HomeMy WebLinkAbout3 - CERTIFIED ROPS AND ADMIN BUDGETREQUEST FOR
SUCCESSOR AGENCY :oyv.
ACTION
MEETING DATE:
CLERK OF THE COUNCIL USE ONLY:
OCTOBER 1, 2012
TITLE: APPROVED
CERTIFIED RECOGNIZED ? As Recommended
OBLIGATION PAYMENT (ROPS) 3 ? As Amended
AND ADMINISTRATIVE BUDGET ? Implementing Resolution
? Other
CITY MANAGER
RECOMMENDED ACTION
Receive and file.
DISCUSSION
CONTINUED TO
FILE NUMBER
On August 20, 2012, the Successor Agency adopted a resolution approving the Third Recognized
Obligation Payment Schedule (ROPS 3) and Administrative Budget for the period of January 1, 2013
through June 30, 2013. The action also directed the City Manager and/or Director of Finance or their
designess to make or accept any augmentation, modification, additions, or revisions to the ROPS
and/or Administrative Budget as deemed appropriate in their reasonable discretion.
On August 28, 2012, the Oversight Board of the Successor Agency to the former Community
Redevelopment Agency of the City of Santa Ana also adopted and approved the action above. In
finalizing the ROPS 3 and Administrative Budget, certain modifications were made to the forms that
were then officially submitted to the Department of Finance by the September 4, 2012 deadline.
A copy of the final Certified ROPS 3 and Administrative Budget that was submitted to Department of
Finance is attached for your information.
FISCAL IMPACT
There is no fiscal impact associated with this action.
"ho-vi u "14
Nancy T. Ed rds
Interim Exec live Director
Community Development Agency
NTE/kg
Exhibit 1. Certified ROPS 3 & Administrative Budget
3-1
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Ending BOND DEBT SERVICE
Community Redevelopment Agency of the City of Santa Ana
(Santa Ana Merged Project Area)
Tax Allocation Bonds
2011 Series A
Final Numbers - January 25, 2011
Dated Date 02/04/2011
Delivery Date 02/04/2011
4
Principal Coupon Interest Debt Service
nual
Debt Service
09/01/2011 2,420,663.76 2,420,663.76 2,420,663,76
03/01/2012 2,104,925.00 2,104,925.00
09/01/2012 2,104,925,00 2,104,925.00 4,209,850.00
03/01/2013 2,104,925.00 2,104,925.00
09/01/2013 2,104,925.00 2,104,925.00 4,209,850.00
03/01/2014 2,104,925.00 2,104,925.00
09/01/2014 2,104,925.00 2,104,925.00 4,209,850.00
03/01/2015 2,104,925.00 2,104,925.00
09/01/2015 2,104,925.00 2,104,925.00 4,209,850,00
03/01/2016 2,104,925.00 2,104,925.00
09/01/2016 2,104,925.00 2,104,925.00 4,209,850.00
03/01/2017 2,104,925.00 2,104,925.00
09/01/2017 805,000 5.000% 2,104,925.00 2,909,925.00 5,014,850.00
03/01/2018 2,084,800.00 2,084,800.00
09/01/2018 1,145,000 5.000% 2,084,800.00 3,229,800.00 5,314,600.00
03/01/2019 2,056,175.00 2,056,175.00
09/01/2019 2,735,000 5.250% 2,056,175.00 4,791,175.00. 6,847,350.00
03/01/2020 1,984,381.25 1,984,381.25
_09/01/2020 5,475,000 ** 1,984,381.25 7,459,381.25 9,443,762.50
03/01/2021 1,825,443.75 1,825,443.75
0910112021_ 6,105,000 6.000% 1,825,443.75 7,930,443.75 9,755,887.50 '
03/01/2022 1,642,293.75 1,642,293.75
09/01/2022 6,810,000 6.000% 1,642,293.75 8,452,293.75 10,094,587.50
03/01/2023 1,437,993.75 1,437,993.75
09/01/2023 7,545,000 ** 1,437,993.75 8,982,993.75 10,420,987.50
03/01/2024 1,201,075.00 1,201,075.00
-19101/2024 8,360,000 ** 1,201,075.00. 9,561,075.00 10,762,150.00
03/01/2025 938,587.50 938,587.50
09/01/2025 _ 9,230,000 6,750% 938,587.50 10,168,587.50 11,107,175.00
03/01/2026 627,075.00 627,075.00
09/0142025 _10,820,000, 6,750% 627,075.00 11,447,075.00 12,074,150.00
03/01/2027 261,900.00 261,900.00
09101J2027._ 4,055,000 6.750% 261,900.00 4,316,900.00 4,578,800.00
03/01/2028 125,043.75 125,043.75
09/01/2028 3,705,000 6.750% 125,043.75 3,830,043,75 3,955,087.50
66,790,000 56,049,301.26 122,839,301.26 122,839,301.26
Jan 25, 2011 1:52 pm Prepared by Stone & Youngberg LLC (SPB)
(Finance 6.019) Page 6
i
3-15
V
1:46 am Prepared by Citigroup t Markets Inc. 't Page 11
BOND DEBT SERVICE
Community RDA of the City of Santa Ana
New Money TAB-Serie*4,?2003`A`-
Period Annual
Ending Principal Coupon Interest Debt Service Debt Service
0 610 3/2 0 0 3
03/01/2004 601,267:31 601,267.31
b970-T/2-0-X75;000 -- _
--1 f00°- 403 X3€25 878,836.25 1,480,103.56
0310112005 401,223.75 401,223.75
09/01/2005 480,000 1.250% 401,223.75 881,223.75 1,282,447.50 t?
03/01/2006 398,223.75 398,223.75
OJIOTI?OOb`4?OIRTO i':500%- `- 3$8,23.?5? 878,223.75 1,276,447.50 1\
03/01/2007
- 394,623.75 394,623.75
^
000-1707 90,000 2.000% 884,623.75 1,279,247.50
0 310 1/2 0 0 8. 389,723.75 389,723.75._. .
0910112008 5007600 2.250% 389,723.75 889,723.75 -1,279,447.50
0310112009 384,098.75 384,098.75
09101/2009 510,000 2.750% 384,098.75 894,098.75 1,278,197.50
D3/01/2010 377,086.25 377,086.25
09/01/2010 .525,000 3.000% 377,086.25 902,086.25 1,279,172.50 ?
03/01/2011 369 211.25 369 211.25
09/01/2011 545,000 3.250% 369,211.25 914,211.25 1,283,422.50
03/0112012 360,355.00 360,355.00
0910112012 560,000 3.375% 360,355.00 920,355.00 1,280,710.00
03101/2013 350,905.00 350,905.00
09101/2013 580,000 3.500% 350,905.00 930,905.00 1,281,810.00
03/01/2014 340,755.00 340,755.00
09/0112014 605,000 3.600% 340,755.00 945,755.00 1,286,510.00
03101/2015 329 865.00 329 865.00
09/0112015 625,000 3.700% 329,865.00 954,865.00 1,284,730.00
0310112016 318 302.50 '318,302.50
09101/2016 650,000 3.800% 318,302.50 968,302.50 1,286,605.00
03!0112017 305,952.60 305,952.50
09101/2017 675,000 4.000% 305,952.50 980,952.50 - 1,286,905.00
03/01/2018 292,452.50 292,452.50
09101/2018 700,000 4.000% 292,452.50 992,452.50 1,284,905.00
03101/019 278,452.50 278,452.50
09101/2019 730,000 4.100% 278,452.50 1,008,452.50 1,286,905.00
03/01/2020 _ 263,487.50 263487.50
09/0112020 760,000 4.200% 263,487.50 1,023,487.50 1,286,975.00
03101/2021 247 527 50 247 27.50
09/01/2021 795,000 4.300% 247,527.50 1,042,527.50 1,290,055.00
0310112022 230 435.00 230,435.00
0910112022 830,000 4.400% 230,435.00 1,060,435.00 1,290,870.00
03/01/2023 212,175.00 212,175.00
09/0112023 870,000 4.500% 212,175.00 1,082,175.00 1,294,350.00
03/0112Q24 192,600.00 192 600.00
09/01/2024 910,000 4.500% ' 192,600.00 1,102,600.00 1,295,200.00
0310112025 __ 172,125.00 172,1215.00
09101/2025 950,000 4.500% _
_
172,125.00 1,122,125.00 1,294,250.00
03/01/2026 150,750.00 150,750.00
09101/2026 995,000 4.500% 150,750.00 1,145,750.00 1,296,500.00
03(0112027 128,362.50 128,362.50
09/01/2027 1,040,000 4.500% 128,362.50 1,168,362.50 1,296,725.00
03/0112028 104,962.50 104,962.50
09/01/2028 1,090,000 4.500% .104,962.50 1,194,962.50 1,299,925.00.
0310112029 80,437 50 80,437.50
09/01/2029 1,140,000 4.500% 80,437.50 1,220,437.50 1,300,875.00
r_Q3/01/2.03.0 54,787.50 54,787.50
09101/2030
1,190,000
4.500%
54,787.50
1,244,787,50 _
1,299,575.00
Tl13LQ_1(2031 _28,012.50 28 012_50
09/01/2031 1,245,000 - 4.500% 28,012.50 1,273,012.50 1,301,025.00
20,945,000 15,318,891.06 36,263,891.06 36,263,891.06
3-16
d Y
Jun 11, 2003 1`1-4611 Prepared by Citigroup Global Markets Inc. Page 12
BOND DEBT SERVICE
Community RDA of the City of Sanla Ana;?s-."
Tax Allocation Ref, Sonds•ad-rrd '2003 B
Period / Annual
Ending Principal Coupon Interest Debt Service ' Debt Service
06/03/2003
09/01/2003 1,820,000 2.000% 357,622.22 2,177,622.22 2,177,622.22
03101/2004
y 713,300.00 713,300.00
09/01/2004 1,485,000 2.500% 713,300.00 2.198.300A0 2,911,600.00
0310112005
^ 694,737.50 694,737.50
09/01/2005 1,520,000 2.500% 694,737.50 2,214,737.50 2,909,475.00
03101/2006 _ __ 675,737.50 675,737.50
_
0910112006 1,560,000 2.500% 675,737.50 2,235,737.50 2,911,475.00
03/01/2007 _
' 656,237.50 - 656,237.50 ~
09/01/2047 1,600
,000 3.000% 656,237.54 2,256,237.50??? 2,912,475.00
03/0112008
T 632,237.50 632,237.50
0910112008 1,660,000 4.250% 632,237.50 '1,29'Z,237.6?924,475.00
03/01/2009 596,962.50 596,962.50
09/01/2009 1,730,000 4.250% 59-97962-.0- `2,, 2,923,925.00
03101/2010 .
560,200.00 560,200.00
0310112011 524,000.00 524,000.00_
09T 112 0 1 1 ,890,000 5.0 0 524,500.00 -74 , (f-
03/01/2012 476,750.00 476,750,00
09/01/2012 1,990,000 5.000% 476,750.00 2,466,750.00 2,943,500.00
03/01/2013 427,000.00 427,000.00
09101/2013 2,085,000 5,000% 427,000.00 2,512,000.00 2,939,000.00
03101/2014 374,875.00 374,875,00
09/01/2014 2,200,000 5.000% 374,875.00 2,574,875.00 2,949,750.00
03/01/2015 319,875.00 319,875.00
09/0112015 2,310,000 5.000% 319,875.00 2,629,875.00 2,949,750.00
03/01/2016 262,125.00 262,125.00
09101/2016 2,430,000 5.000% 262,125.00 2,692,125.00 2,954,250.00
03101/2017 201,375.00 201,375.00
09/01/2017 2,550,000 5.000% 201,375.00 2,751,375.00 2,952,750.00
.03/0112018 137,625.00 137,625.00
09/0112018 2,685,000 5.000% 137,625.00 2,822,625.00 2,960,250.00
03/01/2019 70,500.00 70,500.00
09101/2019 2,820,000 5.000% 70,500.00 2,890,500,00 2,961,000.00
34,145,000 15,004,697.22 49,149,697.22 49,149,697.22
3-17
LEASE PAYMENT SCHEDULE
Following is the schedule of Lease Payments due with respect to the Certificates.
Lease
Payment Principal Interest
Date Component Component Annual Total
06/01/03 $1,420,000 $ 68,084.65 $ 1,488,084.65
12/01/03 304,756.25
06101104 1,210,000 304,756.25 1,819,512.50
12/01/04 289,631.25
06/01/05 1,270,000 289,631.25 1,849,262.50
12/01/05 273,756.25
06101106 1,340,000 273,756.25 1,887,512.50
12/01/06 253,656.25
06/01/07 1,425,000 253,656.25 1,932,312.50
12/01/07 232,281.25
06/01/08 835,000 232,281.25 1,299,562.50
12/01/08 219,756.25
06101109 805,000 219,756.25 1,244,512.50
12/01/09 203,656.25
06/01/10 925,000 203,656.25 1,332,312.50
12/01/10 180,531.25
06101111 1.060,000 180 531.25 1x421 062.50
12/01/11 159,331.25
06/01/12
4 1215 5,9 _159 331.25
n 1 533 662.50
12/01/12 128,956.25
06/01/13
_ ?u ?w 1.,405,000 _? ? u 128,956.25 w. v w. 1 662 912 x50
12/01/13 99,100.00
06/01/14___ ._ 1,625,000 99,100.00 1,823,200.00
12/01/14 58,475.00
06101115 1895,000
_ 5_8., 75.00 2 011,950.00
12/01/15 11,100.00
06101116 555,000 11,100.00 577,200.00
Total 16.985.000 4.898.059.65 $21,883.059.65
SECURITY AND SOURCES OF }PAYMENT FOR THE CERTIFICATES
Nature of the Certificates
Each Certificate evidences and represents a direct, undivided fractional interest in the principal
component of the Lease Payments due under the Lease Agreement on the payment date or prepayment date of
such Certificate, and the interest component of all Lease Payments (based on the stated interest rate with
respect to such Certificate) to accrue from its date of delivery to its payment date or prepayment date, as the
case may be.
The Agency, pursuant to the Assignment Agreement, has assigned to -the Trustee for the benefit of the
Owners of the Certificates, substantially all of the Agency's right, title and interest in and to the Lease
3-18
Santa Ana Successor Agency General
Dispute Issue:
DOF Waiver of Obiections to ROPS
Pursuant to Section 34179, as it read prior to June 27, 2012, the DOF had three business
days to request review of the ROPS and, if it requested review within that three day time period,
the DOF had ten days to approve or reject enforceable obligations included on the ROPS.I
The ROPS for January-June 2012 was submitted to the DOF on April 16, 2012. DOF did
not submit a request to review the January-June 2012 ROPS until April 23, 2012 at 5:22 p.m.,
via e-mail; thus, DOF's request to review the January-June 2012 ROPS was received more than
three business days (in fact, a full week) following submission of this ROPS to the DOF. The
Successor Agency did not receive a letter from the DOF rejecting items included on the January-
June 2012 ROPS until May 3, 2012 at 7:33 p.m., after close of business on the tenth day
following DOF's request to review this ROPS.
Further, the Successor Agency submitted the July-December 2012 ROPS to the DOF on
May 9, 2012. The DOF requested review of this ROPS on May 14, 2012, but did not provide a
response rejecting items on the July-December 2012 ROPS until after close of business (at 9:34
p.m.) on May 24, 2012.
We hereby reserve our right to challenge the DOF's requests for review and rejections of
the ROPS as untimely and to assert that the DOF waived its right to object to the inclusion of
enforceable obligations on the ROPS.
Santa Ana Successor Agency Dispute on
Overall Project Costs Items:
In our first two ROPS, DOF moved legitimate project costs into "Administrative" costs. This
was contrary to DOF's own position (set forth in "Exhibit 4" on the DOF webpage devoted to
ABX1 26 issues) which treats such costs as "specific project implementation activities such as
construction inspection, project management or actual construction [which] would not be viewed
by Finance as `administrative."' Recently enacted AB 1484 further reinforces this position.
AB 1484 extended these time periods to five business days for the DOF to request review and 45 days to
respond with approvals and/or disapprovals of specified items on the ROPS; however no part of AB 1484 was made
retroactive; therefore the DOF was required to act within the time periods in effect at the time the ROPS was
submitted, and resubmitted, to the DOF.
Page 1 of 9
3-19
Thus, project costs from our prior two ROPS need to backed out of the "Administrative Cost
Allowance," and our ROPS allocations and Administrative Budgets recalculated accordingly.
Santa Ana Successor Agency Dispute on
ROPS #'s 14 -
Agreements):
18 (Settlement
The Settlement Agreements consist of legal settlement agreements between the Former
Agency and third parties ("Contractual Settlement Agreements"), and judgments entered against
the Former Agency by the California Superior Court for the County of Orange ("Judgment
Settlement Agreements"). These are not pass through agreements with affected taxing entities,
but are similarly structured, in that the terms of these agreements required the Former Agency to
apply a specified percentage of tax increment from specified component project areas to
specified improvements and other purposes.
We have provided all documentation requested by the DOF relating to the Settlement
Agreements and we have explained more than once already why the Settlement Agreements are
enforceable obligations of the Successor Agency that were properly included on the ROPS. In
the May 24 Letter, the DOF rejected the Settlement Agreements, stating (without statutory
reference or legal support) that "Settlements awarding a percentage of tax increment are not
considered EOs." The DOF went on to explain, again without specific statutory or other legal
authority, that "pursuant to ABx 1 26, tax increment is no longer payable to redevelopment
agencies and is therefore not an EO."
The DOF's position is contrary to the plain language of the Dissolution Act and applies
the Dissolution Act in an unconstitutional manner.
Section 34171(d) defines "enforceable obligation" for purposes of Part 1.85 of the
Dissolution Act; Section 34171(d)(1)(E) provides that "enforceable obligations" include "[a]ny
legally binding and enforceable agreement or contract that is not otherwise void as violating the
debt limit or public policy."2 The Contractual Settlement Agreements are legally binding and
enforceable agreements which were executed long before June 28, 2012, when the Dissolution
Act became effective.
Section 34171(d)(1)(D) provides that "enforceable obligations" include "[j]udgments or
settlements entered by a competent court of law or binding arbitration decisions against the
former redevelopment agency, other than passthrough payments that are made by the county
2 Identical language is found in subparagraph (5) of Section 34167(d), which defines "enforceable
obligation" for purposes of Part 1.8 of the Dissolution Act.
Page 2 of 9
3-20
auditor-controller pursuant to Section 34183." 3 As noted above, the Judgment Settlement
Agreements are binding and enforceable judgments issued by California courts in favor of third
party private entities, not affected taxing entities. The Judgment Settlement Agreements are not
passthrough agreements. As with the Contractual Settlement Agreements, the Judgment
Settlement Agreements were issued and became binding and enforceable long before the
effective date of the Dissolution Act.
In addition to the plain language of Section 34171, subdivisions (d)(1)(D) and (d)(1)(E),
the DOF's statement that payments of tax increment are not permitted by AB 1 x 26 is patently
false. Section 34183 specifically requires county auditor-controllers to make payments under
pass through agreements to taxing agencies. Many such agreements required former
redevelopment agencies to pay a specified percentage of tax increment to taxing agencies.
Section 34171(d)(1)(D) specifically refers to such pass through payments, and excludes
payments made by county auditor-controllers under Section 34183 from the purview of Section
34171 (d)(1)(1)), presumably to avoid double payments to taxing entities. This indicates that the
California legislature intended judgments and settlements, like the Judgment Settlement
Agreements, that are similar in structure to pass through agreements, to be considered
enforceable obligations and included on the ROPS. Further, Section 34175(a) makes clear that
the legislature intended to honor all pledges made by the Former Agency; that section
specifically protects the "stream of revenues available to meet the requirements" of such
protected pledges. The structure of the Settlement Agreements-pledging a percentage of tax
increment to a specific person, entity or purpose, was typical of many redevelopment
transactions, and there is no indication in the Dissolution Act that the legislature intended to
invalidate these types of agreements (nor could they, without violating the constitutional
prohibition against impairing contracts 4 )_
In the May 24 letter, the DOF also challenges the Successor Agency's obligation to enter
into agreements for improvements as required by the Settlement Agreements, stating "ABx 1 26
does not allow successor agencies to enter into new contracts; any unencumbered balances
should be remitted to the County Auditor Controller." The DOF cites language in Section 34176
that excludes low and moderate income housing funds from the housing assets to be transferred
to the successor housing agency. This section does not purport to invalidate enforceable
obligations or prevent payment of enforceable obligations using housing funds. In fact,
Section 34177(1) expressly lists the Low and Moderate Income Housing Funds as one source of
payment for enforceable obligations listed on the ROPS. Thus, the DOF's apparent position that
otherwise legal and binding obligations payable using housing funds are not enforceable
obligations is contrary to the intent of the legislature.
To the extent DOF's determination that the Settlement Agreements are not enforceable
obligations rests on an interpretation of the Dissolution Act to prohibit successor agencies from
entering into new agreements for any purpose, even if required to do so by an enforceable
obligation, AB 1484 clarified the legislature's intent to permit successor agencies to enter into
' Identical language is found in subparagraph (4) of Section 34167(d), which defines "enforceable
obligation" for purposes of Part 1.8 of the Dissolution Act.
4 See Article I, Section 10, Clause 1 of the United States Constitution ("No State shall ... pass any ... Law
impairing the Obligation of Contracts ...") and Article 1, Section 9 of the California Constitution ("A ... law
impairing the obligation of contracts may not be passed.")
Page 3 of 9
3-21
such "new" obligations in Section 34177.3(a), which states: "Successor agencies shall lack the
authority to, and shall not, create new enforceable obligations under the authority of the
Community Redevelopment Law ... or begin new redevelopment work, except in compliance
with an enforceable obligation that existed prior to June 28, 2011."5
In response to the DOF's position that the Settlement Agreements are not enforceable
obligations, a lawsuit has been filed in the Superior Court of the State of California, County of
Sacramento (Gerald Peebler, et al, v. State of California Department of Finance et al, Case No.
34-2012-80001172).
Santa Ana Successor Agency Dispute on
ROPS #s 68 - 85 (Housing Project
Implementation Items):
Items 68, 69, & 74-85 - These obligations are partially fulfilled, ongoing projects. The former
RDA entered into these obligations prior to June 28, 2011 to be paid from the LMIHF to increase
and improve the project area's supply of affordable housing. The Successor Agency has
continued obligations pursuant to the project agreements, and is requesting the necessary funding
to complete the projects, including Successor Agency's direct project expenses associated with
staffing and professional costs. We are requesting these expenses be paid from RPTTF as the
LMIHF no longer exists under the law.
Items 70 - 73 - These are approved EOs that have financial obligations, and require project costs
be funded, including project management, construction management and other project
implementation and oversight services. DOF disallowed the source of payment on the last
ROPS, thus a different source of payment has been identified, as applicable.
Santa Ana Successor Agency Dispute on
ROPS #35 & 36 (SA Venture Agmnts.):
The ROPS includes the outstanding obligation of the Former Agency (and therefore the
Successor Agency) under the S.A. Venture Agreement to pay certain transportation impact fees
("Fees") in the event Santa Ana Venture (the third party oblige under the S.A. Venture
Agreement referred to in this letter as the "Developer") constructs additional retail and/or office
Emphasis added.
Page 4 of 9
3-22
improvements pursuant to the agreement. Specifically, in the event the Successor Agency's
obligation to pay the Fees is triggered, the Successor Agency will be required to pay one percent
(1 %) of the estimated cost of construction of the development for which the Fees are charged
directly to the City and the Developer will make a loan to the Successor Agency equal to the
remaining amount of the Fees ("Fee Loan"). The Fee Loan is required to be paid from and is
secured by a pledge of former tax increment accruing from the Site (defined in the S.A. Venture
Agreement).
Although the specific development to which the Fees and the Fee Loan relate has not yet
commenced, the Successor Agency's obligation to pay the Fees and to borrow and repay the Fee
Loan constitute one component of a broader, multifaceted contractual arrangement between the
Former Agency (now the Successor Agency) and the Developer. The Developer has expended
significant moneys and taken substantial actions in reliance on the Former Agency's/Successor
Agency's obligation to perform its obligations under the S.A. Venture Agreement, including
payment of the Fees and repayment of the Fee Loan.
The DOF has taken the position that "Section 34163 (b) prohibits a redevelopment
agency from incurring any obligations or making commitments after June 27, 2011." The DOF
further states, in the May 24 Letter, that the DOF believes "that commitments have not been
made for the $1.6 million [Fees/Fee Loan] and that this is an estimated amount for possible
future projects."
As an initial matter, Section 34163 is not applicable to the Successor Agency.
Section 34163, cited by the DOF, does not mention successor agencies at all; instead, this section
lists actions that former redevelopment a encies were prohibited from taking during the period
between the passage of ABIx 26 and February 1, 2012, the date all redevelopment agencies were
dissolved.b More fundamentally, the S.A. Venture Agreement and the Former Agency's
obligation to pay the Fees in connection with specified future development pursuant to that
agreement do not constitute new obligations or commitments of the Former Agency or the
Successor Agency. This obligation was set forth in the original Participation Agreement,
executed in 1984, and was amended in the Third Amendment to the Participation Agreement,
executed in 1992-Long before the passage of the Dissolution Act and AB 1484.
Even if Part 1.8 governed the obligations and authority of successor agencies,
Section 34167, subdivisions (d)(5) and (f) clarify the California legislature's intent that
obligations such as the S.A. Venture Agreement were intended to be honored in the dissolution
process. Section 34167(d)(5) defines "enforceable obligation" to include `[a]ny legally binding
and enforceable agreement or contract that is not otherwise void as violating the debt limit or
public policy." Section 34167(f) provides that "[n]othing in this part shall be construed to
interfere with a redevelopment agency's authority, pursuant to enforceable obligations as defined
in this chapter, to (1) make payments due, (2) enforce existing covenants and obligations, or
6 Specifically, Section 34163 states "Notwithstanding Part 1 (commencing with Section 33000), Part 1.5
(commencing with Section 34000), Part 1.6 (commencing with Section 34050), and Part 1.7 (commencing with
Section 34100), or any other law, commencing on the effective date of [Part 1.8], an agency shall not have the
authority to, and shall not, do any of the following: ... (b) Enter into contracts with, incur obligations, or make
commitments to, any entity ... for any purpose...." Emphasis added.
Page 5 of 9
3-23
(3) perform its obligations."7 DOF is reading Section 34163 out of context and is therefore
mistaken in its conclusion that the S.A. Venture Agreement is not an ongoing enforceable
obligation. The obligation to pay the Fees was a legally binding and enforceable agreement of
the Former Agency and is now a legally binding and enforceable agreement, and therefore an
enforceable obligation, of the Successor Agency.
As discussed above, if the DOF rejected the S.A. Venture Agreement due to the potential
need to enter into future implementing agreements, AB 1484 (specifically Section 34177.3(a))
clarifies that Successor Agencies may enter into new obligations to the extent required by
enforceable obligations. We dispute DOF's characterization of the S.A. Venture Agreements as
requiring the Successor Agency to enter into new obligations; however, even if this was the case,
AB 1484 clarifies that this is permitted when required by an enforceable obligation.
The S.A. Venture Agreement is a legally binding agreement, enforceable in accordance
with its terms. The fact that the Developer must perform future obligations to trigger the
Successor Agency's obligation to pay the Fees or that future additional agreements may be
required to implement the S.A. Venture Agreement does not render the agreement
unenforceable. Contracts with executory provisions are nonetheless binding and enforceable
under California law, as explained in more detail below.
California Law Upholds Enforceability of Executory Contracts. On December 22, 2008,
in a landmark decision emphasizing California's public policy favoring liberal enforcement of
contracts, in Patel v. Liebermensch, (2008) 45 Cal.4th 344, the California Supreme Court held
that an enforceable contract to sell real estate arises whenever the contract identifies the parties,
the price, and a reasonably certain description of the property. If the parties do not agree on
other so-called "non-essential" terms that might typically be included in a real estate transaction
- such as closing date, title insurance, financing terms, due diligence periods and the like -
California courts will supply such terms as are reasonable. Patel is thus sometimes known as the
"Essential 3-P's" decision. In thus clarifying the law relative to the enforcement of real estate
contracts, our Supreme Court emphasized the parties' intent controls.
Under California law, where terms are sufficiently definite for a court to ascertain the
parties' obligations and to determine whether those obligations have been performed or
breached, a contract will be enforced! An obligation is enforceable where its provisions are
sufficiently certain to make ascertainable the precise act that is to be done.9 A binding contract is
created wherever its essential terms are clearly enough stated to allow the parties to understand
what each is required to do, the contract is supported by consideration, 10 and the parties agreed to
Emphasis added.
8 Weddington Prods., Inc. v. Flick (1998) 60 Cal.AppAth 793, 811; Boyd v. Bevilacgua (1966) 247 Cal,App.2d 272,
287; Hennefer v. Butcher (1986) 182 Cal.App.3d 492, 500-501; Robinson & Wilson, Inc. v. Stone (1973) 35
Cal.App.3d 396, 407.
9 Cal. Civ. Code, § 3390, subd. (5) (requiring that specific performance is only available where the agreement has
terms sufficiently certain to make the precise act to be done clearly ascertainable).
10 Cal. Civ. Code § 1614 provides that "[a] written instrument is presumptive evidence of consideration." The S.A.
Venture Agreement is, naturally, a written instrument, and provides presumptive evidence of consideration.
Moreover, "[c]onsideration may be an act, forbearance, change in legal relations, or a promise." 1 Witkin, Summary
of California Law (10th ed. 2005) CONTRACTS, § 202.
Page 6 of 9
3-24
the terms of the contract." Accordingly, California law is generally predisposed to uphold
contracts as enforceable. 12
For instance, in Ersa Grae Corp. v. Fluor Corp., (1991) 1 Cal.App.4th 613, 623, Division
1 of the Second District Court of Appeal (Los Angeles) found the terms of large scale real estate
development contract sufficiently definite to enforce where the contract stated one party, Ersa
Grae, agreed to provide funding within a defined period after the satisfaction of certain
conditions; the other, Fluor, agreed to select and pay for the services of all third-parties needed to
supervise and carry out the necessary construction work; and, upon completion, Fluor agreed to
transfer its interests in the completed project and underlying land lease to a consortium in
exchange for £1 million. 13 In rejecting Fluor's claim that the contract was unenforceable
because it contemplated the parties' negotiation and execution of future agreements necessary to
carry out their intent (e.g., the parties' required negotiation and execution of their contemplated
future agreement to convey the fully developed property subject to a long-term land lease), 14
Ersa Grae explained:
The fact that an agreement contemplates subsequent
documentation does not invalidate the agreement if the parties
have agreed to its existing terms. (See Clark v. Fiedler (1941) 44
Cal.App.2d 838, 847 ["`Any other rule would always permit a
party who has entered a contract like this ... to violate it, whenever
the understanding was that it should be reduced to another written
form, by simply suggesting other and additional terms and
conditions. If this were the rule the contract would never be
completed in cases where, by changes in the market, or other
events occurring subsequent to the written negotiations, it became
the interest of either party to adopt that course in order to escape or
evade obligations incurred in the ordinary course of commercial
business."']. See also, Smissaert v. Chiado (1958) 163 Cal.App.2d
827, 830.1s
The legally enforceable contract in Ersa Grae is very similar to the S.A. Venture
Agreement. Here, the Former Agency agreed to pay certain Fees in connection with certain
types o future development performed by the Developer at the Site.
Ersa Grae is just one of dozens of published cases holding contracts of this type fully
enforceable. See, e.g., Bleeeher v. Conte (1981) 29 Ca1.3d 345, 354-55 [the law does not bar
specific performance of a land sales contract in which a city's future approval of certain
development plans is made a condition precedent to completion of the agreement]; Larwin-
Southern California, Inc. v. JGB Investment Co. (1979) 101 Cal.App.3d 626, 638 [the mere
11 Judicial Council of California Advisory Committee on Civil Jury Instructions 302, Contract Formation - Essential
Factual Elements.
12 See, e.g., Patel v. Liebermensch (2008) 45 Cal.4th 344, 369-70 (quoting and citing Mclllmoil v. Frawley Motor
Co. (1923) 190 Cal. 546).
13 39 (1991) 1 Ca1.App.4th 613, 623.
14 Ersa Grae Corp., 1 Cal.App.4th at 623.
15 Id. at n. 3 (citations in original).
Page 7 of 9
3-25
presence of a satisfaction clause in a contract does not result in that contract's nullity]; Mattei v,
Hopper (1958) 51 Cal.2d 119 [land sale contracts containing satisfaction clauses are generally
enforceable, except where such clauses render a party's obligation to perform illusory]. Here,
DOF does not advance the unsustainable claim that anything in the S.A. Venture Agreement
renders either party's duty to perform illusory.
Black letter law further holds that "[a] contract's material terms (such as subject matter,
price, payment terms, and duration) must be `sufficiently definite' so that each party can be
`reasonably certain' about what it is promising to do or how it is to perform." 16 Here, the subject
matter of the S.A. Venture Agreement is unambiguous and includes a detailed description of the
Former Agency's obligations to the Developer with respect to payment of the Fees and
repayment of the Fee Loan. 17 The dollar amount of the Former Agency's payment obligation is
ascertainable through the formula set forth in Section 6 of Attachment No. 4 of the Participation
Agreement, as amended by the Third Amendment. That same provision sets forth a clear
formula for the principal amount of the Fee Loan, as well as the interest rate, the source of
payments, and a pledge of site specific tax increment securing repayment of the Fee Loan. The
Former Agency's (and now the Successor Agency's) future obligations under the S.A. Venture
Agreement are therefore sufficiently defined in the agreement to enable the parties to perform
their obligations.
Finally, the DOF's May 24 Letter ignores the difference between the parties' execution of
documents needed to carry out pre-existing contractual commitments and the negotiation of
entirely new agreements. An "agreement to agree" - i.e., an agreement to negotiate and sign
future agreements or legal documents required to effectuate the purpose and intent of a pre-
existing contractual obligation - is fully enforceable in California. Copeland v. Baskin Robbins
U.S.A. (2002) 96 Cal.AppAth 1251, 1260 ["[W]hen the parties are under a contractual
compulsion to negotiate ... the covenant of good faith and fair dealing attach[es], as it does in
every contract. In the latter situation the implied covenant of good faith and fair dealing has the
salutary effect of creating a disincentive for acting in bad faith in contract negotiations."] Hence,
DOF's suggestion that there is no enforceable duty to negotiate the terms of legal documents
needed to carry out the parties' otherwise clearly stated deal in good faith is simply contrary to
law.
Even if "detail" terms are omitted, contracts are enforceable under California law.
California courts have specifically enforced agreements that have not expressly contained all of
the terms agreed upon. For instance, in Goodwest Rubber Corp, v. Munoz (1985) 170
Cal.App.3d 919, 921, reversing a judgment denying specific performance when the contract
called for payment at "market value," the court stated:
The modern trend of the law is to favor the enforcement of
contracts, to lean against their unenforceability because of
uncertainty, and to carry out the intentions of the parties if this can
feasibly be done. Neither law nor equity requires that every term
and condition of an agreement be set forth in the contract.
16 Dyer v. Bilaal (D.C. 2009) 983 A.2d 349, 356.
17 See Section 6 of Attachment No. 4 of the Participation Agreement, as amended by the Third Amendment.
Page 8 of 9
3-26
Case law holds that where "detail" or non-essential terms of a
contract are to be agreed in the future, the contract remains
enforceable.18 While certain ministerial arrangements may remain
outstanding, the material terms of the S.A. Venture Agreement are
in place; hence, the S.A. Venture Agreement is enforceable.
Pledges of Tax Increment are Honored by the Dissolution Act. The Successor Agency's
obligation to repay the Fee Loan under the S.A. Venture Agreement is supported by a pledge of
tax revenues from the Site. Section 34175(a) specifically protects pledges of tax revenues made
by the Former Agency, as follows:
It is the intent of this part that pledges of revenues associated with
enforceable obligations of the former redevelopment agencies are
to be honored. It is intended that the cessation of any
redevelopment agency shall not affect either the pledge, the legal
existence of that pledge, or the stream of revenues available to
meet the requirements of the pledge.
Section 34174(a) provides further support for the conclusion that the obligation to pay the
Fees is an enforceable obligation protected by the Dissolution Act:
[N]othing 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.
The legislature was clearly mindful that the Dissolution Act would be unconstitutional if
it impaired existing contractual obligations of the Former Agency. 19
18 City of Los Angeles v. Superior Court (1959) 51 Cal.2d 423, 433.
19 See footnote [5], above.
Page 9 of 9
3-27
MAYOR
Miguel A. Pulido
MAYOR PRO TEM
Claudia C. Alvarez
COUNCILMEMBERS
P. David Benavides
Carlos Bustamante
Michele Martinez
Vincent F. Sarmiento
Sal Tinajero
May 18, 2012
California Department of Finance
Redevelopment_Administrationgdof.ca. gov
SUBJECT: ROPS FOR JANUARY THROUGH JUNE 2012
Dear Sir/Madam:
Note: Attachments referenced in this
letter previously e-mailed to DOF on
5/18/12.
We are responding to the Department of Finance ("DOF") letter dated May 3, 2012 ("DOF Letter")
regarding Santa Ana's Recognized Obligation Payment Schedule for the period of January 1 through June
30, 2012 (BOPS). As background, our ROPS was approved by the Oversight Board on April 10, 2012
and a courtesy copy was e-mailed to DOF, the State Controller's Office and the County Auditor-
Controller on April 16, 2012. We offer the following responses on the DOF Letter, and will be following
up with a telephone call in an effort to hopefully resolve any outstanding issues. We believe that the
information we are providing should assist DOF in confirming these items as enforceable obligations.
Please note that our Oversight Board agreed to certain modifications to the ROPS, but for others we are
providing additional details and clarification for your consideration. The Oversight Board tools action on
this item at its May 15, 2012 meeting, and approved an Amended ROPS (Attachment 1).
• Page 2, item 23, Santa Ana Venture contract totaling $1.6 million. The DOF Letter states that
it is your understanding that commitments have not been made and this item is an estimated
amount for possible future projects, and cites Health and Safety Code (HSC) Section 34163(b) as
prohibiting redevelopment agencies from incurring any obligations or making commitments after
June 27, 2011.
Response: To the contrary, this commitment was made over 20 years ago. In this regard, the
Santa Ana Venture Participation Agreement was entered into in April 1984, and the amendment
pertaining to the subject obligation was entered into in March 1992. Therefore, this agreement
does fall well within the time limits specified by ABX1 26.
Furthermore, Section 1, page 3 of the agreement as amended in 1992 (see excerpt, Attachment 2)
obligates the Agency to pay for a certain portion of the transportation fees based on expansion per
CITY MANAGER
David N. Ream
CITY ATTORNEY
Joseph W. Fletcher
CLERK OF THE COUNCIL
Maria D. Huizar
CITY OF SANTA ANA
20 CIVIC CENTER PLAZA • P.O. BOX 1988
SANTA ANA, CALIFORNIA 92702
3-28
Response to DOF May 3, 2012 Letter
May 18, 2012
Page 2
the contract as it occurs, creating an enforceable obligation (`BO") of the Agency. Please note
that we previously provided DOF with a copy of said agreement and amendment. As a general
principal, DOF's own guidance (set forth in "Exhibit 3" on the DOF webpage devoted to ABX1
26 issues) states that "ABX1 26 specifically states that revenue pledges are to be honored," and
reiterates HSC Section 34175(a) which states "It is the intent of this part that pledges of revenues
associated with enforceable obligations of the former redevelopment agencies are to be honored. It
is intended that the cessation of any redevelopment agency shall not affect either the pledge, the
legal existence of that pledge, or the stream of revenues available to meet the requirements of the
pledge." Pursuant to HSC Section 34167(d)(5), this agreement as amended is an enforceable
obligation of the Agency; and pursuant to HSC Section 34167(f), nothing in ABXl 26 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. Furthermore,
DOF's own guidance 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."
The challenged Santa Ana Venture contract is an enforceable third party agreement entered into
long before the effective date of ABX1 26, and is therefore an EO pursuant to HSC Section
34171(d)(1)(E) with which the Agency is required to comply pursuant to HSC Section 34177,
subdivisions (a) and (c). The Successor Agency is therefore obligated to not only pay the permit
fees, but to ensure compliance with performance obligations, which will require project costs for
project management, etc. as intended by ABX1 26 [as set forth in HSC Section 34174(a)] and
permitted according to the DOF directive (set forth in "Exhibit 4" on the DOF webpage devoted to
ABX1 26 issues) which treats such costs as "specific project implementation activities such as
construction inspection, project management or actual construction [which] would not be viewed
by Finance as `administrative."' Pursuant to HSC Section 34172(c), the Redevelopment
Property Tax Trust Fund (RPTTF) is a "special fund of the dissolved redevelopment agency to pay
the principal of and interest on loans, moneys advanced to, or indebtedness, whether funded,
refunded, assumed, or otherwise incurred by the redevelopment agency to finance or refinance, in
whole or in part, the redevelopment projects of each redevelopment agency dissolved pursuant to
this part." The subject obligation is an enforceable obligation and indebtedness of the Agency;
therefore, the RPTTF is required to fund this obligation.
Page 3, items 24, 27 and 28; Page 4, items 29-32 (notes payable for various housing projects,
including all associated project management and enforcement costs totaling $21.5 million). The
DOF Letter states that these items are previously funded by the Agency and do not represent
continuing obligations; therefore they are not considered EOs.
Response: DOF is correct that the promissory notes for these enforceable obligations were
funded; accordingly, the note amounts have been removed from the ROPS. However, as
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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
Response to DOF May 3, 2012 Letter
May 18, 2012
Page 4
unless the purposes can no longer be achieved, in which case, the proceeds may be used to defease
the bonds.
The use of the bond proceeds in question is governed by an enforceable obligation and the bond
proceeds can be used for the purposes for which the bonds were sold as evidenced by the Official
Statement, Certificate of Use of Proceeds, and other documentation (excerpts of documents
attached as Attachment 3) and other documents presented to the City Council and Agency Board
at the time the bonds were issued. Specifically, bond proceeds described in item 486 on the ROPS
are being used to finance improvements (repairs and security) to the public parking structures in
the city's Downtown area as specified in the bond documents. Additionally, bond proceeds
described in items #98 & 99 on the ROPS were and will continue to be used for improvements to
the Santa Ana Auto Mall, other public improvements and infrastructure, and other redevelopment
purposes as specified in the bond documents. The Successor Agency has a continuing obligation
to ensure compliance with the bond documents and their intended purpose, which will also require
project costs for project management, etc. as intended by ABXI 26 and permitted by the DOF
directive (set forth in "Exhibit 4" on the DOF webpage devoted to ABX1 26 issues) which treats
such costs as "specific project implementation activities such as construction inspection, project
management or actual construction [which] would not be viewed by Finance as `administrative.'
Additionally, there are other third party contractual obligations utilizing bond proceeds that
constitute enforceable obligations in their own right. These EOs include items, such as: item #10
(Erickson Lease Agreement - Honda) and item #21 (Penske DDA), for which project costs are an
eligible use of the South Main bond proceeds and are required for project management, and legal,
design review, and/or financial services to ensure compliance with the financial and performance
obligations of the agreements; as well as project costs (design, project management, etc.)
associated with development of improvements to the Downtown parking structures (item #86)
which are an eligible use of the Downtown bond proceeds, and were contracted for and underway
prior to the June 28, 2011 date (See AECOM contract, Attachment 4).
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 acknowledges and reiterates HSC
Section 34174(a) (set forth in "Exhibit 3" on the DOF webpage devoted to ABX1 26 issues)
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." Additionally, DOF's guidance cites HSC Section 34177 (set forth in "Exhibit 3" on
the DOF webpage devoted to ABX1 26 issues) stating successor agencies are required to
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Response to DOF May 3, 2012 Letter
May 18, 2012
Page 5
"Maintain reserves in the amount required by indentures, trust indentures, or similar documents
governing the issuance of outstanding redevelopment agency bonds" [HSC Section 34177(b)]; and
"to perform obligations required pursuant to any enforceable obligation" [HSC Section 34177(c)].
• Page 1, item 9; page 7, item 85, legal settlements totaling $500 million requiring Low/Mod
set-aside from tax increment within the project areas. The DOF Letter states that settlements
awarding a percentage of tax increment are not considered EOs, and pursuant to ABX1 26 tax
increment is no longer payable to the redevelopment agencies and therefore there is not an
obligation.
Response: We believe the DOF is confusing these Settlement Agreements with the more typical
settlement agreements with taxing entities which are, in essence, contractual pass through
agreements, and therefore not considered EOs under ABX1 26. The Settlement Agreements at
issue here were entered into with third parties, not other taxing agencies, and are, therefore, no
different than a contract with a developer pledging tax increment over time; thus, the Settlement
Agreements are EOs pursuant to ABX1 26, specifically HSC Sections 34171(d)(1)(D) and
34171(d)(1)(E). HSC Section 34171(d)(1)(D) provides that "Judgments or settlements entered by
a competent court of law or binding arbitration decisions against the former redevelopment
agency" constitute enforceable obligations. HSC Section 34171(d)(1)(E) can also be construed to
mean that the Settlement Agreements are enforceable obligations, as these agreements constitute
"legally binding and enforceable agreement[s] or contract[s] that [are] not otherwise void as
violating the debt limit or public policy."
The Successor Agency is required to comply with the enforceable obligation to set-aside/utilize
former tax increment as dictated by the Settlement Agreements. Specifically, item #9 South Main
Corridor Settlement Agreement requires a portion of the tax increment (20%) to be utilized for
public improvements, including parking and financial incentives in a particular section of the
project area. Additionally, this settlement agreement, along with settlement agreements for four of
the other project areas (item #85), require specific percentages of tax increment be set aside
exclusively for low and moderate income housing and related activities.
With respect to item # 9, the Judgment on Stipulation for Entry of Judgment and Resolution No.
84-2 (collectively "Settlement") adopted by the Redevelopment Agency ("RDA") was entered into
by the RDA in response to and in order to settle a lawsuit, Gerald Peebler, et. al. vs. City of Santa
Ana, filed in 1982. It is important to note that the Legal Clinic of the University of California,
Irvine School of Law ("UCI"), recently filed a lawsuit against the City of Santa Ana, on behalf of
the beneficiaries of this Settlement (including Gerald Peebler) to enforce the terms of the
Settlement as an enforceable obligation. The filing was rejected by the court due to procedural
issues. In ongoing discussions between the City and UCI, UCI has stated that they plan to re-file
the lawsuit upon any adverse response by the State Department of Finance or City in failing to
treat the terms of the Settlement as an enforceable obligation.
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Response to DOF May 3, 2012 Letter
May 18, 2012
Page 6
The Successor Agency is required to perform the obligations of the former agency pursuant to the
Settlement and Settlement Agreements, as described above, pursuant to HSC Section 34177(c)
and the DOF's own guidance documents. Thus, contracts/services necessary to implement these
enforceable obligations are allowable project cost expenditures, as intended by ABX1 26 and are
recognized and permitted per DOF directive (set forth in "Exhibit 4" on the DOF webpage
devoted to ABX1 26 issues) which treats such costs as "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 34172(c), the
Redevelopment Property Tax Trust Fund (RPTTF) is a "special fund of the dissolved
redevelopment agency to pay the principal of and interest on loans, moneys advanced to, or
indebtedness, whether funded, refunded, assumed, or otherwise incurred by the redevelopment
agency to finance or refinance, in whole or in part, the redevelopment projects of each
redevelopment agency dissolved pursuant to this part." The RPTTF is therefore required to fund
this obligation.
• Page 7, items 88 & 89, cash balances from settlement agreements totaling $26.8 million. The
DOF Letter states that ABXI 26 does not allow successor agencies to enter into new contracts,
and any unencumbered balances should be remitted to the County Auditor Controller.
Response: Please refer to our comments noted for items 49 and #85 above regarding these
Settlement Agreements constituting enforceable obligations. Additionally, the existing cash
balances are not based on "tax increment no longer payable," as DOF states for items #9 & 85, but
instead are based on the enforceable obligation found in the third party settlement agreements.
• Administrative costs claimed exceed allowance by $2,422,796. The DOF Letter cites HSC
Section 34171(b) as limiting administrative costs for fiscal year 2011-12 to five percent of
property tax allocated to the successor agency or $250,000, whichever is greater, and states the
Agency's allocation is $846,644. DOF attached a schedule showing its calculation of
administrative costs.
Response: We find the allocation to be incorrectly calculated for several reasons. It is not based
on the total of all obligations for the time period. Additionally, project costs were incorrectly
moved into "administrative costs". By DOF's own directive (set forth in "Exhibit 4" on the DOF
webpage devoted to ABX1 26 issues), "specific project implementation activities such as
construction inspection, project management or actual construction would not be viewed by
Finance as 'administrative."' Additionally, many items listed on the schedule attached to the DOF
Letter are enforceable obligations in their own right, not "administrative costs." We, therefore,
request a re-calculation of Administrative Costs based on the following; and are attaching a
schedule (Attachment 5) which we believe demonstrates is the corrected calculation of the
administrative costs that the City of Santa Ana, acting as the Successor Agency, is eligible for.
3-33
Response to DOF May 3, 2012 Letter
May 18, 2012
Page 7
o Line items 1, 2, 3 & 91 - These amounts are all EOs related to the two outstanding bonds. The
bond indentures require reasonable compensation to be made to the trustees for services
rendered, and the Continuing Disclosure Certificates require annual audited financial
statements as part of the annual reports for compliance. As these expenses are contractually
stipulated as part of the overall bond covenants, funds are necessary to fulfill the obligations
and should not be considered administrative costs. Please also see response above for Line
items 86, 98, and 99.
o Line items 4, 5, 6, 9, 10, 11, 16, 18, 19, 83, 87, & 90 - These amounts for project costs such as
management, consultants, legal, financial, appraisal, fees, etc. are not administrative costs. For
each enforceable obligation, there are contractual obligations that the former redevelopment
agency was required to manage, monitor, and enforce. For instance, item #87 is the EO for the
required Agency Property Maintenance & Disposition pursuant to HSC Section 34181, which
necessitates it be "done expeditiously and in a manner aimed at maximizing value." To
accomplish this, the properties need to be properly maintained, and project costs need to be
provided for staffing/services to aptly evaluate and market the sites. Another example is Line
item 10 (Erickson Lease Agreement - Honda) that requires projects costs for project
management, and legal and financial services to ensure compliance with the financial and
performance obligations of the agreement.
As stated previously, pursuant to HSC Section 34167(f), nothing in ABX1 26 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.
Furthermore, DOF's own guidance 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." Thus,
contracts/services necessary to implement and comply with these enforceable obligations are
allowable project cost expenditures, as intended by ABX1 26.
o Line items 12, 13, 94, 95 & 96 - These items, as listed for the subject ROPS, can remain under
"administrative costs."
o Line items 24, 25, 26, 27, 28, 29, 30, 31, 32, 33 & 36 - These amounts for project
management, legal, title, escrow, construction monitoring, loan management, etc. costs are not
administrative costs and should not be factored into the calculation of the 5% administrative
cost allowance. Many of the promissory notes for these housing projects were encumbered in
the Low and Moderate Income Housing Fund (LMIHF). However, the amounts contractually
obligated in the third-party agreements do not include funding to pay for project management,
monitoring, and enforcement of the contracts by the former redevelopment agency nor the
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Response to DOF May 3, 2012 Letter
May 18, 2012
Page 8
Successor Agency. Therefore, these expenditures are EOs which require funding from the
RPTTF.
o Line items 49 through 79 - These pass-through payments totaling $5,330,156.61 were made
by the Successor Agency as required for tax increment received by the former redevelopment
agency through January 31, 2012. The former redevelopment agency had numerous
contractual agreements with taxing entities for pass-throughs in five of the component project
areas. These agreements are enforceable obligations as defined in ABXI 26 and as such, the
Successor Agency is eligible for 5% of the total obligation during this ROPS period for the
administrative cost allowance.
o Line items 9 & 85 - As required by the settlement agreements for five of the component
project areas, $415,852.45 was set aside and deposited into the LMIHF in January 2012
exclusively for low and moderate income housing and related activities. This amount is the
total of the specified percentages of the tax increment received by the former redevelopment
agency in January 2012. Twenty percent of the tax increment (net) received from the South
Main project area in the amount of $1,482,119 is also an EO as required by the settlement
agreement. Based on the fact that these settlement agreements are enforceable obligations, 5%
of the obligations during this ROPS period should be allocated for administrative costs. See
our response to this item on pages 5-6 for additional information.
o Line items 92, 93 & 97 - These public employee benefit liability amounts are liabilities that
transferred to the Successor Agency and constitute enforceable obligations and not
"administrative costs", as recognized by DOF (set forth in "Exhibit 5" on the DOF webpage
devoted to ABXI 26 issues), as well as pursuant to HSC Section 34171 (d)(1)(C), Section
34167(d) (3) and Section 34167(6)(g). The medical retiree subsidy for the FY 2011-2012 was
paid in January 2012, as agreed upon by the City and the three employee unions and
associations representing the City employees assigned to the former redevelopment agency.
The accrued leave balances amount represents the estimated value of the leave benefits that
will be paid out to the City employees assigned to the former redevelopment agency upon
separation from employment, some of which has already occurred. In addition, one particular
Memorandum of Understanding (MOU) between the City and SEIU Local 721 prohibited the
layoff of any employees in the union prior to March 31, 2012. Therefore, City employees that
were assigned to the former redevelopment agency could not be laid off for two months after
the dissolution of the Agency, thus the estimated cost of the salaries and benefits for those
employees is an EO.
We would appreciate the opportunity to further discuss the outstanding items with DOF. As
specified in the DOF Letter, my staff will be following up with a telephone call to Supervisor
Evelyn Suess or Lead Analyst Doug Evans to schedule a time. Thank you for your time and
consideration. We look forward to working with you to resolve these outstanding issues.
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Response to DOF May 3, 2012 Letter
May 18, 2012
Page 9
Please note since our ROPS was submitted to DOF on April 16, 2012, but we did not receive a
request for review until April 23, 2012 at 5:22 p.m. via e-mail, and did not receive a letter from
DOF until May 3, 2012 at 7:33 p.m. ("DOF Letter"), we are hereby submitting this response
without waiving our right to assert that the ROPS was approved by operation of law pursuant to
Health and Safety Code (HSC) Section 34169(1) or any other law.
Sincerely,
Paul Walters
Interim City Manager
City of Santa Ana, acting as Successor Agency
c: Oversight Board of the Successor Agency to the former Community Redevelopment
Agency of the City of Santa Ana
Nancy Edwards, Interim Executive Director, Community Development Agency
Francisco Gutierrez, Executive Director, Finance and Management Services Agency
Sandi Gottlieb, Program Manager, Community Development Agency
Susan Gorospe, Senior Management Analyst, Community Development Agency
Doug Evans, Lead Analyst, State Department of Finance
Paula Greene, Analyst, State Department of Finance
Frank Davies, Administrative Manager, County of Orange
John Chiang, State Controller
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