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BACKGROUND Since 1994, the City has administered CDBG funds received from the U.S. Department of HUD. The CDBG program annually provides formula "entitlement" grants to states and to local governments, such as Pleasanton, with populations greater than 50,000. In program year 2022 covering July 1, 2022 through June 30, 2023, Pleasanton was awarded $338,818 in CDBG funds. As a condition of receiving its annual allocation of federal CDBG funds, the City is required to submit an "Annual Action Plan" to HUD that includes a list of projects and activities to be funded with CDBG funds. The FY 2022/23 Annual Action Plan was approved for submittal to HUD on May 3, 2022, and has been approved by HUD. In the Action Plan, the City allocated $195,483 in CDBG funds to Axis Community Health, to assist with the costs of acquiring a new dental service project site in Livermore. Due to a procedural issue that arose during the process to distribute the funds to Axis, the City is unable to allocate the funds as proposed in the Action Plan and is now proposing a Substantial Amendment to the FY 2022/23 Annual Action Plan to remove the Axis Community Health — New Services Site project and to reallocate the project's allocation of$195,483 CDBG funds to other CDBG-eligible programs. DISCUSSION Axis Community Health Dental Clinic Acquisition Funding The Axis Community Health project requested CDBG funds to support the development of a new service site in Livermore, intended to address the gap in access to dental, medical, and behavioral health services for an estimated 5,600 low-income and uninsured residents in the Tri-Valley. The City's FY 2022/23 Annual Action Plan committed $195,483 in CDBG funds to assist Axis Community Health (Axis) in financing the estimated $3.1 million acquisition cost. Following adoption of the Action Plan, actual distribution of CDBG funds requires a number of procedural steps to be completed by the City, including in the case of the Axis Community Health project submittal of environmental review documentation to HUD prior to Axis' acquisition of the site. In early 2022, due to COVID, HUD extended the submittal date for the FY 2022/23 Action Plan by two months, from May 13, 2022, to July 11, 2022. After submittal of the Action Plan on July 11, staff submitted the environmental review documents for the Axis Project on July 25, 2022, believing that the extended submittal date for the Action Plan similarly extended the timing for completion of the environmental review. However, it was later determined that Axis had proceeded to acquire the site on July 7, 2022, before the environmental review and related procedural steps that rely on its findings had been completed. This timing was in violation of the federal regulations (24 CFR Part 58) governing the CDBG program.' Specifically,the acquisition was determined to have been in violation of federal regulation 24 CFR 58.22(a)because it occurred prior to the completion of an environmental review and submission or approval of a Request for Release of Funds and certification(RROF)for the$195,483 CDBG funds allocated to the project.The RROF confirms, based on the environmental documentation, that the project would not have any unmitigated adverse environmental impacts. Page 2 of 4