Community Investment
Los Angeles's Use of a Community Development Block Grant Exemption Gao ID: GAO-02-726R June 28, 2002Under the Department of Housing and Urban Development's (HUD) Community Development Block Grant (CDBG) program, entitlement communities--also called grantees--receive funds that they can spend to support specific community development activities, such as rehabilitating housing, improving public facilities, and providing public services. Most grantees are prohibited by statute from spending more than 15 percent of their CDBG funding on public service activities, such as child care, health care, and crime prevention. However, in the aftermath of the 1992 Los Angeles civil unrest, Congress gave an exemption from this statutory cap to two grantees--the City of Los Angeles and the County of Los Angeles--allowing them to spend up to 25 percent of their funds on public services. In December 2001, the exemption was extended through 2003. Between 1993 and 2001, the City of Los Angeles spent between 20 and 25 percent of its CDBG funding to support public service activities, while the County of Los Angeles spent between 9 and 20 percent. According to HUD data for 1999 through 2001, the city and county used a majority of their public service funding to support general public services and either youth or senior services. There is no statutory or regulatory requirement that the grantees develop plans to transition to the 15 percent cap; however, HUD suggested in 1999 that the grantees develop such plans. As of May 2002, the City and the County of Los Angeles have undertaken some preliminary steps to facilitate a transition, but they do not have locally approved transition plans to decrease public service spending after 2003 in order to comply with the 15 percent spending cap.
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United States General Accounting Office:
GAO:
June 28, 2002:
The Honorable Paul Sarbanes:
Chairman:
The Honorable Phil Gramm:
Ranking Minority Member:
Committee on Banking, Housing, and Urban Affairs:
United States Senate:
The Honorable Wayne Allard:
Ranking Minority Member:
Subcommittee on Housing and Transportation:
Committee on Banking, Housing, and Urban Affairs:
United States Senate:
Subject: Community Investment: Los Angeles‘s Use of a Community
Development Block Grant Exemption:
Under the Department of Housing and Urban Development‘s (HUD) Community
Development Block Grant (CDBG) program, entitlement communities
[Footnote 1]”also called grantees”receive funds that they can spend to
support specific community development activities, such as
rehabilitating housing, improving public facilities, and providing
public services.[Footnote 2] Most grantees are prohibited by statute
from spending more than 15 percent of their CDBG funding on public
service activities, such as child care, health care, and crime
prevention. However, in the aftermath of the 1992 Los Angeles civil
unrest, the Congress gave an exemption from this statutory cap to two
grantees”the City of Los Angeles and the County of Los Angeles”allowing
them to spend up to 25 percent of their funds on public services. In
December 2001, the exemption was extended through 2003”this was the
most recent in a series of extensions. Because of concerns about these
two grantees‘ efforts to transition to the statutory levels for public
service spending, you asked us to report on how the city and county (1)
used their CDBG funding to provide public services during the exemption
period and (2) plan to transition from their current levels of public
service spending to levels that meet the statutory 15 percent cap.
In response to your request, we analyzed HUD CDBG data, interviewed
officials from HUD and the City and the County of Los Angeles, analyzed
city and county data, and reviewed CDBG-related literature, as well as
program information provided by HUD and local agency officials.
[Footnote 3] We did not specifically assess the city‘s or county‘s need
for public services, or whether the grant funds were used in accordance
with HUD, CDBG, or other federal guidelines. At times there was limited
information available that addressed our objectives because there was
no statutory or regulatory requirement that the grantees collect data
or develop plans specifically associated with the exemption. We
conducted our work in Washington, D.C., and San Francisco and Los
Angeles, California, from January through June 2002, in accordance with
generally accepted government auditing standards.
Results in Brief:
Between 1993 and 2001, the City of Los Angeles spent between 20 and 25
percent of its CDBG funding to support public service activities, while
the County of Los Angeles spent between 9 and 20 percent. The city and
county did not track how the additional allocation of funding for
public service activities was spent, because they were not required to
collect such data. According to HUD data for 1999 through 2001, the
city and county used a majority of their public service funding to
support general public services[Footnote 4] and either youth or senior
services. During this period, the City and the County of Los Angeles
used different criteria to distribute public service funds
geographically, and different techniques to allocate their funds to
service providers.
There is no statutory or regulatory requirement that the grantees
develop plans to transition to the 15 percent cap; however, HUD
suggested in 1999 that the grantees develop such plans. As of May 2002,
the City and the County of Los Angeles have undertaken some preliminary
steps to facilitate a transition, but they do not have locally approved
transition plans to decrease public service spending after 2003 in
order to comply with the 15 percent spending cap. Both grantees
requested, in separate reports submitted to Congress in 2000, that
Congress make their exemption permanent because of persistent community
needs. Both public agencies have undertaken some preliminary steps to
facilitate a transition, but elected officials have not approved a
transition plan. A transition plan would allow these agencies time to
prioritize their spending, explore alternative funding sources, and
notify the public of potential changes in available public services.
We are making a recommendation to HUD that the department request the
city and county to submit locally approved plans to reduce their public
service spending in the 2004 local fiscal year to the lower 15 percent
statutory cap.
Background:
The CDBG program, created in 1974 to develop viable urban communities,
is composed of several programs. One of these”the Entitlement
Communities program”provides annual grants on a formula basis to cities
and counties to carry out a wide range of community development
activities directed toward providing decent housing, economic
development, and improved community facilities and public services,
principally for low- and moderate-income persons. Figure 1 shows the
distribution of CDBG expenditures for this program by activity. To
ensure that the CDBG Entitlement Communities program remained
essentially a ’physical development“ program, Congress in 1981 capped
the amount that grantees could spend for public services at 10 percent
of their available grant funding.[Footnote 5] This cap was subsequently
increased to its current level of 15 percent, with exemptions for
certain grantees.[Footnote 6] Each grantee has the discretion to (1)
determine the activities that will be funded in accordance with program
regulations and (2) allocate funding to subrecipients”such as public or
private nonprofit organizations or authorized for-profit entities”to
carry out selected activities.
Figure 1. Distribution of CDBG Expenditures among Categories of
Eligible Activities, 1998-2001:
[Refer to PDF for image]
This figure is a multiple vertical bar graph depicting the following
data:
Fiscal year: 1998;
Public Services: approximately 13.5%;
Acquisition of real property, such as land and buildings: 7%;
Administration and planning: approximately
Economic development, such as job and business creation: approximately
17.5%;
Housing, such as construction: approximately 28%;
Public improvements, such as parks and streets: approximately 25%;
Other activities, such as technical assistance: approximately 0.5%.
Fiscal year: 1999;
Public Services: approximately 13.5%;
Acquisition of real property, such as land and buildings: 6.5%;
Administration and planning: approximately 15%;
Economic development, such as job and business creation: approximately
6.5%;
Housing, such as construction: approximately 30%;
Public improvements, such as parks and streets: approximately 27%;
Other activities, such as technical assistance: approximately 1%.
Fiscal year: 2000;
Public Services: approximately 12%;
Acquisition of real property, such as land and buildings: 6%;
Administration and planning: approximately 15%;
Economic development, such as job and business creation: approximately
6.5%;
Housing, such as construction: approximately 30%;
Public improvements, such as parks and streets: approximately 26%;
Other activities, such as technical assistance: approximately 0.75%.
Fiscal year: 2001;
Public Services: approximately 13%;
Acquisition of real property, such as land and buildings: 6%;
Administration and planning: approximately 15%;
Economic development, such as job and business creation: approximately
8%;
Housing, such as construction: approximately 30%;
Public improvements, such as parks and streets: approximately 26%;
Other activities, such as technical assistance: approximately 0.25%.
Source: HUD.
[End of figure]
Two grantees, the City of Los Angeles and the County of Los Angeles,
administer the CDBG Entitlement Communities program in the south
central Los Angeles area. The city‘s Community Development Department
(city department) administers the city‘s CDBG program, while the Los
Angeles County Community Development Commission (county commission)
administers the county‘s program. These communities‘ elected
officials”the mayor and city council, and the county board of
supervisors”make the final decisions regarding the local implementation
of the Entitlement Communities program. The city department both
retains funds in order to provide services directly and allocates funds
to subrecipients to provide other services. The county‘s CDBG program
allocates funds to five supervisory districts covering unincorporated
areas of the county and 48 participating cities that generally have
populations of 50,000 or fewer, and those subrecipients select the
activities to be carried out. Between 1993 and 2000, the city‘s CDBG
grant increased from about $77 million to $90 million, while the
county‘s grant increased from about $37 million to $38 million.
[Footnote 7]
In April and May 1992, Los Angeles experienced one of the largest
instances of civil unrest[Footnote 8] in the century, resulting in 42
deaths, $1 billion in property damage, and 5,002 people arrested. An
estimated 250 to 300 families lost their homes, more than 700
businesses were burned, and potentially 11,500 jobs were lost.
Consequently, the City and the County of Los Angeles were declared
federal disaster areas. Figure 2 shows the city and county boundaries
and indicates the areas affected by the civil unrest. A 1992 report to
the Los Angeles Board of Police Commissioners suggested that the causes
of the unrest included racial and ethnic tensions, rapid demographic
and economic changes, high unemployment, poverty, and the poor quality
of local community-police relations.[Footnote 9]
Figure 2. Illustration Indicating the Boundaries of the City and the
County of Los Angeles and Areas Predominantly Affected by 1992 Civil
Unrest:
[Refer to PDF for image]
This figure is a map of the City and the County of Los Angeles and
areas predominantly affected by 1992 civil unrest (indicated by
shading).
Source: City and county officials, and The City in Crisis: A Report by
the Special Advisor to the Board of Police Commissioners on the Civil
Disorder in Los Angeles, October 21, 1992.
[End of figure]
One of the actions Congress took in response to these events was to
raise the 15 percent CDBG public service cap to 25 percent for fiscal
years 1993 through 1997 for the City and the County of Los Angeles.
[Footnote 10] According to the House report that accompanied the
proposed legislation,[Footnote 11] the purpose for raising the cap was
’to provide the city and county with critically needed funds to address
both the immediate social service needs resulting from the civil unrest
that occurred in April 1992, as well as the pervasive and underlying
causes of such unrest.“ The higher allocation of funding for public
services would help fill the gaps created in program funding of various
federal programs. Neither Congress nor HUD required any unique data or
reports from the grantees during the original exemption period, 1993
through 1997. In 1993, HUD instructed the city and county to begin
applying the 25 percent cap in their current local fiscal year cycle
rather than in accordance with the federal fiscal year, in order to
’immediately respond to the special situation relating to the riots.“
Consequently, for 1993, the City of Los Angeles was able to spend up to
about $22 million on public services under the 25 percent cap instead
of about $13 million under the 15 percent cap, while the county was
able to spend up to about $12 million instead of $7 million.
Congress extended the Los Angeles grantees‘ CDBG exemption on public
service spending in 1996, 1998, and 2000.[Footnote 12] In the
conference report accompanying the 1998 extension, the conferees noted
their concern about continuing the extension beyond that fiscal year
and directed HUD to provide a report describing what the city and
county did with the additional public service funds and the nexus
between the public service cap and the civil unrest for which the cap
was waived.[Footnote 13] HUD submitted these reports to Congress in
October 2000. Although Congress repeatedly extended the original
exemption, it did not provide any other guidance or impose any other
requirements”apart from the nexus reports described above”on the
grantees that related to their exemption from the 15 percent public
service cap.
In response to the direction in the Conference Committee report and
questions from the grantees, HUD provided guidance in February 1999 to
the city and county to assist them in implementing the 1998 extension
and in preparing the nexus reports. As part of this guidance, HUD
interpreted the legislative history of the original exemption to mean
that while the activities funded by the additional public service
allocation need not be located in the civil unrest areas, they must
address the results or underlying causes of the civil unrest. HUD
indicated that the nexus reports should show a link between the public
service activities supported in fiscal year 1999 by the additional 10
percent of allocated funding and the results or the causes of the civil
unrest. HUD also indicated that they would not be ’approving“ the
reports or identifying any corrective actions to be taken if program
activities were not linked to the civil unrest.
CDBG grantees are required to develop both an annual CDBG program plan,
which includes an opportunity for public comment, and a multi-year
consolidated plan for all HUD funding, including the CDBG program. In
its 1999 guidance to the city and county regarding the nexus reports,
HUD also suggested that the city and county develop alternative plans
for reducing the level of public services supported by CDBG funds for
fiscal year 2000 and beyond in order to smooth the transition to the 15
percent cap.
In December 2001, the exemption was extended through 2003”this was the
most recent in a series of extensions.[Footnote 14] At that time, the
Chairman and Ranking Members of the Senate Committee on Banking,
Housing, and Urban Affairs and its Subcommittee on Housing and
Transportation indicated that they expected this to be the last
extension of this exemption.[Footnote 15]
Los Angeles Grantees Use Additional Public Service Funding to Address
Community Needs:
During the exemption period (1993 to 2001), both the Los Angeles
grantees spent over 15 percent of their CDBG funding on public service
activities. While both the city and the county made use of the
exemption, they used different criteria to distribute CDBG funding
geographically and to allocate funds to subrecipients”other agencies or
nonprofits”to provide the public services. The city distributed its
CDBG funding geographically based on the poverty rate, and then used
two funding techniques to allocate funds to subrecipients. In contrast,
the county distributed funding geographically using a national CDBG
formula, and then used one funding technique to allocate funds to
subrecipients.
City Spent 20 to 25 Percent of CDBG Funding on Public Services, While
the County Spent 9 to 20 Percent:
Between 1993 and 2001, the City of Los Angeles spent between 20 and 25
percent of its CDBG funding on public service activities.[Footnote 16]
During this same period, the County of Los Angeles spent between 9 and
20 percent of its CDBG funding on public service activities. During the
period, the city spent over 20 percent in each reporting period, while
the county spent about 15 percent or less in five of the eight
reporting periods and never spent over 20 percent. Figure 3 illustrates
the trends in the grantees‘ public service expenditures during this
period. For three reporting periods, 1997 to 1998, 1998 to 1999 and
2000 to 2001, the county board initially required subrecipients to
implement plans to spend at 15 percent because the commission was
uncertain that the exemption would be extended. Although the exemption
was subsequently extended, the county reported that the public service
spending calculated under the cap for these reporting periods was 17.6,
14.6 and 9.3 percent, respectively. The county official suggested that
these spending levels were attributable in part to the fact that
participating cities tended not to readjust their public service
spending once the program year began.
Figure 3. Trends in Public Service Expenditures, Reported as a
Percentage of the Sum of the Entitlement Grant and Program Income for
the City and the County of Los Angeles:
[Refer to PDF for image]
This figure is a multiple line graph depicting the following
approximated data:
Reporting period: 1993-94;
LA City: 24%;
LA County: 16%.
Reporting period: 1994-95;
LA City: 22%;
LA County: 15%.
Reporting period: 1995-96;
LA City: 21%;
LA County: 15%.
Reporting period: 1996-97;
LA City: 23%;
LA County: 20%.
Reporting period: 1997-98;
LA City: 24%;
LA County: 18%.
Reporting period: 1998-99;
LA City: 25%;
LA County: 14%.
Reporting period: 1999-2000;
LA City: 25%;
LA County: 14%.
Reporting period: 2000-01;
LA City: 24%;
LA County: 10%.
Source: The City and the County of Los Angeles.
[End of figure]
According to city department officials, in the first years after the
civil unrest the department focused its public service spending on
providing basic services, such as food and housing to residents
affected by the civil unrest and the 1994 Northridge earthquake,
[Footnote 17] either directly or through subrecipients. During the
exemption period, the city department funded the expansion of existing
programs, such as a program to remove graffiti and discourage youth
involvement in gangs and an after-school program for at-risk middle
school children. In recent years, according to HUD data, the city
department spent the majority of its CDBG public service funding
providing general public services and youth services, as described in
table 1.
Table 1: Distribution of City CDBG Funds Drawn for Selected Public
Services, 1999–2001 (Dollars in millions):
Type of activity funded: Public services (general);
Funds drawn in 1999, Amount: $9.37;
Funds drawn in 1999, Percent: 36%;
Funds drawn in 2000, Amount: $14.94;
Funds drawn in 2000, Percent: 50%;
Funds drawn in 2001, Amount: $12.70;
Funds drawn in 2001, Percent: 34%.
Type of activity funded: Youth services;
Funds drawn in 1999, Amount: $8.25;
Funds drawn in 1999, Percent: 31%;
Funds drawn in 2000, Amount: $6.13;
Funds drawn in 2000, Percent: 20%;
Funds drawn in 2001, Amount: $9.64;
Funds drawn in 2001, Percent: 26%.
Type of activity funded: Child care services;
Funds drawn in 1999, Amount: $1.35;
Funds drawn in 1999, Percent: 5%;
Funds drawn in 2000, Amount: $1.87;
Funds drawn in 2000, Percent: 6%;
Funds drawn in 2001, Amount: $1.41;
Funds drawn in 2001, Percent: 4%.
Type of activity funded: Health care services;
Funds drawn in 1999, Amount: $1.38;
Funds drawn in 1999, Percent: 5%;
Funds drawn in 2000, Amount: $1.67;
Funds drawn in 2000, Percent: 6%;
Funds drawn in 2001, Amount: $1.29;
Funds drawn in 2001, Percent: 3%.
Type of activity funded: Senior services;
Funds drawn in 1999, Amount: $2.28;
Funds drawn in 1999, Percent: 9%;
Funds drawn in 2000, Amount: $1.99;
Funds drawn in 2000, Percent: 7%;
Funds drawn in 2001, Amount: $1.76;
Funds drawn in 2001, Percent: 5%.
Type of activity funded: Employment training;
Funds drawn in 1999, Amount: $0.31;
Funds drawn in 1999, Percent: 1%;
Funds drawn in 2000, Amount: $0.06;
Funds drawn in 2000, Percent: 0%;
Funds drawn in 2001, Amount: $3.96;
Funds drawn in 2001, Percent: 11%.
Type of activity funded: Services for battered and abused spouses;
Funds drawn in 1999, Amount: $0.78;
Funds drawn in 1999, Percent: 3%;
Funds drawn in 2000, Amount: $1.55;
Funds drawn in 2000, Percent: 5%;
Funds drawn in 2001, Amount: $2.39;
Funds drawn in 2001, Percent: 6%.
Type of activity funded: Operating costs of homeless and acquired
immunodeficiency syndrome (AIDS) patients programs;
Funds drawn in 1999, Amount: 0;
Funds drawn in 1999, Percent: 0;
Funds drawn in 2000, Amount: 0;
Funds drawn in 2000, Percent: 0;
Funds drawn in 2001, Amount: $19.6;
Funds drawn in 2001, Percent: 5%.
Type of activity funded: Other public services;
Funds drawn in 1999, Amount: $2.54;
Funds drawn in 1999, Percent: 10%;
Funds drawn in 2000, Amount: $1.81;
Funds drawn in 2000, Percent: 6%;
Funds drawn in 2001, Amount: $2.02;
Funds drawn in 2001, Percent: 6%.
Type of activity funded: Total funds drawn for public services;
Funds drawn in 1999, Amount: $26.25;
Funds drawn in 1999, Percent: 100%;
Funds drawn in 2000, Amount: $30.00;
Funds drawn in 2000, Percent: 100%;
Funds drawn in 2001, Amount: $37.11;
Funds drawn in 2001, Percent: 100%;
Notes: (1) Dollar amounts refer to funds drawn from the U.S. Treasury
by the grantee, based on a line of credit. (2) Public services
(general) include activities, such as neighborhood cleanup, food
distribution, and rape prevention education that cannot be classified
under a more specific category. (3) Percentages may not add to 100
percent due to rounding.
Source: HUD.
[End of table]
In recent years, according to HUD data, the county disbursed the
largest portion of its public service funding, between 60 and 66
percent, on general public service projects. The next highest portion
of funding was disbursed among a variety of services, such as senior
services and crime awareness services, as indicated in table 2.
Table 2: Distribution of County CDBG Funds Drawn for Selected Public
Services, 1999–2001 (Dollars in millions):
Type of activity funded: Public services (general);
Funds drawn in 1999, Amount: $3.36;
Funds drawn in 1999, Percent: 61%;
Funds drawn in 2000, Amount: $3.07;
Funds drawn in 2000, Percent: 54%;
Funds drawn in 2001, Amount: $2.17;
Funds drawn in 2001, Percent: 66%.
Type of activity funded: Senior services;
Funds drawn in 1999, Amount: $0.49;
Funds drawn in 1999, Percent: 8%;
Funds drawn in 2000, Amount: $0.57;
Funds drawn in 2000, Percent: 10%;
Funds drawn in 2001, Amount: $0.24;
Funds drawn in 2001, Percent: 7%.
Type of activity funded: Crime awareness;
Funds drawn in 1999, Amount: $0.40;
Funds drawn in 1999, Percent: 7%;
Funds drawn in 2000, Amount: $0.30;
Funds drawn in 2000, Percent: 5%;
Funds drawn in 2001, Amount: $0.14;
Funds drawn in 2001, Percent: 4%.
Type of activity funded: Services for the disabled;
Funds drawn in 1999, Amount: $0.25;
Funds drawn in 1999, Percent: 4%;
Funds drawn in 2000, Amount: $0.29;
Funds drawn in 2000, Percent: 5%;
Funds drawn in 2001, Amount: $0.11;
Funds drawn in 2001, Percent: 3%.
Type of activity funded: Youth services;
Funds drawn in 1999, Amount: $0.27;
Funds drawn in 1999, Percent: 4%;
Funds drawn in 2000, Amount: $0.24;
Funds drawn in 2000, Percent: 4%;
Funds drawn in 2001, Amount: $0.12;
Funds drawn in 2001, Percent: 4%.
Type of activity funded: Child care services;
Funds drawn in 1999, Amount: $1.35;
Funds drawn in 1999, Percent: 5%;
Funds drawn in 2000, Amount: $1.87;
Funds drawn in 2000, Percent: 6%;
Funds drawn in 2001, Amount: $1.41;
Funds drawn in 2001, Percent: 4%.
Type of activity funded: Health care services;
Funds drawn in 1999, Amount: $1.38;
Funds drawn in 1999, Percent: 5%;
Funds drawn in 2000, Amount: $1.67;
Funds drawn in 2000, Percent: 6%;
Funds drawn in 2001, Amount: $1.29;
Funds drawn in 2001, Percent: 3%.
Type of activity funded: Operating costs of homeless and acquired
immunodeficiency syndrome (AIDS) patients programs;
Funds drawn in 1999, Amount: $0.34;
Funds drawn in 1999, Percent: 6%;
Funds drawn in 2000, Amount: $0.42;
Funds drawn in 2000, Percent: 7%;
Funds drawn in 2001, Amount: $0.21;
Funds drawn in 2001, Percent: 6%.
Type of activity funded: Other public services;
Funds drawn in 1999, Amount: $0.60;
Funds drawn in 1999, Percent: 10%;
Funds drawn in 2000, Amount: $0.80;
Funds drawn in 2000, Percent: 14%;
Funds drawn in 2001, Amount: $0.29;
Funds drawn in 2001, Percent: 9%.
Type of activity funded: Total funds drawn for public services;
Funds drawn in 1999, Amount: $6.05;
Funds drawn in 1999, Percent: 100%;
Funds drawn in 2000, Amount: $5.68;
Funds drawn in 2000, Percent: 100%;
Funds drawn in 2001, Amount: $3.28;
Funds drawn in 2001, Percent: 100%;
Notes: (1) Dollar amounts refer to funds drawn from the U.S. Treasury
by the grantee, based on a line of credit. (2) Public services
(general) include activities, such as neighborhood cleanup, food
distribution, and rape prevention education that cannot be classified
under a more specific category. (3) Percentages may not add to 100
percent due to rounding.
Source: HUD.
[End of table]
While CDBG public service expenditures for the county as a whole have
fluctuated between 9 and 20 percent, county districts have typically
spent between 15 and 25 percent of their CDBG funds on public services,
according to a county commission official, and participating cities
have spent between 10 and 15 percent. A commission official indicated
that two of the five county districts include portions of the south
central and east Los Angeles areas. These two districts have the
highest poverty rate, and they tend to spend closer to 20 percent. Two
other districts typically spend about 15 percent. The commission has
allowed the last of the five districts, which annually receives a
relatively small allocation”about $150,000”to spend 100 percent of its
CDBG funding on public services, because the county can offset higher
public service allocations by the districts with the lower allocations
by the cities.
Neither Congress nor HUD required the city and county to collect data
or report on how they spent the additional 10 percent of allocated
public service funding. As a result, the grantees could not readily
quantify how much public service funding was spent on the specific
results or causes of the 1992 civil unrest during the exemption period,
from 1993 through the present. In commenting on a draft of this report,
the city indicated that a significant portion of the additional
allocation of public service funding was used to create two programs
discussed later in this report. The city also provided information
linking specific public service programs to general causes of civil
unrest, as described in the McCone Commission and Kerner Commission
reports,[Footnote 18] such as unemployment, inadequate housing, and
lack of education.
City and County Use Different Criteria and Methods to Allocate Public
Service Funding:
The City and the County of Los Angeles employ different strategies to
allocate public service funding to subrecipients”other public agencies
or nonprofits. The city allocates these funds to geographic areas of
the city based on level of poverty, and then uses two funding methods
to allocate funds to subrecipients. The county uses one of HUD‘s
national CDBG funding formulas to allocate funds to its subrecipients.
City Identifies Priorities, Employs Two Funding Methods:
In the first few years after the unrest, the city department identified
unmet community needs and problems in its delivery of services. A
study, commissioned by the city department 6 months after the civil
unrest, indicated that needs in the areas affected by the civil unrest
arose from unemployment, crime, a high rate of school dropouts, ethnic
or cultural tension, and other conditions, and that the barriers to
using city services included a lack of awareness of services, fear,
mistrust, language differences, and access. In 1998, a city task force
recommended that the city department use an integrated, long-term
approach to help families become self-sufficient; that is, not reliant
on social services. In response to these findings and recommendations,
the city established a new service delivery system that used both
existing programs and new programs, such as youth and family centers
and family development networks, to provide integrated services and to
help families become self-sufficient.
Since 1993, the city has also allocated social service funding
throughout the city according to the level of poverty in each area, as
determined by U. S. Census data. The areas of the city most affected by
the civil unrest have received the highest portions of annual CDBG
funding. A city official indicated that about 79 percent of CDBG public
service funds are allocated and tracked by area. In 2000, about 33
percent of the funds allocated by area were allocated to the central
area of the city, about 27 percent to the south area, about 16 percent
to the San Fernando Valley area, and 11 percent to the east area. The
remaining allocation, about 13 percent, was distributed to other areas
of the city.
The city department both retains funds in order to provide services
directly and allocates funds to subrecipients to provide services. The
city department then uses both categorical and block grant funding
techniques to allocate funding to its subrecipients. For example, in
2002, the city department allocated categorical funding in amounts
ranging from about $100,000 to over $1 million to subrecipients to
provide specific services, such as camp scholarships or AIDS prevention
programs. It also allocates blocks of funding to subrecipients to
provide integrated public services. For example, nonprofit consortiums
operate family development networks that provide integrated services,
such as case management and employment assistance to low-income
residents. Each consortium annually receives between $700,000 and
$800,000 to operate a network.
According to city department data for 2001, the city department
retained about 7 percent of the public service funding and allocated
about 35 percent to other city agencies and 58 percent to nonprofit
organizations. Most of the nonprofit organizations funded by the city
department were selected as a result of a competitive process.
[Footnote 19] The most recent request for proposals was conducted in
1999 in order to add new agencies or approaches.
County Expands Existing Activities:
According to a commission official, two of the five districts were
marginally affected by the civil unrest and the participating cities
were unaffected. County officials indicated that they did not link the
allocation of the additional CDBG public service funding to addressing
the causes of the 1992 civil unrest. County officials felt their
existing programs were already helping address the general causes of
civil unrest, as described in the McCone Commission and Kerner
Commission reports. Consequently, the county‘s approach to using the
higher allocation of public service funding was to expand its existing
activities, such as employment training for lower-income persons, gang
and youth delinquency prevention efforts, graffiti removal, community
recreation, senior transportation services, and health services.
County commission officials indicated that, since 1975, the county has
distributed the CDBG funding to its subrecipients using one of the CDBG
formulas that HUD uses to distribute the CDBG funds nationally. The
county advises the districts and cities on, among other things, the
planned allocations for public service spending. However, each district
and participating city selects the public service activities to be
carried out; selects the service provider, which can be a public agency
or nonprofit organization; and determines the level of funding each
activity receives. According to commission officials, the districts and
cities generally do not coordinate with each other in service delivery.
In the case of the districts, the commission carries out the districts‘
decisions, allocating funding to various selected service providers and
monitoring provider performance. District supervisors select the
nonprofit organizations that will be funded based on community needs
and priorities, and on available funding.
Figure 4 illustrates the distribution of public service expenditures at
the county commission, district and participating city levels in 1999.
The county provided additional information about the distribution among
nonprofits and public agencies at each level. Of the 60 percent of
public services expended by the districts, nonprofits expended about 26
percent and public agencies expended about 34 percent. Of the 5 percent
expended by the county commission, nonprofits expended about 1 percent
and public agencies expended about 4 percent. Of the 35 percent of
funding spent for public services by participating cities, nonprofits
expended about 13 percent and public agencies expended about 22
percent.
Figure 4. Percentage of the County of Los Angeles‘ Expenditures of CDBG
Public Service Funds in 1999, among Selected Subrecipients:
[Refer to PDF for image]
This figure is a pie-chart depicting the following data:
Percentage expended by county districts: 60%;
Percentage expended by participating cities: 35%;
Percentage expended by county commission: 5%.
Note: Periodically the commission uses unspent CDBG administrative
funding to carry out countywide public service activities, such as
nutrition counseling.
Source: The County of Los Angeles.
[End of figure]
While the county relied on existing public service activities to meet
community needs after the civil unrest, by 1997 the county was
beginning to restructure its approach for identifying community needs.
Historically, the county commission held community meetings, which were
sparsely attended, to inform the public about the types of programs and
projects that were under way. After 1997 the community meetings were
used to solicit the public‘s perceptions of community needs, and the
information gathered was included in developing the county commission‘s
annual needs assessment. The county commission increased participation
in its community meetings and implemented some of the top priorities
identified through its community outreach efforts.
City and County Take Initial Steps to Reallocate CDBG Spending:
As of May 2002, the City and the County of Los Angeles did not have
approved transition plans to decrease public service spending by 2004
in order to comply with the 15 percent spending cap. Both public
agencies have undertaken some preliminary steps to facilitate a
transition, but elected officials have not approved a transition plan.
Both grantees have requested that Congress make their exemption
permanent because of persistent community needs.
A city department official indicated that the mayor and city council
have not approved a written plan specifically describing how they would
transition from their 25 percent cap to the program‘s 15 percent cap.
The official also noted that they have tried to anticipate such a
development and have planned accordingly. For instance, the city
department requires nonprofits, through the 1999 request for proposals
process, to provide 20 percent matching plans and to describe their
contingency plans in the event of receiving reduced funding from the
city. In addition, the city department‘s planning document states that
the city strongly encourages collaboration among its funded agencies to
limit administrative costs and maximize program funds. A city official
suggested that in order to comply with the 15 percent cap, the city
might cut funding across all activities. Officials from several of the
other city agencies that were subrecipients of CDBG public service
funding indicated that they were unsure of how they would adjust their
activities if the CDBG public service funding were reduced.
County commission officials indicated that in order for the county to
comply with a 15 percent cap, they would, as they had in the past,
instruct their recipients to plan on spending 15 percent or less on
public services. Specifically, the county board of supervisors approved
plans to spend at 15 percent in 1997, 1998, and 2000. A county official
indicated that the county advised its subrecipients to develop
contingency plans to increase public service spending to 25 percent in
the event that the exemption was extended and to focus additional
public service spending on items that would be useful after an
extension period ended, such as computer equipment and supplies.
Although a limited number of new programs were created during the
exemption period, in general, the county commission did not want to
depend on the higher public service allocation in the event that the
public service cap reverted to 15 percent. The county added that, to
transition to the 15 percent cap, it also could consider exempting
smaller nonprofit organizations if the nonprofits were not able to
function as a result of the funding cut.
Grantees Request Permanent Exemption:
In response to the 1998 request for nexus reports, the city and county
submitted their reports to HUD in the spring of 2000. In these reports,
the city and county requested that their 25 percent public service cap
exemption become permanent. Both reports suggested that the underlying
general causes of civil unrest still affected many of their
communities. The city based its request on its need to support long-
term self-sufficiency programs, especially in the neighborhoods
affected by the civil unrest, and on the increasing demand for human
services. The county stressed that it had been difficult to engage in
broad, long-range planning regarding the use of the additional 10
percent allocation for public services when it had been repeatedly
unclear in recent years that the exemption would be extended. City and
county officials indicated that the general causes of civil unrest”such
as unemployment, inadequate housing, and lack of education”continued to
the present. Legislative advocates for both the City and the County of
Los Angeles indicated in May 2002 that both grantees were continuing
their efforts to obtain a permanent exemption from Congress.
Conclusions:
As HUD suggested in 1999, developing plans to reduce spending from the
25 percent cap would smooth the transition to the lower, 15 percent cap
in the event that the exemption is not extended. More specifically,
developing and approving transition plans would (1) give the public
agencies and subrecipients time to prioritize spending and explore
alternative funding sources and (2) notify the public of potential
changes in available public services. Because the city has consistently
spent closer to the 25 percent cap than the county, a sudden transition
to the 15 percent cap might prove more disruptive to residents and
service providers in the city than in the county. Although city
department officials have undertaken some preliminary steps to
facilitate a transition in the event that the exemption is not
extended, elected officials have not approved a plan for the
transition. The county has implemented plans in the past to spend at 15
percent, and officials indicated that implementing a transition plan to
a 15 percent cap would not be difficult. However, the county does not
have an approved transition plan to reduce their public service
spending in their 2004 local fiscal year.
Recommendation for Executive Action:
To help ensure a smooth transition in the event that the 25 percent
public service cap is not extended, we recommend that the Secretary of
Housing and Urban Development request that officials from the City and
the County of Los Angeles submit locally approved plans to reduce their
public service spending in the 2004 local fiscal year to the lower, 15
percent statutory cap.
Agency Comments:
We provided a draft of this report for review and comment to HUD and to
the City and the County of Los Angeles. HUD generally agreed with the
information presented. City of Los Angeles officials generally agreed
with the information presented and provided some additional
information, which was included where appropriate.
Officials from the County of Los Angeles raised several concerns about
the report. First, they felt that the information provided did not
adequately describe how they disseminated the CDBG funds among the
county districts and participating cities. Specifically, county
commission officials suggested that we report on their planned public
service expenditures, which in the years under review tended to be
higher than the actual amount spent by the districts and the
participating cities. Officials indicated that the county planned to
spend higher amounts on public services; but the districts and the
participating cities, which have the discretion to spend funds on
specific public service activities, controlled actual expenditures.
Consequently, the actual expenditures varied from planned expenditures,
especially when the exemption was approved late in their local fiscal
year. However, we used the annual public service expenditures, as
reported by the grantees, because HUD uses those expenditures to
determine compliance with the public service cap. Second, the
commission officials felt our recommendation that HUD request the
county to submit a transition plan was unnecessary, since the county
had implemented spending at 15 percent in 3 different years during the
exemption period. While the county has implemented a transition plan in
the past, we believe that it would be beneficial for the county‘s
subrecipients, nonprofit service providers, and residents to be advised
of the county‘s plans for 2004. Also, if the county‘s elected officials
intend to employ the same strategy as they have in the past, then
developing such a plan at HUD‘s request would not be an undue burden.
Third, because the views of the Chairmen and Ranking Members of the
Senate Committees were not included as statutory language or in
congressional reports, the county said that it plans to continue to
advocate for the extension of the cap.
Officials from HUD, the city, and the county offered a number of
technical or clarifying comments that we incorporated throughout the
report as appropriate.
We are sending copies of this letter to the Secretary of HUD and to the
City and the County of Los Angeles. We will make copies available to
others on request. The letter is also available at no charge on our Web
site at [hyperlink, http://www.gao.gov].
If you have any questions about this report, please contact Nancy
Simmons, Assistant Director, or me at (202) 512-8678. Key contributors
to this assignment were Patricia Farrell Donahue, Janet Fong, Tracy
Guerrero, and Andrea Rogers.
Signed by:
Richard J. Hillman:
Director, Financial Markets and Community Investment:
[End of section]
Footnotes:
[1] Entitlement communities are central cities of Metropolitan
Statistical Areas, other metropolitan cities with populations of at
least 50,000, and qualified urban counties with populations of at least
200,000 (excluding the populations of entitled cities). Entitlement
communities develop their own programs and funding priorities.
[2] Public services include child care, health care, job training,
recreation and education programs, public safety services, services for
senior citizens and homeless persons, and drug abuse counseling and
treatment. CDBG funding for public services is subject to several
restrictions, such as a prohibition on funding services that were
provided by the local government during the preceding 12 months.
[3] We did not independently verify the accuracy of the HUD, city, or
county data and information provided.
[4] General public services include activities, such as neighborhood
cleanup, food distribution, and rape prevention education that cannot
be classified under a more specific category.
[5] Pub. L. No. 97-35.
[6] Pub. L. No. 98-479 and Pub. L. No. 98-181 exempted grantees from
the 15 percent cap if they used more than 15 percent of their CDBG
funding for fiscal years 1982 or 1983 for public service activities.
Consequently, about 41 of the 998 grantees are exempt from the 15
percent cap. Subsequent legislation in 1990, Pub. L. No.101-625,
allowed grantees to add program income received from the use
of CDBG funds, such as from the sale or rent of property, to their
grant amount, and to use the sum of the grant and the program income as
the basis for calculating the amount that could be spent on public
services.
[7] The dollar amounts and percentages listed for the City and the
County of Los Angeles in this report have not been adjusted for
inflation and describe various expenditures occurring during their local
fiscal year (also referred to as ’program year“ or ’grantee year“). The
city‘s local fiscal year begins on April 1, while the county‘s local
fiscal year begins on July 1. The city‘s local fiscal year for 1996
reflects 9 months of expenditures, because it changed its fiscal year
from July 1 to April 1 that year.
[8] We use ’civil unrest“ to refer to the events that occurred in
central and south central Los Angeles between April 29 and May 4, 1992.
These events have been referred to by other terms, such as ’riot."
[9] The City in Crisis: A Report by the Special Advisor to the Board of
Police Commissioners on the Civil Disorder in Los Angeles, October 21,
1992.
[10] Pub. L. No.102-550.
[11] House Committee Report No. 102-760, House Committee on Banking,
Finance, and Urban Affairs, July 30, 1992.
[12] Pub. L. No.104-204; Pub. L. No.105-276; Pub. L. No.106-377.
[13] House Report No. 105-769, House Committee on Appropriations,
October 5, 1998.
[14] Pub. L. No.107-116.
[15] Congressional Record, vol. 147, no. 178, December 20, 2001, p.
S13784.
[16] The data for the city and county reflect the expenditures reported
under the public service cap. During the 1990s, changes in the CDBG
program enabled a grantee to spend funds on public services through
specific initiatives and not have these expenditures reported under the
grantee‘s cap. For example, spending on public services carried out by
community-based development organizations either as part of a specific
initiative designed to increase economic opportunities through job
training and support-service activities or as part of a strategy from a
Neighborhood Revitalization Strategy Area might not count against the
cap.
[17] On January 17, 1994, an earthquake in Los Angeles measuring 6.8 on
the Richter scale left 61 dead, 18,480 injured, and 25,000 homeless and
caused $13 billion in property damage. Los Angeles, Orange, and Ventura
counties were declared federal disaster areas.
[18] The Kerner Report, ’The Issues of the Conditions of Our Nation‘s
Cities and Urban Communities across America Since the Riots that
Occurred in Los Angeles 1 Year Ago,“ the 1968 Report of the National
Advisory Committee on Civil Disorders. Printed in 1968 and reprinted in
the1993 Hearing before the Committee on Banking, Housing, and Urban
Affairs, United States Senate. McCone Commission Report, ’Violence in
the City: An End or A Beginning?“ A Report of the Governor‘s Commission
on the Los Angeles Riots, 1965.
[19] Grantees are not required to use a competitive process when
contracting with nonprofit entities.
[End of section]
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