The blog of the Urban Institute
April 9, 2020

Increased CDBG Funding Only Works If Grantees Have Flexibility in How They Use It

April 9, 2020

The $2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act is the biggest economic stimulus in American history. The funding will touch more than a dozen federal agencies, but what stood out for me, as the former head of one of the largest development agencies in the country, was the $17.4 billion designated for housing activities to mitigate and respond to the effects of the pandemic.

Before joining the Urban Institute, I was the executive director of the Los Angeles County Development Authority (LACDA), where I oversaw the administration of the largest Urban County Community Development Block Grant (CDBG) program in the country and the operations of the second-largest housing authority in Southern California. I understand the magnitude of the responsibility to quickly, effectively, and efficiently leverage these new federal resources to counter or assuage the impacts of the pandemic and potentially save lives.

CDBG is a powerful tool. Often thought of as a “bricks-and-mortar” program that funds things like the construction of public facilities and improvements, it also funds community development activities like property acquisition and housing rehabilitation, as well as after-school programs and senior center activities. Between 2005 and 2013, CDBG assisted more than 1.1 million people with homeownership and housing improvements and provided public services to more than 105 million people.

The greatest power of CDBG is its flexibility to fund eligible activities, and this power can be harnessed in combating COVID-19 effects for individual households. States, counties, and cities could use CDBG funding in myriad ways:

  • building a testing facility to rehabilitate an existing facility for treatment of COVID-19 patients
  • providing housing for people experiencing homeless to prevent COVID-19 exposure
  • offering business continuity grants or loans to small businesses
  • providing direct payments to landlords on behalf of low-income renters

But for states, counties, and cities to successfully and efficiently use the increased housing and community development funding for these types of COVID-19 relief efforts, they need a willing and extremely flexible partner in the US Department of Housing and Urban Development (HUD).

After years of declining funding, the CARES Act gives CDBG a major boost

The CARES Act includes $5 billion for the CDBG program to enable the more than 1,200 states, counties, and cities that administer CDBG to rapidly respond to COVID-19 and its housing and economic impacts in their communities. Of that funding, $2 billion will be distributed via the usual entitlement formula, $1 billion for entitlement and nonentitlement communities will be determined by HUD 45 days after signing, and another $2 billion will be distributed at the HUD Secretary’s discretion.

This represents a big funding increase for CDBG, which has seen funding steadily decline over the past two decades. Nationwide CDBG funding has fallen 80 percent since its peak in the late 1970s, from $15 billion a year to $3 billion. And because the program’s administrative fees are based on a percentage of program funds, the CDBG administrative infrastructure has been downsized as jurisdictions across the nation have reduced staff and made necessary organizational adjustments.

It’s within this new, leaner CDBG infrastructure and context that grantee agencies will administer their existing federal fiscal year 2019 and 2020 CDBG allocations, as well as this new funding during the pandemic. Moreover, implementing household-specific assistance will be especially challenging for agencies that haven’t previously run aid programs; eligibility requirements, screening, and funds distribution will have to be created overnight.

Questions remain about HUD’s flexibility around these new funds

The CARES Act provides some of the flexibility agencies need to implement COVID-19 relief efforts, including removal of the cap on how much a grantee can spend on public services (which is how emergency rental or utility assistance is classified), removal of the requirement that agencies hold in-person public hearings, and permission for grantees to be reimbursed for activities related to COVID-19 response, regardless of the date the costs were incurred.

But several unanswered questions about HUD guidelines, regulations, and implementation framework will still be critical in how quickly agencies can use the funding (PDF).

Will the flexibilities referenced in the Act for this new funding extend to prior year allocations as well? This would allow grantees to combine and leverage their existing resources to better respond to COVID-19. And, in addition to waiving the in-person public hearing requirement, will HUD reduce the 30-day notice period to allow grantees to get funds out more quickly?

Moreover, will there be flexibility in regulations around requirements like home inspections and income verifications? How in-depth will amendments to Consolidated Annual Action Plans, the guiding framework for how jurisdictions can allocate their funds, need to be to meet the federal requirements? Will HUD suspend its annual timeliness test in light of these new funds? And how will HUD balance flexibility with accountability?

HUD has recently indicated that it understands the need for flexibility and is trying to address it. The agency issued a memorandum (PDF) on April 2 that details the availability of waivers across the Community Planning and Development grant programs and addresses the consolidated plan requirements to prevent the spread of COVID-19 and mitigate impacts on the economy. Secretary Carson also noted in a recent op-ed that HUD was giving grantees flexibilities commonly leveraged during disaster recovery.

All of this is a good sign, but additional questions remain, and only time will tell how effectively these changes are implemented. The answers to these questions around flexibility and accountability will directly affect the ability of states, counties, and cities to leverage this new funding, in combination with their own funding, to combat the effects of COVID-19 and safeguard their residents, businesses, and communities.

Warren Riel, center, a laid-off auto body shop worker, poses for a portrait with his wife Tricia, left, who lost her job at an Olive Garden restaurant, and their son Cody, right, at their house in Tyngsborough, MA on March 26, 2020. (Photo by Jim Davis/The Boston Globe via Getty Images)

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