cc15_186 1

STAFF REPORT

MEETING

DATE: December 22, 2015 (continued from December 15, 2015)

TO: City Council

City Council Acting as Successor Agency to the Dissolved

Redevelopment Agency of the City of Novato

FROM: Michael Frank, City Manager

Cathy Capriola, Assistant City Manager

Brian Cochran, Finance Manager

SUBJECT: AUTHORIZE THE CITY MANAGER TO ENTER INTO AN

INSTALLMENT PAYMENT AGREEMENT; PAY THE AMOUNT IN

FULL; OR EXERCISE OTHER PAYMENT OPTIONS FOR AMOUNTS

OWED UNDER THE REDEVELOPMENT DISSOLUTION LAW, AS

RECENTLY AMENDED BY SENATE BILL 107

REQUEST

Consider authorizing, by motion, the City Manager to enter into an installment payment agreement

(or to pay the amount in full, or other payment terms) with the California Department of Finance

for amounts owed due to redevelopment dissolution totaling $5,219,813; and provide direction to

staff about negotiating parameters for the agreement.

RECOMMENDATION

Authorize the City Manager to enter into an agreement.

DISCUSSION

December 22, 2015 update

The City Council originally considered this item at its December 15th meeting. At that meeting,

staff provided an update about payment plan negotiations with the Department of Finance. The

City Council provided staff direction to continue negotiating with the Department of Finance on a

possible payment plan prior to December 31, 2015. The City Council also continued the item for

additional discussion to this December 22, 2015 meeting. Staff will provide a status update and

possible additional recommendations during the meeting.

Original Discussion from December 15, 2015

In early 2011, the City’s former redevelopment agency (the “RDA”) paid off a series of loans that

it had taken out from the City over a series of many years. These were longstanding loans executed

according to existing redevelopment law at the time. The loans, totaling approximately $21

million, included an amount of $15 million that was paid off via the RDA’s issuance of its 2011

tax allocation bonds. The remaining $6 million was paid back to the City with RDA cash-on-hand.

922 Machin Avenue Novato, CA 94945

415/ 899-8900 FAX 415/ 899-8213

www.novato.org

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Subsequent to these actions, in June 2011, the California Legislature enacted legislation that

eliminated redevelopment agencies. Certain provisions within the legislation sought to

retroactively undo, cancel, or otherwise invalidate certain transactions that were legally undertaken

by RDAs prior to their elimination. Through a series of audits and state reviews, initially all $21

million that was repaid to the City was ordered to be returned to the State / taxing entities (County,

School District, Fire District, etc). After follow-up discussions and negotiations with the California

Department of Finance (“DOF”) and the State Controller’s Office (“SCO”), we obtained

agreement from those agencies that the $15 million bond/loan repayments were approved.

However, a total of $5.2 million of the RDA cash loan repayments to the City were deemed invalid

and ordered returned to the Marin Auditor-Controller for distribution to the taxing entities. Upon

receiving such an order, the City initiated litigation in May 2013 against DOF and SCO, arguing

that the loan repayments were in fact valid and legal and that the City should be allowed to keep

the $5.2 million in question. To date, the lawsuit has not had a hearing, with an initial court date

set for March 2016.

This past summer, legislation was introduced and discussed in the Legislature comprising a variety

of “clean-up” provisions to the RDA dissolution law, as well as several provisions that were widely

seen as detrimental to cities and beneficial to the State. It ultimately passed in the Legislature as

SB 107; Novato opposed the legislation based upon the potential negative impacts to the City.

One seemingly innocuous provision of SB 107 states that any cities that still owe money to the

State / taxing entities due to RDA dissolution must pay the money by December 31, 2015, or enter

into an “installment payment plan” to begin repaying the money. The law also states that if

amounts are in dispute via litigation and the City eventually receives a favorable judgement on its

lawsuit, the City will get repaid any amounts already paid under a payment plan. If a City fails to

enter into a payment plan prior to December 31, 2015 (or pay in full the money owed), then the

penalty for the City is that it can never receive certain benefits that are granted in the law. The

benefits provided are twofold:

1. Re-instatement of City/RDA loans – As previously mentioned, many types of transactions

were invalidated by the RDA dissolution law. One key type of transaction (which affects

Novato) is prior City/RDA loans. If the City completes the payment plan described above,

the City will be able to apply to get its loans re-instated and paid back over a number of

years. Clearly, the benefit to this provision only affects Novato if we lose the lawsuit;

otherwise, we would have no City/RDA loans to re-instate because they would have

already been paid back by the actions Novato took in 2011.

2. “Last and Final” Recognized Obligation Payment Schedule (“ROPS”) – The ROPS is the

document that outlines what debts and bills the former RDA needs to pay each year.

Approval of the ROPS must go through several steps, including approval by the City,

approval by a locally-appointed Oversight Board, and approval by DOF. Executing the

payment plan would make Novato eligible to create a “Last and Final” ROPS, which would

be a complete payment schedule for the remaining life of the debts of the RDA (at least

another 25 years). The “Last and Final” ROPS, once approved, removes virtually all

administrative burden from the dissolution process, eliminates the need to get Oversight

Board and DOF approval on a ROPS each year, and allows Novato to simply pay the debts

of the former RDA each year without much hassle or expense.

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Since early November, the City has been in negotiations with DOF over the potential provisions

of an installment payment plan. After passing several versions back and forth, we have yet to come

to an agreement with DOF on an installment payment plan. The basic premise of the payment plan

proposed is to make twice-annual installment payments on the $5.2 million amount over a 20-year

period which would completely pay off the amount owed. DOF has thus far rejected this proposal

and it is possible that we will not be able to come to agreement with DOF on any payment plan.

The implication of that scenario is that the City would need to pay back the $5.2 million prior to

December 31, 2015 to be able to access the potential benefits outlined above. Novato would

continue to await the outcome of the lawsuit which would ultimately determine how much, if any,

of the $5.2 million would be owed back to the City.

Staff has attached the most recent version of the payment plan sent to DOF as an example of what

has been proposed by the City thus far (and rejected by DOF at this point). More information will

be provided at the meeting about potential options and recommendations.

FISCAL IMPACT

Agreeing to pay out all or a portion of the $5.2 million involved in the RDA dispute with the State

will reduce fund balances by the amounts paid out. However, the City has, since the repayments

originally occurred in 2011, kept these funds in reserve in case they were invalidated by the State

or by the courts. Thus these funds have not been otherwise programmed for services or projects

and there should be little impact on the City’s day-to-day operations. The final resolution of the

lawsuit by the courts will ultimately determine how much of the $5.2 million the City is able to

retain.

ATTACHMENTS

1. Example Installment Payment Plan

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698/029460-0002 9011905.4 a11/20/15

AMENDED INSTALLMENT PAYMENT PLAN

Proposed by

THE CITY OF NOVATO and

NOVATO SUCCESSOR AGENCY

for the repayment of amounts owing under the DUE DILIGENCE REVIEW

in the amount of $5,219,813

Submitted for Approval by the

CALIFORNIA DEPARTMENT OF FINANCE

Dated November 20, 2015

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PROPOSAL FOR INSTALLMENT PAYMENT PLAN

Pursuant to Health and Safety Code section 34179.7, as amended by Senate Bill 107 from the 2015-16 Legislative Session (stats. 2015, ch. 325), the City of Novato (“City”) and Novato Successor Agency (“Successor Agency” and, collectively, “Novato”) hereby submit this written installment payment plan for review and approval by the California Department of Finance (“DOF”).

The Successor Agency has not received a finding of completion pursuant to Health and Safety Code section 34179.6, due to pending litigation entitled, City of Novato et al. v. State of California et al., Sacramento County Sup. Ct. Case No. 34-2013-80001496 (the “Litigation”). The amount in dispute in the Litigation is based upon the Other Funds and Assets Due Diligence Review (“DDR”) in the amount of $5,219,813 (the “Total DDR Amount”). The hearing date on the merits of the Petition for Writ of Mandate is set for March 26, 2016.

Because the Litigation will not be completed prior to December 31, 2015, Novato seeks approval from DOF for an installment payment plan to preserve the Novato Successor Agency’s ability to obtain a finding of completion after the conclusion of the Litigation.

Due to the pending deadline, Novato requests immediate review and comments or approval by the DOF as soon as possible. After obtaining DOF approval of the installment payment plan, Novato staff intends to present the DOF-approved installment payment plan to the City Council, acting on behalf of the legislative bodies for both the City and Successor Agency. In order to meet the regularly scheduled meeting dates for the Novato City Council, Novato staff requests DOF submit comments, if any, so that a final determination of approval by DOF occurs no later than December 4, 2015. This will allow Novato staff sufficient time to place the DOF-approved installment payment plan on the agenda for the last regular meeting of the Novato City Council in December.

This installment payment plan (the “Plan”) includes a short history of the former Redevelopment Agency to the City of Novato (“RDA”) and summary of the pending Litigation, a proposed installment payment agreement (the “Agreement”) attached as Exhibit A, spreadsheets showing estimated anticipated revenue from which Novato would make installment payments to pay down the Total DDR Amount (the “Spreadsheets”) attached as Exhibit B, and an Appendix that includes relevant DOF DDR determination letters.

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HISTORY OF THE NOVATO RDA AND CITY LOANS AND RELATION TO PENDING LITIGATION

The Novato RDA was “activated” under the Community Redevelopment Law, Health and Safety Code section 33000 et seq. (“CRL”), on May 3, 1983. On the same day, the City Council approved and adopted Resolution No. 38-83, and the RDA Board approved and adopted Resolution No. R-4-83, both of which approved a Cooperative Agreement (the “1983 Loan/Cooperation Agreement”). Under that agreement, the City agreed to provide the RDA with staff assistance, supplies, and other services and facilities to carry out redevelopment functions as authorized under the CRL. The 1983 Loan/Cooperation Agreement provided for, inter alia:

• “The City may, but is not required to, advance necessary funds to the Agency or to expend funds on behalf of the Agency for the preparation and implementation of a redevelopment plan…”

• “The City will keep records of activities and services undertaken pursuant to this Agreement and the costs thereof in order that an accurate record of the Agency’s liability can be ascertained.”

• “The Agency agrees to reimburse the City for all costs incurred for the services by the City pursuant to this Agreement … it is the express intent of the parties that the City shall be entitled to repayment of the expenses incurred by the City under this Agreement, consistent with the Agency’s financial ability, in order to make the City whole as soon as possible.”

• “Although the parties recognize that payment may not occur for a few years and that repayment may also occur over a period of time, it is the express intent of the parties that the expenses incurred by the City under this Agreement shall be entitled to payment, consistent with the [RDA’s] financial ability, in order to make the City whole as soon as practically possible.”

• “The obligations of the Agency under this Agreement shall constitute indebtedness of the Agency within the meaning of Section 33670 et seq. of the Community Redevelopment Law, to be repaid to the City by the Agency with interest as ten percent (10%) per annum or the maximum rate allowed by law.”

(1) The Novato Redevelopment Project Areas and Tax Increment Authority.

On November 29, 1983, the City Council, by adoption of Ordinance No. 1040, enacted and approved the Redevelopment Plan for the Novato Redevelopment Project (“Novato Project Area” or “Novato Project Area Plan”). On July 14, 1998, the City Council, by adoption of Ordinance No. 1394, enacted and approved the Redevelopment Plan for the Hamilton Field Project (“Hamilton Field Project Area” or “Hamilton Field Project Area Plan”). On June 29, 1999,

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the City Council, by adoption of Ordinance No. 1412, enacted and approved the Redevelopment Plan for the Downtown Novato Redevelopment Project (“Downtown Project Area” or “Downtown Project Area Plan”). The Novato Redevelopment Project Area, the Hamilton Field Redevelopment Project Area, and the Downtown Project Area are collectively referred to herein as “Project Areas” and/or “Project Area Plans.”

All Project Area Plans authorized the RDA to collect “tax increment” for purposes of funding redevelopment activities. The Project Areas were subsequently amended and merged on or about April 8, 2003 pursuant to City Council Ordinance Numbers 1470, 1471, and 1472.

(2) Implementation of the 1983 Loan/Cooperation Agreement and Subsequent Transfers of Moneys from the City to the RDA.

The 1983 Loan/Cooperation Agreement was implemented by and through the City’s provision to the RDA of a series of loan advances over the course of 28 years (the “Loan Advances”). The Loan Advances were documented by way of individual promissory notes, financing agreements, and other supplemental documentation (the “Loan Advance Documents” and, collectively with the 1983 Loan/Cooperation Agreement, the “Loan Agreements”).

The vast majority (approximately 70%) of the City’s Funds that were advanced to the RDA over the years were comprised of the City’s sales and use tax revenues allocated to the City and derived under the Bradley-Burns Uniform Local Sales and Use Tax Law, and ad valorem property tax revenues allocated to the City and derived under Article XIIIA of the State Constitution and implementing provisions in Revenue and Taxation Code section 96 et seq. (commonly referred to as the “AB 8 share” or “pro rata” property tax allocation provisions).

The remaining portion of the City’s Funds (approximately 30%) was comprised of the City’s Development Impact Fees (the “Special Fund”), which is a special fund created to collect revenue from development impact fees and other exactions in order to mitigate the impacts of new development on the City’s infrastructure.

(3) Novato’s Due Diligence Review for Other Funds and Accounts (DDR) and DOF Determination of Amount Owed.

For Novato’s DDR, the Successor Agency hired the independent accounting firm of R. J. Ricciardi, Inc. (“RJR”) to prepare the DDR. RJR determined that the amount of cash and cash equivalents available for transfer to the taxing entities was a negative $817,416.00. The oversight board of the City’s Successor Agency (the “Oversight Board”) voted to approve the DDR and submit it to the DOF for review. The DDR was timely submitted on January 11, 2013, to DOF. On March 8, 2013, DOF issued its original determination letter (“Original Determination Letter”). A true and correct copy of the Original Determination Letter is included in the Appendix to Installment Payment Plan.

The Successor Agency timely requested a “meet and confer” with DOF, which was held on March 21, 2013. During the meet and confer session, the Successor Agency provided

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additional information in support of its position. In response, DOF sent a follow-up letter on April 8, 2013 informing it that DOF had reversed, in part, its initial determination.

In particular, DOF concluded that because bond proceeds were used for the purpose which they were issued, the “transfer” was permitted, and thus this amount ($14,563,041) did not need to be remitted for distribution to the taxing entities. However, with respect to the remaining cash repayment, DOF continued to demand that this “transfer” was not pursuant to an enforceable obligation, and thus not permitted. DOF then concluded that the total amount to be distributed to the taxing entities was $6,075,413. A true and correct copy of DOF’s April 8, 2013 letter is included in the Appendix to Installment Payment Plan.

After being notified by Successor Agency staff that the $6,075,413 figure in the April 8, 2013 letter had a miscalculation, DOF sent a revised final determination letter dated April 20, 2013 (the “Final Determination Letter”), which corrected the miscalculation and established the Total DDR Amount of $5,219,813, at issue in the Litigation and the amount that must be repaid as part of this Plan pursuant to Health and Safety Code section 34179.7. A true and correct copy of the April 20, 2013 letter is included in the Appendix to Installment Payment Plan.

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698/029460-0002 9011905.4 a11/20/15 EXHIBIT A

EXHIBIT “A”

INSTALLMENT PAYMENT AGREEMENT

(attached)

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698/029460-0002 9011905.4 a11/20/15 EXHIBIT A

INSTALLMENT PAYMENT AGREEMENT

City of Novato, et al. v. State of California, et al., Sacramento Superior Court, Case No. 34-2013-80001496

PARTIES

This Installment Payment Agreement (“Agreement”) is entered and effective on the “Effective Date” as defined below, by the following parties: (1) the Successor Agency to the Dissolved Redevelopment Agency of the City of Novato, a public entity (“Successor Agency”); (2) the City of Novato, a California municipal corporation (“City” and, collectively with the Successor Agency, “Novato”); and (3) Michael Cohen, in his official capacity as Director of the California Department of Finance (“Finance”) (collectively, the “Parties”).

RECITALS

A. On May 3, 1983, the Redevelopment Agency of the City of Novato (“RDA”) was activated and exercising redevelopment powers pursuant to the Community Redevelopment Law, Health and Safety Code section 33000 et seq. (“CRL”). Over the course of the RDA’s operation, the City transferred and loaned to the RDA City funds, with expectation of repayment prior to the expiration date of the RDA’s authority to receive tax increment, as authorized under the CRL.

B. With the enactment of the redevelopment dissolution law by Assembly Bill 26 of the First Extraordinary Session of the 2011-12 Legislative Session (stats. 2011, ch. 5), as amended by Assembly Bill 1484 of the same Legislative Session (stats. 2012, ch. 26), the RDA dissolved, the Successor Agency assumed the former RDA’s remaining obligations as a matter of law, and a “Due Diligence Process” was put in place to determine the amount, if any, of “cash or cash equivalents” available for distribution from the Successor Agency to the other taxing entities, based on unencumbered tax increment moneys in the former redevelopment agency’s Low and Moderate Income Housing Fund and “Other Funds and Accounts” (the “OFA DDR” or “DDR). For purposes of this Agreement, the “Dissolution Law” means Part 1.8 and Part 1.85 of Division 24 of the Health and Safety Code (section 34161 et seq.) as amended from time to time.

C. Based on the OFA DDR, the Department determined that the Successor Agency should transfer to the county auditor-controller $5,219,813 as the “Total DDR Amount” due under the OFA DDR. Novato disputes that determination, based on the repayment by the former RDA to the City of City money’s transferred and loaned to the RDA prior to its dissolution.

D. As of the date of this Agreement, Novato has pending litigation against the Department in the above-referenced case (the “Litigation”), in which Novato challenges the order of the Department to transfer to the county auditor-controller, for distribution to the taxing entities, the $5,209,813 Total DDR Amount. The hearing date for the Petition for Writ of Mandate in the Litigation is March 25, 2016.

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E. Pursuant to Health and Safety Code section 34179.7, as amended by Senate Bill 107 of the 2015-16 Legislative Session (stats. 2105, ch. 325) (“SB 107”), the Successor Agency may only receive a finding of completion (as defined in Health and Safety code section 34179.6) by either making a payment for $5,219,813 Total DDR Amount or entering into an installment payment plan approved by the Department on or before December 31, 2015.

F. This Agreement is intended to set forth the terms and conditions and implement the installment payment plan approved by the Department and Novato.

AGREEMENT

Accordingly, based on the foregoing recitals, which are a substantive part of this agreement and incorporated herein by this reference, and in consideration of the mutual promises contained herein, the Parties agree as follows:

1. Installment Payment Terms: The Parties agree to the following:

a. Subject to subparagraph (b) below, after every 6-month distribution from the Redevelopment Property Tax Trust Fund (“RPTTF”) pursuant to Health and Safety Code section 34183(a) (or successor statute in the Dissolution Law), and until such RPTTF distribution date on which the Total DDR Amount is paid in full, the City shall transfer to the Successor Agency and the Successor Agency shall make an installment payment to the county auditor-controller (for distribution to the taxing entities) from the “residual” RPTTF that is distributed to the City as its pro-rata share of property tax revenues after payments from the RPTTF are made for enforceable obligations and the Successor Agency’s administrative cost allowance pursuant to Health and Safety Code section 34183(a) (or successor statute in the Dissolution Law), the amounts set forth in Attachment No. 1. The Parties expressly understand and agree that the source of funds for installment payment amounts shall be the “residual” amounts of RPTTF that are distributed to the City, as set forth above in this paragraph. If the “residual” amount of RPTTF is insufficient to make an installment payment pursuant to subparagraph (b) below, the balance of an installment payment shall be applied to the next installment payment amount until payable with sufficient “residual” RPTTF. Based upon the estimated distribution amounts of the City’s “residual” RPTTF established at the time of this Agreement, which are set forth as the installment payment amounts in Attachment No. 1, the Department agrees the term of installment payments is a reasonable term.

b. The City and Successor Agency shall make the first installment payment pursuant to subparagraph (a) above on January 15, 2016, which amount shall be one-half (1/2) (or $62,382) of the total fiscal year payment for 2015-16. The second installment payment pursuant to subparagraph (a) above shall be due on June 15, 2016, and shall be one-half (1/2) (or $62,382) of the total fiscal year 2015-16 payment. Each subsequent installment payment pursuant to subparagraph (a) above, commencing in fiscal year 2016-17, shall be due on the date, and in the amount, set forth in Attachment No. 1. If a final resolution of the Litigation results in neither the City nor Successor Agency having an obligation to pay any or all of the Total DDR Amount, this Agreement shall be terminated of its own accord, without the need for further

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action by the Parties, and the City and Successor Agency shall be entitled to relief pursuant to Health and Safety Code section 34179.7(b), or successor statute in the Dissolution Law, in addition to any other rights or remedies available at law or in equity.

c. Except as provided in subdivision (d) below, the Department shall not exercise any enforcement provisions under the DDR process or in the Dissolution Law, including but not limited to the ability to withhold or offset sales and use taxes, property taxes, or RPTTF, as set forth in Health and Safety Code section 34179.6 (or successor statute in the Dissolution Law).

d. In the event the Successor Agency fails to perform under this Agreement, the Department shall have the right to exercise any of the enforcement provisions for failure to make an installment payment pursuant to Health and Safety Code section 34179.7(c) and (d) (or successor statute in the Dissolution Law).

2. Claims Disputed and Litigation Authorized to Proceed Until Final Resolution: This Agreement does not constitute, nor shall it be construed as, an admission or concession by any of the Parties for any purpose. This Agreement is intended to implement Health and Safety Code section 34179.7, as amended by SB 107, and by executing this Agreement, none of the Parties admits wrongdoing, liability, or fault in connection with either the Litigation or the allegations asserted in the Litigation. Except as expressly set forth in this Agreement, Novato may proceed with the Litigation until its final resolution.

3. Successors and Assigns: This Agreement shall be binding upon the Parties’ respective officers, directors, commission members, trustees, agents, employees, representatives, attorneys, departments, divisions, sections, successors and assigns.

4. Entire Agreement: No promise, inducement, understanding, or agreement not expressed has been made by or on behalf of the Parties, and this Agreement contains the entire agreement between the Parties related to the subject matter of this Agreement.

5. No Assignment: Each Party represents that it has not assigned, transferred, or purported to assign or transfer to any person or entity any matter released herein.

6. Amendments in Writing: This Agreement may not be altered, amended, modified, or otherwise changed in any respect except by a writing duly executed by the Parties. The Parties agree that they will make no claim at any time or place that this Agreement has been orally altered or modified or otherwise changed by oral communication of any kind or character.

7. Construction: The Parties agree that this Agreement is to be construed and interpreted without regard to the identity of the party drafting this Agreement.

8. Additional Acts: The Parties agree to take such actions and to execute such documents as are necessary to carry out the terms and purpose of this Agreement.

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9. Enforcement: If any Party to this Agreement files a lawsuit to enforce or interpret this Agreement, the prevailing Party in any such suit shall be entitled to reimbursement for its reasonable attorney fees and costs.

10. Choice of Law and Jurisdiction: This Agreement shall be governed by the laws of the State of California without regard to conflict of law principles. If any Party to this Agreement brings a lawsuit to enforce or interpret this Agreement, the lawsuit shall be filed in the Superior Court for the County of Sacramento, California.

11. Counterparts: This Agreement may be executed in counterparts and transmitted by electronic mail or by facsimile, each of which is deemed an original and all of which shall constitute this Agreement.

12. Effective Date: The Agreement shall become effective on the date on which the last counterpart of this Agreement is executed such that it is executed in full.

13. Authority to Execute: Each Party represents that they have the authority to enter into and perform the obligations necessary to provide the consideration described in this Agreement.

[signatures on next page]

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IN WITNESS WHEREOF, the Parties hereby execute this Installment Payment Agreement on the dates set forth below:

DATED: SUCCESSOR AGENCY TO THE DISSOLVED REDEVELOPMENT AGENCY OF THE CITY OF NOVATO

By: Its:

DATED: CITY OF NOVATO

By: Its:

DATED: MICHAEL COHEN, IN HIS OFFICIAL CAPACITY AS DIRECTOR OF THE CALIFORNIA DEPARTMENT OF FINANCE

By: Its: _________________________________

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ATTACHMENT NO. 1 to

INSTALLMENT PAYMENT AGREEMENT

ESTIMATED INSTALLMENT PAYMENT SCHEDULE

(attached)

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Novato DDR Installment Agreement Payments

Fiscal Year January 15 June 15Total FY Payment

2015/16 124,764 124,764 2016/17 66,097 66,097 132,193 2017/18 70,004 70,004 140,008 2018/19 73,988 73,988 147,977 2019/20 78,155 78,155 156,311 2020/21 82,268 82,268 164,537 2021/22 89,871 89,871 179,743 2022/23 94,348 94,348 188,696 2023/24 79,637 79,637 159,275 2024/25 75,332 75,332 150,664 2025/26 87,355 87,355 174,710 2026/27 91,815 91,815 183,630 2027/28 96,344 96,344 192,688 2028/29 100,943 100,943 201,886 2029/30 105,752 105,752 211,504 2030/31 90,158 90,158 180,316 2031/32 94,636 94,636 189,272 2032/33 104,215 104,215 208,430 2033/34 109,573 109,573 219,146 2034/35 114,276 114,276 228,552 2035/36 121,593 121,593 243,186 2036/37 126,730 126,730 253,461 2037/38 132,115 132,115 264,230 2038/39 150,528 150,528 301,057 2039/40 156,135 156,135 312,270 2040/41 163,506 147,793 311,298

5,219,803

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EXHIBIT “B”

SPREADSHEETS CALCULATING AVAILABLE RESIDUAL RPTTF FROM CITY’S PRO-RATA SHARE

(attached)

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Novato Estimated RPTTF Residuals**All calculated amounts are estimates only

Fiscal Year Debt PaymentsNovato Human

Needs SA Admin POBsTotal Enforc.

ObligStatutory

Passthroughs County Admin County Settlement

AgreementMCCD + Fire Mitigation Total RPTTF Total Residual Novato Share

Annual Novato Residual

2015/16 3,549,681 117,000 90,000 25,726 3,782,407 1,663,925.68 124,839 176,000 8,319,628 2,572,457 249,528 124,764 2016/17 3,551,422 119,925 90,000 26,755 3,788,102 1,705,523.82 127,960 180,400 8,527,619 2,725,634 264,386 132,193 2017/18 3,549,072 122,923 90,000 27,825 3,789,820 1,748,161.92 131,159 184,910 8,740,810 2,886,759 280,016 140,008 2018/19 3,547,487 125,996 90,000 28,938 3,792,422 1,791,865.97 134,438 189,533 8,959,330 3,051,071 295,954 147,977 2019/20 3,542,432 129,146 90,000 30,096 3,791,673 1,836,662.62 137,799 194,271 9,183,313 3,222,907 312,622 156,311 2020/21 3,543,760 132,375 90,000 31,300 3,797,435 1,882,579.18 141,244 199,128 9,412,896 3,392,510 329,073 164,537 2021/22 3,541,102 90,000 32,552 3,663,654 1,929,643.66 144,775 204,106 9,648,218 3,706,040 359,486 179,743 2022/23 3,539,448 90,000 33,854 3,663,302 1,977,884.75 148,394 209,209 9,889,424 3,890,634 377,392 188,696 2023/24 3,533,556 90,000 35,208 3,658,764 1,827,331.87 152,104 214,439 9,136,659 3,284,021 318,550 159,275 2024/25 3,533,255 90,000 36,616 3,659,871 1,873,015.17 155,907 569,800 9,365,076 3,106,483 301,329 150,664 2025/26 3,213,905 90,000 38,081 3,341,986 1,919,840.55 159,804 575,295 9,599,203 3,602,277 349,421 174,710 2026/27 3,210,826 90,000 39,604 3,340,430 1,967,836.56 163,800 580,927 9,839,183 3,786,189 367,260 183,630 2027/28 3,209,402 90,000 41,188 3,340,590 2,017,032.47 167,895 586,700 10,085,162 3,972,945 385,376 192,688 2028/29 3,209,693 90,000 42,836 3,342,529 2,067,458.29 172,092 592,618 10,337,291 4,162,594 403,772 201,886 2029/30 3,206,053 90,000 44,549 3,340,603 2,119,144.74 176,394 598,683 10,595,724 4,360,899 423,007 211,504 2030/31 3,203,603 90,000 46,331 3,339,935 2,172,123.36 180,804 604,900 845,000 10,860,617 3,717,854 360,632 180,316 2031/32 3,202,294 90,000 48,184 3,340,478 2,226,426.45 185,324 611,273 866,125 11,132,132 3,902,505 378,543 189,272 2032/33 2,995,175 90,000 50,112 3,135,287 2,282,087.11 189,957 617,805 887,778 11,410,436 4,297,522 416,860 208,430 2033/34 2,966,788 90,000 52,116 3,108,904 2,339,139.29 194,706 624,500 909,973 11,695,696 4,518,475 438,292 219,146 2034/35 2,970,195 90,000 54,201 3,114,396 2,397,617.77 199,574 631,362 932,722 11,988,089 4,712,417 457,104 228,552 2035/36 2,927,089 90,000 3,017,089 2,457,558.21 204,563 638,396 956,040 12,287,791 5,014,145 486,372 243,186 2036/37 2,924,769 90,000 3,014,769 2,518,997.17 209,677 645,606 979,941 12,594,986 5,225,995 506,922 253,461 2037/38 2,917,494 90,000 3,007,494 2,581,972.10 214,919 652,997 1,004,439 12,909,860 5,448,039 528,460 264,230 2038/39 2,378,319 90,000 2,468,319 2,646,521.40 220,292 660,571 1,029,550 13,232,607 6,207,353 602,113 301,057 2039/40 2,372,750 90,000 2,462,750 2,712,684.43 225,800 668,336 1,055,289 13,563,422 6,438,563 624,541 312,270 2040/41 2,300,094 90,000 2,390,094 2,780,501.54 231,445 676,294 1,081,671 13,902,508 6,742,502 654,023 327,011

5,235,516

18

698/029460-0002 9011905.4 a11/20/15 APPENDIX

APPENDIX

DOF DETERMINATION LETTERS

(attached)

19

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DEPARTMENT OF EDMUND G. BROWN JR. - GOVERNORFI NAN CE V 1 5 I. STREET BACRAMENTO CAN 5551 4 3705 www.00F.CA.00V

March 8 2013

Mr. Brian Cochran Finance ManagerCity of Novato

75 Rowland Way Suite 200

Novato CA 94952

Dear Mr. Cochran

Subject Other Funds and Accounts Due Diligence Review

Pursuant to Health and Safety Code HSC section 34179.6 c the City of Novato Successor

Agency Agency submitted an oversight board approved Other Funds and Accounts OFA DueDiligence Review DDR to the CaliforniaDepartment of Finance Financeon January 11 2013.

The purpose of the review was to determine the amount of cash and cash equivalents available

for distribution to the affected taxing entities. Pursuant to HSC section 34179.6 d Finance has

completed its review of your DDR which may have included obtaining clarification for various

items.

HSC section 34179.6 d authorizes Finance to adjust the DDRs stated balance of OFAavailable for distribution to the taxing entities. Based on our review of your DDR the following

adjustment was made

pisallowed.cash transfers in the amount of $21455600. Our review indicates that the

former Redevelopment Agency RDA transferred cash to the City of Novato during the

period January 1 2011 through June 30 2011 to repay city loans. HSC section 34171

d 2 states that agreements contracts or arrangements between the city that created

the RDA and the RDA are not enforceable unless the loan agreements were entered

within the first two years of the date of the creation of the RDA. These loans wereissued after the first two years of the RDAs creation therefore the payments for theseloans are not permitted.

Furthermore pursuant to HSC section 34167.5 the Controller shall review the activities

of RDAs to determine whether an asset transfer has occurred after January 1 2011between the former RDA and the city that created the redevelopment agency or anyother public agency. If such an asset transfer did occur during that period and the

government agency that received the asset is not contractually committed to a third party

for the expenditure or encumbrance of those assets to the extent not prohibited by stateand federal law the Controller shall order the available assets to be returned to the

Agency.

Exhibit Q Page 47720

Mr. Brian Cochran

March 8 2013

Page 2

If you disagree with Finances adjusted amount of OFA balances available for distribution to the

taxing entities you may request a Meet and Confer within five business days of the date of this

letter. The Meet and Confer process and guidelines are available at Finances website below

http//www.dof.ca.gov/redevelopment/meet and confer/

The Agencys OFA balance available for distribution to the affected taxing entities is

$20638454 see table below.

OFA Balances Available For Distribution To.Taxing.EntitiesAvailable Balance per DDR $ 817146Finance Adjustments

Disallowed transfers to City 21455600Total OFAavailable to be distributed $ 20638454

Absent a Meet and Confer request HSC section 34179.6 f requires successor agencies to

transmit to the county auditor-controllerthe amount of funds identified in the above table within

five working days plus any interest those sums accumulated while in the possession of the

recipient.

If funds identified for transmission are in the possession of the successor agency and if thesuccessor agency is operated by the city or county that created the former redevelopmentagency then failure to transmit the identified funds may result in offsets to the citys or the

countys sales and use tax allocation as well as its property tax allocation. If funds identified for

transmission are in the possession of another taxing entity the successor agency is required to

take diligent efforts to recover such funds. A failure to recover and remit those funds may resultin offsets to the other taxing entitys sales and use tax allocation or to its property tax allocation.

If funds identified for transmission are in the possession of a private entity HSC 34179.6 h 1B states that any remittance related to unallowable transfers to a private party may also besubject to a 10 percent penalty if not remitted within 60 days.

Failure to transmit the identified funds will also prevent the Agency from being able to receive a

finding of completion from Finance. Without a finding of completion the Agency will be unableto take advantage of the provisions detailed in HSC section 34191.4. Specifically these

provisions allow certain loan agreements between the former redevelopment agency RDA andthe city county or city and county that created the RDA to be considered enforceable

obligations. These provisions also allow certain bond proceeds to be used for the purposes inwhich they were sold and allows for the transfer of real property and interests into the

Community Redevelopment Property Trust Fund once Finance approves the Agencyslong-rangeproperty management plan.

In addition to the consequences above willful failure to return assets that were deemed anunallowable transfer or failure to remit the funds identified above could expose certain

individuals to criminal penalties under existing law.

Pursuant to HSC section 34167.5 and 34178.8 the CaliforniaState Controllers Office

Controller has the authority to claw back assets that were inappropriately transferred to the

city county or any other public agency. Determinations outlined in this letter do not in any wayeliminate the Controllers authority.

Exhibit Q Page 47821

Mr. Brian Cochran

March 8 2013

Page 3

Fease direct inquiries to Beliz Chappuie Supervisor or Mindy Patterson Lead Analyst at

916 445-1546.

Sincerely

STEVE SZALAYLocal Government Consultant

cc Ms. Cathy Capriola Assistant City Manager City of Novato

Mr. Roy Given Director of Finance Marin County Auditor-Controller

California State Controllers Office

Exhibit Q page 479

22

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. DEPARTMENT OF EDMUND G. BROWN JR. GOVERNOR

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CA4LRRa� F I NAN C E 915 L STREET 9ACRAMCNTD CAN 95814-37DS WWW.n0r.CA.9OV

April 8 2013

Mr. Brian Cochran Finance Manager

City of Novato

75 Rowland Way Suite 200Novato CA 94952

Dear Mr. Cochran

Subject Other Funds and Accounts Due Diligence Review

This letter supersedes the California Department of Finances Finance original Other Funds and

Accounts OFA Due Diligence Review DDR determination letter dated March 8. 2013. Pursuantto Health and Safety Code HSC section 34179.6 c the City of Novato Successor AgencyAgency submitted an oversight board approved OFA DDR to the Finance on January 11 2013.The purpose of the review was to determine the amount of cash and cash equivalents available for

distribution to the affected taxing entities. Finance issued an OFA DDR determination letter onMarch 8 2013. Subsequently the Agency requested a Meet and Confer session on one or moreitems adjusted by Finance. The Meet and Confer session was held on March 21 2013.

Based on a review of additional information and documentation provided to Finance during the

Meet and Confer process Finance has completed its review of those specific items being

disputed. Specifically the following adjustmentswere made

Disallowed cash transfers in the amount of $21455600. Our review indicates that the

former Redevelopment Agency RDA transferred cash to the City of Novato Cityduring the period January 1 2011 through June 30 2011 to repay city loans. Of the

$21455600 transferred $14563041 were proceeds from 2011 Tax Allocation Bonds.The bonds were issued specifically to repay the City loans. The proceeds were used for

the purpose for which they were issued and this transfer is allowable. ThereforeFinance is reversing its adjustment by $14563041.

The remaining amount of $6892559 represents a payment of loans that were issued

after the first two years of the RDAs creation. HSC section 34179.5 c 2 states the

dollar value of assets and cash transferred to the creator of the RDA by the former RDAor successor agency between January 1 2011 through June 30 2012 must be

evidenced by documentation ofthe enforceable obligation that required the transfer.

HSC section 34179.5 b2 states that for the purpose of the HSC section governing

the DDRs enforceable obligation includes any of the items listed in HSC section 34171

d. HSC section 34171 d 2 states enforceable obligation does not include anyagreements contracts or arrangements between the creator of the RDA and the former

RDA. As such the transfer is not an enforceable obligation and pursuant.to HSCsection 34167.5 asset transfers after January 1 2011 between the creator of the RDA

Exhibit 0 Page 46223

Mr. Brian Cochran

pril 8 2013

Page 2

and the former RDA for which an enforceable obligation does not exist Is not permitted.

Therefore the payment of these loans is not permitted and the OFA balance available

for distribution Is adjusted by $6892559.

Finance notes that the repayment of these loans may become enforceable obligations

after the Agency receives a Finding of Completion from Finance. If the oversight board

makes a finding that the loans were for legitimate redevelopment purposes these loans

should be placed on future Recognized Obligation Payment Schedules ROPS for

repayment. Refer to HSC section 34191.4 b for more.guidance.T

The Agencys OFA balance available for distribution to the affected taxing entities is $6075413see table below.

OFA Balances Available For Distribution To Taxing Entities

Available Balance per DDR $ 817146Finance Adjustments

Disallowed transfers to City 6892559Total OFAavallable to be distributed $ 6075413

This is Finances final determination of the OFA balances available for distribution to the taxing

entities. HSC section 34179.6 f requires successor agencies to transmit to the countyauditor-controllerthe amount of funds identified in the above table within five working days plus anyinterest those sums accumulated while in the possession of the recipient. Upon submission of

payment it is requested you provide proof of payment to Finance within five business days.

If funds identified for transmission are in the possession of the successor agency and if the

successor agency is operated by the city or county that created the former redevelopment

agency then failure to transmit the identified funds may result in offsets to the citys or the

countys sales and use tax allocation as well as its property tax allocation. If funds Identified for

transmission are in the possession of another taxing entity the successor agency is required to

take diligent efforts to recover such funds. A failure to recover and remit those funds mayresultin offsets to the other taxing entitys sales and use tax allocation or to its property tax allocation.

If funds identified for transmission are in the possession of a private entity HSC 34179.6 h 1B states that any remittance related to unallowable transfers to a private party may also be

subject to a 10 percent penalty if not remitted within 60 days.

Failure to transmit the identified funds will also prevent the Agency from being able to receive a

finding of completion from Finance. Without a finding of completion the Agency will be unable

to take advantage of the provisions detailed in HSC section 34191.4. Specifically these

provisions allow certain loan agreements between the former redevelopment agency RDA and

the city county or city and county that created the RDA to be considered enforceable

obligations. These provisions also allow certain bond proceeds to be used for the purposes in

which they were sold and allows for the transfer of real property and interests into the

Community Redevelopment Property Trust Fund once Finance approves the Agencyslong-rangeproperly management plan.

In addition to the consequences above willful failure to return assets that were deemed an

unallowable transfer or failure to remit the funds identified above could expose certain

individuals to criminal penalties under existing law.

Exhibit 0 Page 46324

Mr. Brian Cochran

April 8 2013

Page 3

Pursuant to HSC sections 34167.5 and 34178.8 the California State Controllers Office

Controller has the authority to claw back assets that were inappropriately transferred to the

city county or any other public agency. Determinations outlined In this letter do not in any wayeliminate the Controllers authority.

Please direct inquiries to Evelyn Suess Supervisor or Mary Halterman Analyst at

916 445-1546.

Sincerely

STEVE SZALAYLocal Government Consultant

cc Ms. Cathy Capriole Assistant City Manager City of NovatoMr. Roy Given Director of Finance Merin County Auditor-Controller

CaliforniaState Controllers Office

Exhibit 0 Page 46425

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DEPARTMENT OF EDMUND G. BROWN JR. GOVERNORQ4L rOPM�F I N AN C E 91 5 L STREET SACRAMENTO CA 958 1 4-3705 WWw.oor.CA.OGV

REVISED

April 20 2013

Mr. Brian Cochran Finance ManagerCity of Novato

75 Rowland Way Suite 200

Novato CA 94952

Dear Mr. Cochran

Subject Other Funds and Accounts Due Diligence Review

This letter supersedes the CaliforniaDepartment of Finances Finance original Other Funds and

Accounts OFA Due Diligence Review DDR determination letter dated March 8 2013. Pursuant

to Health and Safety Code HSC section 34179.6 c the City of Novato Successor AgencyAgency submitted an oversight board approved OFA DDR to the Finance on January 11 2013.The purpose of the review was to determine the amount of cash and cash equivalents available for

distribution to the affected taxing entities. Finance issued an OFA DDR determination letter on

March 8 2013. Subsequently the Agency requested a Meet and Confer session on one or moreitems adjusted by Finance. The Meet and Confer session was held on March 21 2013.

Based on a review of additional information and documentation provided to Finance during the

Meet and Confer process Finance has completed its review of those specific items being

disputed. Specifically the following adjustments were made

Disallowed cash transfers in the amount of $21455600. Our review indicates that the

former Redevelopment Agency RDA transferred cash to the City of Novato Cityduring the period January 1 2011 through June 30 2011 to repay city loans. Of the

$21455600transferred $14563041 were proceeds from 2011 Tax Allocation Bonds.

The bonds were Issued specifically to repay the City loans. The proceeds were used for

the purpose for which they were issued and this transfer is allowable. ThereforeFinance is reversing its adjustment by $14563041.

The remaining amount of $6892559 represents a payment of loans that were issued

after the first two years of the RDAs creation. HSC section 34179.5 c 2 states the

dollar value of assets and cash transferred to the creator of the RDA by the former RDAor successor agency between January 1 2011 through June 30 2012 must be

evidenced by documentation of the enforceable obligation that required the transfer.

HSC section 34179.5 b 2 states that for the purpose of the HSC section governing

the DDRs enforceable obligation includes any of the items listed in HSC section 34171

d. HSC section 34171 d 2 states enforceable obligation does not include any

agreements contracts or arrangements between the creator of the RDA and the former

RDA. As such the transfer is not an enforceable obligation and pursuant to HSCsection 34167.5. asset transfers after January 1 2011 between the creator of the RDA

Exhibit R Page 48026

Mr. Brian Cochran

April 20 2013

Page 2

and the former RDA for which an enforceable obligation does not exist is not permitted.

Therefore the payment of these loans is not permitted and the OFA balance availablefor distribution Is adjusted by $6892559.

On April 10 2013 after the Meet and Confer process the Agency provided additional

accounting records showing $855600 of the payments were made in October 2010.

Therefore Finance is reversing $855600 of its adjustment.

Finance notes that the repayment of these loans may become enforceable obligations

after the Agency receives a Finding of Completion from Finance. If the oversight boardmakes a finding that the loans were for legitimate redevelopment purposes these loans

should be placed on future Recognized Obligation Payment Schedules ROPS for

repayment. Refer to HSC section 34191.4 b for more guidance.

The Agencys OFA balance available for distribution to the affected taxing entities is $5219813see table below.

OFA Balances Available For Distribution To Taxing Entities

Available Balance per DDR $ 817146Finance Adjustments

Disallowed transfers to City 6036959Total OFAavallable to be distributed $ 5219813

This is Finances final determination of the OFA balances available for distribution to the taxing

entities. HSC section 34179.6 f requires successor agencies to transmit to the countyauditor-controllerthe amount of funds identified in the above table within five working days plus anyinterest those sums accumulated while in the possession of the recipient. Upon submission of

payment it is requested you provide proof of payment to Finance within five business days.

If funds identified for transmission are in the possession of the successor agency and if thesuccessor agency is operated by the city or county that created the former redevelopment

agency then failure to transmit the identified funds may result in offsets to the citys or thecountys sales and use tax allocation as well as its property tax allocation. If funds identified for

transmission are in the possession of another taxing entity the successor agency is required to

take diligent efforts to recover such funds. A failure to recover and remit those funds may resultIn offsets to the other taxing entitys sales and use tax allocation or to its property tax allocation.

If funds identified for transmission are in the possession of a private entity HSC 34179.6 h 1B states that any remittance related to unallowable transfers to a private party mayalso besubject to a 10 percent penalty if not remitted within 60 days.

Failure to transmit the identified funds will also prevent the Agency from being able to receive afinding of completion from Finance. Without a finding of completion the Agency will be unableto take advantage of the provisions detailed In HSC section 34191.4. Specifically these

provisions allow certain loan agreements between the former redevelopment agency RDA andthe city county or city and county that created the RDA to be considered enforceable

obligations. These provisions also allow certain bond proceeds to be used for the purposes in

which they were sold and allows for the transfer of real property and interests into the

CommunityRedevelopment Property Trust Fund once Finance approves the Agencyslong-rangeproperty management plan.

Exhibit R Page 48127

Mr. Brian Cochran

April 20 2013

Page 3

In addition to the consequences above willful failure to return assets that were deemed anunallowable transfer or failure to remit the funds identified above could expose certain

individuals to criminal penalties under existing law.

Pursuant to HSC sections 34167.5 and 34178.8 the California State Controllers Office

Controller has the authority to claw back assets that were inappropriately transferred to the

city county or any other public agency. Determinations outlined in this letter do not in any wayeliminate the Controllers authority.

Please direct inquiries to Evelyn Suess Supervisor or Mary Halterman Analyst at

916 445-1546.

Sincerely

STEVE SZALAYLocal Government Consultant

cc Ms. Cathy Capriola Assistant City Manager City of NovatoMr. Roy Given Director of Finance Merin County Auditor-Controller

California State Controllers Office

Exhibit R Page 48228