CDBG program has far-reaching impact on Tennessee municipalities

TML Communications Specialist

For nearly 45 years, municipalities across the nation and the state of Tennessee have relied in Community Development Block Grant funding to help finance projects ranging from sewer and water line extensions to purchasing new fire trucks and ambulances to removing blight and renovating important local infrastructure.

Between 1975 and 2014, the program has provided more than $139.9 trillion in funds in all 50 states and Puerto Rico. The program has also brought more than $2.1 billion in funds to the state of Tennessee, including more than $1.01 billion to small cities and towns.

One of the longest-running federal grant programs in existence, the CDBG was established in 1974 by President Gerald Ford through the Housing and Community Development Act of 1974. The first grants were awarded in 1975 with the goal of extinguishing poverty and urban blight.

When the program was reauthorized in 1978, a new measure required a “rural set-aside,” which required 30 percent of all CDBG funds to serve projects in rural areas. To date, approximately 95 percent of CDBG funds benefit low-to-moderate income households.

One of the main differences between the CDBG and other federal grants is that CDBG funds are subject to less federal oversight and are often used at the discretion of state and local governments. In Tennessee, CDBG funds are split between the state’s largest cities and the remaining cities, towns, and counties in the state.

Bristol, Chattanooga, Clarksville, Cleveland, Franklin, Hendersonville, Jackson, Johnson City, Kingsport, Knoxville, Knox County, Memphis, Metro Nashville, Morristown, Murfreesboro, Oak Ridge, and Shelby County are each given individual pots of funding to administer while projects conducted by other municipalities and counties in Tennessee are administered through the Tennessee Department of Economic and Community Development (TECD).

Kent Archer, CDBG director for TECD’s Community and Rural Development Division, helps oversee the distribution of funds to the remaining or non-entitlement communities in the state.
“Our eligible entities are local governments – city and county – and our annual allocation is usually somewhere between $24 and $25 million,” Archer said. “Our different sections include water systems, sewer systems, a housing rehabilitation component, and community livability. The community livability portion is really everything else. The intention with those funds is to improve health, safety, and quality of life through those grants. It can be anything from rehabilitation work to a hospital to financing fire trucks and ambulances or blight eradication type projects. We also put in a few drainage mitigation projects in there as well.”

The majority of Tennessee’s CDBG projects are related to water and sewer infrastructure with roughly a third of the projects – 37.6 percent – going for water system-related projects and another third – 37.9 percent – for sewer or wastewater-related projects. The third highest type of projects awarded grants in the state were related to fire and emergency service programs with 15.9 percent of funding in the state going to projects like new fire halls, turnout gear, fire trucks, emergency sirens, and ambulance services.

Projects that dealt with neighborhood and housing rehabilitation – like façade grants and blight removal – accounted for 5.5 percent of the projects awarded in Tennessee between 2011 and 2016. The remaining 2.9 percent of projects covered new building and infrastructure projects of non-residential structures including drainage construction, new street construction, and construction to community facilities.

While other projects are admissible under CDBG guidelines, Archer said Tennessee allows funding only for projects that fall into the most competitive categories.
“CDBG can be used for a plethora of different things, but not all of those are allowed under our program for various reasons,” Archer said. “One of those things is park improvements, but when you are weighing park improvements against the need for a new fire truck or ambulance, we know it’s not going to score out. The grants get more and more competitive every year, and so we’ve put some restrictions on some items to not waste the applicants’ time, especially if there are other grant programs for those projects. Infrastructure needs and community needs have historically been so important, so we target our grants that way.”

The amount of funding awarded to a community for a project largely relies on how much money a community can afford to match and, in some cases, funding amounts that will make their application more competitive.

“Applicants can apply for up to $500,000 with water, sewer, and housing projects or $300,000 with community livability. For other projects, it is up to $100,000,” he said. “Applicants typically get whatever amount they ask for, and part of that is because we don’t want to get into the negotiation of what is important and what is not. These grants also require a match, and the entity usually knows better how much they can afford to match. We have seen in recent years that a number of those request amounts have lessened to be more competitive. Our communities are thinking more strategically, and in other cases, it is because you have a very small community. One of our grantees this year was McLemoresville, and their grant amount was right around $80,000 due to the match they would have to put up.”

While the three different grant categories have some specific scoring guidelines, Archer said that community need and project impact are both largely based on population, income and unemployment.

“The community need score is based on the most recent American Community Survey (ACS) per capita income and the target area per capita income, which may differ,” he said. “We also look at short-term and long-term unemployment. Short-term is 12-month unemployment while long-term is 10-year unemployment. Communities typically don’t have control over these numbers year-to-year, especially if they are a smaller community in a larger county. We also have project impact scores, which is based on the cost per person and the low to moderate income (LMI) cost per capita. The lower the cost per person, the better score you get, and the LMI cost is taking the low to moderate income percentage and multiplying that.”

As grants become more and more competitive, Archer said documentation to support a project can be one of the things that puts an application over the top.
“We want the narrative to be tightly wound around that documentation. We want our applicants to prove and explain these things to us,” he said. “As competitive as it is, we try to approach things from a very objective standpoint. Don’t assume we know anything about your project. Each application is reviewed by multiple people, so it doesn’t only see one set of eyes. We have a system in place so if someone ranks one project one way and another ranks it another way, we have a conversation about our points of view and find where that score needs to fall. Most of the time, the projects really do speak for themselves. We also like to look at the budget for multiple previous years to see why you might not be able to afford a project. If you show us this budget without much explanation or justification, it is hard for us to say that one project is more important or needed than the other.”
After being awarded a grant, a city will have to conduct an environmental study, submit plan specifications or architectural reports, and in some cases conduct preliminary engineering and land acquisition under federal guidelines. The state does the contracting and bidding process for the project.

“At the point that 50 percent of the construction is complete, we do a monitoring visit to verify that federal requirements are met, all the necessary documents are on site, payroll is meeting federal wage rates, and to make sure everything is being followed,” he said. “Assuming everything comes out positive, we let the project finish and then they move into the closeout phase. You cannot have an open grant to apply for another one.”

At present, the amount of funds allocated to the state are at one of the lowest points in the program’s history, according to federal data. Tennessee received more than $34.8 million in the first year of CDBG grants and averaged about $53.3 million year throughout the 1980s. The first major cut to the program came in 1986 when the state went from an average of $57.3 million a year to one of $46.86 million a year – both statewide and individual city and county funding included.

Funding amounts began rebounding in 1991 with Tennessee receiving its highest-ever CBDG allocation of $65.2 million in 1994. Funding allocations began to decline again in 2001 with the last major reduction to CDBG funding coming in 2006. That year, funds dropped by nearly $5 million across the state.

Like other states, Tennessee saw an increase in funding in 2009 and 2010 on the heels of the American Reinvestment and Recovery Act (ARRA), but since then, funds have stayed at the same rate as they were in the late 1980s and early 1990s.

Despite funding amounts staying the same in the past decade, the amount of applicants continues to increase. Between 2011 and 2016, a total of 377 Community Development Block Grants were awarded to local governments in Tennessee and 267 of those 377 projects were applied for and received by municipalities.

“We receive about eight to 10 additional applications each year,” Archer said. “Part of that is because more people are seeking applications and part of it is because our communities are getting better at closing out projects more quickly, which means they can reapply sooner. There is a lot of need and support for the program. We have seen some change in relation to the competitiveness of the application.”

Archer said the state arm of the CDBG holds two major meetings each year. The first is in August or September and seeks input on new avenues for use of grant funds. The second is an application workshop held sometime between late October and early December.

“Communities can also work with their grand administrators, their local development district, and us on their applications,” Archer said. “We are always available for anyone who has questions. We are happy to run numbers for people to show them how they might stack up in a previous year or just have a conversation about how we think you would fare.”
As grants get more competitive, Archer said the state is looking for ways to help smaller municipalities stay in the game.

One of the things we saw from last year is that smaller service populations have a more difficult time getting funded,” he said. “Part of that is because it is hard for a smaller city application to compete with a county-wide application. We are breaking things up into a small service area pool and a large service area pool in our community livability area. We are trying to break it between service populations that are above and below 5,000.”

Archer said these funds can make or break for the communities they serve.
“Sometimes we get applications where a community is under some sort of enforcement action, and this money can help them get out of it,” he said. “Other times, a community is putting in everything they can but there is an emergency need or something is getting closer to failure. Sometimes, it can take a community several projects over several years before they eradicate an issue. Sometimes this grant is the money that puts them over the top.”

Without CDBG funds, Archer said many local governments across the state would begin to experience financial strain.

“We would see some communities getting out of water and wastewater business,” he said. “We would see more people purchasing water than we do right now from other sources. It would be harder for fire departments or ambulance services that make good use out of the equipment the grant has provided. If we didn’t have this program, a lot of communities would have to face some really tough decisions on where they go from here.”