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More HUD woes for Modesto. Why city is losing hundreds of thousands in funding

Tenth Street Place in downtown Modesto houses the administrative offices of city and county government.
Tenth Street Place in downtown Modesto houses the administrative offices of city and county government. jlee@modbee.com

Modesto has $385,135 less federal money to help low- and moderate-income people and underserved communities after the U.S. Department of Housing and Urban Development dinged the city.

That’s the amount Modesto did not spend within a certain timeline in its 2017-18 budget, and HUD reduced the money it gave the city for its 2018-19 budget by that amount.

Modesto saw its funding drop from slightly more than $2 million to about $1.62 million for its 2018-19 budget year, which ends June 30.

The money is from HUD’s Community Development Block Grant program, and according to HUD, is used primarily to help low- and moderate-income people. Modesto uses the money for such activities as helping people buy or fix their homes and for infrastructure improvements in poor neighborhoods.

Community Development Manager Jessica Narayan, who oversees the city’s CDBG program, said the program was undergoing a leadership transition when the city failed to spend the money within HUD’s timeliness guidelines. Narayan became the city’s community development manager in October.

This comes after HUD’s Office of Inspector General released a scathing audit in July of Modesto’s CDBG program for the city’s 2015-16 and 2016-17 budget years that faulted the city for not following the rules in spending money in an attempt to show HUD it was meeting its timeliness guidelines.

The audit found, among other issues, that Modesto “did not follow HUD’s and its own requirements, ... provided false information to HUD, (and) spent HUD funds inefficiently.”

The audit recommended Modesto repay HUD nearly $258,000 and explain how it spent an additional $1.69 million or pay that back as well. Modesto and HUD are working to resolve the issues raised in the audit. Narayan said that could be completed in six weeks. She said it is too soon to say how much Modesto may have to pay back to HUD.

Modesto spokesman Thomas Reeves said that since the audit, the city has been more diligent in complying with HUD guidelines and that also accounted for the unspent money. “Our focus was on compliance,” he said.

Narayan said Modesto learned in December that HUD would reduce its funding by the $385,135 for the 2018-19 budget year. But she said Modesto anticipates this will be a one-time reduction, and the city should get its full funding in upcoming years.

The City Council on Tuesday evening approved an amendment for the funding reduction.

But Narayan said Modesto will not cut back its programs because of the funding reduction. She said that is because the city expects to receive about $400,000 in additional funding from what is called Program Income and the Revolving Loan Fund.

She said CDBG money was used to start these programs, which provide grants and loans for home rehabilitation projects and toward the purchase of a home. The city recoups its money when the homes are refinanced and/or sold.

Narayan said more people are refinancing and selling, which is bringing in more money to the city than expected.

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