HomeMy WebLinkAbout2014-030 1 RESOLUTION NO. 2014-30
2 RESOLUTION OF THE SUCCESSOR AGENCY TO THE
REDEVELOPMENT AGENCY OF THE CITY OF SAN BERNARDINO
3
APPROVING RECOGNIZED OBLIGATION PAYMENT SCHEDULE 13-14B
4 FOR THE PERIOD OF JANUARY THROUGH JUNE 2014 AND
APPROVING CERTAIN RELATED ACTIONS.
5
WHEREAS, pursuant to Health and Safety Code ("HSC") § 34172 (a)(1), the
6
Redevelopment Agency of the City of San Bernardino was dissolved on February 1, 2012; and
7
WHEREAS, consistent with the provisions of the HSC, the Mayor and Common Council
8
of the City of San Bernardino previously elected to serve in the capacity of the Successor Agency to
9
the Redevelopment Agency of the City of San Bernardino (the "Successor Agency"); and
10
WHEREAS, per HSC § 34177 (I)(1), the Successor Agency is required to prepare a
11
Recognized Obligation Payment Schedule ("ROPS") before each six-month fiscal period, which
12
corresponds to equal halves of a fiscal year (i.e., July through December and January through June);
13
and
14
WHEREAS, a ROPS is the basis for the Successor Agency's authority to make payments
15
due for enforceable obligations ("EOs"); and
16
WHEREAS, each ROPS must also be approved by the Oversight Board ("OS Board") to
17
the Successor Agency and is reviewable by the County Auditor-Controller, the County
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Administrative Officer, the California Department of Finance ("DOF") and the California State
19
Controller's Office; and
20
WHEREAS, on September 30, 2013, the OS Board adopted Resolution SBOB/2013-03,
21
approving ROPS 13-14B and authorized Successor Agency staff to revise and/or restate ROPS 13-
22
14B, as may be required; and
23
WHEREAS, the initial version of ROPS 13-14B included $21,933,898-worth of EOs, of
24
which $572,997 represented the administrative allowance, and $2,261,000 of non-RPTTF; and
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WHEREAS, over a ten (10) week period following the filing of ROPS 13-14B, Successor
26
Agency representatives responded to DOF staff inquiries, provided them with supporting and
27
amending information (some of which was developed by third parties, e.g., US Bank, the Successor
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Agency's bond trustee), participated in several conference call meetings, attended a meet and confer
1
2014-30
1 meeting with DOF staff in Sacramento and offered appropriate revisions to and restatement of
2 ROPS 13-14B to comport with the supportive information provided to DOF; and
3 WHEREAS, once the revisions and restatement were applied to ROPS 13-14B, the total
4 amount of the EOs increased to $24,890,110 that included the use of $20,666,253 of RPTTF, of
5 which $601,930 represented the administrative allowance, and $4,223,857 of non-RPTTF; and
6 WHEREAS, the current version of ROPS 13-14B is appended to this Resolution as Exhibit
7 "A"; and
8 WHEREAS, on December 17, 2013, the DOF issued their final determination letter, which
9 is appended to this Resolution as Exhibit`B"; and
10 WHEREAS, the DOF's December 17, 2013 letter denied six EOs worth $6,930,691 (i.e.,
11 EO Nos. 87, 88 and 90-93), reclassified all or a portion of four EOs (i.e., EO Nos. 10, 12, 13 and 82)
12 in the amount of $5,171,485, disallowed $962,503-worth of ROPS III (i.e., January through June
13 2013) actual expenditures related to six EOs that DOF had previously approved (i.e., EO Nos. 2, 9,
14 15, 26, 33 and 38), authorized the distribution of$11,202,042 of RPTTF to the Successor Agency,
15 of which $370,434 represents the administrative allowance and generally overlooked the
16 recommended revisions to and restatement of ROPS 13-14B; and
17 WHEREAS, notwithstanding the Successor Agency's diligent efforts culminating in the
18 offering of appropriate revisions to and restatement of ROPS 13-14B to comport with the supportive
19 information provided to DOF, it is evident in the December 17, 2013 DOF letter that DOF's staff
20 either misunderstand some of the information provided to them or were unable or unwilling to
21 concur with the Successor Agency with respect to certain EOs; and
22 WHEREAS, the most troubling of DOF's determinations is the reclassification of the
23 replenishment of debt service reserve funds ("DSRF" -- i.e., EO No. 82) to "Other" funds and
24 DOF's directive to reverse $5,085,237-worth of the Successor Agency's actual expenditures that
25 DOF denied during their review of ROPS II (i.e., July through December 2012) prior period
26 adjustment as the means for funding such DSRF replenishment; and
27
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2014-30
1 WHEREAS, Exhibit "C" to this Resolution provides background information confirming
2 that that the $5,085,237 in question was correctly spent, is impossible to recover and cannot be
3 applied to EO No. 82; and
4 WHEREAS, the effect of the foregoing is that DOF has directed the Successor Agency to
5 replenish its DSRFs with funds it does not have and if DOF's directive is not ultimately reversed,
6 places the Successor Agency in the untenable position of never being able to replenish the affected
7 DSRFs and thus causing the Successor Agency to be in a state of perpetual violation of the affected
8 bond covenants; and
9 WHEREAS, on January 6, 2012 the Successor Agency received a check from the County
10 Auditor-Controller in the amount of $11,202,042, which is the RPTTF authorized by DOF for
11 ROPS 13-14B and is $9,464,211 less than the amount of RPTTF actually needed for ROPS 13-14B;
12 and
13 WHEREAS, due to the shortfall in RPTTF, by necessity the Successor Agency must
14 allocate the use of its available funds in a responsible way consistent with HSC § 34183 (a)(2),
15 ensuring that current debt service obligations are the highest priority for payment; and
16 WHEREAS, consistent with the immediately foregoing recital, staff has prepared a plan
17 for the Successor Agency's use of RPTTF and non-RPTTF for ROPS 13-14B, as depicted in Exhibit
18 "D"to this Resolution; and
19 WHEREAS, this Resolution has been reviewed with respect to applicability of the
20 California Environmental Quality Act ("CEQA"), the State CEQA Guidelines (California Code of
21 Regulations, Title 14, §§ 15000 et seq., hereafter the "Guidelines"), and the City's environmental
22 guidelines; and
23 WHEREAS, this Resolution is not a "project" for purposes of CEQA, as that term is
24 defined by Guidelines § 15378, because this Resolution is an organizational or administrative
25 activity that will not result in a direct or indirect physical change in the environment, per §
26 15378(b)(5) of the Guidelines; and
27 WHEREAS, all of the prerequisites with respect to the approval of this Resolution have
28 been met.
3
2014-30
1 NOW, THEREFORE, by be it resolved by the Successor Agency to the Redevelopment
2 Agency of the City of San Bernardino, as follows:
3 Section 1. The foregoing recitals are true and correct and are a substantive part of this
4 Resolution.
5 Section 2. The Successor Agency's ROPS 13-14B for the period of January through
6 June 2014, which is attached hereto as Exhibit"A", is approved.
7 Section 3. The Successor Agency's plan for use of RPTTF and non-RPTTF for ROPS
8 13-14B, which is attached hereto as Exhibit"D", is approved.
9 Section 4. The City Manager, as Executive Director of the Successor Agency, or
10 designee, is hereby authorized and directed to: i) implement ROPS 13-14B on behalf of the
11 Successor Agency; ii) implement the Successor Agency's plan for use of RPTTF and non-RPTTF
12 for ROPS 13-14B; and iii) take such necessary actions and execute such documents as are necessary
13 to effectuate the intent of this Resolution, inclusive of authorizing ministerial revisions to the
14 Successor Agency's plan for use of RPTTF and non-RPTTF for ROPS 13-14B.
15 Section 5. This Resolution is not a "project" for purposes of CEQA, as that term is
16 defined by Guidelines § 15378, because this Resolution is an organizational or administrative
17 activity that will not result in a direct or indirect physical change in the environment, per §
18 15378(b)(5) of the Guidelines.
19 Section 6. This Resolution shall take effect upon its adoption and execution in the
20 manner as required by the City Charter.
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2014-30
1 RESOLUTION OF THE SUCCESSOR AGENCY TO THE
REDEVELOPMENT AGENCY OF THE CITY OF SAN BERNARDINO
2 APPROVING RECOGNIZED OBLIGATION PAYMENT SCHEDULE 13-14B
3 FOR THE PERIOD OF JANUARY THROUGH JUNE 2014 AND
APPROVING CERTAIN RELATED ACTIONS.
4
I HEREBY CERTIFY that the foregoing Resolution was duly adopted by the Mayor and Common
5 Council of the City of San Bernardino, acting as the Successor Agency to the Redevelopment
Agency of the City of San Bernardino, at a joint regular meeting thereof, held on the
6 3rd day of February , 2014, by the following vote, to wit:
7
8 Council Members Ayes Nays Abstain Absent
9 MARQUEZ x
10 JENKINS x
VALDIVIA x
11
SHORETT x
12
VACANT
13
JOHNSON x
14 MULVIHILL x
15
16 :L%L. ."
Georgea f anna, City ' lerk
17
18 The foregoing Resolution is hereby approved this a day of t - V • , 2014.
19
20
21 'M J. Morris4 0 an
22 Successor Agency to the
Redevelopment Agency of the
23 City of San Bernardino
Approved as to Form:
24 Gary D. Saenz, City Attorney
25
26 By: . ' ♦ % A
27
28
5
2014-30
1 EXHIBIT "A"
2
3 SUCCESSOR AGENCY TO THE
REDEVELOPMENT AGENCY OF THE CITY OF SAN BERNARDINO
4 RECOGNIZED OBLIGATION PAYMENT SCHEDULE 13-14B
(January through June 2014)
5
(See Attachment)
6
7
8
9
10
11
12
13
14
15
16
17
18 b
19
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' Attachment:Rops 13-14B-Exhibit"A" (2889:Recognized Obligation Payment Schedule 13-14B)
2014-30
1 EXHIBIT "B"
2
DECEMBER 17,2013 LETTER
3
FROM THE
4 CALIFORNIA DEPARTMENT OF FINANCE
5 (See Attachment)
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�c DEPARTMENT OF EDMUND G. BROWN JR. GOVERNOR
0'40FOR�oP F I N A N C E 91 6 L STREET • SACRAMENTO CA■ 95131 4-37D8 ■ WWW.DCIF.CA.GOV
December 17, 2013
Mr. Allen Parker, City Manager
San Bernardino City
300 North D Street, 6th Floor
San Bernardino, CA 94218
Dear Mr. Parker:
Subject: Recognized Obligation Payment Schedule
This letter supersedes the California Department of Finance's (Finance) Recognized Obligation
Payment Schedule (ROPS) letter dated November 15, 2013. Pursuant to Health and Safety
Code (HSC) section 34177 (m), the San Bernardino City Successor Agency (Agency)submitted
a Recognized Obligation Payment Schedule (ROPS 13-14B).to Finance on October 1, 2013, for
the period of January through June 2014. Finance issued a ROPS determination letter on
November 15, 2013. Subsequently, the Agency requested a Meet and Confer session on one
or more of the items denied by Finance. The Meet and Confer session was held on
December 4, 2013.
Based on a review of additional information and documentation provided to Finance during the
Meet and Confer process, Finance has completed its review of the specific items being
disputed.
• Item Nos. 10, 12, and 13--Various Recovery and Revenue Bonds totaling $15,608,589.
The Agency requests funding in the amounts of$454,100, $44,225, and $40,360,
respectively, for the ROPS 13-14B period. However, based on documentation provided
during the initial review, Finance had denied the items as the Agency is not required to
fund the full debt service through tax increment since other revenues are pledged
towards the payments. The Agency had provided US Bank account summary schedules
as follows:
o Item No. 10—The Agency is receiving a "Federal Direct Payment" subsidy as
other revenue pledged. Based on the account summary schedule, as of
October 16, 2013, the Reserve Fund account balance is $731,999. The Agency
contends $688,323 is the required balance for the Reserve Fund, leaving
$43,676 available to apply as a credit towards the $454,100 amount requested.
During the Meet and Confer process, the Agency provided the monthly
statements for the Interest Account and Reserve Fund as of November 30, 2013
showing a balance of$43,711 and $688,323, respectively. Since $688,323 is the
required debt reserve, $43,711 is available to apply towards the payment.
Therefore, $43,711 is being reclassified to"Other"funds and $410,389 will be
paid from the Redevelopment Property Tax Trust Fund (RPTTF).
Mr. Allen Parker
December 17, 2013
Page 2
o Item Nos. 12 and 13— Other revenue is received monthly from third parties. The
Agency contends other revenues received are required to fund other obligations
related to the projects and are not available to fund debt service payments.
However, pursuant to Section 5.02 of the Bond Indenture, on the 15th of each
month, a portion of gross revenues deposited in the Revenue Fund, in order of
priority, should be applied towards annual trustees fees, then applied to fund the
taxes, assessments, and insurance for the projects, then applied to fund interest
and principal due on the next succeeding due date. Further, January 2013
invoices for interest due showed that the amount paid by the Agency was
reduced by cash on hand credits of,$5,693 and $23,291, respectively. During
the Meet and Confer process, the Agency failed to provide additional documents
to verify the balances in the Interest Funds for each of the bonds. As such,
Finance will use the unverified account summary schedules provided during the
initial review showing balances of$2,177 and $49,390, respectively. Therefore,
for Item Nos. 12 and 13, Finance reclassifies $2,177 and $40,360 to "Other"
funds and approves $42,048 and $0 to be paid from the RPTTF, respectively.
Finance does not consider the US Bank account summary schedules provided as
sufficient supporting documentation. However, since other revenue is available for Item
No. 10 and appears to be available for Item Nos. 12 and 13, the funding source is being
changed from "RPTTF"to "Other Funds" in the amounts of$43,711, $2,177, and
$40,360, respectively, reflecting the proper use of other revenues. Therefore, these line
items are eligible for$410,389, $42,048, and $0 in RPTTF funding, respectively.
• Item No. 82—Debt Service Reserve Fund (DSRF) Replenishment in the amount of
$5,085,237. Finance no longer denies this item; however, the funding source is being
reclassified to"Other"funds. The amount requested represents total funding needed to
replenish the DSRF to the required balances for Item Nos. 3, 4, 6 through 11, and 28.
During the July through December 2013 period (ROPS 13-14A) Finance approved
$6,408,144 in RPTTF funding for this item. Finance notes that the Agency's total DSRF
amount outstanding provided during ROPS 13-14B has now increased to $6,640,033.
The Agency contends it did not receive sufficient RPTTF funding during ROPS 13-14A
and claims that only$1,554,796 in RPTTF funding was available to fund the DSRF
amount. The remaining $5,085,237 ($6,640,033-$1,554,796) is being requested on
ROPS 13-14B.
Finance authorized $17,569,239 in RPTTF funds for ROPS 13-14A enforceable
obligations, and applied a ROPS I I Prior Period Adjustment(PPA) in the amount of
$5,876,914, resulting in $11,692,325 in RPTTF funds approved for distribution, which
was fully distributed by the San Bernardino County Auditor Controller. The Agency also
received $510,467 in RPTTF funds for administrative costs. Consequently, sufficient
RPTTF funding was available for the Agency to replenish the required reserves for the
ROPS 13-14A period, including the funding that is available from the PPA of$5,876,914.
The Agency contends that all of the ROPS II PPA had actually been spent and that it is
impossible to recover such funds. The Agency also continues to contend that given the
Agency's dire fiscal condition, the Agency has been required to "triage"the use of its
RPTTF. However, the items on which the funds were spent were not approved by
Finance; therefore, the funds should be available for expenditure.
Mr. Allen Parker
December 17, 2013
Page 3
HSC section 34177 (a) (3) states that only those payments listed on the approved ROPS
may be made from the funding source specified in the ROPS. Also, HSC section
34183 (a) (2)explicitly requires debt service payments to be made first, followed by
revenue bonds (to the extent revenues are insufficient to cover the payments due), and
all other obligations, if sufficient RPTTF funding remains. Additionally, HSC section
34171 (d)(1) (A) permits reserves to be held only when required by the bond indenture,
or when the next property tax allocation will be insufficient to pay the next bond payment
due in the following half of the fiscal year. Therefore, to the extent the Agency has not
been funding approved enforceable obligations in this order, the Agency is in violation of
the law. As such, the Agency should reverse those non-debt service transactions that
were either not approved by Finance or subordinated to the Agency's debt service
payments. Once corrected, the Agency should return the funding to each DSRF.
Based on a review of the prior period adjustment form for the ROPS II period, the
Agency reported expending "Other"funds (i.e., funds from each DSRF)to make the debt
service payments instead of RPTTF funds as approved by Finance. However, as noted
above, HSC section 34177 (a)(3) states that only those payments listed on the
approved ROPS may be made from the funding source specified in the ROPS. HSC
section 34177 (a)(4)goes on to state that with prior approval from the oversight board,
the successor agency can make payments for enforceable obligations from sources
other than those listed in the ROPS. However, no such approval was presented to
Finance, and as such, the Agency's reserve balances should not have been depleted.
Again, to the extent funding was moved inappropriately out of each DSRF, the Agency
should return the funds to the proper accounts.
Further, Finance requested copies of bond fiscal statements as of June 30, 2013, for
each affected bond's DSRF account to confirm the ending balances and to verify that
each DSRF account was underfunded. The Agency provided a DSRF summary
schedule in Excel and PDF format prepared by US Bank. Finance does not consider the
summary schedules as sufficient supporting documentation. Therefore, for all the
reasons stated above, this item is not eligible for additional RPTTF funding since
sufficient balances were available from the ROPS 13-14A distribution to fully fund each
DSRF and no funds should have been drawn from each DSRF in the first place. As
such, the funding source is being reclassified to"Other"funds.
• Item No. 85— Past Under-Paid Pass Thru Payments in the amount of$2,644,578.
Finance no longer denies this item. According to the Agency, the San Bernardino
Municipal Water District(District) has determined that the Agency owes the District past
due pass thru payments for fiscal years 2007-08 through 2011-12. The summary letter
provided by the District shows the amount owed to the District. However, Finance
initially denied this item as HSC section 34171 (d) (1)(E) defines an enforceable
obligation as a legally binding and enforceable agreement or contract and an agreement
had not been established between the Agency and the District, specifying the
responsibilities of each party, total compensation amount, and payment terms. During
the Meet and Confer process, the District provided additional documents from Rosenow
Spevacek Group, Inc., showing how the summary of amounts owed was determined,
which included the 1988 pass through agreement between the District and the former
redevelopment agency(RDA), an explanation of how the original methodology used to
calculate the statutory pass through amounts was incorrect, the corrected methodology
used to determine the actual statutory pass through amounts owed, and the actual
Mr. Allen Parker
December 17, 2013
Page 4
payments already received by the District. Therefore, this item is an enforceable
obligation and is eligible for RPTTF funding.
• Item No. 87— Carousel Mall Past Due Property Tax totaling $869,691. Finance
continues to deny this item. The amount consists of past due property taxes for nine
parcels. The Agency acquired the property through a Purchase Money Note dated
May 3, 2010, when the former owner defaulted. Documentation was provided for each
parcel's past due amounts owed for property tax years 2009, 2010, and 2012. Finance
initially denied this item as the title owners of the properties during these tax years are
third parties; therefore, the Agency should pursue collection of amounts due from the
previous owners. Additionally, governmental property is exempt from property taxes.
Based upon further review of the County of San Bernardino Treasurer-Tax Collector's
website during the Meet and Confer process, it was determined that the Agency is not
the current owner of the properties. The current owner for all nine parcels is the
Carousel Mall LLC, not the Agency. All of these properties were inappropriately
transferred to the San Bernardino Economic Development Corporation (SBEDC) in
March 2011, which then transferred the properties to Carousel Mall LLC in
December 2011. If and when the properties are transferred back to the Agency, the past
due property taxes for tax years 2009 and 2010 may be obligations of the Agency;
however, the past due property taxes for tax year 2012 should remain the obligation of
the Carousel Mall LLC since these amounts would never have been incurred had the
former RDA not transferred the properties. Therefore, this line item is not an
enforceable obligation and is not eligible for RPTTF funding.
• Item Nos. 88 and 90 to 93— Liabilities related to former RDA properties, totaling
$4,161,000, transferred to the SBEDC. Finance continues to deny these items. During
the California State Controller Office's (Controller)Asset Transfer Review, the Controller
ordered the return of several properties formerly owned by the Agency. The Agency
contends the Controller's return order also includes any outstanding related liabilities
related to those assets; therefore, those liabilities are now obligations of the Agency.
However, Finance denied these items as it was our understanding these liabilities were
incurred or created during the time the properties were owned and operated by the
SBEDC, and any contracts or agreements signed were executed between the SBEDC
and various third parties; the former RDA was not a party to the contracts. Therefore,
the following line items are not enforceable obligations and not eligible for RPTTF
funding as specified below:
o Item No. 88 —ACM Limited Partnership (ACM) Purchase Money Note totaling
$1,900,000. The promissory note, dated May 19, 2011, is between ACM and
SBEDC, the former RDA is not a party to the contract. The Agency contends the
$1,900,000 principal amount due June 1, 2012, was not paid and provided a
May 22, 2013, default letter from ACM, which was addressed to SBEDC, not the
Agency. During the Meet and Confer process, the Agency stated that the
funding source should be "Other"funds, not the RPTTF. Finance acknowledges
the request to change funding sources; however, the payment of the promissory
note is still the obligation of SBEDC, not the Agency. Therefore, this item is not
an enforceable obligation and is not eligible for"Other"funds or RPTTF funding.
o Item Nos. 90 to 93— Discounted Settlement of Lawsuits to foreclose mechanics
liens against former RDA properties totaling $2,261,000. According to
documentation provided, these liens are tied to properties that the former RDA
Mr. Allen Parker
December 17, 2013
Page 5
transferred to SBEDC during March 2011. The project contracts were executed
between SBEDC and the contractors, and project work was completed while
SBEDC held title to the properties. The liens were filed because SBEDC
stopped payments to the contractors. Since SBEDC, not the former RDA or the
Agency, is the noted party to the contracts, SBEDC is financially obligated to pay
for the contracted work. Therefore, these items are not enforceable obligations
and are not eligible for"Other"funds.
• The Agency's claimed administrative costs exceed the allowance by$219,174. HSC
section 34171 (b) limits fiscal year 2013-14 administrative expenses to three percent of
property tax allocated to the successor agency or$250,000, whichever is greater. As a
result, the Agency is eligible for$880,901 in administrative expenses. The San
Bernardino County Auditor-Controller's Office distributed $510,467 in administrative
costs for the July through December 2013 period, thus leaving a balance of$370,434
available for the January through June 2013 period. Although $572,997 is requested for
administrative cost, Item No. 89 —CAC Underpayment of ROPS 13-14A Administrative
Costs in the amount of$16,610 is considered an administrative expense and has been
reclassified. Therefore, the Agency is approved for$370,434 in administrative costs,
and the excess $219,174 ($589,607-$370,434) is not allowed.
• Pursuant to HSC section 34186 (a), successor agencies were required to report the
estimated obligations and actual payments (prior period adjustments) associated with
the January through June 2013 period. The amount of RPTTF funding approved in the
table below includes the prior period adjustment that was self-reported by the Agency.
HSC section 34186 (a) also specifies that the prior period adjustments self-reported by
successor agencies are subject to audit by the county auditor-controller(CAC) and the
State Controller. Any proposed CAC adjustments were not received in time for inclusion
in this letter. Therefore, the amount of RPTTF initially approved in the table below
included only the prior period adjustment that was self-reported by the Agency in the
amount of $2,142,163.
During the Meet and Confer process, the Agency stated that the formula included within
the ROPS 13-14B form provided by Finance did not allow for the proper reporting of
circumstances like the Agency's. As such, Finance allowed the Agency to recomplete
and resubmit the form with their corrected amounts. The resubmitted form showed a
prior period adjustment of $0; however, based on further review of the amounts included,
the prior period adjustment should be $962,503 ($944,503 + $18,000), as discussed
below.
Originally, the Agency did not include any amounts in the "Available RPTTF" column,
even though the amount authorized by Finance was not the amount available from the
CAC's distribution. This error did, in fact, overstate the original prior period adjustment
reported. In our review of the resubmitted form provided during the Meet and Confer
process, Finance determined that the Agency had included the actual expended amount
in the "Available RPTTF" column, deleted the formula in the "Net Lesser of
Authorized/Available" column, and calculated the difference between the"Actual" column
and the"Available" column to allow for the over expenditure of line items. To correct for
these inappropriate changes made to Finance's form, Finance has corrected the
amounts in the "Available RPTTF" column to total the CAC distribution of$12,068,863
without exceeding any of the approved amounts and re-entered the formulas to calculate
Mr. Allen Parker
December 17, 2013
Page 6
the "Net Lesser of Authorized/Available" and the difference of"Actual" and "Net Lesser
of Authorized/Available" to disallow expenditures above Finance's approved amounts.
Specifically, the over expenditures summarized in the table below were disallowed.
�>'' 11 `�I : '. Y 4 .011 rxA-. `'�1�' 22,500 ,M s X ,� $2 5
2 1997A Bond $ , $ 43,656
9 2005B TAB 430,887 431,106 219
15 CMB-E $10,000,000 261,600 262,500 900
26 Woolworth Bldg 506,637 517,053 10,416
33 Litigation —Carousel 40,000 107,119 67,119
Mall (Placo)
38 Long Term Property 102,000 946,693 844,693
Maintenance
Total $ 1,363,624 $ 2,308,127 $ 944,503
- To the extent the Agency believes any of these over expenditures were required for
enforceable obligations, they should list the item(s) on a subsequent ROPS for Finance's
review and approval.
The actual allowed expenditures totals $11,106,360 ($11,668,640 -$944,503 +
$382,223) and the CAC had distributed $12,068,863, which results in an additional
$18,000 not expended on allowed items or within allowed amounts. Therefore, Finance
will adjust the prior period adjustment from $2,142,163 to $962,503.
• During the Meet and Confer process, the Agency requested Finance to increase the
amounts requested from the RPTTF for Item Nos. 21, 28, and 38 for expenditures
incurred during the ROPS I I period, but not approved by Finance.
o Item No. 21 — Carousel Mall Note in the amount of$330,000. While the
ROPS 13-14B has an Item No. 21 listed, it is listed as"Intentionally Left Blank"
with "None" as the payee. Therefore, Finance cannot review the amount
reported as expended to determine if it is related to an enforceable obligation
since there is no associated line item on the ROPS 13-14B. To the extent the
Agency believes this payment was for an enforceable obligation, the Agency
should list the item on a subsequent ROPS for Finance's review and approval.
o Item No. 28--2006 Tax Allocation Bond Debt Service in the amount of$651,996.
The Agency provided the Debt Service Invoice and the wire transfer for this item
from October 2012 in the amount of$651,996. Finance had determined that
Item No. 28 is an enforceable obligation during the initial review. Therefore,
Finance will increase the amount requested for Item No. 28 on ROPS 13-14B in
the amount of$651,996.
o Item No. 38 — Property Maintenance in the amount of$711,485. The Agency
provided an Excel spreadsheet detailing the various expenditures incurred during
the ROPS II period that the Agency classified as maintenance costs totaling
$578,826. However, no information was provided indicating how these costs are
associated with Agency-owned properties. Additionally, the Agency added a line
item in the spreadsheet in the amount of$213,060 as property maintenance
Mr. Allen Parker
December 17, 2013
Page 7
related payroll without providing supporting documents to show how the costs
were allocated to the Agency, what type of work was performed, and how these
costs are associated with Agency-owned properties.
Finance also notes that many of the expenditures identified in the Excel
spreadsheet do not appear to be costs of maintaining assets prior to disposition.
For example, the items on the spreadsheet have descriptions or vendors such as
Aztec Uniform Towel Rental, California Computer Options, Reynolds of San
Bernardino— Installment Note and Interest, Muzak, Sweet Dreams Realty,
Yellow Transportation, Southern California Edison, Sparkiets Drinking Water,
Verizon, USA Mobility, Konica Minolta, Wells Fargo, and Toshiba Finance
Services that appear to be for general administrative costs, not property
maintenance, and should be included as part of the administrative cost
allowance. Therefore, Finance is denying the Agency's request to increase Item
No. 38 on ROPS 13-14B.
However, to the extent the Agency believes some of the expenditures identified
are enforceable obligations associated with maintaining assets prior to
disposition, the Agency should list those costs on a subsequent ROPS for
Finance's review and approval. If such costs are identified and listed on the
ROPS, the Agency should be able to identify how these costs are associated
with Agency-owned properties, as well as supporting documents showing that
the properties were owned by the Agency when the expenditures were incurred.
Furthermore, although Finance has approved $946,693 on ROPS 13-14B for
maintenance of Agency properties, the Agency should be able to identify how
any costs incurred are associated with Agency-owned properties, as well as
supporting documents showing that the properties are currently owned by the
Agency. Without these supporting documents, any costs incurred may be
disallowed and added to the prior period adjustment as funds available for
expenditure on a future ROPS.
Except for items denied in whole or in part as enforceable obligations or for the items that have
been reclassified, Finance is not objecting to the remaining items listed on your ROPS 13-14B.
The Agency's maximum approved RPTTF distribution for the reporting period is $11,202,042 as
summarized on the following page:
Mr. Allen Parker
December 17, 2013
Page 8
Approved RPTTF Distribution Amount
For the period of January through June 2014
Total RPTTF requested for non-administrative obligations 19,099,901
Total RPTTF requested for administrative obligations 572,977
Total RPTTF requested for obligations $ 19,672,878
Total RPTTF requested for non-administrative obligations 19,099,901
Denied Items
Item No. 87 • (869,691)
Item No. 88 (1,900,000)
Reclassified Items- RPTTF to"Other"
Item No. 10 (43,711)
Item No. 12 (2,177)
Item No. 13 (40,360)
Item No. 82 (5,085,237)
(5,171,485)
Reclassified Item - RPTTF to Admin
Item No. 89 (16,610)
Increase to Requested Funding
Item No. 28 651,996
Total RPTTF approved for non-administrative obligations 11,794,111
Total RPTTF allowable for administrative obligations
(see Admin Cost Cap table below) 370,434
Total RPTTF approved for obligations 12,164,545
ROPS III prior period adjustment (962,503)
Total RPTTF approved for distribution $ 11,202,042
Administrative Cost Cap Calculation
Total RPTTF for 13-14A(July through December 2013) 17,569,239
Total RPTTF for 13-14B (January through June 2014) 11,794,111
Total RPTTF for fiscal year 2013-14 29,363,350
Allowable administrative cost for fiscal year 2013-14
(Greater of 3%or$250,000) 880,901
Administrative allowance for 13-14A(July through December 2013) 510,467
Allowable RPTTF distribution for administrative cost for ROPS 13-14B 370,434
Pursuant to HSC section 34177 (l)(1) (E), agencies are required to use all available funding
sources prior to RPTTF for payment of enforceable obligations. Beginning with the
ROPS 13-14B period, Finance required successor agencies to identify fund balances for various
types of funds in its possession. During our ROPS 13-14B review, Finance requested financial
records to support the fund balances reported by the Agency; however, the Agency could not
provide the financial records in time. As a result, Finance will continue to work with the Agency
after the ROPS 13-14B review period to properly identify the Agency's fund balances. If it is
determined the Agency possesses fund balances that are available to pay approved obligations,
the Agency should request the use of these fund balances prior to requesting RPTTF in
ROPS 14-15A.
Mr. Allen Parker
December 17, 2013
Page 9
Please refer to the ROPS 13-14B schedule that was used to calculate the approved RPTTF
amount:
http://www.dof.ca.gov/redevelopment/ROPS/ROPS 13-14B Forms by Successor Acency/.
This is Finance's final determination related to the enforceable obligations reported on your
ROPS for January 1 through June 30, 2014. This determination applies only to items where
funding was requested for the six month period. Finance's determination is effective for this
time period only and should not be conclusively relied upon for future periods. All items listed
on a future ROPS are subject to a subsequent review and may be denied even if it was or was
not denied on this ROPS or a preceding ROPS. The only exception is for those items that have
received a Final and Conclusive determination from Finance pursuant to HSC section
34177.5 (i). Finance's review of items that have received a Final and Conclusive determination
is limited to confirming the scheduled payments as required by the obligation.
The amount available from the RPTTF is the same as the amount of property tax increment that
was available prior to enactment of ABx1 26 and AB 1484. This amount is not and never was
an unlimited funding source. Therefore, as a practical matter, the ability to fund the items on the
ROPS with property tax is limited to the amount of funding available to the successor agency in
the RPTTF.
To the extent proceeds from bonds issued after December 31, 2010, exist and are not
encumbered by an enforceable obligation pursuant to HSC section 34171 (d),
HSC section 34191.4(c)(2)(B) requires these proceeds be used to defease the bonds or to
purchase those same outstanding bonds on the open market for cancellation.
Please direct inquiries to Evelyn Suess, Dispute Resolution Supervisor, or Mary Halterman,
Analyst, at(916)445-1546.
Sincerely,
--JUSTYN HOWARD
Assistant Program Budget Manager
cc: Ms. Lisa Connor, Project Manager, San Bernardino City
Ms. Linda Santillano, Property Tax Manager, San Bernardino County
California State Controller's Office
2014-30
1 EXHIBIT "C"
2 EXCERPT FROM MEET AND CONFER FORM
PROVIDING BACKGROUND INFORMATION
3 WITH RESPECT TO
4 ENFORCEABLE OBLIGATION NO. 82
5 In its November 15, 2013 letter, DOF stated that it had applied $5,876,914 from the ROPS II prior
period adjustment to ROPS 13-14A. In its May 15, 2013 meet and confer request form (and
6 discussed in great detail during the May 17, 2013 meet and confer meeting), the Successor Agency
7 advised DOF of the following with respect to the matter of prior period adjustments:
8 "Prior Period Form A, items 21, 86 and 89 (ROPS II):
9 1. With respect to form A, items 21 and 86, it is the Successor Agency position that it did not
illegally use any of its funds. Item A 21 involves interest only payments related to the May
10 3, 2010 Carousel Mall Note and item A 86 involves preparation of land inventory for sale,
11 lease, or development, which is essentially on-going real property management related
costs that will be incurred until the Successor Agency ultimately divests itself of real
12 property assets pursuant to its Long-Range Property Management Plan. Regarding these
two items, both were correctly approved as enforceable obligations. At the time that the
13 2nd ROPS was prepared, Successor Agency staff was informed by DOF that it was
necessary to try to balance the anticipated RPTTF against the projected spending plan to
14 fund enforceable obligations. Although the Successor Agency attempted to do this at that
time (which affected items A 21 and A 86), it was later discovered that such an effort is
15 actually not required. During the middle of the 2nd ROPS implementation period, it
16 became evident that adjustments and reprioritization of expenditures would be required.
This was primarily caused by the Successor Agency's cash-flow insolvency (described
17 further below) that was significantly exacerbated by the July 2012 DOF mandated and
18 County Auditor-Controller enforced $4,183,433 claw-back. Further, the Successor Agency
does not agree that HSC § 34177 (a) (3) limits that Successor Agency to the exact amounts
19 per line item. In fact, it is impossible to manage a ROPS in that fashion. The important
and overriding factor is whether an item is an enforceable obligation, not the amount of
20 RPTTF that was estimated on a particular ROPS line. Remember the amounts shown on a
ROPS are estimates, not actual costs. The ROPS functions as a budget, not an audit.
21 Given the Successor Agency's dire fiscal condition, the Successor Agency has been
22 required to "triage" the use of its RPTTF. Given the lack of RPTTF as compared to the
Successor Agency's enforceable obligations, it is anticipated that this process will continue
23 for several more years and at least until real property assets can be liquidated. Therefore,
the Successor Agency requests that DOF reverse its position with respect to these two
24 matters.
25 2. With respect to form A, item 89, it is the Successor Agency position that it did not illegally
26 use any of its funds. This item was added pursuant to the DOF mandated and County
Auditor-Controller enforced 2nd demand letter dated July 9, 2012. It was not
27 originally included on the 2° ROPS, as it could not have been anticipated when the 2nd
ROPS was filed. Further, in the Successor Agency correspondence to DOF of October 30,
28 2012 and December 13, 2012, the nature and cause of the Successor Agency's cash-flow
insolvency was explained in detail and, thus, should not be a surprise to DOF. Regarding
8
2014-30
1 the July 9, 2012 claw-back payment, it was caused by DOF's May 31, 2012 determination
letter concerning the enforceable obligations on the 1St ROPS. The $4,183,433 claw-back
2 was the difference between the amount of tax increment received by the former
3 redevelopment agency during January 2012 and the amount of RPTTF that DOF approved
in its letter of May 31, 2012 for use during the period of January through June 2012
4 (which, at the time, the Successor Agency was not allowed a meet and confer meeting).
Prior to the May 31, 2012 DOF letter, the former redevelopment agency and then the
5 Successor Agency was utilizing tax increment (RPTTF) for enforceable obligations it had
included on its EOPS and then ROPS. It could not have possibly predicted what the DOF
6 ultimately did, which was to basically disallow the use of tax increment (RPTTF) for a
7 variety of purposes for which the former redevelopment agency and then the Successor
Agency thought, in good faith, were enforceable obligations. Since the money in question
8 had already been paid out, it was impossible to undo what had already been done. As a
result, DOF's letter of May 31, 2012 created a "false surplus" of RPTTF that the Auditor-
9 Controller later demanded be clawed-back under the threat of severe penalties. On July 9,
2012 the Successor Agency was faced with a"Catch 22" dilemma. It knew it did not have
10 $4,183,433 of surplus RPTTF that the Auditor-Controller demanded; however, it did have
11 the RPTTF that was distributed to it for the 2°d ROPS period. Therefore, in an attempt to
be compliant with the dissolution acts, the Successor Agency took what it believed at the
12 time to be the most reasonable step and paid the claw-back with 2°a ROPS RPTTF. If it
had not done this, then more serious consequences would have ensued (the Auditor-
13 Controller's letter of July 9, 2012 clearly described these dire consequences).
Unfortunately, this payment had the unintended consequence of causing the Successor
14 Agency to draw upon debt service reserves to make certain current debt service payments
15 on several of its bond issues beyond what would otherwise be required. In that regard, the
Successor Agency's overarching cash-flow insolvency problem would have required some
16 debt service reserve draws even if the claw-back was not paid. Therefore, given the
foregoing, it is requested that DOF reverse its position on this matter."
17
Based on the foregoing, DOF was given written formal notice that all of the $5,876,914 from the
18 ROPS II prior period adjustment that is mentioned above had actually been spent and that it is
19 impossible to recover such funds. The Successor Agency understands that DOF did not like how
the Successor Agency spent those funds. Notwithstanding DOF's view of this matter, it is not
20 possible for any entity, inclusive of DOF, to create the $5,876,914 mentioned above by written
fiat. Therefore, the $5,876,914 did not exist during the period of ROPS 13-14A and cannot be
21 counted by DOF as funding available for use by the Successor Agency during that period.
22 Based on the foregoing, DOF's assumption with respect to the availability of$5,876,914 from the
23 ROPS II prior period adjustment for use during the ROPS 13-14A period is erroneous. Therefore,
EO # 82 is an enforceable obligation.
24
Further, in its November 15, 2013 letter, DOF acknowledged that the Successor Agency provided
25 a DSRF summary schedule in Excel and PDF formats prepared by US Bank. DOF further stated
that it did not consider the summary schedules as sufficient supporting documentation. Given
26 DOF's doubt as to the accuracy of US Bank's reports, US Bank has prepared the attached
27 "Reserve Valuation" reports for each of the Successor Agency's bond issues, which are prima
facie evidence of the minimum amounts that must be maintained within the DSRF for each bond
28 issue and the amounts of the current DSRF deficits. Please note that US Bank has also provided a
summary report for DOF's ease of review, which is also attached. These documents also confirm
9
2014-30
1 that the current DSRF deficit for all Successor Agency bond issues on a combined basis is
$5,090,163.52 as of November 19, 2013.
2
3 As a consequence of the foregoing, the correct DSRF replenishment number for EO No. 82 on
ROPS 13-14B is $5,090,163.52. US Bank is anticipating that as much as possible of this amount
4 will be paid during ROPS 13-14B. In addition, DOF has received sufficient evidence to support
the requested amount.
5
Therefore, the Successor Agency requests that DOF authorize $5,090,163.52 of RPTTF for ROPS
6 13-14B for this purpose. Failure to do this will cause the Successor Agency not to replenish any of
7 its DSRF deficits. In that regard, the Successor Agency reminds DOF of the April 1, 2013 letter it
received from legal counsel for US Bank, AMBAC Assurance Corporation and Assured Guaranty
8 Corporation which provides, among other things, an overview of the legal reasons why EO # 82 is
an enforceable obligation. Based on the foregoing, it is clear that DOF cannot deny that EO # 82
9 is an enforceable obligation and cannot claim that the Successor Agency actually had $5,876,914
(or any amount) from the ROPS II prior period adjustment for use during the ROPS 13-14A.
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
10
2014-30
1
EXHIBIT "D"
2
3 THE SUCCESSOR AGENCY'S PLAN
4 FOR USE OF RPTTF AND NON-RPTTF
FOR ROPS 13-14B
5 (JANUARY THROUGH JUNE 2014)
6 USES OF RPTTF AMOUNTS
7 Debt Service and Related (EOs 3, 4, 6-17,28, 84 & 86): $9,207,098
8
Successor Agency Administrative Fee (EO 32): 370,434
9
Property Maintenance Expenses (EO 38): 946,693
10
11 Litigation and Administrative Related (EOs 31,33,34 & 36): 79,850
12 Various Enforceable Obligations (EOs 19,20,23-25 & 40): 597,967
13 Total Amount Distributed by Auditor-Controller: $11,202,042
14
15 USES OF NON-RPTTF AMOUNTS
16 Debt Service (EOs 12 & 13)1: $62,857
17
18 Notes:
19 1. The indicated amount will be credited toward debt service by US Bank from surplus funds
available from these two multi-family residential revenue bond issues (i.e.,Highland Lutheran and
20 Casa Ramona).
21 2. The plan does not include any funding for replenishment of currently outstanding debt service
reserve fund shortfalls,as the DOF has disallowed the use of RPTTF for that purpose.
22
23
24
25
26
27
28
11