Report Prepared by: Kimberly Nutt, Housing Program Supervisor/Development Services Department
Title
SUBJECT: Acceptance and Appropriation of an Additional $2,970.00 of U.S. Housing and Urban Development (HUD) Home Investment Partnership Program - American Rescue Plan Act (HOME-ARP) Funds That Were Due to the City With the Original Allocation of HOME-ARP Funds in April of 2021; and, Approval of an Updated HOME-ARP Conditional Commitment Reservation Letter for the Mercy Village Apartments Project for Use of the Additional Funding
REPORT IN BRIEF
Considers accepting and appropriating $2,970.00 of additional HOME-ARP funding that HUD has determined are owed to the City, in order to add them to the original 2021 HOME-ARP grant funding for use towards eligible activities; and, Approval of an Updated Conditional HOME-ARP Funding Commitment Reservation Letter to Upholdings to allow the Mercy Village Apartments affordable housing project to use the additional funding.
RECOMMENDATION
City Council - Adopt motion:
A. Adopting Resolution 2026-20, a Resolution of the City Council of the City of Merced, California, Accepting and Authorizing Appropriation of An Additional $2,970.00 of Home Investment Partnership Program - 2021 American Rescue Plan Act (HOME-ARP) Funds; and,
B. Authorizing issuance of an updated HOME-ARP Conditional Commitment Reservation Letter to Upholdings California, LLC, developer of the Mercy Village affordable housing project at 3015 Park Avenue, to allow use of the additional HOME-ARP funding, for a total amount of up to $1,961,248 towards eligible costs of the project; and,
C. Authorizing the City Manager to execute all related documents; and,
D. Authorizing the Finance Officer to perform all necessary budget adjustments.
Body
ALTERNATIVES
1. Approve A and B above, as recommended by Staff; or,
2. Approve A and/or B above, subject to conditions other than recommended by staff (specify findings and/or conditions to be applied); or,
3. Deny A and/or B above (specify A and/or B in the motion to deny one or both); or,
4. Continue to a future meeting (date and time to be specified in the motion).
AUTHORITY
Charter of the City of Merced, Section 200.
CITY COUNCIL PRIORITIES
Current fiscal year 2025/26 and next fiscal year 2026/27 Adopted Goals and Priorities regarding the creation and support of affordable housing and long-term efforts to prevent homelessness; and, Distribution of HOME-ARP funds to vulnerable populations according to the approved HUD 2021 HOME-ARP Allocation Plan (Amended).
DISCUSSION
Draft Resolution and Additional HOME-ARP Funding
City staff requests adoption of the attached Draft Resolution which accepts and appropriates an additional $2,970.00 of HOME-ARP funding released by HUD on April 30, 2025, after discovery of calculation errors during HUD’s own internal quality control efforts. Due to staffing disruptions in the federal workforce during this time, Housing Division staff received delayed notification from HUD on September 2, 2025, about the additional funds, as HUD’s April 2025 original correspondence was apparently not distributed to HUD’s City of Merced staff contacts or the Mayor.
The April 2025 correspondence required the City to perform an amendment to the previously approved 2021 HOME-ARP Allocation Plan in order to use the additional funds that were discovered. The 2021 HOME-ARP Allocation Plan was originally approved by the City Council and HUD in March and April of 2023, respectively, via Substantial Amendment #1 to the 2021 Annual Action Plan (Attachment 2).
The Draft Resolution (Attachment 5) updates the original resolution approved at the City Council meeting of March 20, 2023 (Attachment 3).
The small amount of additional funding, combined with there being no change to planned activities of the funds, did not trigger a new substantial amendment. Therefore, staff completed a minor amendment to add the additional funds to the text of the plan with a short explanation.
The minor amendment also shifted $283,316.70 of HOME-ARP funds set aside in the original plan for “Administration and Planning” activities to the “Development of Affordable Rental Housing” activity category, which also did not trigger the need for a substantial amendment. Since Housing Division staff prepared the 2021 plan and the minor amendment in-house without the use of a consultant and did not incur significant costs in doing so, only a $15,000 portion of the admin and planning funding will be used.
All involved additional funds and eligible use category changes are best illustrated in the “Use of HOME-ARP Funding” chart on Page 25 of the amended HOME-ARP Allocation Plan (Attachment 1). The amended Allocation Plan remains a permanent attachment to the 2021 Annual Action Plan.
Revised Conditional Commitment Reservation Letter
In addition, staff requests Council approval of an updated Conditional Commitment Reservation letter for Upholdings California, LLC, of HOME-ARP funding, having originally been conditionally approved for a previous amount of up to $1,690,461.30 of HOME-ARP funding on February 20, 2024, before HUD released the additional $2,970.00 of funding in April 2025 (Attachment 4).
The updated letter (Attachment 6) makes $1,961,248 of HOME-ARP funding available to the project, an increase from the previous reservation letter of $270,786.70.
The remaining Development category funds will remain for use by the Housing Division for logging direct staff hours on implementing the 66-unit Mercy Village project, including drafting grant, regulatory, affordability/deed restriction, and other required agreements. These agreements will tentatively be placed on the June 1, 2026, City Council agenda for approval, which will allow the financial close of the project and subsequent groundbreaking.
The Conditional Commitment Reservation letter itself does not authorize money to be transferred to the developer or to accrued costs. It is an interim tool that the developer can then take to other subsidy, tax credit, loan, or other investment sources to show that they have (or are in the process of) assembling the necessary capital stack that will enable the project to close escrow, complete construction, and fill units into full occupancy and subsequent operations.
The Mercy Village project developer has expressed their ability to comply with all HUD’s requirements involved in addressing the needs of the most vulnerable “qualifying populations” (QPs) that the HOME-ARP funds were targeted by Congress to serve with the American Rescue Plan Act of 2021.
IMPACT ON CITY RESOURCES
Adoption of the Draft Resolution includes authorizing the Finance Officer to accept and appropriate the additional $2,970.00 HOME-ARP funds to Fund 2502-HOME-ARP. This amount can then be made available to eligible activities and projects, such as the Mercy Village affordable housing project.
Since the additional funds were not known about, and therefore unable to be reserved prior to April 2025 when the original commitment reservation letter was approved by Council, the updated letter now reserves the full amount of HOME-ARP funds that are available for development activities.
It should be noted that HUD’s period of performance for HOME-ARP funds ends on September 30, 2030. After this date, any HOME-ARP funds remaining in the City’s Treasury account will be cancelled and will no longer be available for expenditure. A typical construction timeline for larger affordable housing projects is approximately 18-24 months, with an additional 6 months allowed to full tenant occupancy.
ATTACHMENTS
1. Final - Amended HOME-ARP Allocation Plan
2. Admin Report 23-038 - March 20, 2023
3. Council Resolution 2023-21 (March 20, 2023)
4. Admin Report 24-122 - February 20, 2024
5. Draft Resolution
6. Updated Conditional Commitment Reservation Letter