BLOOMINGTON, Ind. – This is the home of Midwest prosperity, a leafy Big 10 college town amid gentle green hills, with abundant intellectual life and a town square where you can get a $1.91 espresso or the latest Talbots classic fashion.

That, at least, is how many of the townsfolk and Indiana University students see it. Yet there’s another, much less charming view of Bloomington. In the Census Bureau’s newest report last month, Bloomington popped up as the poverty capital of the Midwest, with nearly 20,000 of its 55,000 residents broke – a percentage greater than almost anywhere in the nation.

That would explain why Bloomington, with a poverty rate worse than Cleveland, Gary, Ind., and Flint, Mich. – old factory towns that symbolize Rust Belt decline – gets an unusual share of federal tax dollars to fight poverty and blight. Money for the poor is supposed to go to the poorest places.

Yet there’s something wrong with these figures, officials from Washington to Bloomington confirmed to The Plain Dealer newspaper of Cleveland.

The Census Bureau counts low-income college students who live off-campus as poor – even if their parents pay their expenses. That describes a majority of the nation’s college students who do not live in dormitories and who earn less than $9,800 from work in the summer or part-time during the school year.

Whether in Berkeley, Calif., Ann Arbor, Mich., Provo, Utah, Gainesville, Fla. or Bowling Green and Columbus, Ohio, students in apartments and rented houses – the kids in college neighborhoods everywhere – are wildly inflating poverty rates.

This might merely be one for the joke books but for this: The government uses poverty figures to dole out money for anti-poverty programs. Census poverty numbers, no matter how inflated, go into the Department of Housing and Urban Development’s formula for awarding Community Development Block Grants, a $3.7 billion program.

HUD officials, well aware of this, told The Plain Dealer that anti-poverty grant spending as a result of college students accounted for at least $27.5 million this year. No one has calculated the total over the years or examined smaller government programs that factor in poverty rates, but experts say it’s reasonable to assume that it is in the hundreds of millions of dollars.

The money goes for building sidewalks, renovating housing and improving homeless shelters. But it also goes for planting trees to make streets more pleasant and providing loans for people to open businesses. Restaurants, bakeries and coffee shops, including two coffee houses in Madison, Wis., hangouts for students from the University of Wisconsin, have qualified. It’s up to the communities to determine how best to spend their block grant money.

“We have funded a coffee house in a distressed neighborhood,” says Hickory Hurie, the community development grants coordinator in Madison. “Because its commercial area got better, the whole neighborhood has improved over time.”

Jon Hain, who with his wife owns the Mother Fool’s Coffee House in Madison, about 16 blocks from the university, says the neighborhood was improving when he took over the business. It has started to go upscale, however, changing from a bohemian area frequented by artists and musicians to a place developers covet for condominiums.

In 1997, he got a $45,600 loan backed by CDBG to buy the building with the stipulation that he do his part to maintain or increase employment in the neighborhood. The shop, serving organic coffee and vegan baked goods, has three full-time employees – Hain, his wife and a manager, plus a handful of part-timers, including students.

Debating whether coffee houses in university cities are good investments of taxpayer money misses a broader question, says Eileen Norcross, a senior research fellow at George Mason University’s Mercatus Center, an economic and government research center. One of the few people outside of government who noticed the college-town phenomenon, Norcross cited the coffee houses in testimony in late June before a congressional hearing on block grants which drew no public attention.

Such coffee houses might meet the federal requirement that they provide employment to people with low or moderate incomes, she says in an interview. But “these low- and moderate-income people are not the same as we have in mind when we think about helping people in the inner cities.”

And there are cities with much higher need. Cleveland, for one, has seen its CDBG funding shrink from $31.2 million in 2001 to $24.6 million this year even as it regained the title of poorest big city in the United States. Part is due to cuts the Bush administration and Congress made to the program. But part is from rising competition for HUD money, some from college towns which, according to the Census Bureau, have high poverty rates.

HUD officials have sought ways to better allocate their money, and they want to tweak the formulas pegged to population, growth rate and age of housing. They also want to exclude the majority of off-campus college students from the poverty count.

That would mean big losses for some student-filled communities, according to projections that HUD provided at The Plain Dealer’s request.

Bloomington, where more than two-thirds of the “poor” residents are actually students, would lose half the $857,438 it got in block grants this year.

Bowling Green, home of Bowling Green State University – whose off-campus students account for 73 percent of the city’s poverty rate – would lose 42 percent of its $312,699.

Even Columbus, the home of Ohio State University, would lose 7 percent of its $6.6 million in grants if off-campus students were excluded.

Cleveland, however, would actually gain $180,184. That’s because the city lacks a large concentration of off-campus “poor” student housing. If HUD removed off-campus students from the calculation, it would nudge up the already high concentration of poverty in Cleveland.

This cannot happen, however, unless Congress changes the law governing the grant formulas. HUD wants that, but with community officials trying to keep what they have and Congress members facing re-election, change won’t occur soon.

“That’s not happening this year,” says Rep. Mike Turner, former Dayton, Ohio, mayor and a Republican with oversight on the matter.

Turner agrees that the formula needs to change for college students. “They’re in school, they’re seeking economic mobility, they have education opportunities, many of them tend to have outside support or are on a path that traditionally our poverty programs are not designed to impact,” he says.

People in college towns – even many poor by census standards – are the first to acknowledge this. In Bowling Green, the 20,000-student campus is the economic anchor of a thriving small town. The Main Street business district sparkles with Victorian-era buildings that house 21st century enterprises. It is the opposite of grim, and more than 80 percent of the kids who graduate from Bowling Green’s high school go on to college.

“Bowling Green,” says Kelly Wicks, who owns the Grounds for Thought coffee shop and bookstore about a half-mile from the campus, “isn’t a stricken environment at all. There’s a good tax base in this community. There are jobs. Bowling Green doesn’t experience the lows and highs of the economy, the boom or bust.”

Ph.D candidate Melanie Bergolc, 29, acknowledges that “students are pretty poor, but we’re making a transition in our lives.” This year, Bergolc is getting a $17,000 stipend from the school as she researches sub-Alpine insects on her way to a career as a biologist. Earlier, she says, she has had to live on as little as $8,000 a year.

“There have been times when I could barely afford anything. I’d buy a lot of pasta and rice products so I could eat,” she says. “But Bowling Green ‘poor?’ In itself, it’s not.”

The same could be said for Bloomington, judged by census data to be the Midwest’s poorest small city. Gabriel Gloden, 26, who is headed toward a master’s degree at Indiana’s school of environmental affairs, has worked as an Americorps volunteer in Ohio and witnessed deep poverty in Columbus’ inner city. His situation now – a graduate student whose annual income is about $5,000 – doesn’t compare.

“I’m going to school because I want to plug into a good-paying job when I get out. I’m taking the bite now,” he says. “Is Bloomington impoverished in the classic Depression-era sense of the word? No. It’s the nicest place in Indiana to live as far as quality of life.”

“Bloomington, the poorest city in the Midwest?” asks Maria K. Heslin, the city government’s spokeswoman. “This is the first we’ve heard anything about it. Bloomington has more poverty than Gary? No way.”

She was speaking to a reporter, who showed her the poverty data. She immediately took the reporter to Lisa Abbott, director of the city’s housing and neighborhood development department. “Wow. That really surprises me,” reacted Abbott.

“If you throw a stick down one of the streets, you’ll hit 10 people with advanced degrees.”