California May Lose As Much As $337 Million In Federal Pandemic Rental Aid According To State Auditor’s Office

According to a new report from the State Auditor’s office released on Thursday, California has been so slow in releasing federal pandemic rental aid that they may lose up to $337 million if more money isn’t obligated to renters at the end of the month.

The report, submitted directly by State Auditor Elaine Howle, pointed directly to the Department of Housing and Community Development (HCD) not divesting Emergency Rental Assistance Program (ERAP) funds fast enough. ERAP, which was approved by Congress in December of last year, established 2 rounds of funding for states in 2021. Rules for the funding means that the money needs to be obligated for rental assistance programs that help eliminate existing debt and future rent and utility payments.

However, federal law states that non-obligated funds can be “recaptured” by the U.S. Treasury, with those funds then given to other federal grantees. All funds then must be spent by September 30, 2022.

According to the state auditor’s office, The HCD only has obligated around $1.4 billion of it’s federal round 1 funding, or 81% in total. $337 million is currently being left on the table, with the obligation due date of September 30, 2021 rapidly approaching. Even more dire is that the delays mean that the state may also miss the next round of funding, which is specified by ERAP to help renters avoid eviction.

“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,” the Auditor’s report found. “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.”

“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.”

HCD Director Gustavo Velasquez responded to the audit saying that the HCD is unlikely to lose such funding because it has already allocated at least 65% of the funding and that it allows them to get back reallocated funds and that it has appropriately been in discussion with the Treasury. However, the HCD also asked the State Auditor’s not to release the report until October 1st.

In response, the State Auditor’s office has maintained that the HCD is still in serious risk of losing the $337 million in unspent funds. Auditor Howle also wrote to Governor Gavin Newsom, advising him of the probable loss of housing assistance funds.

“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,” Howle said in a letter to the Governor.

Experts have noted that the delays are very worrisome, as the $337 million left untouched could hurt California and Californians in both the short and long term.

“The HCD is acting like this is no big deal, but the Auditor’s Office is absolutely right that this is worrisome,” explained corporate financial advisor Jim Dunhill to the Globe on Friday. “They’re leaving money on the table and expecting it to still be there when they get back to it. It doesn’t work like that. It needs to be allocated now or else California loses out on a lot of needed money.”

Allocation of round 1 funding is due by September 30th.