California risks forfeiting millions meant for struggling renters, auditor warns

California must step up its effort to distribute federal funds to renters struggling financially because of the COVID-19 pandemic or the state risks forfeiting millions of dollars in assistance, the state auditor warned Thursday.

Auditor Elaine Howle said in a report to Gov. Gavin Newsom that delays in the rent relief program and uncertainty over the federal rules raised concerns about the ability of the state Department of Housing and Community Development to distribute the first $1.8 billion in federal funds by a Sept. 30 deadline.

“Despite its progress in obligating rental assistance benefits, HCD remains at risk of losing federal funds,” the auditor’s report said, adding: “It must employ every effort possible to increase its amount of funds obligated before the federal deadline.”

Under federal rules, money is “obligated” when the state has agreed to pay it to households, not necessarily when it has been paid.

The auditor said the department had obligated about $1.4 billion, or 81% of its first round of federal funding. If the agency does not obligate more money to renters in the coming weeks, “it may lose up to $337 million of its remaining unobligated funds.”

But both the auditor and agency noted that California was likely to receive additional money back because federal rules allow redistribution of funds from states that don’t obligate 65% of their money to the states that do meet that threshold.

“HCD is on track to receive additional funding from [the] Treasury [Department] that will be recaptured from other grantees that are below the 65% mark,” said Department Director Gustavo F. Velasquez in a letter to auditors. He had sought a delay in releasing the auditor’s report to allow more time for the picture to be clearer.

The auditor’s warning comes as advocates for tenants say the state has been too slow to actually distribute the federal funds meant to help renters pay back rent to avoid eviction.

“We’re deeply concerned and alarmed at the rate of dispersal,” said Cynthia Castillo, a policy advocate for the Western Center on Law and Poverty. “We’re at the cliff. The deadline for tenants to pay 25% of their back rent is soon approaching.”

California has budgeted $5.2 billion in federal COVID-19 relief money to help pay back rent owed by tenants who lost jobs or income as the state shut down much of its economy in an effort to stop the spread of the coronavirus.

In June, the Legislature and governor extended protections from evictions until Sept. 30 as long as tenants paid at least 25% of their rent. Lawmakers also approved a program to pay 100% of low-income tenants’ past-due rent back to April 2020.

More than half of the funds are being distributed by the state, with the rest dispersed by counties, many of which are also struggling to get the money out to cover back rent.

Six months after it began accepting applications, the state as of this week has paid $526 million in rent relief from its roughly $2.6-billion share of the federal funds approved by the state Legislature, or about 20% of the money.

Castillo said tenant advocates were continuing to press the state Department of Housing and Community Development to reduce barriers to applying for the money but noted there was no deadline for filing an application.

“We encourage tenants to apply as soon as possible but want to assure them that they can continue to apply beyond Sept. 30,” she added, referring to the date on which the eviction protections expire.

State law prohibits landlords from getting a court order for eviction before giving tenants a chance to apply for rent relief through March 2022.

About 744,000 California households, which include 912,000 children, owed back rent in August, with the average amount overdue at $3,500, according to research released Thursday by PolicyLink and the USC Equity Research Institute.

The pace of disbursement has improved since the June action that provided for payment of 100% of back rent, state officials said. Before then, many tenants did not apply because the program would have provided only 25% of back rent, advocates said.

State officials said 44,000 households had received rent relief so far. The state has received 232,154 applications since mid-March.

The state received federal approval to simplify the application after tenant advocates complained it initially was too complicated and too long for many renters to complete.