Congress Should Repeal This Wasteful, Failed Program

Last month, President Trump released his Fiscal Year 2027 budget request. Though the proposal falls far short of the cuts needed to put the national debt on a sustainable fiscal path, it does propose some worthwhile reductions.

One is the Community Development Block Grant (CDBG), a $3.3 billion federal program meant to fund housing, services, and revitalization in low- and moderate-income areas. The Trump administration argues, as it has done before, that the program fails to target communities in need and that states have repeatedly used it to finance pet projects.

As City Journal senior editor Steven Malanga has observed, the CDBG is “one of the nation’s most wasteful and ineffective domestic-spending programs” that “hands out money for projects that have little to do with its poverty-combating mission.” If Congress needs ideas for curbing wasteful welfare spending, following through on the Trump administration’s request to eliminate this long-running failure is a good place to start.

The Nixon administration designed the CDBG in 1974 as part of its effort to decentralize federal anti-poverty programs, folding eight categorical grant programs into a single block grant run by the Department of Housing and Urban Development (HUD). Washington has since spent more than $160 billion on the grants.

Each year, HUD sends 70 percent of CDBG funds directly to more than 1,200 qualifying cities and urban counties, known as “entitlement communities.” The remaining 30 percent goes to state governments, which pass it on to smaller “non-entitlement communities.”

Grantees have wide latitude in how they spend the money, but that flexibility, once touted as the program’s greatest virtue, has made it prone to waste and mission creep. As a Pew Charitable Trusts study documented, CDBG and other programs “designed to direct economic activity to struggling areas frequently end up benefiting wealthier communities.”

Part of the problem is the program’s antiquated funding formulas, which Congress has not meaningfully updated in more than 40 years. A 2024 report by HUD scholar Greg Miller identified at least eight flaws in those formulas. Chief among them: poverty, the variable “most correlated with community need indexes,” is underweighted. Two other major variables—the share of existing housing units built before 1940 and the population growth lag since 1960—are particularly flawed. Historic housing stock tends to be concentrated in wealthy communities that preserve old homes for aesthetic reasons, while lower-income areas, where aging properties are more likely to be demolished or abandoned, are inadvertently penalized. Population growth lag can classify wealthy, built-out suburbs that simply chose not to expand as “economically declining,” making them eligible for funding alongside genuinely distressed areas.

The result? CDBG dollars increasingly flow to rich communities at the expense of poorer ones. A 2013 Reason Foundationanalysis found that eight of the ten counties with the highest median household income in the country received program funds in 2012. Fairfax County, Virginia, then the second-wealthiest county in America, received more than $4.4 million—more than twice the national average of $1.7 million. By contrast, none of the ten poorest counties received a dime in entitlement funds. Some may have received a share through their state’s non-entitlement allocation, but this amount was unlikely to cover the gap, according to the Reason analysis.

The problem persists to this day. A 2023 HUD report found that a Puerto Rican municipality with a 50 percent poverty rate received just $32 per impoverished resident, while a Pennsylvania municipality with a 3 percent poverty rate received $461.

But CDBG’s targeting deficiencies are just one problem. Past program expenditures raise questions about the gap between the program’s stated goals of helping the poor and many of its visible outcomes—marinas, art museums, canopy walks, historic hotel restorations, burrito restaurants, recreational facilities with rock-climbing walls and golf simulators, brewery improvement projects, concert plazas and swimming pool renovations, and skate parks. A 2016 audit found that one California county had used more than $600,000 in CDBG funds for playground and park improvements at a single elementary school.

Public works projects may be legitimate local priorities, but they should be funded by the communities that benefit from them.

The CDBG is a prime example of what happens when Washington taxes nationally and sends the money back to states under obsolete formulas with few strings attached. It’s a program that breeds cronyism and drifts far from its purpose.

At a minimum, Congress should replace the CDBG’s formula and tighten spending rules to ensure that funds reach struggling communities. If the federal government is going to fund community development at all, it should do so through a more narrowly targeted anti-poverty program with clearer metrics and better oversight.

But the ideal solution would be to eliminate the CDBG altogether as a first step toward returning responsibility for community and economic development to the states. State and local officials understand their communities’ needs far better than federal bureaucrats. As the Cato Institute’s Chris Edwards puts it: “Falls Church, Virginia, should fund its own traffic lights; Fort Lauderdale should fund its own street improvements; Los Angeles should fund its own bike trails; and Martha’s Vineyard should fund its own youth centers.”

Now that Congress has begun drafting appropriations bills for fiscal year 2027, lawmakers should take this opportunity to repeal the wasteful, failed CDBG program.