Drop Wealthier Communities from the Community Development Block Grant Program

The Community Development Block Grant (CDBG) program provides annual grants to communities to aid low-and moderate-income households, eliminate municipal blight, meet emergency needs, rehabilitate housing, improve infrastructure, and promote economic development. Under one component of the program, which is administered by the Department of Housing and Urban Development (HUD), grants go directly to cities and urban counties, referred to as entitlement communities. (Other CDBG funds are allocated to states, which typically distribute them through a competitive process to smaller, more rural communities known as nonentitlement areas.) Funds from the entitlement component also may be used to repay bonds issued by local governments and guaranteed by the federal government under the Section 108 Loan Guarantee Program (established along with the CDBG program by the Housing and Community Development Act of 1974). For 2010, $4.0 billion was appropriated for the CDBG program, of which $2.8 billion was designated for entitlement communities.

Under current law, the CDBG entitlement program is open to all urban counties, principal cities of metropolitan areas, and cities with a population of at least 50,000. The program allocates funds according to a formula based on a community's population, the number of residents in poverty, the number of housing units with more than one person per room, the number of housing units built before 1940, and the extent to which population growth since 1960 is below the average for all metropolitan cities. The formula does not require a certain community poverty rate, nor does it exclude communities with high average income. In an analysis conducted in 2003, HUD showed that when population data and other information were updated using results from the 2000 census, funding provided on the basis of the formula shifted from poorer to wealthier communities, as measured by average poverty rates.

This option would reduce funding for CDBG entitlement grants and direct the remaining funding to needier communities. The option could be implemented in a variety of ways, but one approach would be to exclude communities with per capita income that exceeded the national average by more than a specified percentage-- for example, the communities with per capita income greater than 105 percent of the national average, which accounted for 23.4 percent of the entitlement funds in 2010. The option presented here illustrates the general approach without specifying a particular form of implementation: It would cut funding for the entitlement grants by 20 percent, saving about $2 billion over 5 years and about $5 billion over 10 years.

One argument in favor of this option, or of a more substantial reduction, is that it is not appropriate to use federal funds for local development. An alternative argument is that even if the program is viewed as meeting national needs that some local governments cannot address adequately, that rationale does not justify redirecting money to wealthier communities.

The main argument against this option is that dropping wealthier communities from the CDBG program could reduce efforts to aid low-income households within those communities unless local governments reallocated their own funds to offset the lost grants.