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2012 06 06 OB MinutesOVERSIGHT BOARD OF THE SUCCESSOR AGENCY TO LA QUINTA REDEVELOPMENT AGENCY MINUTES Regular Meeting WEDNESDAY, JUNE 6, 2012 at 2:00 P.M. ROLL CALL - Present: Board Members Ellis, Marshall, Maysels, McDaniel, Nelson, Osborne and Chairperson Pena Absent: None. CONFIRMATION OF AGENDA - Confirmed PUBLIC COMMENT - None PRESENTATIONS - None APPROVAL OF MINUTES 1. A motion was made by Board Members Osborne /Nelson to approve the minutes from the May 2, 2012 Oversight Board meeting . as amended. Motion passed unanimously. 1. Staff indicated that at the May 15, 2012 Successor Agency meeting, while reviewing the Oversight Board minutes from April 18, 2012, Council Member Franklin pointed out that on page 4 of the minutes the reference to La Quinta Park should be corrected to read La Quinta Community Park. CONSENT ITEMS - None BUSINESS ITEMS 1. Consideration of a Resolution Approving the Implementation of the Washington Street Apartment Rehabilitation Project, Approving the Use of 2004 Tax - Exempt Housing Bond Proceeds and 2011 Taxable Housing Bond Proceeds to Fund the Project, Confirming the Status of the Housing Bond Proceeds as Housing Assets Transferable to the La Quinta Housing Authority, and Amending the Recognized Obligation Payment Schedule to Reflect the Project and Payments. Chairperson Pena asked staff if there was a conflict of interest for Frank Spevacek, City of La Quinta's new City Manager since his firm, RSG, Inc., was contracted with the City and worked on the Washington Street Apartments project. Kathy Jenson, Rutan & Tucker, Counsel for the Successor Agency, indicated that there was no conflict since RSG's contracts with the City of La Quinta have been terminated and City Manager Spevacek resigned from RSG when he became the new City Manager. Staff presented staff report. Attorney Jenson explained that two sources of bond proceeds are being proposed - an older bond issuance that was issued in 2004 that has largely been expended over the years but there is still a little over $3,000,000 left. Those are tax - exempt bond proceeds that have be used consistent with tax - exempt bond proceed purposes. All documentation specifies the use of these funds for affordable housing in Project Areas 1 and 2. Attorney Jenson's legal position, as Counsel to the Housing Authority and to the Successor Agency, is that the obligations in the bond documents are in and of themselves, enforceable obligations to expend the bond proceeds consistent with the bond documents and the commitments made to the bond holders. The same is true with 2011 bond issuance with the exception that those bonds are taxable bonds. There is no covenant with regard to making sure they are not used for something that would trigger the interest to become taxable since it already is taxable income - they are different than the 2004 bonds yet they still have the same housing commitment that the 2004 bonds do - restricted funds. AB26 has two provisions relevant to this issue - there is the provision that states the bonds are supposed to be used for the purpose for which they are issued if it is still capable of being accomplished. The law sets out in Section 34176 that all housing assets, with the exception of the low- and moderate - income housing fund, can go to the housing successor. The housing successor in this case is the La Quinta Housing Authority. These are not low- and moderate - income housing funds. As counsel for the Successor Agency and Housing Authority, it is Attorney Jenson's opinion that the bonds are housing assets that are transferable to the Housing Authority and can still be used for the purpose for which they were issued. Attorney Jenson said that new contracts would have to be entered into to implement this. Chairperson Pena commented that the Department of Finance ( "DOF ") requires us to be in a prior contract. Attorney Jenson stated that the DOF has indicated that where a new contract is needed in order to carry out an already existing enforceable obligation, new contracts OVERSIGHT BOARD ACTION MINUTES 2 JUNE 6, 2012 can be entered into. Board Member Nelson asked if the bonds could be callable, in other words could they be refunded back to the bond holders. Attorney Jenson stated that the 2004 bonds are callable in 2014 and the 2011 bonds are not callable until 2021. City Manager Spevacek explained that the Washington Street Apartments project started back in 2007 when the property was purchased. The rehabilitation activity was not started immediately because, in addition to purchasing the property, the property needed to be annexed into the City of La Quinta, de- annexed from the Riverside County Desert Project Area, annexed into Redevelopment Project Area 2, then a preliminary work program was put together in late 2010. The work program identified the cost of the improvements and then had to go through an entitlement process with the City involving the Planning Commission and the City Council, which was concluded in the fall of last year. The La Quinta Redevelopment Agency ( "Agency ") issued the bonds in the spring of 2011 ($25,000,000) and did so in part because the revenue was needed in order to do the substantial rehabilitation for this development. When the Supreme Court ruling came out and the redevelopment wind down began, the City, acting as Successor Agency, prioritized what to move forward with based upon where their obligations remained. After it was decided that Coral Mountain and Torre Nissan projects could go forward and title issues were cleared up, it was time to look at the bond funds and the project that has been ongoing for five years. It was decided to move forward with the project because the Agency made promises to the residents of Washington Street Apartments to do the rehabilitation work. Chairperson Pena asked if title to the property was in the Agency's name. Attorney Jenson indicated that title is held jointly by the Housing Authority and Successor Agency. In response to Chairperson Pena's question regarding USDA approval, City Manager Spevacek stated that there was a two part approval for this transaction. First, because the USDA provides rent subsidy to underwrite the rents down to ability level that the tenants can pay, they need to approve any transaction that occurred in terms of the transfer of title. Typically, groups that developed affordable housing with USDA financing did so in a limited partnership or limited liability company ( "LLC ") format. The way ownership was transferred is that the members of the LLC would sell their interests to new members and that legal entity would stay in place. The former redevelopment agency did not want to take on the risk of any past unknown liabilities that the LLC who owned this property may have incurred which weren't uncovered in due diligence. So, a second process with the USDA was necessary which required invoking and moving the OVERSIGHT BOARD ACTION MINUTES 3 JUNE 6, 2012 approval process to their office in Washington, D.0 and getting special legal counsel and others to help move this process through which title was transferred. This was one of the first instances of that occurring in a USDA rental project in recent history. USDA approval was needed to show the former redevelopment agency was a viable entity to take on the project and was also a viable entity to substantially rehabilitate the units. When shown the plans for this project, the USDA's response was "you got to be kidding me" — because of the way these type of projects operate, they generate enough cash flow for bare minimum reserves to cover replacement of things when needed or major improvements that are needed to upgrade energy efficiency or to deal with handicap needs, etc. Typically, when USDA covenants expire, the properties are sold and the rents go to market rate. The rents on this project are about $130 -$150 per month. The USDA was skeptical with the rehabilitation and getting the approval for the rehab plans took an extensive amount of time. Chairperson Pena asked why the City would go through so much trouble and expense to annex something outside of our city. City Manager Spevacek stated that it cost the Agency $3.6 million to buy 73 units, the property is at the entry point to the City of La Quinta and the property has not aged well. Also, the Agency, at that time, needed affordability covenants. The Agency would buy the property for $3.6 million and assume the financing, then Substantially rehabilitate it so the entry point into the city is something better than what is currently there and gain 73 extremely low- and very low- income affordability covenants at a reasonable cost. Chairperson Pena stated that the price then jumped to $6.1 million including the outstanding loans. City Manager Spevacek indicated that was correct; the equity of the $3.6 million plus the two assumed loans total $6.1 million. (The loans include a Rural Development loan of $750,000 at .5% interest which runs for another 18 years and a Provident Bank loan of $2 million which runs another 18 years). Those loans and the debt service on the loans are primarily covered by the rents from the apartment complex. Chairperson Pena asked City Manager Spevacek if the Housing Authority was looking to put in another $18 million. City Manager Spevacek indicated that $18 million is the outside estimate and included in that $18 million is not only the substantial rehabilitation of 72 units but also the new construction of 24 additional units. So that will give the City 96 units for $18 million. Vice Chairperson Osborne commented that this was the first development of low- income, senior housing for the disabled in La Quinta. City Manager Spevacek indicated that compared to other affordable projects in La Quinta OVERSIGHT BOARD ACTION MINUTES 4 JUNE 6, 2012 where the rents range from $300 -$500 per month, these rents range from $130 -$150 with the subsidy from USDA as part of the loans. Chairperson Pena asked if USDA approval has been received or are there things that still need to be done to obtain approval. City Manager Spevacek stated that the USDA has approved the Housing Authority's ownership of the project; they have given initial approval to concept plans for rehabilitation. If and when we move forward to do the substantial rehabilitation, the USDA will approve the final construction drawings. Board Member Marshall indicated that the project amount was approved in the ROPS for both January and July. Attorney Jenson explained that the full $18 million was on the ROPS but did not have payout in that time period. She indicated that part of this action is to amend the BOPS, to actually couple it with the enforceable obligation of the bonds and to show the monthly amount, which is about $40,000 per month. She went on to explain that this project was listed on the ROPS as "the rehabilitation of the Washington Street Apartments" for $18 million as total outstanding obligation and the La Quinta Housing Authority was listed as payee. Board Member Marshall commented that the DOF never asked the Board to remove the project or the $18 million from either of the ROPS. Attorney Jenson indicated that was correct and this was also confirmed in correspondence from the DOF dated May 26. Board Member Marshall stated that when the Board took action on both of the BOPS, the Board essentially approved the project because it was included. She went on to indicate that if the expenditure was something that the Housing Authority had already planned to do and the funds are still available to proceed, she saw no reason not to proceed. Chairperson Pena stated his concerns that the DOF has final say and they can decide to have us remove this item from our BOPS. Board Member Marshall indicated that she felt that would be more likely to happen in the event of an audit and, although some questions may be raised, she agreed with the interpretation of how housing bond proceeds should be coded. If the law states that housing assets should be used for the purposes in which they intended, she doesn't see why the Board would be wrong with moving forward and approving this action at this time. Attorney Jenson indicated that line 6 of the BOPS will be amended and the description will be revised to include reference to $40,000 for each of the months, which is the initial cost of taking the project to completion. Attorney Jenson mentioned that part of the Oversight Board's obligation is to make sure that housing assets get assigned to the appropriate agency. OVERSIGHT BOARD ACTION MINUTES 5 JUNE 6, 2012 Board Member Marshall agreed and said that the Housing Authority of the County of Riverside has also assumed responsibility for the housing assets of the former redevelopment agency. Chairperson Pelia asked what would happen if the DOF does not approve this for the project. Attorney Jenson stated that based upon conference calls with the League of California Cities, her understanding is what is recommended, before any legal action is taken, even though there is no formal appeal process within DOF, it was advised that if a disagreeable response is received, the Successor Agency could take it to the next level, informally, within the DOF. Then, if reconsideration is not received from the DOF, the next step would be to file an action in Sacramento on behalf of the Successor Agency. MOTION: A motion was made by Board Members Osborne /Nelson to adopt Resolution No. OB 2012 -013 Approving the Implementation of the Washington Street Apartment Rehabilitation Project, Approving the Use of 2004 Tax - Exempt Housing Bond Proceeds and 2011 Taxable Housing Bond Proceeds to Fund the Project, Confirming the Status of the Housing Bond Proceeds as Housing Assets Transferable to the La Quinta Housing Authority, and Amending the Recognized Obligation Payment Schedule to Reflect the Project and Payments. RESOLUTION NO. OB 2012 -013 A RESOLUTION OF THE OVERSIGHT BOARD OF THE SUCCESSOR AGENCY TO LA QUINTA REDEVELOPMENT AGENCY APPROVING THE IMPLEMENTATION OF THE WASHINGTON STREET APARTMENT REHABILITATION PROJECT, APPROVING THE USE OF 2004 TAX - EXEMPT HOUSING BOND PROCEEDS AND 2011 TAXABLE HOUSING BOND PROCEEDS TO FUND THE PROJECT, CONFIRMING THE STATUS OF THE HOUSING BOND PROCEEDS AS HOUSING ASSETS TRANSFERABLE TO THE LA QUINTA HOUSING AUTHORITY, AND APPROVING AN AMENDMENT TO THE RECOGNIZED OBLIGATION PAYMENT SCHEDULE TO REFLECT THE PROJECT AND PAYMENTS Motion carried 7 ayes, 0 nays, 0 absent. STUDY SESSION — None REPORTS AND INFORMATIONAL ITEMS OVERSIGHT BOARD ACTION MINUTES 6 JUNE 6, 2012 1. List of Successor Agency Assets and Bond Proceeds 2. Update on Department of Finance Review of Oversight Board Actions DEPARTMENT REPORTS - None CHAIR AND BOARD MEMBERS' ITEMS - None ADJOURNMENT - 2:42 p.m. A motion was made by Board Members Osborne /Maysels to adjourn. Motion carried unanimously. Respectfully submitted, ( )) o' &Y)-� Lori Lafond Oversight Board S retary OVERSIGHT BOARD ACTION MINUTES 7 JUNE 6, 2012