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Since July 25, 2022, City staff has been diligently working with the regional HUD office in San Francisco to attempt to resolve and rectify the regulatory violation. Based on advice from HUD staff, the City initiated a waiver request of 24 CFR Part 58 on September 1, 2022. However, on December 12, 2022, HUD staff further advised the City that processing the waiver request could take up to 12 months to be processed (during which time Axis could not proceed with any further work on the project, without incurring additional program violations), or the City could reprogram CDBG funds for the project from acquisition to rehabilitation activities (e.g., building renovations). The City, after multiple discussions with Axis, retracted the waiver request because neither option was viable for Axis which confirmed that it would forego the CDBG funds allocated to the project. Continuing to pursue the waiver request would have resulted in more delays, since Axis had already halted all project-related activities since August 2022 while seeking resolution of the regulatory violation with HUD. Reprogramming the funds to rehabilitation would have significantly increased Axis' rehabilitation budget as the use of CDBG funds for the project would trigger Davis-Bacon prevailing wage and other federal labor requirements. Therefore, staff is recommending amendment to the Action Plan to re-program the $195,483 in CDBG funds to other eligible activities as discussed below. Ongoing Support for Axis Community Health The regulatory violation, while unintended, is extremely unfortunate. The City continues to strongly support Axis Community Health's programs, and particularly its current effort to meet community needs with the creation of a new dental services site for needful Tri-Valley residents. Staff recommends consideration be given as part of future Housing and Human Services Grant cycles, which allocate CDBG, HOME and City-derived funds to support a range of Tri-Valley organizations through funding for capital projects and housing and human services programs. For the Axis dental site, this would likely be considered in the FY 2024/25 cycle, which is when the clinic is anticipated to be open and could include funding for operational costs, potentially as an annual allocation over several years. Axis staff agrees with this approach, recognizing that the City's final allocations in future Action Plans and in the HHSG Grant Program will be based on the actual amount of CDBG and other funding, competing public service agency grant requests, budgetary constraints, and program requirements. Amended Action Plan In accordance with HUD requirements, the City prepares a Citizen Participation Plan to ensure Pleasanton residents have the opportunity to provide input and comment on the 5-Year Consolidated Plan and Annual Action Plans that outline how the City plans to use CDBG funds. The Citizen Participation Plan also provides the following criteria for Substantial Amendments to the Action Plan: Page 3 of 4