The Community Development Block Grant (CDBG) is a federally funded, locally administered, grant designed to support programs that assist low to moderate income residents and neighborhoods. Over the past 35 years, federal funding for CDBG has declined by more than 85% (2016 dollars) for the average entitlement jurisdiction. In effect, Housing and Community Development organizations are consistently being asked to do more with less. Advocates argue that the programs provide vital services and development opportunities for low to moderate-income families and neighborhoods. Critics point to a lack of oversight and overall inefficiency associated with the delivery of the programs.
Regardless of which side you’re on, both agree that the objective of entitlement jurisdictions is to maximize the allocation of funding to programs that directly impact low to moderate income residents and neighborhoods. The challenge for many Housing and Community Development leaders is the balance between maximizing community investment while at the same time ensuring that their programs address administration, compliance and reporting requirements. Unfortunately, it is a zero-sum game: every dollar spent on administration, compliance and reporting is one less dollar available for the local community.
The Neighborly Software team analyzed individual expenditure reports for every entitlement jurisdiction in HUD Region IV. The analysis involved assigning each jurisdiction a “direct impact score” that measures the amount of funding that makes its way to low/moderate income residents and neighborhoods versus the money that is spent on indirect support (aka administration/ reporting/compliance). For purposes of this study, indirect support consisted of the following allocation codes:
- General Program Administration (21A)
- Rehabilitation Administration (14H)
- Non-profit Organization Capacity Building (19C)
- Code Enforcement (15)
- 10% of Public Services Grants (PS)
Excluding Puerto Rico and the U.S. Virgin Islands, Region IV under the Department of Housing and Urban Development (HUD) received a combined $256M from federal CDBG funding in FY2015. Of the $256 million in Region IV CDBG funding, more than $195M, or 76%, was spent on initiatives that directly impacted low to moderate income households and neighborhoods. The glass half empty view is that 24% of CDBG funds were utilized on Indirect spend – in other words, funding that never made its way to the local community. As the chart below shows, Georgia, Kentucky and North Carolina are doing a strong job of maximizing their CDBG community investments, while Alabama, South Carolina and Tennessee have significant opportunity for improvement.
Almost 2 out of 5 entitlement jurisdictions in Region IV directed more than 80% of their CDBG funds to low and moderate-income households and neighborhoods. However, the results varied state by state. For example, in Mississippi, every jurisdiction spent at least 60% of their CDBG funding on programs that directly impacted low and moderate-income households and neighborhoods, while in Kentucky 2 of the 9 jurisdictions spent less than 60% of their CDBG funding on the vulnerable populations they serve. The worst performing jurisdiction, located in North Carolina, spent only a mind boggling 18% of its CDBG allocation on activities that directly impacted low and moderate-income households and neighborhoods.
Surprisingly, the size of a jurisdiction, as measured by CDBG funding, had very little impact on its overall indirect spend. This seems to indicate that larger jurisdictions are not enjoying economies of scale as a result of their size and superior program resources. As the table below indicates, large jurisdictions spend less on general admin and planning, but more than make up for that savings with larger spend on rehab administration.
Call to Action
These numbers reflect a challenge that is not isolated to a single jurisdiction: community development leaders are struggling to find ways to maximize community impact while also taking care of administrative and compliance responsibilities. The potential for improvement, however, is huge. For every 1% reduction in indirect spend in Region IV, it adds an additional $2.5M in available funding for low income households and neighborhoods.
If Region IV were to collectively target a modest 4% improvement (76% -> 80%) it would add $10M+ in additional annual funding for low income households and neighborhoods. This “new found” money would not only help offset some of the recent CDBG cuts, but also would potentially silence some of the critics who view the delivery of CDBG programs as inefficient.
At Neighborly Software, it is our goal to collaborate with the top performers in our study (listed below) in order to understand “best practices” that can be applied to and shared with entitlement organizations across the country. We strongly believe that our market leading software, combined with industry best practices will provide a significant improvement in maximizing community investment. Below are the Region IV jurisdictions with highest direct impact score based on CDBG funding of greater and less than $1M.
Using CDBG Expenditure Reports, we combined the following line items from PY2015 for each entitlement organization in Region IV: General Program Administration (21A), Rehabilitation Administration (14H), CDBG Non-profit Organization Capacity Building (19C), Code Enforcement (15), and assigned a 10% overhead charge to all Public Services (PS) grants to come up with a sum percentage of funding that was used for Indirect Support Costs.
CDBG Indirect Costs + CDBG Direct Community Investment Costs = Total CDBG Funds Received
CDBG Direct Community Investment ÷ Total CDBG Funds Received= Direct Impact Score (%)
We understand that outside sourcing for CDBG projects may cause indirect costs to appear artificially high or low. We have focused solely on the data we have access to via public records on the HUD website. Some cities may deflect administration costs to other sources that are not visible via HUD records.
Source: CDBG Expenditure Reports