What Is a Community Development Block Grant (CDBG)?
The Community Development Block Grant (CDBG) program provides federal funding for projects to improve the quality of life for people with low and moderate income, revitalize urban centers, and address urgent health and safety needs of low-income communities. The CDBG program has been continuously administered by the U.S. Department of Housing and Urban Development (HUD) since 1974, making it one of HUD’s longest-running community improvement and housing affordability programs.
- Community Development Block Grants (CDBG) provide federal funding for projects that aim to improve the quality of life for people with low and moderate incomes.
- CDBG projects must align with national goals to qualify for funding, such as benefiting low- and moderate-income people or helping prevent urban blight and eliminate slums.
- Activities that are eligible for project funds for low- and moderate-income people include those that provide them with housing and those that benefit an area, such as water and sewer systems, among others.
- One example of the successful use of CDBG funds is in the city of Joplin, Mo., which used the money to create a 30,000 square foot early childhood education center after a devastating tornado in 2011.
How Community Development Block Grants Work
Each year, HUD allocates a portion of its budget to fund the CDBG program. HUD uses a formula to allocate funds to so-called “entitlement grantees,” namely every metropolitan area with at least 50,000 people, specifically designated large cities, and every county with a population of more than 200,000.
Entitlement grantees receive 70% of all CDBG funds. HUD distributes the remaining 30% of CDBG funds to states. Localities within the state then submit applications and compete for CDBGs.
In 2021, HUD allocated nearly $3.5 billion for the CDBG program. According to HUD statistics, since 1974, it has issued CDBGs totaling more than $160 billion.
HUD establishes national objectives that serve as prerequisite criteria for every CDBG project. Proposed CDBG projects must meet one of the following criteria to be eligible for funding:
- Benefit low- and moderate-income persons
- Help to prevent urban blight and eliminate slums
- Address urgent community development needs that present a serious and immediate community health and welfare threat for which no other funding is available.
CDBG grantees must use at least 70% of all funds to benefit low- and moderate-income persons, and they can choose a one-, two-, or three-year period for measuring compliance. For CDBG purposes, low- and moderate-income means at or below 50% or 80%, respectively, of the median income for the area, as determined annually by HUD, or acceptable local income data whose methodology HUD endorses. A proposed project only meets the national goal of benefiting low- to moderate-income persons if at least 51% of those community members/households receiving some benefit from the project fall below median income requirements.
Eligibility for Community Development Block Grants
Private companies, nonprofit organizations, and individuals are not eligible for CDBG funds. Instead, CDBG applicants must fall into one of the following categories:
- Principal cities of the 384 Metropolitan Statistical Areas (MSAs) (an area made up of one or more counties having a high degree of economic and social integration with a core comprising at least one urbanized area of 50,000 or more people)
- Other metropolitan cities with populations of 50,000 or more
- Qualified urban counties with populations of 200,000 or more
- States and insular areas (all states except Hawai’i participate in the CDBG program)
CDBG Activities for Low- to Moderate-Income People
HUD regulations divide eligible CDBG activities for the benefit of low- to moderate-income people into several categories. These are area benefit activities, limited clientele activities, housing activities, and employment activities.
Area benefit activities: These are activities available to all residents of a primarily residential area, regardless of income. To meet the national objective, at least 51% of the residents (individuals, not households or families) must fall below the median income limits for the area. Examples of area benefit activities include infrastructure or service improvement projects such as street improvement, installation of water and sewer systems, or even cosmetic improvements such as rehabilitation of building facades.
Limited clientele activities: These may appear self-explanatory, but certain restrictions limit their application. Rather than benefiting all the residents of a given area, they affect a specific subset of the population. Again, to qualify, at least 51% of those receiving a benefit must meet income requirements.
For the purposes of the limited clientele category, HUD presumes that several classes of individuals are primarily low- to moderate-income. These individuals include:
- The elderly
- Abused children
- Battered spouses
- The homeless
- Severely disabled persons (under the U.S. Census Bureau definition)
- Illiterate adults
- Persons living with AIDS
- Migrant farmworkers
Limited clientele activities must be specific to their target groups, rather than simply being part of a more extensive program available to all residents of a given area. Thus, for example, a food pantry that serves all low-income residents of a given area is not a limited clientele program just because elderly residents, homeless persons, and people living with AIDS participate.
Examples of limited clientele activities include providing services for the elderly such as senior centers or meal programs, food and shelter services for the homeless, or job training and employment services for the severely disabled. Limited clientele activities can also extend to certain commercial activities, including assisting micro-enterprises run by low- or moderate-income persons, who are also traditionally members of minority communities.
Low- to moderate-income housing activities: While also self-explanatory, these have an essential distinction from the other categories. HUD assesses the eligibility of housing activities on a household basis rather than an individual basis. To meet the national goal of benefiting low- to moderate-income persons, activities must result in housing that low- to moderate-income households will occupy. This allows HUD to take into account situations where multiple unrelated people inhabit the same housing and all have the capability to contribute to the cost of acquiring and maintaining the housing. In addition, income requirements must be met by the household.
This category also includes an occupancy rule defining the percent of occupancy by low- to moderate-income households according to the type of housing. Specifically, to qualify, low- to moderate-income households must occupy all single units, at least half of each duplex unit, and at least 51% of all multi-unit structures.
Employment or jobs activities: These are activities that result in the creation or retention of permanent jobs. These activities can address well-known disparities in career opportunities for traditionally underrepresented minority groups. To qualify, low- to moderate-income persons must hold at least 51% of the associated jobs on a full-time equivalent basis, or the positions must be available to them.
Types of CDBG Projects
Within the eligible activities, a wide range of projects can be undertaken under the CDBG program.
Because neighborhood revitalization and the removal of urban blight are critical national goals of the CDBG program, CDBG grantees can use their funds for various property-related purposes, including acquisition, sale, and demolition. It is also acceptable to use CDBG funds to facilitate municipal-building-code enforcement and engage in historic-preservation efforts.
To meet the goal of providing housing opportunities for people with low- to moderate-income, grantees can also use CDBG funds for many different housing-related purposes. These activities include rehabilitating homes and rental properties (for example, through lead-paint abatement or asbestos remediation), offering homeownership-assistance programs, providing services in conjunction with other federal housing programs such as the HOME Investment Partnerships Program, or even providing relocation assistance.
Public Facilities and Services
The availability of adequate public infrastructure and services is a crucial aspect of community development. Using CDBG funds, grantees can build new public facilities such as community centers and special-needs facilities or improve existing facilities—for example, by improving accessibility for physically disabled community residents.
CDBG grantees may also use funds to address community economic, health, and welfare needs through investment in public services. Job-training programs, employment services, substance-abuse treatment programs, childcare services, and crime prevention are just some of the services eligible for CDBG funds.
Public services can account for no more than 15% of the total annual community development block grant allocation.
Although the majority of CDBG funds go toward residential areas and activities, there are also appropriate commercial uses for CDBG grants. The creation of special economic development areas, rehabilitation of commercial properties, or even financial assistance for microenterprises all fall within the scope of approved CDBG activities.
Many other community development and improvement activities are eligible for CDBG funds. However, HUD also expressly excludes some activities from CDBG program eligibility, including:
- Investment in buildings for the general conduct of government activity (e.g., town hall)
- Payment of general government administrative expenses
- Spending on political activities
- Operational and maintenance expenses for public services (with some minor exceptions)
- Financing the construction of new housing
Examples of Successful CDBG Projects
Many communities across the country have effectively used CDBG funds to improve infrastructure and services for low- to moderate-income families. Here are just two example, from among hundreds across the country with projects of all sizes and focuses.
- The city of Joplin, Mo., used CDBG funds to help recover from a devastating tornado in 2011. With $10 million in CDBG grants, the city created a 30,000 square foot early childhood education center, serving primarily special needs and disadvantaged three- to five-year-olds.
- The city of Greensboro, N.C., applied $250,000 in CBDG funds towards constructing a community co-op that provides healthy, affordable groceries in a low-income, predominantly African-American area no longer served by any major grocery chain. In addition to serving hundreds of residents daily, the co-op offers job opportunities for the community.
Must Community Development Block Grant Projects Be Completed in a Certain Amount of Time?
Essentially, yes. To ensure rapid and effective use of CDBG funds, HUD annually assesses the progress of each CDBG project using a “timeliness test.” HUD determines timeliness 60 days before the end of the CDBG program year by comparing the total amount of a project’s outstanding line of credit to its annual budgeted amount. If the ratio exceeds 1.5, HUD deems the project “untimely.”
The first time a CDBG project is untimely, it has 12 months to correct its spending and advance the project. If there is a second finding of untimeliness that does not fall within one of two exceptions, HUD reduces the line of credit to bring the credit/budget ratio back to 1.5. The only allowable exceptions are if:
- At the time of the second timeliness measurement, the program was spending money at a rate that would bring it into compliance before the subsequent annual measurement, or
- The failure arose from circumstances out of the CDBG recipient’s control.
How Do Community Development Block Grant Recipients Prove They Are Meeting National Goals?
CDBG grantees must provide reports on the impact of their projects. HUD requires that grantees provide reporting in several key areas:
- How much money they obtain and use from other federal, state, local, and private sources for each CDBG activity
- The number of persons, households, or businesses affected by the CDBG funds
- The income level for persons or households by 30%, 50%, or 80% of area median income. For CDBG activities with specific requirements about the number of low- to moderate-income persons or households receiving benefits from the project, reporting should include both the total number and the number of low- to moderate-income recipients.
- For limited clientele projects focused on issues such as race, ethnicity, or disability, grantees must report the relevant data.
There are 18 additional performance criteria that potentially apply, depending on the type of CDBG activity.
What Happens If a Community Development Block Grant Project Makes Money?
In certain situations, the recipients of a CDBG grant may generate income from their investment of CDBG funds. In addition to the sale, rental, or lease of property acquired using CDBG funds, program income may arise from such activities as fees for usage of community facilities built using program funds. Grantees generally must use program income before taking any additional funds from the CDBG line of credit. The calculation of program income includes several exclusions and can be somewhat complicated.
It is important to note that, while it is acceptable to charge fees for using a public facility constructed or improved with CDBG funds, there are limits. The fees must be reasonable and cannot defeat the purpose of the CDBG by preventing low- to moderate-income individuals from accessing the facility.