May 3, 2022
Finance Department
DATE: May 3, 2022
TO: Mayor Butt and Members of the City Council
FROM:
Delmy Cuellar, Interim Director of Finance
Antonio Banuelos, Accounting Manager
Mubeen Qader, Budget Administrator
Rita Martinez, Senior Accountant
Subject: Write-Off of Uncollectable Richmond Housing Authority Debt
FINANCIAL IMPACT: By approving the write-off, the City’s receivable is reduced by $10,442,853, and the Richmond Housing
Authority debt to the City is reduced by a like amount.
The action also formally redirects the $4.2 million from intended reserve allocation to debt write-off. This action acknowledges that the City will not achieve a higher
percentage of reserves as projected by City staff and as approved by City Council as part of the final Fiscal Year 2021-2022 budget adoption on June 29, 2021.
PREVIOUS COUNCIL
ACTION:
June 29, 2021; October 26, 2021; February 15,2022, and
March 1, 2022
STATEMENT OF THE
ISSUE:
The City’s write-off of Richmond Housing Authority (RHA) debt and diversion of $4.2 million from the previously
intended reserves (June 29, 2021) to debt write-off
requires formal City Council approval. This action ratifies the write-off of a portion of the RHA debt and ensures
compliance with City policy for reviewing accounts
receivable, assessing their collectability, and writing off accounts for which the likelihood of collection is remote (Administrative Manual—Policy Statement AP 251).
AGENDA
REPORT
May 3, 2022
RECOMMENDED ACTION:
APPROVE the write-off of uncollectible Richmond
Housing Authority receivables in the amount of
$10,442,853 – Finance Department (Anil Comelo/Delmy
Cuellar 510-620-6740).
DISCUSSION:
The Administrative Manual—Policy Statement AP251 was established to provide guidance for assuring that accounts receivable is not misstated, that delinquent accounts receivable is identified and that the delinquent accounts are removed from (written off) the books of the City as appropriate. City Council approval of such account receivable matters is pursuant to this policy.
To clarify the process regarding the amounts owed and actions that can be taken to pay off such amounts, the Richmond Housing Authority (RHA) and City of Richmond (COR) requested technical assistance from the Housing and Urban Development (HUD) for analysis and recommendations.
The HUD technical assistance request was granted and CVR Associates (CVR) was contracted as the technical assistance provider. Some of the tasks CVR was contracted to complete included to support an assessment of various financial reports and records to determine amounts due to/from RHA and COR, provide guidance to RHA regarding the validity of amounts due to/from based upon permissible Public Housing Agencies (PHA) management fees, documented indirect cost rates, other supporting documentation and industry norms/best practices, assist RHA in determining the proper amount of monies owed to/from the City of Richmond based upon the best available information, provide RHA with a written Report of Observations and Recommendations, and Assist RHA with the development of a repayment and write off plan. On February 28, 2021, CVR issued a Report of Recommendations – Attachment 1. A Memorandum dated December 23, 2021 – Attachment 2, was later issued to update the repayment amount from the original report.
Towards the end of the City’s annual fiscal audit (early Fall 2021), based upon communication between the Finance Department and the Housing and Urban Development (HUD) and consistent with advice from the City’s auditors, it was determined that $10.4 million of the RHA receivable was uncollectable. Once that determination was made, the receivable on the City’s books had to be written off prior to the completion of the FY2020-2021 audit. It is important to note that the RHA write-off issue came from the City’s investments over numerous years to help support the maintenance and renovation of 783 public housing units, assist RHA in meeting obligations to program participants and HUD, and uplifting and supporting the health and safety of RHA’s residents.
Breakdown of what attributes to the $10,442,853 – Attachment 3:
FY2009-2019 Accounts Receivable & Miscellaneous Charges $9,667,210
May 3, 2022
(RHA Vendor Payments, Payroll Disbursements, Medical Reimbursements, General Liability and Indirect Cost Allocations)
Loan to be cleared during sale of Westridge $174,067
FY2019-2020 General Liability and Indirect Cost Allocations $601,576
At the June 29, 2021, City Council meeting, City staff requested, and City Council approved setting aside $3,000,000 from FY2020-2021 General Fund surplus.
Additionally, at the October 29, 2021, City Council meeting, an additional $3,128,968 of General Fund excess was set aside for the RHA write-off. The two set-asides totaled $6,128,968. When it was determined that the total amount that needed to be written off came to $10,442,853, that left an additional $4,313,885 needed to be set aside from the General Fund surplus.
The funding for the additional $4.3 million write-off came from the City’s FY2020-2021 General Fund excess that had been primarily designated to increase the City’s reserves. Had the City not been required to write-off the RHA debt and, instead, been able to direct the $4.3 million to reserves, the GF reserve balance would have been approximately $26.8 million or 14.8% (based upon the FY 2021-2022 budgeted expenditures of $179,948,582).
NEXT STEPS:
It should be noted that the analysis of RHA’s debt owed to the City of Richmond was through FY2018-2019 (with the exception of the FY2019-2020 Cost Allocations) and there is still an outstanding amount due from RHA to the City for FY2019-2020.
Currently, the amount due for FY2019-2020 is $1,737,057. It is likely that City staff will return to the City Council with a recommendation that a separate repayment agreement be authorized and executed between RHA and the City.
DOCUMENTS ATTACHED:
Attachment 1 – CVR Report of Recommendations 2.28.2021
Attachment 2 – CVR Memorandum 12.23.2021
Attachment 3 – RHA Write-Off Amount Summary
Attachment 4 – CVR Memorandum 04.01.2022