Failure to spend money in a timely manner cost the city nearly $2.4 million in federal HOME funds, the U.S. Department of Housing and Urban Development told the Caldwell administration in a letter last month.

Meanwhile, HUD officials on Friday confirmed that the city could be at risk of losing as much as $7.5 million in upcoming federal Community Development Block Grant funds also because of its inability to spend money quickly enough.

City Managing Director Roy Amemiya, in an email response to a request for comment, said delays in spending money from the two federal funding sources are the result of working with private-sector partners.

The two situations are coming to light a year after David Montoya, the then-HUD inspector general, issued a scathing audit that questioned $15.9 million in block-grant expenditures.

Two Honolulu City Council members are urging the city administration to improve the way it’s handling HUD funding.

The HOME Investment Partnerships Program provides funding for local governments to build, renovate or purchase affordable housing, HUD Hawaii Field Office Director Ryan Okahara told the Honolulu Star-Advertiser on Friday. The city has been receiving about $2.3 million annually, with all of each annual allotment needing to be spent within five years of receipt, he said.

The city, however, did not use about $2.37 million of the funds allocated in 2012 that needed to be spent by July 31 this year, Okahara said.

“They had … a five-year period to expend those monies and they didn’t,” he said. “So that’s effectively what they lost.”

HUD’s Community Planning and Development staff had been “working … nonstop” with city officials up through the deadline, warning them of the impending loss “and, to some degree, even offering suggestions,” Okahara said.

In his Aug. 16 letter, HUD Hawaii office Community Planning and Development Director Mark Chandler told Mayor Kirk Caldwell that the city had 15 days to provide proof it had spent the money prior to the July 31 deadline.

As for Community Development Block Grant dollars, Okahara confirmed that HUD’s Washington, D.C., officials are deciding whether to withhold up to $7.5 million — roughly its annual allotment — because the city again did not spend enough by a certain deadline.

“It could be much less,” Okahara said, adding that it was a decision being made entirely by HUD headquarters.

The HUD program year for the city begins July 1 and the city is not supposed to be carrying 1.5 times or more of the annual allotment by May 2 the following year, said Rebecca Borja, HUD Hawaii office senior community planning and development representative.

The city failed to meet spending requirements for a second consecutive year on May 2, at which point it must explain the failed timeliness, Borja said. Having done so, it’s now up to the Washington office to decide, she said.

Block-grant funds can be used to benefit low- and moderate-income communities, from construction of police substations to community centers to buying and renovating property for housing, Okahara said. The only thing it cannot be used for is construction of new affordable housing, unless that is done by nonprofits defined as “community-based development organizations.”

As the deadline was approaching, the city was working to acquire two properties for affordable housing for low- and moderate-income individuals. The purchases were going through escrow, “but I think they both fell through,” Okahara said. One involved a property on Vancouver Drive near the University of Hawaii at Manoa, the other along Kamoku Street near ‘Iolani School.

Montoya’s August 2016 audit slammed the city’s handling of the block-grant funds for a variety of reasons. One was that the city arbitrarily amended two requests for bids to expedite the process in order to meet deadlines for spending the block-grant money.

“For several years, the city has struggled to pass the CDBG timeliness test,” the report said.

In response to that criticism, the city said its “attention to timelines should not impugn the legitimacy or validity of the city’s selection process, the selected projects, or the city’s motives.”

Okahara, asked if this year’s timeliness issues were similar to concerns raised in last year’s audit, said that was a question for the city. However, “it’s likely related,” he said. “The audit was pointing out problems that the city was having in general with managing their CDBG program and that likely leads to trouble spending the money.”

Managing Director Ame­miya, in his email, said: “The city has had challenges from time to time on spending money on initiatives that require close and significant coordination with the private sector. This occurs when there are delays in getting projects started, especially when third parties are involved.”

Amemiya added: “Going forward, the city’s new action plan focuses on spending these federal funds on qualified, shovel-ready city projects that improve community facilities in targeted income areas.”

Councilwoman Kymberly Pine, who heads the housing committee, said she was told by the administration that the timeliness issues involving federal housing money were due to the city’s nonprofit partners being unable to spend money allocated to them.

“They were repeatedly asked for extensions, promising to spend the money, and some did not,” she said.

Pine said she was told the money for the Vancouver Drive and Kamoku Street projects was left over from allocations to nonprofits that had been left unspent.

Pine noted that some Council members have demanded that the administration provide more of the block-grant funding to nonprofits. “But the irony is many of those nonprofits are the very reason we aren’t making the timeliness test,” she said. “So the Council and the administration need to work together to select city projects so that we can control the money better, or to partner with those nonprofits that we absolutely know can meet the timeliness tests.”

But Councilman Ernie Martin, a former city housing official who has often clashed with Caldwell over housing policies, put the blame squarely on the mayor and his administration, noting that Montoya’s audit had warned the city to improve its management of HUD funds.

He demanded that the administration explain to the Council what happened and what it intends to do to fix the situation.

“Now we face the potential loss of $10 million that should be put toward helping our homeless population and workforce find housing,” Martin said in a statement. “After all the talk and publicity surrounding our push to help the homeless and to get more people into affordable housing, this development is a major disappointment.”