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Why fund nonprofits, public agencies, and other organizations through grant applications at all?

Donna Shelley asks a perceptive question in response to “Upward Bound means more narrative confusion:”

Why is this [grant-making process] done at all? It continues to be a mystery to me. What is the point of grant making? If it is to give money to a qualified applicant, then what are all these games about? It appears that making the process as arcane and frankly, insane as possible.

There are at least two big issues: Why does the U.S. grant-making system persist in the weird way it does, and how did it evolve into its current state? My guess is that the answers is linked, and the big reason it remains involve signaling. By creating byzantine, inefficient requirements for distributing money, government agencies and, to a lesser extent, foundations, ensure that the only people who will bother are the ones who really, really want the money.

The devotion of resources to a pointless-seeming endeavor signals the applicant’s commitment. Applicants who care the most will invest the most in deciphering RFPs, and those who don’t care as much won’t. The grant-maker can’t tell who is qualified, but they grant-maker can try to get applicants to signal their quality (one sees something similar in college applications: most colleges teach orders of magnitude more than high schools do, so one could see high school as a long signaling process for college, which is part of Bryan Caplan’s argument in his forthcoming book The Case Against Education). In this reading, insanity becomes sane because funders are trying to gauge the fundee’s commitment level using the best tools they have, which aren’t very good.

Professional grant writers—like us—are a logical byproduct of this process: many nonprofit and public agencies specialize in providing services rather than in writing abstruse, detailed proposals. So people who are good at service delivery specialize at that, and they don’t specialize in plumbing, vehicle repair, grant writing, and so forth. This may be why nonprofits find it hard to hire good grant writers: most don’t actually specialize in grant writing.

If you’re curious about how signaling works more generally, there is a rich evolutionary biology literature summarizing it.

The next sentence is the sort that, like any sentence using the phrase “the Progressive Era,” may come dangerously close to boring you to death, but bear with it and me. As far as I can tell, the roots of the grant-making process lies in political reforms that got started in the Progressive Era and reached their culmination in the 1960s. Prior to the 1930s and the New Deal, the Federal government and state governments basically didn’t spend enough money to have a grant-making apparatus and bureaucracy like they do now. To the extent such activities happened at all, services were provided directly, or via pass-throughs straight to agencies.

Such practices engendered lots of corruption—see further Chicago, New Jersey, All the King’s Men, etc. In addition, there were problems related to whether, say, the feds in DC actually had any idea what people in urban Chicago, or rural Mississippi, or Oxnard, California, might actually need. So the inability to decide need and the problem of corruption yielded a solution: instead of the feds (or state governments) simply funding services directly or picking organizations to run programs, they’d run competitions to see who has the best proposal for the provision of services.

This being the government, however, anything that starts simple rapidly complexifies, like cellular automata (for another example of this phenomenon, see the tax code). So over the last couple of decades, Congress creates lots of well-meaning laws; rule-making bodies make well-meaning rules; courts probably throw their spices into the broth; some organizations steal or misuse the money, thus leading to more rules so that Won’t Happen Again; and finally one gets to something like Upward Bound, which was the subject of my original post, and had something like a hundred pages of guidance written in a style only especially obtuse lawyers could love. Not only that, but the difficulty of understanding an entire RFP becomes hard even for the agency issuing the RFP, which increases the likelihood of errors or internal contradictions on their part—without even discussing the grant writers who are trying to decipher the instructions.

Around the office, we’ve observed that a lot of grant applications could be done via postcard: will you perform these services for x participants over y months and achieve z outcomes? Then you’re in the running. If that happened, we’d be out of business, but there’s no real political constituency for the simplification of the grant-making process, and the opacity of the process itself keeps the public disengaged. There is a real constituency for the simplification of the tax code, and that’s an issue that’s gone nowhere and appears likely to continue to go nowhere, like that one bridge.

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Reformers come and go, but HUD abides

Sudhir Venkatesh*, a Columbia University Sociologist, wrote “To Fight Poverty, Tear Down HUD,” and in it he suggests imploding HUD (like the infamous Pruitt-Igoe Housing Project) to increase regional collaboration. Having just finished a HUD proposal, it made me think about HUD’s evolution and previous attempts to reform the agency. Venkatesh gives a brief overview of HUD’s emergence in 1965 and its mission to carry on the Progressive Era’s notion that slums are the root of urban problems, rather than the inhabitants—see here for detail. Still, Venkatesh argues that HUD had outlived its usefulness and needs to be eliminated or reconstructed.

He uses the HOPE VI Program as a supportive example. Jake briefly covered Hope VI in “On Gangs and Proposals,” and the program more or less pays housing authorities to tear down public housing and replace projects with “mixed-income” developments, resulting in outcomes like those described in “American Murder Mystery.” Regardless of whether Venkatesh thinks HOPE VI and other competitive** HUD programs can be used to dismantle the agency, he’s wrong about the potential for reform because of the Godzilla of HUD, The Community Development Block Grant (CDBG) Program.

CDBG agglomerates dozens of competitive HUD programs as they existed in the early 1970s into a single grant, awarded without competition to eligible cities and counties. Being designated as “CDBG-eligible” is the local jurisdictional equivalent of being elected Prom Queen. CDBG jurisdictions can spend the money however they want, provided that the use can somehow be justified under one of the eight statutory CDBG requirements—meaning that just about anything can be made CDBG eligible through the jurisdiction’s “Five-Year Comprehensive Plan” and associated “Annual Action Plans.”***

Thus, local officials often use CDBG funds as “walking around money” for favored nonprofits in the name of “developing viable communities,” which is the stated purpose of CDBG. The witch’s brew of local politicians, other people’s money, hand-in-the-till nonprofits and a plethora of interest groups involved in CDBG means that there is zero chance of HUD going away. I’ve watched the “let’s get rid of HUD” movement for years, starting in 1980 with the Reagan Revolution**** (he gave up), Jack Kemp’s appointment as HUD Secretary by Bush 41 (failed at achieving promised reforms), and most recently, HUD being on Newt Gingrich’s hit list in 1994 (HUD survived to fight another day, while Newtie ended up bloviating on Fox News and writing historical novels of questionable literary merit).

Not only has HUD lived on, with the help of its legion of CDBG-engorged supporters, but it actually continues to grow, throwing off new programs like the small monsters sloughing off the Big Guy in my favorite recent Big Animal movie, Cloverfield. We’ve come full circle: the CDBG program was created to unify a bunch of categorical programs to give local officials the ability to address their pressing local needs, and now the CDBG program, along with a couple dozen assorted competitive programs, hangs on the HUD funding tree like Christmas ornaments.

While Venkatesh can speculate on dismantling HUD or using the block grant approach “to provide incentives for municipal and county governments to collaborate,” HUD is a permanent fixture of the grant landscape because it was created to solve some of the problem he identifies, and the result of a supersized CDBG program is likely to be even more walking around money and self-interested entities at the CDBG trough, not more collaboration between cities and counties. To paraphrase, “Reformers Rail, but HUD Abides.”

* Venkatesh wrote a terrific book on life on the streets in Chicago’s Southside, Off the Books: The Underground Economy of the Urban Poor, which mirrors my experience growing up and later working as a community organizing intern in the North Minneapolis ghetto. Would-be grant writers should read it.

** Grant writing tip: government agencies mostly make two kinds of grants, formula (the grantee does nothing to get them money other than open its mouth like Jabba the Hut) and competitive (applicants submit proposals that are evaluated against one another). One will occasionally see a hybrid version, a competitive process in which the grant amount is based on a formula of some sort, but most grant writers won’t encounter this chimera.

*** I’ve read dozens of Comprehensive Plans from all around the country over the years, and, despite supposedly being individually written to reflect the jurisdiction’s unique problems, they are basically all the same—a rehash of census data, oddball stats on homeless issues and the like, and a pastiche of platitudes designed to get HUD to okay the plan and uncork CDBG funds. In other words, the local CDBG planning process is at best a cookbook exercise.

**** See Stockman’s The Triumph of Politics: Why the Reagan Revolution Failed, which is a great political read and covers the first failed attempt to disassemble HUD. Robert Penn Warren’s All the King’s Men complements it.