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AGENDA RECOMMENDATION |
Item No: 4.C.
Economic Development Authority
- Meeting Date:
- 12/09/2024
Agenda Item:
Motion approving Community Development Block Grant (CDBG) support to Community Land Trust.
Recommendation/Action(s):
Motion approving CDBG funding for acquisition or rehabilitation under the Community Land Trust.
Summary:
The City of Mankato previously entered into a contract with Partnership Community Land Trust (CLT) for implementation services for a community land trust. Phase One includes three acquisition of existing homes and housing rehabilitation. To date, two homes have been purchased for Phase One. The CLT is working to identify possible homes to purchase the third home. Phase Two includes three new construction homes. To date, one new home was purchased and two homes have started construction which are anticipated to be completed in Spring 2025 to complete Phase Two.
Phase One of the contract with the CLT notes the City is to provide up to $83,333 in project write down grant funding per home for up to 3 homes in Mankato and up to $35,000 per home under the City of Mankato’s Owner-Occupied Housing Rehabilitation Program Guidelines and Policies for rehabilitation to the homes. The contract does not specify the funding source for the acquisition nor rehabilitation activities that are funded by the City.
In past City Council agenda memos regarding the Community Land Trust, it was shared the City would use funds sourced from the EDA fund balance for acquisition and Community Development Block Grant (CDBG) funds for rehabilitation for Phase One. The contract did not specify the funding source for acquisition nor rehabilitation for Phase One.
With CDBG funds, the City has a timeliness test that the U.S. Department of Housing and Urban Development (HUD) conducts each May where HUD takes the CDBG fund balance and divides it by the amount of the current annual grant award. The ratio needs to be 1.5 or less to meet the timely performance requirement or there is risk of losing unspent CDBG funds. Housing rehabilitation continues to be a community need, but rehabilitation projects also take more time to complete which can make it challenging to meet the timeliness test. Additionally, there have been delays to other CDBG activities including owner-occupied housing rehabilitation and rental housing rehabilitation that stemmed from decreased interest in the program during the pandemic and also the ability to have tenants willing to complete income verifications for rental housing rehabilitation. There have also been delays due to the availability of contractors, the number of lead-certified contractors, and the time period to complete consultation with the State Historic Preservation Office (SHPO) to review the scope of work as part of the environmental review. The SHPO consultation is currently taking 45-60 days to complete. The City has also allocated CDBG funds towards acquisition costs for Low Income Housing Tax Credit projects, but the timing of allocating funds in the Annual Action Plan and when the project closes has taken longer than anticipated in recent years, which has also created challenges in meeting the timeliness test. Staff continue to work with our local HUD Representatives to look at alternative ways to leverage CDBG funding to meet community needs while at the same time meeting the timeliness test. To consider CDBG for acquisition in addition to rehabilitation under the Community Land Trust is one alternative. Additionally, HUD is working on new methods to determine timeliness.
Partnership Community Land Trust is currently working on the third acquisition to complete Phase One. At the time this memo was written, $166,666 in EDA funds had been spent towards acquisition of two home purchases in Phase One. There haven’t been CDBG funds drawn for rehabilitation. The CDBG program allows CDBG funds to be used for housing rehabilitation and acquisition. Using CDBG funds instead of EDA funds for acquisition for the third and final home for Phase One would help the City meet HUD’s timeliness test in May 2025. If there are rehabilitation needs, EDA funds could alternatively be used. The total amount of CDBG and EDA funds would not exceed the amounts noted in the contract. If CDBG funds were used for rehabilitation, it is unlikely CDBG funds could be spent by May 2025 ahead of the timeliness test due to environmental review requirements, lead assessment, bidding process, availability of contractors and having the work completed and inspected. If CDBG funds are used for acquisition instead of rehabilitation, the funds could be wired to the title company at the time of closing and it would be possible to draw the CDBG funds before the timeliness test in May 2025.
It should also be noted, for Phase Three, the City committed $50,000 per home for 5 existing home acquisitions/rehabilitations. The $50,000 is comprised of $15,000 to underwrite the purchase of each home and up to $35,000 for rehabilitation. It was previously communicated to the City Council that if the CDBG funding is not needed for rehabilitation, the funds could be used to underwrite the purchase depending on the participant’s income level. This was shared at the June 24, 2024 Council work session.
Phase One of the contract with the CLT notes the City is to provide up to $83,333 in project write down grant funding per home for up to 3 homes in Mankato and up to $35,000 per home under the City of Mankato’s Owner-Occupied Housing Rehabilitation Program Guidelines and Policies for rehabilitation to the homes. The contract does not specify the funding source for the acquisition nor rehabilitation activities that are funded by the City.
In past City Council agenda memos regarding the Community Land Trust, it was shared the City would use funds sourced from the EDA fund balance for acquisition and Community Development Block Grant (CDBG) funds for rehabilitation for Phase One. The contract did not specify the funding source for acquisition nor rehabilitation for Phase One.
With CDBG funds, the City has a timeliness test that the U.S. Department of Housing and Urban Development (HUD) conducts each May where HUD takes the CDBG fund balance and divides it by the amount of the current annual grant award. The ratio needs to be 1.5 or less to meet the timely performance requirement or there is risk of losing unspent CDBG funds. Housing rehabilitation continues to be a community need, but rehabilitation projects also take more time to complete which can make it challenging to meet the timeliness test. Additionally, there have been delays to other CDBG activities including owner-occupied housing rehabilitation and rental housing rehabilitation that stemmed from decreased interest in the program during the pandemic and also the ability to have tenants willing to complete income verifications for rental housing rehabilitation. There have also been delays due to the availability of contractors, the number of lead-certified contractors, and the time period to complete consultation with the State Historic Preservation Office (SHPO) to review the scope of work as part of the environmental review. The SHPO consultation is currently taking 45-60 days to complete. The City has also allocated CDBG funds towards acquisition costs for Low Income Housing Tax Credit projects, but the timing of allocating funds in the Annual Action Plan and when the project closes has taken longer than anticipated in recent years, which has also created challenges in meeting the timeliness test. Staff continue to work with our local HUD Representatives to look at alternative ways to leverage CDBG funding to meet community needs while at the same time meeting the timeliness test. To consider CDBG for acquisition in addition to rehabilitation under the Community Land Trust is one alternative. Additionally, HUD is working on new methods to determine timeliness.
Partnership Community Land Trust is currently working on the third acquisition to complete Phase One. At the time this memo was written, $166,666 in EDA funds had been spent towards acquisition of two home purchases in Phase One. There haven’t been CDBG funds drawn for rehabilitation. The CDBG program allows CDBG funds to be used for housing rehabilitation and acquisition. Using CDBG funds instead of EDA funds for acquisition for the third and final home for Phase One would help the City meet HUD’s timeliness test in May 2025. If there are rehabilitation needs, EDA funds could alternatively be used. The total amount of CDBG and EDA funds would not exceed the amounts noted in the contract. If CDBG funds were used for rehabilitation, it is unlikely CDBG funds could be spent by May 2025 ahead of the timeliness test due to environmental review requirements, lead assessment, bidding process, availability of contractors and having the work completed and inspected. If CDBG funds are used for acquisition instead of rehabilitation, the funds could be wired to the title company at the time of closing and it would be possible to draw the CDBG funds before the timeliness test in May 2025.
It should also be noted, for Phase Three, the City committed $50,000 per home for 5 existing home acquisitions/rehabilitations. The $50,000 is comprised of $15,000 to underwrite the purchase of each home and up to $35,000 for rehabilitation. It was previously communicated to the City Council that if the CDBG funding is not needed for rehabilitation, the funds could be used to underwrite the purchase depending on the participant’s income level. This was shared at the June 24, 2024 Council work session.