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Let’s Kill the CDBG

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Let’s Kill the CDBG

The overwrought response to President Trump’s proposal to end America’s worst social program shows why it’s so hard to shrink government. Autumn 2017
Politics and law

Nothing in President Donald Trump’s first federal budget, issued earlier this year, produced more howls of indignation than the proposal to kill off a remnant of the War on Poverty known as the Community Development Block Grant program, or CDBG. Politicians, advocates, the liberal media, and executives of nonprofits that receive these often-sizable grants denounced Trump’s plan as devastating. For Jesse Jackson, ending the program meant that Trump had betrayed his pledge to rebuild black urban communities. A Cleveland councilman said that Trump’s proposal would cause a “crisis” in his city, while Boston mayor Marty Walsh warned that the “reckless” cuts would “bring pain.” Democratic senator Tom Udall of New Mexico was “appalled”; his Connecticut counterpart Chris Murphy predicted “utter disaster” for his state. Newspapers nationwide published hundreds of articles about the local initiatives that would die if Trump got his way. Reporters often pointed to what the loss of the grants would mean to communities that had voted heavily for Trump.

The overheated rhetoric came in defense of one of the nation’s most wasteful and ineffective domestic-spending programs. Conceived in the early 1970s as a way to give local officials a say in how federal poverty aid gets doled out, the CDBG has sent some $150 billion to impoverished neighborhoods in Baltimore, Buffalo, Newark, and other struggling cities, with little or nothing positive to show for it. Worse, the CDBG has created a local patronage racket, funding politically connected nonprofits that do little to spur economic development. And to build further support, Congress extended CDBG funding to wealthier areas, so that grants now help build tennis courts and swimming pools in neighborhoods with above-average incomes.

White House budget director Mike Mulvaney stated the obvious when he complained that the grants “have been identified as . . . not showing any results. We can’t do that anymore. We can’t spend money on programs just because they sound good.” The Trump administration is right: it’s time for the CDBG to go.

The CDBG exemplifies the strange combination of naive good intentions and outright cynicism that can drive policy in Washington. When President Lyndon B. Johnson announced the national War on Poverty in his 1964 State of the Union address, he sought to distinguish the ambitious undertaking from the discredited urban-renewal policies of the 1950s, which many had criticized as arrogant, top-down efforts that needlessly displaced residents from poor but functioning neighborhoods. Johnson pledged that his War on Poverty would be a grassroots campaign, with local residents having significant input. The administration promised to send aid to neighborhood groups, hoping that they could figure out the most effective ways to spend the money—though most such organizations had little expertise in urban revitalization.

LBJ’s successor, Richard Nixon, worried that the War on Poverty was adding new layers to the federal bureaucracy, decided formally to decentralize antipoverty programs by putting aid money into block grants and letting state and local officials decide how to distribute it. With Congress’s help, the block-grant program was crafted in broad terms, with few guidelines on how the money could be spent; the authorizing legislation used the term “community development” instead of “economic development” so that localities enjoyed the widest possible discretion in allocating the funds. Grantees faced only minimal standards for proving that the money was alleviating poverty.

Local officials quickly betrayed the CDBG’s ostensible antipoverty mission, using the grants to supply patronage jobs and set up nonprofits run by their allies. By 1977, the New York Times was already calling the program “unduly optimistic” in its faith in local officials to spend the money wisely. That same year, a Brookings Institution report noted that communities viewed the federal largesse as “free money.” One federal investigation found that nearly one-third of the operatives in Boston mayor Kevin White’s political machine worked for the city as CDBG coordinators.

During his 1976 presidential campaign, Jimmy Carter criticized some CDBG spending as “frivolous.” Once he took office, however, Carter decided not to end the antipoverty program, as many were demanding, and instead moved to rebuild support by expanding it to include “non-distressed” communities—thus making CDBG fans out of suburban legislators and Sunbelt-city mayors. Carter’s reform shielded the program from later efforts to eliminate it, but scandals became endemic. In the early 1980s, for example, authorities indicted Florida officials for taking bribes from builders in return for work on CDBG-funded projects. Audits later in that decade in Chicago and other cities found millions of dollars in block-grant funds unaccounted for—and Memphis officials speculating with grant money in the bond market. An early 1990s congressional investigation revealed that funds had gone to an organized-crime-linked Native American tribe in California trying to expand its gambling operations and to a pro hockey team in Troy, New York, to cover its financial losses. Small wonder a former inspector general of the Department of Housing and Urban Development (HUD), which oversees the program, described the CDBG as “made to order for wrongdoing and con men.” A 1993 report by President-elect Bill Clinton’s transition team deemed mismanagement of antipoverty programs “clear and devastating,” singling out block grants for criticism because so much of the funding wasn’t directed to fighting poverty.

Still, rather than cut the grants, Clinton made small, symbolic increases in CDBG funding, thus fulfilling campaign promises to boost urban aid. Though Clinton’s HUD secretary, Henry Cisneros, pledged to fix the CDBG’s problems, and his assistant at the time, Andrew Cuomo, praised it as “a very successful program,” a 1999 Government Accountability Office audit showed that the CDBG still wasn’t fulfilling its goals. The Clinton administration snapped back that the GAO was being “unduly critical.”

The CDBG’s funding process is so open to abuse partly because it allows generous grants for so-called soft projects like senior-citizen initiatives, youth day camps, housing-counseling services, and recreational facilities. Such projects are supposed to help build “viable urban communities”—a vague notion that resists measurement—but more often, they let municipalities give grants to well-connected social-services nonprofits that rarely need to demonstrate that their work is effective.

Soft-money grants have enabled some of the most embarrassing scandals. In 1986, the Philadelphia district attorney disclosed that CDBG grants had gone to a leader of the radical group Move, whose confrontation with Philly police sparked a conflagration that killed 11 and destroyed 61 homes. The money had been funneled to the group through another radical local organization, Icon, which had received more than $800,000 in block grants; Icon had also paid with grant money for an appearance by militant Black Muslim leader Louis Farrakhan.

These days, the CDBG hands out money for projects that have little to do with its poverty-combating mission.

Another CDBG grantee—to the tune of some $50 million over the years—was the controversial nonprofit Acorn, which saw its federal funding vaporize only after undercover videos came to light in 2009 showing its employees advising two journalists, posing as a pimp and a prostitute, on how to open a brothel and shun federal taxes. Acorn’s federal grants funded various programs in low-income communities, typically with a left-wing bent—it was, for instance, the main organization behind living-wage drives to boost the minimum wage in many cities, and it fought against school choice in New York and other locations. Congressional Republicans also accused Acorn of using government-funded voter-registration drives—supposedly nonpartisan—to aid liberal candidates. Once its federal funding was cut off, the group collapsed.

These days, the CDBG hands out money for projects that have little to do with its poverty-combating mission. With an average annual family income of $67,000, well above the poverty line, Manchester, New Hampshire, is no one’s idea of a depressed community; but the city is spending $200,000 in block-grant money to fill an unused pool and convert it into a “splash pad.” Elgin, in suburban Illinois—with a poverty rate of just 8 percent—is sprucing up its parks with $740,000 in CDBG funds. Fast-growing Berkeley County in South Carolina is building a library and recreation complex, including a swimming pool and tennis courts, partly with block-grant money. In 2016, Monmouth County, New Jersey—average household income: $115,000—spent more than $110,000 in CDBG funds on enhancements to a publicly owned entertainment venue, the Count Basie Theater.

Local officials invariably blanch at suggestions that Washington should get rid of or reduce such funding. When the Obama administration tried to reclassify some New York communities as too rich to receive “antipoverty” grants, New York senators Charles Schumer and Kirsten Gillibrand joined a group of affected mayors in blasting the feds for “pulling the rug out from communities that were relying on federal funds for critical infrastructure programs.” Among the “critical” infrastructure: improvements to tennis courts and a baseball field in the town of LaFayette, where average family income totals $77,800 annually, and the kitchen of a community center of Elbridge, where family income averages $82,000 annually.

Some wealthy communities defend CDBG funding because they spend it on services for their lower-income residents. But the block grants weren’t intended for services to the poor everywhere; they’re supposed to help struggling neighborhoods in declining cities, where resources are otherwise scarce. When, for instance, the Bush administration proposed in 2003 to cut in half grants to the wealthiest American communities, officials in Palo Alto, in the heart of Silicon Valley, called the move “draconian.” The city manager lamented: “A poor person in Palo Alto is just as poor and needy as someone in Redwood City.” But Palo Alto’s average family income at the time was nearly $150,000 annually, about two and a half times the national average, giving the city more than enough resources to replace the $800,000 that it would lose in federal money.

Illustration by Sean Delonas

Officials in wealthy communities protest CDBG cuts so ferociously for a simple reason: the program has long given them someone else’s money to aid their poorer residents, freeing them to turn local tax dollars to other things, such as retirement plans for public workers. Boston, where Mayor Walsh decried prospective block-grant cuts as “reckless,” is a good example. A building boom will fatten local tax collections to a projected $143 million next year. Yet the city still faces a budget squeeze, in part because of its generous public-employee retirement benefits, which will cost $185 million next year in health-care payments alone, while pension costs will increase $20 million, to $218 million. Is it surprising that Walsh, who manages a $3.14 billion annual budget, portrayed the possible loss of $24 million in CDBG money as a catastrophe?

Even when CDBG money gets spent in struggling areas, the impact is usually negligible. Since the program’s inception, Detroit has received $1.9 billion, Baltimore $1.1 billion, Buffalo $750 million, and Newark nearly $500 million, but these cities have remained among America’s most impoverished—far from the “cities of spacious beauty and living promise” that LBJ vowed to nourish. In 2005, the Buffalo News estimated that its home city had received more block-grant dollars per resident than virtually any other place in America, but “scant evidence” existed of the investment; generations of local politicians had “frittered away much of the money,” the paper wrote. In one glaring example, Buffalo poured $60 million in CDBG money into a downtown theater district, only to wind up with “a lot of bad debt and struggling businesses,” the paper observed. Borrowers defaulted on $15 million of the $18 million lent to enterprises in the district through a CDBG loan program. Public outrage changed nothing. Some six years later, federal auditors blasted Buffalo for failing to monitor tens of millions of dollars in block-grant spending, and demanded that the city repay half a million in misspent funds. Among other startling conclusions, a 2011 audit found that the city’s CDBG-bankrolled investments in economic development had generated just 46 jobs over a two-year period. Buffalo’s redevelopment agencies remained plagued by “too much spending on bureaucrats, questionable financing for upscale housing developments and sloppy fiscal management,” the Buffalo News reported.

Among the most troubled CDBG-funded efforts, as Buffalo’s example underscores, are loans to help businesses in lower-income neighborhoods, which have the ostensible purpose of spurring lower- and moderate-income job creation. In the largest push in CDBG history, Congress pledged some $430 million to rebuild Los Angeles neighborhoods after the 1992 riots, and the city launched a development bank to loan some of the funds to businesses willing to locate, or relocate, in riot-torn areas. But the bank proved inept at picking winners, and many of its loans soon failed—just two years after the bank opened, nearly one-third of loan recipients were out of business or delinquent in repayments. Nor did the lending stimulate much employment: two-thirds of the 150 borrowers failed to create the targeted number of jobs in the damaged neighborhoods. In the familiar pattern, however, L.A.’s complete mismanagement of the initiative had seemingly no impact on future grants, which continued to flow generously. Other cities have had similarly lousy loan experiences.

When the loans go bad, moreover, cities must pay them back to the federal government out of future CDBG money. Utica, New York, is stuck paying $250,000 yearly back to Washington, thanks to a risky $5 million loan for a downtown hotel that soured. The Gotham suburb of Yonkers temporarily closed its CDBG program in 2013 after an audit disclosed that the city was on the hook for $9 million in bad loans. Toledo, Ohio, has failed to collect some $2.4 million from 41 businesses that it lent to over the years, a 2015 Buffalo News investigation found.

Still, cities and states keep making these CDBG-funded loans on the dubious assumption that distressed areas suffer primarily from lack of investment, which government can remedy with taxpayer money. There’s little evidence that such government lending works, though, and much of it turns out to be frivolous. Recently, for instance, local officials have lent $80,000 in CDBG money to a brewery and tasting room in Ozaukee County, Wisconsin, $205,000 to an apiary in northern Michigan, $25,000 to a T-shirt store in Batavia, New York, and $90,000 to a distillery in Gardiner, Maine. Funders seem to have a particular fondness for spirits. Living- ston County, in New York’s Finger Lakes region, announced a competition last year to provide loans using $600,000 in CDBG funds to four craft breweries that agreed to open in the county. The Finger Lakes region already boasts about 100 small breweries.

These kinds of grants and loans reflect the CDBG’s loose standards and ill-defined goals. In 2003, the Office of Management and Budget, reviewing federal spending, declared that it wasn’t clear how the CDBG defined “community development,” that much of the money it provided went to places that didn’t need it, and that no long-term measurements were in place to determine if the communities spending the money were making any progress. In response, the Bush administration suggested drastically cutting back CDBG funding to focus solely on needy neighborhoods, concentrating narrowly on economic development, and gauging the effectiveness of the spending by clear standards such as increases in jobs, declines in poverty rates, and gains in local property values. Spending initiatives that don’t produce measurable beneficial changes in their communities, Bush proposed, would lose CDBG funding after several years. The Bush proposals went nowhere in Congress.

Nowadays, the originating purpose of the block grants seems lost in the mists of time. When advocates for the grants, including many journalists, defend them, they often refer to recipients that give help to those in need. In the wake of Trump’s budget announcement, newspapers published more than 500 stories detailing how CDBG cuts would derail the popular Meals on Wheels program, which delivers food mostly to elderly Americans. Aside from inaccuracy (the CDBG finances just 3 percent of Meals on Wheels), the stories ignored the essential point about the grants—that their original aim was to help revive economically distressed areas. Program defenders typically say little about that mission, since few examples exist of CDBG money stimulating real change.

For the War on Poverty’s architects, the blight corroding urban communities of the 1960s was caused by powerful external forces—above all, globalization, which destroyed blue-collar jobs, and racism, which led middle-class urbanites to flee to the suburbs to escape the era’s social upheavals. Rarely did the antipoverty warriors consider how local corruption and mismanagement might contribute to urban decline. Washington poured vast sums into declining cities like Newark, Detroit, and Buffalo, where political venality and fraud were extensive, and wound up financing even greater corruption.

Meantime, the most successful urban-revival efforts turned out to have little to do with Washington’s antipoverty agenda. Consider New York City. From 1975 through 1993, the city received nearly $3.7 billion in CDBG money. Yet it did little good. The city’s population shrank from about 7.5 million to 7.3 million, the local economy gained virtually no jobs, and crime hit record-breaking levels. Then, in 1994, Rudy Giuliani took over as mayor and argued that New York’s future lay in its own hands, not Washington’s. He instituted policing reforms, made work a requirement for able-bodied welfare recipients, and revived key institutions, like the City University of New York, by reimposing standards that had degraded over the years. Mayor Michael Bloomberg, his successor, largely followed up on those efforts. New York thus enjoyed 20 solid years of effective governance that changed the city’s political culture. Over that period, the city’s population rose by 1.2 million people, its crime fell to levels unseen since the early 1960s, and its economy added 1.1 million new jobs. Antipoverty grants didn’t accomplish that; leadership did.

Though no president before Trump has been able to terminate the CDBG, few have expanded it. As a result, it remains, at $3 billion annually, a small part of the federal budget. But as one of the last vestiges of the War on Poverty, the CDBG remains symbolically important, as the recent press outrage illustrates. The CDBG has had 40 years to prove itself, and failed dismally. If Washington can’t junk a program that clearly doesn’t work, what federal spending can ever be cut?

Illustration by Sean Delonas

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