City Council
Staff Report
From: City Manager
Report Type: ACTION ITEMS
Lead Department: Planning and Development Services
Meeting Date: June 9, 2025
Report #:2505-4614
TITLE
Adoption of the Community Development Block Grant (CDBG) Fiscal Year (FY) 2025-2026 Annual Action Plan, 2025-2030 Consolidated Plan, and a Resolution Approving Use of CDBG Funds for FY 2025-2026 as Recommended by the Human Relations Commission. CEQA Status:
Exempt under CEQA Guidelines Section 15378(b)(4).
RECOMMENDATION
The Human Relations Commission (HRC) and staff recommend City Council take the following actions:
1. Adopt the draft Fiscal Year (FY) 2025-2026 Annual Action Plan (AAP), 2025-2030 Consolidated Plan (ConPlan)1, and the associated resolution (Attachment A) allocating Community Development Block Grant (CDBG) funding for FY 2025-2026;
2. Authorize the City Manager to execute the FY 2025-2026 CDBG application to fund the FY 2025-2026 AAP and any other necessary documents concerning the application, and to otherwise bind the City with respect to the applications and commitment of funds;
3. Authorize staff to submit the FY 2025-2030 Consolidated Plan and 2025-2026 AAP to U.S. Department of Housing and Urban Development (HUD) by the extended deadline of August 16, 2025;
4. Authorize the City Manager or designee to draft and execute amendments to 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; and
5. Direct staff to return to Council following budget adoption to amend the FY 2026 Budget Appropriation for the Community Development Block Grant Fund (2/3 vote needed) by:
1 https://www.paloalto.gov/files/assets/public/v/3/planning-amp-development-services/cdbg-general- information/plans-and-reports/consolidated-plans/attachment-a-2025-2030-conplan-and-2025-2026-aap.pdf
1. Increasing Revenue from Other Agencies by $616,233.
2. Increasing General Expenses by $616,233.
EXECUTIVE SUMMARY
HUD requires jurisdictions to prepare a five-year strategic plan, the ConPlan, which outlines priority housing and community development needs and establishes related goals. Each year, jurisdictions must also submit an AAP that identifies the specific projects and activities to be funded during the upcoming program year to implement the ConPlan’s strategies.
On May 8, 2025, the HRC developed funding recommendations for the CDBG FY 2025-2026 funding cycle. Given that the City’s CDBG grant entitlement amount for FY 2025-2026 was unknown at the time, the HRC also recommended the implementation of a contingency plan to be used if FY 2025-2026 funds differed from the amount estimated by staff.
On May 14 2025, the City received HUD’s formal notification of the City’s CDBG FY 2025-2026 entitlement grant amount. Subsequently, staff updated the draft FY 2025-2026 AAP to:
Incorporate the City’s CDBG FY 2025-2026 entitlement grant amount; and Update the CDBG FY 2025-2026 funding allocation amounts to implement the HRC’s recommended contingency plan because the HUD allocation exceeded the staff estimate by $16,233.
The draft 2025-2030 ConPlan and FY 2025-2026 AAP contains proposed funding allocations to spend all available CDBG funds. CDBG funds available for allocation in FY 2025-2026 total $616,233, including the City’s entitlement grant and estimated program income to be received.
It is not possible to fund all applications at the requested amounts due to the limitations of available funds. However, the proposed recommendations:
Allocate all available CDBG program funds;
Are consistent with the City’s CDBG ConPlan;
Are consistent with the City’s 6 th Cycle Housing Element goals and programs as they pertain to CDBG; and
Will result in funding key services and projects that benefit many low and very low- income Palo Alto residents.
Staff recommends that Council review and approve the draft FY 2025-2030 ConPlan and 2025- 2026 AAP2, the associated draft Resolution (Attachment A), and authorize staff to submit and execute associated documents necessary to implement the FY 2025-2030 ConPlan and 2025- 2026 AAP.
2 https://www.paloalto.gov/files/assets/public/v/3/planning-amp-development-services/cdbg-general- information/plans-and-reports/consolidated-plans/attachment-a-2025-2030-conplan-and-2025-2026-aap.pdf On May 2, 2025, the White House Office of Management and Budget released its topline discretionary budget request for Fiscal Year 2026 to Congress, which proposes the elimination of the CDBG program. If this request is enacted, the City would be unable to award CDBG funds in FY 2026-2027. Staff will continue to monitor the status of the FY 2026 federal budget and keep potential CDBG subrecipients informed regarding the availability of funds in the upcoming funding cycle.
BACKGROUND
The CDBG program, administered by HUD, provides annual grants on a formula basis to states, cities, and counties to develop viable urban communities by providing decent housing, a suitable living environment and by expanding economic opportunities, principally for low- and moderate-income persons. The HUD regulations require all CDBG-funded activities to meet 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 having a particular urgency or posing a serious and immediate threat to the health or welfare of the community.
The City’s CDBG program has primarily been focused on meeting the first objective of benefiting low- and very-low-income persons.
Consolidated Plan & Annual Action Plan
HUD requires preparation of a five-year strategic plan, referred to as a ConPlan, which must address priority housing and community development needs and set goals related to those needs. The CDBG program is currently guided by the 2020-2025 ConPlan adopted by Council on June 15, 2020. HUD also requires the submittal of an AAP, which must identify the specific projects to be funded to implement strategies identified in the ConPlan.
To update both documents, Planning and Development Services staff coordinated with the County of Santa Clara and other entitlement jurisdictions to select a consulting firm to prepare the draft 2025-2030 ConPlan and 2025-2026 AAP. Staff presented the draft plans to the HRC on May 8, 2025. The plans were made available for a public review period beginning May 5, 2025, through June 4, 2025, which constitutes the required 30-day public review period. Once adopted by City Council, the ConPlan will be effective July 1, 2025, through June 30, 2030.
The ConPlan is designed to support CDBG entitlement grantees assessment of affordable housing and community development needs, with public participation playing a central role. In 2024, a consortium including Santa Clara County and participating jurisdictions conducted a comprehensive outreach process to identify needs and enhance coordination with social service providers. Comments received through this outreach effort, in addition to Palo Alto’s locally identified needs, informed the development of the five-year strategic plan.
Projects funded through the City by the CDBG program must be consistent with the goals outlined in the draft 2025-2030 ConPlan. The projects identified for funding in the draft AAP are consistent with these goals and, following the City Council's final approval of funding allocations, will be reported to HUD in the FY 2025-2026 AAP.
Citizen Participation for the Annual Action Plan and Consolidated Plan HUD's regulations and the City's adopted "Citizen Participation Plan3" ensure adequate citizen participation in the CDBG funding process.
Per the City’s Citizen Participation Plan, the HRC supports the preparation of the draft AAP and ConPlan by facilitating public input and providing advisory recommendations. On March 19, 2025, the HRC Selection Committee reviewed the applications received for FY 2025-2026. The HRC Selection Committee’s recommendations were then presented at a public hearing to the full HRC on May 8, 2025. The HRC approved a motion 6-1 to recommend that Council approve the draft FY 2025-2026 AAP and 2025-2030 ConPlan with staff consideration being given to a 25% reduction of the allocation to Upwards and that the monies remaining be allocated to the other uncapped entities with special emphasis on Alma Garden. The Commissioner who voted in opposition expressed concern about providing public funding to Upwards, citing the company’s for-profit status and business model. Based on the HRC‘s recommendation, staff confirmed that the Alma Garden project could utilize additional funding and reallocated $30,000 from Upwards to the Alma Garden project. As the City’s CDBG grant entitlement amount for FY 2025-2026 was unknown at the time, the HRC also recommended the implementation of a contingency plan to be used if FY 2025-2026 funds differed from the amount estimated by staff.
Prior to the submission of the AAP and ConPlan to HUD, the City must hold two public hearings.
This HRC meeting served as the first public hearing, and the June 9, 2025, City Council meeting, will serve as the second public hearing.
Annual Action Plan Allocation Process
CDBG funding applications were made available on November 26, 2024, with completed applications due January 10, 2025. A notice of CDBG funding availability was published in the Daily Post on November 26, 2024. The City hosted a pre-proposal conference on December 4, 2024. Additionally, staff provided technical assistance to applicants during the open application time window regarding program regulations and project eligibility questions.
ANALYSIS
This section provides a description of the CDBG funds available for allocation and recommendations for the FY 2025-2026 funding cycle.
3 Adopted Citizen Participation Plan: https://www.paloalto.gov/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
Funds Available for Allocation in FY 2025-2026
CDBG funds available for allocation in FY 2025-2026 total $616,233, including the City’s entitlement grant and estimated program income to be receipted.
Program Income (PI) comes from Palo Alto Housing Corporation (Alta Housing) for loan repayments and rental income in excess of expenses on specific properties acquired or rehabilitated with CDBG funds. Cities are required to estimate anticipated program income for the activity budget for the upcoming year. Based on past years, PI for FY 2025-2026 is estimated to be $100,000.
Table 1. FY 2025-2026 CDBG Estimated Funds Available
CDBG Funds Available Available for Funding
FY 2024-25 Entitlement Grant $616,233.00
Program Income in FY 2025-2026 (Estimated) $100,000.00
Estimated Total CDBG Funds Available for Allocation $616,233.00 CDBG Funding Categories and Funding Caps
The CDBG program has five primary activity areas in which to allocate funds: Public Services, Economic Development, Housing Rehabilitation, Public Facilities & Improvement, and Planning & Administration.
Federal regulations cap the amount 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 percent 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 percent of the sum of the grant allocation plus the total amount of program income received during the current program year.
Table 2. FY 2025-2026 Breakdown of Capped/Un-Capped Funds CDBG Amount
Public Services 15% Maximum
15% x [Grant allocation ($516,233) + prior year FY 2024-2025 program income ($129,950)]
$96,927.40
Estimated Planning and Administration 20% Maximum
20% x [Grant allocation ($516,233) + current year FY 2025-2026 estimated program income ($100,000)]
$123,246.60
Un-capped Funds $396,059.00
Estimated Total Available for CDBG Allocation $616,233.00 CDBG 2025-2026 Funding Allocations
Ten (10) applicants are recommended for CDBG FY 2025-2026 funding allocations (Table 3) in the draft AAP. It is not possible to fully fund all applications at the levels requested in the Public Services category. However, the City is able to fully fund applications in the Economic Development and Housing Rehabilitation categories. The draft FY 2025-2026 AAP reflects the HRC’s funding recommendations and the FY 2025-2030 ConPlan goals and priorities.
Table 3: Fiscal Year 2025-2026 CDBG Budget
Applicant Agency Requested Funding Recommended
Allocation
CDBG Applicants
Public Services (15% Cap = $96,927.40)
LifeMoves – Case Management at Opportunity
Center $69,919.00 $39,154.64
Silicon Valley Independent Living Center (SVILC) –
Case Management Services $37,290.00 $20,067.43
Project Sentinel – Fair Housing Services $35,835.00 $22,005.33 Next Door Solution to Domestic Violence $10,000.00 $7,200.00 Catholic Charities – Long Term Ombudsmen
Program $12,908.00 $8,500.00
Subtotal $96,927.40
Economic Development (No Cap)
WeeCare / Upwards – Training for Family Child
Care Home $120,000.00 $90,000.00
Subtotal $90,000.00
Housing Rehabilitation (No Cap)
Rebuilding Together Peninsula – Safe at Home $73,585.00 $73,585.00 Community Working Group/Abode – Alma
Garden N/A* $162,474.00
Subtotal $236,059.00
Public Facilities & Improvements (No Cap)
Homekey Palo Alto – Recreation Project N/A* $70,000.00
Subtotal $70,000.00
Planning & Administration (20% Cap = $123,246)
City of Palo Alto Administration N/A $123,246.60
Subtotal $123,246.60
Grand Total for CDBG Budget $616,233.00
*“N/A” indicates that no formal application was submitted. These uncapped projects were previously awarded funds, and additional funding was determined to be necessary through staff and HRC review based on identified need.
Should the 2025-2030 ConPlan and FY 2025-2026 AAP be adopted by City Council, it would be submitted to HUD prior to the August 16, 2025, extended deadline.
POLICY IMPLICATIONS
The programs, projects, and activities recommended for funding in the draft FY 2025-2026 CDBG AAP are consistent with the priorities established in the City’s draft FY 2025-2030 CDBG ConPlan.
Staff has reviewed the HUD Allocation Letter associated with the CDBG program and confirms that the City complies with the provisions. When the complete CDBG contract is made available by HUD, staff will again conduct a thorough review to ensure that this remains true.
FISCAL/RESOURCE IMPACT
There is no fiscal impact associated with this action as CDBG funding is provided by HUD.
Associated grant funding is also used to support program administration for consultant services and liability insurance. On December 16, 2024, Council previously authorized the City Manager to enter into a Revenue Agreement with the County of Santa Clara to fund the development of the Consolidated Plan. With Council direction, staff will return to Council on June 16, 2025, to amend the FY 2026 Budget Appropriation for the CDBG Fund.
On May 2, 2025, the White House Office of Management and Budget released its topline discretionary budget request for Fiscal Year 2026 to Congress, which proposes the elimination of the CDBG program. If this request is enacted, the City would be unable to award CDBG funds in FY 2026-2027. Staff will continue to monitor the status of the FY 2026 federal budget and keep potential CDBG subrecipients informed regarding the availability of funds in the upcoming funding cycle.
STAKEHOLDER ENGAGEMENT
Prior to the submission of the FY 2025-2026 AAP and 2025-2030 ConPlan to HUD, the City must hold a public hearing on the draft AAP and ConPlan, a 30-day circulation and public comment period, and hold an additional public hearing.
The HRC meeting on May 8, 2025 served as the first public hearing.
The 30-day circulation, public review, and comment period on the draft AAP and ConPlan began on May 5, 2025 and ended on June 4, 2025. At the time of this report staff did/did not receive public comment on the draft FY 2025-2030 ConPlan and 2025-2026 AAP.
The City Council public hearing on June 9, 2025, will serve as the second public hearing for review and approval of the FY 2025-2030 ConPlan and 2025-2026 AAP.
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.
ATTACHMENTS
Attachment A: Draft Resolution to Adopt FY 2025-2030 Consolidated Plan and 2025-2026 Annual Action Plan
APPROVED BY:
Jonathan Lait, Planning and Development Services Director