Tag Archives: Community Development Block

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.

Scranton, PA and the failures of top-down planning

City officials in Scranton, PA are concerned that a recently released U.S. census map used as a basis for distributing federal grant money doesn’t reflect reality. The map was created using 2010 census data and identifies which neighborhoods meet the U.S. government’s criteria for low-to-moderate-income classification. Such neighborhoods are eligible to receive Community Development Block grant (CDBG) funding.

Scranton Councilman Wayne Evans stated that:

“A lot of us feel that the map is inaccurate, knowing the neighborhoods like we do,”

The city is hoping to conduct their own survey of the area and then use the results to petition the federal government to change the designations of the areas city officials believe are misclassified so they can receive funding.

This situation is a great example of the importance of local knowledge. Economist F.A. Hayek wrote the seminal paper on the importance of local knowledge in 1945. In his book Doing Bad by Doing Good, economist Chris Coyne builds on Hayek’s idea and defines the “planner’s problem” as “the inability of nonmarket participants to access relevant knowledge regarding how to allocate resources in a welfare-maximizing way in the face of a variety of competing, feasible alternatives.” The primary goal of the CDBG program is to create viable urban communities. In order to accomplish this a top-down planner needs to take certain steps: 1) the place to be developed needs to be identified and the goals of the development need to be established; 2) the availability of the resources needed for the development project needs to be confirmed and the resources need to be allocated; and 3) a feedback mechanism needs to be identified that can confirm that the goals are met. If any of these steps are not taken effective economic development will not occur.

As the example from Scranton shows, sometimes the planner – in this case the Department of Housing and Urban Development – fails to carry out step 1 effectively: Scranton officials and HUD can’t even agree on the place to be developed. Instead of letting the local officials who are knowledgeable about the area allocate the CDBGs, HUD officials in Washington bypass them by identifying the areas that need help via census data. Sometimes this approach might work, but when it doesn’t resources will be given to relatively prosperous areas while poorer areas are ignored.

The misallocation of resources will be an issue as long as the ability to allocate the funds is severed from the people with local knowledge of the communities. Cities and municipalities are receiving more and more of their revenues from the state and federal government, as seen in the graph below for Pennsylvania, and this contributes to situations like the one in Scranton.

PA intergov grants

As shown in the graph, total intergovernmental revenue and state intergovernmental to local governments in Pennsylvania increased in real terms from 1992 to 2012 (measured on the left vertical axis). In 1992, total intergovernmental revenue to local governments was equal to 59% of the revenue that local governments raised on their own (the orange line measured on the right vertical axis). In 2012 it was equal to 69%, an increase of 10 percentage points. This means that local governments became more dependent on higher-level governments for funding.

Funding from higher-level governments usually comes with restrictions and conditions that must be met, which prevents local citizens from using their local knowledge to alleviate the problems in their community. The further away decisions makers are from the region, the more likely they are to misidentify the problem areas. In Scranton’s case, city officials now have to expend scarce resources conducting their own survey and petitioning the federal government to change the neighborhood classifications.

Local knowledge is important and it should be utilized by decision makers. State and federal governments should limit intergovernmental transfers and allow local communities to keep more of their own tax dollars, which they can then use to address their own local issues.