HomeMy WebLinkAbout0170.092,
!
L
~,
• 0 , ' '.' ',' "." ,',;'
Harc~ 5. 1992
HONORABLE CITY COUNCIL
Palo Alto, California
Attention: Finance Committee
STAFFIHG FOR COMMUNITY DEVELOPMENT BLOCK GRANT PROGRAM
Mernb~rs of the Cou~cil :
REPORT IN BRIEF
This report forwards to the Finance Committee the additional information on
financing and budget questions re1ated to tne proposed changes in staffing for
the Community Development 8lock Grant (CDB&) program. A c~mpan;on staff
report (CMR:17I:S2) provides information on the r~lited staffing proposal fGr
the Human Services Div;sio".
BACKGROUND
As outl ~fl'2d in a January 9, I992 staff report (CMR: l05:92)~ monitoring reports
by the Fed~ral Department of HoUSin9 and Urban Development {HUD) and the
Coo~ers & Lybrand management Tetter have resulted in staff propOSing that an
additional person be hired to assist in the proper administration of the-CDSG
program. Staff plans to consolidate th2 functlons of the CDSG pr~gram into
tne Planning Departme~t. Moving the (neG pragra~ to the Pla~ning De~artment
necessitates incr-eas€'d staffing in the Community Services Deputment to assist
in areas that have relied upon the expertise of the Management Assistant and
to f~lfil1 ether prlority items. CMR:17) :92 addresses these issues.
At the Finance Committee meetfng of January 14, 1992~ the Flnance (omrnitte~
recorTlTle-nded ap~roval of the COBG staffing changes to admini stH the CDS(i
program as outlined in the attached staff report 'CMR:105:92)~ dated January
;, 1992. The Committee ret.ined issues related to budget and impacts on the
Planning Department, Finance Department and Human Services Division. The
Comnittee rec.oTmlended appro\lal of the staffing clnnge5 to anow staff to go
forward with the 1992-93 CDBG .1100.lion process,
CHR:170:92
'>'L··· . . ~
t,
A! the meeting, the Finance Comittee also raised concerns and requested
additional information related tc th2 necessity for the bacHlll positions in
the Hliman Sel"''iices Ohdsion. conformance of the s.taffing propos:!:1s .,ith
Council-approved budget guide1ines. the benefits and other expenses reauired
by the revised staffing proposal, further information on the fff~ct of ~~e
revised funding on the Palo ~lto Hous~ng Corporation (PAHC) and Mid-P~ninsula
Citizens for Fair Housing. infonT'ation Of) previous COBG staffing. and a plan
for addressing samoa i sSlies of concerr1 with KUD.
ADDIT10NAL STAEflNG REQUIRED IN COMMUNITY SERVICES
A key ingredient in the shift of the administration of the CDBG program,
including public ser~ice contracts allocation and mon1tcring process from
Community Services to t~e Planning Department. is the newly-proposed .5
Management Assistant il<d the funding of the previously existing .5 secretary
for the Human Services Division ~ut of the Generai Fund instead of being
reimbursed by CDBG funds. fnformation related to this proposal is contalned
j, CMR:I71:91.
CONFORMANCE WITH BUDG'T GUIOEl INES
The Budget Guidelines. as amended and adopted by Council, address only the
addition of General Fund positions. and do not app1y to positions intended to
be funded by federal grant monies. However, the Budget Guidelines also
indicate that the "t>udget will continue to reflect an eff{lrt to identify
impr'Dvemeflts through more efficient organ~zation and lise of City staff and
resources,-Staff ~lie~es that our effort to improve administration of the
CnBG program and to come into com~liance with HUn regulations clearly relates
to this position request.
BENEfITS AND STAFFING PROPQSAL
rn the interim between the finance Committee meeting and preparation of this
staff repDrt, staff has had further opportunity to refine the staffing
proposa1, in~luding identificati~n of specific or comparable posltions,
budgeting for benefits and some consider~t,on to requjred non-staffing
expenses. Table One on the follo .. ing page shows th2 eXis.ting staffing and the
propcsed staffing wjth benefits included. It has been revised from the c~art
on page 6 of CMR:105:91.
CM",)70:91
p: \Cll\r\cmrstaf2:, ccib
3/5/91
Page 1
I
1.;-::t.iiY" '/.i.~;'ti, .1,: ~<),,!.\;i'.;~j cr.
GENEAAL
~UNO
COMMUNITY SERVICES
1.0 Mgmt. Asst. 0
0.5 Secretary 0
0.1 Admir!., H.S. ~
1.6 Total 0
PLANNING
0.Z5 Mgr PIng Proj 14.472
Q..n Sr. Planner ll.lli
0.5 Tota I 27 ,308
fiNANCE
0.5 Sr. Fi,nan. 1.7,518
AnalystiSr.
Accountant
TOTALS
2.6 54,026
TABLE ) -STAFFING FO~ COBG PROGRAM
WlUHG
ISEHEFlTS) CDOG
(0) 40,601
(0) 16,328
.1.91 -i..1.!l2
(0) 62.718
( 5,789) 0
u.u!l ~
(IO,n3) 0
(11,007) 0
(21.930) 62,7l8
(BENEFITS)
(16,240 )
( 6,531)
( U16)
(Z5,087)
(0)
ill
(0)
(0)
(25,087)
COMMUNITY SERVICES
0.5 Mgmt Asst.
0.5 Secretary
~ Admin., ~.S.
1.I
PLANNING
0.25 Mgr PIng Proj
1.00 Senior Planner
1.00 Planner
~l\.2. Secretary
2.75
fiNANCE
0.5
TOTALS
4.35
Sr. Finan.
Ana 1 yst/Sr.
Accountant ..
'ij
PBQ~QS~
GENEAAL
fUND (BENEFITS) CPSG (BEHlliIll
20,301 ( 8,120) 0 (0)
16,328 ( 6,531) 0 (0)
_O...M LU.m Q ill
41.418 (16,966) 0 (O)J
*14,47Z (5,789) 0 (0)
0 (0) 51,334 (lO.534)
0 (0) 46.654 (18,662)
Q ill li.lli .l-WJJl
14,472 (5.789) 114.315 (45,726)
,'].518 (11.007) 0 (C. \
84,408 (33.762) 114,315 (45,7Z6)
.. NOTE: B~cause of limits on COBG program administration funds I the Manager Planning Pro~ects 4nd Senior rinanc1a1 An3lystl
Senior Accountant would continue to be from General Fund~. 1his arrangement is a change from 4nformatlon contained
In CMR:I05:92.
p: \JG\[DBGtb I
L '.,1':;
,'!
•
~. '~: "
-
The estimated tot.l budget for 1992"93 for the proposed COBG staff would be as
fellows:
Sahries ~ Planning·
finance -
Senefi ts
0.15
1.0
1.0
0.5
0"5
Mgr. Planning Projects
Senior Flinner
Pi anner
Secretarv
Sr. Fi~.·Analy~tjSr. Acct.
Office space/computers (I time)
Supplies
Trave1
Advertising, Citizen Participation
TOTAL
S 14,471
51,334
46,654
16,317
17,518
61,513
11,000
1,150
1,500
1,500
S237,078
Staff estimates that $178,300 of the abc¥e cests can b~ reimbursed from (DBG
funds, $148,000 from CnaG program adm;~istration funds and the remainder from
(ORG for direct project del lvery costs. The City currently subsidizes
operation of the CDBG program by ful1y funding from general funds the sahri~s
ilnd benefits of persor.nei in the F1nance Department and Planning Department
who work with the C08G program. Because CDBG program administration funds are
1 imited, the City may have to (ont inue full funding from the General Fund for
the Hanager rlanning Projects and the Finance support positions.
In Planning, the Manager Planning Projects regularly ha~ been spending one
fourt~ time as liaison to PAHC, administrator of the City port ron of the B~low
Market Rate (BMR) program, City implementatiun of the Mortgage Credit
Certificate program and other housing r~lated a~ti~ities. In the pa;t ~ix
months~ the Mangl1r Planning PrDj~cts has been spending at least one-ha1f time
on these taSKS plus addressing COSG admin"istration problemL A Senior Planner
has also spent approximate1y one quarter time on housing related issues such
as preparation of the (omprenensive Housing Affordabillty Strategy (CHAS), a
required element for the receipt of federal housing and CDBG dollars, and the
Housi~g Element of the Comprehensi~e Plan.
In the Accounting Divisio~, a Se~ior Accountant spends one·half time
maintaining all ~ecords of CnBG financial transactions; pro~iding fjnancial
reports to oO,er departments for program monitoring and blJdge-t control
purposes; preparing reimbursement claims to HUD for program and administrative
costs; filing the q~arterly federal cash transaction report; re~;ewing
supporting documefl.tation and approving payment vouc.hers to slJb-recip1ents;
coordinating with Planning and (Qmmunity Services Departments in monitoring
sub-recipie-nts' activities and financia.l reporting; cOrTVnunicating with HUO and"
other federal agencies on compliance issues; assisting in preparing the annual
grantee performance report; reconciling and recording Housing Improvement
Program (HIP) monthly loan transactions; and answering inquiries from
homeowne-rs and other parties of interest about status of loans and processes
demands for payoffs. Additional serliices are provid.ed by tI1e Real [stat.:.
Division. rn the past year, Accounting has also spent a 5igniflcant arne t of
CMR: 170:92
II ~\C'III"'\~rs.t~r2, cC::>
3/5/91
Page 4
-
• <,. -'
------~.~~ --
time wit~ PAHC providing assistance in their attempt to develop a cc)t
lllccition phn.
Staff beTieves that in future years CDeG payment for staff time spe~t on
direct project delivrry work, ; .e., specific projects such as purchase cf 3020
Emerson Street "Ie:rsus gel",era.l a.dmirlistratior, ",ork~ 'IIi11 h.elp, tlJ offset the
shortFall between CDSG funding and General Funds. Much of the lNork that win
be done by the new Sen; or Pl anner pos it j on and some of the wor k. of the new
Planner position (which is equ5v;lent to the current Management Assistant
pos,tion in the Human S~r~ices Di~isicn) "'i~l be cc~sidered as a project
delivery cost and is net subject to the 20 percent limit4tion on
administrative work.
"IO-PENINSULA Cl1ll[NS FOR FAIR HQVSJliG
Ttle City has contracted with and funded ""id-Peninsula Citize'!"',:i for Fair
Housing to perform the required Fair Housing component of the (D8G program.
In 1991·9, the contract was for $24,333 and was funded fro~ Program
Administration fllnds, As a part of the )99:2-93 funding cycle, staff, at tlie
request of Council, is revie~ing the ~ork acco~pljshed and the amount of
funding to Mid-Peninsula Citizens for Fair Housing. At this time, it appears
that reducing the overall contract dollars to approximately SI5,~OO is
warra~ted. This wi1l be reviewed by the Finance Committee and CDuncii with
other CDBG allocations in April and May 1992.
PALO ALTO HOU5ING tO~PORATION
The HtJD mani toring reports and the subsequent proposed CDBG staffing changes
have raised se~eral issues re1ated to the amount and method of funding of Pa10
.. lto H{lLis.·jng Corporation {PAl1(). In 1990-91 the City reimbursed PAHC S102,060
frem COBG funds. For 199J·92 the City has set aside $75,000 in COBG funds and
S20~OOO in Housing Reser~e funds for reimbursement to PAHC. However, the HUD
monitoring reports and the subsequent need for modification of PAHC's
accounting procedures and changes in tne relat;ons~ip b€t~ee" PAH( and the
City ~as delayed implementation of th~ contract.
To datI? PAHC has !'let been reimburSEd for any 1991-92 et:penses pending
development by PAHC of a cost allocation plan. This cost al1oc~tiDn plan is
currently in the draft stage. Reimbursement for PAHC programs must also be
aligned with eligible funding catfgories based on change; as required In tne
HUD monitoring reports.
The following is a list of the PAHC contract line items as sho~n in past PAHC
contracts and antiCipated line items based on a revised PAHC program in
conformance liIIith CDBC. regulations. Each inc1udes an expTa:lation of HUD
eligibility, fUhding for PAHC staff costs for 1990-91 and estimated staff
funding for 1991·92 and 1991-93 .
• Project;. Oeve1,9Dment: The City may reim~urse special sub-reCipients from
CDBG funds for staff costs r~lat€d to specific projects, such as the
purct.ase of 302C Emerson Street. This is an eligible expense pro· ... ided
CMR:170:91
,,; \cmr\Cl'llrstolf2 _ c:1b
3/5/92
Pag~ 5
.~~~.
,">SJ;_ .. f:.
",c,
-
. "
----_.
o
that the City does not initiate cons1d~ration of th~ project and the
project ~ets COBG income guidelines. Reimbursement can also be made
for nard costs such as appraisals? termite reports and design services.
FI 1990-91
fY 1991-91
fY 1992-93
540,814
$40,000 {requires co~tract amendment)
515,000 to $30,000
• Pre-housing Development: Pre·housiog delr'e1opment costs, such as
monitoring market conditions and prc-liminary pursuit of possible sites
for purchase, is ger1er.al'y not an at:c.eptable COBG expense c.ateg(Jry.
F¥ 1990-91
F"t 1991-92
FY 1991-93
$15,515
$0
$0
• Project Manaoement: In the past, the City has funded PAHC for staff
time spent on project manage~nt at the same time PAHC has retained
funds collected for management of the lew income housing properties. In
general, HUG regulations do root allow for ~H'opE'rly management expenses,
except as a reimbursement from the income of the property.
F¥
F¥
F¥
1990-91
1991-92
1992-93
$10,411
$43,000 (budgeted, can not reimburse)
$0
• Planning al"d~d'minli1r.~_'U __ Q.n.: The City has reimbursed PAHC from CDBG
funds for conslilting or general planning assistance to the City. This
has included revi~ and assistance on preparation of the Comprehensive
Housing Affordability Strategy (CHAS) and the City's Housing [lemont,
~lttlou9h the documents were prepared by City shff. Other itelns in this
category include issistance on the Single Room Occupancy (SRO) study and
review cf other developer's proposals. HUD monitoring has informed the
City that funding for these types of services require H~D acceptab1e
procurement procIO'durc! in the form of Requests for Pr:Jp{lsal s (RFPs). In
a metropol Han area such as the Bay Atea, HUD does not consider PAHC to
be a sole-source proyider. Any funding fOi thes~ types of services
would come from the CDSG 20 pe~ce't program administration funds.
Funding In this category Ilso raises conflict of interest issues since
PAHC is competing: with ott,er developer::. and nonprofits for CDSG funds.
FY
FY
FY
1990-91
1991-92
1991-93
S15,309
$20,000 (budgeted, ca~ not reimbu~se)
SO
• Housing Assistance and Counseling: PAHC provides affordable housing
assistance and counseling services to any who call and seek it. City
st~ff regularly refer to fAHe, callers seeking information on available
low cost housing, Section 8 programs and other affordable housing
programs. This is an eligible COBG expense provided that a specific
CHR:170:92
Il: \t.mr\cmr$t.I! rz, cdb
l/5/92
Page 6
-
,orogralfi is defined, parameters f!stablished and a m0T1itoril19 program
implemented. PAHC has submitted an application for this program for
COSG funding in fiscal 1992-91.
FY 1990-9\
FY 1991-92
FV 1992-93
SO
SO
S30,000 to $35,000
• Se10w Market. Rate Prqgram: PAHC has. been respoT1sible for administering
the City's Below Mar~et Rate (8MR) Program. Most program participants
are not CDSG income eligible and, therefore, administration eKpEIiSeS for
t~e program are not CDBG eligible. The City has not funded P~~C from
~tther General Fwnds or the City's Housing ResErve Fund for operation of
the 8MR program. Administration of th2 8MR prognm ;s eligible to be
reimbursed from the City's Kousing Reser~e Fund. T~€ 1991-92 PARe
contract recognized this. and allowed for up to $20,000 to be spent from
the Housing Reserve fund. Actual reimbursement has not taken place due
to the lack of an appl"ovet! cost allocat,on plan.
fI 1990-91 SO
FY 1~91-92 $30,000 from Housing Reser~e funds (~equ;res contract
~mendment to increase from $ZO,OOQ to $30,000)
FY 1992-93 $30,000 from Housing Reserve funds
In 1990-91 t~. total City funding to PAHC was $102,050 with .11 funds coming
from COBG. The lack of an in-place cost a11ocatio~ plan makes it difficult
to assess the effects of the funding arid program changes on PAHC and the exact
dollar amount of 1991-92 and 1992-93 funding. However, staff estimates that
possible. reimbursement to PAHC fJY' 1991-92 staffing expenses "ill total
$70 l 000 of C08G fund's plus some hard costs for ei(penses reTated to the
purchase of 3020 Emerson Street and a PAHC propcs~l for housing downtown.
For 1992-93 staff estimates that reimbursement will total $85,000 to S105,000
for stafffng costs in a tombination of COBG and Hous~,ng Reserve Funds. Since
the preparation of CMR 105:92, these figures have been revised upwa~ds because
the City is in receipt of the 1992-93 COBG funding applitatiol1S from PAHC.
The anocations are subject to re~'iew during the CDSG funding process.
The proposed add1tio~al COBG staff (i.e., the Se~ior Planner) will allow t~e
City to work more c1o~ely with PAHC a~d other COSG recipients and potential
reclpients to identify and establish additiona1 programs to increase the
supp1y Df affordable houSing in Palo Alto.
Staff will return to Council (Finance Corrmittee in April and Council in mid
May) wit~ specific recommendations for funding Mid-Peninsula Citizens for Fair
Housing and PAHC du~in9 the 1992-93 COBG funding cycle. Staff will continue
to work with PAHC on alternate! sources of fundir.g.
CMR:170:92
p: \cr.r ICllt'rstaf2. cdb
3/5/91
Page 7
.. ~::.~!~~,~~ .. = .
~ < :~::~: 1", -,
.,
-
(1
PREVIOUS WBG STAfFING
In past years tMe City ha~ subsidized t~e administration of the CDa~ program
by utilizing existing staff to adminjster and monitor the program.
Re5ponsibility for ad~inistration and monitoring of the Human Servlces re1ated
CD8G cnntracts WiS sUfted to Human Service5 in 1986-87 where the
Administrator Human Services assumed responsibi1ity for the Human Senices
portion ~f the COBG program. 1n 1987-1988 the COBG program was administered
by one fTE person) a .S Planning Administrator and a .5 Administrator .Huma.n
Services, plus planning~ secr~taria1 and accounting support. The City's
housing lmprovernent Program tHI?) was operated by a fU11-t1me r~habilitation
specialist and support staff. CuBG funds partiallj reimbursed the City fer
salaries and benefits in the amount of $49,100.
In May 1988. a HUD mor'itoring fOlJn<1 that the Clty was Mt administE.xing and
monitcring the Human Service contracts in accord w-ith HUO regulations. T'J
resolve this. a contract staff person was addej in Human Services in January
1989. This posit,on was funded by CDBG f~r approximately 545,000 and has
since been made a full time staff pos;ti~n. the Management Assistant.
In the current year the (OBG program is administer~d by 1.35 FTE persons {a
Management Assistant, one fourth Manager Planning projects and one tenth ~.uman
Services Administr.1tor) plus secretarial and accounting support. The C;ty is
partially reimbursed for salarles and benefits from COBG in the amount of
$B1. 000.
COI1PAR I SON TO OTHER CIT1 Ej
Due to the different nature of the various COBG programs, it is extremely
difficult t~ compare stafflng and funding. Most cities still place the
primary emphasis of the CDBG program on housing rehabilitation programs. Palo
Alto's Housing rrnprQvem~nt Program (HIP) has been sub£tantially phased out
over the past three years because of a lack of qualified app1icants and
projects.
HUD has surveyed the Bay Area CDBG programs and found that nearly all use the
full 20 perc.ant of Program Admi"1istratio:"1 funds. The vast majority us~ these
funds. for staff to administi!!r the o .... erall CDall prograrr; and for tne Fair
Housing component.
These figures were confirmed hy the cities c~ntacted by Palo Alto. Most of
the cities we spcke to also remarked on the increa.se in HUO monitoring and
regulations. Several indicated the" they were seek.ing additional staff due to
the increased regulations. The folTowing are sun~arie5 of tnree of the
programs in tities comparable to Palo ".lto:
~anta Cruz: The Santa Cruz program is very similar to the Palo Alto
program of three to four years ago. They receive sligntly in excess of
$500,000 annually and use the majority for housing rehabilitation
programs. Santa (ruz emp10ys 1.S FTE persons to administer the program,
CMR,170:92
p:\C1'IIr'ICIl1,.st~f2 edt>
L
3/5/92
Page 8
L
on'!'! Planner to coordinate and monitor the program and a .5 PTanner to
work on de~elopment pot~ntial. Staffing cost for these persons are
fully reimbursed from CnaG funds. Additional secretarial and a(collnting
senices are al so required. They a1 so fund from CD5G 3 full time
housing specialists for the rehabilitation program. (Costs associated
Wlt~ staffin9 a housing re~abilitation program are considered c5 project
delfljlery and are not subject to the 20 percent pl"ogram administr.tion
cap_ )
M2Ynhin Vie .. : Mountain ~ie\rt' is again participating in the CDBG program
after "aving _Hhdrawn for two to three years due to concerns oljler the
regulations and staffing pr::Jblems. Their annual entitlement is
~~3Z,~OO. They r~imburse 1.5 people en their payr011 w~t~ COBS program
administra.tion funds. a Planner Administrator and a .5 Flanner. They
11so ~ave bac~·up support from other planners, accounting and support
stiff that are funded from City General Funds. As .. aM Palo ATto, they
are experiencing a reduction in the demand for single famiTy
rehabilitation loans from income eligible residents and haljle reduced
their housing re~abilitation staff.
KedllioQ.<:LCitv: Red~o<Jd City receives approximately S6{lQ,OOO and
allocates the majority of funds for housing rehabilitation programs.
They fund from COBG program administration funds one adm~nistratort a .5
clerK and i .5 accountant. Tne R~dwood City General Fund subsidizes the
office space, eqJipment and travel. They also fund from CDBG 3.5 people
in the rehabilitatfc!"1 program.
Palo Alto is one of the first smaller scale C08G programs in the Bay Area to
move away from the housing rehabilitation program. This necessitates a
greater emphasis on seeki~g, aSSisting and mo~1toring the developme~t of new
projects .
FUTURE INPUT TO HUO
Several issues have been raised in regards to HUD regulations and possible
avenues to pursue changes in the regulations, including the general
proliferation of federal reguiatio~s, the definition of neighborhood based
nonprofit organizations, the CD8G regulations disallowing de~reciation o~
reserveS on tne CDBG funded portion of projects, the regulations limiting
carryove~ of C08G funds {landbanking), and the federal reTocation regUlations
ln~ r~quirements.
City staff felt that the City needed to addr~ss the lnadequacles in our own
program and remo~e the current HUD monitoring findings before requesting
changes in HUD regulations. To this end staff continues to meet with HUO
offiCials ~n steps necessarj to clear the ~UD findings related to the Palo
Alto program. As of this date six of twelve findings have been officially
c.1eilred and the. rem'!ir,ing s~x ife in various stages lead\ng to c.leo:"ilnce.
The following paragraphs pro~;de a status report and possible future actions,
or lack tnereof, on the identified issues of gteatest concern:
CMR:170:91
Ii: \C!'IIr\=rstafZ, cdb
3/5/92
Page 9
L
I
t
\
J.
!
i
[
L
• Federal Regy1ations: The ~;ggest cor-cern is the complexity and
restrictiveness of the f~deral regulations, is well as the ~mo~nt of
staff ti~& Tfquirej to admini~t~r this and otner federal programs.
Staff believes t"'at Uds can be adf.lressed as a general issue with both
HUO and legislative represe~tatives. We do not anticipate any s~ort
term changes in the regulations.
• Neighborhood Ba~.9.nProfit: For purposes of CD8G funding? the
designation of PAAC as a neighborhood based r~.:lnprofit. a type of special
sub-recipient, allowed them to do certain additional activities that are
nat specifica11y prohibited by CDBG regulations. In the past? with the
concurrence of HUD, the City had designat~d PAHC as a neighborhocd based
nonprofit. However, federal regulations are specific in not illowing
city-wide neighborhood based nonprofits in cities with a population in
exc~ss of 25,000. Since the monitoring report that brought this
discrepancy to the City's attention. we have succeeded in retaining th~
special sub-recipient designation for PAHC by Qualifying PAHC as a local
De",·elopment Corporation. 'Staff, however, believes that HIe issue of
neighborhood based nonprofit status shoul~ be pursued further wit~ HUD.
• ~~i!.tio __ n and Reserves: fn the c.alclj1ation of project expen~es and
subsequent pro9rarn income~ federal regulations do not allow for the
accumulation of depreciation or reserves for replacements o~ the
federally-funded portion of a project. The intent of the~e regulations
is tc protect the federal government from bei n3 c.harged ht'ice for the
same project through the lo~g-term accumulati~n of non cash expenses.
Because this is a national requirement that is designed to prevent
abuses through double charging tne federal government, staff does not
believe that it would be appropriate to request a change in these
regul atiot!$.
• landbanking: The COBG regulations that limit CDBG carryover to no more
that 1.5 times the ar.nual entitlement limit the ability of cities to
build up Targe sums of mon~y that Cdn be used for purchase or
deve10pment costs associated ~ith large projects. In ciiies such as
Palo Alto, where land costs are high and s~itabTe housing sites are
difficult to find, allowing fer the build·up of funds or ·landbanking,·
1t may be appropriate to seek an casing of the regulations in special
circumstances. Staff intends to co~tinu~ to pursue this with HUD.
• Re1Qcation: CDBG funds must be used for projects that are at least 51
percent low income. Overa1l 70 percent of (DBG funds must beneflt low
income persons. Since most properties in Palo Alto do not Qua1ify as 51
percent low income, existing non-qualifying residents must be relocated
ind relocation benefits paid, regardless of income, if federal funds are
used. Although the City and PAHC have had great success in buying
properties and converting tnem to low-income units over a period of fjve
to ten years, COBG regulations limit the conversion period to a time of
less than one year. The ;elocation rules i;e standard throughout the
country and are designed to pre .... ent abuses that can oc.::ur w,"len the
government is invol'lled in purchasing property. Changing these rules
CMR,170:92
Il: \cmr\rnrstaf2. cdb
3/5/92
Page 10
.'._". '
i
. ,
,.7'>"·," ". t ;:.
'aiculd r~Quire 1egishtive changes. w~.ich staff does not belie .... e is an
appropriate area to chal1~nge.
R ECOI't!ENDA i lON
Staff recorrmends that the Finance COlll1'1ittee recormlerrd apprc'oIal to the full
(ouncil of thf additional ~taff to administer the CD8G program and the gene~al
budget for that staffing as outlined in this staff repoy't.
Respectfully submitted,
~(]dmu/ g/ld'.t..L
ES E. GILLILAND "
Manager Planning Projects
~
~sslstant City Manager
KENNETH R, SCHREIBER
Director of Planning and
Corrmunity Environment
Attachments: January 9, 1992 Stiff Report to Council (CHR:IOS:92)
cr: Hid-Peninsula Citiz~ns for Fair Housing
Palo Alto Housing Corporation
CHR:170:92
~: \~r\t:I':1r5taf2 .cdtJ
3/5/92
Page II
. ..
-
January 9, 1992
HONORABLE CITY COoNC!l
Palo Alto, California
Attention: Fina~ce Committee
STAir ING FOR COMMU~lTr OEVElQPJ1ENT BLOCK GEMT PROGRAM
Members of the Council:
illORT IN BRrEF
This report and attachments re1ate to a staff proposal for changes i~ the
manag~ment of the Community Develop~ent Block Grant (CDBG) Progr~m. Changes
are required in order to brlng the C~ty's program into compliance with HUe
regulations ~nd cundltjons stated jn t~e Coopers & Lybrand management letter,
and to impro','e future management arid d:rection of the program.
The Federal CDBG program prowides block grants to local jurisdictions to be
used to assist low-income persons. The primary thrust ('If the program is
co:nmunHy development, such as housing. Allo'",ances a:-e made for lnclusion of
public senriee agencie:., Honomic dEvelopment and program administration.
~ithin the City of Palo Alto, responsibility for the [OBG progra~ is (urrpntly
split between Community Services, Plann)rl'~ and F-inance. The H; ... mal\ Services
Di'wislo:; of the C,"lm~unity Services D'?part;';!-er.t is fun,::l"',j by CDB,G fer 1.0
Management Assistant, 0.5 Staff Secretdry and 0.1 Administ'rator Hum~rt
Servlces. They are responsible for work ~jth the Citjzens Ad~isory Committee
(CAe). processing of CDBG applications, preparation of required reports and
program monltorlng. ~jthjn the Planning Division of the Planni~g Department,
the Manager Pleannbg Projects is the 1 iaison to He Palo Alto Housing
Corporation {PAHCJ and is responsible for preparat30n of various housing plans
such as the Housing Element ~nd t~e Comprehensive Ho~sing ~ffordability
Strategy (CHAS). This position is currently funded sol~Ty from the General
Fund. The Finance Depa~tment provides accounting and real esta!e services
which are also funded only frow t~e General Fund.
Recent H'JD Irronitorir.g reports. on the F',alo Alto COBG program re\/ea1ed several
areas in which t~e City was not in full compliance with HUD regulations. The
CMR:105:92
-
Coopers & Lybrand management letter restated the problems in these areas and
suggested that the City Make some specific changes to i~prove documc~tation
and improve procedures. Copies of the monitori~g letters, the City's
responses and the City's re5ponse to the ~anagement letter are aLtached.
The major areas of concern withir, the CDBG program as stated by these reports
lncl~de the following:
1. Certain nonprofit community~based ager.cies did not have ad-:quate
procedures in place fer tracking of program income and did not have a
sj:'lecific ac"unting method for determining indirect program costs.
2. Palo Altc HOusing Corporation was described as a ·special sub~recipient·
in reports filed with HU~, while th~ City contract with PAHC d~scribed
PAHC as a "consultant". The contract Scope of Services outlin~d
ser~ices i~ both categories; however, HUD requirements for procurement
of the ~arjous servic~s described are differ2nt. Proper determination
of the agency's status is necessary.
3. The City's current monitoring and auditing requirements fer age~cies
receivir19 COB; Tur,ds is nt:'t adequate.
4. The City has failed to eX;Jend CDBG. funds. in a timely manner.
Specifically, the City ~as budgeted C08G funds to a landbank account.
This fund has built up over time and now exceeds HUD limitations on
~a~irnvm dcllars.
Staff has idantified the following areas of additional concerns a~d areas that
must be addressed in order to improve th~ operation nf the City's COSG
program:
1. Responsibility for the COBG crogram has been scattered through several
departments within the City organization. This has resulted in a
fragmented approach that is further hampeI'ed by the lad. of a single
responsible perso~.
2. Federal regulatinns and monitGring req'.Jir"Ements ~ave increased and are
expected to increase further. Staff h.:s been informed that after the
first of the year, KUD will be monitoring the environmental regulations
as they pertai~ to the CDSG program.
3. New federal programs, such as HOME (Home Ownership Made Easier) a~d HOPE
(Home Ownership and Opportunity for People E\lerywhere). have been
approved and will require furthBr City staff invol .... ement.
4. In past years the C!ty funded the ~ajorjty of the administration of the
COBG program 01Jt of the General Fund by assigning COSG functions to
various City ~ersGnnel. As staff was reduced through budget red~ctions,
the ability of re~aining staff to oversee the COSG function was reduced
by the need to address other priorities.
CMR:l05:92
~: \cmr \.:mr-s t.a ff ,edb
1/9/92
Page 2
~
1J
1
-
..
.-. . , . ______ ~-__ .... _.o.'._". __ ~ --_ .... "" .. ' .sa:tilll
s. Due to a lack of sufficient City staff time, t~e City has not been able
to adequately plan and administer the CDBG progr~m. For exa~ple:
• The Coo~er:i & lybl"and r.;wagement lettei" ~as specifjcally
recomm~nded preparation of a CD6G policies and procedures manual,
development of an annual checklist dnd in5truct~~ns for sub
recipients, a':"ld a work plan for monitoring ~,er$cnnel. Preparation
of these documents is not feasible with current staffing.
• HUG regulations require prep~ration of and substantial funding
compliance with an ov~rall plan of action fer the community. This
plan ml.!st be updated ellery thre~ years. The City's COBG plar WiiS
last approved in 1988 ~nd preparation of a new plan has not begun.
• City staff do not have the work~ng relationship with HUO staff
that is obtained throug~ day-te-day tonta:t.
• The City has not been pro-actively directing the use of funds to
solve local housing probl~~s.
• Sam€: [ity Capital Improve~ent Projects ina)" be eligible for COBG
fundin9, Staff ~as not been able to work with other City
departmE'_nts to identify alld imple:nent patentlal projects.
• City staff has not been able to provide adequate trailling and
information on federal regu~ations to non·profit organiz~tions
receiving CDBG funds.
CDBG FINANCING INFORM~TION
for 1991-92 the City's entitlement for (DaG funds was SSSS,OOO. Tnis ~as an
increase over the 1990·91 entjtlement of S533,OOO and another 4 percent
increase is anticipated in 1992-1993, The CIty's entitlement has increa~ed
from year to year, but significant additional increases are nat expected
unless additional Federal legislation is erlacted.
COBG regulations related to eligible acti~ities and how activities are funded
arE extremely ccmple~ and interr'elated. Some of the more pertinent
regulations relate tc program jncome, progr~~ ad~injst~ation 2nd public
service funds. Program income, which is gross i~come less COBG-eligible
expenses, must be returned to the City to be used for additional COBG-eligible
projects. For 1991-92, the estimated prog~am income will be S200,CCO. These
funds will come primarily from loan payback.s on t.he origillal Housing
!mpr0vement Program,
T ..... enty percent of the (ity's er.titlement pius 20 pE'rcent of program income may
be used for expenditures associated with overall administration of the COSG
~ro9ram. This includes staff directly responsible for the CDBG program, as
well as stafflng for o~erall plans such as the Housing Ele~ent. Comprehensive
Housing Affordability Strategy {CH,G,S} and other related documents, !n past
CMR:IOS:92
p'\c-mr\:~rs~ ... ff ~db
1/9/92
Page 3
w.,
i
,
I
l
o
years, the City has funded C;ty staff, Mid-P~ninsula Cjtilen~ for Fair Housing
and the Palo Alto Housing CorpJr~tio~ from program administration funis.
fifteen perce~t of the City's entitlement plus IS percent of program income
can be o.lsed to fund specifjc ~u'fices of ~ public service nature A 1 ist ('of
th~se agencies and th!ir funding is shown on the atta~hed 1991-1992 (nBG
F~nding Summary.
After actual program administration funds are subtracted from the City's
en~itlement plus program income, a minImum of 70 percent of the remaining COBG
funds must directly benefit low-income recipients.
~LTERNATJVE SOLUTIONS
Staff has identified fcur bas;c organizational options in order to address the
problems in the CDBG ~rogram:
• Not accept the COSG funds. Staff does not conslder this a wiable
opt ion. Alth~,ugh the regt.Jl ations are cumber:'Dme and not designed
for some of the unique conditions of Palo Alto, aDpro~jmately
S600,OOO in funds are available every year to assist low-income
persons, particularly in the area of housing.
• The City could contract out for a separate agency to administer
the CDSG prDgram. Again, staff does not find this to be a viable
option in that t~e Citj would still be ultimately responsible for
the program, including monitoring of the contract. This would
still requlre City staff support and would negate any advantages
that might be obtained from a contract. Staff does not know of
any jurisdiction th~t contracts for overall administration of the
CDBG program and KUD do~s r.ot encourage local jurisdict~on to
utilize contract admlnistration.
• The Clty could continue to manage the program within the City
organjzat'on wlth the existing split responsibilities between
three departments.. One addition:!l planner, 0.5 secreti:lry and 0.25
supervisory time would be required in th~ Plannirg Department.
8ec':'lls~ of the continu.ation of the ~nhere-nt problem of spl it
respo~:.ibiljties, staff does not re~ommend this alternative.
• Finally, the City could manage the program within the City
organization by pro'dding for a single responsible division and
adequate staff t~ administer the CDBG program and related housing
programs. This is staff"s preferred option, in that it would
allow implementation of significant changes to improve the program
and provide for operation in compl iance with HUD reQuirem~nts. It
would increase the abil ity of the City to pra-actively support
hauslng solutions, better utilize the CDBG funds for a varlety of
projects, would allow sufficient staff time to address those
issues that are unique to Palo Alto and br!ng the program into
substantial compliance with federal regulations.
CMR:I05:92
p: \cm.r\C>I1r5.t aff ,c clc
1/9/91
Page 4
--~~-------~-.. ,
-
•
t
I -
PROPOSEO_B[QR(!fu~11Al!ON OF CDB~ STArFING
Since the t~rust of the CD8G progra'T) is. [IGwsjng. staff bel ieves that
[e~tralized management and adminijtration of the CDBG program should s~ift to
t~e Planning Department, effective with the 1992-]993 City budget. If the
finance Committee's January review of this issue resIJlt5 in initial support
for the lIdditional staff to adrr:inister the CDBG program, )taff will use the
first half of )992 as a tra~sitlon period to make the appropriate
administrative changes.
Since the majo~ity of f~nding for the Human Service contracts 1s from the
General Fund, oversight of these c~nt~a(ts would re~ai~ in the Human Services
D11115io11. A. 0.5 Mal'lagement P,ssista:lt in Human Sen'ices and a 0.5 Secretary
would be fu~ded from the General Fu~d to a1~inister and mo~itor these
contracts. Monitoring and reporting of the CDBC portlon would be moved to the
Pl:!.nning l'ivis!on. 'With t~e desired consol jdation of (DBG and housing
responsibilities. staff believes that it will be more approprlate for the
Planning Djyision to oversee the CDBG portion of the human services ,ontra~ts,
than ~t is for Human Services to administer all of the housing programs.
In order to proper1y adminlster the prDgra:n, a fu~l-ti,rr.e housing planner is
required in addition to the existing Management Assistant. Secretarial staff
would be increased from 0.5 to 0.7 person years. 5lgnificant invclvement is
required by the supervjs{lr~ who ,,.ould be the Ma.nager Planning Projects.
Superviso!"y functions would be incredsed from 0.1 ta (0.25. Finance De,rartment
support would remain as ls, ~ith an allowance for uti I izi~g (DBG program
administration funds to reimburse eXisting staff far work already being
p€rformed for CDBC.
The Human Ser~ices Divisio~ would retain a 0.5 .lanage~Ert ~ssjstant a~d 0.5
Secretar.)' to oversee some of the .Human Senlice Contracts and to c{)ntinlJe
sta.ffing the O';sability Awareness TaSK f'orce. This Division has experienced
an increase of responsibility over the pa.st year beyond tne CDBG-related
activlties and the COBG Coordinator has been assisting in some of these areas.
The City Council priority, "People in Crisis", has. led to additional projects,
such as developing fund raising proposal~ to as~ist nonp~ofjt agencies during
these times of limited City fun~lng. imple~enting ccllaborative projects among
human service agencies pro~iding ~imjl!r servi~es, a~d assisti~g the Human
Service Administrator with special proje~ts. 1he 0.5 Management Assjsta~t
posjtion ~ould allow these assi~n~ents ta continue with the redeployment of
the CDBG Coordinator to the Planning De-partm8nt. Compens;ation of the Human
SerVices Di .... ision employees would come fl-orn the General Fund.
Funding fQr __ U...t.i. Staff
The following chart identifies the stdff req~ired to administer the CDRG
program and the CDBG funding amounts, whiCh \0,'0\.<1.:1 come from COBG program
administration funds. Since some existing pJsiticns would now be partially
funded from CDBC and some additional pDsitians are reqllired, a column is
included that indicates tMe eff~ct ~n the G€neral Fund. A plus sign (+)
indicates a saving to the General Fund, sinc€! that portior. of saTaries wuuld
CMR:I05:92
tl: \crnr\cmr 5 ta f f ,-:d:J
1/9/92
Page 5
-
-,","
o .'1 .,
be p~id by COBG. A minus sig~ (.) indicates a PQsftion that would no~ require
General F~mds.
.tQ;;iticr;
Phrmil'1g ~
1.0 Management Assistant
0.1 Secretary
0.25 Manager Plan~ing Projects
1.0 Senio~ Planner
PLANNING SUBTOTAL
Community Services:
0.5 Manage~ent Assistant
O,S Se.:retary
0,1 Administratcr Hu~an Services
COMMUNITY S[RVIC[S SUBTOTAL
finance:
0.5 Senior Financial Analyst/Senior
T"ta 1 I
40,601
22,859
14,472
_51.344
129,376
20,301
15,328
5,)89
42,lIS
Accounta;,t __ ? __ ~~Jj
TOTAL PERSONNEL 199.212
Effect
Genera 1
D
0
-114,472
__ 0_
+14,472
-2'J,301
-10,328
.:2,~9
-~2. 418
+2} __ ._Sj~
4<8
or.
Fund
Total CD8G
Re-qu ired
4D,601
22,859
14,472
21~
129,370
0
0
0
°
27,518
156,794
Program administration funds avajJa~Te during the 1992·S3 fiscal year should
be at least 5156,900. This is based on 20 percent of a 5598,000 entitTement
and 20 percent of $200,000 in progrdm income. lhe net effect of the proposed
staffing change on the Ge~eral Fund ~ill be zero. Th~ $42,000 require~ to
continue to fund the positions in Human Services would come f'rom General Fund
saTary savings for the 0.25 ~iln3.'~er Plilnning Projects "in Piarlnjr,g ard the 0.5
Senior Accountant i~ Finance.
Si~ce the estimated ~r~gram ad~inlstr~tiQn funds are equal to the estimated
City staff personnel costs, funding for Mid-Peninsula Citizens for Fair
Housing would hal,le to come fro~ other s,:,urces. However, staff estimates that
SI5,000 of the anticipated (OBG s.a.laries ~ill be offset by direct prDject
delivery costs w~ich are not subject t:J the 20 percent pr'ogram administration
cap. This 515,000 would be a~ailab'e to fund Mid-Peninsula Citizens for Fair
Housing, which was funded for $(4,333 in 199192. Staff and the CitiZ€ns
Advisory Committee had recoWiended .! re·:juction irl funding for 1991-1992 and,
CMR: 105 :92 1/9/91
Page 6
•
S
.. ; .
. -~.;,., .. .. ..:., '
I
I < -
----------'''''--~,
at Caunc!l direction, are reviewing the deli~ery costs of the project for
adjustment in the 1992·93 funding cycle.
funding_ for Palo AHa Hous:iO&J-orpcr<itJuQ-D
l~ compl!a~ce ~jth HUe regulations, fundlng far Palo Alto HDu~i~g Corporation
will have to be ~adifj~d. Fer purposes of (06G fu~aing, PAHC was prevlously
designated as a Neighborhood Based Nonprofit Organization, which is a type of
5ubreci,Pient; however, PAl1C does r.ot I~eet the HUD requin:merlts for
neighborhood based designation. The City Attor~ey's offjce has determined
PAHC to be a loca1 Development (orporiition, I'o'hich ;s anotner type of
subrecipient.
As a Local Development Corporation, PAjlC is eligible for CDBG funds related to
spec~fic p~e-deve'opment and pre-project d~velop~ent costs. This inc'ud~s
staffing costs, appraisals, termite inspection, and other costs related to the
purchase of specific CDBG eligjble properties such as the recent purchase of
3020 Emerson Street. SimIlar costs asscciated with other proposals to develop
additional hous'ng opportunities for CGBG eligible inco~e tenants would also
be eligible. .
PArK is also elig1ble fer CDBG funds for progr"am services for specific
al1cIoIfable activiti!;::5 ;.Jnder the Public Service category. These might include
housing counsel ing and referrals. Application fer these funds would be made
during the regular COBG application process and wo~ld be in competition with
other pu~lic service agencies.
PAHC adr.1inisters the sales and resales Df the City's Below Market Rate
purchase and rental program. Cost of ad~inlstration of this prugram could
come from th~ City's Housing R~s:erve flO:lds, w~,j(n is allowed Linder the Housing
Reserve Guidelines. The 1991-92 contract with PAHC approved by Council
allowed for up to S20,OOO from this sowrc€. Most BMP sales and resales do not
involvE" CDBG income·eligible applic:anb.
The staff proposal outli~ed in this CMR would u~il ize all of the available
COBS program administration funds. This would not allow the C~ty to use CDBG
funds for any general PAHC actiwitie~ su:h as ad~jristrdtjve costs, review and
comment on the City's Housirg E1E~ent, as:si~ta~ce and review in the
preparation of the (HAS and re·.ie'lJ cf hCo'Jsir.g pro~los.als fro~ other agerlcies.
In addition, management activitIes associated with a project should be
include4 as an expense of that project, which is an eligible deduction from
program income for that portion of th~ project which was CDBG funded.
Without using the General Fund, staff bel fe·n>s. that $60,000 to $75,000 could
annual1y be uti11zed by PAHC in the abr.lve areas for speciflc eligible projects
or activities.
RECOMMENDATION
Staff recommends that the Finance Committee r€[o~~end approval of the
additional staff as outlined in the CMR. If a~proyed. staff will move forward
CMR:10S:92
•
1/9/92
Page 7
-
. " '..,
o
-.ith the administrative assign~er;ts ard will u.tilize the first half of 1992 to
transition the a.dmirds.traUor\ a:"1d o~'er<itirJr'l of the CD8G prognm.
Staff ~jll r~turn to COIJncil wit~ specific recommendatjon~ far funding Mid
Peninsula Citizens for Fair ~ous:ng and P~HC dur~ng the 1992-93 CD6G fu~ding
cycle. Staff .... ill conti~'ue to work with PAHC on aTternate sources of fI.Jr.ding.
•
'\
Respectfully su~mitte~,
,..--;, ! -----'tl,·---~r/-;'· 1 'l c-//t7)...(L/( r;. / r€.i'£/:':4-k.~ ..
JAMES E. GIllll~ND /~
Manager Planning ?ro'elts
...,// .//7 ' /
;f.t;;,';I4!Z/£ /LJt-Ati-.,/q . /
W~~Z>A~N-E~~~-I;-------
City Mana.ger
Attachm~lits: 1991-1992 (GBG fl.,mdi,'lg Su~mar"y
,t,prjl 4. 1991 MUD Monitoring Letter
June 3, 1991, City reply letter
August 9, 1991 HUD Monitllring Letter
December 20, 199J, City reply T~tter
KENNETH R. SCHRtl6ER
Director of Planning and
Co~~u.njty Environment
Comment 4 of Coopers & Lybrand management letter and staff
respoflse
PAHC letter dated October, 4. ]991
cc: Mid Pen'nsula Cit~zens for Fair Housing
PaTo Alto Housing Corporation
CMR:l05:92 1/9/92
Page B
-, -.. 1
! '
l
Public $eMu
Catholic Charities -Omb u dsman
C<Jmmunity Service! A,eney
EmerJency Hou,in, Consortium
FIJI'Jly Service Au""iation
Innovative Hou.slng
1991 -1992 CD8G
Funding Summary
Pcnln!ula Area InfOl'lMuon & Referral
Senior Coordlnatina: Council .. Shared Houslll&
Urban Mini,try
Administration
City of Palo Ailo
. Mid-Peninsula Citi7.ens for FiUr Housing
HQutingICom.munjty F3~_Uiliu
City of Palo Affordable Housing'
Pale Alto Hoosin;: Corporation·
City of Palo Alto -Pork Aec."jbiiity
Sub-total
Sub---total
City of Palo Alto .. Sen~or Center Renovation
C. ".R ... Swim Cent:r Renovation
Lylton Oarden' -Emergency Generator
Mid-Peninsula Suppon. Network -Sheller Reno'llation
Palo Alto Adolescent Service. -Canvan House RepAir;
City of Palo AIIO -Landbonk
Peninsula Children's Cenler -Fire Alarm System
Second Barve-Sot Food Bank .. Distributirm Center
Senlot Coordinating Council -Cold Stora,e
Senior Ccordinatina: Council .. Home Repair
Stevenson House -Ile<:k Repair
City of Polo Alto Pianning DepL Direct CO,[.
TOTAL
SOPret;' pf fynd,:
1991192 CDBa Anocation
Housina rmpTOvt~tIt Program
Pnopam Income
Reallocation
Prior year" reallocatior..
Sub-total
598,000
200,000
195,000
lUM
1,024,886
• [nclu..-ies up to a maximum of S50,OOU in administralion funouig
.,~~~,
<-,"~,.'-;. ,.. -
_ cu.t·O \Ill,
Fu n cis A !located
9,6ll9
2,500
15,000
15,000
24,000
12,000
10,000
~
118,189
B j ,()()()
~
105,333
32,2()()
75,000
40,000
40,001)
114,73j
67,592
20,000
39,000
313,000
15,770
25,000
3,400
IS ,000
5,000
~.MZ
801,364
1,024,886
P.22
cdb~r'Jrrd d'x -'-.........,.
r
-
APR 0 I 1991
~~. William Zaner
City Manager
City of Palo Alto
P .. O .. Eox 10250
Palo Alto, CA 94303
Dear }\...r. Zar..er:
SUBJECT: Monitoring RepoIt
San Francisco Reglw,,",al C!1~ce. Re~"in IX
4~O Go:cel'1 Galf> ..... '!<:'",:,H!
S;:;n Fr3I"'CJ$CC', C.!I~for~ra 901:02-344,1l,
Community De-..-elopr:1ent Elock Grant ProS=a;n (CDBG)
Grant NU41',ber: B-90-}~C-06-0020
en January 29-31, 1991, ~-=. Ala."'l Schacba:1, C=.rr.1:1:_wity
Plan:lin.g and Developms:J."t Re?::esentati;;e, met • .. -it~ Sllza:.;ne
Richards of your staff.. The purpose of the moni~crin; was
to deterrr:ir..e whether the Gra:1tee adTJ.~isterec:. a::-~·':'
implemented its CDBG prcgra:m in a,:c::=cance ...... i tr-~ its Fi.r::al
Statement and appropriate FedE!:::a.l requirements. '?~e
monitoring concentrated on the areas of !
National Cbjectives!Elig~~ility
Program Income
Subrecipients
Bvu.sing Assistance Pla::/MEE
Program Prog~ess
Homeless Activities
Procurement
In addition, any findi:"lgs or ccncerns frc.:.n p.revioL:s
monitoring reports and any corrective actiocs ~rc~o~ec cy
the grantee were reevaludte~. Note t~at a fi=~i~; relates
to a proS-ram e!eD.en~ .... hich CO.2S r_'::lt cor!tply "IoI'it:: a Fece.rdl
Statute or regulation, whereas a co~cern is either a
potentia.l fir.ding or a discussion of an element .. ",hich might
be improved ..
On February 2 5', 1991, an exit conference ""-as concucted
by BUD Staff in order to prese:"lt and discuss '~ .... ith C i ~y Staff
the results of our monitoring. Participating frcm EuD were
Marty Mitchell, Program Manager and Alan Schac~~~n,
Co::nmunity Planning and D€:~,;elopment Represent.ative.
Participating from the City of Palo Alto were William zaner,
City Manager; Emily Harrison, ~irector of Finance; Sazanne
Richards l CDBG Coordinator; F.en Schreiber, Director of
Planning and Community Enviro~entj Paul Thiltgen, Director
of Community Services.
, .
,I
2
While noting areas of corr.pliance or improvement, this
office also has iden~ified ir. the enclosures, specific
findings and/or concerns for each area IT,onitQred~ Wherever
possible we have incl~dec recc~~endations i~tended to
correct these problems. For ease of identification,
findings and concerns h<'l.ve bee:1-n~ered sequentially within
e4ch section of the report. Please respc~d to the fi~dings,
concerns or recommendations ~ithin 30 d&ys of the date cf
this letter, unless other,..;ise r.oted.
We appreciate the cooperatic1: and assistance exter..c.eC
to the EUD Staff by the City of P310 Alto duri~s the
ttlonito.::ing visit. Sho:.!ld you have a!"\y questioIiS regarcir..s
this letter, please call Mr. A'an schackman, Co~~unity
Planning and Development Repr2senta~ive, at (415) 55b-3751.
Enclosure
Ve=r si:1cerely yours,
f/d; I/dLU-j . !
Marty Mitchell
Prcgram Manager, Team B
Office of Community Planni~g
a."d Ceve!.cp:nent
._---_ .......
INDEX
COMMUNITY DEVELOPMENT ELOCK-GR.>JIT (eDBG)
~ NUMBER, B-90-MC-06-0020
PROGRAM
MONlTORIN~ AREAS SECTION
Nati~nal Objectives/Eligibility
Program Income
Sllbre-::ini~nts
Sousing-Assistance Plan/M3E
Program ProgrEss
Homeless Activities
Proct:.rement
GENERAL INFOR..~
INDIVIDUAL ACTTVTTIES R~JI~~ED:
Palo Alto 80using Ccrp. (Ptl_::rC)
S~nior Eousing Counseling
Catholic Charities
Innovative Eousing -Shared Eousing
Connerly , Associates -EUJ.,S':'ng Impro',re::1er.!:. Pr::s=a.:n
U~ban Ministries
!,;_CMMJWITY PA.RTICIPANTS:
Jane Ealey, Adminis-:rator c: EU1l"..an Services
Sc~anne Richards, C~EG Coo~di ator, Euma~ Se~~':'~es
Emily Ea.rrison, Director-cf F nance
F~~d Herman, Chief Euildi~g C ficial
William. Fellman, Nanager, Rea Property
Jim Gilliland, Planner
Joe Haletky, Urban Ministries
. f
I
IT
II!
IV
V
VI
VI!
•
....
-
"'-
I NATIDR>~ OBJECTIVES/ZLIGIBILITY
'l.'his is a review of activities for compliance with one
of the three CDBG pri:-.Iary objectives and of -=1 igibility
classifications for individual CDEG projects and activities~
The City of Palo Alto has a va.riety of public service
activities providing community service to qualified client
groups within the City~ From analysis of grar..tee files and
on-site visits it appears that these activities do meet BUD
primarI objectives and eligibility requirements. Service to
the low-moderate income groups" either through li.m.ited
clientele, direct benefit or area benefit are met~ Sites
are being researched for the pcrpose of providing
opportunities for affordeble housing for low-moderate income
persons/families~ Many of these people are employed in the
Palo Alto are-but cannot afford the high C05t of housing
(rectal and ownership) ~ One sit~ has already been assembled
L:-.d is ui..dergoing an enviroru:.rLental rev-ie .... as part of the
...:..:.ty ~s land-banking acti ... iti~s. There are no findings or
concerns in this area.
----~"'. -III ...
"--\
I
,1
•
i
t
I
I
" .. "
~.
The 9J:-antee is required to report all i!'1_come received
.from the use of coaG funds a''ld the proper expo?nditure .of
that inc Ollie for CDBG-eligible activities. Fl.l.rthenr,ore .. that
i~come must be spent firet before further dra~do~~s are
requested from the letter of credit. G~antees are req~ired
to present to BUD as part of their Final Statement p~ckage ..
a program year budget based upon projected prcgra:n income as
well as the allocated entitle1l',er.t arnount~
Finding 11-4: After a review cf City records a~d
conversations with the staff ~f various depart~ents it is
apparent that no one is keeping records or tracking tbe
potential for progr~' income at this t~e for the Palo Alto
Rousing Corp. (PABC). The City 2.nnllally prepa~es a contract
with PAEC for the receipt of CDEG funds. In return the
contracts :show that a v_~_~i_et} of se.!"vices are perfo::-med for
the_ City and i::1 behalf of the com.."':'I'.lnity at large. ~rhese
records are required by the C:nEG En:.itle:r,ent Res'..!lations
51D. 504 r 85.:tO & as .25 (G.:-.a.nt Ad.:;-,'::'nistra'tior:] ar.d eMS
C ircula= A-I10 (go\~erning non-pre fi t orgar-.izaticr;.s).
Recommendation: The g=an'tee ~rovide cc:currlerltatior. that the
sub=_ecl:.Eient;~i.§" ~el?'p,ing _;3.J;cpuntir.g aq.c fin.:_n·-:-ial_records _.fo~
J-t-s-BUb-a:;;sis~e:!_ acti ... rities a?:':' re,fcrti::g that. in:or-rr.at.ion
to-t.he"Ci::y:--I::l. addition,_ t~e Citv she .... e'.ri .. :'e::.ce c:= a
track~-=-ana _IDoiilXm:ing -me-chanis::n cf s:.:b=ecipie:::.t. (including
~C) financial accounts.
•
~ .. ··I ~.
1
I
-
III -SUBRRCIPI~~
This is a review ane analysis of the exte~t of the
grant~e's monito~ing of :5ubrecipients and Third Party
Contractors to assure adherence with applicable fede~al
management and a~inistrative standards.
The reco:r-ds reviewed ~y BUD staff indicates that files
for services rendered are kept by the City staff. T~ese
records indicate that contract.o;, 'With appropriate language
and scope of servic~s, payment ~ethod5, etc. are on file.
Citizen participation records are also on file fo= each of
these parties. The records are kept br program year and a
record of periodic reporting from the s\Jb=ecipients, and
mcmitcring of the sl.1brecipient by.City staff are on file.
Far public service ac~ivitie3, the files ir.dicate that these
sUbrecipients have "intake fonr:s" th.at provide essential
inform.atioD I in'S'luc.ing ce::nograph:"c anc income ca~a required
for eligibility aHd r.ational objective dete.::-:r .. i:'lations. ,It
.i:_~_9_:tJ.r_ rE'comrnendation that in the app::"opriate types o!::
f>_~_z:y_ice_ a.~tivities-a "responsible s:.:brecipient staff official
indicate verification of key inforrr.aticr:: J part icular-ly
income-data.
In addition, the recc:ds and contracts for the Palo
Alto Heusing Corp. (Pll~:::C) lo.--e!:'e also revie .... e-=l' resl.1!tinS' i;-:.
the fol10wing findings.
Finding JLt-1...,;,. There is an inconsistency in tbe
relationship bet.ween the City and the orga!"'.iz.aticI! k..:-:c"-"n as
Palo Alto Housing corp. (FABeJ. For CDBG repo~ting purposes
on the Grantee Performance Report, PARe is identified fo~
most of its services as a "SE..~_r:::-ial St:b:::-ecit=ient".. There are
services perfor.J'1ed by this--organriati-6nfll"at-ma.:y qualify in
that category as a Local Development Corporation under the
auspices of the regulations 570.2C4(c){3) and
570.207(,,) (3) (iii). Eo\oo"ever, the cont.ra::t. t.e~" ... -een ti:.e City
of Palo Alto and F.A.3C fer housing s~="\ ... ices, i·::!en':ifies p~~c
as ·consultant~. This creates a differe~t relationship tha~
that of special subrecipient, a~d a diffeLent set of
procurement requirements than the City has pursued.
Additionally, the scope of services outlined in Exhibit A of
the agreement bet-"'een the City and PABC co\~ers a range of
activitie3 that shou.ld be consid.ered as different types of
services, potentially re~uiring different procurement
methods, separate and/or different contracts with the City.
Services performed directly on behalf of City st.aff
(assistance in the de~elo?ment of the housing element c~ the
general plan) is quite different from housing activities f':>r
the community at large (pre-development costs, site
acquisition) •
Recommendation:
with CDBG funds
The City
according
identify service~ to be performed
to apprcpI-iate categories. Wben
-
o o
funds: for these ser .... ,ices ~=e awar-ded, ,-"'hether they be to
PAEC or some other non-p~ofit, consul ta!"t or p:::-ofessional
organization, the appropriate a9~eeQents or contracts are
u~iliz:ed between ,the City and the: other party. Tb.:!se
documents must contain the app~opriate languag~ and
conditions required ir. the regulations.
The recipie~ts awarded the fu~ds t~ carry out these
services be apprised of thei~ responsibilities and reporting
requirements per ~he regulations. Tbe City cust mcni~o~
these activities and services ann~allY4
Fil).dinq IIT-2 -Indirect Cost Alloc_~f:ion Plan: For non
profit organizations ""ith agreelI'.ents and contracts for CD3G
funding vith the City. They may have costs incurred for
common or joint purposE'.s and benefit to more tha!.1 one
activity (indirect costs). The eligibility fo~ suc~ coets
mu~t be determined and then alloccoted in a manner "Which ""ill
result in the gr~nt program's bearin; its fair share of
total indirect. ccsts by develcping a:r i:hc!irect cost rate.
No evidence of aD. ap:e;roved iI".direct cost plar: f== PABC,
according to the re~uirements of O~ffi CiLcular A-llO.
Recommendation:
1. The City develop an In~irect Cest Allocaticn for Non
Profit Organizations, acccrc~ng to the requi~eme~ts cf C~~
Circular A-llO.
2.. The City deter~ine cost:.s that ha'le been ex.:;:e:::cec by P."'.EC
which would fall l!nder t~e reGuiremer;.ts of A-ll.o. Il"'.direct.
costs e>:pencied ""itb.o:.l~ an app;c.J\red plan for the periods of
time involved may be disallO'..,ed by BUD after C'.lr revie'N.
•
.--'" .. -~-
TV -BOOS ING ASS ISrANCE PLAN /MBE
This is a review of the grantee's performance in
meeting the ~oals identified i~ their three-year RAP ~nd
annual HAP increment. This is also a revie''; of the
grantee's minority business enterprise (HBE} contracti.ng
activity.
Pl,_lJ4Jp....9-!...V--=--:l,...; BUD Regulatit:'.>ns 570.507 (el requires the
submission of semi-annual MBE reports, due on April 30 and
October 31 of each calendilr year. The City of Falo Alto, as
of t,his date has not :submitted the report that was due
October 31 , 1990.
Recommendation: The City has verbally told Hun that the ~~E
report is being pxepared at this time. It is incumbent upon
the grantee to prepare and sub~it required reports for the
CDBG program in a timely ~a~ner.
The City"s Housing Assistance Plan (E.'!I..? J is consistent
with its three-year goals and single-year increment~ Tbe
high cost of land and rental costs have made it difficult to
achieve overall affordable housing 90als~ This office is
available to assist the City in exploriI"'.g 'W'ays to crez..te
~orkable affordable housing such as air-rights and SRO's.
During the current year BUD 1oI"i11 be working with -grantees
~oward irr~lementation of new BUD programs and requirements
stemming from the Cranston-Gonzalez Aifordable Eousing Act4
The BOME, HOPE and Shelter Care programs ",-ill became
available and the replacement for the Hocsing Assistance
:=:l.an (HAP) must be designed and implemented by all grantees4
1'hat will be known as the Comprehensive Affordability
Housing Strategy (eRAS) which will be an opportunity for
local, state and federal entities to work toward planning
and overcoming obstacles to the affc~dability of housing in
this country~
, i '-,
-I
-
,-o
This is a review of individual projectsfactivities and
the program as a whole to ~ssure that they are being
implemented and funds expended in a tLmely manner.
Finding V-l: It has been the intent of the City of Palo
Alto to do ·landbanking~ fo= the purpose cf creating
opportunities for the development of aff,:')zdable hcusing. In
doing so, the City has staked a large ~ount of CDBG
entitlement funds over the las~ sever31 years to single,
large-ticket projects. The danger ira this type of activity
is that any snags that develcp in the processes required
along the way will inevitably create a "progra..'T. progress"
red flag with BUD requirements. ~bis is, in fact, wr.at has
occurred ~ith this grantee. At this point in time, the C~ty
has 2.82 :rears of unexpended CDEG funds. As of July 1,
1991, when the next entitlem~nt allocatio~ is delivered to
the letter of credit, that fig~re will mushrca~ to 3.5
years. The bench .. 'Tl.ark used for unex?e~ded funds is 1.5 yea=s
~r less. The key to th~s ~articular expenditu=e problem is
the anticipated acquisition of vacant land at the cor~~r cf
Page Mill ana Ash.
Reco~endation: .
1. ihe Cit.y sh,")uld make e'~-ery effort. to acccmolish t:.e
r.:!solution of environ..-n€:.:'.tal ccnce::::ns an·:l sucsequent
~cquisition of ~hi5 site for appropriate housing be~cee the
app=-cval of the next Final Statement and a' .... ard of
entitlement funds.
2. The City should, at all times, have a ba,=kup of
contingency activities available during any given progra-"!1
yea=-. Should there be auy reasor.s foe activities,
particularly large-ticket projects to be held up, then the:r-e
would be other activities to go to. The activity that has
been held up can then b~ reinstated at another mOLe
appropri~te time.
••
~I_ -:: HOMELESS ACTIVlTJES
The serious problem today of homelessness now affects
every county and every conmu~ity. It is no longer a problem
'that can be turned aw-ay fram as sor.'.t":: one el$els or. a "bi<;
city~ prozlem. Eo~ e~ch of BUD's ·CDBG granteels are working
toward resolutio~s to this prcolem, pa~ticula=ly with CDBG
and other HUD programs that are avai lable is our int.erest
and concern.
What has been discussed with the City staff during this
monitoring is the extent and nature cf the hcrneles sn8SS in
this cOmIr,uilitYi the possibilities that might be available
for mitigating this; the extent that EUD may be of
assistance to the city in this regard. Some of the
possibilities and opticn~ discussecl we~e SRO hcusi~g, as
de3igned for the 1990 1 s, with it's capabilitiy to physically
and aesthetically Le an i~tegyal pa~t of the neighborhood
and communitYi u~ilization of air-rights over unused and
u~der-·..ltili:,::ed sitesi I!'.cre coope=ative efforts in concert
'With the areas' major err.plcyeys of those persons who cannot
"'.fford the housing costs of the locality i:1 ....... hich thei~ are
cnployed; and use c,f fina::.cial and plan!ling techn':'gues that
~uld enable the establis~ent c~ increased ho~sing
affordability.
t.
-
" -'
~J:_L __ ::: J; ROCURF"..M?'NT
This review is an ~anal:ysis of the City's proC'.lrement
procedures for complia~ce ~ith BUD Regulation 24 CFR Part
570 (Grant Administration/Common Kule) and O~~ Circular A-
110.
Finding VII-l: The City identifies the Palo Alto Housing
Corporation (PABC) on its G~antee Performance Report a~ a
·Special Subrecipient~, however, the contract bet~een the
City of Palo Alto and PAHC for ho!';'sing serv~c:es, identifies
PAEC as ·consultant".
A. An eligible 5ubrecipient as described in 57C.204(c) (3)
and 570.207(bl (3) (iii) must be undertaking neighborhood
revitalization and/or activities in the support of the
development of low or moderate income housing. They mtlst
carry out the project(s) in name and deed and not be a pass
through for the CDBG funds. p~c might qualify under this
definition a~ a Local Development Corporation and ~ould be
required to have a sUbrecipient agreement with the grantee.
B~ A consultant for the grantee is a contractor hired by
the grantee and s~bject to the prccu~e~ent requirements
stated previously.
c.. The scope of services outlined in Exhibit A of the
ag~eement with PAEC covers a range of activities which may
fall into differing categories of relationship which could
not be covered in a comprehensive agre~ment. Fo~ example,
project development and site acquisition could very well be
performed by an eligible special subrecipient. Assisting t~e
City staff in tbe development of the City~s Eousi~g Element
would be perfo~~d by a consultant, for professional
services.
D. In the process of procuring the seryices of a consultant
or other contractor services, for FAEC or any other entity,
the methods described in 85.36 (Common Rule) must be
followed.
Recommendation:
A~ Determine which services needed to be performed for the
City would apply to a ~special subrecipient~ and publicize
the need and availability of funds for those se=vices.
Prepare an appropriate sUbrecipient agreement as described
in the BUD Training Bulletin of August 1990, entitled
·Subrecipients -CQ~unity Development BJock Crant
Entitlement Program", which ""as presented to the City staff
at the exit conference.
B. Determine which services needed to be pe~formed for the
City would apply to the procurement reqllireoents of 85.36
{Common Rule) and follow those methods and procedures for
contract award and accountability.
.-
~1r. Ma:-ty Mitchell
Program Manager, ieam B
p ::. ~:::, ,::'<'~::
eo,,"':;, ... _-:, c_ 5":':;3
Office of Community PTanning and Developme~t
U.S. Department of Housing and Urban Development
450 Golden ~ate Avenue
San Francisco, CA 94102-3448
Dear Mr. Mitchell:
Subject: Monitoring Report
JlJr,~ 3, 1991
Community De .... elopment Block. Grant P,-ograrn (C.DBG}
~rant Number: 8-90·'1(-06-0020
rhis letter is the City of Palo Alto's response to the Department of Hous ng
and Urban Development's (HUD] Monitoring Report dated April 4, 1991, rega ding
the City of ?alo Alto Community Develcornent Block Grant (COSG) Progra~. he
focus of the Monitoring Report and the ma~ority of the findings rel~te to the
Cit)'s contractual relationship with the Palo A~to Housing Cor~oration (PAHC],
the extEnt to which PAHC is being mo~jtored, and the delay in expending CD8G
1 and bank funds.
We appreciate your comments on the CD8G Program, as well as this opportlJr,'lty
to respond. In addition, we appreciate the extension of time allo~ed for
preparation of this i'e~ponse, Since we are currently in the process of
allocating the 1991-1992 CDBG fun~s and preparing ne~ cc~tracts for COSG sub
recipients for the 1991-1992 ye~r. the timing of yo~r letter per~ittpd us to
begin making corrections. Ho~ever, it must be noted that some modifications
will require addltional time. We hawe not~d those items that will carryover
to the 1991-]992 COBS contract year and will be resolved prior to ]992-1993
contracts.
This letter responds to the findin'~s and CO:'lc~rns by area in the' same ord~r as
presented in your April 4, 1991 letter.
L: N~TiONAL OBJECTIVES/ELIGIBILITY
No findings or concerns in this area.
JC/l99fJ/A/L IlMlr l Ii
\:
", ... ult?
emw
.. :r .
. '-~, "). AiI~f·
:<:-;:"'-";::",, . ~I~'
-
o
II ?RQGRAM INCOME:
f!NO!Nb 11-4: Insuffi(!e~t Monitoring of Program Inco~e
!n response te> HUD's findings. -the City has requested PAJ1C assemble
documentation and financial ~ecords of CDBG~funded acquisitions and
improvements, so that an app1icabie rate of program income per property
can be determined. Program incom~ subsequently disbursed for eligible
~ctivities will also be identified. ~~ant rec~ipts and expend;tures
",111 be accounted fer s€pantely from non-CDBG activlties within PAHC's
accounting system. This process has been started and City staff will
pro~fde HUn with documentation as it becomes available. for 'future
reimbursements, PAHC submittal requirements to the City are being
revised in conformance with HUD requirements. PAHC will ~ubmit an
acccunting of CDS~ activities for the reporting periods and the City
will consolidate this information on the annual Grantee Pe:rformar.c~
Report to HUD.
The City/s Finance Department has no~ developed an ~ud;t and monitoring
program to assure that swb-recipients' financial management systems are
kept In accoldance wi.th applicable federal requirements.
III -SUBRECIPIENTS
FTNDING III-l: Inconsistency in relationship between City and PAHC.
This finding is also discussed further in Secti~n VII Procurement.
The City of Palo Alto is concerned with the findings ~ith regard to the
relationship bet .... een the Palo Alto Housing Corporation and the City.
including the written form of the current cor-tract. However, we note
that the Scope of Services and the designation of PAHC activities as
activities {If a special sub~recipier,t were suggested by KUD personnel
during their 1989 monitoring visit. The contract and Scope of Services
were amended at that time to inciude ·consulting ser~icesa under the
Planning Administration tategory. Although we are now changing the
focus of the (or.tract in response to the concerns raised in your April
4. 1991 letter, we feel that we have been in compliance in these areas.
Since the inception of PAHC in 1969, tne City has relied on PAHC as a
resource to provide the City \Io'ith expertise on federal and state housing
legislition, knowledge on local housing issues, ability to prepare pre
development and development proposals for affordable housing, and as a
resource for reviewing .... a.rious housing proposals in the City. The PAHC
Board and staff offer a unique cross-section of individuals with ~aried
ireas of expertise.
Because of their expertise in the Pa10 Alto community and th~ir lang
standing performance record, the City has used PAHC as a ·consultant-to
provide knowledge and guidance on h~using issues. Th~s input became
even more essential after City budget cuts reduced the number of
, .
Planning Department staff able to perform these tasks.
after a housing p~anner positian was e1iml:'latE:d, PAHC's
assistance was deemed imperative.
In puticuiar,
input arid
life take exception to the inference that certain of these areas of
assistan.:e are not in k.eeping witn housing actillities for the commurfity
at large. Utilization of tne expertise and community-based knowledge of
PAHC for assistance in preparation of the Housing Element, retentinr": of
existing affordable housing units in the City. and preparation of such
IiUD required documents as tha Housing Assistance Plan (HAP) and the
Comprehensive nousing Afforddbility Strategy (CHAS) are consistent with
housing act;~'itiH for the cOrMiunitj at large. Although there may be
other for-profit consultants in the Bay Area "ho could proliide some of
these general consulting services, their knowledge and exp~rtise in th5
Pa10 Alto ccmmunity wo~ld not be as great, and their need for profit
would not provide the optimal services fol"' the funds available!.
~;mllarly. other non-profit organilations in the Say Area do not r.ave
the local credibility and expertise that PAHC has obtained.
The 1991·1992 contract is be-ing rewritten: and activities win be funded
~lth both City and CDBG funds. The revised contract will specify those
itp.ms to be performed by P,o,.HC, such as administration and management of
projects either owned or control1ed by PA:iC. project developm-ellt costs,
and administration of BHR sales and rentals, including CDBG and non-CD8G
eligible units. In addition, it includes a r€;Quest to al1\lw PAHC to
comp1ete some on-going con~'J1tirtg ser .... ices begU71 "under the 1990-1991
contract.
FINDING [11·2: Indlrect Cost Allocation Plan
The City 15 currently re'l/iewing PAHC~s actual costs from its
independently audited financial statements of prior years in order to
develop an indirect cost rate. This process has already begwn and is
expected to be completed by October I, 1991. CDBG flll1ding provided by
the City will also be reviewed to determine if past ir.direct casts
charged tJalle exceeded the de,,'elo~ed rate.
The approved indirect cost rate will then be applied conSistently by
PAHC a.nd rev;s~d when necessary. Tne proce-dl.ir~s fullol-.'ed in €-'o'aluat'lng
the: indir-ect cost rate al1j results of the prior year review vdll be
documented and available with the Grantee Performance Report to HUD.
lY HOUSING ASSISTANCLP',Hifl'IBE
fjndin5Ll.I:.l: Semi·annual MBE report
This document ~as been submitted by the City's Il1spectiona.l Services
Di~ision. A copy is enclosed.
•
-----..
Y • PROGRAM PR()(;RfSS
f..ind,~Y...:1: Landba!l'K funds
In pre~ious responses to ~UD monitoring ~epart~. th~ City has outlined
the prob1ems as'Sociate-d iIIitn. the hndbank funds in .a built-out cit),' sucn
as Palo Alto, ~here land and nouslng casts are high. Add1tionally.
there are virtually f10 existing housing projects .. ith 51 perc.ent low
income residents. Under th~se conditior.s it is important that the City
be able to pro~ide affordable nousing in order that Tow·income people
can live close to work, family, friends or available services. HowevEr,
becausE of the cost, it is more difficult to put together a workable
r~al estate program that will satisfy a goal of providing affordable
housing.
The housing stack in
useable vacant land
eXlsting housing and
indvde:
c:alo Alto is generany of \o'ery high quality and
almost nonexistent; corrseQu€ntl.r, the cost of
"acant land ;:; al$o .... eo higtl. Some examples
1. Vacant 5,OOO·square-foot lots selling for a mini;rJ'Jm of
5300,000, ~hen availab1e,
2. A. low-end two-bedroom condominium starts at S275,CJOO,
3. Single-faffiily homes start at S300,000. a~d
4. Multiple-family proje~ts start at SBO.OOO per unit.
Without landbanking, we would be limited to prujects related to
de .... elopment of group homes or ind~vidual units. Both of these areas
have limited uses and for the long tern de not pro'.lide the best
opportunity to obtain the greatest number of affordabTe housing units.
Since the CDSG landbank funds and City Rental Housing ~cquisition
Program (R~AP) funds are a 1,1 ail able for propDsed uses from any non· profit
or for-profit group as ind'ividual projects become .... iable. the City
al ... ·ays has se',eral projects ur.der consideration for l:se of both funds.
However, due to the complexity of the projects requ;ring s(.;ch lal""ge
fUl,ding, timing run~ longer and is subject to delays a~d breakdowns.
for example: in Spring 1990 six projects had progressed far enough to
merit close attention for expenditure of the Tandbanl<. funds. Final
approval of ar.y one of the projects would h,l,Ie used all of the funds in
tMe landbenk. Other projects were bting considered, but due to the
nature of real estate financing, wer~ not public kr.owledge.
•
..
I -----
, ,
f' , , , '
, !
-~
-
Th~ six proposa1s included tne following:
Page Mi1l/Ash Streets: For several years the City ha5 been wOiking
tcwards the purchase of a vacant parcel it Page Mill and Ash Stre~ts
from Santi Clara County. fn nUT H~O response 1etter of 6/7/90, we fully
expected that purchase of site would occur within fcur to five mont~s.
1n December 1990, the it'2lT1 was igendized for Cay Council action;
~oweyer, because of the discovery of toxic contaminants on a nearby
site, t~e item was withdrawn in order for further environmental
documentation to be prepared prior to Council action.
The pr~paration of the environrnentc.l documentation had to be done by
Dutside consultants. This has required a~ RFP process, co~tract
preparation. and return to City Council with a c'Jntract. At a fiJtl!re
dat~. the environmenta1 documents and a reco~~endation on possible
purchase will return to tHy Council. (urrentTy, it 1S ar.ticipated that
the environmental documentation ~i11 be completed around August 1, 1991,
and i decision on whether to purchase the property could be ma~e in
September 1991.
Lytton Gardens IV. Senior ~Q __ ll __ ~j.!1.g: Tr--is 5!-~l"Jit Senior Housing project
is sponsored by (ommunity ~ousing Incurporated (CH1). In Spring ]990.
the project was not ab12 tQ obtain requested Hun Section 202 funds. CHI
has returnee this year with a request to the City for funding of
S9S0,COO, which could include CDBG landbank funds. The uncertainties
and delays in obtaining new HUD regt:lat~ons regarding the 1990 HOiJsing
~ct ~as resulted in uncertainty on the timing and progress of this
project, although a request for City funding could reach City Council in
June. Citj approval ~ould be contingent on obtaining additiona1 outside
funding sources through either federal, state or private financing. At
this time, a dec~sion on the requested federal financing is anticipated
to occur by October I, j99l.
Oak _M_~}1..Qr:...AP...~_.r_t_m_§,.D_ll: This existing 42-unit fac.Jily housing apartment
complex was placed on the market in summer 1990. In December 193\1, PArle
purchased the project for apprOXimately $3.2 million. S1.2 million of
City RHAP funds were used. Strong (onSicerdtion ",'as givC'n to uti1izi~g
the CDBG funds, but because the Page Hill/Ash acquisition ap~eared
i1l'.J1linent, City funds were substituted.
535 Everett: This BJ-unit, fi\le story building was also under
conslderation for plJrchase. The project was eventually rejected for
City purchase because an appropriate financing package could not be
assembled to meet the $9 million purchase price. ihe units were also
considered too iarge for SRO, but not sUltable for fnmily housing.
Sheridan Apartments: This federilly subsidized (Section S) 57-unit
complex is built on land formerly owned by the Citi. A deed restriction
requires that the City ha~e first Qption to repurchase the property if
p1aced on the market. It a1sa contains a deed restriction requiring
~t h .,
11:.
-
part1cfpation in the Section 8 program through 1998. T~i$ property ... 01$
place-d on the market in summer 1990 and .... ouTd have been 21 igible for
COSG landbank funds. How e 1.If::r , becaus.e an acceptable price cou1d not be
re~ched and becaus~ of the e-xisting protection in place, the decision
was made t~at landbanl:: funds would be better utilized on other pr-ojGcts.
We feel that it is important that the City be abl~ to fund these types
of projects in order to provide 10 .. -and \lery 10w-income nousing in a
very expensi\le housing ~arket. We do not believe that the con5traints
LInder wnich we operate this program are H:cogn;zed by HUO regulations
and benc~mark requirements and would ~ncourage Hun to review the
requirements in light of whether or not the ~v2rall goal of obtaini~g
affordable housing is being met.
The-City is aware of the need to spend the COBG landbank fundi Jnd to
th~ extent possible has made e¥ery effort to do so. We will continue
these efforts to spend the funds and will keep several projects under
consideration. We will also rewise our outreach a~d review procedures
to encourage other qvalifitld groups to develop propasOiTs for use of the
COBG landbank funds and to invit~ specific annual proposals for use of
CDSG landb.,k funds.
At t~is time the Page Mill/Ash St~e€t site and the Lytton IV Senior
Housing Project are still under consideration for funding and are
nearing completion of other required approvals. It is antiCipated that
funding of one or tne other will occur prior to October 1. 19S]. We
fee1 that either of these projects is a fitting and appropriate use of
the funds.
The City is alslJ considerlng e.n opportunity to. create more low-income
housing through the use of COBG landbank funds to buy down the cost of
units in the City~s Below Market Rate {BMR) program. During the 1991-
1992 CDSG contract year t ~e will have as many as 12 units ~dded to th~
program. COBG landbank funds could be used to reduce th~ purchase price
of these unit to prices affordable to Tow-and possibly very Tow-income
families. The City could utilize apprOXimately $400,000 for this
purpose.
In addition, the Sheridan Apartments nave recently been placed bade on
the market. If neither the Page Mill/Ash street site nor lytton Gardens
IV shotJ1d be realized by October 1, 1991, it is the City's intent to
pursue a buy down of BMR units coming into the program or purchase of
the Sheridan Apartments.
VI -HOMFL£SS ACTIVITIES
No findings or concerns were listed in tnis area; however the City is
aware of the problems and needs of the homeless and has addressed these
concerns in our recent update of the Housing £lement. Th~ issue wilt be
further addressed prior to January 19SZ. T~fs assessment will take
.' . .;:.
-' ....
place as a p~rt of the state ~e~~ired ~Preservation of A~sisted Housing"
to be addpd t'O th~ City's Housing Element. The City 'Will also be
assessing and updating possible solutions to homeless problems in
preparing the (HAS. We appreciat~ the cffer by HUD in re .... ieifrlling ar.d
?'l"o'Jidihg '\!'1?ut on the preparati,):1 of Hles.e documents.
VII -PROCUREMENT
Fir:d;;l'\g ~1I:..l: Conflict bet",e~ii ~Spedill Sunrecipient· tasks and
·Consultant W tasks of Palo ~ltc Housing Corporatio~.
As previously stated, the City is revising the contract ~ith PAHC. The
re~ised cont'l",ct wi1l specifically 'ist the e1i9ible sub-recipient
c~tegDrjes to be undertaken by the PAHC. In 1992-1993, as in previous
years, PAHC will prepare an application for CDBG funds to provide these
services thr-o'Jgh the annual CD3G application procGss. Ihes~ tasks win
include:
A. Project Ma~agement inc1uding management supervision of Colorado
?ark (60 units), Webster ~ood (58 units) and Terman (92 units).
direct management of 82 units in th~ City's R€ntal Housing
Acquisition Program. and direct management of 45 units at
Cai 1 foni a Park.
B. Sales and resales of COSG eligible income units of the CHy's
Be10w Market Rate housing program sales, resales and rentals.
c. ShoUld PAHC propose and rece;~e approval for implementation of a
specif1c housing proje(t. the deveiopment and pre-developmE'nt
costs of that project wou1d be allowable as a sp~cifjc project
cost and would be included in a !eparate contract.
The City will remove from the contract other references to Planning
Administration costs related to assistance to City staff, PTanning
Commission and City Council in prepari~g City documents and providing
general cor.5ulting services that might be funded by CDBG funds.
HowEver, since PAHC has be't:n imrolvEd in preparation of th~ previous HAP
and in preparing the background mat~riai fer t~e impending C~AS
prepal"ation. as well as assisting the City in efforts to monitor a~d
retain the stock 07 affordabh housing units that are at risk of being
lest ~s aff{)rdable huusing, We are requesting that HUD allow for a
ccntinuation of a portion of the consulting services for the ]991-]992
contract year. This ~ill allow for a smoother tr;nsition, since the
1991-1392 contract year is now beginning and ~o~tlnuat,on of these
serwices is critical to efforts to maintain and improve affordable
housing.
During the 1991-1992 ccntrc.ct y£u, ttJe Citj ... nl be e::o::plor,ng other
opportunities for providing the serwices that would be considered as
c~n5u'ting services. These possibilities include:
,. A, Th:~ough an RFP process, the Clty will Detain an outside c-onst;l tJ.nt
to prc .... ide assistance to the City staff, PlaTHling Commission and
City Council in revie'Alin.; housing proposals, advising the City of
prQ~osed leg1slation and its effects, and evaluat~on of existing
and p!"'oposed programs affect i ng housing. Procurement of these
contract services wouid be ;11 accord ""itn the requirements of
85.36 (Common Role),
B. Utiliz~tion of CDBG funds to hire a hD~sing planner within City
Hall to cocrdinate e1igible housing contracts and portions of COSG
grants, and to advise O~ all hD~sing programs. This person might
also oversee an RFP proces:s cr a proposal procr:ss submitted
through the annual CDBG funding process.
C. Through the sub~r€cip;ent ~roposals for 1992·1993 contracts, an
allowance would be considered for local Development Corporations
for pre-development, project development and inItial site
acquisition costs associated ~ith activities i~ support of the
development of low-nr moderate~inccme housing. These proposals
mayor may nat be site st:JE,=ific.
Due to their expertise and knowledge, the City will continue to utilize
PAHC for admin1strction of the Below Marht Rate housing program for all
units that ire not CDBG ~ligible reCipients. Thes~ serwices will be
charged to the City's Housing Reserve Fund.
We appreciate tWD's cooperation in rewie.dng and ad'l"1sing the City Oll the
Monitoring Report findings a.nd look for.,·ard to working with HUD
repre~entatives in making the necessary corrections.
Should you h~ye any questions or wis~ to discuss any a5~ects cf the fjndings,
our respo~s~s or proposed actions, please contact Jim Gilliland at 329·2673 or
Suzanne Richards at 329-2428.
/;(}~ \\t'I~~ ZANER
City Manager
Enclosure: October 1, ]990 to March 31, 1991 MBE
cc: Alan Schackman
Emily Harri son
Pau1 Ttli i tgen
Ken Schreiber
Suzanne Richards
Jjm Gin nand
JG/ lSilOj.IJl T;ru1lf:~
-'--:-=-------'
-
,
-.-n
I ' . lJ.S. ~I . usJnt and IJrbP Dc.olcp:.>whl
Mr. William Zaner
City Manager
City of Palo Alto
F.O. Eox 10250
Palo ~toJ CA 94303
Dear Mr .. Zaner:
S.n Fra~ Re;«mal Otnca. Regi~ IX
.:;0 G~ Gete .. wen .....
s." franciv..o, Calftomilll4't02·~
AUG 9 j~gr
SUBJECT: Li~ted Financial Management Review
Community Development Block Grant Program
Program Number B-90-MC-06-0020
Rental Rehabilitation Program
Program Number R-87-MC-06-0231
City of Palo Alto, California
This letter summarizes my limited financial manage~e~t
review of the City of Palo Alto's HUD funded community
development programs on July 16 and 17, 19914 An exit
conference was held with Suzanne Richards, CDBG Coordinator,
on July 17, 1991.
The focus was on whether the City has the ne~essary
systems and procedures to comply wit~ Federal accountability
requirements.. I fully appreciate the assistance given by
Suzanne Richards and Jennifer Ch~~g during the review.
The scope of the review includes the following:
1. Fina~cial grant management
2. Cost principles i4cluding procurement practices
3. Subrecipient financial management
Overall, the City is in g~neral compliance with the
requirements stated in 24 CFR Part 85 (BUD common rule), OMB
Circular A-a" 24 CFR Part 570 Subpart J {Grant Management),
and OMB Circular A-128. Nevertheless, several findings,
including one requiring monetary renumeration, are made and
are discussed in detail later in the text.
1. Federal Grant Managemect
In this section of the review, I examined the City's
accounting for the CDBG and RR programs, the management of
grant assets, timely disbursement of funds, use of program
I -
2
income before line of credit draws, and accurate preparation
of Federal reports.
r have found that the City has separately identified
program funds t tra=ksd real property acquired with CDBG,
ensur~d that fiqures reported to HUD were easily traceable
to official records, and fronted expenses for CDBG paid
salaries with City gener~l funds. I compliment the City for
its performance in this area. However, the City did not
comply with cash withdrawal requirements.
Finding Number 1 -Non-compliance with Withdraw
Requirements
Standard
24 CPR 570.S04(b) (2)(iil of the CDSG regulations
requires the grantee to dist~rse substantially all other
(non-revolving account) program in=ome before cash
withdrawals are made from the 0.5. Treasury.
In addition, 24 CFR 85.21(i} of the HUD common rule
requires that interest earned or. advances be remitted to the
Federal grantor agency.
City's Practice
From July 1, 1983, through June 30, 1991 t the City of
Palo ~~to has withdrawn $3,816,193.60 from its l~tter of
credit. In this period, the City al~o received $152 t 320 of
program income from the disposition of the Ter.man School
site. These proceeds were then placed into a oon-revolving
fund account, which accrued $104,178 of interest from July
1983 through June 1990. ,The amount of interest for the
year ended on June 30, 1991, has not been reported yet.)
Because these funds were not pl~ced in a revolving account t
they must be used fo:: any approved CDBG activity. The City
did not follow these regulations and consequently caused an
unnecessary financing cost to the u.s. Treasury. In effect t
$152,320 was inappropriately advanced to the City during
this period.
Required Action
Within 30 days of receipt of this letter, the City must
take the following actions;
a. With respect to the $152,320;
--,.,----~
,-.'.
~
I , (1) •
-,-'_ .. -....'---
Expend these proceeds from the Terman School
project on appreved CDBG activities within
Beven days or
3
{ 2 ) • Remit this amount to BUD via wire transfer
procedures for its return to the City's line of
credit.
b. With respect to interast earned on the $152,320:
[1). Return this amount to BUD via wire transfer
procedures for processing to the U.S. Tre~sury.
c. With respect to undisbursed program income from the
City's phased out COBQ funded rehabilitation program
as of June 30, 1991:
[l}. Transfer this amount to the City's CDBG cash
account if disbursements are to be made within
seven days or
(2). Return this amc-unt to BUD via wire transfer
procedures for its return to the City's line of
credit.
e3}. Verify that interest attributed to the
rehabilitation funds for the period befo~e
June JO, 1991 1 is treated as program income and
is expended on CDBG activities before the next
line of credit draw. Please provide an
accounting of this amount to HUD.
(4). Remit to BUD for return to the u.s. Treasury
any interest earned !fter IS days at receipt of
this letter.
d. Establish procedures to ensure that all program
income (except that contained in a revolvin~ account)
is substantially disbursed before a line of credit
draw.
Il}. Inform this office of those new procedures.
(2). Verify that these proceeds are properly
recorded on the SF-272 1 the Federal Cash
Transaction Report.
-
o
(J)~ Carry forward and annotate the corrected
balance9 on the next SF-272~ Federal Cash
Transaction Report for the quarter ending on
September 30, 1991.
COm%ent Number 1 -Separation of Loan Receivables
4
The City has taken steps to record ita loan portfolio
in its General Ledger. ~o increase control over the program
assets and to f4cilitate proqr~ planning, I ~ould recommend
that the loan receivables be classified by their rates,
i.eol zero interest, low interest (by amount), deferred
payment, etc. I understand that the RR program has not
qenerated any program income.
2. Cost principles
In this section of the review, I examined the City's
procedures to ensure the reasonableness of costs charged to
the CDSG program.
In co~pletinq a COBG activity, the City ~~y expend
grant funds for the real estate acquisition, equipment
purchase, payment of salaries, indirect costs, procurement
of contractor services, etc. A principal consideration in
determining reasonableness is whether the CDBG p:t:ogram pays
its fair share of costs relative to the programmatic
benefits received.
My review makes the fcllowinq observations:
a. This office has monitored the City of Palo Alto for
real estate acquisition procedures earlier this year.
b. No equipment was purchased by the City or CDBG fu ... ded
subrecipients.
c~ The City's chief form of ~ssistance to its
sUbrecipients is the payment of salaries to perform
cnSG public services.
d. CitJ &taff maintains an accounting by activity on its
paYLoll records to substantiate such charges to the
CDBG program. No administrative coets have been
charged to the RR program.
e. with the exception of the Palo Alto Housing
Corporation (PABe), neither the City or its
sUbrecipients charge indirect costs to the CDSG
program. ~rin9 the review, I provided the City with
-
5
a check list to exallLine indirect charges. Tha city
has now taken steps to revi~~ PABe's indirect charges
and document ita outcome.
f. All procurement eontracts ir. the CDBG program were
under $25,000. However, the City did not complete a
cost analysis of procurement transactions tc ~nsure
the reasonableness of such cost~.
Finding Number 2 -LaCK of Cost AnAlyse~
Standard
24 CPR 85.36(f) and OMB Circular A-110, Attachment 0,
require the qr~tee and subrecipient to perform a cost
analysis with every procureme~t transaction to ensure cost
reasonableness of such charges to the CDBG program. Our
office would have considered this requirement met in cases
where competitive sealed bids (or price analysis} were
obta.ined.
City" 8 .Practice
For the Grantee Eerfo~nce Report for the year ended
on June 30, 1990, the Cit~' reports nine public
facilities/improvement and rehabilitation activities that
may trigger the cost analysis requirement~ The City was
unable to document that it or its subrecipients had
conducted a cost analysis for procurement actions.
Required Action
Within 30 days of receipt of this letter, the City
must.
a. Review affected CDBG activities funded in FY 90 ar.c
FY 91 in relation to published cost indices to
determine that these costs were reasonable.
b. Inform this office of the results of an~lysis.
c. Return to the City's cnBG program account or line of
credit, depending on the ~ount recovered and its
subsequent disbursement, if costs were determined to
be excessive.
d. Advise this office of the steps that the City will
initiate to determine compliance for itself and its
subrecipioants.
i r
I
I
I
3. Subrecipient Financial Management
In th~s section of the review, I examined the City's
procedures to ~nage its array of subrecipients. The scope
of this section included an analysis of the agreement for
financial controls, audit management, financial reviews,
budget management, and indirect cost procedures.
In addition, a substaDtial amount of tL~e during the
review was devoted to discussinq Palo Alto Bousing
Corporation~s agreement with the City and differentiating
between 8ubrecipier.t and contractual relationships. Our
Program Management Division will address these issues under
a sE'.parate letter.
Finding Number 3 -Subrecipient Financial Monitoring
Standard
24 CFR 85.40 of the HUD cammon rule requires grantees
to monitor its activities (including 6ubrecipient ones) for
compliance with applicable Federal requirements (including
financial ones). Such monitoring must cover each program,
function, or activity a
Cityls Practice
6
The City monitors its subrecipieDts chiefly for
programmatio compliance although limited financial testinq
is conducted. The City principally l~ts such examinations
to the sub~tantiation of payroll charges. The realm of
financial compliance ex~ends beyond the area of ~ccuracy of
payroll chaz-ges to a large sphere of BUD, ot-m, and Treasury
requirements.
Required Action
Within 30 days of receipt of this letter, the City must
develop ~ check list to cover the pertinent financial
compliance issues (i.e., indirect costs, timely
disbursement, use of interest bearing accounts, etc.) and to
document conclusions systematically. This check list should
be forwarded to our office for review. As stated during the
on ~ite visit} our CPD Monitoring Bandbook may be an example
of such a process.
---~-----~...-~,-. ""-,,---~~--,,. "",
-
-
Finding Number 4 -Subrecipi~nt Audit Man~gement
St.andard
O~ Circular A-12B, paragraph 9, Sub~ecipients,
require$ the City to establish a aystem to ensure that
sub~ecipient audits meet applicable requirements.
... " .... , .AJiXMi
7
24 CFR Part BS.26IbJI3) require. that the grantee hes a
system in place to ensure corrective actions required of
subrecipients are taken within six months~
City"s Practice
The City hae asked its independent auditor to review
the audits conducted by its 9uhrecipients. During the
review, I was unable to determine the nature of examination
by the independent auditor, nor the controls the City has
instituted to assuz"e compliance in this area~
Required Action
Wi~hin 30 days of receipt of this letter, the City must
establish an audit management system for its subrecipient.s ~
Such a system must i~dicate tbat the sUbrecipient audit has:
1. met the applicable A-lID cr A-128 standards
2~ been completed by qualified personnel
3. its corrective action impl~ented within six months
4. been submitted timely s. been ~de available to the public
6~ been sent to Federal central clearinghouse
j. been charged fairly to BUD proqrams a. been reviewed for audit quality control
This office has forwarded copies of check lists that
the City may use to ccmply with item 8.
Subsequect to the visit, the City internal audit staff
contacted me about the acceptability of that staff
performing the examinations of affect~d subrecipients. This
option is a viable alternatlve to requirinq sUbrecipients to
obtain a separate audit.
The City must inform os of the steps that it will
institute to determine compliance ~ith these requirements.
•
Ccmment Number 2 -!nclus~on of Budget into Agreement
To au;ment control over its subrecipient activitiee,
the City may wish to incorporate a budget into its
subrecipient agreements.
B
I am looking forward to meeting you on
to discuss the contents of this letter, the
relationship with PABC 1 or any other issue.
questions, please call me at 556-0392.
August 21, 1991,
City's
cc: David Martin
If you have any
Very sincer~ your.,
~~
Angelo Tom, Director
Program Support Division
Office of Community Planning
and Dev'?:lopment
Acting Buman Serv'ices Administrator
Suzanne Richards
CDBG Coordiantor
Emily Harrison
Finance Director
Jennifer Chang
Accoun.tant
~ n
'~
I ,
(415) 329-2563
Mr. Marty Mitchell
].:!.anageT. T earn B
'J
Office of Community Planning
and Development
, ~)1' ~ • 11 \ ' \ l !'" I or " 0' [, .. ~'", l~, tl,) -'
Decelnber 20, 1991
U. S. Department of Housing and Urban
De-"'eioprner:t
San Francisco Regional Office, Region IX
450 Golden Gate Avenue
San Francisc<>, CA 94102·3448
Dear Mr. Mitchell:
The intent of this letter is provide you and your staff with a status report of our progress OD the
issues raised in Mr. Schackman's monitoring letter of April 4, 1991, ~1r Tom's monitoring
letter Df August 9, 1991, and our SUbsequent discussions at the meeting on Augus.t 21, 1991 in
Sail Francisco. In general, I wish to assure you that City staff have been working rliLigently to
effect full compliance with all Feder.d.l regulations relating to the Community De .... elopment Block
Grant program.
Financial Compliance -August 9 Letter
Finding I -Non-Complia.ce with Withdn w Requirements,
alb. The City v.i.11 remit to HOD for return to the City'S line of credit, the $152,320 in program
income generated by th= Terman housing project. Additionally. ail interest earned on this sum
($132,950 fOi the period February 3, 1984 through November 30, 1991) will also be remitted
to HUD to be returned to the U, S, Treasury. City regulations require a Budget Amendment
Ordinance and City Council approval (or such a transaction. The attached copy of the .s.taff
report and ordinance effecting this transaction was approved by the Palo Alto City Council at
"
I
-
Page Two
theu-meeting on December 9, 1991, and the appropriate paper\~iork is now beir:g completed in
order to return these funds vi ... the City's line of c~it.
c. The City's Housing Improvemen.t Program (HIP) is !xing phased out due to tl;;:: relat:,,'ely
low number of inoJme eligible app1ic.ants whose proposed rehabilitation projects qualif)' for
funding. No new money has been allocated to this program for the past year. and available
funds previously allocated to the loan program, but not spent, were reallocated to oLr,er CDW
eligible projectS in the 1991192 program year. Program income (principal plus interest proceeds
from loans) generated by the HIP have consistf:ntly been kept in a separate revofving IO<'J1 fund
in accordance with Federal regulations and expended first on HIP program expenses prior to
additional drawdowns from the line of credit for (ltis activity. AU interest earned on program
!ocorne in the revolving loan fund has been included and repcorted to HUD on the annual Grantee
Performance Report. \Ve believe: the City has foIlowed all applicable federal reguiations
regard~ng revolving loan fiJnds and the reporting of program income on this project.
Due to the fact that very little activity is now expecte.d in thi.s program, commencing July I,
1991, program income from HIP will be applied firs.t agains! all other eligible CDBG
expenditures prior to drawdown from the letter of credit. For fITS! quarter 199 r192 I program
income exceeded CDBG expenditures, and therefore no reimbu;sement from HUD was
requested.
d. A thorough examination has been conducted by City staff on major subrecipients likely to
have generated program income. It was determined that certain activities carried out by the J>-.uo
Alto Housing Corporation generated S81,997 in program income during Ute period July 1,1986
to June 30, 1991. These funds are being £crumed to the City, and will in rum be remitted to
HUD for inclusion in the CLty's letter of credit An audit repon detailing these findrngs was
presenl:ed to City Council on December 9, 1991. Beginning with the quarter ending September
30, 1991, the SF-272 will reflect program income from all sources staled above, and tile cash
",iUtdr.iwal will be adjusted accordingly.
Comment I -Separation of Loan Receivables:
As of June 30 , 1991 the Housing ImprovemenlfNon"Profit Rehabilitation loan portfolio was
separated into two categories: 1) deferred interest loans and 2) low interest loans, L' accordance
with Jo.fr. Tom's suggestion.
Finding 2 -Lack of Cost An.alysis:
The Grantee Performance Report for the year ended June 30, 1990 does report allocations to
nine pubIlc facilitieslimprovements and rehabilitation activities. Three of those projects,
however, were nOl pursued by Ute agencies, and the funds were later reallocated to oUter
,jJ
, !
-
Page Three
CDBG eligible acti'wities. A pan time staff person 'Ira<; h..ireJ In mid November, 1991 to research
al'ld compile information.and checklists on all of the Federal regulations relating to rehabilitation
activities. Ail public f&..ilitieslimprovemenlS and rehabiJi~tion activities: for which funds are
expended in the 91/92 program year will be b full ccmpliarce with all L'l:.es.e regt:lations.
Concurrently, the review of past pr'JjecL<; for cost reasonableness has begU'1., and the information
requested should be available ~ort.ly.
Finding 3 -Subrecipienl Financial Monitoring:
We received in mid-September the sample mOnitoring checklists from Mr. Tom, and have al:>a
gathered other sarnple.s from other cities as well. We are currently preparing a checklist fo:-the
City of Palo Alto which will incorporate the appropriate regulations. As soon as this: is
completed it WIll be forwarded to Mr. Tom for review. All agencies funded En the current year
will be monitored using the new frnanciaJ checklist prior tu the end of th e p{ogram year. In
adclition, staff from the City Auditor~s office have conducted eXTensive reviews of subrecipien(s
from the 9Of91 program year who received in e"c~ of $25,000 in CDBG funding, including
the Palo Alto Rousing Corporabon.
Finding 4 -Subrecipient Audit Management:
As noted above, the CltfS internal audit staff has completed examinations of ti1e three
sub recipients who rec.eived over $25,000 from the City in FY 9Of9 I. The resuits of the
e:wn~nations have been communicated to the City Council and the .subrecipients. Copies of the
audit reports are available to HUD whell requested. The. internal audit staff will incorpordte the
annual review of the subrecipients' audits into future audit plans.
Status R~rt and Follow-up on April 4 1991 MonjJoring Le~. Please reference also, the
City'§ reply to this letter dc,ted Iune 3, 1991 ano subsequent discussions wilh HUD represen
tatives.
Staws ofPARC as a Special SubrecipieI'.l
Attached please find a copy of the deterrninaricm by the City Anorney~s Office regarding the
designation of PaIo Alto Housing Corporation as a Local Development Corporation, and
therefore, their eligibility to perform "spe:ial activities".
Also enclosed is .2. memorandum describing the pUIp('se, scope and responsibi!ities included in
administering the Clly'S Below Markel Rale 'BMR' program .'hich was requested by RUD
representatives.
-
Page Four
The City plans to enter [nto an agreement with the P4Io Alto Housing Co:poration for the
expenditure of approJ<imately $980,000 Lo CDBG "Landbank" funds b order to pu«hase a 10
unit exlsting apartment complex whic!1 'Will be: used to hou se low and very Jew income
individuals or families. This expenditure is expected to take place prior to the end of 1991. b ... t
is continge..'u upon the final HUD environmental approval which cannot be given ~fore
December 20,1991. In addition to the acquisition COSLS, the City expo..""1S to expend a IT'..cximum
of $65,000 for relocation costs over the next several months In order to replace some of Lie
existing teriants ..... ith income eligible tenants.
Due to the number of monitoring/compliance issues which have surfaced in the City's CDBG
program over the past year, City Senior Management have been expioring some internal options
relating to consolidation of administrative efforts and increasing the CDBG staffing level so that
they are more in line with program requirements. A full analysis of these issues will be
presented to the Finance Committee of t11e City Council in mid-Janu:uy. 1992 so that anticipated
ch.u1ges can be coordin.~!W with and incorporated into the City~s next N'O year budget cycle.
We appreciate HLTD's efforts to work 'With the City in correcting some of these program
deficiencies, and to provide tcdutical assistance and L~ to City staff. Should you have any
questions relating to any of these issues or ilie responses. please con tact either Suzanne Richards
at 329-2428 Ol' Jim GiIliWld at 329-2679.
Endosures
cc:
CPA: Jim Gilliland
Emily Harrison
T!3CY Kwok
David Martin
Suzanne Richards
Ken Schreiber
Paul Thiltgen
HUD: Alan Schackman
Angelo Tom
Very uuly yours,
WlLUAM ZANER
Ci!y Manager
r
C'Jr:-.neflt 4 (. ':occers & Lybrand
manarjer':lent letter and st"aff response
{4.' Improve the Administration and MOllit.flJ;inq of the Comm1JDity
Development l11ock ___ qra~!. ___ Proqr&!l ..
The following were noted by the Department of ROU5\ng and
~' Urban Development (HDD) during field monitoring of the city's
compliance with federal requir~ment5 of its Community Oevelop
ment Block Crant {CDBG) award:
-
o Certain non-~rofit community based aqenc~es receiving CDBG
funds through the city do not have accounting systems in
place which can adequately track program income generated
from CDBG grants and indirect program costs
o One of the community agencies receiving eDBG funds was
described as a "consultant-in its contract with the City
ana as a Aspecial subrecipient 3 in reports tiled with the
federal government. Proper determination of the agency's
status is necessary in order to implement the correct
qovernmental procurement requirements
o Generall),-, HUD does not believe the City's current lIIonit,::>r
ing and auditinq requir~ments for agencies receiving CDSG
funds to be extensive enough to meet federaJ. guidelines
o Unexp~nded funds under the City's grant at June 30, 1991,
equaled approximately 2.8 times the annual aw·ard amount.
Normally, BUD expects the City to draw down often enough on
the grant to ensure that the ratio of unexpended funds to
the total annual award amount does not exceed 1.5:1
In addition, HUD has determined that the City must forward
program income generated in 1983 from the sale of property
originally purchased "With CDBG funds, along "With interest
earned, to the federal government becallse these funds ... ere not
applied to subsequent projects qualifying under the COBG
program.
To improve the documentation of administrative procedures
relating to federally funded programs and help city staff more
quickly identify potential iss4es such as those cited above,
'We recommend that the City compile or implement the following:
o A poliCies and procedures manual specific tO,the community
Development Block Grant (CDBG) program. The manual would
contain information needed b:,' City personnel to understand
both the program and associated federal requirements ...
processing of annual applications submitted by community
based agencies, and reporting reqUirements for both the
City and the funded agencies.
'.-,'. , ·'''''L'',',·
!
I
I ,
t
I
I
rl ..•.
. . ,
I
.~.
:., -"r:· .' _c.-.' .. ' .. <~. __
C4.) .l1!:l.J:!,:r;.::ve the i\dmi!listration and XO!litorJ::lq or the Communi ty
Development B1Qck~Gr.p~ pro~
o Annual checklists fer community based agencies re~esting
CDBG fUnds4 The checklist would include required ste~s to
pe performed by the agencies and City personnel from the
initial application for funding through annual reporting
require~£nts. Steps should be dated and signed by respon
si~le City personnel as completed~
G An annual work plan for City personnel responsible for
monitoring those agencies receiving CnBG funds through the
City. The work plan should include such items as deadlines
for processing submitted applications for funcing as ~el1
as the dates during the funding period on which City
personnel will perform field monitoring of the grantees.
The major benefits of doc~entation ~ould be:
o Assistance in the training of employees, particularly those
new to federal regti.lation
o Assurance that all City and federal requirements
funding are met bot!'", in the initial application process
during periodic field reviews
for
and
a Assistance to management in evaluating the perfo~ance of
City personnel implementing tbe program
sta:f.t Response
This comment directly correlates with the compliance issues raised
by HUO officials as a result of their extensive ravie ... of Palo
Alto's CDBG program over the past year. The City's CDBG Program
was m~nitored on-site by BUD officials on three separate occasions
during the calendar year 1991. ~he ,results of the HUn audits are
contained. in letters to the Cit:r~ Manager ciateci April 4~ April 10,
and AUgust 9, 1991.
The areas of compliance cited here are all being addressed by city
staff and the appropriate actions and responses to HUD have been or
are being prepared or initiated. A brief status report folloWS: .
1) Tracking of program income generated by subrecipient activi
ties
City staff determined that only the activities of one 5ubreci
pient (The Palo ~lto Housing Corporation) vere likely to have
had the potential for producing CDBG program income oyer the
past several years. In order to determine program income, an
-~----. -.-_._.---_._ ...
~i.;.,:r·L-· , . . ," ... . ...
I -
. ,
"
.. " . --' "--.-.--~.""--..
indirect cost allo~ation plan in accordance with the requjre
ments of OMS Circular A-lIO was necessary~ City staff from
the Finance Department completed ~n extensive analysis of the
PAHC's activities in ~hich they established a mutually
acceptable indirect cost allocation plan for projects during
the per-iod of the analy:sis, July 1, 1986 to June 3(" 1991.
The analysis cc;mcluded that $a1,9)7 in program income had been
generated d~ring this pEriod, and the funds were subsequently
returned to the City by the PARe and then :teturned to HUD to
be added to the. City's letter of credit~ The Palo .Alto
Housing Corporation has been instructed to develop a cost
allocation plan tor the current contract year. In addition,
the city has recommended that the PARe implement a project
cost accounting system to allo~ for accountability to the ["ity
regarding any future p:::-ogram income qe.neTated by CDSG pro
jects.
Contractual relationshin bec~een the Palo Alto Housi~g
corporation and the City·of Palo Alto
HUD requlations require that specific procure!Ilent proced'.lres
(Le. ~ a request for proposals) be followed in order to
establish a contractual relationship for -fity-jr-itiated
"consul tant" services. To address this issue ~ consultant
serlfices were eliminated from the 1991/1992 car'ltract except
for those services funded by the General Fund, and for a few
se:rvices which had been initiated in the 1990/1991 program
year, and had not been completed. The new HUO requirement
~ill necessitate a change in the services contracted for with
the PARC, and the 'Way in ..... hich the CCSG administrative funds
are allocated. Additionally ~ the eligibility of the Palo Alto
Housing Corporation to undertake ItSpecial Activities of a
Subrecipient W was br~ught into question by their status as a
"neighborhood based non-profit corporation" (NBNP) _ HUD
regulations state that NBNP's must fUnction within a distinct
geographical area in any unit of local government "With a
popul~tion in excess of 25/000. The City Attorney's Office
has determined, however. that the Palo Alto Housing co:rpora
tion does fit under another category, a lIlocal development
corporation" *,hich elsa allcw~ them to undertak.e "special
activities" ..
J) city monitoring and auditing of subrecipients
In response to this finding, the city }.uditor's Office
. initiated compliance procedures, and undertook the examination
of the financial management systems of the three subrecipients
from the 1990/1991 program year who had received in excess of
$25,000 and were therefore subject to the Federal single audit
requi~ement. Results of the audits on these three agencies:
The Palo Alto Housing Corporation, Innovative Housing, and
Urban Ministry of Palo Alto were presented to council in a
report dated December 5, 1991. In order to bring the Palo
Alto Housing Corporatio~'s financial management system into
--------, ··'·-L .. ".··
4$
compliance ~ith the applicable HUD requlations, cer~ain
corrective actions were identified and recommendations J:" je.
A follow-up review will be performed by the Auditor's office
to deterl!l.ine if appropriat.a: corrections have been undertaken.
More extensive finan~ial monitorinq procedures for all COBG
recipients are also required, and ~ill be undertaken by City
staff during the next scheduled round of city monitoring
visits.
4) unexpended Fund~ in the city's Letter o.f ·Credit exceed the
maximum allowable
The City expects t.o expend approximately $:;'80, 000 on an
affordable housing project known as 3020 Emerson in conjunc
tion with the FABel by the end of December 1591. Expenditure
of funds on this project will reduce the City's letter of
credit to within the allow-able parameters (1. 5 times the
annual grant).
5) Return of program income generated by the 1984 sale of the
Terman School site to HUn
vrt December 9, 1991. the Palo Alto City counc_il approved a
budget amendment ordinance for the return of the~e funds to
HUn, and the return of interest earned to the u.s. Treas'Jry.
city staff h~s now completed this transaction.
Coopers , Lybrand has suggested the city undertake the following
three procedural changes in order to aid in the training of City
employees, ensure that all City and federal requirements are met r
and to provide management with a means to evaluate the program:
1) A CDBG policies and procedures manu~l
2) Annual checklist and instructions for subrecipients
3) Work plan for monitoring personnel
These suggestions are valid and should be initiated, but are
virtually impossible to implement wi'th current staffing levels. In
order to brinq the program into compliance, more of the ~admini$
trative~ funds available under '":".he C~BG program must be utilized on
administration of the program and compliance issues.
~ -
rl
Palo Alto Housing Corporation'
De<er'lber 5, 1991
Honorabl(" City Council
Palo Alto, California
Members of the:: Council:
In its Monitoring Report letter of Apri14, 199i, HtJD noted areas in which t~e City of
Palo Alto ""4..5 considered not in confanp.ance with Federal requirements in its
adminis:trJ.tio::1 and implementation of the Community Development Block Grant
(CDBG) progr.ml. Among several findings, HUD UJdicated t.1tat the PARe's meth~
of reporting to the City, established ~ears earlier and previously reviewed and appro .... ed
by HUn, were nOw found to be not fully in .:cmpl.iance with Federal accounting and
fmandal record keeping procedures. The City wa.s adviserl to develop an Indirect Cost
Allocation Plan for nonprofit organizations, and t~en to analyze the costs e;'l;pended by
PARe according to the proYlsions of the plan.
The Housing Cozporation's accounting system. although fcrmerly acceptable to HUD,
is now deemed not in conformance with these new directives, and we 'Will be
developing a new accounting system to comply. It h2S been IT'.J.de .... ery clear to us ~at
there is no question of impropriety by the CJrpoI<1tion.
However. City staff, in foUowing HUD's new directives, ha$ informed us that
·Program mcomr:" has been generated from four of the apartment buildings PARe has
acquired under the Rental Housmg Acquisition Program. (RHAF). CDBG funds were
used to provide down payments and rehabLlitation costs for the acquisition of 41
hOl!sing units in our Elm, Ferne, Curtner and Emerson South apan.'11ents. CDBG
funds were also used to pay for staff and other costs incurred by PARe in conducting
other COSG-eligible programs and services, accounting for about half of the total costs
or operating our office ami pro ... ·iding services to the City.
We are now advis.:d that City staff calculations, based on present interpretation of
HUD's CDBG regulations, procedures and accounting methods will require our
CDEG-funded Ploje<:lS listed above to pay to the City'. CDBG account $81,997, as net
program income, covering the five-year period fiscal 1986187 through 1990191. These
funds have been kept in Ute accounts of the respective pI0perties as Replacement
Reserves for future re.Ubilitation and major mainteI1ance items. The current
interpretation ofCDBG regulations does not allow deduction from the project's income
ora suitlble amount of reseNe fun.ds. Accordingly, the funds are to be returned, but
may be appried for w'hen needs arise. The process wou.ld require appiicanon at least a
half year before the COBG funds would be available in the next fiscal year's al1ocation,
and there Vw'ou[d be no assurance that such funds would still be forthcoming at indefinite
future dates.
540 Cowper Street, Suite G, Palo Alto, California 94301, (415) 321·9709
•
Neeu.-'1ess to say. we believe that this anangemr-nt 1s 'both awk'\-'3Id and uncerta.in.
Prudent management of our apar ... ment pmjec.ts invoh'es not only careful cOl1rroI of
rental income paymC11ts 3.I1d of all operating ex;pe.1se categories, but we also insist that
each compiex set aside ample re..~rve funds. This is nonnal operating procedure.
Ironicall:-" every HUD hOlJsing COf'Sflllction program mandates that an apprcpriate
Reserve for Replacement fund be established a,.,d be paid into ea'-h and every month
during the e"tire length of the mortgage perioo.
Although oniy the accounting of -Program Income-is before you on this agenda, HUD
has raised other CDBG issues which, if implemented, would change dramatically t.~e
manner in w)-OSch the City and the PAHC have succesSVJUy worked together to provide
affordable housing in this commcnity for many y~s.
For over 22 years PARe's primary purpose bas been to provide and foster precisely
the kind of houiJ1g opportunities that l1le CDBG programs mandate. The long-term
close cooperation between the City of Palo Alto and the Palo .6Jto HOUslI1g Cotp::'ration
has resulted in subs'..antiaI accomplishments in the p;"ovision oflowfmod.erate income
housing that would not have beer. possihle under a fragmt.;-.ted approach. Suc.cessful
-housing developments usually take seve:'.ral years frem conception to completion.
Moreover. nonprofit developers in particu.lar mus.t estal::lish a su~cessful track record to
be able to ob tain necessary flnancing for proj eelS.
Accordingly I ·Vle would appreciate it if the Council WOLJ ld drIfX t City staff and the
Housing Corporation jointly to take these other CD3G tssue'5 to tile HUD Regional
Di=tor (and perhaps to HUD Washington) to see if the CDBG regulations could be
interpreted more broadly to accommodate Palo Alto's special conditions which have
resulted in housing programs 2Jld projects seen as models for other communities.
If such efforts prove unsu~sfuI, and if the Council wtshes t:J continue the City's
present relationsrhp 'With the PAHC, it cou~d also djn;::t )taff 19 explore g;her funding
SOUF....cs (such a:; the Housing Reserve) that would not have the federal CDBG ---,.
constramts.
We wish to acknowledge atld express. appreciation for the efforu of City staff members
who have been most helpful in working through these matters and explaining the new
HUD directives to the PARCo
Sincerely,
PALO ALTO HOUSING CORPORATION
-~,~t~~~Ei;:"
;::' 'r
-