A new report from California State Auditor (CSA) Elaine Howle has designated as high-risk the state’s management of emergency rental assistance funds, possibly jeopardizing additional federal funding if more of the original funds aren’t distributed by Sept. 30.
“Our audit was conducted under our State High Risk program – in August 2020, we added the State’s management of funding provided to the states by the federal government to address the impacts of the COVID-19 pandemic (federal COVID-19 funding) as a high-risk statewide issue,” Margarita Fernández, CPA, California State Auditor Chief of Public Affairs & Quality Assurance, told the Northern California Record by email.
The Department of Housing and Community Development (HCD) is assigned to administer $1.8 billion in Emergency Rental Assistance program (ERAP) funds, which were allocated to provide rental assistance to eligible California households with residents facing eviction.
The CSA report, which was sent Sept. 16 to Gov. Gavin Newsom and legislative leaders, notes that state statutory changes to the program have slowed HCD’s distribution of funds across California.
California could lose more than $330 million dollars if the Round 1 ERAP funds are not obligated by Sept 30, 2021, Fernández said.
However, there are conflicting views of the federal law governing Round 1 ERAP funds.
“There are two areas in which HCD disagrees with us,” Fernández said. “The first is that law provides that, beginning on Sept. 30, 2021, Treasury shall recapture excess funds not obligated for the ERAP. Our interpretation is based on plain language and is reasonable and conservative, particularly given the absence of written guidance from US Treasury. Thus, if HCD does not obligate all funds available to the state by September 30th, the state could lose over $300 million in federal funds for ERAP.”
Nor are Round 2 reallocations guaranteed, according to the CSA’s follow-up to the HCD’s response.
“Also, HCD claims that US Treasury has not provided a clear definition of ‘obligation’—we disagree,” Fernández said. “HCD’s decision to use an alternative methodology for reporting obligated funds does not align with Treasury’s reporting guidance, which risks Treasury rejecting HCD’s method of interpreting its obligated totals.”
The CSA plans to issue a separate report in 2022 that will evaluate HCD’s management of the federal COVID-19 funding for the rental assistance program, Fernández said.