Agenda Item No. 16
CITY COUNCIL STAFF REPORT
TO: Honorable Mayor and City Council DATE: July 22, 2024 FROM: Matthew Bronson, City Manager
PREPARED BY: Megan Martin, Community Development Director Janet Reese, Associate Planner
SUBJECT: Community Development Block Grant Microenterprise Assistance Program Guidelines
RECOMMENDATION
Provide direction on the proposed Microenterprise Assistance Program and direct staff to pursue an application as part of the 2024 Community Development Block Grant process.
BACKGROUND
Local governments, either directly or through State governments, are eligible to receive Community Development Block Grant (CDBG) funds on an annual basis from the U.S.
Department of Housing and Urban Development (HUD). These funds can be used for a variety of purposes including infrastructure needs, low-moderate income housing needs, and other eligible activities. The category of “other eligible activities” includes providing capital to business through grants or loans. The State Department of Housing and Community Development (HCD) administers the CDBG programs and publishes a Notice of Funding Availability (NOFA) for each program for eligible activities.
Recipients of CDBG funds have provided capital to small businesses in the past through the establishment of loan and grant fund programs. A community that receives CDBG funds decides whether those funds should be used to provide grants or loans or other assistance, so the decision is made locally as to what type of assistance is most appropriate. The CDBG program provides flexibility to its recipients within the three national objections to:
1. Principally benefit low to moderate income (LMI) persons or businesses,
2. Aid in the prevention of slums or blight, and
3. Meet an urgent community need.
Historically, the City has qualified activities under the “benefit to LMI persons” which is the most predominantly used National Objective. The activity (project or program) must benefit an area that is comprised of at least 51% LMI households or benefit individually qualified households. 54% of the city’s households qualify as LMI households defined as at or below 80% of the county median income (2015 American Community Survey utilized by HUD). Therefore, a proposed activity that benefits either a portion or the entire city is eligible dependent on the service areas outlined in the application.
Staff Report: 2024 CDBG Microenterprise Assistance Program Guidelines Page 2 July 22, 2024
Over the last couple of years, the City has seen an increased interest from new businesses desiring to locate within Grover Beach, especially along West Grand Avenue. This highlights the area’s potential for economic development, however, many buildings and commercial spaces owned by private property owners were constructed decades ago and have not kept pace with modern building and construction standards. This is particularly evident when somewhat minor tenant improvements trigger additional improvements related to energy efficiency, accessibility, plumbing, and fire suppression. These added requirements can be cost prohibitive, and staff has observed several businesses unable to occupy desired spaces because landlords and property owners are not able to afford these costly upgrades and place the burden on the prospective tenant. This appears to be hindering economic growth in these developed commercial areas.
Economic Development is one of the CDBG program’s eligible activities. One of the qualifying categories under this activity is Microenterprise Assistance which provides funds for loans to LMI business owners for businesses with five or fewer workers (owner/operator and employees).
Examples include business training, financing of working capital, furniture, equipment, and property repairs/improvements.
The 2024 CDBG NOFA is anticipated to be released by HCD in July for approximately $30 million statewide for eligible activities, limiting a maximum of three eligible activities as either “over-thecounter” (OTC) or “Competitive” applications with total funding not to exceed $3.6 million per applicant. Prior to applying for funds within a program year, the City is required to conduct public outreach and hold a public hearing to discuss potential applications and eligible activities. On June 24, 2024, the Council received a presentation and public comment related to potential programs/projects for inclusion in a 2024 CDBG application and directed staff to pursue applications for three qualifying activities:
• OTC Program: Microenterprise Assistance, City of Grover Beach ($1.05 million) • OTC Project: Ramona Garden Park Improvements, City of Grover Beach ($2.25 million) • Competitive Program: Non-Congregate Shelter Navigation Center Program, 5Cities Homeless Coalition ($300,000)
OTC Microenterprise Assistance Program
The CDBG OTC approach is intended to streamline the application process for certain types of activities and allow eligible applicants to submit applications directly to HCD without a competitive process (i.e. scoring, bidding, extensive review). This approach is typically used for activities that are straightforward, have clear eligibility criteria, and align closely with the community’s development goals; this ensures efficient allocation of CDBG funds that directly benefit the community. This also means that all aspects of the program must be thoroughly developed and articulated in the application. Program details should include the following:
• Eligibility Criteria
• Loan Terms
• Interest rates
• Repayment schedule
• Options for deferment or forgiveness
Staff Report: 2024 CDBG Microenterprise Assistance Program Guidelines Page 3 July 22, 2024
For the City to position itself with a successful application for Microenterprise Assistance, staff must develop a program that is ready to be implemented. Staff has developed the following proposed program details for the Council’s review and recommended concurrence:
Eligibility Criteria:
(1) LMI Business Owner
(2) Microenterprise Business (five or fewer workers; includes owner/operator) within the city (3) Non-profit organizations are not eligible for this program (4) The business must not require a Use Permit to operate (5) Businesses in the cannabis industry, adult entertainment, or other restricted industries are not eligible
(6) Preference is given to businesses that best align with City’s economic development goals including public-serving businesses (e.g. retail or services) and manufacturing businesses Eligible Activities:
(1) Energy Efficiency Upgrades: Improvements related to energy efficiency, such as insulation, HVAC systems, energy-efficient lighting, and windows
(2) Plumbing Enhancements: Repairs or upgrades to plumbing systems, including pipes, fixtures, and water heaters; may also include enlargement or addition of restrooms to meet occupancy and accessibility requirements.
(3) Accessibility Improvements: Modifications to enhance accessibility, such as installing ramps, accessible restrooms, and other American Disability Act (ADA) compliant features. (4) Fire Suppression and Safety Systems: Installation or upgrades of fire suppression systems, such as sprinklers, alarms, and emergency exits. (5) Beautification or finishing projects, such as painting, decorative elements, signage, or cosmetic renovations are not eligible.
The proposed Microenterprise Assistance Program would seek $1.05 million in CDBG funding and would align with the national objective of benefiting LMI businesses, provided that the assistance to these businesses demonstrably benefits businesses owned by LMI individuals.
Supporting microenterprises through retrofitting initiatives (i.e., plumbing, accessibility, energy efficiency, and fire suppression) can significantly enhance operational capacity and competitiveness. This not only helps stabilize and grow these businesses, leading to increased economic activity, it supports the financial stability of LMI business owners. Moreover, successful microenterprises are likely to create jobs within the community, often employing LMI persons.
Next Steps
Following Council direction on the program details described above, staff will finalize the Microenterprise Assistance Program guidelines and pursue a Request for Proposals to hire contract staff that is able to dedicate capacity to the operation of a CDBG-funded economic development program and demonstrate at least three years of CDBG experience, or five years of underwriting experience, plus two years of general CDBG experience. Staff will return to the Council at the next regular meeting with a resolution to include this program along with the other qualifying activities as part of the 2024 CDBG application. Lastly, staff would note that if the City was not successful in receiving CDBG funds for the Microenterprise Assistance Program at this time, the City could submit another application for this program in the future.
FISCAL IMPACT
There are no funding impacts to this staff report.
Staff Report: 2024 CDBG Microenterprise Assistance Program Guidelines Page 4 July 22, 2024
ALTERNATIVES
The Council has the following alternatives to consider:
1. Provide direction to staff on the eligibility criteria and direct staff to pursue the Microenterprise Assistance Program application under the 2024 CDBG process; or
2. Provide alternative direction to staff.
PUBLIC NOTIFICATION
The agenda was posted in accordance with the Brown Act.