The Department of Housing and Urban Development, in a major shift of emphasis, wants to stop requiring cities that receive Community Development Block Grants to spend the bulk of those federal funds on projects that aid low- and moderate- income families.
Instead, agency officials said, cities would be given broader authority to spend any or all of such funds on projects the cities consider particularly urgenty or that will help prevent urban blight."
The agency also plans to stop reviewing all grant programs to monitor compliance with aid for the needy.
HUD officials said their proposal will give cities more control and flexibility and eliminate costly paperwork. Critics claim the rules will allow cities to divert federal funds earmarked by Congress for the needy and use them for more popular projects.
"This is a major step backwards," said Robert C. Embry, an assistant secretary for community planning and development at HUD during the Carter administration. "It will result in many cities ignoring the needs of the poor and spending the money on middle-class neighborhoods which have more political clout."
A HUD spokesman said the rules are to be published Thursday in the Federal Register. Unless Congress objects, they could take effect Friday at the start of fiscal 1983.
Congress can delay implementation of the rules for as many as four months. If Congress objects within that time, HUD could rewrite its proposal.
A spokesman for the Democratic majority on the House subcommittee on housing and community development said HUD's proposal will have a "tough time" winning committee approval.
"The Reagan administration has made big cuts in other programs aimed at the needy. . . . I don't think the committee will stand by and let them throw money out to cities for use as what, in effect, would be general revenue sharing funds. That wasn't the intent of the program," the spokesman said.
HUD allocated $3.5 billion in the block grants to hundreds of cities this fiscal year. The grants are designed for housing rehabilitation, street improvements, urban renewal, social services and construction of parks and other public facilities.
Congress created the development grant program in 1974, saying the "primary objective" was to aid low- and moderate-income Americans. Cities were required to give "maximum feasible priority" to the needy, but Congress failed to say what that entailed and during the next few years, cities were accused of misusing the grants. Adding to the confusion was a provision in the law that said the grants also could be used to "eliminate slums and blight" and for "other community development needs having a particular urgency."
Under the Carter administration, HUD made a drive to clarify the law, according to a recent General Accounting Office study. Among other things, HUD said any city that did not allocate at least 75 percent of grant funds to projects for "low- and moderate-income" Americans would be required to explain why and could be declared ineligible for future grants, Embry said.
The agency also launched a rigorous monitoring process to ensure that the money was properly spent, he said.
Shortly after President Reagan took office, Congress streamlined the grant process by saying cities no longer had to complete detailed HUD applications to obtain the funds.
During that debate, Congress indicated that cities should have authority to spend the grant money for "purposes other than" helping low- and moderate-income Americans, said Donald Patch, HUD's director of the office of block grants.
"What we are doing is telling the cities up front that there are other things that the program can be used for. . . , " Patch said. "We are simply putting the law's three requirements on an equal status."
Embry disagreed: "This new interpetation will make the law meaningless. If you spend all of your money to prevent blight, by definition, you will not spend it in a blighted neighborhood . . . unless it is used to tear down houses in a slum."