Leveraging Federal Funds for Housing, Community, and Economic Development

Each year the federal government funds numerous affordable housing and community and economic development initiatives through an array of programs, such as the Department of Housing and Urban Development's (HUD) Section 108 Loan Guarantee (Section 108) program. Yet, the need for federal money to fund these initiatives has continued to grow, while the federal budget increasingly has been strained by other competing funding priorities. To help finance their initiatives and achieve program goals, recipients of funding under these federal programs often have combined or "leveraged" their funds with other federal, state, local, and private sector resources. While leveraging is generally recognized favorably by public and private sector officials, its use in federal programs has not been widely analyzed. This report responds, in part, to Congress's request that we examine leveraging as it relates to federal housing, community, and economic development programs. Specifically, this interim report (1) examines the perspectives of stakeholders--government and industry officials, academics, and others with knowledge of or experience with leveraging--on the use, implications, and measurement of leveraging in housing and community and economic development programs and (2) describes the type of data HUD collects that could be used to determine the extent of leveraging in the Section 108 program. Additionally, enclosure II describes how federal funds may have been or could be leveraged in the Section 108 program.

Leveraging can be a useful tool for financing affordable housing and community and economic development and generally is regarded favorably by public and private sector officials; however, its use may have unintended consequences, and commonly used measures of leveraging have certain limitations. Leveraging can occur at an institutional level (to fund multiple initiatives) and at a project level (to fund a discrete activity or development). Leveraging also may occur because programs require that program dollars be matched with other funds or because program dollars are limited and participating communities or other recipients need to seek additional funds for their initiatives. Although stakeholders we interviewed and the literature we reviewed generally regarded leveraging as useful, they also noted that it may have implications such as inefficiencies resulting from differing application and reporting deadlines in public programs and the potential substitution of federal for private funding, which could direct scarce federal funds from the neediest communities. Finally, stakeholders and the literature agreed that the most common way to describe the extent of leveraging for programs or projects is through a ratio, which expresses the proportion of dollars that other sources contributed against dollars that the program contributed. However, most of our interviewees said that what a ratio can reveal about the success or efficiency of funding a program or project depends partly on the circumstances of the development, such as its location and the availability of potential investors. HUD collects data on the other sources and amounts of funds communities plan to leverage with Section 108 loan funds to finance various housing and community and economic development projects. HUD maintains these data in Section 108 memorandums, which the agency prepares as a record of actions taken with respect to a Section 108 loan guarantee application. However, because these data represent projected sources and amounts of funding, they cannot be used to determine the actual amount of leveraging in the Section 108 program. Nonetheless, available data on projected funding can provide insight into the extent to which communities planned to leverage Section 108 loan funds with other federal, state or local, and private sources.