MEMO

DATE: April 1, 2003
TO: Honorable Mayor and City Council
FROM: Brandon Goldman, Assistant Planner
John McLaughlin, Director of Community Development
RE: Community Development Block Grant (CDBG) program update

The U.S. Department of Housing and Urban Development (HUD) has notified staff that they are concerned the City of Ashland will have more than 1.5 times the annual grant in carryover of unexpended funds and therefore be considered untimely at the next review time of November 1, 2003. If this is the case, the City will have 12 months, or until November 1, 2004, to spend the excess funds and meet the timeliness rule. The City of Ashland will not receive approximately $317,000 in future CDBG allocations if the carryover amount is not reduced by the same amount by November 1, 2004.

The federal regulations include a "timeliness expenditure requirement" for the Community Development Block Grant (CDBG) program. Under the CDBG regulations, a grantee is considered to be timely, if 60 days prior to the end of the grantee's program year, the balance in its line-of-credit does not exceed 1.5 times the annual grant. In November 2001, HUD instituted a new policy to reduce future grants when a grantee fails to meet the timeliness rule. The penalty for "newly untimely grantees" is the reduction of the next grant by 100% of the amount in excess of 1.5 times the annual grant.

If none of the outstanding projects are completed, the City will have $470,325 in unspent CDBG funds on November 1, 2003. This results in a timeliness ratio of 2.09 or .59 (approximately $133,000) over 1.5 times the annual grant. If no projects are completed the subsequent year, the City will have $701,730 in unspent CDBG funds on November 1, 2004. This results in a timeliness ratio of 2.74, or 1.24 (approximately $317,000) over 1.5 times the annual grant amount. At this point, under HUD's new timeliness policy, the upcoming City of Ashland CDBG grant allocations would be reduced by the dollar amount in excess of 1.5 times the annual grant, which would be approximately $317,000. This scenario assumes that HUD would continue to delay annual grant allocations for 6 months to a year, and not make the 2004 grant allocation until 2005.

The reason for the current unspent carryover ($470,325 or 2.09 ratio) is a backlog of projects (see attached Table). The City is supposed to complete the projects identified in the annual Action Plan within the year. Almost 2/3 of the unspent carryover if dedicated to two affordable housing projects. The Ashland Community Land Trust (ACLT) was awarded $120,000 in CDBG funds in fiscal year 2001-2002 to purchase land for the future construction of four (4) ownership residential units. The Rogue Valley Community Development Corporation (RVCDC) was awarded $168,750 in fiscal year 2002-2003 to purchase the land at the current location of the Lower Pines Trailer Park for the future construction of a minimum of 15 rental residential units.

The $120,000 award to the Ashland Community Land Trust was to purchase land for the development of 4 affordable housing units. ACLT first identified a property for acquisition on Clear Creek Drive. The identified site did not pass the Environmental Review due to the immediate adjacency to Union Pacific Railroad and the negotiations to acquire the property were therefore ended. The second property ACLT identified was located at 740 Tolman Creek Rd. While ACLT was in negotiations to purchase this property it was sold as a cash transaction for an amount above the asking price. ACLT is currently in negotiations to purchase parcels to be created as part of a recently approved 5-acre, 40-unit, subdivision and annexation.

The Rouge Valley Community Development Corporation has also experienced difficulty in identifying available property to purchase to develop as affordable housing. RVCDC started negotiating with the property owners of a ½ acre parcel that currently contains the Lower Pines trailer Park in April 2002. The plan was to create up to 17 affordable housing units on the site. Residents who make up to $17,000 a year - 60 percent of the area median income, were the intended occupants of the rental units. After many months of negotiations, the development of a relocation plan, and other expenditures related to the expected purchase of the property by RVCDC, the property owners have stopped negotiations and have begun the process of evicting the residents. This is obviously very concerning to the City in that the original award of $168,750 was granted in part to assist in the relocation of residents contingent upon the property being purchased by RVCDC. RVCDC is currently pursuing other potential sites, but have yet to execute an option on any of the identified properties.

The carryover amount will grow and the timeliness problem will increase when the 2003 annual allocation, $256,000, is received. Approximately ¾ of the 2003 allocation, or $193,000, was awarded to RVCDC for land acquisition for the future construction of 10 residential rental units.

Since the penalty for not completing projects and thereby not reducing the unspent CDBG funds carryover is the loss of future CDBG funds, staff will be requiring a progress update from all of the subrecipients with outstanding projects. Each subrecipient will be given 30 days to provide the City with a timeline with the tasks and budget necessary for completion of the project. At the receipt of the project updates, Staff will evaluate the likelihood of the projects being completed in a timely manner. If the progress of a project or projects is unclear, Staff will bring this information back to the Mayor and City Council for further discussion.

The CDBG Funds Carryover and Timelines Ratio document is available in PDF format.  To view this document on your computer please click on the link below:

CDBG_Funds_Timelines_Ratio.pdf (42.9KB)

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