Tag Archives: HUD

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.

Post-Katrina HUD funding has underwhelmed in Gulfport

Hurricane Katrina made landfall 10 years ago and devastated much of the gulf coast. In the immediate aftermath of the storm, both public and private aid flooded into the effected areas. Not all of this aid was effective, and my colleagues at the Mercatus Center have meticulously analyzed what worked, what didn’t, and how the region was largely able to get back on its feet.

One project that is still being scrutinized is the Port of Gulfport Restoration Program. In 2007 the Mississippi Development Authority (MDA) requested that $567 million of federal Housing and Urban Development (HUD) funds be diverted to the newly created Port of Gulfport Restoration Program. Prior to Katrina there were 2,058 direct maritime jobs at the port, and the 2007 plan submitted to HUD projected that there would be 5,400 direct, indirect, and induced jobs once the restoration project was complete in 2015. In return for the money the administrators promised HUD that at least 1,300 jobs would be created, and HUD Secretary Julian Castro was recently in Gulfport to check on the progress that has been made. As is typical with HUD projects, the actual progress on the ground has not lived up to the hype.

In September of 2014, nine years after Katrina, the port employed only 814 people. This was well short of even the 2,348 jobs predicted by 2010 in the original 2007 plan. Ignoring the fact that jobs are a poor metric for judging economic development – labor is a cost, not a benefit – the project has failed to live up to the promise made to federal taxpayers who are footing the bill.

HUD funding has a long history of failure. Billions of HUD money has poured into cities such as Detroit and Cleveland since the 1970s with little to show for it. Moreover, any successful HUD story is really just the result of transferring economic activity from one place to another. The $570 million being spent in Gulfport came from taxpayers all over the country who could have spent that money on other things. Moving all of that money to Gulfport caused small declines in economic activity all over the country, such as less investment in local businesses and/or lower demand for local goods and services. These small declines are hard to see relative to the big splash that $570 million in spending creates, but they are real and they do affect people.

Large, federal spending projects rarely live up to their hype and usually waste resources. Local citizens using local assets are often much more effective at revitalizing devastated communities. There are lessons to be learned from Hurricane Katrina, and at the top of the list is don’t expect too much from federally funded programs – they are usually not up to the challenge.

Tax breaks in the eye of the beholder

A good article from The New York Times exploring the definition and politics of tax breaks. While lawmakers may often favor elimination of tax breaks, in general, they tend to protect the ones they helped create. As my Mercatus colleague Jason Fichtner notes,”These special interests are getting carve-outs from Congress, and both sides – Republicans and Democrats – are guilty of picking their favorite interests to support.”

There are tax breaks for Eskimo whaling captains, NASCAR racetrack operators and the makers of wooden toy arrows according to the article. All told federal tax breaks amount to $123 billion a year. Senator Tom Coburn is interested in tackling this mess of loopholes. His report on how to balance the budget with $9 trillion in savings “Back in Black” details the range and cost of tax breaks currently provided to any number of activities and individuals (starting on page 558).

Breaks include federal programs like the Empowerment Zone/Renewal Community, operated by HUD to spur economic development. The literature on offering tax breaks to businesses to locate in a particular geographic area is at best mixed with one major obstacle: it’s difficult to determine whether the tax credit or some other set of factors is responsible for an observed outcome. For more, here’s an analysis of the GO Zone, a tax incentive program created post-Katrina for the Gulf Coast.

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

The Agony of Tracking Job Creation

You’ve seen the news. Arizona’s 15th Congressional district created 30 stimulus jobs. But there is no 15th district in Arizona. Arizona only has eight Congressional districts. What happened?

According to the administration, “Some recipients clearly don’t know what congressional district they live in, so they appear to be just throwing in any number. We expected all along that recipients would make mistakes on their congressional districts, on jobs numbers, on award amounts, and so on. Human beings make mistakes.”

In other words, the data is as good as the recipient filling out the application.

ABC News reports there are phantom districts in Oklahoma and Iowa.  And in Connecticut 25 jobs appeared with zero dollars spent.

That is why the Obama administration has stripped 60,000 jobs from its report. Twelve stimulus recipients reported “unrealistic data,” such as a recipient in Talladega, Alabama, which reported 5000 jobs created with $42,000.

This gets to a difficult problem in stimulus tracking – it’s hard to follow $787 billion on the ground from Washington D.C.

If you want to see how stimulus dollars are being spent in your town, visit newly-relaunched Stimulus Watch 2.0.

After a few minutes on the site, I discovered that $3.6 million is being spent in Avenel, N.J. on “various energy-efficiency shovel ready projects”. Yet, the place of performance is Bayonne, NJ – a good 15 miles away. Is the Bayonne Housing Authority managing the HUD grant for work being done in Avenel? According to The Star-Ledger, BHA received $3.6 million for a variety of projects all within Bayonne.

On closer inspection, here’s the trouble. Bayonne NJ is 07002 and Avenel is 07001. A simple typo in a government data-tracking database somehwere down the line.

When Block Grants Mutate: EECBG in Loudoun County, Virginia

When it was created last year, the Energy Efficiency Conservation Block Grant (EECBG) was barely noticed.

Today, EECBG is rolling into city halls as a green-certified Trojan Horse.

Authorized in Title V, subtitle E of the Energy Independence and Security Act of 2007, EECBG was fully funded at $2.7 billion with the stimulus bill of 2009.  It is intended to help local governments:

  • Reduce fossil fuel emissions,
  • Reduce total energy use,
  • Improve energy efficiency in government buildings, and
  • Create and retain jobs.

In practice, this means it was intended to fund installation energy efficient street lights, building code improvements, transportation programs, recycling, and so on.

EECBG is modeled after HUD’s Community Development Block Grant (CDBG). Before getting to EECBG, here’s a primer on CDBG.

Back in 1974, the Nixon administration decided to merge a bunch of urban aid grants. Experts agreed Urban Renewal and President Johnson’s Model Cities had failed in part because it was impossible to direct grants in DC to the local level, and getting out of the federal micromanagment was part of the “New Federalism.”

Block granting, it was hoped, would free cities from federal control allowing local government more flexibility with funds, as long as the projects fell into one of 72 possible activities and the grantee stuck to HUD’s general guidelines. The idea, in a nutshell, was federal money, local control.

But block granting isn’t a solution to centralized government; it only provides the illusion of local control. Grants-in-aid carry the policy priorities of the federal government. Local priorities are shaped by federal grants. Whether your community needs a park or not is another matter. You now have a grant to build one.

Such grants may stimulate greater local spending but to what’s known as the Flypaper Effect. Once the park is built, it will need local maintenance.

There is no such thing as “free” federal money. Grants comes with rules. Before a CDBG project is undertaken it may have to meet Davis-Bacon wage requirements, environmental reviews, and other regulatory tests.

Now back to EECBG, a second-generation experiment in block granting.

Loudoun County, Virginia is one of many communities to receive EECBG money. To spend its $2.215 million grant, the county must submit a plan to the Department of Energy (read it here). The plan begins by assuming passage of Cap and Trade (p. 11), and then lays out a familiar future. The plan is less an example of local experimentation as it is of federal policy cloning.

There will be an Energy Performance Labeling rating of homes, before sale or rental, to “give transparency to actual consumption of both new and existing structures.” Some Northern Virginia Realtors really don’t like this. There is also Smart Growth, and an Energy Environmental Trading Team to help implement Cap and Trade. There will be electric cars, mixed used housing, bike paths, more transit, less driving, and “parking strategies.”

The plan is no surprise, once it is understood that federal grants are carriers of federal policies that grow roots in state and local governments. But does the plan reflect the needs of Loudoun’s residents or the wants of Washington, DC?

The Stimulus in Arlington, Virginia

How is your town planning on using stimulus funds?  Arlington, Virginia is using $9 million of its $19.3 million on federal formula-based programs.  There’s $5 million for infrastructure, $2.1 million for the newly created Energy Efficiency Conservation Block Grant Program, and  $1.6 million for HUD programs.

You can follow Arlington’s projects here.  There are 52 potential federal funding streams available to Arlington in the stimulus package.

The FY 2010 budget was adopted in April.  At $946.8 million, it’s bigger than last year’s by about 0.6 percent.

The budget includes $19.8 million in  spending cuts, an increase in the real estate tax rate, and fees for water, sewers, trash, recycling and motor vehicle licensing.  A $10 million Budget Stabilization Fund has  also been established.