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Response to DOF May 3, 2012 Letter <br />May 18, 2012 <br />Page 5 <br />"Maintain reserves in the amount required by indentures, trust indentures, or similar documents <br />governing the issuance of outstanding redevelopment agency bonds" [HSC Section 34177(b)]; and <br />"to perform obligations required pursuant to any enforceable obligation" [HSC Section 34177(c)]. <br />• Page 1, item 9; page 7, item 85, legal settlements totaling $500 million requiring Low/Mod <br />set-aside from tax increment within the project areas. The DOF Letter states that settlements <br />awarding a percentage of tax increment are not considered EOs, and pursuant to ABX1 26 tax <br />increment is no longer payable to the redevelopment agencies and therefore there is not an <br />obligation. <br />Response: We believe the DOF is confusing these Settlement Agreements with the more typical <br />settlement agreements with taxing entities which are, in essence, contractual pass through <br />agreements, and therefore not considered EOs under ABX1 26. The Settlement Agreements at <br />issue here were entered into with third parties, not other taxing agencies, and are, therefore, no <br />different than a contract with a developer pledging tax increment over time; thus, the Settlement <br />Agreements are EOs pursuant to ABX1 26, specifically HSC Sections 34171(d)(1)(D) and <br />34171(d)(1)(E). HSC Section 34171(d)(1)(D) provides that "Judgments or settlements entered by <br />a competent court of law or binding arbitration decisions against the former redevelopment <br />agency" constitute enforceable obligations. HSC Section 34171(d)(1)(E) can also be construed to <br />mean that the Settlement Agreements are enforceable obligations, as these agreements constitute <br />"legally binding and enforceable agreement[s] or contract[s] that [are] not otherwise void as <br />violating the debt limit or public policy." <br />The Successor Agency is required to comply with the enforceable obligation to set-aside/utilize <br />former tax increment as dictated by the Settlement Agreements. Specifically, item #9 South Main <br />Corridor Settlement Agreement requires a portion of the tax increment (20%) to be utilized for <br />public improvements, including parking and financial incentives in a particular section of the <br />project area. Additionally, this settlement agreement, along with settlement agreements for four of <br />the other project areas (item #85), require specific percentages of tax increment be set aside <br />exclusively for low and moderate income housing and related activities. <br />With respect to item # 9, the Judgment on Stipulation for Entry of Judgment and Resolution No. <br />84-2 (collectively "Settlement") adopted by the Redevelopment Agency ("RDA") was entered into <br />by the RDA in response to and in order to settle a lawsuit, Gerald Peebler, et. al. vs. City of Santa <br />Ana, filed in 1982. It is important to note that the Legal Clinic of the University of California, <br />Irvine School of Law ("UCI"), recently filed a lawsuit against the City of Santa Ana, on behalf of <br />the beneficiaries of this Settlement (including Gerald Peebler) to enforce the terms of the <br />Settlement as an enforceable obligation. The filing was rejected by the court due to procedural <br />issues. In ongoing discussions between the City and UCI, UCI has stated that they plan to re-file <br />the lawsuit upon any adverse response by the State Department of Finance or City in failing to <br />treat the terms of the Settlement as an enforceable obligation. <br />3-32