City of SunnyvaleAgenda Item22-0979 Agenda Date:11/16/2022REPORT TO HOUSING AND HUMAN SERVICES COMMISSIONSUBJECTConsider Request from Second Harvest of Silicon Valley for Forgiveness of Community DevelopmentBlock Grant (CDBG) Loan.BACKGROUNDIn 1992, the City provided a loan of $25,000 in CDBG funds to Second Harvest of Silicon Valley toconstruct a food distribution center at 750 Curtner Avenue in San Jose. Since construction thirtyyears ago, the food distribution center has continued to operate, serving residents in Santa ClaraCounty (Sunnyvale Community Services is a major partner), and the larger Bay Area.The loan terms outlined in the Deed of Trust, executed in 1992, was a thirty-year term, 3% simpleinterest, and no payments due until the loan maturity. Upon loan maturity on July 20, 2022, principaland interest on the loan would be immediately due and payable for a total of $47,569.86.Earlier this year, the City notified Second Harvest of Silicon Valley that the loan was soon maturing,and the balance would be due. Soon after the notification, Second Harvest of Silicon Valley sent aletter to the City formally requesting the City to forgive the CDBG loan in full.Staff has currently allowed a pause on payment until the Council considers this item.The City Council will consider this item on December 13, 2022.EXISTING POLICYHousing Element of the General PlanGOAL HE-5 Equal Housing Opportunities- Promote equal housing opportunities for all residents,including Sunnyvale’s special needs populations, so that residents can reside in the housing of theirchoice.Policy HE-5.6Participate in the County Collaborative on Affordable Housing and Homeless Issues to supportits efforts to prevent and end homelessness. Facilitate and sponsor the provision of permanentsupportive housing for homeless people. Support local service providers that offer facilitiesand support services to homeless individuals and families, and persons at risk ofhomelessness.2020-2025 Consolidated Plan, Strategic Plan-25, Priority NeedsGoal 3: Other Community Development EffortsDescription: support the provision of essential human services, particularly for special needsPage 1 of 5 Attachment 1 Page 1 of 5
22-0979 Agenda Date:11/16/2022populations.Council Policy 5.1.3 Human ServicesHuman Services Policy to ensure that Human Services are identified and provided in the mostefficient and effective mannerCouncil Policy 2.3.3 Strategies for Affordable Housing and the Use of Housing Mitigation Fees6. Continue the Single-Family Rehab Program with CDBG money, repayments from loans and anyshortfall should come from the General Fund as anticipated in the Ten-Year Plan.ENVIRONMENTAL REVIEWThe action being considered does not constitute a "project" with the meaning of the CaliforniaEnvironmental Quality Act ("CEQA") pursuant to CEQA Guidelines section 15378(b)(4) in that is afiscal activity that does not involve any commitment to any specific project which may result in apotential significant impact on the environment.DISCUSSIONOn October 7, 2022, Second Harvest of Silicon Valley sent a letter to the City of Sunnyvale formallyrequesting that the City Council consider forgiving the total principal and interest balance of$47,569.86 for their CDBG loan. (Attachment 2) The reason cited in the letter, specific to the loanforgiveness request, is that the agency has seen a large increase in community demand (additional50,000 clients per month), especially during the COVID-19 pandemic and that increased demand hasnot stopped. Paying the loan back may disrupt operations and impact services for clients.City Use of CDBG Loan RepaymentsWhen federal CDBG or HOME loans are repaid, whether that be through traditional payments or loanmaturity final lump sum payments, the payments are deposited as “Program Income” to the originalfunding source. Since this loan was funded with CDBG, the payments would be recorded as CDBGProgram Income (PI). PI can then be used to fund future projects, or deposited into a Revolving LoanFund (RLF), which is an independent fund of other CDBG accounts - and is set up for the purpose ofcarrying out specific activities - and those activities generate payments (i.e., loan repayments) for thepurpose of carrying out the same type of activities. PI from loans funded from the RLF returns to theRLF in hopes the fund will be a self-sustaining source (i.e., staff and material expenses). Sunnyvale’sRLF is Fund 2043, CDBG Housing Revolving Loan Fund; many CDBG grantees use revolving loanfunds in conjunction with single-family rehabilitation programs. CDBG Program Income in Sunnyvaleis a critical funding source, which is put into the City’s CDBG Housing Revolving Loan Fund and usedto operate the City’s in-house Home Improvement Program (HIP).This program, managed by Housing’s Senior Housing Rehabilitation Specialist, provides grants andlow interest deferred loans to lower income Sunnyvale homeowners. The HIP can be used to fundroof repairs, mobile home repairs, energy efficiency projects, major home repairs (e.g., bathroomremodels), paint grants, emergency grants (e.g., water heaters, sewer line repairs, etc.) and more.However, only larger loans are funded through the RLF, where smaller grants are funded through theannual CDBG entitlement funds not associated with the RLF. Table 1 below shows a snapshot ofloans awarded since 2015. There remains a high demand for all HIP grants and loans, especially withseniors that have extremely low income but hope to remain in their homes and age in place.
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22-0979 Agenda Date:11/16/2022
Housing also uses this PI to fund three quarters of one full-time staff member to manage thisprogram from application all the way to final inspection. Due to Sunnyvale’s limited annual CDBGallocation, without Program Income being deposited into the CDBG Housing Revolving Loan Fund,the HIP program would not be able to operate.The Precedent IssueThe concern about precedent is justified, as various borrowers have approached staff during the lastcouple of years to inquire about the potential of modifying the terms on other City loans. This is asecond formal request for loan forgiveness of CDBG funds in the past three years (SunnyvaleCommunity Services made a similar request in 2019 which was approved), and it is an indication thatmore borrowers may come forward with such requests in the future, depending on how HHSC andCity Council responds to this request. HUD allows loan forgiveness or extensions but recommendsthey do not become a regular occurrence.FISCAL IMPACTIf the request to forgive the CDBG loan in its entirety is approved, or if the loan is extended withoutpayment, it would reduce projected revenues to Fund 2043, CDBG Housing Revolving Loan Fund by$47,569.86. This revenue would not be available to fund HIP grants and loans through Project803501 - CDBG Housing Rehabilitation Revolving Loan Fund nor associated salary costs in Program10500 - Housing and CDBG Program. The current fund balance of the City’s CDBG HousingRevolving Loan Fund is low, and loan repayments are critical to replenishing available revenue tofund ongoing operations.PI is extremely difficult to predict as some loans are paid off early. Since 1997, PI has varied from $1million to $55,000 annually. PI funds deposited into the RLF peaked at $1.2 million in 2004 and havesteadily declined to just over $160,000 for the current fiscal year. The main reason in fund reductionin the RLF is due to a HUD program change in Program Year 2017. Prior to that change, the City wasable to carry a larger RLF balance per year due to HUD not including RLF balances into theirtimeliness calculation. However, starting in Program Year 2018 HUD began requiring RLF fundbalances in the citywide timeliness calculation, therefore the City must have an RLF balance that onlyreflects what can be spent each year, in an effort to avoid timeliness issues. Sunnyvale is onlyallowed to have 1.5x their annual allocation (roughly $1.5 million) as a total account balance (RLFand regular CDBG entitlement funds) at the end of every fiscal year, which limits any city’s availabilityto store funds for low PI revenue years.Page 3 of 5 Attachment 1 Page 3 of 5
22-0979 Agenda Date:11/16/2022HIP program operation costs average $160,000, funded by the RLF. The RLF has a current balanceof $127,000. For fiscal year 22/23, HIP has $100,000 in CDBG entitlement funds to operate minorgrants and roof grants (nearly all of which has been allocated for specific homeowners for this fiscalyear), but the HIP likely cannot award any new loans out of the RLF this fiscal year due to the lowbalance, unless new PI is received or this loan is repaid. Table 2 below shows the anticipated PI overthe next ten fiscal years, further identifying how critical every loan payment is to continuing operationof these loans.
Council Policy 2.3.3, Section 6 (Attachment 3) states that it is the City’s policy to cover any shortfallfor the HIP program with the General Fund as anticipated in the long-term financial plan. There iscurrently no funding allocated for this purpose in the Adopted FY 2022/23 General Fund Long-TermFinancial Plan and would need to be included with the FY 2023/24 Recommended Budget.PUBLIC CONTACTPublic contact was made through posting of the Housing and Human Services Commission agendaon the City’s official-notice bulletin board, on the City’s website, and the availability of the agenda andreport in the Office of the City Clerk.ALTERNATIVESRecommend that the City Council:1. Approve the CDBG Loan Forgiveness request from Second Harvest of Silicon Valley in theamount of $47,569.86.2. Do not approve the CDBG Loan Forgiveness request from Second Harvest of Silicon Valleyand require the loan of $47,569.86 to be immediately due and payable, and authorize staff todevelop a payment plan.3. Do not approve the CDBG Loan Forgiveness request from Second Harvest of Silicon Valley,but modify the amount due and payable and/or the loan terms (e.g., interest, loan repaymentdate, etc.).Page 4 of 5 Attachment 1 Page 4 of 5
22-0979 Agenda Date:11/16/2022RECOMMENDATIONAlternative 2: Do not approve the CDBG Loan Forgiveness request from Second Harvest of SiliconValley and require the loan of $47,569.86 to be immediately due and payable, and authorize staff todevelop a payment plan.While it is difficult to choose between programs, the lack of repayment of this loan negatively affectsthe number of homeowners who can be assisted through the HIP. Second Harvest of Silicon Valleycould pursue grants from sources (to repay this loan) which would not result in less funding foranother valuable activity.Prepared by: Leif Christiansen, Housing Programs AnalystReviewed by: Jenny Carloni, Housing OfficerReviewed by: Trudi Ryan, Director, Community DevelopmentReviewed by: Teri Silva, Assistant City ManagerApproved by: Kent Steffens, City ManagerATTACHMENTS1. Reserved for Report to Council2. Loan Forgiveness Request from Second Harvest of Silicon Valley (received October 7, 2022)3. Council Policy 2.3.3
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