The Community Development Block Grant, known as CDBG, is a federal formula grant that sends roughly $3.3 billion a year from the Department of Housing and Urban Development to cities, counties, and states, which then decide locally how to spend it on housing, infrastructure, and economic development that primarily benefits lower-income residents.1HUD Exchange. CDBG Laws and Regulations Congress created the program in the Housing and Community Development Act of 1974 by folding seven narrower aid programs into a single flexible grant. That flexibility is the point: as long as a project meets one of three national objectives and follows the federal rules on how the money is spent, the local government picks the projects.
Where the Money Comes From and How It’s Split
HUD runs two formulas and gives each eligible jurisdiction whichever one produces the bigger grant. Formula A weighs population at 25 percent, people in poverty at 50 percent, and overcrowded housing at 25 percent. Formula B weighs poverty at 30 percent, pre-1940 housing stock at 50 percent, and lagging population growth at 20 percent.2Congress.gov. Community Development Block Grants: Funding and Allocation Formula B tends to favor older Northeastern and Midwestern cities; Formula A tends to favor faster-growing Sun Belt communities with higher poverty counts.
Congress appropriated roughly $3.4 billion for the Community Development Fund, which includes CDBG, in FY2025 and continued funding at that level for FY2026 after a presidential budget proposal to eliminate the program.3Congress.gov. Department of Housing and Urban Development (HUD): FY2026
Recipients come in two flavors. Entitlement communities get their grant directly from HUD. A community qualifies as an entitlement grantee if it is a principal city of a metropolitan statistical area, a metropolitan city of at least 50,000 residents, or a qualified urban county of at least 200,000 (excluding any entitled cities inside the county).4HUD Exchange. CDBG Entitlement Program Eligibility Requirements Everyone else is non-entitlement. Those smaller cities and rural areas don’t deal with HUD directly. Each state receives a share of the funds and runs its own process to distribute money to non-entitlement communities, with its own deadlines, scoring, and priorities.
The Three National Objectives
Every activity paid for with CDBG dollars must meet at least one of three national objectives. Missing documentation on which objective a project satisfies is one of the most common monitoring findings HUD issues.5eCFR. 24 CFR 570.208 – Criteria for National Objectives
The first and by far most common is benefiting low- and moderate-income persons. For CDBG, that means households at or below 80 percent of the area median income as HUD calculates it, so the dollar cutoff shifts from one metro to the next. A project can qualify by serving an area where at least 51 percent of residents are low- or moderate-income, by serving a specific presumed-eligible group such as elderly residents or homeless individuals, by improving homes occupied by qualifying households, or by creating jobs where at least 51 percent go to lower-income workers.
The second is preventing or eliminating slums and blight. A community can designate an entire blighted area and fund improvements across it, or address a single deteriorated property. Either way, the documentation has to show real physical decay, not just economic weakness or aesthetics.
The third is meeting urgent community needs, and it’s rare. It requires a serious and immediate threat to health or welfare, a condition that arose within the previous 18 months, and no other funding source available to address it. Disaster recovery is the usual scenario.
What the Money Can and Can’t Pay For
The eligible activity list at 24 CFR Part 570, Subpart C is intentionally wide.6eCFR. 24 CFR Part 570 Subpart C – Eligible Activities The most common uses include:
- Acquiring or disposing of property for public use or redevelopment.
- Rehabilitating existing residential properties, particularly for safety and energy efficiency.
- Building or upgrading public facilities and improvements: water and sewer, streets, community centers, parks.
- Funding public services such as employment programs, health services, child care, youth programs, and crime prevention.
- Demolishing vacant, abandoned, or dangerous buildings.
- Providing loans or grants to businesses for economic development that creates jobs for lower-income workers.
The New Housing Construction Ban
One rule surprises a lot of first-time grantees: CDBG generally cannot pay to build new permanent housing. The prohibition sits at 24 CFR 570.207(b)(3).7eCFR. 24 CFR Part 570 – Community Development Block Grants Rehabilitating existing homes is fine; building a house from the ground up is off-limits in most cases. The exceptions are narrow: last-resort replacement housing for people a CDBG project displaces, direct homeownership assistance to lower-income buyers, and construction by qualifying community-based development organizations. Shelters and group homes for people with special needs count as public facilities, not residential housing, so they sit outside the ban.
Ineligible Activities
Some uses are barred outright. CDBG cannot pay for buildings used for the general conduct of government, such as city halls or legislative chambers. It cannot fund political activity, including voter registration drives, candidate forums, or partisan events. And it cannot provide ongoing income payments to individuals for food, clothing, or rent, though emergency payments to service providers on a household’s behalf are allowed for up to three consecutive months.8eCFR. 24 CFR 570.207 – Ineligible Activities
The Spending Caps That Shape Every Budget
Three numbers govern how any grantee builds its budget.
The overall benefit rule is the big one. Over a period of up to three years that the grantee chooses in its certification, at least 70 percent of total CDBG expenditures must benefit low- and moderate-income persons. Administrative and planning costs are excluded from that calculation, so the 70 percent applies to actual project spending.9eCFR. 24 CFR 570.200 – General Policies A community can fund the occasional slum-and-blight project that doesn’t directly serve lower-income households, but the bulk of the portfolio has to target them.
Public services are capped at 15 percent of the annual grant, plus 15 percent of the prior year’s program income. Combined administration and planning costs, across the state and its funded local governments, cannot exceed 20 percent of the grant.10eCFR. 24 CFR 570.489 – Program Administrative Requirements
How a Community Actually Gets and Manages the Funds
Receiving CDBG money requires a stack of planning documents.
Before any funds arrive, the jurisdiction produces a Consolidated Plan covering three to five years. It analyzes housing needs, market conditions, and strategic priorities. Inside that window, each year the grantee submits an Annual Action Plan naming the specific projects, the households expected to be served, and the timeline.11eCFR. 24 CFR Part 91 – Consolidated Submissions for Community Planning and Development Programs
Every grantee must also adopt a Citizen Participation Plan, hold at least two public hearings a year at different points in the cycle, document all written and oral comments, and explain in the final plan why any comments weren’t accepted. The formal application uses Standard Form 424, which requires the organization’s Unique Entity Identifier, EIN, and project location codes.12Grants.gov. SF-424 Family Most entitlement grantees submit plans and track finances through HUD’s Integrated Disbursement and Information System (IDIS), which HUD also uses to monitor grantees and report to Congress.13HUD Exchange. IDIS: Integrated Disbursement and Information System HUD deems a plan approved if it raises no issues within 45 days.14Congress.gov. HUD’s Consolidated Planning Process: An Overview
Environmental Review Before Any Money Moves
Every CDBG project must clear environmental review under 24 CFR Part 58 before funds are committed or work begins. The responsible entity, usually the local government rather than HUD, conducts the review, documents it in an Environmental Review Record, and certifies compliance with the National Environmental Policy Act. Until HUD or the state approves the certification and the Request for Release of Funds, no participant, whether the grantee, a developer, or a contractor, may commit HUD funds or take physical action on the site.15eCFR. 24 CFR Part 58 – Environmental Review Procedures for Entities Assuming HUD Environmental Responsibilities Communities manage the process electronically through HUD’s Environmental Review Online System (HEROS).16HUD Exchange. HUD Environmental Review Online System (HEROS) Starting work early can get the activity disallowed and force the community to repay federal funds out of its own budget.
Strings Attached Once You Accept the Money
Taking CDBG dollars pulls in a set of federal cross-cutting requirements that apply no matter which national objective the project meets.
Davis-Bacon prevailing wages apply to any CDBG-assisted construction contract over $2,000. Because the threshold is so low, virtually every construction project funded with CDBG triggers the rule, and grantees have to collect certified payrolls from contractors and subcontractors.17U.S. Department of Labor. Davis-Bacon and Related Acts
Grantees also certify that they will affirmatively further fair housing. Under rules revised in April 2025, that certification is satisfied by taking any action rationally related to promoting housing that is affordable, safe, decent, free from unlawful discrimination, and accessible. The revision eliminated the earlier Analysis of Impediments requirement, though grantees still keep records on the racial, ethnic, and sex characteristics of applicants and beneficiaries.18Federal Register. Affirmatively Furthering Fair Housing Revisions
When a project displaces tenants or owners, the Uniform Relocation Act requires advisory services, moving expenses, and replacement housing assistance. Displaced renters choosing assistance under Section 104(d) of the Housing and Community Development Act receive a rental assistance payment equal to 60 times the monthly gap between their old housing costs and a comparable replacement, along with reasonable security deposits and credit check fees.19eCFR. 24 CFR Part 42 – Displacement, Relocation Assistance, and Real Property Acquisition for HUD and HUD-Assisted Programs These costs are easy to underestimate at the front end.
Staying Compliant and What Happens If You Don’t
HUD expects the money to move. Sixty days before the end of each program year, a grantee’s line-of-credit balance cannot exceed 1.5 times its most recent annual grant. Failing that timeliness test can reduce future grants.20HUD Exchange. What is Timeliness in the CDBG Program?
Revenue generated by CDBG activities, such as loan repayments, sale proceeds, or interest on a revolving fund, is program income. Grantees that retain program income have to treat it as CDBG funds subject to the same rules, and they must spend program income before drawing more federal dollars from the Treasury.21eCFR. 24 CFR 570.504 – Program Income
Within 90 days after the close of each program year, the grantee submits a Consolidated Annual Performance and Evaluation Report (CAPER) comparing actual spending to the plan, counting households served, breaking down beneficiary demographics, and describing fair housing actions.11eCFR. 24 CFR Part 91 – Consolidated Submissions for Community Planning and Development Programs
Enforcement is graduated. HUD typically starts with a monitoring visit, then a letter identifying findings and a deadline to fix them. If a grantee stays out of compliance, HUD can terminate payments, reduce current or future grants by the amount spent in violation, limit remaining funds to compliant activities, or condition further spending on specific corrective steps. It can also withhold, reduce, or withdraw a grant a state passed through to a local government. Funds already spent on eligible activities aren’t clawed back from local governments, but improperly spent funds can be. In serious cases HUD can refer the matter to the U.S. Attorney General for a civil action to recover misspent funds or obtain injunctive relief. Before a formal sanction takes effect, the grantee gets written notice and 14 days to request a hearing before an Administrative Law Judge, with HUD carrying the burden of proof and judicial review available afterward.22eCFR. 24 CFR 570.496 – Remedies for Noncompliance; Opportunity for Hearing
Borrowing Against Future Grants: Section 108
For projects too large for a single year’s grant, CDBG recipients can use the Section 108 Loan Guarantee Program to obtain federally guaranteed, low-cost financing for economic development, housing rehabilitation, public facilities, and infrastructure. The community pledges its current and future CDBG allocations as collateral, which means a default would reduce or eliminate future CDBG funding.23HUD Exchange. Section 108 Loan Guarantee Program It’s a bigger lever than a straight grant, and the collateral structure makes the downside bigger too.