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+[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:] + + [GRAPHIC] [TIFF OMITTED] T0219.016 + + [GRAPHIC] [TIFF OMITTED] T0219.017 + + [GRAPHIC] [TIFF OMITTED] T0219.018 + + [GRAPHIC] [TIFF OMITTED] T0219.019 + + [GRAPHIC] [TIFF OMITTED] T0219.020 + + [GRAPHIC] [TIFF OMITTED] T0219.021 + + [GRAPHIC] [TIFF OMITTED] T0219.022 + + [GRAPHIC] [TIFF OMITTED] T0219.023 + + [GRAPHIC] [TIFF OMITTED] T0219.024 + + [GRAPHIC] [TIFF OMITTED] T0219.025 + + [GRAPHIC] [TIFF OMITTED] T0219.026 + + 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:] + + [GRAPHIC] [TIFF OMITTED] T0219.034 + + [GRAPHIC] [TIFF OMITTED] T0219.055 + + [GRAPHIC] [TIFF OMITTED] T0219.035 + + [GRAPHIC] [TIFF OMITTED] T0219.056 + + [GRAPHIC] [TIFF OMITTED] T0219.036 + + [GRAPHIC] [TIFF OMITTED] T0219.057 + + [GRAPHIC] [TIFF OMITTED] T0219.037 + + [GRAPHIC] [TIFF OMITTED] T0219.058 + + [GRAPHIC] [TIFF OMITTED] T0219.038 + + 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 + +[GRAPHIC] [TIFF OMITTED] T0219.060 + +[GRAPHIC] [TIFF OMITTED] T0219.039 + +[GRAPHIC] [TIFF OMITTED] T0219.040 + +[GRAPHIC] [TIFF OMITTED] T0219.041 + +[GRAPHIC] [TIFF OMITTED] T0219.042 + +[GRAPHIC] [TIFF OMITTED] T0219.043 + +[GRAPHIC] [TIFF OMITTED] T0219.044 + +[GRAPHIC] [TIFF OMITTED] T0219.045 + +[GRAPHIC] [TIFF OMITTED] T0219.046 + +[GRAPHIC] [TIFF OMITTED] T0219.047 + +[GRAPHIC] [TIFF OMITTED] T0219.048 + +[GRAPHIC] [TIFF OMITTED] T0219.049 + +[GRAPHIC] [TIFF OMITTED] T0219.050 + +[GRAPHIC] [TIFF OMITTED] T0219.051 + +[GRAPHIC] [TIFF OMITTED] T0219.052 + +[GRAPHIC] [TIFF OMITTED] T0219.053 + +[GRAPHIC] [TIFF OMITTED] T0219.054 + +[GRAPHIC] [TIFF OMITTED] T0219.061 + +[GRAPHIC] [TIFF OMITTED] T0219.062 + +[GRAPHIC] [TIFF OMITTED] T0219.063 + + + + 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:] + + [GRAPHIC] [TIFF OMITTED] T0219.066 + + [GRAPHIC] [TIFF OMITTED] T0219.067 + + [GRAPHIC] [TIFF OMITTED] T0219.068 + + [GRAPHIC] [TIFF OMITTED] T0219.069 + + [GRAPHIC] [TIFF OMITTED] T0219.070 + + [GRAPHIC] [TIFF OMITTED] T0219.071 + + [GRAPHIC] [TIFF OMITTED] T0219.072 + + [GRAPHIC] [TIFF OMITTED] T0219.073 + + [GRAPHIC] [TIFF OMITTED] T0219.074 + + [GRAPHIC] [TIFF OMITTED] T0219.075 + + [GRAPHIC] [TIFF OMITTED] T0219.076 + + [GRAPHIC] [TIFF OMITTED] T0219.077 + + [GRAPHIC] [TIFF OMITTED] T0219.078 + + 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:] + + [GRAPHIC] [TIFF OMITTED] T0219.079 + + [GRAPHIC] [TIFF OMITTED] T0219.080 + + [GRAPHIC] [TIFF OMITTED] T0219.081 + + [GRAPHIC] [TIFF OMITTED] T0219.082 + + [GRAPHIC] [TIFF OMITTED] T0219.083 + + [GRAPHIC] [TIFF OMITTED] T0219.084 + + [GRAPHIC] [TIFF OMITTED] T0219.085 + + [GRAPHIC] [TIFF OMITTED] T0219.086 + + [GRAPHIC] [TIFF OMITTED] T0219.087 + + [GRAPHIC] [TIFF OMITTED] T0219.088 + + [GRAPHIC] [TIFF OMITTED] T0219.089 + + [GRAPHIC] [TIFF OMITTED] T0219.090 + + [GRAPHIC] [TIFF OMITTED] T0219.091 + + [GRAPHIC] [TIFF OMITTED] T0219.092 + + 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:] + + [GRAPHIC] [TIFF OMITTED] T0219.093 + + [GRAPHIC] [TIFF OMITTED] T0219.094 + + [GRAPHIC] [TIFF OMITTED] T0219.095 + + [GRAPHIC] [TIFF OMITTED] T0219.096 + + [GRAPHIC] [TIFF OMITTED] T0219.097 + + [GRAPHIC] [TIFF OMITTED] T0219.098 + + [GRAPHIC] [TIFF OMITTED] T0219.099 + + [GRAPHIC] [TIFF OMITTED] T0219.100 + + [GRAPHIC] [TIFF OMITTED] T0219.101 + + [GRAPHIC] [TIFF OMITTED] T0219.102 + + [GRAPHIC] [TIFF OMITTED] T0219.103 + + 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 + + [GRAPHIC] [TIFF OMITTED] T0219.138 + + [GRAPHIC] [TIFF OMITTED] T0219.139 + + [GRAPHIC] [TIFF OMITTED] T0219.140 + + [GRAPHIC] [TIFF OMITTED] T0219.141 + + [GRAPHIC] [TIFF OMITTED] T0219.142 + + [GRAPHIC] [TIFF OMITTED] T0219.143 + + [GRAPHIC] [TIFF OMITTED] T0219.144 + + [GRAPHIC] [TIFF OMITTED] T0219.145 + + [GRAPHIC] [TIFF OMITTED] T0219.146 + + [GRAPHIC] [TIFF OMITTED] T0219.147 + + [GRAPHIC] [TIFF OMITTED] T0219.148 + + [GRAPHIC] [TIFF OMITTED] T0219.149 + + [GRAPHIC] [TIFF OMITTED] T0219.150 + + [GRAPHIC] [TIFF OMITTED] T0219.151 + + [GRAPHIC] [TIFF OMITTED] T0219.152 + + [GRAPHIC] [TIFF OMITTED] T0219.153 + + [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 + + [GRAPHIC] [TIFF OMITTED] T0219.157 + + [GRAPHIC] [TIFF OMITTED] T0219.158 + + [GRAPHIC] [TIFF OMITTED] T0219.159 + + [GRAPHIC] [TIFF OMITTED] T0219.160 + + [GRAPHIC] [TIFF OMITTED] T0219.161 + + [GRAPHIC] [TIFF OMITTED] T0219.162 + + [GRAPHIC] [TIFF OMITTED] T0219.163 + + [GRAPHIC] [TIFF OMITTED] T0219.164 + + [GRAPHIC] [TIFF OMITTED] T0219.165 + + [GRAPHIC] [TIFF OMITTED] T0219.166 + + [GRAPHIC] [TIFF OMITTED] T0219.167 + + [GRAPHIC] [TIFF OMITTED] T0219.168 + + [GRAPHIC] [TIFF OMITTED] T0219.169 + + [GRAPHIC] [TIFF OMITTED] T0219.170 + + [GRAPHIC] [TIFF OMITTED] T0219.171 + + [GRAPHIC] [TIFF OMITTED] T0219.172 + + [GRAPHIC] [TIFF OMITTED] T0219.173 + + [GRAPHIC] [TIFF OMITTED] T0219.174 + + [GRAPHIC] [TIFF OMITTED] T0219.175 + + [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:] + +[GRAPHIC] [TIFF OMITTED] T0219.178 + +[GRAPHIC] [TIFF OMITTED] T0219.179 + +[GRAPHIC] [TIFF OMITTED] T0219.180 + +[GRAPHIC] [TIFF OMITTED] T0219.181 + +[GRAPHIC] [TIFF OMITTED] T0219.182 + +[GRAPHIC] [TIFF OMITTED] T0219.183 + +[GRAPHIC] [TIFF OMITTED] T0219.184 + +[GRAPHIC] [TIFF OMITTED] T0219.185 + +[GRAPHIC] [TIFF OMITTED] T0219.186 + +[GRAPHIC] [TIFF OMITTED] T0219.187 + +[GRAPHIC] [TIFF OMITTED] T0219.188 + +[GRAPHIC] [TIFF OMITTED] T0219.189 + +[GRAPHIC] [TIFF OMITTED] T0219.190 + +[GRAPHIC] [TIFF OMITTED] T0219.191 + +[GRAPHIC] [TIFF OMITTED] T0219.192 + +[GRAPHIC] [TIFF OMITTED] T0219.193 + +[GRAPHIC] [TIFF OMITTED] T0219.194 + +[GRAPHIC] [TIFF OMITTED] T0219.195 + +[GRAPHIC] [TIFF OMITTED] T0219.196 + +[GRAPHIC] [TIFF OMITTED] T0219.197 + +[GRAPHIC] [TIFF OMITTED] T0219.198 + ++ +