May 11, 2004

SUBJECT: FY 2004/05 Action Plan: Recommendations for Funding of Community Development Block Grant (CDBG) and HOME Funds, and Disposal of 775 Manzanita Avenue, Sunnyvale 

REPORT IN BRIEF

Each year the City of Sunnyvale must submit an Action Plan to the U.S. Department of Housing and Urban Development (HUD) in order to receive its entitled funds under the Community Development Block Grant Program (CDBG) and the HOME Program.  This report submits to the City Council for its approval the proposed 2004-05 Action Plan.

The Action Plan allocates $2,026,000 of CDBG, including $522,000 of anticipated CDBG program income, and $777,156 of HOME funds, in accordance with the Consolidated Plan adopted in 2000.  These funds are proposed to fund the following activities:  outside group service agencies, capital projects, “seed” funding for Community Housing Development Organizations (CHDO’s), program administration, fair housing services, preparation of the 2005-2010 Consolidated Plan, rehabilitation of single and multi-family homes, the home access program, housing acquisition, neighborhood improvements, and public facilities/ADA sidewalks.

The Action Plan includes part of the funding for the preparation of the 2005-2010 Consolidated Plan (ConPlan) during the 2004-2005 program year.  The new five-year plan will be prepared for submittal to HUD due on May 15, 2005.

The portion of the Action Plan which describes HOME activities proposes allocating $35,000 in funds for 2004-05 and $35,000 from the current 2003-04 HOME Projects budget to provide operating “seed” funding to Community Housing Development Organizations (CHDOs). The selected CHDOS will engage in activities designed to lead to the development of projects that create affordable homeownership opportunities and preserve affordable rental housing opportunities.  The CHDO’s are directed to focus their activities in three Neighborhood Action Areas identified in the Community Development Strategy, which include Ahwanee, San Juan and the eastern portion of the HOLA area.   The City will fund operating costs and pre-development costs for activities expected to lead to the development of projects.

The Action Plan also includes the proposed sale of 775 Manzanita Avenue, a single-family residence, as authorized by Council on May 10, 1983, and purchased with CDBG funds in June 1983.  The property was purchased at a foreclosure sale to protect a City loan on the property. The property has been held and used as affordable rental housing.  Since CDBG funds were used to acquire the property, the disposition of the property will result in program income to that fund.

BACKGROUND

On November 28, 1990 President Bush signed the Cranston/Gonzales National Affordable Housing Act of 1990, which reaffirmed the national commitment to provide decent, safe, and sanitary housing for all Americans. 

In 1995, HUD adopted a new regulation requiring that the applications for funds be consolidated into a single submission, incorporating in the application aspects of CDBG, HOME, Emergency Shelter Grant (ESG), and Housing Opportunities for Persons with AIDS (HOPWA).  Only the CDBG and HOME programs are applicable in Sunnyvale.  This new plan is known as the Consolidated Plan.  The Consolidated Plan includes an Action Plan and certifications that must be updated and submitted on an annual basis, while the complete Consolidated Plan must be submitted at least every five years.  Four years ago, Sunnyvale submitted its second Consolidated Plan for the years 2000-2005. The 2004-2005 Action Plan is the fifth and last year of implementation of the current Consolidated Plan.

EXISTING POLICY

Housing and Community Revitalization Sub-element:

Goal 2.3C: Promote and maintain a diversity in tenure, type, size, location and cost of housing to permit a range of individual choice for all current residents and those expected to become city residents as a result of normal growth processes and employment opportunities.

Policy 2.3C.1.: Attempt to maintain as many as possible of the existing rental units affordable to lower income families and seniors.

Policy 2.3C.1d.: The City should encourage and assist non-profit housing organizations to develop 100 new low and very low income rental units within the City over the next five years.

In 1981 the Council adopted the Human Services and Outside Group Funding Policies in recognition of the need for community services in the City, which are not directly provided by the City or other public agencies.  The Outside Group Funding Policy provides guidelines for addressing funding requests for outside agencies seeking City funding support.

DISCUSSION

The 2004-05 Action Plan includes a discussion of the funds from all sources that will be expended in Sunnyvale for affordable housing and support services in the next year.  The full Action Plan, as it will be submitted to HUD, is appended as Attachment B.  The City will have a total of $2,026,000 in CDBG funds for fiscal year 2004/05.  This represents $1,504,000 in new grant funds and approximately $522,000 in anticipated program income to be received from repayment of housing rehabilitation loans and the sale of a single-family rental property previously purchased with CDBG funds.

The City will have a total of $777,156 in HOME funds for fiscal year 2004-05, which is to be used primarily to expand the supply of low-income rental housing.  HOME funds will be used for acquisition and new construction by non-profit housing development organizations.

TABLE I

CDBG FUNDING ALLOCATION

FY2004/05

TABLE II

HOME Funding Allocations

FY2004/05

The Action Plan provides a listing of all the activities to be undertaken during the program year.  These include rehabilitation of single and multi-family homes, the home access program, and improvements to sidewalks for ADA accessibility, housing and neighborhood improvement activities described in the Community Development Strategy, and the support facilities and services that are provided by outside groups.

Funding for Outside Group Service Agencies:

CDBG funds have decreased by 3% or $44,000 this year.  This decrease has occurred due to reductions in appropriations at the federal level. A total of $283,193 is recommended for outside agencies in 2004-05, compared to $303,016 in 2003-04.  The proposed reduction in funding to outside agencies is required in order to meet HUD’s regulatory cap on funding allocations to public services.  Regulations require that no more than 15% of the grant allocation, plus the prior year program income (2003-04) may be committed to public services in any program year.  In the 2003-04 program year, Sunnyvale was able to increase funding to public service agencies by approximately $33,000. This substantial increase occurred as a result of a 13.5% grant increase in 2003-04 and receipt of over $889,000 of program income.  The income was derived from early repayment of loans, and it was received in 2002-03.  Early payoffs on loans have reduced amortized loan repayments this year (2003-04).  The maximum projected program income this year is $389,000, which when combined with a reduced grant allocation, leads to a reduction in permitted funding to outside groups for public services during the 2004-05 program year.  Program income received year to date is $365,855 as of May 6, 2004.

2004-05 is the second year of a two-year funding cycle to provide funding to human service agencies. This year, the City received requests for continued funding from 15 non-profit service agencies. During their January and February meetings, the Housing and Human Services Commission (HHSC) reviewed the performance of each human service agency for FY 2002-03 and the current year from July 2003 to January 2004. Written and/or oral presentations were made by outside human service groups that had not achieved anticipated performance levels.  During the March and April meetings the HHSC made funding recommendations, based upon the requests of the agencies, their performance records and the amount of funds available for the 2004-05 program year.

Table III presents the HHSC recommendations for funding outside groups in FY 2004-05 totaling $283,193.

TABLE III

Public Services-CDBG Funding Recommendations

FY 2004/05

This includes a reduced funding recommendation for one agency (Catholic Charities-Shared Housing) of $5,500 as a result of the agency performing well below established contractual goals.   The Director of the agency, Gloria Ortega, presented an explanation to the Housing and Human Services Commission describing the agency’s inability to meet its performance goals.  Her comments described the effect of the current rental market conditions and the overall difficulties implementing the basic concept of the program.  When asked if the goals would be met by June, she stated that “the agency will not meet the goals by June”, and she projected that “about 50%-70% of the goals will be met”.   The agency proposed the development of new market strategies and research of vacancy rates, rents and demographics, although these are readily available for Sunnyvale.  However, no further contact with staff to develop a marketing strategy has been undertaken by the agency.  The reduction recommended by the Commission is equal to approximately 33% of the current funding, which equals the lower performance achieved by the agency as of the 2^nd quarter and the projection of year-end accomplishments made by the agency staff.

Included in the Action Plan is a proposed reduction of funding for all other agencies, equal to 5% of current 2003-04 funding and elimination of $3,000 of supplemental funding to Project Sentinel for additional dispute resolution services.  (Project Sentinel will continue to receive $30,000 of CDBG funds for Fair Housing services, and $102,905 of Outside Group General Funds for Landlord-Tenant Relations.)  As previously mentioned, these reductions are required to comply with HUD regulatory requirements on the limits of funding to public service agencies.  Staff concurs with the funding recommendations of the Housing and Human Service Commission.    A summary of the services to be provided by all agencies is included in Attachment C.

Capital Projects:

Two proposals for capital projects were received during this process.  The first proposal was submitted by First Community Housing, a non-profit housing corporation for $1,500,000 of CDBG and HOME funds to acquire an existing site occupied by a 95-room hotel with a restaurant/bar located at 940 West Weddell.  The non-profit proposes to convert the property into 42 units of affordable rental housing.  The project will provide 22 one-bedroom, 14 two-bedroom and 6 three-bedroom units to households with incomes at or below 40% of area median income and with rents limited to 30% of the household income over the next forty years.

The second proposal, Our House Shelter, was submitted by Emergency Housing Consortium (EHC), requesting $50,000 towards the costs of rehabilitation and construction of a facility to provide emergency shelter housing and services. The facility will serve 500 homeless and runaway youth per year with a service center, emergency shelter and transitional housing. The location of the project is in downtown San Jose, which has become a regional attraction for these troubled youth.  During the past year, EHC has succeeded in obtaining $6 million, or approximately 60% of the project budget, from other sources.  It has several multi-year federal grants to ensure funding of ongoing operating costs.

The Commission recommended a loan to First Community Housing of $1,000,000 for the acquisition of 940 West Weddell.  This consists of $671,862 of CDBG funds (which includes 471,862 of 2003-04FY funding) and $328,138 of HOME funds (which includes $104,449 of 2003-04FY funding).  Any additional funding by the City would be considered after the project has obtained additional funding commitments from regional and state resources. Additional support of the project by the City could be provided with funds from the City Housing Fund.  Requests by First Community Housing for additional funds may be submitted to Council at a later date.  City staff will finalize loan terms with the agency after it secures all additional funding.  Staff will then prepare a report to Council for their consideration of all loan terms.

The Commission unanimously recommended the loan requested by Emergency Housing Consortium, of $50,000 for “Our House Shelter for Homeless and Runaway Youth” during the 2004/05 program year.  CDBG funds will be used for the construction of the new facility.  The Commission was pleased to be able to recommend funding and recognized that EHC had made substantial progress this past year to implement their plans for this project by acquiring funding commitments totaling over $6 million. 

Staff concurs with all the funding recommendations of the Housing and Human Services Commission.

“Seed” Funding for Community Housing Development Organizations:

This staff report provides additional information on the Request for Proposals for funding to Community Housing Development Organizations (CHDO) for operating funds to encourage implementation of first time homebuyer projects in Sunnyvale.  Staff recommends that Charities Housing, a non-profit housing corporation, be awarded a contract for $25,000 of HOME operating funds from the 2003-04 HOME projects activity and an additional $25,000 of HOME operating funds during 2004-05.  The 2004-05 award is subject to achieving successful progress towards established goals.   Staff recommends that EHC and Project Match, non-profit corporations which submitted a combined proposal, be awarded a contract for $10,000 of HOME operating funds from the 2003-04 HOME projects activity and an additional $10,000 of HOME operating funds during 2004-05.  As suggested above, the 2004-05 award is contingent upon the success achieved by the agency in progressing towards the stated goals. 

The Commission unanimously recommended the CHDO operating funding to encourage development of first-time homebuyer projects by both Charities Housing and EHC/Project Match and it recommended that the funding support for EHC be increased, in the future, should they perform well.

Program Administration:

Administration costs include all the costs and activities allowed by regulation to be reimbursed to the City for incurred eligible expenditures for the planning and administration of a Community Development Block Grant.  This is budgeted at $377,522, well under the 20% administrative maximum established by HUD ($405,200).  The activities included under program administration are fair housing services, a portion of the costs associated with the preparation of the required 2005-2010 five year Consolidated Plan, preparation of an Indirect Cost Plan (which will allow the City to charge  additional overhead costs to the fund), and the operating costs for the overall program administration.   

Fair Housing Services:

Staff recommends that Project Sentinel continue to provide contractual services for Fair Housing during the second year of a two-year funding cycle.  Project Sentinel is an established fair housing agency, with offices in Sunnyvale and Palo Alto, and provides fair housing and landlord/tenant dispute resolution services for numerous cities in the County.  Staff is continuing to recommend Project Sentinel because the agency has a strong record in effective community outreach, provides educational materials in nine languages, has a dedicated system that provides them with the capacity to handle phone calls in numerous languages and maintains a well developed web site.  Project Sentinel’s costs are based on the assumption that all three cities (Sunnyvale, Mountain View and Palo Alto) will continue contracting with the same agency.  This has allowed additional actions to be undertaken this past year due to the benefit of cost efficiencies realized from a regional service.

2005-2010 Consolidated Plan:

The current Consolidated Plan terminates on June 30, 2005. Staff will seek a consultant to assist in the development of a Consolidated Plan for the City of Sunnyvale for fiscal years 2005 through 2010 that is consistent with HUD guidelines.  The City has requested proposals from qualified firms and individuals with proven experience in developing a Consolidated Plan.  The City 2005-2010 Consolidated Plan must be submitted to HUD by May 15, 2005. 

In addition to meeting the federal requirements and deadline for a Consolidated Plan, the process will include encouraging meaningful public participation in the Consolidated Plan process, especially by low- and moderate-income people and a broad consultation process with public and private agencies providing assisted housing, health services and social services.  The Consolidated Plan is the City’s opportunity to provide a direct link between community goals and objectives and priority needs and should provide clear direction for future one-year Action Plans. Development of the plan will use the most current existing data to help determine housing, homeless, special population, community development, and human development needs. 

Housing Rehabilitation, Paint and Home Access Programs:

Housing staff administer and implement several home improvement programs which include the Substantial and Minor Rehabilitation, the Paint Program and the Home Access Program.  Substantial rehabilitation loans and project supervision are available on a citywide basis with construction loans up to $60,000 per household, and mobile home loans up to $15,000 per coach.  The goals for completed units during 2004-05 are 15 single-family/mobile home projects.  The Paint Program for exterior painting provides loans of up to $4,000 to senior owners of single-family homes and grants of $1,000 to homeowners under 60 years of age for reimbursement of painting materials.  The goals for completed units during 2004-05 are 20 home exteriors repainted.  The Home Access Program provides grants to handicapped households throughout the community.  Services include retrofit of units occupied by disabled persons including the installation and maintenance of lifts and ramps, when needed.  The goals for completed units during 2004-05 are 30 Home Access projects completed. Budgeted funds include the operating costs associated with direct implementation of these projects and 60% of the rental rates charged to the Housing Division.

Housing Acquisition:

Housing staff administers the Housing Acquisition and Preservation of at Risk Housing Program.  The administration includes accessing the viability of proposed projects, analyzing pro formas, negotiating terms, managing escrows including preparing loan documents and staff reports to Council for consideration of funding to non-profit housing developers.  Projects that are “at risk” of conversion to market rate, and projects that increase the current supply of affordable housing in Sunnyvale, are considered for funding.  Budgeted funds include the operating costs associated with direct implementation of these projects.

Neighborhood Improvements:

The activity is implemented by Neighborhood Preservation staff utilizing CDBG funding and it provides funding for street trees, streetscape improvements, neighborhood clean-up, landscape designs and other targeted projects to improve the physical appearance of the CD Strategy Action Area neighborhoods.  The goal is for 15 completed projects in 2004-05.

Public Facilities/ADA Sidewalks:

The activity is implemented by the Public Works Department utilizing CDBG funding.  It provides retrofit of approximately 40 curbs per year to meet ADA requirements.   

Summary of Funding Recommendations:

Table IV presents the funding recommendations for FY 2004-05 for CDBG funds, totaling $2,026,000.  Within this total is $283,193 for public services, as detailed in Table II.    Table V presents the funding recommendations for FY 2004-05 for HOME funds, totaling $777,156.