Tag Archives: Community Development Block Grant

How effective are HUD programs? No one knows.

The Department of Housing and Urban Development, or HUD, has been in the news lately due to its policy proposal to ban smoking in public housing. HUD usually flys under the radar as far as federal agencies are concerned so many people are probably hearing about if for the first time and are unsure about what it does.

HUD was created as a cabinet-level agency in 1965. From its website, HUD’s mission:

“…is to create strong, sustainable, inclusive communities and quality affordable homes for all.” 

HUD carries out its mission through numerous programs. On the HUD website over 100 programs and sub-programs are listed. Running that many programs is not cheap, and the graph below depicts the outlays for HUD and three other federal agencies for reference purposes from 1965 – 2014 in inflation adjusted dollars. The other agencies are the Dept. of Energy (DOE), the Dept. of Justice (DOJ), and the Environmental Protection Agency (EPA).

HUD outlays graph

HUD was the second largest agency by outlays in 2014 and for many years was consistently as large as the Department of Energy. It was larger than both the DOJ and the EPA over this period, yet those two agencies are much better known than HUD. Google searches for the DOJ, EPA and HUD return 566 million, 58.3 million, and 25.7 million results respectively.

For such a large agency HUD has managed to stay relatively anonymous outside of policy circles. This lack of public scrutiny has contributed to HUD being able to distribute billions of dollars through its numerous programs despite little examination into their effectiveness. To be fair HUD does make a lot of reports about their programs available, but these reports are often just stories about how much money was spent and what it was spent on rather than evaluations of a program’s effectiveness.

As an example, in 2009 the Partnership for Sustainable Communities program was started. It is an interagency program run by HUD, the EPA, and the Dept. of Transportation. The website for the program provides a collection of case studies about the various projects the program has supported. The case studies for the Euclid corridor project in Cleveland, the South Lake Union neighborhood in Seattle, and the Central Corridor Light Rail project in Minneapolis are basically descriptions of the projects themselves and all of the federal and state money that was spent. The others contain similar content. Other than a few anecdotal data points the evidence for the success of the projects consists of quotes and assertions. In the summary of the Seattle project, for example, the last line is “Indeed, reflecting on early skepticism about the city’s initial investments in SLU, in 2011 a prominent local journalist concluded, “It’s hard not to revisit those debates…and acknowledge that the investment has paid off”. Yet there is no benchmarking in the report that can be used to compare the area before and after redevelopment along any metric of interest such as employment, median wage, resident satisfaction, tax revenue, etc.

The lack of rigorous program analysis is not unique to the Sustainable Communities program. The Community Development Block Grant Program (CDBG) is probably the best known HUD program. It distributes grants to municipalities and states that can be used on a variety of projects that benefit low and moderate income households. The program was started in 1975 yet relatively few studies have been done to measure its efficacy. The lack of informative evaluation of CDBG projects has even been recognized by HUD officials. Raphael Bostic, the Assistant Secretary of the Office of Policy Development and Research for HUD from 2009 – 2012, has stated “For a program with the longevity of the CDBG, remarkably few evaluations have been conducted, so relatively little is known about what works” (Bostic, 2014). Other government entities have also taken notice. During the Bush administration (2001 – 08) the Office of Management and Budget created the Program Assessment Rating Tool (PART). Several HUD programs were rated as “ineffective” – including CDBG – or “moderately effective”. The assessments noted that “CDBG is unable to demonstrate its effectiveness” in developing viable urban communities and that the program’s performance measures “have a weak connection to the program purpose and do not focus on outcomes”.

Two related reasons for the limited evaluation of CDBG and other HUD programs are the lack of data and the high cost of obtaining what data are available. For example, Brooks and Sinitsyn (2014) had to submit a Freedom of Information Act request to obtain the data necessary for their study. Furthermore, after obtaining the data, significant time and effort were needed to manipulate the data into a usable format since they “…received data in multiple different tables that required linking with little documentation” (p. 154).

HUD has significant effects on state and local policy even though it largely works behind the scenes. Regional economic and transportation plans are frequently funded by HUD grants and municipal planning agencies allocate scarce resources to the pursuit of additional grants that can be used for a variety of purposes. For those that win a grant the amount of the grant likely exceeds the cost of obtaining it. For the others, however, the resources spent pursuing the grant are largely wasted since they could have been used to advance the agency’s core mission. The larger the grant the more applicants there will be which will lead to greater amounts of resources being diverted from core activities to pursuing grants. Pursuing government grants is an example of rent-seeking and wastes resources.

Like other federal agencies, HUD needs to do a better job of evaluating its abundant programs. Or better yet, it needs to make more data available to the public so that individual researchers can conduct and duplicate studies that measure the net benefits of its programs. Currently much of the data that are available are usually only weakly related to the relevant outcomes and often are outdated or missing.

HUD also needs to specify what results it expects from the various grants it awards. Effective program evaluation starts with specifying measurable goals for each program. Without this first step there is no way to tell if a program is succeeding. Many of the goals of HUD programs are broad qualitative statements like “enhance economic competitiveness” which are difficult to measure. This allows grant recipients and HUD to declare every program a success since ex post they can use whatever measure best matches their desired result. Implementing measurable goals for all of its programs would help HUD identify ineffective programs and allow it to allocate more scarce resources to the programs that are working.

Intergovernmental grant to gelato maker distorts market competition

Intergovernmental grants are grants that are given to one level of government by another e.g. federal to state/local or state to local. In addition to being used on public works and services they also subsidize the development of private goods. The Community Development Block Grant Program (CDBG) is a federally funded grant program that distributes grants and subsidized loans to local and state governments which then use them or award them to other businesses and non-profits. The grants can be used on a variety of projects. Since 1975 the CDBG program has given over $143 billion ($215 billion adjusted for inflation) to state and local governments. The graph below (click to enlarge) shows the total dollars by year adjusted for inflation (2009 dollars) and the number of entitlement grantees by year. While the total amount of funding has declined over time, it was still $2.8 billion in 2014.

cdbg dollars, grantees

Intergovernmental grant programs like CDBG are based on the incorrect idea that moving money around produces economic development and creates a net-positive amount of jobs. But only productive entrepreneurs who create value for consumers can create jobs. The CDBG program and others like it distort the entrepreneurial process and within-industry competition by giving an artificial advantage to the companies that receive grants. This results in more workers and capital flowing into the grant-receiving business rather than their unsubsidized competitors. For example, Brunswick, ME is giving a $350,000 CDBG to Gelato Fiasco to help the company buy new equipment. Meanwhile, nearby competitors Bohemian Coffeehouse, Little Dog Coffee Shop, and Dairy Queen are not receiving any grant money. Governments at all levels, such as Brunswick’s, should not pick winners and losers via a grant process that ultimately favors some constituents over others.

Some other projects that the CDBG program has helped fund are: a soybean processing plant in Arkansas, a new facility for a farmer’s market in Oregon, solar panels for houses in San Diego, and waterfront housing in Burlington, VT. Like the Gelato Fiasco example, these are all examples of private goods, not public, and the production of such goods is best left to the market. If private investors who are subject to market forces are unwilling to produce a private good then it is probably not a worthwhile venture, as the lack of private investment implies that the expected cost exceeds the expected revenue. Private investors and entrepreneurs want to make a profit and the profit incentive promotes wise investments. Governments don’t confront the same profit incentive and this often leads to wasteful spending.

At its best, a government can create the conditions that encourage economic development and job creation: the enforcement of private property rights, a court system to adjudicate disputes, a police force to maintain law and order, and perhaps some basic infrastructure. The scope of a local government should be limited to these tasks.

Which States are Earmark Magnets?

Cato’s Tad DeHaven has a great piece in The New York Post on what the earmark ban means for New York. Not much, it turns out. New York taxpayers contribute 8.2% on average to the overall federal tax burden and receive only 2.1% of all earmarked funds, making them the last state in the earmarks line.

Who gets the most bacon? Missisippi, Alaska, West Virginia and Hawaii. Tad notes it’s important not to let earmarks distract from the larger spending debate. Earmarks are really about process in how funds are allocated. Fixing earmarks doesn’t mean wasteful spending disappears. Consider the $8 billion a year Community Development Block Grant. With or without earmarks, CDBG is designed to award federal money to municipalities where is it spent fixing sewers, buying park benches and streetlights, building amusement centers, and  many other purely local or private activities.

The Community Development Block Grant in Perpetuity

Steven Malanga writes at City Journal of the defenseless persistence of the Community Development Block Grant. Created by the merger of a slew of Johnson Administration local aid grants, CDBG has been doling out grants to municipal governments since 1974.

CDBG’s primary constituencies include the U.S. Conference of Mayors and community groups.The program has been criticized from many angles. HUD itself has pointed to deficiencies in the funding formula which have resulted in the grant being disproportionately targeted to college towns. CDBG has been the subject of numerous fraud investigations by the IG’s office. And more fundamentally, the program has not shown it can meet its statutory purpose of revitalizing communities, the subject of a study I authored in 2007.

Regardless, CDBG is funded every year at about $4.7 billion. It’s not alot of money relative to the size of the federal budget, but as Mr. Malanga notes, that isn’t the point. CDBG is a vehicle for waste and congressional patronage.

And as far as I know it is also the only block grant with a folk song:

The Doughty Hill Band – The CDBG Song