Finance in Economic Development:  Federal Funding Sources

Jenifer Huestis

last modified: April 15, 2005

Sorting through the alphabet soup of federal funding can be difficult for individuals and community development agencies. This summary provides information about four major funding sources for states, localities, and non-profit community organizations emphasizing their sources, restrictions, and common usages.  Grants discussed are: (1) Community Development Block Grants (CDBG), (2) Section 108 Loan Program and Economic Development Initiative (EDI) grants, (3) Compassion Capital Fund (CCF)grants, and (4) Office of Community Services (OSC) funds.

Note: please see these related entries for examples of local funding and state-level funding.

Community Development Block Grant

Community Development Block Grants (CDBG) are one of the most popular community development tools because they have simple requirements and have remained consistent for a long period of time. Being one of the oldest programs in the Department of Housing and Economic Development (HUD) CDBG provides annual grants to states and local jurisdictions called “entitlement communities” to develop “viable urban communities by providing decent housing and a suitable living environment, and by expanding economic opportunities, principally for low- and moderate-income persons” (1). Entitlement communities fit into one of three criteria: central cities of Metropolitan Statistical Areas (MSA); cities with a population over 50,000; or qualified urban counties with a population over 200,000. States distribute funds to localities who do not qualify as entitlement communities. CDBG also has disaster recovery assistance, a Mexican border development program, an insular areas program which are not discussed below. (Refer to CDBG Programs for more information about CDBG's additional programs) Funds are provided to grantees whose proposed activities meet one of the following national objectives: benefit low- or moderate-income persons, prevent or eliminate slums and blight, address specific community development needs that pose a serious or immediate threat to the health or welfare of the community (2). Activities are directed toward revitalizing neighborhoods, economic development, and providing community facilities and services, and 70% of all funds received must be used for activities that benefit low- to moderate-income persons. Below is a listing of activities that are eligible and ineligible.




Acquisition of real property

Political activities

Relocation and demolition

Certain income payments

Construction of public facilities and improvements (ie. water and sewer facilities, streets, neighborhood centers, converting schools for eligible purposes)

Acquisition, construction, or reconstruction of buildings for the general conduct of government

Assisting businesses to carry out economic development and job creation/retention activities

Construction of new housing by units of general local government

Energy conservation and renewable energy


Public services


Assisting non-profits for community development activities


Rehabilitation of structures


Planning activities


Section 108 Loan Program and Economic Development Initiative (EDI)

Section 108 is a loan guarantee provision from HUD that provides CDBG eligible communities with a source of financing for economic development, housing rehabilitation, public facilities, and large-scale physical development projects (3). As with the CDBG program, all projects and activities must either principally benefit low- and moderate-income persons, aid in the elimination or prevention of slums and blight, or meet urgent needs of the community. Applicants pledge their current and future CDBG funds as a principle security fro the loan guarantee (4). Activities eligible for Section 108 are shown below:

Eligible Activities

Economic development activities eligible under CDBG

Rehabilitation of publicly owned real property

Housing rehabilitation eligible under CDBG

Construction, reconstruction, or installation of public facilities (including street, sidewalk, and other site improvements)

Payment of interest on the guaranteed loan and issuance costs of public offerings

Debt service reserves

Housing construction as part of community economic development, Housing Development Grant, or Nehemiah Housing Opportunity Grant programs

Public works and site improvements in colonias

Related relocation, clearance, and site improvements

Acquisition of real property

Because CDBG funds are so important to local community and economic development, states and entitlement communities, pledging them as a loan guarantee is risky and not the highest and best use of that allocation. Many Section 108 participants turn to EDI grants to supplement CDBG funds as a loan guarantee. In addition to enhancing the security of loans, EDI grants improve the feasibility of the economic development and revitalization projects they finance. EDI grants must be used for individual projects assisted by Section 108 (5).

Compassion Capital Fund (CCF)

The Administration for Children and Families within the US Department of Health and Human Services offers a relatively new flexible funding source to two levels of community organizations. CCF grants are designed to support organizations who serve the homeless, elders in need, at-risk youth, families in transition from welfare to work, those in need of intensive rehabilitation such as addicts or prisoners, and organizations that provide marriage education and preparation services to help couples who choose marriage for themselves develop the skills and knowledge to form and sustain healthy marriages. Grants are divided among intermediary organizations that serve as a bridge between the federal government and faith-based and community organizations, and individual grassroots groups directly. Though this program is designed to introduce faith-based initiatives to the federal funding process it mandates public-private partnerships which broadens the applicant base to include job training, counseling, economic development, and entrepreneurialism (6).

The Demonstration Program funds intermediary organizations that serve as expert resources regarding community initiatives practices and capacity building, and act as a forum for discussion of pressing issues. They offer training and technical assistance for grassroots groups to build their capacity (ie. accessing funding sources, managing programs, training staff, expanding service provision, and replicating promising programs) and they provide small financial awards ranging from $5,000 to $40,000. These awards are guaranteed because intermediary's are required to reserve 25% of their grant award for sub-awards distributed to qualified community organizations in select geographic areas(7).

Grassroots organizations can also apply for individual awards directly from the CCF. These are ideal for groups who do not fit into the geographic funding area of intermediary organizations. The Targeted Capacity-Building Program offers one-time mini-grants of $50,000 to organizations who deliver social services to a t-risk youth, the homeless, or those living in rural communities. Also eligible are organizations who offer marriage education and preparation services to help couples who choose marriage for themselves develop the skills and knowledge to form and sustain healthy marriages. For information on specific initiatives refer to the "existing grantees" page.

Office of Community Services (OCS)  

OCS is an agency built around empowerment. Their mission is to partner with states communities and other agencies to provide human and economic development services that diminish the causes of poverty by offering services revitalize communities, build the capacity of families so that they may become self sufficient and create their own opportunities. They implement this mission by providing financial resources, training and technical assistance, leveraging federal state and local resources, and disseminating information. OCS awards about $20 million per year in grants of up to $500,000 to Community Development Corporations to create jobs for low-income persons (8).

OCS offers numerous social service funding programs (ie. food and nutrition programs, rural community facilities program, youth sports program) but this summary discusses economic development strategies.

The Empowerment Zones/Enterprise Communities Program (EZ/EC) is a “federal government-wide effort to enable the self-revitalization and growth of distressed urban and rural areas throughout the nation” (9). The EZ/EC Program seeks to empower communities by supporting local plans that coordinate economic, physical, environmental, community, and human development. It is based on creating economic opportunities, developing a community sustainably, community-based partnerships, and developing a strategic vision for change (10).Certified non-profit organizations receive flexible grants that allow them to complete the goals in their strategic plan for area that have been designated EZ/EC.

Job Opportunities for Low-Income Individuals (JOLI) Program awards grants to organizations who create new permanent full-time employment opportunities through one of four new job creation project design priority areas: 1) expansion of existing businesses through technical and financial assistance; 2) self-employment/micro-enterprise; 3) new business ventures; and, 4) non-traditional employment initiatives that lead to economic self-sufficiency for targeted populations (11). Targeted populations include individuals receiving Temporary Assistance for Needy Families (TANF) benefits and individuals whose income level is below the official poverty guidelines. Special Emphasis is placed on persons who are unemployed, homeless, non-custodial parents, reside in public housing, or receive housing assistance.


Each funding source described has attributes that are attractive to various stakeholders. CDBG funds are useful for cities to develop blighted areas and encourage a friendly business climate as well as to provide decent affordable housing. Section 108 loans and Economic Development Initiative funds are also useful for cities planning to rehabilitate housing or employ economic development tools without risking precious CDBG funds. The Compassion Capital Fund is an ideal funding source for community organizations. Larger community corporationd can build capacity of smaller groups thus increasing the potential for partnerships. They can develop useful connections with smaller communities and serve as a liason with the federal government increasing their own visability. Smaller organizations can join a larger conversation with groups like themselves while gaining essential capacity building monies and tools, or they can take on larger capacity building projects by appluing directly for grants at the federal level. Finally, Job Opportunities for Low Income Individuals sponsored by the Office for Community Services can provide organizations grants if they ensure permanent full-time job creation. At the state, metropolitan, and community level the federal government has funds that are waiting to be tapped into.


(1) HUD-Community Development Block Grant Entitlement Communities Overview

(2)HUD- Community Development Block Grant Programs

(3)Section 108 Loan Guarantee Program

(4)Section 108 Loan Program Fact Sheet

(5)Economic Development Initiative

(6)Brandwein, Robert. 2002. “Federal Funding for Community Economic Development.” Shelterforce Online . Issue 121, Jan/Feb

(7) Compassion Capital Fund Homepage

(8)Office of Community Services Mission, Goals, and Objectives

(9)Fiscal Year 2000 Fact Sheet for OSC

(10)Key Principles of the Empowerment Zone/ Enterprise Community Program

(11)Fiscal Year 2000 Fact Sheet for OSC