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Study session regarding amending the Community Development Block Grant Fiscal Year 2024-2025 Annual Action Plan. (Alvina Condon, Management Analyst II)
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RECOMMENDATION
Recommendation
Staff recommends that the Community Development Block Grant Subcommittee of the City Council (CDBG Subcommittee) provide feedback regarding a proposed amendment to the City’s Community Development Block Grant (CDBG) Program Fiscal Year 2024-25 (FY24-25) Annual Action Plan (AAP).
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BACKGROUND
The purpose of this session is to seek guidance from the CDBG Subcommittee on how spend down remaining funds in order to meet the U.S. Department of Housing and Urban Development (HUD) timely expenditure requirements for the City’s CDBG Program. On June 8, 2024, the City received a letter from HUD stating the City is not carrying out its CDBG program in a timely manner and that continued noncompliance may result in sanctions, including the loss of funds and other corrective actions.
A grantee is considered to be in compliance with timely expenditure rules if, 60 days prior to the end of its program year, the balance in the grantee’s line of credit, plus the balance of program income on hand, is not more than 1.5 times the most recent entitlement grant. When this 60-day test was conducted by HUD on May 2, 2024, it was calculated that South San Francisco had an adjusted line of credit balance of 2.25 times its annual entitlement grant. This was not a surprise to staff - it was anticipated that the City would fail to meet timely expenditure requirements due to the failure to complete a public improvement project in FY 23-24, the withdrawal of one of the City’s minor home repair grantees from the Program, and delays in getting public service grantee contracts executed and funds flowing early in the fiscal year.
Currently, the City is holding $466,345 in Public Facility Improvement funds, $275,000 for minor home repairs, and $76,579.21 in repaid loans, for a total of $817,924.21. These funds need to be spent down by May 2, 2025 to comply with timely expenditure requirements.
DISCUSSION
Housing Division staff has been in conversation with Engineering, Public Works, Capital Projects, and Parks & Recreation over the past several weeks on potential projects to spend down these funds quickly and efficiently. Currently, the proposed project includes two components: 1) curb ramps throughout the City to provide improved access and 2) an accessible pathway at the Cypress & Pine park in Old Town.
Staff considered two other projects. The first was a storm sewer upgrade project that staff determined could not be completed within the time set forth by the timeliness rules. The second was revitalizing Cypress & Pine Park by overhauling the park and providing new playground equipment, but staff determined that project would take too long to deliver, as it would require community engagement and substantial design work. However, providing an accessible pathway at Cypress & Pine with these CDBG funds will set the park up for future funding sources that require the park be accessible - this is included in the proposed project.
If the proposed project is acceptable to the CDBG Subcommittee, staff will prepare an AAP Amendment shifting all of the available funds to Public Improvements, provide public notice of the amendment, and bring it forward to City Council for consideration in September.
FISCAL IMPACT
The existing General Fund-funded budgets of the Engineering Division and Housing Division will absorb some design expenses associated with the proposed project, but there is no new impact to the General Fund associated with the proposed project.
Currently, the City’s CDBG funds are not at risk due to the City’s noncompliance with timely expenditure requirements. If the City is noncompliant in 2025, the City will be required to meet with HUD headquarters staff in Washington, DC (via zoom). If meaningful progress has not been made toward meeting the timeliness requirements, the City is at risk of HUD withholding future entitlement grants.
It is staff’s understanding that HUD is considering changing timeliness rules to be less stringent. The reasoning behind this is that as entitlements decrease over time, it is hard to invest in meaningful community projects if the funds have to be spent within one year. Because of this, and the recent experience of nearby cities not meeting timeliness, staff is not concerned that HUD will be punitive, such as withholding FY 25-26 entitlement funds, if timeliness is not met in 2025. Despite this, staff has recommended a project that has the best chance of meeting timeliness.
CONCLUSION
Staff recommends that the CDBG Subcommittee provide feedback on the proposed project to meet HUD’s timely expenditure rules.