Agenda Item Wording:
title
Authorization to amend the amend FY 2023-24 Community Development Block Grant (CDBG) Annual Action Plan in the amount of $1,129,275, amend the FY 2023-24 Permanent Local Housing Allocation (PLHA) budget by $750,000, and appropriating additional funds from the Successor Agency Housing of $300,000 ($50,000 in FY 2023-24 and $250,000 in FY 2024-25) in order to provide additional support to the Navigation Center development funding of $2,179,275.
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Deadline for Action: 8/7/2023
Submitting Department: Finance and Technology Services
Contact Name and Phone Number: Margie Perez, Housing Specialist, 713-4460, margie.perez@visalia.city <mailto:margie.perez@visalia.city>; Melody Murch, Assistant Finance Director, 713-4379, melody.murch@visalia.city <mailto:melody.murch@visalia.city>; Renee Nagel, Finance Director, 713-4378, renee.nagel@visalia.city <mailto:renee.nagel@visalia.city>
Department Recommendation:
Due to increased construction costs and project funding shortfalls, staff recommends Council approve the budget increase of $2,179,275 for the Navigation Center development funding. Should additional grant funding, such as the Encampment Resolution Funding grant, be obtained and/or enough money be raised for construction through other sources, staff will return with an allocation adjustment recommendation. Funding will require action to be approved as listed:
1. Amend the FY 2023-24 CDBG Annual Action Plan to transfer $729,275 and add $400,000 in program income for a total of $1,129,275 in CDBG development funds to the Navigation Center development. Staff will return to Council for review and approval of the amendment during the public comment period; and
2. Amend the FY 2023-24 Permanent Local Housing Allocation (PLHA) to transfer budgeted Navigation Center operating and unspent prior year funds of $750,000 for Navigation Center development; and
3. Appropriate additional funds of $300,000 ($50,000 - FY 2023-24 and $250,000 in FY 2024-25) from the Successor Agency Housing fund balance.
Background Discussion:
On March 1, 2021, Council directed staff to release a Request for Proposals (RFP) seeking a qualified non-profit organization for the development and operation of a low-barrier Navigation Center in the City of Visalia (RFP 20-21-26). On June 21, 2021, RFP-20-21-26 was awarded to Community Services Employment and Training (CSET).
The City identified three sources of grant and local funding for development and operation of the Navigation Center. The funding sources include Community Development Block Grant (CDBG), Permanent Local Housing Allocation (PLHA), and Successor Agency Housing (SAH) funds.
The City’s current approved development funding is $4,205,387 as shown below in Table 1 - COV Navigation Center Funding. This funding represents 31% of the total $13.5 million projected cost for development of the Navigation Center. The table also shows budgeted operating funding of $1,420,070 that is to be used for operations once the Navigation Center is operational.
Current Funding: Discussion of the three funding sources current development funding for the Navigation Center are as follows.
• CDBG: The City of Visalia is an Entitlement Jurisdiction receiving approximately $1.2 million annually in CDBG funds. Eligible activities for CDBG funds must be approved by the US Department of Housing and Urban Development (HUD) in a 5-year Consolidated Plan and Annual Action Plan. On April 20, 2020, Council approved funding for the development of a Navigation Center in the CDBG 5-year (FY 2020/21 - 2024/25) Consolidated Plan. On April 18, 2022, $2,055,205 in CDBG funding was appropriated for the development of the Navigation Center in the FY 2022/23 Action Plan.
• PLHA: The PLHA Program was created by California housing legislation passed in 2017 to address the shortage of affordable housing for households at or below 60% Area Median Income. This program receives 70% of the revenue generated by a $75 recording fee on real estate documents. The City receives PLHA funding from the California Department of Housing and Community Development (HCD) based upon the allocation process established by HUD for CDBG funding in the State of California. Eligible activities for PLHA funds must be approved by HCD in the PLHA 5-year plan. On July 20, 2020, Council approved the development and operation of a Navigation Center in the 5-year PLHA plan. On November 7, 2022, Council approved a total appropriation of $1,950,182 in PLHA funds for the development of the Navigation Center.
• SAH: A limited amount of SAH funding remains for low-income housing after the dissolution of the California Redevelopment Agencies in 2012. A maximum of $250,000 in SAH funds may be spent annually for qualifying homeless activities under § 34176.1(a)(2) of the California Health and Safety Code. The SAH $250k maximum cap on homeless activities cannot be accumulated or carried over at year-end and must be used annually. On June 21, 2021, Council approved a 1-year appropriation of $200,000 for development of the Navigation Center.
Due to post covid inflation greatly exceeding projections, the Navigation Center development costs have significantly increased. The total development for this project is now $13,562,134, which is approximately $4 million over the original projected development budget. The project has secured $4,700,000 and obtained a verbal pledge of $480,000 bringing the total to $9,385,387 in funding and currently has a gap of $4,176,747 as shown below in Table 2 - Visalia Navigation Center Funding.
To assist in funding the development gap, the City sponsored an application for competitive Encampment Resolution Funding (ERF) in February 2023. The ERF provides priority funding for proposals that address homeless individuals living in large encampments on state rights-of-way. The City did not receive an award of ERF funds from the first application submitted. The City was invited to reapply for ERF funds, however, the amount available in application window 3 is now significantly less than the original $237,307,738, with only $37,852,240 remaining to award statewide. The likelihood of being awarded ERF funds in window 3 is very low; however, if this funding is granted, unnecessary development funds will be returned to PLHA and SAH operating funds for the Navigation Center as originally planned. Given the reduced chances for success of this grant, and in order to keep the project moving forward, , staff is recommending amendments to the CDBG, PLHA, and SAH plans and budgets to assist in partially funding the Navigation Center development gap as shown in Table 3 - COV Proposed Development Amendment. The proposed amendments would add additional funding in the amount of $2,179,275, bringing the total City commitment for the Navigation Center to $6,384,662 which represents 47% of the projected project development cost. A detailed discussion of these proposed amendments follows below.
Proposed Budget Amendments
CDBG: The delay in construction of the Navigation Center along with delays and unspent funds of other projects such as the ADA Transit Pathway Project of $499,940, the Senior Mobile Home Repair Project of $83,780, and Emergency Repair & Accessibility Program of $20,688 caused the City to fall seriously behind in spending CDBG and accumulate a line of credit balance of 2.16 times its annual grant in May 2023. Sixty (60) days prior to the end of the program year, CDBG entitlement grantees, in accordance with the CDBG regulations, must have a combined grant and program income balance remaining their line of credit no greater than one and one-half (1.5 times) the grantees annual grant amount. The City exceeded this "carry forward" limitation in May of 2023 and failure to meet this requirement a second time, in May 2024, would result in the loss of the following year's CDBG annual allocation. To ensure the 2024 CDBG expenditure ratio is met and prevent losing approximately $1.2 million in FY 24/25 CDBG annual allocation, the City must spend a minimum of $1,811,035 in CDBG funds by March 30, 2024. This time frame will allow for payment of invoices and drawdown of the CDBG funds prior to May 2024.
Staff is requesting to move CDBG funds to a project that will spend CDBG in a timely manner that will meet the City’s 2024 HUD mandated CDBG expenditure ratio. The Navigation Center is currently the only CDBG project capable of spending the required amount of funds prior to the deadline discussed above. The ADA Tree Wells Project requires solicitation for bids for project design, environmental review process, and solicitation for bids for construction. Reprogramming CDBG funds to a new project that has not been identified would require submitting a formal substantial amendment of the 5-year Consolidated Plan to HUD, causing even further delays. To ensure timely spending, and to fund the Navigation Center development gap, Staff is requesting council direction for a substantial Action Plan amendment to transfer $1,129,275 in CDBG funds from various existing projects to the Navigation Center development funds as shown below in Table 4 - Proposed FY 23/24 CDBG Amendment.
The proposed CDBG amendment consists of:
• $95,532 in prior year unspent funds from various completed projects which remained at the close of the FY 21/22 and 22/23 Action Plans. The majority of these funds are from unspent administration, public services, and completed fair housing activities.
• $83,780 of unspent FY 21/22 and 22/23 Senior Mobile Home Repair funds. These funds were unspent due to staff turnover during those program years. This program has received a new annual appropriation for the 23/24 program year and this amendment is not projected to affect availability of the program.
• $20,688 of unspent FY 21/22 Habitat for Humanity Emergency Repair & Basic Needs Program. These funds were unspent due to staff turnover during the 21/22 program year. This program has received a new appropriation for the 23/24 program year and this amendment is not projected to affect availability of the program.
• $529,275 to be transferred from the FY 23/24 ADA Tree Wells Project. This transfer will leave $100,000 remaining in FY 23/24 for pre-construction costs such as design and environmental review. The project will receive the full allocation of $758,830 planned for FY 24/25 and receive an additional allocation projected to be $760,000 in FY 25/26 for a total of $1,618,830. The additional funding will provide for any cost increases that occur due to the 1-year delay caused by this amendment. The project is currently on track to be constructed in the summer of 2024, just after the timeliness deadline. This amendment will not affect the ADA Transit Pathway funds of $499,940 which will remain in place as this project is projected to begin construction in the winter of 2023.
• $400,000 of additional program income projected for 2023/24. The current 2023/24 CDBG Action Plan designates all additional program income received to be automatically appropriated for ADA projects. The proposed amendment would designate all additional 2023/24 program income to be appropriated for the Navigation Center project. This additional program income is a result of the reconciliation of prior CDBG loan payoffs, including first-time homebuyer loans, owner occupied rehab loans, and Section 108 loan. This amount exceeds projections, and this amendment will not materially affect the ADA projects as planned.
PLHA: The PLHA Program receives 70% of the revenue generated by a $75 recording fee on real estate documents statewide and funding varies each year. PLHA annual allocations are usually released annually in late August. As a result, the proposed PLHA amendment FY 23/24* and FY 24/25* amounts are estimated using the average of the past three annual PLHA allocations. These amounts may increase or decrease depending upon actual allocations but have been estimated very conservatively based on the past 3-year average. On July 20, 2020, the PLHA 5-year plan was adopted, and the Navigation Center was approved to receive 65% of the total PLHA annual allocation for development and operating funds in Fiscal Years 2021/22 through 2024/25 in the PLHA 5-year plan as shown below in Table 5.
In addition to amendment in the 23/24 budget, staff is proposing to transfer unspent prior year PLHA administration and Warming Center funds to the development of the Navigation Center as shown in Table 6 - Proposed PLHA Amendment. PLHA funds have a two-year expenditure deadline making it necessary to reprogram unspent funds to other PLHA activities approved in the 5-year PLHA plan at the end of each program year. Reprogramming PLHA funds to another eligible PLHA activity not currently in the 5-Year Plan would require submitting a formal substantial amendment of the 5-year PLHA Plan to HCD and cause further delays.
• $100,000 transfer from Administration. These funds have accumulated in the administration activity and may be transferred to the Navigation Center project without affecting the operation of the PLHA program.
• $100,000 transfer from the Warming Center. These funds are remaining from prior year operation of the Warming Center. This activity continues to receive annual allocations and this transfer is not projected to affect the operation of the Warming Center in future years.
• $550,000 Transfer from Navigation Center operations to Navigation Center Development. These funds are currently budgeted for Navigation Center operating expenses. Due to the delay in construction, these funds will not be required for operations in 2023/24 and are proposed to be moved to the development portion of this project. Staff recommends leaving the operating funds in place for the 2024/25 year when the Navigation Center is projected to be operational.
SAH: A maximum of $250,000 in SAH funds may be spent annually for homeless activities which qualifies under § 34176.1(a)(2) of the California Health and Safety Code. The SAH $250k maximum cap on homeless activities must be used annually and cannot be accumulated or carried over at year-end. On June 21, 2021, Council approved a 1-year of $200,000 for Navigation Center development and 3 consecutive years of $200,000 annually for the operation of the Navigation Center for a total of $800,000 in SAH funds. At that time, $50,000 each year was set aside for a Tenant Based Rental Assistance (TBRA) Case Management program which ended on December 31, 2022. As a result, an additional $50,000 is now available annually for homeless activities.
Staff is proposing to increase the FY 23/24 and FY 24/25 SAH funding by $50,000 each year and transferring the FY 24/25 SAH operating funding to development funding for and increase of $300,000 and a total SAH development budget of $500,000 as shown below in Table 7 - Proposed SAH Amendment. The Center would continue to receive $200,000 per year for 25/26 and 26/27 providing 2-years of SAH operating funds.
Approval of the proposed CDBG, PLHA, and SAH amendments will leave a remaining project funding gap of $1,997,472 as shown in Table 8 - Visalia Navigation Center Funding. To close the gap, CSET, the project sponsor, intends to apply for Homeless Housing Assistance and Prevention (HHAP) grant funding and will also request an increase of funding from the County of Tulare. CSET will continue to apply for all applicable grant funds available for the development and operation of the Navigation Center and to pursue fund raising efforts.
Next Steps
Approval of staff's proposals as recommended in this item would result in the following actions:
1. Staff would prepare a FY 2023-24 CDBG Annual Action Plan Substantial Amendment which will be public noticed in conjunction with the Consolidated Annual Performance and Evaluation Report (CAPER) required by HUD and brought back to Council for public hearing, review, and adoption in September 2023; an
2. Staff would prepare a FY 2023-24 Permanent Local Housing Allocation (PLHA) Minor Amendment for City Manager approval and submit the changes to HCD, and to finance to complete the budget amendment, contingent upon receipt.
3. Staff would prepare and record the additional $50,000 appropriation in the FY 2023-24 SAH budget, and the existing 2022-23 appropriation of $200,000 will be rolled into 2023-24 for a total of $250,000 in current SAH funding. The $250,000 SAH appropriation for 2024-25 will be included in the 2-year budget process and brought to Council for adoption as part of the regular budget process next June.
4. Staff would prepare a letter of commitment, addressed to CSET, for the City Manager's signature. This letter would state the City financial commitment to the Navigation Center project is in the total amount of $6,384,662 and that this funding is contingent upon the receipt of grant and PLHA funding.
Prior Council Action: Click or tap here to enter text.
• April 20, 2020 - CDBG 5-year Consolidated Plan approved CDBG funding for the development of a Navigation Center.
• July 20, 2020 - PLHA 5-year plan approved PLHA funding for development and operation of a Navigation Center.
• March 1, 2021 - Council directed staff to release an RFP for development and operation of a Navigation Center.
• June 21, 2021 - Awarded RFP-20-21-26 to CSET for the development and operation of a Navigation Center with the use of CDBG, PLHA, and SAH funds. $200,000 in SAH was appropriated for development funds.
• April 18, 2022 - The 2022 Annual Action Plan appropriated $2,055,205 in CDBG funds for development of the Navigation Center.
• November 7, 2022 - PLHA Amendment 1 appropriated $1,950,182 in PLHA funds for the development of the Navigation Center.
Other: None.
Alternatives: None.
Recommended Motion (and Alternative Motions if expected):
recommendation
Staff recommends that Council authorize and direct staff to:
1. Prepare a FY 2023-24 CDBG Annual Action Plan Substantial Amendment to increase $1,129,275 in CDBG development funds for the Navigation Center and return to Council for approval of the amendment after the public comment period; and
2. Prepare and submit a FY 2023-24 PLHA Minor Amendment to use currently budgeted Navigation Center operating and unspent prior year PLHA funds projected at $750,000 for Navigation Center development; and
3. Appropriate $300,000 ($50,000 from FY 23/24 & $250,000 from FY 24/25) from SAH funds for the development of the Navigation Center.
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Environmental Assessment Status: Completed.
CEQA Review: Completed.
Attachments: Click or tap here to enter text.
• Attachment A - CSET’s Funding Increase Request