May 9, 2006

SUBJECT:      FY 2006-2007 Action Plan: Recommendations for Appropriation of Community Development Block Grant (CDBG) and HOME Funds and Recommendations Regarding Support to Outside Groups

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 Investment Partnership Program (HOME).  This report submits to the City Council for its approval the proposed FY 2006-07 Action Plan.

The Action Plan allocates CDBG and HOME funds for FY 2006-07.  It allocates   $3,234,347 of CDBG funds, including the 2006 program year grant of $1,271,752, $1,700,000 of program income in the revolving loan fund (including $475,000 of anticipated  program income), and $262,595 of disencumbered funds for reallocation. The Action Plan allocates $703,400 of HOME funds. The proposed allocations are in accordance with the Consolidated Plan adopted in 2005.  These funds are proposed to fund the following activities:  outside group service agencies, capital projects including public facility expansion, program administration, fair housing services, rehabilitation of single-family and multi-family homes, the home access program, housing acquisition, and ADA sidewalk improvements.

The funding for Outside Groups represents the second year of a two-year funding cycle, and is consistent with the actions taken by City Council for FY2005-06. The amount of General Funds proposed to support Outside Groups through the Human Services Policy totals $97,458 and these recommendations are included with the recommendations of CDBG funding to Outside Groups.

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.  Last year, Sunnyvale submitted its third Consolidated Plan for the years 2005-2010. The 2006-2007 Action Plan is the second 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.  On April 11, 2006 Council approved amendments to the Human Services Policy, 5.1.3, which will allow Council to consider services of outside groups, who are not human service providers, together with all other public services supported by the General Fund.  The revised process will become effective at the beginning of the next two-year funding cycle for FY 2007-08 and FY 2008-09 in the Fall of 2006.  Those revisions do not affect the proposed outside group funding for FY 2006-07.

DISCUSSION

The 2006-07 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 A.  The City will have a total of $3,234,347 in CDBG funds for fiscal year 2006-07.  This represents $1,271,752 in new grant funds and approximately $475,000 in anticipated program income to be received from repayment of housing rehabilitation loans, $1,225,000 of program income reserved in the revolving loan fund and $262,595 of unexpended prior year CDBG funds to reallocate to new activities.

The City will have a total of $703,400 in HOME funds for fiscal year 2006-07, 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

FY 2006-07

   TABLE II

HOME Funding Allocations

FY 2006-07

The Action Plan provides a listing of all the activities to be undertaken during the program year.  These include rehabilitation of single-family and multi-family homes; the home access, paint and emergency repair programs; improvements to sidewalks for ADA accessibility; housing acquisition; Outside Group funding and, funding of the expansion of Columbia Neighborhood Center including the preparation of a Section 108 Loan Application to HUD.

Funding for Outside Group Service Agencies:

CDBG funds have decreased by 10.4% or $147,065 this year.  This decrease has occurred due to reductions in appropriations at the federal level. A total of $271,600 is available for outside agencies in 2006-07, compared to $350,000 in 2005-06.  The 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 (2005-06) may be committed to public services in any program year.  In the 2005-06 program year, Sunnyvale was able to increase funding to public service agencies due to a substantial increase of program income received in 2004-05 which was derived from the sale of a property originally purchased with CDBG funds.    Early payoffs on loans continued to reduce amortized loan repayments this year (2005-06).  The maximum projected program income in March this year was $540,600, which when combined with a reduced grant allocation of $1,271,752, leads to a permitted funding to outside groups for public services during the FY 2006-07 program year of $271,600. 

FY 2006-07 is the second year of a two-year funding cycle to provide funding to human service agencies.  During the second year of funding, the City does not solicit applications; rather, those agencies which have met or exceeded performance standards are recommended for funding for a second year, with a funding reduction in proportion to any reduction in available federal CDBG or General Fund support.   

This year, the City considered continued funding of 20 non-profit service agencies. During their February meeting, the Housing and Human Services Commission (HHSC) reviewed the performance of each human service agency for FY 2004-05 and the current year performance from July 2005 through January 2006.  Oral presentations were made by outside human service groups that had not achieved anticipated performance levels, Friends for Youth and Community Association for Rehabilitation. 

At their March meeting the HHSC made funding recommendations, based upon the requests of the agencies, their performance records and the amount of funds available for the FY 2006-07 program year.   The Commission discussed at length the performance of the agencies, how to allocate equitably the funding between agencies that are exceeding their goals, those agencies that are under-performing, and the percent of performances achieved versus the program plan.  The Commission compared the total amount of funds available to outside groups in FY 2005-06 (CDBG and General Fund combined) of $447,458 versus the total amount of funds available to outside groups in  FY 2006-07 (CDBG and General Fund) of $369,058.  This calculated as an overall reduction of 17.6% of funding (CDBG and General Fund) for outside group support. 

Table III presents the HHSC recommendations for funding outside groups in FY 2006-07 totaling $271,600 in CDBG funding and $97,458 of General Funds. A slight variance in the total occurred from the use of percentage calculations and rounding.

       TABLE III

HHSC Recommendations for Funding Outside Groups

FY 2006-07

This includes a recommendation of an additional reduction of funding for two agencies (Friends for Youth and Community Association for Rehabilitation) of $1,000 each, as a result of each agency’s performing below contractual goals.  The reduction recommended by the Commission is equal to approximately 5% for Friends for Youth and 15% for the Community Association for Rehabilitation.

The HHSC recommendation included the across the board reduction to all other agencies (CDBG and General Fund supported) of 17.46%, with an equal redistribution of a total of $2,000 of (CDBG) funds deducted from two agencies (Friends for Youth and Community Association for Rehabilitation) to all other eligible CDBG agencies.

In light of the 22% budget overall reduction for CDBG outside groups ($350,000 in 2005 versus $271,600 in 2006), staff reviewed alternative ways to calculate the reductions of funding including alternative ways to view General Fund support.  One alternative was to reduce all CDBG support to agencies by the 22% overall reduction, then reallocate the $2,000 deducted from two agencies to all CDBG agencies in proportion to their pro-rata share of the grant.  The total reduction to all agencies excluding the two under-performing agencies is 16.77% when considering both CDBG and GF funds.  This reduction is then applied to all performing agencies so that the General Fund total remains at $97,458.  In effect, General Fund monies are used to subsidize the CDBG funding for all performing agencies so that each agency received a lower net reduction of 16.77% instead of the overall CDBG reduction of 22%.

Included below is a proposed reduction of funding for all agencies, equal to 16.77% of current FY 2006-07 funding (CDBG and General Fund).

AB      TABLE IV

Staff Recommendations for Funding Outside Groups

FY 2006-07