+president, National Association of Counties; Chandra Western, 
+the executive director of the National Community Development 
+Association, on behalf of the NCDA and the National Association 
+for County Community and Economic Development. We also have Mr. 
+James C. Hunt, who is a councilman, city of Clarksburg, WV, who 
+will be testifying on behalf of the National League of Cities.
+    For the second panel, as you heard from the first panel, it 
+is the policy of this committee that all witnesses be sworn in 
+before they testify. I would ask that you please rise and raise 
+your right hands.
+    [Witnesses sworn.]
+    Mr. Turner. Let the record show that all the witnesses 
+responded in the affirmative.
+    We want to welcome you, and we appreciate your testimony 
+today and your participation in what obviously is going to be 
+an important discussion on not only about the successes or the 
+problems that these programs that have been targeted represent, 
+but also the recommendations by the administration and other 
+ideas or thoughts that you might have as to how these programs 
+may be approved and the importance of them to your community.
+    We will begin with Mayor Plusquellic, president of U.S. 
+Conference of Mayors, and mayor of Akron, OH.
+
+ STATEMENTS OF DON PLUSQUELLIC, PRESIDENT, U.S. CONFERENCE OF 
+  MAYORS; ANGELO D. KYLE, PRESIDENT, NATIONAL ASSOCIATION OF 
+    COUNTIES; CHANDRA WESTERN, EXECUTIVE DIRECTOR, NATIONAL 
+     COMMUNITY DEVELOPMENT ASSOCIATION; AND JAMES C. HUNT, 
+   COUNCILMAN, CITY OF CLARKSBURG, WV, ON BEHALF OF NATIONAL 
+                        LEAGUE OF CITIES
+
+                  STATEMENT OF DON PLUSQUELLIC
+
+    Mr. Plusquellic. Thank you. Thank you very much, Chairman 
+Turner.
+    First I would like to thank you and the other members of 
+the subcommittee for inviting the Conference of Mayors to share 
+our thoughts about this proposal to virtually eliminate the 
+Community Development Block Grant Program.
+    You were a strong leader with the Conference when you were 
+mayor of Dayton, and we appreciate your continued leadership in 
+addressing the issues before the communities of our Nation.
+    I am also very pleased to be here today with local 
+government colleagues and others supporting this effort that we 
+have undertaken to oppose, and I mean 100 percent unanimously 
+oppose, the budget proposal that would eliminate the CDBG 
+program by merging it with 17 other programs and moving it to 
+the Commerce Department, and, as you pointed out in your 
+opening statement, cutting the overall funding by 30 percent.
+    We stated this position when the proposal was first 
+mentioned and announced that we had no prior consultation with 
+anyone on this issue, and we unanimously reaffirmed this 
+position during the last week's winter meeting in Florida where 
+we met with Dr. Sampson and told him directly of our 
+opposition.
+    CDBG has been successful for 30 years, and based on that 
+success, the Nation's mayors urged Congress to continue the 
+program's current funding and leave it in the Department of 
+Housing and Urban Development. Our written statement, joint 
+statement, has been previously submitted for the record, and it 
+is replete with that, or it shows clearly the outstanding 
+performance of CDBG over the 30 years. I won't bore you with 
+those numbers, but it has created in just the last year 78,000 
+jobs. Nearly 160,000 households receive housing assistance, and 
+of that number 11,000 became new homeowners, a priority of 
+President Bush. A number of other statistics that are in that 
+report, they point out the proud record that we have of using 
+these HUD funds wisely. I might also mention that the HUD Web 
+site has further information on the success.
+    In Akron we've used these funds to clear dilapidated or old 
+houses that have outlived their usefulness, and we've helped 
+leverage private sector developers to come in and build new 
+housing in our oldest neighborhoods. We've helped induce the 
+private owner of a grocery store chain to open in an area that 
+was not served with a grocery store in many years. And we've 
+helped senior citizens, assisted handicapped children, and, 
+again, helped new homebuyers to purchase homes.
+    Much has been said, and you heard today, about OMB's rating 
+of CDBG and this perceived lack of performance outcome. First, 
+I know the national organizations representing appointed 
+officials and elected officials worked for a year with OMB to 
+try to develop new performance outcome measurements, and we 
+were very disappointed that OMB turned aside an agreed-upon 
+framework of sound performance measures instead of the 
+proposed--and instead proposed elimination of CDBG.
+    And second--and I believe this is most important, it is to 
+me--the performance ratings, talking about leveraging private 
+sector funds in particular and looking at the outcome in just 
+raw numbers is not only misleading, I use a clause that many 
+have used: ``It may be factually correct, but it's 
+inferentially wrong.'' It infers that somehow we're doing 
+something with these moneys other than what was intended, and 
+that we're not meeting some performance standard, that it would 
+be easier to measure and to achieve if we were doing that out 
+on some green pasture in some urban sprawl area. And I have 
+made an analogy to two doctors, one working in sports medicine 
+with 16, 17, 18-year-olds, and others working with old guys 
+like me. How much time do you think it would take me to come 
+back from an injury with all the arthritis I have--I was going 
+to mention this to Mr. Johnson and compare him, and just 
+suggest how our grandkids might respond to good doctoring. And 
+if you measure that doctor working with a sports medicine 
+clinic and the time that it takes elderly people to come back 
+from injuries, clearly it's not the same scale. We're talking 
+about two different situations.
+    The CDBG money is used in some of the most distressed and 
+difficult areas in the community, and yet they're some of the 
+most important, because what we do is keep from allowing that 
+decay from older buildings, older structures from spreading, 
+and we thereby bring back the whole community.
+    There are pockets of poverty in almost every community 
+across this country, and it's important to remember that when 
+they start talking about 38 percent going to communities that 
+are below the poverty line, I think one of the most important 
+things that we've done is reach out to the private sector, and 
+the comments from groups like the Real Estate Round Table and 
+International Council of Shopping Centers who are standing with 
+us are most important because they recognize the benefit of 
+these CDBG funds in doing the kinds of things that are vitally 
+necessary to bring back those older neighborhoods.
+    And so I hope this committee and the Congress will 
+recognize the great work that's been done across our country. I 
+look forward to working with you.
+    And, Congressman Turner, as you know, in our time working 
+together in Ohio, I have a pretty good record of managing the 
+city of Akron for 19 years without raising city income tax for 
+city activities or city purposes. During the 1990's when money 
+seemed to be flowing into every city, we were right-sizing by 
+cutting employees. I'm not one to look at programs and want to 
+see a lot of waste.
+    We are perfectly happy, when we save this program in HUD 
+and save this funding level at $4.7 billion, to sit down with 
+you and anyone else here in Washington to try to improve the 
+program; but cutting it does no one any good and will harm the 
+ability of communities across this country to address some of 
+our most pressing needs.
+    I thank you very, very much for the opportunity to testify, 
+and I look forward to working with you, and certainly to the 
+questions that you and the committee members may have. Thank 
+you.
+    Mr. Turner. Thank you, Mayor.
+    [The prepared statement of Mr. Plusquellic follows:]
+
+    [GRAPHIC] [TIFF OMITTED] T0219.027
+    
+    [GRAPHIC] [TIFF OMITTED] T0219.028
+    
+    [GRAPHIC] [TIFF OMITTED] T0219.029
+    
+    [GRAPHIC] [TIFF OMITTED] T0219.030
+    
+    [GRAPHIC] [TIFF OMITTED] T0219.031
+    
+    [GRAPHIC] [TIFF OMITTED] T0219.032
+    
+    [GRAPHIC] [TIFF OMITTED] T0219.033
+    
+    Mr. Turner. Next we will hear from Angelo D. Kyle, 
+president, National Association of Counties.
+
+                  STATEMENT OF ANGELO D. KYLE
+
+    Mr. Kyle. Thank you, Mr. Chairman, Congressman Turner. We 
+appreciate this opportunity to testify this afternoon.
+    My name is Angelo Kyle. I am a county commissioner from 
+Lake County, IL, and I currently serve as president of the 
+National Association of Counties, representing the 3,066 
+counties in the United States. We appreciate this opportunity 
+to testify.
+    Mr. Chairman, you have asked us to question and answer 
+whether the Strengthening of America's Communities Initiative 
+is the right step toward greater efficiency and improved 
+accountability. Our answer is a resounding no.
+    In our opinion, based on 30 years of experience in Federal 
+community development programming, this initiative is not the 
+right step. The right step is to maintain the CDBG program and 
+incorporate the performance measures, negotiate it with OMB and 
+HUD.
+    HUD's own data tells us that in fiscal year 2004, over 23 
+million people were assisted by the program. Most of these 
+people are of low and moderate income, especially the elderly 
+and the disabled.
+    For more than 30 years the program has created a unique 
+flexible and valuable partnership between the Federal, State 
+and local governments that is both effective as well as 
+beneficial. In fiscal year 2005, 177 county governments 
+received over $600 million that will create and assist county 
+governments with activities designed to create jobs, leverage 
+private investments, rehabilitate housing units and improve the 
+lives of citizens through a range of service programs.
+    In Los Angeles County, CA, CDBG has been used to create the 
+largest high-tech business incubator in California, the 
+Business Technology Center. Since 1998, this center has created 
+more than 475 jobs and revitalized a formally blighted 
+neighborhood.
+    My own home of Lake County, IL, will use its $2.9 million 
+fiscal year 2005 allocation to assist with a range of programs 
+and activities such as daycare, transitional housing, homeless 
+assistance, fair housing, emergency food assistance, homeowner 
+rehabilitation, first-time homebuyer assistance, and employment 
+training, as well as for important infrastructure improvements, 
+public services, and economic development activities.
+    As president of the National Association of Counties, I 
+have made home ownership one of my primary Presidential 
+initiatives, especially for our first responders. The very 
+people that we expect to pay the ultimate price, to serve and 
+protect our communities, cannot pay the asking price to afford 
+to own a home in the same communities in which they serve.
+    The administration has chosen to completely eliminate CDBG 
+by consolidating it along with 17 others in this new program. 
+We oppose this proposed consolidation. First, the new program 
+would focus solely on economic development. Activities 
+undertaken with CDBG funds must meet at least one of three 
+national objectives: to principally benefit low and moderate-
+income persons, prevent slum or blight, or to meet urgent 
+community development needs that pose a serious and immediate 
+threat to the health, safety and welfare of the community. By 
+emphasizing factors such as poverty and job loss, the 
+consolidation is silent with respect to the myriad activities 
+CDBG funds that meet those national objectives.
+    The new consolidated initiative would leave these 
+activities at the State and local level without a Federal 
+funding stream, meaning that the Federal Government would be 
+getting out of the business of community development. There is 
+a vital role for the Federal Government to play in this arena.
+    Community development is a related but essential complement 
+to economic development activities. Congress must preserve the 
+functions of both community and economic development at the 
+Federal level to maintain effective intergovernmental 
+partnerships that create and sustain viable communities.
+    Second, criticisms of CDBG are largely as a result of an 
+inaccurate assessment of the program, using the Office of 
+Management and Budget's program rating assessment tool, also 
+known as the PART. The PART fails to consider the broad and 
+wide-range nature of the program, as well as the role of local 
+governments in designing activities using CDBG that address 
+challenges that are of particular value to their community.
+    Third, the consolidation reflects a flawed assumption that 
+the CDBG dollars are no longer needed in many of the Nation's 
+blighted urban areas that are located in high-income counties. 
+I can assure you that there is a need in every part of this 
+country. NACo is concerned that the consolidation is funded at 
+$3.71 billion, which is below the $4.15 billion allocated under 
+the CDBG formula in fiscal year 2005 alone. How will the 
+consolidation address more need with less resources?
+    As local elected officials, we are on the ground level 
+interacting with citizens on a daily basis. CDBG can and still 
+does positively impact lives. There is simply no need to change 
+the architecture of the Federal Community and Economic 
+Development programming for one simple reason: CDBG works.
+    In conclusion, I want to commend the committee for bringing 
+attention to the CDBG program, and thank you for your 
+leadership and inviting us to testify, and I would be happy to 
+answer any questions. Thank you.
+    Mr. Turner. Thank you, Mr. Kyle.
+    Chandra Western.
+
+                  STATEMENT OF CHANDRA WESTERN
+
+    Ms. Western. Good morning, Chairman Turner.
+    My name is Chandra Western, and I am the executive director 
+of the National Community Development Association. I am pleased 
+to be with you this morning to speak on behalf of NCDA and the 
+National Association for County Community and Economic 
+Development in support of the Community Development Block Grant 
+Program. Together these two associations represent over 550 
+communities which minister to the CDBG program locally.
+    First and foremost, let me say that the CDBG program works; 
+I know this personally. I have been a practitioner and an 
+advocate for this program for over 20 years. CDBG provides 
+State and local governments with the flexibility needed to 
+provide an array of services and activities in over 1,100 
+communities across America. It is often the carrot that brings 
+in other investors, both public and private, to distressed and 
+needy communities that would otherwise not be redeveloped.
+    According to HUD, for every CDBG dollar, nearly $3 is 
+leveraged in private funding. Because the program works so 
+well, we vigorously, vigorously oppose the administration's 
+Strengthening America's Communities Initiative, an initiative 
+that is designed to replace CDBG and 17 other programs. To be 
+frank, we were shocked to see CDBG eliminated in the 
+administration's fiscal year 2006 budget, and this new 
+initiative suggested in its place.
+    The arguments the administration puts forward for this new 
+initiative lend themselves to great scrutiny. One reason the 
+administration gives for the creation of this new program is to 
+develop one program that is focused on economic and community 
+development funding in order to avoid the maze Federal 
+departments and communities must navigate now in order to 
+access community and economic development funding. This begs 
+the question, why not fold the smaller economic development 
+programs from the other Federal agencies into CDBG and HUD? 
+CDBG, at $4.7 billion, is by far the largest of the 18 programs 
+that is proposed for consolidation; and HUD already has a State 
+and local government network in place to administer these 
+programs.
+    According to the administration, this new $3.71 billion 
+consolidated grantmaking program will provide funding to 
+communities most in need by setting eligibility criteria 
+determined by job loss, unemployment levels and poverty. CDBG 
+funds are already directed to those most in need. Currently 
+over 95 percent of CDBG funds are allocated to low and 
+moderate-income persons. In fiscal year 2004 alone, CDBG 
+assisted over 23 million persons in households. It also 
+assisted in the creation or retention of 78,000 jobs for low or 
+moderate-income persons.
+    Another reason given by the administration for the creation 
+of this initiative is that most other programs that have been 
+proposed for consolidation lack clear goals or accountability. 
+We do not believe this is the case. Congress decided how the 
+programs should have been administrated, how the program goals 
+are to be defined. We think that Congress was right. We have 
+addressed this issue for CDBG. NCDA, NACED and several other 
+national associations spent the last 2 years working with OMB 
+and HUD and reached a consensus on a performance outcome for 
+CDBG. We worked in good faith with OMB and with HUD, and HUD is 
+in the process right now of implementing the new performance 
+measurement system that the group created. The administration's 
+new initiative renders this considerably expensive and thought-
+provoking effort useless.
+    CDBG does more than the new initiative ever could. The new 
+initiative focuses primarily on economic development 
+activities, while CDBG is much broader, providing funding for 
+affordable housing, public facilities, public services and 
+economic development.
+    How would existing communities fund these--CDBG programs 
+continue to meet these other needs if this new initiative is 
+enacted? The answer is they would not be able to meet these 
+current needs. The beauty of CDBG is that it is a program that 
+allows communities to decide how best to use their funds, 
+whether it be for housing, neighborhood revitalization or 
+economic development, or some other activity that the locality 
+decides is a priority for it. The new initiative would take 
+away this flexibility.
+    CDBG was designed as a flexible program for locally 
+determined needs that would address housing and community 
+development activities within that community. We do not believe 
+that this new program--or how many of the communities in this 
+existing program would be funded under the America Communities 
+Strengthening Initiative. We do not know, if the President 
+proposes a significant cut in the funding of community 
+development, how these programs would be funded. At $5.8 
+billion now, the new program would be $3.71 billion. That is a 
+30 percent cut to the existing economic and community 
+development programs.
+    In short, there are too many unknowns with the new program, 
+and too many positive knowns within CDBG; therefore, we support 
+continuation of CDBG within HUD at a funding level of $4.7 
+billion in fiscal year 2006.
+    Mr. Chairman, National Community Development Association 
+and National Association for County Community and Economic 
+Development appreciate the opportunity to testify before you 
+today, and we offer ourselves for comments and questions as the 
+hearing proceeds. Thank you very much.
+    Mr. Turner. Thank you.
+    I want to acknowledge that in addition to our Vice Chairman 
+Dent, we also have with us Virginia Foxx from North Carolina. I 
+also want to relate that our minority members of the 
+subcommittee have largely not been able to attend as a result 
+of the weather, which we all know by seeing the news the 
+difficulty in travel, and I appreciate that each of you have 
+made significant efforts to be here today. And we certainly 
+will make certain that everybody in the subcommittee and the 
+committee is aware of the testimony that we have received and 
+the importance of what you've told us today.
+    I would like to recognize James C. Hunt, National League of 
+Cities.
+    Mr. Hunt.
+
+                   STATEMENT OF JAMES C. HUNT
+
+    Mr. Hunt. Thank you, Mr. Chairman and members of the 
+subcommittee, and I certainly feel that this is a historic 
+first hearing for this subcommittee.
+    My name is Jim Hunt, and I'm a city councilman and former 
+mayor of Clarksburg, WV. I'm testifying today in my capacity as 
+first vice president of the National League of Cities.
+    The National League of Cities' concerns with the 
+administration's Strengthening America's Communities Initiative 
+are threefold. The proposal would drastically reduce community 
+development funding that cannot be replaced. No. 2, the 
+proposal would alter eligibility requirements to the 
+disadvantage of some low and moderate-income communities. No. 
+3, the proposal would narrow the mission of the CDBG program, 
+which would reduce its flexibility and effectiveness.
+    The administration's proposal would consolidate 18 current 
+programs with a combined fiscal year 2005 budget of $5.6 
+billion into a new two-part grant program with only $3.7 
+billion in funding. That is a drastic cut, nearly $2 billion. 
+What is even more alarming is the majority of the funding for 
+this new and smaller program will come from CDBG.
+    CDBG has played a critical role in rejuvenating distressed 
+neighborhoods and alleviating economic decline in all types of 
+communities. It is one of the best and only tools currently 
+available to spur economic growth. However, CDBG is not just a 
+jobs creator or economic development tool; it is also a 
+catalyst for affordable housing and new public infrastructure.
+    For example, my city of Clarksburg, WV, using CDBG grant 
+funds, constructed a new water line that serves the FBI's new 
+CEGIS Division in Clarksburg, which now has 2,700 employees in 
+my community. This project also opened up hundreds of acres of 
+land that are now a hotbed of economic development activity. 
+Before the project these properties were idle because they had 
+no reliable access to water. Today these lands generate jobs, 
+spur economic activity and provide housing and greenspace. They 
+also generate new revenue for the city, the State, and 
+ultimately the Federal Government. Yet despite measurable 
+successes such as these, the Office of Management and Budget 
+proposes to gut CDBG in favor of the Strengthening America's 
+Communities. What is the rationale?
+    The details are still unclear as to which communities will 
+be eligible for SAC grants, but it seems clear that they must, 
+at the very least, have poverty and job rates above the 
+national average. If this is so, then the administration has 
+made the mistaken assumption that impoverished neighborhoods no 
+longer exist in communities ranking above the national average 
+on the poverty and job loss index. We at the local level, 
+however, know that this is far from reality.
+    Using national averages to measure assistance needs ignores 
+the reality that our Nation is comprised of local economic 
+regions that are unique. For example, the majority of families 
+who earn below the regional medium household income in the 
+greater Washington, DC-Baltimore metropolitan area may earn 
+more than the national poverty rate, but they are just as much 
+in need of assistance because of the cost of living, and this 
+region is significantly higher than the national average.
+    Second, OMB claims that the programs like CDBG have no 
+measurable results. The administration's proposal suggests new 
+performance standards like job creation, new business formation 
+rates, commercial development and private sector investment as 
+tools to determine whether the communities receiving the 
+Strengthening America's Communities funds are achieving 
+results. Unfortunately measuring results by these criteria 
+makes little sense for the communities that are chronically 
+impoverished, have little to offer in the way of resources, and 
+are unlikely to show significant progress over a relatively 
+short period. In short, they are being set up to fail.
+    Clarksburg, WV, recently used a $250,000 Small Cities Grant 
+to demolish vacant and dilapidated buildings in certain 
+neighborhoods throughout our city. These structures were havens 
+for crime, targets for vandalism and fire, and an attractive 
+nuisance for children. We use the vacant lots created by the 
+projects to expand businesses, as well as create space for 
+larger yards and garages for our citizens. It is very difficult 
+to assess the impact of removing a drug den from a neighborhood 
+using economic criteria alone; moreover, it is difficult to 
+assess the economic impact in relation to this type of project 
+over a short period, yet the administration's proposal appears 
+to try to do just that.
+    Mr. Chairman, closing down a drug den may not immediately 
+create job growth, spur new business formation or encourage new 
+commercial and residential development; however, it will 
+immediately increase the quality of life of its neighbors. That 
+is measurable and is the foundational beginning for any plan to 
+attract new commercial and residential development in the 
+future. Throughout West Virginia, when you travel to virtually 
+every city from large to small, you don't have to drive very 
+far to find the areas of our cities and towns where poverty and 
+despair reign.
+    Mr. Chairman, the one-size-fits-all approach proposed by 
+the administration will likely stifle the flexibility and 
+effectiveness currently found in the CDBG. For these reasons 
+the National League of Cities and its member cities throughout 
+the country will aggressively advocate for the continued 
+existence of a strong and distinct CDBG grant program. We hope 
+that you will help us by urging your colleagues in the 
+Appropriations Committee to fully fund CDBG formula grants at 
+$4.35 billion, and $4.7 billion overall. Thank you for this 
+opportunity to appear.
+    Mr. Turner. Thank you.
+    [The prepared statement of Mr. Hunt follows:]
+
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+    
+    Mr. Turner. We're going to go now to a round of 10-minute 
+questions.
+    One of the things that I think is most important for us, as 
+we talk about CDBG, is the fact that each and every community 
+can utilize these funds for different goals and objectives. I 
+know that in the city of Dayton, for example, every 
+neighborhood is different, so that our use of CDBG funds for 
+economic development projects, community development projects, 
+housing projects would each be different.
+    Now, I would ask Mayor Plusquellic and Commissioner Kyle 
+and Mr. Hunt, if you would each speak on that issue of--I am 
+certain that all your communities are not the same, and that 
+the varied needs of CDBG--varied needs of your community permit 
+you, through CDBG, to tailor them to the needs of your 
+community.
+    Mr. Plusquellic. Thank you. Mr. Congressman, I would also 
+add that the funding mechanisms are different and the available 
+resources are different from community to community, State to 
+State. Your county was very aggressive in starting a program to 
+help provide economic development dollars for each community to 
+share. There's a formula that's used. And so in some ways I 
+would look at Dayton and Akron and say even within the same 
+State, you might have additional resources to be used for 
+economic development purposes that the city of Akron doesn't 
+have because we chose to do something else along the way to 
+provide extra money for housing on a countywide basis.
+    So every situation is different, every community is 
+different, and every funding resource formula is different. And 
+so it adds to the need to have a program that is flexible and 
+allows us not to just adopt this cookie cutter--as Jim Hunt had 
+suggested earlier--that the Federal Government is attempting to 
+do.
+    I think that flexibility may be, in all honesty, the one 
+that sort of gets us in trouble sometimes because some Members 
+here on the Hill here have something that they don't 
+necessarily agree with. They might not understand why that 
+someone might use money for a certain purpose. But when you 
+look at a neighborhood and you look at one--and I talk about 
+spending money, for instance, on a grocery store. Most people 
+probably in America can't even fathom that there isn't a 
+grocery store right down the street somewhere from them.
+    But if you look at the older neighborhoods where businesses 
+have abandoned--and I love working with the private sector; I 
+have a great relationship with our business community--but it's 
+pretty hard for me to get them enticed to go in on some market 
+basis to fix the roof of an elderly person's home just on a 
+market basis. It's a matter of helping that senior citizen stay 
+in her house or his house and have a better quality of life, 
+which is exactly what many of these dollars do. And so having 
+the opportunity for me to go in one neighborhood in Akron and 
+say the most important thing that I can do here is to try to 
+provide the incentive necessary to get a private developer to 
+come in and put in a grocery store so the residents of that 
+neighborhood that don't have a grocery store for miles can get 
+their basic necessities, and go to another neighborhood where 
+there is a high percentage of elderly people still living in 
+their homes--and they want to do that--to help them live in a 
+safe environment, putting a new roof on, maybe providing some 
+extra wiring, new wiring that's needed to make the home not 
+only more livable, quality of life, but safer, and help entice 
+a new family to come in when that senior citizen leaves, I 
+think, are two examples of how we in Akron use the dollars 
+differently, which may be completely different, for instance, 
+than the way Dayton might have used it for downtown development 
+or other things.
+    Mr. Turner. Commissioner Kyle.
+    Mr. Kyle. Thank you, Mr. Chairman.
+    In Lake County, IL, we utilize the CDBG funding in a 
+variety of ways. And I think that has been one of the assets of 
+the CDBG program is its flexibility. As you know, a lot of the 
+Federal-funded programs are very stringent in what you can 
+utilize those allocations for, so I think the flexibility is 
+actually an asset to the program.
+    We've utilized the funding for our Affordable Housing 
+Commission in Lake County, IL, where we not only promote and 
+market affordable housing opportunities, but we also provide 
+funding to those community developers who specialize in the 
+construction of affordable housing. Also, we utilize it for 
+emergency food assistance programs.
+    And I think what we must realize is that there are pockets 
+of poverty in every community. You will identify homelessness 
+and hunger in Palms Springs, CA, to Greenwich, CT, in 
+Hollywood. In several of the most affluent capital cities and 
+counties in the United States you will find pockets of poverty. 
+So if we have a significant amount of the citizens of a 
+particular community who will drive up the median income of 
+that particular city or county, do we just ignore the pockets 
+of poverty that will still exist in those communities? I think 
+that's the important thing here.
+    Also, we've utilized our funding for daycare services, and 
+we would like to question whether or not those types of service 
+delivery systems will continue out of the Department of 
+Commerce. Will public services continue? Will infrastructure 
+improvements continue? And I think we must realize and not just 
+confine the Community Development Block Grant Program into just 
+bricks-and-mortar type of a program. Community development 
+programs also develop morale in a program--in a community. It 
+also develops self-esteem, self-confidence, self-motivation. 
+These types of programs actually produce productive citizens in 
+a community, and I think that criteria is oftentimes not 
+measured in the significance of these Community Development 
+Block Grant Programs, and they cannot always be measured in 
+bricks and mortar and hammers and nails.
+    Mr. Turner. Thank you very much.
+    Councilman Hunt.
+    Mr. Hunt. Mr. Chairman, one of the things that when you 
+look at why different neighborhoods have a different look with 
+CDBG is I think one critical component of the CDBG is that we 
+asked low and moderate-income persons to come to meetings on 
+these planning; so what the needs in Dayton, OH, and in 
+Clarksburg, WV, they're going to reflect the needs of these 
+moderate and low-income persons that come out.
+    And I think, as most of us will attest, that some of those 
+meetings are the most critical ones we hold as public 
+officials. And when you look at it in Akron, when they say we'd 
+like a grocery store, in West Virginia that's not generally a 
+problem, but when you look at community centers in rural areas, 
+community centers are the lifeblood of the communities.
+    So I think the one thing that you look at CDBG is the 
+flexibility; the other is we've asked people, just according to 
+the statute that we follow that says, what are your needs in 
+your community? And that's why you're going to get a different 
+face on it completely across the country. And I think it would 
+be difficult to punish the CDBG recipients for doing exactly 
+what the statute asked.
+    Mr. Turner. I asked you that question in order to ask you 
+this next one. One of the things that we have as justification 
+for dismantling these programs and reconstituting them is that 
+the performance measures that are currently being utilized in 
+judging the CDBG program have not favorably reflected upon the 
+program. The performance measure that is currently being used 
+is the PART analysis, known as the Program Assessment Rating 
+Tool. I'm going to read you one paragraph of it and I'd like 
+you to respond to it because I think this is something that you 
+might have a contrary view to.
+    And the question is: Is the program designed so that it is 
+not redundant or duplicative of any other Federal, State, local 
+or private effort? And the answer in the measurement analysis 
+here says, ``Federal, State and local programs, as well as 
+other for-profit and nonprofits, address similar objectives. 
+CDBG funds are rarely the only resource for the community 
+development activities of public agencies or nonprofits.''
+    Now, my experience and my understanding has been that of 
+the types of projects that you are describing, that you don't 
+have readily available to you another either Federal, State or 
+local source to fund those. I would like your comments on that 
+and I will start with the mayor.
+    Mr. Plusquellic. Well, I think it's the leveraging issue. 
+There's certainly other funding sources that we all have, 
+depending on our State laws and local ordinances and the 
+provision of--the level of political will that the local 
+government leaders have to ask their own people to step to the 
+table to provide resources. And we have different mental health 
+levies that go on in Ohio, we have different school levies and 
+needs of school. All of these issues someone could say somehow 
+they're overlapping, but when we can use CDBG moneys to attract 
+private sector investment in particular, but even if we have 
+to, to make a project work, put some other local resources to 
+work.
+    We put some money in, city dollars, into the grocery store 
+project. I'm not sure how somebody sitting in some office here 
+in the Beltway thinks that's a bad thing that there are other 
+sources out there. The question is are there other sources to 
+make up for the significant cut here, even if you accept--which 
+I don't, and the Conference of Mayors does not--that this is, 
+you know, really fully funded to really meet the people that 
+are the most neediest?
+    If you look at the 30-something percent cut, and you look 
+at the 30-something percent that they say are below the poverty 
+line, if you wiped out that percentage just on a per capita 
+basis, you would say there is no more money then for the 
+neediest. I mean, I can do the math if I get the list that you 
+have requested from OMB and from Dr. Sampson, but even if we 
+were talking about the same level of funding, shifting and 
+doing some things that are supposed to be for improving a 
+program, we don't see it that way because the funding level is 
+much lower.
+    So bringing other funds, bringing other resources to the 
+table is exactly what public-private partnerships are all like, 
+and I think bringing in some of the public agencies, for 
+instance, and having city governments or others put money into 
+it--that could be a county, it could be a park district, 
+depending on the State law--that have other resources, I don't 
+see as a bad thing. I see it as a collaborative effort in each 
+community to meet the needs of that community. And I go back to 
+this flexibility that you mentioned earlier; that's why these 
+funds are flexible and each community gets to decide what their 
+priorities are.
+    Mr. Turner. Commissioner.
+    Mr. Kyle. Thank you.
+    I think we could look at your question also in reverse. If 
+we're looking at some potential duplication of services or 
+deliveries out of the CDBG program and in the Department of 
+Commerce, we can also look at it from the standpoint of if 
+we're specifying the housing-related projects, we could also 
+transfer the Housing and Economic Development-related projects 
+from the Department of Commerce over to CDBG. And then we could 
+also eliminate some duplications in reverse from that aspect 
+also.
+    But the significance of the CDBG program, as we have 
+indicated, they provide certain unique programs like 
+transitional programs, transitioning individuals who have, for 
+example, been incarcerated. We have a recidivism program in 
+Lake County, IL, where we're providing funding through CDBG to 
+transition individuals that have been incarcerated back into 
+the work force with job skills development and those types of 
+issues; also individuals who have fallen into drug addiction 
+and transitional programs to transition them back into the work 
+force to make them productive citizens also.
+    So these types of programs, they also produce an element of 
+pride in your community, which would be a criteria that's 
+lacking in a lot of other Federal-funded programs. And as I 
+indicated, these types of things are difficult to measure, 
+particularly with the criteria and the standards that are being 
+utilized to measure these types of delivery systems.
+    Mr. Turner. Thank you.
+    Ms. Western.
+    Ms. Western. I think that is a very good question, but what 
+I would like to comment on really is looking at the proposal 
+the administration has put forward in terms of consolidating 
+programs from CDBG and 17 others into a new program. When CDBG 
+was created as a consolidation of seven other programs because 
+there was too much redundancy and too difficult in terms of 
+applying for funding across the national--the Federal level--if 
+you look at the program, CDBG has 28 eligible activities, and 
+it allows for each community to determine its priority needs 
+based on three national objectives that the Congress determined 
+was what the program should undertake. And so when you look at 
+duplication of effort, and you've already rolled in seven 
+programs into one, and now you're looking at trying to roll in 
+18 programs into 1, the Federal Government itself duplicates 
+the effort; it's not that the program is duplicative of other 
+efforts.
+    I think CDBG is the program that should be the one that 
+focuses on cities and communities and neighborhoods because it 
+allows for locally determined, identified, prioritized needs 
+based on what Congress intended them to do with these funds. 
+And if you see everyone doing different things differently, 
+that's why the program exists, because it supports every 
+community's goals and objectives through this one source of 
+funding, and HUD.
+    Mr. Turner. Councilman Hunt.
+    Mr. Hunt. Mr. Chairman, you know, the private sector does 
+do affordable housing, they do have a very effective affordable 
+housing program, and that is, if you can afford it, they will 
+build it. And I think that's, in a nutshell, a little bit of 
+the difference of when we talk about affordable housing. And 
+that's why it's not an overlap with the private sector or other 
+programs is that in many cases the private sectors had the 
+opportunity to come into my town and into Akron and into other 
+communities at any point and purchase these dilapidated 
+properties. The taxpayers have already invested in water and 
+sewer, sidewalks, streets, facilities that run right in front 
+of these dilapidated properties. Any private developer can do 
+it.
+    One of the challenges, however, is when you add in asbestos 
+regulations, when you add in the different costs of removing 
+these properties, what the cheapest thing to do is and what's 
+happening all over America is we go out to greenspace and we 
+start putting in new roads and water and sewer. And I will tell 
+you that the cost of putting in water and sewer for a 
+neighborhood of 30 in a subdivision is clearly more expensive 
+than tearing down a dilapidated house and salvaging the 
+neighborhood for those other residents.
+    And you have to look at it on a real-world basis, when you 
+walk those neighborhoods and that house comes down, and all of 
+a sudden--and I don't think there's any public official that 
+can contest this, is when you tear down a house in a 
+neighborhood, the building permits on the adjacent properties 
+go up, and somebody who wasn't going to put a deck on now 
+invests in a deck, somebody who wasn't going to put siding on 
+now puts siding on.
+    It's not even something you say it thinking, gee, somebody 
+will argue with you because we will all see it. And when 
+improvements are made in neighborhoods, no matter how bad they 
+are--and that's why graffiti removal, when you start looking at 
+gang activities in most of our communities--in West Virginia 
+there was an article in the Charleston Gazette about gang 
+activity in West Virginia, something I never thought we'd see--
+when you look at it, it's signified by the graffiti that is 
+growing out in these small little West Virginia towns. When we 
+take an active role of graffiti removal--we're not going to 
+eliminate gangs in West Virginia with methamphetamines, but we 
+do have the tools that we can go after some of these 
+activities.
+    So I just say, I mean, when you look at neighborhood 
+redevelopment, private sector is in there every day--predatory 
+lending; there are a lot of nasty things in our neighborhoods. 
+CDBG are funding the type of activities that work toward the 
+betterment of those neighborhoods.
+    Mr. Turner. Thank you.
+    Mr. Dent.
+    Mr. Dent. Yes, thank you.
+    Mr. Hunt, you made a good point there about the uses of 
+these CDBG funds. In my experience it's been very useful when 
+moneys, public moneys, whether they be CDBG or other public 
+moneys, be used for demolition or mediation or buying those 
+power hoses to remove the graffiti, or whatever the case may 
+be, or even tearing down an old dilapidated house and putting a 
+little pocket park, or maybe even a parking lot, depending on 
+the circumstances of a densely packed neighborhood.
+    But the administration has a point, and I think, Mr. Kyle, 
+you spoke to the issue a little bit, but I guess I have a 
+problem with a community like Boca Raton, FL, getting the CDBG 
+money if, in fact, it has the capacity in the local community 
+to take care of some of those projects themselves. I would 
+rather reserve those precious public dollars for those 
+communities that are truly distressed, that do need to tear 
+down that dilapidated, drug-infested house, whatever the case 
+may be.
+    But does the administration have a point; should we not be 
+looking at those communities that are not very impoverished, 
+but are somehow getting these dollars?
+    Mr. Hunt. And we're not going there with guns getting the 
+money; there are rules and regs that are portrayed for this.
+    And there's no question, you make a good point; but it's 
+like, let's reevaluate the program within the existing 
+confines. It doesn't seem to make sense that if that's the one 
+issue of which we haven't even clarified how much of those 
+dollars and what they've been spent on, because there are 
+eligible activities even within those communities, that they 
+have to be targeted to low-income and moderate-income persons. 
+But even if that's the case, then let's solve that problem 
+without completely dismantling one of the most effective 
+community development programs.
+    And I think even through the testimony, like I said, we 
+don't have a clear number of how much of that is actually 
+occurring when you look at clearly you do have examples of 
+communities, of low and moderate-income communities, that are 
+using these funds.
+    Mr. Plusquellic. I think it would be difficult for me to 
+give testimony on behalf of a wealthy community. Akron is not a 
+wealthy community in that measurement. But I'm sure one of the 
+things they would say is they send more than their share of 
+taxes here to Washington, and they ought to get some of it 
+back; I'm sure that would be their first argument. And if, in 
+fact, there are still people who meet the requirements--because 
+keep in mind, Congress established the requirement that the 
+moneys still have to be spent 70 percent low and moderate. If 
+they don't meet that requirement, they can't get the funds.
+    So, I mean, I think there is a protection there, I guess, 
+from wealthy communities spending these dollars on wealthy 
+people, which is sort of the inference in that 38 percent, 
+which I said is so, in my opinion, misleading; it's probably 
+accurate, factually correct, but inferentially wrong. It infers 
+that they're spending it on wealthy people in wealthy 
+neighborhoods, and that just can't be by the regulations 
+themselves.
+    Mr. Dent. OK. And finally I guess, Mr. Kyle, you had 
+mentioned something about, I guess, measuring the program, you 
+talked about capital funding. I thought you made some reference 
+to capital funding shouldn't be the primary emphasis. Did you 
+say that? I was trying to get a clarification. I've always 
+liked using these public dollars for capital purposes because I 
+could see the results in my community, whether you're tearing 
+down the building, removing the graffiti, even if you are going 
+to hire a couple code enforcement officers. Whatever the case, 
+I want to make sure there is something tangible as opposed to 
+paying for something that's less measurable.
+    Mr. Kyle. Sure. I appreciate the question. We utilize the 
+funding, our CDBG funding, in Lake County, IL for programs like 
+emergency food assistance, to provide food in food pantries 
+throughout various blighted and dilapidated neighborhoods. We'd 
+also used the funding, as I'd indicated, for day care, for 
+those individuals who cannot afford day care but still have to 
+go to work every day. We utilize the funding also for a 
+recidivism program, which is a program to make those 
+individuals who have been incarcerated, teaching them job 
+skills, development, job training, and transition them back 
+into productive citizens. We also utilize that program also for 
+a drug transitional program, to counsel and train individuals 
+of how to stay off of drugs and how to make them more 
+productive citizens.
+    So these are the types of programs that are not necessarily 
+brick and mortar but they are pragmatic in nature and systemic, 
+whereas we don't necessarily have to build a building to 
+provide these programs.
+    Mr. Dent. I guess just from my experience with the program, 
+where I live at least, it seems that those programs you 
+mentioned, while they are worthy, whether it's child care or 
+helping people return from prison back to the mainstream of 
+life, they are worthy initiatives, but I am just not aware of, 
+like where I live, of community development funds, for example, 
+being used for that type of initiative. It's more in line with 
+what Mr. Hunt had talked about.
+    Mr. Kyle. Sure.
+    Mr. Dent. And that's where I would like to see the focus.
+    Mr. Kyle. Sure.
+    Mr. Plusquellic. May I comment? Many of these programs 
+connect up with other things we are doing. Let me give you an 
+example, and I can't speak for 1,100 communities across the 
+country, but if we are helping a new homeowner, single mother, 
+purchase a first home, and, for whatever reason our system, 
+whatever, whoever is responsible for not allowing every person 
+19, 21, 25, 30 years old to know and understand how to get good 
+credit and keep good credit, we have a credit counseling agency 
+that works with them for some period of time so that we are not 
+just encouraging go buy a new home, we will give you some down 
+payment, you can work in there, and then you go back and charge 
+everything on credit card and you lose your home, that we in 
+our community believe strongly and the President of the United 
+States has said he believes strongly in home ownership. So it 
+may be a social service agency and money spent for that, but we 
+try to connect it up.
+    We've supported home delivery, a local group raises a lot 
+of donations locally, but we have supported at various times 
+for home meal delivery for senior citizens, that we fix the 
+roof and add the safe wiring, so that it connects up with 
+helping seniors stay where they want to stay and not feel 
+afraid to live in that neighborhood.
+    So I think many of these things that you look at are 
+connected up to the hard types of capital investment that you 
+are suggesting. And I am not sure what the percentage--in Akron 
+we only spend about a half a million out of the 13 million on 
+those social service agencies. So in most communities it's a 
+small part.
+    Mr. Dent. That is fine. That would be my thinking as well.
+    And I want to conclude just by saying the administration, 
+as I mentioned a few minutes ago, I believe there is some logic 
+to taking some of these programs they've identified--and, 
+again, I'm looking at the brownfields in particular and maybe 
+urban empowerment zone grants, just to name two--but there 
+might be some logic in consolidating them or shifting them into 
+commerce, based on my experience, that it might look more like 
+economic development activities as opposed to perhaps community 
+development or housing activities. And I would just like to 
+hear what your thoughts would be.
+    I am not suggesting that CDBG be moved over, but what do 
+you think? Are they onto something here with some of these 
+programs, whether they come out of HUD, or perhaps agricultural 
+or wherever the program may be, should they not be moved to 
+Commerce?
+    Mr. Plusquellic. Well, let me say something first of all 
+that I meant to say. I have personally deep respect for Dr. 
+Sampson. We have worked in Akron with Dr. Sampson and EDA, the 
+Commerce Department, on several things including an incubator 
+project. I believe he is a very knowledgeable professional, and 
+competent, and knows and understands economic development.
+    I think much of the testimony we have heard is there are so 
+many other ways that community development block grant moneys 
+are used that improve the communities that don't go into these 
+numbers that OMB pumps out and the statistics. You just can't 
+measure those things on straight job development.
+    So I believe he is sincere in trying to make this work, but 
+in our meeting he mentioned that EDA--I believe the numbers are 
+correct, I'm sure someone in the room will correct me if I'm 
+wrong--EDA administers a program right now at about $370 
+million. And first and foremost, to stick this HUD program of 
+$4.7 billion into a program and compare the efficiency and 
+effectiveness of a program that primarily deals with business 
+people, and now you are dealing with elderly and low-income 
+folks in dilapidated neighborhoods, and all that just doesn't 
+make sense at all. Is there a piece of the--I don't have the 
+agencies here. Is there some piece?
+    Someone mentioned brownfields. Could that be moved under 
+Commerce because it's dealing with business and revitalizing? 
+This is my own personal--this isn't the Conference of Mayors; 
+we haven't taken a position on that. But I think, like you, 
+that might make some logic for some small part of those 17 
+programs that you are talking about. We believe strongly that 
+CDBG should not be moved, and that's the--you don't move a big 
+program, doing a lot of other things, into one over here that's 
+only dealt with business development.
+    Mr. Dent. I understand. The main concern here today is 
+CDBG, and the other programs, well, we could have a discussion 
+perhaps another time.
+    Mr. Plusquellic. I was trying to say yes without giving in 
+completely, Mr. Congressman. I hope you understood.
+    Mr. Dent. Thank you.
+    Mr. Hunt. I think one thing is important to look at the 
+arithmetic, though, on the proposal, is that clearly CDBG is 
+going to bear the brunt of the cuts. So the other 18 programs 
+combined, even if they all went to Commerce, CDBG was retained 
+as funding. I mean, you are paying for all those 18 programs 
+out of the current CDBG program. And I would make the comment a 
+lot of times the brownfields' perception is that this is an 
+urban issue and it's not.
+    We just last week took ownership of a former glass factory 
+in our town that was put up for public auction that had gone 
+through the Federal brownfields remediation. And, to be quite 
+honest, one of the challenges and one reason that CDBG might 
+have a role there is the private sector are very leery of going 
+in the first owner of a brownfields site. We had a courthouse 
+sale. We had over $400,000 of liens in our community against 
+this site where we'd expended cleanup, and no private sector or 
+person came up for a property that's valued well over $1 
+million. So from what our understanding is and talking to the 
+private sector is that you may well have to expend CDBG money 
+to make it attractive enough for the private sector to stay.
+    Mr. Dent. I agree with you 100 percent on that. I represent 
+the largest brownfield site in America in Bethlehem Steel, the 
+old Bethlehem Steel site. I know what you are talking about. 
+And that public money, whether it's CDBG or other funds, you 
+have to put it in there because nobody is going to take their 
+private dollars and remediate that site and accept the 
+liabilities. We have a good brownfield program where I live.
+    Mr. Kyle. And if I could just add, Congressman, is that 
+when we talk about brownfield funding, if you would look at the 
+objectives of the brownfield funding out of CDBG, which is 
+primarily for redevelopment purposes, and the brownfield 
+funding out of the EPA is for cleanup. So therefore you have 
+the same type of funding, but the funding has different 
+objectives and different goals.
+    Ms. Smith. I would just like to say that all the programs 
+that are being proposed for consolidation and be moved over at 
+Commerce are already eligible under CDBG. In fact, brownfields 
+used to be a part of CDBG before it became a separate program 
+that identified specific activities in conjunction with other 
+funding. And brownfields are still eligible under CDBG as a 
+part of the CDBG program. So I would think that the economies 
+of scale would be more readily maximized if you put everything 
+over in the CDBG and at HUD, already an existing infrastructure 
+for delivery. It goes directly to communities where the 
+programs are going to be funded anyway, and it provides 
+communities with parameters in what they can spend the funds 
+on, based on how they have identified their needs to public 
+participation process so they can determine what to spend the 
+money on, when, and why.
+    So, I mean, I think that the whole proposal is 
+counterproductive in terms of maximizing efficiency to move the 
+big program and what it's been doing for 30 years over to 
+Commerce without any infrastructure or any idea how the 
+distribution of funds is going to take place to accomplish the 
+same things we are already doing, and doing very well.
+    Mr. Turner. With that, that ends our questioning. And like 
+the panel before you, I will give you an opportunity if there 
+is any closing remarks or additional thoughts that you would 
+like to provide for the record.
+    Mr. Plusquellic. Thank you. I would like to thank you once 
+again, Congressman Turner, and the others, for allowing us an 
+opportunity to state as strongly, hopefully, as we can here 
+today how important CDBG funds are. I would like to make an 
+offer that when this is settled and everybody realizes that HUD 
+has done a good job, every program can be improved and we can 
+look at working together, that we get some of the folks from 
+inside the Beltway here who run numbers to get on a bus--I 
+didn't say a plane because that would be wasteful government 
+spending--but get on a bus and take a tour of America and go 
+through eastern and western Pennsylvania where the Governor 
+gets $55 million of CDBG to distribute to the small 
+communities. Come to Ohio and see what all the cities there are 
+doing with the CDBG. And continue across the country to 
+actually see from year to year, and measure those neighborhoods 
+that cannot statistically ever measure up to some green 
+pasture. And if they would do that and see some of the great 
+things that go on, they would have a better way of sitting here 
+in front of Congress testifying on what's really going on in 
+America thanks to the partnership that has existed since 
+Richard Nixon was President of the United States in a program 
+that he proposed to Congress and they accepted.
+    And so I make that offer on behalf of the U.S. Conference 
+of Mayors to work with your committee, work with anyone else 
+here in Washington, even the folks at OMB, to show them what's 
+really going on. We appreciate the opportunity for us to 
+express what we believe is the success story of CDBG, and thank 
+you for that opportunity, and look forward to working with you 
+in the future.
+    Mr. Kyle. Thank you very much. And on behalf of the 
+National Association of Counties, we also appreciate the 
+opportunity to testify this afternoon. And we wanted to, of 
+course, reiterate how vital and crucial the sustainability of 
+the community development block grant is to counties across 
+this country. It has been a most successful program throughout 
+counties throughout the United States, and we wanted to point 
+out the significance.
+    Even if you look here in Washington, DC, the capital of the 
+United States, the most powerful city in the world, there is 
+homelessness right outside of the gates of the White House, 
+there is hunger right around Capitol Hill. These types of 
+social-oriented issues cannot go ignored, and we cannot go into 
+a state of denial about these issues. These issues are most 
+prevalent throughout all the parts of this country. So we want 
+to reiterate the importance and significance of the community 
+development block grant to counties across the country and to 
+this Nation. Thank you.
+    Mr. Hunt. And once again I would like to thank you for 
+holding this hearing. If you talk sometimes about did we do 
+anything wrong--and probably with CDBG you go to an apartment 
+complex when they are cutting the ribbon and you let the owners 
+and the residents puff their chests out and say what a great 
+project this is. Very seldom do you see a big banner that says 
+CDBG.
+    And I think when we look across America what is has done 
+for us at the National League of Cities, and, I'm sure with our 
+sister organizations, is that now we do know where those four 
+initials go on a lot of these projects. And I think that's 
+something that says that, you know, if you have to brag about 
+it, sometimes something's wrong. And we weren't bragging about 
+CDBG; we were doing the work that CDBG was intended, and these 
+projects were cropping up all over America and with not a whole 
+lot of applause at that point. And I don't think we want to 
+change that to where poor residents throughout America have to 
+know that their own initiative has kind of been superseded by a 
+Federal program, but it certainly has worked well throughout 
+America. Thank you.
+    Mr. Turner. I want to thank the panel. In the near term 
+this subcommittee will continue its oversight of the many 
+issues discussed today. Over the coming months we will delve 
+into these programs to ascertain their strengths, weaknesses, 
+and what impediments exist to their efficient and effective 
+implementation. The subcommittee will also explore what 
+legislative modifications Congress should consider to improve 
+the administration of these programs. I look forward to taking 
+an in-depth look at these issues, and hope it will lead us down 
+a path to solutions beneficial to the stakeholders and working 
+with each of you in that.
+    I want to thank members of our first panel also for taking 
+their time today, as with our second panel. And in the event 
+that there may be additional questions either from members who 
+are present or not present and for questions we didn't have 
+time for today, the record will remain open for 2 weeks for 
+submitted questions and answers.
+    Thank you. And with that, we will stand adjourned.
+    [Whereupon, at 12:12 p.m., the subcommittee was adjourned.]
+    [The prepared statement of Hon. Wm. Lacy Clay and 
+additional information submitted for the hearing record 
+follow:]
+
+[GRAPHIC] [TIFF OMITTED] T0219.059
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+
+
+
+ THE 1970's LOOK: IS THE DECADES-OLD COMMUNITY DEVELOPMENT BLOCK GRANT 
+                 FORMULA READY FOR AN EXTREME MAKEOVER?
+
+                              ----------                              
+
+
+                        TUESDAY, APRIL 26, 2005
+
+                  House of Representatives,
+         Subcommittee on Federalism and the Census,
+                            Committee on Government Reform,
+                                                    Washington, DC.
+    The subcommittee met, pursuant to notice, at 10:05 a.m., in 
+room 2154, Rayburn House Office Building, Hon. Michael R. 
+Turner (chairman of the subcommittee) presiding.
+    Present: Representatives Turner and Dent.
+    Staff present: John Cuaderes, staff director; Shannon 
+Weinberg and Jon Heroux, counsels; Peter Neville, fellow; 
+Juliana French, clerk; Erin Maguire, LC/Mr. Dent; Adam Bordes, 
+minority professional staff member; and Cecelia Morton, 
+minority office manager.
+    Mr. Turner. A quorum being present, this hearing of the 
+Subcommittee on Federalism and the Census will come to order.
+    Welcome to the subcommittee's oversight hearing entitled 
+``The 1970's Look: Is the Decades-Old Community Development 
+Block Grant Program Formula Ready for an Extreme Makeover?''
+    In March this subcommittee held a hearing reviewing the 
+Bush administration's Strengthening America's Communities 
+Initiative. During that hearing we learned that HUD had 
+undertaken certain in-house initiatives to improve the 
+administration of the program. It is one of those initiatives 
+that brings us here today, a review of the CDBG formula and the 
+development of four possible grant formula reforms. This is the 
+first in a series of oversight hearings dedicated to the review 
+of the Community Development Block Grant Program at the 
+Department of Housing and Urban Development.
+    The Community Development Block Grant Program [CDBG], is 
+one of the largest Federal direct block grant programs in 
+existence. For fiscal year 2005, Congress appropriated $4.71 
+billion for the CDBG program, including $4.15 billion for CDBG 
+formula grants alone.
+    State and local governments use CDBG grant moneys to fund 
+various housing, community development, neighborhood 
+revitalization, economic development and public service 
+provision projects. Such projects must address at least one of 
+three projectives: One, to principally benefit low and 
+moderate-income individuals; two, eliminate or prevent blight; 
+and three, remedy urgent threats to the health or safety of the 
+community when no other financial resources are available.
+    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 means, from eradicating blight to 
+providing potable water and building sewers. And while CDBG 
+enables States and local governments to accomplish many of the 
+objectives outlined in the original authorization, the program 
+exhibits several problems that require remedy.
+    The formula for which the bulk of CDBG funds are 
+distributed to entitlement communities and nonentitlement 
+communities is quite complex. The 1974 legislation creating the 
+CDBG program identified poverty, blight, deteriorating housing, 
+physical and economic distress, decline, living environment 
+suitability and isolation of income groups as some of the 
+factors to be considered in determining community development 
+need.
+    The original formula specified in the CDBG statute only 
+considered three variables to assess and target these needs; 
+poverty, population and overcrowding. However, Congress also 
+intended for the CDBG program to address housing, economic 
+development, neighborhood revitalization, and other community 
+development activities not exclusively associated with poverty.
+    Analysis of the formula shortly after 1974 showed that 
+while the CDBG formula targeted poverty populations fairly 
+well, it failed to adequately address older and declining 
+communities. Accordingly, in 1997 Congress amended the law by 
+creating a second parallel formula. The original formula became 
+known as Formula A, the new formula became known as Formula B. 
+Formula B was designed to target older and declining 
+communities by using the new variables of growth lag and pre-
+1940 housing. Jurisdictions received the greater sum of the two 
+formula calculations.
+    The last modification of the grant formula came in 1981. 
+Congress amended the formula by adding the 70/30 split 
+requiring that funds be split 70 percent to 30 percent between 
+entitlement and nonentitlement areas respectively. Since 1978, 
+the factors used in these calculations have remained constant, 
+while the demographic composition of the Nation has changed 
+dramatically. In particular, the number of entitlement 
+communities has grown drastically. 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 
+entitlement communities sharing the 70 percent portion of CDBG 
+funds continues to grow, the overall funding of the 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 nonentitlement 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 numerous instances of richer 
+communities receiving higher per capita awards than poorer 
+communities. Second, similarly situated communities often get 
+disparate per capita awards.
+    The purpose of this hearing is to consider two basic 
+questions regarding the structure of the allocation formula. 
+First, is the current formula, last modified in 1981, still 
+applicable and effective today? And second, if the answer to 
+the first question is no, what factors should Congress 
+consider, and what changes to the formula would be appropriate?
+    To help us answer these questions we have the Honorable Roy 
+Bernardi, the current Deputy Secretary of the Department of 
+Housing and Urban Development and former Assistant Secretary of 
+Community Planning and Development.
+    On February 21, 2005, HUD published a document entitled 
+CDBG Formula Targeting to Community Development Need, the 
+result of a study on the declining effectiveness of the current 
+grant formula in targeting a need, as compared to the study. 
+The study demonstrates that the current formula continues to 
+target need. The top 10 percent of communities with the 
+greatest community development need to receive 4 times as much 
+as the lowest 10 percent of communities. Further, the per 
+capita grants awarded to the most needy of communities have 
+decreased, while the per capita grants awarded to the least 
+needy of communities have increased. To address these 
+deficiencies the document details four alternative formulas. 
+The subcommittee looks forward to hearing more of those details 
+from Mr. Bernardi on this study.
+    Following Mr. Bernardi, we will hear from Mr. Paul Posner, 
+Director of Federal Budget and Intergovernmental Relations at 
+the Government Accountability Office.
+    Joining Mr. Posner from GAO is Mr. Jerry C. Fastrup, 
+Assistant Director of Applied Research and Methods.
+    Rounding out our second panel of witnesses, we are pleased 
+to welcome Mr. Saul Ramirez, Jr., executive director of 
+National Association of Housing and Redevelopment Officials. 
+Mr. Ramirez served as the Deputy Secretary of HUD during the 
+Clinton administration, as well as the Assistant Secretary of 
+Community Planning and Development from 1997 to 1998.
+    I look forward to the expert testimony our distinguished 
+panel of leaders will provide us today, and I thank all of you 
+for your time and welcome you.
+    [The prepared statement of Hon. Michael R. Turner follows:]
+
+    [GRAPHIC] [TIFF OMITTED] T0219.064
+    
+    [GRAPHIC] [TIFF OMITTED] T0219.065
+    
+    Mr. Turner. And I want to recognize--Mr. Dent from 
+Pennsylvania, who is here with us today, and ask if he has any 
+opening comments.
+    Mr. Dent. I thank you, Mr. Chairman.
+    My only comment is that I look forward to receiving your 
+testimony. I have a lot of questions on this issue. Thank you.
+    Mr. Turner. Thank you. We will now start with the 
+witnesses. Each witness has kindly prepared written testimony, 
+which will be included in the record of this hearing.
+    Witnesses will notice there is a timer light at the witness 
+table. The green light indicates that you should begin your 
+prepared remarks, and the red light indicates that your time 
+has expired. The yellow light will indicate when you have 1 
+minute left in which to conclude your remarks.
+    It is the policy of this committee that all witnesses be 
+sworn in before they testify. Swearing in the first panel, Mr. 
+Bernardi, if you would rise and raise your right hands.
+    [Witness sworn.]
+    Mr. Turner. Let the record show that the witness has 
+responded in the affirmative. And beginning then with Mr. 
+Bernardi's testimony.
+
+STATEMENT OF ROY A. BERNARDI, DEPUTY SECRETARY, U.S. DEPARTMENT 
+                OF HOUSING AND URBAN DEVELOPMENT
+
+    Mr. Bernardi. Well, thank you, Chairman Turner, Congressman 
+Dent. On behalf of the President and Secretary Jackson, I 
+appreciate the opportunity to speak with you today about a 
+recently released HUD report on the CDBG formula and how it 
+performs relative to community development need.
+    As you are aware, the President, via his 2006 budget, has 
+proposed to consolidate 18 programs from 5 agencies within the 
+Department of Commerce, and that's including the CDBG program. 
+These programs would be consolidated into one program, the 
+Strengthening America's Communities Initiative. This initiative 
+would support communities' efforts to meet the goal of 
+improving their economic conditions through, among other 
+things, the creation of jobs. Therefore, under the President's 
+proposal, the CDBG program would be eliminated. 
+Notwithstanding, I offer the following testimony on the 
+proposed CDBG formula targets, which may be helpful in your 
+review of the Strengthening America's Communities Initiative.
+    This is the fifth time HUD has prepared a report like this 
+since 1974 on how the CDBG formula targets the need. Like our 
+previous reports, we generally ask the question, how is the 
+CDBG program doing in terms of meeting the community 
+development need in this country?
+    The first report provided the framework for creation of the 
+dual formula that first allocated funds, as you mentioned, Mr. 
+Chairman, in 1978. The current formula is comprised of Formula 
+A and Formula B. HUD calculates the amount of each grantee 
+under both formulas. The grantees are then assigned the larger 
+of the two grant amounts. Generally communities with poverty 
+and overcrowding get higher grants under Formula A, while 
+communities with old housing and slow population growth get 
+higher grants under Formula B.
+    In 1983 and 1995, we found that CDBG formulas had become 
+increasingly less effective in targeting need. The problem is 
+that while the variables and the formulas have not changed 
+since 1978, this country has. I'm sure it comes as no surprise 
+to anyone here in the United States, it is a significantly 
+different country than it was 30 years ago. We have seen 
+significant demographic and economic change. Some communities 
+experience tremendous growth, while others are facing decline. 
+Not surprisingly, when we began to crunch the numbers from the 
+latest census, we noticed that the CDBG formula continues to be 
+a less effective vehicle for targeting need.
+    Today I'd like to outline our findings and offer some 
+options, should you consider changing the program's formula to 
+meet today's needs.
+    As with prior studies, we designed an index to try to rank 
+each community based on its relative level of community 
+development need. This needs index uses variables that relate 
+directly to the statutory objectives of the CDBG program, such 
+as poverty, crime, unemployment and population loss. A total of 
+17 variables were identified for entitlement communities; those 
+are cities and large urban counties that receive direct 
+funding. For the States, or the nonentitlement program, we 
+created a needs index using 10 variables. Applying techniques 
+used in the previous four studies, those variables are combined 
+into a single score for each community.
+    When we compare how the current formula is allocated 
+against this needs index, we see some stark examples of funding 
+disparity. For example, communities with similar need may 
+receive significantly more or less funding on a per capita 
+basis. We also find examples of communities with less need 
+receiving roughly the same amount of funding as higher-need 
+areas. Exhibit 1 illustrates this point. And I apologize for 
+the complexity, but I think this will become clear shortly.
+    This chart shows how CDBG's current formula is targeted 
+today. You will see along the bottom of this chart communities 
+are ranked by their relative community development need, 
+starting with the lowest need communities on the left, and 
+ending with the highest need communities on the right. The 
+solid line represents an appropriate funding level relative to 
+the need for the per capita grant amount of the grantee 
+community. The jagged line represents the per capita allocation 
+for grantees under the current formula.
+    This chart on my right demonstrates that CDBG's current 
+formula is far from perfect. For example, some low need 
+communities, such as Newton, MA; Portsmouth, NH; Royal Oak, MI 
+are allocated more than $25 per person, while other low-need 
+communities are receiving $5 to $7 per capita.
+    The starkest contrast, however, is among the high need 
+communities on the right side of the chart, and I will use 
+three communities as an example. The cities of St. Louis, Miami 
+and Detroit have similar needs according to the needs index, 
+but get very different grant amounts. St. Louis receives $73 
+per capita, well above the needs index line; Detroit gets about 
+$50 per capita, which is right about at the needs index line, 
+and Miami receives $26 per capita, well below the needs index.
+    Now why is this? There are several reasons, and, Chairman 
+Turner, you mentioned some of those. Two big reasons are with 
+respect to the pre-1940 housing variable and the growth lag 
+variable in Formula B. As distressed communities have 
+demolished their older housing, and less distressed communities 
+renovated their older housing, the pre-1940 housing shifted 
+money from distressed communities to less distressed 
+communities.
+    In terms of growth lag, the relatively few communities that 
+get funding under this variable get a lot of funding, because 
+the growth lag here is at 20 percent, so it is pegged with 
+communities' population in 1960. It is the communities with 
+growing lag that represent the spikes you'll see in the chart; 
+like I mentioned, St. Louis at about $70 per capita--St. Louis 
+lost an awful lot of population, from about 780,000 down to 
+about 330,000, so that growth lag differential, that 20 
+percent, they receive a large portion of that.
+    There are other elements to the CDBG current formula that 
+tend to benefit smaller college towns with a high population of 
+students earning little or no income. When you consider these 
+students in measuring poverty, which we do under the present 
+formula, it is misleading, as many receive funds from parents 
+and others. You get a relatively higher grant as compared with 
+similar communities with no significant student population, but 
+with absolutely higher poverty.
+    Finally, the dual formula structure tends to provide 
+greater funding to communities funded under Formula B, 
+developed for declining areas, than equally needy Formula A 
+grantees, which was developed for growing areas.
+    Let me also take a moment to talk on the nonentitlement 
+formula that allocates 30 percent of the CDBG funding to the 
+States. The nonentitlement formula does not have the wild 
+swings in funding as the formula our cities and counties use. 
+As a result, there are no stark differences in funding between 
+States, no matter their need. With the exception of Puerto 
+Rico, the formula for the 50 States doesn't really target need 
+at all. But Puerto Rico obviously probably is a Formula--I'm 
+sure is a Formula A grantee because 50 percent of it is 
+poverty.
+    The report considers four alternatives, and they all 
+improve targeting to need, and I will just do a brief summary 
+of each one, if I may, please.
+    Alternative 1 on the left, it keeps the current dual 
+formula, but corrects some of the most serious problems. For 
+example, it defines the age of the housing stock a little more 
+precisely. Instead of counting just the number of units built 
+before 1940, this option would measure housing older than 50 
+years--and here is the key--and occupied by a person of 
+poverty.
+    By establishing a means test on this housing variable, 
+alternative 1 generally redistributes funds from less needy 
+communities to communities in decline, correcting that 
+imbalance that you see in the present formula. Exhibit 2 shows 
+the impact of these corrections; that would be alternative 1. 
+It substantially reduces the overfunding of low-need 
+communities like Newton, Portsmouth and Royal Oak, and only 
+modestly reduces the funding difference between Miami and St. 
+Louis. Similar changes to the nonentitlement formula also have 
+positive effects on targeting.
+    Alternative 2. Now, this is a very simple approach designed 
+to minimize differences in funding among places with similar 
+need. It is a single formula that uses four measures of need, 
+poverty, female-headed households with children, housing 50 
+years and older and occupied by a poverty household, and 
+overcrowding. As Exhibit 3 shows, this alternative greatly 
+improves the fairness of the formula by reducing the per capita 
+grant variation, so you don't have those fluctuations and those 
+lines. The disadvantage of alternative 2 is that the high-need 
+communities tend to fall below the needs line. Miami, St. Louis 
+and Detroit all receive the same amount of money; however, 
+they're below the needs line.
+    Now alternative 3, that adjusts alternative 2 to increased 
+fundings for communities in decline and exhibiting fiscal 
+distress. As shown on exhibit 4, this does improve targeting to 
+the most needy, compared to alternative 2. For example, under 
+alternative 3, Detroit and St. Louis would receive grants of 
+approximately $50 per capita, and Miami would receive a grant 
+of about $44 per capita. Alternative 3 has somewhat greater 
+variation between similar needy grantees relative to 
+alternative 2; however, alternative 3 achieves greater 
+targeting to the most needy communities.
+    Now, the last alternative, alternative 4, resembles 
+alternative 3, but what we've done here is it eliminates the 
+70/30 funding split between the entitlement and nonentitlement 
+communities, and that's the funding obviously for the 
+nonentitlement areas and the entitlement areas would be 
+allocated under a single formula. This approach would currently 
+result in a split of approximately 69/31, 69 to the 
+entitlements, 31 to the nonentitlements. A chart for 
+alternative 4 would show that the same distribution as the 
+chart for alternative 3.
+    In conclusion, today's formula--again, a formula that 
+hadn't been modified since 1978--places great emphasis on 
+certain variables that may not be a true reflection of today's 
+need.
+    I want to thank the committee for allowing me to make this 
+presentation, and I will be happy to attempt to answer any of 
+your questions.
+    Mr. Turner. Thank you.
+    [The prepared statement of Mr. Bernardi follows:]
+
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+    
+    Mr. Turner. And unfortunately we're going to have a lot of 
+questions between the two of us, and I know that some of it you 
+may need to provide us additional information after the 
+hearing, or you might have someone else who you might be able 
+to consult in providing us the specific questions.
+    In looking at this issue on community block grants, one of 
+the things that I recalled was that when I was a student at 
+Ohio Northern University in political science from 1978 until 
+1982, one of the textbooks that I had actually had a discussion 
+of the CDBG formula allocation as it was occurring through 
+1978--through 1981, as you referenced in your testimony. And it 
+was interesting because the discussions that they have--and 
+this textbook is from 1978 it goes through the various 
+allocation formulas that were considered and its impacts. And 
+it talks about some of the allocation formulas that were 
+rejected and some of the elements that were considered and 
+accepted. And it talks about the ailing Northeastern and 
+Midwestern cities, such as St. Louis, Buffalo and Detroit, and 
+the least needy cities such as Dallas, Albuquerque and Phoenix.
+    Now, this sentence is from 1978, but if we look at the 
+information that we have before us today, intuitively I think 
+that most of us would agree that if you take out of that list 
+Detroit and Dallas, we would all have an understanding that in 
+any comparative need that you might structure, we would want a 
+comparison where the need of Detroit is recognized versus the 
+need of Dallas in a weighting. Dallas has needs, Dallas has 
+poverty; but intuitively we all know that if you drive through 
+Detroit, and if you drive through Dallas, and you have the 
+issues of community development as a topic that you want to 
+remedy, your view of the needs of those two communities would 
+have Detroit expressing a higher need and Dallas expressing a 
+lesser need, as just stated even in 1978 as this was discussed 
+in this textbook.
+    In looking at the four formulas that HUD has prepared, in 
+two out of the four Detroit loses, and in all of the four 
+Dallas wins. So we would have, in that intuitive comparison, 
+formulas before us where we're trying to say in these four 
+formulas that the community needs of Detroit are perhaps 
+lessened, and the community needs and development of Dallas are 
+increased. That's kind of troubling to me.
+    And so I've looked to the issue then of how the proposals 
+are structured, and with your charts, you have mapped less need 
+versus high need based upon some assumptions that are used then 
+to structure your formula. And it's those assumptions, not 
+necessarily the four examples, that I would like to ask my 
+questions about predominantly, because it seems as if the 
+moment that you define a low need and a high need, based upon 
+factors that you put together here, that the outcomes of your 
+four recommendations are going to be, of course, biased toward 
+those. And in looking at them, there are a few things that 
+jumped out at me.
+    One, obviously, is immigration. It appears to me, in 
+reading these materials--and obviously this is a very complex 
+report, so I'm going to need your assistance in deciphering it, 
+but it appears that immigration, being identified as a new 
+element of an expression of need, is reflected in your charts 
+at a weighting of what percentage? From the materials that I 
+saw here, I believe it's 15 percent. Is that accurate?
+    Mr. Bernardi. That's correct.
+    Mr. Turner. OK. The part that troubled me the most was when 
+I read this, it said a new dimension of community distress that 
+surfaced as a result of the rapid growth in the immigration 
+population. And certainly immigration has not been a new 
+phenomenon. Our committee is the Federalism and the Census, and 
+so I had a visit from census people the other day, and they 
+gave me this great big, thick book, which I looked into the 
+issues of immigration. And if you look at a chart from 1900 to 
+2003, there is definitely a spike that occurred around 1990 in 
+immigration. But there is, then, a capping that occurs in the 
+amount of immigration that is permitted, legal immigration. And 
+then if you look in the Statistical Abstract of the United 
+States, 2004, 2005, the National Data Book, if you look at 
+immigration from 1901 to 2002, it shows that the rate of 
+immigration per thousand population--immigration population in 
+contrast to the U.S. citizen population in thousands--that we 
+do have a peak in the 1980's and 1990's, but that we have 
+returned to a pace that is similar to the current--the pace 
+that was experienced back when I was in college and they were 
+discussing redoing this formula.
+    For example, from 1971 to 1980, this report indicates that 
+our rate per thousand is 2.1. From 1981 to 1990, it rises to 
+3.1; 1991 to 2000, 3.4; spikes in the 1990's, 6.1, 7.2; but it 
+has fallen such that it goes below 3 from 1995 forward to 
+through 1999, and then hovers around 3, 3.7 in the beginning of 
+2000.
+    So it seems to me that when we start with the assumption 
+that it's a new phenomenon, it's not. The new phenomenon was we 
+had a temporary spike--and you guys probably can't, because I 
+don't have as big a graph as you do, but we had a temporary 
+spike, and that certainly was a phenomenon that did occur. But 
+it's not new, and we've always had immigration. It's maybe new 
+in certain concentrations in areas of the South, and it may be 
+new in the composition of that population that are immigrants--
+certainly poverty is not new in concentrations in immigrants. 
+And since our census statistical data shows that it has leveled 
+off and returned to the same levels as when we first put this 
+formula together, I'm wondering if we would be making a mistake 
+at this point to now weight the formula by 15 percent on 
+something that we know from this point going forward should be 
+about the same as we experienced from 1978 until the early 
+1990's. Your thoughts.
+    Mr. Bernardi. As you mentioned, the immigrant population 
+increased in the 1970's and 1980's, I believe you're 
+indicating, up into the 1990's, and you feel it's leveled off--
+--
+    Mr. Turner. According to the census data, it is now at the 
+same level----
+    Mr. Bernardi. What we did with this study is we took 17 
+variables and we related these variables back to the primary 
+objective of the CDBG formula program. The variables measured 
+decent housing, suitable living environment, economic 
+opportunities, and low and moderate income. And as they used a 
+factor analysis with these 17 variables, this analysis 
+basically groups these variables down to several individual 
+factors, and those individual factors in the previous studies 
+were poverty, problems in aging communities and communities in 
+decline. The present formula has an 80 percent single factor 
+for poverty, age of housing and decline; and that, as you 
+mentioned, the 15 percent factor related to the fiscal--stress 
+related to immigrant growth; in here, the Santa Ana, Anaheim, 
+CA.
+    This material was done on information, I believe, right up 
+through 2004. And the overcrowding number in the alternatives 
+has been substantially reduced. If you look at the current 
+formula, overcrowding in Formula A is at 25 percent, and 
+alternative 1 takes it to 30 percent, but then it goes to 20 
+percent in alternative 2, and down to 10 percent for 
+alternative 3.
+    The overcrowding takes place in cities like Miami and areas 
+like you mentioned in the South and the Southwest, but our 
+folks felt that percentage would be an accurate indication of 
+what the stress would be because of overcrowding.
+    Mr. Turner. Well, and that actually goes to my next area of 
+questions concerning the immigrant population, because there is 
+a weighting for overcrowding, there is a weighting for density 
+of population. It seems to me perhaps as double-counting when 
+you factor in immigration, because what you're doing is you're 
+saying these are expressions of poverty in a community, 
+overcrowding, density, poverty itself, the make-up of the 
+households, but then when you overlay immigration upon it, 
+you're, it seems to me--especially with the weighting of 15 
+percent in your charts--double-counting what you're going to 
+find in those communities as a result of the impact of 
+immigration.
+    Mr. Bernardi. Overcrowding--a great deal of the immigrant 
+population utilizes, as far as I understand it, more of the 
+services than they contribute into the services. And the fact 
+is the overcrowding number is more than 1.01 person per room. 
+And you find that the overcrowding number--and then when you 
+cap it with the low-density places with a high concentration of 
+poverty, they put a 5 percent weight on that. I don't see it as 
+double-counting, but that's open for discussion.
+    Mr. Turner. The next question I have with regard to 
+immigration--and then we'll turn to Mr. Dent, and then I have 
+another series of questions of the other factors--is that if we 
+are to accept that it's new, a proposition that I don't 
+necessarily accept, and we are to accept that the migration of 
+immigrant populations are a factor that needs to be taken into 
+consideration, the type of aid that is provided to cities, I 
+wonder whether or not the Community Development Block Grant 
+Program is the appropriate place to do that in that you already 
+have, by the understanding that immigrant populations are going 
+to migrate to areas of the country that have growth, jobs and 
+opportunity--that, in fact, you aren't then shifting Community 
+Development Block Grant funds which are stability in focus, in 
+part, to address issues of growth where there is also economic 
+growth that might be available to remedy some of those needs.
+    Mr. Bernardi. True. But as I mentioned earlier, a larger 
+percentage of the immigrant population utilized more services 
+than they provide in services. And that's only a part of the 
+needs index, as we indicated, as 15 percent. I think the 
+strength of this is that 80 percent is on the poverty, age of 
+household and communities in decline.
+    Mr. Turner. My question was is it possible that the topic 
+that you're trying to remedy is one that--of immigration and 
+the burdens of needs that are being placed on communities that 
+are seeing large migration--immigration populations might be 
+best served not by modifying CDBG, but by looking at what 
+specific needs and assistance should be provided separately 
+from the CDBG program?
+    Mr. Bernardi. Of course. I mean, you could look at any 
+segment of our society and create a new program if you wanted 
+to, Congressman, as to how you would address that.
+    As far as we're concerned, though, when we did this report 
+in 1983 and 1995--we were mandated by Congress to do this 
+report--we did this as part of our 2004 budget submission. And 
+I think everyone feels very strongly that the formula program 
+does not target strongly the need as it was intended at the 
+inception of the program in 1974. And there's many different 
+ways in which you can change this formula, but I mean, there is 
+a formula 5 that I didn't bring with me today, and that is a 
+little bit of a tweak between alternative 2 and alternative 3. 
+You can reduce or increase any of these factors to compensate 
+for an area in which you feel perhaps there is an overweight.
+    Mr. Turner. Thank you.
+    Mr. Dent.
+    Mr. Dent. Thanks, Mr. Chairman.
+    Good morning, Mr. Secretary.
+    Mr. Bernardi. Good morning.
+    Mr. Dent. I enjoyed your presentation.
+    I guess my question is in order to make this system more 
+fair, you can probably write a lot of formulas, but what is 
+really driving the iniquities? Why are some of these lower-need 
+communities getting their greater share per capita spending 
+than the higher-need communities? Is it population decline? Is 
+it the student population, housing stock? What factors are 
+really driving this disparity, particularly in the entitlement 
+communities more so than the nonentitlement communities?
+    Mr. Bernardi. As I indicated in my presentation, you take a 
+look at Newton, MA; Portsmouth, NH; and Royal Oak, MI they all 
+receive between $28 and $37 per capita, and they do that 
+because they're a Formula B community. And in a Formula B 
+community----
+    Mr. Dent. Is that older housing stock?
+    Mr. Bernardi. That is correct. They have the older housing 
+stock, the Formula B provides a higher dollar amount to them, 
+and that's the pre-1940 housing. So by adjusting that, by not 
+just having it pre-1940 housing as it is under the present 
+formula, under these new proposals it's 50-year housing or 
+older, which would make it 1955--and that would be on a growth 
+basis, in 5 years it would be 1960--but what we do is those 
+houses 50 years or older would have to be occupied by a person 
+in poverty, a person in poverty defined as two people making a 
+certain amount of money, three people----
+    Mr. Dent. So it is not just the age of the house, but the 
+age of the house plus the person living in poverty. I take it 
+Newton, MA, has a lot of older homes, but they're not 
+necessarily lower-income people living in those homes.
+    Mr. Bernardi. Exactly.
+    Mr. Dent. Other factors in determining this formula, tax-
+exempt property or rental housing, is that a factor you use in 
+determining any of the needs of communities? Many communities 
+have higher--larger percentage of rental property, you probably 
+have higher cases of poverty, for example. Or a lot of 
+communities, older cities, have probably larger amounts of tax-
+exempt properties, which may include colleges and universities, 
+which again skews the formula. So I guess my question is do you 
+use any of those indicators in determining the wealth of the 
+community?
+    Mr. Bernardi. The indicator of housing was not used. As a 
+matter of fact, we have a grant program called the Home 
+Program, which deals with affordable housing in this country. 
+So housing was not used, and rent in and of itself was not used 
+as a tabulation for the formulas that have been presented.
+    In alternative 3, the one difference that was used there is 
+they used a per capita income basically to make a determination 
+when it comes to the wealth of a community, for example. If a 
+local jurisdiction's per capita income is lower than the per 
+capita income of the metropolitan area, that local jurisdiction 
+would receive additional dollars. If their per capita income, 
+conversely, is higher than the per capita income of that 
+metropolitan area, by a factor analysis that our people put 
+together, they would receive less.
+    So what you do with alternative 3 that you don't do with 
+alternative 2 is you put in that per capita income caveat.
+    Mr. Dent. On a related question; do any of these 
+alternative proposals use cost of living as an evaluator of 
+need? Do you use that at all?
+    Mr. Bernardi. I don't believe so, no.
+    Mr. Dent. OK. And I guess it would be fair to say, if I 
+heard your original testimony correctly and clearly, that it 
+seems that the disparities are less among the nonentitlement 
+grantees than the entitlement grantees; is that a fair 
+statement?
+    Mr. Bernardi. That is correct.
+    Mr. Dent. Let me ask another question I have. On page 4 of 
+your testimony, you're showing some of the disparities. I think 
+you said the disadvantage of alternative 2 is that high-need 
+communities tend to fall below our needs line. Miami, St. Louis 
+and Detroit all would get the same amount; however, they would 
+fall below the needs index. And I was trying to understand why 
+those communities would fall under the needs index under that 
+alternative. Do you see where I am in your testimony?
+    Mr. Bernardi. Yes.
+    Mr. Dent. You were pointing out the disadvantage of 
+alternative 2.
+    Mr. Bernardi. Well, alternative 2, if you look at the 
+chart, it basically brings all of the communities together, and 
+it doesn't provide additional dollars to the highest-need 
+communities. The highest needs tend to fall below that needs 
+index line. As you can look at that chart to the right where it 
+says highest needs under alternative 2, the majority of those 
+communities are below the needs index line. And then when you 
+take alternative 3, you can see that a majority of them go from 
+below the needs index line to above it.
+    Alternative 2 does a nice job, and it brings the 
+communities that receive a higher per capita, because, as I 
+indicated to you earlier with Formula B with that pre-1940 
+housing, those three examples that we used, those communities, 
+that brings them back down to a $5 to $7 per capita range as 
+opposed to when they were a $20 to $30, but it does not provide 
+a greater percentage of dollars to the higher-need communities 
+as alternative 3 does.
+    Mr. Dent. OK. You do a lot with these formulas. Here is the 
+bottom-line question for me. Is there any way I could see how 
+my communities in my district fare under the current formulas 
+that are used to distribute the CDBG dollars, particularly for 
+the entitlement communities, versus how they would do under the 
+various alternatives you've outlined here today? You might not 
+have it in front of you here, I understand----
+    Mr. Bernardi. I do have it in front of me.
+    Mr. Dent. You do? Wow, I'm really impressed.
+    Mr. Bernardi. It indicates here that the majority of your 
+communities will lose funding. All of your communities are 
+Formula B.
+    Mr. Dent. These are the entitlement communities, or these 
+are the nonentitlements?
+    Mr. Bernardi. Both.
+    Mr. Dent. Both, OK.
+    Mr. Bernardi. Both Burkes County and Montgomery County 
+receive more than--I can get this to you if you'd like.
+    Mr. Dent. Yeah, I'd like to see that. Lehigh and 
+Northampton Counties, and Berks and Montgomery, would you break 
+it out into county-by-county basis? Is that how you have it 
+broken down?
+    Mr. Bernardi. We do have it that way, yes.
+    Mr. Dent. That would be great. Thank you.
+    Mr. Turner. Mr. Bernardi, a clarification. In the 
+discussion on housing, you talked about the age of housing, and 
+that the pre-1940 standard versus rolling 50 years, and you 
+went further to say occupied by an individual. And actually, 
+according to what your standards are, it's not really an 
+individual, it's a family in poverty, because you don't count 
+individuals in poverty, which we will get to in a minute, which 
+I believe is a mistake. But by counting the households that are 
+greater than 50 years that are occupied by a family that's in 
+poverty, do you have a factor of counting abandoned housing 
+stock? Because certainly that would be an element representing 
+a blighting influence, and I didn't note that anywhere.
+    Mr. Bernardi. We don't. But you're correct, that obviously 
+is a blight to the community. As the mayor of Syracuse and 
+yourself, as mayor of Dayton, we realize the number of 
+abandoned homes that we have.
+    Mr. Turner. You and I have had this discussion about 
+abandoned housing--frequently abandoned housing does not 
+necessarily just represent migration trends. It doesn't 
+necessarily mean that a neighborhood is no longer desirable or 
+suitable. Sometimes it means the lifecycle transition of a 
+house or a building, having gone from owner-occupied to a 
+rental unit, from a rental unit to abandonment with title 
+problems where acquisition is inhibited. And the community's 
+ability to go in and rehabilitate that unit, thereby returning 
+a family or an individual to the neighborhood, would be limited 
+to the extent that you reduce their community development block 
+grant funds by the vacancy of the house. You are, in fact, then 
+penalizing them--removing a funding source for housing 
+rehabilitation based on the fact that they're experiencing 
+abandoned housing.
+    Mr. Bernardi. Well, as you know, Congressman, the CDBG 
+moneys can be used for acquisition and demolition; and a great 
+deal of that is done in the high-distressed communities, 
+Northeast, the areas where pre-1940 housing under the present 
+formula is taken down. And what that does, obviously, it hurts 
+your number as far as the allocation because of the pre-1940 
+housing percentage.
+    Mr. Turner. But everyone would agree that one of the goals 
+and objectives of CDBG is the acquisition and renovation of 
+abandoned housing units, which are a blighting influence, and 
+this ranking of need would specifically remove those units 
+which are targeted for CDBG funds from the indication or the 
+assessment of need.
+    Mr. Bernardi. I'm sorry, I didn't follow you.
+    Mr. Turner. We all agree that CDBG for funds--or one of 
+their intended uses is to address the blighting influence of 
+abandoned housing in communities, correct? So I'm just asking 
+you to recognize that your graphs of low need to high need 
+removes an element of need of abandoned housing that the 
+program is specifically designed to try to address.
+    Mr. Bernardi. Well, I've just been informed that we're 
+doing research on vacant housing, and it's something to be 
+considered.
+    Mr. Turner. OK. The next topic which is identified in the 
+GAO report is the issue of using metropolitan per capita 
+income. And I found it interesting because I'm familiar with 
+David Rusk's work, and I didn't quite get the nexus between his 
+work and utilizing the metropolitan per capita income element 
+here. But in your testimony, Mr. Dent asked you if you take 
+cost of living into consideration, and you indicated you did 
+not.
+    Mr. Bernardi. No.
+    Mr. Turner. By taking metropolitan per capita income into 
+consideration and not taking costs, aren't you taking--aren't 
+you heavily weighting toward what could be low-cost, wealthy 
+communities?
+    Mr. Bernardi. Low-cost wealthy areas.
+    Mr. Turner. Yes. Because if you take metropolitan per 
+capita income--and I believe from my reading from this--and 
+please correct me if I'm misunderstanding this--in reading this 
+paragraph it seems to me that you're saying communities that 
+have a high metropolitan per capita income are burdened with 
+higher costs in being able to deliver services and 
+accomplishing community development projects; and therefore, 
+you're taking that as an element into consideration and 
+providing them funding. But if you don't take costs into 
+consideration, you're rewarding communities that may have high 
+per capita income and low costs, I believe. Am I incorrect 
+there? Is there some adjustment that you're making?
+    Mr. Bernardi. High per capita income and low costs, 
+personally I don't see how they go hand in hand----
+    Mr. Turner. Well, high-growth areas where there is a 
+significant amount of opportunities will have wages that have 
+upward pressure that may not yet have expressed high cost of 
+living in either housing or other elements of family support.
+    Mr. Bernardi. Initially; but eventually that catches up, 
+and catches up in a hurry.
+    I think what we've done here is to look for jurisdictions 
+where the per capita income is lower, obviously, than the per 
+capita income in that metropolitan area. That would demonstrate 
+to me that's a community that has some concerns, has some 
+decline. And that's why that community would receive, according 
+to alternative 3, additional funding.
+    Mr. Turner. And I guess I don't quite understand, then, to 
+what extent that is taking into consideration how that is 
+applied. It would seem to me that a community that has low per 
+capita income, and it is also in a metropolitan economy that 
+has low per capita income, would have less opportunity, not 
+more opportunity, because we know in metropolitan regions they 
+tend to be--they are not hard-set boundaries in metropolitan 
+regions for an economy. So that the individuals who are in 
+poverty, who are in a community where the regional per capita 
+income is higher, would have economic mobility greater than 
+someone living in a community where they're in poverty and the 
+per capita income around them is lower.
+    Mr. Bernardi. True. You would have more of an opportunity 
+if you're in a region where the per capita income in that 
+region is higher even if your jurisdiction is lower, yes.
+    Mr. Turner. Which goes to my questioning. This is a new 
+element that had not been there before.
+    Mr. Bernardi. If I may, you can look at a city that has a 
+low per capita income, and then look to the metropolitan area 
+and you see a higher per capita income, and the fact is that 
+the people who put this together were looking for a way to 
+weight, if you will, those individuals living just a few miles 
+from other individuals who, because of many varied 
+circumstances, that per capita income is extremely lower.
+    Mr. Turner. And I think certainly the disparity that those 
+individuals experience would be greater, but the economic 
+community development, economic opportunity that that community 
+has, is not necessarily impacted by that. It might actually be 
+enhanced. You might have a greater opportunity for regional 
+resources rather than a lesser opportunity if your region has a 
+lower per capita income, but that is just my thoughts on that. 
+And I appreciate you explaining it to me because it did not 
+make sense to me at first.
+    I'd like to turn next to the issue of looking to family 
+households and excluding the single poverty individual who is a 
+nonsenior, nonelderly single population. Am I correct that is 
+occurring? There is a huge footnote down here that I do not 
+understand. I understand the intent, that there was a concern 
+that off-campus college students in college towns might have an 
+impact in the overall numbers.
+    Getting back to intuition, it would just seem to me 
+nationally that we probably have more individuals who are 
+living in poverty in single households than we have in single 
+off-campus college students. Now, I could be wrong, but that's 
+just my guess.
+    And to go the next step of then just excluding all single, 
+nonelderly households in order to get to the off-campus college 
+students seems extreme. Your footnote goes on to explain the 
+rationale and the basis for it, and claims statistically that 
+it does parallel itself, but it seems to me that the footnote 
+said, in order to prove that eliminating all single, nonelderly 
+households that are in poverty to get to the off-campus college 
+students, we prove that it doesn't have that much of an impact 
+if we globally do it; and you went, I think, by going to go and 
+look at the population of off-campus college students.
+    If you can look at the population of off-campus college 
+students, why aren't we just doing that instead of eliminating 
+all single poverty households that are not elderly?
+    Mr. Bernardi. As we mentioned earlier regarding those 
+communities that are affluent communities, if you will, that 
+receive above the line in the need index, the Portsmouths and 
+the Newtons, there that is older housing, and just by having to 
+indicate that it's pre-1940 housing, they receive a benefit 
+there. And there are many, many individuals that reside in 
+those properties that are anything but poor people in need.
+    Mr. Turner. I understand your point----
+    Mr. Bernardi. In other words, I don't believe you could 
+just do it for the university areas and not have the desired 
+outcome that you would want, the weighted under Formula B right 
+now that provides to those affluent communities with the pre-
+1940 housing.
+    Mr. Turner. And perhaps you need to provide me more 
+information on this, but let me read these next two sentences 
+to explain my question. It says that, because this variable 
+excludes single, nonelderly persons in poverty, there is a 
+sense that it may misrepresent the needs of communities with 
+particularly high portions of their population made up of non-
+college students who are single, nonelderly and in poverty. 
+That is my sense----
+    Mr. Bernardi. It would be nice to get everyone into the 
+mix----
+    Mr. Turner. The next sentence, though, says, to test this, 
+HUD requested a special tabulation of census data that 
+specifically excluded full-time college students from the 
+poverty count. And my question, which perhaps you can provide 
+me information later, is if you can do that, why not just do 
+that instead of excluding all non-college students, single 
+nonelderly in poverty? Because it seems that the footnote says 
+we're going to exclude all these non-college students, single, 
+poverty, nonelderly, because we have tested it with the census 
+data, and it gives us the same number as if we just exclude 
+full-time college students. And it goes on to say that people 
+aren't necessarily going to believe that or trust that. I'm one 
+of those. So if you can, why don't you just eliminate full-time 
+college students? And perhaps that is something that you can 
+provide us information.
+    Mr. Bernardi. I'll be happy to do that.
+    But as I mentioned a moment ago, you still have to address 
+the pre-1940 housing and those affluent communities that 
+presently operate under Formula B and receive a 
+disproportionate share per capita based on pre-1940 housing. 
+Then you would have to add another caveat, if you will, to 
+address that.
+    Mr. Turner. I understand your housing point.
+    Mr. Dent, further questions?
+    Mr. Dent. Thanks, Mr. Chairman.
+    When you're driving these formulas, have you looked at tax 
+effort or a community's fiscal capacity in determining grant 
+levels? In other words, some communities that are quite poor 
+have very high tax efforts, and some of those communities that 
+are of perhaps lower need may have much lower tax efforts. Have 
+you ever looked at that as a potential component to the 
+formula?
+    Mr. Bernardi. I don't believe so. I don't believe that the 
+taxes of a particular jurisdiction come into play at the 
+ability of the community, if you will, to provide for services 
+that some communities could not because of their ability to 
+have the higher sales tax or to have a higher property tax 
+base.
+    Mr. Dent. I guess the reason I'm asking is in my State of 
+Pennsylvania, we used to run these complicated school subsidy 
+formulas, and we always tried to throw in a tax effort whenever 
+we could. Do you measure poverty here by TANF families, or what 
+is the definition of poverty under this?
+    Mr. Bernardi. The definition of poverty is a family--an 
+individual with a certain income, two people with a certain 
+income, three people with a certain income.
+    Mr. Dent. OK. Is that essentially--is that the TANF 
+criteria, more or less?
+    Mr. Bernardi. I believe so.
+    Mr. Dent. OK. And the next question I have is, you know, 
+we're doing two things here. We're trying to look at the 
+formula that drives the money out to the various communities, 
+but the question I have is how are these CDBG funds generally 
+spent by the neediest communities, and how would they be spent 
+generally by the lower-need communities, and what's the 
+difference? In the communities that Chairman Turner and I 
+represent, a lot of those dollars are being used for 
+demolition, deconverting rental units back down to owner-
+occupied settings, and all types of what I would consider 
+legitimate community development, putting money into areas 
+where we would not be able to invest, be able to draw private 
+sector investment, but basically preparing sites, preparing 
+land, preparing housing.
+    What do you see the difference of how the moneys are spent 
+between these high-need communities versus the low-need 
+communities?
+    Mr. Bernardi. Well, as you know, Congressman, the 
+flexibility of the program within parameters allows each 
+community to basically spend the money within the guidelines of 
+the rules and regulations.
+    I can tell you, with the 2004 expenditures, basically, oh, 
+I think it was $1.6 billion out of the $4.1 billion, about 26 
+percent was used for housing rehabilitation. And I think the 
+low-need communities, as Congressman Turner mentioned earlier, 
+when you have to do an awful lot of rehabilitation, maybe do 
+some demolition housing, housing is maybe the highest 
+expenditure.
+    There are also communities that can use it for public 
+services, like adult literacy, child day care, but there's a 
+cap of 15 percent. So the communities would look at their 
+priorities and make a determination as to how they want to 
+utilize those dollars. There's also public facilities, 
+percentages used for sidewalks, streets, sewers. Economic 
+development is another area where resources are used.
+    Mr. Dent. I guess the final question I have, do you think 
+it will be difficult for Congress to come to some kind of 
+consensus on this given the complexities of the methodologies 
+that you are using? Because at the end of the day, if most 
+Congressmen are like me, they will look at their communities 
+and see how they will do under the old system, look how they 
+will do under the new system and that will drive a lot of their 
+decisionmaking. Have you thought about that at all?
+    Mr. Bernardi. We have. That's why we have four alternatives 
+that are in front of you. Regardless of which alternative you 
+were to choose, if you were to choose a change in the system, 
+there are going to be communities that will receive more 
+dollars and there will be communities--everyone will be 
+affected.
+    But, then again, the variables that are being used here, 
+it's how close you want to target to need the objectives of the 
+program, decent housing, economic opportunity, quality of life 
+and providing dollars for people of low and moderate income. 
+The communities right now spent about 95 percent of their 
+allocations to benefit low and moderate income individuals; 
+that was 60 percent. It was raised to 70, then to 80 by 
+Congress just 10 years ago.
+    But the communities, in your previous question, communities 
+utilize the moneys. I think, to help the people that they think 
+need it the most, depending on what areas they want to do, 
+whether it's housing or whether it's a program for senior 
+citizens through the public service cap.
+    Mr. Dent. When you talk about those communities, I don't 
+want to talk about winners and losers, but those communities 
+may do better than others. I have a good sense of which 
+communities would need a greater boost through CDBG than some 
+others that might not fare as well or do worse or could afford 
+perhaps to do a little worse. Would these formulas be able to 
+break these, break this down by municipality? I know you have a 
+county-by-county analysis. But you could actually break it down 
+by municipality in my district so I could see the----
+    Mr. Bernardi. Yes. We do all that information. We can 
+provide for you exactly what would occur with each urban 
+county, for example, for an entitlement community, for your 
+non-entitlement communities. Also, when the program went from a 
+categorical grant program to the formula here back in the 
+1970's, there was a phase-in period that was put into place by 
+Congress. I think it was anywhere from 3 to 5 years.
+    If you choose to change the formula, you could do the same 
+thing here so that the community would be phased in to 
+receiving that extra money so they have the capacity and the 
+wherewithal how to use the capacity at the same time if they 
+were to lose those dollars.
+    Mr. Dent. That would help me quite a lot. I could pick at 
+you all day in terms of the formula--what form it should be in 
+and shouldn't be in--but if I could look at all four 
+alternatives and break it down, I could get a sense of what is 
+the fairest for my district. I am trying to drive the money to 
+the communities most in need. That would be helpful to me and 
+in my decisionmaking process if we went forward with some kind 
+of formal funding.
+    Mr. Bernardi. We have that information and would be happy 
+to provide it to you.
+    Mr. Dent. That would help me to see what is more equitable 
+versus what is less equitable. So thank you.
+    Mr. Turner. Well, Mr. Secretary, for just a moment, I want 
+to get back to the immigration issue, because, as we were 
+talking about the David Rusk issue of the inelasticity or 
+elasticity of metropolitan areas--basically your document, as 
+it reflects David Rusk, is talking about the ability for a 
+metropolitan area to grow into a regional metropolitan 
+government type versus those that are geographically frozen, 
+small central cities, perhaps growing affluent suburbs.
+    Taking into consideration, as you do, the disparity of per 
+capita income between the metropolitan area and the urban core, 
+as a percentage, I indicated that I believe that may be 
+incorrect, because you are an individual who is in poverty in a 
+community where that is not that great disparity, has less of 
+an overall economic opportunity than a person who is in a 
+situation where the metropolitan area is significantly higher 
+than the urban core.
+    But getting back to immigration. We have here percentage 
+point change in poverty rate as an element that you consider. 
+And we have in here metropolitan per capita income disparity 
+between the urban core and the suburban area, and we have in 
+here concentration of poverty. Those are weighted, and then as 
+we discussed immigration, I was indicating--I believe that some 
+of the factors that you have double count the expression of 
+immigration and opportunity--and I just want to walk through 
+that.
+    I am not asking you a question, but you can comment on it 
+if you would like. It would seem to me that if you have an 
+area, if we have a small urban core that geographically is 
+frozen but cannot grow, but a successful metropolitan area, 
+where the per capita income is higher in the suburbs than in 
+the urban core, significantly, which is what you are trying to 
+register and capture, that would be an area that would attract 
+immigrants, and that, again, the urban core, not having an 
+ability to grow and probably having the less expensive housing 
+options available would attract that immigrant population.
+    Because it's under David Rusk's model, geographically 
+unable to grow to capture the economic growth in its suburbs, 
+it would have a percentage change in poverty that would go up. 
+It would have, because its population is growing, a higher 
+concentration of poverty than it had before, and it would 
+remain in an area where its per capita income is in a 
+significant disparity to its metropolitan area.
+    So that's one of the reasons I am concerned that you used 
+these elements that are things that I believe will occur in an 
+area that's experiencing immigration, and then you go back in 
+and weight your system an additional 15 percent for 
+immigration, when, I think in the elements that you are 
+capturing, the expression of immigration is already going to be 
+reflected.
+    Mr. Bernardi. So, if I may, you are looking to localize 
+this then. You are saying immigration would tend to be in areas 
+where there's a low per capita income, but we estimate the 
+metropolitan area is high income. There's more opportunity. 
+There's less expensive housing, so these individuals--I don't 
+know how you capture that.
+    Mr. Turner. My concern is that your factors, by then going 
+back and adding immigration, what you are doing is saying, we 
+are going to look at poverty and community development needs. 
+Then you are factoring over on top of those an expression of 
+certain types of poverty by the individual whose impoverished, 
+the immigrant.
+    I think that double counts the expression of poverty in the 
+community that probably does not serve us. And that's my 
+analysis of this, and any other additional analysis and 
+comments that you make or further discussion, I would love to 
+hear.
+    Mr. Bernardi. I appreciate what you are saying. It also 
+seems to me that when you talked about the college towns and 
+making a separate distinction as to why we can't just make the 
+adjustment in the way the university housing is or the college 
+housing is--and I would like to say that these are just 
+alternatives.
+    Mr. Turner. I understand.
+    Mr. Bernardi. I told you I have an alternative five that I 
+like even better than the first four alternatives.
+    Mr. Turner. I would love to see it.
+    Mr. Bernardi. But you can tweak these numbers, and you can 
+eliminate, like, for example, between two and three, as I 
+mentioned, what we did there to provide additional dollars to 
+the high-need communities is we took the overcrowding, the 
+number that you are talking about, that would tend to come with 
+an immigrant population and reduce that by 10 percent, and at 
+the same time, we increased by 10 percent housing 50 years or 
+older. So there are ways in which you can even make more 
+distinctions than we have made here.
+    Mr. Turner. OK. When you were present for the Strengthening 
+America's Communities Hearing, David Sampson from Commerce gave 
+us some initial discussions concerning how that program, if it 
+were to be approved, would allocate its community development 
+to dollars.
+    And his discussion was that a task force is going to be 
+formed that would flush out what these elements or factors were 
+to be considered. But his testimony here pretty much focused on 
+poverty only and looking at communities that had a poverty 
+expression greater than the national average.
+    I didn't see in yours, and it may be there, and I just 
+don't see it, that where you have communities that have a 
+poverty in excess of the national average, that there's an 
+additional weighting toward them versus just the expression of 
+poverty generally. Is that accurate?
+    Mr. Bernardi. Well, the numbers that Mr. Samson provided 
+you, I believe, he said that 38 percent of the cities that 
+received CBDG resources were below the poverty number. That's 
+not the case. It's more like 22 percent.
+    The fact of the matter is, I think this particular formula 
+that we presently operate under and the alternatives that we 
+proposed, I think, target more of a need. As you can see by the 
+numbers here, I think the poverty of family and elderly poverty 
+is 50 percent in formulas two and three.
+    Mr. Turner. Going back to the factors again. When you 
+identify what the factors are--and, by the way, the report, I 
+do want to compliment you on your report. This is an excellent 
+report in being able to read and digest it and being able to 
+look at the extent of data analysis that has gone on this. 
+Whether or not anyone agrees with the outcomes or the specific 
+recommendations, the work that is done here is just excellent 
+work.
+    Getting to, then, once you have identified these factors 
+that you believe and the new demographics could be taken into 
+consideration--when you go to put that chart together of less 
+need and high need, you then weight these factors. We just had 
+discussions whether or not the elements as a factor should even 
+be considered. The next process is the weighting of those 
+factors.
+    The discussion in the document pretty much, that I got from 
+it, in discussing how that weighting occurred, is a judgment 
+based on this factor is either higher and lower, and so then a 
+number higher or lower is picked.
+    But I didn't get any information as to how the exact number 
+was picked: 80 percent for factor one; 15 percent for factor 
+two; 5 percent for factor three. Do you have information that 
+tells us what that process was in determining that?
+    Mr. Bernardi. I am sure we do, and I can get that to you. 
+But as I mentioned, the 17 variables taken into consideration 
+break down into four areas. There were three variables on 
+decent housing, three on unsuitable living environment, four 
+for economic opportunities, and then low and moderate income 
+had the remainder. I will be happy to get you that information 
+as to how they weighted it so that it came down to the number 
+that we have.
+    Mr. Turner. I know Mr. Dent was asking for additional 
+information on how the four formulas are applied to 
+communities. I don't recall specifically if he also asked in 
+looking at how the alternatives are applied to cities and then 
+looking at the equation that is in the front. I don't think we 
+have the data of the actual application of the equation to each 
+city so that a city could pick it up and see how their number 
+was decided based on the data that was in front of them. Could 
+we have that information given to us?
+    Mr. Bernardi. Well, we can give you the information right 
+now as to what I know each community would receive or would not 
+receive based on each one of the alternatives. Now, to give you 
+the information behind how that was calibrated?
+    Mr. Turner. Right.
+    Mr. Bernardi. We will do it, sure. I should say, my people 
+behind me will do it.
+    Mr. Turner. Grandfathering has been a question that comes 
+up frequently. GAO makes note in the written testimony, 
+grandfathering provisions in the current law which allow 
+communities that no longer meet eligibility requirements to 
+remain entitled.
+    Some of the questions that we have here are, how many 
+communities fall into this category right now and how long 
+really is grandfathering permanent, and is there a geographical 
+trend that shows certain areas falling out of entitlement 
+status and into grandfathering status?
+    Mr. Bernardi. I don't believe we have too many areas that 
+are falling out of entitlement. We have had a significant 
+increase in entitlement communities, as you mentioned in your 
+opening statement. But I would be happy to tell you how we 
+grandfather.
+    Mr. Turner. Or if you could tell us who is, what is the 
+time period and give information about that process.
+    Perhaps you could give us your thoughts on the issue of 
+rural areas. I mean, throughout this report and also through 
+the GAO report, they have identified the issue of rural areas 
+and their needs being different than urban areas. If you could 
+give us your thoughts as to how that might be taken into 
+consideration and what we might need to do in looking at the 
+needs of rural areas.
+    Mr. Bernardi. There were 10 variables used for the non-
+entitlement communities. The non-entitlement communities are 
+the States that represent those rural areas that you mentioned 
+here. I believe that the alternatives here address the 
+disparities that occur from it. From the beginning, though, 
+there was not as much of a fluctuation and a shift between 
+States and non-entitlement communities as there were within 
+entitlement communities.
+    Mr. Turner. Any closing remarks for us, Mr. Bernardi?
+    Mr. Bernardi. Just that seated behind me here, there's a 
+gentleman named Harold Bunce, and he did the report first 
+report back in 1976. And the gentleman to his left is Kevin 
+Neary, and he participated in the reports in 1983 and 1995. And 
+Todd Richardson is right off my left shoulder here; he just 
+basically is the architect for this report.
+    I would like to say, this is the third full report that HUD 
+has taken a look at when it has come to redoing the formula. 
+You know, regardless, Congressman Dent indicated that we all--
+everyone wants to know what is going to happen in their area.
+    It's a difficult decision as to whether or not you make the 
+determination to change this formula. There's going to be, 
+obviously, some swings regardless of which alternative you 
+choose.
+    But it still targets the need, as you mentioned, Mr. 
+Chairman, in your opening statement, still targets those that 
+are most in need, but the disparities have grown over the 
+years.
+    And I want to thank you for the opportunity, and we will be 
+happy to answer all the questions in writing that we have not 
+answered here today. If you have any followup, just let us 
+know. Thank you.
+    Mr. Turner. Thank you so much for the time and effort and 
+the time and effort of your staff. What a great service you 
+have done in putting this report together. I am certain this is 
+going to result in a great discussion as we look forward to the 
+topic of CDBG, whether or not there needs to be changes in the 
+formula, and, if so, how that might occur in an equitable 
+manner for our country.
+    Mr. Bernardi. Thank you.
+    Mr. Turner. We will take a 5-minute recess as we bring 
+forward the second panel.
+    [Recess.]
+    Mr. Turner. I will call the subcommittee on Federalism and 
+the Census back to order beginning with panel two.
+    Panel two includes Paul Posner, Director, Federal Budget & 
+Intergovernmental Relations, Government Accountability Office; 
+Jerry Fastrup, Assistant Director, Applied Research Methods, 
+Government Accountability Office; and Saul N. Ramirez, Jr., 
+executive director, National Association of Housing and 
+Redevelopment Officials.
+    I believe, Mr. Posner, we are starting with you.
+    I'm sorry, gentlemen, I was just reminded we need to swear 
+the committee in because this committee does swear in 
+witnesses.
+    [Witnesses sworn.]
+    Mr. Turner. Please note on the record that all witnesses 
+have responded in the affirmative.
+    Again, Mr. Posner, I believe we are starting with you.
+
+     STATEMENTS OF PAUL POSNER, DIRECTOR, FEDERAL BUDGET & 
+INTERGOVERNMENTAL RELATIONS, GOVERNMENT ACCOUNTABILITY OFFICE; 
+  JERRY C. FASTRUP, ASSISTANT DIRECTOR, APPLIED RESEARCH AND 
+METHODS, GOVERNMENT ACCOUNTABILITY OFFICE; AND SAUL N. RAMIREZ, 
+ JR., EXECUTIVE DIRECTOR, NATIONAL ASSOCIATION OF HOUSING AND 
+                    REDEVELOPMENT OFFICIALS
+
+   STATEMENT OF PAUL POSNER, ACCOMPANIED BY JERRY C. FASTRUP
+
+    Mr. Posner. Thank you, Mr. Chairman, and Congressman Dent.
+    I want to begin by referring to a report GAO issued 
+February 16th of this year, and we call it, 21st Century 
+Challenges: Reexamining the Base of the Federal Government. I 
+think it is very pertinent to what we are talking about here.
+    Because what we say in that report is, we do have a fiscal 
+problem. We know we have deficits, but over the longer term, we 
+are going to have a real fiscal crisis. We are on an 
+unsustainable fiscal path, really not just at the Federal level 
+but our local States and governments, as you well know, are 
+facing significant structural pressures on both the revenue and 
+spending sides of the budget.
+    The point of all of this is that, at some point, all major 
+program activities at the Federal level--arguably, the States 
+have been through this in the recent crucible of fiscal 
+crisis--are going to have to be on the table, not to be changed 
+at the margin, like we often do, but really fundamentally 
+reexamining the base to test their relevance, for a 21st 
+Century period, and then new economy, to test their 
+effectiveness.
+    And one of the things we talk about in here is to test 
+their targeting. Programs are going to have to justify why they 
+should be exempt from such a process. As we are fond of saying, 
+in this process, fiscal necessity may, in fact, become a mother 
+of reform and reinvention in the public sector.
+    We think the HUD study, in fact, should generate and 
+provide us a good basis to generate this kind of reexamination 
+basis for the CDBG formula. In fact, this hearing, and I 
+commend you for holding this hearing, is a good example of how 
+such a process can get under way.
+    I think that the questions about the formula that have just 
+been illustrated in the previous discussion are germane and 
+whether or not this program is consolidated and whether or not, 
+frankly, fundings are changed.
+    Now, first, I want to say, my testimony is based on years 
+of formula design work that GAO has done. I have made sure that 
+Jerry Fastrup accompanies me here at the table. He is our 
+senior public finance economist with--I don't want to tip off 
+his age--but maybe 30 years of experience of working with the 
+Congress on formula design. And not only is he an extremely 
+knowledgeable and sharp technician, but he understands how to 
+explain these issues to various audiences over the many years.
+    Again, in our view, targeting is always in season to talk 
+about. But the fiscal impetus we have arguably provides a more 
+important impetus. The declining Federal resources is clearly 
+challenging politically, but it does provide an important 
+window to have this discussion. For example, if you are facing 
+cuts, you can provide cuts across the board. But targeting 
+enables you to hold harmless those communities and others with 
+least capacity to absorb the cuts. More targeting, arguably, 
+when you have less resources is needed to address the fiscal 
+gaps between those with high and those with low needs.
+    In our view, targeting generally entails two kinds of 
+dimensions or two kinds of design decisions. One is the 
+eligibility, what grantees are eligible for the program in the 
+first place and how to allocate money among those grantees. In 
+our testimony, we talk about two general evaluation criteria 
+that are useful to think about this and other programs.
+    One is treating equals equally. In other words, low-income 
+communities with high needs should be expected to have similar 
+per capita allocations under a well-targeted formula. And two, 
+allocating proportionally greater funds to those areas with 
+higher needs and lower capacity to fund the program on their 
+own.
+    As the HUD report suggests--and I do want to echo your 
+point, Mr. Chairman, we think the HUD report is a well-done 
+piece of policy analysis--that the CDBG formula does target 
+based on needs, but longstanding inequities exist. And the HUD 
+report does a very good job, I think, of laying out how such 
+factors skew the targeting in such areas as the definition of 
+older housing, lagging growth. The use of two formulas and 
+poverty measures that measure individuals rather than families 
+tend to skew the formula both by providing dissimilar or highly 
+disparate allocations to places with similar needs.
+    For example, Buffalo with the same score in the same index 
+as New York: Buffalo gets $68 per capita; New York gets $27 per 
+capita. And places with higher needs can get lower amounts than 
+places with lower needs.
+    I like one sentence in this report to quote, because I 
+think it's very apt. HUD says it's desirable to capture the 
+concept of age without overly rewarding communities that have 
+aged gracefully. I think that captures well some of the issues 
+of the formula design that we are having here.
+    All of these longstanding problems have been exacerbated by 
+funding declines in real dollar terms after inflation, that 
+there's been a decline in the per capita grant by about two-
+thirds over the year.
+    What this says is, when you have a shrinking pool of money, 
+it makes targeting arguably more important to address the high 
+needs communities' needs. And with regard to the alternatives, 
+HUD's report and all the charts you have seen offers the four 
+options from modest to substantial reallocation. The first two 
+provide technical improvements in redefining needs indicators 
+by addressing such factors as age of housing and how a student 
+issues greater targeting for poverty--going to one rather than 
+two formulas, which we think eliminates a lot of the imbalances 
+between communities within similar needs baskets.
+    The third formula introduces an entirely different element 
+into the equation, which is the issue of income and measuring 
+the relative income of communities, measured by two factors. 
+One is the community's own income, and second, as you indicated 
+in your previous discussion, the metropolitan area's income.
+    As HUD's analysis shows, this factor substantially improves 
+targeting, but additional analysis is needed, because as our 
+statement indicates, these two specific measures tend to offset 
+one another, that lower-income communities in higher 
+metropolitan area income areas, their income needs get offset.
+    And so as we think about how we introduce income into this 
+formula, there's some substantial design issues that have to be 
+further flushed out.
+    But I don't want to lose the main point here, is that 
+fiscal capacity is an important element to consider for this 
+formula, as it is for most other Federal formulas, particularly 
+as we triage scarce Federal funds.
+    The relative capacity of areas in local governments to fund 
+their open needs should become more important. In a world of 
+unlimited resources, we might never have to make these choices. 
+But in the world of greater and ever shrinking resources, 
+arguably we do.
+    In fact, communities with lower tax bases will have to 
+raise higher taxes to fund the same level of needs as others. 
+So if we were to close the gaps between the lower-income 
+communities and the higher-income communities, some recognition 
+of the relevant capacity as well as the relevant needs among 
+these communities, in our view, is important to put on the 
+table.
+    Key questions remain: How do we do this? How much targeting 
+to low-income places do we really want compared to other 
+balancing considerations? And how should this kind of targeting 
+be done?
+    If we are going to include fiscal capacity as a factor, for 
+example, should we do it solely through the allocation formula, 
+or should we rethink the whole eligibility criteria which is 
+defined solely by population to move beyond population, in 
+other words, to needs or to fiscal capacity/income or both is a 
+real question, I think, facing you and the Congress.
+    I think the important point here is that we are having this 
+debate now. Recognizing the changes in funding is always 
+controversial, always difficult, always challenging. The more 
+time we have to make and phase in adjustments before, you know, 
+fiscal issues really come to be more pressing, why, the better 
+off we will all be.
+    Thank you.
+    [The prepared statement of Mr. Posner follows:]
+
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+    Mr. Turner. Mr. Ramirez.
+
+               STATEMENT OF SAUL N. RAMIREZ, JR.
+
+    Mr. Ramirez. Thank you, Mr. Chairman. Thank you for having 
+us here to testify on such an important issue. I am Saul 
+Ramirez, executive director for the National Association of 
+Housing and Redevelopment Officials or NAHRO. We were 
+established in 1933, and we have more than 21,000 agency and 
+associate members that are involved in housing, community 
+development, redevelopment, not-for-profits and for-profits.
+    I also want to recognize and appreciate the privilege and 
+opportunity to speak on behalf of the following national 
+organizations. The National League of Cities, the National 
+Association of Counties, the National Conference of Black 
+Mayors, the Council of State Community Development Agencies, 
+the National Association of County, Community and Economic 
+Development, the National Association of Local Housing Finance 
+Agencies and the National Community Development Association.
+    Mr. Chairman, in particular, we want to thank you for your 
+advocacy on behalf of important Federal community and economic 
+development policies and programs. We especially appreciate the 
+leadership you have shown in asking tough but necessary 
+questions of the administration regarding the President's 
+proposal to eliminate the community development block grant 
+program. There are better ways to examine important 
+longstanding Federal programs than to call for their total 
+elimination and replacement with new untested initiatives.
+    CDBG is effective and successful, but there is always room 
+for improvement. For example, NAHRO, along with others, have 
+joined us in testifying today as well as the National Council 
+of State Housing Agencies worked with HUD and OMB to design a 
+new outcome-based performance measure system to evaluate HUD's 
+formula grant programs, including CDBG. We would hope that this 
+committee would encourage the Department to begin implementing 
+this system as soon as possible.
+    Like you, Mr. Chairman, I am a former mayor, in my case, 
+Laredo, TX. And like you, I believe CDBG is one of the most 
+powerful and versatile fuels for the engines that motor 
+economic growth as well as a catalyst for affordable housing, 
+community development and infrastructure improvements.
+    An Assistant Secretary for Community Planning and 
+Development, and also Deputy Secretary of the Department of 
+Housing and Urban Development, the Department worked with 
+communities and interest groups to improve the timeliness of 
+the expenditures of the CDBG funds. Over the past several years 
+and under two administrations, untimely grantees have been 
+reduced from over 300 to less than 50.
+    And I bring this up to make an important point. When 
+stakeholders agree, CDBG can be improved. Interest groups and 
+grantees are more than willing to come to the table with 
+Congress and the Department to work toward responsible change.
+    Mr. Chairman, we also believe that introducing major 
+changes to the community development block allocation and its 
+formula, no matter how well intended, will divide America's 
+communities. Is the CDBG formula in need of an extreme 
+makeover? Well, if by extreme makeover, you mean an immediate 
+and radical redistribution of funds, NAHRO and our partners 
+would say no.
+    We do support, though, the notion of a fair and equitable 
+distribution of CDBG dollars, but urge you to proceed with 
+caution. If Congress feels change is truly necessary, then we 
+would think likely that change could happen in a way that 
+mitigates uncertainty and avoids sudden and substantial losses 
+in funding.
+    Let's note also that CDBG is not strictly an antipoverty 
+program. The statute requires that at least 70 percent of all 
+CDBG funds expended go toward activities to benefit low and 
+moderate-income persons. However, communities are, in fact, 
+targeting much more aggressively than the statute requires.
+    In 2004, approximately 95 percent of funds expended by 
+entitlement communities and 96 percent of State CDBG funds 
+expended were for activities that principally benefited low and 
+moderate-income persons, as you highlighted earlier, Mr. 
+Chairman.
+    In previous studies, HUD also is mentioned, ``the ability 
+to target funds to needy communities.'' HUD states in their 
+report, ``HUD determined that the data continued to target the 
+funds to the neediest communities and recommended continuing 
+the dual formula as specified in the statute.''
+    HUD's current formula study is an interesting jumping-off 
+point, as has been brought out by others, for what should be a 
+thoughtful, deliberative conversation on targeting. Even the 
+new study declares, as you have highlighted, Mr. Chairman, that 
+current entitlement communities that are targeted, an average 
+of 10 percent of communities with the most need get 4 times 
+larger per capita grants than the 10 percent communities with 
+the least need.
+    Abandoning a system that continues to target the need is 
+not a decision that should be made slightly, especially when 
+the decision will result in, and I will quote the report again, 
+in significant redistribution of funds.
+    Dramatically changing the formula structure in a swift 
+manner would create uncertainty and inhibit CDBG's current 
+ability to leverage billions of dollars of both private and 
+public investment in some of our poorest neighborhoods.
+    For example, the New England region would be hit under all 
+four alternatives dramatically. The whole New England region 
+would lose substantially. In talking to local officials for a 
+large New England community, we asked what this impact would 
+be, and the answer was quite grim. Scheduled physical 
+improvements as well as going forward with repair and 
+rebuilding streets, sidewalks, parks and playgrounds, as well 
+as the acquisition of blighted properties would be greatly 
+diminished, and under each of these four alternatives, 
+neighborhood facility projects would not go forward.
+    These facilities are the types that help communities meet 
+the needs of those low and moderate-income individuals and 
+families.
+    Mr. Chairman, if and when we proceed to change the current 
+formula, hard choices would have to be made in communities 
+throughout the Nation. In fact, in the Districts of both you 
+and the vice chair and the ranking member of the subcommittee, 
+significant changes would occur. For example, Dayton would lose 
+a substantial amount of money under this proposal, as well as 
+the State of Ohio. The program that distributes money to 
+smaller non-entitlement communities, again, would be severely 
+impacted.
+    There are other areas that would be severely impacted as 
+well. For example, St. Louis would lose anywhere from 15 to 50 
+percent, and the city of Bethlehem loses, under all four 
+alternatives, ranging from 13 to 34 percent. Adopting and 
+immediately implementing any of the four alternatives outlined 
+in the study will produce massive funding shifts.
+    Simply by signaling an intention to move quickly on one of 
+these alternatives, Congress could introduce tremendous 
+uncertainty into the required consolidated planning process as 
+well as those that communities employ for strategic planning 
+throughout our Nation. As I mentioned earlier in my statement, 
+we urge Congress to proceed with caution on this matter. And if 
+you choose to move forward at all, we would be prepared to work 
+with you in whatever was necessary to carry that out.
+    The pursuit of a more equitable system must be balanced by 
+a desire to avoid the kinds of sudden and dramatic shifts that 
+create uncertainty and undermine a community's ability to, 
+again, strategically plan improvements for the long-term to 
+improve the quality of life of their citizens.
+    If a subcommittee decides to forward a recommendation on to 
+the Financial Services Committee and the subcommittee of 
+jurisdiction, then we must underscore the fact that any 
+subsequent review undertaken by that committee must involve a 
+fully deliberative process that includes participation from 
+local and State governments, public interest groups and 
+community development professionals.
+    In short, Mr. Chairman, in this respect, I urge you and 
+others interested and affected parties to not let over 30 years 
+of accumulated experience in this field to go by the way side 
+in a discussion as critical and as important as this one is.
+    In conclusion, under the current formula structure, the 
+CDBG program continues to make real and positive differences in 
+communities throughout America. For example, in 2004, it 
+created or retained more than 90,000 jobs around our Nation. It 
+created over 130,000 rental units and single family homes that 
+were rehabbed; 85,000 individuals received employment training. 
+Over 1.5 million youth were served by after-school enrichment 
+programs and other activities like child care services, which 
+are provided to over 100,000 of these kids in over 205 
+communities across the country. Nearly 700 crime prevention and 
+awareness programs were funded with these very flexible and 
+available dollars.
+    Half the persons directly benefiting from community 
+development assistance were minorities that included African-
+Americans, Hispanics, Asians and American Indians. More than 
+11,000 Americans were able to reach homeownership through the 
+program, and these are just some of the fruits of the success 
+that this current formula structure has provided our great 
+Nation.
+    Programs should evolve over time as this one has. Those who 
+oversee them should also buildupon past successes and pay close 
+attention to what is already working well.
+    We thank you for the opportunity to testify before you here 
+today, and NAHRO, as well as the other interest groups that 
+have participated in this testimony, stand ready to be of 
+further assistance to the subcommittee to be able to answer any 
+questions you may have in addressing this critical issue.
+    Thank you very much, Mr. Chairman.
+    [The prepared statement of Mr. Ramirez follows:]
+
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+    
+    Mr. Turner. Thank you, gentlemen.
+    Mr. Ramirez.
+    Mr. Ramirez. Yes.
+    Mr. Turner. As you know and as you noted in your comments, 
+this committee of Government Reform has oversight over both 
+Commerce and HUD. This specific subcommittee has oversight over 
+HUD. As you are aware, we began the process of looking at the 
+administration's Strengthening America's Communities Initiative 
+and are continuing our review of HUD- generated proposals for 
+looking at the allocation formula.
+    Your statement of wanting to participate in that discussion 
+is exactly, of course, why you are here and why you were 
+invited.
+    I have to tell you that I am a little disappointed in your 
+presentation in that I would pretty much summarize it to say 
+that we should use caution, look to the overall impact, that 
+this is a valuable program, that any changes would result in 
+uncertainty, and that if we are going to have a discussion 
+about it, you would like to be involved.
+    We are having a discussion about it now. You are involved. 
+We had Mr. Bernardi here and had what I thought was a fairly, 
+highly substantive discussion of HUD-generated four 
+recommendations of merit for which this formula could be 
+adjusted.
+    I would appreciate if you had a policy and substantive 
+response and analysis to those--which I believe had been made 
+available to you prior to the hearing----
+    Mr. Ramirez. Yes.
+    Mr. Turner [continuing]. As to the elements of those 
+recommendations and your evaluation of them.
+    You made a statement in your testimony, which is not 
+necessarily accurate from HUD's perspective, in that you said 
+that to abandon focusing on the issue of need would be wrong, 
+basically, I am paraphrasing.
+    The whole purpose of this hearing is to look at HUD under 
+these four different recommendations, definition of need, which 
+then drive the elements that are represented in the four 
+different recommendations.
+    Could you please speak a moment about HUD's document----
+    Mr. Ramirez. Yes.
+    Mr. Turner [continuing]. And their factors that they 
+utilize----
+    Mr. Ramirez. Yes.
+    Mr. Turner [continuing]. In identifying need.
+    Mr. Ramirez. I would be glad to. First, let me apologize 
+for any disappointment that we may have caused you, Mr. 
+Chairman, or the committee. Perhaps we are a little jittery 
+considering that, outside of your interest, there's been little 
+interest for enhancing open dialog on this matter. And we 
+appreciate the opportunity, sir.
+    Mr. Turner. Mr. Ramirez, that's obviously--that's one of 
+the reasons we are doing this.
+    Mr. Ramirez. Thank you for the opportunity.
+    Mr. Turner. I appreciate you doing that--because this 
+document that was produced inside of HUD was released in 
+February, a significant amount of work within the 
+administration occurred on this.
+    Mr. Ramirez. Yes.
+    Mr. Turner. I think it's appropriate for us to then take a 
+look at it, take it apart, and turn to your groups and 
+organizations and say, this document is out there. Somebody has 
+taken a look at these issues. We should all take a look at 
+these issues so we can make the best decisions.
+    Mr. Ramirez. Yes, sir, and you are absolutely right. And to 
+answer the question on the substantive piece of policy behind 
+this. We believe that the alternatives that have been presented 
+are weighed too heavily on what we would call creating the 
+equivalent of an antipoverty program.
+    We believe that when President Nixon created this program 
+with the authorization of Congress to move forward with it, 
+that it was dedicated primarily to help low and moderate-income 
+areas for very specific needs that those areas needed within 
+local jurisdictions and to create maximum flexibility to 
+accomplish that. I think that the statistics would reflect that 
+communities have taken on that charge and have been quite 
+effective in dealing with it.
+    We believe that looking at what works within the formula is 
+a much more prudent way of addressing the redistribution 
+question than to go out and to dramatically shift the intent of 
+the redistribution of these dollars and what this program was 
+originally intended to do, which was to be very specific about 
+creating certain kinds of opportunities, to create activities 
+within those communities, to deal with those needs that they 
+may have, whether it's to remove blighted areas from 
+neighborhoods to deal with the very poor in certain pockets of 
+their community, or to deal with the community-wide initiative 
+that is necessary for economic development.
+    And so the short answer is that the tweaks that have been 
+proposed, although a great jumping off point to have a much 
+deeper discussion as to how to deal with it, we believe it's 
+more a question of actual weighting of what is currently in the 
+formula and trying to meet what the intent of Congress is, in 
+this case, as you see fit to be able to accomplish certain 
+activities most effectively.
+    And as you would know as a former mayor, CDBG is one of the 
+most flexible tools that we have to address some very specific 
+needs within our respective communities in our prior lives and 
+those that are currently trying to address them now.
+    Mr. Turner. You are absolutely right--and in the hearing 
+concerning the value of CDBG and its importance and its 
+effectiveness in addressing issues of blight and poverty, both 
+in terms of its importance and achievement and in terms of its 
+ability to be improved, and that's what everyone in this 
+community has said.
+    Mr. Ramirez. Yes, sir.
+    Mr. Turner. And I really look forward to working with you 
+on that.
+    So going to the issue of HUD, obviously, in these charts, 
+and trying to propose alternatives for shifting the eligibility 
+formula, redefines, as you indicated, the issue of need. 
+Whether you agree with those elements or not is obviously one 
+element of this hearing. Another is whether or not there's any 
+interest or need, if you will, of looking at changing the 
+formula.
+    Are there current inequities in the current formula? We 
+know that entitlement communities have gone from 606 to 1,100. 
+We know that funding has not kept pace with the entitlement 
+community, such that we have communities that are having 
+declining, diminished CDBG receipts and effectiveness. That 
+seems to be in part an issue, not just an issue of the 
+allocation of funding, but the eligibility is causing portions 
+of that--we had testimony from Mr. Bernardi concerning like 
+communities that were treated inequitably.
+    So let's start first, not with the proposal we have in 
+front of us, but just with the issue of if you believe that 
+there are inequities that do occur in the system, and if those 
+inequities are an item that would be important for us to 
+review?
+    Mr. Ramirez. Well, let me carry out my answer on that to 
+say that there may be particulars to my answer that some of the 
+interest groups that I have testified on behalf of have not 
+fully vetted some of the answers I have been giving to their 
+membership, and it may not reflect their position on this 
+issue.
+    But you brought up some very interesting points. For 
+example, the grandfathering and perpetuity of communities that 
+are no longer eligible is a growing drag on the intent of the 
+formula in trying to meet the distribution potential of that 
+formula. Close to almost 200 communities now are grandfathered 
+into the current formula that under the guidelines do not 
+qualify any longer to receive these resources under the current 
+definition. And I do believe that GAO does address that as one 
+of the points that should be looked at and perhaps considered 
+by this committee as part of looking at what it does.
+    The other is that the ability to effectively redistribute 
+the resources on whether it's an annual or biannual basis has 
+always been a challenge under the existing formula. And it's 
+not necessarily that the weights are--that the factors are 
+incorrect; it's how quickly those weights can be adjusted to 
+accurately reflect the condition that the dollars are looking 
+to address within communities around the country. That has been 
+a constant challenge in trying to redistribute these resources.
+    We do not agree that the college town comment is accurate. 
+And if it is, it's not accurate enough to really factor in 
+other families that live within those communities, singles that 
+are below the poverty line, disabled that are below the poverty 
+line that are within those communities that are not accurately 
+accounted for in any of these four alternatives that are before 
+us as another weakness that exists within the redistribution 
+proposals that are there.
+    We also feel that we have been able to effectively address 
+some of the--through the formula, as it is currently weighted 
+for issues such as dealing with blighted properties throughout 
+the community, and how that helps redevelop neighborhoods and 
+communities as a whole.
+    And so there are factors in there, by and large, that we 
+believe are critical to the success of any funding 
+distribution.
+    The question that we believe needs to be asked is that, in 
+looking at prior analysis of the formula that HUD has 
+conducted, that both analyses that had several years in between 
+them recognize the validity of the formula itself and its 
+effectiveness to the point of, again, as you mentioned, 10 
+percent of the poorest were getting four times as much, and 10 
+percent of the richest were getting less.
+    If we want to increase that number, of whether it's at the 
+low end, which is what we are looking at to accomplish, we need 
+to see what those factors at the top end are that are causing 
+that 10 percent of overfunding for those that are not as needy 
+within that.
+    And so this formula is somewhat of a left turn from the two 
+prior analyses that HUD has made in trying to figure out a more 
+effective way to distribute these dollars under the formula. We 
+think that one of the biggest weights that has been 
+incorporated into these four alternatives shifts the focus of 
+the program and its intent and pushes the program more toward 
+being an antipoverty program--which I don't believe was the 
+original intent and has not been the intent of 30 years of use 
+of these resources.
+    Mr. Turner. Thank you very much. I appreciate your comments 
+there. That was an excellent description of the issue of what I 
+believe you said, that there may be some inequities--there are 
+issues that we need to look at, the solutions that are 
+currently here--here are some of the concerns that you have 
+about them.
+    Mr. Ramirez. Thank you, sir.
+    Mr. Turner. There are two reasons to take a look at this 
+from what I am hearing from people who are testifying, one of 
+which is just the issue of time and datedness, which raises the 
+issue of perhaps this is something we need to look at because 
+of the amount of time that has gone by--the issue of 
+inequalities that can be expressed or inherent fact in the fact 
+of passage of time and demographic change.
+    Mr. Posner, the questions--the issue that you raise which 
+is another topic is the issue of the fiscal pressure of the 
+program.
+    For this analysis, the HUD recommendations do not really 
+attempt to provide us with any savings. They merely provide a 
+reallocation of whatever number of dollars are allocated.
+    But, certainly, as we look to our fiscal pressures, we are 
+always going to take a look at the effectiveness of our 
+programs. And, certainly, effectiveness is one element of 
+eligibility.
+    I would like, if you will, to talk for a moment about the 
+issue of immigration. I didn't notice in your report whether or 
+not you had looked at that issue. My understanding, in looking 
+at their report, is that they talk about immigration and its 
+pressure on communities and what results as being a host of 
+other--a migration of immigration population. Then they also 
+talk about the expression of poverty in a community. And I 
+believe those things that they then weight as expressions of 
+poverty are the same that they say that a community, having 
+expressions of immigration, migration, will have. So, to me, it 
+sounds like double counting.
+    And then when you get to this less need/more need chart, 
+and they weight immigration by 15 percent, it also seems, not 
+only simple accounting, but it's a rather arbitrary allocation 
+of weight and need.
+    Have you thought about that issue?
+    Mr. Posner. I am going to turn to Mr. Fastrup for the 
+detailed comments on it. Let me make one overall point about 
+the fiscal issue and some lessons learned, if you will.
+    We had a program that is no longer with us called General 
+Revenue Sharing, and General Revenue Sharing went away in the 
+fiscal crisis of the 1980's or the fiscal crunch of the 1990's.
+    And I think one of the things that disturbed people was the 
+untargeted way the money went to every unit of local government 
+regardless. It was somewhat weighted for per capita income and 
+fiscal efforts as well as population.
+    But, nonetheless, there were significant concerns that, as 
+the Federal budget got tighter, we were sending money to 
+wealthier communities, and there were proposals to cap and 
+better target that program, which never could reach political 
+agreement.
+    I think at some point, when you are an advocate of 
+programs, and you are facing a fiscal situation like we are 
+coming into, you have to start being concerned about whether 
+the formula starts undermining your support. So I think, from 
+many perspectives, in addition to just wise money management 
+and good government as well as potential sustainability of 
+support, you know, looking at this is an important issue.
+    With regard to immigration, let me ask Jerry to comment on 
+it.
+    Mr. Fastrup. Well, the first thing that I would note is 
+that to make a clear distinction between HUD's need criteria 
+and the actual formula alternatives they present, they are two 
+separate distinct things.
+    In their need criteria, the immigrant population doesn't 
+come into their need index directly. It only comes into it 
+indirectly, and it comes in indirectly in two ways: One through 
+the poverty measure, to the extent these immigrants are low-
+income people that get picked up in the census counts, they are 
+reflected in that.
+    The other way it's picked up is in their second factor that 
+you point out that's weighted 15 percent in their overall needs 
+index. The only things in there that capture that immigration 
+is overcrowded housing, which the study says is correlated with 
+high immigrant populations, and to the extent that correlation 
+is there, their need index picks up immigration in that way. 
+But it's a very indirect effect.
+    With regard to the actual allocations and how well their 
+allocations--how much their allocations are affected by 
+immigration in the actual four alternatives they put forward, 
+that only shows up in the use of an overcrowded housing factor 
+in the formula. And that factor is already there in the 
+formula.
+    And under the current formula, the overcrowded factoring 
+gets a weight of 25 percent. In your alternatives, they have 
+alternatives that reduce that weight and increase that weight. 
+So looking at--depending on the particular formula you look at, 
+to the extent that overcrowded housing reflects immigration, 
+you get--you put a greater emphasis or a lesser emphasis on 
+that factor, depending on which particular alternative you are 
+looking at.
+    The other point that we made in our statement is that if 
+you are looking at the CDBG program as a program that's trying 
+to compensate for fiscal distress and economic decline and the 
+need to rehabilitate dilapidated housing and those kinds of 
+things, but just strikes us that overcrowded housing is a sign 
+of a tight labor market and housing market and upward pressure 
+in the housing market, that's usually a sign of strong growth 
+rather than decline.
+    So our take on it is that the need criteria that's both 
+built into the HUD criteria and the weight that is put on 
+overcrowded housing in the formula are not what I would call 
+one of the stronger points there.
+    I think, as the Secretary pointed out, their need criteria 
+and the formula is heavily directed toward poverty, which is a 
+more generally agreed upon criterion there.
+    Mr. Ramirez. May I followup on that, Mr. Chairman, real 
+quick, as an additional point, that one of the things--and I 
+would agree with what Jerry has just mentioned, that what we 
+see also is that rent costs do need to be somehow factored into 
+this calculation in hot markets, because that does tend to push 
+out the low and moderate-income families from safe, decent 
+affordable housing.
+    So there does need to be some weight attached to it. And I 
+didn't want the record to go without that being in included in 
+there that that is our position.
+    Mr. Turner. Excellent. Thank you.
+    Mr. Dent.
+    Mr. Dent. Thank you.
+    Mr. Ramirez, my only question deals with some of the things 
+that Chairman Turner talked about.
+    I do appreciate the effort that the Department went through 
+to put together a process and methodology to come up with a new 
+need-based system of CDBG grants. As you pointed out in your 
+testimony, clearly entitlement communities in my district do 
+not fare particularly well under this, and I would just ask 
+that your organization come back to us at some point with some 
+type of alternative proposal that you think would be reflective 
+of a--would be an equitable basis of distributing those grants.
+    Based on my analysis of the appendix here, it seems that 
+maybe the Northeastern States don't do very well. I notice 
+Pennsylvania and Ohio don't appear to do very well; you 
+mentioned New England doesn't do very well. It appears that the 
+Southern and Western States for whatever reasons are the 
+beneficiaries of this new formula. It seems in all four 
+alternatives, that would be the case.
+    So I guess that's my request of you, which is to come back 
+to me and to the committee with some alternatives that you 
+would find acceptable.
+    Mr. Ramirez. We will, Congressman. Thank you.
+    Mr. Turner. Mr. Ramirez, one of the discussions that you 
+noted that we had with Mr. Bernardi was the issue of housing, 
+and specifically the issue of vacant housing. I'm concerned 
+that by targeting or by only counting in a need those units 
+that are occupied by what, according to this analysis, 
+constitutes--or they have identified as constituting a family, 
+that you are missing the issue of the blighting influence of 
+abandoned residential structures. CDBG obviously is a program 
+that we attempt to utilize the dollars to target abandoned 
+structures for rehabilitation and restoration and eliminating 
+the blighting influence.
+    Could you talk about that for a moment as to how you would 
+see that would be an impact that would not be beneficial for 
+communities?
+    Mr. Ramirez. Well, first off, the quick response is we 
+agree with your concerns. We think that by removing an accurate 
+assessment of those types of dwellings, that it will only 
+accelerate the condition of that neighborhood and the overall 
+blight of a community if it's not addressed effectively.
+    In a prior life, me in the prior life, as a mayor, I can 
+tell you that during my 8 years as a mayor, I was able to 
+eliminate well in excess of 3,500 blighted properties around 
+our community during that 8-year period that in essence 
+revitalized or regenerated neighborhood pride and viability.
+    So we share your concerns, Mr. Chairman, that those are 
+issues that need to be weighed carefully. They are already in 
+the current formula. Again, we believe that there is always 
+room for improvement, but we have seen substantial success in 
+trying to address it. It's a matter of where we weigh the 
+factors that we want to incorporate into this formula, and how 
+effectively we can redistribute those dollars, once those 
+weights are applied, that will maximize the effectiveness of 
+this distribution of dollars, sir.
+    Mr. Turner. Mr. Ramirez, I'd also like you to comment on--
+and then Mr. Posner--the issue of the metropolitan per capita 
+income. Mr. Posner, the GAO report identifies areas where there 
+is a wide disparity of the per capita income between the urban 
+core and the metropolitan area may actually reflect communities 
+of economic growth and communities where there is little 
+difference than you're looking at a community that overall 
+might not have the opportunity economically for those who are 
+experiencing poverty.
+    In the GAO report, it's on page 9. You would have heard the 
+discussions that we had with Mr. Bernardi. Mr. Ramirez, what 
+are your thoughts on that?
+    Mr. Ramirez. We believe that communities, even those that 
+have a higher per capita income, do have pockets of poverty 
+within them. In fact, many of those communities struggle with 
+their labor force that services those communities around the 
+country in providing safe and decent housing, and not forcing 
+many of the service-oriented labor force to seek shelter and 
+grow their communities within blighted areas.
+    And so we do believe that's the balance, to some degree, 
+that this formula has struck. It does allow for communities, 
+high per capita communities to deal with these pockets of 
+poverty and address the low and moderate-income families within 
+those communities.
+    Can it be improved? Well, we believe it can, but I am not 
+prepared at this point to tell you how, because we would have 
+to run several different scenarios to find the optimum level of 
+distribution. But it is an effective way of dealing with that 
+particular problem, sir.
+    Mr. Turner. Mr. Posner.
+    Mr. Posner. I'll refer to Mr. Fastrup in a minute. But 
+overall I think we saw the two factors in alternative 3 kind of 
+offsetting one another. On the one hand, you're trying to 
+target aid proportionately to cities and areas that have lower 
+incomes to raise on their own; on the other hand, you're 
+providing greater aid to those communities if they happen to be 
+nested in higher-income metropolitan areas. This is something I 
+think that needs a lot more thinking. I think they're headed in 
+the right direction by trying to capture the element of 
+capacity and wealth.
+    Mr. Fastrup. I would say that the HUD study proposes 
+putting the metropolitan and local community per capita 
+increment formula as a means of ratcheting up the degree to 
+which funding is targeted to high-need communities. And to the 
+extent that the committee wants to do that, that's one means of 
+doing it.
+    However, when we look at the use of both metropolitan per 
+capita income and comparing that to the community's per capita 
+income, the effect is the low-income communities would get more 
+money targeted to them, but by putting the metropolitan per 
+capita income in there, it offsets that degree of targeting to 
+a significant degree so that two communities with the same per 
+capita income, the one living in the higher-income metropolitan 
+area, which generally is going to be an area that is better off 
+economically, that community gets more money than the community 
+with the same income located in a poorer metropolitan area. And 
+we question whether that's an effective way to produce the kind 
+of targeting to low-income areas, and taking into account the 
+economic capacity of the various areas across the country.
+    Now, one rationale that one could offer for doing that is 
+to argue that areas with high metropolitan incomes tend to be 
+high-cost-of-living areas; that's a legitimate position to 
+take. However, the particular method by which HUD does this, it 
+basically assumes that all of the difference in per capita 
+income between a low-income metropolitan area and a high-income 
+metropolitan area, they're implicitly assuming that's all cost 
+of living differences, and that's not true.
+    So I think that method of putting metropolitan income into 
+the formula is overdoing it to some extent. But the real nexus 
+of the problem is the fact that the Federal Government does not 
+have good statistics on just what these differences in cost of 
+living are in order to be able to more precisely take them into 
+account in the formula. And if you wish, we can talk about that 
+some more, too.
+    Mr. Turner. At this point, actually, I don't have any 
+further questions, and I was going to ask if you had anything 
+else that you wanted to comment on to add to the record, in 
+your thoughts to both the questions that have been asked, 
+comments that you've heard from others.
+    Mr. Ramirez.
+    Mr. Ramirez. Just in conclusion, Mr. Turner, we want to 
+thank you for airing out these issues on such an important item 
+of import to communities throughout the country. And we will 
+take your charge and dispatch it accordingly to bring back to 
+you different alternatives that we see that may be viable 
+within the existing formula to better enhance its methodology 
+in trying to hit the marks that Congress intended it to hit or 
+intends to hit, and look forward to working with you in this 
+committee, and others, in making that happen, sir.
+    Mr. Turner. Mr. Posner.
+    Mr. Fastrup.
+    Mr. Posner. Just to thank you for holding this hearing, and 
+to illustrate how, as those of us who are talking about the 
+fiscal choices facing us frequently talk about the hard choices 
+we face, and this hearing very well illustrates that.
+    Mr. Fastrup. I would just like to commend the HUD study for 
+what it has accomplished here because I think what it's showing 
+for the first time is that in these charts here, those jagged 
+edges indicate that communities with similar needs are 
+receiving widely disparate funding levels that can't be 
+justified on the basis of income differences, cost of living 
+differences, or anything else; and that simple equity--whether 
+or not you want to direct more funding to high-need communities 
+or not, simple equity would argue for narrowing those wide 
+disparate differences.
+    I think the HUD study has identified the key factors that 
+are the cause of that, namely the growth lag factor and the 
+pre-1940 housing that doesn't take into account the income 
+status of the households that are living in those houses are 
+largely responsible for that, along with the use of two 
+formulas that work at cross purposes with one another, and that 
+the biggest single improvement would come by just using a 
+single formula largely based on poverty and housing conditions 
+and the kinds of things that are in these two formulas.
+    And I would add that because of the poor targeting of the 
+program, you do run the risk, in tight fiscal times, of 
+following the way that the general revenue-sharing program of 
+perceptions of poor targeting, leading people to ask is this 
+really the highest priority use of Federal dollars or not. And 
+to the extent that the targeting of this program is improved, 
+it strengthens the rationale for having this program; to the 
+extent that it's not, you run the risk of people saying is this 
+really the best use of Federal money.
+    Mr. Turner. Mr. Fastrup, I think that you have given us the 
+most excellent summary of the purposes of this hearing and the 
+importance of it, so thank you for that. And I want to thank 
+GAO for your efforts in reviewing this program.
+    We all know the importance of CDBG, the importance of 
+strengthening it and making sure that we preserve it. We know 
+there have been discussions about its effectiveness. And 
+looking at the HUD proposals helps us begin the discussion on 
+what are the elements that can make it effective and more 
+effective so that we can ensure its long-term viability, 
+knowing, Mr. Ramirez, as you had said, of both of us being 
+former mayors and the importance it has in the lives of people 
+in our communities.
+    With that, I want to thank you for your time, and we will 
+be adjourned.
+    [Whereupon, at 12:20 p.m., the subcommittee was adjourned.]
+    [The prepared statement of Hon. Wm. Lacy Clay and 
+additional information submitted for the hearing record 
+follow:]
+
+[GRAPHIC] [TIFF OMITTED] T0219.104
+
+[GRAPHIC] [TIFF OMITTED] T0219.105
+
+[GRAPHIC] [TIFF OMITTED] T0219.106
+
+[GRAPHIC] [TIFF OMITTED] T0219.107
+
+[GRAPHIC] [TIFF OMITTED] T0219.108
+
+
+
+ BRINGING COMMUNITY DEVELOPMENT BLOCK GRANT PROGRAMS SPENDING INTO THE 
+  21ST CENTURY: INTRODUCING ACCOUNTABILITY AND MEANINGFUL PERFORMANCE 
+               MEASURES INTO THE DECADES-OLD CDBG PROGRAM
+
+                              ----------                              
+
+
+                         TUESDAY, MAY 24, 2005
+
+                  House of Representatives,
+         Subcommittee on Federalism and the Census,
+                            Committee on Government Reform,
+                                                    Washington, DC.
+    The subcommittee met, pursuant to notice, at 10:05 a.m., in 
+room 2154, Rayburn House Office Building, Hon. Michael R. 
+Turner (chairman of the subcommittee) presiding.
+    Present: Representatives Turner, Dent, Maloney, and Clay.
+    Staff present: John Cuaderes, staff director; Shannon 
+Weinberg and Jon Heroux, counsels; Juliana French, clerk; Neil 
+Siefring, Representative Turner/LA; Susan Stoner, 
+Representative Dent/LA; Adam Bordes, minority professional 
+staff member; and Jean Gosa, minority assistant clerk.
+    Mr. Turner. A quorum being present, this hearing of the 
+Subcommittee on Federalism and the Census will come to order.
+    Welcome to the subcommittee's oversight hearing entitled, 
+``Bringing Community Development Block Grant Programs Spending 
+into the 21st Century: Introducing Accountability and 
+Meaningful Performance Measures into the Decades-Old CDBG 
+Program.''
+    In March, this subcommittee held a hearing reviewing the 
+Bush administration's ``Strengthening America's Communities'' 
+initiative. During that hearing, we learned that HUD had 
+undertaken certain in-house initiatives to improve the 
+administration of the program. One of those initiatives was to 
+implement an improved set of performance measures.
+    CDBG is one of the largest Federal direct block grant 
+programs in existence. In fiscal year 2005, Congress 
+appropriated $4.71 billion for the CDBG program, including 
+$4.15 billion for CDBG formula grants alone. State and local 
+governments use CDBG grant moneys to fund various housing, 
+community development, neighborhood revitalization, economic 
+development, and public service provision projects.
+    To receive their annual CDBG grant, grantees must develop 
+and submit to HUD a consolidated plan. In their consolidated 
+plan, each grantee must identify its goals for its use of CDBG 
+moneys. These goals then serve as the criteria against which 
+HUD evaluates each grantee's plan and the performance of each 
+activity under the plan.
+    Grant recipients may use CDBG funds for a wide variety of 
+activities. For example, CDBG funds can be used for the 
+acquisition of real property, the relocation and demolition of 
+buildings, the rehabilitation of residential and non-
+residential structures, the provision of public services, and 
+the construction and improvement of public facilities.
+    In contrast, grant recipients may not use CDBG funds for 
+the acquisition of buildings used for the general conduct of 
+government. Nor may grantees use CDBG funds for political 
+activities, certain types of income payments, or the 
+construction of new housing by local governments.
+    Following approval of a grantee's consolidated plan, HUD 
+will make a full grant award unless it has determined that the 
+grantee failed to implement its plan in a timely manner and in 
+a way that is consistent with the Housing and Community 
+Development Act.
+    Critics, as well as some proponents of the program, have 
+questioned whether the consolidated plan is an adequate system 
+for assessing whether certain uses of grant funds are 
+consistent with the goals of the Nation and whether grant 
+recipients are actually administering the funds properly.
+    Currently, the consolidated plan is the only means by which 
+HUD can measure the performance and outcome of grantee 
+activities. With that said, some observers have questioned 
+whether HUD takes the consolidated plan process seriously 
+enough. Critics of the program have even questioned whether HUD 
+reads each consolidated plan, suggesting that HUD simply does 
+not have the time or manpower to review the more than 1,100 
+consolidated plans within the 45-day period mandated by the 
+statute.
+    A primary justification used by the administration for 
+proposing its Strengthening America's Communities Initiative 
+earlier this year is that CDBG received very low scores on the 
+Office of Management and Budget's Program Assessment Rating 
+Tool [PART]. The fundamental question, however, is whether PART 
+is any better of a performance measurement tool for CDBG than 
+is the consolidated plan.
+    Many CDBG stakeholders attributed CDBG's low PART score to 
+evaluation limitations inherent in the PART tool itself. They 
+argue that PART lacks the proper assessment matrix tools to 
+score block grant programs like CDBG effectively and 
+accurately. These stakeholders also claim that it may be 
+impossible for evaluators to effectively measure the CDBG 
+program because of its multifaceted nature and because grant 
+moneys can be spent on a wide variety of activities that may 
+have ``non-tangible'' benefits.
+    With those questions and arguments in mind, today's hearing 
+will specifically explore: one, how communities spend CDBG 
+moneys; two, whether HUD and grantees effectively target funds 
+toward the needs identified in the program's authorization 
+language; and, three, how, if at all, Congress can measure 
+these expenditures for effectiveness of use.
+    To help us answer these questions, we have on our first 
+panel the Honorable Roy Bernardi, Deputy Secretary of the 
+Department of Housing and Urban Development and former 
+Assistant Secretary of Community Planning and Development.
+    On our second panel we have four distinguished witnesses. 
+First, we have the Honorable Ron Schmitt, city councilman from 
+Sparks, NV and a founding member of the Human Services Advisory 
+Board in Washoe County. The Human Services Advisory Board led 
+to the creation of the Washoe County Human Services Consortium, 
+the public/private entity that decides how the area will spend 
+its combined CDBG funds.
+    We will next hear from Thomas Downs, fellow at the National 
+Academy of the Public Administration. Earlier this year, the 
+Academy published specific recommendations on how to improve 
+reporting and performance measurement systems for the CDBG 
+program.
+    Next, we will hear from Lisa Patt-McDaniel, assistant 
+director of the Community Development Division of the Ohio 
+Department of Development. Ms. Patt-McDaniel is testifying 
+today on behalf of the Council of State Community and Economic 
+Development Agencies.
+    Last, we have Dr. Sheila Crowley, president of the National 
+Low Income Housing Coalition.
+    I look forward to the expert testimony our distinguished 
+panel of leaders will provide the subcommittee, and we thank 
+all of you for your time here today.
+    [The prepared statement of Hon. Michael R. Turner follows:]
+
+    [GRAPHIC] [TIFF OMITTED] T0219.109
+    
+    [GRAPHIC] [TIFF OMITTED] T0219.110
+    
+    [GRAPHIC] [TIFF OMITTED] T0219.111
+    
+    Mr. Turner. We will now start with the witnesses. Each 
+witness has kindly prepared written testimony, which will be 
+included in the record of this hearing. Witnesses will notice 
+that there is a timer light at the table. The green light 
+indicates that you should begin your comments; the yellow light 
+will indicate you have 1 minute left in which to conclude your 
+remarks; and the red light indicates that your time has 
+expired.
+    It is the policy of the committee that all witnesses be 
+sworn in before they testify.
+    Mr. Bernardi, would you please rise and raise your right 
+hand?
+    [Witness sworn.]
+    Mr. Turner. Let the record show that the witness has 
+responded in the affirmative.
+    Mr. Bernardi, if you would now begin your comments.
+
+STATEMENT OF ROY A. BERNARDI, DEPUTY SECRETARY, U.S. DEPARTMENT 
+                OF HOUSING AND URBAN DEVELOPMENT
+
+    Mr. Bernardi. Thank you. Good morning, Mr. Chairman and all 
+the individuals in attendance. Thanks for the opportunity to 
+address the subcommittee's inquiry into the three specific 
+Community Development Block Grant issues that you just 
+mentioned: how communities spend their CDBG moneys; whether the 
+funds are effectively targeted toward identified needs; and how 
+these expenditures can be measured for effectiveness.
+    The Housing and Community Development Act of 1974 allows 
+grantees to determine their own local needs, to set their local 
+priorities, and design programs to address both. There are two 
+limits that help target the use of CDBG funds. First, every 
+assisted activity must either benefit low and moderate-income 
+persons, or prevent and eliminate slums or blight, or meet an 
+urgent community development need the grantee does not have the 
+financial resources to address. And the second condition is a 
+grantee must spend at least 70 percent, over 3 years, of its 
+funds for activities that benefit low and moderate-income 
+persons.
+    HUD field offices monitor grantees' use of funds to meet 
+these conditions. For the last 4 years, these assisted 
+activities, as reported and categorized, have remained stable. 
+Approximately 95 percent of the funds go to activities 
+benefiting low and moderate-income persons.
+    We also monitor whether grantees have carried out their 
+CDBG-assisted activities in a timely manner. The timeliness 
+standard provides that 60 days before the end of its current 
+program year a grantee may not have more than 1\1/2\ times its 
+current grant in its line of credit. Because the amount of 
+funds above this standard remaining in grantees' lines of 
+credit was increasing, in the fall of 2001, when I was then 
+Assistant Secretary for CPD, we established a new policy giving 
+untimely grantees 1 year to meet the standard or risk a grant 
+reduction in the amount equal to the amount by which it 
+exceeded the 1\1/2\ standard.
+    This policy has been extremely successful. The number of 
+untimely grantees fell from over 300 to approximately 60, and 
+the amount of excess, undistributed funds fell from $370 
+million to approximately $30 million. This was a winner for the 
+taxpayers, for HUD, for the grantees, and obviously for the low 
+and moderate-income persons that we serve.
+    HUD's Integrated Disbursement and Information System 
+[IDIS], is used to report information on grantees' use of 
+funds. Obtaining consistency in reporting and improving data 
+quality are challenges because of the large number of both the 
+grantees--better than 1,100--and also the assisted activities. 
+Nevertheless, HUD's recent efforts to address data quality have 
+yielded great improvements. To modernize our information 
+system, HUD has contracted to develop a more user-friendly IDIS 
+by spring of 2006. Further improvements will also make the 
+front-end application process and the completion and reporting 
+process consistent.
+    Can the expenditure of CDBG funds be measured for 
+effectiveness? Yes, they can. In January 2003, my office began 
+encouraging recipients of CPD's four formula grant programs--
+that are, CDBG, HOME, ESG, and HOPWA by issuing a notice to 
+develop performance measurement systems. Since local choice 
+drives the use of these funds, HUD believes performance-based 
+measurement systems should be developed at the same level. To 
+date, 246 grantees have reported using performance measurement 
+systems, while 225 are developing them. That is adding up to 
+approximately 43 percent of all CDBG grantees.
+    As we have reported previously, HUD has been working with 
+the stakeholders, including the key grantee representatives, in 
+OMB to help develop outcome measures. This effort formed the 
+basis for a proposed measurement system that will soon be 
+completed and published in the Federal Register Notice, a draft 
+of this. In 90 days it will be there for public comment and 
+input, and after we review that public comment and input, we 
+will then publish a final notice after that 90-day period of 
+time.
+    The proposed outcome performance measurement system will 
+produce data to identify the results of formula grant 
+activities. It will allow the grantees and HUD to provide a 
+broader, more accurate picture. The goal is to have a system 
+that will aggregate results across the spectrum of the programs 
+at the city level, the county, State. We are committed to 
+improving the way we track performance and show results for our 
+program.
+    These are significant challenges, but I am convinced that 
+we can get the measurable information and reliable results 
+taxpayers are entitled to. And I thank you, Mr. Chairman, for 
+the opportunity to be here in front of your committee.
+    [The prepared statement of Mr. Bernardi follows:]
+
+    [GRAPHIC] [TIFF OMITTED] T0219.112
+    
+    [GRAPHIC] [TIFF OMITTED] T0219.113
+    
+    [GRAPHIC] [TIFF OMITTED] T0219.114
+    
+    [GRAPHIC] [TIFF OMITTED] T0219.115
+    
+    [GRAPHIC] [TIFF OMITTED] T0219.116
+    
+    [GRAPHIC] [TIFF OMITTED] T0219.117
+    
+    [GRAPHIC] [TIFF OMITTED] T0219.118
+    
+    [GRAPHIC] [TIFF OMITTED] T0219.119
+    
+    [GRAPHIC] [TIFF OMITTED] T0219.120
+    
+    Mr. Turner. Thank you, Mr. Secretary.
+    First off, let me begin by recognizing the accomplishment 
+that you noted in your testimony of the issue where communities 
+were not expending their funds in a timely manner. Your efforts 
+to obtain compliance from communities, working with them and 
+making certain that the funds were expended timely, and that 
+you looked toward a greater enforcement of that requirement 
+clearly showed results, and you ought to be commended for that 
+effort.
+    Mr. Bernardi. Thank you. We are very proud of that.
+    Mr. Turner. We began this series of CDBG hearings with the 
+notation that the PART performance measurements had indicated 
+that CDBG did not have a clear purpose as a program. And I am 
+going to read the first assessment under PART of CDBG, where it 
+says: ``Is the program purpose clear?'' It says: ``The program 
+does not have a clear, unambiguous mission. Both the definition 
+of community development and the role CDBG plays in that field 
+are not well defined.''
+    Much of the testimony that we are going to receive today, 
+like yours, describes ways in which we can track or measure the 
+activities undertaken through CDBG. The PART performance 
+measurement, however, begins by saying that the purpose of the 
+program is not clear and that, as a result of that flaw, mere 
+measurement or study of the expenditure of CDBG may not be the 
+answer. In fact, from this the justification of the 
+Strengthening America's Communities proposal came forward.
+    Do you think we just need a better system to track 
+effectiveness, or do you think the program itself could be made 
+more effective, thereby producing data that would show its 
+having an impact on communities?
+    Mr. Bernardi. Well, the PART score that we receive from 
+OMB, there were four sections to it, and as you pointed out, 
+Mr. Chairman, the program purpose and design we received a zero 
+score. Candidly, the program purpose and design I think is 
+spelled out in the Community Development Block Grant Act of 
+1974. The program was meant to be utilized by local officials 
+with determination after a tremendous amount of community input 
+as to how best they would utilize those resources, and there 
+were seven fundamental areas in which those resources would be 
+used with another 25 indicators. So it is a very flexible 
+program; it is a program that was meant to be utilized at the 
+local level.
+    However, they are absolutely correct in some of the other 
+areas. It is very difficult to have a strategic plan and there 
+are program management results that you would like and program 
+results and activities. The program scored ineffective when you 
+start with the score of zero on program purpose and design, 
+obviously, even though we received a 67 for program management. 
+And I feel very strongly, having worked with the good folks in 
+CDBG both at headquarters and in the 42 field offices, that 
+they do a very good job in administering the program.
+    Could the goals and objectives be looked at again and 
+perhaps be spelled out in more clarity and detail? Absolutely. 
+Can we measure better than we do now? Yes, we can. You 
+mentioned the consolidated plan. That is a 5-year plan, and 
+that is where the communities list their goals and objectives 
+and what they hope to accomplish within that 5-year period of 
+time. Then there is an annual action plan, and that is at the 
+end of each program year, where that community indicates how 
+much of that 5-year plan they have actually accomplished. Then 
+there is a CAPER Report that is at the end. That is an 
+evaluation performance and that indicates what they have 
+actually done. I believe that we have been able to indicate 
+outputs fairly regularly. Through our Information Disbursement 
+Information System. Each grantee is able to indicate to us the 
+number of jobs that have been created, the number of units that 
+have been assisted, the number of loans that have been 
+recorded.
+    But those are outputs. And what OMB and I believe others 
+are looking for is to make sure that we can have outcomes: Has 
+the quality of live been improved? Has that neighborhood been 
+served? Has the community been enhanced because of the 
+expenditures of those dollars? As an example, if you go into a 
+neighborhood and you create some business opportunities or you 
+provide more business opportunities for the people that are 
+presently there, how does that reflect in your sales tax 
+revenue; is it higher, is it lower? How do you capture that 
+information? It is very difficult to do. Has crime been reduced 
+by utilizing CDBG dollars in a certain neighborhood? Again, 
+very difficult to measure.
+    But the fact of the matter is that we are putting together 
+with, what I mentioned earlier, this notice that will be 
+published very soon, and where many, many stakeholders were 
+involved in putting this all together as to how we can have a 
+national measurement system, but at the same time allow the 
+communities to have their local performance measurement system 
+be part of that.
+    Mr. Turner. You mentioned in your testimony, and many 
+others following you will also mention, the Integrated 
+Disbursement and Information System. There have been some 
+problems with that system in its implementation. Could you 
+elaborate more on the status of that and discuss the 
+resolutions of some of the problems that people were 
+experiencing?
+    Mr. Bernardi. Well, the system has been in existence since 
+1996, and it allows grantees to enter information on their 
+activities and to draft funds for individual activities. The 
+system has worked very well when it accounts for the dollars, 
+obviously. Over $7 billion each year go through that system. 
+However, we are looking to improve that system by the spring of 
+2006. We are going to require more complete information on 
+accomplishments; we are going to allow grantees to submit 
+information via the Federalgrants.gov; we are going to improve 
+the type and content of reports available to HUD for 
+monitoring. We want to make it easier to reduce the grantees' 
+time and at the same time be able to consolidate, if you will, 
+into one format the consolidated plan, the annual performance 
+plan, the CAPER plan so that the individuals at HUD that are 
+looking at all this can ascertain what has happened over a 5-
+year period, over a 1-year period of accomplishments. This IDIS 
+system has worked very, very well, but it needs some 
+improvements, and we are in the process of making those.
+    Mr. Turner. You mentioned the consolidated plan process, 
+and we discussed the issue of HUD's review of those in both 
+your testimony and my opening statement. Has HUD rejected 
+consolidated plans from communities; and what is the process 
+for rejection of a consolidated plan if one is to be rejected; 
+and what type of discussion, feedback, or interaction occurs 
+with the community if a consolidated plan is viewed as either 
+deficient or could be improved?
+    Mr. Bernardi. Well, the consolidated plan is reviewed by 
+each one of our field offices for all of our entitlement 
+grantees, and as long as it adheres to the national 
+objectives--providing the majority of the resources for low and 
+moderate-income individuals; to eliminate slum and blight; and 
+obviously the third objective is, in the event of an emergency, 
+to utilize those funds for that emergency--the consolidated 
+plan I believe works very well. There is not a rejection of the 
+consolidated plan per se, as long as the goals and objectives 
+that are spelled out in that consolidated plan meet the goals 
+and objectives of the CDBG program.
+    We do have what we call risk monitoring. Each and every 
+year our personnel takes a look at how everyone is performing, 
+and there is a matrix, if you will, of areas, whether it is 
+financial, whether it is capacity, and they look at that and 
+they say to themselves, OK, this year who are we going to 
+monitor either onsite or offsite? Of our 1,100 approximate 
+grantees, we monitor about a third of those every year to see 
+that they are in accordance with the consolidated plan, that 
+they are spending their money in a timely way, that their goals 
+and objectives and their annual action plan are being realized. 
+This is a very good system, and I feel that our employees, CDBG 
+employees out there in those field offices, they know full well 
+who is performing, who is not, who needs information 
+technology, who needs additional capacity, and our staff is 
+always ready and willing and is out there providing it for 
+these folks.
+    Mr. Turner. In the consolidated plan review process, is 
+there a feedback loop for best practices? Certainly HUD, in the 
+period of time that this program has been in existence, has 
+seen throughout the country programs and either services or 
+community development projects that are more successful than 
+others. And when a community puts forth a consolidated plan 
+where the goals and objectives of the program could be 
+enhanced, perhaps with knowledge of what another community's 
+success has been, does HUD undertake that discussion with the 
+community in the consolidated plan process to help enhance the 
+success of the projects that those funds are invested in?
+    Mr. Bernardi. In the early years I believe we were more 
+engaged in the preparation of the consolidated plan. Now we 
+pretty much leave it to the communities to make the 
+determinations that they can justify, obviously, as to how they 
+want to utilize their dollars. We feel very strongly that they 
+know best. Of course, we look at those consolidated plans to 
+make sure that they adhere to the rules that are in place.
+    At the same time, if a community ends up in trouble with a 
+particular project, if the plan is not being adhered to, we can 
+take action. We don't like to reclaim dollars unless we 
+absolutely have to. What we try to do is maybe sit down with 
+the community. Our folks in the field OK, this is an ineligible 
+objective or you are not going to be able to reach this 
+objective because you don't have the capacity; whatever the 
+reasons are. We try to work with the grantee so that either the 
+objective can be met or the objective can be changed to 
+something else. In the final analysis, if they are not able to 
+do what they have to do according to the rules and regulations, 
+then we will take that money back. However, the way we do that 
+is they are not able to repay us with additional CDBG dollars, 
+it has to be their own local dollars. Or, in some cases, in the 
+next grant that they are going to receive, we reduce the amount 
+of money that they have spent in an eligible way.
+    Mr. Turner. From your answer, it would appear that HUD's 
+view of the consolidated plan is more an issue of compliance 
+rather than an issue of consultation on degree of likelihood of 
+success.
+    Mr. Bernardi. By and large, that is what it is about too, 
+yes.
+    Mr. Turner. In your testimony you talked about the 
+different categories for which the funds could be used and 
+limitations upon the expenditures by categories and the 
+limitation for a government entity or a community in spending 
+those funds on its own staff or functions within public 
+service. There doesn't appear to be a limitation, though, on 
+whether a government entity receiving CDBG funds would make the 
+decision to spend all of its CDBG moneys on its own staff 
+functions in the eligible criteria. Is that correct or is there 
+a limitation?
+    Mr. Bernardi. The way it breaks down is that there are caps 
+in two areas. There are caps on administration and planning, 
+and that cap is 20 percent. There is also a cap on public 
+service, which is 15 percent. I can report that, on an average, 
+on administration and planning, the average is about 14 
+percent. So you can see that the grantees spend less on 
+administration and planning, and, obviously, we feel that is a 
+good thing. When it comes to public services, the cap used to 
+be 10 percent. That was changed to 15 percent in the 1980's, 
+but I believe around 62 or 63 entitlement communities were 
+grand-fathered in at a higher number. But 15 percent is the cap 
+on public services.
+    The other areas the communities can pretty much make the 
+determination as to how they want to spend their dollars, in 
+what areas. As an example of the 2004 appropriation, on an 
+average, about 33 percent of the dollars were spent on public 
+facilities and improvements; on housing activities 
+approximately 25 percent; administration and planning, as I 
+indicated, 14 percent; economic development 9 percent; 
+acquisition 5\1/2\; and then 108 loan guarantees about 2\1/2\ 
+percent. Those numbers, as we have looked at those, have not 
+fluctuated to any large degree since 2000 in the last 4 years.
+    And did you notice, I am sure, Congressman, a community 
+finds a need for those dollars, and I know Dayton is an example 
+of this, and I looked at the expenditures of Dayton in the 
+early part of this decade, and those moneys were spent for code 
+enforcement, approximately 30 percent. So you will find that 
+communities, once they develop a consolidated plan, an annual 
+action plan, they make the determination as to how best they 
+can utilize those moneys that are going to affect low and 
+moderate-income persons.
+    Mr. Turner. There are no restrictions, though, overall that 
+would prevent a community, a local government entity from going 
+down the smorgasbord, if you will, of eligible uses and 
+allocating 100 percent of its CDBG money for its own staff 
+functions within those eligible uses?
+    Mr. Bernardi. When you say staff functions within those 
+eligible uses, it would still have to be a 20 percent. They 
+could not spend more than that for administration and planning.
+    Mr. Turner. Well, it is administration and planning, but in 
+other areas, for example, as you indicated, code enforcement, 
+code inspection. That is not necessarily administration and 
+planning, so additional funds--and there you cited a figure 
+that was higher than the 20 percent. One of the criticisms that 
+we hear about CDBG is the opportunity for local governments to 
+utilize the funds rather than for community development, but to 
+fund what many people consider local government activities that 
+perhaps the local tax base should be supporting rather than 
+CDBG.
+    Mr. Bernardi. As long as the dollars are used to provide 
+goods and services for individuals who meet the low and 
+moderate-income threshold. The flexibility of the program 
+allows the entities to use the money as they see fit.
+    Now, let us take the example of code enforcement. If that 
+money was not being utilized through the CDBG program, would a 
+particular community have the local capacity to provide the 
+kind of inspections to make sure that housing stock in their 
+poor neighborhoods was being addressed? Now, that is a local 
+decision that is made, and, basically, as long as it can be 
+justified that it is benefiting people of low and moderate-
+income, we are not going to be disapproving of that.
+    Mr. Turner. And I understand that there are many times very 
+good reasons and justifications for a community to utilize 
+those funds to support the actual local government activities 
+in the eligible use categories, but my question is there is no 
+overall limitation. A government entity could, in going down 
+the smorgasbord of eligible uses, allocate 100 percent of its 
+CDBG moneys for staff functions within those eligible uses and 
+not be in violation of the restrictions placed upon CDBG.
+    Mr. Bernardi. I believe you are correct. But as a former 
+mayor myself, as you know, when you deal with your legislative 
+body in your public hearings, the chances of 100 percent of the 
+money going to any one particular activity obviously are 
+remote. I don't know that any communities do that, offhand.
+    Mr. Turner. That goes to my next question. To what extent 
+do you track the percent of CDBG moneys that are utilized by a 
+community for its own staff functions? When you told me the 
+different categories that the funds break down into and what 
+communities are likely to spend them on, do you go the next 
+step and an eligible expenditure in that category to have a 
+definition as to what the actual funds went for? If I were to 
+ask you could you tell me of the top 100 cities that receive 
+CDBG funds in population size, what overall percentage that 
+they spend on their staff functions, do you track it so you 
+could provide that number?
+    Mr. Bernardi. Yes. The Consolidated Annual Performance 
+Evaluation Report that each grantee submits through the IDIS 
+system to HUD indicates exactly the percentages and the dollars 
+that go to each category.
+    Mr. Turner. Could you provide that to our committee for the 
+top 100?
+    Mr. Bernardi. Sure.
+    Mr. Turner. It would be very good to take a look at that. 
+One of the reoccurring criticisms of CDBG is whether or not the 
+funds have been co-opted for government operations rather than 
+community development functions, even if those government 
+operations support community development functions. That is a 
+criticism that I think might impact the ability to measure 
+effectiveness. We would love to take a look at the information.
+    The proposal for Strengthening America's Communities and 
+the Commerce Department review of what criteria would go into 
+Strengthening America's Communities in determining eligible 
+uses and eligible communities, my understanding is that work is 
+proceeding with the Commerce Department in looking at what 
+their proposal might be. I wondered if you could talk to us a 
+moment about HUD's participation in that process in assisting 
+Commerce in reviewing both eligible communities and eligible 
+uses that they might propose for the Strengthening America's 
+Communities.
+    Mr. Bernardi. The legislation is being written obviously by 
+the folks at Commerce, but we do provide consultation and 
+provide them with any information that they may need.
+    Mr. Turner. Could you provide to our committee copies of 
+whatever you have provided to the Commerce Department as they 
+have reviewed this issue of eligible communities and eligible 
+uses?
+    Mr. Bernardi. Any information that we have, Congressman, 
+that you would like, if we have it, we will provide it.
+    Mr. Turner. Thank you. I want to go back to the question 
+again on the issue of measuring effectiveness. As you go 
+forward in looking at ways to more effectively measure the 
+results of the expenditures of CDBG funds, one of the things I 
+think people would hope that would occur is not just a proof or 
+justification that CDBG moneys are having an impact, but also a 
+process of determining whether or not the CDBG program could be 
+enhanced or modified. The data might prove effectiveness, but 
+it also might show in areas of non-performance or less 
+effectiveness.
+    What is HUD currently doing in looking at the data that it 
+has, and in the data that it intends to generate or hopes to 
+generate, for enhancing the performance of CDBG funds?
+    Mr. Bernardi. The first notice that we issued was in 
+January 2003. As I mentioned in my testimony, we asked 
+communities to provide us with performance measurement system, 
+and we have approximately 43 percent of those communities that 
+are doing so. But also as I mentioned, we have a notice that is 
+going to be published in the Federal Register very soon, and 
+that notice was really a collaboration, if you will, with many 
+different organizations, Council of State Development 
+associations took the lead, but others are involved in that; 
+OMB was involved in it. And that particular performance 
+measurement system that is going to be presented will not 
+require, but it will strongly encourage all grantees to utilize 
+a system that everyone can work with. But at the same time we 
+do not want to have local initiative be deterred in any way. If 
+they have their own performance measurement system, we want it 
+to be part of that.
+    We are going to be looking at objectives. We are going to 
+be looking at outcomes. We are going to have indicators for 
+this system to cover every possible area. And where we can 
+measure, obviously, we need to do so. We need to be able to 
+make sure that the number of jobs created are retained, the 
+number of units that have made accessible, number of jobs with 
+healthcare benefits. Right now we don't have that kind of 
+information, but when this comes forward, we believe very 
+strongly that after the 90-day period and everyone has had a 
+chance to comment on it, hopefully, when you take a look at 
+OMB, you take a look at the grantees, you take a look at HUD, 
+you take a look at NAPA, you take a look at COSCDA and all of 
+the other organizations that are represented behind me here. We 
+can come together with a performance measurement system that 
+not only locally, but as I mentioned in the counties, States, 
+and nationally, that we can have aggregate outcomes. We are 
+able to ascertain how the dollars are being spent better today 
+than they were yesterday.
+    Mr. Turner. One of the phrases in management that I always 
+think is important is the one of if you are not measuring it, 
+you are not managing it, and a lot of what we are hearing in 
+your testimony goes to the issue of measurement. Even if you 
+get the best measurement system, if it is only a system 
+intended to produce data, and not a system intended to produce 
+data that then results in management of the system, it is data 
+for the sake of data. What does HUD intend to do as it gets 
+additional information from the performance measures with that 
+data?
+    Mr. Bernardi. Well, right now we can measure, as I 
+mentioned, outputs, but we don't have the outcomes. We need to 
+make sure with the performance measurement system that we are 
+able to go right from the beginning of the goals and the 
+objectives to the outcome indicators to the outputs and then to 
+the outcomes. And when we receive that information, that is 
+when we will be able to ascertain whether a community or 
+communities are utilizing their dollars in the best possible 
+way. We will have something to compare it to, which we don't 
+have now.
+    Mr. Turner. And then you will work with that community in a 
+consultation manner? You will look at changing----
+    Mr. Bernardi. Sure. We do that now, but we will have more 
+of a yardstick, if you will. We will be able to tell their 
+strengths and weaknesses more than we can now.
+    Mr. Turner. Will it still be, as your review of the 
+consolidated plan process is, limited to compliance, or will it 
+actually be geared toward enhancement of success?
+    Mr. Bernardi. It will be always toward compliance, but at 
+the same time toward performance outcomes: have you been 
+utilizing your resources in a particular activities, do the 
+indicators point out that not only have you reached certain 
+numbers that you said you would reach in your annual report, 
+but at the same time we want to know exactly if that person, if 
+that entity has improved the quality of life for those 
+individuals and that neighborhood. As I mentioned earlier, what 
+has an activity done to reduce crime? What has an activity done 
+in a certain neighborhood to create more jobs or to provide 
+more sales tax dollars or to provide more real estate tax 
+dollars? These are the kinds of outcomes I think we need and 
+that we can point to, you are on the right course, community A, 
+you are doing the right things; we see measurable improvement 
+each and every year with the utilization of these dollars for 
+that particular activity or activities.
+    Mr. Turner. I would like for you to speak for a moment, if 
+you will, on the issue of the difficulty of measurement of 
+success in a community. One of the things that we heard with 
+Strengthening America's Communities was an attempt almost to 
+put an economic bubble around a community and do economic/
+environmental data analysis to determine whether or not the 
+community is advancing.
+    As you mentioned in your opening comments and in our first 
+couple of questions, for some communities it may be very 
+difficult to measure progress and success. Sometimes progress 
+can be slowing decline or decay, not necessarily that the 
+community, in a very measurable or obvious way, economically 
+advances. Could you speak for a moment to the difficulty of 
+what you are trying to measure? I hear very often from 
+community development people that I know what community 
+development is when I see it. But that doesn't go very well on 
+a measurement application. So could you talk about the 
+difficulty of doing that for a community?
+    Mr. Bernardi. Well, the genesis of the program was to 
+provide flexibility, was to provide local initiative, and the 
+fact that you have 23 to 30 activities that you can fund makes 
+measuring those activities difficult, but it doesn't make it 
+impossible. And I think OMB, in their analysis, and other 
+people taking a look at it say when you are going to expend 
+better than $4 billion a year to help 1,100 and some 
+entitlement communities, all 50 States, with another maybe 
+3,000, 3,500 communities within those States, we had better be 
+sure that we provide to the taxpayers of this country not just 
+numbers, but how has it enhanced the quality of life; has it 
+really done the job that it needed to do to make it a better 
+community.
+    Certainly, many challenges. Very difficult to measure, for 
+example, if you put in sidewalks or streetlights, how does that 
+benefit the community. If it is an area benefit and 51 percent 
+of those people are low and moderate-income, obviously it is an 
+eligible activity. But at the same time, how do you measure 
+that? It is very difficult. But I believe that what we are 
+putting together with this new notice will go further toward 
+making sure that we can capture as much information and as many 
+outcomes as we can.
+    Mr. Turner. The previous hearing that this committee had, 
+reviewed the formula change options that HUD had been 
+reviewing, four different categories of how the formula would 
+be modified with respect to entitlement communities. Has HUD 
+similarly undertaken any type of study or consideration for 
+changing the eligible uses for the expenditure of CDBG moneys?
+    Mr. Bernardi. Well, the eligibility, as I mentioned, is 
+very broad. That can always be looked at in conjunction with 
+the Congress and with our grantees, and ascertain whether or 
+not you might want to reconsider some areas of eligibility, add 
+some areas or modify some.
+    Mr. Turner. But at this point you have not undertaken a 
+study? You do not have a staff report that looks at possible 
+recommendations for modifying or discussing proposing to 
+Congress changes in eligible uses?
+    Mr. Bernardi. Well, take eligible uses. If you expand them, 
+it is going to be even more difficult to do the kind of 
+measurement you want. If you reduce them, then you will do more 
+targeting. And if you do more targeting, obviously there is not 
+as much participation, then you will be able to measure 
+significantly better.
+    Mr. Turner. But is this something that HUD is taking a look 
+at?
+    Mr. Bernardi. Well, we look at everything, but as far as 
+the eligibility, change in eligibility, no, I don't believe so.
+    Mr. Turner. OK.
+    I want to recognize that we have Mr. Dent from Pennsylvania 
+with us, and Mr. Clay has joined us.
+    Mr. Clay, would you like to, either, at this time, make any 
+questions or opening comment?
+    Mr. Clay. Sure. Thank you, Mr. Chairman. If I could, I 
+would like to ask Mr. Bernardi about the CDBG program, if that 
+is OK.
+    One of the recommendations in the NAPA report addressed the 
+establishment of an incentive for communities to participate in 
+furthering the national goals and objectives of CDBG. Should 
+such an incentive program be based on benefits, as opposed to 
+penalties, for communities? If you were to implement a new 
+evaluation system today, would it reward communities which 
+demonstrate progress, or simply burden those communities not 
+demonstrating progress?
+    Mr. Bernardi. Well, Congressman, obviously, you could go 
+either way with that: you could penalize and you could benefit. 
+We are looking at the notice that will be published in the 
+Federal Register very soon as to performance measurements, and 
+that is something with public comment, if the stakeholders and 
+others would like to take a look at perhaps providing 
+incentives for communities that utilize their resources to the 
+ultimate capacity, we would be happy to look at that, sure.
+    Mr. Clay. The administration's PART evaluation graded the 
+CDBG program as ineffective according to various criteria 
+utilized. If possible, could you offer us your opinion of using 
+PART to evaluate the CDBG program and if the criteria used to 
+evaluate a program were an appropriate measurement tool for 
+program goals and objectives?
+    Mr. Bernardi. Well, the OMB PART program scored the CDBG 
+program as ineffective, but the only area that I feel we felt a 
+little uncomfortable with was in the first section. There were 
+four functions and we were rated a zero for program purpose and 
+design. The program purpose and design was the Community 
+Development Act of 1974, and we feel very strongly that we have 
+been following the program purpose and design to make it 
+flexible, to make it local-oriented, if you will. However, 
+there were good recommendations in the PART program for how we 
+can improve our performance measurement systems, and we have 
+our own performance measurement system, a notice that we sent 
+out to all of our grantees last year, and almost half of those 
+grantees are providing us with performance measurement system 
+outcomes. And as I mentioned just earlier, we are in the 
+process right now of publishing in the Federal Register a 
+combination of thoughts and suggestions from individuals as to 
+how we can better improve our system.
+    Mr. Clay. Doesn't the nature of a block grant with few 
+strings attached make assessment more challenging than other 
+programs with more stringent requirements? Could you detail for 
+me the types of methods or metrics that communities could use 
+to evaluate the performance of their CDBG funds?
+    Mr. Bernardi. Well, you are absolutely right. When you have 
+that kind of flexibility, the measurement of those programs 
+becomes more of a challenge. But we have in place a 
+Consolidated Annual Performance Evaluation Report, and that 
+pretty much lists outputs, if you will, Congressman; it will 
+tell you the number of jobs a community has created, it will 
+tell you the number of units that have been assisted, the 
+number of loans that have been processed. We need and are in 
+the process of putting together an evaluation report that will 
+deal with outcomes; how does that affect that neighborhood or 
+that community by utilizing these dollars for a certain 
+activity.
+    Mr. Clay. Just from your response, how would you evaluate, 
+say, a city like St. Louis, MO, which gets block grant funding 
+annually, a pretty good portion of it? Does it target the 
+neighborhoods that it is really intended for, that the city 
+qualifies for? Does it actually make a difference in those 
+communities where you have plenty of blighted property, 
+property owned by the city, and really a very disadvantaged 
+community? Have you seen St. Louis yet?
+    Mr. Bernardi. I have been to St. Louis on a number of 
+occasions. The block grant program, Congressman, is a 
+consolidated plan and the community spells out what it wants to 
+do over a 5-year period of time. There is also an annual action 
+plan, and each year they have to submit to HUD what they have 
+actually done as part of this overall consolidated plan. They 
+have to stay within the guidelines and the objectives of the 
+CDBG program, but the flexibility of that program leaves it to 
+the officials in that community, to the legislative body, to 
+the administrative body after public hearings to make the 
+determination in many of these eligible areas of activity how 
+they want to spend their money. But they have to spend it to 
+benefit people of low and moderate income. At least by the 
+books, about 70 percent of it has to be spent that way, but we 
+find on an average about 95 percent of the communities utilize 
+their CDBG dollars for low and moderate-income individuals. I 
+don't have the exact number for St. Louis, but maybe I could 
+find that for you.
+    Mr. Clay. Would you be willing to share that with me? And 
+please don't miss the point that St. Louis qualifies for this 
+funding based on poor citizens. We don't want to lose sight of 
+that.
+    Mr. Bernardi. Sure. The need obviously is there, of course.
+    Mr. Clay. Thank you for your response.
+    [The prepared statement of Hon. Wm. Lacy Clay follows:]
+
+    [GRAPHIC] [TIFF OMITTED] T0219.121
+    
+    [GRAPHIC] [TIFF OMITTED] T0219.122
+    
+    Mr. Turner. Mrs. Maloney, do you have any questions?
+    Mrs. Maloney. Sure. First of all, I would like to place my 
+statement in the record.
+    I just want to state that I have very strong reservations 
+about the administration's dramatic funding cuts for 18 key 
+missions by 35 percent, and reprogramming it to Commerce, 
+funding for so many programs that fall outside of the mission 
+of the Department of Commerce, and I have expressed that in a 
+letter, along with my Democratic colleagues, to the Budget 
+Committee.
+    I want to state that my city, New York City, CDBG provided 
+over $207 million, and it was used for a variety of programs 
+that help the community, and the $1.42 billion budget cut for 
+CDBG will have a devastating impact for these efforts.
+    The housing mission of the CDBG program was a very 
+important one in New York, and I truly believe that housing 
+cannot take place, particularly for low-income and moderate-
+income, without a Federal role. And under the administration's 
+proposal, there is absolutely no assurance that the housing 
+mission of CDBG will have any future. Can you comment on that? 
+On top of that, the housing in general--vouchers, public 
+housing--the Federal role has been scaled back in the proposed 
+budget before us.
+    But I do want to say that I support valid performance 
+measurements, I think they are very important--transparency, 
+performance measurements are very important--but I doubt that 
+eliminating the program is the right solution, and there is no 
+assurance for the housing and really no assurance that the 
+mission will be continued if it is in fact transferred over to 
+Commerce.
+    Mr. Bernardi. Congresswoman Maloney, the CDBG program was 
+zeroed out of HUD's budget and, as you indicated, that money 
+will go to Commerce for the Strengthening America's Communities 
+Initiative. Presently, the Department of Commerce is putting 
+together the legislation for their program, and that should be 
+forthcoming soon. The Section 8 program that we have----
+    Mrs. Maloney. But my question specifically was in the 
+language that I read that transferred it over to Commerce with 
+a 35 percent cut in funding, there was no assurance the housing 
+mission of CDBG would have a future. See, CDBG has a history of 
+supporting housing and programs in public housing or around 
+housing in poor communities, and that was not included in the 
+language that went over to Commerce.
+    Mr. Bernardi. Well, the language to Commerce is not 
+available; it will be soon, as I understand it. When they put 
+forth their legislation, they will address how they are going 
+to utilize those dollars. I understand that they want to 
+provide for the communities that have extreme distress, 
+communities that have lost jobs, communities that have high 
+unemployment. But I have not seen and I am not privy to how 
+they are going to disburse those dollars.
+    Mrs. Maloney. See, that is what is so difficult. What is 
+HUD doing to preserve the housing mission of CDBG, are they 
+working with Commerce to preserve the housing mission that has 
+historically served urban areas so well?
+    Mr. Bernardi. We have individuals at HUD who are working 
+with the folks at Commerce to put together the legislation.
+    Mrs. Maloney. So what do you think should be in that 
+legislation?
+    Mr. Bernardi. Well, that will have to be up to the folks at 
+Commerce to make a determination; it was zeroed out of our 
+budget.
+    Mrs. Maloney. But you said people at HUD are over there 
+working to help them put it together.
+    Mr. Bernardi. Well, we are providing information that they 
+request. We are providing counsel, if they seek it.
+    Mrs. Maloney. See, what is, to me, so disturbing is that 
+after revenue-sharing, probably CDBG was the only program that 
+came into local governments that gave them the discretion to 
+use it for what they thought were the priorities in their 
+communities. In New York, and probably in all localities, there 
+is a very detailed community input, leadership from the poor 
+communities--and this all goes to poor communities--on how the 
+dollars should be used. And now it is being shifted to Commerce 
+with this sort of floating around in ether, no one knows what 
+it is going to be, with a 35 percent cut, and it is very 
+troubling to me. And I certainly don't think we should vote on 
+the budget until we know exactly what is going to be the 
+framework, and I, for one, believe that the housing mission 
+that CDBG really led on in many ways is still preserved.
+    I do want to say we have been called for a vote, but the 
+Chairman, Mr. Turner, has shown a lot of interest on this, and 
+I want to thank him for his sincere interest on trying to 
+preserve things for local communities. I understand you are a 
+former mayor from an urban area, and I hope your expertise will 
+help sort this thing out. So thank you. We are called for a 
+vote.
+    [The prepared statement of Hon. Carolyn B. Maloney 
+follows:]
+
+[GRAPHIC] [TIFF OMITTED] T0219.123
+
+    Mr. Turner. Thank you so much.
+    Mr. Bernardi, let me give you just one opportunity if you 
+have any closing statement to make to enter it now. Upon the 
+conclusion of those remarks, we are going to adjourn, go and 
+vote, and we will come back into session for the second panel.
+    Mr. Bernardi. I just want to thank you for the opportunity, 
+members, and happy birthday, Congressman Dent. I wish you a 
+wonderful day. I like the fact you didn't ask me any questions.
+    Mr. Dent. Well, thank you. I am depressed; I am half way to 
+90, so I am thinking about that.
+    Mr. Bernardi. Thank you, sir. And if you have any 
+additional questions from us, just kindly let us know and we 
+will be happy to respond.
+    Mr. Turner. Well, thank you so much for all of the great 
+participation that you have had with this committee's work and 
+all the work of your staff. Being a former mayor yourself, you 
+bring to this a great deal of knowledge, and I appreciate your 
+commitment to these programs and to community development in 
+our urban areas. Thank you.
+    Mr. Bernardi. Thank you very much.
+    Mr. Turner. With that, we will be adjourned, and after this 
+vote we will begin with the second panel. Thank you.
+    [Recess.]
+    Mr. Turner. We are going to go ahead and get started while 
+my colleagues are returning.
+    As I noted in the beginning of this hearing, it is the 
+policy of the committee that all witnesses be sworn in before 
+they testify. Therefore, as we look to our second panel, would 
+you please stand to be sworn in? Rise and raise your right 
+hands.
+    [Witnesses sworn.]
+    Mr. Turner. Let the record show that all the witnesses have 
+responded in the affirmative.
+    I want to begin by thanking all of you for taking your time 
+both in preparing for this committee and then attending today 
+to testify. This, as you know, is an important issue for many 
+communities, and that is the effectiveness of CDBG and how we 
+might be able to make it more effective. Your perspective on 
+CDBG and HUD's performance is certainly helpful for us, as 
+everyone looks to these issues.
+    We have with us today the Honorable Ron Schmitt, 
+councilmember of the city of Sparks, NV; Mr. Thomas Downs, a 
+fellow from the National Academy of Public Administration; Ms. 
+Lisa Patt-McDaniel, assistant deputy director, Community 
+Development Division, Ohio Department of Development, on behalf 
+of COSCDA; and Sheila Crowley, Ph.D., president, National Low 
+Income Housing Coalition.
+    We will begin with Mr. Schmitt.
+
+ STATEMENTS OF RON SCHMITT, COUNCILMEMBER, CITY OF SPARKS, NV; 
+       THOMAS DOWNS, FELLOW, NATIONAL ACADEMY OF PUBLIC 
+ADMINISTRATION; LISA PATT-MCDANIEL, ASSISTANT DEPUTY DIRECTOR, 
+COMMUNITY DEVELOPMENT DIVISION, OHIO DEPARTMENT OF DEVELOPMENT, 
+  ON BEHALF OF COSCDA; AND SHEILA CROWLEY, PH.D., PRESIDENT, 
+             NATIONAL LOW INCOME HOUSING COALITION
+
+                    STATEMENT OF RON SCHMITT
+
+    Mr. Schmitt. Thank you, Mr. Chairman. Good morning. Thank 
+you for the opportunity to speak to you about this very 
+important concern to our community. I am Ron Schmitt, 
+councilman of the city of Sparks, NV, and president of the 
+Nevada League of Cities and Municipalities.
+    The community of Reno, Sparks, and Washoe County comprises 
+approximately 380,000 citizens. Sparks is one of the fastest 
+growing cities in the State of Nevada, with Nevada being the 
+fastest growing State in the Nation since 1990.
+    I was a founding member of our Human Services Advisory 
+Board in 1996. I became involved with this process after a 
+focus group of citizens decided there had to be a better way to 
+distribute Federal, State, and local funds dedicated to our 
+human services providers. The process in place at that time was 
+very inefficient, time-consuming, and, above all, not getting a 
+large percent of the funds to those who needed the services. 
+This resulted in the formation of the Washoe County Human 
+Services Consortium.
+    The Consortium includes a board comprised of three 
+appointed citizens from each entity: the city of Reno, the city 
+of Sparks, and Washoe County. I served as a citizen for 5 
+years. A safety net was built into the process by making this 
+an advisory board who submits their recommendations of funding 
+to the triumvirate. The triumvirate consists of one elected 
+official from each entity. They have the option of ratifying or 
+making adjustments to the board's recommendations. With this 
+new process, service providers no longer had to submit three 
+different applications or attend three different hearings; 
+there was one application, one board hearing.
+    The old system created many inequities; some services going 
+unfunded, while others receiving a windfall of revenue. This 
+new system encourages collaboration between service providers. 
+A set of seven child care providers, each submitting an 
+application, they would submit one application for all seven 
+and then work together to monitor the needs and the 
+distribution of the funds. This has lowered the cost to monitor 
+the program, increased the services to the public, and 
+stretched our limited dollars to help our community become a 
+better place to live.
+    A successful applicant must include objectives and 
+measurable outcomes in their application, which become a 
+component of their contract. These contracts are monitored and 
+verified during the course of the program year. An example from 
+a recent application from the C-A-R-E Chest of the Sierra 
+Nevada, a group that provides medical equipment and supplies to 
+the elderly in our community, two of their primary objectives 
+include the reduction in the number of individuals living in 
+assisted care facilities and prevent in-home accidents by 
+providing durable medical equipment such as grab bars and 
+shower chairs.
+    Some of the measurable outcomes for this application period 
+were as follows: 1,548 people were assisted with 2,852 medical 
+equipment items; 334 people were assisted with 601 cases of 
+liquid nutrition. These outcomes were monitored and reported to 
+the board at the end of each year, when the next application 
+period started. This has raised the bar for our service 
+providers and made them review their programs for more 
+effective ways of doing business in order to get more service 
+to our community. This process has made our providers more 
+accountable for the dollars they receive.
+    Let me tell you a story about Jonelle, one of C-A-R-E 
+Chest's clients. She is an inspiring, unforgettable woman. Born 
+with cerebral palsy, the doctors thought she was never going to 
+speak. ``I showed them and haven't stopped talking since,'' she 
+boasted. Recently she moved to Nevada to be close to her 
+adopted family. While her MediCal is being switched to Nevada 
+Medicaid, Jonelle came to C-A-R-E Chest for help. She was 
+loaned an electric wheelchair, and upon receiving the 
+wheelchair, Jonelle sped off to the bus stop, thrilled to 
+explore her new neighborhood. She is slowly but determinedly 
+fulfilling her long-time dream of teaching special needs 
+children ``like me'' she adds.
+    Without the continuation of CDBG funds, many of the service 
+providers to our community could not continue. I again want to 
+thank you, Mr. Chairman, for allowing me to speak to you today 
+on this very important issue of our community, and thank you 
+for all that you do for our country.
+    [The prepared statement of Mr. Schmitt follows:]
+
+    [GRAPHIC] [TIFF OMITTED] T0219.124
+    
+    [GRAPHIC] [TIFF OMITTED] T0219.125
+    
+    [GRAPHIC] [TIFF OMITTED] T0219.126
+    
+    [GRAPHIC] [TIFF OMITTED] T0219.127
+    
+    [GRAPHIC] [TIFF OMITTED] T0219.128
+    
+    [GRAPHIC] [TIFF OMITTED] T0219.129
+    
+    Mr. Turner. Thank you.
+    Mr. Downs.
+
+                   STATEMENT OF THOMAS DOWNS
+
+    Mr. Downs. Thank you, Mr. Chairman. I am here on behalf of 
+a panel of the National Academy of Public Administration.
+    CDBG officials asked the Academy to recommend performance 
+measures that would satisfy CDBG management, State and local 
+grantees, and the Office of Management and Budget, while being 
+consistent with the requirements of the 1974 Housing Act, the 
+1973 Government Performance and Results Act [GPRA], and the 
+President's management agenda under PART. In addition, CDBG 
+officials asked the panel to recommend ways to incorporate 
+performance measurement into its management information system, 
+the Integrated Disbursement and Information System [IDIS].
+    The Academy panel produced two reports and requests 
+respectfully that both be included in the record. A list of 
+panel members and their backgrounds is attached to the 
+statement. The views presented here are those of the panel and 
+its members.
+    I would like to highlight the findings that most directly 
+relate to the CDBG issues under consideration by this 
+subcommittee, specifically: assessing CDBG performance under 
+PART, reporting CDBG performance under GPRA, incorporated 
+performance into IDIS, developing performance measures, and 
+leading the CDBG program.
+    The panel notes that there is considerable difference of 
+opinion among CDBG management, grantees, OMB, policy experts, 
+and, indeed, this Congress about what CDBG really is. So we 
+applaud your effort to address some of these issues.
+    I would like to begin with CDBG's PART assessment.
+    A PART assessment yielded an overall rating of 
+``ineffective'' in 2003-2004. The panel agrees with OMB that 
+CDBG did not effectively demonstrate performance results for 
+the program over its 30-year history, and that it resisted 
+gathering and/or reporting performance data related either to 
+short or long-term goals and objectives. The panel believes 
+that CDBG's effectiveness has not yet been established.
+    However, the panel disagrees with OMB that CDBG's mission 
+and purpose are unclear. The 1974 Housing Act clearly gives 
+wide latitude--intentionally, I might add--to States and 
+communities to spend CDBG moneys to meet the needs of poor 
+people and distressed communities.
+    The panel also disagrees with OMB's criticisms that CDBG is 
+not geographically or place targeted. Although the panel 
+appreciates OMB's view that directing funding to distressed 
+areas may provide greater benefits to poor people, the 1974 
+Housing Act has no such requirements to be geographically 
+targeted. Therefore, the panel believes that OMB criticized 
+grantees for something they were not required to be doing. 
+There is some disagreement in the field as to whether the 
+Secretary of HUD can compel communities to geographically 
+target. Perhaps this is an issue that the Congress should or 
+could clarify.
+    Next I would like to focus on several aspects of 
+performance reporting.
+    In our study, we found that some officials in HUD and in 
+the CDBG grantee community believe that performance reporting 
+under GPRA does not apply to them. Indeed, CDBG is a $4 billion 
+program, yet contributes only three performance measures to 
+HUD's Strategic Plan, even though the program funds nearly 100 
+different kinds of activities. The panel believes that CDBG 
+management and grantees have an obligation to contribute 
+adequate performance data to the GPRA process.
+    Much of the frustration in performance-based management in 
+CDBG relates to the IDIS management information system. It 
+works poorly, if at all, by most standards for the broader 
+purposes that it claims. The panel applauds CDBG for its recent 
+initiatives to clean up grantee data reported in IDIS so that 
+it can be used for management and analysis purposes. It is 
+essentially now an expenditure control system, not a 
+performance management system. The panel commends CDBG for its 
+recent efforts to upgrade the system and its data bases. The 
+panel urges Congress to encourage CDBG to fully upgrade IDIS if 
+performance-based management is to be taken seriously. And 
+Congress should monitor CDBG's progress on this issue. If, in 
+reality, this is going to be taken seriously, it needs some 
+specific performance targets itself that are closely monitored.
+    After careful review of the state-of-the-art in performance 
+measurement, and extensive consultation with CDBG, grantee 
+stakeholders and OMB, the panel proposed a set of performance 
+measures for consideration by CDBG that would satisfy both PART 
+and GPRA. While the panel was engaged in its effort, a Working 
+Group comprised of CDBG staff, OMB staff, and grantee 
+stakeholders developed their own set of performance measures, 
+which is a far preferred outcome. The panel strongly supports 
+this collaborative effort and urges the Congress and OMB to 
+adopt both the process and the outcome measures produced by 
+this Working Group.
+    Finally, the panel is concerned about the leadership of the 
+CDBG program. We acknowledge that OMB did not find fault with 
+CDBG's management under PART. But, although the panel did not 
+formally study this issue, it was clear that much of the 
+controversy about the program, like performance measurement and 
+a computer system, stem directly from a lack of attention in 
+setting program direction and holding all parties accountable 
+for performance, not just recently, but for years and perhaps 
+decades. The panel believes that until the program becomes 
+better led at all levels at HUD, it will continue to be the 
+subject of controversy.
+    The panel also believes that management issues resulted in 
+part from the low national priority afforded community 
+development. In spite of billions spent, there has been 
+insufficient attention to what the funding is being spent on 
+and its effectiveness. It is probably a good time for Congress 
+and the administration to have a harder look at the Nation's 
+urban policy goals and the role of CDBG. Debates about 
+Strengthening America's Communities is a place to start.
+    Mr. Chairman, thank you again for the opportunity to share 
+our views. I would be pleased to answer any questions you might 
+have.
+    [The prepared statement of Mr. Downs follows:]
+
+    [GRAPHIC] [TIFF OMITTED] T0219.130
+    
+    [GRAPHIC] [TIFF OMITTED] T0219.131
+    
+    [GRAPHIC] [TIFF OMITTED] T0219.132
+    
+    [GRAPHIC] [TIFF OMITTED] T0219.133
+    
+    [GRAPHIC] [TIFF OMITTED] T0219.134
+    
+    [GRAPHIC] [TIFF OMITTED] T0219.135
+    
+    [GRAPHIC] [TIFF OMITTED] T0219.136
+    
+    Mr. Turner. Thank you.
+    Ms. Patt-McDaniel.
+
+                STATEMENT OF LISA PATT-MCDANIEL
+
+    Ms. Patt-McDaniel. Good morning, Mr. Chairman. My name is 
+Lisa Patt-McDaniel. I am the assistant deputy director of the 
+Community Development Division in the State of Ohio's Ohio 
+Department of Development. The Division administers over $300 
+million in Federal and State funds, including CDBG, CSBG, 
+LIHEAP, HOPWA, HOME, and Emergency Shelter funds. I have been 
+involved in developing outcome measures for Ohio community 
+development programs and homeless programs, both Federal and 
+State-funded, for the past 5 years.
+    I am here today to testify about Community Development 
+Block Grant outcome measures before your subcommittee on behalf 
+of organizations that represent CDBG grantees: cities, 
+counties, and States, along with elected official 
+organizations. These organizations are listed in our written 
+submissions.
+    On behalf of our organizations, we would like to thank you 
+for your interest in the CDBG program. We look forward to 
+working with this subcommittee and the Subcommittee on Housing 
+and Community Opportunity to address issues of concern about 
+the CDBG program. We would also like to thank you for your 
+leadership on other important community development issues, 
+such as brownfields revitalization, planning and census issues, 
+and the Saving America's Cities Coalition.
+    You have received a copy of the Joint Grantee/HUD/OMB 
+Consensus Document on Outcome Measures for the CDBG, HOME, 
+HOPWA, and ESG programs. I would like to take this opportunity 
+to explain to the subcommittee how and why this document came 
+about, the rationale behind the chosen outcomes, and why we 
+believe implementation of this outcome measurement system will 
+benefit the CDBG program and its beneficiaries.
+    Joint Consensus Document grew out of an outcome framework 
+originally created by community development agency members of 
+the Council of State Community Development Agencies [COSCDA]. 
+We were assisted in our efforts by the Renssalaerville 
+Institute, a nationally recognized expert in outcome framework 
+thinking. Our goal was to develop common outcome measures that 
+States could use in their programming that could also be 
+reported to HUD and aggregated in useful ways that would enable 
+us to tell Congress and our constituents of the results and 
+benefits of the CDBG program, while at the same time 
+encouraging our members to establish additional measures 
+specifically for their own programs and initiatives.
+    The national grantee organizations proposed to HUD and OMB 
+that they join us in an innovative consensus building process 
+that would build on the COSCDA framework and develop common 
+outcome measures that all grantees--cities, counties, and 
+States--could use and report on to HUD. Our goal was to answer 
+the question: In what way can we best demonstrate that the CDBG 
+program does achieve the results that Congress intended for the 
+program?
+    For our new outcome measurement system, we purposely 
+developed outcomes and indicators for the four programs covered 
+by the consolidated plan--CDBG, HOME, HOPWA, and ESG--because 
+these programs often represent an integrated approach to 
+addressing a community's or State's needs.
+    Mr. Chairman, I am pleased to report that our Working Group 
+succeeded. We found that indeed grantees at all levels of 
+government do have common outcomes that we seek to achieve in 
+our funding decisions and priorities. As you will see, these 
+outcomes, decisions, and priorities are all clearly linked to 
+the authorizing statute. To us, this means the program is 
+working as Congress intended it to. The outcome measurement 
+system is a way to understand how these outputs benefit the 
+communities or low-income people participating in these 
+projects and activities.
+    Now I would like to explain the outcome measurement system 
+a bit more.
+    There is a flow chart on the screen that shows the way in 
+which the outcomes of many of the activities of these four core 
+community development programs can be reported. There are three 
+overarching objectives, three outcome categories, and 17 output 
+indicators. The three objectives are: creating a suitable 
+living environment; providing decent affordable housing; and 
+creating economic opportunities, which are directly taken from 
+the CDBG statute, but also are applicable to the three other 
+programs--HOME, ESG, and HOPWA--covered by the outcome 
+measurement system.
+    In general, suitable living environment relates to 
+activities that are designed to benefit communities or the 
+people who live there by addressing issues in their living 
+environment. The objective of decent affordable housing would 
+include activities that typically cover the wide range of 
+housing assistance that is possible under HOME, HOPWA, or ESG. 
+It focuses on housing programs where the purpose of the program 
+is to meet an individual's, family's, or community's housing 
+needs. The objective of creating economic opportunities applies 
+to the types of activities related to economic development, 
+commercial revitalization, or job creation.
+    The outcome category ``availability/accessibility'' applies 
+to activities which makes services, such as infrastructure, 
+housing, and/or shelter available or accessible to low-income 
+people. A key obstacle for low and moderate-income people is 
+that basic community services and facilities are not available 
+or accessible to them.
+    The outcome category of ``affordability'' applies to 
+activities which provide affordability of a tangible service or 
+product in a variety of ways to low and moderate-income 
+persons. Sometimes the outcome a grantee is seeking is to make 
+an available community service more affordable to the low and 
+moderate-income people where they live.
+    Sustainability is the other outcome that has emerged as a 
+common result of CDBG and other programs. This outcome applies 
+to projects where the activities or activity are aimed at 
+improving a neighborhood by helping to make it livable for low 
+and moderate-income people, often times through multiple 
+activities or providing a particular service that can sustain a 
+section of the community.
+    How will this outcome measurement system help the CDBG 
+program? We believe that when this outcome measurement system 
+is implemented, we will begin to more clearly tell Congress and 
+OMB more about the benefits of CDBG and the other consolidated 
+plan programs. Aggregating the results by outcomes can help 
+Federal policymakers assess whether the statutory intent of the 
+program is being met, and the system can be an important 
+management tool at both the grantee and Federal level.
+    If we all agree that achieving these outcomes will improve 
+communities--and it appears that we do--we now have a common 
+framework within which to assess our progress and results at 
+the local, State, and Federal levels. And, certainly, our 
+organizations and HUD can and should encourage grantees to 
+develop specific outcomes and indicators for their own local 
+initiatives.
+    It is my understanding that this subcommittee is charged 
+with addressing issues of government accountability. In that 
+role, we would urge that in any report generated by this 
+subcommittee about CDBG, that you recommend that this outcome 
+measurement system be implemented as soon as possible. We also 
+ask that Congress ensure that sufficient funding is available 
+to modernize the IDIS system so that this new kind of reporting 
+can be implemented with minimal burden to our grantees.
+    Outcome measurement for the CDBG program will also shape 
+how CDBG funds are spent, both in what kinds of activities are 
+selected to be funded and how these decisions are made. The 
+current CDBG statute authorizes a menu of eligible activities 
+that recognizes the differences in the types of communities to 
+be served by the program and provides communities with 
+appropriate tools to address their unique problems.
+    I appreciate the opportunity to talk to you today and am 
+happy to answer any questions.
+    [The prepared statement of Ms. Patt-McDaniel follows:]
+
+    [GRAPHIC] [TIFF OMITTED] T0219.137
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+    
+    [GRAPHIC] [TIFF OMITTED] T0219.154
+    
+    [GRAPHIC] [TIFF OMITTED] T0219.155
+    
+    Mr. Turner. Thank you.
+    Ms. Crowley.
+
+               STATEMENT OF SHEILA CROWLEY, PH.D.
+
+    Ms. Crowley. Chairman Turner and Mr. Dent, thank you for 
+the invitation to testify today.
+    There can be no doubt that the Community Development Block 
+Grant has been a force for enormous good at every low-income 
+community in the country. The resources that the Federal 
+Government has distributed through the CDBG program in the last 
+30 years have contributed to the improved well-being of untold 
+numbers of Americans.
+    There is no policy justification for reducing the level of 
+funding for CDBG. Moreover, the National Low Income Housing 
+Coalition adamantly opposes the proposed consolidation of CDBG 
+and 17 other programs in a single block grant housed at the 
+Department of Commerce. However, any public program should be 
+appraised periodically to assure that the program is responsive 
+to contemporary needs and emerging problems.
+    I want to take my time today to focus on two areas of 
+potential change. The first has to do with accountability. As 
+has been noted, OMB has been critical of CDBG based on the 
+assessment that grantees cannot demonstrate results that have 
+been achieved with CDBG funds. However, the congressional 
+intent is that: grantees have wide latitude in how they choose 
+to spend their funds; the range of eligible activities are 
+considerable; the income targeting is higher than in other 
+Federal housing and community development programs; the 
+planning requirements are limited; and the reporting 
+requirements are perfunctory.
+    The 1974 Housing and Community Development Act, which 
+created CDBG, also required the grantees prepare a Housing 
+Assistance Plan, do housing plan; and that did in fact result 
+in a linkage between housing needs and use of CDBG funds in the 
+early years. However, in the 1980's, the HAPs were no longer 
+required. Planning requirements were re-established in 1990 in 
+the National Affordable Housing Act, with the creation of the 
+Comprehensive Housing Affordable Strategy [CHAS]. The CHAS is 
+the primary statutory basis for the consolidated plan, which 
+HUD created in 1994.
+    The consolidated plan streamlined what was required of 
+entitlement jurisdictions to receive Federal Housing and 
+Community Development funds. As has been noted, the Conplan 
+combines into one document the CHAS and the annual applications 
+for the four block grants. The intent of the Conplan was to 
+increase both the autonomy and the accountability of 
+entitlement jurisdictions in use of Federal block grants. The 
+Conplan includes an assessment of the full range of housing and 
+community development needs in the community submitting the 
+Conplan.
+    The Conplan has the potential of being a mechanism by which 
+CDBG communities can be held more accountable for how their 
+funds are used, but there are two serious flaws. The first--and 
+this is a huge one--there is no statutory requirement that 
+jurisdictions actually spend their Federal block grant dollars, 
+including CDBG, on any of the needs that they identify in the 
+Conplan. The second flaw is that HUD has limited capacity to 
+monitor what jurisdictions do with their funds and hold 
+jurisdictions accountable for less than adequate performance.
+    HUD's work force was cut in half in the 1990's, without a 
+concomitant reduction in HUD's statutory duties. Moreover, the 
+political fallout from HUD challenging how a jurisdiction 
+spends its funds has the potential of being unpleasant, to say 
+the least. If Congress wants to assure that jurisdictions spend 
+their Federal block grant dollars appropriately, HUD needs 
+enough of the right staff who have the right authority to do 
+so.
+    Another improvement that would go a long way to making the 
+CDBG program more effective would be to lower the income 
+targeting requirements. Current income targeting is that 70 
+percent of CDBG funds benefit people with incomes at or less 
+than 80 percent of the area median. On a national basis, that 
+is approximately $40,000 a year; it is $47,000 a year in 
+Dayton, almost $53,000 a year in St. Louis, $49,000 a year in 
+Allentown. The remaining 30 percent of the funds have no income 
+limitations.
+    One of the purposes of CDBG, as defined in the statute is 
+the conservation expansion of the Nation's housing stock in 
+order to provide a decent home and a suitable living 
+environment for all persons. Currently, about a quarter of the 
+CDBG funds are used for housing. According to the 2003 American 
+Community Survey, on a national basis, there are 6.3 million 
+households with incomes at or less than 30 percent of the area 
+median who pay more than half of their income for their 
+housing. This income group is by far those with the most 
+serious housing problems, yet none of the Federal programs that 
+provide funds for housing production, preservation, or 
+rehabilitation are targeted to those with the most need.
+    In the very least, all CDBG funds should be directed to 
+benefit people with incomes at or less than 80 percent of area 
+median income and further deeper income targeting of some 
+portion of CDBG and a requirement that a greater portion of 
+CDBG funds be used for housing are in order.
+    Another way to more directly target the CDBG funds to needs 
+would be to consider housing cost burden as a factor in the 
+CDBG formula. Housing cost burden is by far the most serious 
+housing problem today. The housing factors currently in the 
+CDBG formula--overcrowding and the age of housing stock--are 
+much less relevant indicators of need than they were 20 to 30 
+years ago.
+    Again, thank you for the opportunity to testify today.
+    [The prepared statement of Ms. Crowley follows:]
+
+    [GRAPHIC] [TIFF OMITTED] T0219.156
+    
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+    
+    [GRAPHIC] [TIFF OMITTED] T0219.176
+    
+    [GRAPHIC] [TIFF OMITTED] T0219.177
+    
+    Mr. Turner. Again, I want to thank each of you for your 
+testimony, for the preparation that you put into this, for your 
+coming here today and participating, and for all of the staff 
+input.
+    I want to begin my questions with something very general 
+and broad, and go back to a question that I was asking Mr. 
+Bernardi, about this whole process of measuring. Again, to 
+reiterate, there is this philosophy of if you are not measuring 
+it, you are not measuring it.
+    But then there has to be the question of why are you 
+measuring it. Are you measuring it for compliance? And here, 
+with CDBG, we hear that the compliance requirements are very 
+broad, so it certainly we will find some people who will be out 
+of compliance and be able to move them back in. But generally 
+the criteria appear to be so broad that measuring for 
+compliance is not going to result in much usefulness in the 
+information.
+    Then there is measuring to prove effectiveness, and that is 
+really can we prove in the measurement information that we have 
+that this program is effective so that we can use that to 
+justify the sustainability of the program. We can sustain the 
+program by having measured it and improved its effectiveness, 
+something that each of your testimonies identify as something 
+that we are not quite yet able to achieve. And I appreciate all 
+the work that you have done in trying to assist us in being 
+able to prove the effectiveness through enhanced measuring.
+    The next category would be measuring to enhance 
+effectiveness. Once we get all this data and information, 
+actually using it as a management tool so that we can look at 
+what does it tell us about what uses of CDBG funds return the 
+greatest impact on low and moderate-income families, what 
+things have communities done that have not proved to be 
+effective.
+    And I am beginning this question, in part, from a comment 
+at the end of Ms. Patt-McDaniel's testimony that says, ``If 
+Congress is interested in addressing the issue of 
+effectiveness, it should direct HUD to find ways to train local 
+governments on best practices on community planning and citizen 
+involvement in that kind of planning.'' I was surprised, in the 
+testimony that we had from Mr. Bernardi, that there is not a 
+significant amount of effort in reviewing consolidated plans 
+and reviewing the information submitted by communities to 
+assist and enhance them in their process of expending CDBG 
+funds.
+    So I am going to ask if each of you would comment on the 
+issue of once we perfect this measurement, what should we be 
+doing with the information.
+    Mr. Schmitt.
+    Mr. Schmitt. Thank you, Mr. Chairman. I think that is a 
+great question. I believe in 1996, when we started, the purpose 
+for the outcomes and performance measures was an educational 
+tool for our nonprofits. Normally, most nonprofits do not 
+receive the same as the private sector in wages, so, therefore, 
+there is a lot of training going on. And it was a process of 
+beginning to help to show the nonprofits what they were out 
+there doing, where were they measuring their impact in the 
+community and being able to report back to the board.
+    I think that from that point it has evolved to another tool 
+to exactly what you are talking about: what does it mean to the 
+community; what is our overall in the community. I believe we 
+are in the process of developing that right now, that the 
+community can say, as in the case of the number of people in 
+assisted living, in a population that is growing in age, it is 
+a very critical item for us to continue focusing on, so it will 
+become a tool of how effective we have been in the past in 
+spending that money and where do we put more money as those 
+percentages either slip or increase in that area.
+    I hope I answered that question to you in what you were 
+looking for in the answer.
+    I do believe, in talk of best practices, that is the 
+solution for this particular issue. In 1998 we won a best 
+practices award for this program, and I don't believe that it 
+has been marketed very well to the rest of the community. In my 
+5 years as an elected official, there is tremendous great 
+talent out there in our local communities to be able to teach 
+and educate providers and other local governments, and I think 
+through some of the national coalitions of groups best 
+practices can be a great form of being able to pass this 
+information on. My recommendation to our city council and our 
+community is that we are not spending enough money on education 
+to be able to find out what best practices have worked across 
+the country and promoting those within our organization.
+    Mr. Turner. Mr. Downs.
+    Mr. Downs. Mr. Chairman, I think, as I said, there is a 
+history at HUD of feeling that the Community Development Block 
+Grant program is exempt from GPRA and PART, and I think in part 
+it was a feeling on the part of the professional staff that the 
+specific performance requirements would lead to micro-
+management of a program that was intended to be community 
+decision-based. I think that is an error on the part of the 
+staff, and I think they are gradually disabusing themselves of 
+the assumption that they are exempt from performance 
+accounting. They are not; the law is clear.
+    It is harder with Community Development Block Grant funds 
+to develop performance measures, particularly outcome measures, 
+not output measures. I think that the real argument for 
+performance measurement with Community Development Block Grant 
+funds is unless you can show the American public what the $4 
+billion a year buys, they don't support it.
+    And it is clear that this approach to it being a thousand 
+flowers that we don't count leads to a vulnerability for the 
+program. I think everybody agrees to the value itself of the 
+program; it is the responsibility of HUD and the recipients to 
+participate in a performance process.
+    Not sounding cynical, but I would say that best practices 
+has to start at HUD. The inability of the IDIS to absorb 
+performance data cannot be overstated. It is basically an 
+accounting system that is used to show where the money goes, it 
+doesn't necessarily have the structure to support performance 
+recording. It has been that way since the beginning, and to 
+have some of the HUD staff that for years data simply comes in, 
+it is untouched by human hands, it is put on a giant tape and 
+shipped off to Suitland, MD for the archives. It is basically 
+untouched by any human mind for analysis. I hope that is 
+changing.
+    This system is so fundamentally broken that the recipients 
+know that they spend a lot of time and effort, including 
+contractor time, to try to put together reporting requirements 
+that go to HUD and go into a memory hold. That breeds cynicism, 
+it breeds a lack of trust in the partnership between the 
+national government and the local recipients. It has to be 
+fixed. It has to be fixed for this program to actually have 
+legitimate performance measures that are accepted both in the 
+community and nationally.
+    So if I was urging any state-of-the-art fix, it would start 
+at HUD.
+    Mr. Turner. Ms. Patt-McDaniel.
+    Ms. Patt-McDaniel. Well, your initial question was are we 
+measuring for compliance, are we measuring for effectiveness, 
+are we measuring for enhancement of programs. I think that 
+depends on the sophistication of the program. I would like to 
+think that Ohio's State program is sophisticated enough that we 
+are looking at the enhancement of what we are trying to do, 
+because I believe that myself and my staff want to wake up 
+every day knowing that we have spent the money in a way that 
+has made a real difference in the constituents for the State.
+    Also, whether or not HUD would have been asking us to come 
+up with performance measures, the Department of Development is 
+already deep into that process as a whole, using the balance 
+scorecard, which is a particular model. But even before that we 
+have a pretty intense citizen participation process that starts 
+the minute we get our grant agreement for the current fiscal 
+year, we start again going through our citizen participation 
+process.
+    I do believe that there is a need for technical assistance 
+to local governments and States on how best to implement and 
+look at performance measures and look at what the results are 
+for their own management of the programs. Certainly, it is 
+important to aggregate some key outcome factors so that you can 
+assess whether we are meeting the statutory intent.
+    But for any good administrator, they want to look at the 
+performance measures to see are they making a difference in 
+what they are trying to achieve, as well being in compliance, 
+which is step one; effectiveness, basic effectiveness, which is 
+step two. But, as I said, most importantly is once you become 
+effetcive, you want to always be looking at what you are doing 
+and can you do it better.
+    So I guess I would say that it is important for us, whether 
+we were being asked to do it or not, and I would have to agree 
+that many of the States and the entitlements who are on the 
+task force with me that COSCDA started, I would think that they 
+all felt the same way, and that is why they were engaged in the 
+task force.
+    Mr. Turner. Ms. Crowley.
+    Ms. Crowley. Well, I think that the question of 
+effectiveness has to come back to intent. And you can't say you 
+are going to measure effectiveness if you haven't started from 
+the beginning saying what it is that you want to do. And part 
+of the problem, as everybody has said, with the CDBG program is 
+that it has this huge array of things that folks can do, and 
+can do little bits of all of that or can concentrate on one 
+thing or another.
+    But is the amount of money that a jurisdiction gets from 
+the CDBG program actually going to turn the tide on some 
+specific problem that they have? First of all, it is 
+questionable if there is enough money to do that, but the 
+second thing is there has to be a conscious decision on behalf 
+of the community to actually do that; and there is simply no 
+requirement of that.
+    My sort of metaphor for these kind of programs is if you go 
+on bus tours through low-income neighborhoods and you find here 
+is a block that has been completely renovated, and then there 
+is a sea of blight, and then there is another house that is 
+sort of brightly colored. And that is the effect of this, is 
+that you have these little pieces of improvement, but that you 
+don't have an overall systemic change that is going on in the 
+community. And that would require that there be some 
+expectation that in the planning process that communities 
+actually pay attention to the structural problems in their 
+community and make a very concerted effort to address those.
+    Right now it is all over the place. Some folks have 
+described it as Balkanized, that if you have a city council 
+with nine members, and they all get a piece of the CDBG fund to 
+spend in their jurisdiction, then there is no particular way to 
+hold anybody accountable for what the outcome of that is.
+    Mr. Turner. Thank you so much.
+    Mr. Clay.
+    Mr. Clay. Thank you, Mr. Chairman. Thank you for holding 
+this hearing, as well.
+    I want to thank both panels for being here today.
+    Let me start with Mr. Downs. How are you?
+    Mr. Downs. Fine. Good to see you again.
+    Mr. Clay. You too. As you know, the fiscal year 2006 budget 
+transfers CDBG to the Commerce Department and shifts the block 
+grants focus away from community development toward economic 
+development purposes. If Congress agreed to this proposal, 
+wouldn't the types of performance measures being developed by 
+HUD and stakeholders be useless under the new Department of 
+Commerce administered block grants? Can you comment on that?
+    Mr. Downs. No. I don't know the framework that they are 
+actually proposing for legislative purpose within Commerce. I 
+think if the program itself has the same framework of an open 
+trust between the national government, State and local 
+governments for broad purposes, which is the framework for 
+this, it is based on an assumption about federalism, that you 
+have to allow local decisionmakers to make decisions about 
+their own communities, and that as a partnership, you would 
+have the same dilemmas about reporting requirements around that 
+performance, whether it was at HUD or at Commerce.
+    It is unclear that you could use the current IDIS in any 
+way, shape, fashion, or form in a broader arena, and it would 
+probably mean rebuilding from the ground up a new information 
+system at the national level.
+    Mr. Clay. Thank you for that response.
+    Dr. Crowley, you mentioned in your testimony that one of 
+the methods Congress ought to study is the useless restrictive 
+thresholds for income targeting among communities. Could you 
+explain in greater detail how this would improve program 
+accountability? Wouldn't this negatively impact the number of 
+low and moderate-income persons the program is trying to 
+assist? And do you see entire communities benefiting from a 
+lower threshold, as opposed to neighborhoods or specific areas?
+    Ms. Crowley. Well, I think if the intent is to improve the 
+well-being of low-income communities and people in those 
+communities, then the more deeply you can target the CDBG 
+dollars, the better off you are. And at this point the 
+targeting requirements, I think, are relatively broad, they are 
+very high, much higher than any other of the programs that HUD 
+administers, and I think they create the room for local elected 
+officials to make decisions to spend CDBG dollars on things 
+that some of us would consider questionable, you know, with 
+this broad notion that somehow it is going to improve the 
+overall community. I think the more targeted you can be, the 
+more accountability you will get.
+    Mr. Clay. So you are suggesting to target the funding, the 
+block grants toward the lower income census tracks.
+    Ms. Crowley. No, I am saying that all the funds should 
+benefit people who are at low income, at least. At this point 
+is only 70 percent of them. And that if you could more deeply 
+target who benefits from the funds, not necessarily individual 
+census tracks, but who benefits from the funds, then you would 
+be better off.
+    Mr. Clay. OK. Thank you for that response.
+    Ms. McDaniel, a major concern with block grants like CDBG 
+is that some communities are using Federal funds to supplant 
+their local community development budgets, therefore not 
+improving upon past development effort. Can you tell us what 
+mechanisms, if any, have been included in the new outcome 
+framework to ensure that CDBG funds do not supplant local 
+program funding streams?
+    Ms. Patt-McDaniel. Well, Congressman Clay, let me clarify 
+for you that I am in a State program, so most of our 
+communities don't have community development staffs. But from 
+my knowledge of the block grant program broadly, all the 
+activities that can be undertaken with community development 
+block grant have to be done by somebody. So a small portion of 
+those funds in any activity are going to go to the labor of 
+getting it accomplished, whether that is housing rehab, 
+downtown revitalization, public service.
+    In the outcome framework, we were looking at actual 
+benefits of what we did, and not what percentage of that 
+particular activity would end up paying for staff time.
+    Mr. Clay. Excuse me. What parts of the outcome do you 
+really favor, I mean, does it create jobs, does it create 
+beautification in the community? Which parts do you favor?
+    Ms. Patt-McDaniel. Do I favor?
+    Mr. Clay. Yes. Or do you like to see accomplished, so to 
+say.
+    Ms. Patt-McDaniel. Well, the beauty of the Community 
+Development Block Grant program is its incredible flexibility. 
+But everything that is done under the program comes down to the 
+three overarching objectives, which is: creating a suitable 
+living environment, creating decent affordable housing, or 
+creating economic opportunity.
+    And I would put forth that community development requires 
+all three of those things to be successful, and programs in--
+and this is my own opinion--in programs that spend their block 
+grant in only one of the three areas, unless they have 
+resources to address the other two areas, you are not going to 
+be able to turn the corner, as was said, in getting an area to 
+prosper.
+    And I can't say that I favor one over the other; I think 
+all three are important and have to be addressed, whether it is 
+addressed with Community Development Block Grant, whether you 
+are using HOME or State funds. It has to be a comprehensive 
+effort.
+    Mr. Clay. Thank you for that response.
+    Thank you, Mr. Chairman.
+    Mr. Turner. Mr. Dent.
+    Mr. Dent. Thank you, Mr. Chairman.
+    Good afternoon. In your written testimony, Ms. Crowley, you 
+state, in reference to the consolidated plan, ``If Congress 
+wants HUD to assure that jurisdictions spend their Federal 
+block grant dollars appropriately, HUD needs enough of the 
+right staff who have the right authority to be able to do so.'' 
+Is it your opinion that HUD does have enough staff to 
+undertaken this particular task?
+    Ms. Crowley. Well, I haven't done any careful study of the 
+HUD manpower stuff, but I can tell you that it did see a rapid 
+downsizing of HUD in the 1990's with no change in what it is 
+that HUD was supposed to do. So something has to give 
+someplace. And I think that it would be time and money well 
+spent to actually look at what it is that Congress requires HUD 
+to do, expects HUD to do, and what the staffing patterns are 
+that need to be in place in order to carry that out. And it 
+seems self-evident that there is a mismatch on that at this 
+point.
+    The other thing is that in terms of the use of the funds, 
+HUD staff are very limited in what they can do to effect 
+consequences on jurisdictions that don't use the funds 
+effectively or appropriately. There is very little that HUD can 
+actually do with that. They probably could do more than they 
+do, but actually they have very little authority to carry that 
+out.
+    Mr. Dent. So you are saying the compliance staff lacks 
+authority?
+    Ms. Crowley. The basis upon which you can disapprove a 
+consolidated plan, there is a broad thing about how it not 
+being consistent with the intent of the statute, but that is 
+huge. So it would be very hard to do that. And then the other 
+way you can disapprove is that it is substantially incomplete, 
+which is that you haven't filled out every form and you haven't 
+gone through every step that is required, and you haven't 
+signed every certification, and those kinds of things.
+    But that is sort of like can you complete the package, as 
+opposed to is what you are proposing to do in the packet does 
+it mean anything. So I think that there are some limitations on 
+what it is that HUD can do.
+    Having said that, there is a lot more that HUD could do. I 
+think that we have utterly forgotten the fair housing 
+requirements that jurisdictions have, and HUD's responsibility 
+to assure the affirmatively furthering of fair housing. Many of 
+the issues that need to be resolved in terms of housing in 
+community development have fair housing implications, and if we 
+had those programs better integrated, those processes better 
+integrated, HUD may in fact be able to exercise more authority.
+    But nobody really wants HUD to exercise much authority. We 
+want them to hold people accountable, but we also don't want 
+them to rock the boat. So I think HUD staff are sort of in a 
+really precarious position under any administration.
+    Mr. Dent. You have also suggested that there should be 
+consequences for failure. Failure by whom, HUD for not 
+monitoring closely enough, for the grantees, or for both?
+    Ms. Crowley. Well, I think that consequences for failure 
+mean that you somehow or another don't use your funds for what 
+you are supposed to do and you can't in any way demonstrate 
+that you are going to, that the funds are going to what it is 
+that they are supposed to go to. That is simply a matter of 
+monitoring and being able to determine precisely what happens 
+with that.
+    Part of the problem is that we give money to jurisdictions 
+and then jurisdictions subcontract with other folks to be able 
+to do that. There are levels and layers of accountability that 
+need to be in place. But the reality is that the grants go out 
+year after year without anybody really checking on that.
+    I am not saying that should be used as a reason not to have 
+the grants. I am saying what we should do is have a system in 
+place so that there is a way for us to be assured that the 
+money is being used as effectively as possible.
+    Mr. Dent. What consequences would you suggest that Congress 
+enact?
+    Ms. Crowley. Well, I think a basic thing that Congress 
+could do that would be essential is to tie the expectation that 
+you actually spend your dollars on what it is that you identify 
+are the biggest problems in your community. And that would be a 
+consulting process with everybody in your community, that you 
+actually engage in a genuine, serious citizen participation 
+process; that there be actual consultation with a wide range of 
+folks; and that you come to some agreement about what it is you 
+want to tackle this year and then the next 5 years, and how 
+your dollars can best be spent.
+    There is no reason why Congress can't do that. That 
+interferes with the notion of local autonomy making decisions, 
+but you are actually not taking away autonomy, you are simply 
+asking people to use their autonomy in a more effective and 
+targeted way.
+    Mr. Dent. Thank you.
+    No further questions.
+    Mr. Turner. Mr. Schmitt, in your testimony you talked about 
+the successes of your community and the processes that you put 
+in place for approving CDBG funds. You talked about previous 
+inequities. I would love to hear some anecdotal statements 
+about some of those inequities that you saw.
+    And then I would like you to go into, if you would, the 
+issue of have there been requests for funding that this process 
+has resulted in rejecting? And whether or not this process has 
+resulted in identifying some activities or uses that are 
+currently eligible under the act that your community is not 
+likely to fund.
+    And I am going to broaden the question as it goes to the 
+rest of the panel and I am going to tell you what that is so 
+you can understand the other point that I am interested in 
+here, and that is one of the things we tout with CDBG is local 
+control and the issue of flexibility. When we talk about 
+effectiveness, Mr. Downs, as you had said, to prove that these 
+$4 billion plus funds are being used in a way that is 
+beneficial for taxpayers, we inevitably come to the conclusion 
+that there is some difficulty in measuring something that is so 
+broad.
+    So my question goes to in balancing flexibility and then 
+the reality of knowing that we have to have accountability, is 
+the program too broad? And if it is too broad, do you have some 
+thoughts in areas where the fact that the scope is so broad 
+might be able to be improved?
+    So, Mr. Schmitt, the inequities, any applications that are 
+rejected, and the issue of activities or uses that are not 
+likely to be seen favorably with your community.
+    Mr. Schmitt. Thank you, Mr. Chair. The issue of inequities, 
+each community--the three entities: Reno, Sparks, and Washoe 
+County--would have as many as 50 to 60 service providers that 
+would be submitting applications all roughly the same time 
+period of the year for funding. If you were the last entity--
+and usually the city of Sparks would be the last entity to do 
+their funding--the applicants would come forward and say, well, 
+the city of Reno and Washoe County gave us funding, so if you 
+want to see your citizens' of Sparks services taken care of, 
+you need to fund us also.
+    In many cases we only had $100,000 in the city of Sparks, 
+and we would have as many as 50 applications for those moneys. 
+So it would become that in order to make sure that the 
+residents of our community in the coalition got funded, the 
+CDBG money was funded, we would have to give them a little bit 
+of money, which meant that 50 agencies were getting $100,000, 
+which meant that probably most of that money was going to staff 
+members filing the quarterly reports and trying to take care of 
+the reporting process.
+    Also, agencies would come forward and say we didn't get 
+funding from Reno or Washoe County, and if you don't give us 
+funding, we are going to have to close our doors, which then 
+put the burden on one community. It kind of created a circuit 
+ride, if you will, of people going around to the agencies. With 
+each office being no more than 5 miles apart from one another, 
+it made it very inequitable. And some organizations that had 
+good lobbying firms would be able to get the higher percentage 
+of the funds from each of the communities, and some agencies 
+who were really struggling and didn't have the professional 
+staff to do that would not receive any money.
+    And by all the three entities coming together and turning 
+it to a citizens group, a focus group to be able to take care 
+of that, a lot of those issues got worked on out.
+    The issue of getting rejected, in the 9-years this process 
+has been going forward, there have been several agencies that 
+have been rejected for their funding, and it is because we now 
+have in place what is called a scoring system. Throughout the 
+process, each application is scored. If they don't receive a 
+passing score, then their application is most likely to get 
+rejected. It could still be in the pile for help improvement, 
+if we felt that there was some motivation of the management 
+there in the agency to be improved, then they could get some 
+funding on it.
+    After 9 years of this process, we see very little 
+applications coming forward to the staff because the process is 
+known throughout the nonprofit community that they don't apply 
+for these funds if they are not eligible for the funds. So I 
+believe that probably everything under the CDBG program is 
+eligible, but we don't have all the applications come forward; 
+they won't come forward because it is so well known throughout 
+the community of what that process is and what those moneys are 
+eligible for.
+    I believe very strongly in the issue of local control, of 
+being able to control the funds that are there. In many 
+communities I think it is used very, very wisely. The citizens 
+can come forward and talk about those, the elected officials 
+can come forward and talk about it. It does become a political 
+situation at times that you have certain things in the 
+community, but I think most elected officials understand the 
+good of the whole and will work for the common good and 
+distribute from those funds.
+    Accountability, we have had that throughout the very 
+beginning. We ask our service providers to be accountable and 
+we are also asking our councils and our elected officials to be 
+accountable to the community for those funds, and we think we 
+have built in some safeguards to be able to have that 
+accountability.
+    Mr. Turner. Mr. Downs.
+    Mr. Downs. Part of the genius of the program is its breadth 
+of decisionmaking that allows State and local jurisdictions to 
+solve problems that are unique within their community. And we 
+have discovered long ago that there is a fundamental difference 
+been Minot, ND and Miami. That is built into the program.
+    What is not built into the program, and what is causing it 
+grief now, is an easy way for communities to articulate their 
+program and their plan in an information system that is easily 
+accessible for those recipients at HUD and that the reporting 
+for performance and outcomes is pretty easy and transparent for 
+those jurisdictions.
+    It is not unusual, apparently, for some communities to have 
+four or five people who do nothing but data management, 
+manipulation, and entry. That is dead loss overhead for the 
+program. The lack of that information system at HUD doesn't 
+allow best practices to rise to the top so that HUD can push it 
+back out and say look at what Minot did in this area; this is 
+something that you ought to think about about how you use your 
+own funds.
+    If this communication process between the recipients and 
+the national government stays as broken as it is, you cannot 
+get realistic, timely, painless performance outcomes. You can't 
+hold the communities accountable for what they are producing 
+because you don't know what the information is.
+    And you can't help them understand what is new and creative 
+that people are using around the rest of the country. That 
+system is so critical, and it ought to be ease of access, it 
+ought to be transparent, it ought to be programmable so that 
+you fill in a screen, it has categories not unlike this on a 
+screen, you hit enter, it goes to HUD. They can then pull this 
+data back and begin to give feedback back about you are not 
+living up to your plan. It says here you are supposed to do X 
+and Y. You are only doing X. Why is that? That system doesn't 
+exist at the national level.
+    The information won't set all of us free of these 
+criticisms, but facts actually help in the decisionmaking 
+process here.
+    Ms. Patt-McDaniel. OK, well, why the statutory purposes of 
+this program haven't changed. As community problems have 
+changed and new community problems have come up, Congress has 
+added new eligible activities over time like brownfields, 
+energy efficiency, economic opportunity. These get added to the 
+program and make more eligible activities.
+    But certainly not every community eligible for block grants 
+needs assistance with all those issues and chooses to do all 
+those activities. But this approach recognizes that a broad 
+menu of activities must be available in order for communities 
+to address their community development needs.
+    So, with that, I think Congress got that part right. I 
+think you will find that--and I need to clarify that I am in a 
+State program. The State, the way we run our program, is so 
+much different from the way the city of Dayton would run its 
+program. But, in general, I would surmise that most grantees, 
+whether they are States or whether they are cities or counties, 
+are doing a menu of a few of those activities where they are 
+trying to get accomplishments. So in that effect it is not too 
+broad. They are picking out of that broad menu a group of 
+activities that they need for their community.
+    In the State of Ohio we have 10 programs across the four 
+funding sources that are our primary things that we are trying 
+to achieve. And this is a problem with performance measurement. 
+There are some key factors that we can roll up nationally that 
+might be able to tell you about those programs, but really the 
+performance measures in my mind that are going to matter the 
+most are the ones that a local community, a county, or a State 
+put on themselves based on the narrow group of activities they 
+have chosen to do out of the program. And then those outcome 
+measurements is what will provide the accountability to how 
+that money was spent and what we are trying to achieve.
+    So I don't think that the Community Development Block Grant 
+is too broad. I think it is broad in that it gives you several 
+opportunities to address your community's needs. And every 
+community is different. You know that what was important in the 
+city of Dayton is not necessarily what was important in the 
+city of Columbus or in the city of Cleveland, or in some of the 
+smaller communities.
+    So I think local communities need to have that flexibility 
+to figure out what is unique about their community, what do 
+they need to achieve. And then they should have measurements on 
+what they need to achieve, and that is how you should look to 
+see how effective the program is.
+    As I said, there are some key outcomes that can be rolled 
+up to the national level that may be able to tell you about the 
+effectiveness of the program, but even more so it is those 
+local performance measures that are going to tell you locally 
+whether that particular program is being effective in what it 
+is trying to achieve.
+    Ms. Crowley. In terms of the number or the breadth of 
+activities, I think the other panelists are right that it has 
+to be decisions that are made at the local level. However, I 
+think you could probably fine tune it a bit to make sure that 
+you do not allow things that are standard municipal functions 
+anyway. So if you can afford to do sewers and sidewalks in rich 
+neighborhoods, you shouldn't be spending your CDBG dollars to 
+do sewers and sidewalks in poor neighborhoods. You should be 
+spending your general fund dollars to do that.
+    So I think that where you can differentiate on what are the 
+things that the jurisdiction would do anyway, and how does CDBG 
+add to some things that the jurisdiction couldn't normally do, 
+wouldn't normally do for all of its citizens to be able to 
+benefit, to improve the well-being of low-income folks.
+    I do think, as I said, that there is too much flexibility 
+in the income targeting and that you could help a lot if you 
+reduce that. The thing that I think will ultimately make a 
+difference, though, is if there is a much better process for 
+the local decisionmaking to occur.
+    And we struggle with all sorts of different ways to do that 
+because there is 1,100 different jurisdictions and there is a 
+wide range of talent and skill and capacity at the local level, 
+on staff and of local elected officials. Some people can do 
+this very well and other people botch it completely. The folks 
+from Nevada sound like it is just wonderful, and I wish you 
+could replicate that all over the place.
+    And, of course, then everybody says, well, if they don't do 
+it right, then we want HUD to make them to do it right. Well, 
+HUD can't make them do it right; it doesn't have the power, the 
+authority, or the manpower to do that, or doesn't have the 
+ability to track everything that is going on.
+    One thought that folks have raised and that we have talked 
+about--that seems a little pie-in-the-sky, but now that we are 
+talking about it, I will raise it--is the idea of creating some 
+sort of alternative force at the local level that was funded by 
+HUD so that there would be money going directly to some 
+community entity whose job it was to basically monitor what 
+happened with Federal funds in that jurisdiction.
+    Do you spend your public housing dollars right? Do you 
+spend your vouchers right? Do you actually do what it is that 
+the Federal Government intends you to do with these? And to 
+actually have a monitoring and collaborative process that, 
+first of all, folks would know that there is somebody watching 
+and, second of all, there is somebody to elevate attention to 
+that from HUD officials if in fact that is warranted.
+    That is a pretty loose idea at this point, but it may be a 
+way of getting at the kind of dilemma that you have articulated 
+with local flexibility and then how do you make folks 
+accountable.
+    Mr. Turner. I just want to acknowledge that I think you 
+have made a very important point when you mentioned the 
+infrastructure expenditures. If there is a government function 
+that the government is going to do anyway, but yet they 
+sequester or shell game, if you will, the use of CDBG funds for 
+a function that doesn't really advance the low and moderate-
+income community, you are going to diminish the effectiveness 
+of the program.
+    If there is something that you are going to pay for in 
+areas of your community that you don't have poverty, but you 
+use CDBG funds to do that in the area where you have poverty, 
+you are supplanting your own government functions with Federal 
+dollars that are intended to advance your impoverished areas; 
+to eliminate blight, to actually improve the conditions and not 
+just be a budgetary line item where you go to a pot of money to 
+let the Federal Government take responsibility for where you 
+are taking responsibility for the whole rest of the city.
+    Ms. Crowley. Right.
+    Mr. Turner. And I think that is a very important point. I 
+don't know exactly how to get to that, but I know that there is 
+a sense that does occur in some communities, and you have to 
+acknowledge that there are people who do have that concern 
+about CDBG moneys.
+    Ms. Crowley. I think a rule of thumb would be if you can 
+afford to put a tennis court in this neighborhood, you can 
+afford to put a tennis court in this neighborhood. I think you 
+look at where it is that has happened. Now, you know, what are 
+the unintended consequences of those kinds of rules? We would 
+have to think those through.
+    Mr. Turner. Right. I think it is very difficult to capture 
+from a policy perspective how you would address that. But that 
+is a criticism that you do hear of CDBG.
+    Does anyone else want to comment on this?
+    Ms. Patt-McDaniel. Congressman Turner, I would like to 
+respond to that, because I am also married to somebody who is 
+in local government, and I don't know very many local 
+governments right now who are operating at huge, huge 
+surpluses, or even slight surpluses.
+    And I am guessing that if you have a city--and I am trying 
+to think of one in Ohio--which might be considered to have some 
+nicer areas and some poorer areas, my guess is that a local 
+government has a menu of infrastructure or parks, a whole menu 
+of activities that they want to do, and they have resources. 
+They have their own GRF, they have CDBG, they may have some 
+State resources, but they have a variety of resources. But the 
+total of those resources doesn't add up to all the 
+infrastructure needs of that community.
+    So it only makes good management sense to match the 
+appropriate resource to the appropriate neighborhood so that if 
+you have CDBG, you are in desperate need of replacing the 
+sewer, which typically could be across the whole community, you 
+are going to use the CDBG funds where you could benefit the low 
+to moderate-income people and use the GRF in the areas where 
+they may not make the low to moderate-income standards.
+    And you may have some examples. I don't know of any 
+communities in Ohio who are just spending their GRF in the 
+richer areas of their community and using the CDBG because they 
+have GRF that is sitting there in a surplus and using the CDBG 
+to replace their infrastructure. And I am certainly not 
+questioning that could be the case, but if that was the case, 
+it was in the early 1990's, and certainly not now.
+    So I don't know that is a key problem with the expenditure 
+of CDBG funds, and I just wanted to comment on that.
+    Mr. Turner. Ms. Patt-McDaniel, you have done an excellent 
+job in responding to the complexity of the issue. I think it 
+was important that Ms. Crowley make that statement because it 
+is a concern that we do hear in communities where there is 
+citizen participation. And there is in every community citizen 
+participation with CDBG fund expenditure.
+    But during that process you do hear what Ms. Crowley said 
+in that process, that some people are concerned as to how those 
+funds are utilized with respect to general operating funds. And 
+you very well articulated that there is not a great surplus of 
+those sitting around, so a community is trying to balance all 
+its needs and resources.
+    But I do think the point-counterpoint, if you will, of the 
+issues that you two have just described was very important for 
+us to discuss, because it is something that you do hear in 
+community activist discussions about CDBG and its 
+effectiveness.
+    Mr. Schmitt or Mr. Downs, do you have anything you would 
+like to comment on that?
+    Mr. Schmitt. I would be more than happy to, Mr. Chairman.
+    In the State of Nevada, city of Sparks, we only have 
+basically two sources of revenues for local government: 
+property taxes and sales taxes. And I've given an example of 
+where taxes are generated and taxes are consumed. I have just 
+approved a new police beat, in fact, the first police beat for 
+a residential neighborhood of approximately 5,000 homes that 
+started in 1994, and we now have our first cop that is in that 
+area, because the need wasn't there, but it is homes of 
+$300,000 or $400,000.
+    And the majority of our funds are consumed in our lower-
+income neighborhoods, both in street repair, sewer repairs, 
+police protection, fire protection, medical aid. So we already 
+are funding to a great extent a lot of our funds are going to 
+low-income and medium-income neighborhoods. So these funds are 
+only being used to help supplement those costs, when we are 
+already transferring revenues to those neighborhoods.
+    Thank you, Mr. Chair.
+    Mr. Turner. Mr. Downs.
+    Mr. Downs. It is possible to establish with better data 
+scorecards about how communities are actually spending their 
+funds by category and by type, over time, which is impossible 
+with the system right now. I am not sure that you need to 
+control them, but you can make their decisions and outcomes 
+more visible to the citzens of the communities, and even their 
+State, about how individual jurisdictions are handling it.
+    But the system has to be better than it is now, because you 
+can't even get to a scorecard about how communities are 
+defective or not about their expenditures. You could rank 
+communities by percent of administrative cost. You could rank 
+communities by how much of it they are putting into water and 
+sewer or roads. You could rank them by how much they are 
+putting into housing. You could do it by State, you could do it 
+by region. None of that is available now in this system.
+    Mr. Turner. I do not have any more questions, so I am going 
+to ask if any of you have any other additional comments that 
+you would like to place in the record as a result of the 
+questions or comments that you have heard.
+    Mr. Schmitt. Thank you very much, Mr. Chairman, and the 
+entire panel for their time and dedication to this issue. It is 
+a very important issue to our community and communities all 
+over the Nation. I thank you for it.
+    Mr. Downs. Thank you, Mr. Chairman.
+    Ms. Patt-McDaniel. Thank you. And I think an outcomes 
+framework will solve some of these problems and should be 
+pushed.
+    Ms. Crowley. Thank you for the invitation today.
+    Mr. Turner. Well, I want to thank you all. I know that you 
+have spent a tremendous amount of effort in preparing and time 
+out of your daily lives to be here. I want to thank also the 
+HUD for its participation in the earlier hearing.
+    As we know, CDBG has been a key component in making our 
+Nation's cities more viable. It has led to many triumphs cities 
+have had over poverty and community development need. We can 
+all agree the program provides vital funds to address urban 
+critical needs. I appreciate the additional information that 
+you have provided us as we look to the issue of the 
+effectiveness and preserving CDBG. I want to thank you.
+    And with that, we will be adjourned.
+    [Whereupon, at 12:40 p.m., the subcommittee was adjourned.]
+    [Additional information submitted for the hearing record 
+follows:]
+
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