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Response to DOF May 3, 2012 Letter May 18, 2012 Page 3 Enforceable Obligations entered into with third parties prior to the June 28, 2011 date, the Successor Agency has a continuing obligation to ensure compliance with development and performance obligations, which will cause the Successor Agency to incur project costs for project management, construction management, etc. Such costs are properly payable from the RPTTF, as intended by ABX1 26 [e.g., HSC Section 34174(a)] and permitted by the DOF directive (set forth in "Exhibit 4" on the DOF webpage devoted to ABX1 26 issues) which states "specific project implementation activities such as construction inspection, project management or actual construction [which] would not be viewed by Finance as 'administrative."' Additionally, pursuant to HSC Section 34167(f), "...nothing shall be construed to interfere with the Agency's authority with respect to enforceable obligations to make payments due, enforce existing covenants and obligations or perform its obligations." Further, HSC Section 34177(a), (c), and (f) require the Successor Agency to make payments required by enforceable obligations, perform obligations required by enforceable obligations, and enforce rights of the former Agency and covenants imposed by the Agency. DOF's own guidance (set forth in "Exhibit 3" on the DOF webpage devoted to ABXl 26 issues) acknowledges and reiterates HSC Section 34174(a) which states "....nothing herein is intended to absolve the successor agency of payment or other obligations due or imposed pursuant to the enforceable obligations; and provided further, that nothing in the act adding this part is intended to be construed as an action or circumstance that may give rise to an event of default under any of the documents governing the enforceable obligations." • Page 5, item 41, Engineering services totaling $4000. The DOF Letter states the Agency claimed $10,000 on the ROPS, however the contract states the amount should not exceed $6,000. Therefore, $4000 of the $10,000 claimed is not an EO. Response: The ROPS has been amended to reflect the outstanding contract balance at that point in time. • Page 7, line items 86, 98, and 99, various projects totaling $8.7 million using unexpended bond funds. The DOF Letter cites HSC Section 34177(i) which states "...Bond proceeds shall be used for the purposes for which bonds were sold unless the purposes can no longer be achieved, in which case, the proceeds may be used to defease the bonds." The DOF Letter also makes an assumption that "it is not the intent of ABX1 26 to allow successor agencies to enter into new contracts, unless those contracts are specifically required pursuant to the terms of another pre- existing contract that meets the requirements of ABX1 26, or are specifically required by bond indentures" and "the unexpended funds may not be used to enter into new obligations." Response: We respectfully disagree and find that the DOF assumption stated above is incorrect and does not reflect either the letter or spirit of ABX1 26. Pursuant to HSC Section 34177(i), the Successor Agency is required to utilize bond proceeds for the purposes for which bonds were sold 3-30