Urban Development Action Grant Program

The Urban Development Action Grant (UDAG) program was passed in October 1977 as part of President Jimmy Carter's comprehensive urban policy (Section 119 of the Housing and Community Development Act of 1977). The UDAG program was part of the transition from an urban policy based on top-down, federally funded and regulated programs of the Great Society to the market-oriented, locally controlled, laissez-faire urban policies of the Ronald Reagan administration. UDAGs were designed to provide funding to distressed cities to allow them to do significant redevelopment projects that would enable them to build up their tax bases and increase their levels of employment. At the time of its enactment, many older, industrial cities, such as New York and Cleveland, faced fiscal crises as investors became reluctant to make long-term investments in an inflationary period fraught with uncertainty. Declining real estate values, combined with a loss of jobs and population, left many cities with structural fiscal problems. The goal of the UDAG program was to make cities fiscally viable again.

Urban Development Action Grants were the centerpiece of Carter's urban policy and were very popular with politicians from the nation's largest cities, especially those in the Rust Belt, which were specifically targeted for funds by the Carter administration because of their levels of distress. Although large cities were the primary targets of the UDAG program, to ensure passage, political compromises forced HUD to allow smaller towns access to the funds. The initial legislation required that 25 percent of the funding go to distressed cities with fewer than 50,000 residents. Continuing the trend away from federal programs that focused on solving specific problems, the Reagan administration was able to expand the program to cities that did not meet the criteria for distress by allowing grants to be awarded to “pockets of poverty” in otherwise healthy cities. Politically, this transition made sense because it took funding away from the urban Northeast, which tended to vote Democratic, and moved it to smaller towns and the newer, less distressed cities of the Sun Belt, which all tended to vote Republican.

Earlier urban redevelopment efforts, in which the government cleared large tracts of “blighted” urban land in the belief that private businesses would redevelop the land if it were made available, often failed for a lack of investors, leaving large vacant parcels in many cities. To overcome this problem, UDAGs required private investors to make commitments prior to grant approval.

One of the innovations of the UDAG program was the idea of public–private partnerships. This was also a transition from the government-initiated assaults on poverty and urban decline associated with the Great Society to the privatization of social welfare programs advocated by Reagan. The UDAG program used public money to leverage much larger sums of private investment. For a project to be approved, it had to leverage at least $2.50 in private investment for each dollar invested by the public, and many projects leveraged more. The idea was that, in a time of limited government resources, utilizing the wealth of the private market would expand the impact of the federal investment. Additionally, the projects were supposed to be profitable (and therefore self-sustaining) after completion. In contrast to the programs of the Great Society, in which disinterested experts would provide the best solutions to urban issues, the UDAG program was relying on the expertise of investors, who were motivated to understand the market by their desire to profit from their investment. This was one of the more controversial aspects of the program; tax dollars were used to subsidize private profits. Supporters claimed that everyone would be better off because the investment would generate jobs, increase real estate values (and therefore increase tax revenues), and spur additional private investment, and without the UDAG, none of those positive outcomes would occur.

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