HomeMy WebLinkAbout2019-05-08; Community Development Block Grant, Timeliness Compliance; |Fountain, Debbie | Barberio, Gary|To the members of the:
CITY COUNCIL
Date 5 l~/l't CA / cc /
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May 8, 2019
Council Memorandum
To: Honorable Mayor Hall and Members of the City Council
{cityof
Carlsbad
Memo ID# 2019041
From: Debbie Fountain, Community & Economic Development Director
Gary Barberio, Deputy City Manager, cm m3 ity Services
Via: Elaine Lu key, Chief Operations Officer vr--
Re: Community Development Block Grant, Timeliness Compliance
The City of Carlsbad recently received correspondence, dated April 23, 2019, from the U.S
Department of Housing & Urban Development (HUD) assessing performance related to
administration of the Community Development Block Grant (CDBG) program for Program Year
2017. Based on their analysis, HUD has determined that the city has the capacity to continue to
administer the CDBG program in a manner consistent with the federal regulations, but
experienced a timeliness issue in Program Year 2017 and has a related timeliness compliance
issue for Program year 2018.
Timeliness of Expenditures -24CFR 570.902
Per the Code of Federal Regulations, the amount of funds in the CDBG line of credit together
with the program income the grantee has on hand 60 days prior to the end of its current
program year (ending June 30, 2019) cannot exceed 1.5 times the city's grant amount for its
current program year. In FY 18/19, the city received $568,606 in CDBG funds and therefore
should not have a balance of CDBG funds of more than $1,339,754 at year end. The city
currently exceeds the timeliness expenditure requirement. Per HUD, the city's current line of
credit together with its program income exceeds 3.6 times the city's grant amount for its
current program year, as the city had a balance of $2,192,663 (adjusted to include program
income) in CDBG funds as ofthe HUD test date of May 2, 2019. The city has allocated all funds
to eligible activities but has not expended all of the funds as of the test date.
Based on communication with HUD staff on May 2, 2019, the city must expend $1,339,174 to
comply with federal regulations for the CDBG program. It has been a challenge to complete all
of these expenditures for several reasons: a) the city annually receives CDBG program income
($150,000 approximately) from loan repayments from the Villa Loma project which adds to the
city's CDBG balance offunds each year; b) Casa de Amparo has been awarded $333,936 to
complete improvements to its facility in San Marcos for homeless youth. This subrecipient has
completed some work and expended about 50% of the appropriated funds and have submitted
payment requests to the city for reimbursement. The remaining 50% of appropriated funds is
anticipated to be expended by June 30, 2019. This is not a city project and the city has little
control over the timing of con~truction and expenditure of the funds; and c) acquisition of
Community Services Branch
Housing & Neighborhood Services, 1200 Carlsbad Village Drive I Carlsbad, CA 92008 I 760-434-2810 t
Honorable Mayor Hall and Members of the City Council
May 8, 2019
Page 2
resale affordable homes is dependent on private decisions of homeowners to sell their
properties for various reasons. The city does not have control over the timing of these notices
to sell and does not pressure owners to sell. The City Council appropriated $750,000 in CDBG
funds to this activity in March of 2018. Since that time, the city has already purchased two
resale affordable homes with expenditures approved at approximately $406,500. These funds
were expended in the timeline required by HUD, but the funds were drawn down through the
HUD system after the May 2, 2019 test date to reimburse the city for these purchases. The
remaining $343,500 allocated by the City Council in 2018 to these acquisitions is pending.
Fortunately, the city has received recent notice that one and possibly two additional owners at
Mulberry at Bressi Ranch have indicated intent to sell their affordable homes. The city will
pursue notice to the owner that the city will exercise its option and purchase the home(s). An
additional $243,000 in CDBG funds will be expended per home if these acquisitions do proceed
as anticipated at this time.
Workout Plan for Timeliness Compliance
In discussions with HUD staff, city staff developed a "workout plan" to explain how the city
intends to meet the timeliness requirement for the CDBG program year 2018. This "workout
plan" is best described as an "expenditure plan" with expected dates for spending down the
balance of CDBG funds for projects, programs and/or services set forth within the city's
approved annual 2018 Action Plan. Because a significant balance of the funds were approved
for the city's Housing Reserve Fund (CDBG funds set-aside for affordable housing), staff has
been working since March 2018 to ensure that the appropriate actions are taken to expend the
federal CDBG funds (in the city's Housing Reserve Fund) in as timely a manner as possible. The
City Council assisted in this effort by approving an amendment to the city's action plan for the
CDBG program on March 13, 2018, reallocating $750,000 in CDBG funds to the acquisition of
resale affordable homes for low income households. At the time of the allocation, staff
anticipated that two to three homes could be purchased and then resold to benefit lower
income households. To date, two homes have been purchased and one additional home
acquisition, and possibly two homes, is currently pending.
The workout or expenditure plan noted below was proposed to HUD on March 14, 2019, to
address the expenditure timeliness compliance issue. A significant amount of the appropriated
funds has been expended, however, reimbursement has not yet been requested and/or funds
have not been drawn down from HUD for all of the eligible expenditures; this action is
necessary to meet the timeliness requirement because HU D's system must document the
expenditure before the city will be deemed to be in compliance with the expenditure
requirement.
On May 3, 2019, the city completed a drawdown of funds from HUD of $474,397. A second
drawdown was completed on May 4, 2019, for $105,000. The city must expend an additional
$760,357 in a timeline acceptable to HUD to remain in compliance with the federal regulations.
Staff is currently in discussions with HUD representatives to finalize the timelirre. The following
Honorable Mayor Hall and Members of the City Council
May 8, 2019
Page 3
draft workout plan demonstrates the city's intended timeline to expend the remaining funds to
meet the expenditure requirement and reduce the balance of funds in the city's line of credit to
no more than 1.5 times the entitlement grant for program year 2018:
Project Appropriation Drawdown by Balance to be Balance to be
to subrecipient city as of drawn down by drawn down by
May 4, 2019 no later than no later than
June 30, 2019 Sept. 1, 2019
Casa de Amparo $333,936 $105,000.00 $228,936.00 $0.00
Acquisition $750,000 $406,499.56 $343,500.44 $110,500.44
(Resales)
Boys & Girls Club $9,896 $9,896.00 $0.00 $0.00
Interfaith Com Svcs $29,957 $9.896.00 $20,061.00 $0.00
La Posada . $22,000 $11,000.00 $11,000.00 $0.00
Women's Resource $20,000 $0.00 $20,000.00 $0.00
Brother Benno $15,000 $0.00 $15,000.00 $0.00
Program Admin $82,199 $26,621.00 $55,578.00 $0.00
Legal Aid Society $20,550 $10,484.20 $10,065.80 $0.00
CSA (fair housing) $19,896 $0.00 $19,896.00 $0.00
Unprogrammed
Housing Reserve $36,320 $0.00 $0.00 $36,320.00
Required
Expenditures $1,339,754 $579,396.76 $613,536.80 $146,820.44*
*With this final draw down by no later than Sept. 1, 2019, the city will have spent down the balance of funds
required for the city to maintain a 1.5 timeliness ratio for program year 2018.
Staff had a telephone conversation with HUD representatives on March 14, 2019, to discuss the
city's proposed workout plan for ensuring timely expenditure of the CDBG funds as required for
program year 2018. Based on the responses from the HUD representatives at that time and the
challenges related to expenditure of the CDBG funds, there was little concern expressed by
HUD representatives and the city risk was considered low for any loss of funding. However, the
HUD representatives did indicate that of the 40 grantees they have assessed to date through
similar city staff consultations, seven grantees did receive decreased grants and had some
reductions in funding. Therefore, there is risk of loss of funds and the city was advised to work
seriously to spend down the CDBG funds as quickly as possible. City staff has taken the direction
of HUD representatives very seriously and has notified all subrecipients that they must
complete their expenditures and request reimbursement as soon as possible to prevent any
loss of funding for the year. ·
Staff has been working diligently to take the necessary steps to draw down funds from HUD to
demonstrate the city's ability to comply with the federal regulations in a timely manner.
Additional efforts are also being pursued to ensure additional expenditures are completed
Honorable Mayor Hall and Members of the City Council
May 8, 2019
Page 4
ahead of the required expenditure test date (May 1) to prevent compliance issues in future
years. The City Manager, Chief Operations Officer, Deputy City Manager and Senior Assistant
City Attorney had a telephone conversation with HUD representatives on Friday, April 26, 2019,
to further discuss steps needed to remain in compliance.
Next Steps Towards Compliance
The city currently has two employees approved by HUD to use the federal financial system to
draw down funds. After the conference call with the City Manager and HUD representatives on
April 26, 2019, staff have submitted applications for an additional two employees to have
access per HUD direction.
Staff has been in frequent communication with HUD staff since April 26, 2019, to share city
activities and progress to date to comply with federal regulations. The city was able to
complete two draw downs of funds from HUD on May 3 and May 4, totaling approximately
$579,397, which will assist in meeting the timeliness of expenditures requirements for program
year 2018. The city will complete additional drawdowns during the time frame of May through
August 2019, as additional requests for expenditures are submitted by subrecipients to ensure
full expenditure of $1,339,754 by no later than Sept. 1, 2019, consistent with the above noted
workout/expenditure plan.
City staff will be meeting with HUD representatives on May 14, 2019, to further discuss the
city's CDBG fund workout/expenditure plan and ensure that the city's approach is acceptable to
HUD. Staff will also continue to work with subrecipients of the CDBG funds to submit their
reimbursement requests as soon as possible, but no later than June 30, 2019. The funds will
then be drawn down from HUD as quickly thereafter as possible. Staff will draw down funds for
program administration and fair housing as soon as possible but no later than June 30, 2019,
and continue to identify additional resale affordable homes to purchase for preserving
affordable housing with the intent of spending down the CDBG funds as quickly as possible.
To ensure that in the future there is additional flexibility in the city's CDBG action plan and
acquisition policies to provide for affordable housing opportunities for low income households,
staff will return to City Council on May 14, 2019, with recommended new and additional action
plan policies to allow for all types of affordable housing property acquisition opportunities such
as vacant land, acquisition and rehabilitation of existing units, resale affordable homes,
affordable housing developer partnerships and other alternatives with use ofthe CDBG funds
appropriated for affordable housing.
cc: Celia Brewer, City Attorney
Scott Chadwick, City Manager
Laura Rocha, Deputy City Manager, Administrative Services