What Is the CDBG Program and How Does It Work?

The Community Development Block Grant (CDBG) program is the federal government’s largest and longest-running source of flexible funding for local community development, sending roughly $3.3 billion a year to cities, counties, and states to spend on their own priorities. The U.S. Department of Housing and Urban Development runs the program, but local officials pick the projects, subject to a set of federal rules: every dollar must meet one of three national objectives, most of the money must benefit lower-income residents, and specific activities are off-limits. Congress created the program through the Housing and Community Development Act of 1974, folding several narrower grants into a single flexible fund.¹

Who Gets the Money

CDBG funding splits into two streams. Seventy percent goes directly to “entitlement communities” — larger cities and counties that receive their own annual grants from HUD. The other 30 percent goes to state governments, which then pass it through to smaller communities that don’t meet the entitlement thresholds.² An additional 1 percent is set aside for Indian tribes through a separate competitive process.

A metropolitan city qualifies as an entitlement community if it’s the central city of a metropolitan area or has a population of at least 50,000 within a metro area. An urban county qualifies if it sits inside a metropolitan area, has a population of at least 200,000 (excluding residents of any metropolitan cities within it), and has at least 100,000 people combined across its unincorporated areas and participating local governments.³

Communities below those thresholds are “non-entitlement.” They don’t get money directly from HUD. They apply to their state’s CDBG program instead, competing against other small communities in the state under criteria and deadlines the state agency sets.

Individual grant amounts are calculated by formula, not competition. HUD runs two formulas that weigh population, poverty, housing age, overcrowding, and growth lag; each entitlement grantee receives the higher of the two calculations.² If you qualify as an entitlement community, your annual share arrives without a competitive application.

What CDBG Funds Can Pay For

The statute authorizes a broad menu of eligible activities, which is why one grantee might use CDBG money to fix water lines, another to rehabilitate housing, and a third to run a youth employment program.⁴ Common uses include:

Acquiring blighted, deteriorated, or undeveloped real property for public purposes, including historic preservation.
Building or improving public facilities and infrastructure such as water and sewer systems, streets, neighborhood centers, senior centers, and accessibility improvements.
Demolishing unsafe structures and rehabilitating residential or commercial buildings.
Enforcing housing and building codes in declining neighborhoods where enforcement, combined with other improvements, can arrest deterioration.
Funding public services such as employment programs, childcare, health services, crime prevention, education, and recreation.
Providing relocation assistance to residents and businesses displaced by CDBG-funded projects.

That flexibility was the whole point of consolidating the earlier categorical grants: Congress wanted communities to solve local problems rather than force projects into narrow federal boxes.

What CDBG Funds Cannot Pay For

The flexibility has hard edges. Federal regulations spell out categories of ineligible spending that regularly trip up grantees:⁵

Buildings used for the general conduct of government. Removing accessibility barriers in those buildings is allowed, but building or renovating them is not.
Routine operating expenses of local government, including salaries unrelated to CDBG work.
Political activities, including voter registration drives, candidate forums, and voter transportation.
General equipment, construction vehicles, and furnishings, with narrow exceptions for fire protection equipment and equipment used to run the CDBG program itself.
Day-to-day operating and maintenance costs of a park, sewer, or community center, even one that CDBG dollars built.

The operating-and-maintenance rule catches communities off guard. A city can use CDBG money to build a new neighborhood center, then discover it cannot use CDBG money to keep the lights on. Upkeep has to come from the local budget or another source.

The Three National Objectives

Every CDBG-funded activity must meet one of three national objectives. Failing to document this is one of the most common audit findings.

Benefit to Low- and Moderate-Income Persons

The primary objective is serving households earning less than 80 percent of area median income. At least 51 percent of the people benefiting from an activity must fall below that threshold.⁶ There are four ways to document this: area benefit, where the activity serves a neighborhood in which at least 51 percent of residents are low- and moderate-income; limited clientele, where the activity serves a group presumed to be low- and moderate-income, such as elderly residents or people with disabilities; housing, where the units will be occupied by qualifying households; and jobs, where at least 51 percent of the jobs created or retained go to low- and moderate-income workers.⁷

Prevention or Elimination of Slums and Blight

An activity can qualify by addressing physical deterioration or hazardous conditions inside a designated blighted area, or on a spot basis for individual blighted structures. This gives grantees a path for projects that don’t primarily serve a low-income population.

Urgent Need

This narrow objective applies to conditions posing an immediate threat to community health or welfare, typically after natural disasters. Grantees must show that no other funding is available. HUD reads this category strictly, and grantees shouldn’t plan around it for routine work.

The 70 Percent Rule and Spending Caps

Beyond the project-level test, there’s a portfolio-level rule. Over a period of up to three years, at least 70 percent of a grantee’s CDBG spending must benefit low- and moderate-income persons.⁸ Planning and administration costs are left out of that calculation. The remaining 30 percent can go to slum-and-blight or urgent-need activities.

Two other caps constrain how the money is allocated. Public service spending cannot exceed 15 percent of the annual grant plus 15 percent of the prior year’s program income.⁹ Planning and administrative costs are capped at 20 percent.¹⁰ The public services cap is the tighter of the two in practice. A city with a $2 million grant can spend at most $300,000 on employment programs, health services, youth programs, and similar activities, which reflects the program’s original emphasis on physical development.

How to Receive Funds

Every grantee has to produce a Consolidated Plan, a five-year strategy document that includes a needs assessment, a housing market analysis, and a list of priority projects.¹¹ Each year within that five-year window, the grantee also files an Annual Action Plan describing how the coming year’s allocation will be spent.

A Citizen Participation Plan runs alongside the Consolidated Plan. Federal law requires public hearings at convenient times and accessible locations, resident access to spending records, technical help for low-income groups drafting proposals, and written responses to complaints within 15 working days.¹²

The formal application uses Standard Form SF-424 along with the plan submissions, filed through HUD’s online systems.¹³ HUD has 45 days to review; if the agency doesn’t notify the grantee of disapproval within that window, the plan is automatically deemed approved.¹¹ The 45-day clock starts when HUD receives the last required item.¹⁴

Rules That Shape How Projects Get Done

Environmental Review Before Any Commitment

A grantee cannot commit CDBG funds to a project until the environmental review is finished and HUD has approved a Request for Release of Funds. Committing funds prematurely, including spending non-federal dollars on a project that will later receive CDBG money, can result in HUD withholding funds or imposing sanctions.¹⁵ Reviews address factors including noise, air quality, floodplains, wetlands, and impacts on historic properties, and can take months. Breaking ground before the review is complete can jeopardize the entire grant.

Davis-Bacon Prevailing Wages

Construction work funded with CDBG dollars must pay Department of Labor prevailing wages for the local area.¹⁶ For residential rehabilitation, the requirement applies only to projects involving eight or more units. The general Davis-Bacon threshold for federal contracts is $2,000.¹⁷ Grantees have to monitor contractor payrolls and keep compliance records throughout the project.

Relocation Assistance

When CDBG projects displace residents or businesses, the Uniform Relocation Assistance Act requires at least 90 days’ written notice before requiring anyone to vacate, reimbursement for moving expenses, and payments to cover the added cost of comparable replacement housing.¹⁸ When the project demolishes or converts low- and moderate-income housing, Section 104(d) of the Housing and Community Development Act adds a one-for-one replacement obligation for every occupied or occupiable unit lost. Displaced lower-income residents can choose assistance under whichever framework is more favorable: 42 months of rental assistance under the Uniform Relocation Act or 60 months under Section 104(d). Overlooking these obligations during planning can produce unexpected costs that derail project timelines.

Timeliness in Spending

After a plan is approved, grantees draw funds and report progress through HUD’s Integrated Disbursement and Information System.¹⁹ HUD also enforces a timeliness standard. Sixty days before the end of each program year, a grantee’s unspent line-of-credit balance cannot exceed 1.5 times its most recent annual grant. A grantee sitting on too much unspent money risks having future allocations reduced.²⁰ The bottleneck is usually environmental review or procurement rather than a shortage of projects, which is why experienced administrators keep a pipeline of shovel-ready activities ready to move.

1
U.S. Government Publishing Office. Housing and Community Development Act of 1974
2
Office of the Law Revision Counsel. 42 USC 5306 – Allocation and Distribution of Funds
3
Office of the Law Revision Counsel. 42 USC 5302 – General Provisions
4
Office of the Law Revision Counsel. 42 USC 5305 – Activities Eligible for Assistance
5
eCFR. 24 CFR 570.207 – Ineligible Activities
6
Data.gov. Low to Moderate Income Population by Block Group
7
HUD Exchange. Basically CDBG Chapter 3 – National Objectives
8
eCFR. 24 CFR 570.200 – General Policies
9
eCFR. 24 CFR 570.201 – Basic Eligible Activities
10
Federal Register. Changes to Accounting Requirements for the Community Development Block Grants CDBG Program
11
eCFR. 24 CFR Part 91 Subpart F – Other General Requirements
12
Office of the Law Revision Counsel. 42 USC 5304 – Statement of Activities and Review
13
U.S. Department of Housing and Urban Development. Standard Application Forms, Certifications, and Other Attachments
14
HUD Exchange. When Is the Consolidated Plan Considered to Be Officially Submitted
15
eCFR. 24 CFR Part 58 – Environmental Review Procedures for Entities Assuming HUD Environmental Responsibilities
16
Office of the Law Revision Counsel. 42 USC 5310 – Labor Standards
17
U.S. Department of Labor. Davis-Bacon and Related Acts
18
HUD Exchange. Basically CDBG for States – Chapter 14 – Relocation and Acquisition
19
U.S. Department of Housing and Urban Development. IDIS for CDBG Entitlements – Activity Processing
20
HUD Exchange. What Is Timeliness in the CDBG Program