CRA/LA, a Designated Local Authority Successor Agency to The Community Redevelopment Agency of The City of Los Angeles

Successor Agency to The Community Redevelopment Agency of The City of Los Angeles

Community Redevelopment Agency of the City of Los Angeles Table of Contents Independent Accountant s Report on Applying Agreed-Upon Procedures 4 Exhibit A Agreed-Upon Procedures and Results 5 Exhibit B-1 Listing of Transfers from the Former Redevelopment Agency to the City of Los Angeles for the Period From January 1, 2011 through January 31, 2012 28 Exhibit B-2 Listing of Transfers from the Successor Agency to the City of Los Angeles for the Period From February 1, 2012 through June 30, 2012 40 Exhibit C-1 Listing of Transfers from the Former Redevelopment Agency to Other Public Agency or Private Parties for the Period From January 1, 2011 through January 31, 2012 42 Exhibit C-2 Listing of Transfers from the Successor Agency to Other Public Agency or Private Parties for the Period From February 1, 2012 through June 30, 2012 61 Exhibit D-1 Summary of the Financial Transactions of the Redevelopment Agency 12 Months Ended 6/30/2010 65 Exhibit D-2 Summary of the Financial Transactions of the Redevelopment Agency 12 Months Ended 6/30/2011 66 Exhibit D-3 Summary of the Financial Transactions of the Redevelopment Agency 7 Months Ended 1/31/2012 67 Exhibit D-4 Summary of the Financial Transactions of the Successor Agency 5 Months Ended 6/30/2012 68 Exhibit E Listing of All Assets as of June 30, 2012 69 Exhibit F-1 Listing of Restricted Balances Unspent Bond Proceeds 70 2

Community Redevelopment Agency of the City of Los Angeles Table of Contents Exhibit F-2 Listing of Restricted Balances Grant Proceeds and Program Income 81 Exhibit F-3 Listing of Restricted Balances Other Restrictions 82 Exhibit G Listing of Assets that are Not Liquid as of June 30, 2012 87 Exhibit H-1 Schedule of Asset Balances that are Dedicated or Restricted for the Funding of Enforceable Obligations as of June 30, 2012 88 Exhibit H-2 Schedule of Approved Enforceable Obligations for the Projection of the Annual Spending and Revenues 89 Exhibit H-3 Schedule of Current Unrestricted Balances Necessary for Retention as of June 30, 2012 99 Exhibit I-1 Recognized Obligation Payment Schedules 2 100 Exhibit I-2 Recognized Obligation Payment Schedules 3 132 Exhibit J Summary of Balances Available for Allocation to Affected Taxing Entities as of June 2012 141 3

3600 WILSHIRE BOULEVARD, SUITE 1710 LOS ANGELES, CA 90010 (213) 736-6664 TELEPHONE (213) 736-6692 FAX www.simpsonandsimpsoncpas.com SIMPSON & SIMPSON CERTIFIED PUBLIC ACCOUNTANTS FOUNDING PARTNERS BRAINARD C. SIMPSON, CPA MELBA W. SIMPSON, CPA Oversight Board of the CRA/LA, a Designated Local Authority Independent Accountant s Report on Applying Agreed-Upon Procedures We have performed the agreed-upon procedures enumerated in Exhibit A, which were generally agreed to by the California State Controller s Office, Department of Finance, and the CRA/LA, a Designated Local Authority and City of Los Angeles (Successor Agency), solely to assist you in ensuring that the Successor Agency is complying with its statutory requirements with respect to AB 1484. Management of the Successor Agency is responsible for the Exhibits B-1, B-2, C-1, C-2, D-1, D-2, D-3, D-4, E, F-1, F-2, F-3, G, H-1, H-2, H-3, I-1, I-2, and J consisted of Listings, Summary, and Schedules that were prepared in accordance with Health and Safety Code Sections 34179.5(c)(1) through 34179.5(c)(6). This agreed-upon procedures engagement was conducted in accordance with attestation standards established by the American Institute of Certified Public Accountants. The sufficiency of these procedures is solely the responsibility of those parties specified in the report. Consequently, we make no representation regarding the sufficiency of the procedures described in Exhibit A either for the purpose for which this report has been requested or for any other purpose. The scope of this engagement was limited to performing the agreed-upon procedures at your direction as set forth in Exhibit A. Exhibit A identifies the findings noted as a result of the procedures performed. Exhibits B-1, B-2, C-1, C-2, D-1, D-2, D-3, D-4, E, F-1, F-2, F-3, G, H-1, H-2, H-3, I-1, I-2, and J consisted of Listings, Summary, and Schedules that were prepared in accordance with Health and Safety Code Sections 34179.5(c)(1) through 34179.5(c)(6). We were not engaged to and did not conduct an audit, the objective of which would be the expression of an opinion on the Listings, Summary, and Schedules in Exhibits B-1, B-2, C-1, C-2, D-1, D-2, D-3, D-4, E, F-1, F-2, F-3, G, H-1, H-2, H-3, I-1, I-2, and J or as to the appropriateness of the results summarized in Exhibit A. Accordingly, we do not express such an opinion. Had we performed additional procedures, other matters might have come to our attention that would have been reported to you. This report is intended solely for the information and use of the Oversight Board, California State Controller s Office, Department of Finance, County of Los Angeles, and the CRA/LA, a Designated Local Authority, and is not intended to be, and should not be used by anyone other than these specified parties. This restriction is not intended to limit distribution of this report, which is a matter of public record. Los Angeles, California January 16, 2013 4

Exhibit A CRA/LA, a Designated Local Authority Community Redevelopment Agency of the City of Los Angeles AGREED-UPON PROCEDURES AND RESULTS 1. Obtain from the Successor Agency a listing of all assets (excluding the Low and Moderate Income Housing Fund) that were transferred from the former redevelopment agency to the Successor Agency on February 1, 2012. Agree the amounts on the listing to account balances established in the accounting records of the Successor Agency. Identify the amount of the assets transferred to the Successor Agency as of that date. Result The Successor Agency provided us with the trial balances, adjusting journal entries, and a listing of all assets of all funds (excluding the assets in the Low and Moderate Income Housing Fund) transferred from the former redevelopment agency to the Successor Agency on February 1, 2012. We agreed the amounts on the listing to account balances in the combined trial balances and related adjusting journal entries. No exceptions were found as a result of applying the procedure. The amounts transferred to the Successor Agency on February 1, 2012 are as follows: Assets Balances Cash and Cash Equivalents $ 163,425,298 Unrestricted Investments 269,625,237 Incremental Property Taxes Receivable 2,026 Grants Receivables 5,453,182 Loans Receivable, Net of Allowance for Market 31,532,370 Value Write-Downs and Uncollectibles Accrued Interest 184,014 Other Receivable 4,847,592 Restricted Assets 120,416,184 Deferred Charges 1,658,670 Deposits for Land Acquisition 17,506,530 Land Held for Redevelopment 90,000,655 Capital Assets 71,400,843 Other Assets 8,035,084 Total Assets $ 784,087,685 5

Exhibit A CRA/LA, a Designated Local Authority Community Redevelopment Agency of the City of Los Angeles AGREED-UPON PROCEDURES AND RESULTS 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: (Continued) B. Obtain a listing prepared by the Successor Agency of transfers (excluding payments for goods and services) from 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. Result We obtained a listing prepared by the Successor Agency of transfers (excluding payments for goods and services) from the former redevelopment agency to the City of Los Angeles for the period from February 1, 2012 through June 30, 2012. The listing of transfers and samples selected are in Exhibit B-2. 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. Result For the sample selected in Exhibits B-1 and B-2, we obtained the legal document that formed the basis for the enforceable obligation that required the transfer. We noted that sample item nos. 12, 57, and 64, payments to the City of Los Angeles Office of City Attorney totaling $3,868,598.90, were for outside legal services retainer. The Successor Agency has represented to us that as of April 27, 2012, the Office of City Attorney of the City of Los Angeles is no longer administering the legal services for the Successor Agency; therefore, the remaining retainer totaling $2,793,688 was returned to the Successor Agency on September 12, 2012. At June 30, 2012, the remaining retainer of $2,793,688 was recorded as other receivables. These items are not considered exceptions. 7

Exhibit A CRA/LA, a Designated Local Authority Community Redevelopment Agency of the City of Los Angeles AGREED-UPON PROCEDURES AND RESULTS 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: (Continued) We also noted that item nos. 3, 17, 27, 38, 49, 50, 51, and 52, payments to the Los Angeles Housing Department (LAHD) totaling $14,743,084 was the former redevelopment agency s contribution to the City of Los Angeles Affordable Housing Trust Fund pursuant to the master cooperation agreement (Contract No. 502817) and various sub-agreements between the former redevelopment agency and LAHD. The Successor Agency has represented to us that the amount was paid on June 16, 2011, prior to the Supreme Court action on December 29, 2011 to uphold AB 1x 26. Although the master cooperation agreement with LAHD is invalidated by AB 1x 26, as provided in Section 34178(a), the Oversight Board on May 10, 2012 approved by resolution of the Successor Agency s reentry into the master cooperation agreement with the City of Los Angeles. However, in the determination letter on ROPS 3, Department of Finance asserts that the Oversight Board cannot authorize the Successor Agency to re-enter into invalidated agreements with the City of Los Angeles. AB 1x-26 excludes payments to the City from the definition of enforceable obligations and requires they be removed from the last schedule adopted by the redevelopment agency prior to the successor agency adopting its first ROPS. The Successor Agency has also represented that the payments made to the City as listed in Exhibit B-1 were pursuant to an enforceable obligation (as identified in the legal basis column). The payments listed in Exhibit B-1 were made pursuant to the valid EOPS schedules (which were not challenged by DOF within the then existing 5 business day review period) and were paid prior to adoption of the final EOPS schedule on January 24, 2012. We noted item no. 9, payment to the City of Los Angeles City Clerk of $23,469,864 was for AB1290 funds returned to the City of Los Angeles. Prior to March 2011, the former redevelopment agency retained the City s share of AB 1290 funds which were used for various projects approved by the City Council. On March 8, 2011, the City of Los Angeles instructed the former redevelopment agency to transfer all existing AB1290 funds to the City of Los Angeles to administer. Subsequently, the former redevelopment agency returned to the City of Los Angeles all unencumbered AB1290 funds and retained only those funds previously encumbered for payment to non-city entities. 8

Exhibit A CRA/LA, a Designated Local Authority Community Redevelopment Agency of the City of Los Angeles AGREED-UPON PROCEDURES AND RESULTS 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: (Continued) For the 75 properties that were transferred to the City of Los Angeles, listed as item nos. 65 through 139 in Exhibit B-1, we noted the absence of language in the legal documents (cooperation agreement and council file) that required the transfer. The Successor Agency has represented to us that the 75 properties were returned by the City of Los Angeles to the Successor Agency by December 4, 2012. Except for the transfer of 75 properties, no exceptions were found as a result of applying the procedure. 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: The Successor Agency has represented to us that the State Controller s Office has not completed its review of transfers required under both Sections 34167.5 and 34178.8; therefore, we performed procedures 3.A, 3.B, and 3.C. 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. Result We obtained 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. The listing of transfers and samples selected are in Exhibit C-1. 9

Exhibit A CRA/LA, a Designated Local Authority Community Redevelopment Agency of the City of Los Angeles AGREED-UPON PROCEDURES AND RESULTS 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 (Continued): 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. Result We obtained 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. The listing of transfers and samples selected are in Exhibit C-2. 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. Result For the sample selected in Exhibit C-1 and C-2, no exceptions were found as a result of applying the procedure. 10

Exhibit A CRA/LA, a Designated Local Authority Community Redevelopment Agency of the City of Los Angeles AGREED-UPON PROCEDURES AND RESULTS 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. Result The summary of the financial transactions of the Redevelopment Agency and the Successor Agency are presented in Exhibits D-1, D-2, D-3, and D-4. 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. Result No exceptions were found as a result of applying the procedure. 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. Result No exceptions were found as a result of applying the procedure. 11

Exhibit A CRA/LA, a Designated Local Authority Community Redevelopment Agency of the City of Los Angeles AGREED-UPON PROCEDURES AND RESULTS 4. Perform the following procedures: (Continued) 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. Result Fiscal Period Support Type 12 Months Ended 6/30/2011 FY11 Audited Financial Statements 7 Months Ended 1/31/2012 Combined Trial Balance as of 1/31/12; Related Post-Closing Journal Entries 5 Months Ended 6/30/2012 Combined Trial Balance as of 6/30/12; Related Post-Closing Journal Entries 5. Obtain from the Successor Agency a listing of all assets of all other funds and accounts of the Successor Agency as of June 30, 2012 for the report that is due December 15, 2012. 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. Result We obtained a listing of all assets of all other funds and accounts as of June 30, 2012 and we agreed the assets listed to the combined trial balances and the related adjusting journal entries as of June 30, 2012. The listing of all assets (excluding LMIHF) as of June 30, 2012 is in Exhibit E. No exceptions were found as a result of applying the procedure. 12

Exhibit A CRA/LA, a Designated Local Authority Community Redevelopment Agency of the City of Los Angeles AGREED-UPON PROCEDURES AND RESULTS 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. Result The Successor Agency provided a listing of restricted balances in Exhibit F-1. We traced the deposit into the redevelopment fund to the bond official statement and fund balances to the trial balances. We also obtained from the Successor Agency the legal document (bond indentures) that sets forth the restriction pertaining to these balances. No exceptions were found as a result of applying the procedure. 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. 13

Exhibit A CRA/LA, a Designated Local Authority Community Redevelopment Agency of the City of Los Angeles AGREED-UPON PROCEDURES AND RESULTS 6. Obtain from the Successor Agency a listing of asset balances held on June 30, 2012 that are restricted for the following purposes: (Continued) Result The Successor Agency provided a listing of restricted balances in Exhibit F-2. We traced the amount to be retained to the fund balances in the trial balances. We also obtained from the Successor Agency the legal document (grant and contract agreements) that sets forth the restriction pertaining to these balances. For item no. 1, Housing Assistance Payments (HAP) Project-based Section 8 Program (HAPP) amount to be retained of $1,779,499.28, we agreed the amount to the fund balance of the Section 8 HAPP Fund (Fund No. 3108) at June 30, 2012. The Successor Agency has represented to us that this amount represents housing assistance received from HUD but not yet disbursed to the project owners and fees received for administering the program. However, the Successor Agency was unable to determine the amounts pertaining to undisbursed housing assistance payments and fees for administering the program. The Successor Agency provided us with a sample of HAP contracts executed among HUD, CRA/LA and the project owners, but was unable to provide us with a copy of the HAPP grant agreement with the HUD, since this program has been operating since the 1980 s. No exceptions were found as a result of applying the procedure. 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 the Successor Agency as restricted. 14

Exhibit A CRA/LA, a Designated Local Authority Community Redevelopment Agency of the City of Los Angeles AGREED-UPON PROCEDURES AND RESULTS 6. Obtain from the Successor Agency a listing of asset balances held on June 30, 2012 that are restricted for the following purposes: (Continued) Result The Successor Agency provided a listing of restricted balances totaling $35,496,109.37. See Exhibit F-3 for the listing of restricted balances and sample selected. For the sample selected, we traced the amount to be retained to the fund balances or related liabilities of the trial balances. No exceptions were noted as a result of applying this procedure. The Successor Agency also provided the legal documents that set forth the restriction pertaining to these balances. No exceptions were noted as a result of applying this procedure. For item no. 1, construction disbursement payable totaling $10,308,674 represents remaining loan funds on executed loan agreements in the Construction Disbursements Payable (CDP) account to be disbursed to the various borrowers. The Successor Agency uses the CDP account within the Successor Agency fund to handle escrow like functions formerly performed by an outside escrow company. Through the CDP account, the Successor Agency provides loan disbursements to various borrowers. Monies deposited to CDP account are considered funded loans. The disbursement of the loan fund is further conditioned upon the requirements set forth in the loan agreement such as project budget, schedule of performance, and site control; and therefore, balances are considered as legally restricted. We obtained the Successor Agency s computation of the CDP account balances to be retained and traced the undisbursed balances to the construction disbursement payable amounts in the trial balance. 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. Result The listing of restricted asset balances, along with time restriction, is presented in Exhibit F-1, Exhibit F-2, and Exhibit F-3. 15

Exhibit A CRA/LA, a Designated Local Authority Community Redevelopment Agency of the City of Los Angeles AGREED-UPON PROCEDURES AND RESULTS 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. Result We obtained a listing of assets as of June 30, 2012 that is not liquid. See Exhibit G. The Successor Agency has represented to us that the values of the non-liquid assets were recorded at the following basis: ERIP Employee Receivable Other Receivables Loans Receivable, Net of Allowance for Market Value Write-Downs and Uncollectibles ERIP Employee Receivable represents the amount of estimated ERIP costs incurred as of June 30, 2012. ERIP is to be recovered by future employee contributions calculated at 2.25% of gross wages. Due to CRA/LA s dissolution and the nature of this receivable, the ERIP Employee Receivable is not considered liquid asset Management analysis of the individual account balances for collectability Market Value at June 30, 2011 (the most recent estimates by the Successor Agency) Deferred Charges (Bond Issuance Costs) Book Value at June 30, 2012 Deposits for Land Acquisition Cost Land Held for Redevelopment Cost Capital Assets Land Cost Building and Improvements Book Value (Cost less Accumulated Depreciation at June 30, 2012) Equipment Book Value (Cost less Accumulated Depreciation at June 30, 2012) Other Assets Cost 16

Exhibit A CRA/LA, a Designated Local Authority Community Redevelopment Agency of the City of Los Angeles AGREED-UPON PROCEDURES AND RESULTS 7. Perform the following procedures (Continued): 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. Result We traced the amounts to the combined trial balances and related adjusting journal entries at June 30, 2012 and the previously audited financial statements as of June 30, 2011. No exceptions were noted by tracing the amounts to June 30, 2012 combined trial balances, but we noted differences when tracing the amounts to the previously audited financial statements as of June 30, 2011. 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. Result Differences noted in 7(B) are as follow: Assets at Purchase Cost Deposits for land acquisition Land held for redevelopment Capital assets, net of accumulated depreciation and amortization Balance at June 30, 2012 Balance at June 30, 2011 Net Change Explanation and procedures performed $ 10,663,926 $ 20,458,883 $ (9,794,957) Return of deposits from the escrow for cancellation of land acquisition. Traced the deposits into the bank statements. 91,903,151 90,000,655 1,902,496 Addition on land acquisition. Inspected the payment and escrow statement. 68,981,889 68,775,727 206,162 Additions offset by the sale of land and depreciation expenses. Traced the proceed into the bank statement and additions to the payment voucher. Other assets 4,373,138 4,969,976 (596,838) Return of good faith deposits and changes in prepaid expenses. Inspected the journal entries and payment vouchers. 17

Exhibit A CRA/LA, a Designated Local Authority Community Redevelopment Agency of the City of Los Angeles AGREED-UPON PROCEDURES AND RESULTS 7. Perform the following procedures (Continued): 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. Result The loan receivable balances at June 30, 2012 are listed at recently estimated market value of June 30, 2011. We inspected the appraised value and methodology of the mortgage loan portfolio reports as of June 30, 2011, which was prepared by the independent valuation company, Millar Valuation Company. Loan receivable, net of allowance for market value write-downs and uncollectibles balances were $31,358,961 and $31,775,144 as of June 30, 2012 and 2011, respectively. The decrease of $416,183 was principal reduction of a forgivable loan supported by a schedule of benefit payment from the developer. No exceptions were found as a result of applying the procedure. 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 unable to provide appropriate restricting language in the legal document associated with the enforceable obligation. 18

Exhibit A CRA/LA, a Designated Local Authority Community Redevelopment Agency of the City of Los Angeles AGREED-UPON PROCEDURES AND RESULTS 8. Perform the following procedures: (Continued) Result The Successor Agency has represented to us that asset balances need to be retained to satisfy enforceable obligations. We obtained an itemized schedule of asset balances that need to be retained to satisfy enforceable obligations as of June 30, 2012 (see Exhibit H-1). For item no. 1, the Successor Agency has represented to us that $53,867,883 needs to be retained since this amount represents LMIHF s equity in the CRA/LA investment pool as of June 30, 2012. The investment pool is utilized to combine and invest resources of participating funds that do not have yield restrictions or other limitations on investments. The $53,867,883 was reported under Due from Other Funds on the Listing of All Assets of the Low and Moderate Income Housing Fund as of June 30, 2012 in the Agreed-Upon Procedures Report for the LMIHF dated September 28, 2012 and $35,644,416 was remitted to County of Los Angeles for disbursement to taxing entities on December 19, 2012. The remaining balance of $18,223,467 will be used for the scheduled payments in ROPS 2 and 3. For item no. 2, the Successor Agency has represented to us that $8,000,000 needs to be retained for administration and litigation matters. The Governing Board and Oversight Board of the Successor Agency authorized the establishment of the Administration/Litigation Encumbered Reserve for purposes of having funds readily available to allow the Successor Agency to expeditiously resolve unforeseen or unscheduled administrative liabilities and for settlement of litigation matters (Resolution No. 12-34). We agreed the $8,000,000 to item 1575 on ROPS 1, which was approved by the California Department of Finance; and therefore, recognized as an enforceable obligation. The Successor Agency did not provide us with legal document with appropriate restricting language associated with this enforceable item. We traced this obligation item to the County of Los Angeles (County) Department of Auditor-Controller s Report on Agreed-Upon Procedures pursuant to AB x1 26 (County AUP Report), which was submitted to the California State Controller on August 27, 2012. According to the legal analysis performed by the County Counsel, the Administration/Litigation Reserve is not an enforceable obligation under ABx1 26. For item no. 3, the Successor Agency has represented to us that $5,423,391 needs to be retained for payment of enforceable obligations incurred but not yet disbursed as of June 30, 2012. The Successor Agency represented to us that due to timing issues resulting from the Department of Finance s approval of ROPS 1 and on-going year-end closing activities, payments of these enforceable items (see details in Exhibit H-2) occurred after June 30, 2012. 19

Exhibit A CRA/LA, a Designated Local Authority Community Redevelopment Agency of the City of Los Angeles AGREED-UPON PROCEDURES AND RESULTS 8. Perform the following procedures: (Continued) 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. 20

Exhibit A CRA/LA, a Designated Local Authority Community Redevelopment Agency of the City of Los Angeles AGREED-UPON PROCEDURES AND RESULTS 8. Perform the following procedures: (Continued) Result We obtained from the Successor Agency a schedule of approved enforceable obligation and a projection of the annual revenues available to fund those requirements in Exhibit H-2. For the sample selected, we compared the enforceable obligations to the reviewing letter from the California Department of Finance for ROPS 1 & 2. We also compared the forecasted annual spending requirements for the sample selected to the legal document supporting the enforceable obligations. For items nos. 1 and 2, see discussion results of 8 (A) on page 18. For item no. 3, the Successor Agency has represented to us that the forecasted spending requirements of $3,450,000 are for the closeout of existing litigations and legal matters. The projected outflows are based on management s assessments of the outstanding legal cases. The Successor Agency has represented to us that this amount needs to be retained to expeditiously resolve and settle existing litigations and legal matters. For item no. 114, the Successor Agency has represented to us that the forecasted spending requirements of $1,250,000 are for the funding of CRA/LA s self-insured retention (SIR) or deductible. The CRA/LA s insurance program consists of several types of liability coverage including SIR; whereby, CRA/LA must pay the deductible before the insurance policy responds to a claim. The projected outflows are based on existing insurance policies and deductible amounts for the period April 1, 2012 through March 31, 2013. No exceptions were found as a result of applying the procedures. The Successor Agency has represented to us that projected future unrestricted Other Funds (i.e., Special Revenue principally from lease payments), together with current balances of Reserve Balance and Other Funds (Special Revenue) dedicated or restricted to enforceable obligations, are insufficient to fund the Successor Agency s wind down activities and thus retention of current balances is required. 21

Exhibit A CRA/LA, a Designated Local Authority Community Redevelopment Agency of the City of Los Angeles AGREED-UPON PROCEDURES AND RESULTS 8. Perform the following procedures: (Continued) The Successor Agency has further represented that, given the breadth and complexity of the former redevelopment activities, the wind down requires the retention of highly-specialized professional staff. The thoughtfully developed staffing plan, comprising both administrative/finance and program delivery professionals, allows for the orderly and expeditious wind down of the former redevelopment agency s affairs and mitigates against risks that could create new liabilities. The resulting operation of the Successor Agency exceeds the 3% administrative cost allowance allowed under the legislation. The Department of Finance has advised that State law allows for administrative costs in excess of the 3% allowance to be incurred, provided they do not require allocation of RPTTF. Accordingly, the Successor Agency is requesting the retention of current balances of Other Funds (Special Revenue) and Reserve Balance to fulfill its contractual obligations to employees and fulfill its responsibilities to holders of enforceable obligations and requirements set forth in the Dissolution Act. Absent retention of these funds, the Successor Agency will be required to abruptly curtail its wind down efforts. We obtained from the Successor Agency its assumptions relating to the forecasted annual spending requirements and annual revenues. The major assumptions associated with the projection are summarized below: 22

Exhibit A CRA/LA, a Designated Local Authority Community Redevelopment Agency of the City of Los Angeles AGREED-UPON PROCEDURES AND RESULTS 8. Perform the following procedures: (Continued) Forecasted Spending Successor Agency staff was requested to identify all payments associated with enforceable obligations that are expected to have outstanding obligations as of June 30, 2013 (end of the ROPS 3 period). The Projection also assumes that the Department of Finance affirms the Successor Agency s position. Program Delivery Payments are scheduled in the ROPS period in which they are due, based on terms outlined in the underlying DDA/OPA, loan agreement, contract, purchase order or professional services agreement. Administrative Costs The main assumption is that administrative and project-related implementation activities of the Successor Agency will wind down over the next 5 years, such that staffing and associated administrative costs can be funded within the allocated administrative allowance after ROPS 13. Consistent with the down trending workload, the forecast assumes staffing costs will be reduced by 10% each 6-month ROPS period, with administrative costs reducing in a similar fashion. Forecasted Revenues Successor Agency staff prepared projections of the available funding sources. Program Delivery The projection assumes that the primary future source of funding to pay enforceable obligations related to Program Delivery matters is RPTTF. Moreover, the Successor Agency has carefully distinguished between staff positions performing functions that are solely administrative in nature from those which support program delivery. State law is clear that program delivery costs those that are directly implementing enforceable obligations are payable from RPTTF. Based on the current split between program delivery and administrative staff, the projection assumes that 31% of staffing/salary costs are payable from RPTTF. 23

Exhibit A CRA/LA, a Designated Local Authority Community Redevelopment Agency of the City of Los Angeles AGREED-UPON PROCEDURES AND RESULTS 8. Perform the following procedures: (Continued) Administrative Costs Comprising staffing/fringe benefit costs and administrative expenses, the fund sources for each are as follows: o Active employee costs The projection assumes these costs, originating from obligations set forth in the collective bargaining agreement with AFSCME, are funded as follows: existing Reserve Balance (to be retained); Administrative Cost Allowance (with any amount remaining after funding administrative costs); Other Funds (Special Revenue to be retained); and as necessary, from Available Bond Proceeds (to be retained). o Retiree costs The projection assumes these enforceable obligations, emanating from obligations set forth in the collective bargaining agreement with AFSCME, are funded from RPTTF. o Administrative costs The projection assumes these costs are funded chiefly from the 3% Administrative Cost Allowance. Asset Disposition Proceeds It is assumed that the Successor Agency will receive a Finding of Completion from DOF in the 1st Quarter 2013, following remittance to the County Auditor- Controller of the payments identified on the DOF-approved Due Diligence Reviews. The Successor Agency is assumed to submit a Long Range Property Management Plan (LRPMP) to the Oversight Board for approval. Following DOF review and approval of the LRPMP, the Successor Agency will be authorized to dispose of certain real and personal property assets. For purposes of the projection, it is assumed that revenue-generating assets (namely, the California Plaza properties) will be conveyed to a private, third-party entity sometime in FY2015. The projection therefore assumes no lease revenue from these assets beginning with ROPS 7. Upon DOF approval of the LRPMP, all real property and interest are required to be deposited in the Community Redevelopment Property Trust Funds (CRPTF). The proceeds from the sale of real property are to be distributed to the affected taxing entities, and therefore are not included in the revenue projections with the exception of Cinerama Dome bond and related enforceable obligations which are fully offset by facility-generating revenue including proceeds from the facility s projected sale in FY 2015. 24

Exhibit A CRA/LA, a Designated Local Authority Community Redevelopment Agency of the City of Los Angeles AGREED-UPON PROCEDURES AND RESULTS 8. Perform the following procedures: (Continued) 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. Result The Successor Agency has represented to us that they believe that projected property tax revenues and other general purpose revenues to be received by the Successor Agency are sufficient to pay bond debt service payments; therefore, the procedures were not performed. 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. ii. Reduce the amount of total resources available by the amount forecasted for the annual spending requirements. iii. Include the calculation in the AUP report. Result We calculated the amount of current unrestricted balances necessary for retention in order to meet the enforceable obligation in Exhibit H-3. 25

Exhibit A CRA/LA, a Designated Local Authority Community Redevelopment Agency of the City of Los Angeles AGREED-UPON PROCEDURES AND RESULTS 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. Result The Successor Agency has represented to us that cash balances as of June 30, 2012 are needed to be retained to satisfy obligations on ROPS 2 for the period of July 1, 2012 through December 31, 2012 and ROPS 3 for the period of January 1, 2013 through June 30, 2013. See other funds obligations on ROPS 2 and 3 in Exhibit I-1 and I-2, respectively. 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. Separate schedules should be completed for the all other funds combined (excluding the Low and Moderate Income Housing Fund). Result We performed the procedure and the result is presented in Exhibit J. 26

Exhibit A CRA/LA, a Designated Local Authority Community Redevelopment Agency of the City of Los Angeles AGREED-UPON PROCEDURES AND RESULTS 11. 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. Result We obtained a representation letter from the Successor Agency. 27