Matching funding sources to economic development initiatives
Even the most resilient local communities and states struck by natural disasters need to tap into federal government assistance for their recovery efforts. In terms of post-disaster economic development, the most relevant funding sources are HUD’s CDBG-DR grants and U.S. Economic Development Administration (EDA) disaster recovery grants.
Multiple funding entities and requirements can get complicated. Grantees should know how to use the different federal funding sources available to spur local reinvestment and economic recovery. It’s important to understand what types of projects are best targeted to each federal investment and how funding sources can be combined for the greatest impact.
What type of funding should you target?
While there are similarities in the types of projects that can be funded with CDBG-DR and EDA disaster grants, there are important differences that may impact the decision to use one source of funding or the other. The primary focus of CDBG-DR funding is to assist with long-term recovery. All funded activities must have a direct tie back to the qualifying disaster and must meet HUD requirements to primarily benefit low- and moderate-income (LMI) individuals and households. EDA-funded projects assist with economic resilience and long-term recovery from natural disasters to ensure that impacted communities are globally competitive.
Job creation and/or retention, while important to EDA, may be less of a factor in funding decisions and requirements. If a community is only interested in administering small business grant and loan programs, CDBG-DR funding is likely the better source of funds because EDA prohibits direct grants to for-profit businesses. Grantees cannot capitalize revolving loan funds with CDBG-DR funds, but they may through EDA. The table below provides additional guidance regarding the best funding match for economic development projects:
Table 1. Economic development projects by preferred funding match
CDBG-DR |
EDA disaster recovery |
| Grants and loans to impacted business | Capitalization of revolving loan fund |
| Infrastructure repair | Construction of new business incubators, wet lab space to foster entrepreneurship and attract new businesses |
| Downtown revitalization (including façade programs, public infrastructure) | Commercialization of creative industries |
| Planning grants | Cluster industry studies |
| Workforce training for existing employers | Training workforce to attract new investment |
| Technical assistance to businesses | Establishment of new business assistance centers |
| Other activities with waiver (e.g., tourism marketing, Energy Resilience Bank) | Tourism master plan, other support for tourism-based economy |
Can funds be combined?
It's possible to use and combine EDA and CDBG-DR federal dollars to maximize impact. For example, EDA may require up to a 50% match for its funding. While federal funds generally may not be used to pay the required matching share, CDBG-DR funds can be used under certain circumstances as match for EDA projects. Grantees should keep in mind that projects must align with EDA’s priorities by addressing creation and/or retention of high-quality jobs.
Federal funds cannot be used, however, to pay for any project-related costs that are already funded by other sources. The burden is on the grantee to demonstrate that federal funds will not be used in a duplicative fashion.
Which funding source is right for you?
CDBG-DR funds can only be used for necessary expenses related to disaster relief, long-term recovery, and the restoration of infrastructure, housing, and economic revitalization. Although some EDA activities could also be funded through CDBG-DR, it is difficult to use CDBG-DR to fund activities that do not directly address storm-impacted facilities.
Professional economic developers are typically reluctant to use CDBG for economic development projects because of the stringent requirements imposed by HUD related to public benefit caps, difficulties with meeting the LMI requirement, and the significant amount of compliance paperwork that the program requires. While the public benefit cap has been waived for CDBG-DR, HUD still requires stringent reporting of job creation and/or retention numbers for any project funded. Importantly, this requirement can continue to apply for several years following project completion.
Table 2 offers a more direct comparison of the EDA and CDBG-DR funding vehicles:
Table 2. Comparison of CDBG-DR and EDA disaster grant funding
HUD CDBG-DR |
EDA Disaster Grants |
|
| Source of Funds | • Congressional appropriation | • Congressional appropriation |
| Responsible Agency/Department | • Department of Housing & Urban Development, Community Planning & Development, Disaster Recovery Special Issues Division | • Department of Commerce, Economic Development Administration |
| Funding Vehicle | • Community Development Block Grant - Disaster Recovery | • FY2019 Disaster Supplemental NOFO, CEDS planning process supported |
| Requirements | • Action Plan | • CEDS plan (EDA may support development or update) |
| Stakeholders |
• Impacted local government • Public Housing • Non-profits • Advocacy groups • Community members • Institutions |
• Community leaders • Heavy emphasis on private sector involvement |
| Situational Assessment | • Unmet needs of most impacted areas after FEMA, SBA, and private insurance assistance received |
• Strengths and weaknesses • Threats and opportunities |
| Action Plan |
• Identify method of distribution of funds • Tied directly to unmet needs assessment, with housing as priority |
• Objectives and strategies to make region more competitive and resilient • Diversification of economic base • Workforce • Infrastructure • Leverage other resources |
| Measurement and Evaluation | • Specific metrics for each activity (projected vs. actual) |
• Performance measures used to evaluate the organization’s implementation of the CEDS • Impact on the regional economy |
Making sense of it all
While there are many challenges related to accessing and applying for critical federal funding sources following a disaster, knowledge is power. By following the guidance outlined above, you’ll be better prepared to layer and leverage the funding sources to meet your region’s recovery needs.
