City of Santa ClaraLocal Government

The U.S. Department of Housing and Urban Development San Francisco Regional Office reviewed Santa Clara’s compliance with requirements for carrying out a CDBG Program in a timely manner and noticed the City of the following conditions: • Prior to the next 60-day test to be conducted on May 2, 2024, it was calculated that the City’s community has an adjusted line of credit balance of 3.07 times its annual grant. • The last 60-day test conducted on May 2, 2023, indicated an adjusted line of credit balance of 2.38 times its annual grant. • On May 2, 2022, the City had an adjusted line of credit balance of 1.90 times its annual grant. Therefore, the Office notified the City that it is at risk of non-compliance with the 1.5 performance standard for the third consecutive year.

Finding Reference Number: SA2022-001 Compliance with Grant Deadlines Assistance Listing Number: 21.027 Assistance Listing Title: COVID-19 - Coronavirus State and Local Fiscal Recovery Funds Name of Federal Agency: Department of Treasury Federal Award Identification Number: SLFRP0002 68-0283471 68-0281986 Name of Pass-Through Entity: State of California Department of Community Services California State Water Resources Control Board Criteria: The City?s three California Arrearage Payment Program (CAPP) grants included a number of deadlines for transaction processing, reporting and return of unused funds as follows: ? Electric Utility Arrearage CAPP Program Notice No. 2022-01 requires the filing of the Close-Out Report within six months of receipt of the grant funds, or August 7, 2022. ? California Water and Wastewater Arrearage Payment Program Guidelines Section B requires that the City allocate Water Arrearage Program payments as bill credits to customer accounts within 60 days of receiving payment or March 26, 2022. ? California Water and Wastewater Arrearage Payment Program Guidelines Appendix A, Section 6.3, requires the return of unspent Wastewater Arrearage Program funds within six months of receiving payment or November 30, 2022 Condition: The City did not comply with the required reporting and other program deadlines above as follows: ? Electric Utility Arrearage Close-Out Report was not filed until August 30, 2022. ? Water Utility Arrearage Program bill credits were not applied to customer accounts until April 4, 2022. ? Wastewater unused funds were not returned to the State Water Resources Control Board until January 6, 2023. Cause: We understand that staff shortages as well as the complexities of calculating the customer credits led to the reporting, deposit, credit and payment delays. Effect: The City is not in compliance with the terms and conditions of payment related to the required reporting and other program deadlines of the California Arrearage Payment Programs. As a result, the City could have been required to return moneys to the grantors. Recommendation: Although it does not appear that the grantors disallowed any of the program costs, the City must develop procedures to ensure compliance with grant award terms and conditions of payment, including timely filing of reports, timely use of grant funds and timely return of unspent grant funds. View of Responsible Officials and Planned Corrective Actions: Please see Corrective Action Plan separately prepared by the City.

Finding Reference Number: SA2021-001 Federal Funding Accountability and Transparency Act (FFATA) Reporting Assistance Listing Number: 14.218 Assistance Listing Title: Community Development Block Grant ? Entitlement Grant Name of Federal Agency: Department of Housing and Urban Development Federal Award Identification Number: B-20-MC-06-0022 COVID-19 - B-20-MW-06-0022 Criteria: Under the requirements of the Federal Funding Accountability and Transparency Act (FFATA) (Pub. L. No. 109-282), as amended by Section 6202 of Public Law 110-252 that are codified in 2 CFR Part 170, direct recipients of grants are required to report first-tier subawards of $30,000 or more to the Federal Funding Accountability and Transparency Act Subaward Reporting System (FSRS). Subawards that are entered into the FSRS System should be maintained so that any amendments to the subawards are also reflected in the system. Condition: We selected two of the City?s subawards for testing of the reporting on the FSRS. The two subawards tested were comprised of four contracts that were all more than $30,000. Although we noted that all four of the contracts tested were included in the FSRS, one of the contracts in the amount of $1,300,000 was reported in FSRS in the amount of $691,380. Cause: We understand that program staff had initially input the contract in the FSRS in the amount of $691,380 based on the original funding estimate and did not update the FSRS to reflect the final contract amount of $1,300,000. Effect: The City is not in compliance with the FFATA reporting requirements. Recommendation: Although the City provided documentation that the FSRS was updated on March 10, 2022 to reflect the final contract amount of $1,300,000, the City should develop procedures to ensure that FFATA reporting is accurate at all times and reflects any contract amendments and final subaward funding amounts. View of Responsible Officials and Planned Corrective Actions: Please see Corrective Action Plan separately prepared by the City.

Finding Reference Number: SA2019-001 Monitoring CDBG and HOME Program Activities for Compliance with Program Rules and Regulations CFDA number: 14.218 and 14.239 CFDA Title: Community Development Block Grant ? Entitlement Grant HOME Investment Partnerships Program Name of Federal Agency: Department of Housing and Urban Development Federal Award Identification Number: B-18-MC-06-0022 M-18-MC-06-0217 Criteria: 24 CFR part 570 details the various rules and regulations of the Community Development Block Grant (CDBG) Program and 24 CFR Part 92 details the various rules and regulations of the HOME Investment Partnership (HOME) Program. These regulations include specific program requirements for timing of activities, eligible and prohibited activities, project and subrecipient monitoring requirements, as well as other provisions. If the City does not adhere to the requirements of 24 CFR part 570 and 24 CFR Part 92 both before disbursement for eligible activities and on an ongoing basis to ensure continued compliance with the income eligibility requirements of the program, costs incurred under the program may be deemed ineligible and need to be returned to the grantor. Condition: The City underwent a monitoring review by the grantor in June 2019 related to the fiscal year 2019 CDBG and HOME Programs, the results of which were issued in August 2019. The monitoring review results included two findings related to the CDBG program, one finding regarding financial management for the CDBG and HOME programs and one concern pertaining to the HOME program. The first finding for the CDBG program was related to the City?s management of its subrecipients and monitoring their performance. The city does not have written CDBG subrecipient procedures, does not assess the risk of its CDBG subrecipients or conduct formal on-site monitoring visits, does not document its review of subrecipient audits, and the subrecipient written agreements do not contain certain required agreement provisions. The second finding for the CDBG program was related to compliance with the program?s national objective requirements to ensure that CDBG grant funds primarily benefit low- and moderate-income households. HUD determined that one of the City?s subrecipients did not adequately document the income eligibility of participants served by this CDBG-funded program. Although HUD indicated that it is likely many beneficiaries receiving services annually from the subrecipient are low- and moderate-income, the City does not perform on-site monitoring reviews of subrecipients to ensure that subrecipients are 1) using appropriate standards to assess income eligibility and 2) maintaining acceptable documentation to support eligibility determinations and as a result, the city is unable to verify the number of eligible persons reported as eligible by subrecipients. The third finding for the financial management of the CDBG and HOME programs is that the City does not verify that its CDBG and HOME subrecipients expending at least $750,000 in federal funding in a year have required audits completed in accordance with the regulations found at 2 CFR part 200.331(f). The concern for the HOME program is related to the subrecipient management and tenant based rental assistance (TBRA) requirements and the need for the TBRA Policies and Procedures Manual to include additional guidance to subrecipients on lease review and payments to landlords. HUD noted that executed leases between TBRA clients and landlords did not include any prohibited clauses. However, review of the tenant files did not find that one of the HOME program?s TBRA subrecipient?s staff actively documented that leases were reviewed and determined to be acceptable. The City?s TBRA Policies and Procedures Manual mentions that the lease must be reviewed (page 9) but does not clearly state that the subrecipient should document that the lease was reviewed and found to be free of prohibited HOME provisions. Similarly, this TBRA manual does not describe the City?s expectation regarding timely payment of rent subsidies to landlords on behalf of tenants. Cause: The causes listed in HUD?s monitoring visit letter include: ? Finding one - The City does not have policies and procedures to ensure proper oversight of its CDBG-funded subrecipients. ? Finding two - The City does not have policy and procedures that cover oversight of its CDBG subrecipients. Such policies and procedures should include subrecipient documentation requirements and procedures for city staff to verify that subrecipients are complying with CDBG program and contract requirements. Although the City does include national objective recordkeeping provisions in its subrecipient agreements, and annually emails updated CDBG income limits, the city does not perform on-site monitoring reviews of subrecipients to ensure that subrecipients are 1) using appropriate standards to assess income eligibility and 2) maintaining acceptable documentation to support eligibility determinations. As a result, the city is unable to verify the number of eligible persons reported as eligible by subrecipients. ? Finding three - The City does not have policies and procedures for the submission of annual audits for subrecipients exceeding the annual Federal expenditure threshold a requirement in its CDBG and HOME subrecipient contracts. Although not all subrecipients meet the expenditure threshold, the City should identify those subrecipients likely to meet this criterion and ensure that those audits are submitted. ? Concern - The City's current TBRA procedures manual does not fully describe the lease review process or describe the steps for documenting the review of leases. Further, this document does not describe the City?s expectations that rent subsidies are to be paid timely. Effect: The effects listed in HUD?s monitoring visit letter include: ? Finding one - The City does not provide adequate oversight of its CDBG subrecipients in accordance with the regulations found at: 24 CFR ? 570.501, 24 CFR ? 570.502, 2 CFR ? 200.302 and 2 CFR ? 200.33 l(a - b). ? Finding two - The City puts its public service funding at-risk because it does not verify that CDBG-funded subrecipients are serving a sufficient percentage of low- and moderate- income families. ? Finding three - The City puts its CDBG and HOME programs at-risk by not requiring subrecipients to submit ?audited financial statements on an annual basis. This is especially important because the City does not currently complete a risk assessment of its CDBG subrecipients. Without the benefit of audited financial statements, the City loses an opportunity to identify issues with subrecipients. ? Concern - There is the possibility that without clear standards for rent subsidy payments, subrecipients might delay payment, thus jeopardizing tenants' housing. Further, having the subrecipient document that leases have been reviewed prior to execution reduces the likelihood that tenants will execute leases with provisions that violate HOME regulations Recommendation: Although the City responded to the findings and the concern in its October 30, 2019 letter to the grantor with corrective action plans, the City must develop policies and procedures to ensure that all grant program activities are in compliance with the provisions of 24 CFR part 570 and 24 CFR Part 92 and ensure that all the findings are resolved with the grantor in a timely manner.

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