CITY COUNCIL
Staff Report
From: City Manager
Report Type: ACTION ITEMS
Lead Department: Planning and Development Services
Meeting Date: June 1, 2026
Report #: 2603-6082
TITLE
Adoption of the Community Development Block Grant (CDBG) Fiscal Year (FY) 2026-2027 Annual Action Plan; and Approving Use of CDBG Funds for FY 2026-2027 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) 2026-2027 Annual Action Plan (Attachment A) and the associated resolution (Attachment B) allocating Community Development Block Grant (CDBG) funding for FY 2026-2027;
2. Authorize the City Manager to execute the FY 2026-2027 CDBG application to fund the FY 2026-2027 Annual Action Plan (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 2026-2027 AAP to U.S. Department of Housing and Urban Development (HUD) by the extended deadline of August 16, 2026.
EXECUTIVE SUMMARY
The CDBG Entitlement Program provides grants to entitled cities and counties to develop viable urban communities by providing decent housing and a suitable living environment, and by expanding economic opportunities. HUD requires entitlement jurisdictions to prepare an Annual Action Plan (AAP) to allocate funding to specific projects within the fiscal year timeframe (FY 2026-27). The City released a Notice of Funding Availability (NOFA) in November 2025, requesting applications for the FY2026-27 funding cycle. The City received a total of eleven (11) CDBG applications.
On April 9, 2026, the HRC provided funding recommendations for the CDBG FY 2026-2027 funding cycle.1
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 Consolidated Plan (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 City Council review and approve the 2026-2027 AAP (Attachment A), the associated Resolution (Attachment B), and authorize staff to submit and execute associated documents necessary to implement the FY 2026-2027 AAP.
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 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 FY 2025-29 ConPlan adopted by Council on June 9, 2025. HUD also requires the submittal of an AAP, which must identify the specific projects to be funded to implement strategies identified in the ConPlan.
The FY 2026–2027 AAP builds on a comprehensive assessment of affordable housing and community development needs, shaped by public participation. Staff presented the draft 1 https://cityofpaloalto.primegov.com/Portal/Meeting?meetingTemplateId=18927 AAP to the HRC on April 9, 2026. It was also made available for a public review period beginning May 1, 2026, through May 31, 2026, which constitutes the required 30-day public review and comment period. Once adopted by City Council, the FY 2026-2027 AAP will be effective July 1, 2026, through June 30, 2027.
Projects funded through the City by the CDBG program must be consistent with the goals outlined in the adopted 2025-2029 ConPlan. The projects identified for funding in the draft FY 2026-2027 AAP are consistent with these goals and, following the City Council's final approval of funding allocations, will be reported to HUD via the submittal of the FY 2026- 2027 AAP.
Citizen Participation for the Annual Action Plan and Consolidated Plan HUD's regulations and the City's adopted Citizen Participation Plan 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 by facilitating public input and providing advisory recommendations. On March 12, 2026, the HRC Selection Committee reviewed the CDBG NOFA applications received for FY 2026- 2027. The HRC Selection Committee’s recommendations were then presented at a public hearing to the full HRC on April 9, 2026. The HRC approved motions, including a recommendation that Council approve the draft FY 2026-2027 AAP.
Prior to the submission of the FY 2026-2027 AAP to HUD, the City must hold two public hearings. The HRC meeting served as the first public hearing, and the June 1, 2026, City Council meeting, serves as the second public hearing.
Annual Action Plan Allocation ProcessCDBG funding applications were made available in November 2025, with completed applications due January 7, 2026. The City hosted a pre- proposal conference on November 14, 2025. Additionally, staff provided technical assistance to applicants during the application period regarding questions related to program regulations and project eligibility.
ANALYSIS
This section provides a description of the CDBG funds available for allocation and recommendations for the FY 2026-2027 funding cycle.
Funds Available for Allocation in FY 2026-2027
CDBG funds available for allocation in FY 2026-2027 total $612,139, including the City’s entitlement grant of $512,139 and $100,000 in estimated program income to be received.
Program Income (PI) comes from loan repayments 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 2026-2027 is estimated to be $100,000.
Table 1. FY 2026-2027 CDBG Estimated Funds Available
CDBG Funds Available Available for Funding
FY 2026-2027 Entitlement Grant $512,139
Program Income in FY 2026-2027 (Estimated) $100,000
Estimated Total CDBG Funds Available for Allocation $612,139 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 prior year program income. 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 prior year program income.
Table 2. FY 2026-2027 Breakdown of Capped/Un-Capped Funds CDBG Amount
Public Services 15% Maximum
15% x [Grant allocation ($512,139) + program income ($100,000)] $91,821
Estimated Planning and Administration 20% Maximum
20% x [Grant allocation ($512,139) + program income ($100,000)] $122,428
Un-capped Funds $397,890
Estimated Total Available for CDBG Allocation $612,139
CDBG 2026-27 Funding Allocations
Eleven (11) applicants are recommended for CDBG FY 2026-2027 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 projects in the Economic Development and Housing Rehabilitation categories. The draft FY 2026-2027 AAP reflects the HRC’s funding recommendations and the FY 2025-2029 ConPlan goals and priorities.
Table 3: Fiscal Year 2026-2027 CDBG Budget
Applicant Agency Requested Funding Recommended
Allocation
CDBG Applicants
Public Services (15% Cap = $91,821)
LifeMoves – Case Management at Opportunity
Center $75,000 $30,500
Silicon Valley Independent Living Center (SVILC) –
Case Management Services $21,419 $15,750
Project Sentinel – Fair Housing Services $25,000 $16,250 Next Door Solutions to Domestic Violence $10,000 $6,500 Catholic Charities – Long Term Ombudsmen
Program $14,910 $6,500
La Comida – Food Assistance Program $28,000 $6,321
RotaCare Bay Area – Mobile Clinic $16,000 $4,500
YWCA – Services for Victims of Domestic Violence $24,500 $5,500 Subtotal $91,821
Economic Development (No Cap)
Upwards – Training for Family Child Care Home $72,000 $72,000 Subtotal $72,000
Housing Rehabilitation (No Cap)
Rebuilding Together Peninsula – Safe at Home $73,585 $73,585 Subtotal $73,585
Public Facilities & Improvements (No Cap)
Public Works – ADA Curb Improvements N/A* $172,335
Peninsula Healthcare – Facility Rehabilitation $79,970 $79,970 Subtotal $252,305
Planning & Administration (20% Cap = $122,428)
Planning and Development Services – Program
Administration
N/A* $122,428
Subtotal $122,428
Grand Total for CDBG Budget $612,139
*“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.
FISCAL/RESOURCE IMPACT
There is no fiscal impact to the General Fund associated with this action as CDBG funding is provided by HUD. The Community Development Block Grant Fund is a Special Revenue Fund that recognizes revenue provided by Housing and Urban Development (HUD) and disburses that revenue through grants to eligible recipients. These are restricted funds that can only be used for eligible purposes as discussed above. Associated grant funding is also used to support program administration for consultant services and liability insurance. If approved, corresponding appropriation actions will be taken with, or following, the adoption of the FY 2026-FY 2027 budget.
STAKEHOLDER ENGAGEMENT
Prior to the submission of the FY 2026-2027 AAP to HUD, the City must hold two public hearings on the draft FY 2026-2027 AAP and post the FY 2026-2027 AAP for a 30-day public review and comment period.
The HRC meeting on April 9, 2026, served as the first public hearing.
The 30-day public review and comment period on the draft AAP began on May 1, 2026, and ended on May 31, 2026. At the time of this report staff did not receive public comment on the 2026-2027 AAP.
The City Council meeting on June 1, 2026, serves as the second public hearing for review and approval of the FY 2026-2027 AAP.
To inform the public of the two public hearings and 30-day public review and comment period, a public notice was published in the Palo Alto Daily Post on March 27, 2026.
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: FY 2026-2027 Draft Annual Action Plan
Attachment B: Draft Resolution to Adopt FY 2026-2027 Annual Action Plan APPROVED BY:
Jonathan Lait, Planning and Development Services Director