Citizen Housing and Community Development Committee

Citizen Housing and Community Development Committee Citizen Housing and Community Development Committee Tenth Street Place, 1010 10th Street, Room 2001 Modesto, California Thursday, June 14, 2018 At 12:00 Roll Call - Silent Declaration Of Conflict Of Interest Public Comment Period Only interested persons in the audience may present these matters. Under State law, the Citizen s Housing and Community Development Committee may respond to matters being presented under the item only as follows: a) Briefly respond to statements made or questions raised. b) Ask a question for clarification c) Provide a reference to staff or other resources for factual information. d) Request staff to report back at a subsequent meeting. e) Finally, a Committee member or the Committee itself may take action to direct staff to place a matter of business on a future agenda. Consent Items - Unless Withdrawn From Consent, Items Are Approved At One Time..1. Consider approving the minutes from the May 24, 2018 meeting. Documents: New Business 5 24 2018 MINUTES.PDF.1. Consider amending Section 3, 6 and 14 of the Housing and Urban Development Policies & Procedures Manual, Homeowner Rehabilitation Program and forwarding to Council for approval. Documents: ITEM 2 - AR - AMEND SECTION 3, 6 AND 14.PDF ITEM 2 - ATTACHMENT 1 SECTION 3- CDBG POLICY UPDATES - FINANCIAL MGMT.PDF

FINANCIAL MGMT.PDF ITEM 2 - ATTACHMENT 2 SECTION 6- AMEND H. REHAB POLICIES.PDF ITEM 2 - ATTACHMENT 3 SECTION 14 - ENVIRONMENTAL REVIEW PLAN.PDF Comments And Committee Reports.1. Request for Proposal requirement presentation for Community Housing Development Organization (CHDO). Documents: 2018 CHDO RFP.PDF Matters Too Late For The Agenda (These may be presented by members of the Citizens Housing and Community Development Committee and staff upon determination by a majority vote that an emergency exists, as defined by State Law, or by a 2/3 vote that (1) there is a need to take immediate action, and (2) that the need for action came to the City s attention after the agenda was posted.) Adjournment Posted Pursuant To Government Code Section 54954.2 On Bulletin Board At Tenth Street Place On Name Date Time Notice: Copies of the agenda are on file at the Modesto-Stanislaus Library Reference Room located at 1500 I Street, Modesto or at the City of Modesto Community Development Division, 1010 10th Street, Suite 4300, Modesto, California. If you require a translator, please contact the Community Development Division office by email or 209-577-5211, no fewer than two business days prior to the workshop to make the necessary arrangements. In compliance with the Americans with Disabilities Act (ADA), the City of Modesto does not discriminate against persons with disabilities and is an accessible facility. Any person with a disability who requires a modification or accommodation to be able to participate is asked to contact the Community Development Division by email or 209-577-5211, no fewer than two business days prior to the workshop to allow for reasonable arrangements.

MINUTES CITY OF MODESTO CITIZENS HOUSING & COMMUNITY DEVELOPMENT COMMITTEE 1010 10th Street, Modesto, CA 95354 Suite 2001 Modesto, California Thursday, May 24, 2018 at 12:00 p.m. The meeting was called to order by Rhoda Yare at 12:05 p.m. ROLL CALL Members Present: Members Absent: Staff Present: Public Present: Chairperson Councilmember Kenoyer in at (12:15am), Julie Scherer in at (12:15 pm), Frank Ploof, Rhoda Yare, Richard Daniels, Philip Anselmo, and Doug Parman Ameet Birring and Councilmember Ah You, Heather Jones, Juan Gonzalez, Aaron Farnon and Jessica Narayan Debra Berrara DECLARATION OF CONFLICT OF INTEREST PUBLIC COMMENT PERIOD CONSENT ITEMS UNLESS WITHDRAWN FROM CONSENT, ITEMS ARE APPROVED AT ONE TIME. 1. Consider approving the minutes from the May 10, 2018 meeting ACTION: Motion (Richard Daniels/Philip Anselmo; 5-0; Councilmember Kenoyer and Julie Scherer Absent) approving the minutes from the May 10, 2018 meeting. Page 1 of 2 CH&CDC Minutes May 24, 2018

NEW BUSINESS 1. Consider approving the City of Modesto Program Year 2018-2019 Annual Action Plan and forwarding to Council for approval. ACTION: Motion (Julie Scherer/Frank Ploof; 7-0) approving the City of Modesto Program Year 2018-2019 Annual Action Plan and forwarding to Council for approval. 2. Consider amending Section 6 of the Housing and Urban Development Policies & Procedures Manual, Homeowner Rehabilitation Program and forwarding to Council for approval. ACTION: Motion (Richard Daniels/Philip Anselmo; 7-0) amending Section 6 of the Housing and Urban Development Policies & Procedures Manual, Homeowner Rehabilitation Program with minor recommended adjustments (Spell out Acronym ICE to Independent Cost Estimate throughout the document; Sub-section 11 add a reference to the eligibility process in the emergency rehabilitation section providing further definition to the recipients ability to afford the repairs should the project not be approved by the committee) and forwarding to Council for approval. COMMITTEE COMMENTS & REPORTS MATTERS TOO LATE FOR THE AGENDA (These may be presented by members of the Citizens Housing and Community Development Committee and staff upon determination by a majority vote that an emergency exists, as defined by State Law, or by a 2/3 vote that (1) there is a need to take immediate action, and (2) that the need for action came to the City s attention after the agenda was posted.) ADJOURNMENT There being no further business, the meeting was adjourned at 12:55 PM p.m. by Chairperson Councilmember Kenoyer. Respectfully submitted and approved by, Jessica Narayan, Acting Community Development Manager Community and Economic Development Department Page 2 of 2 CH&CDC Minutes May 24, 2018

CITY OF MODESTO COMMITTEE AGENDA REPORT DATE OF MEETING: June 14, 2018 Date: June 7, 2018 TO: FROM: SUBJECT: CONTACT: Citizens Housing and Community Development Committee Jessica Narayan, Acting Community Development Manager Amend Section 6 of the Housing and Urban Development Policies & Procedures Manual, Homeowner Rehabilitation Program Juan Gonzalez, Senior Community Development Specialist jgonzalez@modestogov.com, 209-577-5211 DESCRIPTION: Consider amending Section 3, 6 and 14 of the Housing and Urban Development Policies & Procedures Manual, Homeowner Rehabilitation Program and forwarding to Council for approval. STRATEGIC PLAN ELEMENT: This item supports the Strategic Commitment Effective Responsive and Transparent Government Make informed decisions embracing best practices and continuous improvement. BACKGROUND: The City has been a participating jurisdiction in the Community Development Block Grant (CDBG) Program of the U.S. Department of Housing and Urban Development (HUD) since the program was established by Congress in 1974. HUD distributes federal CDBG funds to states, counties and urban cities to provide decent, safe, and sanitary housing; to provide suitable living environments, and to expand economic opportunities for low and moderate-income persons. As an entitlement community, the City receives approximately $1.8 million in CDBG funds annually to support a range of eligible activities, from public services to public infrastructure improvements that benefit low- and moderate-income individuals, families and neighborhoods. Federal regulations governing the CDBG program are in Title 24 of the Code of Federal Regulations Part 570 (24 CFR 570). In October 2016, the Council, by Resolution No. 2016-425, adopted a Housing & Urban Development Policies & Procedures Manual (HUD Manual). This document consolidated all HUD-related Policies & Procedures into one document. Housing & Urban Development Policies & Procedures Manual were last updated on June 12, 2018. DISCUSSION:

Citizen s Housing and Community Development Committee June 14, 2018 Section 3, 6, and 14- HUD Policies and Procedures Page 2 of 3 In order to align with current program guidelines and replace older program policies Section 3 (Community Development Block Grant Programs), Section 6 (Housing Rehabilitation Program), and Section 14 (Environmental Review Plan) needed to be updated. The updated Community Development Block Grant Program is included as Attachment 2, Housing Rehabilitation Program Policies & Procedures included as Attachment 3, and Environmental Review Plan included as attachment 4. Section 3- Community Development Block Grant Programs 1. Section 11.9- Financial Management, outlines the process that staff will take to ensure that the City issues payments to vendors and obtains reimbursement from HUD only after staff has verified that work is complete. Section 6- Housing Rehabilitation Program Policies & Procedures 1. Section 11.0- Procurement, outlines the process to ensure that all procurements are conducted in a manner that promotes full and open competition and avoids any arbitrary action in the procurement process, including ensuring that contactors are given sufficient time to respond to solicitations. Section 14 Environmental Review Plan 1. Section 10 Conducting Environmental Review for all HUD Funded Activities, outlines the requirements to conduct an environmental review for all HUD funded activities prior to contract execution and/or expending funds for any project/activity, and ensuring the policy follows 24 CFR Section 570.604 and 24 CFR Section 58.22. FISCAL IMPACTS: The HUD Policies & Procedures Manual is only applicable to those loans and grants funded through Community Development Block Grant (CDBG), Home Investment Partnerships Program (HOME) or Neighborhood Stabilization Program (NSP) funds. There is no General Fund impact. RECOMMENDED COMMITTEE ACTION: Motion amending Section 3, 6 and 14 of the HUD Policies and Procedures, and forwarding to Council for approval. Prepared By: Juan Gonzalez, Community Development Program Specialist Approved by: Jessica Narayan, Acting Community Development Manager Attachments: 1. Section 3- Community Development Block Grant Program

Citizen s Housing and Community Development Committee June 14, 2018 Section 3, 6, and 14- HUD Policies and Procedures Page 3 of 3 2. Section 6 - Homeowner Rehabilitation Program 3. Section 14 Environmental Review Plan

Community Development Block Grant Program Policies & Procedures City of Modesto Community Development Division 1010 10 th Street, Suite 3100, Modesto, CA 95354 (209) 577-5211, TDD 209- housing@modestogov.com City of Modesto Citizen Housing and Community Development Committee (CH&CDC) Approved October 12, 2017 City of Modesto City Council Approved by Resolution 2017-427 on November 8, 2017 1

Table of Contents 1. Introduction... 3 2. Background... 3 3. Subpart J Grant Administration (24 CFR Part 570.501)... 7 4. Program Income... 9 5. Use of real property... 13 6. Records to be maintained... 13 7. Required Annual Reports... 15 8. Preparation of the Consolidated Annual Performance Evaluation Report (CAPER)... 18 9. Program and Financial Reporting... 19 10. Sub-recipient Application & Award Process... 20 11. Subpart K Other Program Requirements... 29 12. Contract Monitoring... 3635 13. CDBG Timeliness... 4039 14. Playing by the Rules Handbook... 40 2

1. Introduction 1.1. The City of Modesto has been a participating jurisdiction in the Community Development Block Grant (CDBG) Program of the U.S. Department of Housing and Urban Development (HUD) since the program was established by Congress in 1974. 1.1.1. HUD distributes federal CDBG funds to states, counties and urban cities to fulfill the goals of the program to: 1.1.1.1. Provide decent, safe, and sanitary housing 1.1.1.2. Provide a suitable living environment, and to 1.1.1.3. Expand economic opportunities principally for low and moderate-income persons. 1.2. Minimum requirements applicable to any CDBG funded activity are set forth in CDBG Program Regulations 24 CFR 570. CDBG regulations allow for local discretion as to the use and management of the CDBG program. Local community needs, resources, priorities and procedures for managing the CDBG program are approved by the City Council as part of the City's five-year Consolidated Plan (CP) process. In addition, each year the Modesto City Council reviews and considers approval of an Annual Action Plan (AAP) which includes objectives and outcomes, an evaluation of past performance, and activities to be undertaken in the next program year. 1.3. This document is intended to satisfy the requirement for a concise policy and procedures administrative manual in the administration and implementation of CDBG funded activities. 2. Background 2.1. U.S. Department of Housing and Urban Development and Office of Community Planning and Development 2.1.1. The mission of the U.S. Department of Housing and Urban Development (HUD) is "to create strong, sustainable, inclusive communities and quality, affordable homes for all." 2.1.2. The HUD Office of Community Planning and Development (CPD) seeks to develop viable communities by promoting integrated approaches that provide decent housing, a suitable living environment, and expanded economic opportunities for low- and moderate-income persons. These goals come out of the mission of HUD to "create strong, sustainable, inclusive communities and quality, affordable homes for all." The primary means towards this end is the development of partnerships between all levels of government and the private sector, including for-profit and non-profit organizations. 3

2.2. City of Modesto Entitlement Programs 2.2.1. The City of Modesto is a participating jurisdiction in three (3) Community Planning and Development (CPD) entitlement programs: 2.2.1.1. The Community Development Block Grant (CDBG) program supports public services and improvements that benefit low- and moderateincome individuals, families and neighborhoods. Federal regulations governing the CDBG program are in Title 24 of the Code of Federal Regulations Part 570 (24 CFR 570). 2.2.1.2. The Emergency Solutions Grants Program provides funding to (1) engage homeless individuals and families living on the street; (2) improve the number and quality of emergency shelters for homeless individuals and families; (3) help operate these shelters; (4) provide essential services to shelter residents, (5) rapidly re-house homeless individuals and families, and (6) prevent families/individuals from becoming homeless. 2.2.1.3. The HOME Investment Partnership (HOME) program supports affordable access to homeownership and development of affordable rental housing for low- and moderate-income families. Federal regulations governing the HOME program are in Title 24 of the Code of Federal Regulations Part 92 (24 CFR 92). 2.3. Federal Regulations (24 CFR Part 570) 2.3.1. The City of Modesto will follow the regulations governing the CDBG program which are found in Title 24 of the Code of Federal Regulations (CFR) Part 570, Community Development Block Grants. 2.4. Subpart C Basic Eligible Activities (24 CFR 570.201) 2.4.1. 24 CFR 570 Subpart C 2.4.1.1. The City of Modesto may assist an activity in whole or in part with CDBG funds for activities which include, but are not limited to the following (all CDBG funded activities shall comply with 24 CFR Subpart C Eligible Activities requirements): 2.4.1.1.1. Acquisition of real property; 2.4.1.1.2. Disposition of real property acquired with CDBG funds 2.4.1.1.3. Construction of public facilities and improvements, such as water and sewer facilities, streets, neighborhood centers, and the conversion of school buildings for eligible purposes 2.4.1.1.4. Clearance and remediation of buildings and improvements; 4

2.4.1.1.5. Public Services within certain limits 2.4.1.1.5.1. Housing Services: Privately owned utilities 2.4.1.1.5.2. Construction of affordable housing 2.4.1.1.5.3. Homeownership assistance within certain limits 2.4.1.1.5.4. Technical Assistance 2.4.1.1.5.5. Rehabilitation of residential and non-residential structures 2.4.1.1.5.6. Special economic development activities 2.5. Ineligible Activities (24 CFR 570.207) 2.5.1. The general rule is that the City of Modesto s CDBG funds shall not be used for any activity that is not authorized under the provisions of 24 CFR Parts 570.201 570.206. 2.5.2. Generally, the following types of activities are ineligible: 2.5.2.1. acquisition, construction, or reconstruction of buildings for the general conduct of government 2.5.2.2. General government expenses 2.5.2.3. Political activities 2.5.2.4. Purchase of equipment 2.5.2.5. Construction equipment 2.5.2.6. Furnishings and personal property 2.5.2.7. Operating and maintenance expenses associated with public facilities 2.5.2.8. New housing construction 2.5.2.9. Subsistence payments made directly to an individual or family 2.6. Criteria for National Objectives CDBG 2.6.1. In compliance with CDBG regulations, the City of Modesto strives to utilize the majority of funding in a manner that serves low- and moderate-income persons during each program year, but not less than fifty-one percent (51%) of CDBG funds shall be used for activities that benefit low- and moderate-income persons. When considering funding activities, the City of Modesto will ensure that each activity must meet one of the following National Objectives for the CDBG program. 2.6.1.1. Benefit low and moderate income individuals, families, or neighborhoods; 2.6.1.2. Prevention or elimination of slums or blight; or 2.6.1.3. Address community development needs having a particular urgency because existing conditions pose a serious and immediate threat to the 5

health or welfare of the community for which other funding is not available. 2.7. Selecting Activities that Comply 2.7.1. While there are many aspects that must be considered in selecting activities to assist under the CDBG program, there are six (6) key steps that City of Modesto Community Development Division (CDD) staff will take into consideration during the early stages of the process of determining if CDBG funds may be used to assist a proposed activity: 2.7.1.1. Determine if the activity falls within a category of explicitly authorized activities in the CDBG statute. Generally, if an activity does not fall within a category of explicitly authorized activities in the statute, the activity is considered ineligible. HUD s Guide to National Objectives and Eligible Activities describes all categories of basic eligibility that were authorized at the time of publication: https://www.hudexchange.info/resource/89/community-developmentblock-grant-program-cdbg-guide-to-national-objectives-and-eligibleactivities-for-entitlement-communities/ 2.7.1.2. Determine if a proposed activity does not appear to be included in the statute s list of eligible activities, but there is precedent indicating it has been interpreted as eligible under the statute by the CDBG Eligible Activity regulations. 2.7.1.3. Most importantly, determine if the proposed activity can meet one of the national objectives of the program as outlined in 24 CFR 570.208. If an activity cannot meet one of the national objectives, the activity shall be found to be ineligible. 2.7.1.4. Ensure that carrying out the activity with CDBG funds will not result in the City violating its certification that at least 51 percent of CDBG expenditures will be for activities that are considered to benefit Low/Moderate income persons over the one, two, or three consecutive program years specified by the City of Modesto. 2.7.1.5. Review proposed costs of the activity to determine if they appear to be necessary and reasonable and will otherwise conform with the requirements of the following: 6

2.7.1.5.1. OMB Circulars A-87, Cost Principles for State, Local, and Indian Tribal Governments, 2.7.1.5.2. A-122, Cost Principles for Non-Profit Organizations, 2.7.1.5.3. A-21, Cost Principles for Educational Institutions, 2.7.1.5.4. 24 CFR Part 84, Uniform Administrative Requirements for Grants and Agreements With Institutions of Higher Education, Hospitals, and Other Non-Profit Organizations; or 2.7.1.5.5. 24 CFR Part 85, Uniform Administrative Requirements for Grants and Cooperative Agreements to State and Local Governments, as applicable. 2.7.1.6. Complete the environmental review and clearance procedures for the project of which the activity is a part as required by 24 CFR Part 58. Federal law prohibits HUD from releasing funds for a CDBG activity until certification is made with respect to environmental review completion. 3. Subpart J Grant Administration (24 CFR Part 570.501) 3.1. 24 CFR 570 Subpart J 3.2. Responsibility for Grant Administration 3.2.1. The City of Modesto Community and Economic Development Department (CEDD) has been designated to administer the activities assisted under the CDBG program. The City of Modesto CEDD is responsible for ensuring that CDBG funds are used in accordance with all program requirements. The City of Modesto will adhere to all administrative requirements covered by Subpart J (24 CFR 570.500-570.513), which includes general responsibilities for grant administration, including uniform administrative requirements, provisions of subrecipient agreements, program income, use of real property, recordkeeping and reporting, and closeout procedures. 3.2.2. Applicability of Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards 570.502 3.2.3. The City of Modesto and its subrecipients shall follow Office of Management and Budget s (OMB) Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (also known as the Super Circular) codified at 2 CFR 200. The Super Circular guidance superseded and consolidated the requirements from OMB Circulars A-21, A-87, A-110, A-122, A-89, A-102, A-133, and A-50. 7

3.2.4. The City will ensure that all subrecipients (agencies and organizations that receive grant funds from the City) are in compliance with OMB Super Circular requirements. 3.3. Agreements with Sub-recipients 570.503 3.3.1. Before disbursing any CDBG funds to a sub-recipient, the City of Modesto will sign a written agreement with the sub-recipient. The agreement will remain in effect during any period that the sub-recipient has control over CDBG funds, including program income. 3.3.2. At a minimum, the written agreement with the sub-recipient will include provisions concerning the following: 3.3.2.1. Statement of Work: The agreement will include a description of the work to be performed, a schedule for completing the work, and a budget. These items will be in sufficient detail to provide a sound basis for the City of Modesto to effectively monitor performance under the agreement. 3.3.2.2. Records and Reports: The City of Modesto will specify in the agreement the particular records the sub-recipient must maintain and the particular reports the sub-recipient must submit in order to assist the City of Modesto in meeting its recordkeeping and reporting requirements. 3.3.2.3. Program Income (PI): The agreement will include the PI requirements set forth in 570.504(c). The agreement will also specify that, at the end of the calendar year, the City of Modesto may require remittance of all or part of any PI balances (including investments thereof) held by the subrecipient (except those needed for immediate cash needs, cash balances of a revolving loan fund, cash balances from a lump sum drawdown, or cash or investments held for section 108 security needs). 3.3.2.4. Uniform Administrative Requirements: The agreement will require the sub-recipient to comply with applicable uniform administrative requirements, as described in 570.502. 3.3.2.5. Other Program Requirements: The agreement will require the subrecipient to carry out each activity in compliance with all Federal laws and regulations described in 24 CFR 570 Subpart K of the regulations, except that: 8

3.3.2.5.1. The sub-recipient does not assume the City of Modesto s environmental review (ER) responsibilities described at 570.604; and 3.3.2.5.2. The sub-recipient does not assume the City of Modesto s responsibility for initiating the review process under the provisions of 24 CFR part 52. 3.3.2.6. Suspension and Termination: The agreement will specify that, in accordance with 24 CFR 85.43, suspension or termination may occur if the sub-recipient materially fails to comply with any term of the award, and that the award may be terminated for convenience in accordance with 24 CFR 85.44. 3.3.2.7. Reversion of Assets: The agreement will specify that upon its expiration the sub-recipient shall transfer to the City of Modesto any CDBG funds on hand at the time of expiration and any accounts receivable attributable to the use of CDBG funds. It will also include provisions designed to ensure that any real property under the sub-recipient's control that was acquired or improved in whole or in part with CDBG funds (including CDBG funds provided to the sub-recipient in the form of a loan) in excess of $25,000 is either: 3.3.2.7.1. Used to meet one of the national objectives in 570.208 (formerly 570.901) until five (5) years after expiration of the agreement, or for such longer period of time as determined to be appropriate by the City of Modesto; or 3.3.2.7.2. ot used in accordance with paragraph (b)(7)(i) of this section, in which event the subrecipient shall pay to the City of Modesto an amount equal to the current market value of the property less any portion of the value attributable to expenditures of non-cdbg funds for the acquisition of, or improvement to, the property. The payment is program income to the City of Modesto. 4. Program Income 4.1. Treatment of Program Income and Revolving Loan Funds (RLFs) Per the 24 CFR 570.500 definitions. 4.2. 570.500 Definitions. 9

4.2.1. For the purposes of this subpart, the following terms shall apply: 4.2.1.1. (a) Program income means gross income received by the recipient or a subrecipient directly generated from the use of CDBG funds, 4.2.1.2. (b) Revolving fund means a separate fund (with a set of accounts that are independent of other program accounts) established for the purpose of carrying out specific activities which, in turn, generate payments to the fund for use in carrying out the same activities. Each revolving loan fund's cash balance must be held in an interest-bearing account, and any interest paid on CDBG funds held in this account shall be considered interest earned on grant advances and must be remitted to HUD for transmittal to the U.S. Treasury no less frequently than annually. [Interest paid by borrowers on eligible loans (e.g. Homeowner Rehabilitation Loan Interest portion payments made from the revolving loan fund) shall be program income and treated accordingly. Receipted as program income, not as RLF.] 4.2.2. Beginning with FY 2015 formula allocations, it has been determined that First-In-First-Out (FIFO) accounting does not comply with federal financial standards (May 9 2014 Memorandum System and Regulatory Changes to Eliminate First-In-First-Out Accounting in the Integrated Disbursement and Information System (IDIS)). Funding is now tied to a grant specific year, and the related activities described within the respective Annual Action Plan (AAP) (e.g. Year 1 7/1/2015 6/30/2016; Year 2 7/1/2016 6/30/2017; Year 3 7/1/2017 6/30/2018). 4.2.3. Under the provision of this rule the City of Modesto Community Development Division (CDD) will accumulate program income, including interest paid by borrowers on eligible loans made from the Revolving Loan Fund, repaid funds, and recaptured funds it receives during the program year, rather than expending them for the next eligible draw. 4.2.4. Moving forward, at the conclusion of each calendar year (e.g. Program Income accumulated through 12/31/2016; will be reflected in the next Annual Action Plan (AAP)). The City of Modesto will calculate any accumulated uncommitted program income to include interest paid by borrowers on eligible loans made from the Revolving Loan Fund(s), 10

repaid funds, and recaptured funds incorporating all into the upcoming AAP. This funding received during the previous program year(s) will be described as resources and assigned to eligible activities in the upcoming AAP (e.g. AAP FY 2017-2018). Emergency Solutions Grants (ESG) is currently excluded from this requirement. 4.2.5. In prior years, this was not required, as the amounts in revolving loan funds (RLFs) were excluded from calculations related to the City of Modesto timeliness standards described in 24 CFR Part 570.902. On February, 22, 2017, HUD Headquarters clarified that with all formula grantees that this will no longer be allowable. 4.2.6. Program Income still needs to be remitted to the U.S. treasury, if the calculation at the end of each program year (June 30 th ) is in access of the guidelines as outlined in the CDBG Manual (Chapter 11: Financial Management page 11-13). 4.2.7. The receipt and expenditure of program income as defined in 570.500(a) will be recorded as part of the financial transactions of the City of Modesto CDBG grant program. 4.2.8. Program income (PI) received before grant closeout may be retained by the City of Modesto. PI will be treated as additional CDBG funds subject to all applicable requirements governing the use of CDBG funds. 4.2.9. Program income retained by the City of Modesto will be disposed as follows: 4.2.10. Program income in the form of repayments to, or interest earned on, a revolving fund as defined in 570.500(b) tied to that specific grant year AAP shall be substantially disbursed from the fund before additional cash withdrawals are made from the U.S. Treasury for the same activity. (This rule does not prevent a lump sum disbursement to finance the rehabilitation of privately owned properties as provided for in 570.513.) 4.2.11. Substantially all other AAP program year program income shall be disbursed for eligible activities before additional cash withdrawals are made from the U.S. Treasury. If the calculation at the end of each program year (June 30 th ) is in access of the guidelines as outlined in the CDBG Manual (Chapter 11: Financial Management page 11-13). 11

4.2.12. At the end of each program year, the aggregate amount of program income cash balances and any investment thereof (except those needed for immediate cash needs, cash balances of a revolving loan fund, cash balances from a lump-sum drawdown, or cash or investments held for section 108 loan guarantee security needs) that, as of the last day of the program year, exceeds one-twelfth of the most recent grant made pursuant to 570.304 shall be remitted to HUD as soon as practicable thereafter, to be placed in the City of Modesto s line of credit. This provision applies to program income cash balances and investments thereof held by the City of Modesto and its sub-recipients. 4.2.13. CDBG and HOME PI balance as of December 31 of each year will be budgeted for use in the following Fiscal Year Annual Action Plan. Program Income received after December 31, will be kept in account until the end of the following year to be budgeted for the following fiscal year; The City of Modesto may elect to use program income received after December 31 by conducting a substantial amendment to the respective year Annual Action Plan. 4.2.14. Under the provision of this rule the City of Modesto Community Development Division (CDD) will accumulate program income, including interest paid by borrowers on eligible loans made from the Revolving Loan Fund, repaid funds, and recaptured funds it receives during the program year, rather than expending them for the next eligible draw. 4.2.15. The City of Modesto will calculate any accumulated uncommitted program income to include interest paid by borrowers on eligible loans made from the Revolving Loan Fund(s), repaid funds, and recaptured funds incorporating all into the upcoming AAP. This funding received during the previous program year(s) will be described as resources and assigned to eligible activities in the upcoming AAP (e.g. AAP FY 2017-2018). Emergency Solutions Grants (ESG) is currently excluded from this requirement. 4.2.16. In prior years, this was not required, as the amounts in revolving loan funds (RLFs) were excluded from calculations related to the City of Modesto timeliness standards described in 24 CFR Part 570.902. On February, 22, 2017, HUD Headquarters clarified that with all formula grantees that this will no longer be allowable. 12

5. Use of real property 5.1. Section 570.505 5.1.1. The City of Modesto will comply the standards described 24 CFR 570.505 with relation to the use of real property within the City of Modesto s control acquired or improved in whole or in part using CDBG funds in excess of $25,000. 6. Records to be maintained 6.1. Section 570.560 6.1.1. The City of Modesto will establish and maintain sufficient records to enable HUD to determine whether the City of Modesto has met the CDBG program requirements for activities administered by the City of Modesto under the CDBG program. At a minimum, the following records will be maintained: 6.1.2. Records providing a full description of each activity assisted (or being assisted) with CDBG funds, including its location (if the activity has a geographical locus), the amount of CDBG funds budgeted, obligated and expended for the activity, and the provision in subpart C under which it is eligible. 6.1.3. Records demonstrating that each activity undertaken meets one of the criteria set forth in 570.208 (Criteria for National Objectives). 6.1.4. Records that demonstrate that the City of Modesto has made the determinations required as a condition of eligibility of certain activities, as prescribed in 570.201(f)-interim assistance, 570.201(i)(2) - emergency, 570.201(p) - technical assistance, 570.201(q) - higher education institutions, 570.202(b)(3) - rehabilitation loans, 570.206(f) - Submission of applications for federal programs, 570.209 - economic development, 570.210 - prohibition employee relocation, and 570.309 - restriction on location. 6.1.5. Records which demonstrate compliance with 570.505 - regarding any change of use of real property acquired or improved with CDBG assistance. 6.1.6. Records that demonstrate compliance with the citizen participation requirements prescribed in 24 CFR part 91, subpart B, for entitlement recipients. 6.1.7. Records that demonstrate compliance with the requirements in 570.606 regarding acquisition, displacement, relocation, and replacement housing 6.1.8. Fair housing and equal opportunity records containing: 13

6.1.8.1. Documentation of the analysis of impediments and the actions the City of Modesto has carried out with its housing and community development and other resources to remedy or ameliorate any impediments to fair housing choice in the City of Modesto's community. 6.1.8.2. Data on the extent to which each racial and ethnic group and single headed households (by gender of household head) have applied for, participated in, or benefited from, any program or activity funded in whole or in part with CDBG funds. Such information shall be used only as a basis for further investigation as to compliance with nondiscrimination requirements. The City of Modesto is not required to attain or maintain any particular statistical measure by race, ethnicity, or gender in covered programs. 6.1.8.3. Data on employment in each of the City of Modesto's operating units funded in whole or in part with CDBG funds, with such data maintained in the categories prescribed on the Equal Employment Opportunity Commission's EEO-4 form; and documentation of any actions undertaken to assure equal employment opportunities to all persons regardless of race, color, national origin, sex or handicap in operating units funded in whole or in part under this part. 6.1.8.4. Data indicating the race and ethnicity of households (and gender of single heads of households) displaced as a result of CDBG funded activities, together with the address and census tract of the housing units to which each displaced household relocated. Such information shall be used only as a basis for further investigation as to compliance with nondiscrimination requirements. The City of Modesto is not required to attain or maintain any particular statistical measure by race, ethnicity, or gender in covered programs. 6.1.8.5. Documentation of actions undertaken to meet the requirements of 570.607(b) which implements Section 3 of the Housing Development Act of 1968, as amended (12 U.S.C. 1701U) relative to the hiring and training of low and moderate income persons and the use of local businesses. 6.1.8.6. Data indicating the racial/ethnic character of each business entity receiving a contract or subcontract of $25,000 or more paid, or to be paid, with CDBG funds, data indicating which of those entities are 14

women's business enterprises as defined in Executive Order 12138, the amount of the contract or subcontract, and documentation of recipient's affirmative steps to assure that minority business and women's business enterprises have an equal opportunity to obtain or compete for contracts and subcontracts as sources of supplies, equipment, construction and services. Such affirmative steps may include, but are not limited to, technical assistance open to all businesses but designed to enhance opportunities for these enterprises and special outreach efforts to inform them of contract opportunities. Such steps shall not include preferring any business in the award of any contract or subcontract solely or in part on the basis of race or gender. 6.1.8.7. Documentation of the affirmative action measures the City of Modesto has taken to overcome prior discrimination, where the courts or HUD have found that the City of Modesto has previously discriminated against persons on the ground of race, color, national origin or sex in administering a program or activity funded in whole or in part with CDBG funds. 6.1.8.8. Financial records, in accordance with the applicable requirements listed in 570.502 - uniform administrative requirements - including source documentation for entities not subject to parts 84 and 85 of the regulation. The City of Modesto will maintain evidence to support how the CDBG funds provided to such entities are expended. Such documentation will include, to the extent applicable, invoices, schedules containing comparisons of budgeted amounts and actual expenditures, construction progress schedules signed by appropriate parties (e.g., general contractor and/or a project architect), and/or other documentation appropriate to the nature of the activity. 6.1.9. Records required to be maintained in accordance with other applicable laws and regulations set forth in subpart K of 24 CFR Part 570. 6.1.10. Subrecipient record retention requirements will be established within subrecipient agreements. 7. Required Annual Reports 7.1. 570.507 15

7.2. Preparation of Annual Action Plan 7.2.1. CDBG regulations at 24 CFR 91.15(a)(1) requires entitlement jurisdictions (City of Modesto) to submit its Consolidated Plan or Action Plan at least 45 days before the start of its program year. The City of Modesto will begin to plan for the development of the Annual Action Plan (AAP) as early as October of the year prior to the beginning of its next fiscal year July 1. For purposes of planning the Annual Action Plan, an Annual Action Plan schedule may be developed in the month of October outlining all pertinent deadlines related to the development and adoption of the Annual Action Plan. 7.2.2. The following will be general milestone targets of the City of Modesto s Annual Action Plan tentative schedule (efforts will be made to follow the outlined schedule as close as possible, however, variables outside the City s control may contribute to changes on the actual schedule): 7.2.2.1. Oct./Nov: Develop AAP schedule 7.2.2.2. December: Release CDBG/ESG Public Services Notice of Funding Availability (NOFA) 7.2.2.2.1. Host Mandatory Technical Workshop and Open Public Service Application Period 7.2.2.2.2. Begin Draft AAP 7.2.2.3. January: Continue Draft AAP 7.2.2.3.1. CDBG/ESG Public Services Application Deadline 7.2.2.3.2. Application Technical Review Notifications (for ineligible applications) 7.2.2.3.3. Deadline for Appeals of Technical Review Determination 7.2.2.4. February: RFP Presentations to CH&CDC and Application Evaluation 7.2.2.5. March/April: Finalize Draft AAP. 7.2.2.5.1. If official entitlement amounts are not known, a Draft Annual Acton Plan using projected entitlement award amounts will be prepared. 7.2.2.5.2. Draft AAP with funding recommendations to CH&CDC 16

7.2.2.5.3. Draft AAP to CH&CDC; Open 30 day public comment period 7.2.2.5.4. Conduct Citizen Participation outreach in compliance with Citizen Participation Plan 7.2.2.5.5. Update AAP with official HUD entitlement allocations for CDBG, ESG, and HOME programs. 7.2.2.5.6. Update Draft AAP during 30 day comment period as needed. Insert comments received during public comment period/citizen participation process. 7.2.2.6. Draft subrecipient agreements per activities identified in the Draft AAP. The City Attorney shall annually review the draft CDBG sub recipient and capital projects agreements to ensure compliance with federal, state and City codes and regulations, including non-discrimination clauses and City insurance requirements. 7.2.2.7. May/June: Final AAP to City Council. 7.2.2.7.1. Following the Citizen Participation process, the City of Modesto will submit the Annual Action Plan to the San Francisco Field Office no later than May 15 of each year (45 days prior to the start of the program year) if HUD has announced official program allocations. 7.2.2.7.2. Per HUD CPD Notice CPD-16-18, HUD has directed entitlement communities to not submit the Annual Action Plan until after the fiscal year allocations have been announced. Entitlement communities may delay submission of its action plan to HUD until 60 days after the date allocations are announced, or until August 16 of the respective fiscal year, whichever comes first. This delay will give the entitlement communities time to revise its Annual Action Plan to incorporate actual allocation amounts, and to conduct any additional citizen participation, if necessary. 7.2.2.7.3. For example, if HUD were to announce the FY allocation amounts to grantees on April 28: For grantees with July 1 and August 1 program year start dates, their normal plan submission date would be less than 60 days after HUD s announcement of allocation amounts. These grantees 17

would also be able to postpone submission of their consolidated plan/action plan until June 26. 7.2.2.7.4. Once HUD informs grantees of their fiscal year funding allocation amounts, the City of Modesto, prior to submission, will ensure that the fiscal year funding allocation amounts are reflected in the form SF-424, in the description of resources and objectives, and in the description of activities to be undertaken. 7.2.2.7.5. Upon City Council adoption, contracts will be prepared and executed. 7.2.2.8. July 1 Beginning of Program Year 7.2.2.9. In no case may a Consolidated Plan/Action Plan be submitted to HUD later than August 16 of the respective fiscal year. 7.2.2.10. Throughout the development of the Annual Action Plan, the City of Modesto will comply with all Citizen Participation plan requirements to ensure proper public noticing, citizen participation, and public hearings are conducted. The City of Modesto s Citizen Participation Plan may be found at https://www.modestogov.com/1848/publications-reports. 8. Preparation of the Consolidated Annual Performance Evaluation Report (CAPER) 8.1. CDBG regulations at 24 CFR 91.520 requires entitlement jurisdictions (City of Modesto) to submit an Annual Performance Report within 90 days of the close of the entitlement jurisdiction s program year. This is in accordance with the Consolidated Plan regulations at 24 CFR Part 91. 8.2. The City of Modesto will begin to plan for the development of the Consolidated Annual Performance Evaluation Report (CAPER) in June of the year after the end of its next fiscal year June 30. For purposes of planning the CAPER, a CAPER schedule may be developed in the month of June outlining all pertinent deadlines related to the development and adoption of the CAPER. 8.3. The following will be general milestone targets of the City of Modesto s CAPER tentative schedule (efforts will be made to follow the outlined schedule as close as possible, however, variables outside the City s control may contribute to changes on the actual schedule): 8.3.1. June - Develop AAP schedule 18

8.3.2. July - Compile Data for Draft CAPER 8.3.2.1. Begin Draft CAPER 8.3.3. August - Present Draft CAPER to CH&CDC 8.3.3.1.1. Open 15 day Public Comment Period 8.3.3.1.2. Conduct Citizen Participation Process 8.3.4. September Present CAPER to City Council 8.3.4.1.1. Submit CAPER to HUD 8.4. Throughout the development of the CAPER, the City of Modesto will comply with all Citizens Participation Plan requirements to ensure proper public noticing, citizen participation, and public hearings are conducted. The City of Modesto s Citizen Participation Plan may be found at https://www.modestogov.com/1848/publications- Reports. 9. Program and Financial Reporting 9.1. Throughout the fiscal year, the City of Modesto will comply with all reporting requirements. All attempts will be made to submit each report by the respective deadline. The following is a list of reports that the City of Modesto is required to submit as a recipient of HUD funds: 9.1.1. SF 425 Federal Financial Report and SF 425-A Federal Financial Report Attachment 9.1.2. HUD-92010 Equal Employment Opportunity Certification if applicable (HUD/EEO-4) 9.1.3. Form HUD-60002-Section 3 Summary Report: Section 3 reports will be submitted in the SPEARS system on or before September 30 each year. 9.1.4. HUD-2516 Contract and Subcontract Activity (MBE Report) Due to HUD by November 15 each year. 9.1.5. HUD-4710 Semi-Annual Labor Standards Enforcement Report Due to HUD by April 15 and October 15 9.1.6. All other reports/information HUD determines necessary 9.2. The City of Modesto will work with all subrecipients to ensure that they understand reporting requirements, with the understanding that the City and subrecipients share joint 19

responsibility for carrying out permitted activities in conformance with federal requirements. 9.3. Subrecipients shall provide documentation that demonstrates the achievement of program goals and the completion of activities on quarterly basis at a minimum. All requests for reimbursement shall have adequate documentation, as determined by the City of Modesto, of how federal funds were used and that funds were used only for eligible activities. Complete records, and accurate and timely reporting, are essential to successful CDBG programs for the City and all subrecipients. 9.4. The City of Modesto Housing and Urban Development subdivision will ensure that expenditures of CDBG funds shall be drawn down using the Integrated Disbursement and Information System (IDIS) on a regular basis and not less than monthly. 10. Sub-recipient Application & Award Process 10.1. Public Services Application Release and Schedule 10.1.1. HUD allows the City of Modesto to procure, select, and fund activities in accordance with local community development goals and objectives. With respect to CDBG and ESG Public Services, the City of Modesto will annually release a Notice of Funding Availability (NOFA) to solicit public service program proposals that align with Consolidated Plan needs and objectives. The CDBG/ESG Public Services NOFA schedule will align with the development of each year s Annual Action Plan (see Section 7.2 above for information about each year s NOFA schedule). 10.1.2. With respect to Public Service funding, the City of Modesto will make available up to fifteen percent (15%) of the total CDBG allocation for the program year for Public Services. 10.1.3. For ESG award purposes, the City of Modesto will competitively award 82.5% of the ESG allocation for the program year to Homeless Service Providers and 10% to HMIS eligible activities. The remaining 7.5% of the ESG allocation will be used for ESG City of Modesto administrative purposes in accordance with ESG regulations. 10.2. Solicitation of Applications for CDBG Funds 10.2.1. In order to ensure maximum participation, the City of Modesto will issue a Notice of Funding Availability (NOFA) and distribute via email to established email groups, mail, and/or the City of Modesto s website. Whenever necessary, the 20

City of Modesto may publish notices in the local newspaper (The Modesto Bee/Vida en el Valle) and/or issue a press release to the local media. 10.2.2. Prospective applicants shall pay close attention to the NOFA Guidelines when preparing their project proposal/application. The NOFA Guidelines will include key information including but not limited to eligible activities, eligible applicants, organizational capacity, consistency with Consolidated Plan, and Evaluation Criteria. Further, the NOFA Guidelines will provide a calendar of events that will include the following information: Application Period, Mandatory Technical Workshop, Application Deadline, Proposal Presentations, Public Comment Period Opening, Public Comment Period Closing, and Annual Action Plan Submittal to HUD. 10.3. Application Requirements 10.3.1. Applicants must apply for funds during the open application period using a webbased application program (e.g. - ZoomGrants TM ) as indicated by the City of Modesto. All applicants must submit a Master application detailing the proposed program, goals, measurable objectives and agency/program finances. 10.3.2. As part of the application packet, all applicants must submit sufficient documentation within the various required exhibits to substantiate the applicant s ability to comply with the stringent CDBG requirements if an award is granted. 10.3.3. All applicants must submit all requested documents within the web-based system including but not limited to the documents listed in this section. Any application lacking the following documentation and/or the criteria described for each will be considered incomplete and may be disqualified from the application process: 10.3.3.1. Completed Web-Based Application: All questions must be completed in their entirety. 10.3.3.2. Executive Summary: Executive summary of project proposal. Must include detailed information about the project purpose, target population, service area, proposed objectives, performance indicators, proposed outcomes. The executive summary must discuss the level of involvement and agency s role within the Focus on Prevention efforts as well as the level of coordination with other service providers to reduce duplication of services. 10.3.3.3. Board of Directors Agenda and Minutes: Board of Directors minutes must specifically authorize applicant to submit an application to the City 21

of Modesto and specify application type (i.e. CDBG/ESG/HOME). In compliance with internal control requirements per 24 CFR 85.20(b)(3)to(b)(6) and 84.21(a)(3), Board of Directors must not include members acting as staff or in any other capacity that may be perceived as a conflict of interest. 10.3.3.4. Articles of Incorporation: Articles of Incorporation Stamped by the Secretary of State of the State of California. 10.3.3.5. Organization By-Laws: Organization By-Laws (with Secretary s Certificate/Signature). 10.3.3.6. California Franchise Tax Board Tax Exempt Status Letter 10.3.3.7. Internal Revenue Service (IRS) Federal Tax-Exempt Status Letter 10.3.3.8. Certified Audit and/or Financial Statement (most recent): Must be prepared by a Certified Public Accountant/Independent Auditor. 10.3.3.9. IRS 990: IRS 990 Tax Return for the most recently ended fiscal year. If the 990 Tax Return has not been completed by the time of the open Application Period, applicant can submit a copy of their extension form. 10.3.3.10. City of Modesto Business License: Business License must be current and its use must comply with City of Modesto Municipal Code of Ordinances. 10.3.3.11. Organization Chart: Most recent/updated organizational chart. 10.3.3.12. Board of Directors Roster: Most recent/updated Board of Directors roster. 10.3.3.13. Certifications/Fingerprinting Clearance: All CDBG/ESG funded staff working with children must be fingerprinted. Provide copies of applicable licenses, evidence of fingerprinting clearance, if applicable, and/or certifications pertaining to the project or component that will use CDBG/ESG funds. 10.3.3.14. NEPA Environmental Review Form: Completed NEPA environmental review form with original signature. 10.3.3.15. Fee Schedule (if applicable): Charging fees is generally discouraged when program is funded by CDBG/ESG. If fees are charged, provide a 22

copy of fee schedule. Failure to submit the fee schedule for a fee-based project will render application as disqualified. 10.3.3.16. Site Control Documentation: Documentation/evidence of site control (i.e. lease, MOU, or other form of legal agreement). Evidence of site control must be current and meet the current City business permitting guidelines. 10.3.3.17. Service Area Map: If the project provides service on an area basis, attach a map showing the area to be served that includes the eligible Census Tracts and Block Groups being served. 10.3.3.18. Staff Resumes: Copies of resumes for program staff who will be involved in operating/implementing the CDBG/ESG program. 10.3.3.19. Proof of Insurance: Copy of evidence of insurance as required by the City of Modesto. If awarded, insurance requirements must be met as outlined on the templates provided. 10.3.3.20. Disclosure of City Relationships: List any employees or board members of the applicant agency who are elected official, appointed members of a City of Modesto Commission/Committee, or a City employee if applicable. If not applicable, upload a note on company letterhead indicating Not Applicable. 10.3.3.21. Professional References: Provide contact information of three (3) partner agencies, non-profits, service providers, or public/private agencies. Any letters of support must be dated within the last 30 days. 10.3.3.22. Budget Detail and Support: If needed, provide additional budget detail and supporting documentation for costs and sources of funds. This may be used to further support/explain the proposed program budget. If not applicable, upload a note on company letterhead indicating Not Applicable. 10.4. Sub-Recipient Eligibility 10.4.1. Debarred/Suspended Search: 10.4.1.1. It is the City of Modesto s policy not to conduct business with contractors who are excluded/debarred from conducting business with any federal agency. 23

10.4.1.2. Upon application submission, the Community Development Program Specialist shall ensure that the prospective applicant is not excluded/debarred from conducting business with any federal agency by conducting a search on the federal System for Award Management website at www.sam.gov. 10.4.1.3. To comply with this requirement, applicants must provide their DUNS number on the grant application. 10.4.1.4. Applicants who do not have a DUNS number at time of application submittal must request one by accessing the following website: http://fedgov.dnb.com/webform/displayhomepage.do 10.4.1.5. Upon conducting the www.sam.gov search, if it is determined that any applicant is excluded/debarred, the applicant will be notified, in writing, that their application is ineligible and their application will be withdrawn. 10.4.1.6. The Community Development Program Specialist shall print the search results and place a copy in the project file. 10.4.1.7. Requirements under this section shall apply to all subrecipient types (i.e. public service subrecipients, non-public service subrecipients) and shall apply across all HUD programs (i.e. CDBG, ESG, HOME, etc). 10.5. Technical Assistance to Applicants 10.5.1. A mandatory Application Orientation/Technical Assistance workshop is held for all prospective applicants each year. The purpose of the workshop is to explain the NOFA Guidelines, any program changes, the application process, and answer any questions relating to funding requirements, criteria, and priorities. 10.5.2. Community Development Programs staff will present and answer questions on program guidelines, applicant and activity eligibility requirements, the National Objectives for the programs, local objectives and priority activities in the City's five-year Consolidated Plan, and application requirements. 10.5.3. Staff will be available for technical assistance from the beginning of the application period until 4:00 p.m. on the deadline date for submission. 10.6. Technical Review of Applications by City Staff 10.6.1. City of Modesto staff will conduct a technical review of all applications upon submission to ensure that: 10.6.1.1. Applications are complete; 24

10.6.1.2. Program proposal meets one of the CDBG National Objectives; and 10.6.1.3. Consistency with City of Modesto Consolidated Plan 10.6.2. The technical review will include a review of the applicant organization to ensure that the applicant is an eligible nonprofit organization. This will generally be determined by 10.6.2.1. Reviewing the documentation within the various required exhibits to substantiate the applicant s ability to comply with the stringent CDBG requirements if an award is granted. 10.6.2.2. Ensuring that the applicant is not excluded from conducting business with any federal agency by conducting a search on the federal System for Award Management website at www.sam.gov. 10.6.3. Upon technical review completion, City of Modesto staff will notify the applicant and provide an opportunity correct any errors or omissions on their application. Applicants will be given a specific timeframe to make corrections and finalize application. After the final deadline, further access to the application by the applicant will be blocked. 10.6.4. City staff will provide a technical review summary to the Application Review Committee that will reflect applicant responsiveness to application requirements. 10.7. Application Review Committee: Citizens Housing and Community Development Sub- Committee (CHCDC) 10.7.1. A subcommittee composed of five (5) members of the Citizens Housing and Community Development Committee (CHCDC) will act as the Application Review Committee. The Application Review Committee will review and score all application submissions. 10.7.2. CHCDC members may volunteer or be appointed by the Chairperson of the CHCDC to the Application Review Committee. 10.7.3. The Application Review Committee shall review applications thoroughly and shall evaluate the proposals on the basis of: 10.7.4. Past Performance, if funded in previous years. City Staff will provide past performance reports to the Application Review Committee which will include but will not be limited to: 10.7.4.1. The amount of CDBG/ESG funds received by an applicant organization from the City in the past three (3) years, if any; 25

10.7.4.2. The extent to which previously-funded organizations have met program objectives, satisfied contract obligations, and expended allocated funds in an efficient, appropriate and timely manner; 10.7.4.3. Information provided in the application; 10.7.4.4. Information provided in the applicant presentation/interview; 10.7.4.5. Rating Criteria; 10.7.5. Application Review Committee members judge applications solely on the merits of the application and the objective criteria. Members should not be influenced by their personal convictions or viewpoints. If a member feels that she/he cannot judge an application fairly and impartially, conflict of interest provisions as discussed in this manual shall apply. 10.8. Conflict of Interest Declarations 10.8.1. Before discussion of applicant organizations and agencies, Application Review Committee members shall declare relationships, if any, with applicant organizations or persons associated with the applicants. 10.8.2. This may include: 10.8.2.1. Serving as a Board member of or volunteer in an applicant agency or organization; 10.8.2.2. Membership or participant in activities of an applicant agency or organization; 10.8.2.3. Direct contributor to an applicant agency or program; 10.8.2.4. Beneficiary of the activities or services of an application agency or program; and 10.8.2.5. Any connection with the applicant that would constitute or that could be perceived to constitute a conflict of interest. 10.8.3. When a member has a perceived or real conflict of interest with an applicant organization, the member shall refrain from ranking the application and shall withdraw from the interview with the applicant and any discussion of the merits of the application. 10.8.4. Members shall also declare any personal interest in an organization that is in direct competition with an applicant organization that may cause them to rank the application other than strictly on the merits of the application. 10.8.5. Committee members who have been involved with the preparation of an application shall withdraw from consideration of that application. 10.9. Applicant Presentation/Interviews 26

10.9.1. Applicants will have the opportunity to provide a 10-minute presentation before the Application Review Committee to explain their proposed program and funding request. 10.9.2. Following the applicant presentation, there will be a five (5) minute question and answer period. While questions will be primarily driven by the Application Review Committee, City program staff may also ask clarifying questions relevant to the application proposal to further assist the Application Review Committee in the proposal evaluation. 10.9.3. Following the five (5) minute question and answer period, the Application Review Committee will have 5 minutest to score the proposal and prepare for the following presentation. 10.9.4. Time will be strictly enforced as feasibly possible to be fair to all participants and to stay on schedule. 10.10. Rating Criteria 10.10.1. Upon reviewing and conducting application presentation and interview, the Application Review Committee will use an application scoring sheet prepared by CEDD staff that include the following rating factors to objectively evaluate and score each application proposal 10.10.1.1. URGENCY/PERSISTENCE OF NEED 10.10.1.2. DESIGN 10.10.1.3. BUDGET/FINANCIAL MANAGEMENT CAPACITY 10.10.1.4. FUND DEVELOPMENT 10.10.1.5. COLLABORATION 10.10.2. Specific criteria definitions will be provided within the Notice of Funding Availability Guidelines released annually. 10.10.3. From time to time, there may be a need to incorporate additional application scoring criteria corresponding to local initiatives or special programs (i.e. bonus points for applicant willingness to carry out special program components). In every case, the NOFA Guidelines will specify if additional criteria applies and will be disclosed during the Mandatory Technical Workshop. 10.11. Application Review Committee Funding Recommendations 27

10.11.1. At the conclusion of Application Review Committee s rating of all applications, City staff will compile scoring results and will share scoring results with the Application Review Committee on the same day. 10.11.2. All applications with a score of 70 points or greater will be funded by multiplying the amount requested times the application score, as a percent [i.e. Amount requested = $30,000; Score = 92.2 ($30,000 x 92.2% = $27,660)]. This method will be applied beginning with the highest score down to the 70 point mark or until funds are exhausted. 10.11.3. Any remaining funds after the 70 point score threshold will be used to fund Community Based Public Service needs identified by community groups and relayed to City staff during community meetings/ Citizen Participation outreach process. 10.11.4. Draft scoring and funding results will be presented to the CHCDC at the monthly meeting following the Applicant Presentations/Interviews. 10.11.5. The CHCDC will deliberate on the Subcommittee's recommendations. Final recommendations will be approved by majority vote. City staff will present these CHCDC recommendations to Modesto City Council, which will ultimately determine funding awards. 10.11.6. In years when CDBG entitlement amount is not known, an estimated amount will be used. The amount of funds awarded may be adjusted per City Councilapproved contingency plan. This plan will be utilized when the CDBG entitlement differs from the estimate. The plan ensures the City does not exceed the fifteen percent (15%) public services cap. 10.12. CDBG/ESG Public Service Award and Denial Notification and Appeal Process 10.12.1. CDBG/ESG applicants will be notified in writing of the Application Review Committee funding recommendations upon release of the Draft Annual Action Plan. The written notification will provide each applicant application rank and score information and whether or not application will be recommended for funding. 10.12.2. Appeal Process 28

10.12.2.1. Any applicant that maintains its proposal has been wrongly determined to be ineligible may submit a written response to the Community Development Manager within seven (7) business days of notification. The written response must include specific details that address/cure the ineligibility determination(s) issued. 10.12.2.2. City Staff will schedule an in person meeting (Technical Assistance) with applicant representatives to discuss the factors/compliance issues that have deemed the application ineligible in the view of the Application Review Committee. City Staff will use this opportunity to provide technical assistance to be considered by the applicant in future funding cycles. After meeting with the applicant, staff will confirm the discussion in writing by sending a follow up letter outlining the Technical Assistance points of discussion. 10.12.2.3. This appeal process does not provide an opportunity to revise proposals, nor does it guarantee that determinations will be overturned. 10.13. Public Participation and City Council Action 10.13.1. Responsibility for the appropriation of all CDBG/ESG funds resides with the City Council, which considers the advisory input of the CHCDC, however HUD regulations require a certain level of public participation. Public participation will be accomplished through a series of public meetings and an opportunity for public comment on the annual Action Plan prior to the submission of the plan to HUD. The City will follow its Citizen Participation Plan to comply with HUD Citizen Participation requirements. 11. Subpart K Other Program Requirements 11.1. Subpart K sets forth certain additional program requirements which are determined to be applicable to CDBG grants provided as a matter of administrative discretion. The Community Development Programs Staff shall incorporate the following additional program requirements as per 570.600 through 570.614 as applicable. 11.2. Affirmatively Furthering Fair Housing/Non-discrimination 11.2.1. 570.601 11.2.2. The City as a recipient of CDBG funds shall ensure that subrecipients comply with Title VI of the Civil Rights Act of 1964 (prohibiting race, color, and national origin 29

discrimination including language access for limited English proficient persons), Section 504 of the Rehabilitation Act of 1973 (prohibiting disability discrimination), Title IX of the Education Amendments of 1972 (prohibiting sex discrimination in education and training programs), the Age Discrimination Act of 1975 (prohibiting age discrimination in the provision of services), and a variety of program-specific statutes with nondiscrimination requirements. 11.2.3. Programs may target particular groups for services without violating guidelines regarding equal access to services, so long as any member of the particular group - e.g., any senior for a senior services program, any school-age child for a neighborhood-based afterschool program - is able to participate in the program. 11.2.4. The City shall ensure that provisions of Executive Order No. 11246 of September 24, 1965, as amended, regarding Equal Employment Opportunity are carried out on all CDBG funded projects or activities, and that subrecipients agree to and abide by federal (FHEO) and state (CA DFEH) fair housing and equal opportunity requirements for non-discrimination with regard to access to services or housing provided by a subrecipient. 11.2.5. The City will further ensure that provisions of Executive Order 13166, "Improving Access to Services by Persons with Limited English Proficiency," are carried out by subrecipients to improve access to CPD programs and activities by eligible persons with limited English proficiency (LEP). 11.3. Section 109 - Prohibitions against Discrimination 11.3.1. 570.602 11.3.2. The City and all subrecipients shall adhere to Section 109 of the Act which requires that no person in the United States shall on the grounds of race, color, national origin, religion, or sex be excluded from participation in, be denied the benefits of, or be subjected to discrimination under any program or activity receiving Federal financial assistance made available pursuant to the Act. Section 109 also directs that the prohibitions against discrimination on the basis of age under the Age Discrimination Act and the prohibitions against discrimination on the basis of disability under Section 504 shall apply to programs or activities receiving Federal financial assistance under Title I programs. 11.4. Labor Standards 11.4.1. 570.603 11.4.2. Whenever CDBG funds in excess of $2,000 are allocated for construction projects (excluding homeowner occupied residential rehabilitation and first-time homebuyer activities), the City, subrecipient and any contractor(s) shall abide by 30

requirements of Davis Bacon and Related Acts (DBRA) for prevailing wages and of Section 3 economic opportunities for low and very low-income persons. The City shall provide appropriate guidance to both subrecipient and contractor regarding DBRA requirements, including wage determinations, and Section 3 requirements as applicable to all CDBG-funded projects. 11.4.3. Labor Standards Enforcement 11.4.3.1. The City of Modesto Community Development Division has developed Federal Labor Standards Enforcement Guidelines. These guidelines will be provided to the respective City Department, subrecipient, or contractor responsible for contract oversight. The Federal Labor Standards Enforcement Guidelines will be enforced throughout the implementation of any applicable HUD funded activities by City of Modesto Community Development Division staff. 11.5. Environmental Review 11.5.1. 24 CFR part 58 570.605 570.604 11.5.1.1. The environmental review procedures set forth at 24 CFR part 58 must be completed for each activity (or project as defined in 24 CFR part 58), as applicable. Contracts will not be executed with subrecipients and expenditures for City-managed projects will not be approved until environmental review is complete. State (CEQA) environmental regulations requirements will also be considered. Environmental review forms and documents must be signed by the appropriate staff preparing the environmental review and the Certifying Officer. 11.5.1.2. The City will ensure that all Finding of No Significant Impact (FONSI) and Request for Release of Funds (RROF) requirements are completed for capital improvement projects and housing rehabilitation projects prior to initiation of project activities. 11.6. Citizen Participation 11.6.1. Throughout the implementation of HUD grant programs, the City of Modesto will comply with all Citizen Participation plan requirements to ensure proper public noticing, citizen participation, and public hearings are conducted. The City of Modesto s Citizen Participation Plan may be found at https://www.modestogov.com/1848/publications-reports. 11.7. Relocation 11.7.1. 570.606 31

11.7.1.1. In the event of any temporary or permanent relocation of residents or businesses as a result of CDBG-funded activity, the City will follow 570.606 - Displacement, relocation, acquisition, and replacement of housing as applicable and/or its Relocation Plan as set forth in the Citizen Participation Plan. The Plan shall be updated as needed to adhere to HUD Handbook 1378, Real Estate Acquisition and Relocation Policy and Guidance. 11.8. ADA Requirements 11.8.1. The City will abide by HUD regulations in Section 504, HUD's implementation of the American with Disabilities Act, to ensure that no qualified individual with a disability should, only by reason of his or her disability, be excluded from the participation in, be denied the benefits of, or be subjected to discrimination under any program or activity receiving CDBG funds. The City will include monitoring for Section 504 compliance as part of the annual monitoring of HUD Entitlement funded programs/projects. Monitoring will include inspection of facilities in which CDBG- funded program are offered to ensure that the facilities are accessible to persons with disabilities. 11.9. Financial Management 11.9.1. Vendors (this includes subrecipients, vendors, or contractors) will be paid on a reimbursement basis upon receipt of a Request for Funds reimbursement form with all supporting documentation. 11.9.2. All reimbursement requests must be accompanied by the Invoice Checklist including all required items listed on the invoice checklist for an invoice to be processed by the City s Finance Department. 11.9.3. Payment to Vendors and reimbursement from HUD will occur only after Community Development staff has verified that the work, for which reimbursement is being issued, has been completed. 11.9.1.1.11.9.3.1. Verification of work completion will take place by conducting onsite inspections and including an inspection report (if applicable) reflecting a pass. 11.9.4. Reimbursement of funds to contractors for capital projects will be paid directly to the contractor or vendor with whom a contractual agreement has been entered into with. 32

11.9.5. Reimbursement payments will be made only upon presentation of invoices from the contractor or vendor and approved for payment by the Community Development Program Staff responsible for Labor Standards review (if applicable). 11.9.2.11.9.6. Final payments to subrecipients Vendors will be made only upon submission of final program reports that document the achievement of program goals and satisfactory completion of the CDBG-funded activity. 11.9.3.11.9.7. Each request for payment must have adequate documentation for the costs incurred such as payroll records, purchase orders, copies of canceled checks, timesheets reflecting time spent directly on CDBG activities, etc. Requests must be only for costs directly related to the approved activity and included in the approved budget attached to the contract. 11.9.4.11.9.8. Subrecipients may not use CDBG funds for general administrative costs or "overhead" costs, unless the subrecipient has established a cost allocation for such costs, applicable to all subrecipient activities regardless of funding source. 11.9.5.11.9.9. Subrecipients will be required to submit requests for reimbursement on a quarterly basis, unless otherwise approved by Community Development Division staff. 11.9.6.11.9.10. The City will not request CDBG funds in advance or as "float" funds from the U.S. Treasury. 11.10. HMIS Participation 11.10.1. CDBG/ESG-funded projects designed to assist persons experiencing homelessness or designed to prevent homelessness are required to participate in the Homeless Management Information System (HMIS) of the Stanislaus County Continuum of Care (CoC) and regularly attend CoC meetings and participate in CoC related matters. Furthermore, subrecipients are required to execute an HMIS Data Sharing Agreement to share HMIS Universal Data Elements to more effectively utilize and enhance HMIS data quality. 11.11. CDBG Sponsored Identification Requirement 11.11.1. Sub-recipients and subcontractors receiving CDBG funds from the City of Modesto shall ensure that all CDBG-funded programs and activities are clearly identified to participants and the public as those of the CDBG program, and that these programs and activities do not appear to be an extension of the programs 33

and activities of any private organization or public institution. To comply with this requirement, a notification to be worded as follows shall be clearly posted or otherwise displayed: This project is funded in whole or in part with Community Development Block Grant (CDBG) Program funds provided by the U.S. Department of Housing and Urban Development (HUD). 11.12. Section 3 Compliance 11.12.1. The requirements for Section 3 of the Housing and Urban Development Act of 1968, as amended (Section 3) applies to capital projects and housing development projects that exceed $200,000 in HUD funding. Subcontractors receiving an excess of $100,000 from projects required to comply with Section 3 shall also be required to comply with Section 3 requirements. These requirements are listed in the CDBG Agreement. 11.13. Single Audit Report (SAR) compliance 11.13.1. The City of Modesto will ensure any corrective action plans identified as a result of any Single Audits are carried out in accordance with the Single Audit Act. 11.13.1.1. To comply with corrective action plans, the City will develop a table listing of corrective actions identified with the respective finding number, list of planned corrective actions, identify an anticipated completion date, and identify a responsible contact person. 11.14. Cost Reasonableness and Scope of Work 11.14.1. As a CDBG recipient, the City of Modesto is held accountable for all funds, property and assets of the CDBG program. The City of Modesto must maintain a financial accounting system for grants that meets the CDBG regulations, 24 CFR Part 84 and OMB Circulars A- 87 and A-133. This includes requirements pertaining to financial management systems and records, allowable costs and audits. 11.14.1.1. The City of Modesto is required to ensure that CDBG funds are spent only on reasonable and necessary costs associated with approved grant activities and must have a procedure for determining the reasonableness, allowability and allocability of costs. 11.14.1.1.1. For major projects, the procedure for determining reasonableness will include the preparation of a detailed scope of work and an independent cost estimate (ICE). 11.14.1.1.1.1. A detailed Scope of Work will identify project milestones, reports, deliverables, and end products that are expected to be provided by the performing party. The Scope of Work will also include a timeline for all deliverables. 34

11.14.1.1.1.2. An independent cost estimate will be established utilizing local market data and published cost guidelines. 11.14.1.1.1.3. The project manager and supervisor will work with the appropriate parties to develop the independent cost estimate to ensure the cost estimate is reasonable based on local market data. 11.14.2. To comply with cost reasonableness requirements, the City of Modesto will review all requests for payments to ensure that costs are allowable under regulations, approved in the CDBG grant application, allocated to the correct program activity and are reasonable. 11.14.3. A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person under the circumstances prevailing at the time the decision was made to incur the cost. 11.14.3.1. In determining reasonableness of a given cost, consideration shall be given to whether the cost is of a type generally recognized as ordinary and necessary to address the housing condition being considered for repair. 11.14.3.2. A cost analysis of the scope of work items shall be made and documented in the project file. Cost analysis is the review and evaluation of each element of cost to determine reasonableness, allocability, and allowability. 11.14.3.3. Cost analysis may be accomplished in various ways, including the comparison of price quotations submitted, market prices and similar indicia, together with discounts. 11.14.3.4. All change orders will be subject to a cost reasonableness evaluation by the project manager and approval by the HUD Supervisor. 11.14.4. Cost reasonableness shall be determined by comparing the bids received with the cost estimate prepared by the project manager. 11.14.5. Comparable estimates may also be considered, when optimal, for utilization of services that may have limited providers of services (e.g. a sole source provider) for work to be performed. 11.14.6. The project manager will work to manage project/vendor costs through the most efficient and economically feasible project/vendor contracting model. 11.14.7. 35

12. Contract Monitoring 12.1. The City of Modesto (the recipient) and any entities it enters into contract with must have written policies and procedures to ensure that CDBG, HOME, and ESG funds are used in accordance with HUD requirements and sufficient records to enable HUD, and the recipient to determine whether CDBG, ESG or HOME requirements are being met. [24 CFR 576.500(a)] 12.2. As the lead agency for HUD Entitlement funds, the City of Modesto will monitor all contract types (e.g. Sub-recipient, Developer, Construction/Contractor, collectively referred to as hereafter Entity ) on a regular basis through written contacts, phone conversations, electronic information transfers, face-to-face monitoring visits (at least once annually), and project file review, pursuant to applicable regulation. 12.3. Monitoring will be conducted to ensure statutory and regulatory requirements are being met and that information submitted to City of Modesto is accurate and complete. 12.4. Monitoring will normally be conducted utilizing a three (3) tiered approach, depending upon the risk involved: 12.4.1. Limited Review 12.4.1.1. A limited review will be conducted of all contracts and projects on an annual basis. The timing of this monitoring will be in alignment with an organization s submittal of a Quarterly Performance Report and an Invoice for Payment for expenses incurred against their City grant over the previous 90 days. 12.4.1.2. At least one quarter review will focus on the year-end financial statement or audit, and where applicable, the Single Audit. If the Single Audit contains audit findings or contains a management letter, the contract recipient will be selected for an in depth review. The goal of a Limited Review is to provide clarification to a specific unknown submission that cannot be determined from the reports, and to identify areas of technical assistance needed by each contract recipient. 12.4.2. On-Site Monitoring Review 12.4.2.1. An on-site monitoring review will be a site visit to a contract program assisted with HUD funds and will achieve a balance between programmatic and fiscal reviews, and much documentation review can be done prior to the on-site visit. The on-site monitoring includes a tour 36

of the program facilities as appropriate, an explanation of the services provided, discussions with program and administrative staff, and introduction to one or more actual beneficiaries, if possible. As a result of this visit, staff will determine whether an in-depth review is needed for further clarification of one or more issues identified during the on-site visit. 12.4.2.2. A Program review will focus on the specific contracted program activities. Program staff may be asked to define the strategic plans for the related programs and, as applicable, how those plans are used to help clients in those programs. 12.4.2.3. A Financial review will make the connections between the program budget, expenditures and actual beneficiaries assisted, including evidence of case managers time in client files, reviewing payroll documents for the period clients are reported, determining eligibility of clients based on income documentation in client files, the general relationship between the contents of client files (excluding Attorney Client or HIPAA confidential data) and benefit data reported by the Entity on the same clients. 12.4.2.4. The number of case files to be reviewed will reflect approximately 10% of the total clients served in the program, or more if there appear to be any systemic issues that need to be addressed. 12.4.2.4.1. Case files selected for review shall be selected randomly directly from contractor s file storage cabinets or other place of storage. 12.4.2.5. Invoices may be randomly selected for review and traced back from City reimbursement to the original organization s advance expenditure and client assisted (if appropriate). For example, exact dollars billed for housing accessibility modifications can be traced directly to one client. Conversely, a different review model is required when dollars billed provided case management for multiple homeless individuals. It is expected that staff will review original invoices, cancelled checks, and other such documentation evidencing the expenditure, the relationship to the CDBG program objective, the appropriate proportion of CDBG expenditure in comparison to other funding, and accounting receipt of 37

the federal grant funds. 12.4.3. In-Depth Review 12.4.4. An in-depth review will be a concentrated and focused review around a particular activity or program area. This will typically be a concentrated review of a known high-risk area or critical function, such as but not limited to: 12.4.4.1.1. Financial review for expenditures for ineligible activities, 12.4.4.1.2. Financial review for expenditures that cannot be traced through supporting documentation, 12.4.4.1.3. A program which requires donations as a condition of receiving service, 12.4.4.1.4. Management practices in affordable housing, 12.4.4.1.5. Section 504 and ADA compliance reviews upon receipt of a complaint from a person with disabilities, 12.4.4.1.6. A fair housing complaint from a home seeker treated differently while trying to obtain housing from the Entity, 12.4.4.1.7. Denial of services for no valid reason, or 12.4.4.1.8. Failure to meet prevailing wage requirements in construction activities subject to Davis Bacon, etc. 12.5. Administrative Process for Monitoring 12.5.1. Monitoring will be conducted in two phases. File review will generally confirm compliance with reporting requirements, financial submittals, and contract provisions and much of it will be completed prior to the onsite visit. On-site reviews will focus more on the beneficiary documentation and services provided, including quantitative performance outcomes to local and federal objectives, and financial processes and documentation only available at the program site. 12.5.2. Staff will use the risk analysis criteria identified in Section 12.4 to determine the type of monitoring approach for each Entity. Upon the arrangement of mutual date and time with the Entity, staff will send letters at least two (2) weeks in advance of the date the monitoring is to be held. The monitoring policies and checklist may be provided to the Entity and the letter may emphasize any specific areas of compliance to be reviewed and how files will be selected for review, as applicable. 12.5.3. At the conclusion of the monitoring visit, staff will send each Entity written documentation of the site visit, summarizing what was reviewed, and indicating 38

any findings of regulatory non-compliance or concerns of program weaknesses. Additionally, staff will provide technical assistance to correct any deficiencies noted, and will acknowledge the performance level of the program, and whether they will either meet or fall short of contract goals. 12.6. Findings, Concerns & Noncompliance 12.6.1. Findings 12.6.1.1. Where an identified deficiency results in a finding of non-compliance with CDBG/ESG rules, the finding will be communicated to the Entity citing the finding/violation, regulatory or statutory requirement not met, and the corrective action with a deadline. 12.6.1.2. The monitoring letter should also provide timelines for response and corrections, as well as actions the City may take if the Entity fails to make corrections in a timely manner. 12.6.2. Concerns 12.6.2.1. Monitoring concerns will be brought to the Entity s attention. City staff will suggest or recommend actions that the Entity may take to address a concern, based on sound management principles or other guidelines. Corrective actions are not required for concerns; however City staff may offer specific recommendations and/or requests for improvement. Nonresponsiveness to these concerns may impact current and future funding recommendations. 12.6.3. Actions for Non-Compliance 12.6.3.1. Entities that are found to be in non-compliance and receive a finding as a result of their monitoring will be provided with technical assistance towards resolution, and actions taken by the City to achieve compliance may include, but not be limited to, withholding further disbursements of CDBG funds until satisfactory compliance with applicable regulations are achieved. 12.6.3.2. City staff will offer technical assistance to Entities when monitoring indicates less than complete compliance with CDBG regulations or contract requirements. Such assistance may include, but is not limited to, providing applicable copies of Office of Management and Budget (OMB) circulars, in particular OMB Circular No. A-122 Cost Principles for 39

Nonprofit Organizations. In addition, the latest edition of Playing by the Rules guidance for CDBG subrecipients may be provided. 13. CDBG Timeliness 13.1. Entitlement jurisdictions that receive CDBG funds, such as the City of Modesto, are required to use CDBG funds in a timely manner. Per 24 CFR 570.902, the HUD standard requires that entitlement jurisdictions not have more than 1.5 of its annual grant in its line of credit 60 days prior to the close of the program year. That date is April 30th for the City of Modesto. 13.2. The penalty for noncompliance may include sanctions, such as the loss of future CDBG funding. As such, CDBG funds are subject to reprogramming by the City if a City Project or sub-recipient activity is no longer feasible and/or there is lack of activity and expenses within the first six months of the date of the allocation. 14. Playing by the Rules Handbook 14.1. Sub-recipients receiving CDBG funds shall adhere to all other requirements set forth in the Playing by Rules Handbook, as provided through the City of Modesto s CDBG Program: https://www.hudexchange.info/resource/687/playing-by-the-rules-a-handbook-for-cdbgsubrecipients-on-administrative-systems/ 40

Section 6 Homeowner Rehabilitation Program Policies & Procedures City of Modesto Community Development Division 1010 10 th Street, Suite 3100, Modesto, CA 95354 (209) 577-5211, TDD 209- housing@modestogov.com Citizens Housing and Community Development Committee (CH&CDC) Approved October 12, 2017 City of Modesto City Council Approved by Resolution 2017-427 on November 8, 2017 *These policies supersede any previously adopted policies and are subject to review and revision by the City of Modesto Housing Rehabilitation Loan Committee. 1

Table of Contents 1.0 APPLICABLE LAWS AND REGULATIONS... 3 2.0 ELIGIBLE REPAIRS (in order of priority)... 3 3.0 PROPERTY ELIGIBIILTY:... 3 4.0 HOMEOWNER ELIGIBILITY:... 4 5.0 MAXIMUM AMOUNT OF PROGRAM ASSISTANCE (24 CFR 570.208 (a)(3);(b), and 24 CFR 570.202):... 6 6.0 MAXIMUM AFTER REHABILITATION VALUE... 6 7.0 MAXIMUM COMBINED LOAN TO VALUE RATIO:... 6 8.0 RATES AND TERMS OF PROGRAM ASSISTANCE:... 7 9.0 MANUFACTURED HOMES:... 8 10.0 BID SOLICITATION:... 8 11.0 CONTRACTOR ELIGIBILITY... 119 12.0 COST REASONABLENESS AND SCOPE OF WORK:... 1210 13.0 ENVIRONMENTAL REVIEW:... 1311 14.0 HOUSING REHABILITATION LOAN COMMITTEE (HRLC) APPROVAL:... 1411 15.0 APPROVAL CONTINGENCIES:... 1411 16.0 CONTRACTOR LIST... 1512 17.0 PROGRESS INSPECTIONS & CONTRACTOR COMPENSATION... 1613 18.0 NON-PROFIT SPONSORED HOUSING ACQUISITION AND/OR REHABILITATION ACTIVITIES1714 19.0 MONITORING... 1815 20.0 LEAD BASED PAINT OPERATING PROCEDURES FOR UNITS BUILT PRIOR TO 1978... 1815 2

Homeowner Rehabilitation Program Policies & Procedures 1.0 APPLICABLE LAWS AND REGULATIONS 1.1 All Housing Rehabilitation Program activities shall be conducted in accordance with all applicable federal, state, and local program funding standards, building codes, and zoning ordinance requirements. 1.2 All work conducted in accordance with an approved Housing Rehabilitation Program activity shall be consistent with program funding requirements and any locally approved repair and replacement standards including, but not limited to: site improvements, windows and doors, roofing, ventilation, electrical, plumbing systems, HVAC, accessibility, and abatement of hazardous materials (i.e. mold, lead based paint, etc). 1.3 All terms used within these policies shall be as defined by applicable funding source(s) or other locally approved Housing Rehabilitation Program policies and/or standards. 1.4 All program applications will be processed in accordance to the date of receipt of a complete application and are subject to available funding. 2.0 ELIGIBLE REPAIRS (in order of priority) 2.1 Health and Safety repairs as determined by utilization of the City of Modesto HUD Housing Quality Standards (HQS) inspection analysis. 2.2 Spot Rehabilitation Eligible non-health and safety related repairs (e.g. - required by State or local Building Code). Accessibility Repairs to make the home accessible for disabled household members. 2.3 Energy Efficiency Improvements may be conducted along with any of the eligible repairs listed above. Energy efficiency improvements may include, but are not limited to: 2.3.1 Replacing single pane windows with double pane windows; 2.3.2 Replacing antiquated water heater; 2.3.3 Replacing antiquated HVAC system; 2.3.4 Weatherization improvements. 2.4 Applicant Must Exhaust All Other Available Funding Sources in order to comply with program funding requirements, the applicant must exhaust all other viable program alternatives/resources that may provide assistance to address any of the above eligible repairs. The Housing Finance Specialist in coordination with the Housing Rehabilitation Specialist shall conduct a resource coordination analysis to ensure the applicant has taken advantage of any other resources that may be available prior to receiving assistance via the City of Modesto s Housing Rehabilitation Program. 3.0 PROPERTY ELIGIBIILTY: 3.1 The assisted property shall be located within the city limits of the City of Modesto. 3

3.2 The assisted property shall contain a legal residential structure intended for continued residential occupancy and meet applicable rehabilitation standards and ordinances at the time of project completion. 3.3 A manufactured home (mobile home) in a mobile home park or on leased land that is not on a permanent foundation may only qualify for a grant as allowed under Section 9.0 of these policies. 3.4 The assisted property shall be owner-occupied and shall be the principal place of residency of owner-occupants (hereafter Borrowers ) and hold legal title to the property. 4.0 HOMEOWNER ELIGIBILITY: 4.1 All Borrower households shall have incomes at or below 80 percent (80%) of the Stanislaus County Area Median Income (AMI), adjusted for household size, as published annually by the California State Department of Housing and Community Development (HCD) or United Stated Department of Housing and Urban Development (HUD). The applicable AMI shall be as required by available funding source(s). 4.2 Borrowers without a mortgage shall demonstrate a debt-to-income ratio sufficient to allow for the on-going annual payments of property tax and any insurance required as a result of the Housing Rehabilitation Program assistance. 4.3 Borrowers with a mortgage shall show that all mortgage, property tax, and insurance payments are current, with no late payments having been received within the past twelve months, and meet both of the following debt-to-income ratios: 4.3.1 Front end (housing) debt-to-income ratio shall not exceed 35 percent (35%) and is the percentage of a Borrower s gross monthly income (before deductions) that would cover the cost of the loan principal and interest payment, property taxes, property insurance, mortgage insurance, and HOA dues, if any. 4.3.2 Back-end (total debt obligation) debt-to-income ratio shall not exceed 45 percent (45%), and is the percentage of the borrower s gross monthly income that includes the cost of housing as described in Section 4.0 C i. above, plus any other monthly debt payments such as car loans, personal loans, credit card debt, or child support and alimony payments. 4.4 Credit Report and Liabilities 4.4.1 The Housing Financial Specialist (HFS) must obtain a signed Authorization to Verify Information and/or Eligibility Release Form from the applicant authorizing the City to pull a credit report, or to verify any information with a third party. 4.4.2 The HFS shall pull the applicant(s) credit report within three business days of determining income eligibility. The HFS shall order a credit report through the City of Modesto s secure account held with a major credit bureau (e.g. Equifax, Experian, or Transunion). A credit report shall be pulled for all program applicants. 4.4.3 If the applicant is eligible for a deferred payment loan, the credit report should be reviewed to determine if any public liens will be in prior position to the City loan, or to compare the applicant s actual credit liabilities with the liabilities listed on the application. The credit report should be used for verification of information. The 4

credit score is not relevant for a deferred payment loan. Debt-to-income guidelines should be used to demonstrate the household s ability to continue to live in the home. 4.4.4 If the applicant is eligible for an amortized loan, the credit report should be analyzed for a credit score, verification of debts, and ability and willingness to repay the loan. The HFS shall use debt-to-income ratios allowable under this policy as a guideline for payment affordability. If the household income is non-taxable, income can be grossed up for non-taxability, using the 25% guideline. If the payment is not affordable or a hardship exists, the HFS should discuss this with management and obtain guidance on how to proceed. 4.4.5 Special Note: Household income must be collected on all qualifying adult household members per HUD guidelines. However, only the credit liabilities of the applicant will be used in the credit liability calculation. Adult members of the household who are not on title are not a party to the loan transaction. 4.5 Borrowers shall meet the following credit worthiness criteria: 4.5.1 No outstanding judgments or liens at the time of loan approval or loan execution. As part of application for assistance, Borrower shall disclose any personal liens that may attach to the property. Failure to disclose any pertinent information that may affect eligibility may be grounds for denial of assistance and application withdrawal. To identify any personal liens, a Judgment and Tax Lien Guarantee search of Borrowers and Preliminary Title Report search on the property shall be conducted after Housing Rehabilitation Loan Committee (HRLC) approval. 4.5.2 Outstanding collections must be paid prior to HRLC approval, unless the HRLC determines, on a case by case basis, that the circumstances that led to collection were outside of the applicant s control, and the payment of the outstanding collection(s) will not impact the applicant s ability to financially retain ownership. 4.5.3 Late payments due to extenuating circumstances will be considered as part of the approval process. Factors leading to late payments will be reviewed and considered on a case by case basis. 4.5.4 Borrower shall not have filed bankruptcy, or received a bankruptcy discharge, in the last three (3) years prior to date of application. 4.5.5 The HRLC may consider other factors impacting Borrower s creditworthiness. 4.6 If at any time the Borrowers filed bankruptcy that resulted in a discharge of any debt owed to City of Modesto, or the former City of Modesto Redevelopment Agency, for housing rehabilitation or down payment assistance, the HRLC shall evaluate the circumstances of the bankruptcy in order to determine if further assistance may be provided without further risk to funding investment. 4.7 Borrowers shall not be a person, or the immediate family of any person, who is in a decisionmaking position relative to the Housing Rehabilitation Program. 4.8 Process: 4.8.1 Housing Finance Specialist determines general program eligibility, including income limits and lending loan-to-value ratios along with a process to determine all other funding opportunities have been explored/exhausted (technical assistance); 4.8.2 Housing Rehabilitation Specialist determines properties needs via Housing Quality Standards (HQS) inspection (pre-1978 visual Lead Based Paint Inspection conducted); 5

4.8.3 Housing Rehabilitation Specialist scope of work via Rehab Pro Direct to supervisor; 4.8.4 HRLC reviews for consideration and approval of the overall project proposal; 4.8.5 Housing Rehabilitation Specialist processes approved projects through the bid process; 4.8.6 Application inquiry through program completion within 90-days, unless there are extenuating circumstances beyond staff control (e.g. rain delays); 4.8.7 Quarterly program updates provided to HRLC. 5.0 MAXIMUM AMOUNT OF PROGRAM ASSISTANCE (24 CFR 570.208 (a)(3);(b), and 24 CFR 570.202): 5.1 An eligible Borrower may qualify for the full cost of rehabilitation/reconstruction work needed to address any Eligible Repairs outlined in Section 2.0, and/or comply with state and local codes and ordinances; however, the maximum assistance shall not exceed any maximum subsidy established by the funding source(s) utilized to fund the project. 5.1.1 Reconstruction shall only be authorized when the cost of rehabilitation will exceed 75 percent of the current estimated value of the property, as determined by the Housing Financial Specialist; 5.1.2 Loan amount is determined by the repairs/modifications that are required or eligible, as requested and approved by the owner, Community Development Manager or his/her designee. 5.1.3 Maximum amounts are as follows: 5.1.3.1 Grants up to $10,000 require HRLC acknowledgement in order for staff to proceed; 5.1.3.2 Loans up to $49,999 require HRLC approval in order for staff to proceed; 5.1.3.3 Loans of $50,000 or more require HRLC approval and subsequent City Council approval in order for staff to proceed. 5.1.4 Additional loans may be granted within applicants overall loan-to-value ratios; 5.1.5 Emergency repairs of up to $5,000 may be authorized by the Director of Community and Economic Development if it poses an extreme health and safety related emergency (e.g. plumbing or electrical hazards). 6.0 MAXIMUM AFTER REHABILITATION VALUE The after rehabilitation value of a home assisted under this program shall not exceed 100% of the current median sales price of a single family home listed for the City of Modesto. This information may be obtained by collecting comparable sales data from sources including but not limited to Zillow, Trulia, Data Quick, Realty Trac, Real Quest, Epraisal.com, or FHA 203(b) loan limits. If necessary, the after rehabilitation value may be determined by ordering a professional appraisal. An After Rehabilitation Value Limit Worksheet must be completed and certified by the housing rehabilitation specialist and placed in the project file. 7.0 MAXIMUM COMBINED LOAN TO VALUE RATIO: 7.1 For CDBG funded loans, the total indebtedness against the assisted property shall not exceed 100% of the estimated after-rehabilitation value of the property as determined by Estimates of Value conducted by program staff using a Comparable Sales Approach, or an appraisal by a licensed appraiser if required by funding source. 7.2 For CalHome funded loans, the total indebtedness against the assisted property shall not exceed 100% of the estimated after-rehabilitation value of the property as determined by Estimates of Value conducted by program staff using a Comparable Sales Approach, or an appraisal by a 6

licensed appraiser if required by funding source. An additional 5% maximum may be allowed, if allowed by funding source, to cover any eligible closing costs. 7.3 As part of application for assistance, Borrower shall disclose any personal liens that may attach to the property (failure to disclose any pertinent information that may affect eligibility may be grounds for denial of assistance and application withdrawal). To determine the total indebtedness assigned against the property, a title search of the property and Borrowers (for the purpose of verifying any personal liens that may attach to the property) shall be conducted after HRLC project approval. 7.4 An Estimates of Value using a Comparable Sales Approach shall be based on the sale prices of at least three (3) comparable properties, sold within the last twelve months and located within a one mile radius of the subject property. Any alternative methodology for determining estimated value must be approved by the HRLC. 7.5 In the case of a reconstruction, as allowed under Section 5.0.A.i., the HRLC may consider approval of projects that exceed the CLTV limit of Section 7.0.A. or 7.0.B. provided all other criteria for assistance is met and the City of Modesto will be in first lien position. 8.0 RATES AND TERMS OF PROGRAM ASSISTANCE: 8.1 Eligible homeowners may receive a deferred payment loan evidenced by a Promissory Note and secured by a Deed of Trust, with no payback required for 20 years unless the borrower sells or transfers title or discontinues residence in the dwelling. 8.2 The following rates (simple interest) shall apply on City of Modesto housing rehabilitation loans, based on the household s Area Median Income (AMI) level: AMI Interest Rate (simple interest) 0-50% = 0% 51-80% = 3% 8.3 City of Modesto may accept voluntary payments on deferred loans. Loan payments will be credited to the principal first and then to interest. The borrower may repay the loan balance at any time with no pre-payment penalty. If it is determined by the City of Modesto that repayment of the loan at the maturity date causes a hardship to the homeowner, the City of Modesto may opt, with HRLC approval, the following: 8.3.1 Amend the Promissory Note and Deed of Trust to defer repayment of the amount due at maturity, that is the balance of the original principal plus the accrued interest, for up to an additional 20 years (at 0 percent additional interest). This may be offered one time; or, 8.3.2 Convert the debt to loan maturity; that is the balance of the original principal plus any accrued interest, to an amortized loan, repayable in 20 years at 0 percent additional interest. 8.4 Assistance to households with AMI levels between 81% and 120% may only be available if funding source allowing said limits is available. The following terms shall apply to loans made to households with AMI levels between 81% and 120%: 8.4.1 20 year Loan with monthly payments 8.4.2 3% simple interest 7

8.4.3 Must meet Debt to Income Ratio limits specified in Section 4.C. 8.5 In the event that a homeowner sells, transfers title, or discontinues residence in the rehabilitated property for any reason, the loan shall become due and payable. 8.6 Any other transfer of interest, due to homeowner death or other circumstances shall be subject to the requirements of the funding source(s) and shall be defined within the Promissory Note and/or Deed of Trust. 8.7 The HRLC may approve a request to subordinate a loan, in order for the owner to refinance the property. Refer to City of Modesto Subordination Policy for subordination approval criteria. 9.0 MANUFACTURED HOMES: 9.1 Assistance to manufactured homes on a non-permanent foundation will be provided as follows: 9.1.1 The total assistance provided to a manufactured home shall not exceed $20,000 (combined total of all grants, if multiples). 9.1.2 Assistance to manufactured homes will be a one-time grant, subject to available funding allowing for grants. 9.1.3 Replacement shall only be considered when the cost of rehabilitation will exceed 75 percent of the current estimated value of the property, as determined by the Housing Financial Specialist. 10.0 BID SOLICITATION: 10.1 A detailed scope of work and project independent cost estimate developed by the Housing Rehabilitation Specialist (HRS) based on eligible repairs as listed in Section 2.0, shall be prepared and entered into Rehab Pro Direct prior to consideration for HRLC and bid submittal. The Scope of Work shall be approved by the Housing and Urban Development Supervisor and Borrower. 10.1.1 The independent cost estimate shall be established utilizing local market data and published construction cost guidelines. 10.1.2 The Housing and Urban Development Supervisor will review the independent cost estimate prepared by the HRS to ensure the cost estimate is reasonable based on local market data. See section 14.0 for further details on Cost Reasonableness. 10.2 To comply with HUD requirements, a minimum of three bids by California Licensed Contractors shall be obtained prior to bid approval consideration. The City of Modesto will make every attempt to obtain the highest number of bids possible for every project. 10.3 Bids in excess of 15% of the HRLC approved amount must be brought back to HRLC for approval consideration. 10.3.1 If determined appropriate by Housing Rehabilitation Specialist, bids solicitations may be requested from multiple contractors with different disciplines (i.e. general, electrical, roofing, and plumbing, etc.). This approach may be considered as a cost savings measure, if approved by the Housing and Urban Development Supervisor. 11.0 PROCUREMENT 11.1 Procurement projects under this program will occur after Housing Rehabilitation Loan Committee project approval. The HRLC will approve each project based on Housing Rehabilitation Cost 8

Estimates. Upon project approval, project procurement will occur in alignment with the 15% cost reasonableness rule identified in Section 13.0. 11.2 Projects procured under the Homeowner Rehabilitation Program will be conducted in a manner that promotes full and open competition and avoid arbitray action in the procurement process. The following procurement process will be followed by the City: 11.2.1 Procurement of contractors or other services related to the development of housing through either new construction or rehabilitation must be made on the basis of soliciting competitive sealed bids. Advertisements for bid must include the following language: This is a HUD funded project; Section 3 businesses and/or business that employ Section 3 residents are encouraged to respond. Contracts will be awarded to responsible contractors who possess the ability to perform successfully under the terms and conditions of the proposed procurement. Nonresponsible contractors will not be allowed to bid on City projects under this program for a the duration of the program year. 11.2.2 The public notice used to solicit bids will be publically advertised throughmust be published on the City s Website (specify website location) and www.planetbids.com. PlanetBid. All contractors registered on the City s Planet Bids system will receive notification of project availability. 10.3.1.1 If the applicant has a preferred contractor who is not registered in Planet Bids, the City will send a bid request to that contractor. However, all contractors participating in the Homeowner Rehabilitation Program must meet all City program requirements. 11.2.2.1 The Community Development Division will notify prospective bidders, when feasible, to encourage as wide a response as possible 11.2.3 The bid solicitation will include a brief scope of work description, project address, date of mandatory walkthrough, and bid opening date. 11.2.4 The bid solicitation will be open for a minimum of 7 calendar days, to provide sufficient response time prior to the date set for opening the bids, except for projects deemed to be an emergency (see process for emergency projects below). 11.2.5 The mandatory walkthrough will take place eight (8) calendar days from the date of posting. Contractors will have the opportunity to view project items to be repaired and ask any questions for clarification of bid specifications. 11.2.5.1 Depending on the nature of questions addressed and clarification provided at the mandatory walkthrough, the Housing Rehab Specialist (HRS) may need to amend the project s Scope of Work. If this occurs, the HRS will issue an amended Scope of Work and release to all contractors who attended the mandatory walkthrough. 11.2.6 The bid opening will take place fourteen (1412) days from the date of the mandatory walkthrough (21 days from the date of bid opening). 11.2.6.1 The bid opening will be held in a public forum at a City location announced in the Bid solicitation. 9

11.2.6.2 All bids will be opened by a program supervisor (e.g. HUD Supervisor or Senior Community Development Program Specialist) and recorded by a program specialist (e.g. Housing Financial Speicalist or Housing Rehab Specialist). 11.2.6.3 The HRS will summarize the lowest responsible bid results on the Work Specification document provided to the homeowner. 11.2.6.4 The Work Specification document will include an approximate date the contract will be awarded 11.2.6.5 All bidders will be notified of contract award 11.2.7 The applicant will be required to accept the lowest responsible bid with certain exceptions. Rejection of the low bidder without cause will result in cancellation of the project. 11.2.7.1 If on the basis of references, or the inability to start work within a reasonable timeframe, the property owner request to reject the low bidder, he/she must do so in writing. Upon confirmation of the reason for rejection by City staff, the low bidder will be rejected, and the next lowest bidder will be considered. 11.2.8 Upon selection of lowest responsible bidder, the HRS will prepare the respective documents for contractor, homeowner signatures, and City signatures (e.g. Housing Rehabilitation Contract and Grant/Loan Documents). 11.2.9 Upon receipt of executed contracts, the HFS will route contracts for encumbrance the City s financial system. 12.0 EMERGENCY REPAIRS PROCEDURE 12.1.1 Per Section 5.1.5, emergency repairs of up to $5,000 may be authorized by the Director of Community and Economic Development if it poses an extreme health and safety related emergency in line with Modesto Municipal Code 8-3.301. 12.1.2 From time to time, City of Modesto residents will contact the city with repair requests that constitute an immediate threat to their health and safety. Such cases will be treated as Emergency repairs; e.g. broken sewer line, broken water line, leaking roof (during rainy season), broken HVAC system (during summer/winter), and unsafe electrical and or plumbing conditions. 12.1.3 These cases will be given priority over other non-emergency projects. 12.1.4 Upon homeowner contact with the City s Housing Division, the HFS will conduct a prescreening of the prospect applicant and collect pertinent emergency case facts. 12.1.5 After pre-screening, the HFS will collect the application and eligibility documentation from the homeowner; the HFS will inform the Housing Rehab Specialist immediately after collecting the pertinent facts. 12.1.6 The HFS shall determine program eligibility within three (3) business days of collecting a completed application packet. 10

12.1.7 Upon determining eligibility, the Housing Rehab Specialist shall communicate with the homeowner and will schedule and conduct a property inspection and determine/prepare a detailed scope of work and independent cost estimate within three (3) business days of eligibility determination, depending on the severity of the emergency. 12.1.8 Upon completion of the Emergency Repair Scope of Work, the HRS will submit an Emergency Repair Request packet which includes the Scope of Work and related case facts to the HUD Supervisor for review and approval to proceed with procurement for the Emergency Project. 12.1.9 Upon approval by the HUD Supervisor, HRS shall obtain a minimum of three (3) informal bids and shall be awarded to the lowest responsible bidder. 12.1.9.1 Bid documentation will be kept in the file record. 12.1.10 Upon contractor selection, the HRS shall prepare the Advanced Payment Agreement and all required loan documentation for homeowner, contractor, and Director of Community and Economic Development execution within three (3) business days of contractor selection. The Notice to Proceed will be issued upon contract execution by all parties. The rehabilitation contract shall specify the number of days for project completion. 12.1.10.1 A homeowner cannot enter into an Advanced Payment Agreement, unless the homeowner meets the homeowner eligibility guidelines as described in Section 4.0 Homeowner Eligibility. 12.1.11 Routine Progress inspections shall be conducted as specified in Section 18; frequency of progress inspections may be increased as needed for emergency repairs. 12.1.12 All emergency rehabilitation projects will be presented to the Housing Rehabilitation Loan Committee (HRLC) at the next available HRLC meeting for formal approval. 11.013.0 CONTRACTOR ELIGIBILITY 11.113.1 All prospective Contractors must submit or must have submitted, within the past 3 years, a Contractor Application to the City which will allow the City to collect all pertinent information to determine contractor eligibility (i.e. DUNS number, Tax ID, etc). 11.1.113.1.1 Contractor failure to submit a Contractor Application may result in a nonresponsive bid and disqualify the contractor from consideration. 11.213.2 Upon Receipt of bids from prospective contractors, the Housing Financial Specialist shall determine contractor eligibility by conducting the following: 11.2.113.2.1 Verify that the City has a Contractor Application on file for each prospective contractor; 11.2.213.2.2 If the City does not have a Contractor Application on file for the prospective contractor, the Housing Financial Specialist will make arrangements to ensure the prospective Contractor completes and submits a Contractor Application in a timely manner. 11.313.3 Upon confirmation that the City has a complete Contractor Application on file, the Housing Financial Specialist shall conduct the following searches for each prospective contractor: 11

11.3.113.3.1 Debarred/Suspended Search 11.3.1.113.3.1.1 It is the City of Modesto s policy not to conduct business with contractors who are excluded/debarred from conducting business with any federal agency. 11.3.1.213.3.1.2 The Housing Financial Specialist shall ensure that the prospective Contractor is not excluded/debarred from conducting business with any federal agency by conducting a search on the federal System for Award Management website at www.sam.gov. 11.3.1.313.3.1.3 To comply with this requirement, Contractors must provide their DUNS number on the Contractor Application. 11.3.1.413.3.1.4 Prospective contractors who do not have a DUNS number at time of bid submittal, must request one by accessing the following website: http://fedgov.dnb.com/webform/displayhomepage.do 11.3.1.513.3.1.5 Upon conducting the Sam.gov search, the Housing Financial Specialist shall print the search results and place a copy in the project file. 11.3.213.3.2 California State License Board (CSLB) Search: 11.3.2.113.3.2.1 It is the City of Modesto s policy not to conduct business with Contractors who do not hold an active CSLB license. 11.3.2.213.3.2.2 The Housing Financial Specialist shall verify a prospective Contractor holds an active CSLB license by conducting a search on the CSLB website at https://www2.cslb.ca.gov/onlineservices/checklicenseii/checklicense.as px. 11.3.2.313.3.2.3 The CSLB license must be appropriate for the type of rehabilitation work to be conducted (i.e. General Contractor, Electrical, Carpenter, etc.) 11.3.2.413.3.2.4 Upon conducting the CSLB search, the Housing Financial Specialist shall print the search results and place a copy in the project file. 11.3.313.3.3 Better Business Bureau (BBB) Search 11.3.3.113.3.3.1 It is the City of Modesto s policy not to conduct business with contractors who have negative letter rating score (D+ through F) with the BBB. 11.3.3.213.3.3.2 The Housing Financial Specialist shall verify a prospective Contractor has a positive letter rating score (A+ through C-) with the BBB. 13.3.3.3 Upon conducting the BBB search, the Housing Financial Specialist shall print the search results and place a copy in the project file. 11.3.3.3 12.014.0 COST REASONABLENESS AND SCOPE OF WORK: 14.1 As a CDBG recipient, the City of Modesto is held accountable for all funds, property and assets of the CDBG program. The City of Modesto must maintain a financial accounting system for grants that meets the CDBG regulations, 24 CFR Part 84 and OMB Circulars A-87 and A-133. This includes requirements pertaining to financial management systems and records, allowable costs and audits. 14.1.1 The City of Modesto is required to ensure that CDBG funds are spent only on reasonable and necessary costs associated with approved grant activities and must have a procedure for determining the reasonableness, allowability and allocability of costs. 12

14.1.1.1 For major projects, the procedure for determining reasonableness will include the preparation of a detailed scope of work and an independent cost estimate (ICE). 14.1.1.1.1 A detailed Scope of Work will identify project milestones, reports, deliverables, and end products that are expected to be provided by the performing party. The Scope of Work will also include a timeline for all deliverables. 14.1.1.1.2 An independent cost estimate will be established utilizing local market data and published cost guidelines. 14.1.1.1.3 The project manager and supervisor will work with the appropriate parties to develop the independent cost estimate to ensure the cost estimate is reasonable based on local market data. 14.2 To comply with cost reasonableness requirements, the City of Modesto will review all requests for payments to ensure that costs are allowable under regulations, approved in the CDBG grant application, allocated to the correct program activity and are reasonable. 14.3 A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person under the circumstances prevailing at the time the decision was made to incur the cost. 14.3.1 In determining reasonableness of a given cost, consideration shall be given to whether the cost is of a type generally recognized as ordinary and necessary to address the housing condition being considered for repair. 14.3.2 A cost analysis of the scope of work items shall be made and documented in the project file. Cost analysis is the review and evaluation of each element of cost to determine reasonableness, allocability, and allowability. 14.3.3 Cost analysis may be accomplished in various ways, including the comparison of price quotations submitted, market prices and similar indicia, together with discounts. 14.3.4 All change orders will be subject to a cost reasonableness evaluation by the project manager and approval by the HUD Supervisor. 12.114.4 Cost reasonableness shall be determined by comparing the bids received with the cost estimate prepared by the Housing Rehabilitation Specialist. 12.214.5 Bids received must be within 15% of the Housing Rehabilitation Specialist s cost estimate. 12.314.6 An explanation must be provided to the HRLC for any bid selected that exceeds 15% of the estimate. 12.414.7 Comparable estimates may also be considered, when optimal, for utilization of subcontractors instead of general contractors for work to be performed. 12.514.8 The Housing Rehabilitation Specialist will work to manage rehabilitation costs through the most efficient and economically feasible project contracting model. 13.015.0 ENVIRONMENTAL REVIEW: 13.115.1 All assisted properties shall be subject to environmental review as required by the funding source(s). No funds shall be committed and/or released until all environmental reviews have been conducted to the satisfaction of City of Modesto. 13

14.016.0 HOUSING REHABILITATION LOAN COMMITTEE (HRLC) APPROVAL: 14.116.1 All Housing Rehabilitation Program activities shall be subject to majority vote approval by the City of Modesto Housing Rehabilitation Loan Committee (HRLC). The HRLC shall be comprised of the following voting members (all terms are four (4) years in length): 14.1.116.1.1 One Councilmember (appointed by the Mayor) 14.1.216.1.2 One financial institution representative. 14.1.316.1.3 One service provider representative. 14.1.416.1.4 One general contractor (active or retired). 14.1.516.1.5 One Housing Authority of the County of Stanislaus (HACS) representative. 14.1.616.1.6 One Citizen-at-Large. 14.1.716.1.7 One Citizen s Housing and Community Development Committee Representative. 14.216.2 The City of Modesto Community Development Manager may appoint a substitute voting member using alternative criteria if existing circumstances do not allow for a Committee make-up as specified above and time constraints warrant a substitution. 14.316.3 All actions of the HRLC shall be reflected in meeting minutes to be prepared by staff of the City of Modesto Community Development Division. 15.017.0 APPROVAL CONTINGENCIES: 15.117.1 All rehabilitation loans shall be evidenced by the following documents and provisions: 15.1.117.1.1 Loan Agreement; 15.1.217.1.2 Promissory Notes (s) payable to City of Modesto in the principal amount of the loan and stating the terms and rate of interest; 15.1.317.1.3 Deed of Trust(s) securing the Note (deed shall be recorded and shall secure City of Modesto s financial interest in the property); 15.1.417.1.4 Declaration of Conditions, Covenants, and Restrictions (if applicable); 15.1.517.1.5 Other appropriate security instrument naming City of Modesto as beneficiary; 15.1.617.1.6 Request for copy of Request for Notice of Default on first mortgage; and 15.1.717.1.7 Any other documents determined necessary by the Community Development Manager. 15.217.2 All rehabilitation activities approved by the HRLC shall be contingent on meeting the following requirements: 15.2.117.2.1 Execution of a construction contract and Notice to Proceed; 15.2.217.2.2 Construction Schedule mutually agreed to by the Homeowner, Contractor, and Housing Rehabilitation Specialist; 15.2.317.2.3 On-site monitoring and inspections by the Housing Rehabilitation Specialist to verify scope of work, materials, and construction schedule conform to contract requirements; 15.2.417.2.4 Written final inspection and approval documentation by the Housing Rehabilitation Specialist; 15.2.517.2.5 Recorded Notice of Completion, signed by the homeowner, following final inspection and approval by the Housing Rehabilitation Specialist; 15.2.617.2.6 Release of retention payment within 30-days after recording Notice of Completion. 14

15.317.3 Written change orders, subject to the criteria listed below, shall be required for any changes in the work write-up, such as eliminating an item completely, eliminating one item and substituting another, or adding items: 15.3.117.3.1 Contractor must notify Housing Rehabilitation Specialist and homeowner if Contractor deems a change order for work is necessary; Contractor s Change Order request shall be submitted in writing and list the change order items with dollar value for each change; 15.3.217.3.2 Housing Rehabilitation Specialist shall review and determine if Change Order requests and costs are reasonable and work with Contractor to modify Change Order items if necessary; 15.3.317.3.3 Upon reviewing and approving Change Order requests, Housing Rehabilitation Specialist must prepare a City of Modesto Change Order Request Approval form and submit to Housing and Urban Development Supervisor for final approval signature; 15.3.417.3.4 Upon final approval by the Housing and Urban Development Supervisor, Change Order shall be signed by Homeowner and Contractor; 15.3.517.3.5 The combined total of all approved Change Orders shall not exceed the approved financing and contingences; 15.3.617.3.6 Homeowners cannot request (non-health and safety) change orders in excess of the approved financing (not including contingency), unless HRLC approves the use of additional funds (Attachment A). 15.417.4 The homeowner shall maintain fire insurance on the property for the duration of the program loan(s). This insurance must be adequate to cover all encumbrances on the property. The insurer must identify City of Modesto as Additional Insured for the amount of the program loans. A copy of the homeowner s insurance policy shall be provided to City of Modesto annually. 15.517.5 Homes located within a 100-year flood zone will be considered on a case-by-case basis. If approved for assistance, the Borrower is required to maintain flood insurance during the term of the assistance and in an amount adequate to secure the program loan and all other encumbrances. The insurer must identify City of Modesto as Loss Payee for the amount of the program loans. A copy of the homeowner s flood insurance policy shall be provided to City of Modesto annually. 16.018.0 CONTRACTOR LIST 16.118.1 The Housing Financial Specialist shall maintain a Contractor List that includes contractors that have participated in the Homeowner Rehabilitation Program. These contractors must have been vetted through the City s Contractor Eligibility Process as outlined in Section 11.0. The list shall contain the names, addresses, license numbers, CSLB license expiration dates, DUNS Number, insurance information, and business license numbers, expiration dates, insurance information, and business license information for contractors who have been formally approved for participation in the housing rehabilitation programs. 16.1.118.1.1 Information on the Contractors List will be updated on an annual basis, or more frequently, if deemed necessary. 16.1.218.1.2 The Contractors List will be available to the public, upon request. If the public requests a copy of the Contractors List, a disclaimer must appear on the top of the list as referenced in the desk manual. 15

16.218.2 Any person, partnership, or corporation with a current California General Contractor s License is eligible to have bids considered on a housing rehabilitation project. 16.2.118.2.1 In accordance with 24 CFR 85.36(c)(4) the City shall encourage qualified contractor participation to ensure that enough bids are received for a successful and adequate solicitation. Staff shall engage in continuous contractor outreach and engagement in order to provide for the maximum open and free competition that will not preclude other potential bidders from qualifying during the bid solicitation period. 17.019.0 PROGRESS INSPECTIONS & CONTRACTOR COMPENSATION 17.119.1 The Housing Rehabilitation Specialist shall conduct routine progress inspections on all housing rehabilitation projects to verify the Contractor is adhering to the agreed upon Contract Schedule. 17.1.119.1.1 Routine progress inspections shall mean onsite inspections once weekly, unless project timelines call for more frequent inspections. 17.219.2 The Housing Rehabilitation Specialist shall track each progress inspection by completing a Progress Inspection Report, documenting the results and date of the inspection, and place the completed Progress Inspection Report in the project file. 17.319.3 If applicable, the Housing Rehabilitation Specialist shall include the reasons for any project delays within the Progress Inspection Report and describe a revised project schedule agreed upon by the Contractor, Homeowner, and Housing Rehabilitation Specialist. 17.419.4 Revised project schedules shall be signed by the Contractor, Homeowner and Housing Rehabilitation Specialist. 17.519.5 Further unjustified project delays by the Contractor resulting in non-compliance with the agreed upon project schedule shall result in a credit to the Homeowner until the project has been substantially completed or terminated as defined within the section entitled Time is of the Essence in the Performance of this Agreement in the Rehabilitation Program Contract. 19.6 Contractor progress payment requests shall reflect the percentage of the project completed through the time period for which payment is requested. The project completion percentage shall be indicated on the internal payment request form. 18.020.0 CONTRACTOR COMPENSATION 20.1 Contractor progress payments shall be subject to Housing Rehabilitation Specialist verification, acknowledgement and certification that the work being invoiced for is reflective of the work verified through the Housing Rehabilitation Specialist s progress inspection(s) and through the time period indicated on the payment request. 20.1.1 All contractor progress payments must be accompanied by the Invoice Checklist including all required items listed on the invoice checklist for an invoice to be processed by the City s Finance Department. 20.1.2 Progress payment to contractors and reimbursement from HUD will occur only after the Housing Rehab Specialist has verified that the work for which reimbursement is being issued, has been completed. 16

18.1.1.120.1.2.1 Verification of work completion will take place by conducting onsite progress inspections and including an inspection report reflecting a pass. 18.220.2 Contractor payment requests will only be processed if signed by the Contractor, Homeowner, Housing Rehabilitation Specialist, and Housing Rehabilitation Specialist Supervisor. Invoices must be detailed enough to determine payment eligibility, along with accompanying documentation. All efforts will be made to reimburse qualified invoices within a 30-day time frame. 18.320.3 If the Homeowner is not satisfied with the completed work, or the Contractor has not completed the work in accordance with the Rehabilitation Program Contract, Community Development Division staff will meet with the Homeowner and Contractor to resolve the dispute. 18.420.4 If such informal resolution is unsuccessful, the Homeowner and the Contractor must follow the arbitration steps and tribunal procedures as outlined in the Rehabilitation Program Contract. 19.021.0 NON-PROFIT SPONSORED HOUSING ACQUISITION AND/OR REHABILITATION ACTIVITIES 19.121.1 City of Modesto Housing Program funds, as allowed by the individual funding source(s), may be provided directly to a non-profit entity for the purpose of acquiring and/or rehabilitating housing units that will ultimately benefit an owner-occupant provided that the activity complies with all criteria as set forth in the Sections above and with the following criteria: 19.1.121.1.1 Funds provided to a non-profit Developer shall not be used for the administration of the activity. 19.1.221.1.2 Developer s fees shall not be allowed as part of funds provided to a non-profit. However, Non-profit Developers may be compensated at a rate of up to twelve percent (12%) of the total rehabilitation/construction cost for each project. 19.1.321.1.3 Non-profits seeking funding shall submit for Community Development Division review and HRLC approval consideration on a project plan detailing: 19.1.3.121.1.3.1 How the criteria of the Housing Rehabilitation Program will be met; 19.1.3.221.1.3.2 Scope of work including total estimated project cost; 19.1.3.321.1.3.3 Timeline for project completion; 19.1.3.421.1.3.4 Project proforma including all secured funding sources, amounts, and detailed uses to be utilized in fulfillment of the project. Pledged or pending sources will not be considered as leverage funding. 19.1.3.521.1.3.5 Financing summary of all loans being transferred to homebuyer. 19.1.421.1.4 Following HRLC approval and prior to release of funds, the non-profit must submit to City of Modesto items including, but not limited to a resolution by the non-profit s Board accepting the terms of the request and commitment of repayment, insurance and endorsements, and other items outlined within the Community Development Division contract completion checklist. 19.1.521.1.5 The Maximum Sales Price of a City/non-profit sponsored project to be sold to eligible buyers must not exceed 100% of the appraised value, with a 50/50 share of 17

net proceeds between the Developer and the City of Modesto from the sales price of a single family home listed for City of Modesto. 19.1.621.1.6 City/Non-profit sponsored projects must comply with Maximum after Rehabilitation Value and Maximum Loan to Value requirements as outlined in sections 6.0 and 7.0 respectively. 19.1.6.121.1.6.1 Additional information may be required by the HRLC in consideration of the request. 19.1.721.1.7 All HRLC approved funding shall be provided as a reimbursement subject to review and approval of a Reimbursement Request submitted from Developer to the City of Modesto Community Development Division. All RFF s shall be in a form determined satisfactory to the Department. 20.022.0 MONITORING 20.122.1 The Housing Financial Specialist audits funded recipients to ensure that assisted units are occupied only by households that are eligible as low-income families and must meet certain AMI limits. 20.222.2 The requirements include HOME-assisted non-owner-occupied units in single-family (1-4 unit) housing units. 20.322.3 The Housing Rehabilitation Specialists perform annual perform inspections to ensure units meet program compliance requirements. 20.422.4 The Housing and Urban Development Supervisor will annual audit 10% of these activities to ensure eligibility compliance requirements for the units are still being met. 21.023.0 LEAD BASED PAINT OPERATING PROCEDURES FOR UNITS BUILT PRIOR TO 1978 21.123.1 All program applicants shall receive notification of Lead-Based Painting hazards as follows: 21.1.123.1.1 The City will provide a Lead Hazard Information Pamphlet Protect Your Family From Lead in Your Home to all program applicants. 21.223.2 Homeowner Rehabilitation Federal Assistance Up to $5,000: 21.2.123.2.1 Lead Based Paint Presumption: Paint testing will not be conducted for housing rehabilitation projects not exceeding $5,000. The City will presume the presence of lead based paint for all housing projects assisted with an amount not exceeding $5,000. If the rehabilitation project will disturb painted surfaces all lead based paint mitigation activities, other than the actual testing, will be implemented as prescribed by HUD. 21.2.223.2.2 If the housing unit is built prior to 1978, the homeowner will be provided a Notice that Lead-Based Paint or Lead Based Paint Hazards Are Presumed to be Present to occupants within 5 business days of making such presumption. 21.2.323.2.3 Visual Inspection: A visual inspection shall be made by the Rehabilitation Specialist or other staff assigned to make the inspection, to determine if the project will disturb any painted areas. If the project will not disturb any painted areas, the 18

case file shall be so documented and the property owner or tenant advised in writing. No additional compliance steps with lead based paint regulations are required. 21.2.423.2.4 Repair Work: If the project will disturb paint, then the City will require the rehabilitation contractor to be certified as a lead based paint abatement supervisor or as a certified lead safe worker; or the rehabilitation contractor will secure a certified lead base paint abatement supervisor to monitor safe work practices in those areas where painted surfaces will be disturbed by the rehabilitation work. Safety precautions for occupant protection (( 35.1345), work site preparation and cleanup activities and prohibited methods of removal ( 35.140) of lead base paint materials must be followed. 21.2.523.2.5 De Minimis Levels: Safe work practices are not required for projects which are determined to disturb surfaces below de minimis levels ( 35.1350). The case file shall be documented and a Notice of Completion and Notice of Clearance is not required. 21.2.623.2.6 Notice of Completion and Notice of Clearance: A clearance examination of the work site (the area in which the rehabilitation construction was performed) is the responsibility of the rehabilitation contractor and must be performed by a certified lead based paint inspector/assessor. Once work is completed, the City will provide the owner a report entitled Summary Notice of Completion Lead Base Paint Hazard Reduction Activity within fifteen (15) days of the completion date (the date on which clearance is achieved). A copy shall be placed in the project file as documentation. 21.323.3 Homeowner Rehabilitation Federal Assistance $5,001-$25,000 21.3.123.3.1 Information Pamphlet: The City shall provide the pamphlet Protect Your Family From Lead In Your Home to the applicant. 21.3.223.3.2 De Minimis Levels: Safe work practices are not required for projects which are determined to disturb surfaces below de minimis levels ( 35.1350). The case file shall be documented and a Notice of Completion and Notice of Clearance is not required. 21.3.323.3.3 Paint Testing or Presumption: For projects of this funding level ($5,001-$25,000), presumption of the presence of lead base paint shall not be made. Instead, paint will be tested in all areas that will be disturbed by the proposed repair work by a certified lead base paint inspector/assessor. 21.3.423.3.4 Noticing: The City shall provide the occupants with a Summary Notice of Lead Based Paint Inspection after such inspection is made by a certified lead base paint inspector/assessor in accordance with 35.1320(a). 21.3.523.3.5 Risk Assessment: The City shall order test samples of those painted surfaces to be disturbed by the rehabilitation construction or, upon visual inspection by the rehabilitation specialist, on any painted surfaces that are deteriorated. If lead is found in the test samples, a risk assessment shall be ordered by the City and conducted by a certified lead inspector/assessor in accordance with 35.1320(b) before rehabilitation construction begins. The lead base paint inspector/assessor will provide a copy of the results to the City who will notify the owners of the property with the Summary Notice of Lead-Based Risk Assessment. 19

21.3.623.3.6 Interim Controls: If the risk assessment indicates the presence of lead base paint then lead hazard mitigation activities, including paint standards, interim controls and paint stabilization must be performed on all identified lead paint hazards in accordance with 35.1330. Safety precautions for occupant protection ( 35.1345), work site preparation and cleanup activities and prohibited methods of removal ( 35.140) of lead base paint materials must be followed. 21.3.6.123.3.6.1 A person performing paint standards, interim controls or stabilization must be trained in accordance with 29 CFR 1926.59 and be a certified lead base paint safe worker or certified lead base paint abatement supervisor. 21.3.723.3.7 Relocation: As stated in section 35.1345, temporary relocation is required unless: (1) the work will not disturb lead based paint or lead based paint hazards; (2) only exterior work is being conducted and openings to the interior are closed during the work and lead-hazard-free entry to the dwelling is provided; (3) the interior work will be completed in 8 hours, the work sites are contained to prevent dust release into other areas, and no other health or safety hazards are created; or (4) interior work will be completed in 5 consecutive days, work sites are contained, no other health or safety hazards are created, work sites and areas 10 feet from the containment are cleaned at the end of each work day, and occupants have safe access to sleeping, kitchen and bathroom facilities. 21.3.7.123.3.7.1 Safe access to sleeping, kitchen and bathroom facilities can be provided in another convenient location outside of the work site, thereby avoiding unnecessary relocation of residents. 21.3.823.3.8 Clearance: Clearance shall be the responsibility of the rehabilitation contractor who will order the clearance inspection from a certified lead base paint inspector/assessor and in accordance with 35.1340(b). 21.3.923.3.9 Notice of Completion and Notice of Clearance: Once work is completed and after a clearance examination of the work site is performed by a certified lead paint inspector/assessor, a copy shall be placed in the project file as documentation. The City will provide a Summary Notice of Completion of Lead Based Paint Hazard Reduction Activity to the owner within 5 business days from project completion date. The lead base paint inspector/assessor will provide a Lead Hazard Evaluation Report (Form DHS 8552) to the City, the owner and to the Department of Health Services. 21.423.4 Homeowner Rehabilitation Federal Assistance greater than $25,000 (Identify and Eliminate lead hazards) 21.4.123.4.1 Information Pamphlet: The City shall provide the pamphlet Protect Your Family From Lead In Your Home to the applicant. 21.4.223.4.2 If the amount of assistance is more than $25,000, the following is required: 21.4.2.123.4.2.1 Paint testing as outlined in Section 20.3.3; 21.4.2.223.4.2.2 Abatement of all lead based paint hazards identified or produced; 21.4.2.323.4.2.3 Use of interim controls on exterior surfaces not disrupted by rehabilitation; and all applicable lead based paint notices. 21.4.323.4.3 All paint tests that result in a negative finding of lead-based paint are exempt from any and all additional requirements. If defective paint surfaces are found, they will be properly treated or abated. A certified Inspector/Assessor shall perform all paint 20

testing, risk assessments, and clearances. A trained supervisor may oversee interim controls; however, a certified supervisor and workers will perform all abatement. 21

Section 14 City of Modesto Environmental Review Plan For HUD Programs C I T Y O F MODESTO C A L I F O R N I A City Of Modesto Community and Economic Development Department 1010 10 th Street, Suite 3100 Modesto, CA 95354 www.cityofmodesto.com housing@modestogov.com Committee: City Council: Citizens Housing and Community Development Committee Approved:06/29/2017 Resolution No. 2017-312 Approved: 08/08/2017 These policies supersede any previously adopted policies and are subject to review and revision by the City of Modesto's Citizens Housing and Community Development

Environmental Review Process - City of Modesto City of Modesto Environmental Review Process for Activities Utilizing Funding From the U.S. Department of Housing and Urban Development 1. Overview of Environmental Review 1.1. All Federal Agencies must comply with the National Environmental Policy Act of 1969 (NEPA). This means that all activities proposed to receive Federal funding must be reviewed for compliance with applicable Federal laws and authorities (including Executive Orders and Agency regulations) which collectively protect and enhance the environment by removing healthy and safety related concerns and providing citizens with the benefits of a healthy environment. A few of these laws and authorities are: the Endangered Species Act, the National Historic Preservation Act, the Clean Air Act, the Flood Insurance Reform Act, as well as regulations and policies implemented by other federal agencies. These laws and authorities help the Department of Housing and Urban Development (HUD) in its mission to provide "safe, decent and affordable housing." 1.2. NEPA provides the basic requirements for the review process. Title II of the Act established the Council on Environmental Quality (CEQ) within the White House. The CEQ regulations that implement NEPA are spelled-out in the Code of Federal Regulations (CFR) at 40 CFR Parts 1500-1508. 1.3. Each federal agency has their own regulations that implement NEPA and fall in line with those of the CEQ. For HUD, regulations listed at 24 CFR apply to their programs and operations as a whole. Within 24 CFR there are numerous "Parts." Of particular importance to the environmental review process are Parts 35, 51, 55, and 58. 1.4. Generally, Federal agencies have their own staff to conduct their environmental reviews; the one notable exception is HUD. Due to the vast number of projects and activities that HUD assists, they delegate many, but not all environmental review responsibilities to states and units of local government. In this capacity each is referred to as a "Responsible Entity" (RE). As an RE, the City of Modesto, California, acts as an official agent of HUD, taking-on legal obligations on behalf of HUD, and overseeing the ongoing implementation and monitoring of grant funded activities. The specific portion of HUD's regulation that outline's the City's obligations and procedures for the environmental review process is 24 CFR Part 58. 1.5. As an entitlement community, Modesto, California must review large numbers of activities. These include projects funded through the following programs: 1.5.1. Community Development Block Grant Program (CDBG) 1.5.2. HOME Investment Partnerships Program (HOME)

1.5.3. Neighborhood Stabilization Program (NSP) 1.5.4. Emergency Solutions Grant Program (ESG) 1.5.5. Any local funds that are to be repaid with these Federal funds (Section 108 Loans) 1.6. The City's Community & Economic Development Department (CEDD) is tasked with managing the expenditure and oversight of any of these HUD funds and programs that are provided through the City. The City's Environmental Review Specialist (ERS) is responsible for carrying-out the review process and determining whether activities are compliant with NEPA and related laws and authorities. The ERS enlists the assistance of others who have specific knowledge or skills pertinent to the process, such as the City's CEDD staff, the City's Planning Department, Stanislaus County Appraiser's Office, Development Management staff, Plans Review staff, and staff of the City's Parks and Recreation, Water Services and Public Works Departments. Additionally, the U.S. Fish and Wildlife Service and other non-municipal resources are brought into the process. 1.7. Frequently, non-profit agencies become direct recipients of other HUD grant funds. In these circumstances, such grantees must request the City to act as Responsible Entity for the purposes of performing environmental review. The grantee must provide the ERS with a formal request to act as RE and provide full project information. The grants typically involved are: 1.7.1. Supportive Housing Program (SHP); 1.7.2. Self-Help Homeownership Opportunity Program (SHOP); 1.7.3. Public Housing Authority (Capital Fund Program, etc.) grants, and 1.7.4. Housing Opportunities for Persons with AIDS Program (HOPWA) 1.7.5. A complete listing of programs that REs review can be found at 24 CFR 58.1(b) 2. The Environmental Review Process 2.1. Early Documentation 2.1.1. Once applications (proposals) have been received by the City, copies are provided to the ERS by CEDD staff and a cursory review is conducted to determine whether there are items that would require clarification in the environmental review process. If warranted, a follow up to the applicant may be provided to help avoid conflicts with statutory or regulatory requirements, should their proposal be selected for inclusion in the Consolidated Action Plan. However, it is the responsibility of applicants to understand the limitations and requirements that are placed on HUD funds at the time of application. ("Choice-limiting actions," are not allowed per 24 CFR 58.22). 2.1.2. The environmental review process starts with good information about

projects or programs being considered for funding. As part of the Consolidated Planning RFP process, applicants must provide detailed descriptions of projects that clearly state all proposed uses for HUD funds as well as Non-HUD funds. Applicants must also provide a budget associated with all related activities and all funding sources. "Activities" include such things as tenant based rental assistance, acquisition, public services, sidewalk replacement (Curb Improvements, Street Improvements, etc.), preparation of vacant lots for new construction, construction of Energy Star for New Homes rated housing, and multi-family housing, etc. 2.1.3. Once a project, program or activity has been identified for inclusion in the Consolidated Action Plan, the ERS will generate an Environment Review Record for such activities. The ERS will contact the sponsors of those activities to ensure that they are aware of the level of review necessary, and to request any further clarification and documentation necessary to begin the review. Additional documentation that may be requested includes maps; photographs with a key which shows, on a project site map, the locations where photos were taken and in which direction they were taken; and existing Environmental Site Assessments. 2.1.4. Note: An Environmental Site Assessment or ESA is a site investigation conducted to determine the presence of contamination, and should not be confused with an Environmental Assessment which is a NEPA defined level of review (discussed later). 2.1.5. For all project types, the review process can only progress only once the necessary information has been received by the ERS. 2.1.6. CEDD staff is responsible for communicating to the ERS, all changes in project scope as they happen. 2.1.7. HUD's regulations specify the activities that can be undertaken using particular program funds. Various portions of the regulations define those activities. Part 58 of the regulations tie program definitions to NEPA definitions. This is crucial, as it allows activities to be grouped together in the environmental review process. 2.1.8. Aggregation (24 CFR 58.32) - A responsible entity may group together and evaluate as a single project all individual activities which are related either on a geographical or functional basis, or are logical parts of a composite of contemplated actions. [24 CFR Sec.58.32(a)]. This is done so that we address adequately and analyze, in a single environmental review, the separate and combined impacts of activities that are similar, connected and closely related, or that are dependent upon other activities and actions; and consider reasonable alternative courses of action; and schedule the

activities to resolve conflicts or mitigate the individual, combined and/or cumulative effects; and prescribe mitigation measures and safeguards including project alternatives and modifications to individual activities. [24 CFR Sec. 58.32(c)]. 2.1.9. Once the types of projects have been identified, the ERS determines the level of environmental review needed for those projects and records that determination in the Environmental Review Record (ERR). Again, this can only be done if the project is defined well enough and its activities appropriately aggregated (24 CFR 58.32). 3. Determination of Level of Review 3.1. Environmental reviews can range from very simple documentation for "Exempt" activities, to a Finding of Significant Impact (FOSI) which would require that an Environmental Impact Statement (EIS) be conducted as prescribed by NEPA. [Note: given the range of activities typically associated with HUD funding, an EIS is highly improbable, which is an indication that suitable alternatives have been found for large scale projects during the course of the environmental review. 3.2. Exempt 3.2.1. "Exempt" activities (listed at 24 CFR 58.34) require clear notation of a project's activities and funding. They include environmental and other studies, development of plans and strategies; information and financial services; administrative and management activities; public services that will not have a physical impact or result in any physical changes; inspections and testing of properties for hazards or defects; purchase of insurance; purchase of tools; engineering or design costs; technical assistance and training; payment of principal and interest on loans made or obligations guaranteed by HUD, etc. "Exempt" means the activity is not considered capable of having a direct impact on the environment and is therefore exempt from a NEPA proscribed review [the full range of project activities must be considered in making such a determination]. 3.3. Categorically Excluded 3.3.1. "Categorically Excluded" means that the activity is one of a category of activities that, by their nature, do not have the potential to cause a significant impact to the environment and are therefore excluded from the NEPA Environmental Assessment requirements. Though, because they can have an impact, they must be reviewed for compliance with all applicable laws and authorities to determine what must be done in order for the project or activity to comply with those laws. Within this general group of activities there are two subgroups: CENST and CEST. Their differences are significant.

3.4. CENST (Categorically Excluded and are Not Subject To) 3.4.1. This level of determination is associated with activities which are "Categorically Excluded [from an Environmental Assessment] and are Not Subject to" authorities listed at 24 CFR 58.5 (CENST). Over the course of several years, HUD has determined that CENST activities should be treated much like Exempt activities because they do not themselves have a physical impact on the environment. However, because these activities are associated with physical locations, they do require review for compliance with the requirements listed at 58.6. These activities (listed at 24 CFR 58.35(b)) include tenant-based rental assistance; supportive services such as short term payment of utilities or rent; operational support of homeless facilities and daycare facilities; activities to assist homebuyers in purchasing an affordable dwelling that is existing or under construction; etc. Compliance with the Flood Insurance stipulations must be documented for Tenant Based Rental Assistance and Homebuyer Assistance activities. CENST activities are documented in the ERR and do not require any further review or authorization by HUD (discussed later). 3.5. CEST (Categorically Excluded and are Subject To) 3.5.1. The next level of determination is associated with activities which are "Categorically Excluded [from an Environmental Assessment] and are Subject To" authorities listed at 24 CFR 58.5 (CEST). These activities (listed at 24 CFR 58.35(a)) include acquisition (including leasing) or disposition of land and improvements; rehabilitation of housing and other property; new construction of single family housing where there are four (4) or fewer units being developed on any one site; a project of five (5) or more new housing units being developed on scattered sites when each of the sites is at least 2,000' from any one of the other sites and, there are not more than four (4) housing units on any one site. Because these activities are of a physical nature or are committing HUD funds to a property that may or may not be suitable, these activities must be reviewed for compliance with the laws listed at 58.5. HUD regulations are very specific about what scale of activity is accepted into this category of review. Housing density, for example, can mean a great deal in determining whether the environment will be suitable for a project or, vice versa. 3.5.2. CEST activities are documented in the ERR and require public notification, completion of a Request for Release of Funds (RROF) (only if there is a mitigation measure (otherwise, converts to exempt), and subsequent authorization by HUD. 3.5.3. As noted at 24 CFR 58.34(a)(12) some CEST activities may "convert" to

Exempt if, after the environmental review process has been completed, they have been found not to trigger any of the 58.5 Statutory Authorities. In these cases, CEST activities are documented in the ERR but do not require the completion of a RROF and subsequent authorization by HUD. Such projects must still comply with Requirements set forth at 24 CFR 58.6. 4. Environmental Assessment 4.1. If a project does not fit within one of the above classifications, an Environmental Assessment (EA) is required. The EA, in turn, forms the basis for determining whether the project/activity will have a significant impact on the environment. This determination results in either: 4.1.1. the requirement to perform an EIS as mentioned previously; or 4.1.2. a finding that the project/ activity will have no finding of significant impact on the environment (FONSI). 4.2. To get to a FONSI, the EA will take into consideration many more factors than the CEST level review. Included are: review for consistency with area plans; land use and zoning requirements; stated policies of City Council; federal, state and local recommended best practices for such developments; possible infrastructure needs; etc. 4.3. Additionally, alternatives including the "No Action" alternative must be considered along with alternative sites. On-going NEPA compliance must be maintained (see "On-going Compliance with Related Federal Authorities" below). Once the level of review has been determined, the next step is a full review for compliance with 24 CFR Part 58. 5. Review Process Environmental Review Focus 5.1. Compliance with Federal environmental statutes and regulations listed at 58.5 include compliance with Section 106 of the National Historic Preservation Act (Often referred to as the "Section 106 Review," the regulation implementing this compliance process is found at 36 CFR Part 800), floodplain regulations set-out in 24 CFR Part 55, HUD noise regulations set-out in 24 CFR Part 51, Subpart B, Executive Order 11990 Protection of Wetlands, the Endangered Species Act, the Clean Air Act, the Clean Water Act, as well as other requirements. [for specific citations refer to 24 CFR 58.5] 5.2. Additionally, projects are reviewed for compliance with State and Local laws that govern the environmental conditions relevant to the project site or activities. All activities undertaken using HUD funds must comply with the authorities listed at 58.6 as well; these include the Flood Disaster protection Act which requires that, for those properties located within the 100 Year Floodplain, flood insurance be obtained and maintained for the life of the property that is receiving HUD assistance. [for specific citations refer to 24 CFR 58.6] 5.3. Compliance can be determined through review of on-line resources (as in the case of Wild and Scenic Rivers or Sole Source Aquifers), through consultation with authorities who track data associated with a given subject (e.g. Clean Air Act and the State Implementation Plan), or through appropriate procedures that involve legally proscribed consultation (e.g. Section 106 review or Endangered Species

and Habitat). 5.4. The environmental review must be concluded before clearance can be gained and funding provided. To reach conclusion, all compliance issues must be adequately addressed. This does not always mean that the statutory or regulatory issues have been fully resolved prior to release of funds. Indeed, there may be on-going requirements that are needed to insure that outstanding issues are resolved prior to completion of the program or project (e.g. - nesting birds cleared prior to tree removal). This means that, in some cases, the program developer must satisfy compliance steps as properties are identified for inclusion in a program (e.g. is the property located in the floodplain or within proximity to a major roadway). In some cases, full evaluation of potential contamination cannot be undertaken until the site has been further prepared for development. In these cases, Conditions of Approval are made to prescribe specific actions required to ensure that the property is safe for its intended reuse. It is important to note that the type of activity or program drives the determination that no significant impact would result and therefore some issues are weighed more heavily in the decision-making process. 5.5. Most often, issues are resolved prior to release of funds. As part of the review process the ERS and developer work together to find solutions that ensure the protection and enhancement of the environment that will eventually benefit residents or patrons. This process is crucial and always results in a better project (Is bicycle parking being provided? Is the playground protected from highway noise? What steps have been taken to protect the historic integrity of the building? Is there enough street lighting or sidewalks?). In all cases there must be a clear path to compliance for any outstanding issues that may remain at the time of clearance. 5.6. Note: Once an application has been submitted for a project that anticipates the use of Department of Housing & Urban Development (HUD) funding, neither HUD funds or non-hud funds can be committed to that project until the environmental review has been approved by HUD or the Release of Funds obtained. No choice limiting action can be taken until the environmental review is approved (24 CFR 58.22) and Release of Funds obtained. Choice limiting actions include real property ACQUISITION, DEMOLITION, SITE CLEARANCE, REPAIR, REHABILITATION, CONSTRUCTION and LEASING activities. If you are not certain about where your project stands with regard to this statement, please contact the Environmental Review Specialist. 5.7. Once the project has been reviewed and a determination has been made that a project can proceed, the City must publish a notice for the project/activity, and a RROF must be completed and submitted to HUD, with subsequent approval by HUD. 6. Categorical Exclusion Approval Process 6.1. Public Notice & Comment Period 6.2. Once the environmental review has been concluded, CEST activities require that the City publish what is called a "Notice of Intent to Request Release of Funds" (NOI-RROF), which is published in the local paper of general circulation. Typically the publication is run in the public notice section of the Modesto Bee and the Vida

en el Valle. This notice provides the public with a 7-day window within which they can comment on the proposed use of funds. Comments received in the specified time will be responded to and any appropriate modifications will be incorporated into the ERR. 6.3. Submittal of Request for Release of Funds to HUD The day after the expiration of the comment period, a "Request for Release of Funds and Environmental Certification" form is sent to HUD for authorization. This RROF is signed by the City's Certifying Officer, Cynthia Birdsill, or her designee. 6.4. Objection Period & HUD Approval of RROF The day after HUD receives the RROF, they open a 15-day Objection Period, during which time the public can object to the release of funds - if such objections meet criteria specified at 24 CFR 58.75. The day after expiration of the Objection Period, HUD approves the RROF and transmits their "Authority to Use Grant Funds" form (AUGF) to the City. Once received, the City notifies grant subrecipients that they can commit funds to, and undertake actions authorized via the environmental review. That authorization includes any stipulations identified in the review - these conditions become legal obligations of any contractual agreements associated with the project. 7. Environmental Assessment Approval Process 7.1. The approval process for an EA is nearly the same as the process for CEST activities. The difference is that the City must publish its Finding of No Significant Impact or FONSI, as well as a NOI-RROF. Typically this is accomplished through what is called a "combined notice" which simply publishes the two together. This notice provides the community a 15-day Comment Period rather than a 7-day period. Under exceptional circumstances, a 30 day Period may be necessary. Because there are many more aspects to an EA review, the process may result in several "Conditions of Approval." Those conditions become legal obligations of any contractual agreements associated with the project, and must be adhered to in order for the grantee or sub-recipient to remain in compliance with their grant obligations. 8. On-going Compliance with Related Federal Authorities 8.1. Some CEST or EA reviews are associated with programs involving multiple properties over the course of time. These programs are designed to assist properties not identified at the time of program inception. In these cases, as sites are identified, they must be reviewed to ensure compliance with statutory or regulatory requirements not fully addressed at the time clearance was provided to the program. This "site-specific" review is in line with the NEPA concept of "Tiering." This approach allows compliance issues to be reviewed once they are "ripe," expediting what would otherwise be successive reviews for similar projects that would each require their own release of funds. 8.2. Examples of program-based activities that require such on-going review and compliance for site-specific projects include the following: 8.2.1. Programs 8.2.1.1. Property Acquisition 8.2.1.2. New Housing Construction

8.2.1.3. Housing Rehabilitation 8.2.1.4. Commercial Rehabilitation 8.2.1.5. Demolition 8.2.2. Compliance Issues 8.2.2.1. Floodplains 8.2.2.2. Historic preservation (i.e., Noise Impacts) 8.2.2.3. Explosive hazards 8.2.2.4. Hazardous substances 8.2.2.5. Lead-Based Paint 8.2.2.6. Asbestos Containing Materials 9. Grant recipients and sub-recipients must ensure that the Conditions of Approval or other required actions are carried out as part of any executed contracts associated with HUD-funded activities. Documentation of such compliance must be maintained in program / project files. 10. Conducting Environmental Review for all HUD funded activities: 10.1. The City of Modesto will complete the environmental review procedures described in this policy, as set forth at 24 CFR part 58, for each activity (or project as defined in 24 CFR part 58), as applicable, prior to contract execution and/or expending funds for any project/activity. 10.1.1. Contracts will not be executed with subrecipients, vendors, or contractors and expenditures for City-managed projects will not be approved until environmental review is complete. 10.1.2. State (CEQA) environmental regulations requirements will also be considered. 10.1.3. Environmental review forms and documents must be signed by the appropriate staff preparing the environmental review and the Certifying Officer. 10.1.4. The City will ensure that all Finding of No Significant Impact (FONSI) and Request for Release of Funds (RROF) requirements are completed for capital improvement projects and housing rehabilitation projects prior to contract execution, and/or expending funds on any project/activities.

To: Interested Parties Re: Request for Proposals (RFP); Program Year 2018-2019 Dear Interested Parties: The City of Modesto is pleased to announce the release of a Request for Proposals to select local Community Housing Development Organizations to receive HOME Investment Partnerships Program set aside and/or operating funds. The goal of this program is to help the selected Community Housing Development Organizations with set aside and /or operating funds to further the development of affordable housing units in the City of Modesto for households earning less than 80% of the area s median income. Please submit your application through ZoomGrants by June 15, 2018 by 5:00 PM. If you have any questions, please contact Aaron Farnon at (209) 577-5211 or housing@modestogov.com. Page 1 of 21