The URL can be used to link to this page

Home My WebLink About0518.091- December 5, 1991 ~ H05QRABLE CITY COUNCIL Pal~ AJto, California Members of the council: 3 Ret.urp. of eo_unity D.v.lopment,~J.,ock Grant Program Income to the· O. So. Department of H_~~i'pq and UrbliD Developmen~ ll_pstrt ill Bri.f The purpose of this staff report is for the approval of a Budget Amendme:1t Ordinance to return $152, 32C of Community Development Block Grant (CDBG) program income to the united St3tes Department of Housing and Urban Development (HUD); and $132,950 of interest earned on the CDec program income to the United States Treasury. rnis report is also to inform you of the return of $81,997 in CDBG program income to the City by the Palo Alto Housing corporation~ and the return of this income by the City to HDD. The total CDBG program income of $234,317 returned to HUD will be added to the City's letter of credit, and will remain available for future eligible CDBG expenditures~ These actions have been requested by H"tlD in order to bring the City int.o financial compliance 'With federal regulations govern-ing program income and the expenditure of CDBG funds. BaekqroUlld Officials from the San FranC'isco HUO Office conducted on-site monitorings of the City's overall management and financial policies" including cash withdrawal practices, relating to the fede~al1y funded CDBG program. The results of those audits are contained in letters to the City Manager, dated April 4, and August 9, 1.991. The actions outlined in this staff report and the accompanying Budget Amendment Ordinance will bring the city into compliance with the federal requirements relating to pcogram income and cash transactions, and address the findings detailed in the monitoring reports. On December 5, 1983, the city Council authorized the receipt of $920,000 in proceeds from the sale of the ~ousing portion of the Terma.n School Site on Arastradero Road to Ter~71an Associates. Since 30 percent of the City's cost to purchase the site from the Palo Alto Unified School District carne from CDBG funds, 30 percent of the sale proceeds, or $272,320, ~ere placed in City of Palo Alto reserves as CDBG program income~ of these funds, $120,000 were CMR:518:91 Fage Tw'o subsequ@.ntly improvements has remained spent for the in City for another eligible Te~an project}; but the reserves. activity (off-site balance of $152,320 The total interest earned by the City on Terman funds from the time t.hey 'Were received in :February 1984 through November 30, 1991 is ~132,950. It ~as anticipated that the Terman funds would be used for the next CDBG eligible affordable housing project in conjunc tion with other available CDBG Landban}c funds. The city 'Was informed, however. that federal regulations require that program income, e:<:cept. that specifically set aside in an established r-evolving loan fundI be expended on all other CDBG eligible projects prior ·co any 'Withdra'Wal f:rom the cityts letter ot credit. The $152,320 in the City's possession since 1984 should not have been allowed to earn interest, but rather should have been used to reduce withdra~als from the letter of credit. In order to address that issue, HUD has requested the return to the U.S~ Treasury of all interest generated by the Terman project program income~ Additior.ally, the City must remit to HUD the unexpended program income of $152 .. 320. This amount will be useo to incr~ase the City's letter of credit and will continue to be available for expenditure on the City's CDBG eligible projects. Since the funds have been helo in the Federal Revenue Fund Reserves, these transactions ~ill in no way affect the General Fund. Palo Alto Housing co~_ati~_z:t Revenue generated by .prope,rties acquired with CDBG funds 2lr-e subj ect to feder-al program l.ncome regulations. HUD staff recom mended th~t a City audit be conducted on all Palo Alto Housing Corporation properties purchased with COBG funds in order to determine if program income had been generated. City staff, with the cooperation of Palo Alto Eo~sing corporation staff, has com pleted a substantive review of these regulations and the applicable properties and concluded ttJat the properties pr')duced $81,997 in program income during the period JUly 1. 1986. tc Jur.e 3D~ 1991. These funds vill be returned to the City by the Palo Alto Housing Corporation, and the City will in turn refund this amount to HUD. A Budget amendment ordinance is not required for this transaction. This program income will also increase the city's letter of credit and will ~e available for expenditure on other CDBG eligible pro jects. These and several other HUD monitoring issues related to the Palo Alto Housing Corporation w'ill be addressed in a staff report in respor.se to a Coopers and Lybrand management 1 etter scheduled for Finance committee revie .... • on Janu-3ry H., 1992. CMR:51B:91 .~.,~ • :~f 1- i ; j ~ i I I , -' .. Page Three staff recommends that the City Council approve the attached budget amendment ordinance authorizing: 1. The return of $132,950 in interest earned on CDBG program income to the u ~ s.. 'I'reasury; and 2 ~ The return of $152 1320 i::-. CDBG program incomo:! remaining in the city's special Revenue C;Jnds to HUt' to be used to increase the city's letter of credit. Respectfully submitted, :Dav id Mart in ~5::r~5rvices Paul Thiltqen Director, Community SerJices % L--i~'.........~-'--__ Related CMRS: 600:) CMR:518!91 il ORDINAN'CE NO. ORDIN&~CE OF THE COUNCIL OF THE CITY OF PAL8 ALTO AMENDING THE aUDGET FOR THE FISC.!l..L YEAR 1991-92 TO DECREASE THE CITY'S SPECI.\L REVENUE FUNDS; TO RETURN TH£ INTEREST EARNED ON COBG PROGRA.'Fo! INCOME TO THE UNITED STATES TREASURY; AND 'ro RETURN THE PROGRAM INCOME FF.OM THE EALANCE OF THE COSG SHARE OF THE PROCEEC$ FROM THE SALE OF THE HOt:SING PORTION OF THE TERMAN' SCHOOL SITE TO THE DEPP.RTMENT OF HOUSING A,.'IIJ'D t.1RBA."l DEVELOPMEN'r WHEREAS j pursuant to the provisions of section 12 of Article III of the Charter of the City of Palo Alto r the Council en June 24, 1991 did adopt a budget for fiscal year 1991-92; and WHEREAS, on December S. 1983, the city council authorized the receipt 'Of $920,000 in proceads from the sale of the housing portion of the 'rerman school si tej and WHEREAS, approxir;,ately 31) per~ent or $272,320 of the city's cost to purchase the site frot:'! the Palo Alto Unified School District came from Community Development Block Grant (CDBG) funds, 3nd these funas:; ...... ere placed in the City's ReserVes as CDSG program incmt'Le; and WHEREAS, $120,000 ~'as spent for another eligible activity, leaving $152,320 of these funds currently remaining in the City's Res~rve Funds; and WHEF.EAS, it was anticipated that the Terman funds would be used for the next CDBG eligible, affordable hOi.lsing project, in conjunction witn ~ther available CDBG Landbank funds; and w'1iEREAS. $132,950 in interest has been earned on the CDBG program income; and WHEP.EAS, in July, 1991, the United States Department of Housing and Urban Developmer.t (rfl.-D) conducted an on-site monit<n-ing of the City's financial and cash manageme~t pr3ctices relating to the federally funded CDBG program; and WHEREAS. federal regulations require that CDBG program inco')T,e should be eKpended on other C:DbG eligiole projects prior to any withdrawal fraU'. the City/s Letter of Credit. except for that portion specifically set aside in an established revolving loan fund; and WHEREAS} the program income should not have been earn interest, but rathec should have been used withdrawals from the Letter of Credit; ~nd allow'ed to to reduce WHEREAS~ HUD has requested the return to the United States Treasury of all interes~ generated by the Terman project program income; and ' , WHEREAS, the Cit)' must remit to HUD the unexpended COSC; program income whict, ""ill increase the city's line of credit agains:t .... hich future r(~imburseme-nts for all COSG activities will be dr.e:vn; NOW, THEREFORE, t.he council of the city of Palo Alto does ORDAIN as follows: SECTIQN 1. The sum of ~o Hundred Eighty-Five T~ousand Two Hundr-ed SevE:n"ty Dollars ($285.270} is hereby appropriated to general Expenses in the community .Development Block. Grant (CDBG)" Fund, and the Ci t:,." s Special Revenue Funds are correspondingly reduced. SECTION 2. T~e council of t~e City of Palo Alto hereby finds that the enactment of this ordinan.ce is not a project under the california Environmental Qualitj' Act and, therefore. no environmen tal impact a5~assrn~nt is necessary. SECTION 3. Municipal Code l adoption. As provided in section 2.04.375 of the Palo Alto this ordinance shall become effective upon INTRODUCED AND PASSED: AYES: NOES: ABSTENTIONS: ABSENT: ATTEST: =-<~"""'=----Cit)" Clerk APPROVED ... s TO FORM: Asst. City Attorney APPROVED: City Manager Director cf Finance Director of Comrnun:rty Services ------ APPROVED: Mayor 91-2.6 •