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PUBLIC HEARING: FY 2024-2025 ANNUAL ACTION PLAN FOR THE COMMUNITY DEVELOPMENT BLOCK GRANT, HOME INVESTMENT PARTNERSHIPS, AND EMERGENCY SOLUTIONS GRANT PROGRAMS AND SLUM BLIGHT AREA MAP
recommended action
RECOMMENDATION
It is recommended that the City Council adopt a resolution:
1. Approving the FY 2024-2025 Annual Action Plan and the estimated Sources and Uses of Funds for the Community Development Block Grant (CDBG), HOME Investment Partnerships Program (HOME), and Emergency Solutions Grant program (ESG) awarded by the U.S. Housing and Urban Development Department (HUD); and
2. Authorizing the City Manager, or designee, to make the appropriate adjustments to the FY 2024-2025 Annual Action Plan and Sources and Uses and for the CDBG, ESG, and HOME programs upon HUD’s publication of the official 2024-2025 CDBG, ESG, and HOME grant awards to the City of Stockton; and
3. Approving a Slum Blight Area (SBA) map developed by RSG, Inc. pursuant to the CDBG regulations at 24 CFR 570.208(b)(1) to allow the use of CDBG funds for SBA National Objective related activities; and
4. Authorizing the City Manager, or designee, to execute and submit all documents to the U.S. Department of Housing and Urban Development, execute contracts with sub-recipients, and to take actions necessary and appropriate to carry out the purpose and intent of the resolution.
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Summary
The U.S. Department of Housing and Urban Development (HUD) requires jurisdictions to prepare an Annual Action Plan (AAP) (Exhibit 1 to the Resolution) to receive Community Development Block Grant (CDBG), Home Investment Partnerships (HOME), and Emergency Solutions Grant (ESG) funding. The AAP identifies the specific projects to fund during the year to accomplish the goals established in the Five-Year Consolidated Plan as listed in the proposed Source and Uses of Funds (Exhibit 2 to the Resolution). HUD requires that a Slum Blight Area (SBA) be officially designated by the jurisdiction when CDBG funds are used to aid in the prevention or elimination of slums or blight (Exhibit 3 to the Resolution). The AAP and related information must be submitted to HUD by May 15, 2024 to meet HUD’s funding allocation deadlines.
DISCUSSION
Background
2024-2025 Annual Action Plan
To receive annual federal entitlement funds (CDBG, HOME, and ESG), HUD requires jurisdictions to prepare an AAP. The 2024-2025 AAP represents year five (5) of the 2020-2025 Consolidated Plan and identifies the specific projects and activities that the City will fund during the year to help accomplish the goals established in the City’s Five-Year Consolidated Plan. The AAP contains funding recommendations for CDBG, HOME, and ESG funds for the upcoming program year 2024-2025. The AAP recommendations align with local established adopted goals and metrics, HUD requirements, and best practices.
Using award amounts from the previous program year as projected grant awards for FY 2024-2025, the City expects to receive approximately $3,220,474 in CDBG funds, $1,760,707 in HOME funds, and $275,046 in ESG funds. Final award amounts and distribution among the different projects/activities identified in this AAP and sources and uses will be proportionately increased or decreased upon HUD’s official announcement of FY 2024-2025 allocations.
Slum Blight Area
The CDBG Slum Blight Area (SBA) national objective allows the use of CDBG program funds to fund activities aimed at preventing or eliminating slums or blight. Since 1996, Stockton has used a portion of CDBG funds in addressing slum and blight through various programs, including the Commercial Façade Improvement Forgivable Loan Program. The programs have aided in revitalizing blighted commercial properties within the previous Redevelopment Project Areas, which also met the definition for HUD’s Slum Blight Area designation.
Pursuant to HUD guidelines, 24 CFR 570.208(b)(1), an activity will be considered to address prevention or elimination of slums or blight on an area basis if:
i) The area “meets a definition of a slum, blighted, deteriorated or deteriorating area under State or local law”;
ii) The area also meets the conditions in either paragraph (A) or (B):
A) At least 25 percent of properties throughout the area experience one or more of the following conditions:
1) Physical deterioration of buildings or improvements;
2) Abandonment of properties;
3) Chronic high occupancy turnover rates or chronic high vacancy rates in commercial or industrial buildings;
4) Significant declines in property values or abnormally low property values relative to other areas in the community; or
5) Known or suspected environmental contamination.
B) The public improvements throughout the area are in a general state of deterioration.
In order for SBA designation to remain eligible, the City must maintain documentation on the boundaries and conditions of the area, as well as the methodology used to delineate the area. Furthermore, the designated area must be redetermined every 10 years for continued qualification.
Activities assisted with CDBG funds must address one or more of the conditions that contributed to the deterioration of the area.
Community Input and Funding Process
The initial planning process for the development of this AAP began through a community meeting held on December 6, 2023 by the Community Development Committee (CDC) with an overview of the 2024-2025 Annual Action Plan process, the Public Service NOFA, and related AAP planning process.
The 2024-2025 Notice of Funding Availability (NOFA) for CDBG public services and ESG homeless services programs was launched on January 9, 2024 and closed on February 2, 2024 with applications being received through the City’s online grant application portal.
The Annual Action Plan has been prepared in accordance with citizen participation requirements with publication of public notices announcing the availability of the Annual Action Plan and the 30-day public review period March 15 to April 16, 2024. Finally, the AAP was vetted through the Community Development Committee (CDC), an advisory body of the City Council, on March 27, 2024. The Slum Blight Area map was also part of the citizen participation review process.
Present Situation
Below is an overview of each funding source and a summary of recommended funding for each program within the FY 2024-2025 Annual Action Plan:
Community Development Block Grant Program (CDBG)
CDBG is a flexible program that provides funding to address a wide range of community development needs that benefit low-income residents. Cities with more than 50,000 people and counties with a population of more than 200,000 are eligible to receive this funding from HUD as an entitlement grantee. Each year, HUD determines the CDBG allocation using a formula that considers the total population, the number of persons in poverty, housing overcrowding, and the age of the housing units within the jurisdiction. Program regulations require that all CDBG funded projects address at least one of three national objectives: (1) assist low-income persons, (2) eliminate slum and blighted property, or (3) meet an urgent community need. The City must annually report to HUD how each organization receiving CDBG funding met at least one of the three national objectives, and all other HUD and Office of Management and Budget (OMB) program guidelines.
CDBG funding caps:
i. In accordance with HUD regulations, twenty percent of the annual entitlement grant may be used for program administration costs.
ii. The City may allocate up to 15 percent of its annual CDBG grant to support operational costs of local organizations that provide essential public services to low-income persons.
iii. Remaining funds can be used for a range of activities, including:
a. Rehabilitation of residential and commercial property
b. Demolition
c. Public facilities and improvements
d. Economic development
e. Public services
The total CDBG sources of funds available for the 2024-2025 program year is estimated to be $5,447,908 which includes $3,220,474 of new Entitlement, $1,344,493, of program income and $882,941 of estimated reprogrammed funds. The activities recommended for funding for the 2024-2025 program year are summarized below.
Housing Programs
The City has three active CDBG/HOME funded affordable housing programs:
i. The Emergency Home Repair Program (EHRP) is designed to assist low-income homeowners in addressing emergency housing problems that represent an immediate health and safety danger to the occupants. EHRP loans are funded from the CDBG Revolving Loan (RL) fund, a separate fund where CDBG loan repayments are placed and reused for new loans.
ii. The Housing Rehabilitation Program is designed to maintain low-income community members’ ability to have safe living conditions and prevent displacement. The current program guidelines are being updated to better reflect the needs of the community and serve more residents. In 2024-2025, EHRP assistance will be provided via the Housing Rehabilitation Program, thereby combining both programs into one. The Housing Rehabilitation and Emergency Repair Program will have a combined allocation of $750,000.
iii. CDBG Housing Loan Program: Eligible uses include providing loans to affordable housing developers for Multi-family Housing project rehabilitation and/or eligible costs related to the development of low- and moderate-income multi-family housing. The program has an allocation of $2,283,813.
Economic Development Programs
The City plans to fund several programs to assist local businesses. These include:
i. The Commercial Rehabilitation Programs will consist of the Commercial Façade Improvement Forgivable Loan Program for exterior rehabs and Commercial Emergency Grant Program to address infrastructure code compliance of blighted properties; allocation $450,000.
ii. The Business Support Programs will consist of direct financial assistance programs for for-profit businesses such as the Produce Grant Program, Commercial Emergency Grant if it is for equipment to correct code violations that prevent a small business from operating (i.e. upgraded hood with fire suppression system for a restaurant), and potentially rebranding of the Micro Storefront Program; allocation $250,000.
iii. The Stockton Entrepreneurship Program will support efforts around technical assistance for for-profit businesses; allocation $250,000.
CDBG Public Service Sub-recipients
Through the 2024-2025 NOFA process, the City received 13 applications for CDBG/ Public Services programs. Applications were submitted through the City’s online portal (Attachment A - CDBG/ESG Application Summary and Recommendation). Review and selection of eligible applications was conducted in a two-tiered process:
i. Technical review and risk assessment where an EDD committee reviewed all applications to determine compliance with stringent HUD regulations including conflict of interest requirements, followed by staff’s scoring of those applications that passed the risk assessment and technical review. Of the 13 applications received, three were deemed eligible and passed to the next NOFA phase.
ii. The Community Development Committee (CDC) held a public meeting on February 21, 2024, where applicants that met the NOFA scoring thresholds provided a presentation to the CDC. The CDC scored each applicant’s presentations and had the ability to modify the EDD’s committee scoring only as outlined in the NOFA guidelines. Final scoring results and recommendations were presented to CDC on March 27, 2024. Up to $470,000 is being recommended toward eligible public service activities, including fair housing
CDBG Administration/ Program Delivery Costs
This category includes CDBG program administration, the costs associated with daily operations, such as staff costs to administer the program, materials and supplies, training, and consultant services. Program Delivery includes staff costs attributed directly to projects and project delivery costs, such as obtaining title reports and appraisals. Total Administration/Oversight costs for 2024-2025 are allocated as $644,095, and Program Delivery allocation of $350,000.
Slum Blight Area Designation
In 2023, RSG, Inc. completed a reevaluation of the previous Slum Blight Area as well as the current Opportunity Zones census tracts. Using available data, conducting a field study for physical assessments, and considering the City’s and Council’s goals of revitalizing downtown and Shape Stockton initiative, the Slum Blight Area was determined to include a 5.62-sqaure mile area located in central/south Stockton. The area is primarily composed of Downtown Stockton, the Little Manila/Gleason Park area, South Airport Way Corridor, and Cabral/East Cabral area.
The evaluation determined that 34 percent of properties within the Slum Blight Area exhibit one or more forms of HUD’s condition of blight. The area also met the slum and blight criteria established under State law (California Health and Safety Code Section 33030 and 33031(a)(1)) and local law (Stockton Municipal Code Section 8.36.040). Therefore, the area qualifies as a slum and blighted area under the CDBG program regulations, and the SBA national objective will be used in deploying CDBG-funded activities and programs to assist in revitalizing vital commercial corridors and public infrastructure.
Emergency Solutions Grant Program
The Emergency Solutions Grant (ESG) is an entitlement funding source from the Department of Housing and Urban Development (HUD) and the eligible activities include street outreach, emergency shelter, homeless prevention, rapid rehousing assistance, Homeless Management Information System (HMIS), and program administration. The purpose of the ESG program is to provide essential services to homeless individuals and families. HUD limits the amount of a jurisdiction’s ESG grant that can assist emergency shelters and street outreach activities to no more than 60 percent of the total ESG allocation. In addition, the City can allocate up to 7.5 percent of the grant for program administration.
Through the 2024-2025 NOFA process, the City received 7 applications for ESG Homelessness Service programs. Review and selection of eligible applications was conducted in a two-tiered process:
i. Technical Review and risk assessment where an EDD committee reviewed all applications to determine compliance with stringent HUD regulations including conflict of interest requirements, followed by staff’s scoring of those applications that passed the risk assessment and technical review. Of the 7 applications received, three were deemed eligible and passed to the next NOFA phase.
ii. The Community Development Committee (CDC) held a public meeting on February 21, 2024, where applicants that met the NOFA scoring thresholds provided a presentation to the CDC. The CDC scored each applicant’s presentations and had the ability to modify the EDD’s committee scoring only as outlined in the NOFA guidelines. Up to $254,418 is being recommended toward eligible ESG activities including emergency shelter operations and homeless prevention assistance (Attachment A - CDBG/ESG Application Summary and Recommendation).
HOME Investment Partnership Program
Local governments must use HOME funds to create affordable housing for low- and moderate-income households. HOME funds are awarded annually as a formula grant to participating jurisdictions. The Housing and Urban Development Department (HUD) allows state and local governments to use HOME funds for grants, direct loans, loan guarantees, and other forms of credit enhancement.
HOME funds can be used for four primary activities: homebuyer programs, homeowner rehabilitation programs, rental housing programs, and tenant-based rental assistance. The maximum income of a household assisted by a HOME funded project must not exceed 80 percent of the area median income (AMI).
The estimated total sources of funds available for the 2024-2025 program year is $2,555,811 including $1,760,707 of new Entitlement, $200,000 of estimated Program Income, and $595,104 of the Prior Year’s Program Income.
HOME Program Administration/Loan Fund
Program Administration includes the general costs associated with the administration and oversight of the HOME program. A jurisdiction may spend up to ten percent of its entitlement and program income on administrative costs. Like CDBG Program Delivery, Housing Program Delivery includes staff costs attributed directly to specific housing projects.
The HOME Loan Fund sets aside HOME funds to be made available via loans for multi-family developments. In January 2024, the City released an Affordable Housing NOFA making available $16 million of several state and federal funding sources including HOME. The City may recommend HOME loan funds to support project completion of eligible programs in which site control has been obtained and additional sources of funds identified. Staff will bring all future funding recommendations to Council for final approval.
Community Housing Development Organizations (CHDO) Project Assistance
HUD regulations require that 15 percent of the City’s HOME allocation be reserved for affordable housing projects undertaken by Community Housing Development Organizations (CHDO), which are community-based organizations that develop affordable housing that meet HUD’s requirements for CHDO certification. The estimated total funds allocated for CHDO in the 2024-2025 program year is $264,106.
Notification
In conformance with HUD’s requirements and the City’s Citizen Participation Plan (CPP), a summary of the AAP and a notice of the public hearing were printed in the Record on March 12, 2024, and in the Latino Times on March 6, 2024. A copy of the draft Annual Action Plan is posted on the City’s website, and a hard copy is available at the City’s Economic Development Department.
Two community meetings were held to present the Annual Action Plan as part of the City’s Citizen Participation process. The first community meeting was held on March 20, 2024, to present the draft AAP and SBA map. The second meeting was held on March 27, 2024, held by the CDC to present the draft AAP to the committee and the community.
As part of the CPP process, the Annual Action Plan will be presented to the City Council on April 16, 2024 during a public hearing, providing the opportunity for public comment.
FINANCIAL SUMMARY
The AAP includes actual appropriations from HUD to the Economic Development Department’s FY 2024-2025 budget: CDBG, HOME, and ESG. These appropriations will help fund Housing Programs/Affordable Housing, Subrecipient Assistance, and Economic Development Programs. These appropriations depend on federal budget appropriations and receipt of funds from HUD.
To ensure compliance with the broad range of federal and local grant regulations, twenty percent of CDBG funding, projected at $644,095; approximately ten percent of the HOME allocations, projected at $287,000; and seven and a half percent of ESG funds, projected at $20,628, will be used to administer the grants, for a total of $951,723, and will be budgeted as part of FY 2024-2025 budget development process. The CDBG, HOME, and ESG program administration includes completion of environmental reviews, monitoring of Federal prevailing wage requirements for projects, disbursement of funds, contract and invoice management, and monitoring each sub-recipient to ensure funds are expended according to the City contract, HUD, and OMB regulations.
Attachment A - CDBG/ESG Application Summary and Recommendations