Federal COVID-19 Funding: Emergency Rental Assistance Program
Summary
A California State Auditor report, 2021-615.1, dated September 16, 2021, from State Auditor Elaine M. Howle to the Governor and legislative leaders, on the Department of Housing and Community Development's (HCD) progress in obligating federal Emergency Rental Assistance program (ERAP) funds before the first federal deadline of September 30, 2021. It states that California received $2.6 billion in Round 1 ERAP funds, with $1.5 billion to the State and $1.1 billion directly to 49 cities and counties, and that HCD is responsible for $1.8 billion, including $553 million in block grants to 22 state grantees. The auditor warns that Treasury must "recapture" funds not obligated by September 30, 2021, and reports that HCD had obligated 81 percent of its total funds as of September 8, 2021, up from 14% at May 31. HCD's response and the auditor's comments are included.
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Elaine M. Howle State Auditor
September 16, 2021
2021-615.1
The Governor of California
President pro Tempore of the Senate
Speaker of the Assembly
State Capitol
Sacramento, California 95814
Dear Governor and Legislative Leaders:
This report provides an update on our assessment of 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. In August 2020, we
designated the State’s management of federal COVID‑19 funds as high risk after concluding
that the likelihood of mismanagement of these funds is great enough to create substantial risk
of serious detriment to the State and its residents. The Department of Housing and Community
Development (HCD) manages $1.8 billion to administer California’s program to provide rental
assistance benefits to eligible households with residents at risk of eviction. This report focuses
exclusively on HCD’s progress in committing and awarding rent relief program benefits to
eligible California households by the first crucial federal deadline, which is September 30, 2021.
Because of the looming deadline and effect it may have on the State if critical requirements
are not met, it is important to issue this first report of our audit to notify you of the urgent
risk of losing federal funds that the State faces. Given the narrow time frame set by the federal
government, we wanted to impress upon you the need for continued attention in order to
minimize the risk and the amount of funds the State could lose beginning September 30, 2021.
We plan to issue a separate audit report in 2022 that will evaluate HCD’s management of
the federal COVID‑19 funding for the rental assistance program. Although HCD is making
significant progress toward meeting the first federal deadline, it must commit additional
benefits to eligible households in order to reduce the State’s risk of losing millions of dollars in
federal funds for this program at the end of September 2021.
Background
Since the spread of COVID‑19 reached pandemic proportions in March 2020, Congress has
enacted various laws to provide funds to Americans and to state and local governments for
basic needs related to the pandemic’s economic impact. As unemployment surged in 2020,
many Americans struggled to make monthly rent and utility payments, both of which Congress
considers to be key components of stable housing.
To support those faced with possible evictions from their homes, Congress established a
nationwide Emergency Rental Assistance program (ERAP) through the Consolidated
Appropriations Act, 2021, in December 2020. This federal law required the U.S. Department of
621 Capitol Mall, Suite 1200 | Sacramento, CA 95814 | 916.445.0255 | 916.327.0019 fax | w w w. a u d i t o r. c a . g o v
California State Auditor Report 2021-615.1 2
September 2021
the Treasury (Treasury) to provide states and local jurisdictions—cities and counties—with
populations greater than 200,000 (federal grantees) with funding to provide their residents with
rental assistance. In March 2021, Congress passed the American Rescue Plan Act of 2021, which
established a second round of ERAP funding for federal grantees. We refer to the initial round
of ERAP funds from the Consolidated Appropriations Act, 2021, as Round 1 and the second
round of ERAP funds from the American Rescue Plan Act of 2021 as Round 2. California used
its $1.5 billion of Round 1 ERAP funds to develop a new rental assistance program in
January 2021, and the Legislature assigned HCD to administer the program.
Federal law established different timelines and
requirements for Round 1 and Round 2 funding. To Households Eligible for
mitigate the impact of potential widespread evictions ERAP Benefits Under Federal Law
during the pandemic, Round 1 federal grantees must
provide specific assistance to eligible households for Applicants must meet all of the following criteria:
existing debt and future rent or utilities payments • Income of less than 80 percent of the area
(rental assistance). However, for Round 2, federal median income (AMI).2
grantees can also use the funding more broadly for • Experienced financial hardship because of the
other affordable rental housing and eviction prevention pandemic, such as unemployment.
activities beginning in late 2022. The text box shows • Demonstrated risk of experiencing homelessness or
that the eligibility requirements are the same for both housing instability.
rounds of funding, but Round 1 has a much shorter
Source: Federal law.
timeline for spending than Round 2.1 To ensure
that the funds quickly get to those who need them,
the Round 1 federal program requirements specify
that Treasury must recapture all funds that federal grantees have not obligated beginning
on September 30, 2021. Treasury has defined obligated funds as the total amount of funds a
federal grantee has approved for payment to or for participating households and for a federal
grantee’s approved administrative expenses. Treasury must then reallocate these recaptured
funds to other eligible federal grantees—those that have obligated at least 65 percent of
their original allocations and that demonstrate a need for them. Federal grantees have until
September 30, 2022, to spend all of their Round 1 funds and until September 30, 2025, to spend
all of their Round 2 funds. This report focuses on HCD’s efforts to meet the September 30, 2021,
deadline for obligating as much of the State’s Round 1 funds as possible.
As Figure 1 shows, California received a total of $2.6 billion in Round 1 ERAP funds: Treasury
appropriated $1.5 billion to the State and $1.1 billion directly to 49 cities and counties with
a population of 200,000 or more. In January 2021, using the federal allocation to the State,
the Legislature created a rent relief program, which directed HCD to allocate its $1.5 billion
throughout the State based on population, including to those 49 local jurisdictions that
received direct federal allocations and the 30 counties with populations less than 200,000
(small counties) that did not receive funds directly from Treasury. State law requires HCD
to administer the rental assistance program for those 30 small counties. Of the 49 local
jurisdictions that received direct federal allocations, 27 opted to have HCD administer their
1 Although the eligibility requirements are the same for both rounds of funding, Round 1 applicants must also attest in writing that one or
more individuals in the household experienced a reduction in income, incurred significant costs, or experienced other financial hardship
because of the COVID‑19 pandemic.
2 The area median income (AMI) is the midpoint of a region’s income distribution, meaning that half of the households in the region earn
more than the median and half earn less than the median.
California State Auditor Report 2021-615.1 3
September 2021
portions of the state allocation through the State’s rental assistance program. Eleven of these
27 jurisdictions also transferred their direct federal allocations, totaling $292 million, to HCD
to administer on their behalf. As we describe below, the remaining 22 local jurisdictions that
received direct federal allocations requested block grants—grants from HCD of their portion
of the State’s allocation—to administer local rent relief programs on their own using both their
federal allocations and their block grants from the State. HCD does not have oversight of any of
the $821 million in other direct federal allocations that Treasury paid directly to the remaining
38 federal grantees.
Figure 1
HCD Is Responsible for $1.8 Billion in Round 1 ERAP Funds
DIRECT FEDERAL $2.6 BILLION DIRECT FEDERAL
ALLOCATION TO THE in Round 1 federal Emergency ALLOCATIONS TO
STATE Rental Assistance program LOCAL
funding from Treasury JURISDICTIONS
$1.5 BILLION
to HCD for
allocations to
79 local jurisdictions
throughout the State
HCD administers rental
assistance programs for
$1.3 BILLION $1.1 BILLION
to 49 local jurisdictions to 49 local jurisdictions—
30 counties with
with populations > 200K 27 counties and 22 cities—
populations < 200K
with populations > 200K
that did not receive
direct federal allocations
$150 MILLION
27 local jurisdictions 22 state grantees
asked HCD to administer requested block grants 11 local jurisdictions 38 local jurisdictions
their portions of to administer local transferred their administer local
the state allocation programs on their own federal allocations to programs on
on their behalf $553 MILLION HCD to administer the their own
$786 MILLION program on their behalf $821 MILLION
$292 MILLION
$1.8 BILLION
Federal funding to the State
Federal funding directly to local jurisdictions
with populations greater than 200,000
Total allocation for which HCD is responsible
Source: Analysis of federal Round 1 ERAP funding and participation in HCD’s rental assistance program.
State law also allows HCD to provide funding through block grants to certain local jurisdictions
that operate their own local rental assistance programs instead of participating in HCD’s
statewide program (state grantees). These block grants allow state grantees to receive their
portion of the state allocation to administer their own local rental assistance programs
California State Auditor Report 2021-615.1 4
September 2021
independently from HCD. Twenty‑two jurisdictions with populations greater than 200,000
opted to receive block grants totaling $553 million to administer their local rental assistance
programs in conjunction with their direct federal allocations from Treasury. For example,
San Diego County received a direct federal allocation from Treasury of nearly $49 million and a
block grant from HCD of $59 million to administer a local rental assistance program of almost
$108 million for its residents. However, as the original recipient of the federal funding used for
these block grants, HCD remains responsible for ensuring that the obligation of the block grant
funds complies with Treasury’s deadline. Therefore, in total, HCD is responsible for overseeing
$1.8 billion in federal Round 1 ERAP funding.
As authorized by state law, HCD contracted with a
vendor to implement and administer the State’s rental Households Prioritized for
assistance program. State law requires that the vendor Rental Assistance Benefits in California
have sufficient capacity and experience to manage the
State’s rental assistance program services and distribute 1. Extremely and very low-income, earning less than
funding to eligible applicants. HCD entered into a 50 percent of their local AMI.
contract for these services on March 4, 2021. HCD’s 2. Communities disproportionately impacted by COVID-19,
vendor established its online application system in time as determined by HCD.
to accept its first application by March 15, 2021, as the 3. Lower income, earning less than 80 percent of their AMI.
law required. The vendor is responsible for accepting Source: State law and HCD’s definitions of income limits.
and reviewing all rental assistance applications,
including determining eligibility, and disbursing benefit
funds to approved applicants for the 57 jurisdictions
that are participating in HCD’s state rental assistance program. As part of its administration,
state law requires HCD to prioritize payments for the applicants who fall within the populations
described in the text box.
As explained above, the 22 state grantees—local jurisdictions that requested block grants from
HCD—administer their rental assistance programs independently from HCD. As part of this
local administration, state grantees are responsible for reviewing and processing applications
from residents in their jurisdictions and for paying rental assistance benefits to approved
applicants. State law requires state grantees to report to HCD weekly on the amount of funding
they have obligated and the amount of benefits they have paid. In order to ensure that the State
qualifies for the federal reallocation after September 30, 2021, state law authorized HCD to
reallocate unused local rental assistance funds from the state grantees that had not obligated at
least 65 percent of their block grants by June 1, 2021.
The Legislature subsequently revised state law and, as a result, local jurisdictions that received
block grants had additional time to obligate their rental assistance funds before HCD could
begin to reallocate unused funds in advance of the federal September 30, 2021, deadline.
Specifically, the revised law requires state grantees to obligate at least 65 percent of their
Round 1 block grant funds by August 1, 2021. State grantees that failed to meet this requirement
must repay to HCD any unused block grant funds not obligated or spent at that time. HCD may
then reallocate those funds to other eligible local jurisdictions based on certain factors, such as
unmet need. This reallocation process allows California to obligate as much rental assistance
funding as possible to eligible households before the federal deadline of September 30, 2021.
The revised state law also extended the State’s eviction moratorium through the end of
September 2021. Figure 2 shows a timeline of California’s establishment of ERAP and progress
in obligating federal funds.
California State Auditor Report 2021-615.1 5
September 2021
Figure 2
California Had Nine Months to Obligate as Much of Its $1.8 Billion in ERAP Funding as Possible
2020
DECEMBER 27, 2020
Consolidated Appropriations Act, 2021, establishes
ERAP and allocates Round 1 funding.
JANUARY 19, 2021
Treasury issues first set of formalized guidance for ERAP Round 1.
JAN JANUARY 29
State law established stricter requirements for California’s rent relief
program than federal law, including allowing only 80 percent in
assistance for rental debt and requiring landlords to forgive the
remaining 20 percent; allowed certain local jurisdictions to opt into
HCD’s program or request block grant funding for Round 1
Federal Actions FEB implementation.
State Actions
FEBRUARY 22
HCD Actions Treasury provides revised guidance for ERAP.
Outdated Requirements MARCH 4
HCD hires a vendor to administer its statewide program.
MAR
MARCH 11
American Rescue Plan Act of 2021 adds $2.6 billion in Round 2 ERAP funding
for California.
MARCH 15
Program launches when HCD begins accepting rental assistance applications.
APR
APRIL 12
HCD issues first rental assistance payments.
MAY 7
Treasury revises and updates guidance for ERAP.
MAY
JUNE 1
State grantees must obligate at least 65 percent of their block grants and
MAY 31 repay any unused funds not obligated or spent to HCD for reallocation.
14%
Percent of HCD’s total obligated funds
JUNE 4
JUNE HCD submits the first monthly report to the Joint Legislative Budget
Committee, providing data about its progress and the program’s
performance since its launch in March.
JUNE 30 JUNE 28
27% Revised state law eliminates 80 percent assistance restriction,
extends obligation requirement for block grant recipients to
JULY August 1, 2021, and allows state grantees to change their
participation in HCD’s rental assistance program for Round 1 or
Round 2 ERAP funding, as applicable, subject to HCD’s approval.
JULY 31 JUNE 30
43% Treasury issues its initial reporting guidance for ERAP, which defined
obligated funds.
AUG
AUGUST 1
State grantees must obligate at least 65 percent of their block grants
and repay any unused block grant funds not obligated or spent to
SEPTEMBER 1
HCD for reallocation.
76% SEPT
AUGUST 25
Treasury revises and updates guidance for ERAP.
SEPTEMBER 8
81% SEPTEMBER 30
• Treasury shall recapture unobligated ERAP Round 1 funds from
2021
federal grantees and reallocate them to eligible jurisdictions that
have obligated at least 65 percent of their allocations.
• California’s eviction moratorium is scheduled to end.
Source: Federal and state laws, Treasury guidance, and HCD program documentation, including unaudited data from HCD’s data dashboard
for ERAP funding.
California State Auditor Report 2021-615.1 6
September 2021
Under federal law, Treasury must recapture unobligated funds for the ERAP program beginning
on September 30, 2021. Additionally, federal law provides that HCD will only be eligible to receive
another allocation of these recaptured funds from Treasury if it has obligated at least 65 percent
of the $1.8 billion total allocation for which it is responsible, or $1.2 billion. Treasury must base its
reallocation decisions on the demonstrated need within a federal grantee’s jurisdiction.
Although HCD Has Defined Its Obligated Funds In Alignment With Treasury’s Guidance, It Did Not
Use That Definition in Its Recent Report to Treasury
Although Treasury did not issue guidance that defines obligated funds until late June 2021,
HCD developed a definition of obligated funds to report to the Legislature. State law
requires HCD to report to the Legislature monthly on its obligation of funds for rental
assistance as well as other program data, which required HCD to establish a definition of
obligated funds in the absence of Treasury guidance. In its first report to the Legislature on
June 4, 2021, HCD defined funds as obligated when the funds had been identified for and
committed to an eligible household pending final application approval. HCD’s glossary for its
data dashboard further explains that these funds are committed when its vendor has reviewed
a resident’s application and preliminarily approved the applicant as eligible for rental assistance
benefits. According to the vendor’s procedures, before preliminarily approving an application,
the vendor reviews documentation to verify the applicant’s eligibility, including validating
household income and rent calculations. For purposes of reporting obligated funds to its data
dashboard and to the Legislature, HCD uses these amounts to represent HCD’s commitment
to pay these funds. After an application is preliminarily approved, HCD’s vendor performs
its quality control reviews, which include, for example, checking for duplication of benefits
and potential fraud before paying benefits to approved households. In its initial reporting
guidance on June 30, 2021, Treasury provides that federal grantees may use a definition
contained in existing policies and procedures, which indicates the amount obligated should
reflect the amount of payments to or for participating households that the federal grantee
has agreed to pay. Therefore, HCD has taken a reasonable approach in defining its amount of
obligated funds as those preliminarily approved because this approach aligns with Treasury’s
reporting guidance.
However, HCD has been inconsistent in how it has reported its obligated funds to Treasury and
the Legislature. HCD reported a total of $446 million in obligated funds to the Legislature through
the end of June 2021, using its definition of obligated funds—those funds preliminarily approved
for applicants. It also reported obligated funds using this definition to the Legislature through
July 2021. However, HCD reported to Treasury that it had obligated $1.6 billion—90 percent
of its funds—in its rental assistance program through the end of June 2021. HCD explained
that this new total obligated amount includes its forecast of payments to eligible households to
further demonstrate the ongoing need in California, and that it calculated this amount by using
the average monthly assistance approved for each household and forecasted it for the allowable
program period (15 months). In August 2021, HCD’s data dashboard began showing this new
calculation of obligated funds as more than $1.9 billion in total obligated assistance.
By reporting its obligated funds in this way, HCD’s approach does not align with Treasury’s
reporting guidance and risks overstating its obligated amounts to Treasury. Therefore,
despite HCD’s reporting to Treasury in August 2021 that it had obligated 90 percent of its
Round 1 funds, Treasury may reject HCD’s method of interpreting its obligated totals when it
California State Auditor Report 2021-615.1 7
September 2021
assesses them after September 30, 2021. HCD stated that because Treasury has not indicated
the exact formula it will use to determine funds obligated under federal statute, HCD has
developed several models of potential interpretations. HCD explained that the model it
reported to Treasury, which forecasts obligation totals, is similar to obligation calculations it
has used for other federally funded housing‑related programs for which it must obligate the
full amount of funding an eligible household can expect to receive over the life of the program.
It further explained that by failing to obligate funds that eligible households may receive in the
future, programs risk exhausting available funds before recipients gain their full allowed benefit.
Although federal law requires Treasury to base any reallocation amounts on demonstrated need
within a grantee’s jurisdiction beginning on September 30, 2021, Treasury’s reporting guidance
does not direct federal grantees to report on any data related to forecasted or future need.
Therefore, the risk exists that Treasury will not accept HCD’s reporting of obligation amounts
that are based on forecasted obligation totals. Moreover, another of HCD’s models uses its
definition of obligated funds that aligns with current Treasury guidance. As we note in the next
section, our analysis based on this model shows that HCD had obligated 81 percent of its total
as of September 8, 2021.
Despite Its Progress in Obligating Rental Assistance Benefits, HCD Remains at Risk of Losing
Federal Funds
HCD remains at risk of losing federal funds, and it must employ every effort possible to increase
its amount of funds obligated before the federal deadline of September 30, 2021. Since its
first report to the Legislature on June 4, 2021, HCD’s data indicate substantial progress in the
amount it has obligated and the amount paid for rental assistance. Through September 8, 2021,
HCD’s data show that it has increased its obligated amount to more than $1.4 billion, or
81 percent of its $1.8 billion in allocated funds from Treasury. Therefore, HCD is eligible
for reallocated funds from Treasury after September 30, 2021. However, it continues to be
important that HCD obligate as much of the $1.8 billion as possible so that the State is in the
best position to potentially receive additional federal funds for rental assistance. Specifically, if
HCD does not obligate any funds beyond this 81 percent by September 30, 2021, it may lose up
to $337 million of its remaining unobligated funds, but it would remain eligible for a portion of
the Round 1 reallocated funds from Treasury.
Based on rental assistance amounts requested, California residents still have a demonstrated
need for rental assistance. As of September 8, 2021, HCD reported that it had received
applications for rental assistance totaling more than $993 million and for utilities assistance
totaling $108 million that it has not yet processed. Although these requested benefits do not
apply toward HCD’s obligation total for the September 30, 2021, federal deadline, it indicates
that there is enough demand for HCD to demonstrate additional need for reallocated
funds from Treasury. Federal law requires Treasury to base its reallocation decisions on the
demonstrated need of federal grantees. In California, the demand for rental assistance varies
by local jurisdiction, with some local jurisdictions receiving applications that far exceed their
original allocation of funds from HCD. For example, the City and County of San Francisco
(San Francisco) received an allocation from HCD of $29 million, but HCD’s data dashboard as
of September 8, 2021, reports receiving applications from San Francisco households totaling
more than $76 million, leaving an unmet demand of $47 million, if all applications are valid.
Other large jurisdictions under HCD’s administration have experienced similar levels of
demand. Moreover, as we show in Figure 1, because 22 jurisdictions within California operate
California State Auditor Report 2021-615.1 8
September 2021
their local rental assistance programs independently from HCD using block grants and their
direct federal allocations, there is likely additional demand for rental assistance within those
jurisdictions that HCD’s data do not include.
Changes to the State’s Rent Relief Program Have Slowed HCD’s Ability to Reallocate Funds
Throughout the State
In June 2021, state law changed requirements for the rent relief program, and incorporating
these changes has delayed HCD’s original plan to reallocate funds in August 2021 ahead of the
September 30, 2021, federal deadline. Amended state law allowed state grantees to request
a change to their option for administering their rental assistance programs for Round 1
or Round 2 funds, subject to HCD’s approval. After the revisions to state law that became
effective in late June 2021, HCD allowed the 49 federal grantees within the State to change
their administrative option in July 2021 for implementing Round 1. Specifically, HCD invited
jurisdictions to join HCD’s statewide program or to request block grants to help minimize
confusion among residents, streamline application processing, and enable timely payments
using all available funds. HCD explained that in order to properly administer ERAP and ensure
that there is no duplication of benefits, it must consolidate and account for the Round 1 rental
assistance funds for each jurisdiction that changes its administrative option before HCD can
reallocate funds to other areas within the State.
It has taken HCD time to process the administrative changes to the rental assistance program,
which has delayed its ability to reallocate funds. Amended state law also requires local
jurisdictions that received block grant funds from HCD to have obligated at least 65 percent
of their block grant funds by August 1, 2021. For grantees that did not meet this requirement,
state law requires them to repay funds to HCD that they have not obligated or spent and allows
HCD to reallocate these funds to other jurisdictions that demonstrate a need for additional
funds. However, state law also authorizes HCD to waive the requirement for state grantees to
repay these funds, if the grantees demonstrate that they will obligate and spend any unused
block grants within the federal law time frames. For those funds that HCD reallocates, state law
requires HCD to prioritize this reallocation of funds to other local jurisdictions based on factors
such as unmet need and rate of application submissions.
As of September 8, 2021, HCD had not reallocated any unused funds. Although 22 local
jurisdictions requested block grants from HCD totaling $553 million to operate their own
rental assistance programs, HCD had only transferred block grant funds totaling $426 million
to 14 state grantees that have completed their agreements with HCD. According to the
department, the remaining eight grantees have either chosen to join HCD’s statewide rental
assistance program or are in the process of finalizing local approval for their agreements
with HCD. Although HCD still has access to the block grant funds for these eight state
grantees without signed agreements, HCD explained that it must finalize the changes to local
jurisdictions’ administrative options before reallocating funds from Round 1.
Although HCD originally planned to reallocate funds in early August 2021 from the state
grantees that had not obligated at least 65 percent of their block grants, HCD explained that
program changes delayed its ability to do so. HCD staff explained that the department does not
want to reallocate funding away from jurisdictions where there continues to be need and the
capacity to move the resources in a timely manner. Further, HCD explained that permanently
California State Auditor Report 2021-615.1 9
September 2021
reallocating funds now could force it to move funds again once the jurisdictions have finalized
their administrative options for Round 2. According to HCD, this would overcomplicate the
process and make it more difficult for the department to track the funds. Regardless, the longer it
takes HCD to finalize these administrative options in order to reallocate to other areas of the State
with a demonstrated need, the less time HCD and local jurisdictions have available to maximize
their obligation of funds before the impending September 30, 2021 deadline. Therefore, the State
remains at risk of losing critical ERAP funds that are not obligated by the deadline.
Conclusion
Although HCD recently reported to Treasury that it has obligated 90 percent of its total ERAP
funds based on forecasted totals, there is risk that Treasury may reject HCD’s interpretation of
the obligated totals it reported. Using totals aligned with Treasury guidance, HCD surpassed the
65 percent obligation threshold, which makes it eligible to receive a reallocation from Treasury.
However, it still risks losing any remaining unobligated funds because federal law requires
Treasury to recapture unobligated funds beginning on September 30, 2021. Further, because
Treasury has not guaranteed a reallocation to each eligible jurisdiction, HCD may not receive a
reallocation from Treasury or, if it does, the reallocation may not adequately cover the current
unmet need for rental assistance in California. Therefore, it is important that HCD obligates as
much of the $1.8 billion as possible before September 30, 2021, so that the State minimizes its loss
of critical federal funding.
Treasury has allocated an additional $2.6 billion to California and the 49 other federal grantees in
California through Round 2 ERAP funding, which, when combined with Round 1 funding, totals
$5.2 billion in funding for California’s rental assistance program. We plan to issue a separate audit
report in 2022 that will evaluate HCD’s management of the federal COVID‑19 funding for ERAP.
Agency Perspective
Because it interprets federal law differently, HCD disagrees with our conclusion that there is risk
that Treasury will recapture any of its Round 1 ERAP funds beginning September 30, 2021.
We conducted this audit under the authority vested in the California State Auditor by Government
Code section 8543 et seq. and according to generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain sufficient, appropriate
evidence to provide a reasonable basis for our findings and conclusions based on our audit
objectives specified in the Scope and Methodology section of the report. We believe the evidence
obtained provides a reasonable basis for our findings and conclusions based on our audit objectives.
Respectfully submitted,
ELAINE M. HOWLE, CPA
California State Auditor
California State Auditor Report 2021-615.1 10
September 2021
Scope and Methodology
State law authorizes the California State Auditor (State Auditor) to establish a program to audit
and issue reports with recommendations to improve any state agency or statewide issue that
we identify as being at high risk for the potential of waste, fraud, abuse, and mismanagement
or that has major challenges associated with its economy, efficiency, or effectiveness. In
August 2020, we issued a report that designated the State’s management of federal COVID‑19
funds as a high‑risk statewide issue in California. Because HCD administers the State’s rental
assistance program, and specifically the Round 1 Consolidated Appropriations Act, 2021,
federal funding related to rent relief due to loss of income from the COVID‑19 pandemic, we
performed an audit of HCD’s progress in obligating these rental assistance funds to eligible
California households by the Consolidated Appropriations Act’s first crucial deadline of
September 30, 2021. For the purposes of this audit, our primary objective was to assess the
program’s progress in obligating and spending federal COVID‑19 funds for ERAP to determine
whether it will likely meet state and federal spending deadlines, and to evaluate HCD’s plans
to reallocate funds as necessary from local jurisdictions unlikely to meet those deadlines. In
conducting this audit, we interviewed staff at HCD, reviewed guidance from Treasury as well as
state and federal requirements, and collected and reviewed program documentation from HCD
pertaining to its efforts to obligate rental assistance funds.
California State Auditor Report 2021-615.1 11
September 2021
STATE OF CALIFORNIA - BUSINESS, CONSUMER SERVICES AND HOUSING AGENCY GAVIN NEWSOM, Governor
DEPARTMENT OF HOUSING AND COMMUNITY DEVELOPMENT
OFFICE OF THE DIRECTOR
2020 W. El Camino Avenue, Suite 500
Sacramento, CA 95833
(916) 263-7400 / FAX (916) 263-7417
September 3, 2021
Elaine M. Howle, CPA *
California State Auditor
1621 Capitol Mall, Suite 1200
Sacramento, CA 95814
Re: Emergency Rental Assistance Program Audit
Dear Ms. Howle,
The Department of Housing and Community Development (HCD) acknowledges receipt of the California State
Auditor's (CSA) review of HCD’s implementation of the Emergency Rental Assistance Program (ERAP), as set
forth in CSA’s draft report submitted to HCD entitled “State High Risk Program 2021-615.1” (the “Report”).
HCD provides this response on behalf of itself and the Business, Consumer Services and Housing Agency.
The subject of the Report, the ERAP program, has helped nearly 50,000 households by providing both rental
and utility assistance for tenant households that are at or below extremely low-income levels. This has resulted
in nearly $1.4 billion in requested assistance, and nearly $500 million paid to date. ERAP has helped to avoid a
cascade of residential evictions, especially as State and Federal eviction protections expire or are eliminated by
the courts.
Although not mandated, HCD appreciates this opportunity to comment on the Report. First and foremost, we
appreciate CSA acknowledging, in the Report, that “HCD is making significant progress toward meeting the
first federal deadline.” We also appreciate the Report’s statement that “HCD has taken a reasonable approach
in defining its amount of obligated funds.” Lastly, we are grateful the Report acknowledges that external factors,
such as changes to governing law, as well as uncertainty in Federal guidance, have presented challenges for
HCD to overcome - and that thus far HCD’s approach to addressing these has been appropriate. There are,
however, other matters referenced in the Report that we think merit more treatment. Thus, we provide
comment on them here.
HCD is unlikely to lose the subject funding so long as HCD meets the 65% threshold. Per the federal 1
statute:
“Beginning on September 30, 2021, the Secretary shall recapture excess funds, as determined by the
Secretary, not obligated by a grantee for the purposes described under subsection (c) and the
Secretary shall reallocate and repay such amounts to eligible grantees who, at the time of such
reallocation, have obligated at least 65 percent of the amount originally allocated and paid to such
grantee…”1
In the Report, CSA suggests, based on a plain language strict constructionist reading of the statute, that
beginning on September 30, 2021, the US Secretary of the Treasury (“Treasury”) must recapture all excess
1
Title V Banking, Subtitle A Emergency Rental Assistance, Section 501 Emergency Rental Assistance
* California State Auditor’s comments begin on page 13.
California State Auditor Report 2021-615.1 12
September 2021
STATE OF CALIFORNIA - BUSINESS, CONSUMER SERVICES AND HOUSING AGENCY GAVIN NEWSOM, Governor
DEPARTMENT OF HOUSING AND COMMUNITY DEVELOPMENT
OFFICE OF THE DIRECTOR
funds that are not yet “obligated” pursuant to Section 501(d) of the Consolidated Appropriations Act, 2021. By
contrast, HCD’s interpretation, which is informed by direct communications with Treasury officials, and upon 2
advice from legal counsel, is that a recipient’s funds are recaptured only if the recipient falls below the 65%
obligation threshold. If, on the other hand, the recipient has obligated at least 65% of its funds by September
30, 2021, then none of its funds will be recaptured by the Treasury. In fact, this seems to represent the more
reasonable interpretation. Were it otherwise, the Secretary would have engaged in a futile act (i.e., recapturing
funds on one day just to give them back, with more, on the next). Thus, while HCD acknowledges that the
subject statute does not expressly state that the Secretary will not recapture funds if a recipient has obligated
at least 65% of the funds, the statute implies that term by providing that the Secretary may only provide
recaptured funds to recipients who have surpassed the 65% mark.
HCD’s reporting of obligated funds to Treasury is appropriate given the ongoing discussions with 2
Treasury and its changing Federal guidance. Although the report comments that HCD has changed its
reporting methodology to Treasury, the Report fails to give the context that HCD’s revisions are to show both
conservative and projected needs to Treasury, all of which may meet the yet unknown final Federal guidance,
when it becomes available. By providing alternate methods, HCD shows the need within the State tied to
projections based on actual approved households, which Treasury stated it was interested in. The Report
should link its discussion of these alternative methodologies with its discussion of a lack of a clear federal 3
definition of “obligation.”
The Auditor should consider postponing release of the Report until either October 1, 2021, or until 4
Treasury provides further guidance. As of the date of this response, HCD requested that the Report not be
released until additional federal guidance was provided, or at least not until the actual assistance numbers were
ascertained on September 30, 2021 (as required by the federal statute). Although that request was not
granted, we renew the request here because intervening events will critically inform whether HCD’s
calculations and performance to date presents any real risk. Instead, by releasing the report weeks in advance
of the above, CSA and HCD must both admit uncertainty in evaluating the true level of remaining risk.
Additionally, at the time of this response, HCD is: on track to exceed the 65% obligation measure on
September 30, 2021 by already successfully obligating nearly 65% of funds as of September 10, 2021; and 5
thus HCD is on track to receive additional funding from Treasury that will be recaptured from other grantees
that are below the 65% mark. Clarity on both the foregoing would greatly be increased by waiting just a few
weeks longer.
Thank you for this opportunity to respond. Should you have any questions, please contact HCD's Chief Internal
Auditor, Michael Mock, Michael.Mock@hcd.ca.gov.
Sincerely,
Gustavo F. Velasquez
Director
Cc: Lourdes M. Castro Ramírez, Secretary, California Business, Consumer Services and Housing Agency
2
California State Auditor Report 2021-615.1 13
September 2021
Comments
CALIFORNIA STATE AUDITOR’S COMMENTS ON THE RESPONSE FROM THE
DEPARTMENT OF HOUSING AND COMMUNITY DEVELOPMENT
To provide clarity and perspective, we are commenting on HCD’s response to our audit. The
numbers below correspond to the numbers we have placed in the margins of HCD’s response.
1 We stand by our conclusion that HCD is at risk of losing any unobligated federal funds. As
HCD’s response notes, the federal Consolidated Appropriations Act 2021, provides that,
beginning on September 30, 2021, Treasury shall recapture excess funds not obligated for
the Emergency Rental Assistance program. Our interpretation of the statute, based upon
the plain language, is reasonable and conservative, particularly given the absence of written
guidance from Treasury as to what actions it will take beginning September 30, 2021. HCD’s
interpretation disregards the risk that we have identified that Treasury may, in fact, recapture
HCD’s unobligated funds beginning September 30, 2021.
2 We recognize that HCD has had ongoing verbal communications with Treasury. However,
HCD was unable to provide any written correspondence from Treasury regarding these
discussions. In the absence of written and documented directives from Treasury, we must rely
upon the public guidance Treasury has issued and the legal requirements outlined in federal
and state law to form our conclusions.
3 We disagree that Treasury has not provided a clear definition of “obligation,” which we note
in our report. Specifically, we acknowledge that HCD developed a reasonable definition for
obligation before Treasury issued its guidance that defined obligation, and that HCD’s definition
aligns with Treasury’s guidance issued on June 30, 2021. Our concern, as we describe on page 6,
is that 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.
4 As we note in our first point above, HCD’s request here disregards the risk outlined in
federal law that it may lose millions of dollars in federal rental assistance funds beginning
September 30, 2021. Because Treasury has not issued any guidance describing what actions it
plans to take beginning September 30, 2021, to recapture excess funds, there is uncertainty as
to whether HCD will retain its total Round 1 allocation, as it asserts. Moreover, as we note on
page 9, Treasury has not guaranteed a reallocation to each eligible jurisdiction. Therefore, we
believe it is critical to issue this report to notify the Legislature and the public of the urgent risk
related to the State’s Round 1 rent relief funding. We continue to encourage HCD to obligate
as much of the funding as possible by September 30, 2021, to avoid losing critical funds for
California’s residents.
5 Subsequent to sharing our draft report and receiving HCD’s response, we updated the report
to reflect the amount HCD has obligated as of September 8, 2021. As we note on page 7, HCD
obligated 81 percent of its total funds as of September 8, 2021.
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