Backgrounder: HUD Serves Up a Plan Without Local Logic

July 13, 2017

by Josh Claybourn

The Department of Housing and Urban Development (HUD) will spend $10 billion this year on “community development,” with most of it allocated to Community Development Block Grants (CDBGs). Approximately $60 million gets allocated to Indiana municipalities, primarily for projects like affordable housing, street repair and subsidizing neighborhood businesses.

Part of the lure with CDBG money comes from its flexibility. Local officials have tremendous freedom to fund almost anything as long as the money benefits low- and moderate-income communities, meets an urgent need or eliminates blight.

Some have long questioned the constitutional justification for federally funding these kind of local initiatives, but a new city-by-city analysis by Lorraine Woellert of Politico underscores additional practical concerns. It shows that CDBG spending is disbursed with little regard to actual need. Woellert writes:

“San Francisco will get $19-a-person in community development block grants this year, while Allentown, with twice the poverty and less than half of the median income, will draw a per-capita allotment of $17.53….Community development block grants rely on outdated, 1970s formulas that have increasingly shuttled dollars to wealthy places like Newton, Mass., while other locales in need, such as Compton, Calif., go wanting.”

Tad DeHaven, formerly deputy director of the Indiana Office of Management and Budget and adjunct scholar of the Indiana Policy Review, adds this: “CDBG spending has gradually shifted from poorer to wealthier communities over time . . . It should not be the role of the federal government to redistribute income between regions, but even if it were, the CDBG program is not very good at it.”

Hamilton County leads Indiana in population growth with an almost 13 percent increase since 2010. It is also the state’s wealthiest county, but it still received nearly $1.4 million in CDBG funds last year. Meanwhile Starke County, Indiana’s poorest county on a per-capita income basis, received virtually no CDBG funds last year.

Hamilton County spent most of its CDBG money on sidewalks, not affordable housing. The disparity between Hamilton County’s substantial funding and its relatively sparse affordable housing led federal authorities to open an investigation this year into allegations of discrimination and unfair housing. HUD’s antiquated formulas, however, suggest Hamilton County will likely face few if any consequences.

CDBG’s funding formulas reward communities with older homes even if poverty, blight or unemployment aren’t big challenges. In effect, CDBG’s approach can reward historic wealthy communities but penalize communities that bulldoze blighted neighborhoods if those homes are pre-1940s stock.

CDBG funds are dispersed in an uneven and unfair manner not only within Indiana, but also unevenly across various states. Casper, Wyoming, received $200,000 for a new auditorium and Alexandria, Louisiana, received over a half million dollars for a new marina. Communities mail checks to the IRS, run it through the federal bureaucracy, and then distribute it back out again in an unfair and uneven manner. Why? And who benefits?

The primary winners in this scenario are bureaucrats administering the program and the well-heeled communities with enough staff to wade through the paperwork requirements. Indeed, securing HUD funding requires detailed applications and review, which takes expertise and time. Thus, large and wealthy cities like Indianapolis and Fort Wayne can dedicate entire departments to securing more HUD funding, while poorer communities like the Town of Chandler and Starke County suffer in the dark.

President Donald Trump’s 2018 budget proposes to eliminate the CDBG program because it “is not well-targeted to the poorest populations and has not demonstrated results.” While it is unlikely Congress would agree to cut the entire program it may be facing steep cuts or dramatic changes in its funding approach.

The state of Indiana has little control over administration of CDBG or HUD funds despite the dramatic impact it has on the state’s well-being. Indiana’s congressional delegation should consider proposing substantial changes to the CDBG approach and begin terminating activities that could be better performed by local government and the private sector.

Joshua Claybourn, J.D., an Evansville attorney and adjunct scholar of the Indiana Policy Review Foundation, was most recently an adjunct professor at the University of Evansville teaching legal organization of business entities.


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