The Department of Housing and Urban Development (HUD) is a good place to start for an administration with an appetite for change. Failed programs like public housing should be abandoned permanently, and unfocused programs with mostly unmeasurable results, like Community Development Block Grants (CDBG), should be eliminated, while other HUD functions can be devolved to state governments.
The CDBG program is a more than $3 billion federal program that provides city, county, and state governments with control over federal revenue for community development, neighborhood revitalization, and housing spending. Communities use funds for 27 categories of eligible activities and are given broad discretion in selecting funded activities.
There are a variety of issues with CDBG, including a broad, ambiguous mission and funding ill-targeted to low-income people. Policymakers designed CDBG as a flexible program, and “community development” is a broad goal. However, the program’s flexibility has resulted in spending on various disparate activities that have little to do with meeting low-income people’s needs or even critical community needs.
Recent reporting indicates that policymakers used CDBG to develop a plaza to host a Best of Beer and Wine Festival, fund the New York city of Newburgh’s summer film festival, expand a brewery in Montana, and support five failed restaurants in Toledo, Ohio. The most recent HUD data indicate that some of the highest per capita CDBG spending is on nonresidential historic preservation. Past years’ CDBG projects included corporate subsidies, funding a cinema that later foreclosed, and nearly half a million dollars on hull repair for a steamship.
CDBG Funding Is Poorly Targeted
Given CDBG funds festivals and breweries, it shouldn’t be any wonder that the funding is generally ill-targeted to those most in need. A recent study found that neighborhoods with the largest portion of low- and moderate-income families were not the most likely to receive CDBG funds. As the authors noted, local governments have a lot of latitude in distributing CDBG funding, and local incentives are not necessarily aligned with program goals.
Complicating matters further, the allocation formula used to allocate federal dollars has a shaky relationship with need to begin with. Research finds the relationship has deteriorated nationally and locally over time. One study found that in Chicago, “relatively poorer council districts receive lower funding than predicted by their share of the [low and moderate income] population.”
Considering the types of projects that CDBG funds and the tenuous relationship between program funding and need, it’s not surprising that CDBG’s outcomes are hard to measure. Following the program’s creation in the 1970s, one analyst characterized it as “more of a grab bag than a plan, a loose collection of unrelated ways to spend money rather than a unified approach to solving the city’s most acute problems.”
As economist Eileen Norcross described the problem, “claims of [CDBG] effectiveness tend to rest on intermediate measures, such as the number of jobs created, houses built, or dollars leveraged. These metrics are not evidence of success. They indicate how funds were spent, not the objectives achieved by the program.”
Left-leaning research groups and government agencies have also recognized these issues. An Urban Institute analysis acknowledges that “impact evaluations [for CDBG] have been even more limited and have been completely absent in recent years.… It is indeed difficult to estimate the effects of CDBG because the funds can be used for such a wide range of activities.” The Government Accountability Office found “few comprehensive studies on the impact of the CDBG and HOME programs exist.”
CDBG Is Poorly Designed
One of the primary purposes of CDBG was to allow local governments more discretionary decisionmaking authority surrounding what community development projects to fund. The idea was that local decisionmakers would have more localized information and act accordingly.
However, research finding that local decisionmakers make effective funding decisions is lacking. Urban expert Margaret E. Dewar observed that “programs aimed at specific distressed geographic areas show almost no effects on the [economic] growth of these areas.”
Ultimately, CDBG is designed to subsidize places and structures rather than needy people, reducing utility as a result. Analysts have suggested updating the allocation formula in various ways, but simply revising the formula would not solve the problem.
As urban economist Edward Glaeser noted, “Investing in building instead of people in places where prices were already low may have been the biggest mistake of urban policy over the past sixty years” and “building is the result, not the cause of success.… people, not structures, determine a city’s success.”
CDBG’s design presumes that people should stay in declining places rather than move to areas of greater opportunity where they may be better off. As David Schleicher argues, “Unless place-based subsidies fundamentally alter the structure of local economies, they ultimately encourage people to stay in declining places.… From a cynical perspective, subsidies to declining regions sometimes can appear to be policies designed to serve the interests of rich areas—as efforts to keep the riffraff out—rather than genuine efforts to reduce poverty.”
Local elected officials arguably desire visible and quick results that will bolster their reelection prospects, and visible projects are a distraction from making genuine and often challenging improvements in other areas. CDBG provides ribbon-cutting ceremonies and news items that meet local policymakers’ needs for media exposure and speedy results, whether or not they meaningfully improve the prospects of disadvantaged residents.
CDBG also allows federal policymakers to claim credit for local development. Chris Edwards reports that “the purpose of more than one-third of press releases from US senators is to claim credit for federal spending in their states.” Policymakers could do more to improve local community and economic conditions by reforming zoning regulation, education policy, taxes, and occupational licensing, but these reform efforts would entail more effort.
Conclusion
If CDBG genuinely served low-income people’s needs, spending would be allocated based on individual characteristics rather than tenuously related location-based characteristics like population size, population growth lag, or housing stock age. Officials would direct funds to needy people rather than politicians, businesses, and buildings, and officials would require funding to produce clear and measurable results.
But this isn’t the CDBG program we know. Given the program’s questionable efficacy, flawed design, and state and local government’s proper responsibility for community and economic development activities, eliminating the program is the best course of action.
To its credit, the White House proposed doing just that during President Trump’s first term. This proposal generated predictable resistance from activists and local policymakers, but the Trump administration was right to target the program then, and the administration and its Department of Government Efficiency should see the proposal through now.