Statement of Roy A. Bernardi, Deputy Secretary, United States
Department of Housing and Urban Development, before the United States
House of Representatives, Committee on Government Reform, Subcommittee
on Federalism and the Census
April 26, 2005
Report "CDBG Formula Targeting to Community Development Need"
behalf of the President and Secretary Jackson, I would like to thank
the subcommittee and Chairman Turner for the opportunity to speak
to you about a recently released HUD report on how the CDBG formula
targets toward community development need.
is the fifth time HUD has prepared a report like this since 1974
on how the CDBG formula targets to need. Like our previous reports
we've generally asked 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 in 1978.
1983 and 1995 we found that CDBG's formula was increasingly LESS
effective in targeting need. The problem is that while the variables
in the formula have not changed since 1978, this country has. I'm
sure it comes as no surprise to any of you the United States is
a significantly different country than it was nearly 30 years ago.
We've seen significant demographic change…some communities experiencing
tremendous growth while others 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.
with prior studies, we designed an index to rank each community
based on its relative level of community development need. This
needs index uses variables that directly relate 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 larger urban counties
that receive direct funding. For the states or "non-entitlement"
program, we created a needs index using 10 variables.
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 absolutely less need receiving roughly the same
amount of funding than higher need areas.
Exhibit 1 illustrates this point. I apologize for the complexity
but I think this will become clear shortly.
chart shows how CDBG's current formula is targeting need today.
You'll see along the bottom of this chart, communities are ranked
by their relative level 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 our goal
for what would be an appropriate funding level relative to need
for the per capita grant amount of the grantee community. The jagged
line represents the per capita allocation for grantees under the
chart demonstrates that CDBG's current formula is far from perfect.
For example, some low-need communities such as Newton, Massachusetts;
Portsmouth, New Hampshire; and, Royal Oak, Michigan are allocated
more than 25 dollars per person while other low-need communities
are receiving five-to-seven dollars per capita.
The starkest contrast, however, is among high-need communities on
the right side of the chart. I will use three communities as an
example. The cities of Saint Louis, Miami, and Detroit have similar
needs according to our needs index, but get very different grant
amounts. Saint Louis gets $73 per capita, well above the needs index
line; Detroit gets $50 per capita, roughly matching the needs index;
and, Miami gets $26 per capita, well below the needs index. If the
existing formula were fair in targeting to the same level of need,
each of those cities would receive approximately $50 per capita.
is this? There are several reasons, but two big reasons are in respect
to the pre-1940 housing variable and growth lag variable in formula
B. As distressed communities have demolished their older housing
and the 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. It is the communities with growth lag that represent the
"spikes" you see in the charts.
There are other elements to CDBG's 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, 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 than equally needy formula A grantees.
I talk about how to improve targeting, let me take a moment to talk
about the NON-entitlement formula that allocates 30 percent of CDBG
funds to the States. The non-entitlement 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.
report offers four alternatives that all improve targeting to need.
The report provides detailed information on each alternative including
their impact on individual jurisdictions. HUD offers these alternatives
to illustrate some of the options Congress might consider. It is
quite simply, food for thought. Here is a brief summary of each:
1 keeps the current dual formula but corrects some of the more serious
problems. For example, it defines the age of the housing stock a
little more precisely. Inside of counting the number of units built
before 1940, this option would measure "housing older than 50 years"
and occupied by a person in poverty. By establishing a means test
on this housing variable, Alternative 1 generally redistributes
funds from less needy communities to communities in decline.
2 shows the impact of these corrections. While Alternative 1 substantially
reduces the over funding of low-need communities like Newton, Portsmouth,
and Royal Oak, it only modestly reduces the funding difference between
Miami and Saint Louis. Similar changes to the nonentitlement formula
also have positive effects on targeting.
2 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.
The disadvantage of alternative 2 is that high need communities
tend to fall below our target needs line. Miami, St. Louis, and
Detroit all get the same amount, approximately $38 per capita, significantly
below the $50 per capita HUD had set as a goal for high-need jurisdictions.
Alternative 3 adjusts Alternative 2 to increase funding 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 Saint Louis would
receive grants of about $50 per capita and Miami would receive a
grant of about $44 per capita. Alternative 3 has somewhat greater
variation between similarly needy grantees relative to Alternative
2. However, Alternative 3 achieves greater targeting to the most
Alternative 4 resembles Alternative 3 but eliminates the 70/30 funding
split between entitlement and nonentitlement communities. That is,
CDBG funding for nonentitlement areas and entitlement areas would
be allocated under a single formula. This approach would currently
result in a split of 69/31 of funding between entitlements and nonentitlements,
very similar to the current split of 70/30. A chart for Alternative
4 would show the same distribution as the chart for Alternative
3, Exhibit 4.
In conclusion, today's formula…again, a formula that hasn't been
modified since 1978…places great emphasis on certain variables that
may not be a true reflection of today's need. The purpose of the
Alternatives we offer you is intended to:
- Improve targeting to Community Development Need
- Simplify the current formula
- Minimize disruption in funding.
you read this report, you'll find some of the Alternatives satisfy
these goals to varying degrees. There are tradeoffs.
any change to the current formula would result in significant
adjustments for the CDBG grantees. If Congress decides to adopt
a change to the formula, the Department suggests that Congress consider
a gradual phase-in period.
want to thank you for your time. If you have any questions I would
be happy to answer them.