HomeMy WebLinkAbout02 SECOND AMENDED ROPSAgenda Item
AGENDA REPORT
Oversight Board of the Successor Agency to the
Tustin Community Redevelopment Agency
MEETING DATE: MAY 29, 2012
SUBJECT/ACTION: SECOND AMENDED INITIAL RECOGNIZED OBLIGATION
PAYMENT SCHEDULE ("ROPS") FOR THE PERIOD OF JANUARY
THROUGH JUNE 2012 AND AMENDED ADMINISTRATIVE BUDGET
FOR THE SAME PERIOD
RECOMMENDATION / PROPOSED ACTION
1. Reaffirm modifications to the Initial ROPS (period of January -June 2012) made by
the Successor Agency and transmitted to the Department of Finance ("DoF") on May
10, 2012 as authorized previously by the Oversight Board, certified by the Oversight
Board Chair and as requested by DoF, subject to the following:
A. All modifications to the Initial ROPS (labeled "Second Amended Initial ROPS")
requested by DoF were made under protest with the Oversight Board and
Successor Agency reserving all rights to seek payment for any obligations
removed from the ROPS under protest.
B. Review and certification by the County Auditor -Controller selected independent
auditor.
C. Should any subsequent modifications be required to the Second Amended
ROPS by the Successor Agency, independent auditor or DoF, the City Manager
and/or Finance Director, or their authorized designee, shall be authorized to
make any augmentation, modification, additions or revisions as may be
necessary subject to certification by the Oversight Board Chair.
2. Approve the proposed Successor Agency action to amend its Administrative Budget
for the period of January - June 2012, adjusted to reflect the Second Amended
ROPS for the same period, pending Successor Agency approval.
3. Approve any subsequent Successor Agency action, if necessary, to enter into a
Second Amended Agreement for reimbursement of costs incurred by the City to
support Successor Agency operations and obligations for the period of January
through June 2012, to reflect the modifications to the Administrative Cost Allowance
and Administrative Budget for this period requested by DoF as noted in
recommendation #2 above.
(Note: the above action by the Oversight Board does not become effective for 3
business days, pending any request for review by the DoF. If DoF requests review of
these Board actions, it shall have 10 days from the date of its request to approve the
Second Amended Initial ROPS
May 29, 2012
Page 2
Oversight Board actions or return it to the Oversight Board for reconsideration and the
action, if subject to review by the DoF, shall not be effective until approved by the DoF.)
BACKGROUND
In a DoF letter dated April 26, 2012, a copy of which is attached, the DoF identified line
items on the First Amended ROPS submitted on April 11, 2012 for the period of January
- June 2012 that, in "their opinion", did not qualify as enforceable obligations. Their
determination impacts tax increment and bond funding for Tustin Ranch Road Phase 1
and Phase 2 Construction and project -specific legal services. The DoF identified the
following items as not qualifying as enforceable obligations:
Tax Increment Funded
• Auditing Services (Project Support) for $4,070
• Legal Services (Project Support) for $550,000
• City Treasurer (Project Support) for $16,302
• Bank Analysis Fees (Project Support) for $24,000
• Tustin Ranch Road Phase 1 Construction for $1,107,000
• Developer Selection Process for $18,000
C•• •-•
• Tustin Ranch Road Phase 1 Construction for $5,975,676
• Capital Projects — Tustin Ranch Road Phase 2 for $30,000,000
• Archeological and Paleontological Services for $13,130
With the Oversight Board's April 10th approval of the First Amended ROPS for the
period of January through June 2012, the Oversight Board also delegated authority to
the City Manager and/or Director of Finance to make any augmentations, modifications,
additions, or revisions as may be necessary to the ROPS based on review by the DoF.
Under such authority, the Successor Agency made the revisions and the City Manager
submitted the Second Amended ROPS to the State on May 10, 2012 under protest and
with a reservation of rights. The Successor Agency, the City of Tustin (the "City"), and
the Oversight Board reserved all of their rights to seek a writ, declaratory relief, and to
receive monies from the Trust Fund to pay each obligation removed from the BOPS.
Each item removed is considered and deemed "subject to dispute". To the extent the
Successor Agency or the City incurs damages, actual and/or consequential, or there are
other financial or legal impacts to the City or a third party as a result of removal of these
protested ROPS items, or their removal affects the ability of the Successor Agency later
to receive adequate monies from the Trust Fund to meet legal obligations and to pay
debt service, the Successor Agency and Oversight Board have reserved the right to
seek redress in the courts and avail themselves of any and all remedies at law and
equity against the State.
Second Amended Initial ROPS
May 29, 2012
Page 3
In addition to amending the ROPS, DoF's comments of April 26th also resulted in the
need for the Successor Agency to amend the Administrative Budget to reflect DoF's
revised calculation of projected tax increment for Fiscal Year 2011-12. Pursuant to
Health and Safety Code Section 34171, the Administrative Cost Allowance and
Administrative Budget are for administrative costs of the Successor Agency which are
permitted in amount for the period of January through June 2012 of up to five percent
(5%) of property tax allocated to the Redevelopment Obligation Retirement Fund. The
removal of certain enforceable obligations from the Second Amended ROPS (January -
June 2012), caused the Administrative Cost Allowance and Administrative Budget to be
reduced. The original Administrative Budget approved by the Oversight Board on
March 13, 2012 and subsequently by the Successor Agency on March 20th, projected
$882,746 for the period of February through June 30 2012. The changes to the Second
Initial ROPS reduced this amount to $813,359, a $69,387 reduction to the original
Administrative Budget.
In the event it is necessary to amend the Agreement between the City and Successor
Agency for reimbursement of costs (original agreement approved on March 20, 2012
and First Amendment on April 17, 2012) to reflect the revised Administrative Budget for
February through June, 2012, the Successor Agency also requests approval from the
Oversight Board to enter into the required amended agreement.
Staff is available to answer any questions
Christine Shingleton ,.-
Assistant Executive,rector
Successor Agency for the Tustin
Community Redevelopment Agency
t
t
Pamela Arends-King
Finance Director
Successor Agency for the Tustin
Community Redevelopment Agency
Attachments: 1. April 26, 2012 California Department of Finance letter
2. May 10, 2012 Response to DoF and Second Amended ROPS (January —
June 2012)
3. Amended Administrative Budget (February 1, 2012 — June 30, 2012)
Attachment 1
d ^ Z
W III p
s DEPARTMENT OF
F I N A N C E
April 26, 2012
Jeffery C. Parker, City Manager
City of Tustin
300 Centennial Way
Tustin, CA 92780
Dear Mr. Parker:
EDMUND G. BROWN JR. - GOVERNOR
91 5 L STREET ■ SACRAMENTO CA 8 95014-3706 ■ WWW.00r.CZ-S0Y
APR 26 2012
RECEIVED
Pursuant to Health and Safety Code (HSC) section 34177 (1) (2) (C), the City of Tustin
Successor Agency submitted a Recognized Obligation Payment Schedule (ROPS) to the
California Department of Finance (Finance) on April 11, 2012 submitted for the period January
through June 2012. Finance staff contacted you for clarification of items listed in the ROPS.
HSC section 34171 (d) lists enforceable obligation (EO) characteristics. Based on a sample of
line items reviewed and application of the law, the following do not qualify as EOs:
Various contracts totaling $7.1 million. HSC section 34163 (b) prohibits the Agency from
entering into a contract with any entity after June 27, 2011. The contracts for the
following line items were awarded after June 27, 2011:
D Line item 59, page 5, Tustin Ranch Road Construction Phase 1 for $1,107,000
o Line item 68, page 5, Developer Selection Process for $18,000
o Line item 4, page 6, Tustin Ranch Road Construction Phase 1 for $5,975,676
o Line item 7, page 6, Archeological and Paleontological Services for $13,130
Page 6, item 5 - Capital Projects — TA Bond 2010 — Tustin Ranch Road Phase 2 for $30
million. No contracts have been executed for the anticipated project. HSC section
34163 (b) prohibits a redevelopment agency from entering into a contract with any entity
after June 27, 2011. Additionally, HSC section 34177 (1) states that bonds shall be used
for the purpose for which the bonds were sold unless the purposes can no longer be
achieved, in which case, the proceeds may be used to defease the bonds.
• Administrative cost claimed exceeds allowance by $663,759 (see Attachment A). HSC
section 34171 (b) limits the fiscal year 2011-12 administrative cost allowance to five
percent of the property tax allocated to the successor agency or $250,000, whichever is
greater.
As authorized by HSC section 34179 (h), Finance is returning your ROPS for your
reconsideration. This action will cause the specific ROPS items noted above to'beineffective
until Finance approval. Furthermore, items listed on future ROPS will be subject to review and
may be denied as EOs.
If you believe we have reached this conclusion in error, please provide further evidence that the
items questioned above meet the definition of an EO.
Attachment A
Administrative Cost Calculation
For the period January - June 2012
Total RPTTF Claimed (Excludes Pass-Throughs) $17,968,558
(Less Disallowed Item 59, page 5) $1,107,000.00 ✓
(Less Admin Items 5, 9, 10, 13) 594.372.00 ✓
Subtotal $1,701,372.00
Total funded from RPTTF: 16,267,186
5% Property Tax Allocation: 813,359
Allowable Administrative Costs (Greater of 5% or
Line Items Considered Administrative Costs
Pae
Line item
Description
Amount
2
5
Auditing Services
$4,070
2
9
Legal Services
550,000
2
10
City Treasurer
16,302
2
13
Bank Analysis Fes
24,000
7
1
Administrative Budget
882,746.00
Total Claimed
1,477,118
Less Administrative Cost Ca
813,359
Total Disallowed Administrative Cost
$663,759
Mr. Parker
April 26, 2012
Page 2
Please direct inquiries to Evelyn Suess, Supervisor or Doug Evans, Lead Analyst at
(916) 322-2985.
Sincerely,
MARK HILL
Program Budget Manager
cc: Ms. Christine Shingleton, Assistant City Manager, City of Tustin
Ms. Pamela Arends-King, Finance Director, City of Tustin
Mr. John Buchanan, Program Manager, City of Tustin
Mr. Frank Davies, Administrative Manager, Orange County
Attachment 2
Office of the City Manager
May 10, 2012
Mark Hill, Program Budget Manager
California Department of Finance
915 L Street
Sacramento, CA 95814
Re: Second Amended ROPS Submittal
In response to April 26, 2012 DoF Letter
Dear Mr. Hill:
Pursuant to Health and Safety Code (H&S) Section 34179 (h), the City of Tustin Acting as the
Successor Agency to the Tustin Community Redevelopment Agency ("Successor Agency") has
made the changes requested by the State Department of Finance ("DoF") to the First
Amended Recognized Obligation Payment Schedule ("First Amended ROPS") and is
resubmitting the modified action ("Second Amended ROPS") for DoF approval. On April 10,
2012, the Oversight Board of the Successor Agency approved the First Amended BOPS and
authorized the City Manager and/or Finance Director to make revisions subject to
certification by the Oversight Board Chair. The City Manager has made revisions as
requested by DoF and the Oversight Board Chair has certified the revisions as reflected on
the Second Amended ROPS. The Successor Agency has removed the following items from the
ROPS submittal:
• Line Item 5, page 2, Auditing Services for $4,070
• Line Item 9, page 2, Legal Services for $550,000
• Line Item 10, page 2, City Treasurer for $16,302
• Line Item 13, page 2, Bank Analysis Fees for $24,000
• Line Item 59, page 5, Tustin Ranch Road Construction Phase 1 for $1,107,000
• Line Item 68, page 5, Developer Selection Process for $18,000
• Line Item 4, page 6, Tustin Ranch Road Construction Phase 1 for $5,975,676
• Line Item 5, page 6, Capital Projects - TA Bond 2010 - Tustin Ranch Road Phase 2 for
$30 million
• Line Item 7, page 6, Archeological and Paleontological Services for $13,130
300 Centennial Way, Tustin, CA 92780 0 P: (714) 573-3010 • F: (714) 838-1602 0 www.tustinca.org
Mark Hill, Program Budget Manager
May 10, 2012
Page 2
• In addition, the Administrative Cost allowance, as calculated by DoF, has been
reduced to $813,359.
Based on DoF's objections and directive in its April 26, 2012 letter and discussion between
Tustin and DoF representatives, the Successor Agency removed the above -referenced items
from the First Amended ROPS; however, Tustin notifies the DoF that the Second Amended
ROPS is submitted under protest and with a full r servat;Qn of right, The Successor Agency,
the City, and the Oversight Board hereby reserve all of their rights to seek a writ, declaratory
relief, and to seek all other legal or equitable remedies to receive monies from the Trust Fund
to pay each obligation removed from the ROPS. Each item should be considered and deemed
"subject to dispute". Tustin believes DoF's removal of the items is in error. Attachment 1 to
this letter outlines the reasons as to why each item should be considered an enforceable
obligation and why DoF's disallowance of these items is "subject to dispute'. Tustin
requests that DOF reconsider such items and confirm that they are valid Enforceable
Obligations under the Dissolution Act, either payable from the Trust Fund or the MCAS
Tustin Tax Allocation Bonds, Series 2010. To the extent the Successor Agency or the City
incurs damages, actual and/or consequential, or there are other financial or legal impacts to
Tustin or a third party as a result of removal of these protested ROPS items, or their removal
affects the ability of the Successor Agency later to receive adequate monies from the Trust
Fund to meet legal obligations and to pay debt service, Tustin will seek redress in the courts
and avail itself of any and all remedies at law and equity.
As requested in our April 10, 2012 letter, should any issues remain of concern to DoF, we
would request that DoF at least approve the Second Amended BOPS, with certain items
subject to dispute so there are no delays in allocation of monies to the Successor Agency by
the County from the Trust Fund. The DoF is notified that if there are delays in payment, the
Successor Agency may not have adequate available funds to meet outstanding bonds. Late
payment and/or non-payment by Tustin will be as a result of and be proximately caused by
the DoF's actions and determinations regarding the BOPS.
The Successor Agency in the first tax increment distribution in December was not allocated
adequate monies to fully fund bond reserves and make debt service payments, which will
necessitate that the next payments be made out of reserves. This is not an intended
consequence of the Dissolution Act and is an alleged violation thereof.
Tustin has taken every reasonable step to explain certain unique facts applicable to Tustin
and to discuss the issues in dispute, all toward a mutual resolution; but to date Tustin and
DoF have been unable to reach consensus on the BOPS. Tustin is ready to continue to meet
and confer with the DoF and/or the County Auditor -Controller or State Controller's Office
Mark Hill, Program Budget Manager
May 10, 2012
Page 3
about the disputed items in the ROPS, but this letter confirms the Second Amended ROPS was
revised and is submitted to the DoF "under protest". In this regard, Tustin and its Successor
Agency reserve all rights to pursue any remedies it has at law or equity.
Sincerely,
Jere . Parker
City Manager
Executive Director, Successor Agency to
Tustin Community Redevelopment Agency
I certify that the amendments made under protest to the Second Amended ROPS as attached
were required by the Department of Finance, and approve the Second Amended ROPS,
subject to the protest and reservation of rights as amended.
14
Board Chair
Attachment: Second Amended ROPS
Attachment 1
cc: Christine Shingleton
Pamela Arends-King
Sean Tran
John Buchanan
Jerry Craig
David Kendig, Woodruff, Spradlin & Smart
Oversight Committee
ATTACHMENT 1
Line Item 5. page 2. Auditing Services for $4.070
As stated in Tustin's April 19, 2011 letter, the estimates provided for audit services are
necessary for specific project support in the First Amended ROPS. The Audit Contract,
executed June 1, 2011, was for a total amount of $146,505 with 25% being the Tustin
Community Redevelopment Agency's ("Agency" and now "Successor Agency')
responsibility for a total encumbrance of $36,626 for the Agency over a three year period.
The contract did not define the maximum amount of dollars to be expended or applied to
audit services for the Agency by fiscal year, but only over the entire three year contract
period. Line Item #51 under Form A estimates that $4,070 will be necessary to support
auditing of specific project activity over the period covered by the First Amended ROPS.
Projected expenditures are estimates provided by the Successor Agency's finance
operation and actual charging of expenses will be based on the items specifically being
reviewed by the auditors at that time of review.
Line Item 9. page 2. Legal cervices for $550.000
Legal services have been separated into those for specific project related costs and those
for administrative support costs. The #9 Line item in Form A is not a repeat of dollars for
Legal Services under Item #1, Form C, which includes an Administrative Expense
Reimbursement Agreement and approved Administrative Budget for the period of
February through June 30, 2012. There is no duplication in either line item in the First
Amended BOPS. Line Item #9, Form A, identifies an estimate of $550,000 for project
related legal services for a number of law firms based on current contracts and billing
rates. This #9 Line Item specifically states that it supports specific "project activities" and
it includes an allocation of costs to Woodruff, Spradlin and Smart, Armbruster, Goldsmith &
Delvac, Cappello and Noel LLP and Kutak Rock. It is specifically stated under the
description that while Woodruff, Spradlin & Smart provides legal services under the
Administrative Budget, that those costs identified are specifically administrative budget
related and are not double counted with those identified under this line item for project
related expenses.
The following table more clearly defines the project -specific legal services associated with
the existing enforceable obligations. The Line Items coincide with the ROPS referenced in
the April 261h letter.
Projected expenditures under each line item are estimates provided by the Successor
Agency based on current billable rates of each firm under current contracts which do not
include a "not to exceed amount" and are on an as needed basis. These estimates are based
on recent history and reduced responsibilities as Enforceable Obligations and project
obligations are reduced over time.
Payments Month
Line
Project Name/Debt Ian Feb March April May June
Total
Item #
Obligation
1
Housing Tax Allocation Bonds,
10,000
10,000
10,000
20,000
15,000
65,000
Series 2010
14
Payment In Lieu of Taxes
11000
11500
2,500
A reement- Flanders Pointe
15
Payment in Lieu of Taxes
1,000
11500
2,500
a re ment- Orange Gardens
16
Olson DDA Arbor Walk
10,000
5,000
2,500
21500
1 5,000
25,000
17
Arbor Walk Promissory Notes
2,500
2,500
2,500
2,500
10,000
18
Heritage Place DDA
4,000
4,000
4,000
4,000
4,000
20,000
19
Heritage Place Loan Agreement
5,000
5,000
51000
15,000
20
Single and Multi -Family
2,500
2,500
2,500
2,500
10,000
Rehabilitation Loans
21
Town Center Housing Deficit
2,500
2,500
5,000
Reduction Plan
22
Tax Allocation Refunding Bonds
15,000
25,000
25,000
65,000
1998 (Town Center)
26
Stevens Square Parking Garage
5,000
5,000
51000
10,000
25,000
Declaration of Covenants,
Conditions, Restrictions and
Reservations
27
Ambrose Lane/ First Time
5,000
5,000
5,000
15,000
Homebuyer
28
First Time Homebuyer
5,000
5,000
10,000
Promissory Note
51
Tustin Grove Promissory Notes
51000
5,000
10,000
and Affordable Housing
Covenants
52
Tustin Grove Affordable
21500
2,500
2,500
2,500
10,000
Housin DDA
53
Tax Allocation Bonds - MCAS
-
10,000
20,000
20,000
15,000
65,000
Tustin, Series 2010
56
Lease in Furtherance of
10,000
15,000
10,000
10,000
15,000
60,000
Conveyance(LIFOC) executed
May 13,2002
57
Lease in Furtherance of
10,000
10,000
15,000
15,000
10,000
60,000
Conveyance(LIFOC) executed
June 16, 2004
58
Economic Development
5,000
15,000
15,000
5,000
10,000
50,000
Conveyance Application for
Marine Corps Air Station
MCAS Tustinas Amended
70
Coventry Court Regulatory
5,000
5,000
5,000
5,000
5,000
25,000
Agreement & Declaration of
Restrictive Covenants and
Supplemental Regulatory
Agreement
TOTAL I
550,000
Projected expenditures under each line item are estimates provided by the Successor
Agency based on current billable rates of each firm under current contracts which do not
include a "not to exceed amount" and are on an as needed basis. These estimates are based
on recent history and reduced responsibilities as Enforceable Obligations and project
obligations are reduced over time.
Line Item #1, Form C, includes an amount of $300,000 for the services for administrative
support from the City Attorney's Office (Woodruff, Spradlin and Smart). The Administrative
Budget specifically states under Object Code 6017 that this amount in the Administrative
Budget does not include the legal services of this firm and certain other firms associated
with direct project costs, including those firms identified in the previous paragraph.
Line Item 10. page 2. City Treasurer for $16,302
The estimates provided for City Treasurer are necessary for specific project support in the
First Amended ROPS. Line Item #10, under Form A estimates that $16,302 will be
necessary to support City Treasurer services of specific project activity over the period
covered by the First Amended ROPS. Projected expenditures are estimates provided by
the Successor Agency's finance operation and actual charging of expenses will be based on
the items specifically being reviewed by the auditors at that time of review.
Line Item 13 page 2 Bank Analysis Fees for $24,000
The estimates provided for bank service charges related to specific project support vs.
administrative support are not a duplication in either Line Item #13 on Form A or on Line
Item #1 on Form C in the First Amended ROPS. What are included in Line Item #13 is an
estimate of $24,000 for project related bank charges and the approved Administrative
Budget expenses which are included in Line Item #1, on Form C, estimates an amount of
$3,000 related to administrative expenses.
Projected expenditures under each line item are estimates provided by the Successor
Agency's finance operation and actual charges imposed by banks in which Successor
Agency financial resources are booked. Analysis fees are projected based on actual bank
fees and the actual cash balances in specific administrative and/or specific project accounts
at any point in time. The reason for instance that the expenditure estimates are larger
under Line Item #13, on Form A, is because a specific project is the MCAS Tustin Tax
Allocation Bond Proceeds which has a current cash balance as of today's date of
$34,341,158.57 versus much smaller cash balances in other operating accounts (including
housing project revenue accounts).
Line item 59 nage B Tustin Ranch Road Construction Phase 1 for $1,107,000
The contract awarded with Sandoval Pipeline Engineering for Tustin Ranch Road - Phase I
is an implementation action under the encumbered MCAS Tustin 2010 bond proceeds. The
contract is allocated to several separate funding sources under the action taken by the
Agency and City on July 19, 2011, and subsequent contract executed on August 2, 2011,
based on the previously approved Agency/City Capital Improvement Budget. The City and
Agency Fiscal Year 2010-11 Budget made a financial encumbrance of this project, including
reserving and appropriating initial capital improvement funds necessary for the project on
June 15, 2011 (as was amended with the 2011-12 Budget appropriations on July 19, 2012).
As shown on the BOPS, $1,107,000 has been allocated to the RPTTF fund and $5,975,676
was allocated to Bond Proceeds (the MCAS Tustin 2010 Tax Allocation Bonds). In addition,
it is the City's position that the Sandoval contract is also an Enforceable Obligation that was
entered into during the period of time between the initial passage of AB1X 26 and AB1X 27
on June 29, 2011 and the point in time when the State Supreme Court stayed the provisions
of AB1X 26 and AB 1X 27 later in August of 2011. During this time, Redevelopment
Agencies were allowed to "opt -in" and the City of Tustin chose to do so with the passage of
Urgency Ordinance #1404 on July 19, 2011. As such, the Tustin Community
Redevelopment Agency entered into a valid contract at the time in good faith and would
not have proceeded if we thought it was not within the intent of the bonds or the statutes
governing the use of such bonds. Any effort by DoF to disallow this contract after the fact
as an eligible Enforceable Obligation will be considered a contract impairment matter.
Documents which were previously provided to DoF for the Sandoval Tustin Ranch Road -
Phase 1 contract have been on the EOPS and ROPS list since their initial adoptions and
previously provided notice to DoF of all Oversight Board actions.
Recognizing the previous discussion the City had with DoF earlier in March on this matter,
the Successor Agency asked the Oversight Board to review the Sandoval contract (which
both the City and Agency were a party to) and provide authorization and reaffirmation as
to the contract being an Enforceable Obligation and the use of bond funds as originally
intended under the bond measure. Upon creation of the Oversight Board for the Successor
Agency to the Tustin Community Redevelopment Agency, as required by AB 1X 26, the
Successor Agency made its case to the Oversight Board that the expenditure of bond
proceeds on deposit in the bond fund was needed for the intended purposes of the bonds,
including completion of the Tustin Ranch Road Project - Phase 1, and completion of other
projects intended to be financed. The Oversight Board at its regular meeting on March 13,
2012 reaffirmed with Agenda Item #6 the Agency's previous July 19, 2011 award of the
construction contract for Tustin Ranch Road Grading and Storm Drain Project (CIP No.
7011 and 7026) pursuant to the adopted EOPS and draft Recognized ROPS as an Oversight
Board approved contract with the City and Agency as parties. This is consistent with the
statutory provisions of AB 1X 26, specifically the following: Health and Safety ("H&S")
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". In addition, H&S Section 34180 (h) permits
the Oversight Board to review a request by the Successor Agency to enter into an
agreement with the city, county, and county that formed the redevelopment agency that it
is succeeding. In the case of the Sandoval contract, both the City and Agency are parties to
the agreement.
On July 19, 2011, the City Council approved the Developer Selection Process and the
funding for this process. It is the City s position that this is an Enforceable Obligation that
was entered into during the period of time between the initial passage of AB1X 26 and
AB1X 27 on June 29, 2011 and the point in time when the State Supreme Court stayed the
provisions of AB1X 26 and AB 1X 27 on August 11, 2011. Before the stay, Redevelopment
Agencies were allowed to "opt -in" and the City of Tustin chose to do so with the passage of
Urgency Ordinance #1404 on July 19, 2011. As such, the Tustin Community
Redevelopment Agency entered into an obligation at that time in good faith. While DoF
continues to assert the position that all agreements after June 29, 2011 are invalid,
obligations entered into between June 29th and August 17th as allowed under the law at that
time should be considered enforceable. The December 2011 State Supreme Court ruling on
the unconstitutionality of AB1X 27 does not invalidate obligations entered into by the City
while AB1X 27 was in effect and DoF's attempts to invalidate contracts during this period
violates contract law.
BOND -FUNDED PROJECTS - FORM B
RT71 -INk7rTMIZF Moil, Moo
MRFT41ir4oiNU)FlT.T-T-T-IF.r&qoT;n1 F.Mrol' . No i 57�M.
INTENT
The MCAS Tax Allocation Bonds 2010 were sold prior to calendar year 2011 with the clear
intent of the bonds to fund infrastructure at an abandoned military base plagued with
numerous environmental issues and lacking infrastructure. On September 7, 2010, the
Redevelopment Agency Board adopted Resolution RDA No. 10-08 in connection with the
proposed issuance of tax allocation bonds relating to the Agency's MCAS -Tustin
Redevelopment Project Area. In the report to the Agency, it clearly states the bonds would
finance various Tustin Legacy Backbone Infrastructure Program Improvements with the
initial priority project being the extension of Tustin Ranch Road. The bond proceeds, as
delineated in the Official Statement, on page 6, last paragraph under "Financing Plan" states
as follows:
"The initial priority project will be the extension of Tustin Ranch Road from Warner
Avenue on the south to Walnut Avenue on the north, including the Tustin Ranch
Road bridge and interchange at Edinger Avenue along with the integrated
improvements associated with the roadway improvement including necessary and
integrated utility backbone systems."
This bond is intended to fund includes all phases of Tustin Ranch Road. The improvements
under which the bond proceeds are to be expended include staff overseeing the project(s)
associated with bond implementation. The trust indentures and similar regulatory
documents which governed the issuance of the MCAS Tustin 2010 Bonds require the bond
proceeds to be used for their intended purposes and no other purposes. Further, Federal
tax law covenants and governs the use of tax-exempt bonds and the issuer of the Bonds
(Agency) is covenanted to comply with such rules. In our view and view of our legal
counsel, the bonds issued in November of 2010 and the trust indentures and similar
regulatory documents are all Enforceable Obligations, and all of the corresponding
documents for implementation of the bond measure are Enforceable Obligations. More
specifically, the bond proceeds deposited in the bond proceeds fund and held by the
Successor Agency are required by the Bond Indentures to be used to finance
redevelopment activities (the "2010 Project") of benefit to the WAS Tustin Redevelopment
Project Area and no other purpose. It is only upon completion of the 2010 Project that any
remaining amounts in the bond proceeds fund shall be applied to credit against the debt
service requirements of the Bonds. The Official Statement for the bonds provided
specificity with regards to the intended use of the bond proceeds.
Each and every project that is identified in Form B, is an implementation measure under
the original bond measure which bond measure itself is an Enforceable Obligation placed
on the Agency in November 2010, and as such, any bond proceeds are "encumbered" under
the bond measure for their intended purposes (a pre -June 28, 2011 contractual obligation
in any event). All WAS Tustin 2010 bond documents have been forwarded to DOF
previously.
IMPACT
In DoF's denial of these bond -funded projects, the April 26, 2012 letter mentions the
proceeds may be used to defease the bonds. It appears DoF believes that by simply denying
the use of bond proceeds, the bonds can be defeased. In accordance with the issuance of
the MCAS -Tustin Tax Allocation Bonds, the earliest call date to defease the bonds without
penalty is September 1, 2020 (page 8 of the Official Statement). The Bonds could be
defeased as early as September 1, 2018, but there is a redemption price expressed as a
percentage of the principal amount of Bonds called for redemption. As demonstrated in the
table below and in order to defease the Bonds at the earliest date (September 1, 2018),
$58,315,351 will have been spent with no infrastructure to account for the expenditure:
Date
--(Principal
Paid to Date
& Interest
Principal
Total
Se t. 1, 2018
$19,228,951
$39,086,400
$58,315,351
Sept. 1, 2019
$22,052,276
$37,723,500
$59,775,776
Sept 1, 2020
$24,876,801
$36,340,000
$61,216,801
In addition, there will be the loss of property taxes and high -paying jobs that would have
resulted from the development associated with the Tustin Ranch Road and ancillary
infrastructure improvements.
IMPLEMENTATION
The contract awarded with Sandoval Pipeline Engineering for Tustin Ranch Road - Phase I
is an implementation action under the encumbered MCAS Tustin 2010 bond proceeds. The
contract is allocated to several separate funding sources under the action taken by the
Agency and City on July 19, 2011, and subsequent contract executed on August 2, 2011,
based on the previously approved Agency/City Capital Improvement Budget. The City and
Agency Fiscal Year 2010-11 Budget made a financial encumbrance of this project, including
reserving and appropriating initial capital improvement funds necessary for the project on
June 15, 2011 (as was amended with the 2011-12 Budget appropriations on July 19, 2012).
As shown on the BOPS, $5,975,676 has been allocated to Bond Proceeds (the MCAS Tustin
2010 Tax Allocation Bonds). In addition, it is the City's position that the Sandoval contract
is also an Enforceable Obligation that was entered into during the period of time between
the initial passage of AB1X 26 and AB1X 27 on June 29, 2011 and the point in time when
the State Supreme Court stayed the provisions of AB1X 26 and AB 1X 27 later in August of
2011. During this time, Redevelopment Agencies were allowed to "opt -in" and the City of
Tustin chose to do so with the passage of Urgency Ordinance #1404 on July 19, 2011. As
such, the Tustin Community Redevelopment Agency entered into a valid contract at the
time in good faith and would not have proceeded if we thought it was not within the intent
of the bonds or the statutes governing the use of such bonds. Any effort by DoF to disallow
this contract after the fact as an eligible Enforceable Obligation will be considered a
contract impairment matter.
Recognizing the previous discussion the City had with DoF earlier in March on this matter,
the Successor Agency asked the Oversight Board to review the Sandoval contract (which
both the City and Agency were a party to) and provide authorization and reaffirmation as
to the contract being an Enforceable Obligation and the use of bond funds as originally
intended under the bond measure. Upon creation of the Oversight Board for the Successor
Agency to the Tustin Community Redevelopment Agency, as required by AB 1X 26, the
Successor Agency made its case to the Oversight Board that the expenditure of bond
proceeds on deposit in the bond fund was needed for the intended purposes of the bonds,
including completion of the Tustin Ranch Road Project - Phase 1, and completion of other
projects intended to be financed. The Oversight Board at its regular meeting on March 13,
2012 reaffirmed with Agenda Item #6 the Agency's previous July 19, 2011 award of the
construction contract for Tustin Ranch Road Grading and Storm Drain Project (CIP No.
7011 and 7026) pursuant to the adopted EOPS and draft Recognized ROPS as an Oversight
Board approved contract with the City and Agency as parties. This is consistent with the
statutory provisions of AB 1X 26, specifically the following: Health and Safety ("H&S")
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". In addition, H&S Section 34180 (h) permits
the Oversight Board to review a request by the Successor Agency to enter into an
agreement with the city, county, and county that formed the redevelopment agency that it
is succeeding. In the case of the Sandoval contract, both the City and Agency are parties to
the agreement.
As stated above, it is Tustin's position Auditing Services, Legal Services, City Treasurer, and
Bank Analysis Fees are project -specific enforceable obligations and, as such, should not be
factored in DoF's Administrative Cost Calculation on Attachment A. In reconsidering and
recognizing these as enforceable obligations along with Line Item 59, DoF should restore
Tustin's Administrative Allowance to the amount submitted in the First Amended ROPS,
$882,746.
13
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Attachment3
BUDGET FOR ADMINISTRATIVE EXPENSES (FEBRUARY THIRD JUNE 2012) -AMENDED
AGENCY TO THE TUSTIN COMMUNITY •'
SUM BITTAL PER DoF LETTER (APRIL 26,2012)
.SUCCESSOR
ESTIMATED REVENUES
32,859
Object Position
Code
Percent to Total FY - Admin February thru Luna
Admin Costs 2011 5
1 Estimated Property Tax allocated to Successor Agency for FY
201112
$ 20,413,629
2 LESS Estimated Pass-Throughs
2,445,071
LESS DoF Disallowed Items: 5, 9 3013&59 -1st Amend ROPS
1,701,372
3 Estimated Property Tax allocated toSuccessor Agency Less Pass-
Throu hs
16,267,186
4 Administrative Cost Allowance for FY 11/12 5 months
5% 913,359 913,359
157,027
25%
ESTIMATED EXPENSES
16355
EMPLOYEE DETAILS
Object
1 5000
2 5000
3 5000
4 5000
5 5000
6 5000
7 5000
Fiscal Year - Total Wages, Percent to TotaIFY-Admin Februarythrulune
Eenelits and Warkars Admin Costs 201215 Momhsl
Assistant Executive Director
109,529
30% S
32,859
27 383
Finance Director
232,809
11%
25,609
11640
program Mana er41
160840
25%
40,210
16755
Program Manager 82
157,027
25%
39,257
16355
Pro'ect Manager
123,7780%
5,200
1,890
4 6415
Management Analyst
86,609
0%
1,600
SIG
Administrative Secretary
73,522
100%
73522
30635
Sub -Total Wages, Benefits and WC: $ 944,114 $ 211,457 $ 102,768
OTHER ADMINISTRATIVE DIRECT COSTS
Object
Code
Item
Total During Fiscal Year
2011112
Percent to
Admin
Total FY - Admin
Costs
February I June
2012 5 M
1 6147
Bank Service Charges
100%
7,600
3,000
2 6355
Telephone
-.aaD
100%
4,800
2,035
3 6400
Office Supplies
200
100%
5,200
1,890
4 6415
Mail and Postage Service
'..600
100%
1,600
SIG
5 6420
Printing
-x.000
100%
9,000
1,300
6 6710
Meetings (staff)
5,400
100%
5,400
1,040
7 6715
Training Expense
3,400
100%
3,400
800
8 6730
Membership/Subscriptions
11,500
100%
11,500
9,990
9 6840
Vehicle Mileage
200
100%
200
100
10 6845
Vehicle Lease Equipment
6,800
100%
6,800
0
11 6848
IT Support Services
36,500
100%
36,500
25,208
Sub -Total Admin Cost Allowances: $
92,000
$ 92,000
$ 35,873
CITY ADMINISTRATIVE SUPPORT COSTS BASED ON COST ALLOCATION (ATTACHED)
Object
Code
Item
Total During Flsol Year
2011/12
Total FY - Admin
Costs
February thm June
2012 IS Months),
1
City Administrative Support Costs
based on Cost Allocation
829,483
100%
829,483
$ 345,618
CITY ATTORNEY (contract services)
Object
Code
Description of Services
Total During Fiscal Year
2011/12
PerceMto
Admin
Tota1FY-Admin
Costs
Februarythru June
2012 (5 Months)
6017
City Attorney's OfOce- Woodruff, $
Spradlln&Smart(Including; Stradling
Yocca Carlson & Rauth; Remy, Thomas,
Moose & Manley, Waters & Company,
Jeanette Justus) and the following
Special Counsel firms: 1) Armbruster
Goldsmith & Delvac LIP; 2)Cappello
and Noel LLP, and 3) Kutak Rock.
960,000
75% S 720.000
5 300,000
Sub -Total City Attorney: $
960,000
$ 720,000
$ 300,000
SPECIFIC SERVICES (3rd Revised EOPS and Draft BOPS)
Object
Code
Description
Total During Fiscal Year
2011/12
Percent to
Admin
Total FY -Admin
Costs
February thru lune
2012 (5 Months)
1 6315
Lease of Office Space
49,497
100%
$ 49,497
19,IDO
2 6014
Auditing Services
10,000
100%
$ 10,000
10,000
Sub -Total Specific Services: $
59,497
$ $9,497
$ 29,100
TOTAL ADMINISTRATIVE SERVICE COSTS
Percent to
Admin
TotaiFY-Adminj
Costs
Februarythru June
20121S Months)
TOTAL ADMINISTRATIVE SERVICE COSTS
$ 1,512,437
5 813,359
BUDGET - REVENUES SURPLUS)/EXPENSES DEFIC
$
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