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Response to DOF May 3, 2012 Letter
<br />May 18, 2012
<br />Page 7
<br />o Line items 1, 2, 3 & 91 - These amounts are all EOs related to the two outstanding bonds. The
<br />bond indentures require reasonable compensation to be made to the trustees for services
<br />rendered, and the Continuing Disclosure Certificates require annual audited financial
<br />statements as part of the annual reports for compliance. As these expenses are contractually
<br />stipulated as part of the overall bond covenants, funds are necessary to fulfill the obligations
<br />and should not be considered administrative costs. Please also see response above for Line
<br />items 86, 98, and 99.
<br />o Line items 4, 5, 6, 9, 10, 11, 16, 18, 19, 83, 87, & 90 - These amounts for project costs such as
<br />management, consultants, legal, financial, appraisal, fees, etc. are not administrative costs. For
<br />each enforceable obligation, there are contractual obligations that the former redevelopment
<br />agency was required to manage, monitor, and enforce. For instance, item #87 is the EO for the
<br />required Agency Property Maintenance & Disposition pursuant to HSC Section 34181, which
<br />necessitates it be "done expeditiously and in a manner aimed at maximizing value." To
<br />accomplish this, the properties need to be properly maintained, and project costs need to be
<br />provided for staffing/services to aptly evaluate and market the sites. Another example is Line
<br />item 10 (Erickson Lease Agreement - Honda) that requires projects costs for project
<br />management, and legal and financial services to ensure compliance with the financial and
<br />performance obligations of the agreement.
<br />As stated previously, pursuant to HSC Section 34167(f), nothing in ABX1 26 shall be
<br />construed to interfere with the Agency's authority with respect to enforceable obligations to
<br />make payments due, enforce existing covenants and obligations or perform its obligations.
<br />Furthermore, DOF's own guidance reiterates HSC Section 34174(a) which states "... nothing
<br />herein is intended to absolve the successor agency of payment or other obligations due or
<br />imposed pursuant to the enforceable obligations; and provided further, that nothing in the act
<br />adding this part is intended to be construed as an action or circumstance that may give rise to
<br />an event of default under any of the documents governing the enforceable obligations." Thus,
<br />contracts/services necessary to implement and comply with these enforceable obligations are
<br />allowable project cost expenditures, as intended by ABX1 26.
<br />o Line items 12, 13, 94, 95 & 96 - These items, as listed for the subject ROPS, can remain under
<br />"administrative costs."
<br />o Line items 24, 25, 26, 27, 28, 29, 30, 31, 32, 33 & 36 - These amounts for project
<br />management, legal, title, escrow, construction monitoring, loan management, etc. costs are not
<br />administrative costs and should not be factored into the calculation of the 5% administrative
<br />cost allowance. Many of the promissory notes for these housing projects were encumbered in
<br />the Low and Moderate Income Housing Fund (LMIHF). However, the amounts contractually
<br />obligated in the third-party agreements do not include funding to pay for project management,
<br />monitoring, and enforcement of the contracts by the former redevelopment agency nor the
<br />3-34
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