No Neighborhood Left Behind: Using Composite Service Areas to Maximize CDBG Coverage

The Low-to-Moderate Income (LMI) National Objective is the most common pathway for qualifying CDBG activities under 24 CFR 570.208(a). Most grant administrators know the rule: at least 51% of residents in your service area must be LMI. What fewer administrators know is that the way you calculate that 51% can make or break your activity qualification — before you ever consider a Slum and Blight Study.

A composite service area is a CDBG service area defined by aggregating multiple block groups into a single calculation, rather than evaluating each block group individually. If a block group in your service area falls short of 51% on its own, that doesn't necessarily mean it doesn't qualify. It means you may need to do the math differently — and the composite service area calculation is where you start.

The 30% Problem

Among the 30 U.S. jurisdictions where more than 70% of block groups qualify as LMI under HUD's Low-to-Moderate Income Summary Data (LMISD), there's a shared challenge: the remaining 20-30% of their geography. These are the neighborhoods that fall just outside the standard threshold — not wealthy by any measure, but not majority-LMI on paper either.

Consider a mid-sized Midwestern jurisdiction where 80.95% of block groups qualify as LMI — that remaining slice represents real neighborhoods with real needs. The question is how to qualify CDBG activities there without immediately jumping to a full Slum and Blight Study, which requires a formal area-wide property survey and significant staff resources. We cover that process in detail [here]. In many cases, the composite service area calculation resolves the problem on paper — before a single inspector sets foot in the field.

What Is the Composite Service Area Calculation?

A composite service area calculation is the method HUD requires when a CDBG service area spans multiple block groups. Per Section III of CPD Notice 24-04 — HUD's current guidance document governing LMA qualification, effective August 1, 2024 — compliance must be determined by aggregating raw population figures across all block groups in the service area, not by averaging their individual LMI percentages.

The formula is:

LMI % = Sum of LOWMOD across all block groups ÷ Sum of LOWMODUNIV across all block groups

Where:

• LOWMOD = number of persons at or below 80% of Area Median Income

• LOWMODUNIV = total number of persons whose income is measurable for LMI purposes (excludes residents of group quarters such as prisons, dormitories, and nursing homes)

This distinction matters enormously in practice. A block group with 45% LMI concentration sitting next to one with 85% LMI concentration doesn't average out to 65% — it gets calculated on raw headcounts. That difference can be the margin between qualifying and not qualifying.

One rule is absolute: HUD does not allow the resulting figure to be rounded up to 51%. The 51% threshold is a hard floor, not a target to approximate.

A Real-World Example

Let’s look at how one of our partners used the composite service area approach. 

Only one of their block groups had an LMI below the 51% threshold. The individual LMI percentage of 41.6% fell below the threshold, but is by no means an area with economically thriving residents. On a standalone basis, it doesn't qualify. But to exclude that one neighborhood seemed cruel and unnecessarily bureaucratic. We first explored the highest quartile exception under 24 CFR 570.208(a)(1)(ii), which allows a sub-51% service area to qualify if it falls within the highest quartile of LMI concentration across all block groups in the jurisdiction.

With 21 block groups, the top quartile consists of the top 6 block groups (21 ÷ 4 = 5.25, rounded up per regulation). The 6th block group on the ranked list has an LMI percentage of 91.7%, which serves as the qualifying threshold for the exception. At 41.6%, Block Group 2 falls well short of that bar. In jurisdictions with high poverty rates, the quartile rule can hurt because the threshold is increased by the calculations. 

But when evaluated as part of a citywide composite service area — aggregating all 21 block groups using the formula above — the picture changes entirely:

• Sum of LOWMOD: 13,450

• Sum of LOWMODUNIV: 16,615

• Composite LMI %: 80.95%

The citywide composite substantially exceeds the 51% threshold. The inclusion of the single block group under the 51% threshold is appropriate, provided the service area is reasonably delineated based on the activity's actual beneficiaries. This brings us to the compliance rules every jurisdiction must follow.

Critical Compliance Warnings

This is where many jurisdictions get into trouble. CPD Notice 24-04 includes several rules that are easy to overlook and difficult to fix after the fact.

1. You cannot draw boundaries to game the numbers. The rule: your service area must reflect the actual geography of the activity — not the geography that produces the best LMI percentage. CPD Notice 24-04 is explicit: the service area shall not be drawn to intentionally include LMI persons that would not benefit, nor shall it be drawn to intentionally exclude non-LMI persons that would benefit. Document your boundary rationale clearly and independently of your LMI calculation.

2. You cannot prorate block group data. The rule: if any block group in your service area crosses a jurisdictional boundary, you must include the entirety of that block group's LOWMOD and LOWMODUNIV data — not just the portion within your boundary. Before finalizing your service area, verify whether any block groups straddle your jurisdiction's edge. Prorating is not permitted under CPD Notice 24-04.

3. You cannot mix geographic layers. The rule: your composite calculation must use a single geographic type consistently throughout. CPD Notice 24-04 cautions that grantees should not define a single service area by compiling a mix of place and block group data, as overlapping geographic layers can result in double-counting of residents. Pick block groups and use block groups exclusively.

4. When LMISD boundaries don't match your service area. The rule: if your activity's actual service area doesn't reasonably correspond to available block group boundaries, the LMISD may not be the appropriate qualification tool. In that case, CPD Notice 24-04 indicates that jurisdictions may need to conduct a methodologically sound local income survey to determine LMA compliance for the specific service area.

Documenting It in IDIS

Once your composite calculation confirms qualification, documentation in IDIS follows a specific process per Section VI of CPD Notice 24-04:

• Select "Census" as your data source — this confirms use of the HUD-provided LMISD rather than a local income survey

• Select the 2020 ACS version of the LMISD dataset — required as of August 1, 2024

• Enter all block group codes for your service area — found in the StCntyTractBlockgroup column of the LMISD file

• Verify that the system-populated LMI count and percentage match your manual calculation before submitting

Note that IDIS currently only accepts tract and block group codes — not place codes. If your service area is defined using block group data exclusively, this should not present any issues.

When the Composite Approach Still Isn't Enough

The composite service area calculation is the right first step — it's math on paper, not a field survey, and it costs nothing but time. But it has limits.

If your jurisdiction's non-LMI block groups are geographically isolated from your LMI-majority areas, pulling them into a composite service area may not be defensible under the boundary-drawing rules above. And if the composite calculation still can't reach 51% with a reasonably drawn service area, the Slum and Blight National Objective is the pathway HUD specifically created for deteriorating areas that don't meet LMI thresholds. That process involves a formal area-wide property survey and a 10-year designation — a bigger lift, but a proven one. We walk through exactly what it involves here.

Frequently Asked Questions

What is a composite service area under CDBG? A composite service area is a CDBG service area that spans multiple block groups, where LMI qualification is determined by aggregating raw figures across all included block groups — not by averaging individual block group percentages.

Can I average LMI percentages across block groups for CDBG qualification? No. Per CPD Notice 24-04, LMI compliance for a multi-block group service area must be calculated using aggregated raw population figures. Averaging percentages is not a permitted method.

What is CPD Notice 24-04? CPD Notice 24-04 is HUD's current guidance document governing Low-to-Moderate Income Area (LMA) qualification for CDBG activities. It took effect August 1, 2024 and establishes the required dataset (2016-2020 ACS LMISD), calculation methodology, and IDIS documentation process for new LMA activities.

What if my composite calculation still doesn't reach 51%? If the composite approach doesn't resolve the qualification gap with a reasonably drawn service area, the next step is evaluating the Slum and Blight National Objective under 24 CFR 570.208(b). That pathway requires a formal area study but does not rely on income thresholds. See our full guide here.

Can I mix block group and place-level data in my composite calculation? No. CPD Notice 24-04 prohibits mixing geographic layers in a single service area calculation, as overlapping geographies can result in double-counting of residents.

Important note: The analysis and methodology described in this post reflect our reading of CPD Notice 24-04 and HUD's LMISD guidance. This content is intended for informational purposes only and does not constitute a formal determination of national objective compliance. Jurisdictions should confirm their approach with their HUD CPD Field Office prior to activity qualification.

Ready to streamline your LMI documentation and survey process? Check out PASS AI® to see how jurisdictions are moving faster from data to compliance.