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Commentary By Steven Malanga

Anti-Poverty Community Development Block Grants Are a Total Failure

Cities, Economics Public Sector Reform, Tax & Budget

So why don't we kill this program?

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 media, and executives of nonprofits that receive these often-sizable grants denounced Trump's plan as devastating. Typical was Democratic senator Tom Udall of New Mexico, who was "appalled."  Newspapers nationwide published hundreds of articles about the local initiatives that would die if Trump got his way.

“Nowadays, the purpose of the block grants seems lost in the mists of time. ”

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 positive to show for it.

Worse, the CDBG has created a local patronage racket, funding politically connected nonprofits. Congress eventually extended CDBG funding to wealthier areas, so that grants now help build tennis courts and swimming pools in neighborhoods with above-average incomes.

Still, though the budget passed by the House of Representatives removed CDBG, the Senate restored it for the time being. That the grants survive at all and still generate such overblown rhetoric illustrates why true reform of federal spending can be so hard.

When President Lyndon B. Johnson announced the national War on Poverty in 1964, he pledged that it would be a grassroots campaign, with local residents having significant input and local organizations receiving funding for urban revitalization. LBJ's successor, Richard Nixon, decided formally to decentralize antipoverty programs by putting aid money into block grants and letting state and local officials decide how to distribute it.

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. 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.

President Jimmy Carter decided to build support for the increasingly criticized program by expanding it to include "non-distressed" communities—thus making CDBG fans out of suburban legislators and Sunbelt-city mayors whose cities received grants. 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.

In the ensuing decades the program has been subject of persistent stories of abuse. One reason is because CDBG 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.

Soft-money grants have enabled some of the program's 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, which the group justified on the grounds of "community building."

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

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, the city 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. Public outrage changed nothing. Some six years later, federal auditors again 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.

Cities and states us CDBG money to make loans to businesses in distressed areas on the dubious assumption they suffer primarily from lack of investment, which government can remedy with taxpayer money. There's little evidence this 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.

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.

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. The Bush proposals went nowhere in Congress.

Nowadays, the 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, for example, 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.

“The most successful urban-revival efforts turned out to have little to do with Washington's antipoverty agenda. ”

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 in places like Newark, Detroit and Buffalo might contribute to urban decline.

Meantime, the most successful urban-revival efforts turned out to have little to do with Washington's antipoverty agenda. From 1975 through 1993, New York  received nearly $3.7 billion in CDBG money. 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. Mayor Michael Bloomberg, his successor, largely followed up on those efforts. New York thus enjoyed 20 solid years of effective governance. 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.

Today, at $3 billion annually, CDBG is a small part of the federal budget. But as one of the last vestiges of the War on Poverty, it remains symbolically important, as the recent press outrage illustrates. If Washington can't junk a program that clearly doesn't work, what federal spending can ever be cut?

This piece originally appeared in the Investor's Business Daily


Steven Malanga is the George M. Yeager Fellow at the Manhattan Institute and a senior editor at City Journal. This piece was adapted from City Journal.

This piece originally appeared in Investor's Business Daily