Report Prepared by: Kimberly Nutt, Housing Program Supervisor, Housing Division, Development Services Department
Title
SUBJECT: Public Hearing for the Introduction and Review of the Draft U.S. Department of Housing and Urban Development (HUD) 2021 Annual Action Plan; Proposed Expenditure of CDBG and HOME Funds for FY 2021-2022; and, Receipt of Public Comment During a Reduced 15-Day Public Review and Comment Period
REPORT IN BRIEF
Presentation and discussion of the Preliminary Draft of the HUD 2021 Annual Action Plan; and Public Hearing to provide the public an opportunity to comment.
RECOMMENDATION
City Council -
A. Conduct a public hearing to receive public comment regarding the Draft 2021 Annual Action Plan and proposed expenditure of CDBG, HOME, and other funds for Fiscal Year 2021-2022; and,
B. Provide comment, if any, on staff recommendations for the distribution of projects, goals, and objectives, and allocation of funding in the Draft 2021 Annual Action Plan; and,
C. Provide comment, if any, on staff recommendations regarding the Community Organization CDBG funding request applications received for Fiscal Year 2021-2022.
Body
ALTERNATIVES
No Council Motion or Approval is necessary for this Public Hearing.
AUTHORITY
U.S. Department of Housing and Urban Development (HUD) requires, per 24 CFR 91.105, requires that participating local government jurisdictions involve citizens in the development of the Annual Action Plan and any subsequent substantial amendments; the Charter of the City of Merced, Section 405, 409, and 411 et seq of the City of Merced; and, pursuant to 24 CFR Subpart F, the City is required to submit the Council-approved Annual Action Plan to HUD for approval.
CITY COUNCIL PRIORITIES
As provided for in the 2020-21 Adopted Budget; and Council Priorities that include Future Planning, Sustainability, Housing and Homelessness, and Agency Partnerships.
DISCUSSION
Staff is requesting that Council hold a Public Hearing to receive public comment on the Draft HUD 2021 Annual Action Plan (Attachment 1).
Additionally, staff is requesting Council recommendations regarding the Preliminary Draft Plan and the public service funding request applications received from community non-profit organizations (Attachment 2). Any requested changes will be incorporated into the Final Draft of the Plan that will be presented back to Council on July 6, 2021, at the final Public Hearing. Staff will be requesting Council’s approval and permission to submit the plan to HUD after that public hearing.
Staff plans to submit the approved plan to HUD by July 15, 2021. HUD’s regulatory “last day to submit” is August 15, 2021. If an Annual Action Plan is not submitted by the August deadline, the City will lose its CDBG and HOME funding for the 2021-22 year. Unlike the previous program year (2020), HUD has not issued any extension waivers for submission of 2021 plans.
Effect of the Grove Apartments Loan Payoff on 2021 Project Funding
The Grove Apartments’ payoff of CDBG, HOME, and Section 108 loans in January of 2021, caused a large influx of CDBG, HOME, and Housing Successor Agency (HSA) former redevelopment LMI Asset fund program income that the City must allocate with this plan towards 2021 project funding.
The below recaps the amounts and type of funds received in the Grove payoff, the amount/type already allocated through the 2020 Annual Plan substantial amendment for Childs and B Street project funding approved by Council in May of 2021, and the amounts remaining to be allocated:
|
Fund Type: |
CDBG |
HOME |
LMI Assets |
|
Amount Received |
$ 3,877,752 |
$ 1,468,861 |
$ 1,582,488 |
|
Allocated to Date |
< 2,400,000 > |
< 0 > |
< 0 > |
|
Payoff funds remaining: |
$ 1,477,752 |
$ 1,468,861 |
$ 1,582,488 |
The next sections below discuss: 1) total combined 2021 funds available and, 2) further below, staff’s recommendations for allocating funds by type of project.
2021 HUD Allocations and Total Funds Available for Project Funding
The CDBG allocation of funding for Fiscal Year 2021-2022 is expected to be $1,132,674, plus $96,000 of program income (PI) and $258,135.26 in prior-year resources. The FY 2021 HOME allocation is expected to be $548,734, with an estimated $60,000 in program income during the year and $563,203.88 in prior-year resources. Combined, the total of HUD FY2021 program allocations and other revenue will be $2,658,747.14. The Housing Division does not receive any revenue from the General Fund.
Combined with the Grove Apartments’ payoff remaining funds, the below figures are the total funds available for 2021 program funding.
|
Revenue/Fund type |
CDBG |
HOME |
LMI Assets |
|
2021 Allocation + PI |
$ 1,486,809 |
$ 1,171,937 |
(N/A) |
|
Payoff funds |
$ 1,477,752 |
$ 1,468,861 |
$ 1,582,488 |
|
Total 2021 Funds available: |
$ 2,964,561 |
$ 2,640,798 |
$ 1,582,488 |
2021 Public Service Project Funding
Attachment 2 provides a summary of the Public Service funding applications received for 2021, the requested funding amount, and the tentative funding recommendations by staff in assessing each proposed project for HUD eligibility. The Final Draft of this plan that will be presented to Council for approval at the July 6th scheduled public hearing will have staff’s final recommendations, with each project having been fully assessed for HUD National Objective eligibility, federal regulation compliance, and allowed costs.
This year, the Grove payoff had a major effect on the CDBG 15% cap for public services (15% Cap = 15% of CDBG allocation + prior year program income). Therefore, the 15% cap is much higher than in normal years - which means that, once fully assessed for compliance to HUD regulations, full funding of all eligible projects funding requests should not be an issue for use of CDBG funds.
It should be noted that the 2020 CDBG funding approved in last year’s plan for the amount of $4,920 for a first-time homebuyer education program is still available to use during the 2021 program year. Due to the furtherance of the pandemic this year, the program was still not achieved during 2020. If pandemic restrictions continue to lift as they have been recently, this program may see fruition during the 2021 program year.
2021 Housing Project Funding
CDBG - Acquisition & Rehabilitation projects for Permanent Supportive Housing:
For the last few recent years, both CDBG and HOME funds have helped finance two programs that purchase existing homes or duplexes/triplexes, rehabilitate/repair them, then rent them to homeless families with provision of separate case management that helps them transition from chronic homelessness to sustainable independent living. Both organizations, Sierra Saving Grace Homeless Project and the Merced Rescue Mission, have again applied for project funding for these programs, and staff is recommending full funding of their requests with CDBG funds. Additionally, due to current rising market values in a competitive “seller’s market,” staff is recommending additional CDBG funding be granted to their request to ensure successful acquisition/close of escrow of those properties.
HOME - Affordable Rental Housing/Apartments:
Development Services staff has been in recent discussions with two affordable rental housing developers who are looking to build affordable apartment complexes in North Merced, both of whom have inquired about any available HOME funds that could be used towards each project. Construction of affordable housing units is an eligible use of HOME funds.
From the “Total Funds Available” table above, there will be $ 2,069,940 in HOME funds that could be used towards one or both of these projects. Additionally, separate from this Annual Plan, HUD will be issuing an over $1.9 million American Rescue Plan Act entitlement community HOME-ARP allocation and implementing instructions to the City of Merced sometime during the 2021 program year that can also be used towards construction of affordable units. And finally, the recent announcement that the City of Merced will be issued over $27 million from the U.S. Treasury through other American Rescue Plan Act funds will add additional available funding for affordable unit construction projects.
Staff is recommending that all available HOME funds go towards the construction of affordable housing units for the 2021 program year. A substantial amendment is expected to be needed sometime during the coming year to accept and allocate the pending HUD HOME-ARP and the U.S. Treasury ARP allocations, as well as Council approvals for commitment of specific funding to projects.
HSA LMI Asset Funds - Gateway Terrace II project funding:
The Housing Division has worked diligently for the last several years to get HUD’s final approval on the Gateway Terrace II Apartments, a 50-unit affordable housing project that will be located on K Street between W. 12th and W. 13th Streets. The project has been important to Merced City’s issue with a lack of affordable units since its inception, as it also will provide 10 units to homeless veterans.
As referenced at the April 5, 2021, affordable housing presentation by the Development Services Director, with the January 2021 Grove Apartments loan payoff that included $1,582,488 of repaid Housing Successor Agency (HSA) LMI Asset funds, the City will now be able to fully cover the overall project cost amounts the City originally committed to the project. By switching funding sources to entirely LMI Asset Funds, the project will now have the path to be able to move forward unobstructed from HUD involvement, as it will no longer involve any federal funding. The math involved is as follows:
HSA LMI Asset Fund program income received: $ 1,582,488
Committed project costs (CDBG + HOME) < 1,501,751 >
Remaining LMI Asset program income: $ 80,737
The 2021 Annual Action will be the mechanism that accomplishes this change of funding source, pending HUD approval of the plan after submission following Council approval on July 6th. From there, there will be other tasks that will need to be accomplished for the project, including re-assessing total project costs due to rising costs of materials, new State Tax Equity and Fiscal Responsibility Act (TEFRA) hearings, and amendment of loan documents, before the project can actually move forward.
Lastly, it should be noted that a separate sewer and water main replacement project associated with Gateway Terrace II that was previously approved by Council will still use $250,000 of CDBG, $200,072 in Sewer Main Replacement Funds, $236,208 of Water Main Replacement funds, and $50,000 of re-allocated CDBG funds from a previous-year project. A separate National Environmental Protection Act (NEPA) environmental review and prior-year funding has already been approved and cleared by HUD to proceed. This project will move forward in coordination with the housing project, as part of the main replacement runs through an existing city utility easement on the vacant parcel.
2021 Infrastructure Project Funding
With the Grove payoff’s CDBG program income funds, staff is proposing several infrastructure projects to make effective and beneficial use of the additional CDBG funding that will remain after subtracting the suggested public service project allocations discussed above. The cost of installing and improving public infrastructure is an eligible use of CDBG funds.
A summary of suggested projects is listed at Attachment 3 and below:
• Approximately $750,000 to install missing sidewalk/curb and gutter at the southeast corner of South Canal Street and W. Childs Avenue extending east to the W. Childs Ave and S. Hwy 59 intersection to prepare the site for anticipated future development
• Approximately $350,000 to upgrade storm drain infrastructure in the Loughborough area
• Approximately $150,000 to install new curb/gutter/sidewalk at Shadowbrook Drive and Bear Creek Drive
• Approximately $75,000 to install new curb/gutter on D Street, E. 11th Street, and E. 13th Street
• Approximately 25,000 to replace sidewalk at M Street and W. 20th Street
• Remaining $393,030, plus $75,000 carryover from 2020 funds - project to be determined; or, a new water main installation project in a predominantly low-income area of the city where there are existing residential water wells in danger of drying up with the current drought.
Above all, it is imperative that all the CDBG program income received this Spring be used up, as if more than 1.5% of our CDBG fund balance is unspent by May 1st of 2022, it will negatively affect future allocations. Infrastructure projects coordinated with the Engineering Division typically include an extra 10% of the engineer’s cost estimate that goes towards direct civil improvement plan design hours and for Housing staff’s administrative time on each project.
With a severe drought underway and the County being under a State Drought Emergency, Staff suggests that Council consider any additional remaining CDBG funding be dedicated to the installation of new water mains and residential water line stubs in predominantly low-income areas of the city where water mains are missing and where there are still existing “grandfathered” residential water wells that have a higher potential of drying up completely with the current and ongoing drought. Likening back to previous drought years, particularly more recently in 2014, many low-income homeowners could not afford to pay the City’s water connection fees where there was a water main available. In other areas, a water main was not available at all, resulting in some homeowners being forced to temporarily abandon their homes for lack of water. This assistance will be three-fold in allowing residents to stay in their homes, providing a sanitary water source, and in eliminating potential water contamination sources within the City limits by permanently sealing the dry wells.
History and Past Actions; and the Effects of the Coronavirus Pandemic on the Process :
Normally, this process is completed and final plans are approved for an “on time” submittal to HUD by May 15th of each year, which is 45 days before the start of the new program year (July 1). Late submittals, however, are accepted through the normal regulatory deadline of August 15th, annually. This has not, by any means, been a normal year, but unlike submissions of last year’s plan, HUD has not waived the regulatory deadline for submission of 2021 plans nationwide. Housing staff has been in contact with HUD’s Regional CPD Representative, who oversees the City’s program, and taking staff’s backlog under consideration, and under heavy workload themselves, have agreed upon a July 15th submittal target. This gives the CPD Rep enough time after submittal to approve the plan before the August 15th drop dead date.
Since the pandemic began in early 2020, HUD has issued waivers that give jurisdictions flexibilities of various deadlines and required processes, including citizen participation, in considering the hurdles most, if not all, grantees are facing from the additional, but necessary, workload resulting from multiple tranches of emergency funding that have come available over the last year. The latest waiver was issued on May 14, 2021, after HUD discovered a miscalculation of the CDBG allocations issued nationwide, allowing grantees to reduce their public comment periods for 2021 Annual Action Plans to no less than three days. Housing staff chose a 15-day review and comment period to accommodate more consideration to our local residents.
The Coronavirus has had a cumulative and lasting effect on the citizen participation process, outreach methods, and staff workload during the development of last year’s ConPlan/Annual Plan and this year’s 2021 Annual Plan. Beginning in March 2020, over one year ago, Housing staff were unable to safely hold any extensive in-person outreach meetings as the threat of spread grew in the community. As staff gained proficiency in switching to internet-based virtual outreach methods, the tasks involved in these new outreach methods also had to adapt, moving to more meeting preparation in the form of creating meeting links and social media posts, preparation of detailed presentations for online meetings, technical coordination with IT staff and language interpreters, and attendee registration lists. Together with three substantial amendments that include citizen comment and public hearing processes during the year, these overlapping tasks and continuing insufficient staffing in the Housing Division has created a snowball effect on staff capacities. Recruitment to fill the third and vacant staff position in Housing is in progress.
What is the 2021 Annual Action Plan?
In order to receive Federal Community Development Block Grant (CDBG) and HOME Investment Partnerships Program (HOME) funding from HUD each year, the City is first required to develop a Consolidated Plan, a five-year strategic plan that describes how the funds will be used, as well as evaluating local conditions in determining the City’s needs for housing and other concerns, and goals and priorities in addressing those needs. The Consolidated Plan establishes the goals and objectives to be carried out through Annual Action Plans over the five-year period. Therefore, the Consolidated Plan and Annual Action Plan, between them, provide long- and short-term goals, budgets, anticipated development, and public service activity project lists for use of the HUD funding allocations granted to the City of Merced for distribution in the community.
HUD approved the 2020-2024 Consolidated Plan and First Year (2020) Annual Action Plan and granted access to funds on March 10, 2021. Due to the late approval attributed to the multiple delays caused in part by the Pandemic, two additional outreach meetings and a resulting restarted public hearing process, and two additional Substantial Amendment public hearing and approval processes to award Third Round CARES Act funding and amend funding sources for the Childs and B Street project, Housing staff continues to working diligently to implement programs that were awarded funding last year.
The 2021 Annual Action Plan implements the second year of the 2020-2024 Consolidated Plan that was approved by Council on November 30, 2020. The 2021 plan includes a description of how this year’s funding will be used to address identified objectives for housing, homelessness, and economic development.
Citizen participation in this process is crucial to a complete and thorough plan. Focus group workshops and informational meetings, announcements of project funding availability, online community needs assessment surveys, town hall meetings, and public hearings give citizens the opportunity to participate in and give input to the community’s needs and this plan as it is being developed. These plans are essentially guided by the needs and the priorities expressed by residents and community stakeholders who participated in the process.
IMPACT ON CITY RESOURCES
No budget or appropriation action is required at this time.
After its initial miscalculated allocation announcement in March of 2021, HUD issued a correction notice on May 14, 2021, which notified the City of its corrected CDBG and HOME allocations for Program/Fiscal Year 2021-22, and the budget outlined in the Draft 2021 Annual Action Plan is based upon those corrected expected allocation amounts.
ATTACHMENTS
1. Preliminary Draft - 2021 Annual Action Plan
2. 2021 Project Funding Applications and Recommendations
3. CDBG - Proposed Infrastructure Improvement Projects