6.

7.

8.

The Department supports a supplemental FY 1977 appropriation of
$140 million for State Housing Finance Agencies, the minimum
amount urgently needed to continue the construction of housing
units under the Section 8 Housing Assistance Program. Since
the program's inception, State Housing Finance Agencies have
provided mortgage financing for 75 percent of the actual construc-
tion starts for new rental housing. The supplemental appropriation
would make it possible for housing projects now in the pipeline
to be placed under construction and would provide an immediate
stimulus to the nation's ailing construction industry. The New
Jersey Housing Finance Agency alone estimates that it could place
5,000 units under construction this year with such an appropriation,
and nationally, State Housing Finance Agencies could finance an
additional 25,000 units upon which construction could start prior
to October 1, 1977.

For both the Section 8 existing program as well as new construction, fair market rent levels must be established at reasonable levels recognizing regional differences. The program can be effective only if the rents conform to actual comparable rents in the individual market areas. They should be set by the area offices, and states could assist in providing supporting data.

The HUD 701 program represents the only national commitment to
comprehensive planning, and its continuation is vital to states and
units of local government throughout our country. The Community
Development Block Grant Program cannot be substituted for 701
Comprehensive Planning, for only eligible activities under the block
grant program can have a planning component. Communities must have
the ability to integrate all phases of proposed and actual development
through the mechanism of comprehensive planning; only the 701
program, and not the block grant, allows for this type of planning.
At a time when states and units of local government face extreme
pressure in determining the allocation of limited financial resources
and providing for the most cost-efficient operation of government,
there is an increasing need to continue the authorization of the 701
program at the highest possible level.

86-085 - 77 pt. 2 14

THE NEED FOR A STATE ROLE IN THE
COMMUNITY DEVELOPMENT BLOCK GRANT PROGRAM

The Housing and Community Development (HCD) Act of 1974 has been the major federal effort over the last few years designed to assist units of general local government to meet their diverse community development needs. Title I of the HCD Act established the Community Development Block Grant (CDBG) Program in which grants are awarded on a formula basis to certain urban communities. States are not given any formula entitlement or set-aside of funds under the Title I provisions.

The last twenty years have shown that states have a vital interest in assisting and providing aid to units of general local government. In 1954, states provided $5.7 billion in local aid; by 1975, the amount had risen to $50.5 billion. In the program areas of health, education, welfare, highway construction, pollution control, and housing and community development-- to name a few-- a growing interdependence has developed between states and local governments. However, Title I of the HCD Act and all other sections of the law pertaining to community development give no recognition to the important role of states as key elements in the intergovernmental delivery system necessary to undertake comprehensive community development activities.

The great complexity of the eligible activities authorized by the CDBG Program, i.e., land acquisition, relocation, rehabilitation loan programs and physical redevelopment -- among others-- can be most effectively carried out where there is a full partnership established between state and local governments. Since the passage of the HCD Act, states have committed significant resources to local governments to aid them in furthering the objectives of the CDBG Program: informational booklets have been prepared explaining the new responsibilities and opportunities; technical assistance has been provided in developing community development applications and projects; new legislative authorizations have been instituted by states to give localities added flexibility in designing community development programs; and state financial assistance has been a vital ingredient in fostering community development programs.

States have assumed a large burden for making the CDBG Program operational, even though they were given no funding entitlement under Title I. Left to their own resources, states have helped fill in the vacuum in the intergovernmental delivery system created by the original CDBG statute. However, much remains undone. The initiatives and leadership demonstrated by states in supporting the CDBG Program should be recognized. When new federal community development

1

National Journal Reports, September 18, 1976, p. 1322.

legislation is written this year, states must be given the resources which will enable them to expand their role in the community development process. With their broad jurisdictional base, state governments have the capacity to analyze, understand, and respond to the differing development and technical problems which face communities within their states. Moreover, states can bring together related federal, state and local resources and help as sure that they are utilized in a coordinated fashion.

The purposes for building states into the CDBG Program will be twofold: first, activities will be developed and implemented which assist units of general local government in improving the effectiveness of their community development programs; and second, community development programs will be carried out which are either multijurisdictional in scope or respond to a particular need in the state for which no other funding is available. The inclusion of states in the CDBG process will allow greater resources to be applied toward meeting the specific community development problems shared in common by all units of local government within a state.

Listed below are several of the roles which states are presently fulfilling or could fulfill, if they were given separate funding under the CDBG Program. The list is not meant to be exhaustive, nor does it represent any ordering of activities by priority. Based upon two years of experience, the following activities illustrate how states do or could strengthen the block grant program:

(1) Throughout the country, many units of general local
government are receiving levels of funding through
the CDBG Program far in excess of any previous fund-
ing. Particularly for these localities, as well as
for many of the other entitled communities, there is
the need for training of the local officials respon-
sible for administering and implementing the CDBG
Program. State agencies have held and would continue
to hold a variety of training sessions on a regional
basis to help assure that a high level of competence
is being achieved in utilizing CDBG funds. Specific
training areas can include: management capacity
building; budgeting for and the preparing of the com-
munity development plan and application; the integra-
tion of local, regional and state plans; and, the
development of systematic approaches -- taking into
account federal and state statutes-- for preparing
and understanding environmental impact statements.
States should use specialists in each of these areas
who would be available to work on a statewide basis
with localities needing assistance.

(2) States could use part of their CDBG funding for
innovative projects within the state.
New ap-
proaches could be tested in both rural and urban
areas and the results disseminated throughout the
state. A state might fund a variety of neighbor-
hood preservation programs both in communities
which were and were not receiving block grant funds.
As part of this state grant-making function, multi-
community programs could be supported to promote
regional development and cooperation.

(3) States could function as information clearing-
houses and research agencies. Presently, there is
no systematic gathering of information about CDBG
programs in states, nor is there adequate informa-
tion exchange among the recipients within a state.
State agencies could help monitor programs, compile
listings of successful CDBG efforts, and hold re-
gional and state conferences among recipients to
share this information. Through on ongoing research
capacity, states could publicize new technology and
concepts. Congress and HUD need an expanded data
base by which to measure the impact of the CDBG Pro-
gram, and states are in the best position to collect
such information.

(4) Through an expanded technical assistance role, states could develop a series of suggested guidelines which localities could use in developing their community development programs. The materials would be updated regularly to include any state statutes or amendments which could have a bearing on the community development process. The technical materials would save each municipality receiving CDBG funds countless person-hours and dollars. Each recipient municipality would not have to originate the process of developing individual sets of procedural guidelines for the CDBG Program. Materials developed by states would accomplish this purpose. Technical assistance units, staffed by experts, would be available to assist communities throughout the state in all phases of the CDBG Program. In our own state, a recent questionnaire demonstrated that small municipalities often do not have the staff capabilities to gather and analyze all of the data necessary for sound program development.

State-provided technical assistance would greatly improve the quality of the community development programming within the state.

Under the current HCD Act provisions, states wishing to apply for CDBG funds must either compete directly with their municipalities for limited discretionary balance funds, or apply for innovative grants. The former option puts states in a politically untenable position and thus has not been utilized. Moreover, innovative grants, which have had a meager level of funding for the first two years of the CDBG Program, are not designed to provide an ongoing source of funds for program support. Hence, the existing CDBG Program effectively excludes virtually all states from getting funds to provide the variety of services enumerated here.

Recognizing the need for a state role in the CDBG Program, where can monies be found to fund state activities? The existing HCD Act statute offers two identifiable alternatives: the Secretary's discretionary fund which is part of Title I; and Section 811(C) which is part of Title VIII. For both cases, language could be written establishing a definite set-aside of funds for state activities up to a certain maximum percentage of the total appropriation. Since both sections are already authorized in the current law, the Congress would be able to adjust either of them quite easily in order to accommodate an expanded role for states.

Whatever the funding mechanism agreed upon, clear criteria must be established for participation by states in the CDBG Program. Only states which have the legal authority and technical capacity to undertake the range of activities suggested here, and which agree not to reduce efforts previously supported with state funds, should be eligible.

The appropriation for the CDBG Program in FY 1977 is $3.25 billion and will probably increase significantly in FY 1978. With this magnitude of funding, it seems quite reasonable to reserve a small portion for state activities in training, program coordination, technical assistance, and the establishment of innovative programs. With a modest increase in available resources, states can become active partners with units of local governments in designing and implementing the most effective community development programs.