Report Prepared by: Kimberly Nutt, Housing Program Supervisor, Housing Division/Development Services Department
Title
SUBJECT: Continued Public Hearing to Receive Public Comment Regarding the U.S. Department of Housing and Urban Development (HUD) 2024 Annual Action Plan; Final Determination and Award of Project Funding Pending HUD Approval and Approval of the Draft 2024 Annual Action Plan; Authorization to Complete and Submit the Final Plan to HUD for Approval; and Authorize City Manager to Execute all Related Documents and Agreements with HUD to Implement the Plan
REPORT IN BRIEF
Provides opportunity for the Public to comment on available funds, project funding, and other topics relating to the 2024 Annual Action Plan; Requests Council’s final determination and award of 2024 project funding and approval of the Draft 2024 Annual Action Plan, to enable final completion and submittal of the 2024 Annual Action Plan to HUD before the HUD deadline; and Authorizes the City Manager to execute all related agreements and documents and the Finance Officer to perform necessary appropriations of HUD funds.
RECOMMENDATION
City Council -
A. Re-open, conduct, and close the Public Hearing, to receive public comment regarding the use of available CDBG and HOME funding and other related areas of interest regarding the 2024 Annual Action Plan; and,
City Council - Adopt a motion:
B. Adopting Resolution 2024-83, A Resolution of the City Council of the City of Merced, California, Approving the 2024 HUD Annual Action Plan and Certifying Compliance with the Requirements of the Community Development Block Grant (CDBG) and Home Investment Partnership (HOME) Programs; and,
C. Allocating CDBG and HOME funding to proposed subrecipient projects as originally presented at the June 3, 2024, public hearing, and including the public service funding direction received by Council, and including minor changes to funding amounts as listed in this Administrative Report, contingent upon HUD’s final approval and provided all National Objectives and other related HUD requirements, including environmental clearances, are met for each project, to enable final completion of the Annual Action Plan and its submittal to HUD before the regulatory deadline; and,
D. Authorizing staff to finalize and complete all sections of the plan and work with HUD for final submission, minor changes, and approval of the plan and all activities; authorize the City Manager to execute all related documents and certifications, including agreements with HUD; and, authorize the Finance Officer to perform any necessary financial management actions necessary to accept and appropriate funding when received from HUD.
Body
ALTERNATIVES
1. Approve, as recommended by staff; or,
2. Approve, and refer to staff for reconsideration of and/or minor changes to specific items, which would not trigger the requirement for a substantial amendment, prior to authorized submittal of the plan to HUD (specified items to be addressed in the motion); or,
3. Approve the plan as recommended by staff and authorize its submittal to HUD for approval; then, direct staff to initiate a Substantial Amendment and related citizen participation process to enable consideration of alternative project options to non-public service funding; or,
4. Deny the request (City will not receive 2024 HUD funding).
AUTHORITY
Title 24 of the Code of Federal Regulations Section 91, requiring participating local government jurisdictions to involve citizens in the development of each Five-Year Consolidated Plan, Annual Action Plan, Consolidated Annual Performance and Evaluation Report (CAPER), and any substantial amendments to the plans and to submit the Annual Action Plan to HUD by the regulatory annual deadline of August 16th to receive the funds allocated; the City of Merced Citizen Participation Plan, as amended; and, the Charter of the City of Merced, Section 405, 409, and 411, et seq.
CITY COUNCIL PRIORITIES
As provided for in the 2024-25 Adopted Budget; and the 2024/25 Council Priorities regarding Quality of Life, Economic Development, Public Safety, and Community Investment that can be addressed through HUD funding.
DISCUSSION
Background - Staff and Council Actions to Date and HUD Procedure Recommendations
At the first Public Hearing held on June 3, 2024, Housing Division staff presented the balanced preliminary Community Development Block Grant (CDBG) and Home Investment Partnership Program (HOME) budget for the Draft 2024 Annual Action Plan. The preliminary budget balanced all the unallocated 2023/24 carryover funds, 2023/24 (prior year) program income known at that time, and the expected 2024/25 allocations against all of the original project funding requests that were received during the Notice of Funding Opportunity (NOFO) period held over January/February 2024 (Attachment 3).
Because initially there was an over-request of available public service program funding, Council provided direction regarding changes to the initial public service funding amounts, to ensure that the total would not exceed the 15% public services cap. It should be noted that Council could choose to further adjust and/or even omit funding to public service projects before final approval of the Annual Action Plan.
At the June meeting, Council also directed staff to develop and provide an additional list of potential projects that they could then choose from, to swap for selected non-public services projects that were on the initial project funding request list. Once prepared and preliminarily vetted to meet HUD eligibility (environmental analysis has not yet been conducted), staff posted the list of alternative projects to the Housing Division website for public review on June 27, 2024, since the publicly noticed Public Review and Comment Period had commenced on June 14, 2024, and the alternative projects are subject to the public’s review.
Because the list of alternative projects was posted during the Comment Period and therefore residents would not have had 30 days to review before Council was scheduled to take action on the Plan on July 15, 2024, Housing staff consulted with the City’s HUD Representative for guidance on how best to proceed within regulations. HUD’s guidance was presented to Council at the July 15, 2024, meeting (Attachment 4), which advised the City Council to adopt and submit the 2024 Annual Action Plan in its current form, without alteration of the initially presented project list, in order to comply with public review and comment period regulations. HUD further advised that Council would then have the option of initiating a substantial amendment process, once HUD approved the initial submittal, if consideration of the alternative projects was still desired.
Because of these circumstances, staff requested that the July 15 scheduled public hearing and approval of the Annual Plan be opened/continued to the August 5, 2024, Council meeting to give staff additional time to complete the plan to an approval-ready draft status. As such, Council opened the public hearing and heard public comment from four speakers at the July 15 meeting, then continued the hearing to the August 5 council meeting.
It should be noted that speakers at the July 15 opening of the public hearing included those suggesting that public service project funding needed to be revisited prior to final approval of the plan. This matter is discussed further in this report.
Considerations for New Program Income Received
As was briefly mentioned for the July 15 Council meeting, the Housing Division has also received a significant amount of unanticipated CDBG program income (PI) and a small amount of HOME PI since the June 3 Council meeting. The final additional amounts received through June 30 are: $110,071.97 of CDBG; and $25,221.62 of HOME.
Given the unique circumstances and unusually tentative composition to the year’s upcoming final project listing, Housing staff also sought HUD guidance as to what may be Council’s options for allocating these additional PI funds for the different circumstances being considered. HUD’s guidance is reflected in the bulleted consideration points listed below.
Firstly, for this discussion, defining the parameters that trigger a substantial amendment is necessary. As defined in the City’s adopted Citizen Participation Plan (CPP), a substantial amendment is triggered when considering any of the following: A) a change to the allocation priorities described in the current Consolidated Plan; B) a substantial change in the distribution of funding (substantial change is defined as more than 75% to the total funding of any project and/or entire allocation); C) a new funding source not previously described or considered; and/or, D) a change in the purpose, scope, location, or beneficiaries of an activity.
• CDBG PI and considerations: Of the approximate $110,071 PI that has been received, $16,510, or fifteen percent (15%), can be added to the public service projects that were presented at the June 3 Council meeting. Additionally, staff has also made a correction to the previous program income figures that were provided to Council, amounting to another $4,230 that should have been in the previously provided amount (note: to balance, this has indirectly affected other project funding). Therefore, Council can allocate a total of $20,740 more to public services. This is staff’s recommendation, since a substantial amendment is not triggered (less than 75% change). Staff’s recommendation as to what project to increase is discussed further below.
The remaining $93,561 of the new program income can be handled in one of the two ways discussed immediately below, which depends on: 1) whether Council decides to approve and fund CDBG Acquisition/Rehabilitation activities for the year (this is staff’s recommendation - discussed further below), or 2) chooses to move forward with a substantial amendment process to explore consideration of any of the alternative projects.
For number one, the remaining $93,561 additional PI would simply be split between project costs and the HUD-allowed maximum of 20% for the City Activity Delivery Costs (ADC). For this, a substantial amendment is not required, as the increase to the project allocation is less than a 75% change and the public has had at least 30 days to comment on the initial project, beneficiary details, and original funding levels.
For number two, the allowed ADC percentage is only 10% (city staff would receive less to carry out the project), and since the public has not had an opportunity to comment (change to purpose, scope, etc.), a substantial amendment would be required. Following HUD guidance as to how to handle this situation, staff would place the $93,561 in an undefined “Contingency Cost Overrun” project temporarily until the substantial amendment is processed.
• HOME PI: Unlike with CDBG funds, staff was unable to identify an alternative project(s) for the use of HOME funds, so the additional $25,221.62 of HOME PI (including 20% to ADC) funds will be placed into the “To Be Determined - Affordable Housing/Rehab” holding project that was in the initial HOME budget presented at the first public hearing.
Total Available Funding for Program Year 2024
The newly received CDBG and HOME PI that was discussed above is included in the following:
|
Funding Source |
2024 Allocation |
Estimated PI over PY2024/25 |
Prior Year Carryover |
Total Available |
|
CDBG |
$ 1,056,567.00 |
$ 108,000.00 |
$ 157,427.00 |
$ 1,321,994.00 |
|
HOME |
* $ 450,563.61 |
$ 60,000.00 |
$ 1,057,613.00 |
* $ 1,568,176.61* |
|
TOTAL: |
$ 2,890,170.61* |
* This year, the HOME allocation includes cents (usually whole dollars). In HUD’s online system (Integrated Disbursement and Information System, or IDIS), the “Annual Allocation” field will not allow cents to be entered. Therefore, 2024 HOME allocation, and projects budgeted against it, will be reduced down to the whole dollar ($450,563). Subsequently, the total available HOME funds will be shown as $1,568,176, and the total CDBG/HOME funds will be budgeted as $2,890,170 (no cents).
Staff Recommendations for Funding
Factors to Consider
Staff recommends that the following factors be taken under consideration for making an informed decision regarding allocation of 2024 project funding as recommended versus the consideration of a later substantial amendment process that contemplates public parks/infrastructure projects:
1. CDBG Timeliness Responsibilities - recent years of not being able to meet HUD’s Timeliness deadlines because of backlogged infrastructure projects have taught the Housing Division that funding infrastructure projects through the Annual Plan before ensuring that environmental, planning, and design work for them has been completed is a path to repeated non-compliance.
2. Substantial Amendment Timelines - amendments take approximately 2½ -3 months to process, from start to finish, from initial steps internally to final HUD approval.
3. Current Work - Housing/Engineering staff already have a public infrastructure project to implement and expend CDBG funding on this coming year - ADA and Water/Sewer Main Improvements to prepare the Gateway Terrace II affordable housing project site for development within the next 1-2 years.
4. Activity Delivery Costs to Fund the Housing Division staff - HUD allows the Housing Division to charge twenty percent (20%) of the project costs of Rehabilitation projects to go towards the cost of implementing those types of projects. Parks/public infrastructure projects are allowed to charge ten percent (10%). The Housing Division is fully staffed at three positions and receives no budgeted funds from the General Fund at this time.
5. Strategic Planning/Consolidated Plan - Housing staff will be taking on concentrated, in-depth work with a consultant over the coming year to develop and prepare the 2025-2029 Consolidated Plan and First Year 2025 Annual Action Plan. This process involves more public and stakeholder agency outreach and strategic planning efforts, equating to more dedicated staff time that is needed. Consultant fees will consume approximately $75,000 of the Housing Division’s available administrative funding. The RFP process is currently in progress.
6. Staff Capacity - over the coming year, Housing’s three staff members (including one new hire) will be working extremely hard to implement projects and complete many tasks that will include the above-mentioned, as well as the following: implementing/completing the Habitat for Humanity E. Main reconstruction/rehab project; drafting/implementing HOME-ARP fund loan documents for the 57-unit Mercy Village affordable housing project; and developing comprehensive Policy and Procedure manuals as required by HUD to meet several different compliance standards.
7. Success of Prior Acquisition with Rehab Projects (Attachment 2) - While this type of program has been repeated with partners Sierra Saving Grace and Merced Rescue Mission in the Annual Plan project list since 2016, enough cannot be said about the multiple layers of success and positive impact these projects have had at a relatively low cost per unit. Each project has housed and provided individualized case management services to homeless, transitional, chronically homeless, and extremely low- to moderate-income individuals and families, and with affordability requirements on the properties for 30 years, guarantees low rents for these tenants long-term. Each project has purchased market rate units and, with loaned funds, have both improved the safety and accessibility of the units for tenants and helped to preserve the City’s housing stock. Some of the units purchased were previously boarded-up problem properties that had brought unwanted blight, squatters, and crime to residential neighborhoods. Each contract with the City requires the organizations to maintain the units in good repair and includes provisions for a maintenance fund. Further, a recent Supreme Court decision now allows cities to enforce bans on sleeping outside in public spaces, and California State recently issued an order directing state agencies on how to remove encampments from public properties and makes it clear that the issue is now in local hands - making the creation of housing solutions for the homeless all the more valuable. Lastly, these types of programs have been celebrated by HUD itself, who in the past has invited City staff to present the program model to other HUD grantees on how to successfully run them in order to efficiently, creatively, and compliantly generate affordable housing units from existing housing stock.
CDBG Public Services
With receipt of the additional June program income and the aforementioned correction, the amount of available public service funding is now $205,425 (Allocation $1,056,567 + prior year program income $312,937 x 15%).
The staff-recommended disbursement of the additional public services cap funding is shown below, based on the previously explained high need in the community for additional short-term emergency rental, mortgage, and utility assistance. Last year, the Council allocated $35,500, which was exhausted three months into the program year.
Public comment received at the July 15, 2024, public hearing and submitted during the Public Review and Comment Period suggested the public’s desire to have Council revisit the disbursement direction that was provided at the June 3 meeting.
|
Organization |
Description |
Project Type |
Request |
Council Dir 6/3 |
New PI |
Total |
|
Sierra Saving Grace |
Emergency Short term rent/mortgage/utility assistance |
Homelessness Prevention |
$106,500 |
$40,000 |
$20,740 |
$ 60,740 |
|
Harvest Time |
LMI/homeless food assistance |
LMI/homeless services |
$66,720 |
$30,000 |
- |
$ 30,000 |
|
Healthy House Within A MATCH Coalition |
Senior Services, homeless |
Homelessness/ Elder Abuse Prevention |
$37,000 |
$25,000 |
- |
$25,000 |
|
Project Sentinel, Inc |
Tenant/landlord counseling |
Housing counseling/ homelessness prevention |
$55,000 |
$25,000 |
- |
$ 25,000 |
|
Lifeline CDC |
Workforce training/afterschool support for Loughborough area residents |
Employment Training |
$25,000 |
$30,000 |
- |
$ 30,000 |
|
Merced Calvary Assembly of God |
Independent living skills, homeless prevention |
Employment Training; Homelessness Prevention |
$27,597 |
$10,000 |
- |
$ 10,000 |
|
Walking by Faith Ministries International, dba SERENITY |
Afterschool support/gang prevention for LMI youth |
Youth services |
$50,000 |
$24,685 |
- |
$ 24,685 |
|
TOTAL: |
$ 205,425 |
CDBG and HOME Housing Projects
The below listed amounts include project costs only. Activity Delivery Costs (ADC) that are used by the Housing Division for staffing and other admin costs are included in the Admin projects table further below.
|
Fund |
Org/Agency |
Description |
Original |
New PI |
Total |
|
CDBG |
Sierra Saving Grace |
Acquisition/Rehab for affordable rental housing/PSH |
$ 511,938 |
$ 74,442 |
$ 586,380 |
|
CDBG |
Habitat for Humanity Merced/Stanislaus |
Rehab/reconstruction of 241 E Main St |
$ 150,000 |
- |
$150,000 |
|
HOME |
(Central Valley Coalition for Affordable Housing) CHDO Minimum 15% Reserve (combined 23/24 & 24/25) |
Eligible single/multifamily rehab project |
$ 153,565 |
- |
$ 153,565 |
|
HOME |
Central Valley Coalition for Affordable Housing - CHDO project |
ADA Rehab of existing duplex at 1933/1935 H Street (total project costs: $444,523) |
$ 290,958 |
- |
$ 290,958 |
|
HOME |
Affordable Housing developer To be determined |
New affordable rental unit construction (or eligible MF rehab/acq of vacant land for affordable rental hsg) |
$803,728 |
$ 21,017 |
$ 824,745 |
|
Total CDBG/HOME housing activities: |
$ 2,005,648 |
CDBG and HOME - Administrative Activities
|
Fund |
Org/Agency |
Description |
Original |
New PI |
Total |
|
Administrative Projects: |
|
CDBG |
Con Plan Consultant |
Professional Services |
$ 75,000 |
- |
$ 75,000 |
|
CDBG |
Merced County HSA |
Continuum of Care - Homeless Planning |
$ 38,000 |
- |
$ 38,000 |
|
HOME |
Project Sentinel, Inc. |
Fair Housing Services |
$33,552 |
- |
$ 33,552 |
|
Total Admin funding to specific activities/projects: |
$ 146,552 |
|
Housing Division Administration: |
|
CDBG |
Housing Division |
Direct Admin Costs |
$ 10,957 |
- |
$ 10,957 |
|
CDBG |
Other City Depts |
Indirect Admin Costs |
$ 108,956 |
- |
$ 108,956 |
|
HOME |
Housing Division |
Direct Admin Costs |
$ 11,504 |
- |
$ 11,504 |
|
Housing Division Activity Delivery Costs (ADC) from projects upon completion: |
|
CDBG |
Housing Division ADC |
Staffing/admin |
$ 132,387 |
$ 14,889 |
$ 147,276 |
|
HOME |
Housing Division ADC |
Staffing/admin |
$ 249,648 |
$ 4,204 |
$ 253,852 |
|
TOTAL Housing Division Admin/ADC: |
$ 532,545 |
|
Total Administrative: |
$ 679,097 |
IMPACT ON CITY RESOURCES
No budget appropriation action is needed at this time. As long as projects that generate ADC as listed above are carried out as expected, the Housing Division does not expect to need General Fund supplementation for the 2024-25 Fiscal Year, as all administrative and staffing costs are covered by CDBG and HOME admin allowances and activity delivery cost percentages that HUD allows to be charged to projects.
ATTACHMENTS
1. Draft - 2024 Annual Action Plan
2. Acquisition with Rehabilitation Project Accomplishments
3. Administrative Report - 1st Public Hearing - June 3, 2024
4. Administrative Report - 2nd Public Hearing (continuance) - July 15, 2024
5. Draft Resolution 2024-83