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OB - Item 3B - Housing Due Diligence ReviewROSEMEAD SUCCESSOR AGENCY STAFF REPORT TO: THE HONORABLE CHAIR AND BOARD MEMBERS FROM: MATTHEW HAWKESWORTH, ASSISTANT CITY MANAGER DATE: SEPTEMBER 10, 2012 SUBJECT: HOUSING DUE DILIGENCE REVIEW SUMMARY Under AB1484, the Successor Agency is required to complete a due diligence review of the former low- moderate housing fund. The legislation requires that the review be completed by October 1, 2012 and transmitted to the Department of Finance (DOF) and various other agencies no later than October 15, 2012. Unfortunately, the guidelines for the review were not made available until August 27, 2012 which allowed for slightly more than one month to review a proposal from a certified public accountant, approve the contract by both the Oversight Board and the County, conduct the due diligence review, receive and review the report, hold a public hearing and transmit the final report to the DOF. Unfortunately, providing one month to complete all of these tasks is not realistic; however, the Successor Agency staff and the recommended accounting firm are committed towards working to meet the deadlines. Realizing that the deadline imposed by AB1484 may not be attainable, Rosemead along with many other successor agencies have requested an extension by the DOF. The DOF has informed Rosemead that under AB1484, they do not have the authority to modify the due date of the report; however, they have also pointed out that there is no penalty for not filing the report by the deadline. The DOF response stated, "We just ask that you try your best to submit it as close to the deadline as possible." A copy of the email requesting a change in the date along with the response from the DOF has been attached for reference. As previously mentioned to the Board, in order to expedite the review staff had recommended to continue using the same firm that the County had hired to conduct the due diligence review of the former redevelopment agency. The firm of Vavrinek, Trine, Day & Co., LLP does not have a previous relationship with the City and was included on a list of acceptable firms provided by the County. The firm is currently working on a proposal, but it was not available at the time the agenda was prepared. The proposal will be forwarded to the Board as soon as it is available. Staff Recommendation: That the Oversight Board authorize Successor Agency staff to enter into an agreement with Vavrinek, Trine, Day & Co., LLP to perform the Low and Moderate Income Housing Fund due diligence review. ITEM NO. Rosemead Successor Agency Oversight Board September 10, 2012 Page 2 of 3 BACKGROUND Per Health and Safety Code Section 34179.5 each Successor Agency is required to employ a licensed accountant, approved by the county auditor - controller and with experience and expertise in local government accounting, to conduct a due diligence review to determine the unobligated balances available for transfer to taxing entities. As an alternative, an audit provided by the county auditor - controller that provides the information required by this section may be used to comply with this section with the concurrence of the oversight board. Due Diligence reviews of the Low and Moderate Income Housing Fund must be submitted to the Oversight Board, the county auditor - controller, the State Controller's Office and the Department of Finance by October 1, 2012. All of the parties involved will be working to finalize the review by the October 1s deadline. After October 1st and prior to October 15 the Oversight Board will be required to hold two public meetings. The first meeting will be held in order to receive public comment as required by Health and Safety Code Section 34179.6 and the second meeting will be held in order to approve the due diligence review. The Health and Safety Code requires that these two meetings be held at least five business days apart and with the 72 -hour noticing requirement of the Ralph M. Brown Act, this allows the Board very little room to work with. If the report is ready on October 1s the public comment session could not be held until October 4th without calling a special'meeting to avoid the 72 -hour noticing requirement. Then the 5 business day requirement between meetings would push the second meeting date back to October 15 With this schedule the Successor Agency staff could transmit the approved report immediately following the approval on the 15 and meet the requirements. In the event that a quorum cannot be established for this meeting schedule or the due diligence review has not been finalized by October 1s subsequent meetings will need to be scheduled as soon as feasibly possible. Department of Finance reviews of the determinations provided by the Oversight Boards will be completed no later than November 9, 2012. Any decision to overturn determinations made by the Oversight Board to authorize a Successor Agency to retain assets or funds will be conveyed to the Oversight Board and Successor Agency via a letter. Successor Agencies have five days from receipt of the decisions to request "meet and confer" if necessary. PUBLIC NOTICE PROCESS This item has been noticed through the regular agenda notification process in accordance with the Brown Act. Rosemead Successor Agency Oversight Board September 10, 2012 Page 3 of 3 Prepared by: Ma&ewE. aw esworth Assistant City Manager Attachments: A — Email Correspondence with the DOF B — Due Diligence Review Guidelines Attachment A Matt Hawkesworth From: Redevelopment Administration < RedevelopmentAdministration @dof.ca.gov> Sent: Tuesday, September 04, 2012 10:23 AM To: Matt Hawkesworth Subject: RE: Due Diligence Review Procedures We do recognize the very difficult timeframe for completing the Due Diligence Reviews. Unfortunately, there is nothing we can do to change the due date, as that is set in statute. However, we do note that there are no penalties associated with submitting the review past the deadline in statute. We just ask that you try your best to submit it as close to the deadline as possible. Department of Finance Redevelopment Agency Administration From: Matt Hawkesworth [ mailto: mhawkesworth@cityofrosemead.org] Sent: Monday, August 27, 2012 2:27 PM To: Redevelopment Administration Subject: RE: Due Diligence Review Procedures In light of the fact that CPA firms still must prepare a proposal, the Oversight Board must approve a contract, the audit /review must take place and then a public hearing and review must be finalized by the Oversight Board all in less than 1 month, has there been any consideration or discussion regarding an extension of the October 1st deadline? I do not believe that completing all of the above tasks in one month's time is realistic or feasible. Respectfully, Matt Hawkesworth Matthew E. Hawkesworth Assistant City Manager /Finance Director City of Rosemead 8838 E. Valley Blvd. Rosemead, CA 91770 Phone (626) 569 -2107 Fax(626)307 -9218 www.cityofrosemead.org ,� Please consider the environment before printing this e-mail. From: Redevelopment Administration [ mailto: RedevelopmentAdministration @dof.ca.gov Sent: Monday, August 27, 2012 12:37 PM To: eileen.dalton@acgov.ory dootter @cLalameda.ca.us cadams @albanyca.org wcosin @CityofBerkeley.info dauker @ci.emeryville.ca.us hcommons @fremont.gov kelly.morariu @hayward- ca.gov etoeterson @ci.livermore.ca.us terrence.grindall @newark.org SSchlenk@oaklandnet.com jkay @sanleandro.org MarkE (&ci.union - city.ca.us jhenness @ci.chico.ca.us khelvey@gridley.ca.us salsimj @cityoforoville.org gwill @townofparadise.com dme rchant @ci.antioch.ca.us kbreen@brentwoodca.gov moelletier @ci.clayton.ca.us johnm @ci.concord.ca.us Mau reen.Toms @dcd.cccountv.us ehudson @danville.ca.cl ; Ltrevino @ci.el- cerrito.ca.us NMastay @ci.hercules.ca.us Attachment B V.8 -27 -12 List of Procedures for Due Diligence Review General information regarding these procedures: 1. The procedures associated with Sections 34179.5(c)(1) through 34179.5(c)(3) and Sections 34179.5(c)(5) through 34179.5(c)(6) are to be applied separately to (a) the Low and Moderate Income Housing Fund of the Successor Agency and to (b) all other funds of the Successor Agency combined (excluding the Low and Moderate Income Housing Fund). 2. The due date for the report associated with the Low and Moderate Income Housing Fund is October 1, 2012. 3. The due date for the report associated with all other funds of the Successor Agency combined (excluding the Low and Moderate Income Housing Fund) is December 15, 2012. 4. Because the procedures required by Section 34179.5(c)(4) pertain to the Successor Agency as a whole, these procedures should be addressed in the report that is due on December 15. 2012. Fiscal year references below refer to fiscal years ending on June 30. This language should be modified for those agencies that have a different fiscal year -end. For purposes of the procedures below and the related exhibits, the amount of the assets presented should be based upon generally accepted accounting principles (GAAP), unless otherwise noted. To the extent the procedures listed below are duplicative to the agreed upon procedures that were performed pursuant to HSC 34182 (a)(1), it is acceptable to obtain and use information from the HSC 34182 (a)(1) procedures for purposes of this due diligence review without having to re- perform the procedures. When this is done, the due diligence report should refer to the report that was issued for the agreed upon procedures performed under HSC 34182 (#]). Certain assets may qualify as a deduction under more than one category of deduction. In such cases, care should be taken to ensure that such assets have been included as a deduction in the summary schedule only once. Citation: 34179.5(c)(1) The dollar value of'assets transferred from the,former redevelopment agency to the successor agency on or about February 1, 2012. Suggested Procedure(s): Obtain from the Successor Agency a listing of all assets that were transferred from the former redevelopment agency to the Successor Agency on February 1, 2012. Agree the amounts on this listing to account balances established in the accounting records of the Successor Agency. Identify in the Agreed -Upon Procedures (AUP) report the amount of the assets transferred to the Successor Agency as of that date. V.8 -27 -12 Citation: 34179.5(c)(2) The dollar value of assets and cash and cash equivalents transferred after ,January 1, 2011, through June 30, 2012, by the redevelopment agency or the successor agency to the city, county, or city and county that formed the redevelopment agency and the purpose of each transfer. The review shall provide documentation of' any enforceable obligation that required the transfer. Suggested Procedure(s): 2. If the State Controller's Office has completed its review of transfers required under both Sections 34167.5 and 34178.8 and issued its report regarding such review, attach a copy of that report as an exhibit to the AUP report. If this has not yet occurred, perform the following procedures: A. Obtain a listing prepared by the Successor Agency of transfers (excluding payments for goods and services) from the former redevelopment agency to the city, county, or city and county that formed the redevelopment agency for the period from January 1, 2011 through January 31, 2012. For each transfer, the Successor Agency should describe the purpose of the transfer and describe in what sense the transfer was required by one of the Agency's enforceable obligations or other legal requirements. Provide this listing as an attachment to the AUP report. B. Obtain a listing prepared by the Successor Agency of transfers (excluding payments for goods and -services) from the Successor Agency to the city, county, or city and county that formed the redevelopment agency for the period from February 1, 2012 through June 30, 2012. For each transfer, the Successor Agency should describe the purpose of the transfer and describe in what sense the transfer was required by one of the Agency's enforceable obligations or other legal requirements. Provide this listing as an attachment to the AUP report. C. For each transfer, obtain the legal document that formed the basis for the enforceable obligation that required any transfer. Note in the AUP report the absence of any such legal document or the absence of language in the document that required the transfer. Citation: 34179.5(c)(3) The dollar value of any cash or cash equivalents transferred after January 1, 2011, through June 30, 2012, by the redevelopment agency or the successor agency to anv other public agency or private party and the purpose of each transfer. The reviei-r shall provide documentation of any enforceable obligation that required the transfer. Suggested Procedure(s): 3. If the State Controller's Office has completed its review of transfers required under both Sections 34167.5 and 34178.8 and issued its report regarding such review, attach a copy of that report as an exhibit to the AUP report. If this has not yet occurred, perform the following procedures: 2 V.8 -27 -12 A. Obtain a listing prepared by the Successor Agency of transfers (excluding payments for goods and services) [from the former redevelopment agency to any other public agency or to private parties for the period from January 1, 2011 through January 31, 2012. For each transfer, the Successor Agency should describe the purpose of the transfer and describe in what sense the transfer was required by one of the Agency's enforceable obligations or other legal requirements. Provide this listing as an attachment to the AUP report. B. Obtain a listing prepared by the Successor Agency of transfers (excluding payments for goods and services) [from the Successor Agency to any other public agency or private parties for the period from February 1, 2012 through June 30, 2012. For each transfer, the Successor Agency should describe the purpose of the transfer and describe in what sense the transfer was required by one of the Agency's enforceable obligations or other legal requirements. Provide this listing as an attachment to the AUP report. C. For each transfer, obtain the legal document that formed the basis for the enforceable obligation that required any transfer. Note in the AUP report the absence of any such legal document or the absence of language in the document that required the transfer. Citation: 341?9.5(c)(4) The review shall provide expenditure and revenue accounting information and identify transfers and funding sources for the 2010 -11 and 2011 -12 fiscal years that reconciles balances, assets, and liabilities of the successor agency on Jame 30, 2012 to those reported to the Controller for the 2009 -10 fiscal year. Suggested Procedure(s): 4. Perform the following procedures: A. Obtain from the Successor Agency a summary of the financial transactions of the Redevelopment Agency and the Successor Agency in the format set forth in the attached schedule for the fiscal periods indicated in the schedule. For purposes of this summary, the financial transactions should be presented using the modified accrual basis of accounting. End of year balances for capital assets (in total) and long -term liabilities (in total) should be presented at the bottom of this summary schedule for information purposes. B. Ascertain that for each period presented, the total of revenues, expenditures, and transfers accounts fully for the changes in equity from the previous fiscal period. C. Compare amounts in the schedule relevant to the fiscal year ended June 30, 2010 to the state controller's report filed for the Redevelopment Agency for that period. D. Compare amounts in the schedule for the other fiscal periods presented to account balances in the accounting records or other supporting schedules. Describe in the report the type of support provided for each fiscal period. 3 V.8 -27 -12 Citation: 34179.5(c)(5) A separate accounting for the balance for the Low and Moderate Income Housing Fund, for all other funds and accounts combined shall be made as (A) A statement of the total value of each fund as of June 30, 2012. Suggested Procedure(s): 5. Obtain from the Successor Agency a listing of all assets of the Low and Moderate Income Housing Fund as of June 30, 2012 for the report that is due October 1, 2012 and a listing of all assets of all other funds of the Successor Agency as of June 30, 2012 (excluding the previously reported assets of the Low and Moderate Income Housing Fund) for the report that is due December 15, 2012. When this procedure is applied to the Low and Moderate Income Housing Fund, the schedule attached as an exhibit will include only those assets of the Low and Moderate Income Housing Fund that were held by the Successor Agency as of June 30, 2012 and will exclude all assets held by the entity that assumed the housing function previously performed by the former redevelopment agency. Agree the assets so listed to recorded balances reflected in the accounting records of the Successor Agency. The listings should be attached as an exhibit to the appropriate AUP report. Citation: 34179.5(c)(5)(B) An itemized statement listing any amounts that are legally restricted as to purpose and cannot be provided to taxing entities. This could include the proceeds of any bonds, grant finals, or funds provided by other governmental entities that place conditions on their use. Suggested Procedure(s): 6. Obtain from the Successor Agency a listing of asset balances held on June 30, 2012 that are restricted for the following purposes: A. Unspent bond proceeds: i. Obtain the Successor Agency's computation of the restricted balances (e.g., total proceeds less eligible project expenditures, amounts set aside for debt service payments, etc.) ii. Trace individual components of this computation to related account balances in the accounting records, or to other supporting documentation (specify in the AUP report a description of such documentation). iii. Obtain from the Successor Agency a copy of the legal document that sets forth the restriction pertaining to these balances. Note in the AUP report the absence of language restricting the use of the balances that were identified by the Successor Agency as restricted. 4 V.8 -27 -12 B. Grant proceeds and program income that are restricted by third parties: i. Obtain the Successor Agency's computation of the restricted balances (e.g., total proceeds less eligible project expenditures). ii. Trace individual components of this computation to related account balances in the accounting records, or to other supporting documentation (specify in the AUP report a description of such documentation). iii. Obtain from the Successor Agency a copy of the grant agreement that sets forth the restriction pertaining to these balances. Note in the AUP report the absence of language restricting the use of the balances that were identified by the Successor Agency as restricted. C. Other assets considered to be legally restricted: i. Obtain the Successor Agency's computation of the restricted balances (e.g., total proceeds less eligible project expenditures). ii. Trace individual components of this computation to related account balances in the accounting records, or to other supporting documentation (specify in the AUP report a description of such documentation). iii. Obtain from the Successor Agency a copy of the legal document that sets forth the restriction pertaining to these balances. Note in the AUP report the absence of language restricting the use of the balances that were identified by Successor the Agency as restricted. D. Attach the above mentioned Successor Agency prepared schedule(s) as an exhibit to the AUP report. For each restriction identified on these schedules, indicate in the report the period of time for which the restrictions are in effect. If the restrictions are in effect until the related assets are expended for their intended purpose, this should be indicated in the report. Citation: 341- 9.5(c)(5)(G) An itemized statement of the values of any assets that are not cash or cash equivalents. This may include physical assets, land, records, and equipment Tor the purpose of this accounting, physical assets nia be valued at purchase cost or at any recently estimated market value. The statement shall list separately housing- related assets. Suggested Procedure(s): 7. Perform the following procedures: A. Obtain from the Successor Agency a listing of assets as of June 30, 2012 that are not liquid or otherwise available for distribution (such as capital assets, land held for resale, long -term receivables, etc.) and ascertain if the values are listed at either purchase cost (based on book value reflected in the accounting records of the Successor Agency) or market value as recently estimated by the Successor Agency. B. If the assets listed at 7(A) are listed at purchase cost, trace the amounts to a previously audited financial statement (or to the accounting records of the Successor Agency) and note any differences. E V.8 -27 -12 C. For any differences noted in 7(B), inspect evidence of disposal of the asset and ascertain that the proceeds were deposited into the Successor Agency trust fund. If the differences are due to additions (this generally is not expected to occur), inspect the supporting documentation and note the circumstances. D. If the assets listed at 7(A) are listed at recently estimated market value, inspect the evidence (if any) supporting the value and note the methodology used. If no evidence is available to support the value and \or methodology, note the lack of evidence. Citation: 34179.5(c)(5)(D) An itemized listing of any current balances that are legally or contractually dedicated or restricted,for the funding of an enforceable obligation that identifes the nature of the dedication or restriction and the specific enforceable obligation. In addition, the successor agency shall provide a listing of all approved enforceable obligations that includes a projection of'annual spending requirements to satisfy each obligation and a projection of annual revenues available to fund those requirements. If a review finds that fixture revenues together with dedicated or restricted balances are insufficient to fsnd future obligations and thus retention of current balances is required, it shall ident� the amount of current balances necessary for retention. The review shall also detail the projected properly tax revenues and other general purpose revenues to be received by the successor agency, together with both the amount and thning of the bond debt service payments of the successor, agency, for the period in which the oversight board anticipates the successor agency will have insufficient property tax revenue to pay the specified obligations. Suggested Procedure(s): 8. Perform the following procedures A. If the Successor Agency believes that asset balances need to be retained to satisfy enforceable obligations, obtain from the Successor Agency an itemized schedule of asset balances (resources) as of June 30, 2012 that are dedicated or restricted for the funding of enforceable obligations and perform the following procedures. The schedule should identify the amount dedicated or restricted, the nature of the dedication or restriction, the specific enforceable obligation to which the dedication or restriction relates, and the language in the legal document that is associated with the enforceable obligation that specifies the dedication of existing asset balances toward payment of that obligation. i. Compare all information on the schedule to the legal documents that form the basis for the dedication or restriction of the resource balance in question. ii. Compare all current balances to the amounts reported in the accounting records of the Successor Agency or to an alternative computation. iii. Compare the specified enforceable obligations to those that were included in the final Recognized Obligation Payment Schedule approved by the California Department of Finance. iv. Attach as an exhibit to the report the listing obtained from the Successor Agency. Identify in the report any listed balances for which the Successor Agency was 6 V. 8 -27 -12 unable to provide appropriate restricting language in the legal document associated with the enforceable obligation. B. If the Successor Agency believes that future revenues together with balances dedicated or restricted to an enforceable obligation are insufficient to fund future obligation payments and thus retention of current balances is required, obtain from the Successor Agency a schedule of approved enforceable obligations that includes a projection of the annual spending requirements to satisfy each obligation and a projection of the annual revenues available to fund those requirements and perform the following procedures: i. Compare the enforceable obligations to those that were approved by the California Department of Finance. Procedures to accomplish this may include reviewing the letter from the California Department of Finance approving the Recognized Enforceable Obligation Payment Schedules for the six month period from January 1, 2012 through June 30, 2012 and for the six month period July 1, 2012 through December 31, 2012. ii. Compare the forecasted annual spending requirements to the legal document supporting each enforceable obligation. a. Obtain from the Successor Agency its assumptions relating to the forecasted annual spending requirements and disclose in the report major assumptions associated with the projections. iii. For the forecasted annual revenues: a. Obtain from the Successor Agency its assumptions for the forecasted annual revenues and disclose in the report major assumptions associated with the projections. C. If the Successor Agency believes that projected property tax revenues and other general purpose revenues to be received by the Successor Agency are insufficient to pay bond debt service payments (considering both the timing and amount of the related cash flows), obtain from the Successor Agency a schedule demonstrating this insufficiency and apply the following procedures to the information reflected in that schedule. i. Compare the timing and amounts of bond debt service payments to the related bond debt service schedules in the bond agreement. ii. Obtain the assumptions for the forecasted property tax revenues and disclose major assumptions associated with the projections. iii. Obtain the assumptions for the forecasted other general purpose revenues and disclose major assumptions associated with the projections. D. If procedures A, B, or C were performed, calculate the amount of current unrestricted balances necessary for retention in order to meet the enforceable obligations by performing the following procedures. i. Combine the amount of identified current dedicated or restricted balances and the amount of forecasted annual revenues to arrive at the amount of total resources available to fund enforceable obligations. i V.8 -27 -12 ii. Reduce the amount of total resources available by the amount forecasted for the annual spending requirements. A negative result indicates the amount of current unrestricted balances that needs to be retained. iii. Include the calculation in the AUP report. Citation: 34179.5(c)(5)(E) An itemized list and analysis of any amounts of current balances that are needed to satisfy obligations that will be placed on the Recognized Obligation Payment Schedules for the current fiscal year. Suggested Procedure(s): 9. If the Successor Agency believes that cash balances as of June 30, 2012 need to be retained to satisfy obligations on the Recognized Obligation Payment Schedule (ROPS) for the period of July 1, 2012 through June 30, 2013, obtain a copy of the final ROPS for the period of July 1, 2012 through December 31, 2012 and a copy of the final ROPS for the period January 1, 2013 through June 30, 2013. For each obligation listed on the ROPS, the Successor Agency should add columns identifying (1) any dollar amounts of existing cash that are needed to satisfy that obligation and (2) the Successor Agency's explanation as to why the Successor Agency believes that such balances are needed to satisfy the obligation. Include this schedule as an attachment to the AUP report. Citation: 34179.5(c)(6) The review shall total the net balances available after deducting the total amounts described in subparagraphs (B) to (E), inclusive, of paragraph (5). The review shall add any amounts that were transferred as identified in paragraphs (2) and (3) of subdivision (c) if an enforceable obligation to make that transfer did not exist. The resulting sum shall be available for allocation to affected taxing entities pursuant to Section 34179.6. It shall be a rebuttable presumption that cash and cash equivalent balances available to the successor agency are available and sufficient to disburse the amount determined in this paragraph to taxing entities. If the review finds that there are insufficient cash balances to transfer or that cash or cash equivalents are specifically obligated to the purposes described in subparagraphs (B), (D), and (E) of paragraph (5) in such amounts that there is insul�cient cash to provide the full amount determined pursuant to this paragraph, that amount shall be demonstrated in an additional itemized schedule. Suggested Procedure(s): 10. Include (or present) a schedule detailing the computation of the Balance Available for Allocation to Affected Taxing Entities. Amounts included in the calculation should agree to the results of the procedures performed in each section above. The schedule should also include a deduction to recognize amounts already paid to the County Auditor - Controller on July 12, 2012 as directed by the California Department of Finance. The amount of this deduction presented should be agreed to evidence of payment. The attached example summary schedule may be considered for this purpose. Separate schedules should be completed for the Low and Moderate Income Housing Fund and for all other funds combined (excluding the Low and Moderate Income Housing Fund). 8 V. 8 -27 -12 Suggested Procedure(s): It. Obtain a representation letter from Successor Agency management acknowledging their responsibility for the data provided to the practitioner and the data presented in the report or in any attachments to the report. Included in the representations should be an acknowledgment that management is not aware of any transfers (as defined by Section 34179.5) from either the former redevelopment agency or the Successor Agency to other parties for the period from January 1, 2011 through June 30, 2012 that have not been properly identified in the AUP report and its related exhibits. Management's refusal to sign the representation letter should be noted in the AUP report as required by attestation standards. I