Capacity Building
Section 4 Program Has Expanded and Evolved Gao ID: GAO-03-975 September 15, 2003Congress recognized the importance of building the capacity of community development organizations by passing Section 4 of the HUD Demonstration Act of 1993. The act authorized the Department of Housing and Urban Development (HUD) to partner with several national nonprofit organizations that provide funding to these community groups for such things as training, staff salaries, office equipment and supplies, and management information systems. In 2002, HUD provided $31 million for capacitybuilding activities. To help Congress with its oversight of Section 4, we reviewed the evolution and use of Section 4 funding, the importance of Section 4 funding to private sector involvement, and the management controls and measurements that are in place to assess Section 4.
We found that Section 4 has evolved from a narrowly targeted initiative that focused on providing funding for capacity building in 23 urban areas to a broader program that funds groups and activities in urban, rural, and tribal areas nationwide. The four organizations (grantees) use Section 4 funding to provide a variety of capacity-building support to their subrecipients. These subrecipients are nonprofit organizations that undertake locally targeted initiatives in areas such as economic development, low-income housing construction, and job training. The Section 4 funds that the grantees receive help leverage private sector funding and in-kind contributions such as land and equipment, pro bono legal services, office space, and voluntary labor. Since the four grantees became eligible for Section 4 funding, they have leveraged nearly $800 million in cash and in-kind contributions from the private sector. HUD is responsible for ensuring that Section 4 funds are used according to federal law and regulations and that grantees are utilizing funds efficiently and effectively. However, HUD relies on grantees to oversee their subrecipients. The grantees had far-reaching organizational structures and processes in place to monitor and control their subrecipients. But we found that one of the seven subrecipients we tested for monitoring and control procedures had reimbursed a subrecipient for an item that was prohibited by the Office of Management and Budget (OMB). While HUD has the overall responsibility to prevent such internal control failures, the cost-effectiveness of adding additional federal controls must be weighed against the amount of the federal dollars involved. We believe that as long as HUD and the grantees remain vigilant, additional controls are not necessary at this time. HUD is taking steps to develop a framework for assessing the effectiveness of its technical assistance programs and will take part in an OMB Program Assessment Rating Tool review.
RecommendationsOur recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
Director: Team: Phone:GAO-03-975, Capacity Building: Section 4 Program Has Expanded and Evolved
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Report to Congressional Requesters:
United States General Accounting Office:
GAO:
September 2003:
Capacity Building:
Section 4 Program Has Expanded and Evolved:
GAO-03-975:
GAO Highlights:
Highlights of GAO-03-975, a report to Chairs, House Subcommittee on
Oversight and Investigations; House Subcommittee on Housing and
Community Opportunity, Committee on Financial Services
Why GAO Did This Study:
Congress recognized the importance of building the capacity of
community development organizations by passing Section 4 of the HUD
Demonstration Act of 1993. The act authorized the Department of
Housing and Urban Development (HUD) to partner with several national
nonprofit organizations that provide funding to these community groups
for such things as training, staff salaries, office equipment and
supplies, and management information systems. In 2002, HUD provided
$31 million for capacity-building activities. To help Congress with
its oversight of Section 4, we reviewed the evolution and use of
Section 4 funding, the importance of Section 4 funding to private
sector involvement, and the management controls and measurements that
are in place to assess Section 4.
What GAO Found:
We found that Section 4 has evolved from a narrowly targeted
initiative that focused on providing funding for capacity building in
23 urban areas to a broader program that funds groups and activities
in urban, rural, and tribal areas nationwide. The four organizations
(grantees) use Section 4 funding to provide a variety of capacity-
building support to their subrecipients. These subrecipients are
nonprofit organizations that undertake locally targeted initiatives in
areas such as economic development, low-income housing construction,
and job training. The Section 4 funds that the grantees receive help
leverage private sector funding and in-kind contributions such as land
and equipment, pro bono legal services, office space, and voluntary
labor. Since the four grantees became eligible for Section 4 funding,
they have leveraged nearly $800 million in cash and in-kind
contributions from the private sector.
HUD is responsible for ensuring that Section 4 funds are used
according to federal law and regulations and that grantees are
utilizing funds efficiently and effectively. However, HUD relies on
grantees to oversee their subrecipients. The grantees had far-reaching
organizational structures and processes in place to monitor and
control their subrecipients. But we found that one of the seven
subrecipients we tested for monitoring and control procedures had
reimbursed a subrecipient for an item that was prohibited by the
Office of Management and Budget (OMB). While HUD has the overall
responsibility to prevent such internal control failures, the cost-
effectiveness of adding additional federal controls must be weighed
against the amount of the federal dollars involved. We believe that as
long as HUD and the grantees remain vigilant, additional controls are
not necessary at this time. HUD is taking steps to develop a framework
for assessing the effectiveness of its technical assistance programs
and will take part in an OMB Program Assessment Rating Tool review.
What GAO Recommends:
GAO recommends that HUD take steps to recover the grant funds one
Section 4 grantee used to cover a bad debt.
www.gao.gov/cgi-bin/getrpt?GAO-03-975.
To view the full product, including the scope and methodology, click
on the link above. For more information, contact Thomas McCool at
(202) 512-8678 or mccoolt@gao.gov.
[End of section]
Contents:
Letter:
Results in Brief:
Background:
Section 4 of the HUD Demonstration Act of 1993 Has Evolved and Expanded
Over the Years:
Federal Funding Has Encouraged Private Sector Involvement in the
Section 4 Grantees' Community Development Initiatives:
HUD's Grantee Monitoring and Oversight Is Limited:
Conclusions:
Recommendation for Executive Action:
Agency Comments:
Scope and Methodology:
Appendix I: Contact and Staff Acknowledgments:
GAO Contact:
Acknowledgments:
Tables:
Table 1: NCDI Funding, 1991-2004 (in millions of dollars):
Table 2: Section 4 Funding, 1994-2003 (in millions of dollars):
Table 3: Additional Federal Funding for Capacity-Building and Technical
Assistance (in millions of dollars):
Table 4: Private Sector Funding (in millions of dollars):
Figures:
Figure 1: The Organizational Structure of Section 4:
Figure 2: Locations of HFHI Affiliates Receiving Section 4 Funds
between 1997 and 2001:
Figure 3: Cities Where YouthBuild USA Affiliates Received Section 4
Funds between 1997 and 2001:
Figure 4: Effect of Funding for CHAPA, an Enterprise Subrecipient, for
Technology Improvements:
Figure 5: Enterprise and LISC Subrecipient Rural County Coverage:
Abbreviations:
CDC: Community Development Corporation:
CDBG: Community Development Block Grant:
CHAPA: Citizen's Housing and Planning Association:
Enterprise: The Enterprise Foundation:
GED: General Equivalency Diploma:
HFHI: Habitat for Humanity International:
HOME: Home Investment Partnerships Program:
HOPWA: Housing Opportunities for Persons with AIDS:
HUD: U.S. Department of Housing and Urban Development:
GIS: Geographical Information Software:
LISC: Local Initiatives Support Corporation:
NCDI: National Community Development Initiative:
OMB: Office of Management and Budget:
PART: Program Assessment Rating Tool:
YBUSA: YouthBuild USA:
United States General Accounting Office:
Washington, DC 20548:
September 15, 2003:
The Honorable Sue W. Kelly
Chairman,
Subcommittee on Oversight and Investigations
Committee on Financial Services
House of Representatives:
The Honorable Bob Ney
Chairman,
Subcommittee on Housing and Community Opportunity
Committee on Financial Services
House of Representatives:
For fiscal years 1997 through 2002, the Department of Housing and Urban
Development's (HUD) budget for 20 capacity-building and technical
assistance programs was over $860 million.[Footnote 1] Of these funds,
almost $150 million was specifically designated to build the capacity
of local community development and affordable housing organizations
through the Section 4 program. Since its inception in 1993, the program
has provided capacity-building funds and services to over 1,590 local
organizations in more than 783 cities nationwide, either through direct
grants or substantial technical assistance activities.
To assist you with your oversight of the Section 4 capacity-building
program, you asked us to:
* describe how funding under Section 4 of the HUD Demonstration Act of
1993 has evolved and expanded over the years, how grantees use Section
4 funding, and what other federal funding is available for capacity
building;
* determine the importance of Section 4 funding to private sector
involvement in community development initiatives; and:
* determine how HUD and Section 4 grantees control the management and
measure the impact of Section 4 programs.
To address these objectives, we reviewed public laws, federal
regulations, HUD directives, budget documents, and other materials that
describe the Section 4 program and authorized/appropriated funding
amounts. We interviewed HUD headquarters officials and grantee and
subrecipient officials at both the national headquarters and local
office levels. We visited subrecipients in eight cities, and at several
we conducted file reviews to evaluate grantee internal controls.
Finally, we interviewed private funders that provided grants or loans
to the grantees and subrecipients. We conducted our work in accordance
with generally accepted government auditing standards in Baltimore, MD;
Boston, MA; Cleveland, OH; Frederick, MD; Hughesville, MD; Kingston,
RI; Americus, GA; and Washington, D.C. Our scope and methodology are
discussed in greater detail at the end of this letter.
Results in Brief:
Section 4 of the HUD Demonstration Act of 1993 has evolved from a
narrowly targeted initiative that focused on providing funding for
capacity building in 23 urban areas to a broader program that funds
groups and activities in urban, rural, and tribal areas nationwide.
Section 4 authorized HUD to become an equal partner with several
private foundations and financial institutions in the already existing
National Community Development Initiative (NCDI). NCDI, currently known
as Living Cities, began in 1991 as a partnership of public and private,
for-profit and nonprofit funders committed to revitalizing urban
communities. NCDI enlisted the assistance of two nationally recognized
community building organizations, the Local Initiatives Support
Corporation (LISC) and the Enterprise Foundation (Enterprise) to work
with local community development corporations (CDC) in 23
cities.[Footnote 2] In 1997, eligibility for Section 4 funding was
expanded to include Habitat for Humanity International (HFHI),
YouthBuild USA (YBUSA) and activities in cities where NCDI was not
active and in rural and tribal areas (fig. 1). Since then, the four
designated grantees have delivered Section 4 funds and services as
operating support to their subrecipients (CDCs and
affiliates).[Footnote 3] The grantees determine their individual
approaches and administer their funds in a variety of ways. Grantees
can also tap into other federal funding sources such as Community
Development Block Grant (CDBG) funding for capacity-building and
technical assistance.
Figure 1: The Organizational Structure of Section 4:
[See PDF for image]
[End of figure]
While external factors such as economic trends and private sector
interests made it difficult to demonstrate empirically that Section 4
funding directly influenced private sector involvement in community
development initiatives, all four grantees and most of the private
foundations and lenders we contacted stressed the importance of federal
funding in leveraging funds from the private sector. For example, one
senior executive from a major lending institution indicated that
federal participation in NCDI provides funders with both a symbolic and
a financial incentive to join the NCDI consortium. Symbolically,
federal funding provides a sense of credibility to NCDI, as funders see
federal participation as a sign of good housekeeping and reduced risk.
Financially, federal participation adds more money to NCDI capacity-
building initiatives, in turn enabling subrecipients to raise more
private funding. In addition, Section 4 calls for significant private
sector participation because every dollar that is provided to grantees
must be matched with three dollars from private sources. Since federal
regulations permit contributions in the form of cash or verifiable
third party in-kind services, private sector involvement comes in the
form of grants, loans, donated land and equipment, pro bono legal
services, donated office space, and voluntary labor.[Footnote 4]
Although all four grantees are able to raise these required matching
funds, each grantee has its own policies and may raise funds
nationally, locally, or both. Since the four grantees became eligible
for Section 4 funding, they have raised nearly $800 million in cash and
in-kind contributions from private foundations and businesses.
HUD uses desk audits and other document reviews to assess grantees' use
of funds and relies on grantees to monitor their subrecipients.
However, HUD does not measure the impact of its grants. HUD is
responsible for ensuring that Section 4 funds are used according to
federal law and regulations and that grantees are utilizing funds
efficiently and effectively. HUD carries out this responsibility
through limited desk reviews of work plans that outline proposed
activities and expected outcomes; quarterly and annual progress reports
that determine whether grantees are achieving their stated goals; and
payment vouchers and supporting documentation, which help ensure that
federal funds are used only for eligible activities. HUD receives the
same reports and follows the same processes for both NCDI and non-NCDI
activities but reviews NCDI work plans in consort with other NCDI
funders and non-NCDI activities on its own. HUD depends on grantees to
provide oversight of their subrecipients. While it appeared that
grantees maintained far-reaching organizational structures and
processes to monitor and control their subrecipients, we found that one
grantee had reimbursed a subrecipient for a bad debt, an activity that
is prohibited by the Office of Management and Budget (OMB).[Footnote 5]
HUD does not currently measure the impact of Section 4 funding but
relies on its grantees to measure the impact of their individual
programs. However, HUD is taking steps to develop a framework for
assessing the effectiveness of its technical assistance programs and
will take part in an OMB Program Assessment Rating Tool review (PART)
designed to help in making informed budget decisions, supporting
management, identifying program design problems, and promoting
performance measurement and accountability.[Footnote 6]
Background:
In 1991, a group of for-profit and nonprofit public and private funders
started NCDI, currently known as Living Cities, to revitalize urban
communities.[Footnote 7] NCDI is composed of 17 major corporations,
foundations, and the federal government--HUD and the Office of
Community Services of the Department of Health and Human Services. In
its first decade of operation, NCDI assembled a community development
system composed of:
* two of the largest national community-building organizations to
administer the initiative--LISC and Enterprise;
* 300 CDCs in 23 cities; and:
* local operating support collaboratives, which include local
foundations, banks, corporations, and local governments, that identify
and draw on local technical expertise and governmental and economic
resources and use them to sustain and enhance the capacity of CDCs.
As of September 1, 2001, NCDI had provided $234.8 million to its 23
cities. Of this amount, about three-quarters was for project funding
and the balance, about $60 million, supported capacity building with
operating grants and training.
LISC, founded in 1979 and headquartered in New York City, is the
largest community-building organization. LISC's mission, involving
hundreds of CDCs, is to rebuild whole communities by supporting these
groups. LISC operates local programs in 38 urban program areas and 70
rural communities. According to LISC, it has raised more than $4
billion from over 2,200 investors, lenders, and donors, which has
leveraged an additional $6 billion in public and private sector funds.
In addition, according to LISC, it has helped 2,200 CDCs build or
rehabilitate more than 110,000 affordable homes, created over 14
million square feet of commercial and community space, and helped
generate 40,000 jobs.
Enterprise was founded in 1982 as a vehicle for helping low-income
people revitalize their communities. Headquartered in Columbia,
Maryland, Enterprise has offices in 18 communities across the nation.
Enterprise works with a network of 2,200 nonprofit organizations,
public housing authorities, and Native American tribes in 800
locations, including more than 100 CDCs. The Enterprise Foundation
provides these organizations with technical assistance, training, short
and long-term loans, equity investments, and grants. According to
Enterprise, it has raised nearly $430 million to support community-
based development that has helped produce 17,000 affordable homes and
assisted 20,000 low-income individuals in finding employment.
HFHI, founded in 1976 and headquartered in Americus, Georgia, is a
nonprofit ecumenical Christian housing ministry (faith-based
organization) seeking to eliminate substandard housing. HFHI builds and
rehabilitates houses with the help of homeowner (partner) families,
volunteer labor, and donations of money and materials. Work is done at
the local community level by affiliates that coordinate all aspects of
home building, including fund-raising, building site selection, partner
family selection and support, construction, and mortgage servicing.
HFHI provides its affiliates with information, training, and a variety
of other support services. Affiliates are primarily volunteer driven,
though some have their own staff. Affiliates are monitored and
supported by HFHI staff across the country. HFHI currently has over
1,669 affiliates, and in 27 years has built over 150,000 houses
worldwide, including more than 40,000 homes in the United States.
Figure 2 shows the 526 cities where HFHI affiliates have directly
received Section 4 funds.
Figure 2: Locations of HFHI Affiliates Receiving Section 4 Funds
between 1997 and 2001:
[See PDF for image]
[End of figure]
YBUSA was founded in 1990 and is headquartered in Somerville,
Massachusetts. It is a national nonprofit organization that provides
capacity-building grants on a competitive basis to support the efforts
of organizations that are planning to or are operating Youthbuild
programs in their communities, many of which are funded by the HUD
Youthbuild grant program. [Footnote 8] A Youthbuild program is a
comprehensive youth and community development program as well as an
alternative school. Youthbuild programs, which offer job training,
education, counseling, and leadership development opportunities
through the construction and rehabilitation of affordable housing,
serve young adults ages 16 to 24 in their own communities. Participants
split their time between the construction site and the classroom, where
they earn GEDs or high school diplomas and prepare for jobs or college.
The buildings that are constructed or rehabilitated during the program
are primarily low-income housing. YouthBuild USA serves as the national
intermediary and support center for over 200 Youthbuild programs. Over
half of the Youthbuild programs are members of YBUSA's affiliated
network. As shown in figure 3, YBUSA affiliates located in 106 cities
have received Section 4 funds from 1997 to 2001.
Figure 3: Cities Where YouthBuild USA Affiliates Received Section 4
Funds between 1997 and 2001:
[See PDF for image]
[End of figure]
Section 4 of the HUD Demonstration Act of 1993 Has Evolved and Expanded
Over the Years:
The scope of eligible activities funded by Section 4 of the HUD
Demonstration Act of 1993 has changed over the years. Originally the
act focused on providing funding for capacity building in 23 urban
areas. Currently, it provides funding to groups and activities in
urban, rural, and tribal areas nationwide. Section 4 authorized HUD to
join other corporations and foundations as an equal partner in NCDI to
develop the capacity and ability of CDCs in 23 cities. In 1997, Section
4 was expanded to include two more grantees, HFHI and YBUSA as well as
more cities, and rural and tribal areas. The grantees' organizational
structures and missions vary, as do their strategies for awarding
Section 4 funds and the types of activities they authorize. Each
grantee has initiatives in rural and tribal areas.[Footnote 9]
Additional federal funding, such as Community Development Block Grants,
is also available to grantees for capacity building and technical
assistance.
Section 4 Provides Capacity-Building Funding to Four Organizations:
NCDI in 1991 started with seven large national foundations and a major
insurance company and was administered by LISC and Enterprise. This
consortium of funders believed CDCs could achieve greater and more
lasting success if they could count on a significant reliable
commitment of multiyear operating support, project financing, technical
assistance, and training. To date, NCDI has had four phases (rounds) of
funding. In the first phase (1991-93), NCDI funders pledged $62.9
million (see table 1). With the enactment of Section 4, HUD joined
phase II of NCDI, which also included 12 private foundations and
financial institutions, as an equal partner.[Footnote 10] Congress'
goal in authorizing HUD to participate in NCDI was to develop the
capacity and ability of CDCs to undertake community development and
affordable housing projects and programs. HUD's involvement resulted in
some changes to the way funds were disbursed. While the foundations
provided funding through Living Cities (NCDI), which in turn
distributed grant funds to LISC and Enterprise, HUD distributed its
funding directly to LISC and Enterprise. In addition, unlike other NCDI
funders, HUD provided funding only after expenses were incurred,
monitored funding more closely, and restricted uses to capacity-
building activities. In 2001, 17 foundations and corporations committed
another 10 years to the initiative.
Table 1: NCDI Funding, 1991-2004:
Dollars in millions.
Living Cities Initiative:
Private funder; Dollars in millions: NCDI I 1991-1993: $62.86; NCDI II
1994-1997: $67.85; NCDI III 1998-2001: $87; Living Cities (Second
Decade) 2001-2004: $93.7; Total: $311.41.
HUD; Dollars in millions: NCDI I 1991-1993: 0; NCDI II 1994-1997: 20;
NCDI III 1998-2001: 16; Living Cities (Second Decade) 2001-2004: 20;
Total: 56.
Total; Dollars in millions: NCDI I 1991-1993: $62.86; NCDI II 1994-
1997: $87.85; NCDI III 1998-2001: $103; Living Cities (Second Decade)
2001-2004: $113.7; Total: $367.41.
Source: NCDI.
[End of table]
Congress did not appropriate funds for HFHI and YBUSA until 1997 (see
table 2).[Footnote 11] At that time, LISC and Enterprise were given the
option of using Section 4 funding to continue NCDI activities in the
original 23 cities or to undertake new non-NCDI activities in other
cities, which expanded the geographical dispersion of Section 4
funding. In addition, Congress required the grantees to set aside a
portion of Section 4 funding for rural and tribal areas. Unlike the
NCDI activities, whose funding objectives were determined by the
responsible funders, LISC and Enterprise worked directly with HUD in
creating the objectives for non-NCDI cities.
Table 2: Section 4 Funding, 1994-2003:
Dollars in millions.
1994; Enterprise: NCDI: $10; Enterprise: non-NCDI: $0; LISC:
NCDI: $10; LISC: non-NCDI: $0; YBUSA: $0; HFHI: $0; Total $ allocated
for Section 4: $20.
1995; Enterprise: NCDI: 0; Enterprise: non-NCDI: 0; LISC:
NCDI: 0; LISC: non-NCDI: 0; YBUSA: 0; HFHI: 0; Total $ allocated for
Section 4: 0.
1996; Enterprise: NCDI: 5; Enterprise: non-NCDI: 0; LISC:
NCDI: 5; LISC: non-NCDI: 0; YBUSA: 0; HFHI: 0; Total $ allocated for
Section 4: 10.
1997; Enterprise: NCDI: 3; Enterprise: non-NCDI: 4.6; LISC:
NCDI: 3; LISC: non-NCDI: 4.6; YBUSA: 7.6; HFHI: 7.6; Total $ allocated
for Section 4: 30.4.
1998; Enterprise: NCDI: 0; Enterprise: non-NCDI: 7.5; LISC:
NCDI: 2; LISC: non-NCDI: 5.5; YBUSA: 0; HFHI: 0; Total $ allocated for
Section 4: 15.
1999; Enterprise: NCDI: 0; Enterprise: non-NCDI: 7.5; LISC:
NCDI: 2; LISC: non-NCDI: 6; YBUSA: 0; HFHI: 0; Total $ allocated for
Section 4: 15.
2000; Enterprise: NCDI: 0; Enterprise: non-NCDI: 10; LISC:
NCDI: 2; LISC: non-NCDI: 8.2; YBUSA: 2.5; HFHI: 3.8; Total $ allocated
for Section 4: 26.3.
2001; Enterprise: NCDI: 10; Enterprise: non-NCDI: 2.5; LISC:
NCDI: 10; LISC: non-NCDI: 2.5; YBUSA: 4; HFHI: 3.5; Total $ allocated
for Section 4: 32.5.
2002; Enterprise: NCDI: 0; Enterprise: non-NCDI: 12.5; LISC:
NCDI: 1.4; LISC: non-NCDI: 11; YBUSA: 2; HFHI: 4; Total $ allocated for
Section 4: 30.9.
2003; Enterprise: NCDI: 0; Enterprise: non-NCDI: 14; LISC:
NCDI: 3; LISC: non-NCDI: 11; YBUSA: 2; HFHI: 4.2; Total $ allocated for
Section 4: 34.2.
Total; Enterprise: NCDI: $28; Enterprise: non-NCDI: $58.6;
LISC: NCDI: $37.7; LISC: non-NCDI: $48.8; YBUSA: $18.1; HFHI: $23.1;
Total $ allocated for Section 4: $214.3.
Source: HUD.
[End of table]
Grantees Use a Variety of Methods to Help Build Capacity:
LISC and Enterprise are national organizations that use local program
offices to provide financial and technical support to CDCs. The staff
at the local program offices work with CDCs to achieve community-driven
goals. For example, through its Boston local office, LISC provided
several Section 4 grants to the Madison Park Development Corporation. A
$78,000 grant was used to help the CDC improve the Dudley Square
Business district in the Roxbury neighborhood of Boston. The Cleveland
Enterprise office provided Section 4 funds to the Cleveland
Neighborhood Partnership Program, a local support collaborative that
provides organizational and real estate development and neighborhood
planning for Cleveland CDCs.
According to HFHI and YBUSA officials, these organizations provide
direct grants to affiliates but operate somewhat differently. HFHI has
provided grants to affiliates on a 3-year diminishing basis to hire new
staff or establish warehouse facilities, with an expectation of
increasing house production by at least 15 percent. In addition, HFHI
has established regional support centers to bring technical assistance
closer to affiliates. YBUSA uses Section 4 funds to provide a variety
of grants to its affiliated network, such as operating grants, program
enhancement grants, special assistance grants, and scholarships to
staff and students. In addition, YBUSA has used Section 4 funds to
build its capacity to serve as a national support center and to provide
technical assistance and training.
LISC and Enterprise consider the subrecipient's stage of development
when making Section 4 funding decisions. For example, a new
organization might receive Section 4 funds to pay for a portion of the
salary of the executive director, whereas more established CDCs might
receive funding to upgrade their financial management software. All
grantees stressed that because capacity building takes time, they
provide multiyear support to subrecipients. However, three of the four
grantees indicated that they generally fund subrecipients in ways that
encourage the organizations to become financially independent.
Officials from LISC and Enterprise explained that although some
subrecipients receive multiple grants for several years, the grants are
small enough to keep subrecipients from becoming dependent on Section 4
funds for daily operations. As noted earlier, HFHI's grants, which are
provided to hire new staff, diminish over a 3-year period. According to
HFHI, the affiliates' gradual absorption of staff costs leads to
independence from--rather than dependence on--federal funding. YBUSA,
however, has provided Section 4 funding to affiliates to pay for
general operations during years when they had not received funding
under HUD's Youthbuild program.
Generally, Section 4 funds are used to pay for staff salaries,
training, technology, and office supplies and equipment and to fund the
operating support collaboratives. For example, with its 1997 funds HFHI
provided direct grants to 60 affiliates to pay for staff salaries
(usually an executive director). The YouthBuild Boston affiliate used
Section 4 funds to hire an administrative coordinator and enhance its
technological capabilities. The Washington, D.C., LISC office provided
Section 4 funding to a local CDC to pay for some staff training and to
purchase equipment and other supplies to outfit a homebuyer's training
center. Enterprise has used Section 4 funds to develop on-line tools,
such as a best practices database, and to bring current technology to
CDCs. For example, Enterprise awarded one nonprofit organization,
Citizen's Housing and Planning Association (CHAPA) in Boston, Section 4
funds to administer the NET-Works program, a program to enhance the
technological capacity of CDCs in the New England region. As a result,
36 CDCs received computer equipment, Internet access, and assistance in
developing websites. Figure 4 illustrates the broad impact that Section
4 funding had for this nonprofit organization on other CDCs.
Figure 4: Effect of Funding for CHAPA, an Enterprise Subrecipient, for
Technology Improvements:
[See PDF for image]
[End of figure]
Rural Areas Now Have Access to Section 4 Funding:
Congress did not require grantees to set aside Section 4 funding for
rural and tribal areas until 1997.[Footnote 12] All four grantees
currently have initiatives that focus on these areas. For example, LISC
has a rural office that supports both a national program and a program
in the Mississippi River Delta Region of the United States covering 56
counties and parishes. In fiscal years 1997 through 2002, LISC awarded
Section 4 grants totaling approximately $9 million to rural CDCs.
Enterprise has awarded $6.2 million in Section 4 grants to rural CDCs.
Unlike LISC, Enterprise does not have a rural office. Enterprise
services its rural and tribal subrecipients through partnerships with
other state and regional rural agencies and the Housing Assistance
Council, which administers Enterprise's Rural Capacity Building
Initiative, and through its regional and local office
structure.[Footnote 13] Although 218 of the 1,003 LISC and Enterprise
CDCs provide services to rural and tribal areas, many of them cover
large geographical areas. For example, 57 of the 72 rural CDCs that are
funded by LISC, operate in more than one county, and 64 of the 146
rural CDCs that are funded by Enterprise operate in more than one
county. Figure 5 shows the cities where LISC and Enterprise
subrecipients who work in rural areas are located and the multiple
counties they serve.
Figure 5: Enterprise and LISC Subrecipient City and Rural County
Coverage:
[See PDF for image]
[End of figure]
HFHI makes an effort to reserve at least one-third of its Section 4
funding for its rural affiliates. HFHI awarded $4.6 million of its
fiscal year 1997 Section 4 funds to 60 affiliates of which 33 were
rural. According to YBUSA officials, meeting the required set-aside has
been a challenge. YBUSA's outreach efforts have included encouraging
rural affiliates to apply for planning, operating, and program
enhancement grants and for specialized technical assistance. According
to a YBUSA official, over the course of the 1997 grant, about $2.5
million of YBUSA's $7.6 million allocation was focused on rural and
tribal and partly rural and tribal programs. Of this amount, about $1.3
million was for direct grants to sites and about $1.2 million was for
services to sites. A YBUSA official told us that as of July 2003, 84 of
the 203 operating Youthbuild programs were rural and partly rural.
Grantees Receive Capacity-Building Funding from Other Federal Programs:
LISC, Enterprise, HFHI, and YBUSA also receive capacity-building and
technical assistance funds from other HUD programs (table 3). The
primary difference between Section 4 funding and other federal funding
is that the other federal funding for capacity-building and technical
assistance is generally awarded competitively, while Section 4 funding
is noncompetitive. Several federal programs offer capacity-building
funds: CDBG, HOME, and Housing Opportunities for Persons with AIDS
(HOPWA). All grantees' Section 4 capacity-building funds exceed those
received from other federal programs.
Table 3: Additional Federal Funding for Capacity-Building and Technical
Assistance:
Dollars in millions.
LISC; Dollars in millions: Total other federal funding: 8.6;
Federal program: CDBG Technical Assistance; HOME Technical Assistance
(1994-2002).
Enterprise; Dollars in millions: Total other federal funding: 13.1;
Federal program: CDBG Technical Assistance; HOME Technical
Assistance; HUD Technical Assistance /Capacity Building; HOPWA
Technical Assistance (1995-2002).
YBUSA; Dollars in millions: Total other federal funding: 20.2;
Federal program: Youthbuild program (1997-2002); Corp. for National and
Community Service for AmeriCorps (1997-2003); U.S. Dept. of Labor for
Welfare to Work (1998-2001).
HFHI; Dollars in millions: Total other federal funding: 7.5;
Federal program: Self-help Homeownership Opportunity Program (1999).
Source: LISC, Enterprise, YBUSA, and HFHI.
[End of table]
Federal Funding Has Encouraged Private Sector Involvement in the
Section 4 Grantees' Community Development Initiatives:
While it was difficult to demonstrate empirically that Section 4
directly influenced private sector involvement in community development
activities, funders and grantees said that federal involvement served
as a catalyst for private fund-raising and provided credibility to
subrecipients in terms of their ability to comply with the requirements
that are associated with federal funding. Some local funders of CDCs
and affiliates were not aware of the specific Section 4 funding the
subrecipients received but indicated that both federal funding and
diverse funding streams are important. Since matching funds can be
raised either nationally, locally, or a combination of both, each
grantee employs its own matching policy and raises funds from
foundations, corporations, banks, individual donors, and
nongovernmental sources. Since the creation of Section 4, grantees have
raised nearly $800 million from the private sector, in matching and
other cash and in-kind contributions.
Grantees and Private Contributors Generally Believe that Federal
Funding Is Important to Private Sector Participation:
The grantees and nearly all of the private lenders and foundations we
contacted stressed the importance of federal funding in leveraging
funds from the private sector. For example, officials from LISC,
Enterprise, and Living Cities indicated that private funding and
lending have increased since HUD's involvement. In addition, Enterprise
officials indicated that the private sector believes that federal
funding provides an incentive to work in areas and projects that would
be less likely to receive funding without federal involvement. HFHI
officials said that federal funding is imperative because it is the
only way for all-volunteer organizations to transition into staff-
managed, volunteer-based organizations. YBUSA officials said that
federal funding, especially funding that leverages private funding, has
enabled YBUSA to be proactive in assisting Native American and rural
programs.
NCDI lenders and funders indicated that Section 4 funding had both a
psychological and a real impact on private sector involvement in the
initiative. For example, one senior executive from a major lending
institution indicated that federal participation in NCDI provided
funders with a symbolic and financial incentive to join the NCDI
consortium. Symbolically, federal funding provides a sense of
credibility to NCDI, as funders see federal participation as a sign of
good housekeeping and reduced risk. Financially, federal participation
adds more money to NCDI capacity-building initiatives, in turn enabling
subrecipients to raise more private funding. Another lender said that
HUD's participation in a CDC through Section 4 funding served as an
indication of good management and internal controls. An insurance
company also noted that Section 4 funding showed that the federal
government was strongly committed to a coordinated effort to build CDC
capacity, and a foundation told us that the federal presence
legitimized NCDI as the CDC capacity-building vehicle with the greatest
payoff. Furthermore, nearly all of the YBUSA and HFHI private funders
that we interviewed said that federal funding was an incentive for
their participation in the program. For example, one funder said that
federal support was like a "seal of approval." Another funder said that
Section 4 funding created a positive incentive because the availability
of invaluable hard-to-get federal funding increased the viability of
any project.
Most funders and lenders that provide funding directly to CDCs and
affiliates stressed that federal funding was beneficial, but some of
those local funders were not aware that subrecipients received Section
4 funds. Some LISC and Enterprise subrecipient funders explained that
federal funding and diverse funding streams were characteristics of a
viable organization. One funder suggested that public funding was
critical, since private philanthropy could only do so much. Another
foundation indicated that it looked to organizations that had a
diversified funding structure, since it could not provide sole support
for an organization.
The four funders we spoke with that provided funding directly to the
YouthBuild Boston affiliate were split on whether federal participation
was an incentive to their involvement. Two said that federal
participation was an incentive; while the other two said their decision
to provide funding was based solely on the affiliate's mission.
Officials from most of the five organizations we spoke with that
provided funding to an HFHI affiliate in Rhode Island indicated that
federal participation was not an incentive, but two said that having
other sources of funding encouraged them to participate. An official
from one organization indicated that while federal funding indirectly
provides an incentive for participation, the organization provided
funding primarily based on the affiliate's reputation and mission.
Cost Sharing Requirements Are Specified in Law and Grantee Policies:
Section 4 funding calls for significant private sector participation in
community development initiatives because Section 4 requires that
grantees match each dollar awarded with three dollars in cash or in-
kind contributions from private sources. Matching funds are raised
nationally and locally and come from nongovernmental sources including
private foundations, corporations, banks, and individual donors. Each
grantee has its own matching policy and procedures for complying with
the matching requirement.
LISC and Enterprise generally meet their matching requirement at the
national level but encourage CDCs to seek private contributions to aid
in the match. However, LISC requires subrecipients in rural areas to
raise at least $1 for each $1 they receive; the remainder of the match
is raised nationally. Conversely, HFHI and YBUSA require their
affiliates to raise at least $3 for every dollar of Section 4 funding
they receive. While both HFHI and YBUSA impose this requirement on all
of their affiliates, including those in rural and tribal areas, if
YBUSA rural and tribal affiliates cannot raise the 3 to 1 match, the
national organization will provide the difference. Officials from the
four grantees told us that raising the private matching funds had not
been a problem. For example, for the 1997 grant HFHI and its 60
affiliates that received Section 4 funding raised almost $155.6 million
in private contributions. YBUSA and its affiliates raised $26.6 million
in private contributions to match its $7.6 million grant.
Grantees Have Raised Significant Amounts of Private Sector Funding and
Other Resources:
Since the four grantees became eligible for Section 4 funding, they
have raised nearly $800 million from the private sector in matching
funds and other cash and in-kind contributions. However, we could not
demonstrate empirically that Section 4 funding influenced the grantees'
fund-raising owing to external factors such as economic trends and
private sector interests. Between 1994 and 2001, LISC and Enterprise
raised $457 million, and from 1997 to 2002, HFHI and YBUSA raised $341
million (see table 4).
Table 4: Private Sector Funding:
Dollars in millions.
LISC; Dollars in millions: Private sector funding: $319.9[A];
Time period: 1994-2001.
Enterprise; Dollars in millions: Private sector funding: 136.7;
Time period: 1994-2001.
YouthBuild USA; Dollars in millions: Private sector funding: 26.6[B];
Time period: 1997-2001.
HFHI; Dollars in millions: Private sector funding: 314.5; Time
period: 1998-2002.
Total; Dollars in millions: Private sector funding: $797.7;
Source: LISC, Enterprise, YBUSA, and HFHI.
[A] LISC private sector grants for 1994 and 1995 contain government
funding due to different accounting practices at that time.
[B] This number only includes YBUSA's matching funds and not all
private sector funding.
[End of table]
In addition to providing funding, the private sector has contributed
in-kind services to CDCs, including managerial skills, mentoring, and
volunteer labor. For example, representatives from the private sector
serve on LISC's local advisory boards to help local program offices
make funding decisions and are members of operating support
collaboratives in several cities. HFHI's local affiliates use
volunteers for office and construction work and for their boards of
directors.
HUD's Grantee Monitoring and Oversight Is Limited:
HUD monitoring is limited to desk reviews of the grantees' compliance
with their grant agreements. In general, the grant agreements require
several kinds of reporting information including work plans, semiannual
or quarterly financial status reports, requests for grant payment
vouchers, and final reports. However, HUD's involvement in reviewing
grantee work plans differs for NCDI and non-NCDI activities. Since HUD
does not directly monitor the subrecipients' capacity-building
activities, it relies on the grantees to monitor and oversee them. The
grantees have several mechanisms in place to ensure that subrecipients
are complying with their individual grant agreements. However, in a
subset of files we reviewed, we found that a grantee had funded an
ineligible activity for one subrecipient. Also, HUD does not have
specific impact measures in place for Section 4.
HUD Monitors Grantees but Not Subrecipients:
HUD's efforts to monitor the grantees include desk reviews of work
plans, annual performance reports, semiannual financial status reports,
requests for grant payment vouchers, and final performance reports.
According to HUD, the four grantees sign grant agreements that obligate
them to comply with HUD and OMB requirements. For example, grantees
must submit work plans that identify when and how federal funds and
nonfederal matching resources will be used and present performance
goals and objectives in enough detail to allow for HUD monitoring. In
addition, the grant agreements require grantees to submit annual
reports showing actual progress made in relation to the work plans,
plus semiannual financial status reports that show private sector
matches and grant expenditures to a certain date. Grantees are not
permitted to begin activities or to draw down funds until HUD approves
the work plans. Furthermore, the grant provisions require that in order
to receive payment, grantees must submit a payment voucher with
supporting invoices that provide enough information to allow HUD to
determine whether the costs are reasonable in relation to the work
plan's objectives. Finally, the grant agreement stipulates that within
90 days of completing the grant award, the grantee must submit a final
report summarizing all the activities conducted under the award
including any significant program achievements and problems reasons for
the program's success or failure.
HUD officials told us that staffing constraints caused the agency to
focus mostly on grantee work plans and payment vouchers. HUD reviews
how:
the grantees select subrecipients, set benchmarks, and plan to build
capacity. HUD uses different processes to review NCDI and non-NCDI work
plans. As an equal player, HUD reviews NCDI's work plans together with
other funders and meets twice a year to discuss NCDI initiatives and
goals for each city. However, HUD reviews and approves non-NCDI work
plans by itself. A HUD official told us that HUD staff focus most of
their attention on the funding aspects of the work plans. HUD officials
told us that they check the semiannual financial status reports and
accompanying narratives to determine whether the expended amounts are
in line with the amounts stated in the work plans.
Section 4 grant funds are provided to grantees after costs are
incurred, so grantees must periodically submit vouchers and supporting
documentation that detail expenditures by city or project in order to
receive payment. HUD staff review the vouchers and supporting
documentation to ensure that funds are used for the eligible activities
stated in the work plans and that expenditures such as travel and
indirect costs are within HUD guidelines and do not exceed available
funding. HUD has denied payments for activities not contained in
approved work plans or not supported by the required documentation. For
example, in March 2003, HUD withheld over $650,000 in Section 4 funding
because one grantee did not submit a final report, several financial
reports, a work plan, and two annual plans. In June 2003, however, the
grantee provided the necessary documents and HUD released the funds.
In addition, grantees must submit financial status reports that show
whether the organizations are meeting their matching requirements.
However, HUD relies on the grantees to ensure that they and their
subrecipients are matching funds correctly. Both LISC and Enterprise
have a formal matching policy. LISC's policy explicitly states that
counting the same funds as matching funds under more than one program
is prohibited and requires its subrecipients to identify the sources
and amounts of matching funding they have received twice a year.
Enterprise's matching requirements are tracked on an ongoing basis and
are certified by an Enterprise official. YBUSA requires its affiliates
to submit documentation that supports the sources and amounts of
matching funds committed before it will release Section 4 funding, and
HFHI requires affiliates to report matching funds data quarterly.
HUD Relies on Grantees to Monitor Subrecipients:
HUD does not directly monitor subrecipients' and affiliates' capacity-
building activities but instead relies on the grantees for monitoring
and oversight. Like HUD, grantees initiate grant agreements with their
subrecipients and affiliates. These grant agreements generally include
such things as the purpose of the grant, grant amount, time frame,
disbursement conditions, causes for suspension and termination,
restrictions on use of grant funds, and reporting and accounting
requirements that describe how the grantee will monitor the grant. The
grantees use the grant agreements as the basis for monitoring their
subrecipients' performance.
The grantees use several mechanisms to ensure that subrecipients are
complying with their grant agreements. For example, LISC and Enterprise
officials indicated that throughout the grant period, local offices
communicate with their subrecipients by telephone or email or in person
in order to follow their progress. Similarly, YBUSA staff told us that
they monitor affiliates by telephone as well as through on-site
technical assistance. LISC, Enterprise, and YBUSA require each
subrecipient to submit a monthly activity report, semiannual project
reports and narratives, and final reports. However, the grantees have
different procedures, forms, and checklists that guide their monitoring
activities.
Operating support collaboratives aid LISC and Enterprise in their
oversight through proposal reviews, organizational assessments, work
plan reviews, on-site reviews, quarterly report reviews, and annual and
3-year evaluations. The LISC and Enterprise local offices use the
collaboratives' monitoring information when making their Section 4
funding decisions.[Footnote 14]
HFHI and its regional office personnel evaluate all affiliates every 3
years based on a "Standards of Excellence" program. The program has
three elements: best practices, acceptable practices, and minimum
standards. According to HFHI officials, continued failure to meet
minimum standards will lead to probationary status and eventually
disaffiliation. The program provides clear guidelines for affiliate
self-assessments and HFHI evaluations as well as a systematic process
for ensuring that Habitat affiliates are complying with the
organization's basic principles. If HFHI national or regional staff are
aware of illegal activities or violations of HFHI's minimum standards,
immediate action can be taken to correct the problem. The evaluation
covers internal controls and audits. All affiliates with an annual
income of $250,000 or more, assets of $500,000 or more, or both are
required to have an independent annual audit. Affiliates are also
requested to submit their annual report to HFHI.
Even with Comprehensive Controls, Problems May Still Occur:
While the grantees appear to have comprehensive processes to monitor
and control their subrecipients, our review of seven subrecipients'
grant files identified a subrecipient that suffered from organizational
and financial problems that eventually led to its demise. This
subrecipient was the grantee's second-largest in terms of Section 4
funding, receiving 10 grants that totaled almost $1 million over a 7-
year period. One grant for $143,000 paid for several activities, one of
which was a bad debt--an ineligible expenditure according to OMB
Circular A-122. Since HUD officials do not receive and review
subrecipient grant agreements and payment vouchers, HUD was not aware
of the ineligible cost. The grantee has since taken several steps to
ensure that similar problems do not occur, including having a staff
member perform increased subrecipient monitoring to verify that
sufficient management controls are in place to ensure that grant funds
are used appropriately and effectively. This monitoring includes a full
review of the grant request and award documents, followed by a review
of supporting documentation to verify compliance with allowable
expenses and consistency with the work plan. In addition, site visits
are made to subrecipients that have received large amounts of funding
and a "watch report" is maintained to track all subrecipients that are
late in responding to requests for information.
HUD Does Not Measure the Impact of Section 4 Funding:
HUD has not measured the impact of Section 4 funding on improving the
capacity of its grantees and subrecipients. However, HUD requires its
grantees to submit annual work plans that include specific details of
how federal and private resources will be used and to identify
performance goals and objectives that should be attained during the
grant period. In addition, OMB is currently requiring HUD and the NCDI
grantees to conduct a PART review. PART assessments are used for making
budgeting decisions, supporting management, identifying design
problems, and promoting performance measurement and accountability. The
assessment includes questions on a program's purpose and design,
strategic planning, management, and results. Furthermore, in response
to a GAO report recommendation that HUD require program offices to
determine the practicability of measuring the impact of technical
assistance and establishing objective, quantifiable, and measurable
performance goals, HUD is working with a group of national technical
assistance providers to develop a framework to assess the effectiveness
of its technical assistance programs. [Footnote 15]
Living Cities has also contracted with a consultant to develop impact
measurements for the 23 NCDI cities. Other evaluations[Footnote 16]
have resulted in measures that gauge the capacity-building system in
NCDI cities and categorize organizational capabilities into five
different stages of growth--initiation, demonstration,
professionalization, instutionalization, and maturation.[Footnote 17]
Conclusions:
While Section 4 funds must be used for capacity-building initiatives,
grantees are afforded a great deal of discretion as to how they
administer, use, and oversee these funds. HUD is responsible for
ensuring that grantees are utilizing Section 4 funds according to
federal law and regulations and has several controls in place to ensure
that they do. However, HUD relies primarily on its grantees to make
certain that this responsibility is carried out at the subrecipient
level. We found that grantees generally had good management systems and
controls in place to monitor their subrecipients and to ensure that
they carried out their work plans, met their objectives, and used
federal funds legally and responsibly. However, even with good
controls, problems can still occur, as we found at one CDC. While HUD
has overarching responsibility for detecting such internal control
failures, the cost-effectiveness of adding additional federal controls
at the subrecipient level must be weighed against the size of the
program and the amount of federal funding involved. Given the relative
size of the Section 4 program and the fact that similar problems should
not recur if HUD and the grantees remain vigilant, we do not believe
that additional controls are necessary at this time.
Recommendation for Executive Action:
We recommend that the Secretary of HUD take steps to recover the grant
funds that one Section 4 grantee used to cover a bad debt.
Agency Comments:
In an e-mail dated August 7, 2003, HUD provided technical comments,
which we incorporated into this report as appropriate.
Scope and Methodology:
To accomplish our objectives, we reviewed public laws, federal
regulations, HUD directives, budget documents and other material that
described the Section 4 program, grantees' missions and organizational
structures, and authorized and appropriated funding. To determine how
Section 4 funding has evolved and expanded over the years and how
grantees use Section 4 funding, we interviewed HUD, Living Cities,
LISC, Enterprise, YBUSA, and HFHI officials in national, local, and
rural offices, and subrecipients in Americus, GA; Baltimore, MD;
Boston, MA; Cleveland, OH; Frederick, MD; Hughesville, MD; Kingston,
RI; and Washington, D.C. We collected data from LISC, Enterprise, and
YouthBuild USA showing the number of multiple grants and amounts
provided to CDCs or affiliates. We selected five CDCs/affiliates from
three grantees. For LISC and Enterprise, we chose the CDCs that had
received the greatest number of grants and analyzed the purpose of each
grant. For YBUSA, we selected the affiliates that had received the
highest dollar amounts.[Footnote 18] To create the maps of
subrecipients and cities that received Section 4 funding, we obtained
city data from NCDI, LISC, Enterprise, YBUSA, HFHI, and CHAPA and used
geographical information software (GIS) to create the maps. We used the
same software to create the rural county maps with data obtained from
LISC and Enterprise that listed each CDC categorized as rural and the
counties they served.
To determine the importance of Section 4 funding to private sector
involvement in community development initiatives, we reviewed public
laws, federal regulations, HUD directives, budget documents, and other
materials. We obtained 1994 through 2001 private contribution data from
LISC and Enterprise and 1997 through 2001 data from YBUSA and HFHI. We
obtained matching policy information from HUD and the grantees and
interviewed private funders that had provided either grants or loans to
each of the grantees and subrecipients we visited in Boston, MA;
Baltimore, MD; Frederick, MD; and Kingston, RI. We based our selections
on the subrecipients' proximity to our offices in Washington D.C., and
Boston, MA, and the amount of Section 4 funding they received.
To determine how HUD and Section 4 grantees controlled the management
and measured the impact of Section 4 programs, we reviewed and analyzed
HUD and grantee criteria, processes and procedures for monitoring,
controlling, and measuring performance and tested grantee monitoring
and control procedures at seven subrecipients. In addition, we reviewed
reports prepared by Living Cities and the Urban Institute that
discussed NCDI's history and accomplishments.
We conducted our work from September 2002 through April 2003 in
accordance with generally accepted government auditing standards.
As agreed with your offices, unless you publicly announce the contents
of this report earlier, we plan no further distribution of this report
until 30 days from the report date. At that time we will provide copies
of this report to the Chairman and Ranking Minority Members, Senate
Committee on Banking, Housing, and Urban Affairs; the Chairman and
Ranking Minority Member, House Committee on Financial Services; and the
Ranking Minority Members of its Subcommittees on Oversight and
Investigations and Housing and Community Opportunity. We will also send
copies to the Secretary of Housing and Urban Development and the
Director of the Office of Management and Budget. In addition, the
report will be available at no charge on GAO's Web site at http//
:www.gao.gov.
Please contact me at (202) 512-8678 if you have any questions about
this report. Key contacts and contributors are listed in appendix I.
Thomas J. McCool
Managing Director, Financial Markets and Community Investment:
Signed by Thomas J. McCool:
[End of section]
Appendix I: Contact and Staff Acknowledgments:
GAO Contact:
Andy Finkel (202) 512-6765:
Acknowledgments:
In addition, Emily Chalmers, Nadine Garrick, Diana Gilman, John
McGrail, John Mingus, Frank J. Minore, and Marc Molino made key
contributions to this report.
FOOTNOTES
[1] Capacity building can generally be defined as strengthening the
capabilities of program recipients or providers--typically housing or
community development organizations--to build institutional knowledge
within those organizations. Among other things, capacity-building
assistance can include funding for training, hiring staff, purchasing
software, obtaining expertise from outside sources, and developing
accounting systems and strategic plans. Technical assistance can
generally be defined as training designed to improve performance or
management. Congress and HUD sometimes use the terms interchangeably.
[2] Community development corporations are neighborhood-based nonprofit
organizations that are involved in initiatives that focus on improving
the economic, social, and physical condition of their communities.
[3] Affiliates are independent, locally run nonprofit organizations
joined to national organizations by an agreement. HFHI affiliates agree
to build low-income housing, while YBUSA affiliates agree to provide
job training, education, counseling, and leadership development
opportunities through the construction and rehabilitation of affordable
housing.
[4] Federal regulation 24 CFR 84.23 specifies what constitutes a
matching contribution and how it is counted and reported. These
contributions cannot be included to meet the matching requirements of
any other federally assisted program and cannot be paid by the federal
government under another award.
[5] OMB Circular A-122 indicates that, among other things, bad debts
are ineligible for federal funding.
[6] PART is a series of questions designed to provide a consistent
approach to rating programs across the federal government.
[7] Prior to becoming Living Cities, NCDI was a virtual organization
handled by consultants. NCDI did not have staff or occupy office space.
Living Cities now has staff and oversees NCDI's operations.
[8] Under the Housing and Community Development Act of 1992, "Hope for
Youth: Youthbuild," HUD awarded Youthbuild programs grants and
contracts totaling $403 million for fiscal years 1993 to 2002. In
addition to capacity-building funds, YBUSA has received funds from HUD
to provide technical assistance to Youthbuild program recipients.
[9] None of the grantees distinguish between rural and tribal programs.
[10] NCDI's goals coincided with HUD's program goals in the Community
Development Block Grant Program and the Home Investment Partnerships
Program (HOME). Both programs emphasize the use of neighborhood-based,
nonprofit community development organizations to provide affordable
housing and economic development in low-income neighborhoods.
[11] Section 4 grants cover a 4-year period. We are only providing
information on the FY 1997 grant for HFHI and YBUSA because it was the
only grant that had been completed at the time of our review.
[12] For its rural and tribal programs, YBUSA generally follows the
Rural Housing Service's requirement that most households receiving
assistance be located in rural communities with fewer than 20,000
residents. HFHI classifies rural counties as those with fewer than
100,000 residents and rural cities as those with no more than 25,000
residents. LISC defines rural counties as those having no cities with
50,000 or more residents. Enterprise considers communities rural if
they have fewer than 50,000 residents.
[13] The Housing Assistance Council is a national nonprofit corporation
created to increase the availability of decent and affordable housing
for rural low-income people.
[14] The operating support collaboratives vary by city. The one in
Cleveland, for example, distributes money competitively each year,
while the one in Washington, D.C., has a 3-year funding cycle. They may
be run by an independent nonprofit organization or as an entity of
Enterprise or LISC. In some instances, subrecipients that received
funds from the operating support collaboratives also received Section 4
grants directly from Enterprise or LISC.
[15] U.S. General Accounting Office, HUD MANAGEMENT: Impact Measurement
Needed for Technical Assistance, GAO-03-12 (Washington, D.C.: Oct. 25,
2002).
[16] Christopher Walker and Mark Weinheimer, "Community Development in
the 1990s" (Washington, D.C.: The Urban Institute, September 1998); and
Weinheimer and Associates, "HUD Section 4: Building the Capacity of
CDCs," (Washington, D.C.: Assessment Report, June 2001).
[17] Initiation refers to the first stage of growth, when a civic or
church group forms to provide a social service or advocate on an issue.
The group lacks staff or at least lacks staff trained in development.
Demonstration occurs when an existing group assumes an initial program
in community development. The new CDC lacks staff and relies on
volunteers. In the third stage, professionalization, the CDC takes on
larger projects (20-30 units) or builds several homes and is able to
secure funds for staff and more projects. When a CDC reaches the fourth
stage, institutionalization, the staff has developed expertise and taps
into public and private sources of support that is enabling it to do
one large project after another. A CDC has reached maturation when it
can maintain a consistent level of staff expertise, manage multiple
projects simultaneously, and move into new programs that meet community
needs.
[18] The criteria differed for YBUSA because of the shorter grant time
frame. Habitat for Humanity was not included in this analysis because
it does not allow affiliates to receive multiple grants in any Section
4 grant cycle.
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