Third Set of CDBG Disaster Waivers Further Dilutes Low Income Benefit
Hurricane Recovery
Memo to Members: Vol 12, No. 10, March 9, 2007
On March 6, HUD published its third set of waivers allowing Mississippi and Louisiana to spend Community Development Block Grant (CDBG) Disaster Supplemental funds with less focus on low income people. Louisiana will be able to give salary bonuses to scientists lured from other states, and Mississippi won't have to worry about benefiting lower income people when giving grants to businesses.
Mississippi continues to seek a blanket waiver of the obligation to spend its $5.48 billion CDBG Disaster Supplemental funds without regard to benefiting lower income people. Although HUD has twice denied such a blanket waiver, Mississippi first avoided the requirement to spend at least half of the money to benefit lower income people when HUD granted a waiver related to projects included in the state's initial, partial Action Plan (see Memo, 6/16/06). HUD has repeatedly waived the low income benefit requirement on a piecemeal basis as Mississippi submits incremental, partial Action Plans. The latest HUD action again denies a blanket waiver, but grants the waiver for Mississippi's most recent partial Action Plan which will provide $340 million for business grants and loans and $160 million for downtown commercial revitalization.
When creating the CDBG Disaster Supplemental, Congress allowed HUD to waive the usual requirement that 70% of the money benefit lower income people, but set a floor of 50% benefit to lower income people. HUD quickly ditched the 70% lower income benefit requirement. Congress also enabled HUD to waive the 50% benefit floor if a governor demonstrated to HUD that there was a compelling need to not aid low income people.
In Louisiana, HUD has waived eight CDBG statutory and regulatory requirements in order to approve a $28.5 million Research Commercialization project that will provide salary enhancements to lure eminent scholars from other states to New Orleans' institutions of higher learning. The scientists pirated from other states will carry out speculative research which might lead to technological discoveries that can be sold commercially. (Regular CDBG law does not allow income payments or job pirating.) The project description also states it will provide scholarships and stipends for students to work as research assistants; however, there is no indication how much money will be spent this way or what number or percentage of scholarships or stipends will be targeted to lower income students.
Basic CDBG law does not allow the funds to be used for buildings in which general government business is conducted; however, HUD is waiving that prohibition for both Louisiana and Mississippi, provided that the buildings have substantial value in promoting disaster recovery. The Louisiana Action Plan, for example, calls for $142.5 million to be spent on state buildings and indicates its Priority 1 projects are buildings "of great significance to and symbols of our state, or are recognized cultural or historical artifacts."
HUD has also granted a waiver to Louisiana which will reward employers for paying people low wages. Under the regular CDBG program, assisted businesses must ensure that 51% of new or retained jobs are held by lower income people, and HUD allows a variety of simple means to gauge an employee's household income. HUD is waiving this provision for Louisiana and instead will look at the wage an employer pays an individual. If the wage is less than 80% of the area median income for an individual, the employee will be considered low or moderate income. By using this substitute standard, HUD is diluting the state's obligation to spend at least 50% of this supplemental money to benefit lower income people. This is because the substitute standard takes into consideration only an employee's income, rather than the income of an employee's entire household. For example, a teenager working part-time after school might be part of an affluent household.
For both Mississippi and Louisiana, HUD has waived the public benefit requirements for economic development activities and infrastructure activities associated with economic development. Therefore, the states will not have to show that at least one full-time equivalent job (not necessarily low income) is created or retained for each $50,000 given to an individual business, or that one job is created or retained for every $30,000 used to benefit a group of businesses (such as a new road in an industrial park).
There are two sets of waivers granted to Louisiana that could benefit low income people. One set allows CDBG Disaster Supplemental funds to be used for project-based rental assistance in conjunction with the state's "Piggyback" rental rehabilitation and construction program, which provides equity through Low Income Housing Tax Credits (LIHTC) as well as CDBG Disaster Supplemental funds. The use of CDBG as project-based rental assistance will provide an operating subsidy enabling units to be affordable to very low income households. HUD's waiver also enables the state to use CDBG for an initial operating fund reserve. The other set of waivers is intended to quickly re-house homeless people and to prevent homelessness by allowing CDBG to pay for rental assistance and utility payments for up to two years, to make rental deposits and utility deposits and to make back payments.
The March 6 HUD notices were in the Federal Register, (71 FR 10013) for Louisiana (www.nlihc.org/doc/030907cdbgla.pdf), and (71 FR 10019) for Mississippi www.nlihc.org/doc/030907cdbgms.pdf).
