HomeMy WebLinkAbout2019-09-26; Community Development Block Grant, Timeliness Compliance; |Fountain, Debbie| Barberio, Gary|To the meme~rs of the:·
CITY COUNCIL
Date q /2.b[ft CA ✓ CC /
CM ✓ COO ✓DCM (3) /
Sept. 26, 2019
Council Memorandum
To: Honorable Mayor Hall and Members of the City Council
From: Debbie Fountain, Community & Economic Development Director
Gary Barberio, Deputy City Manager, CoE unity Services
Via: Elaine Lu key, Chief Operations Officer
Re: Community Development Block Grant, imeliness Compliance .
{city of
Carlsbad
Memo ID# 2019111
This memorandum provides an update to the City Council memorandum dated May 8, 2019
(attached), related to the administration of the city's Community Development Block Grant
(CDBG) program for program years 2017 and 2018.
Background
On April 23, 2019 the city received a letter from the US Department of Housing & Urban
Development (HUD) stating the City of Carlsbad, Ca was not carrying out its CDBG program in a
timely manner because it had a balance of funds that was greater than the permitted 1.5 times
its annual grant remaining in its adjusted line of credit. At that time, the city was found to be in
noncompliance with the 1.5 performance standard for program year 2017 and potentially for
program year 2018 if an appropriate amount of funds was not drawn down by May 2, 2019. The
balance offunds in the city's CDBG line of credit was 3.86 times its fiscal year 2018 grant rather
than the required 1.5 times the 2018 grant. This timeliness issue put the city at risk of HUD
potentially reducing the fiscal year 2019 grant to $0. The city was required to expend
$1,339,754.20 as quickly as possible from its CDBG line of credit in order to reduce its ratio from
3.86 to less than 1.5 and prevent the loss offuture funding.
Discussion
The Department of HUD required an informal consultation with city representatives on July 30,
2019, to disc;:uss the reasons for the failure of the city to meet the timely expenditure
requirement as of May 2, 2019 . Staff explained the difficulty in expending the CDBG funds on
projects that relied on cooperation by other agencies and/or individuals. For example, funds
were set-aside to assist Casa de Amparo improve its facilities; a permitting delay by the County of
San Diego caused a significant delay in construction and expenditure of nearly $334,000. The city
also was required to wait until owners were ready to sell their affordable residential properties
so that the city could exercise its option and purchase those homes to preserve their affordability
in perpetuity with CDBG funds, which represented another $750,000 in delayed expenditures.
The city also explained that the city aweements with subrecipients did not require full
Community Services Branch
Community & Economic Development Department
1635 Faraday Avenue I Carlsbad, CA 92008 I 760-602-2710 t
Honorable Mayor Hall and Members of the City Council
Sept.26,2019
Page 2
expenditure of funds until June 30, 2019, as set forth in the federal regulations. This was a
regulation that conflicted with the timeliness requirement date set at May 2, 2019.
Following the consultation with HUD, the city received a letter from Virginia Sardone, Acting
Deputy Assistant Secretary for Grant Programs, granting an exception to the timely expenditure
requirement due to the positive steps taken by the city to expedite the expenditure of
$1,339,754.20 and thereby reducing the expenditure ratio to 1.49 prior to the consultation with
HUD officials on July 30, 2019. See attached letter, dated Sept. 5, 2019, for more detail.
Next Steps
City staff committed to HUD that it would closely monitor its CDBG Program performance and
adjust where appropriate to ensure that the timely expenditure requirement is met by May 1,
2020. At the request of HUD, the city will now require subrecipients to expend all of their funds
by no later than May 1 of each year (rather than June 30). In addition, staff will present other
recommendations and/or other policy changes and projects that will assist in the city's effort to
meet the timely expenditure requirement each year, including continuing to purchase property
for affordable housing purposes and commit future funds to pay for these acquisitions.
Attachment: A. Correspondence from the Federal Department of HUD, dated Sept. 5, 2019,
regarding the timely expenditure of CDBG funds
B. City Council memorandum dated May 8, 2019, regarding Community
Development Block Grant, Timeliness C<;>mpliance
cc: Scott Chadwick, City Manager
Celia Brewer, City Attorney
Ron Kemp, Assistant City Attorney
Nancy Melander, Community Education & Grants Assistance Manager
The Honorable Matt Hall
Mayor of Carlsbad
1200 Carlsbad Village Drive
Carlsbad, CA 92008 .
Dear Mayor Hall:
U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
WASHINGTON. DC 20410-7000
SEP -5 2019
SUBJECT: Noncompliance with Timely Expenditure Requirements
Community Development Block Grant (CDBG) Program
Attachment A
I would like to thank your staff for taking the time to participate in an informal consultation held
on July 30, 2019, with members of my team to discuss the reasons for Carlsbad's failure to comply with
the timely expenditure requirement at 24 CFR 570.902, Review to determine if CD BG-funded activities
are being carried out in a timely manner. Pursuant to this regulation, an entitlement grantee is considered
to be carrying out its CDBG program in a timely manner, if, 60 days prior to the end of its program year,
the grantee has a balance in its line of credit no greater than one and one-half ( 1.5) times "its annual grant.
In accordance with Community Planning and Development's timeliness policy, a grantee's future
grant may be reduced when the grantee continues to be untimely. The 60-day ratio for Carlsbad as
measured on May 2, 2018, was 2.84. The last 60-day test conducted on May 2, 2019, indicated a balance
remaining in the city's adjusted line of credit amounting to 3.86 times its Fiscal Year (FY) 2018 grant.
Based on Carlsbad's most recent 60-day ratio of 3.86, the amount of this reduction is calculated to _be
$568,606.
Under the provisions of 24 CFR 570.911, Reduction, withdrawal, or adjustment of a grant or
other appropriate action, Carlsbad officials· participated in an informal consultation on July 30, 2019, to ·
discuss the reasons the city w~ not in compliance with 24 CFR 570.902. In addition to assessing the
merits of the city's presentation, the Department has reviewed the wri(ten materials submitted by the city.
HUD recognizes that the delay in securing a permit for a se~urity wall around the Casa de Amparo Youth
Shelter and the delay in purchasing property for an affordable housing project slowed CDBG
expenditures. In addition, HUD notes that since the May 2, 2019, timeliness test, the city drew down a
net amount of $1,339,754.20 from its adjusted line of credit, resulting in a ratio that decreased from 3.86
to 1.49. In consideration of the above and the positive steps the city is taking to amend its subrecipient
· agreements to ensure vouchers are submitted by the end of April instead of June each year to expedite
payments, HUD concludes that Carlsbad ei,ualifies for an exception to the timely expenditure requirement.
I expect the city to continue to work closely with the HUD Los Angeles Field Office. The field
office remains committed to working with the city to monitor its program performance. Please be advised
that the city's failure to meet the 1.5 timeliness requirement at the time the next 60-day ratio is measured·
in May 2020, may result in a reduction of a future grant by 100 percent of the amount in excess of the· 1.5
standard. Please contact Steve Johnson, Director, Entitlement Communities Division, at 202-708-1577, if
you have questions regarding the contents of this letter. Please direct all other questions you may have to
11,111 .• hud.g/1\ espanol.hud.gov
Rufus Washington, Community Planning and Development Director, HUD Los Angeles Field Office.
Mr. Washington can be reached at 213-534-2555.
Sincerely,
u ~ ~ Virginia Sardone
Acting Deputy Assistant Secretary
for Grant Programs
2
To the members of the:
CllY COUNCIL
Date 5 l;sJit~ CA I cc..£
CM.L_coO.JLDCM (3).JL._
May 8, 2019
Council Memorandum
To: Honorable Mayor Hall and Members of the City Council
Attachment B
{cityof
Carlsbad
Memo ID# 2019041
From:
Via:
Debbie Fountain, Community & Economic Development Director
Gary Barberio, Deputy City Manager, C?Jr-m.Jpity Services
Elaine Lukey, Chief Operations Officer,..,.~ ~
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 rel~ted timeliness compliance
issue for Program year 201.8.
Timeliness of Expend.itures -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 exce~d 1.5 times the city's graht 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 profram income exceeds 3.6 times the city's grant amount for its
current progri;lm year, as the city had a balance of $2,192,663 (adjusted to include program
income) in CDBG funds as of.the HUD test date of May 2, 2019. The city has allocated all funds
to eligible activities but has not expended all of the funds a·s of the test date.
Based on communication with HUD staff on May 2, 2019, th~ 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 annuaJly receives CDBG program income
($150,000 approximately) from loan rE;payments 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 an.d 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 i;I city project and the city has little
control· over the timing of construction and expenditure of the funds; and c) acquisition of
Community Services Branch
Hou.sing & 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 "."" ·· -, ~ ... --, , · ,
-)i,o -.. ' ' ... ! ' • -·
Page2
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 notic_es
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, th_e 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 p·ossibly two additional owners at
Mulberry at Bressi Ranch have indicated intent to sell their affordable homes. The city will
pursue notice to the own.er that the cify 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
f_unds 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 tJmeliness 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 offunds 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 col'!lpliance with the federal regulations.
Staff is currently in discussions with HUD representatives to finalize the timelirre. Th~ following
;I
-1 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 require·ment ~nd 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 Approp_riation -Drawdown by Balance to be Balance. to be
to sLibrecipient city as of drawn down by drawn down by
May 4, 2019 no later than no later than
June 30, 2019 S~pt. 1, 2019
Casa de Amparo $333,936 $105,000.00 $22_8,936.00 $0.00
Acquisition $750,000 $406,499.56 $343,500.44 $110,500.44
(Resales) r
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
Un programmed
Housing Reserve $36,320 $0.00 $0.00 $36,320.00 'Reqt.li'r~~ t: ::: ·:. ·_:::' . . . -.• -. . l a ' ·:~ .• _ ':. . ., • -.• --.'.::> ..
Exp~n~itµ,res·,"; •' ' >:: :: .· ·. . _·· . s.1;:3.~~i1s4· < _ssi~,~~6~1:s· ic.. . ... : i~i;;~i~!io'.) ( : . .:. :Ji4Gs,·$2h,44f :
· *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 te_lephone conversation with HUD representative·s on March 14, 2019, to discus_s the
city's proposed work~ut plan for ensuring timely expenditure of the CDBG funds as required for
program year 2018. Based on the responses from the HUD repres.entatives at that time and th_e
challenges related to expenditure of the CDBG funds, then~ was little concern expressed b;y
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 t o 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 offunding for the year. ·
Staff has been working diligently t o 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 als~ being pursued to ensure additional expenditures are completed
"
Honorable Mayor Hall and Members of the City Council
May 8, 2019
Page4
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 offunds from HUD on May 3 and May 4, totaling approximate·ly
$579,397, which will assist in meeting the timeliness of e~penditures requirements for program
year 2018. The city will complete additional drawdowns du_ring 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.n~ later than June 30, 2019. The funds ~ill
then be drawn down from HUD as quickly thereafter as possible. Staff will draw down funds for
program administration and fai( 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 of the CDBG funds
appropriated for affordable housing.
cc: Celia Brewer, City Attorney
Scott Chadwick, City Manager
Laura Rocha, Deputy City Manager, Administrative Services