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City Council
Staff Report
From: City Manager
Report Type: ACTION ITEMS
Lead Department: Planning and Development Services
Meeting Date: June 18, 2024
Report #:2401-2562
TITLE
Adoption of the Community Development Block Grant (CDBG) FY 2024-25 Annual Action Plan and the Adoption of a Resolution Approving Use of CDBG and CDBG CARES Act (CDBG-CV) Funds for FY 2024-25, and Approval of a Budget Amendment in the Community Development Block Grant Fund.
RECOMMENDATION
The Human Relations Commission (HRC) and staff recommend City Council take the following actions:
1. Adopt the draft Fiscal Year (FY) 2024-25 Annual Action Plan (AAP, Attachment A) and the associated CDBG FY 2024-25 Annual Action Plan Resolution (Attachment B) allocating Community Development Block Grant (CDBG) and CDBG CARES Act (CDBG-CV) funding for FY 2024-25; and
2. Authorize the City Manager to execute the FY 2024-25 CDBG application to fund the FY 2024-25 Annual Action Plan and associated documents concerning the application, and to otherwise bind the City with respect to the applications and commitment of funds; and
3. Authorize staff to submit the Fiscal Year 2024-25 AAP (Attachment A) to the U.S.
Department of Housing and Urban Development (HUD) by the July 6, 2024, deadline; and
4. Authorize the City Manager or designee to draft and execute a loan agreement, regulatory agreement, and related documents necessary to implement City Council direction on the Alma Garden Rehabilitation Project in a form consistent with the City’s affordable housing loan documents and approved by the City Attorney.
5. Amend the Fiscal Year 2025 Budget Appropriation for the Community Development Block Grant Fund (2/3 vote needed) by:
a. Increasing Revenue from Other Agencies by $1,157,286 b. Increasing General Expenses by $1,157,286
EXECUTIVE SUMMARY
The City is preparing for its second year of a two-year CDBG funding cycle for FY 2024-25. On February 8, 2024, the HRC made funding recommendations for the CDBG FY 2024-25 funding cycle and CDBG-CV funds. Given that the City’s CDBG grant entitlement amount for FY 2024-25
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was unknown at the time, the HRC also recommended the implementation of a contingency plan to be used if CDBG FY 2024-25 funds were different than the amount estimated by staff.
On May 7, 2024, the City received HUD’s formal notification of the City’s CDBG FY 2024-25 entitlement grant amount. Subsequently, staff updated the draft FY 2024-25 AAP to:
•Include two specific Public Facilities projects; the applications for these projects were submitted in February 2024 and funding for these projects came from the HRC’s recommended funding in the CDBG Public Facilities category; •Reflect updated calculations of unspent funds from past program years and associated CDBG funding category cap amounts;
•Incorporate the City’s CDBG FY 2024-25 entitlement grant amount; and •Update the CDBG FY 2024-25 funding allocation amounts through implementing the HRC’s recommended contingency plan.1
The draft FY 2024-25 AAP contains proposed funding allocations to spend all available CDBG and CDBG-CV funds. CDBG funds available for allocation in FY 2024-25 total $1,037,807.61, including the City’s FY 2024-25 entitlement grant, estimated program income to be received in FY 2024- 25, and unspent funds from prior years. CDBG-CV funds available for allocation in FY 2024-25 total $119,478.74, including unspent funds from the canceled LifeMoves-COVID-19 Testing project and unspent CDBG-CV Planning & Administration funds.
It is not possible to fully fund all CDBG applications at the levels requested by applicants requesting funding in the CDBG Public Services and Planning & Administration categories, but the City is able to fully fund applications in the CDBG Economic Development and Housing Rehabilitation categories. The proposed recommendations:
•Allocate all available CDBG and CDBG-CV funds;
•Are consistent with the City’s CDBG Consolidated Plan; •Are consistent with the City’s 6 th Cycle Housing Element goals, projects, and activities as they pertain to CDBG; and
•Will result in funding key programs, projects, and activities that benefit many low- and very low-income Palo Alto residents.
Staff recommends that Council review and approve the draft FY 2024-25 AAP (Attachment A), the associated draft CDBG FY 2024-25 Resolution (Attachment B), and authorize staff to submit and execute associated documents necessary to implement the CDBG FY 2024-25 AAP.
BACKGROUND
The CDBG program, administered by HUD, provides annual grants on a formula basis.
Jurisdictions use the funds to develop viable urban communities by providing decent housing and a suitable living environment and by expanding economic opportunities, principally for low- and 1 The City did not receive any public comments on the draft FY 2024-25 AAP. Consequently, no edits to the draft FY 2024-25 AAP were necessary due to public comment.
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moderate-income persons. The CDBG program is authorized under Title 1 of the Housing and Community Development Act of 1974. HUD regulations require all CDBG-funded projects and activities to meet at least one of the three national objectives:
1. Benefit low-and very low-income persons;
2. Aid in the prevention or elimination of slums or blight; or
3. Meet other community development needs that have urgency or pose a serious and immediate threat to the health or welfare of the community.
The City's CDBG program has primarily focused on meeting the first objective to benefiting low- and very-low-income persons.2
Consolidated Plan & Annual Action Plan
Programs, projects, and activities funded through the City’s CDBG program must be consistent with the goals outlined in the City’s 2020-2025 Consolidated Plan, 3 a five-year strategic plan of action that addresses priority housing and community development needs. Each year, HUD requires the submittal of an Annual Action Plan (AAP) that identifies the specific programs, projects, and activities to be funded to implement strategies identified in the Consolidated Plan.
Following the City Council's final approval of the City’s proposed funding allocations, the specific programs, projects, and activities are reported to HUD through the submittal of the AAP.
Citizen Participation for the Annual Action Plan
Per HUD's regulations and the City's adopted "Citizen Participation Plan" 4 the City must ensure adequate citizen participation in the CDBG funding allocation process. Prior to submittal of the AAP each year to HUD, the City must follow the following process: hold a public hearing on the draft AAP, subsequently hold a 30-day circulation and public comment period, and lastly hold another public hearing on the draft AAP. The February 8, 2024, HRC meeting served as the first public hearing, while the June 18, 2024 City Council meeting will serve as the second public hearing required for the FY 2024-25 AAP.
Annual Action Plan Application Review and Allocation Process CDBG funding applications were made available on October 2, 2023. A notice of CDBG funding availability was published in the Daily Post on October 2, 2023, with completed applications due November 17, 2023. The City hosted a pre-proposal conference on October 26, 2023. 2 For general information on the HUD CDBG program, please visit: https://www.hudexchange.info/programs/cdbg- entitlement/.
For general information on the Palo Alto’s CDBG program, please visit:
https://www.cityofpaloalto.org/Departments/Planning-Development-Services/Housing-Policies- Projects/Community-Development-Block-Grant.
3 2020-2025 Consolidated Plan: https://www.cityofpaloalto.org/files/assets/public/v/3/planning-amp- development-services/cdbg-general-information/plans-and-reports/consolidated-plans/2020-2025-palo-alto- consolidated-plan-2020-21-aap-minor-amend1.pdf
4 Adopted Citizen Participation Plan 2022: https://www.cityofpaloalto.org/files/assets/public/v/1/planning-amp- development-services/cdbg-general-information/plans-and-reports/amended-citizen-participation-plan-2022- approved-by-city-council-9-12-22-final.pdf
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Additionally, staff provided technical assistance to applicants during the open application period regarding program regulations and project eligibility questions.
During this application cycle, the Notice of Funding Availability (NOFA) specified that funding would be available for projects in the CDBG Economic Development, Public Facilities and Improvements, and Housing Rehabilitation categories. The NOFA noted that new CDBG Public Services category applications were not being accepted in this second-year funding cycle, as two- year Public Services category applications were already received in the prior fiscal year. However, the NOFA specified that the City could accept new CDBG-CV applications in the Public Services category. All applications were reviewed to determine HUD compliance in accordance with eligible activities5 and National Objectives6.
Human Relations Commission Review
The HRC is involved in the preparation of the draft CDBG AAP each year. On January 17, 2024, the HRC Selection Committee reviewed the applications received for FY 2024-25. The HRC Selection Committee’s recommendations were then presented at a public hearing to the full HRC on February 8, 2024 (Attachment C). The HRC unanimously approved a motion to recommend that Council approve the draft FY 2024-25 AAP. Given that the City’s CDBG grant entitlement amount for FY 2024-25 was unknown at the time, the HRC also recommended the implementation of a contingency plan to be used if CDBG FY 2024-25 funds were different than the amount estimated by staff.
ANALYSIS
The City received its CDBG FY 2024-25 entitlement grant amount on May 7, 2024, which is a later date than anticipated, resulting from the overall delays in the FY 2024-25 federal budgeting process. While the amount of CDBG-CV funds remained unchanged, the amount of CDBG funds available for allocation in FY 2024-25 is less than the amount estimated and presented to the HRC in February 2024. This is largely due to reconciliation of the amounts of program income received in past program years, which has experienced declines relative to formerly estimated amounts.
Upon receipt of the CDBG FY 2024-25 entitlement grant amount, staff adjusted the proposed funding allocations using the HRC’s contingency plan (Table 1). The updated proposed funding allocations are also documented in the FY 2024-25 AAP (Attachment A).
CDBG funds available for allocation in FY 2024-25 total $1,037,807.61, including the City’s FY 2024-25 entitlement grant, estimated program income to be receipted in FY 2024-25, and unspent funds from prior years. CDBG-CV funds available for allocation in FY 2024-25 total $119,478.74, including unspent funds from the canceled LifeMoves-COVID-19 Testing project and unspent CDBG-CV Planning & Administration funds (Table 1). 5 CDBG Matrix Codes:
https://files.hudexchange.info/resources/documents/Matrix-Code-Definitions.pdf 6 CDBG National Objectives:
https://www.hudexchange.info/sites/onecpd/assets/File/CDBG-National-Objectives-Eligible-Activities-Chapter-
3.pdf
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Table 1: FY 2025 CDBG and CDBG-CV Funding Summary
FY 2024-25 Entitlement Grant $513,653
Program Income to be receipted in FY 2024-25 (Estimated) $60,000 Prior Year Unspent Funds $461,154.61
FY 2021-22 ($191,018.05)1
FY 2022-23 ($269,435.96)2
FY 2023-24 ($ 3,700.60)3
Estimated Total CDBG Funds Available for Allocation $1,037,807.61 Unspent Canceled Project: LifeMoves-COVID-19 Testing $34,200.50 Unspent Planning & Administration funds $85,278.24
Estimated Total CDBG-CV Funds Available for Allocation $119,478.74 1 The City has a total of $191,018.05 in unspent CDBG funds from FY 2021-22 that is available for reprogramming. 2 The City originally had $376,736.96 in unspent CDBG funds from FY 2022-23 that was available for reprogramming.
Of this amount, $107,301 was reallocated to the FY 2023-34 program budget due to lower than estimated program income (PI) from FY 2023-24 ($107,301 had been estimated; $0 will be received by the conclusion of FY 2023-24).
Consequently, the City has a total of $269,435.96 in unspent CDBG funds from FY 2022-23 that is available for reprogramming.
3 Due to program income (PI) reconciliation, adjustments in the FY 2023-24 Planning & Administration budget were made to meet the Planning & Administration category 20% Cap. Staying within the 20% Cap leaves a $3,700.60 surplus.
CDBG Funding Categories and Funding Caps
The CDBG program has five primary activity areas in which to allocate funds: (1) Public Services, (2) Economic Development, (3) Housing Rehabilitation, (4) Public Facilities & Improvement, and (5) Planning & Administration.
Federal regulations cap the amount of CDBG funds that can be spent on Public Services and Planning & Administration as follows (Table 2):
•Public Services (15% Cap) — The amount of any CDBG funds that may be obligated toward Public Services during a program year is capped at 15% of the sum of the grant allocation plus the total amount of program income received during the prior program year. •Planning & Administration (20% Cap) — The amount of any CDBG funds that may be obligated toward Planning & Administration during a program year is capped at 20% of the sum of the grant allocation plus the total amount of program income received during the current program year.
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Table 2: FY 2025 CDBG and CDBG-CV Funding Categories and Allowed Allocations Funding Categories Allowed Allocations
CDBG Funds
Public Services 15% Maximum
15% x [entitlement grant allocation ($513,653) + prior year FY 2023-24 program income ($0.00)]
$77,047.95
Planning and Administration 20% Maximum
20% x [entitlement grant allocation ($513,653) + current year FY 2024-25 anticipated program income ($60,000)]
$114,730.60
Un-capped Funds $846,029.06
Total Available for CDBG Allocation $1,037,807.61
CDBG-CV Funds
Public Services (No Cap) $88,623.75
Planning and Administration 20% Maximum $149,228.60
Program Income
Program Income is received from Alta Housing for loan repayments and rental income in excess of expenses on specific properties acquired or rehabilitated with CDBG funds. Municipalities are required to estimate anticipated program income for the activity budget for the upcoming year.
In past years, program income was estimated around $100,000. However, due to consistent declines in actual program income received in recent years, staff reduced the estimated program income for FY 2024-25 to $60,000 to align with historic trends.
CDBG and CDBG-CV FY 2024-25 Funding Allocations
Thirteen (13) applicants are recommended for CDBG and CDBG-CV FY 2024-25 funding allocations (Table 3) in the in the draft FY 2024-25 AAP (Attachment A). It is not possible to fully fund all CDBG applications at the levels requested by applicants requesting funding in the CDBG Public Services and Planning & Administration categories (Table 3), however, the City is able to fully fund applications in the CDBG Economic Development and Housing Rehabilitation categories.
The draft FY 2024-25 AAP reflects the HRC’s funding recommendations. Staff was also able to include the following two new Public Facilities projects received by the City during February 2024:
•Fire Station Sidewalk Improvement Project
•Homekey Palo Alto Recreation Project
Staff is able to include these Public Facilities projects because they were eligible, and the draft FY 2024-25 AAP reviewed by the HRC had already earmarked a large pool of CDBG funds to be used in the Public Facilities and Improvements funding category.
The largest funding recommendation is for rehabilitation at the Alma Garden affordable housing project. This funding will be structured as an affordable housing loan and will include a regulatory agreement extending the term of affordability for the property. Staff is therefore seeking authority to draft and execute the necessary loan documents in a form substantially similar to the City’s past affordable housing loans.
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Table 3: Summary of FY 2024-25 CDBG and CDBG-CV Applicants and Funding Recommendations
Agency/Program Name
FY 2023-24
Funded
Amount
FY 2024-25
Recommended
Amount
FY 2024-25
Applicant
Requested
Amount
CDBG Applicants
Public Services (15% Cap = $77,047.95)
Alta Housing - SRO Resident Supportive
Services $14,000 $11,575 $24,343
Catholic Charities of Santa Clara
County – Long Term Care Ombudsman
Program
$10,000 $7,575 $10,000
LifeMoves – Case Management $23,636 $28,247 $69,919
Silicon Valley Independent Living
Center (SVILC) – Case Management $16,500 $14,075 $28,127 Project Sentinel – Fair Housing Services $18,000 $15,575 $36,393 Subtotal $77,047 $168,782
Economic Development (No Cap)
WeeCare/Upwards $114,000 $120,000 $120,000
Subtotal $120,000 $120,000
Housing Rehabilitation (No Cap)
Rebuilding Together Peninsula (RTP) –
Safe at Home $73,585 $73,585 $73,585
Community Work Group/Abode – Alma
Garden N/A $404,800 $404,800
Subtotal $478,385 $478,385
Public Facilities & Improvements (No Cap)
Fire Station – Sidewalk Improvement
Project N/A $62,645.61 $65,000
Homekey Palo Alto – Recreation
Project N/A $185,000 $185,000
Subtotal $247,645.61 $250,000
Planning & Administration (20% Cap = $114,730.60)
City of Palo Alto Administration $119,013 $114,730 $116,060 Subtotal $114,730 $116,060
GRAND TOTAL for CDBG N/A $1,037,807.61 N/A
CDBG-CV Applicants
Public Services CDBG-CV
MOVE Mountain View - Safe Parking
Program $110,000.00 $110,000.00 $110,000.00
Planning & Administration CDBG-CV
Planning and Administration – CV N/A $9,478.74 N/A
GRAND TOTAL for CDBG-CV N/A $119,478.74 N/A
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Should the FY 2024-25 AAP be adopted by City Council, it would be submitted to HUD prior to the July 6, 2024 deadline.
POLICY IMPLICATIONS
The programs, projects, and activities recommended for funding in the draft FY 2024-25 AAP are consistent with the priorities established in the City’s adopted CDBG FY 2020-2025 Consolidated Plan.
FISCAL/RESOURCE IMPACT
There is no fiscal impact associated with this action as CDBG and CDBG-CV funding is provided by HUD. Associated grant funding is also used to support program administration for consultant services and liability insurance.
STAKEHOLDER ENGAGEMENT
Prior to the submission of the FY 2024-2025 AAP to HUD, the City must follow the following process: hold a public hearing on the draft AAP, hold a 30-day circulation and public comment period, and hold an additional public hearing on the draft AAP.
The HRC meeting on February 8, 2024 served as the first public hearing. The City published a notice of the HRC meeting on January 24, 2024, in the Daily Post; this constituted the required 14-day public review period for the first public hearing.
The 30-day circulation, public review, and comment period on the draft FY 2024-25 AAP began on March 13, 2024 and ended on April 12, 2024; notice of funding availability was published in the Daily Post on March 13, 2024, on the City’s CDBG webpage, and via email notification to stakeholders. At the time of this report, staff did not receive public comment on the draft FY 2024-25 AAP.
The City Council public hearing on June 18, 2024 will serve as the second public hearing for review and approval of the FY 2024-25 AAP. The City published a public notice of the City Council public hearing on June 3, 2024, in the Daily Post. This advertisement complies with the City’s required 14-day public notice period for the second public hearing.
ENVIRONMENTAL REVIEW
For the purposes of the National Environmental Policy Act (NEPA) and the California Environmental Quality Act (CEQA), budgeting by itself is not a project. Prior to the commitment or release of funds for each of the proposed programs, projects, and activities, staff will carry out the required environmental reviews or assessments and certify that the review procedures under HUD, NEPA, and CEQA regulations have been satisfied for each activity. 3 9
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ATTACHMENTS
Attachment A: Draft FY 2024-25 CDBG Annual Action Plan, dated June 3, 2024 Attachment B: Draft Resolution CDBG FY 2024-25 Annual Action Plan Attachment C: Human Relations Commission Review Summary APPROVED BY:
Jonathan Lait, Planning and Development Services Director