TO: Mayor and Members of City Council
THRU: Jodi Phelps, Assistant City Manager
FROM: Christopher L. Cauley, Director of Economic & Community Development
DATE: June 1, 2026
RE:Title
HOME Program HUD Findings and Voluntary Grant Reduction OptionTitle
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COUNCIL DISTRICT(S):
Council District(s)
All
b
Relationship To Strategic Plan:
GOAL II: The City of Fayetteville will have a Responsive City Government supporting a diverse and viable economy.
Objective 2.2: To invest in community places to ensure revitalization and increase quality of life.
GOAL IV: The City of Fayetteville will be a desirable place to live, work and recreate.
Objective 4.5: To ensure a place for people to live in great neighborhoods.
Objective 4.6: To reduce poverty and homelessness.
GOAL V: The City of Fayetteville will be a financially sound city providing exemplary city services.
Objective 5.1: To ensure strong financial management with fiduciary accountability and plan for future resource sustainability by aligning resources with City priorities.
Objective 5.2: To identify and achieve efficiencies through innovation and technology utilization, by increasing data driven decisions and using business intelligence strategies.
Executive Summary:
City Council is receiving a briefing on two legacy HUD HOME findings requiring corrective financial action totaling $321,446.21. Staff will present the findings, corrective actions completed to strengthen HOME compliance, and financial resolution options.
Staff anticipates returning at a subsequent Council meeting requesting approval of a voluntary reduction of future HOME Investment Partnerships Program funds, subject to HUD approval, in lieu of repayment from non-federal local funds. This approach would resolve the remaining financial requirement without an immediate General Fund impact.
Background:
HUD issued two HOME Investment Partnerships Program findings requiring corrective financial action by the City. Although the findings were issued in 2025 and 2026, they relate to legacy HOME activities that date back approximately to the 2017 to 2019 program period, before the City’s current HOME compliance framework was established. The July 1, 2025, finding involved HOME activities #1407 and #1563, where HUD determined that valid HOME written agreements were not executed with the homeowners before HOME funds were expended, requiring repayment of $198,009.14. The January 8, 2026, finding involved HOME activities #1356, #1371, and #1425, where HUD determined that HOME written agreements were not properly executed or amended to reflect the specific amount and use of HOME funds, requiring repayment of $123,437.07.
Together, the two findings require corrective financial action totaling $321,446.21. Under current ECD leadership, staff assumed responsibility for resolving these legacy findings, correcting the underlying program structures, and establishing updated procedures to support ongoing HOME compliance. This work session item provides Council with background on the findings, corrective actions completed, and financial resolution options before staff returns at a subsequent Council meeting for formal action.
Issues/Analysis:
The principal issue for discussion is the financial resolution method required to close the remaining HUD HOME findings. The findings relate to legacy HOME activities and prior written agreement, documentation, and financial control practices. Under current ECD leadership, staff assumed responsibility for resolving the findings and correcting the underlying program structures that created the compliance exposure.
Since these matters were identified, staff have undertaken substantial corrective action to align current HOME administration with HUD requirements. The City terminated the former HOME-funded rehabilitation program and replaced it with a CDBG-funded Emergency Home Repair Program administered under revised CDBG policies and procedures. Staff also worked with the City’s CDBG/HOME technical assistance consultant to revise HOME policies and procedures, update HOME written agreements, develop standard operating procedures for HOME-funded purchase assistance and homebuyer underwriting, strengthen CHDO application and certification tools, improve underwriting guidance, and provide IDIS, financial management, and federal compliance training.
These corrective actions have also been reviewed through HUD technical assistance. HUD’s March 4, 2026 technical assistance summary documented progress toward resolving the open HOME findings, noted that the City had completed extensive updates to HOME written agreements, found the City’s updated HOME commitment policy consistent with program regulations, and recognized that updated drawdown and financial procedures help ensure HOME funds are not drawn before a valid written agreement is executed for a specific project. HUD also identified additional process improvements related to written agreement amendments and clearer affordability period dates, which staff will incorporate into ongoing policy updates.
The remaining question is how the City should satisfy the required financial corrective action totaling $321,446.21. Staff has identified two available options for Council discussion before returning for formal action.
Direct Repayment from Non-Federal Local Funds. This option would require the City to repay $321,446.21 to the local HOME account using non-federal local funds. This would satisfy the financial requirement immediately and preserve future HOME entitlement capacity. However, it would create an immediate and unbudgeted local fund impact.
Voluntary Grant Reduction. This option would allow the City to request that HUD reduce future HOME entitlement funds by $321,446.21 over multiple fiscal years, subject to HUD approval, in lieu of immediate repayment from non-federal local funds. This approach satisfies the remaining financial requirement without an immediate General Fund impact and distributes the fiscal effect over time. The tradeoff is that future HOME program capacity would be reduced, requiring staff to prioritize eligible HOME activities within a smaller future funding allocation.
Staff anticipates recommending the voluntary grant reduction when this item returns for formal Council action because it provides a compliant financial resolution method, avoids an immediate General Fund impact, and allows the City to close these legacy findings while continuing to operate under the corrected HOME compliance framework. This work session item does not create a new HOME program or change current housing policy direction; it provides Council an opportunity to review the findings, corrective actions, and proposed financial resolution approach before formal action is requested.
Budget Impact:
If approved at a subsequent Council meeting, the voluntary grant reduction would reduce future HOME entitlement funding by $321,446.21 over a multi-year period, subject to HUD approval of the final reduction schedule. The draft request proposes reductions of $121,446.21 in FY2028, $100,000 in FY2029, and $100,000 in FY2030.
This option avoids an immediate repayment from non-federal local funds but reduces future HOME program capacity. Staff will need to account for the reduced HOME availability when planning eligible housing activities such as homebuyer assistance, CHDO development, single-family production, LIHTC gap financing, and other HOME-assisted affordable housing activities.
If Council instead directs direct repayment, the full $321,446.21 would need to be repaid from non-federal local funds to the City’s local HOME account. That option would create an immediate local budget impact but preserve future HOME entitlement capacity.
Options:
1. Receive the briefing on legacy HUD HOME findings, corrective actions completed, and financial resolution options.
2. Direct staff to identify non-federal local funds for repayment of $321,446.21 to the City’s local HOME account and return with any required budget action.
3. Provide other direction to staff.
Recommended Action::Recommended Action
Staff recommends that Council receive the briefing and provide consensus for staff to return at a subsequent Council meeting with an action item approving a voluntary reduction of future HOME Investment Partnerships Program funds in the amount of $321,446.21, subject to HUD approval, in lieu of repayment from non-federal local funds.
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Attachments:
• Draft HOME Voluntary Grant Reduction Request Letter
• HUD Finding of Non-Compliance, HOME Activities #1356, #1371, and #1425, January 8, 2026
• HUD Resolution of Findings, HOME Activities #1407 and #1563, July 1, 2025
• HUD FY2026 Onsite Technical Assistance Summary, March 4, 2026
• Civitas Technical Assistance Memorandum, February 12, 2026
• Extension Request for Repayment of HOME Findings