BILL ANALYSIS Ó
SENATE TRANSPORTATION & HOUSING COMMITTEE BILL NO: ab 232
SENATOR MARK DESAULNIER, CHAIRMAN AUTHOR: v.m. pérez
VERSION: 1/4/12
Analysis by: Mark Stivers FISCAL: yes
Hearing date: June 12, 2012
SUBJECT:
Community Development Block Grant Program
DESCRIPTION:
This bill, for the economic development portion of the Community
Development Block Grant Program, eliminates the dollar-per-job
test and the requirement that benefit to low- and
moderate-income persons be a scoring factor in ranking
applications.
ANALYSIS:
Current federal law establishes the Community Development Block
Grant (CDBG) Program to provide communities with resources to
address a wide range of unique community development needs,
including affordable housing, services to the most vulnerable,
and job creation through the expansion and retention of
businesses. A grantee must use 70 percent of CDBG funds for
activities that benefit low- and moderate-income persons. In
addition, each activity must meet one of three national
objectives for the program: 1) benefit low- and moderate-income
persons; 2) prevent or eliminate slums or blight; and 3) address
urgent community development needs posing a serious and
immediate threat to the health or welfare of the community.
The federal Department of Housing and Urban Development (HUD)
allocates CDBG funds via formula to "entitlement jurisdictions"
(cities over 50,000 population and counties over 200,000
population) and to states for non-entitlement areas. In
California, the Department of Housing and Community Development
(HCD) administers the CDBG Program for non-entitlement areas.
HCD makes CDBG funds available in two general categories:
Community development, which includes housing, public
facilities, public improvements, public services, and
AB 232 (V.M.PÉREZ) Page 2
planning.
Economic development, which includes business assistance,
microenterprise activities, and larger scale economic
development projects.
Current state law requires that HCD make 30 percent of CDBG
funds available for economic development programs. Cities and
counties use these grants in turn to create or retain jobs for
low- and moderate-income persons by making long-term, fixed-rate
loans available to businesses at reasonable interest rates and
with flexible terms. For each business assisted, at least 51%
of the jobs created or retained must be for persons of low- or
moderate-income.
With respect to these economic development activities, federal
regulations require HCD to meet a two-pronged dollar-per-job
test: 1) a maximum of $50,000 per actual individual job, known
as the individual test; and 2) a maximum average of $35,000 per
job statewide over a funding cycle, known as the aggregate test.
Under current state law, however, businesses receiving a loan
through the CDBG program must create or retain at least one job
for every $35,000. In other words, state law sets the maximum
for the individual test at the same level as the maximum for the
aggregate test.
State law also requires HCD, when developing scoring factors for
CDBG economic development awards, specifically to use the three
national CDBG objectives described above.
This bill , for the economic development portion of the CDBG
Program, eliminates the dollar-per-job test in state law, in
effect relying only on the two-pronged federal dollar-per-job
test. The bill also deletes the state law requirement that HCD
use benefit to low- and moderate-income persons as a scoring
factor in ranking economic development applications.
COMMENTS:
1.Purpose of the bill . According to the author, removing the
more restrictive $35,000 dollar-per-job test from state law
conforms with federal law and grants HCD the flexibility to
choose between the two federal tests for determining the
appropriate dollar-per-job standard. The author believes
this will allow HCD to more quickly certify and award funding
for economic development projects across the state.
AB 232 (V.M.PÉREZ) Page 3
2.What allowing larger per job awards will mean in practice .
HCD divides CDBG economic development funds between two
subprograms: the Enterprise Fund and the Over-the-Counter
Program. The former is a competitive program with
applications and awards once a year. As the name implies, the
latter has an open application period, and HCD makes awards
one at a time for major economic development projects until
funds are exhausted.
While federal regulations allow HCD to award as much as
$50,000 per individual job, they also require HCD to award no
more than $35,000 per job in aggregate over the two economic
development subprograms. Given that there are two separate
subprograms with differing application and award timeframes,
as a practical matter HCD under this bill would probably have
to limit all Enterprise Fund awards and early Over-the-Counter
awards to the $35,000 standard and only allow more generous
awards to later applicants, to the extent that room under the
aggregate cap still exists.
In recent years at least, applicants have not always exhausted
funds available in the Over-the-Counter Program within a given
funding year, and these funds have then rolled over to the
following funding cycle. If that trend continues, then giving
HCD the flexibility to make awards of up to $50,000 per job
late in a funding cycle will not necessarily prejudice other
potential applicants. If the trend changes, HCD would still
have the flexibility to maintain the $35,000 per job standard
for all applicants. It should be pointed out, however, that
allowing awards of up to $50,000 per job ultimately is likely
to mean that Over-the-Counter funds will support fewer jobs
overall.
3.Removing a key program priority . Federal law and regulations
require that HCD use 70 percent of its CDBG funds for
activities that benefit low- and moderate-income persons. HCD
may use the remaining 30 percent to address the other two
national priorities: eliminating slums or blight and
addressing urgent community development needs. This bill
deletes the state requirement that HCD use benefit to low- and
moderate-income persons as a scoring factor in ranking
economic development applications. Because state law limits
HCD to spending 30 percent of CDBG funds on economic
development, it could delete benefit to low- and
moderate-income persons as a scoring factor for economic
development awards and still comply with the federal 70
AB 232 (V.M.PÉREZ) Page 4
percent requirement, assuming that all the community
development awards were of benefit to low- and moderate-income
persons. It is unclear, however, what policy benefit would be
derived from that. Does the state want to award scarce CDBG
funds to projects or businesses serving or employing
upper-income families? Moreover, to the extent that HCD might
continue to use benefit to low- and moderate-income persons as
a scoring factor for economic development awards, deleting
that language from the statute may falsely imply to applicants
that benefiting low- and moderate-income persons is no longer
a priority. The committee may wish to consider if any policy
benefits are gained by deleting the language making benefit to
low- and moderate-income persons a program priority for CDBG
economic development loans.
Assembly Votes:
Floor: 75-0
Appr: 17-0
JED&E: 6-0
POSITIONS: (Communicated to the committee before noon on
Wednesday, June 6,
2012)
SUPPORT: None received.
OPPOSED: None received.