Community Development:

Block Grant Economic Development Activities Reflect Local Priorities

RCED-94-108: Published: Feb 17, 1994. Publicly Released: Feb 17, 1994.

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Pursuant to a legislative requirement, GAO reviewed the Department of Housing and Urban Development's (HUD) Community Development Block Grant (CDBG) program, focusing on: (1) how program funds are used for economic development activities; (2) the impediments to using program funds; (3) the proper use of program funds; (4) the types and quality of jobs resulting from the program; and (5) the performance indicators for measuring the effectiveness of economic development activities under the program.

GAO found that: (1) annual appropriations for the Community Development Block Grant Program range between $2.2 billion to $4.5 billion; (2) grant funds targeted for economic development activities are a small percentage of the total program funding; (3) grantees have identified impediments to using grants for economic development activities such as confusion over grant rules, a significant administrative and documentation burden, and difficulty in using grants for job retention activities, but HUD has implemented remedies for two of the three impediments; (4) HUD and community groups question whether program funds have been properly used to benefit low- and moderate-income people, assist for-profit businesses, and safeguard public loans; (5) there are no criteria for defining job quality or performance indicators for measuring the effectiveness of grantees' economic development activities; (6) Congress has given local communities discretion over establishing standards for job quality and the effective use of economic development funds; and (7) although HUD expects to publish proposed guidelines to help grantees define economic development performance indicators, grantees could benefit from learning about the procedures and criteria other grantees have used in promoting job quality.

Recommendations for Executive Action

  1. Status: Closed - Not Implemented

    Comments: The report cited confusion over the content and application of CDBG regulations and HUD's provision of economic development training to alleviate the confusion as the basis for this recommendation. According to the Deputy Director of HUD's Office of Block Grant Assistance, the inconsistency was related to varying applications of the "appropriate" test related to the need for financial assistance. As requested by Congress in the Housing and Community Development Act of 1992, HUD published final rules on January 5, 1995, that dropped the requirement that HUD make eligibility determinations based on financial need. Instead, these rules established fairly clear, objective standards regarding public benefit. Since publication, interest groups representing grantees have stopped complaining about inconsistent treatment by HUD staff, according to the Deputy Director.

    Recommendation: The Secretary of Housing and Urban Development should assess the effectiveness of HUD economic development training by obtaining periodic feedback from grantees and the organizations that represent them on HUD officials' consistency in interpreting CDBG program rules.

    Agency Affected: Department of Housing and Urban Development

  2. Status: Closed - Not Implemented

    Comments: Through the public comment process on proposed changes to CDBG regulations, HUD obtained public input on how to make it easier for grantees to use CDBG funds for job retention activities, while at the same time safeguarding against program abuse. HUD had planned to repeat its request since few comments were received. However, HUD has no plans to pursue this issue because it is focusing on enforcement of program requirements, not efforts that could be characterized as making them more liberal, according to the Director of Block Grants. Therefore, recipients will continue to have to document that the threatened jobs would be lost without the assistance and that at least 51 percent are held by (or could be turned over to) low- and moderate-income people.

    Recommendation: The Secretary of Housing and Urban Development should ensure that CDBG program officials revive efforts to determine whether and how CDBG funds could be more easily used for job retention activities.

    Agency Affected: Department of Housing and Urban Development

  3. Status: Closed - Not Implemented

    Comments: HUD had originally planned to include delinquency and default information in its Integrated Disbursement and Information System (IDIS) and then to begin including the information in its annual report to Congress. However, HUD has now determined that it will not be technically possible at any time in the near future to collect and provide delinquency and default information. HUD does not plan to implement this recommendation.

    Recommendation: The Secretary of Housing and Urban Development should include in the HUD annual report to Congress on the CDBG Program the data that HUD is starting to collect on delinquencies and defaults on economic development loans that grantees make to for-profit business.

    Agency Affected: Department of Housing and Urban Development

  4. Status: Closed - Implemented

    Comments: HUD made changes to community development block grant (CDBG) regulations on January 5, 1995, that include an incentive for grantees to fund projects that will produce higher quality jobs. In April 1997, HUD published a best practices guide for the CDBG program that included examples related to job quality goals and criteria. In addition, in July 1997, HUD held a symposium on building on best practices in community development that highlighted examples from its best practices guide.

    Recommendation: The Secretary of Housing and Urban Development should instruct HUD CDBG program managers to encourage grantees to establish and apply goals for job quality through means such as distributing to them information on useful criteria that other grantees have developed and used.

    Agency Affected: Department of Housing and Urban Development


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