The Future of Community Development Block Grants

The Community Development Block Grant (CDBG) program, administered by the U.S. Department of Housing and Urban Development (HUD), provides flexible funding to states and localities to support a wide range of community development related needs. Grantees are required to demonstrate their funded activity is in alignment with one of the program’s three statutory objectives: benefit low- and moderate-income (LMI) persons; aid in the prevention or elimination of slums or blight; or meet an urgent need by addressing conditions that pose a severe and immediate threat to the health and safety of residents.

CDBG’s flexible funding allows eligible grantees to support projects that meet their specific local needs unmet by other sources of federal funding. The bulk of annual CDBG spending is directed toward the following four categories:

• Public improvements: public facilities and infrastructure including water and sewer improvements, street and sidewalk improvements, senior centers, and homeless facilities
• Housing: housing construction and rehabilitation, public housing modernization, housing payment assistance, building code enforcement, and hazard remediation and mitigation
• Administration and planning: general program administration, fair housing activities, and regional planning
• Public services: housing counseling, youth services, transportation services, mental health services, childcare services, and food banks

The Community Development Block Grant Disaster Recovery (CDBG-DR) program is the most common source of supplemental funding for CDBG, with funding directed toward long-term recovery efforts in areas impacted by disasters. CDBG-DR largely operates as a separate program from CDBG.

How CDBG Funding Works

The CDBG Entitlement Program issues approximately 70% of program funding appropriated by Congress to eligible local governments, called “entitlement cities.” Entitlement cities include the principal cities of a region, cities with at least 50,000 people, and urban counties with at least 200,000 people. The amount of funding for entitlement cities is determined by one of two formulas outlined above.

A second program allocates the remaining 30% of CDBG funds to states for disbursement to communities that do not meet the population standards to qualify for entitlement funds. State program funds use a similar formula to the entitlement program.

Recent Developments

The Coronavirus Aid, Relief, and Economic Security (CARES) Act included $5 billion in supplemental appropriations to HUD’s Community Development Fund, the broader program that includes CDBG, to address the economic and housing instability faced by communities during the pandemic. Of that $5 billion, $2 billion was authorized for the conventional CDBG program, with an additional $1 billion directed to states and insular areas outside the traditional formula, and $2 billion to states and local governments at the HUD Secretary’s discretion.

In fiscal year 2022, HUD disbursed about $960 million in CARES Act CDBG funding; in fiscal year 2021, HUD disbursed $964 million. In both years, most of these funds were spent on public services with hundreds of millions of dollars directed towards subsistence payments, which helped families avoid evictions or foreclosures by continuing housing payments, and covered the cost of food, clothing, and utilities. Other top spending categories included financial assistance to businesses ($125 million in fiscal year 2021) and food banks ($95 million in fiscal year 2022).

Download a full table of CARES Act CDBG spending by activity here.

The Future of CDBG

Given that the CDBG program has remained mostly unchanged for decades, it could benefit from reforms to meet modern needs. In a budget constrained environment, every program should be evaluated to maximize its impact. Should Congress choose to adjust the CDBG program, members might consider the following three questions.

1. Could the CDBG formula better target communities with the greatest need?

Research by HUD has shown multiple factors that currently determine entitlement formula funding for CDBG, such as pre-1940s housing and lag in population growth, are not necessarily indicative of need. Another factor, overcrowding, favors coastal cities over midwestern and southern metropolitan areas. Some critics have argued more broadly the formula disadvantages low-income rural communities. Poorly targeted formulas can lead to some skewed results. For example, in 2017, San Francisco received more per-capita funding than Allentown, PA, which has a poverty rate twice that of San Francisco and a median income that is less than half.

One potential tradeoff to adjusting the CDBG formula is that, without an overall increase in appropriations, some jurisdictions currently relying on a certain level of annual CDBG spending could see their funding reduced.

2. Should Congress set more restrictions on eligible projects?

Without many restrictions on projects that are eligible for CDBG funding, some cities have faced criticism for using CDBG to subsidize businesses that add sentimental value to communities instead of providing opportunities to lift families out of poverty. While more limitations on eligible projects could potentially target funding more directly to projects that support housing and economic development for low-income communities, the program’s flexibility is a key feature that allows local governments to respond to their specific needs.

3. Should local zoning and land use practices impact CDBG funding?

Many recipients that rely on CDBG funding maintain exclusionary land use and zoning practices that limit the development of affordable housing. Some policymakers have proposed requiring CDBG recipients to document and justify their land use policies to highlight discriminatory practices. Other housing advocates have gone further, arguing that communities that support affordable housing development should be rewarded with greater CDBG allocations.

Conclusion

For fiscal year 2024, the Biden administration requested $3.4 billion for the Community Development Fund, including $3.3 billion in formula funding for CDBG—roughly level funding compared to fiscal year 2023, excluding the additional $3 billion in Community Development Funds that were appropriated through earmarks. This includes $85 million in grants to remove barriers to affordable housing, continuing a new program established in fiscal year 2023.

In the 117th Congress, legislative efforts were made to address critiques of the CDBG program, though none passed:

• Rep. David Kustoff (R-TN) introduced H.R. 7868, the CDBG Modernization Act, which would direct HUD to assess the entitlement formula’s effectiveness at targeting communities with the greatest need, and to develop and phase in an updated formula over the course of five years.
• Sens. Todd Young (R-IN) and Brian Schatz (D-HI) also introduced S. 1614, the bipartisan Yes in My Backyard Act, which would require certain CDBG recipients to report on their land use and zoning practices to shed light on exclusionary measures.

It remains to be seen how much Congress will appropriate to CDBG, or whether CDBG reform will gain steam in the 118th session. Since communities rely heavily on CDBG and the program is popular among local policymakers, any modifications to the status quo could be politically daunting. Nevertheless, given America’s housing affordability crisis, policymakers should continue to assess HUD’s major programs to ensure they are meeting the needs of resource-constrained households and communities.