Gotham Gazette

The Place for New York Policy and politics

Last month the Bush Administration released its fiscal year (FY) 2006 budgetand, as expected, it wasn’t particularly kind to many programs that professionals in the community development field hold near and dear.

Facing a projected 2005 federal deficit of $425 billion, the president’s budget proposes to eliminate or reduce funding for 150 federal programs, thereby cutting the deficit by about $20 billion. An additional $196 billion in cuts are proposed for the years 2007 and 2010, although they are not yet detailed.

Inefficiently Run Programs

Using the Program Assessment Rating Tool(PART), a process developed by the Office of Management and Budget to evaluate the effectiveness of federal programs, the administration concluded that many community development institutions “are not getting results, or duplicate current efforts, or do not fulfill essential priorities”.

As a result, the administration’s budget recommended that 18 community development programs, previously housed under Housing and Urban Development (HUD), Agriculture, Treasury, Health and Human Services and the Commerce Department, all be consolidated under a new Commerce Department entity called the “Strengthening America’s Communities (SAC)” (In PDF Format) initiative.

The FY 2006 budget, which begins in October of this year, proposed to fund this initiative at $3.71 billion. According to the Center on Budget and Policy Priorities, the programs slated for consolidation received a total of $5.3 billion in 2005. Over the next four years, New York State is projected to lose $860.4 million in funds for community development programs.

Denying Entitlement

Across the country, constituencies that have a large stake in the programs targeted by these cuts are lining up to oppose the president, claiming that Strengthening America's Communities is just a smokescreen for Bush’s desire to dismantle what’s currently left of the federal community development support system.

For instance, the U.S. Conference of Mayors, the official nonpartisan organization of U.S. cities with populations over 300,00, is protesting Bush’s targeting of the largest community development funding area, the Community Development Block Grant(CDBG).

The Community Development Block Grant, which was created in 1974 to address the community development needs of low-income people and is one of the oldest Housing and Urban Development programs, is a poster child for the sort of “big government” entitlement program that Bush seeks to include in the Commerce Department consolidation. Roughly $4 billion in these funds currently go to cities nation-wide. More than $200 million of that is distributed through 22 different agencies in New York City.

The federal government gives municipalities the discretion to distribute these block-grant funds to broadly defined areas of community development activity. In New York City over half of these funds are designated for “housing” and administered by the Department of Housing Preservation and Development (HPD). HPD uses these monies mainly to support, improve and protect affordable housing for low-income families.

The city uses the rest of this money to fund a disparate range of programs including subsidized family day care, the administration of public facilities and City Planning. A small amount, no more than three percent, goes towards “economic development” activities like supporting small business development on neighborhood commercial strips.

Molly Wasow Park of the New York City Independent Budget Office, observed that it would be inaccurate to depict the President’s proposal as merely a shuffling around of community programs. “The President’s plan”, says Park, “would effectively eliminate the Community Development Block Grant and replace it with a smaller grant with very different funding priorities”.

Although Park warns that it is much too early to know what those new priorities will be, she speculates that the Bush Administration under Strengthening America's Communities would probably end up shifting block grant monies to “economic development” activities, which right now in New York City takes the form of neighborhood commercial strip revitalization.

In a possible sign of things to come, the Strengthening America’s Communities initiative proposal includes an “Economic Development Challenge Fund”. This fund represents a bonus grant program for low-income “development-ready” communities that, in the Bush administration’s words, “have already taken steps to improve economic conditions by meeting No Child Left Behind goals, reducing regulatory barriers to business creation and housing development and reducing violent crime rates.”

Community Development Lending

Traditional entitlements and war-on-poverty era social programs are not the only items on the president’s chopping block. So too are programs like the Community Development Financial Institution (CDFI) Fund, which makes investments in institutions such as small, neighborhood-run credit unions, so that they can extend credit, savings products and other financial services to low- and moderate income people. The loan fund is currently run by the Treasury Department and was created by welfare-reform minded Bill Clinton with bipartisan support. Clinton used the fund to help usher in a more market-based, individual asset-building approach to federal anti-poverty programming.

In New York City there are 42 such institutions, which have received $45 million from the fund over the last decade. Mark Pinsky, president of the National Community Capital Association, a network of private-sector community development financial institutions that provides financing, training and advocacy, estimates that these funds have helped leverage an additional $1 billion in funds from other sources.

Pinsky predicts that the cuts in the fund will serve to undermine the community development financial institution infrastructure in NYC. He doesn’t deny that the fund and other programs included in the consolidation could stand to be improved in some ways, but says that the Bush administration’s wholesale claim that these programs are inefficient represents what he calls “popcorn policy. There’s a kernel of truth surrounded by a lot of hot air.”

The President’s budget even drew criticism when he didn’t propose cuts. For instance, although the administration offered an overall 2.4 percent increase for the Small Business Administration over current funding levels, the Microbusiness Journalnoted that close to half of that agency's budget has been cut since Bush took office and quoted the House Small Business Committee Member Nydia Velazquez as saying “What was once a Cabinet level agency that had a seat at the table, a $1 billion budget, and a large role in the decision-making process – has sadly become the shell of an agency.”

Ominous Signs

Theoretically, the president’s budget, for the time being at least, is merely an expression of the administration’s national priorities. It is Congress that will most likely determine the final budgetary outcome. In the past Bush has proposed a series of cuts to community development programs only to have many of them restored, at least in part, by Congress.

But no matter how the budget process progresses over the next few months, many see the president’s budget as an unwelcome sign. Dawn Rivers Baker, editor of the Microbusiness Journal, commented that "President Bush has an interesting way of supporting community development: cutting most of its funding. It's difficult to say at this point how much Congress is going to go along with but it seems pretty clear that community development organizations are going to have to look increasingly to their state and local governments, and to private sector donations, to make up for the federal funding they are likely to lose in the coming years."

It is unclear how New York City in particular, which voted overwhelmingly for Kerry in the last election, figures in the Bush administration’s plans. In an indication that Bush is looking to redistribute funds away from bastions of east coast liberal politics like New York, his Opportunity Zones, a new small business tax incentives program, is aimed at mid-western industrial areas whose economies are “in transition”.

In another ominous sign for New York, a White House description of the Strengthening American Communities, in making the case for dramatic change, complains that under the current system “many communities no longer in need of assistance continue to receive funding.” As a result, Bush’s budget proposes to change the eligibility criteria for community development block grant funds from overcrowding and advanced housing age, to job loss and unemployment, a shift which would most likely favor other areas over New York City.