June 20, 2010
by: MacMillin Slobodien

Government WasteWatch, Spring 2010

Amid the turmoil of the housing crisis that has unfolded over the last few years, Congress and both the Bush and Obama administrations have sought to stabilize markets, stop foreclosures, and buoy home prices. Having a serious impact on any one of these market forces through government intervention is difficult, if not impossible, but for the federal government to attempt all three signals an overreach. President Obama and the Democratic majority in Congress used an $862 billion stimulus bill as the mechanism to jumpstart this effort, turning on a spigot of taxpayer resources to fund a multitude of lackluster federal programs, including the Community Development Block Grant (CDBG) program.

The CDBG program was established in 1974. According to the Department of Housing and Urban Development’s (HUD) website, it “is a flexible program that provides communities with resources to address a wide range of unique community development needs.” These “needs” typically include programs that focus on housing programs, anti-poverty programs, and community/infrastructure development.

The Housing and Economic Recovery Act of 2008 created the first component of the Neighborhood Stabilization Program (NSP) and the American Recovery and Reinvestment Act expanded it. The NSP is a clone of the CDBG program and is run off the same structural platform. The NSP consists of a $3.9 billion formula grant program, a $1.9 billion competitively awarded grant program, and a $50 million grant program awarded to technical assistance providers. Over the course of the CDBG program’s existence, it has been fraught with myriad structural flaws, as well as rampant waste, fraud, and abuse. Unfortunately, taxpayers do not get a better or more productive program with the NSP, but rather a new component of the CDBG program that will still be dysfunctional even though it has a different name.

The programmatic flexibility of the CDBG program has resulted in numerous instances of waste. A March 2, 2010, article in The Star-Ledger reported that the Essex County, N.J., Economic Development Corporation (EDC) grossly misused CDBG grant money. According to the article, “Economic Development Corp. — or EDC — spent $1.67 million in administrative costs to deliver 19 loans totaling $770,942. The federal government allows municipalities no more than 30 percent of the grant amount for administrative costs. In this case, CDBG officials estimated the EDC should have spent no more than $232,000 to loan out the grant money, according to county documents.” The $1.4 million of misused funds will have to be repaid; unfortunately, this type of incident is not the exception, it’s the rule.

A December 30, 2008, HUD Office of Inspector General (OIG) audit of the CDBG program in San Diego found numerous instances of waste. Auditors conducted a review of 35 of the city’s CDBG loans that originated between fiscal years (FY) 2000 and 2007 and found that $13 million in CDBG costs were questionable, including more than $1.8 million in ineligible costs and $11 million in unsupported costs. The $13 million in questionable costs included expenditures that did not comply with HUD’s program requirements, such as $4,118 for expenses related to a community festival. While this only represents a glance at the CDBG program in one municipality, it paints the larger picture; if all CDBG beneficiaries were audited, taxpayers would not be happy with the results.

Aside from the instances of waste and fraud, the Office of Management and Budget’s Program Assessment Rating Tool (which is used to measure the effectiveness of federal programs) gave the CDBG an overall rating of “ineffective” in FY 2008. In his testimony given on June 29, 2006, before the Senate Committee on Homeland Security and Governmental Affairs, HUD Inspector General Kenneth M. Donohue listed the weaknesses of the CDBG program as follows: “the improper use of funds; a lack of capacity; the requirements are not followed; a lack of policy direction or adequate management; goals or national objectives not met; and a lack of monitoring reviews.”

According to an article published in the Spring 2006 edition of City Journal, “The program has become fraud-plagued: since 2004, HUD has indicted 159 people on charges of false claims, bribery, fraudulent contracts, theft or embezzlement, and corruption in association with CDBG.”

Yet, politicians in Washington, D.C. continue to appropriate about $4 billion a year to the CDBG program. The federal government should eliminate the CDBG.