CDBG Program

(from Maine Townsman, March 2007)
Douglas Rooks, Freelance Writer


One regularly hears praise for partnerships in government programs – but the praise is often more about the concept than the reality. Yet partnership is the appropriate word to describe the Community Development Block Grant (CDBG) program, which involves federal dollars and close work between state and local governments.

At least in Maine, the CDBG program, now in its 25 th year under its current setup, appears to be a model for how government dollars can be used to good effect, leveraging money from the private sector and rebuilding key parts of often-challenged service center communities.

This was not always the way the program worked. Enacted in 1974, the block grant program was part of the federal government’s attempts, under the Nixon administration, to open a pipeline of federal money to states and cities. Hard as it is now to believe, the federal tax code was producing wads of cash, and programs like CDBG, and even more explicit pass-throughs like revenue sharing, were the order of the day.

In 1982, the Reagan administration sharply cut funding to CDBG’s parent agency, the Department of Housing and Urban Development (HUD), and the federal government stopped making grant decisions, transferring that job to the states. The grants were smaller and the competition became more intense.

In some states, CDBG money became implicated in corruption scandals and state programs were mired in bureaucracy. But not in Maine. Municipal economic and community development officials are unanimous in their praise for staff at the Department of Economic and Community Development (DECD), particularly the director of the Office of Community Development (OCD), Ormand Whitcomb, and Mike Baran, who helps with micro-loan programs.

“Considering that it’s a HUD program, they make it remarkably easy and accessible to apply,” said MathewEddy, development director.

Dave Milan, economic development director in Bucksport, also offered unsolicited praise for the OCD. “There’s a lot of bureaucracy in the federal program, and a lot of rules that aren’t terribly flexible. They do a great job figuring out how to make things work, and they’ll tell you up front if you’re not going to find a way.”

Another aspect of the program that sometimes deters towns and cities from applying is what one development director called the “stigma” of CDBG’s origins as an anti-poverty program. While the grants are still directed at areas of high unemployment and persistent poverty, its goals are considerably broader than they once were.

When the Clinton administration took office in 1993, it went to work beefing up funding for CDBG and also expanded its focus to explicitly include economic development. Mike Duguay was then a young college graduate getting his first responsibilities at OCD, which including writing the state rules for distributing the economic development grants.

“Little did I know that I’d be applying for the same grants 10 years later,” he said – something he’s now doing as Augusta’s economic development director. Augusta is currently trying to put together a package that will allow Kenway Corp., a manufacturer of composite products, including boats, to dramatically expand its production lines. A CDBG grant is pending. “I can tell you that it often makes the difference between a deal happening, and not happening,” said Duguay.

OCD keeps a complete list of CDBG grants since the state began administering the program in 1982, and the results make for interesting reading (see charton next page) As one might expect, the bulk of the $347 million the state has distributed over 25 years has gone to communities with high unemployment and low incomes. To be eligible under the original grant guidelines, communities must have 50 percent low- or moderate-income residents – though, in the case of the economic development update, the requirement applies to wages for potential employees. Communities can also apply for districts within their boundaries, meaning that towns with clusters of deteriorating housing may be eligible even if they don’t meet the overall guidelines.

Whitcomb says that the overall program, which has 14 separate subdivisions, has funding divided roughly by thirds among economic development, housing, and community development. Some categories have strict income guidelines, but others do not. Just about any municipality in Maine could qualify for at least some of the grant programs offered under CDBG. A community can’t apply in the same program two years in a row, he said, and OCD considers past performance in deciding about current applications – particularly whether a municipality has successfully completed the work promised in its previous grant awards.

Where the money goes

The bulk of CDBG money — $16.9 million as of 2004 – is distributed by the state under the “small cities” or “non-entitlement” provisions of the law. The other “entitlement” communities, along with Cumberland County, are Portland ($2.6 million), Bangor ($1.3 million), Lewiston ($1.3 million), Auburn ($800,000) and South Portland ($500,000). That money is distributed each year without a formal application, though these cities must account for spending annually with HUD.

Under the “small cities” program, Aroostook County communities have received by far the largest proportion of CDBG money from the state, 22.3% of the total, or $77.5 million. By contrast, Cumberland County municipalities, the most populous in Maine, has gotten 4.2%, or $14.8 million of the non-entitlement funds. On a per capita basis, Washington County equals Aroostook, receiving 11.2% , or $39 million. Other counties with at least 7 percent of the statewide total are York, Penobscot, Kennebec, and Somerset.

Among competitive grant recipients, Caribou is the all-time leader, with 36 CDBG grants totaling $8.8 million. Fort Fairfield is the runner up (with $8.6 million), following by Rockland, Biddeford and Van Buren. Of the 10 leading recipients, four are from Aroostook County and two from Washington.

While CDBG money is certainly directed to low-income counties, municipalities across the state have increasingly become involved in the program. At least 93 towns and cities (and one plantation) have received at least $1 million in grants over the years, and they come from every region and county. There are few characteristics, however, that tend to predict which towns and cities are more likely to apply, and to be successful in winning grants.

One is sudden economic distress. That was certainly true for Canton, which experienced devastating flooding in 2003 and received five grants totaling $1.6 million over the next four years. It also happened in Corinna, where a woolen mill, the town’s leading employer, shut down and revealed extensive contamination of the Sebasticook River that warranted a Superfund designation and led to infrastructure grants from CDBG.

Another factor is aging housing, such as that found in service center communities which have lost manufacturing jobs and Main Street businesses. CDBG money is important here, local directors say, because it’s so difficult to attract private capital in sections of town that are shunned by new businesses and effectively red-lined by lenders.

Still, some of Maine’s most prosperous communities have won CDBG grants because they understand how to use its relative flexibility over the past decade.

Brunswick has received 10 grants totaling a little over $1 million, most of its during Mathew Eddy’s tenure over the past seven years. Before that, he was equally successful in attracting grants for Westbrook. Not coincidentally, when Cumberland County applied for, and received “urban county” status last year, meaning it receives funding directly from HUD, Brunswick and Westbrook were two of the five municipalities that opted out, meaning that they remain eligible for state grants. In Brunswick, another factor was a supplemental state CDBG grant to contend with the closing of the Brunswick Naval Air Station, Eddy said.

Getting beyond the grants

Sometimes, communities effectively outgrow the CDBG requirements. That was the case with Lisbon, where Daniel Feeney has been economic development director for nine years, following similar work in Augusta and Vinalhaven.

“In the 1980s, the mills that were the town’s major employer shut down. Unemployment shot up to 12 percent,” said Feeney. “The local economy was hurting.”

Town officials got to work, and began using CDBG money wherever possible to stabilize, and then to revive, downtown and its businesses. From 1984-94 the town received nine CDBG grants worth more than $2.5 million. The business center has rebounded since then, with the town counting more than 200 businesses in a recent survey.

As prosperity returned, Lisbon’s focus shifted from stabilizing housing and demolishing derelict buildings to crafting deals that brought new businesses to town. The more recent grants have allowed the town to create a revolving loan fund as the original loans are repaid. One key condition of CDBG grants is that, if businesses supported by the program thrive, the municipality gets to keep the loan payments, including interest. Over time, prudent communities build up capital and can keep lending it to startup companies.

Feeney said that nearly half the businesses in Lisbon have benefited from loans, and that the fund should be self-sustaining. “It’s allowed us to be free from some of the restrictions HUD puts on lending,” he said.

Mathew Eddy said that’s a frequent aspiration among Maine economic development directors. “As soon as you can get out on your own, you should,” he said.

In Bucksport, the micro-loan program started with a specific CDBG grant for that purpose, back in 1996, of $100,000. The town won another $100,000 grant in 2001. Bucksport has parlayed that $200,000 into working capital of more than $340,000 as businesses have repaid their loans, said Dave Milan. He said that of the 20 businesses receiving loans so far, only one has failed. The money often makes the difference between success and failure within the first year, the critical period for most new ventures.

For years, Bucksport was known as the site of the paper mill still usually associated with Champion, despite several changes of ownership since then – or perhaps as a right turn for tourists on the road from Belfast to Bar Harbor. But Bucksport also has a thriving downtown with a diverse mix of stores and business owners who take a broader view of the community (one of them, Richard Rosen, has become the assistant minority leader in the state Senate.)

The micro-loan program, Milan said, is one reason behind that success. Yet it wasn’t something he was enthusiastic about when becoming economic development director six years ago after a long tenure as deputy police chief. “I was used to writing police grant applications,” he said. “I told my boss (Town Manager Roger Raymond) that I didn’t know anything about banking.”

He was told that the loan program went with the job, and, after meeting the members of the micro-loan committee – including a bank official, real estate appraiser, and a former mayor – he agreed to take it on. “It takes a lot of time to do this properly. But the rewards are there for the community,” he said.

Milan and Feeney agreed that one reason more municipalities haven’t started their own micro-loan programs is precisely that reason – it takes a lot more effort than awarding grant money and then documenting the results. Yet for small towns, it’s one of the few tools available to get on with the job of rebuilding after economic decline.

Often, the benefits continue years after the original grant was made. In Fort Kent, direct business assistance goes all the way back to 1984, when a CDBG grant made possible the sale of a clothing manufacturer own by Gerber to a local company called Kent, Inc. The 100,000 square foot facility, which then made baby clothes, is still in business as Creative Apparel, employing 70-80 people and working mostly with the military; the plant now makes protective suits for soldiers in Iraq. Proceeds from the original loan have been recycled many times since then, and Fort Kent has one of the few bustling downtowns in Aroostook County as a result.

John Bannen, who moved from Portland several years ago to the northern tip of Maine to become economic development director, said Fort Kent’s success was prompted by a realization that the mill and farming economy that built the County was rapidly changing. “We’ve managed to keep businesses open that otherwise would have closed. We’ve kept our core, and that’s helped us preserve a clean, friendly, attractive downtown.” Among the CBDG-funded improvements was removing the utility poles from Main Street and putting the wires underground.

A few towns have been active in the program and then left it behind. That was the case in Mechanic Falls, which was another Maine community hard-hit by mill closings in the 1980s. From 1984-95 Mechanic Falls secured more than $2 million in CDBG grants for infrastructure, downtown redevelopment, and a micro-loan program. At the time, it employed an economic development director but the position was eliminated after the town bounced back, said Town Manager John Hawley.

But Mechanic Falls still applies for grants, and is currently commissioning a housing study to see if apartment blocks near downtown would qualify for the program. “Personal income has improved markedly for us,” he said, “so we don’t qualify for some aspects of the program.” But since portions of the community still need rebuilding, CDBG can still be useful, he said.

Tools in the toolbox

In Augusta, Mike Duguay said he believes towns and cities should see CDBG “as another tool in the toolbox” for development. Too often, he said, officials “see money out there and try to figure out a way to get it.” Municipalities are better off, he said, to plot their own course and set objectives, and then see how a program might fit into it. The Kenway Corp. project was such as program; earlier, a grant for a call center in the old Digital Equipment building was put together rapidly, and allowed Maine to attract a company that otherwise would have expanded in Maryland. “Not every project is like that,” he said. “You have to know how to pick your spots.”

Dave Milan agrees with that approach. Bucksport put together a comprehensive plan in 1995 that was supposed to take 10 years to implement. “By 2003, we had done everything we said we would do, and it was time for an update,” he said. CDBG, he added, “has been a big part of that success.”

Dan Feeney likes to quote former Augusta Mayor Bill Burney about the purposes of grants like CDGB. The important thing is to use such money for the appropriate purpose, which is the best way to get it again in the future. When Feeney worked for Augusta, Burney liked to tell him, “We don’t want you polishing a sneaker.”