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Legislation Removes Roadblock to Allow CDBG Funds to Flow for Small, Non-Entitlement Cities and Counties

August 9, 2016
New amendments to AB 723 (Chiu) will make helpful changes to rules governing the allocation of Community Development Block Grant (CDBG) funds to small, “non-entitlement” cities and counties, which receive federal CDBG dollars via the state Department of Housing and Community Development (HCD) rather than directly from the federal government.
The amendments, adopted in the Senate Appropriations Committee on Aug. 3, delete a requirement that a recipient jurisdiction spend at least 50 percent of previously awarded funds before receiving another reward.

HCD adopted a rule in 2012 prohibiting any city or county from being awarded funds when the jurisdiction has not spent at least 50 percent of an existing award. The delivery of many projects slowed, however, when the recession hit and redevelopment was eliminated. The rule has effectively stopped many new projects from going forward because funds for an existing project cannot be reallocated to a new project. HCD consequently has approximately $100 million in unspent CDBG funds that could be allocated to projects if the rule is deleted. 
AB 723 includes an urgency clause, which means the bill would go into effect the day after Gov. Jerry Brown signs it. HCD is expected to release a new Notice of Funding Availability that incorporates the AB 723 changes in the coming months. If cities have been prohibited from receiving funds due to the 50 percent rule, they should begin to prepare for a new round of funding for which they will be eligible. 
A second provision in AB 723 expands eligibility requirements for loans awarded by the California Housing and Finance Agency (CalHFA). Existing law allows CalHFA to offer loans on multi-family rental housing projects that provide at least 20 percent of units for lower income households. The law, however, was used infrequently because the units had to be restricted to very low-income households earning less than 50 percent of area median income (AMI). Developers said they couldn’t use the program because the projects could not pencil-out. AB 723 would expand the eligibility to housing projects that provide units for households earning up to 80 percent of AMI. This change will make projects that are more economically feasible, and therefore more attractive to developers, eligible for the loan program. 

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