Report 2018-037 Recommendation 8 Responses

Report 2018-037: California Department of Housing and Community Development: Its Oversight of Housing Bond Funds Remains Inconsistent (Release Date: September 2018)

Recommendation #8 To: Housing and Community Development, Department of

To ensure that the IIG program award funds benefit the target population, HCD should develop and use a tool by December 1, 2018, to track which awards are monitored by local jurisdictions or by other HCD programs and which are not monitored at all. HCD should then immediately obtain monitoring reports from the local jurisdictions and other HCD programs to verify monitoring and review the results of such monitoring. HCD should follow up on any noted deficiencies. Further, HCD should, by January 1, 2019, develop a plan to perform on-site visits for those recipients that do not receive adequate monitoring from another source, and it should perform the planned on-site monitoring.

Annual Follow-Up Agency Response From September 2021

HCD has identified which IIG projects are monitored by a local jurisdiction, TCAC or HCD's Asset Management and Compliance Branch (under other HCD programs). HCD requested TCAC provide a copy of the most recent compliance monitoring reports for all 92 projects with TCAC regulatory agreements. All of the reports have been received, saved to the project folder, and logged into the CAPES database. There are only seven projects that have closed permanent financing and are in operation which do not receive adequate monitoring form another source. HCD has scheduled desk monitorings for these seven projects, in lieu of site visits due to the COVID-19 state of emergency. HCD will resume physical site inspections once the travel ban has been lifted. All IIG projects with other HCD funding will continue to be monitored through the lead loan program for the term of the regulatory agreement with desk and site monitorings logged in CAPES. HCD considers this corrective action plan to be fully implemented.

California State Auditor's Assessment of Annual Follow-Up Status: Fully Implemented

HCD provided us with spreadsheets showing the tracking of IIG awards that are monitored by the Tax Credit Allocation Committee and whether it obtained the corresponding monitoring reports. HCD also provided us with a spreadsheet showing which projects it would perform a review on in the future. To the extent that HCD continues to track IIG projects, obtain monitoring reports, and perform monitoring of projects not monitored by another entity, it will fully implement our recommendation.

Annual Follow-Up Agency Response From September 2020

After further review, it's been determined that more projects received TCAC awards than previously determined. 92 of the 100 projects that have closed permanent financing and are in operation have TCAC regulatory agreements recorded against the properties. HCD has a long-standing MOU with TCAC to receive copies of their monitoring and inspection reports for projects that have HCD funding. AMC Fiscal staff will continue to be in communication with TCAC to request copies of the TCAC monitoring reports to verify their monitoring activities, and will maintain records in the CAPES database. Four other projects have HCD funding and already are being monitored for the term of the regulatory agreement. This will satisfy HCD's long term IIG monitoring requirements. With the exception of four projects, there will be no need for further communication with the 11 jurisdictions previously contacted. Due to current travel restrictions related to the COVID state of emergency, Asset Management Staff are transitioning to desk montiorings vs. on-site monitorings. Staff will be priorizing these four projects for completion of a desk monitoring by end of the calendar year.

California State Auditor's Assessment of Annual Follow-Up Status: Pending

1-Year Agency Response

HCD has developed an MOU, for execution with local jurisdictions, to memorialize roles and responsibilities to ensure sufficient monitoring and reporting for the 55-year affordability period. HCD has made contact will all 11 local jurisdictions. Several of the jurisdictions have expressed hesitancy to enter into a formal MOU for monitoring, but are agreeable to a more informal arrangement for providing this information on an on-going basis. HCD is reviewing alternate agreement options, including having jurisdictions provide HCD a letter indicating their intent to submit continued monitoring reports. Due to staffing capacity issues, the four projects previously identified as having no state, or local monitoring have been moved to the departments Phase II monitoring schedule. The site visits will be completed by 10/31/19.

California State Auditor's Assessment of 1-Year Status: Pending

6-Month Agency Response

"A tracking tool has been developed and is being utilized to determine the monitoring status of the current IIG project portfolio. HCD determined that out of 100 closed IIG projects, only four do not have state or local monitoring. The monitoring plan for these projects moving forward is that the Asset Management and Compliance (AMC) unit has added these projects to the monitoring schedule to ensure adequate on-site monitoring and project compliance. Site visits will be scheduled for these projects by 3/31/2019, and site visits conducted by 6/30/2019.

During HCD's initial outreach efforts to obtain monitoring information from local jurisdictions, it became evident that a formal agreement to memorialize the roles and responsibilities of HCD and the local jurisdictions will need to be developed and implemented in order to ensure sufficient monitoring for the 55-year affordability period. HCD is in discussion with its Legal Affairs Division (LAD) to obtain guidance on structuring Memorandum of Understandings (MOUs) with local jurisdictions for monitoring current IIG projects. This process is scheduled for completion by 3/31/2019.

In order to address potential monitoring needs of future IIG projects, HCD is working with LAD on strengthening standard agreement language to require that grantees/local jurisdictions provide monitoring reports on an on-going basis. "

California State Auditor's Assessment of 6-Month Status: Pending

60-Day Agency Response

HCD has developed a CAPES-generated report, which is the IIG Program Tracking Tool, and is collecting reports from both state and local jurisdictions/non-state funded projects. HCD has updated IIG processes and procedures to review reports and address deficiencies. HCD has reviewed all state funded monitoring reports for compliance and finds no concerns. Currently only four awards are funded solely through the IIG program. HCD is also communicating with 11 non-state entities to collect reports and review. HCD will develop monitoring plan by January 1, 2019 and if needed commence monitoring in 1st quarter 2019.

California State Auditor's Assessment of 60-Day Status: Pending

All Recommendations in 2018-037

Agency responses received are posted verbatim.