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Community Development Block Grant

 

What Is a Community Development Block Grant (CDBG)?

The Community Development Block Grant is a federally funded program administered by the U.S. Department of Housing and Urban Development (HUD). It is designed to assist low to moderate income communities in their community development projects. Every year, cities with a population of more than 50,000 and counties with a population of more than 200,000 automatically receive funding from the federal government.

What Programs and Projects Are Eligible for CDBG Funds?

CDBG funds may be used for a wide range of activities, including:

  • Housing Rehabilitation: Improving or repairing housing units.
  • Code Enforcement: Ensuring properties meet local building and safety codes.
  • Real Property Acquisition: Purchasing land or property.
  • Demolition: Removing unsafe or substandard structures.
  • Infrastructure and Public Facility Improvements: Upgrading essential services and community facilities.
  • Economic Development: Creating jobs and supporting local businesses.
  • Social Services: Providing support programs that benefit residents.

Eligibility Requirement: To receive funding, a project or program must principally benefit low- and moderate income individuals living in designated census tracts. HUD defines low and moderate income households as those earning at or below 80% of the area’s median income (with these guidelines adjusted annually).

How Does HUD Determine Our Funding Allocation?

HUD calculates the funding allocation each year based on a formula that includes:

  • Total population
  • Number of persons living in poverty
  • Number of housing units experiencing overcrowding (more than one person per room)
  • The allocation is further influenced by the number of new entitlements and the level of national funding. As more communities qualify for funds, the share available to each community decreases.

What Is the Annual CDBG Program Cycle?

  • Public Notice: The City issues a public notice indicating that applications are available during a set time frame. Applications can be found on the City website.
  • Submission of Applications: City departments and nonprofit organizations submit their applications to the Community Development Office.
  • Public Input: The City holds a public hearing to gather input on funding priorities.
  • Application Review: Staff reviews the applications for completeness, eligibility, and fundability.
  • Preparation of the Action Plan: Staff prepares an “Action Plan” document and publishes a draft for 30 days of public review and comment.

  • Fund Allocation: The Mayor and City Council allocate the funds through the adoption of a resolution.
  • Submission to HUD: The Action Plan is sent to HUD by November 15. HUD then has 45 days to review the plan and request additional information if necessary.
  • Contract Execution and Funding Availability: If HUD accepts the Action Plan, the City executes a new contract, and funds become available.
  • Performance Reporting: The City prepares the Consolidated Annual Performance Evaluation Report (CAPER) by March 15, after which it is open for a 15-day public review. The final CAPER is submitted to HUD by March 31.
  • Final HUD Review: HUD reviews the CAPER within 45 days and may request further information if needed.

What Activities Are Generally Ineligible for CDBG Funding?

  • Assistance for buildings or portions of buildings used solely for general government functions.
  • General operating and maintenance expenses of local government.
  • Partisan political activities, including voter registration.
  • Equipment purchases (with the exception of fire protection equipment).
  • New housing construction.

What Happens if a Project Is Incomplete or Delayed?

If funds remain unused, HUD may instruct the City to reallocate those funds to another project or return them to HUD. For projects under the “Benefit Low Moderate Income Individuals” National Objective, the objective is not met until residents experience a tangible benefit. If CDBG funds are spent on a project that is not completed within a reasonable period, HUD will determine that the National Objective has not been achieved and require repayment of the funds using non-federal dollars. CDBG funds should be awarded only when the City is confident that a project can be finished within one year. They are intended to close funding gaps rather than serve as seed money.

What Is the CDBG “Timeliness Test”?

HUD evaluates each grantee’s performance annually with a focus on the timeliness of expenditures.

On November 1, HUD compares:

  • The available, undisbursed funds from the City’s CDBG line of credit, and
  • The current allocation plus receipted program income.
  • If the undisbursed balance exceeds 1.5 times the annual entitlement, the City fails the Timeliness Test. In such cases, HUD will remove any excess funding from the line of credit.

What Determines a Project’s Eligibility for CDBG Funding?

A project must:

  • Comply with program regulations.
  • Meet one of the national objectives.
  • Additionally, projects should address one of the priority needs from the Five Year Consolidated Plan. Note that 70% of all funding must satisfy the “Provide a Benefit to Low and Moderate-Income Individuals” national objective, meaning at least 51% of the beneficiaries must have an annual income at or below 80% of the Area Median Income (AMI). Different project types may have specific requirements and funding limits, as detailed below.

Special Regulations for Various Project Types

Public Facilities/Infrastructure Projects

Examples: Parks, sidewalks, community centers

  • Low/Moderate-Income Service Area: The project’s service area must have a low/moderate-income population of at least 51%.
  • Residential Area: The service area should be predominantly residential.
  • Facility Ownership and Operation: Facilities should be publicly owned or owned by a nonprofit and operated for public use during normal hours.
  • Reasonable Fees: Any fees charged must be affordable and not prohibit low and moderate income individuals from using the facility.
  • Low/Moderate-Income Clientele: At least 51% of the facility users must come from low/moderate-income households (documentation required).
  • Program Income: Net income from facility use is considered program income, which must be reported and may need to be returned to the City’s HUD CDBG account.

Public Services

  • For programs that benefit low/moderate-income individuals:
  • No Supplanting: CDBG funds cannot replace funds previously provided by the City or State for the same program. Funding levels should not be lower than those from the previous year.
  • New Service/Quantifiable Increase: Funding must support either a new service or a measurable increase in the level of existing services (e.g., hiring additional staff due to increased demand).
  • Funding Cap: Funding for public service projects is capped at 15% of the annual allocation.
  • Beneficiary Requirement: At least 51% of the beneficiaries must be from low/moderate-income households.

Housing Activities

  • Income Eligibility: Recipients must provide detailed documentation to verify that their income is at or below the eligibility limit.
  • Lead Paint Testing: Any house built before 1978 undergoing rehabilitation must be tested for lead paint. The required remediation depends on the amount of CDBG funding used.
  • Davis-Bacon Act Compliance: For rehabilitation projects involving more than seven houses, the entire project must comply with the Davis-Bacon Act (federal wage rates and certified payroll).
  • Relocation Assistance: Tenants who must relocate due to transactions involving CDBG funds (such as in a first-time homebuyer program) may be eligible for assistance under the Uniform Relocation Act (URA). Note that properties currently occupied by someone other than the purchaser or homeowner/seller are not eligible, and voluntary relocation during renovation is not covered under the URA.

Clearance Activities

  • Purpose: This category funds the demolition of unsafe structures. The relevant National Objective is usually the Prevention/Elimination of Slum or Blight.
  • Eligible Structures: Only vacant or unoccupied structures may be demolished.
  • Documentation: Objective documentation of the property’s blighted condition is required.
  • Rehabilitation: Rehabilitation is permitted only to the extent necessary to eliminate health or safety risks.

Program Administration

  • Scope: These costs cover staff and related expenses for overall program management, coordination, monitoring, reporting, and evaluation.
  • Funding Cap: HUD limits program administration costs to 20% of the annual allocation.

How Is a Person/Household/Family’s Annual Income Determined and Documented?

  • Direct Benefit: To determine whether an individual or family qualifies as low and moderate income, we calculate the projected income for that person or family and compare it to the current income maximums based on family size.
  • Presumed Clientele: Income documentation is not required if the service or project is provided exclusively to a clientele that fits one of the “presumed” categories (e.g., abused children, elderly persons, battered spouses, homeless persons, severely disabled adults as defined by the Census, illiterate adults, persons living with AIDS, or migrant farm workers). HUD presumes that at least 51% of individuals in these categories are low/mod.
  • Nature and Location: Documentation of each beneficiary's income may not be necessary if there is sufficient evidence showing that the nature and location of the activity ensure its use primarily by low/mod individuals. For example, a program available only to public housing residents automatically qualifies, as public housing is limited to those who meet low/mod criteria.

When Can Grant Funds Be Used?

  • Availability: Funds for the new program year become available after HUD has approved the Action Plan and a contract has been executed between the City and HUD. Although the program year begins on January 1, funds cannot be spent immediately.
  • Subrecipient Agreement: No funds may be obligated by a subrecipient until both the City and the subrecipient have executed the Subrecipient Agreement prepared by the City.
  • Environmental Review: Every program or project must undergo an environmental review, usually conducted by an external planning consultant. The level of review depends on the project’s potential impact on the natural environment. No funds can be obligated until the environmental clearance is complete and, if necessary, a Release has been issued by HUD.
  • Obligation of Funds: Funds are obligated when a contract is executed or when the expenditure of funds is otherwise authorized.
  • Important: CDBG funds cannot be added to an existing contract signed before the environmental review is completed.
  • Additionally, CDBG funds cannot be used to pay for an item ordered before completing the environmental review and/or executing the subrecipient agreement.