The Community Development Block Grant program distributes roughly $3.3 billion each year to local governments for housing, infrastructure, public facilities, and economic development, and CDBG funding and eligibility rest on two questions: is your jurisdiction on the direct-allocation track or the state-administered track, and does the activity you want to fund meet one of three national objectives written into federal law. Cities that are principal cities of a metro area, other metro cities of at least 50,000, and urban counties of at least 200,000 receive money straight from HUD. Smaller cities and rural counties compete through their state. Every funded activity, on either track, has to benefit low- and moderate-income people, help eliminate slums or blight, or address an urgent community need.
Who Gets CDBG Money
HUD splits the country into two tracks based on population, and which track you fall into decides whether you get an annual allocation automatically or apply through your state.
Entitlement communities receive their allocation directly from HUD each year by formula. Three types of jurisdictions qualify: principal cities of Metropolitan Statistical Areas, regardless of population size; other metropolitan cities with populations of at least 50,000; and qualified urban counties with populations of at least 200,000, counted excluding residents of any entitled cities within the county.1HUD Exchange. CDBG Entitlement Program Eligibility Requirements
Non-entitlement areas are the smaller cities and rural counties that fall below those thresholds. HUD sends their share of CDBG funding to the state government, which distributes it under state-set priorities. Most states run a combination of competitive scoring and open applications, evaluating projects against state-identified needs.2HUD Exchange. State CDBG Program Eligibility Requirements If you’re in a smaller community, your first call should be to your state’s community development office rather than HUD directly.
Individuals and private businesses cannot apply for CDBG funds. The grantee is always a unit of local government or, on the state track, the state itself, which may then pass funds through to nonprofits, developers, or businesses as subrecipients.
The Three National Objectives Every Project Must Meet
No matter how worthwhile a project sounds, it cannot receive CDBG funding unless it satisfies one of the three national objectives set in federal law. Grantees certify compliance with these objectives as a condition of the annual allocation.
Benefiting Low- and Moderate-Income Persons
This is by far the most-used objective. HUD defines low and moderate income as household income at or below 80 percent of area median income for the jurisdiction. The statute requires that at least 70 percent of a grantee’s total CDBG expenditures, measured over a period of up to three years chosen by the grantee, benefit people in this income range.3Office of the Law Revision Counsel. 42 USC 5304 – Statement of Activities and Review An activity can qualify by serving residents of a primarily low-income area, running a service where at least 51 percent of users are low- or moderate-income, creating jobs primarily held by low-income workers, or directly assisting an individual low-income household.
Eliminating Slums or Blight
Activities that address physical deterioration in a formally designated slum or blighted area qualify here. A jurisdiction can also use a spot-blight approach for individual properties that meet the definition of blight under state or local law, even when the surrounding area has not been designated. Typical examples include demolishing a structurally unsound building or rehabilitating a code-violated commercial property.
Meeting an Urgent Community Need
This is the narrowest and least-used objective. It applies when existing conditions pose a serious and immediate threat to community health or welfare, the jurisdiction cannot find other funding to address the problem, and the need arose recently. Disaster response is the most common scenario. HUD scrutinizes urgent-need claims closely, so most grantees rely on the first two objectives for the vast majority of spending.4Office of the Law Revision Counsel. 42 USC 5301 – Congressional Findings and Declaration of Purpose
What CDBG Funds Can Pay For
Federal law lays out a broad menu of eligible activities. Housing rehabilitation is among the most common uses: bringing deteriorated homes up to code, converting vacant buildings into affordable units, and helping low-income homeowners with critical repairs. Infrastructure work, including replacing aging water and sewer lines, repaving streets, and upgrading sidewalks for accessibility, also draws significant funding.
Public facilities are eligible, including community centers, health clinics, parks, and libraries serving low-income neighborhoods. Economic development is on the list too. Local governments can extend loans or grants to small businesses that agree to create jobs or provide needed services in underserved areas, fund job training and microenterprise assistance, and pay for commercial building rehabilitation in struggling business corridors.
Beyond bricks and mortar, grantees can spend on public services like youth programs, senior services, substance abuse counseling, and fair housing activities. Federal law caps public service spending at 15 percent of a grantee’s annual allocation. Code enforcement in declining neighborhoods, property acquisition, clearance and demolition of blighted structures, and historic preservation are also eligible.5Office of the Law Revision Counsel. 42 USC 5305 – Activities Eligible for Assistance
What CDBG Funds Cannot Pay For
The prohibited list catches applicants off guard.
- Buildings used for the general conduct of government, such as city halls and administrative offices. Removing accessibility barriers from those buildings is the one exception.
- Routine operating costs a local government would incur regardless of the CDBG program.
- Partisan political activities, voter transportation, and candidate forums. A CDBG-funded facility can host political events on an incidental basis only if all parties get equal access.
- Most equipment purchases. Buying construction equipment outright is ineligible, though leasing costs can be charged to an eligible project. Fire protection equipment is an exception because HUD treats it as part of a public facility.
- New residential construction from scratch, with narrow exceptions. Rehabilitation of existing housing is fine and is one of the program’s most common uses.6eCFR. 24 CFR Part 570 – Community Development Block Grants
How to Apply
The path depends on your track. Entitlement communities prepare their own Annual Action Plan and submit it to HUD. Non-entitlement applicants compete through their state, usually through Grants.gov or a state-specific portal, under scoring criteria that vary by state.
Before drawing down any CDBG funds, a jurisdiction must adopt a Consolidated Plan covering three to five years. The plan doubles as a needs assessment and a strategic blueprint: it identifies priority housing, homelessness, and community development needs, sets measurable goals, and describes how CDBG and other HUD funds will address them. It must include an analysis of local housing market conditions, a survey of community development needs organized by CDBG eligibility category, and both short- and long-term objectives. Grantees must consult a wide range of stakeholders, including homeless service providers, health and social service agencies, broadband providers, and emergency management agencies.7eCFR. 24 CFR Part 91 – Consolidated Submissions for Community Planning and Development Programs Each year, the grantee files an Annual Action Plan describing that year’s projects and budget, followed by a performance report evaluating results.
Any entity seeking federal funds must register in the System for Award Management and obtain a Unique Entity Identifier.8eCFR. 2 CFR Part 25 – Unique Entity Identifier and System for Award Management Registration is free at SAM.gov but can take several weeks, so start early.9SAM.gov. Get Started with Registration and the Unique Entity ID
Your application narrative should identify specific project goals, the target population, and the national objective the activity will satisfy, with a detailed budget covering labor, materials, professional services, and administrative expenses. Pull Census data to document that the project area or beneficiary population meets the low- and moderate-income threshold.
Public participation is not optional. Before finalizing the Consolidated Plan or Annual Action Plan, the jurisdiction must publish a summary and provide residents at least 30 calendar days to submit written comments.10eCFR. 24 CFR 91.105 – Citizen Participation Plan; Local Governments At least one public hearing must precede plan adoption, and another must review performance during the program year. The citizen participation plan must specifically encourage involvement from low-income residents, residents of areas where CDBG funds will be spent, and people with disabilities. Substantial public comments require written responses that go into the final submission to HUD. A substantial mid-year change triggers a new 30-day comment period and hearing.
After the Award
Winning a CDBG award is where the real work begins. Several obligations trip up grantees who focused only on the application.
Environmental Review
Every CDBG-funded project must complete a National Environmental Policy Act review before any funds are committed or spent. The local government, not HUD, is responsible for conducting the review in most cases. No one involved in the project, including contractors, subrecipients, and private developers, may take any action that would limit alternatives or produce an adverse environmental impact until HUD or the state approves the review.11eCFR. 24 CFR 58.22 – Limitations on Activities Pending Clearance That means no signing construction contracts, no purchasing property, no beginning demolition. Jumping the gun on any of these steps can disqualify the entire project.
The review produces an Environmental Review Record documenting effects on surrounding areas, historic properties, floodplains, wetlands, and other environmental factors. Scope varies from a simple exemption determination for minor activities to a full environmental assessment for larger construction projects.12HUD Exchange. Orientation to Environmental Reviews
Prevailing Wages
Construction and rehabilitation projects must pay workers the locally prevailing wage set by the Department of Labor. This flows from the Davis-Bacon Act, which applies to federally assisted construction contracts exceeding $2,000.13U.S. Department of Labor. Fact Sheet 66 – The Davis-Bacon and Related Acts Grantees verify that contractors and subcontractors pay the correct rates for each trade classification and keep certified payroll records throughout the project.
Section 3 Hiring
When a CDBG-funded project involves construction and the total HUD award to the grantee exceeds $200,000, the grantee must give hiring priority to low-income area residents. Workers earning at or below 80 percent of area median income qualify, with first priority for residents living within roughly one mile of the project site. Grantees and contractors track and report total labor hours, the share worked by qualifying residents, and the share worked by workers living closest to the site.
Fair Housing
Every grantee certifies that it will affirmatively further fair housing as a condition of receiving funds. In practice, that means analyzing barriers to fair housing choice in the jurisdiction, taking concrete steps to address them, and keeping records of both the analysis and the corrective actions. The obligation reaches the jurisdiction’s entire housing market, not just CDBG-funded activities.3Office of the Law Revision Counsel. 42 USC 5304 – Statement of Activities and Review
Financial Management and Audits
Grantees keep financial systems that track every CDBG dollar from receipt through expenditure and tie each expense to an eligible activity. Under the federal Uniform Guidance, any organization spending $1,000,000 or more in total federal awards during a fiscal year must undergo a single audit.14eCFR. 2 CFR Part 200 – Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards Organizations below that threshold are exempt from the federal audit requirement but still must keep records adequate to demonstrate proper use of funds.
Penalties for Misuse
Submitting false or misleading information on a CDBG application or any related federal document is a felony. Convictions carry a prison sentence of up to five years.15Office of the Law Revision Counsel. 18 USC 1001 – Statements or Entries Generally Individual fines can reach $250,000.16Office of the Law Revision Counsel. 18 USC 3571 – Sentence of Fine
Beyond criminal prosecution, entities that misuse funds or violate program rules face debarment from all federal grants. Federal guidelines provide that debarment generally lasts up to three years, though the debarring official can extend the period when circumstances warrant.17eCFR. 2 CFR Part 180 – OMB Guidelines to Agencies on Governmentwide Debarment and Suspension For a small nonprofit or municipal subrecipient, three years without federal funding can be fatal.
HUD also has enforcement tools short of criminal referral. When a grantee fails to comply with nondiscrimination or other program requirements, HUD can demand corrective action within 60 days. If the grantee does not fix the problem, HUD can refer the matter to the Attorney General for civil action, invoke Civil Rights Act enforcement powers, or withhold future funding.18Office of the Law Revision Counsel. 42 USC 5309 – Nondiscrimination in Programs and Activities Grantees that spend funds on ineligible activities can be required to repay those amounts from non-federal sources.