The City Council is scheduled to hold a public hearing on the allocation of the City of Billings CDBG and HOME funding and annual Action Plan for FY2012-2013. The public hearing is a mandatory condition to receive U.S. Department of Housing and Urban Development (HUD) entitlement funding. City Council action is needed to approve the FY2012-2013 Action Plan and budget recommendations in preparation for HUD’s submission deadline for the annual Action Plan on May 15 (see Attachment A). This Action Plan represents the third year of the City's overall five-year Consolidated Plan covering FY2010-2014. An additional informational presentation was made during an April City Council Work Session.

1) Hold a public hearing and approve the allocation of CDBG and HOME funding and the FY2012-2013 Action Plan as recommended by Staff and the Community Development Board.

2) Hold a public hearing and approve the allocation of CDBG and HOME funding and the FY2012-2013 Action Plan based on alternative funding strategies as determined by the City Council (Please refer to the Funding Allocation Requirements section of the Council memo).

3) Do not hold a public hearing and do not approve allocations of CDBG and HOME funding and the FY2012-2013 Action Plan and return funding to HUD.

The Congressional budget for CDBG and HOME has been set to date for the City’s FY2012-2013, reflecting a 21% overall budget decrease in new funding since last year. The City is receiving allocations of $570,374 in new CDBG funding and $314,609 in HOME funding; a nearly $235,000 decrease since last year. Program income and funding remaining from completed projects brings the totals projected for allocation for this fiscal year to $847,640 for CDBG and $442,686 for the HOME program.

Federal revenues projected for the CDBG and HOME programs are provided through HUD (see Attachment B). Staff and Community Development Board recommendations are attached (see Attachment C) and comply with funding limitations.

INTRODUCTION
The Community Development Board has completed the recommendations and public input process for the allocation of CDBG and HOME funding for FY2012-2013. Also considered during this process is the City’s FY2012-2013 Action Plan, which addresses needs identified through the Housing Needs Assessment (2010) and the Analysis of Impediments to Fair Housing Choice (2007). The drafted plans can be viewed online at www.ci.billings.mt.us/CDreports.

The five-year Consolidated Plan for FY2010-2014 is required for participation by the City of Billings in HUD programs, including: CDBG and HOME; homeless programs funded under the McKinney-Vento Act; and the Housing for Persons with AIDS (HOPWA) program. The City of Billings does not receive McKinney-Vento or HOPWA funds, therefore the City's Consolidated Plan and Action Plans are focused on CDBG and HOME activities.

The purpose of the Consolidated Plan is to identify the housing and community development needs of low-income households in Billings and develop strategies for addressing those needs in a comprehensive, coordinated fashion utilizing available federal and non-federal resources. The Consolidated Plan and Action Plan serve as planning tools for the City’s CDBG and HOME programs and combines the planning and application requirements for the City’s HUD-funded programs. This allows program planning and citizen participation to take place in a comprehensive context covering both programs.

PROCEDURAL HISTORY
The City of Billings has been receiving CDBG funds since the mid-1970s and HOME funds since the early 1990s. These funds are provided by the federal government and are primarily targeted in Billings to address the affordable housing and neighborhood revitalization needs of the community.

In allocating CDBG and HOME resources, the Community Development Division facilitates an extensive process to gather public input on the use of federal funds. Applications were available at the beginning of December and due at the end of January. Applications are then forwarded to the Community Development Board and recommendations are prepared for the City Council consideration. Task force input was requested in February and March on housing and neighborhood projects (see Attachment D). The Community Development Board held budget hearings on the use of the CDBG and HOME resources on March 15 and prepared preliminary recommendations on April 3.

The City Council public hearing is required by the Federal government and is part of the 30-day public comment period on the program beginning March 23 and extending to April 23. The City Council is also scheduled to act on the CDBG and HOME programs during the April 23 meeting. An application will then be submitted by HUD’s May 15 deadline for review and, pending HUD approval, the program year will begin July 1.

FUNDING ALLOCATION REQUIREMENTS
Allocation recommendations conform to pre-determined spending requirements on several categories including: CDBG and HOME Administration caps (maximum of 20% and 10% of new funding prospectively); Public Service Caps (up to 15% of new CDBG funding); and Community Housing Development Organizations (at least 15% of new HOME funding).

Changes within funding requirements are allowed within certain categories. Affordable Housing and Neighborhood Project funding amounts can be exchanged. A change in the Public Services category should result in an equal change in the same category. Changes made out of compliance with federal spending requirements would place the City’s entitlement for federal funds at risk.

The allocation of funding is restricted by the eligibility requirements for CDBG and HOME funding. Projects are focused on activities that promote new affordable housing or preserving the existing supply of affordable housing and neighborhoods where the affordable housing stock is located. The applications for housing and neighborhood activities are consistent with this focus. The Community Development Board reviewed the proposed projects and analyzed various alternatives for funding.

The City is required to provide no more than 20% of its CDBG funding for administration and planning type activities ($168,821), and no more than 10% of HOME funding for administrative purposes ($31,461). The City must also provide at least 15% of its annual HOME allocation ($47,191) for activities carried out by Community Housing Development Organizations (CHDOs). The City may, but is not required, to allocate up to 15% of CDBG resources ($109,280) to nonprofit organizations or other projects classified as public service activities, ranging from daycare to crime prevention activities.

BUDGET RECOMMENDATION
There is no doubt that the applicant organizations are worthy of funding, have a great social service need to meet with additional funding, and that City resources would be beneficial to their programs. There is, however, the reality of decreased funding allocations for this and future years to come. Staff projects an additional 9 - 10% decrease in funding next year (approximately $88,500); this would bring the total budget decrease for this year and next year to $323,000.

Recommendations from Staff and the Community Development Board reflect the following considerations: 

• Long-term sustainability of operating loan programs rather than issuing grants, which will never be recouped by the City to use in future projects. 
• Current and historical prioritizing of CDBG / HOME programs by Neighborhood Task Forces, favoring home repair and home buyer programs. 
• All applicants were briefed prior to the application process on the state of the budget and the possibility of funding not continuing to support grant programs prior to the budget allocation process via email and in the application documents. 
• Community Development Board members questioned each applicant during the on-site visitation process regarding the impact of not receiving funding for each of the programs. Impact in each case reviewed by the Board for all applicants during the April 3 recommendation session. The Board members felt that each organization had a plausible plan of action to accommodate a “zero funding” recommendation for City funds.
• Funding from the City should be considered a capacity-building effort for organizations to become fully self-sustaining; this does not happen with continued annual grant allocations. 
• Organizations applying for funding have received City grant support ranging from $55,649 to $923,850; some organizations have received funding annually from the City since the mid-1990s and have had years to become fully self-sustaining.

Specific budget recommendations include the following: 

• Administration in CDBG and HOME set at maximum caps for the programs.
• Mandatory allocation of 15% of new HOME program funding set aside for Community Housing Development Organizations - as per funding regulation. 
• $559,034 for the First Time Home Buyer Loan Program; this program has no forgiveness feature. 
• $350,000 for the Housing Rehabilitation Loan Program - with changes to the program allowing emergency repairs secured with Trust Indenture on stick-built homes and eliminating a forgiveness feature. 
• $133,819 to be allocated to a program patterned after the former Minor Home Repair grant program. The new Manufactured Home Repair Loan Program would contain, but is not limited to, the following features (based on Housing Rehabilitation Loan program standards):
  • Liens would be placed on manufactured homes for all repairs; this program would not be a grant program.
  • Trees impacting the housing unit can be removed / trimmed with this loan and exterior painting can also be included with this loan. This change would accommodate recommendations for zero funding in separate programs.
  • Current credit report would reflect no late house payments for one year. 
  • Unit must be owner-occupied for at least a year.
  • No forgiveness feature for the lien, but the City would accept net proceeds on sale if the proceeds are less than the loan amount. 
  • City is to be listed as an additional insured at closing. 
  • Maximum loan amount allowed to be carried on a unit (including existing liens and the City’s repair lien) would be based on a sliding scale, up to $10,000 maximum. For example, newer units that are 10 years old or less would be able to carry 100% of the value of the unit. Older units (21 years old, up to 1976) would be allowed to carry 70% of the value. 
  • Further program development would be completed on the program prior to launch on July 1, following historical research and Community Development Board discussion / approval of program guidelines.

APPLICATIONS
The City received 12 applications for housing and neighborhood (bricks and mortar) activities and 6 applications for public service funding (social services). Application summaries for activities proposed this year are included as Attachment E. CDBG and HOME resources represent the main federal commitment to communities to address the need to preserve the existing supply of affordable housing and promote the development of new affordable housing. Few other federal, state or local resources are available to address these housing needs.

PUBLIC COMMENT
Comments of the speakers at the public hearings may relate to funding amounts awarded, activities prioritized for funding with lower federal revenue allocations, and general comments regarding the Action Plan for FY2012-2013.

Stakeholders for CDBG and HOME programs include:

1) Applicants for funding - The City receives applications from a variety of organizations which apply for public service funding or for housing funding, such as, Living Independently for Today and Tomorrow and Interfaith Hospitality Network. A summary of the applicants is included as Attachment D and applications are available online: www.ci.billings.mt.us/comdev.

2) Neighborhood Task Forces – The task forces communicate neighborhood needs and solutions to those needs utilizing both CDBG and HOME resources. Task forces are also asked to prioritize housing and neighborhood applications. These priorities have been provided in Attachment D for your review. Funding recommendations are in alignment with Task Force priorities including emphasis on housing repair and first time home buyer programs.

3) The Community Development Board - As an advisory body to the City Council, provides detailed oversight to both the CDBG and HOME programs throughout the year and facilitates an extensive process to prepare recommendations for the City Council consideration.

Projects proposed for consideration are consistent with the goals and objectives of the FY2010-2014 Consolidated Plan and the drafted FY2012-2013 Action Plan for the use of CDBG & HOME resources in Billings. The following strategies have been adopted by the City Council in the five-year Consolidated Plan to address Billings’ housing and community development needs:

Strategy A. Promote the preservation of the existing supply of safe, affordable housing in the community.

Strategy B. Promote new affordable housing opportunities.

Strategy C. Work as an active partner with non-profits, neighborhood groups, and others to address housing and community development specific to lower income and special needs households.

Strategy D. Promote the preservation and revitalization of the community’s older neighborhoods.

Strategy E. Provide assistance to agencies serving lower income households and special needs populations, particularly the homeless, public service activity funding to assist the homeless, the elderly, and those with disabilities.

Additional information regarding each strategy is located in Attachment A.

ESTABLISHING COMMUNITY NEED
Community needs have been primarily identified through the 2010 Billings Housing Needs Assessment completed internally by City staff and the 2007 Analysis of Impediments to Fair Housing Choice This assessments were undertaken utilizing focus groups, individual interviews, a community survey, and an examination of census and housing market data.

HOUSING NEEDS
Primary strategies are proposed in the Consolidated Plan to meet the diverse needs of lower-income households in the community. These needs have been identified through the Billings Housing Needs Assessment. The Assessment was undertaken utilizing focus groups, individual interviews, a community survey, and an examination of census, economic and housing market data. This work and input from neighborhood groups and community partners resulted in the identification of the following characteristics of the community that the City will attempt to address with housing and community development activities:

1. The national recession has had some affect on housing prices in Billings, specific to homeownership, as the median home sale price in 2009 was lower than in 2008. This coupled with an increase in median household income has assisted in reducing the affordability gap. However, a four-person household earning 80% of the median household income would not be able to afford a median priced home in 2009 ($177,500).

2. Approximately 437 new housing units are needed annually in Billings to keep up with historical growth patterns. For the past four years, building permit records indicate that the need for 437 new units has been met. This finding does not consider affordability of the housing units created.

3. The preservation of existing supply of affordable housing is an important factor influencing affordability for existing home owners and potential home buyers.

4. Supporting infill development and infrastructure would assist the City in preserving existing, older neighborhoods where the affordable housing stock is located.

5. About one-third of the people renting housing in Billings and looking to buy a home would prefer to purchase manufactured housing.

6. The national recession had a limited affect on rental housing prices in Billings. The affordability gap with rentals remains high. Rent and deposit assistance programs are crucial for low-income households, particularly for those with special needs (elderly, disabled, homeless).
 
7. An aging population and the associated increase in the percentage of the population with disabilities indicate a continued need for the implementation of Universal Design concepts in housing construction and rehabilitation.

HOUSING OBJECTIVES
Consolidated Plan strategies are identified following each objective:

1. Home buyer assistance is still needed to close the affordability gap, and has been provided through the First Time Home Buyer program. The Affordable Housing Development program can also be utilized to develop affordable housing (Strategy B).

2. Support affordable housing development at the same levels. This goal is dependent on consistent levels of funding through CDBG and HOME programs (Strategy B).

3. Provide affordable financing opportunities for housing repair to maintain the affordable housing stock (Strategy A).

4. Provide CDBG / HOME financing opportunities through routine allocation processes and the Affordable Housing Development program (Strategy B).

5. Offer affordable financing through the Affordable Housing Development program (Strategy B).

6. Provide affordable financing for rental housing development / repair through the Affordable Housing Development program and deposit / rent assistance through Tenant Based Rental Assistance and Public Service grants (Strategies B and E).

7. Prioritize Universal Design in Request for Proposal processes and also through the Affordable Housing Development program (Strategy B).

FAIR HOUSING NEEDS
The Analysis of Impediments to Fair Housing Choice was completed in December 2007 by the Center for Applied Economic Research, Montana State University - Billings. The following impediments are listed in order of severity - the most critical issues are at the top of the list:

1. Many members of protected classes do not appear to understand their housing rights under fair housing regulations.

2. Some landlords, property owners, and realtors do not act consistent with knowledge of fair housing regulations.

3. Income, credit, and housing affordability issues are tied to fair housing issues.

4. Lack of funding hampers the effectiveness of local services working on behalf of fair housing protected classes.

5. The lack of hard data concerning the effectiveness of specific fair housing programs hampers the goal of improving the delivery of fair housing services.

FAIR HOUSING OBJECTIVES
Consolidated Plan strategies are identified following each objective:

1. Assist in the production and dissemination of consumer education on fair housing issues (Strategy C).

2. Re-evaluate the effectiveness of existing fair housing educational materials (Strategy C).

3. Plan for increasing significance of age-related disabilities (Strategy C).

4. Assist in the education of landlords, property owners and realtors on Fair Housing responsibilities (Strategy C).

5. Increase awareness among American Indians and other protected classes the location of available housing units (Strategy C).

6. Improve housing affordability (Strategies A, B, and E).

7. Provide credit education (Strategy E).

8. Revise existing fund model for fair housing education (Strategies C and E).

9. All fair housing outreach and education efforts should include measureable goals (Strategy E).

The FY2010-2014 Consolidated Plan, the drafted FY2012-2013 Action Plan, the 2010 Housing Needs Assessment and 2007 Analysis of Impediments to Fair Housing Choice can be found online: www.ci.billings.mt.us/CDreports.

City staff and the Community Development Board have made recommendations for CDBG and HOME budget allocations for FY2012-2013. The annual Action Plan for FY2012-2013 has been drafted and is ready for Council adoption.

The City Council is asked to consider the input that is received and make a final decision on FY2012-2013 CDBG and HOME budgets and FY2012-2013 Action Plan.