SunnyvaleRTC

April 11, 2006

SUBJECT: Outside Group Funding Process and Human Services Policy

REPORT IN BRIEF

Although the primary support for individuals and families who cannot fully support themselves comes directly from the federal and state governments, Sunnyvale has for decades provided supplemental support to its needy residents through funding of local human services agencies. The principle source of this funding has been Community Development Block Grant (CDBG) funding; by statute, up to 15% of the annual CDBG entitlement may be utilized for such purposes.

The City has also supplemented federal funding with General Fund support. In recent years, applications of three agencies which do not qualify for CDBG funding have also been processed through the Human Services Policy process, with all of the funding for these agencies provided by the General Fund. As the amount of General Fund support has increased over time, the difference between the federal funding cycle and the City’s budget cycle has increasingly posed a problem for decision-makers. Specifically, in order to meet the federal deadline of May 15 for submitting the annual Action Plan for CDBG funding, City Council must take action on funding these agencies in late April and May, well before its deliberations on and adoption of the General Fund Budget in June.

In response to direction from City Council, staff has undertaken a year-long review of the current funding process for non-profit agencies. The review by staff was discussed with Council at a Study Session on September 27, 2005. This report presents the staff’s conclusions and recommendations, including a proposed revision to the Human Services Policy.

BACKGROUND

There has always been a need in our society for government to provide support to those individuals and families who, on a short-term or long-term basis, are unable to support themselves. Responsibility for such support has generally fallen to the federal or state governments, who have a broad tax structure which is based, at least in part, on an income tax. While local government is

closest to the problem and can best appreciate it in terms of human need and suffering, social services needs are not confined to the jurisdictional boundaries of a local community. Any local government which attempts to fully support the human needs within its boundaries will quickly discover that demand will increase beyond its ability to respond with the limited resources available from the local tax base.

While the federal and state governments remain primary providers of social services, local governments have creatively found means to provide supplemental support to meet the unique human service needs of their communities. These services are often provided by locally based non-profit human agencies, and funding is often provided from the local community’s entitlement of the federal Community Development Block Grant (CDBG) program. This program, by federal regulation, permits jurisdictions to utilize up to 15% of the annual grant amount to fund social service agencies.

The City Council has created a Housing and Human Services Commission (HHSC) to advise Council on existing and potential programs, policies and other official undertakings in the fields of housing and human services. Among the Commission’s responsibilities is to review and recommend proposed uses of CDBG funds. The exercise of this responsibility has always included the review and recommendation on applications of human services agencies for CDBG funding. In recent years, the HHSC has also been asked to review and recommend on funding applications of three outside groups which do not qualify for CDBG funding: Leadership Sunnyvale, since FY 2000/01; Junior Achievement, since FY 2000/01; and, Euphrat, since FY 2003/04.

The following table shows the total amount of CDBG and General Funds which have been allocated through the human services funding process over the past six years:

* - CDBG funding of outside groups is calculated at 15% of the yearly allocation combined with the prior year’s program income.

** - Denotes years with exceptionally high amounts of program income, which can not be anticipated in the future.

The allocation of resources to outside groups is guided by two separate City policies. On October 19, 1999, City Council (RTC#99-430) took action to revise the Human Services Policy 5.1.3 (Attachment A), and to move from an annual to a two-year funding process consistent with the two-year Resource Allocation Plan. On October 21,2003, the City Council adopted a policy on Relationships with Outside Groups, 7.2.A (Attachment B), which created a process for considering Special Agreements for providing financial support to outside groups which are not supported through the Human Services Policy.

Council Policy 5.1.3, Human Services, currently guides the Outside Group funding process for human service agencies (Attachment A). It sets forth four funding categories:

Council Policy 7.2.4, Relationships with Outside Groups (Attachment B), identifies the various types of support the City will offer to outside groups and/or independent organizations, and provides for the consideration of Special Agreements to offer financial and other support to outside groups which are not funded through the City’s Human Services Policy.

The changes to the Human Services Policy enacted by City Council in 1999 brought increased consistency and efficiency to the process of funding human services agencies. Over the past six years, however, the process has been increasingly unable to respond to the following issues and concerns:

· Although the chart on page two of this report indicates increased CDBG funding to outside groups, the annual allocation of CDBG funds have been constantly declining. Public Service funding is calculated by combining the yearly allocation with program income derived from the repayment of CDBG loans or property, which has been unusually high in recent years. The total is then multiplied by 15% to determine the maximum funding allowed by HUD to support public services. As CDBG funds continue to decline, increased demand for funding will be placed upon the City’s General Fund.

· The difference between the HUD and City funding cycles makes it necessary for the City Council to commit funds to outside groups before the annual consideration of the City budget. This is not good practice, because the Council cannot weigh the financial needs of the outside groups against all of the competing needs for General Fund support.

· The difference between the funding cycles also requires the Housing and Human Services Commission (HHSC) to make recommendations for General Fund support long before the City Manager can recommend to Council the amount of General Funds available for funding outside groups.

· The inclusion of agencies providing services other than human services in the funding process has made it difficult for the HHSC and the Council to allocate limited funds among the competing agencies (comparing “apples and oranges”).

Staff has evaluated the current process in light of the above issues and concerns. It has reviewed processes for funding outside groups in surrounding communities. It has also met with staff of local human service agencies to identify their problems with the current process. On the basis of this analysis, staff discussed with City Council at a Study Session on September 27, 2005, possible revisions to the Human Services Policy and to the Outside Group funding process (Attachment C). The revisions discussed are summarized as follows:

· The Human Services Policy and funding process should apply only to human service agencies, with funding support primarily from CDBG funds.

· Funding to other outside groups traditionally supported by the City should be considered with all other City services as part of the General Fund budget process, in accordance with the policy on Relationships with Outside Groups.

· Council may choose to supplement CDBG funding of human service agencies with General Funds.

· The funding process should remain on a two-year cycle, and should begin with a recommendation (by HHSC) and adoption (by City Council) of priority human service funding needs. Following staff evaluation of proposals from agencies and audit of their past performance, HHSC should make recommendations to Council for allocation of CDBG funds, and recommendations to the City Manager (with copy to Council) of unmet needs which could be addressed with supplemental support from the General Fund.

In order to effectively implement the policy, it is necessary to define “human service agencies.” The definition used in this report is those outside groups which provide supportive services to a specific group of people, at least 51% of whom are low and moderate income (less than 80% of area median income). This is the definition used by HUD to determine qualification for CDBG funding of such agencies.

The revised process being considered would continue to support funding of human service agencies with CDBG funds, up to the statutory limit of 15% of the annual grant to the City. Based on the current entitlement, this amount for FY 2006-2007 is approximately $280,000. As part of its annual budget deliberations, City Council may also authorize contracts with outside groups providing services other than human services, and may supplement CDBG funding of human service agencies. In FY 2005-06, this General Fund support totaled $97,458.

The City of Sunnyvale has traditionally provided financial support to local human service agencies to meet priority human service needs in the community. The primary funding source has been Community Development Block Grant (CDBG) funds. For many years, CDBG funds have been supplemented by General Funds to address unmet human service needs and to support outside groups which do not qualify for CDBG funds. In recent years the City’s CDBG entitlement has been reduced; more importantly the City has been dealing with its own fiscal challenges, which have forced Council to eliminate services or reduce service levels for traditional City services. Since 2003, the City has also provided support to outside groups through the Special Agreement process.

Under the direction of City Council, staff has reviewed the present processes and funding mechanisms to support outside groups. It has identified problems which make the outside group funding process difficult for decision-makers including the different budget deadlines for CDBG and for the City’s General Fund, the concurrent review by HHSC of both human service agencies and agencies which provide services other than human services, and the support of agencies providing services other than human service by two separate City processes.

This matter was discussed by the Housing and Human Services Commission on January 25, 2006 at a public hearing and was continued for additional discussion by the Commission at its meeting of February 22, 2006. (See minutes of the HHSC meetings, Attachments G and H) The Housing and Human Services Commission found that the policy change would limit its ability to recommend to City Council on General Fund allocation and recommended that staff continue to work on the proposed policy change for greater clarity. Of the seven commissioners present, five voted to support the above stated recommendation, and two commissioners dissented.

The primary issue discussed was that the proposed modification to the policy would eliminate or greatly limit the ability of agencies who are not CDBG eligible from seeking General Fund support. The Commission felt that those agencies would not be sufficiently aware of possible City General Fund support since there would no longer be a formal process to request proposals. Lastly, the Commission believed that the proposed change in the process would inappropriately eliminate the Commission’s role to provide to City Council a recommendation on General Fund allocations to outside groups.

All outside groups who have traditionally been supported through this process were notified of the public hearing. In addition, the agenda of the Commission was posted on the Sunnyvale’s Official Bulletin Board and on the Sunnyvale website, and copies were made available at the Reference Section of the Sunnyvale Public Library.

Public contact was made through posting of the Council agenda on the City’s official notice bulletin board, posting of the agenda and report on the City web page, and the availability of the report in the Library and the City Clerk’s Office.

1. Amend the Human Services Policy, 5.1.3, as proposed in Attachment D, and clarify the policy on Relationships with Outside Groups, 7.2.4, as proposed in Attachment E.

2. Amend the Human Services Policy, 5.1.3, in a manner other than that proposed in Attachment D.

Staff recommends Alternative 1, to amend the Human Services Policy, 5.1.3, as proposed in Attachment D, and to clarify the policy on Relationships with Outside Groups, 7.2.4, as proposed in Attachment E.

Staff believes that the separation of outside groups into human service agencies and other public service agencies will allow the Housing and Human Services Commission to focus on human service needs and the agencies which address them, and will allow Council to consider services of other outside groups together with all other public services supported by the General Fund. It will allow the CDBG funding cycle to take place in accordance with federal guidelines and schedules, completely separate from the City’s budget adoption process. Nevertheless, it will continue to provide the opportunity for outside groups to seek and obtain support from the City from the General Fund, consistent with the City’s budget preparation and adoption process.

If adopted by the City Council, the revised process will become effective at the beginning of the next two-year funding cycle for FY 2007-08 and FY 2008-09. The process will begin in the Fall of 2006, when the HHSC will recommend priority social service needs for City Council consideration and adoption. Human service agencies will then submit proposals to address the priority needs.

Staff will prepare technical evaluations of the proposals based upon each agency’s ability to effectively address the priority needs and upon the evaluation factors contained in the Human Services policy. Staff’s evaluation, particularly for on-going services, is generally on a per-unit or per-client basis for service to Sunnyvale residents. It takes into account past performance of the agency, as demonstrated in the annual on-site audit and assessment report, as well as its progress in meeting contracted service levels to Sunnyvale residents. Attachment F contains a sample of evaluation forms utilized: the year-end technical audit and assessment prepared by staff; the staff evaluation of prior performance and the current funding request; and, the funding proposal evaluation form completed by the Housing and Human Services Commission.

In the Spring of 2007, based upon the technical evaluation of staff and testimony at public hearings, the HHSC will recommend and City Council will act to allocate CDBG funds to human service agencies.

Agencies which have been traditionally funded through the human services process but which do not meet the definition of “human services” proposed by this report and which do not qualify for CDBG funding (Leadership Sunnyvale, Euphrat and Junior Achievement), will, with Council approval, continue to receive funding through FY 2006-07.

Thereafter, they will be directed to appropriate City departments for consideration of Special Agreements for continuation of the service in accordance with Policy 7.2.4, Relationships with Outside Groups. For example, Euphrat would meet with the Director of Parks and Recreation and submit a proposal for continued funding through the budget of the Department. The Director would consider the service provided by Euphrat in the context of all other recreational services, and include whatever funding level he believes appropriate in his budget request to the City Manager, who would, in turn, consider it for her proposed budget to the City Council. In the first year, it would take the form of a Budget Supplement, so as to be highlighted for the Council. Even if the supplement is not recommended by the Director or the City Manager, the supplement would be forwarded to City Council for consideration so that Euphrat could make its case directly to the Council. Once approved by the Council, a Special Agreement (contract) will be implemented, and performance will be monitored as with all other Special Agreements by the Department.

The City Manager will consider in her proposed budget for FY2007-2008 any supplemental funding for human service agencies as recommended by the Housing and Human Services Commission. The recommendations of the Housing and Human Services Commission will be forwarded to the City Council so that they may be considered as part of the budget review and adoption process.

In addition to the revision of the Human Services Policy, staff is recommending a minor clarification of the policy on Relationships with Outside Groups 7.2.4. The words “Human Services” are added to the first paragraph under Financial Support to distinguish groups eligible for funding under this paragraph from groups eligible for funding under the next paragraph on Special Agreements.