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Home My WebLink AboutStaff Report 14526 City of Palo Alto (ID # 14526) City Council Staff Report Meeting Date: 6/20/2022 Report Type: Action Items City of Palo Alto Page 1 Title: PUBLIC HEARING: Adoption of the Community Development Block Grant Funds (CDBG) Fiscal Year 2022-23 Annual Action Plan and Adoption of a Resolution Approving Use of CDBG Funds for FY 2022-23; Approval of a Substantial Amendment to the CDBG Fiscal Year 2020-21 Annual Action Plan and Adoption of an Associated Resolution; and Budget Amendments in the FY 2023 Operating Budget in the CDBG Fund and the General Fund From: City Manager Lead Department: Planning and Development Services Additional Recommendation 1. Approve an amendment to the Fiscal Year 2023 Operating Budget Appropriation for the General Fund (requires 2/3 approval) by: a. Increasing the expense appropriation in the Planning and Development Services Department by $167,477; and b. Decreasing the Budget Stabilization Reserve by $167,477. Executive Summary This At-Places Memorandum summarizes an issue that arose after publication of the staff report and includes an additional recommendation for a budget amendment in the General Fund. Staff recommends reconsideration of federal funding, Community Development Block Grant (CDBG) for Downtown Streets Team (Downtown Streets) and reallocating the funding to the Mitchell Park 525 East Charleston housing project. Staff’s assessment is that Downtown Streets may no longer qualify as a Community Based Development Organization (CDBO) and therefore CDBG funding should be reallocated. Staff recommends funding Downtown Streets programs in Fiscal Year 2022-2023 from the General Fund Budget Stabilization Reserve, as reflected in the additional budget amendment recommendation. Funding adjustments for the FY 2021-2022 period will be brought forward in a subsequent report as part of the FY 2022 Year-End process for Council’s consideration. Discussion The Department of Housing and Urban Development (HUD) administers of the CDGB program, including all the requirements grantees must meet to receive funding under certain CDBG City of Palo Alto Page 2 funding categories. Specifically, funding for the Economic Development, Housing Rehabilitation, Public Improvements and Facilities category can only be allocated to qualified CDBOs. To qualify for as a CBDO, organizations must meet all the criteria set forth by the Department of Housing and Urban Development (HUD) in §570.204(c)(1), (2), or (3). Staff has consulted with HUD and Downtown Streets to evaluate options for compliance. Downtown Streets has indicated a preference for applying for an exemption, a process defined by HUD. The exemption request letter to HUD would describe that, though Downtown Streets does not meet the specific criteria listed above, the Downtown Streets organizations remains sufficiently similar in purpose, function, and scope to qualified CBDOs. An exemption request would be lengthy, and approval is not guaranteed. HUD advised the process could take at least six months. If the City does not reallocate the $160,477 and Downtown Streets does not get the exemption in time, the potential consequence could be not achieving the HUD timeliness ratio by May 1, 2023. Under the provisions of 24 CFR 570.802 of the CDBG regulations, 60 days prior to the end of the program year (May 1, 2023), the grantee (City of Palo Alto) is considered timely if the balance in its line of credit does not exceed 1.5 times the annual grant. HUD determines this by calculating the ratio of unexpended funds to the annal grant award. To do this, HUD sums the amount of program income the City has on hand and the funds remaining in the CDBG line of credit and divides it by the amount of the annual grant award. If the ratio is less than or equal to 1.5 times the grant amount, the City would be considered timely. If the ratio is more than 1.5 times the grant amount, then the City would be considered untimely, and in noncompliance. Not meeting the timeliness test could potentially cause HUD to reduce the City’s CDBG allocation the following year. Reallocation CDBG has three allocation categories: Category Cap 1 Public Services 15% of City Allocation 2 Planning and Administration 20% of City Allocation 3 Economic Development, Housing Rehabilitation, Public Improvements and Facilities Uncapped Downtown Streets falls into category three. If Council concurs with staff recommendation and reallocates these funds, they should be allocated to another organization within category three. Due to increasing pre-development costs, Eden Housing is interested in receiving additional CDBG funding for its project at 525 East Charleston. Table 2, below, summarizes this year’s recommended allocations including the recommended revision. City of Palo Alto Page 3 Table 2: 2022-23 CDBG Annual Action Plan Agency/Program Name 2021-22 Funded Amount 2022-23 Original Recommended Amount 2022-23 Revised Recommended Amount Public Services Alta Housing – SRO Resident Support $24,535 $22,413 $22,413 Catholic Charities/ Ombudsman Program for the rights of seniors in long term care facilities. $10,000 $10,000 $10,000 LifeMoves (formerly Inn Vision)/Opportunity Services Center $31,545 $26,660 $26,660 Silicon Valley Independent Living Center/Housing and Emergency Services $14,020 $14,021 $14,021 Project Sentinel/Fair Housing Services n/a $24,881 $24,881 Public Services Total (Not to Exceed $97,975) $80,100 $97,975 $97,975 Planning & Administration City of Palo Alto/CDBG Administration $99,304 $121,816 $121,816 Project Sentinel/Fair Housing Services $33,698 $8,817 $8,817 Planning & Administration Total (Not to Exceed $130,633) $133,002 $130,633 $130,633 Economic Development Downtown Streets Team/Workforce Development Program $160,477 $160,477 $0.00 Economic Development Total $160,477 $160,477 $0.00 Rehabilitation Rebuilding Together Peninsula/ Critical health and safety related home repair needs for low- income homeowners. $73,135 $73,135 $73,135 Mitchell Park – 525 E. Charleston – Affordable Housing (Construction) n/a $190,948 $351,425 Rehabilitation Total $73,135 $264,083 $424,560 New CDBG-CV Allocation MOVE Mountain View – Safe Parking Program n/a $160,300 $160,300 LifeMoves – COVID-19 Testing Program n/a $34,201 $34,201 New CDBG-CV Allocation Total n/a $194,501 $194,501 GRAND TOTAL $847,669 $847,669 2 0Tle 1: Revised Allocations21-22 Allocation City of Palo Alto Page 4 Alternate Funding Source for Downtown Streets Downtown Streets has been essential in the past at providing services to those in need in Palo Alto. Since CDBG funding is not recommended to be allocated to Downtown Streets this year, the City proposes to fund the program using funds from the General Fund Budget Stabilization Reserve in FY 2023. A resolution for this issue in FY 2022 funding will be brought forward for Council’s consideration at a later date as part of the FY 2022 Year-End process. Resource Impact The recommendation in this report will result in continued financial support of Downtown Streets Team programs and an additional General Fund expense of $167,477 in FY 2023. The General Fund Budget Stabilization Reserve (BSR) was recommended to be $45.4 million or 18.3 percent of the FY 2023 Budget, as part of the Budget Adoption Report (CMR 14352). This action will reduce the BSR to $45.2 million or 18.2 percent of the FY 2023 Budget, which is within the approved 15 percent to 20 percent range, but slightly below the Council target of 18.5 percent. Funding adjustments for FY 2022 Downtown Streets Team allocations will be brought forward during the FY 2022 Year-End process to ensure the City remains in compliance with HUD requirements.