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SR-102285-11B OCT 3 1963 C/ED:HSG:AS:wp City Council Meeting 101/1/85 Santa Monica, California OCT 2 2 1995 TO: Mayor and City Council FROM: City Staff SUBJECT: Recommendation to Approve the FY 1985-86 Community Development Grantee Contracts for the Pico Neighborhood Rehabilitation Grant Program INTRODUCTION This report recommends that the City Council approve standard grantee contracts between the City and the following organizations for the implementation of the 1985-86 Pico Neighborhood Rehabilitation Grant Program: (1) Pico Neighborhood Association (PNA) for the period July 1, 1985 through October 31, 1985 for marketing and intake functions as well as a subcontract for actual rehabilitation services through Neighborhood Resource and Development Corporation (NRDC); and (2) Neighborhood Resource and Development Corporation for the period November 1, 1985 through June 30, 1986 for the continued operation of the program as sole contractor of the entire program. The report provides background on the program, outlines program cost constraints, summarizes the contract negotiation process and selection rationale for a single contractor as well as transmits proposed budgets and workplans for Council review. OCT 22 1985 - 1 - BACKGROUND On May 29, 1985 the City Council approved the Community Develop- ment Program for FY 1985-86 which included a Pico Neighborhood Rehabilitation Progra~t~ cort~bining direct rehabilitation grants and loans to assist property owners and tenants in improving and rehabilitating their units. The Community Development Program allocated $227,461 to the rehabilitation grant program component, and $151,5f~(~ to the rehabilitation loan program component, for a total of $378,961 and further outlined administrative and program cost constraints for the program. It was recommended at that time that City contract with both the Pico Neighborhood Association (PNA) and Neighborhood Resources Developrt~ent Corporation (NRDC), the two organizations that operated the FY 1984-85 rehabilitation grant progra~t~, to operate the combined loan and grant progra~~s. It was further recommended that "NRDC and PNA work with City staff to develop an appropriate budget within these constraints and to correspondingly delineate responsibilities for the program between PNA and NRDC." Upon Council approval, a letter agreement was signed between the City and PNA which provided for an interim arrangement until a contract could be negotiated. This letter agreement maintained PNA as the City's contractor with NRDC as the subcontractor for rehabilitation services. It further al- lowed both organizations to incur costs based on the prior year budget until a contract could be negotiated and executed. - 2 - Program Cost Constraints The U.S. Department of Housing and Urban Development (HUD) has established a guideline that no rt~ore than fifteen percent (150) of a rehabilitation program budget should be used for the pro- gram's ad~t~inistrative costs. The FY 1984-85 budget for the joint PNA/NRDC rehabilitation grant program exceeded this amount, be- cause of the start-up costs attributable to the use of a newly created non-profit, NRDC, as the handyworker organization, and the costs of a jointly-run progra~r~ which required separate admin- istrative functions. In the FY 1985-86 program, both organiza- tions were inforrt~ed that the total program administrative costs must not exceed the 150 limit. In order to assist the organiza- tions in meeting that goal, some of PNA's costs that had histori- cally been allocated to the rehabilitation program, such as a percentage of the executive director's salary and rent, were allocated to the core grant. In addition, staff recomrt~ended that the rehabilitation loan program component be operated by the neighborhood organizations rather than by the City directly, which would increase the total program budget and consequently justify the existing level of ad~t~inistrative staffing and related costs. Contract Negotiation Process Starting in late June, City staff ~t~et with NRDC and PNA to develop an appropriate budget and workplan, within the approved funding constraints, to implement these two program components. With the assistance of a consultant experienced in operating loan - 3 - programs, City staff also began working with the two organiza- tions to develop the loan component of the program. The objec- tives of these meetings were (1) to develop a cost-effective pro- gram that met the HUD guidelines for administrative overhead for rehabilitation programs and (2) to develop program workplans that appropriately delineated responsibilities between PNA and NRDC. The results of the discussions in these two areas formed the ba- sis for the staff reco~t~~t~endations included in this report. In response to the City's award of the two-component program to both organizations, PNA and NRDC submitted program budgets for 1985-86. However, these budgets included administrative costs which comprised 210 of the total budget, exceeding HUD's limit. Over the past three months, PNA and NRDC were unable to develop a budget for the continuance of the joint program within the cost constraints and expressed a need for increased administrative funds. As mentioned previously, this request for additional funds could not be justified pursuant to HUD guidelines and staff's assessment that a rehabilitation program of this nature can be operated within these limits. In addition, the two or- ganizations concluded that given the complexity of the loan pro- gram and the existing capacity of the rehabilitation staff that it would not be feasible to assume the loan component as pre- viously accepted. Eliminating the loan component of the program resulted in the decrease in the allowable administrative budget to keep the re- duced program in line with the 15o administrative cap. Again, the agencies were unable to propose a budget within those cost - 4 - constraints. In further assessing the reasons why the organiza- ti ons were unable to develop a more cost effective program, it became evident that because both organizations were sustaining similar adrt~inistrative costs (facilities expense, accounting ser- vices, and administrative support) and could not identify mutual- ly acceptable ways to share space and other administrative staff functions as suggested by City staff, arriving at a solution for a joint program was not feasible. In addition, it became ap- parent that not only was it difficult for a jointly-run progra~t~ to be adr~~inistratively cost effective but there were also a num- ber of programmatic difficulties. The City's monitoring found that there were delays in transmitting important program informa- tion between the two organizations and a general lack of coor- dination between the intake and rehabilitation functions of the program. Recommendation of Single Contractor Given this assessrt~ent, staff met with the chairpersons of both organizations and requested that their Boards review two program alternatives prepared by City staff and that they arrive at a mutually acceptable decision for a prograrti to be operated by a single contractor -- either PNA or NRDC. After thoughtful and serious review by both organizations, both PNA and NRDC submitted proposals to operate the program independently. After a review of the ~tierits of both proposals, and because a consensus was not reached by both organizations, staff concluded that the City should contract with NRDC to assume operation of the entire pro- gram beginning November 1, 1985. - 5 - This decision was based on the following considerations: o NRDC has developed the capacity over the past year to handle the technical elements of the program, such as estimating rehabilitation work, hiring contractors and managing crews. o The outreach and intake functions could be added to their responsibilities without significant start-up delays. Conversely, while PNA is knowledgeable about general program op- erations, it does not have existing capacity for the technical parts of the program. While this capacity could be developed, it would come at a "transitional period" for PNA because of the ab- Bence of a permanent executive director at this ti~tie. While plans are underway to fill this position, the addition of the technical aspects of the rehabilitation program during this ti~t~e of transition would put significant pressure on PNA's current staff and ongoing com-t~unity organizing activities and would re- quire considerable oversight by a new Executive Director, yet to be hired. While PNA would lose one full-tirt~e outreach worker position and related prograrr~ costs effective Nove~t~ber lst under the recommended program, it is still possible for the core com- munity organizing and employment grants to sustain the other on- going operations of PNA without a reduction in service to the neighborhood. - 6 - Contract Budgets and Workplans As mentioned previously, it is recommended that Council authorize the execution of two standard CDBG contracts, as follows: (1) Pico Neighborhood Association - The attached proposed budget reflects costs to operate the outreach and intake functions for the first four months of the fiscal year as well as a four-month subcontract with NRDC for rehabilitation services. This is con- sistent with the interizti letter NRDC at the beginning of the fi activities under the purview of tract which will expire October will be used as a transitional PNA's responsibilities to NRDC. agreement signed by both PNA and scal year. The workplan reflects PNA during the term of the con- 31, 1985. The month of October period prior to the transfer of (2) Neighborhood Resource and Development Corporation - The at- tacked proposed budget reflects a plan for staffing and adminis- trative costs for the re~tiainder of the year beginning November 1, 1985 when NRDC assumes total program responsibility, including outreach and intake. The budget meets the administrative re- quirerr~ents of 15%. The proposed workplan includes several objec- tives to ensure close coordination with PNA, acknowledging the critical role PNA has played in the initiation and i~t~plea~entation of this ongoing program. 75 units will be co~t~pleted during the 1985-86 fiscal year. It is also i~t~portant to note that the workp- lan includes the provision that NRDC cooperate with City staff in a six month review of the administrative, fiscal and programmatic effectiveness of the progratt~. This review will be transmitted to - 7 - Council mid-year with any staff recommendations for prograzt~ revi- sions if appropriate. Because of the complexity of contract negotiations and the need to execute contracts as soon as possible, the proposed workplans and budgets are being discussed with PNA and NRDC but there has not been adequate time for their Boards to review and act formal- ly. Therefore, the following recommendation authorizes the City Manager to finalize workplans and budgets with PNA and NRDC prior to contract execution within the cost constraints and program structure outlined in this report. Status of the Rehabilitation Loan Corr~ponent As mentioned previously, PNA and NRDC did not feel that it was feasible to implement the loan component of the program. City staff is currently reassessing the demand for the program and will be developing a recommendation to the Council on the loan component at a later date, in consultation with PNA and NRDC. BUDGETARY/FINANCIAL IMPACT $378,961 in CDBG and Rental Rehabilitation Program funds were appropriated in 1985-86 in account nurt~ber 01-200-264-000-700. The following details the status of these funds upon execution of the contracts with PNA and NRDC: CDBG Rental Rehab Appropri- ated $278,961 $100,000 PNA Grant NRDC Grant Balance $161,106 $ 31,026 -0- $100,000 $161,106 $131,026 TOTAL $378,961 $86,829 -0- $86,829 - 8 - No budgetary action is required at this time. RECOMMENDATION City staff recomrt~ends that the City Council authorize the City Manager to finalize budgets and workplans with PNA and NRDC and execute standard grantee contracts for implert~entation of the 1985-86 Pico Neighborhood Residential Rehabilitation Grant Pro- grart~ with (1) the Pico Neighborhood Association in the amount of $86,829, for the period of July 1 - October 31, 1985 and (2) Neighborhood Resource and Development Association in the amount of $161,16 for the period of November 1, 1985 - June 30, 1986. Prepared by: Barbara Stinchfield, Community Development Manager Ann Sewill, Housing Program Manager Community and Economic Development Department Attachments - 9 - Reference Contract No. 4594 (CCS).