Due: September 1, as shown on the inside cover hereof

Transcription

1 NEW ISSUE - BOOK-ENTRY ONLY SERIES L (TAXABLE) BONDS- TAXABLE (FEDERAL) AND TAX-EXEMPT (STATE OF CALIFORNIA) SERIES N (TAX-EXEMPT) BONDS- TAX-EXEMPT (FEDERAL AND STATE OF CALIFORNIA) INSURED RATINGS: Moody s: Aaa S & P: AAA Fitch: AAA See Ratings herein. In the opinion of Robinson & Pearman LLP, Bond Counsel, under existing law, interest on the Series L Bonds and the Series N Bonds is exempt from personal income taxes of the State of California. Bond Counsel is further of the opinion that, under existing law and assuming compliance with the tax covenants described herein, interest on the Series N Bonds is excluded pursuant to section 103(a) of the Internal Revenue Code of 1986 from the gross income of the owners thereof for federal income tax purposes and is not an item of tax preference for purposes of the federal alternative minimum tax. Bond Counsel expresses no opinion as to the exclusion from gross income for federal income tax purposes of interest on the Series L Bonds or regarding any other federal tax consequence relating to the accrual or receipt of interest on the Series L Bonds or the Series N Bonds. See TAX MATTERS herein. COMMUNITY REDEVELOPMENT FINANCING AUTHORITY OF THE COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF LOS ANGELES, CALIFORNIA POOLED FINANCING BONDS $32,000,000 SERIES L (TAXABLE) (Reseda/Canoga Park, Pacoima/Panorama City and East Hollywood/Beverly-Normandie Project Areas) $8,000,000 SERIES N (TAX-EXEMPT) (Pacoima/Panorama City Project Area) Dated: Date of Delivery Due: September 1, as shown on the inside cover hereof The Series L Bonds and the Series N Bonds named above, herein collectively referred to as the Bonds, are authorized to be issued pursuant to the provisions of the Marks-Roos Local Bond Pooling Act of 1985, Article 4 of Chapter 5 of Division 7 of Title 1 of the Government Code of the State of California (the Bond Law ). The Bonds will be issued by the Community Redevelopment Financing Authority of The Community Redevelopment Agency of the City of Los Angeles, California (the Authority ). The Series L Bonds are issued pursuant to an Indenture of Trust, dated as of June 1, 2006 (the Series L Indenture ), by and between the Authority and U. S. Bank National Association, Los Angeles, California, as Trustee for the Bonds (the Trustee ). The proceeds of sale of the Series L Bonds will be used to make three separate loans (the Series L Loans ) to The Community Redevelopment Agency of the City of Los Angeles, California (the Agency ) to finance and refinance improvements within three redevelopment projects of the Agency: the Earthquake Disaster Assistance Project for Portions of Council District 7 (the Pacoima/Panorama City Project ), the Earthquake Disaster Assistance Project for Portions of Council District 3 (the Reseda/Canoga Park Project ), and the East Hollywood/Beverly-Normandie Earthquake Disaster Assistance Project (the East Hollywood/Beverly-Normandie Project ), further identified herein (each, a Project and Project Area and together, the Project Areas ), to fund a portion of the existing reserve accounts for the loans and parity obligations of each Project Area (the Reserve Account ) by obtaining a Debt Service Reserve Fund Surety Bond for each Reserve Account (each, a "Reserve Fund Surety Bond") in an amount which, together with the amounts currently held therein, will be not less than the Reserve Requirement for such Reserve Account, as further described herein, and to pay the costs of issuance of the Series L Bonds. The Series N Bonds are issued pursuant to an Indenture of Trust, dated as of June 1, 2006 (the Series N Indenture ), by and between the Authority and the Trustee. The proceeds of sale of the Series N Bonds will be used to make a single loan to the Agency (the Series N Loan and together with the Series L Loans, the 2006 Agency Loans ), to finance and refinance improvements within the Pacoima/Panorama City Project, to fund a portion of the Reserve Account for the 2006 Pacoima/Panorama City Loan Agreement and the Pacoima/Panorama City 2003 Parity Loan (defined herein) by obtaining a Reserve Fund Surety Bond for said Reserve Account in an amount which, together with the amounts currently held therein, will be not less than the Reserve Requirement for such Reserve Account, as further described herein, and to pay the costs of issuance of the Series N Bonds. The 2006 Agency Loans will be made pursuant to separate Loan Agreements for each Project Area dated as of June 1, 2006 between the Authority and the Agency (the 2006 Agency Loan Agreements ). The Bonds will be issued in book-entry only form and will be initially registered in the name of Cede & Co., as registered owner and nominee for The Depository Trust Company, New York, New York ( DTC ). Purchases of beneficial interests in the Bonds will be made in book-entry form only in denominations of $5,000 and any integral multiple thereof. Purchasers of beneficial interests will not receive certificates from the Authority or the Trustee representing their interests in the Bonds. Payments of principal and interest on the Bonds will be made directly to DTC or its nominee, Cede & Co., so long as DTC or Cede & Co. is the registered owner of the Bonds. Upon receipt of payments of such principal and interest, DTC is obligated to remit such principal and interest to the participants in DTC for subsequent disbursement to the beneficial owners of the Bonds. See THE BONDS DTC And The Book-Entry Only System herein. Interest on the Bonds will be payable on March 1 and September 1 of each year (the Interest Payment Dates ), commencing March 1, Principal and redemption premiums, if any, on the Bonds shall be payable upon the surrender thereof, at the corporate trust office of the Trustee, at maturity or the earlier redemption thereof and shall be paid in lawful money of the United States of America. See THE BONDS herein. The Bonds are subject to optional and mandatory redemption prior to their respective stated maturity dates, as described herein. Each Series of the Bonds is separately secured by a pledge of, and charge and lien upon, the Revenues pledged thereto under the respective Indenture relating to such Series, and such other moneys and securities of the Authority as are pledged under the respective Indenture. The Revenues and such other moneys and securities pledged under each Indenture constitute a trust fund for the security and payment of the principal of and interest and premium, if any, on said Series of the Bonds issued thereunder. The Revenues are comprised principally of the payments to be made by the Agency with respect to principal and interest on the 2006 Agency Loans. The 2006 Agency Loans are each separately payable by the Agency from, and secured by a pledge of and first lien on, the Pledged Tax Revenues of the respective Project Area, which consist of a portion of all taxes levied upon all taxable property and allocated to the Agency from the Project Area, and are payable from certain specified funds and accounts held under the 2006 Agency Loan Agreement relating to said Series of Bonds. The 2006 Agency Loans are payable from the Pledged Tax Revenues on a parity with certain outstanding parity obligations (as further described herein, the 2003 Parity Loans ) incurred by the Agency with respect to each of the Project Areas. See SECURITY FOR THE BONDS Parity Debt and Other Obligations herein. The Bonds are not a debt of the City of Los Angeles or of the State of California or any of its political subdivisions (other than the Authority to the extent set forth herein), and neither the City of Los Angeles nor the State of California nor any of its political subdivisions (other than the Authority to the extent set forth herein) is liable therefor. The full faith and credit of the Authority is not pledged for the payment of the principal of or the interest or redemption premiums, if any, on the Bonds. Neither the members of the Agency, the members of the Authority nor any persons executing the Bonds are personally liable on the Bonds. In no event will the Authority be obligated to pay the Bonds out of any funds or properties other than those relating to said Series of Bonds which are specifically pledged pursuant to the respective Indenture. Neither the Authority nor the Agency has any powers of taxation. Payment of principal of and interest on the Bonds will be insured in accordance with the terms of separate Financial Guaranty Insurance Policies to be issued with respect to each Series of the Bonds, simultaneously with the delivery of the Bonds, by MBIA Insurance Corporation. See THE BOND INSURER AND THE MUNICIPAL BOND INSURANCE POLICIES and APPENDIX G SPECIMEN FINANCIAL GUARANTY INSURANCE POLICY AND RESERVE FUND SURETY BOND herein. This cover page of the Official Statement contains information for quick reference only. It is not a complete summary of the Bonds. Investors should read the entire Official Statement to obtain information essential to the making of an informed investment decision. Attention is hereby directed to certain Risk Factors, more fully described herein. The Bonds are offered when, as and if issued and accepted by the Underwriters, subject to the approval as to legality by Robinson & Pearman LLP, Los Angeles, California, Bond Counsel. Certain legal matters will be passed on for the Authority and the Agency by Rockard J. Delgadillo, City Attorney of the City of Los Angeles, California, and by The Law Offices of Elizabeth C. Green, Los Angeles, California, Disclosure Counsel. It is anticipated that the Bonds will be available for delivery in definitive form on or about June 28, Sutter Securities Incorporated Dated: June 14, 2006 Backstrom McCarley Berry & Co., LLC

2 MATURITY DATES, PRINCIPAL AMOUNTS, INTEREST RATES AND PRICES AND YIELDS COMMUNITY REDEVELOPMENT FINANCING AUTHORITY OF THE COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF LOS ANGELES, CALIFORNIA $32,000,000 POOLED FINANCING BONDS, SERIES L (TAXABLE) (Reseda/Canoga Park, Pacoima/Panorama City and East Hollywood/Beverly-Normandie Project Areas) (Base CUSIP: 54438E) $11,340, % Term Bonds due September 1, 2016 Price: CUSIP 54438EHM3 $8,815, % Term Bonds due September 1, 2021 Price: CUSIP 54438EHS0 $11,845, % Term Bonds due September 1, 2026 Price: CUSIP 54438EHX9 $8,000,000 POOLED FINANCING BONDS, SERIES N (TAX-EXEMPT) (Pacoima/Panorama City Project Area) (Base CUSIP: 54438E) Year (September 1) Principal Amount Interest Rate Price or Yield CUSIP Year (September 1) Principal Amount Interest Rate Price or Yield CUSIP 2007 $195, % EHY $310, % EJD , EHZ , EJE , EJA , EJF , EJB , EJG , EJC , EJH2 $5,000, % Term Bonds due September 1, 2026 Price: CUSIP 54438EJT6 Copyright 2006, American Bankers Association. CUSIP numbers herein are provided by Standard & Poor's CUSIP Service Bureau, a Division of the McGraw-Hill Companies, Inc., and are set forth herein for the convenience of reference only. The Authority, the Agency, Bond Counsel, Disclosure Counsel and the Underwriters do not assume responsibility for the accuracy of such numbers.

3 MAYOR OF THE CITY OF LOS ANGELES Antonio R. Villaraigosa CITY COUNCIL OF THE CITY OF LOS ANGELES City Council Tony Cardenas Tom LaBonge Bill Rosendahl Eric Garcetti Alex Padilla Greig Smith Wendy Greuel Bernard C. Parks Jack Weiss Janice Hahn Jan Perry Herb J. Wesson, Jr. José Huizar Ed P. Reyes Dennis P. Zine OFFICIALS OF THE CITY OF LOS ANGELES Rockard J. Delgadillo, City Attorney Laura N. Chick, City Controller William T Fujioka, City Administrative Officer Frank T. Martinez, City Clerk Joya C. De Foor, City Treasurer THE COMMUNITY REDEVELOPMENT FINANCING AUTHORITY OF THE COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF LOS ANGELES, CALIFORNIA and THE COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF LOS ANGELES, CALIFORNIA Authority Board of Commissioners and Agency Board Bruce D. Ackerman John A. Pérez William H. Jackson, Chairman Madeline Janis-Aparicio, Vice-Chair Joan Ling, Treasurer Agency Management Alejandro Ortiz Brenda Shockley Cecilia V. Estolano, Chief Executive Officer Donald R. Spivack, Acting Chief Operating Officer and Deputy Chief of Operations Randall K. Wilkins, Chief Financial Officer Raymond L. Fors, Finance Director Margarita De Escontrias, Regional Administrator (East Valley Region) Helmi Hisserich, Regional Administrator (Hollywood and Central Region) Leslie Lambert, Regional Administrator (West Valley Region) Agency General Counsel Rockard J. Delgadillo, City Attorney Los Angeles, California SPECIAL SERVICES Bond Counsel Robinson & Pearman LLP Los Angeles, California Disclosure Counsel Law Offices of Elizabeth C. Green Los Angeles, California Trustee U. S. Bank National Association Los Angeles, California Fiscal Consultant Katz Hollis Los Angeles, California

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6 No dealer, broker, salesperson or other person has been authorized by the Agency, the Authority or the Underwriters to give any information or to make any representations other than those contained herein in connection with the offering of the Bonds described herein, and, if given or made, such other information or representation must not be relied upon as having been authorized by any of the foregoing. This Official Statement does not constitute an offer to sell nor the solicitation of any offer to buy nor shall there be any sale of the Bonds by any person in any jurisdiction in which it is unlawful for such person to make such an offer, solicitation or sale. This Official Statement is not to be construed to be a contract with the purchasers of the Bonds. Statements contained in this Official Statement which involve estimates, forecasts or matters of opinion, whether or not expressly described herein, are intended solely as such and are not to be construed as representations of fact. This Official Statement is submitted in connection with the sale of the Bonds referred to herein and may not be reproduced or used, in whole or in part, for any other purpose. The Underwriters have provided the following sentence for inclusion in this Official Statement. The Underwriters have reviewed the information in this Official Statement in accordance with, and as a part of, their responsibilities to investors under the federal securities laws as applied to the facts and circumstances, of this transaction, but the Underwriters do not guarantee the accuracy or completeness of such information. The information and expression of opinions contained herein are subject to change without notice, and neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the Agency or any other party described herein since the date hereof. Certain statements included or incorporated by reference in the following information constitute forward-looking statements. Such statements are generally identifiable by the terminology used such as plan, assume, expect, estimate, budget or other similar words. Specifically, the Agency has set forth certain projections of tax increment revenues to be received by the respective Project Areas in the sections herein captioned THE RESEDA/CANOGA PARK PROJECT, THE PACOIMA/PANORAMA CITY PROJECT, and THE EAST HOLLYWOOD/BEVERLY- NORMANDIE PROJECT. The achievement of certain results or other expectations contained in such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements described to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. No assurance is given that actual results will meet the Agency s forecasts in any way, regardless of the level of optimism communicated in the information. Except as set forth in the Continuing Disclosure Agreement (see Appendix D hereof), the Agency does not plan to issue any updates or revisions to those forward-looking statements if or when its expectations, or events, conditions or circumstances on which such statements are based occur. A wide variety of other information, including financial information, concerning the Authority and the Agency is available from publications and websites of the Authority, the Agency, the City and others. Any such information that is inconsistent with the information set forth in this Official Statement should be disregarded. No such information is a part of or incorporated into this Official Statement, except as expressly noted. IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVERALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE THE MARKET PRICE OF THE BONDS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. THE BONDS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, IN RELIANCE UPON AN EXEMPTION CONTAINED IN SUCH ACT. THE BONDS HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE.

7 INTRODUCTORY STATEMENT...1 General...1 The Bonds...3 Tax Allocation Financing...5 The Agency and the Authority...6 The Project Areas...6 Continuing Disclosure...7 Further Information...8 THE BONDS...8 Description of the Bonds...8 Redemption Provisions...8 DTC and Book-Entry Only System...11 SOURCES AND USES OF FUNDS...11 Plan of Financing...11 Sources and Uses of Funds...12 DEBT SERVICE SCHEDULES...14 Debt Service Coverage...16 SECURITY FOR THE BONDS...18 General...18 Tax Allocation Financing...18 Allocation of Taxes...19 Pledged Tax Revenues...20 Loans Payable From Tax Revenues...20 Revenues Application to Bonds...22 Surplus Revenues...23 Reserve Accounts and Reserve Fund Surety Bonds...23 Issuance of Parity Debt and Other Obligations...26 THE BOND INSURER AND THE FINANCIAL GUARANTY INSURANCE POLICY...28 RISK FACTORS...31 Bonds Are Limited Obligations...31 Reduction of Tax Revenues...31 Concentration of Ownership...32 Assessment Appeals...32 Tax Revenue Assumptions and Projections...33 Real Estate and General Economic Risks...33 Reduction in Inflationary Rate...33 Risk of Earthquake and Other Disasters...34 Bankruptcy and Foreclosure...34 LIMITATIONS ON TAX REVENUES...34 Article XIIIA of the California Constitution...34 Legislation Implementing Article XIIIA...35 Court Challenges to Property Tax System...36 Appropriations Limitations Article XIIIB...36 Property Tax Collection Procedures...37 Supplemental Assessments...37 Filing of Statement of Indebtedness...38 Tax Collection Fees...38 Unitary Property Tax...38 Proposition Section (AB 1290) Payments...39 Low and Moderate Income Housing Requirements...39 Section Payments...40 State Budget...40 Future Initiatives...41 Historical and Future Taxable Value...41 RESEDA/CANOGA PARK PROJECT AREA MAP...42 RESEDA/CANOGA PARK PROJECT...43 TABLE OF CONTENTS Project Area Description...43 Development Within the Project Area...43 Development Activity...44 Limitations and Requirements of the Redevelopment Plan...45 Ten Largest Taxpayers...46 Historical Taxable Values...47 Projected Tax Revenues...48 Project Debt Service Schedule...50 Assessment Appeals...50 Housing Set-Aside Requirements...51 Section (AB 1290) Payments...51 PACOIMA/PANORAMA CITY PROJECT AREA MAP...53 PACOIMA/PANORAMA CITY PROJECT...54 Project Area Description...54 Development Within the Project Area...54 Development Activity...55 Limitations and Requirements of the Redevelopment Plan...56 Ten Largest Taxpayers...57 Historical Taxable Values...57 Projected Tax Revenues...59 Project Debt Service Schedule...61 Assessment Appeals...61 Housing Set-Aside Requirements...62 Section (AB 1290) Payments...62 EAST HOLLYWOOD/BEVERLY-NORMANDIE PROJECT AREA MAP...64 EAST HOLLYWOOD/BEVERLY-NORMANDIE PROJECT...65 Project Area Description...65 Development Within the Project Area...65 Development Activity...66 Limitations and Requirements of the Redevelopment Plan...66 Ten Largest Taxpayers...67 Historical Taxable Values...68 Projected Tax Revenues...69 Project Debt Service Schedule...71 Assessment Appeals...72 Housing Set-Aside Requirements...72 Section (AB 1290) Payments...72 THE AUTHORITY...75 THE AGENCY...75 Personnel 75 Agency Projects...77 Powers...79 Factors Affecting Redevelopment Agencies Generally...77 Financial Information...77 Agency Investment Policy...79 TAX MATTERS...80 RATINGS...81 UNDERWRITING...82 LEGAL OPINION...82 NO LITIGATION...82 MISCELLANEOUS...82 i

8 APPENDICES APPENDIX A FISCAL CONSULTANT S REPORT...A-1 APPENDIX B SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURES AND LOAN AGREEMENTS B-1 APPENDIX C EXCERPTS FROM THE AUDITED FINANCIAL STATEMENTS OF THE AGENCY...C-1 APPENDIX D SUMMARY OF CONTINUING DISCLOSURE AGREEMENT...D-1 APPENDIX E FORM OF BOND COUNSEL OPINION...E-1 APPENDIX F DTC AND THE BOOK-ENTRY ONLY SYSTEM...F-1 APPENDIX G SPECIMEN FINANCIAL GUARANTY INSURANCE POLICY AND RESERVE FUND SURETY BOND......G-1 ii

9 OFFICIAL STATEMENT COMMUNITY REDEVELOPMENT FINANCING AUTHORITY OF THE COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF LOS ANGELES, CALIFORNIA $32,000,000 SERIES L (TAXABLE) (Reseda/Canoga Park, Pacoima/Panorama City and East Hollywood/Beverly-Normandie Project Areas) POOLED FINANCING BONDS INTRODUCTORY STATEMENT 1 $8,000,000 SERIES N (TAX-EXEMPT) (Pacoima/Panorama City Project Area) This Official Statement, including the cover page and inside cover page and appendices hereof, is provided to furnish information in connection with the issuance and sale by the Community Redevelopment Financing Authority of The Community Redevelopment Agency of the City of Los Angeles, California (the Authority ) of its Pooled Financing Bonds, Series L (Taxable) (Reseda/Canoga Park, Pacoima/Panorama City and East Hollywood/Beverly-Normandie Project Areas), in the aggregate principal amount of $32,000,000 (referred to herein as the Series L Bonds ) and its Pooled Financing Bonds, Series N (Tax-Exempt) (Pacoima/Panorama City Project Area), in the aggregate principal amount of $8,000,000 (referred to herein as the Series N Bonds, and together with the Series L Bonds, each, a Series of Bonds and collectively, the Bonds ). The Bonds are being issued by the Authority, a joint exercise of powers authority, pursuant to the Constitution and the laws of the State, including the Bond Law (defined below), an Indenture of Trust relating to the Series L Bonds dated as of June 1, 2006 (the Series L Indenture ), by and among the Authority, The Community Redevelopment Agency of the City of Los Angeles, California Agency (the Agency ) and U.S. Bank National Association, Los Angeles, California, as trustee (the Trustee ), and an Indenture of Trust relating to the Series N Bonds dated as of June 1, 2006 (the Series N Indenture ), by and among the Authority, the Agency and the Trustee. The Series L Indenture and the Series N Indenture are herein referred to collectively as the Indentures. Proceeds of the Series L Bonds will be used to make three loans (the Series L Loans ) to the Agency pursuant to three separate loan agreements, each dated as of June 1, 2006 (collectively, the 2006 Agency Loan Agreements ), each by and among the Authority, the Trustee and the Agency, which loan agreements are herein referred to as the 2006 Reseda/Canoga Park Loan Agreement, the 2006 Pacoima/Panorama City Loan Agreement, and the 2006 East Hollywood/Beverly-Normandie Loan Agreement, respectively. The 2006 Agency Loan Agreements will be executed for the benefit of the following three redevelopment projects of the Agency, further described herein: the Earthquake Disaster Assistance Project for Portions of Council District 3 Project Area (the Reseda/Canoga Park Project Area ), the Earthquake Disaster Assistance Project for Portions of Council District 7 Project Area (the Pacoima/Panorama City Project Area ), and the East Hollywood/Beverly-Normandie Earthquake Disaster Assistance Project Area (the East Hollywood/Beverly-Normandie Project Area ), further identified herein (each, a Project and Project Area and together, the Project Areas ). Proceeds of the Series N Bonds will be used to make an additional loan (the Series N Loan ) to the Agency pursuant to the 2006 Pacoima/Panorama City Loan Agreement for the benefit of the Pacoima/Panorama City Project Area. See APPENDIX B SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURES AND LOAN AGREEMENTS hereto. Further details regarding each of such Projects and Project Areas is set forth below and under the captions THE RESEDA/CANOGA PARK PROJECT, THE PACOIMA/PANORAMA CITY PROJECT, and THE EAST HOLLYWOOD/BEVERLY-NORMANDIE PROJECT herein.

10 The 2006 Agency Loans will be undertaken by the Agency pursuant to the Constitution (the Constitution ) and laws of the State of California (the State ), including the Community Redevelopment Law (Section et seq. of the Health and Safety Code of the State) (the Redevelopment Law ), and the Loan Agreements. The proceeds of the 2006 Agency Loans will be used by the Agency to finance or refinance, as applicable, separate redevelopment activities in each of the applicable Project Areas (as further described below), to fund the existing reserve accounts for the loans and parity obligations of each Project Area (the Reserve Account ) by obtaining a Debt Service Reserve Fund Surety Bond for each Reserve Account (each, a "Reserve Fund Surety Bond") in an amount not less than the Reserve Requirement for such Reserve Account, as provided for under each 2006 Agency Loan Agreement, and to pay costs of issuance related to the 2006 Agency Loans and the Bonds. The Bonds of each Series are secured by a pledge of, and charge and lien upon, all of the Revenues (as defined in the Indenture relating to such Series of Bonds) and such other moneys and securities of the Authority as are pledged thereto under the Indenture relating to such Series of Bonds. The Revenues and such other moneys and securities pledged under each Indenture constitute a trust fund for the security and payment of the principal of and interest and premium, if any, on the Bonds of said Series issued thereunder. The Revenues are comprised principally of the separate payments to be made by the Agency with respect to principal of and interest on each of the 2006 Agency Loans. Pursuant to the 2006 Agency Loan Agreements, the Agency will make separate payments from the Pledged Tax Revenues of each Project Area, to the Trustee and the Trustee is obligated under the Indenture relating to such Series of Bonds to use those payments, which comprise the major component of the Revenues, solely to make principal and interest payments on the Series of the Bonds to which such Revenues have been pledged. Scheduled payments of principal and interest on the Series L Bonds are structured to match the combined scheduled payments of principal of and interest on the respective 2006 Agency Loans under the 2006 Reseda/Canoga Park Loan Agreement, the taxable loan to be made to the Agency under the 2006 Pacoima/Panorama City Loan Agreement and the 2006 East Hollywood/Beverly-Normandie Loan Agreement, respectively. Scheduled payments of principal and interest on the Series N Bonds are structured to match the combined scheduled payments of principal of and interest on the tax-exempt loan to be made to the Agency under the 2006 Pacoima/Panorama City Loan Agreement. Debt service payments on each Series of the Bonds will be made by the Authority using the moneys received by the Authority as debt service payments from the Agency on the respective 2006 Agency Loans, which payments are separately payable by the Agency from the separate Tax Revenues received by the Agency from the applicable Project Area. As further discussed herein, the Agency has certain outstanding loans relating to each of the Project Areas, which loans (together with any Parity Debt, additional bonds or other obligations of the Project Areas which may be issued in the future under the 2003 Parity Loans (hereinafter defined) or the 2006 Agency Loan Agreements, generally referred to herein as Parity Debt, as further described herein) secure certain outstanding obligations of the Agency relating to each Project Area. See Outstanding 2003 Parity Loans herein and THE BONDS Outstanding 2003 Parity Loans herein. The outstanding loans of each Project Area, referred to herein as the 2003 Parity Loans, are occasionally referred to herein, together with the 2006 Agency Loans, as the Loans of the Project Areas. The 2006 Agency Loans and all Parity Debt relating to the Project Area, including the 2003 Parity Loans of a Project Area, shall be equally secured by a pledge of and lien on all of the Pledged Tax Revenues of the Project Area. However, Tax Revenues from a given Project Area are not pledged to pay debt service on the 2006 Agency Loans from the other Project Areas. The Tax Revenues of a Project Area shall be applied only to pay debt service on the 2006 Agency Loans relating to that Project Area, and the outstanding loans and any future Parity Debt secured by such Tax Revenues, and shall be applied pro rata to all of such loans, bonds and obligations, without preference or priority. A shortfall in the Tax Revenues of a Project Area could result in a default on all outstanding loans, bonds and obligations secured by the Tax Revenues of that Project Area. While the Agency has pledged the Pledged Tax Revenues of each Project Area to pay principal and interest on the 2006 Agency Loans and all Parity Debt relating to the Project Area, including the 2003 Parity Loans of each Project Area, the Agency is liable for certain payments to the County for property tax administrative charges relating to the collection of the Tax Revenues and to certain affected taxing entities, which payments must also be 2

11 made from the Tax Revenues. See the section herein entitled LIMITATIONS ON TAX REVENUES and the information set forth therein under the captions Tax Collection Fees and Section (AB 1290) Payments. See, also, the section herein entitled DEBT SERVICE SCHEDULES Estimated Net Tax Increment Revenues and Debt Service Coverage 2006 Agency Loans, which sets forth the projected debt service coverage on the 2006 Agency Loans and the 2003 Parity Loans of each Project Area, after deduction of such property tax administrative charges and Section (AB 1290) payments. Each Series of Bonds is separately secured by the payments to be made by the Agency under the 2006 Agency Loan Agreements securing that Series of Bonds. Payments with respect to a Series of Bonds issued under an Indenture shall not be applied to make principal and interest payments with respect to the other Series of Bonds. Therefore, a default in payment by the Agency on any of the 2006 Agency Loan Agreements securing the Series L Bonds may cause a default by the Authority on the Series L Bonds. In addition, the Pledged Tax Revenues from the Pacoima/Panorama City Project Area are pledged to pay principal of and interest on both the Series L (Taxable) Loan and the Series N (Tax-Exempt) Loan on a parity basis. Therefore, if Pledged Tax Revenues from the Pacoima/Panorama City Project Area are insufficient, the Agency would not be able to pay debt service in full on either the Series L (Taxable) Loan and the Series N (Tax-Exempt) Loan under the Pacoima/Panorama City Loan Agreement, which could result in a default on both the Series L Bonds and the Series N Bonds. All capitalized terms not otherwise defined herein shall have the meanings assigned to them in the Indenture relating to such Series of Bonds and the Loan Agreements. The Bonds Purpose and Authority for Issuance The Bonds are being issued, and the 2006 Agency Loans to the Agency are being made, for the purpose of financing and refinancing various redevelopment activities of the Agency within the area of, and of benefit to, the Projects and Project Areas. In addition, a portion of the proceeds of sale of each Series of the Bonds will be used to fund the Reserve Accounts by obtaining from the Bond Insurer of a Reserve Fund Surety Bond for each Reserve Account and to pay costs of issuance related to the 2006 Agency Loans and the Bonds. The Bonds will be issued pursuant to the Constitution and the laws of the State of California (the State ), including the Joint Exercise of Powers Act, constituting Articles 1 through 4, commencing with Section 6500 of Chapter 5, Division 7, Title 1 of the California Government Code (the Joint Powers Act ), the Marks-Roos Local Bond Pooling Act of 1985, constituting Article 4 of the Joint Powers Act (the Bond Law ), the Redevelopment Law and the Indenture relating to each Series of the Bonds. The Bonds of each Series are secured by a pledge of, and charge and lien upon, all of the Revenues and such other moneys and securities of the Authority pledged under the Indenture relating to said Series of Bonds, and the Revenues and such other moneys and securities pledged under each Indenture constitute a trust fund for the security and payment of the principal of and interest and premium, if any, on the Bonds of said Series issued thereunder. The Revenues are comprised principally of the payments to be made by the Agency with respect to principal and interest on the 2006 Agency Loans of each Project Area, which 2006 Agency Loans are payable by the Agency on a parity with the 2003 Parity Loans of each Project Area, and any future Parity Debt. The terms and security provisions unique to each Series of Bonds are described below and herein under the captions and headings bearing the name of such Series. The full faith and credit of the Authority is not pledged for the payment of the principal of or the interest or redemption premiums, if any, on the Bonds. The Bonds are not secured by a legal or equitable pledge of, or charge, lien or encumbrance upon, any of the property of the Authority or any of its income or receipts, except the Revenues and such other moneys and securities as provided in the respective Indenture relating to the Bonds of said Series. The 2006 Agency Loans are separate, special obligations of the Agency secured by Pledged Tax Revenues (as defined in the 2006 Agency Loan Agreements) of each Project Area and by certain limited funds held by the Trustee under the respective 2006 Agency Loan Agreement. Each 3

12 2006 Agency Loan is payable solely from the Tax Revenues of the respective Project Area on a parity with the outstanding Parity Debt of the respective Project Area. See SECURITY FOR THE BONDS herein. Certain limitations on the Tax Revenues and risk factors relating to an investment in the Bonds are discussed under LIMITATIONS ON TAX REVENUES and RISK FACTORS. Outstanding 2003 Parity Loans As further described herein, in September 2003, the Agency entered into certain loan agreements relating to each of the Project Areas. Under each of these loan agreements, payments of principal and interest on the loans made thereby were secured by and payable from the Tax Revenues of each of the respective Project Areas. The payments of principal and interest on these loans will be made by the Agency on a parity with the 2006 Agency Loans. In September 2003, the Authority issued three series of its Pooled Financing Bonds: $17,970,000 aggregate principal amount of Series J-Taxable Bonds (Council District 9, Pacoima/Panorama City and Reseda/Canoga Park Projects) (the Series J Taxable Bonds ), $4,500,000 aggregate principal amount of Series J Tax Exempt (Reseda/Canoga Park Project) (the Series J Tax Exempt Bonds and together with the Series J Taxable Bonds, the Series J Bonds ), and $4,645,000 aggregate principal amount of Series K-Taxable (Laurel Canyon and East Hollywood/Beverly-Normandie Projects) (the Series K Bonds and collectively with the Series J Bonds, the 2003 Authority Bonds ). In connection with the issuance of the 2003 Authority Bonds, the Authority loaned to the Agency the principal amount of the 2003 Authority Bonds pursuant to five separate loan agreements. Proceeds of the Series J 2003 Taxable Bonds were used to make loans (the Series J 2003 Taxable Loans ) to the Agency pursuant to separate Loan Agreements, each dated as of September 1, 2003 (collectively, the Series J 2003 Loan Agreements ). Two of these loan agreements were for the benefit of, and were secured by the Pledged Tax Revenues of the Pacoima/Panorama City Project Area (the Pacoima/Panorama City 2003 Taxable Loan Agreement ), and the Reseda/Canoga Park Project Area (the Reseda/Canoga Park 2003 Taxable Loan Agreement ), respectively. Proceeds of the Series J Tax Exempt Bonds were also used to make a loan (the Series J 2003 Tax Exempt Loan and together with the Pacoima/Panorama City 2003 Taxable Loan and the Reseda/Canoga Park 2003 Taxable Loans, the Series J 2003 Loans ) to the Agency pursuant to the Reseda/Canoga Park 2003 Taxable Loan Agreement. Proceeds of the Series K Bonds were used to make loans (the Series K 2003 Loans ) to the Agency pursuant to two separate Loan Agreements (collectively, the Series K 2003 Loan Agreements and together with the Series J 2003 Loan Agreements, the 2003 Loan Agreements ), one of which loan agreements was for the benefit of, and was secured by the Pledged Tax Revenues of the East Hollywood/Beverly-Normandie Project Area (the East Hollywood/Beverly-Normandie 2003 Loan Agreement ), respectively. As of June 1, 2006, there is a loan balance of $7,775,000 on the Reseda/Canoga Park 2003 Taxable Loan, and of the total aggregate principal amount of outstanding Series J 2003 Taxable Bonds, some of which is payable from principal and interest payments on loans to other project areas, an equivalent amount of principal amount of outstanding Series J 2003 Taxable Bonds is payable from the Reseda/Canoga Park 2003 Taxable Loan Agreement. In addition, there is a loan balance of $4,325,000 on the Reseda/Canoga Park 2003 Tax-Exempt Loan, secured by the Reseda/Canoga Park 2003 Tax-Exempt Loan Agreement, and an equivalent $4,325,000 in aggregate principal amount of outstanding Series J 2003 Tax-Exempt Bonds, is secured by payments under the Reseda/Canoga Park 2003 Tax-Exempt Loan Agreement, all of which are payable from Pledged Tax Revenues of the Reseda/Canoga Park Project Area. As of June 1, 2006, there is a loan balance of $1,845,000 on the Pacoima/Panorama City 2003 Parity Loan, and of the total aggregate principal amount of outstanding Series J 2003 Taxable Bonds, some of which is payable from principal and interest payments on loans to other project areas, an equivalent amount of principal amount of 4

13 outstanding Series J 2003 Taxable Bonds is secured by payments under the Pacoima/Panorama City 2003 Loan Agreement, payable from Pledged Tax Revenues of the Pacoima/Panorama City Project Area. As of June 1, 2006, there is a loan balance of $4,135,000 on the East Hollywood/Beverly-Normandie 2003 Parity Loan and of the total aggregate principal amount of outstanding Series J 2003 Taxable Bonds, some of which is payable from principal and interest payments on loans to other project areas, an equivalent principal amount of outstanding Series J 2003 Taxable Bonds is secured by payments under the East Hollywood/Beverly- Normandie 2003 Parity Loan Agreement and payable from Tax Revenues of the East Hollywood/Beverly- Normandie Project Area. The foregoing loans of the Project Areas made in 2003 by the Authority to the Agency are hereinafter referred to, collectively as the 2003 Parity Loans. The Bonds of the Authority secured by the payments to be made by the Agency pursuant to the 2003 Parity Loans are hereinafter referred to as the 2003 Authority Bonds. The Agency may in the future issue Parity Debt under the 2003 Parity Loan Agreements or the 2006 Agency Loan Agreements relating to the Series L Bonds and the Series N Bonds, or additional bonds, loans or other obligations or evidences of indebtedness under other indentures or loan agreements secured by and payable from the Tax Revenues of the respective Project Area ( Parity Debt ) on a parity with the 2006 Agency Loans, the 2003 Parity Loans pertaining to each series of the 2003 Authority Bonds and their respective Project Areas. See SECURITY FOR THE BONDS Issuance of Parity Debt and Other Obligations herein. Tax Allocation Financing The Redevelopment Law authorizes the financing of redevelopment projects through the use of tax increment revenues. Taxable valuation of the property within a project area on the property tax roll last equalized prior to the effective date of the ordinance which adopts a redevelopment plan for the project area becomes the base year valuation. The increase, if any, in taxable valuation in subsequent years over the base year valuation becomes the incremental valuation upon which taxes can be levied by the County of Los Angeles and other taxing agencies and the resulting tax increment revenues (except such portion generated by rates levied to pay bonded indebtedness approved by the voters on or after January 1, 1989, for the acquisition or improvement of real property) are allocated to the Agency. Except as set forth herein, such tax increment revenues may be pledged to the payment of debt service on obligations (such as the 2006 Agency Loans and the 2003 Parity Loans) issued or incurred by the Agency. See SECURITY FOR THE BONDS Allocation of Taxes herein. The Redevelopment Law imposes limitations on the maximum amounts and use of tax increment revenues that are collected by redevelopment agencies, as well as restrictions on the time period within which tax increment revenues may be collected. See generally LIMITATIONS ON TAX REVENUES. The Redevelopment Law also requires that a portion of the tax increment revenues attributable to project areas formed, or redevelopment plans amended for certain purposes, after January 1, 1994 (such as the Project Areas), be allocated instead to the taxing agencies which would have received the property tax revenue but for the redevelopment agency s election to receive tax increment. See LIMITATIONS ON TAX REVENUES Section (AB 1290) Payments, and APPENDIX A FISCAL CONSULTANT S REPORT herein. Any future decrease in the taxable valuation of property in the Project Areas or in the applicable tax rates relating thereto will reduce the amount of taxes allocated to the Agency from the Project Areas and correspondingly may have an adverse impact on the ability of the Agency to pay the principal of and interest on the 2006 Agency Loans and the 2003 Parity Loans. Except for the Revenues, and the moneys and securities held by the Trustee in the respective funds and accounts of the Indenture relating to said Series of Bonds, which are pledged by the Authority to the payment of the Bonds of such Series, no funds or properties of the Authority are pledged to, or otherwise liable for, payment of the Bonds. See RISK FACTORS herein. Each Series of Bonds is separately issued and separately secured under the Indenture relating to such Series of Bonds. The holders of a Series of Bonds will have no claim on the revenues or funds securing the other Series of Bonds. A default by the Agency in payment on any of the 2006 Agency Loan Agreements relating to the Series L Bonds may cause a default by the Authority on the Series L Bonds. In addition, the Pledged Tax Revenues from the Pacoima/Panorama 5

14 City Project Area are pledged to pay principal of and interest on all loans of the Pacoima/Panorama City Project on a parity basis. Therefore, if Tax Revenues from the Pacoima/Panorama City Project Area are insufficient, the Agency would not be able to pay debt service in full on any of the loans of the Pacoima/Panorama City Project, resulting in a default on both the Series L Bonds and the Series N Bonds. See SECURITY FOR THE BONDS herein for a discussion of the limitations on the sources of funds available for payment of principal of and interest on the 2006 Agency Loans, their related parity obligations and the Bonds. The Agency and the Authority The Agency. The Agency is a public body, corporate and politic, organized and existing under and pursuant to the Redevelopment Law. The Agency was activated in 1948 by the City Council of the City of Los Angeles (the City ). See THE AGENCY herein. The Authority. The Authority is a joint exercise of powers authority formed in June 1992 by and between The Industrial Development Authority of The Community Redevelopment Agency of the City of Los Angeles, California (the IDA ) and the Agency pursuant to the joint exercise of powers act, constituting Articles 1 through 4, commencing with Section 6500, of Chapter 5, Division 7, Title 1, of the California Government Code (the Act ). The IDA was formed by the Agency in August 1983 for the initial purpose of issuing industrial development bonds in the various project areas of the Agency. The City Council exercises certain oversight activities for both the Authority and the Agency. The Project Areas The Project Areas were each adopted in late 1994 in order to provide for and facilitate the repair, restoration, demolition and/or replacement of property and facilities damaged as a result of the Northridge Earthquake, a devastating earthquake which caused extensive damage in the City of Los Angeles in January of Pursuant to the Redevelopment Law, the Agency adopted the redevelopment plans for the Project Areas to aid in the recovery of these areas from the Northridge Earthquake. Certain information and a discussion of certain characteristics and data regarding each of the Project Areas is set forth below and in the sections of this Official Statement titled THE RESEDA/CANOGA PARK PROJECT, THE PACOIMA/PANORAMA CITY PROJECT and THE EAST HOLLYWOOD/BEVERLY- NORMANDIE PROJECT. Unless noted otherwise, the source of this information is the Agency, and the Underwriters make no representation as to its factual nature. A Fiscal Consultant s Report setting forth certain additional information regarding the Project Areas has been prepared by the Agency s Fiscal Consultant, Katz Hollis, and is attached hereto as APPENDIX A. The information set forth therein is believed to be reliable, subject to the disclaimers noted in the Fiscal Consultant s Report. The Fiscal Consultant s Report projects Net Estimated Revenues for the Project Areas based on the assumptions and qualifications described therein. See APPENDIX A FISCAL CONSULTANT S REPORT herein for a full discussion of the assumptions underlying the projections set forth herein with respect to Tax Revenues from each Project Area. The Agency believes these assumptions to be reasonable, but to the extent that the payment of any revenues that constitute Tax Revenues is less than such assumptions, the total Tax Revenues available from the Project Area will, in all likelihood, be less than those projected herein. Reseda/Canoga Park Project The Reseda/Canoga Park Project Area consists of approximately 2,400 acres, located approximately 25 miles from Downtown Los Angeles, and is located in the West San Fernando Valley communities of Canoga Park, Reseda and Winnetka and generally includes the Sherman Way commercial corridor from Topanga Canyon Boulevard on the west to Louise Avenue on the east and Saticoy Street from Mason Street on the west to Oakdale 6

15 Avenue on the east. Portions of the residential communities of Canoga Park and Reseda are also included within the Project Area boundaries. See RESEDA/CANOGA PARK PROJECT. Pacoima/Panorama City Project The Pacoima/Panorama City Project Area consists of approximately 2,914 acres and is located approximately twenty miles northwest of Downtown Los Angeles, in the northeast San Fernando Valley and includes portions of the communities of Arleta, Lakeview Terrace, Mission Hills, North Hills, North Hollywood, Pacoima, Panorama City, Sun Valley, Sylmar and Van Nuys. The Project Area is generally bounded by the San Diego Freeway on the west, Foothill Freeway on the north and east, and Victory Boulevard on the south. Property within the Project Area is equally divided between residential property and commercial/industrial property. See PACOIMA/PANORAMA CITY PROJECT. East Hollywood/Beverly-Normandie Project The East Hollywood/Beverly-Normandie Project is located approximately four miles west of Downtown Los Angeles and one block east of the Hollywood Redevelopment Project Area. It consists of two noncontiguous areas totaling 656 acres. The East Hollywood portion is approximately 464 acres bounded by Hobart Boulevard on the west, Franklin and Finley Avenues on the north, Talmadge and Hillhurst Streets on the east, and both sides of Sunset Boulevard and Prospect Avenue on the south. The East Hollywood portion is a diverse community with a concentration of major hospitals and related medical facilities located along Sunset Boulevard. The Beverly/Normandie segment is approximately 192 acres in size bordered by Beverly Boulevard on the north, New Hampshire Avenue on the east, Third Street on the south and Normandie Avenue on the west. This portion of the Project Area is a densely populated multi-family residential district containing a mixture of neighborhood retail and commercial enterprises serving the area. See EAST HOLLYWOOD/BEVERLY-NORMANDIE PROJECT. Continuing Disclosure The Authority and the Agency will enter into a Continuing Disclosure Agreement for the Bonds with the Trustee, pursuant to which the Agency will agree, for the benefit of the holders and beneficial owners of the Bonds, to provide certain financial information and operating data relating to the Agency by no later than eight months following the end of the Agency s fiscal year (which fiscal year currently ends on June 30), commencing with the report for the Fiscal Year ending June 30, 2006 (the Annual Report ), and to provide notices of the occurrence of certain enumerated events, if material. The Agency will also agree to file, or cause to be filed, the Annual Report with each Nationally Recognized Municipal Securities Information Repository, and with the appropriate State information depository, if any, and notices of material events with the Municipal Securities Rulemaking Board (and with the appropriate State information depository, if any). A summary of the Continuing Disclosure Agreement for the Bonds is set forth in APPENDIX D hereto. The Authority and the Agency have entered into the Continuing Disclosure Agreement in order to assist the Underwriters in complying with Securities and Exchange Commission Rule 15c2 12(b)(5). The Authority and the Agency have never failed to comply, in all material respects, with an undertaking pursuant to said Rule. Further Information This Official Statement speaks only as of its date and the information contained herein is subject to change. See THE BONDS herein for a description of the terms of the Bonds, including provisions relating to the optional and mandatory redemption of the Bonds prior to their scheduled maturity dates. See SECURITY FOR THE BONDS herein for a discussion of the limited sources of funds available for payment of principal of and interest on the Bonds, as well as certain parity obligations of the Agency. For additional information regarding the provisions of the California Constitution and the Redevelopment Law relating to the financing of redevelopment 7

16 projects through the issuance of tax allocation bonds and certain limitations relating thereto, see LIMITATIONS ON TAX REVENUES herein. For certain financial and other information relating to the respective Project Areas, see the sections herein titled THE RESEDA/CANOGA PARK PROJECT, THE PACOIMA/PANORAMA CITY PROJECT and THE EAST HOLLYWOOD/BEVERLY-NORMANDIE PROJECT. For certain risk factors relating to the Bonds and the 2006 Agency Loans that should be taken into consideration in connection with investment in the Bonds, see RISK FACTORS herein. See THE BOND INSURER AND THE FINANCIAL GUARANTY INSURANCE POLICIES for information regarding the Bond Insurer and the Financial Guaranty Insurance Policies. Brief descriptions of the Bonds, the Indentures, the 2006 Agency Loan Agreements, the Continuing Disclosure Agreement, the Authority, the Agency and the Project Areas are included in this Official Statement. Such descriptions and information do not purport to be comprehensive or definitive. All references herein to the Redevelopment Law, the Constitution and the laws of the State, the proceedings of the Authority, the Agency and the City, the Indentures, the 2006 Agency Loan Agreements and the Continuing Disclosure Agreement are qualified in their entirety by reference to each such document. All capitalized terms used in this Official Statement and not otherwise defined herein have the same meanings as in the respective Indenture relating to said Series of Bonds. References herein to the Bonds are qualified in their entirety by reference to the forms thereof included in the Indenture relating to said Series of Bonds. Description of the Bonds THE BONDS The Bonds will be issued in the principal amounts, will be dated and will bear interest at the respective rates and will mature on the dates and in the amounts set forth on the inside cover page of this Official Statement. Interest on the Bonds is payable semiannually commencing on March 1, 2007 and on each September 1 and March 1 thereafter. The Bonds will be issued as fully registered bonds, in denominations of $5,000 or any integral multiple thereof, and when issued, will be registered in the name of Cede & Co., as nominee of DTC, as securities depository for the Bonds. Individual purchases of the Bonds will be made in book-entry form only. Principal and interest are payable by the respective Trustee to DTC, which is obligated in turn to remit such principal and interest to DTC Participants for subsequent disbursement to Beneficial Owners of the Bonds, as described in APPENDIX F DTC AND THE BOOK-ENTRY ONLY SYSTEM. Redemption Provisions Optional Redemption From Optional Loan Repayments. The Series L Bonds maturing on or before September 1, 2016 shall not be subject to optional redemption prior to their respective maturity dates. The Series L Bonds maturing on or after September 1, 2017 shall be subject to optional redemption prior to their respective maturity dates as a whole, or in part by lot, by such maturity or maturities as shall be directed by the Agency (or in the absence of such direction, pro rata by maturity and by lot within a maturity), from prepayments of the 2006 Agency Loans made at the option of the Agency pursuant to the 2006 Agency Loan Agreements, subject to applicable notice provisions contained therein, on any date on or after September 1, 2016 with respect to which such prepayment of the 2006 Agency Loans shall have been made, at 100% of the principal amount of the Series L Bonds to be redeemed, together with accrued interest thereon to the date fixed for redemption, without premium. The Series N Bonds maturing on or before September 1, 2016 shall not be subject to optional redemption prior to their respective maturity dates. The Series N Bonds maturing on or after September 1, 2017 shall be subject to optional redemption prior to their respective maturity dates as a whole, or in part by lot, by such maturity or maturities as shall be directed by the Agency (or in the absence of such direction, pro rata by maturity and by lot within a maturity), from prepayments of the 2006 Agency Loans made at the option of the Agency pursuant to the 2006 Agency Loan Agreements, subject to applicable notice provisions contained therein, on any date on or after September 1, 2016 with respect to which such prepayment of the 2006 Agency Loans shall have been made, at 8

17 100% of the principal amount of the Series N Bonds to be redeemed, together with accrued interest thereon to the date fixed for redemption, without premium. If less than all of the Term Bonds of a particular maturity have been redeemed or purchased and tendered to the Trustee for cancellation pursuant to the Indenture (other than in connection with making a particular sinking fund payment), the total amount of all sinking fund redemptions shall be reduced by the aggregate principal amount of such Term Bonds so redeemed or tendered and cancelled, to be allocated among such sinking fund payments as shall be designated by the Authority in writing, or, if not so designated, pro rata among such sinking fund payments. Mandatory Sinking Account Redemption. The Term Series L Bonds maturing on September 1, 2016 are subject to mandatory sinking fund redemption in part, by lot (as determined by the Trustee), at a redemption price equal to the principal amount thereof to be redeemed, plus accrued interest thereon to the date of redemption, without premium, in the aggregate respective principal amounts and in the respective years as set forth in the following table: 2016_ Term Bonds Series L Bonds Year (September 1) Amount 2007 $580, , ,000, ,060, ,120, ,185, ,250, ,320, ,400, * 1,480,000 *Maturity The Term Series L Bonds maturing on September 1, 2021 are subject to mandatory sinking fund redemption in part, by lot (as determined by the Trustee), at a redemption price equal to the principal amount thereof to be redeemed, plus accrued interest thereon to the date of redemption, without premium, in the aggregate respective principal amounts and in the respective years as set forth in the following table: 9

18 2021_ Term Bonds Series L Bonds Year (September 1) Amount 2017 $1,565, ,655, ,755, ,865, * 1,975,000 *Maturity The Term Series L Bonds maturing on September 1, 2026 are subject to mandatory sinking fund redemption in part, by lot (as determined by the Trustee), at a redemption price equal to the principal amount thereof to be redeemed, plus accrued interest thereon to the date of redemption, without premium, in the aggregate respective principal amounts and in the respective years as set forth in the following table: 2026_ Term Bonds Series L Bonds Year (September 1) Amount 2022 $2,095, ,225, ,360, ,505, * 2,660,000 *Maturity The Term Series N Bonds maturing on September 1, 2026 are subject to mandatory sinking fund redemption in part, by lot (as determined by the Trustee), at a redemption price equal to the principal amount thereof to be redeemed, plus accrued interest thereon to the date of redemption, without premium, in the aggregate respective principal amounts and in the respective years as set forth in the following table: 2026_ Term Bonds Series N Bonds Year (September 1) Amount 2017 $390, , , , , , , , , * 610,000 *Maturity Notice and Manner of Redemption. Whenever any Bonds or portions thereof are to be selected for redemption by lot, the Trustee shall make such selection and shall notify the Agency thereof. In the event of redemption by lot of Bonds, the each Bond then Outstanding shall be assigned a distinctive number for each $5,000 of principal amount of each such Bond. The Bonds to be redeemed shall be the Bonds to which were assigned numbers so selected, but only so much of the principal amount of each such Bond of a denomination of more than 10

19 $5,000 shall be redeemed as shall equal $5,000 for each number assigned to it and so selected. All Bonds redeemed or purchased pursuant to the provisions of the Indenture shall be cancelled and, if held by the Trustee, shall be surrendered to the Authority (subject to the provisions of the Indenture relating to such Series of Bonds). If less than all of the Term Bonds of a particular maturity have been redeemed pursuant to the Indenture relating to such Series of Bonds or purchased and tendered to the Trustee for cancellation pursuant to the Indenture relating to such Series of Bonds (other than in connection with making a particular sinking fund payment), the total amount of all sinking fund redemptions shall be reduced by the aggregate principal amount of such Term Bonds so redeemed or tendered and cancelled, to be allocated among such sinking fund payments as shall be designated by the Authority in writing, or, if not so designated, pro rata among such sinking fund payments. The Trustee on behalf and at the expense of the Authority shall mail (by first-class mail) notice of any redemption to the respective Owners of any Bonds designated for redemption at their respective addresses appearing on the Registration Books, and to the Securities Depositories and to one or more Information Services, at least 30 days but not more than 60 days prior to the date fixed for redemption; provided, however, that neither failure to receive any such notice so mailed nor any defect therein shall affect the validity of the proceedings for the redemption of such Bonds or the cessation of the accrual of interest thereon. Such notice shall state the date of the notice, the redemption date, the redemption place and the redemption price and shall designate the CUSIP numbers, of the Bonds to be redeemed, state the individual number of each Bond to be redeemed or state that all Bonds between two stated numbers (both inclusive) or all of the Bonds Outstanding (or all Bonds of a maturity) are to be redeemed, and shall require that such Bonds be then surrendered at the Trust Office of the Trustee for redemption at the redemption price, giving notice also that further interest on such Bonds will not accrue from and after the redemption date. Neither the Authority nor the Trustee shall have any responsibility for any defect in the CUSIP number that appears on any Bond or in any redemption notice with respect thereto, and any such redemption notice may contain a statement to the effect that CUSIP numbers have been assigned by an independent service for convenience of reference and that neither the Authority nor the Trustee shall be liable for any inaccuracy in such numbers. The Authority shall have the right to rescind any optional redemption by written notice to the Trustee on or prior to the date fixed for redemption. Any notice of optional redemption shall be cancelled and annulled if for any reason funds are not available on the date fixed for redemption for the payment in full of the Bonds then called for redemption, and such cancellation shall not constitute an Event of Default hereunder. The Trustee shall mail notice of rescission of redemption in the same manner notice of redemption was originally provided. Failure to receive such notice or any defect therein shall not affect the validity of the proceedings for the redemption of such Bonds or the cessation of interest on the redemption date. Effect of Redemption. From and after the date fixed for redemption, if funds available for the payment of the principal of, and interest and premium, if any, on the Bonds so called for redemption shall have been duly provided, such Bonds so called shall cease to be entitled to any benefit under the Indenture relating to such Series of Bonds other than the right to receive payment of the redemption price, and no interest shall accrue thereon from and after the redemption date specified in such notice. DTC and the Book-Entry Only System The Bonds will initially be registered in the name of a nominee of DTC as securities depository for the Bonds as described in APPENDIX F DTC AND THE BOOK-ENTRY ONLY SYSTEM. Beneficial interests in Bonds may be purchased in book-entry form only. The principal of and interest on each Series of Bonds will be paid as described in APPENDIX F DTC AND THE BOOK-ENTRY ONLY SYSTEM. Beneficial ownership in the Bonds may be acquired or transferred only through book entries made on the records of DTC and its Participants. 11

20 The Authority may decide to discontinue use of the system of book-entry transfers through DTC (or successor securities depository). In that event, Bond certificates will be prepared and delivered as described in the Indenture, and principal of and interest on each Series of Bonds will be paid and transfer and exchange of Bonds, delivery of notices to Bondholders, and other related matters will be handled as provided in the Indentures. Plan of Financing SOURCES AND USES OF FUNDS The Bonds are being issued for the purpose of making the 2006 Agency Loans. The proceeds of the 2006 Agency Loans relating to a Project Area will be used for financing and refinancing redevelopment projects benefiting the respective Project Area, including the expenditure of a portion of the proceeds of the Agency Loan on projects satisfying the Agency s low and moderate income housing obligations under the Redevelopment Law and the Redevelopment Plan for the respective Project Area. The Redevelopment Plan for each of the Project Areas requires that not less than 20% of the proceeds of the 2006 Agency Loans be spent on projects satisfying the Agency s low and moderate income housing obligations under the Redevelopment Law and the Redevelopment Plan. See THE RESEDA/CANOGA PARK PROJECT Development Within the Project Area and THE PACOIMA/PANORAMA CITY PROJECT Development Within the Project Area and THE EAST HOLLYWOOD/BEVERLY-NORMANDIE PROJECT Development Within the Project Area. Estimated Sources and Uses of Funds Sources: The estimated sources and uses of funds for the Series L Bonds are summarized as follows. Sources and Uses of Funds Series L Bonds Principal Amount of Series L Bonds... $32,000, Less: Underwriters Discount , Less: Original Issue Discount , TOTAL SOURCES... $31,681, Uses: Premium Payments to Bond Insurer (1) $ 424, Deposit to Series L Loan Fund, for allocation as follows: 31,257, Deposit to Reseda/Canoga Park Project Fund... $15,547, Deposit to Reseda/Canoga Park Costs of Issuance Fund (2)... 81, Deposit to Pacoima/Panorama City Taxable Account of the Project Fund... 7,762, Deposit to Pacoima/Panorama City Costs of Issuance Fund (2)... 40, Deposit to East Hollywood/Beverly-Normandie Project Fund... 7,774, Deposit to East Hollywood/Beverly-Normandie Costs of Issuance Fund (2)... 40, TOTAL USES... $31,681, (1) Payments to the Bond Insurer of the premiums for the Financial Guaranty Insurance Policy relating to the Series L Bonds and the Reserve Fund Surety Bonds were made by the Underwriters directly to the Bond Insurer from the proceeds of sale of the Series L Bonds. (2) Costs of Issuance include a pro rata allocation to the Series L Bonds of the fees and expenses of Bond Counsel, Disclosure Counsel, the Fiscal Consultant, and the Trustee, printing expenses and other costs allocated to the issuance of the Series L Bonds. 12

21 The estimated sources and uses of funds for the Series N Bonds are summarized as follows. Sources: Sources and Uses of Funds Series N Bonds Principal Amount of Series N Bonds... $8,000, Less: Underwriters Discount... 30, Plus: Original Issue Premium , TOTAL SOURCES... $ 8,314, Uses: Premium Payments to Bond Insurer (1) $ 98, Deposit to Series N Loan Fund, for allocation as follows: 8,216, Deposit to Pacoima/Panorama City Tax-Exempt Account of the Project Fund... 8,128, Deposit to Pacoima/Panorama City Costs of Issuance Fund(1)... 87, TOTAL USES... $ 8,314, (1) Payments to the Bond Insurer of the premiums for the Financial Guaranty Insurance Policy relating to the Series N Bonds and the Reserve Fund Surety Bonds were made by the Underwriters directly to the Bond Insurer from the proceeds of sale of the Series N Bonds. (2) Costs of Issuance include a pro rata allocation to the Series L Bonds of the fees and expenses of Bond Counsel, Disclosure Counsel, the Fiscal Consultant, and the Trustee, printing expenses and other costs allocated to the issuance of the Series N Bonds. 13

22 DEBT SERVICE SCHEDULES AUTHORITY BONDS Annual Debt Service Schedule Series L Bonds Payment Date Series L Principal Series L Interest Aggregate Fiscal Year Debt Service 9/1/2006 $ - $ - $ - 3/1/2007-1,289, /1/ , , ,824, /1/ , /1/ , , ,821, /1/ , /1/2009 1,000, , ,822, /1/ , /1/2010 1,060, , ,825, /1/ , /1/2011 1,120, , ,824, /1/ , /1/2012 1,185, , ,824, /1/ , /1/2013 1,250, , ,821, /1/ , /1/2014 1,320, , ,820, /1/ , /1/2015 1,400, , ,824, /1/ , /1/2016 1,480, , ,824, /1/ , /1/2017 1,565, , ,824, /1/ , /1/2018 1,655, , ,819, /1/ , /1/2019 1,755, , ,820, /1/ , /1/2020 1,865, , ,824, /1/ , /1/2021 1,975, , ,822, /1/ , /1/2022 2,095, , ,823, /1/ , /1/2023 2,225, , ,824, /1/ , /1/2024 2,360, , ,822, /1/ , /1/2025 2,505, , ,822, /1/ , /1/2026 2,660, , ,823, TOTAL $ 32,000, $24,462, $56,462,

23 Annual Debt Service Schedule Series N Bonds Payment Date Series N Principal Series N Interest Aggregate Fiscal Year Debt Service 9/1/2006 $ - $ - $ - 3/1/ , /1/ , , , /1/ , /1/ , , , /1/ , /1/ , , , /1/ , /1/ , , , /1/ , /1/ , , , /1/ , /1/ , , , /1/ , /1/ , , , /1/ , /1/ , , , /1/ , /1/ , , , /1/ , /1/ , , , /1/ , /1/ , , , /1/ , /1/ , , , /1/ , /1/ , , , /1/ , /1/ , , , /1/ , /1/ , , , /1/ , /1/ , , , /1/ , /1/ , , , /1/ , /1/ , , , /1/ , /1/ , , , /1/ , /1/ , , , TOTAL $ 8,000, $ 4,933, $ 12,933,

24 Estimated Net Tax Increment Revenues and Debt Service Coverage 2006 Agency Loans Set forth below are tables showing the estimated debt service coverage with respect to the 2006 Agency Loans of each Series and the related 2003 Parity Loans using the Estimated Net Tax Increment Revenues relating to each Project Area (as that term is used in the sections and tables set forth herein under RESEDA/CANOGA PARK PROJECT Projected Tax Revenues, PACOIMA/PANORAMA CITY PROJECT Projected Tax Revenues and EAST HOLLYWOOD/BEVERLY-NORMANDIE PROJECT Projected Tax Revenues ). The Fiscal Consultant s Report set forth in APPENDIX A hereof, prepared by Katz Hollis, the Agency s fiscal consultant ( Katz Hollis or the Fiscal Consultant ), sets forth in Part III thereof estimates of the projected tax increment revenues of each Project, prior to any adjustments and as adjusted for certain fees and payments payable from the tax increment revenues of each Project. As further discussed in APPENDIX A, Net Tax Increment Revenues of each Project Area do not include certain County administrative fees and amounts estimated to be required to be paid by the Agency to certain affected taxing entities. See LIMITATIONS ON TAX REVENUES Section (AB 1290) Payments and RISK FACTORS for a discussion of various factors that may affect future Tax Revenues of each Project Area. See LIMITATIONS ON TAX REVENUES Projected Tax Revenues, RESEDA/CANOGA PARK PROJECT Projected Tax Revenues, PACOIMA/PANORAMA CITY PROJECT Projected Tax Revenues, and THE EAST HOLLYWOOD/BEVERLY-NORMANDIE PROJECT Projected Tax Revenues and Part III of the Fiscal Consultant s Report set forth in APPENDIX A for a discussion of projected tax increment revenues of each Project Area. TABLE 1 Estimated Debt Service Coverage Reseda/Canoga Park Agency Loan and 2003 Parity Loans Bond Year Ending September 1 Estimated Net Tax Increment Revenues (1) 2006 Agency Loan Debt Service (2) 2003 Parity Loans Debt Service (2) Total Debt Service (2) Estimated Coverage (2) 2006 $ 9,090,000 $ - $ 896,060 $ 895, x ,473,000 1,412, ,003 $ 2,310, x ,950,000 1,410, ,594 $ 2,305, x ,332,000 1,411, ,010 $ 2,309, x ,721,000 1,412, ,350 $ 2,307, x ,118,000 1,412, ,103 $ 2,307, x (1) Estimated Net Tax Increment Revenues of the Reseda/Canoga Park Project Area provided by Katz Hollis for Fiscal Years ending June 30. The projections of Estimated Net Tax Increment Revenues assume, among other things, that payments due to taxing entities under AB 1290 are deducted prior to the payment of debt service on the Loans although such payments are expected to be subordinate to debt service payments on the Loans. See APPENDIX A FISCAL CONSULTANT S REPORT for a discussion of projected Net Tax Increment Revenues of the Project Area. (2) Bond Debt Service and Estimated Coverage reflect actual debt service under the Reseda/Canoga Park Agency Loan Agreement and the Reseda/Canoga Park 2003 Parity Loans only. The Agency may issue additional bonds or other obligations secured by Tax Revenues of the Reseda/Canoga Park Project Area in future years. See SECURITY FOR THE BONDS Issuance of Parity Debt and Other Obligations. 16

25 TABLE 2 Estimated Debt Service Coverage Pacoima/Panorama City 2006 Agency Loans and 2003 Parity Loan Bond Year Ending September 1 Estimated Net Tax Increment Revenues (1) 2006 Agency Loans Debt Service (2) 2003 Parity Loan Debt Service (2) Total Debt Service (2) Estimated Coverage (2) 2006 $ 9,175,000 $ - $ 318,226 $ 318, x ,588,000 1,344, ,509 1,659, x ,112,000 1,346, ,792 1,664, x ,648,000 1,342, ,866 1,656, x ,076,000 1,346, ,156 1,662, x ,513,000 1,345, ,181 1,663, x (1) Estimated Net Tax Increment Revenues of the Pacoima/Panorama City Project Area provided by Katz Hollis for Fiscal Years ending June 30. The projections of Estimated Net Tax Increment Revenues assume, among other things, that payments due to taxing entities under AB1290 are deducted prior to the payment of debt service on the Loans although such payments are expected to be subordinate to debt service payments on the Loans. See APPENDIX A FISCAL CONSULTANT S REPORT for a discussion of projected Net Tax Increment Revenues of the Pacoima/Panorama City Project Area. (2) Bond Debt Service and Estimated Coverage reflect actual debt service under the Pacoima/Panorama City Loan Agreement and the Pacoima/Panorama City 2003 Parity Loan. The Agency may issue additional bonds or other obligations secured by Tax Revenues of the Pacoima/Panorama City Project Area in future years. See SECURITY FOR THE BONDS Issuance of Parity Debt and Other Obligations. TABLE 3 Estimated Debt Service Coverage East Hollywood/Beverly-Normandie Agency Loan and 2003 Parity Loan Bond Year Ending September 1 Estimated Net Tax Increment Revenues (1) 2006 Agency Loan Debt Service (2) 2003 Parity Loan Debt Service (2) Total Debt Service (2) Estimated Coverage (2) 2006 $ 3,181,000 $ - $ 188,926 $ 188, x ,310, , , , x ,482, , , , x ,658, , , , x ,837, , , , x ,981, , , , x (1) Estimated Net Tax Increment Revenues of the East Hollywood/Beverly-Normandie Project Area provided by Katz Hollis, for Fiscal Years ending June 30. The projections of Estimated Net Tax Increment Revenues assume, among other things, that payments due to taxing entities under AB 1290 are deducted prior to the payment of debt service on the Loans although such payments are expected to be subordinate to debt service payments on the Loans. See APPENDIX A FISCAL CONSULTANT S REPORT for a discussion of projected Net Tax Increment Revenues of the East Hollywood/Beverly- Normandie Project Area. (2) Bond Debt Service and Estimated Coverage reflect actual debt service under the East Hollywood/Beverly-Normandie Loan Agreement and the East Hollywood/Beverly-Normandie 2003 Parity Loans only. The Agency may issue additional bonds or other obligations secured by Tax Revenues of the East Hollywood/Beverly-Normandie Project Area in future years. See SECURITY FOR THE BONDS Issuance of Parity Debt and Other Obligations. 17

26 SECURITY FOR THE BONDS The Bonds are not a debt of the City of Los Angeles or of the State of California or any of its political subdivisions (other than the Authority to the extent set forth herein), and neither the City of Los Angeles nor the State of California nor any of its political subdivisions (other than the Authority to the extent set forth herein) is liable therefor. The full faith and credit of the Authority is not pledged for the payment of the principal of or the interest or redemption premiums, if any, on the Bonds. Neither the members of the Agency nor any persons executing the Bonds are personally liable on the Bonds. In no event will the Authority be obligated to pay the Bonds out of any funds or properties other than those relating to said Series of Bonds which are specifically pledged pursuant to the Indenture. Neither the Authority nor the Agency has any powers of taxation. Neither the Bonds nor the 2006 Agency Loans constitute an indebtedness within the meaning of any constitutional or statutory debt limitation or restriction. General The 2006 Agency Loans of each Project Area and the 2003 Parity Loans relating thereto are secured by and payable from the Pledged Tax Revenues of the respective Project Area, and from moneys in the Pledged Revenue Fund, the Debt Service Fund and the Reserve Account established under each Loan Agreement for the Agency Loans. The Agency may issue additional bonds or other obligations secured by Tax Revenues of the respective Project Area in future years. See SECURITY FOR THE BONDS Issuance of Parity Debt and Other Obligations. Scheduled payments of principal and interest on the Series L Bonds are structured to match the combined scheduled payments of principal of and interest on the respective 2006 Agency Loans under the Reseda/Canoga Park Loan Agreement and the East Hollywood/Beverly-Normandie Loan Agreement and the taxable loan made to the Agency under the Pacoima/Panorama City Loan Agreement. Scheduled payments of principal and interest on the Series N Bonds are structured to match the scheduled payments of principal of and interest on the tax-exempt loan made under the Pacoima/Panorama City Loan Agreement. See THE PROJECT AREAS herein. Debt service payments on each Series of the Bonds are intended to be made by the Authority using the moneys received by the Trustee as debt service payments from the Agency on the respective 2006 Agency Loans, which payments are separately payable by the Agency from Tax Revenues received by the Agency from the applicable Project Area or Project Areas. See THE PROJECT AREAS herein. The Bonds are payable only from limited funds of the Authority. The Bonds are not secured by a legal or equitable pledge of, or charge, lien or encumbrance upon, any of the property of the Authority or any of its income or receipts, except the Revenues and such other moneys and securities as provided in the Indenture. The Revenues will be derived primarily from the payments made by the Agency with respect to the 2006 Agency Loans. The 2006 Agency Loans are separate, special obligations of the Agency payable solely from and secured by Pledged Tax Revenues of each Project Area, as defined in the respective Indenture and Loan Agreement. The 2006 Agency Loans of each Project Area are payable from the Pledged Tax Revenues of the Project Area on a parity with the 2003 Parity Loans of the Project Area. There is no cross-collateralization among the Tax Revenues of the Project Areas, and the Tax Revenues relating to a Project Area and its related 2003 Parity Loans will not be available to pay principal of and interest on the other 2006 Agency Loans or their related 2003 Parity Loans or any Parity Debt incurred by the Agency secured by the Tax Revenues of any other Project Area. Tax Allocation Financing The Redevelopment Law provides a means for financing redevelopment projects based upon an allocation of taxes collected within a project area. The taxable valuation of a project area last equalized prior to adoption of the redevelopment plan, or base roll, is established and, except for any period during which the taxable valuation drops below the base year level, the taxing agencies thereafter receive the taxes produced by the levy of the then 18

27 current tax rate upon the base roll. Taxes collected upon any increase in taxable valuation over the base roll (except such portion generated by rates levied to pay bonded indebtedness approved by the voters on or after January 1, 1989, for the acquisition or improvement of real property) are allocated to a redevelopment agency and, with certain exceptions set forth below, may be pledged by a redevelopment agency to the repayment of any indebtedness incurred in financing or refinancing a redevelopment project. Redevelopment agencies themselves have no authority to levy property taxes and must look specifically to the allocation of taxes produced as above indicated. Allocation of Taxes As provided in the Redevelopment Plan of the Agency, and pursuant to Article 6 of Chapter 6 of the Redevelopment Law and Section 16 of Article XVI of the Constitution of the State of California, taxes levied upon taxable property in the respective Project Area each year by or for the benefit of the State of California and any city, county, city and county, district or other public corporation (herein collectively referred to as taxing agencies ) for fiscal years beginning after the effective date of the respective Project Area are divided as follows: (1) To Taxing Agencies: That portion of the taxes which would be produced by the rate upon which the tax is levied each year by or for each of said taxing agencies upon the total sum of the assessed value of the taxable property in the Project Area as shown upon the assessment roll used in connection with the taxation of such property by such taxing agency last equalized prior to the effective date of the ordinance approving the Redevelopment Plan shall be allocated to, and when collected shall be paid into the funds of the respective taxing agencies as taxes by or for said taxing agencies on all other property are paid; and (2) To the Agency: Except as enumerated below, that portion of said levied taxes each year in excess of the amounts provided in (1) above, shall be allocated to, and when collected, shall be paid into a special fund of the Agency to pay the principal of and interest on bonds, loans, moneys advanced to, or indebtedness (whether funded, refunded, assumed, or otherwise) incurred by the Agency to finance or refinance, in whole or in part, the Project Area. Unless and until the total assessed valuation of the taxable property in the Project Area exceeds the total assessed value of the taxable property in the Project Area as shown by the last equalized assessment roll referred to in paragraph (1) above, all of the taxes levied and collected upon the taxable property in the Project Area shall be paid into the funds of the respective taxing agencies. The Law provides for certain mandatory and permissive deductions and payments from the Tax Revenues described in paragraph (2) above, and defined below, some of which may have a lien on Tax Revenues ahead of the lien for payment of the Bonds. Those payments include (i) taxes which are attributable to a tax rate levy by a taxing agency for the purpose of producing revenues to repay bonded indebtedness approved by the voters of the taxing agency on or after January 1, 1989, which shall be allocated to and when collected shall be paid to such taxing agency, (ii) fees payable to the County for administering the Tax Revenue flow, (iii) payments to affected taxing entities under the provisions of Section of the Redevelopment Law. For an explanation of Section payments, see LIMITATIONS ON TAX REVENUES Section (AB 1290) Payments herein. When said bonds, loans, advances, and indebtedness, if any, and interest thereon, have been paid, all moneys thereafter received from taxes upon the taxable property in the Project Area shall be paid into the funds of the respective taxing agencies as taxes on all other property are paid. The Agency is authorized to make pledges of the portion of taxes mentioned in paragraph (2) above to repay specific advances, loans and indebtedness as appropriate in carrying out the Redevelopment Plan. Pledged Tax Revenues In accordance with each Indenture, the Bonds of each Series issued pursuant to such Indenture shall be secured by a first lien on and pledge (which shall be effected in the manner and to the extent therein provided) of all 19

28 of the Revenues and a pledge of all of the moneys in the Interest Account and the Principal Account established under each Indenture, including all amounts derived from the investment of such moneys. Revenues is defined in the Indentures to mean (a) all amounts payable by the Agency to the Authority pursuant to the Loan Agreements relating to such Series of Bonds, other than administrative fees and expenses and indemnity against claims payable to the Authority and the Trustee; (b) any proceeds of the Bonds of such Series originally deposited with the Trustee and all moneys deposited and held from time to time by the Trustee in the funds and accounts established thereunder; and (c) investment income with respect to any moneys held by the Trustee in the funds and accounts established thereunder. The Bonds of each Series shall be equally secured by a pledge, charge and lien upon the Revenues provided for under the Indenture relating thereto, and such moneys without priority for number, date of Bonds, date of execution or date of delivery; and the payment of the interest on and principal of, the Bonds and any premiums upon the redemption of any thereof shall be and are secured by a pledge, charge and lien upon the Revenues and such moneys. So long as any of the Bonds are Outstanding, the Revenues and such moneys provided for under the Indenture relating thereto shall not be used for any other purpose; except that out of the Revenues there may be apportioned such sums, for such purposes, as are expressly permitted by said Indenture. Pursuant to each Indenture, the Authority transfers in trust and assigns to the Trustee, for the benefit of the Owners from time to time of the Bonds, all of the Revenues and all of the right, title and interest of the Authority in the Loan Agreements relating to said Series of Bonds. The Trustee shall be entitled to and shall receive all of the Revenues, and any Revenues collected or received by the Authority shall be deemed to be held, and to have been collected or received, by the Authority as the agent of the Trustee and shall forthwith be paid by the Authority to the Trustee. All Revenues attributable to Loan payments made by the Agency pursuant to each Indenture shall be promptly deposited by the Trustee upon receipt thereof in a special fund designated as the Revenue Fund which the Trustee shall establish, maintain and hold in trust thereunder. The Trustee also shall be entitled to and, subject to the provisions of the Indenture, shall take all steps, actions and proceedings reasonably necessary in its judgment to enforce, either jointly with the Authority or separately, all of the rights of the Authority and all of the obligations of the Agency under the Loan Agreements. Loans Payable from Tax Revenues Each 2006 Agency Loan is separately secured by and payable, on a parity with the related 2003 Parity Loans of the respective Project Area, from an irrevocable pledge of, and charge and lien upon, the applicable Pledged Tax Revenues of the related Project Area (as defined in the applicable 2006 Agency Loan Agreement). The 2006 Agency Loan Agreements define Tax Revenues to mean all taxes annually allocated within the Plan Limit and paid to the Agency with respect to the Project Area following the Closing Date, pursuant to Article 6 of Chapter 6 (commencing with Section 33670) of the Redevelopment Law and Section 16 of Article XVI of the Constitution of the State and other applicable state laws and as provided in the Redevelopment Plan, including all payments, subventions and reimbursements, if any, to the Agency specifically attributable to ad valorem taxes lost by reason of tax exemptions and tax rate limitations (but excluding payments to the Agency with respect to personal property within the Project Area pursuant to Section et seq. of the California Government Code); and including that portion of such taxes, if any, otherwise required by Section of the Redevelopment Law to be deposited in the Low and Moderate Income Housing Fund, but only to the extent necessary to repay that portion of the proceeds of the Agency Loan and any Parity Debt (including applicable reserves and financing costs) used to finance or refinance the increasing or improving of the supply of low and moderate income housing within or of benefit to the Project Area, but excluding all other amounts of such taxes required to be deposited into the Low and Moderate Income Housing Fund and excluding Investment Earnings. The 2006 Agency Loan Agreements define Pledged Tax Revenues to mean for the 12-month period ending on September 1, 2006 and for each 12-month period beginning on September 2, 2006 and ending on September 1 of each year thereafter until payment in full of such 2006 Agency Loan or Loans (as applicable) and any Parity Debt, the first Tax Revenues, when and as received by the Agency pursuant to the Redevelopment Law 20

29 and the Redevelopment Plan (without deduction for payments under Section of the Redevelopment Law to the extent that such payments are lawfully subordinate to the payment of Annual Debt Service on the Loans), in an amount equal to (a) 100% of Annual Debt Service on such Outstanding Loan or Loans for such period; plus (b) an amount, if any, required to maintain the Reserve Account at the Reserve Requirement; plus (c) an amount, if any, required to be paid to any insurer under a municipal bond insurance policy for any Parity Debt. Each Loan Agreement provides that the applicable 2006 Agency Loan and all Parity Debt shall be equally secured for the benefit of the Authority and the Owners of the applicable Series of the Bonds by a pledge of and lien on all of the Pledged Tax Revenues. The Agency Loan shall be additionally secured for the benefit of the Authority and the Owners of the applicable Series of the Bonds by a first pledge of and lien upon all of the moneys in the applicable Reserve Account, excluding Investment Earnings. The Pledged Tax Revenues are thereby allocated in their entirety to the payment of the principal of and interest on the Agency Loan and all Parity Debt. Except for the Pledged Tax Revenues and the applicable Reserve Account, no funds or properties of the Agency shall be pledged to, or otherwise liable for, the payment of principal of or interest or premium, if any, on the applicable 2006 Agency Loan. The payment obligations of the Agency pursuant to any Qualified Credit Instrument (defined below) shall be secured for the benefit of the provider thereof by a pledge and lien on all of the Tax Revenues, which pledge and lien shall be subordinate to the pledge and lien securing the 2006 Agency Loan and any Parity Debt. While the Agency has pledged all of the Pledged Tax Revenues of each Project Area to pay principal and interest on the 2006 Agency Loans and all Parity Debt relating to the Project Area, the Agency is liable for certain payments to the County for property tax administrative charges relating to the collection of the Tax Revenues and to certain affected taxing entities, which payments must also be made from the Tax Revenues. See the section herein entitled LIMITATIONS ON TAX REVENUES and the information set forth therein under the captions Tax Collection Fees and Section (AB 1290) Payments. See, also, the section herein entitled DEBT SERVICE SCHEDULES Estimated Net Tax Increment Revenues and Debt Service Coverage 2006 Agency Loans, which sets forth the projected debt service coverage on the 2006 Agency Loans and the 2003 Parity Loans of each Project Area, after deduction of such property tax administrative charges and Section (AB 1290) payments. The Agency has no power to levy and collect property taxes, and any property tax limitation, legislative measure, voter initiative or provision of additional sources of income to taxing agencies having the effect of reducing the property tax rate, would have the effect of reducing the amount of Tax Revenues that would otherwise be available to pay the principal of, and interest on the Bonds. Likewise, the reduction of assessed valuations of taxable property in the applicable project areas, any reduction in tax rates or tax collection rates and broadened property tax exemptions would have a similar effect. See RISK FACTORS and LIMITATIONS ON TAX REVENUES herein. The Agency has pledged to pay to the Authority the principal of and interest on the 2006 Agency Loans solely from sources described herein, and the Authority has pledged to pay the Bonds solely from these same funds. For additional information regarding the provisions of the California Constitution and the Redevelopment Law relating to the financing of redevelopment projects through the issuance of tax allocation bonds, see LIMITATIONS ON TAX REVENUES herein. For certain financial and other information relating to the Project Areas, see THE RESEDA/CANOGA PARK PROJECT, THE PACOIMA/PANORAMA CITY PROJECT, and THE EAST HOLLYWOOD/BEVERLY-NORMANDIE PROJECT herein. For certain risk factors relating to the Bonds that should be taken into consideration in connection with investment in the bonds, see RISK FACTORS herein. See THE BONDS herein for a description of the terms of the applicable Loan Agreements. The Agency shall deposit all of the Pledged Tax Revenues received in any Bond Year in the Pledged Revenue Fund promptly upon the receipt thereof. Any Tax Revenues received during such Bond Year in excess of Pledged Tax Revenues for such Bond Year shall be released from the pledge and lien hereunder and may be used for any lawful purpose of the Agency. Prior to the payment in full of the principal of and interest and prepayment premium, if any, on the 2006 Agency Loan Agreements and all Parity Debt and the payment in full of all other 21

30 amounts payable hereunder and under any Parity Debt Instrument, the Agency shall not have any beneficial right or interest in the moneys on deposit in the Pledged Revenue Fund, except as provided in the Loan Agreements and in any Parity Debt Instrument, and such moneys shall be used and applied as set forth herein and in any Parity Debt Instrument. The Agency shall transfer from the Pledged Revenue Fund ratably to the Special Fund, the Debt Service Fund and in any applicable debt service fund created by any Parity Debt Instrument promptly upon receipt thereof by the Agency, until such time, if any, during such Bond Year as the amounts on deposit in such debt service funds equal the aggregate amounts required to be transferred to the Trustee pursuant to the respective Indentures for such Bond Year; and (except as may be otherwise provided in any Parity Debt Instrument). In the event that there are insufficient Pledged Tax Revenues to make all payments required into the Special Fund, the Debt Service Fund and into any other applicable debt service funds created by Parity Debt Instruments, the Agency shall allocate Pledged Tax Revenues from the Pledged Revenue Fund among the Special Fund, the Debt Service Fund and any applicable debt service funds created by Parity Debt Instruments on a proportionate basis based on the relative amount of Pledged Tax Revenues that would have been required to make all such deposits in full. The Agency shall withdraw from the Debt Service Fund established under each 2006 Agency Loan Agreement and any applicable Parity Debt Instrument and transfer to the Trustee the following amounts at the following times and in the following order of priority: At such time as the Agency shall deem appropriate, as moneys become available for such purpose, but not later than each February 20 and August 25 of each year, commencing August 25, 2006, the Agency shall withdraw from the Debt Service Fund and transfer to the Trustee an amount equal to the principal of and interest on the 2006 Agency Loan and any Parity Debt payable from the Debt Service Fund becoming due and payable on the applicable Interest Payment Date pursuant to the applicable 2006 Agency Loan Agreement and any applicable Parity Debt Instrument. In the event that the Trustee shall notify the Agency that the amount on deposit in the Reserve Account is less than the Reserve Requirement, or the Agency has withdrawn amounts on deposit in the Reserve Account to make payments on the applicable 2006 Agency Loan and any Parity Debt, the Agency shall immediately withdraw from the Debt Service Fund and transfer to the Trustee for deposit in the Reserve Account an amount of money necessary to maintain amounts on deposit therein at the Reserve Requirement (on a pro rata basis with amounts withdrawn from the Special Fund and from any applicable debt service fund established under a Parity Debt Instrument); provided that amounts required to be transferred to the Reserve Account relating to the applicable 2006 Agency Loan Agreement or any applicable Parity Debt Instrument shall, if necessary, first be used to reinstate the principal amount of any applicable Qualified Credit Instrument and shall then be used to replenish any cash portion of the Reserve Requirement. No such transfer and deposit need be made to a Reserve Account so long as there shall be on deposit therein a sum at least equal to the Reserve Requirement. Revenues Application to Bonds All Revenues required to be paid to the trustee under the Indenture for each Series of Bonds shall be promptly deposited by the Trustee upon receipt thereof in a special fund designated as the Revenue Fund which the Trustee shall establish, maintain and hold in trust thereunder. No later than three (3) Business Days prior to each Interest Payment Date, the Trustee shall transfer from the Revenue Fund and deposit into the following respective accounts (each of which the Trustee shall establish and maintain within the Revenue Fund), the following amounts in the following order of priority, the requirements of each such account (including the making up of any deficiencies in any such account resulting from lack of Revenues sufficient to make any earlier required deposit) at the time of deposit to be satisfied before any transfer is made to any account subsequent in priority: (a) Interest Account. No later than three (3) Business Days prior to each Interest Payment Date, the Trustee shall deposit in the Interest Account an amount required to cause the aggregate amount on deposit in the Interest Account to equal the amount of interest becoming due and payable on such Interest 22

31 Payment Date on all Outstanding Bonds. No deposit need be made into the Interest Account if the amount contained therein is at least equal to the interest becoming due and payable upon all Outstanding Bonds on the next succeeding Interest Payment Date. All moneys in the Interest Account shall be used and withdrawn by the Trustee solely for the purpose of paying the interest on the Bonds as it shall become due and payable (including accrued interest on any Bonds redeemed prior to maturity). All amounts on deposit in the Interest Account on the first day of any Bond Year, to the extent not required to pay any interest then having come due and payable on the Outstanding Bonds, shall be withdrawn therefrom by the Trustee and transferred to the Agency to be used for any lawful purposes of the Agency. (b) Principal Account. No later than three (3) Business Days prior to each Interest Payment Date on which the principal of the Bonds shall be payable, the Trustee shall deposit in the Principal Account an amount required to cause the aggregate amount on deposit in the Principal Account to equal the principal of the Bonds coming due and payable on such Interest Payment Date pursuant to Section 2.01, or the redemption price of the Bonds (consisting of the principal amount thereof and any applicable redemption premiums) required to be redeemed on such Interest Payment Date pursuant to the Indenture. All moneys in the Principal Account shall be used and withdrawn by the Trustee solely for the purpose of (i) paying the principal at maturity of the Bonds at the respective maturities thereof; (ii) paying the principal of the Term Bonds upon the mandatory sinking fund redemption thereof pursuant to the Indenture; or (iii) paying the principal of and premium, if any, on any Bonds upon the redemption thereof pursuant to the Indenture. All amounts on deposit in the Principal Account on the first day of any Bond Year, to the extent not required to pay the principal of any Outstanding Bonds then having come due and payable, shall be withdrawn therefrom and transferred to the Agency to be used for any lawful purposes of the Agency. (c) Reserve Accounts. If on any date deposits are to be made pursuant to the provisions of the Indenture described in subparagraphs (a) and (b) above, and amounts on deposit in the Revenue Fund under the Indenture shall be insufficient to enable the Trustee to make such deposits, the Trustee shall withdraw the amount of such insufficiency from the applicable Reserve Account established pursuant to the applicable Loan Agreement and transfer such amount to the Revenue Fund, as described in the applicable Loan Agreement. Surplus Revenues Except as may be otherwise provided in any Parity Debt Instrument, the Agency shall not be obligated to deposit in the Pledged Revenue Fund in any Bond Year an amount of Tax Revenues which, together with other available amounts in the Pledged Revenue Fund, exceeds Pledged Tax Revenues for the Outstanding Loans for such Bond Year. In the event that for any reason whatsoever any amounts shall remain on deposit in the Pledged Revenue Fund, the Special Fund or the Debt Service Fund on any September 2 after making all of the transfers theretofore required to be made described in the preceding paragraphs and pursuant to any Parity Debt Instrument, the Agency may withdraw such amounts from the Pledged Revenue Fund, the Special Fund and the Debt Service Fund for use for any lawful purposes of the Agency. Reserve Accounts and Reserve Fund Surety Bonds Separate Reserve Accounts were established under each loan agreement relating to the 2003 Parity Loans to secure the 2003 Parity Loans and any related parity debt of the Project Area issued thereafter secured by the Tax Revenues of the Project Area, including each of the 2006 Agency Loans. There is no cross-collateralization among such Reserve Accounts, and the Reserve Account will not be available to pay principal of and interest on the other 2006 Agency Loans or their related 2003 Parity Loans or any Parity Debt incurred by the Agency secured by the Tax Revenues of any other Project Area. 23

32 Reserve Accounts Upon the issuance of the Bonds and the making of the 2006 Agency Loans, the Agency is required to maintain a reserve account under each 2006 Agency Loan Agreement in an amount equal to the Reserve Requirement under each Loan Agreement. Under each 2006 Agency Loan Agreement, Reserve Requirement means (i) with respect to the 2006 Agency Loan, the 2003 Parity Loan or any series of Parity Debt, as of any calculation date, the least of (a) 10% of the outstanding principal amount of such Loan, as applicable; provided that if the original issue discount of such Loan exceeds 2% of such original principal amount, then initially 10% of the original principal amount of, less original issue discount on, such Loan, but excluding from such calculation any proceeds of such Loan deposited in an escrow described in the definitions of Annual Debt Service and Maximum Annual Debt Service; (b) Maximum Annual Debt Service with respect to such Loan, as applicable; or (c) 125% of average Annual Debt Service on such Loan, as applicable; provided further that the Agency may meet all of a portion of the Reserve Requirement by depositing a Qualified Credit Instrument meeting the requirements of the respective Loan Agreement. For purposes of calculating Maximum Annual Debt Service with respect to determining the Reserve Requirement, a variable rate Loan shall be deemed to bear interest rate at the maximum rate permitted by the Parity Debt Instrument. As used in the foregoing paragraph, the term Loan is used to refer to the 2006 Agency Loan, the 2003 Parity Loan or any series of Parity Debt. In the event proceeds of the Loan or Parity Debt are deposited in an escrow described in the definitions of Annual Debt Service and Maximum Annual Debt Service, each such time that moneys are released from such escrow, other than to prepay a portion of the Loan or Parity Debt, an amount of such released moneys shall be deposited in the applicable Reserve Account as is necessary to ensure that the amount on deposit therein at least equals the Reserve Requirement for the Loan or Parity Debt after such release. As used in the preceding paragraphs, the term Loan and Loan Agreement refers to the 2006 Agency Loan, the 2003 Parity Loan or any series or issue of Parity Debt of the respective Project Area. The Agency reserves the right, with respect to all or any portion of the Reserve Requirement established under the applicable Loan Agreement to substitute, at any time and from time to time, one or more Qualified Credit Instruments for cash or any Qualified Credit Instrument then on deposit in or held by the applicable Reserve Account. Any such Qualified Credit Instrument shall provide that the Trustee is entitled to draw amounts thereunder when required by the provisions of the Indentures to make transfers from the applicable Reserve Account to the Interest Account and the Principal Account in the event of a deficiency in any such account; provided that, in any such event, the Trustee shall first apply to any such deficiency the amount of cash (including cash represented by investments) then on deposit in the applicable Reserve Account. Upon deposit by the Agency with the Trustee of any such Qualified Credit Instrument, the Trustee shall withdraw from the applicable Reserve Account and transfer to the Agency for deposit in the Redevelopment Fund, an amount equal to the principal amount of such Qualified Credit Instrument. In the event that the Agency fails to deposit with the Trustee the full amount required to be deposited pursuant to the applicable Loan Agreement on or before the third Business Day preceding any Interest Payment Date, on such Interest Payment Date the Trustee shall withdraw from the applicable Reserve Account and transfer to the Interest Account and the Principal Account, in such order, the difference between the amount required to be deposited pursuant to the applicable Loan Agreement and the amount actually deposited by the Agency. In the event that there shall not then be sufficient cash available in the applicable Account to transfer the full amount of the difference from the applicable Reserve Account, before the end of the third Business Day preceding any Interest Payment Date, the Trustee shall make a demand for payment on any applicable Qualified Credit Instrument for the amount of the deficiency, all in the manner and as provided in such the amount received from the issuer of the Qualified Credit Instrument pursuant to such demand into the Interest Account and the Principal Account, in such order, the difference between the amount required to be deposited pursuant to the applicable Loan Agreement and the amount actually deposited by the Agency and transferred from the applicable Reserve Account. In the event the 24

33 applicable Reserve Account has on deposit more than one Reserve Facility, the Trustee shall draw on such Qualified Credit Instrument on a pro-rata basis. Qualified Credit Instrument means any of the following: (a) a surety bond or insurance policy issued to the Trustee by a company licensed to issue an insurance policy guaranteeing the timely payment of debt service on the Bonds (a municipal bond insurer ) if the claims paying ability of the issuer thereof shall be rated AAA, AAA and Aaa by Standard and Poor s Ratings Services, Fitch Ratings and Moody s Investors Service, respectively; (b) a surety bond or insurance policy issued to the Trustee by an entity other than a municipal bond insurer if the claims paying ability of the issuer thereof shall be rated Aa, AA and AA or better by Moody s Investors Service, Fitch Ratings and Standard and Poor s Ratings Services; or (c) an unconditional irrevocable letter of credit issued to the Trustee by a bank, if the Issuer thereof is rated at least AA- by Standard and Poor s Ratings Services and Fitch Ratings and Aa3 by Moody s Investors Service. Concurrently with the issuance of the Bonds, MBIA Insurance Corporation will issue a separate Reserve Fund Surety Bond with respect to each of the 2006 Agency Loans for each Project Area. See Reserve Fund Surety Bonds herein. The Reserve Fund Surety Bonds each constitute a Qualified Credit Instrument for purposes of the 2006 Agency Loan Agreements. As of the date of issuance of the Bonds, the Reserve Requirement for the Reseda/Canoga Park 2006 Agency Loan and the Reseda/Canoga Park 2003 Parity Loans will be $2,333, Concurrently with the issuance of the Bonds, a Reserve Fund Surety Bond in the stated amount of $1,412,555.75, equal to the Reserve Requirement for the 2006 Reseda/Canoga Park Loan, will be credited to the Reserve Account, which together with the $945, currently held in the Reserve Account, will be equal to the Reserve Requirement set forth in said Reseda/Canoga Park 2006 Loan Agreement and the Reseda/Canoga Park 2003 Parity Loan Agreements. As of the date of issuance of the Bonds, the Reserve Requirement for the 2006 Pacoima/Panorama City Loan Agreement and the Pacoima/Panorama City 2003 Parity Loans will be $1,027, Concurrently with the issuance of the Bonds, a Reserve Fund Surety Bond in the stated amount of $660,237.50, equal to the portion of the Reserve Requirement relating to the 2006 Pacoima/Panorama City Tax-Exempt Loan, and a Reserve Fund Surety Bond in the stated amount of $$706,277.88, equal to the portion of the Reserve Requirement relating to the 2006 Pacoima/Panorama City Taxable Loan, will each be credited to the Reserve Account under the 2006 Pacoima/Panorama City Loan Agreement. The total Reserve Requirement relating to the 2006 Pacoima/Panorama City Tax-Exempt Loan and 2006 Pacoima/Panorama City Taxable Loan, together with the $336, currently held in the Reserve Account, will be not less than the total Reserve Requirement set forth in said 2006 Pacoima/Panorama City Loan Agreement and the Pacoima/Panorama City 2003 Parity Loan Agreement. As of the date of issuance of the Bonds, the Reserve Requirement for the 2006 East Hollywood/Beverly- Normandie Agency Loan Agreement and the East Hollywood/Beverly-Normandie 2003 Parity Loan will be $907, Concurrently with the issuance of the Bonds, a Reserve Fund Surety Bond in the stated amount of $706,277.88, equal to the Reserve Requirement for the 2006 East Hollywood/Beverly-Normandie Agency Loan, will be credited to the Reserve Account under the respective 2006 East Hollywood/Beverly-Normandie Loan Agreement, which together with the $198, currently held in the Reserve Account, will be equal to the Reserve Requirement set forth in said 2006 East Hollywood/Beverly-Normandie Loan Agreement and the East Hollywood/Beverly-Normandie 2003 Parity Loan Agreement. Reserve Fund Surety Bonds Concurrently with the issuance of the Bonds, MBIA Insurance Corporation (referred to in this subsection as the "Insurer") will issue a separate Reserve Fund Surety Bond with respect to each of the 2006 Agency Loans for each Project Area. The Reserve Fund Surety Bonds each constitute a Qualified Credit Instrument for purposes of the requirements of the 2006 Agency Loan Agreements and the 2003 Parity Loan Agreements. Each Reserve Fund Surety Bond will provide that upon notice from the Trustee, as paying agent for the 2006 Agency Loans, to the Insurer to the effect that insufficient amounts are on deposit in the Debt Service Fund for a Project Area to pay the 25

34 principal of (at maturity or pursuant to mandatory redemption requirements) and interest on the applicable 2006 Agency Loan, the Insurer will promptly deposit with the Trustee an amount sufficient to pay the principal of and interest on the applicable 2006 Agency Loan or the available amount of the Reserve Fund Surety Bond, whichever is less. Upon the later of: (i) three (3) days after receipt by the Insurer of a Demand for Payment in the form attached to the Reserve Fund Surety Bond, duly executed by the Trustee; or (ii) the payment date of the applicable 2006 Agency Loan as specified in the Demand for Payment presented by the Trustee to the Insurer, the Insurer will make a deposit of funds in an account with U.S. Bank Trust National Association, in New York, New York, or its successor, sufficient for the payment to the Trustee, of amounts which are then due to the Trustee (as specified in the Demand for Payment) subject to the coverage under the Reserve Fund Surety Bond. The available amount of each Reserve Fund Surety Bond is the initial face amount of the Reserve Fund Surety Bond less the amount of any previous deposits by the Insurer with the Trustee for such 2006 Agency Loan which have not been reimbursed by the Agency. The Agency and the Insurer will enter into a Financial Guaranty Agreement dated as of the date of closing (the "Agreement"). Pursuant to the Agreement, the Agency is required to reimburse the Insurer, within one year of any deposit, the amount of such deposit made by the Insurer with the Trustee under the Reserve Fund Surety Bond. Such reimbursement shall be made only after all required deposits to the Debt Service Fund have been made for such Bond Year. Under the terms of the Agreement, the Trustee is required to reimburse the Insurer, with interest, until the face amount of the Reserve Fund Surety Bond is reinstated before any deposit is made to the Redevelopment Fund from that Project Area. No optional redemption of a 2006 Agency Loan may be made until the Insurer's Reserve Fund Surety Bond from that Project Area is reinstated. A Reserve Fund Surety Bond will be held by the Trustee in the Reserve Account relating to the 2006 Agency Loans of each Project Area and is provided as an alternative to the Agency depositing funds equal to the Reserve Requirement for the respective 2006 Agency Loan. The Reserve Fund Surety Bonds will be issued with respect to the 2006 Agency Loans for each Project Area in the face amount equal to the applicable Reserve Requirement for such 2006 Agency Loans of such Project Area and the premium therefor will be fully paid by the Agency at the time of delivery of the 2006 Agency Loans and the Bonds. A specimen of the Reserve Fund Surety Bond is set forth in APPENDIX G hereof. Issuance of Parity Debt and Other Obligations Parity Debt The Agency has previously issued Parity Debt in the amounts and having the terms set forth in INTRODUCTORY STATEMENT Outstanding 2003 Parity Obligations herein. The Agency may issue or incur additional Parity Debt in such principal amount as it estimates will be needed for such purpose, subject to the following conditions precedent to the issuance and delivery of such Parity Debt. See APPENDIX B SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURES AND LOAN AGREEMENTS. The Agency may issue or incur Parity Debt with respect to any Loan payable from the Tax Revenues of the applicable Project Area in such principal amount as shall be determined by the Agency, subject, among other things, to the following specific which are made conditions precedent to the issuance and delivery of such Parity Debt: (a) (b) No Event of Default shall have occurred and be continuing, and the Agency shall otherwise be in compliance with all covenants set forth in the respective loan agreement. The Agency shall provide the Trustee with a report of an Independent Redevelopment Consultant containing at least the following information: (i) Tax Revenues projected to be collected in the then-current Bond Year (for purposes of such provisions, Tax Revenues 1) shall be based upon the most recent assessed valuation of taxable property in the Project Area as indicated in the 26

35 (ii) (iii) (iv) (v) (vi) applicable records of the County, which valuation may be adjusted to reflect the potential impact of assessment appeals and amounts attributable to any misplaced taxable value and 2) shall not include amounts payable by the Agency pursuant to Section of the Redevelopment Law unless said amounts are lawfully subordinated to the payment of Annual Debt Service on the Loans); Maximum Annual Debt Service on the respective loan agreement and Parity Debt that will be outstanding immediately following the issuance of such Parity Debt; Total assessed value of taxable property in the Project Area based on the tax roll for the most recent fiscal year for which such information is available ( Current Year Total Assessed Value ); The total assessed value of property in the Project Area as shown on the assessment roll last equalized prior to the approval of the Redevelopment Plan, including any adjustments thereto as incorporated into the records of the County of Los Angeles ( Base Year Value ); The difference between Current Year Total Assessed Value and Base Year Value ( Incremental Value ); and For each of the ten (10) assesses with the highest assessed value of taxable property in the Project Area based on the tax roll for the most recent fiscal year for which such information is available a) the total assessed value for each owner and b) the sum of the total assessed values for the top 10 owners ( Top 10 Total Assessed Value ). For the purpose of this section, the property owner having the highest assessed value shall be referred to as the Largest Owner. (c) The report of the Independent Redevelopment Consultant shall show that Tax Revenues shall equal at least 250% of the Maximum Annual Debt Service on the respective loan and Parity Debt that will be outstanding immediately following the issuance of such Parity Debt (the Debt Service Coverage Ratio ); provided such Debt Service Coverage Ratio shall be reduced to 175% in the event that the report shows that each of the following conditions have been satisfied: (i) (ii) the Base Year Value is not more than eighty percent (80%) of the Current Year Total Assessed Value; the Top 10 Total Assessed Value is not more than thirty-five percent (35%) of the Incremental Value; and (iii) the Assessed Value of all taxable property in the Project Area owned by the Largest Owner is not more than twenty percent (20%) of the Incremental Value provided further however that such Debt Service Coverage Ratio shall be reduced to 125% in the event that the report shows that each of the following conditions have been satisfied: (d) (iv) (v) (vi) the Base Year Value is not more than seventy-five percent (75%) of the Current Year Total Assessed Value; the Top 10 Total Assessed Value is not more than twenty percent (20%) of the Incremental Value; and the Assessed Value of all taxable property in the Project Area owned by the Largest Owner is not more than twenty percent (20%) of the Incremental Value The Agency shall deliver to the Trustee a Certificate of the Agency certifying that the conditions precedent to the issuance of such Parity Debt set forth in the provisions of the Loan Agreements described in subsections (a), (b) and (c) above have been satisfied. 27

36 (e) The Agency shall fund a Reserve Account relating to such Parity Debt in an amount equal to the Reserve Requirement. Subordinated Obligations The Agency may issue or incur Subordinate Debt relating to a Project Area in such principal amount as shall be determined by the Agency. Subordinate Debt is defined in the Loan Agreements to mean any loans, advances or indebtedness issued or incurred by the Agency pursuant to the applicable loan agreement, which are either: (a) payable from, but not secured by a pledge of or lien upon, the Tax Revenues of the respective Project Area; or (b) secured by a pledge of or lien upon the Tax Revenues of the respective Project Area which is subordinate to the pledge of and lien upon the Tax Revenues under the applicable loan agreement for the security of the applicable Agency loan. THE BOND INSURER AND THE FINANCIAL GUARANTY INSURANCE POLICIES The MBIA Insurance Corporation Insurance Policies The following information has been furnished by MBIA Insurance Corporation ("MBIA") for use in this Official Statement. Reference is made to Appendix G for a specimen of MBIA's financial guaranty insurance policy (referred to in this section as the Policy ). A separate Policy will be issued for each Series of the Bonds. MBIA does not accept any responsibility for the accuracy or completeness of this Official Statement or any information or disclosure contained herein, or omitted herefrom, other than with respect to the accuracy of the information regarding the Policy and MBIA set forth under the heading THE BOND INSURER AND THE MUNICIPAL BOND INSURANCE POLICY herein. Additionally, MBIA makes no representation regarding the Bonds or the advisability of investing in the Bonds. The MBIA Policy unconditionally and irrevocably guarantees the full and complete payment required to be made by or on behalf of the Agency to the Paying Agent or its successor of an amount equal to (i) the principal of (either at the stated maturity or by an advancement of maturity pursuant to a mandatory sinking fund payment) and interest on, the Bonds as such payments shall become due but shall not be so paid (except that in the event of any acceleration of the due date of such principal by reason of mandatory or optional redemption or acceleration resulting from default or otherwise, other than any advancement of maturity pursuant to a mandatory sinking fund payment, the payments guaranteed by the MBIA Policy shall be made in such amounts and at such times as such payments of principal would have been due had there not been any such acceleration, unless MBIA elects in its sole discretion, to pay in whole or in part any principal due by reason of such acceleration); and (ii) the reimbursement of any such payment which is subsequently recovered from any Owner of the Bonds pursuant to a final judgment by a court of competent jurisdiction that such payment constitutes an avoidable preference to such Owner within the meaning of any applicable bankruptcy law (a Preference ). MBIA's Policy does not insure against loss of any prepayment premium which may at any time be payable with respect to any Bonds. MBIA's Policy does not, under any circumstance, insure against loss relating to: (i) optional or mandatory redemptions (other than mandatory sinking fund redemptions); (ii) any payments to be made on an accelerated basis; (iii) payments of the purchase price of Bonds upon tender by an owner thereof; or (iv) any Preference relating to (i) through (iii) above. MBIA's Policy also does not insure against nonpayment of principal of or interest on the Bonds resulting from the insolvency, negligence or any other act or omission of the Paying Agent or any other paying agent for the Bonds. Upon receipt of telephonic or telegraphic notice, such notice subsequently confirmed in writing by registered or certified mail, or upon receipt of written notice by registered or certified mail, by MBIA from the Paying Agent or any owner of a Bond the payment of an insured amount for which is then due, that such required payment has not been made, MBIA on the due date of such payment or within one business day after receipt of notice of such nonpayment, whichever is later, will make a deposit of funds, in an account with U.S. Bank Trust 28

37 National Association, in New York, New York, or its successor, sufficient for the payment of any such insured amounts which are then due. Upon presentment and surrender of such Bonds or presentment of such other proof of ownership of the Bonds, together with any appropriate instruments of assignment to evidence the assignment of the insured amounts due on the Bonds as are paid by MBIA, and appropriate instruments to effect the appointment of MBIA as agent for such owners of the Bonds in any legal proceeding related to payment of insured amounts on the Bonds, such instruments being in a form satisfactory to U.S. Bank Trust National Association, U.S. Bank Trust National Association shall disburse to such owners or the Paying Agent payment of the insured amounts due on such Bonds, less any amount held by the Paying Agent for the payment of such insured amounts and legally available therefor. MBIA Insurance Corporation MBIA Insurance Corporation ( MBIA ) is the principal operating subsidiary of MBIA Inc., a New York Stock Exchange listed company (the Company ). The Company is not obligated to pay the debts of or claims against MBIA. MBIA is domiciled in the State of New York and licensed to do business in and subject to regulation under the laws of all 50 states, the District of Columbia, the Commonwealth of Puerto Rico, the Commonwealth of the Northern Mariana Islands, the Virgin Islands of the United States and the Territory of Guam. MBIA, either directly or through subsidiaries, is licensed to do business in the Republic of France, the United Kingdom and the Kingdom of Spain and is subject to regulation under the laws of those jurisdictions. The principal executive offices of MBIA are located at 113 King Street, Armonk, New York and the main telephone number at that address is (914) Regulation As a financial guaranty insurance company licensed to do business in the State of New York, MBIA is subject to the New York Insurance Law which, among other things, prescribes minimum capital requirements and contingency reserves against liabilities for MBIA, limits the classes and concentrations of investments that are made by MBIA and requires the approval of policy rates and forms that are employed by MBIA. State law also regulates the amount of both the aggregate and individual risks that may be insured by MBIA, the payment of dividends by MBIA, changes in control with respect to MBIA and transactions among MBIA and its affiliates. The Policy is not covered by the Property/Casualty Insurance Security Fund specified in Article 76 of the New York Insurance Law. Financial Strength Ratings of MBIA Moody's Investors Service, Inc. rates the financial strength of MBIA Aaa. Standard & Poor's, a division of The McGraw-Hill Companies, Inc. rates the financial strength of MBIA AAA. Fitch Ratings rates the financial strength of MBIA AAA. Each rating of MBIA should be evaluated independently. The ratings reflect the respective rating agency's current assessment of the creditworthiness of MBIA and its ability to pay claims on its policies of insurance. Any further explanation as to the significance of the above ratings may be obtained only from the applicable rating agency. The above ratings are not recommendations to buy, sell or hold the Bonds, and such ratings may be subject to revision or withdrawal at any time by the rating agencies. Any downward revision or withdrawal of any of the above ratings may have an adverse effect on the market price of the Bonds. MBIA does not guaranty the market price of the Bonds nor does it guaranty that the ratings on the Bonds will not be revised or withdrawn. 29

38 MBIA Financial Information As of December 31, 2005, MBIA had admitted assets of $11.0 billion (unaudited), total liabilities of $7.2 billion (unaudited), and total capital and surplus of $3.8 billion (unaudited) determined in accordance with statutory accounting practices prescribed or permitted by insurance regulatory authorities. As of March 31, 2006, MBIA had admitted assets of $11.2 billion (unaudited), total liabilities of $7.5 billion (unaudited), and total capital and surplus of $3.8 billion (unaudited) determined in accordance with statutory accounting practices prescribed or permitted by insurance regulatory authorities. For further information concerning MBIA, see the consolidated financial statements of MBIA and its subsidiaries as of December 31, 2005 and December 31, 2004 and for each of the three years in the period ended December 31, 2005, prepared in accordance with generally accepted accounting principles, included in the Annual Report on Form 10-K of the Company for the year ended December 31, 2005 and the consolidated financial statements of MBIA and its subsidiaries as of March 31, 2006 and for the three month period ended March 31, 2006 and March 31, 2005 included in the Quarterly Report on Form 10-Q of the Company for the period ended March 31, 2006, which are hereby incorporated by reference into this Official Statement and shall be deemed to be a part hereof. Copies of the statutory financial statements filed by MBIA with the State of New York Insurance Department are available over the Internet at the Company s web site at and at no cost, upon request to MBIA at its principal executive offices. Incorporation of Certain Documents by Reference The following documents filed by the Company with the Securities and Exchange Commission (the SEC ) are incorporated by reference into this Official Statement: (1) The Company s Annual Report on Form 10-K for the year ended December 31, 2005; and (2) The Company s Quarterly Report on Form 10-Q for the quarter ended March 31, Any documents, including any financial statements of MBIA and its subsidiaries that are included therein or attached as exhibits thereto, filed by the Company pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of the Company s most recent Quarterly Report on Form 10-Q or Annual Report on Form 10-K, and prior to the termination of the offering of the Bonds offered hereby shall be deemed to be incorporated by reference in this Official Statement and to be a part hereof from the respective dates of filing such documents. Any statement contained in a document incorporated or deemed to be incorporated by reference herein, or contained in this Official Statement, shall be deemed to be modified or superseded for purposes of this Official Statement to the extent that a statement contained herein or in any other subsequently filed document which also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Official Statement. The Company files annual, quarterly and special reports, information statements and other information with the SEC under File No Copies of the Company s SEC filings (including (1) the Company s Annual Report on Form 10-K for the year ended December 31, 2005, and (2) the Company s Quarterly Report on Form 10- Q for the quarter ended March 31, 2006 are available (i) over the Internet at the SEC s web site at (ii) at the SEC s public reference room in Washington D.C.; (iii) over the Internet at the Company s web site at and (iv) at no cost, upon request to MBIA at its principal executive offices. In the event the Insurer were to become insolvent, any claims arising under a policy of financial guaranty insurance are excluded from coverage by the California Insurance Guaranty Association, established pursuant to Article 14.2 (commencing with Section 1063) of Chapter 1 of Part 2 of Division 1 of the California Insurance Code. 30

39 RISK FACTORS The following is a discussion of certain risk factors that should be considered, in addition to other matters set forth herein, in evaluating the investment quality of the Bonds. The following information, together with the information set forth elsewhere in this Official Statement, should be considered by prospective investors in evaluating the Bonds. However, the following does not purport to be an exhaustive listing of risks and other considerations which may be relevant to investing in the Bonds, and the order in which the following information presented is not intended to reflect the relative importance of any such risks. Other factors which could result in reduction of Tax Revenues of the Project Areas available to the Agency and a corresponding reduction in Tax Revenues received by the Agency from the Project Areas are discussed herein under the caption LIMITATIONS ON TAX REVENUES herein. Bonds Are Limited Obligations Each Series of the Bonds and the interest payable thereon are limited obligations of the Agency, and do not constitute a general obligation of the Agency. The Bonds are payable only from limited funds of the Authority. The Bonds are not secured by a legal or equitable pledge of, or charge, lien or encumbrance upon, any of the property of the Authority or any of its income or receipts, except the Revenues pledged under the Indenture relating to such Series and such other moneys and securities as provided in the related Indenture. The Revenues will be derived primarily from the payments made by the Agency with respect to the 2006 Agency Loans relating to such Series of Bonds. See SECURITY FOR THE BONDS herein. The 2006 Agency Loans are separate, special obligations of the Agency payable solely from and secured by Pledged Tax Revenues of each Project Area, as defined in the respective Indenture and 2006 Agency Loan Agreement relating thereto. The 2006 Agency Loans of each Project Area are payable from the Pledged Tax Revenues on a parity with the 2003 Parity Loans of the Project Area. There is no cross-collateralization among the Tax Revenues of the Project Areas, and the Tax Revenues relating to a Project Area and its related 2003 Parity Loans will not be available to pay principal of and interest on the other 2006 Agency Loans or their related 2003 Parity Loans or any Parity Debt incurred by the Agency secured by the Tax Revenues of any other Project Area. No Owner of the Bonds may compel exercise of the taxing power of the State of California or any of its political subdivisions or agencies to pay the principal of, premium, if any, or interest due on the Bonds. The Bonds do not evidence a debt of the Agency within the meaning of any constitutional or statutory debt limitation provision. Reduction of Tax Revenues Tax increment revenues allocated to the Agency (which constitute the source of payment of principal and interest on the Bonds as discussed herein) are determined by the amount of the incremental assessed value of property in the respective Project Area, the current rate or rates at which property in the respective Project Area is taxed and the percentage of taxes collected in the respective Project Area. The Agency does not have taxing power, nor does the Agency have the power to affect the rate at which the property is taxed. At least three types of events that are beyond the control of the Agency could occur and could cause a reduction in Tax Revenues of a Project Area, thereby impairing the ability of the Agency to make payments of principal, interest and premium (if any) on a Series of the Bonds and their related obligations when due. First, a reduction of taxable values of property in a Project Area caused by economic factors, such as relocation out of the Project Area by one or more major property owners, successful appeals by property owners for a reduction in a property s assessed value or the destruction of property caused by natural disasters, civil unrest or other disasters could result in a reduction of Tax Revenues of a Project Area. The impact of appeals is discussed further under - Assessment Appeals below. Second, substantial delinquencies in the payment of property taxes by the owners of taxable property within a Project Area could impair the timely receipt by the Agency of Tax Revenues from the Project Area. 31

40 Third, the State electorate or Legislature could adopt further limitations with the effect of reducing the Tax Revenues. Such limitation already exists under Article XIIIA of the California Constitution, which was adopted pursuant to the initiative process. The State electorate could adopt additional, similar limitations with the effect of reducing Tax Revenues. Concentration of Ownership As illustrated in RESEDA/CANOGA PARK PROJECT Largest Taxpayers, PACOIMA/PANORAMA CITY PROJECT Largest Taxpayers and in THE EAST HOLLYWOOD/BEVERLY-NORMANDIE PROJECT Largest Taxpayers herein, significant percentages of the assessed valuation of these Project Areas in the Fiscal Year is accounted for by property owned by the ten largest property taxpayers. This concentration of ownership presents a risk, in that failure of a large taxpayer to pay property taxes when due could result in a delay in the timing of collection and in the amount of property taxes, including the Tax Revenues, of the respective Project Area, which could delay or imperil the payment of principal of and interest on the respective Agency Loan, which could thereby result in delay or nonpayment of the related Series of Bonds. Assessment Appeals Property taxable values within a Project Area may be reduced as a result of a successful appeal of the taxable value determined by the County Assessor. An appeal may result in a reduction to the County Assessor s original taxable value and a tax refund to the applicant property owner. Appeal and refund activity within the Project Area may result in resolved appeals which reduce the assessed value of parcels within the Project Area. See APPENDIX A FISCAL CONSULTANT S REPORT, for information in the Fiscal Consultant s Report relating to the assessment appeals within each Project Area. An assessee may contest either (i) the original determination of the base assessment value of a parcel (i.e., the value assigned after a change of ownership or completion of new construction), or (ii) the current assessment value (i.e., the value as determined by the County Assessor of the County of Los Angeles, which may be no more than the base assessment value plus the compounded 2% annual inflation factor) when specified factors have caused the market value of the parcel to drop below current assessment value. At the time of reassessment, after a change of ownership or completion of new construction, the assessee may appeal the base assessment value of the property. Under an appeal of a base assessment value, the assessee appeals the actual underlying market value of the sales transaction or the recently completed improvement. A successful appeal of the base assessment value of a parcel has significant future revenue impacts, because a reduced base year assessment will reduce the compounded future value of the property prospectively. Except for the 2% inflation factor, the value of the property cannot be increased until a change in ownership occurs or additional improvements are added. There are a number of assessment appeals which have recently been resolved and are currently pending in the Project Areas, representing a relatively small percentage of the total valuations of the respective Project Areas for the Fiscal Year. In addition, the Project Areas will be liable in the Fiscal Year for relatively small refunds of certain prior year resolved and pending assessment appeals. See APPENDIX A FISCAL CONSULTANT S REPORT Part II Taxable Value Assessment Appeals for a discussion of such appeals. The Agency cannot predict whether more appeals will be filed by propertyowners in the future, or whether such appeals, or any future appeals, will be successful. Future reductions in taxable values in the Project Areas resulting from successful appeals by property owners will reduce the amount of Tax Revenues from the Project Area available to pay the principal of and interest on the related Series of Bonds. Proposition 8, approved in 1978 (California Revenue and Taxation Code Section 51(b)), provides for the assessment of real property at the lesser of its originally determined (base year) full cash value compounded 32

41 annually by the inflation factor, or its full cash value as of the lien date, taking into account reductions in value due to damage, destruction, obsolescence or other factors causing a decline in market value. Reductions based on Proposition 8 do not establish new base year values, and the property may be reassessed on a following lien date up to the lower of the then-current fair market value or the factored base year value. Proposition 8 reductions in assessed value will have the effect of reducing Tax Revenues. See APPENDIX A FISCAL CONSULTANT S REPORT. Tax Revenue Assumptions and Projections To estimate the total Tax Revenues available from each Project Area to pay debt service on the Bonds, the Agency s Fiscal Consultant has made certain assumptions with regard to the assessed valuation in the respective Project Areas, future tax rates, the percentage of taxes collected, and the likelihood of appeals. See APPENDIX A Fiscal Consultant s Report hereto for a full discussion of the assumptions underlying the projections set forth herein with respect to Tax Revenues from each Project Area. The Agency believes these assumptions to be reasonable, but to the extent that the payment of any revenues that constitute Tax Revenues is less than such assumptions, the total Tax Revenues available from each Project Area will, in all likelihood, be less than those projected herein. See LIMITATION ON TAX REVENUES Pledge and Allocation of Taxes herein. The issuance by the Agency of Parity Debt on a parity with the respective Series of Bonds could dilute Tax Revenues available to pay the Bonds. See SECURITY FOR THE BONDS Issuance of Parity Debt and Other Obligations. Real Estate and General Economic Risk The Agency s ability to make payments on each Series of the Bonds will depend upon the economic strength of the respective Project Area. The general economy of the Project Areas will be subject to all the risks generally associated with real estate and real estate development. Projected redevelopment of real property within the Project Areas by the Agency as well as private development in the Project Areas, may be adversely affected by changes in general economic conditions, fluctuations in the real estate market and interest rates, unexpected increases in development costs and by other similar factors. Further, real estate development within the Project Areas could be adversely affected by future governmental policies, including governmental policies to restrict or control certain kinds of development. If development and redevelopment activities in the Project Areas encounter significant obstacles of the kind described herein or other impediments, the economy of the Project Areas could be adversely affected, causing reduction of the Tax Revenues available to repay the Bonds. In addition, if there is a decline in the general economy of the region, the City or the Project Areas, the owners of property within the Project Areas may be less able or less willing to make timely payments of property taxes, causing a delay or stoppage of Tax Revenues received by the Agency from the Project Area. Reduction in Inflationary Rate Article XIIIA of the California Constitution provides that the full cash value basis of real property used in determining taxable value may be adjusted from year to year to reflect the inflationary rate, not to exceed a 2% increase for any given year, or may be reduced to reflect a reduction in the consumer price index or comparable local data. The measure is computed on a calendar year basis. See LIMITATIONS ON TAX REVENUES Article XIIIA of State Constitution herein. The Agency has projected Tax Revenues to be received by it from each Project Area based, among other things, upon such 2% inflationary increases. Should the assessed valuation of taxable property in a Project Area not increase at the allowed annual rate of 2%, the Agency s receipt of future Tax Revenues from the Project Area and thereby Pledged Tax Revenues available for payment of the related Series of Bonds may be adversely affected. 33

42 Risk of Earthquake and Other Disasters The State is subject to periodic earthquake activity. The Northridge Earthquake that occurred on January 17, 1994 caused significant damage to certain parts of the City, including properties within the Project Areas. The Project Areas were formed to address property damage caused by the Northridge Earthquake. If a future earthquake were to substantially damage or destroy taxable property within the Project Area, the assessed valuation of such property would be reduced. Such a reduction of assessed valuations could result in a reduction of the Tax Revenues that secure the Bonds, thereby impairing ability of the Agency to make payments of principal of and/or interest on the respective Series of Bonds when due. On September 11, 2001, terrorist attacks occurred in New York City and Washington, D.C. and resulted in significant damage and casualtiesin those cities. Future terrorist activities in the Los Angeles area could adversely impact the property in or values of the Project Areas and, in turn, could adversely impact the Tax Revenues available to pay the Bonds. Bankruptcy and Foreclosure On July 30, 1992 the United States Court of Appeals for the Ninth Circuit issued an opinion in a bankruptcy case entitled In re Glasply Marine Industries holding that ad valorem property taxes levied by a county in the State of Washington after the date that the property owner filed a petition for bankruptcy would not be entitled to priority over the claims of a secured creditor with a prior lien on the property. Similar results were reached by several circuit courts in other circuits. Subsequently, however, section 362(b)(18) of the Bankruptcy Code was enacted, effectively overturning this line of decisions and providing that local governments may rely on statutory property tax liens to secure payment of property taxes after the filing of a bankruptcy petition. For further discussion of other factors that may affect the amount of tax increment revenue collected by the Agency within the respective Project Areas, see RESEDA/CANOGA PARK PROJECT, PACOIMA/PANORAMA CITY PROJECT and EAST HOLLYWOOD/BEVERLY-NORMANDIE PROJECT AREA herein. Article XIIIA of the California Constitution LIMITATIONS ON TAX REVENUES On June 6, 1978, California voters approved Proposition 13, known as the Jarvis-Gann Initiative, which added Article XIIIA to the California Constitution, limiting the amount of any ad valorem tax on real property to one percent (1%) of the full cash value, except that additional ad valorem taxes may be levied to pay debt service on June 1, 1978 and (as a result of an amendment to Article XIIIA approved by State voters on June 3, 1986) on bonded indebtedness for the acquisition or improvement of real property which has been approved on or after July 1, 1978, by two-thirds of the voters voting on such indebtedness. Article XIIIA defines full cash value to mean the county assessor s valuation of real property as shown on the tax bill under full cash value, or thereafter, the appraised value of real property when purchased, newly constructed, or a change in ownership has occurred after the 1975 assessment period. This full cash value may be increased at a rate not to exceed two percent (2%) a year to account for inflation or reduced to reflect a reduction in the consumer price index or comparable local data at a rate not to exceed 2% a year. Article XIIIA has subsequently been amended to permit reduction of the full cash value base in the event of declining property values caused by damage, destruction or other factors, to provide that there would be no increase in the full cash value base in the event of reconstruction of property damaged or destroyed in a disaster and in various other minor or technical ways. In the general elections of 1986, 1988, 1990 and 1996, the voters of the State approved various measures which further amended Article XIII A. One such amendment generally provides that the purchase or transfer of (i) real property between spouses or (ii) the principal residence and the first $1,000,000 of the full cash value of other real property between parents and children, do not constitute a purchase or change of ownership triggering 34

43 reassessment under Article XIII A. Other amendments permitted the Legislature to allow persons over 55 who sell their residence and, on or after November 5, 1986, buy or build another of equal or lesser value within two years in the same county, to transfer the old residence s assessed value to the new residence, and permitted the Legislature to authorize each county under certain circumstances to adopt an ordinance making such transfers or assessed value applicable to situations in which the replacement dwelling purchased or constructed after November 8, 1988, is located within the county and the original property is located in another county within the State. In the October 1990 election, the voters approved additional amendments to Article XIIIA permitting the State Legislature to extend the replacement dwelling provisions applicable to persons over 55 to severely disabled homeowners for replacement dwellings purchased or newly constructed on or after June 5, 1990, and to exclude from the definition of new construction triggering reassessment improvements to certain dwellings for the purpose of making the dwelling more accessible to severely disabled persons. In the November 1990 election, the voters approved the amendment of Article XIIIA to permit the State Legislature to exclude from the definition of new construction seismic retrofitting improvements or improvements utilizing earthquake hazard mitigation technologies constructed or installed in existing buildings after November 6, In the March 1996 primary election, the voters approved a further amendment to Article XIIIA which extended the above-described parent-child reassessment exemption to transfers from grandparents to grandchildren under certain circumstances. In addition, Proposition 1 was adopted by initiative in the November 1998 general election. Proposition 1 further amends Article XIIIA to allow the repair or replacement of environmentally contaminated property or structures without increasing the tax valuation of the original or replacement property. The State s Legislative Analyst estimated the passage of Proposition 1 would result in property tax revenue losses probably less than $1 million annually in the near term to schools, counties, cities, and special districts. The Agency has no power to levy and collect taxes. Any further reduction in the tax rate or the implementation of any constitutional or legislative property tax de-emphasis will reduce Tax Revenues collected within the Project Areas and, accordingly, would have an adverse impact on the ability of the Agency to pay debt service on the Bonds. Legislation Implementing Article XIIIA Legislation has been enacted and amended a number of times since 1978 to implement Article XIIIA. Under current law, local agencies are no longer permitted to levy directly any property tax (except to pay voter-approved indebtedness). The 1% property tax is automatically levied by the county and distributed according to a formula among taxing agencies. The formula apportions the tax roughly in proportion to the relative shares of taxes levied prior to Increases of assessed valuation resulting from reappraisals of property due to new construction, change in ownership or from the 2% annual adjustment are allocated among the various jurisdictions in the taxing area based upon their respective situs except for certain utility property assessed by the State Board of Education ( Unitary Property ) which is allocated by a different method as described under Unitary Property below. Any such allocation made to a local agency continues as part of its allocation in future years. Beginning in the Fiscal Year, assessors in the State no longer record property values on tax rolls at the assessed value of 25% of market value which was taxed, per Article XIIIA, at $4.00 per $100 of assessed value. All taxable property is now shown at full market value on the tax rolls. Consequently, the tax rate is expressed as $1 per $100 of taxable value. All taxable property value included in this Official Statement is shown at 100% of market value as defined by the County of Los Angeles Assessor (unless noted differently) and all tax rates reflect the $1 per $100 of taxable value. 35

44 Court Challenges to Property Tax System On September 22, 1978, the California Supreme Court upheld Article XIIIA over challenges on several state and federal constitutional grounds (Amador Valley Joint Union High School District v. State Board of Equalization). The Court reserved certain constitutional issues and the validity of legislation implementing the amendment for future determination in proper cases. The U. S. Supreme Court struck down as a violation of equal protection certain property tax assessment practices in West Virginia, which had resulted in vastly different assessments of similar properties. Since Proposition 13 provides that property may only be reassessed up to 2 percent per year, except upon change of ownership or new construction, recent purchasers may pay substantially higher property taxes than long-time owners of comparable property in a community. In reaching its decision in the West Virginia case, the Supreme Court expressly declined to comment in any way on the constitutionality of Proposition 13. Based on the decision in the West Virginia case, property owners in the State brought three suits challenging the acquisition value assessment provisions of Article XIIIA. Two cases involved residential property, and one case involved commercial property. In all three cases, State trial and appellate courts have upheld the constitutionality of Article XIIIA s assessment rules and concluded that the West Virginia case did not apply to State laws. On June 3, 1991, the U.S. Supreme Court agreed to hear the appeal in the challenge relating to commercial property. However, the plaintiff in that case subsequently withdrew the matter. On June 18, 1992, the U.S. Supreme Court affirmed the State appellate court s decision in Nordlinger v. Hahn, one of the challenges to Article XIIIA relating to residential property, wherein the State appellate court had upheld the constitutionality of Article XIIIA. The Agency cannot predict whether there will be any further challenges to the State s current system of property tax assessment or what impact any such developments might have on its revenues or on the State s financial obligations to local governments. Appropriations Limitations Article XIIIB On November 6, 1979, the voters approved Proposition 4, known as the Gann Initiative, which added Article XIIIB to the California Constitution. Under Article XIIIB, state and local government entities have an annual appropriations limit which limits the ability to spend certain moneys which are called appropriations subject to limitation (consisting of tax revenues and certain state subventions together called proceeds of taxes and certain other funds) in an amount higher than the appropriations limit. Article XIIIB does not affect the appropriation of moneys which are excluded from the definition of appropriations limit, including debt service on indebtedness existing or authorized as of January 1, 1979, or bonded indebtedness subsequently approved by two-thirds of the voters. In general terms, the appropriations limit is to be based on certain Fiscal Year expenditures, and is to be adjusted annually to reflect changes in the consumer price index, population and services provided by these entities. Among other provisions of Article XIIIB, if the revenues of such entities in any year exceed the amounts permitted to be spent, the excess would have to be returned by revising tax rates or fee schedules over the subsequent two years. To the extent of any such revision in tax rates or fee schedules over the subsequent two years, Pledged Tax may be affected since tax allocations to the Agency are a product of the combination of tax rates levied by certain taxing agencies having jurisdiction within the Project Area. Statutes of 1980, Chapter 13.2 (Senate Bill 1972), enacted by the California Legislature and effective as an urgency measure of November 30, 1980, added Section to the Redevelopment Law. Section provides that the allocation and payment of taxes to the Agency for the purpose of paying the principal of or interest on loans, advances or indebtedness incurred for redevelopment activities, as defined therein, shall not be deemed the receipt by the Agency of proceeds of taxes levied by or on behalf of the Agency within the meaning or for the purposes of Article XIIIB of the California Constitution, nor shall such portion of taxes be deemed receipt of proceeds of taxes by, 36

45 or an appropriation subject to the limitation of, any other public body within the meaning or for the purposes of Article XIIIB or any statutory provision enacted in implementation of Article XIIIB. The California Court of Appeals, Fourth Appellate District, in Brown v. Community Agency of the City of Santa Ana, 168 Cal.App. 3d 101 (1985), and the California Court of Appeals, Second Appellate District, in Bell Community Redevelopment Agency v. Woolsey, 169 Cal.App.3d 24 (1985), have determined that the appropriation of tax increment revenues by a redevelopment agency is not subject to the limitations of Article XIIIB. The California Supreme Court denied a petition for hearing in the Brown case. No petition for review was filed in the Bell case. On the basis of these decisions, the Agency has not adopted an appropriations limit. Property Tax Collection Procedures In California, property that is subject to ad valorem taxes is classified as secured or unsecured. The secured classification includes property on which any property tax levied by a county becomes a lien on that property sufficient, in the opinion of the county assessor, to secure payment of the taxes. Every tax levied by a county that becomes a lien on secured property has priority over all present and future private liens arising pursuant to State law on the secured property, regardless of the time of the creation of the other liens. A tax levied on unsecured property does not become a lien against the taxed unsecured property, but may become a lien on other property owned by the taxpayer. Secured and unsecured properties are entered on separate parts of the assessment roll maintained by the county assessor. The payment of delinquent taxes with respect to property on the secured roll may be enforced only through the sale of the property securing the taxes to the State for the amount of taxes that are delinquent. Such property may thereafter be redeemed by payment of the delinquent taxes and penalties. Unsecured personal property taxes may be collected, in the absence of timely payment by the taxpayer, through (1) a civil action against the taxpayer; (2) filing a certificate of delinquency for record in the county recorder s office, in order to obtain a lien on property of the taxpayer; (3) seizure and sale of personal property, improvements or possessory interests belonging or assessed to the taxpayer; and (4) filing a certificate in the office of the County Clerk specifying certain facts in order to obtain a judgment lien on certain property of the taxpayer. The valuation of taxable property is determined as of January 1 each year, and equal installments of taxes levied upon secured property become delinquent on the following December 10 and April 10. Taxes on unsecured property are due March 1 and become delinquent August 31, and such taxes are levied at the prior year s secured tax rate. Tax increment revenues allocated to the Agency are distributed monthly from November through August in each fiscal year, with a major installment occurring in December, a second major installment occurring in April of the succeeding year, and a final payment by the end of the following August. Supplemental Assessments A bill enacted in 1983, SB 813 (Statutes of 1983, Chapter 498) provides for the supplemental assessment and taxation of property as of the occurrence of a change of ownership or completion of new construction. Previously, statutes enabled the assessment of such changes only as of the next March 1 tax lien date following the change, and thus delayed the realization of increased property taxes from the new assessments for up to 14 months. As enacted, Chapter 498 provides increased revenue to redevelopment agencies to the extent that supplemental assessments as a result of new construction or changes of ownership occur within the boundaries of redevelopment projects subsequent to the January 1 lien date. To the extent such supplemental assessments occur within the Project Area, Tax Revenues may increase. See APPENDIX A FISCAL CONSULTANT S REPORT and the information set forth under Part II Taxable Value Supplemental Property Taxes for a discussion of historical annual supplemental property tax receipts of the Project Areas. 37

46 Collection of taxes based on supplemental assessments will occur throughout the year. Taxes due will be pro-rated according to the amount of time remaining in the tax year, with the exception of tax bills dated March 1 through May 31, which will be calculated on the basis of the remainder of the current fiscal year and the full twelve months of the next fiscal year. Filing of Statement of Indebtedness Section of the Redevelopment Law requires that the Agency file, not later than the first day of October of each year with the county auditor, a statement of indebtedness certified by the chief financial officer of the Agency for each redevelopment project for which the redevelopment plan provides for the division of taxes pursuant to section of the Redevelopment Law. The statement of indebtedness is required to contain, among other things, the date on which the bonds were delivered, the principal amount, term, purpose, interest rate and total interest of the bonds, the principal amount and the interest due in the fiscal year in which the statement of indebtedness is filed and the outstanding balance and amount due on the bonds. Similar information must be given for each loan, advance or indebtedness that the Agency has incurred or entered into which is payable from tax increment. Section 33675(g) has been amended by AB 1290 to provide that payments of tax increment revenues from the county auditor to a redevelopment agency may not exceed the redevelopment agency s aggregate total outstanding debt service obligations minus the available revenues of the redevelopment agency, and establishes certain procedures under which a county auditor may, in certain cases, dispute the amount of indebtedness shown on the statement of indebtedness. Payments to a Trustee under a bond resolution or Indenture or payments to a public agency in connection with payments by such public agency pursuant to a bond issue may not be disputed in any action under Section The Agency has determined that the amendments to Section limiting the payment of tax revenues to an amount not greater than the difference between a redevelopment agency s total outstanding debt obligations and total available revenues, as reported on the redevelopment agency s reconciliation statement, will not have an adverse impact on the Agency s ability to meet its debt service obligations. Tax Collection Fees SB 2557 enacted in 1990 (Statutes of 1990, Chapter 466), authorized county auditors to determine property tax administration costs proportionately attributable to local jurisdictions and to submit invoices to the jurisdictions for such costs. Subsequent legislation, SB 1559 (Chapter 697, Statutes of 1992), specifically includes redevelopment agencies among entities subject to a property tax administration charge. The definition of Tax Revenues does not exclude Tax Revenues used to pay such administrative costs, and such charges are payable from the Tax Revenues. Unitary Property Tax AB 454 (Chapter 921, Statutes of 1987) provides that revenues derived from most utility property assessed by the State Board of Equalization ( Unitary Property ), commencing with the Fiscal Year, will be allocated as follows: (1) each jurisdiction, including the Project Areas, will receive up to 102% of its prior year State-assessed revenue; and (2) if county-wide revenues generated from Unitary Property are less than the previous year s revenues or greater than 102% of the previous year s revenues, each jurisdiction will share the burden of the shortfall or excess revenues by a specified formula. This provision applies to all Unitary Property except railroads, whose valuation will continue to be allocated to individual tax rate areas. The provisions of AB 454 do not constitute an elimination of the assessment of any State-assessed properties nor a revision of the method of assessing utilities by the State Board of Equalization. Generally, AB 454 allows valuation growth or decline of Unitary Property to be shared by all jurisdictions in a county. 38

47 Katz Hollis, the Agency s fiscal consultant, has determined, based on figures provided by the County Auditor-Controller and the State Board of Equalization, that the Agency receives no unitary property tax revenues for any of the Project Areas. See APPENDIX A FISCAL CONSULTANT S REPORT hereto for additional information. Proposition 87 Under prior State law, if a taxing entity increased its tax rate to obtain revenues to repay general obligation bonds approved by two-thirds of the voters, the redevelopment agency with a project area which includes property affected by the tax rate increase would realize a proportionate increase in tax increment. Proposition 87, approved by the voters of the State on November 8, 1988, requires that all revenues produced by a tax rate increase (approved by the voters on or after January 1, 1989) go directly to the taxing entity which increases the tax rate to repay the general obligation bonded indebtedness. As a result, redevelopment agencies no longer receive an increase in tax increment when taxes on property in the project area are increased to repay voter approved general obligation debt. Section (AB 1290) Payments Pursuant to Section of the Health and Safety Code added by AB 1290 (Statutes of 1993, Chapter 942), either (a) the adoption of a redevelopment plan for any redevelopment project after January 1, 1994, such as in the case of all three of the Projects, or (b) the adoption of a redevelopment plan amendment for any redevelopment plan adopted prior to January 1, 1994 that increases the limitation on the number of dollars to be allocated to the redevelopment agency or the time limit on the establishing of loans, advances and indebtedness, will trigger a requirement that an agency must begin making statutory payments to affected taxing entities that do not have existing pre-ab 1290 tax sharing agreements. These payments are to begin once any of the original redevelopment plan limitations of the project area would have taken effect. The Project Areas, having been adopted subsequent to the enactment of AB 1290 so as to trigger the application of Section , are subject to the statutory payment requirements of AB See APPENDIX A FISCAL CONSULTANT S REPORT for information regarding the AB 1290 payments for Project Areas and a detailed discussion of the formulas upon which calculation of the AB 1290 payments is based. The definition of Tax Revenues does not exclude Tax Revenues used to pay the AB 1290 payments to affected taxing entities, and such payments are payable from the Tax Revenues, although the Agency anticipates that such payments will be subordinated by the taxing entities to the payment of principal and interest on the 2006 Agency Loans and the 2003 Parity Loans. See APPENDIX A FISCAL CONSULTANT S REPORT and the sections therein titled Part III PROJECTION OF TAX INCREMENT REVENUES for estimates of future AB 1290 payments and Part IV BACKGROUND INFORMATION for an additional discussion of AB 1290 payments. Low and Moderate Income Housing Requirements Under Section of the Redevelopment Law, redevelopment agencies in California are generally required, unless certain annual findings are made, to set aside at least 20 percent of all tax increment revenue allocated annually (the Housing Tax Revenues ) in a Low- and Moderate-Income Housing Fund to be used within the jurisdiction of the Agency to increase and improve the supply of low-and moderate-income housing (the 20% Set Aside Requirement ). Funds available from the Housing Set-Aside requirement may be used outside the respective Project Area on a finding by the Agency and the City Council that such use will be of benefit to the Project Area. The Redevelopment Law also permits agencies with more than one project area to set aside less than twenty percent (20%) of the taxes allocated to the agency from one project area if the difference is made up from another project area in the same year and if the agency and the legislative body of the community find that such use of funds will benefit such other project area. Under the Redevelopment Law, the twenty percent (20%) housing set-aside requirement is applicable unless the Agency makes certain specified findings. The Agency has made no such findings with respect to the Project Areas. Pursuant to such provisions, each of the Project Areas is subject to the 20% Set Aside 39

48 Requirement. The Agency intends to use at least 20% of the proceeds of each 2006 Agency Loan in a manner which satisfies the 20% Set-Aside Requirement. See RESEDA/CANOGA PARK PROJECT Housing Set-Aside Requirement, PACOIMA/PANORAMA CITY PROJECT Housing Set-Aside Requirement and THE EAST HOLLYWOOD/BEVERLY-NORMANDIE PROJECT Housing Set-Aside Requirement herein for a discussion of the 20% Set-Aside Requirement applicable to each Project Area. Section Payments Health & Safety Code Section permits taxing entities affected by the adoption of a redevelopment project area to adopt resolutions requiring the County to transfer a portion of the tax revenues otherwise payable to the Agency to such taxing entities. Affected taxing agencies which are school districts and community college districts are automatically eligible to receive such payments and do not have to adopt a resolution. Such payments are of: (i) tax revenues attributable to an increase in the tax rate imposed for the benefit of the affected taxing entity, and (ii) tax revenues attributable to the affected taxing entity equal to the difference between the amount of tax increment which a redevelopment agency would have received based on a plan amendment to receive tax increment using as the base year the year of the original plan adoption, and using as a base year the year of the plan amendment which permits the agency to receive tax increment revenues. No payments are required to be made by the Agency from the Tax Revenues of each of the respective Project Areas pursuant to Health & Safety Code Section State Budget In connection with its approval of a budget for State Fiscal Year 2003, the State Legislature adopted as urgency legislation Assembly Bill 1768 ( AB 1768 ), effective September 30, 2002, which required redevelopment agencies to pay into the Educational Revenue Augmentation Fund ( ERAF ) in State Fiscal Year 2003 an aggregate amount of $75 million. AB 1768 required the payment into ERAF in State Fiscal Year 2003 only. Historically, an ERAF was established in connection with the State Legislature s approval of State budgets for State Fiscal Years 1993, 1994 and In such connection, legislation was enacted that, among other things, reallocated funds from redevelopment agencies to school districts by shifting a portion of each agency s tax increment, net of amounts due to other taxing agencies, to school districts for such fiscal years for deposit in ERAF. The amount required to be paid by a redevelopment agency under such legislation was apportioned among all of its redevelopment project areas on a collective basis, and was not allocated separately to individual project areas. AB 1768 provided that one-half of the Agency s ERAF obligation was calculated based on the gross tax increment received by the Agency and the other one-half of the Agency s ERAF obligation was calculated based on net tax increment revenues (after any pass-through payments to other taxing entities). The Agency s contribution in accordance with AB 1768 for State Fiscal Year 2003 was $2,109,398, which the Agency paid. In the final enacted State Budget (the State Budget ), redevelopment agencies were again required to make payments into ERAF. The Agency s contribution to ERAF for State Fiscal Year 2004 was $3,950,253, which the Agency paid. The Agency elected to allocate the contribution amount among certain Project Areas. For State Fiscal Year 2004, the Reseda/Canoga Park Project was allocated approximately $175,111; the Pacoima/Panorama City Project was allocated approximately $120,635; and the East Hollywood/Beverly-Normandie Project was allocated approximately $32,800. In the final enacted State Budget (the State Budget ), redevelopment agencies were again required to make payments into ERAF for State Fiscal Years 2005 and The Agency s contribution to ERAF for State Fiscal Year 2005 was $8,347,628, and for State Fiscal Year 2006, was $8,861,317, which the Agency has now paid in full. The Agency elected to allocate the contribution amount among the Project Areas as follows: the Reseda/Canoga Park Project was allocated approximately $429,833 and $577,414 for State Fiscal Years 2005 and 2006, respectively; the Pacoima/Panorama City Project Area was allocated approximately 40

49 $327,270 and $591,982 for State Fiscal Years 2005 and 2006, respectively; and the East Hollywood/Beverly- Normandie Project Area was allocated approximately $111,723 and $189,337 for State Fiscal Years 2005 and 2006, respectively. On July 31, 2004, the Governor signed the final State Budget (the State Budget ). The State Budget provided for ERAF payments by redevelopment agencies in the aggregate amount of $250 million statewide for the next two State Fiscal Years. The Agency made the required ERAF payments from available tax increment or other sources of revenue. The Agency cannot predict whether the State Legislature will enact legislation requiring deposits into ERAF in future years. There can be no assurances that the State will not continue to experience budget gaps or that the State will not require further ERAF shifts in future years. Information about the State budget and State spending is regularly available at various State maintained Internet sites. Text of the State budget may be found at the Internet site of the Department of Finance, under the heading California Budget. An impartial analysis of the budget is posted by the Office of the Legislative Analyst at Information on these Internet sites has not been reviewed or verified by the Agency or the City and is not incorporated by reference in this Official Statement. Future Initiatives Article XIIIA, Article XIIIB, and Proposition 87 were each adopted as measures that qualified for the ballot pursuant to California s initiative process. From time to time other initiative measures could be adopted, further affecting revenues of the Agency or the Agency s ability to expend revenues. The nature and impact of these measures cannot be anticipated. Historical and Current Taxable Values and Revenues The Agency s primary source of funds to pay debt service on the 2006 Agency Loans (and consequently, the Bonds), is the Agency s share of ad valorem property tax increment revenues which result from the completion of new real estate developments and a general reassessment of properties within the Project Areas. The purpose of redevelopment is to revitalize deteriorated or underdeveloped areas within a community. As new construction progresses, property values normally increase and the ultimate result is a proportionate increase in ad valorem property tax revenues. The total taxable value of all properties within each of the Project Areas on the property assessment roll last equalized prior to the effective date of the ordinance adopting the Redevelopment Plan established a base from which increases in taxable value are computed. Under the Redevelopment Law, property taxes levied based upon the amount shown on the base year assessment roll will continue to be paid to and retained by all taxing agencies levying property taxes in the Project Areas. Taxes levied by the respective taxing agencies on any increases in taxable value realized in the Project Areas will be allocated to the Agency. This procedure does not involve the levy of any additional taxes, but provides that revenues produced by the tax rates in effect from year to year shall be apportioned to the taxing agencies levying the taxes and to the Agency on the basis described above. After all loans, advances and other indebtedness, including interest, incurred by the Agency in connection with the Project Areas have been paid, the tax revenues will be paid to and retained by the respective taxing agencies in the normal manner. 41

50 RESEDA BLVD. ETIWANDA AVE. YOLANDA AVE CANOGA AVE. OWENSMOUTH AVE. INDEPENDENT AVE. VARIEL AVE. ENCINO AVE. VANALDEN AVE. TAMPA AVE. OSO AVE. MASON AVE. LOUISE AVE. WHITE OAK AVE. HESPERIA AVE. CORBIN AVE. WINNETTKA AVE. DE SOTO AVE. LINDLEY AVE. RESEDA BLVD. WILBUR AVE. BELMAR AVE. TOPANGA CANYON BLVD. NORTH Reseda/Canoga Park CRA/LA ROSCOE BLVD. ELKWOOD ST. SATICOY ST. SATICOY COVELLO ST. SATICOY 42 SHERMAN WAY VICTORY SHOUP AVE. FARRALONE AVE. VANOWEN ST. VICTORY BLVD. VANOWEN ST. ARCHWOOD ST. HART ST. KITTRIDGE ST. ERWIN ST.

51 RESEDA/CANOGA PARK PROJECT Project Area Description The 2,400-acre Reseda/Canoga Park Project Area is located in the West San Fernando Valley communities of Canoga Park, Reseda and Winnetka and generally includes the Sherman Way commercial corridor from Topanga Canyon Boulevard on the west to Louise Avenue on the east and Saticoy Street from Mason Street on the west to Oakdale Avenue on the east. Portions of the residential communities of Canoga Park and Reseda are also included within the Project Area boundaries, as well as a major regional shopping center located at Topanga Canyon and Victory Boulevards. The Reseda/Canoga Park Project was adopted to provide for and facilitate the repair, restoration, demolition and/or replacement of properties damaged as a result of the Northridge Earthquake and to take actions necessary for the economic recovery of communities impacted by that disaster. The Reseda/Canoga Park Project Area was found to contain the following conditions resulting from the Northridge Earthquake: (i) 286 (59%) of the sites in Council District 3 containing damaged commercial/industrial buildings; (ii) 930 of the sites containing damaged single family homes (10% of the Council District s damaged single family units), 434 of the District s damaged multiple family apartment sites (41% of the damaged apartment units), and 84 of the District s damaged condominium sites (12% of the damaged condominium units); and (iii) 350 or 76% of the residential units located in red tagged buildings within the Council District, 1,894 or 38% of the yellow tagged units, and 10,936 or 27% of the green tagged units with damage. A number of retail stores were destroyed, including stores located in small strip centers, major centers and freestanding structures, and the decline in population in the immediate market area had reduced retail expenditures. Retail outlets located near (or in) the residential and commercial ghost towns had suffered a great deal from a loss of their customer base. The earthquake also caused a reorientation of personal expenditure patterns as a greater percentage of disposable income paid for repairs and replacement of items destroyed, thereby adversely affecting discretionary expenditures. Retailers seeking to repair their damaged shops and replace lost inventories were confronted with an even weaker market than existed prior to January Those retailers located in heavily damaged areas, such as the described ghost towns, faced the dual burden of a poor economy and lack of a consumer base. Without a reliable revenue source, many of these businesses were forced to close. Development Within the Project Area Recent completed development in the Reseda/Canoga Park Project Area includes the new 480-seat Madrid Theater in Canoga Park, extensive streetscape improvements in Reseda/Canoga Park, façade improvements on 85 storefronts in Canoga Park, Reseda and Winnetka, acquisition and rehabilitation of the eight-unit bungalow court at Alabama and Valerio Streets in Canoga Park by a community-based nonprofit and relocation of households into decent, safe and sanitary housing, completion of Tierra del Sol multifamily housing project, which includes 119 units of family and large family housing affordable to extremely low and very low income households, completion of the renovation of the Guadalupe Center in Canoga Park, and completion of the Reseda Parking Lot Improvement Project. The Reseda/Canoga Park Project also accomplished certification of Canoga Park as a California Main Street Community and provision of technical and funding assistance for administration of the Main Street Canoga Park nonprofit corporation. Affordable housing initiatives include ongoing administration of a First Time Homebuyers Program and the Hart Village Project, which is under construction and will provide 47 units of rental housing affordable to extremely low and very low income families and an on-site child care center. The major Agency-lead commercial project is the Reseda Theater Adaptive Reuse Project, which will result in the sale and redevelopment of the Agency-owned Reseda Theater and an adjacent property improved with 43

52 a blighted commercial structure that will be demolished for reuse of the site as a parking lot to serve the theater. The theater will be rehabilitated as an upscale entertainment venue. An abutting property is being purchased by the developer for reuse as a restaurant. The estimated development cost of this project is $10 million. The Reseda/Canoga Park Project completed a "Retail Market Study" which analyzed the market conditions of the two major retail districts of the project area and recommended actions to improve these conditions. The Project also created and funded the Centralized Leasing Office, a nonprofit organization which provided a multiple listing service for rentable retail and industrial space in the Project Area, and assisted in the creation and startup of the Reseda and Canoga Park Business Improvement Districts. The Project undertook the development and administration of the Canoga Park Targeted Neighborhoods Initiative Program. The Project provided assistance in the formation and certification of the Reseda, Canoga Park, and Winnetka Neighborhood Councils. Canoga Park was awarded the prestigious All-America City Award in 2005, one of only ten communities nationwide to receive this honor and the first ever in the City of Los Angeles. This award is given to communities that demonstrate inclusiveness in civil governance and goal setting as well as success in accomplishing these goals. DEVELOPMENT ACTIVITY Recently there has been significant capital investment within and immediately surrounding the Reseda/Canoga Park Project Area, as illustrated by the following table. The ultimate configuration, value, and completion dates of the projects listed below are subject to change and subject to construction and other risks. See RISK FACTORS Real Estate and General Economic Risk. TABLE 4 Development Activity Activity 1. Expansion of Major Regional Shopping Center. Expansion of shopping center, located on Topanga Canyon Boulevard on the border between the communities of Canoga Park and Woodland Hills,will add 100 additional stores, two additional anchor tenants, entertainment areas and three additional parking structures. Agency / Status Private Development/75% complete 2. Canoga Park Library. Construction by Los Angeles Public Library of new branch library.* 3. West Valley Playhouse, Canoga Park. Restoration of theater facility with art gallery reception and 170 stadium seats.* New public construction/completed Rehab of historic structure by non-profit foundation/completed 4. Canoga Park Youth Art Center. Restoration of an historic building that once served as the first operator assisted phone company in the San Fernando Valley. The exterior of the 1928 mission style building has been preserved while the interior has been converted to a contemporary youth art center. The facility includes 3 workshop/studios, a garden classroom, an exhibition gallery and a photography darkroom. * Rehab of historic structure by City of Los Angeles/Completed * All or a portion of the real property associated with such project is exempt from property taxation. Source: Agency 44

53 Certain of the foregoing development projects are owned and operated by tax-exempt entities and consequently, no additional Tax Revenues are expected to be payable in connection with such developments. The Agency budget for the Reseda/Canoga Park Project Area for Fiscal Year is approximately $21,663,000. The Agency has included numerous residential, commercial and industrial rehabilitation projects in its proposed Fiscal Year budget for the Project Area, including the following projects: (i) additional façade and streetscape improvements in Canoga Park and Reseda, (ii) rehabilitation of a large parking lot in the Reseda commercial core, (iii) administration of the Main Street Program and the Business Attraction and Retention Program, (iv) implementation of the First Time Homebuyers Program, development of the Hart Village (47 units and child care facility), and Tierra del Sol (119 units) affordable rental housing projects, (v) ongoing community participation initiatives and other residential, commercial, and industrial development initiatives. Limitations and Requirements of the Reseda/Canoga Park Redevelopment Plan The termination date of the effectiveness of the Reseda/Canoga Park Redevelopment Plan is December 13, The Agency cannot receive Tax Revenues with respect to the Reseda/Canoga Park Project Area after June 30, Maximum bonded indebtedness for the Reseda/Canoga Park Project Area is $190,000,000, and the Agency cannot incur debt with respect to the Project Area after December 13, The Redevelopment Plan does not limit the dollar amount of tax increment revenues to be received from the Project Area. 45

54 Largest Taxpayers--Reseda/Canoga Park Project Set forth below are the ten largest taxpayers in the Project Area based on the property tax roll, based on information provided by the County of Los Angeles and a field survey conducted by Katz Hollis, and includes all secured and unsecured values located within the Project Area attributable to such assessee. See RISK FACTORS Concentration of Ownership. TABLE 5 Ten Largest Taxpayers--Reseda/Canoga Park Project Rank Major Assessees No. of Parcels Use Value % of Project Value 1 Westfield Topanga Owner LP 1 Shopping Center $169,206, % 2 Renaissance Apartments LLC 4 Multi. Fam. Residential 69,147, Essex Portfolio LP 1 Multi. Fam. Residential 40,010, Forest Glen Development 5 Multi. Fam. Residential 33,293, Sam Menlo TR 4 Multi. Fam. Residential 28,565, Topanga and Victory Partners 1 Offices 22,936, Combined Properties Reseda 14 Shopping Center 23,798, Woodland Hills 2 Multi. Fam. Residential 21,652, Warner Center Summit LTD 1 Multi. Fam. Residential 19,460, Catellus Development Corp 2 Shopping Center 17,679, TOTAL VALUE MAJOR ASSESSEES $446,467,064 TOTAL PROJECT VALUE $3,101,462,031 TOTAL % OF PROJECT VALUE 14.40% TOTAL % OF INCREMENTAL VALUE 38.37% Source: Katz Hollis 46

55 Historical Taxable Values Reseda/Canoga Park Project Area Tax Revenues of the Reseda/Canoga Park Project Area are derived from the tax increment from property taxes on the taxable property within the Project Area. Tax Revenues of the Project Area are to be deposited by the Agency in the Pledged Revenue Fund created under the Reseda/Canoga Park Loan Agreement and then transferred to the Debt Service Fund held by the Agency. The Agency shall withdraw from the Debt Service Fund and transfer to the Trustee an amount equal to the principal of and interest on the Reseda/Canoga Park Loan Agreement, the Reseda/Canoga Park 2003 Parity Loans and any future Parity Debt of the Reseda/Canoga Park Project Area. Such moneys so transferred by the Agency constitute a portion of the Revenues and shall be deposited by the Trustee into the Revenue Fund established under the Series L Indenture. No later than three (3) Business Days prior to each Interest Payment Date, the Trustee shall transfer from the Revenue Fund and shall deposit into and apply, together with other revenues deposited in the Revenue Fund relating to payments on the other 2006 Agency Loans, the amounts held in the Interest Account, the Principal Account and the applicable Reserve Account to pay the principal of and interest on the Series L Bonds then coming due, and to restore the amount in the applicable Reserve Account to the Reserve Requirement, if necessary. See SECURITY FOR THE BONDS and LIMITATIONS ON TAX REVENUES herein, for a discussion of the limitations on Tax Revenues of the Project Area, and RISK FACTORS for a discussion of certain risks relating to the Pledged Tax Revenues of the Project Area. The following table is a schedule of the respective taxable valuations in the Reseda/Canoga Park Project Area for the Fiscal Years through HISTORICAL TAXABLE VALUE (1) TABLE 6 Historical Taxable Value Reseda/ Canoga Park Project Area 2001/ / / / /06 Secured Land $ 891,024,595 $ 948,233,660 $1,059,935,440 $ 1,200,195,945 $ 1,384,063,378 Improvements 1,381,846,102 1,447,371,792 1,531,331,022 1,659,537,674 1,815,189,212 Personal Property 36,727,159 36,723,487 9,404,973 7,291,050 30,990,234 Gross Secured $ 2,309,597,856 $2,432,328,939 $2,600,671,435 $ 2,867,024,669 $ 3,230,242,824 Less: Exemptions 157,004, ,229, ,717, ,381, ,131,270 Exemption Adjustments (2) - - 6,597, Total Secured $2,152,593,787 $2,273,099,571 $2,478,355,902 $ 2,723,643,423 $ 3,004,111,554 Unsecured Land Improvements 42,323,433 41,202,799 40,884,053 64,767,667 34,624,925 Personal Property 67,929,341 68,766,493 64,918,103 91,134,945 63,988,796 Gross Unsecured $ 110,252,774 $ 109,969,292 $ 105,802,156 $ 155,902,612 $ 98,613,721 Less: Exemptions 157, ,000 2,194,000 54,153,000 1,263,244 Exemption Adjustments (2) Total Unsecured $ 110,095,774 $ 109,862,292 $ 103,608,156 $ 101,749,612 $ 97,350,477 TOTAL PROJECT VALUE $2,262,689,561 $2,382,961,863 $2,581,964,058 $ 2,825,393,035 $ 3,101,462,031 Percentage Increase/Decrease 5.32% 8.35% 9.43% 9.77% (1) Values are as reported by the Los Angeles County Auditor-Controller, unless otherwise stated. (2) Exemption adjustments are based on specific situations where exemptions were filed late and not included in the initial roll values. Source: Katz Hollis 47

56 Projected Tax Revenues Reseda/Canoga Park Project Area The following tables set forth the projections of taxable valuation and Tax Revenues from developments in the Reseda/Canoga Park Project Area. The Agency is liable for certain payments to affected taxing entities payable from the Tax Revenues of the Reseda/Canoga Park Project Area, which are expected in all cases to be subordinated to payments of debt service on the Bonds. See APPENDIX A FISCAL CONSULTANT S REPORT and the section therein titled Part III PROJECTION OF TAX INCREMENT REVENUES for estimates of future AB 1290 payments and Part IV BACKGROUND INFORMATION for an additional discussion of AB 1290 payments. The Agency believes the assumptions (set forth in the footnotes below) upon which the projections are based are reasonable; however, some assumptions may not materialize and unanticipated events and circumstances may occur which adversely affect the Tax Revenues (see RISK FACTORS herein). Therefore, the actual Tax Revenues received from the Reseda/Canoga Park Project Area during the forecast period may vary from the projections and the variations may be material. See APPENDIX A FISCAL CONSULTANT S REPORT. A summary of the projected taxable valuation and Tax Revenues from the Reseda/Canoga Park Project Area is as follows: 48

57 TABLE 7 Projected Tax Revenues Reseda/Canoga Park Project Area (Dollars in thousands) Reseda/Canoga Park Earthquake Disaster Assistance Project TAX REVENUE PROJECTION (000's Omitted) Fiscal Year FY FY FY FY FY FY FY FY FY FY Adjusted Real Property 2.00% $3,007,746 $3,058,711 $3,119,885 $3,182,283 $3,245,929 $3,310,847 $3,377,064 $3,444,605 $3,513,497 $3,583,767 New Development -Real (2) Assumed Resolved Appeals Impact (3) (641) Assumed Pending Appeals Impact (3) (8,369) Total Real Property $2,998,736 $3,058,711 $3,119,885 $3,182,283 $3,245,929 $3,310,847 $3,377,064 $3,444,605 $3,513,497 $3,583,767 Adjusted Other Property (4) 93,716 93,716 93,716 93,716 93,716 93,716 93,716 93,716 93,716 93,716 New Development -Other Total Other Property $93,716 $93,716 $93,716 $93,716 $93,716 $93,716 $93,716 $93,716 $93,716 $93,716 Total Value $3,092,452 $3,152,427 $3,213,601 $3,275,999 $3,339,644 $3,404,563 $3,470,780 $3,538,321 $3,607,213 $3,677,483 Incremental Value Over Base of: $1,937,984 $1,154,468 $1,214,443 $1,275,617 $1,338,015 $1,401,660 $1,466,579 $1,532,796 $1,600,337 $1,669,229 $1,739,499 Gross Tax Increment $11,554 $12,144 $12,756 $13,380 $14,017 $14,666 $15,328 $16,003 $16,692 $17,395 Unitary Revenue (5) Properyty Tax Administrative Fee (6) (175) (243) (255) (268) (280) (293) (307) (320) (334) (348) Total Adjusted Tax Increment Revenue $11,379 $11,902 $12,501 $13,113 $13,736 $14,372 $15,021 $15,683 $16,358 $17,047 AB 1290 Payments (2,290) (2,429) (2,551) (2,781) (3,015) (3,254) (3,498) (3,746) (4,000) (4,258) Net Tax Increment Revenue (7)(8) $9,090 $9,473 $9,950 $10,332 $10,721 $11,118 $11,524 $11,937 $12,359 $12,789 (1) Real property in the Project is assumed to increase by 2 percent annually. (2) For the purposes of this projection New Development is not included. (3) Represents the estimated impact from filed appeals as of January (4) Other property in the Project is assumed to remain constant. (5) Unitary revenue is the actual amount as reported by the County as of January Unitary revenue in future years is assumed to remain constant. (6) The property tax administrative charge is based on actual charge for fiscal year Property tax administrative in future years is estimated at 2 percent of the estimated revenue. (7) A portion of the AB1290 Payments are currently subordinated to payments of debt service on the Agency loans for this Project. Subordination of all AB1290 payments to the payment of debt service on the Agency loans for this Project is pending. (8) It is estimated that the Agency will be impacted by $27,000, and $78,000 in fiscal year for prior year Resolved and Pending Assessment Appeals Refunds, respectively. The Agency will reimburse this amount from funds on hand. 49

58 TABLE 8 Reseda/Canoga Park Project--Annual Debt Service Schedule 2006 Agency Loan and 2003 Parity Loans 2003 Parity Loans Year Ending Taxable Tax Exempt Sub Total 2006 Agency Loan Total 2006 $358, $191, $550, $ - $ 550, , , , ,412, ,310, , , , ,410, ,305, , , , ,411, ,307, , , , ,412, ,307, , , , ,412, ,307, , , , ,412, ,310, , , , ,410, ,306, , , , ,410, ,306, , , , ,412, ,308, , , , ,412, ,310, , , , ,412, ,307, , , , ,409, ,306, , , , ,410, ,305, , , , ,412, ,310, , , , ,411, ,306, , , , ,411, ,307, , , , ,412, ,306, , , , ,411, ,308, , , , ,411, ,308, , , , ,411, ,307, , , , , , , , , , , , , , , , , , , , , , , , , , , , , TOTAL $24,750, $28,231, $52,981, Assessment Appeals Reseda/Canoga Park Project Area Resolved assessment appeals reduced estimated property valuation within the Reseda/Canoga Park Project by approximately $641,000 for Fiscal Year , and refunds are estimated to reduce Project Area revenues in Fiscal Year by $27,000. In addition, a number of appeals are currently pending regarding assessed valuation within the Reseda/Canoga Park Project that may result in reductions in estimated property valuation and refunds to property owners. The estimated valuation reduction for the Reseda/Canoga Park Project for Fiscal Year is $8,369,000 and the estimated refund is $78,000. See APPENDIX A FISCAL CONSULTANT S REPORT Part II Taxable Value Assessment Appeals for a discussion of such appeals. The potential impact of pending appeals is based on the applicant s opinion of the value of the contested parcels. Actual impacts to Tax Revenues are dependent upon the actual revised value, if any, of assessments resulting from values determined by the County Assessment Appeals Board or through 50

59 Historically, the Agency has addressed resolved and pending refunds resulting from assessment appeals through its budgeting process. Each quarter, as new appeal information becomes available, the Agency reviews such information and makes appropriate budgeting adjustments so as to absorb significant impact (if any) from appeals out of cash on hand, program revenues, or other means necessary to meet its obligations to Bondholders. This policy is an internal management tool and is subject to change. While the Agency cannot guarantee the continuation of such policy, it currently has no plans to adjust or eliminate it. There can be no assurance as to the level of appeal activity in the Project Area or of the outcome of any of the above pending appeals. It is possible that other owners of property in the Reseda/Canoga Park Project will file appeals to lower their assessment values to comparable levels. See APPENDIX A - FISCAL CONSULTANT S REPORT hereto for the assumptions the Fiscal Consultant has made concerning the resolved and pending appeals in the Reseda/Canoga Park Project. Successful appeals could result in reductions in the amount of Tax Revenues collected and could have an adverse effect on the Agency s ability to pay debt service on the Bonds. Housing Set-Aside Requirements Reseda/Canoga Park Project Area In accordance with Section of the Redevelopment Law, not less than twenty percent (20%) of all taxes which are allocated to the Agency shall be used by the Agency for purposes of improving, increasing and preserving the City s supply of housing for persons and families of low or moderate income (including the payment of indebtedness, such as the Bonds, issued or incurred for such purposes). See LIMITATIONS ON TAX REVENUES Low and Moderate Income Housing Requirements. In addition to the foregoing requirement of the Redevelopment Law, the Redevelopment Plan for the Reseda/Canoga Park Project requires that, subject to certain limitations and exceptions available to the Agency, not less than 20% of the tax increment revenues collected within the Project Area be used to increase and improve the supply of low-and moderate-income housing. A portion of the Housing Tax Revenues in the Reseda/Canoga Park Project is pledged to the repayment of the respective Agency Loan because a like portion of the proceeds thereof will be or were used for low and moderate-income housing purposes or the Agency has otherwise complied with applicable law relating to the 20% Set Aside Requirement. Section (AB 1290) Payments Reseda/Canoga Park Project Area Section of the Health and Safety Code requires that taxing entities affected by the adoption of a redevelopment plan or the amendment of a redevelopment plan after January 1, 1994 (and thus is applicable to the Reseda/Canoga Park Project Area), receive an additional portion of tax revenues otherwise payable to the Agency for the project area. See LIMITATIONS ON TAX REVENUES Section (AB 1290) Payments. While the statute permits these amounts to be subordinated to the payment of debt service on obligations issued by the Agency for the affected project areas under certain conditions, the Agency has not requested and received such subordination with regards to the Reseda/Canoga Park 2003 Parity Loans, the Reseda/Canoga Park Agency Loan, and any future Parity Debt issued from the Reseda/Canoga Park Project Area, from any taxing entity other than the City of Los Angeles, but the Agency intends to request such subordination. In addition to the City, the Agency is liable for AB 1290 payments to the County and certain taxing entities administered by it, and to the following independent taxing entities, which are not administered or controlled by the Los Angeles County Board of Supervisors: Los Angeles Community College District Los Angeles Unified School District Los Angeles County School Services District Los Angeles County West Vector Control District Water Replenishment District of Southern California See APPENDIX A FISCAL CONSULTANT S REPORT for information regarding the AB 1290 payments for the Project Areas and a detailed discussion of the formulas upon which calculation of the AB 1290 payments is based. See APPENDIX A FISCAL CONSULTANT S REPORT and the information therein relating to the Reseda/Canoga Park Project Area in the sections therein titled Part III PROJECTION OF TAX INCREMENT REVENUES for 51

60 Park Project Area in the sections therein titled Part III PROJECTION OF TAX INCREMENT REVENUES for estimates of future AB 1290 payments and Part IV BACKGROUND INFORMATION for an additional discussion of AB 1290 payments. While the Agency has pledged the Tax Revenues of each Project Area to pay principal and interest on the 2006 Agency Loans and all Parity Debt relating to the Project Area, the Agency is liable for certain payments to the County for property tax administrative charges relating to the collection of the Tax Revenues and to the aforementioned taxing entities, which payments must also be made from the Tax Revenues. See the section herein entitled LIMITATIONS ON TAX REVENUES and the information set forth therein under the captions Tax Collection Fees and Section (AB 1290) Payments. See, also, the section herein entitled DEBT SERVICE SCHEDULES Estimated Net Tax Increment Revenues and Debt Service Coverage 2006 Agency Loans, which sets forth the projected debt service coverage on the 2006 Agency Loans and the 2003 Parity Loans of each Project Area, after deduction of such property tax administrative charges and Section (AB 1290) payments. 52

61 Pacoima/Panorama City CRA/LA GLENOAKS BLVD. BRADLEY SAN FERNANDO RD. HERRICK BLEDSOE ST. POLK ST. HUBBARD ST. GOLDEN STATE FREEWAY MACLAY ARROYO AVE. FILLMORE ST. City of San Fernando RINALDI ST. FOOTHILL FREEWAY SAN FERNANDO MISSION BLVD. SIMI VALLEY FREEWAY CHATSWORTH BRAND BLVD. PAXTON AVE. Hansen Lake DEVONSHIRE ST. LAUREL CANYON BLVD. LASSEN ST. VAN NUYS BLVD. SHELDON ST. PLUMMER ST. NORDHOFF ST. OSBORNE ST. BRANFORD ST. TELFAIR ALLEGHENY ST. PARTHENIA ST. WOODMAN AVE. GOLDEN STATE ROSCOE BLVD. ROSCOE BLVD. FREEWAY STRATHERN ST. HOLLYWOOD FREEWAY STRATHERN ST. SAN DIEGO FREEWAY SEPULVEDA BLVD. VAN NUYS BLVD. SHERMAN WAY VOSE ST. VANOWEN ST. KITTRIDGE ST. LAUREL CANYON BLVD. LANKERSHIM BLVD. TUJUNGA AVE. NORTH 53

62 PACOIMA/PANORAMA CITY PROJECT Project Area Description The Earthquake Disaster Assistance Project for Portions of Council District 7 ( Pacoima/Panorama City Project ) is located in the northeast San Fernando Valley and includes portions of the communities of Arleta, Lakeview Terrace, Mission Hills, North Hills, North Hollywood, Pacoima, Panorama City, Sun Valley, Sylmar and Van Nuys. The Project Area consists of approximately 2,914 acres and is generally bounded by the San Diego Freeway on the west, Foothill Freeway on the north and east, and Victory Boulevard on the south. The Pacoima/Panorama City Project was adopted to provide for and facilitate the repair, restoration, demolition and/or replacement of property or areas or facilities damaged as a result of the Northridge Earthquake and its subsequent aftershocks, and/or undertake, carry out or approve programs and perform specific actions necessary to prevent or mitigate an emergency pursuant to the Disaster Project Law. At the time of adoption of the Project Redevelopment Plan, the Project Area had the following characteristics: (i) numerous instances of structural damage and fascia damage as a result of the earthquake; (ii) lack of private investment in the area, leading to poor market conditions and disinvestments; (iii) high population and overcrowding, including families living in unimproved garages; (iv) defective design of physical construction combined with increasing age, obsolescence, deterioration and dilapidation; (v) inadequate public improvements and facilities; (vi) major streets requiring improvement, lack of street lighting, damage to the infrastructure due to the earthquake; and (vii) lack of adequate fire and police facilities to assist the community in times of crises, such as the earthquake. Development Within the Project Area The Agency has facilitated the development of several programs to assist in the prevention of further deterioration of damaged structures, improve seismic safety and promote incentives to restore neighborhoods and encourage residents to return or relocate within the area. The seismic gas shut-off valve safety program was the first of its kind in Los Angeles, to assist residential owners through the purchase and installation of 100 gas shut off valves. The completion of a retail/industrial market study set the basis to evaluate the existing retail and commercial areas and the factors affecting the potential for revitalization of existing space as well as the development of new space. An economic development strategy was developed to assist private developers and business owners with loans and development agreements to ensure economic and physical blight is eliminated. The private sector development of the GM plant provided substantial improvement to the commercial core of Van Nuys Boulevard. The Commercial Industrial Earthquake Recovery Loan Program (CIERLP) was established to provide participants with low interest loans to rehabilitate their damaged commercial buildings. Participants include a medical building at $1.06 million, a small commercial center at $90,000, a food service company at $462,000, and a recreational facility in Panorama City totaling $350,000. The Project has also established and/or initiated Pacoima Partners, the Targeted Neighborhood Initiative (TNI) Program, Commercial Façade Improvement Program, and the first merchant directory for Pacoima. In addition, the Project has helped reestablish the Chamber of Commerce and obtain official California Main Street Program status and training for community volunteers. The Project has also initiated street tree planting programs, and was also awarded the 2001 Call For Projects from Metropolitan Transit Authority (MTA) for streetscape improvements along Van Nuys Blvd., which support pedestrian and mass transit needs. Two Brownsfields program grants and loans were recently awarded for projects in the Project Area. The first award was for Sunquest Industrial Park, a proposal for 375, ,000 square feet of industrial space with parking for development and brownfields remediation over a closed City landfill. A Section 108 loan of $9.8 million and an $800,000 grant were awarded to this project. The second award of a $1.4 million grant and a $7.4 million Section 108 loan is for Pacoima Center. A major national plumbing facility manufacturer closed its 24- acre manufacturing plant located in the area bounded by Paxton St., Bradley Ave., Louvre Ave. and Sutter Ave. in 54

63 2001 and the Agency is assisting in the redevelopment of such site into a retail center that will include a major national home improvement retailer and garden center and a neighborhood shopping center. Pursuant to Agency projects within the Project Area, Van Nuys Blvd. between Interstate 5 freeway and Glenoaks Blvd. was improved with street trees, new landscaped medians, and sidewalk improvements. Major building facade improvements were completed at the site and facility of a local non-profit serving the needy in the area; two U.S. post offices; a multi-family apartment project; and a car wash facility. Thirty-five streetlights were installed in an adjacent neighborhood in February 2003 and in March 2003 and a pilot "Paint is Free" program was approved that will help beautify residences in the Project Area. DEVELOPMENT ACTIVITY Recently there has been significant capital investment within and immediately surrounding the Pacoima/Panorama City Project Area, as illustrated by the following table. The ultimate configuration, value, and completion dates of the projects listed below are subject to change and subject to construction and other risks. See RISK FACTORS Real Estate and General Economic Risk. TABLE 9 Development Activity Activity Story Office Tower at Roscoe & Van Nuys Blvd. - Tenant & Exterior Improvements. 2. Panorama Mall Improvements- Mall renovations in 2005 added new surfaces and landscaping to the center. Additional tenant improvements are ongoing. 3. Plaza del Valle Retail Shopping Center. Plaza Del Valle is an existing shopping center located on Van Nuys Blvd., between Parthenia Avenue and Chase Street in Panorama City. Project included redevelopment of existing shopping area to create a Mexican style Mercado. It encompasses more than 200,000 square feet of retail space, a food court, and a unique ¾-mile interior walkway extending the length of the center. Agency / Status Private development/ Under construction Private development/ Under construction Private development/ Complete 4. Shield & Turner Homes - 24 Unit Condominium Project Private development/ Complete 5. Sonoma Villas Residential Project- located at Dronfield Avenue, near Van Nuys Boulevard, in Pacoima, is a development built by Comstock Homes consisting of 39 detached townhomes, the first single-family home project built in the area since the 1980s. Source: Agency Private development/ Complete August 2004 The Agency budget for the Pacoima/Panorama City Project Area for Fiscal Year is $34,430,000. The Agency has included numerous residential, commercial and industrial rehabilitation projects in its proposed Fiscal Year budget for the Project Area, including the following projects: 55

64 Implementation of the Pacoima Town Center revitalization strategy including streetscape improvements, development opportunities, façade improvements and interior rehabilitation and coordination with other City Departments and government agencies. Construction of an approximately 51-unit apartment complex for low/moderate-income families on Osborne Street in Pacoima. Participation with the City of Los Angeles in developing a new mixed use Constituency Center on Van Nuys Boulevard at Oneida Avenue. Purchase of a site for the development of a mixed-use catalytic project on Van Nuys Blvd. in the Pacoima Town Center. Facilitation of redevelopment of Pacoima Center, on the former Price Pfister site, including home improvement and neighborhood retail. Facilitation of the revitalization of the Panorama Tower site on Van Nuys Boulevard and Titus Street, including potential of tower re-use and/or new mixed use development. Facilitate the redevelopment of the former Montgomery Ward Department Store site on Roscoe Boulevard and Tobias Avenue. Limitations and Requirements of the Pacoima/Panorama City Redevelopment Plan The termination date of the effectiveness of the Pacoima/Panorama City Redevelopment Plan is December 31,2015. The Agency cannot receive Tax Revenues with respect to the Pacoima/Panorama City Project Area after November 29, The limit on maximum bonded indebtedness of the Project Area is $200,000,000. The time limit for incurrence of debt is November 29, The Redevelopment Plan does not limit the dollar amount of tax increment revenues to be received from the Project Area. Largest Taxpayers Pacoima/Panorama City Project Area Set forth below are the ten largest taxpayers in the Pacoima/Panorama City Project Area based on the property tax roll, based on information provided by the County of Los Angeles and a field survey conducted by Katz Hollis, and includes all secured and unsecured values located within the Project Area attributable to such assessee. See RISK FACTORS Concentration of Ownership. 56

65 Largest Taxpayers Pacoima/Panorama City Project Area Set forth below are the ten largest taxpayers in the Pacoima/Panorama City Project Area based on the property tax roll, based on information provided by the County of Los Angeles and a field survey conducted by Katz Hollis, and includes all secured and unsecured values located within the Project Area attributable to such assessee. See RISK FACTORS Concentration of Ownership. TABLE 10 Ten Largest Taxpayers Pacoima/Panorama City Project Area Rank Major Assessees No. of Parcels Use Value % of Project Value 1 NF Plant Associates LLC 13 Shopping Center $45,785, % 2 Panorama City Associates 2 Shopping Center 28,863, Spectrolab Inc. 3 Manufacturing 27,153, Henry and Anita Weiss TRS 21 Multi Fam Residential 24,166, S and V Van Nuys Assoc. LLC 2 Shopping Center/Vacant Indust 24,106, G and S Partnership 1 Industrial 22,252, Pacifica of the Valley Corp. 4 Hospital/Vacant Lots 20,891, Tobias Partners LP 1 Multi Fam Residential 19,213, Centro Watt Property 1 Shopping Center 19,104, Valacal Co. 9 Light Manufac/Vacant Residen 17,992, TOTAL VALUE MAJOR ASSESSEES $249,531,523 TOTAL PROJECT VALUE $3,542,824,432 TOTAL % OF PROJECT VALUE 7.04% TOTAL % OF INCREMENTAL VALUE 21.28% Source: Katz Hollis Historical Taxable Values Pacoima/Panorama City Project Area Tax Revenues of the Pacoima/Panorama City Project Area are derived from the tax increment from property taxes on the taxable property within the Project Area. Tax Revenues of the Project Area are to be deposited by the Agency in the Pledged Revenue Fund created under the Pacoima/Panorama City Loan Agreement and then transferred to the Debt Service Fund held by the Agency. The Agency shall withdraw from the Debt Service Fund and transfer to the Trustee an amount equal to the principal of and interest on the Pacoima/Panorama City Loan Agreement, the Pacoima/Panorama City 2003 Parity Loans and any future Parity Debt of the Pacoima/Panorama City Project Area. Such moneys so transferred by the Agency constitute a portion of the 57

66 Revenues and shall be deposited by the Trustee into the Revenue Fund established under the Series L Indenture and the Revenue Fund established under the Series N Indenture. No later than three (3) Business Days prior to each Interest Payment Date, the Trustee shall transfer from the applicable Revenue Fund and shall deposit into, and apply, together with other revenues deposited in the respective Revenue Fund relating to payments on the other 2006 Agency Loans, the amounts held in the Interest Account, the Principal Account and the applicable Reserve Account to pay the principal of and interest on the Series L Bonds and the Series N Bonds then coming due, and to restore the amount in the applicable Reserve Account to the Reserve Requirement, if necessary. See SECURITY FOR THE BONDS and LIMITATIONS ON TAX REVENUES herein, for a discussion of the limitations on Tax Revenues of the Pacoima/Panorama City Project Area, and RISK FACTORS for a discussion of certain risks relating to the Pledged Tax Revenues of the Pacoima/Panorama City Project Area. The following table is a schedule of the respective taxable valuations in the Pacoima/Panorama City Project Area for the Fiscal Years through HISTORICAL TAXABLE VALUE(1) TABLE 11 Historical Taxable Value Pacoima/Panorama City Project Area 2001/ / / / /06 Secured Land $ 1,024,597,183 $ 1,094,802,613 $ 1,191,109,782 $ 1,344,225,720 $ 1,534,933,747 Improvements 1,434,807,598 1,533,503,111 1,616,296,019 1,727,788,646 1,842,774,720 Personal Property 36,061,691 33,096,805 26,620,606 27,821,172 12,627,234 Gross Secured $ 2,495,466,472 $ 2,661,402,529 $ 2,834,026,407 $ 3,099,835,538 $ 3,390,335,701 Less: Exemptions 89,131, ,747, ,393, ,845, ,464,184 Exemption Adjustments (2) 31,401, , Total Secured $ 2,374,932,757 $ 2,535,750,277 $ 2,707,632,466 $ 2,950,990,360 $ 3,203,871,517 Unsecured Land 1,671, , ,026,820 Improvements 95,246, ,081, ,456, ,437, ,927,922 Personal Property 220,527, ,199, ,140, ,820, ,954,793 Gross Unsecured $ 317,444,971 $ 331,307,631 $ 317,597,487 $ 342,258,842 $ 352,909,535 Less: Exemptions 9,332,881 7,396,000 1,704,100 10,964,160 13,956,620 Exemption Adjustments (2) Total Unsecured $ 308,112,090 $ 323,911,631 $ 315,893,387 $ 331,294,682 $ 338,952,915 TOTAL PROJECT VALUE $ 2,683,044,847 $ 2,859,661,908 $ 3,023,525,853 $ 3,282,285,042 $ 3,542,824,432 Percentage Increase/Decrease 6.58% 5.73% 8.56% 7.94% (1) Values are as reported by the Los Angeles County Auditor-Controller, unless otherwise stated. (2) Exemption adjustments are based on specific situations where exemptions were filed late and not included in the initial roll values. Source: Katz Hollis 58

67 Projected Tax Revenues Pacoima/Panorama City Project Area The following tables set forth the projections of taxable valuation and Tax Revenues from developments in the Pacoima/Panorama City Project Area. The Agency believes the assumptions (set forth in the footnotes below) upon which the projections are based are reasonable; however, some assumptions may not materialize and unanticipated events and circumstances may occur which adversely affect the Tax Revenues (see RISK FACTORS ). Therefore, the actual Tax Revenues received from the Pacoima/Panorama City Project Area during the forecast period may vary from the projections and the variations may be material. See APPENDIX A FISCAL CONSULTANT S REPORT. The Project Area is liable for payments under Section to certain taxing entities, as hereinafter described in the subsection captioned Section (AB 1290) Payments, which payments are expected in all cases to be subordinated to payments of debt service on the Bonds. See APPENDIX A FISCAL CONSULTANT S REPORT and the section therein titled Part III PROJECTION OF TAX INCREMENT REVENUES for estimates of future AB 1290 payments and Part IV BACKGROUND INFORMATION for an additional discussion of AB 1290 payments. A summary of the projected taxable valuation and Tax Revenues from the Pacoima/Panorama City Project Area is as follows: 59

68 TABLE 12 Projected Tax Revenues Pacoima/Panorama City Project Area (Dollars in thousands) Pacoima/Panorama City Earthquake Disaster Assistance Project TAX REVENUE PROJECTION (000's Omitted) Fiscal Year FY FY FY FY FY FY FY FY FY FY Adjusted Real Property 2.00% $3,307,199 $3,363,736 $3,431,010 $3,499,631 $3,569,623 $3,641,016 $3,713,836 $3,788,113 $3,863,875 $3,941,152 New Development -Real (2) Assumed Resolved Appeals Impact (3) (3,892) Assumed Pending Appeals Impact (3) (5,527) Total Real Property $3,297,780 $3,363,736 $3,431,010 $3,499,631 $3,569,623 $3,641,016 $3,713,836 $3,788,113 $3,863,875 $3,941,152 Adjusted Other Property (4) 235, , , , , , , , , ,625 New Development -Other Total Other Property $235,625 $235,625 $235,625 $235,625 $235,625 $235,625 $235,625 $235,625 $235,625 $235,625 Total Value $3,533,405 $3,599,361 $3,666,636 $3,735,256 $3,805,249 $3,876,641 $3,949,461 $4,023,738 $4,099,500 $4,176,778 Incremental Value Over Base of $2,370,168 $1,163,238 $1,229,193 $1,296,468 $1,365,088 $1,435,081 $1,506,473 $1,579,294 $1,653,570 $1,729,332 $1,806,610 Gross Tax Increment $11,642 $12,292 $12,965 $13,651 $14,351 $15,065 $15,793 $16,536 $17,293 $18,066 Unitary Revenue (5) Properyty Tax Administrative Fee (6) (177) (246) (259) (273) (287) (301) (316) (331) (346) (361) Total Adjusted Tax Increment Revenue $11,465 $12,046 $12,705 $13,378 $14,064 $14,763 $15,477 $16,205 $16,947 $17,705 AB 1290 Payments (2,291) (2,458) (2,593) (2,730) (2,988) (3,250) (3,518) (3,792) (4,071) (4,355) Net Tax Increment Revenue (7)(8) $9,175 $9,588 $10,112 $10,648 $11,076 $11,513 $11,959 $12,413 $12,877 $13,350 (1) Real property in the Project is assumed to increase by 2 percent annually. (2) For the purposes of this projection New Development is not included. (3) Represents the estimated impact from filed appeals as of January (4) Other property in the Project is assumed to remain constant. (5) Unitary revenue is the actual amount as reported by the County as of January Unitary revenue in future years is assumed to remain constant. (6) The property tax administrative charge is based on actual charge for fiscal year Property tax administrative in future years is estimated at 2 percent of the estimated revenue. (7) A portion of the AB1290 Payments are currently subordinated to payments of debt service on the Agency loans for this Project. Subordination of all AB1290 payments to the payment of debt service on the Agency loans for this Project is pending. (8) It is estimated that the Agency will be impacted by $24,000, and $165,000 in fiscal year for prior year Resolved and Pending Assessment Appeals Refunds, respectively. The Agency will reimburse this amount from funds on hand. 60

69 TABLE 13 Pacoima/Panorama City Project--Annual Debt Service Schedule 2006 Agency Loans and 2003 Parity Loan 2006 Bonds Year Ending 2003 Bonds Taxable Tax Exempt Sub Total Total 2006 $ 191, $ - $ - $ - $191, , , , ,298, ,614, , , , ,300, ,618, , , , ,296, ,611, , , , ,301, ,617, , , , ,299, ,617, , , , ,297, ,615, , , , ,298, ,616, , , , ,302, ,621, , , , ,295, ,613, , , , ,296, ,613, , , , ,295, ,610, , , , ,301, ,619, , , , ,300, ,615, , , , ,301, ,619, , , , ,300, ,619, , , , ,301, ,616, , , , ,299, ,615, , , , ,299, ,615, , , , ,296, ,611, , , , ,294, ,613, , , , , , , , , , , , , , , TOTAL $8,748, $14,115, $12,933, $27,048, $35,797, Assessment Appeals Pacoima/Panorama City Project Area Resolved assessment appeals reduced estimated property valuation within the Pacoima/Panorama City Project by approximately $3,892,000 for Fiscal Year , and refunds are estimated to reduce Project Area revenues in Fiscal Year by $24,000. In addition, a number of appeals are currently pending regarding assessed valuation within the Pacoima/Panorama City Project that may result in reductions in estimated property valuation and refunds to property owners. The estimated valuation reduction for the Pacoima/Panorama City Project for Fiscal Year for currently pending appeals is $5,527,000 and the estimated refund is $165,000. See APPENDIX A FISCAL CONSULTANT S REPORT Part II Taxable Value Assessment Appeals for a discussion of such appeals. The potential impact of pending appeals is based on the applicant s opinion of the value of the contested parcels. Actual impacts to Tax Revenues are dependent upon the actual revised value, if any, of assessments resulting from values determined by the County Assessment Appeals Board or through litigation, 61

70 Historically, the Agency has addressed resolved and pending refunds resulting from assessment appeals through its budgeting process. Each quarter, as new appeal information becomes available, the Agency reviews such information and makes appropriate budgeting adjustments so as to absorb significant impact (if any) from appeals out of cash on hand, program revenues, or other means necessary to meet its obligations to Bondholders. This policy is an internal management tool and is subject to change. While the Agency cannot guarantee the continuation of such policy, it currently has no plans to adjust or eliminate it. There can be no assurance as to the level of appeal activity in the Project Area or of the outcome of any of the above pending appeals. It is possible that other owners of property in the Pacoima/Panorama City Project will file appeals to lower their assessment values to comparable levels. See APPENDIX A - FISCAL CONSULTANT S REPORT hereto for the assumptions the Fiscal Consultant has made concerning the resolved and pending appeals in the Pacoima/Panorama City Project. Successful appeals could result in reductions in the amount of Tax Revenues collected and could have an adverse effect on the Agency s ability to pay principal and interest on the Pacoima/Panorama City Loan Agreement. Housing Set-Aside Requirements Pacoima/Panorama City Project Area In accordance with Section of the Redevelopment Law, not less than twenty percent (20%) of all taxes which are allocated to the Agency from the Pacoima/Panorama City Project shall be used by the Agency for purposes of improving, increasing and preserving the City s supply of housing for persons and families of low or moderate income (including the payment of indebtedness, such as the Bonds, issued or incurred for such purposes). See LIMITATIONS ON TAX REVENUES Low and Moderate Income Housing Requirements herein. The Pacoima/Panorama City Project is subject to the 20% Housing Set-Aside requirement. A portion of the Housing Tax Revenues in the Pacoima/Panorama City Project is pledged to the repayment of the respective Series of Bonds because a like portion of the proceeds thereof will be or were used for low and moderate-income housing purposes or the Agency has otherwise complied with applicable law relating to the 20% Set Aside Requirement. The Fiscal Consultant s Report set forth herein in APPENDIX A and the estimate of revenues provided herein does not separately identify revenues committed for the 20% Housing Set-Aside requirement. Section (AB 1290) Payments Pacoima/Panorama City Project Area Section of the Health and Safety Code requires that taxing entities affected by the adoption of a redevelopment plan or the amendment of a redevelopment plan after January 1, 1994 receive an additional portion of tax revenues otherwise payable to the Agency for a project area. See LIMITATIONS ON TAX REVENUES Section (AB 1290) Payments herein. Because the Redevelopment Plan for the Pacoima/Panorama City Project was adopted after January 1, 1994, the Pacoima/Panorama City Project is liable for AB 1290 payments. While the statute permits these amounts to be subordinated to the payment of debt service on obligations issued by the Agency for the affected project areas under certain conditions, the Agency has not requested and received such subordination with regards to the 2003 Parity Loans, the 2006 Agency Loan, and any future Parity Debt issued from the Project Area, from any taxing entity other than the City of Los Angeles, but the Agency intends to request such subordination. In addition to the City, the Agency is liable for AB 1290 payments to the County and certain taxing entities administered by it, and to the following independent taxing entities, which are not administered or controlled by the Los Angeles County Board of Supervisors: Los Angeles Community College District Los Angeles Unified School District Los Angeles County School Services District Los Angeles County West Vector Control District Water Replenishment District of Southern California 62

71 See APPENDIX A FISCAL CONSULTANT S REPORT for information regarding the AB 1290 payments for the Project Area and a detailed discussion of the formulas upon which calculation of the AB 1290 payments is based. See APPENDIX A FISCAL CONSULTANT S REPORT and the information therein relating to the Project Area in the sections therein titled Part III PROJECTION OF TAX INCREMENT REVENUES for estimates of future AB 1290 payments and Part IV BACKGROUND INFORMATION for an additional discussion of AB 1290 payments. While the Agency has pledged the Tax Revenues of each Project Area to pay principal and interest on the 2006 Agency Loans and all Parity Debt relating to the Project Area, the Agency is liable for certain payments to the County for property tax administrative charges relating to the collection of the Tax Revenues and to the aforementioned taxing entities, which payments must also be made from the Tax Revenues. See the section herein entitled LIMITATIONS ON TAX REVENUES and the information set forth therein under the captions Tax Collection Fees and Section (AB 1290) Payments. See, also, the section herein entitled DEBT SERVICE SCHEDULES Estimated Net Tax Increment Revenues and Debt Service Coverage 2006 Agency Loans, which sets forth the projected debt service coverage on the 2006 Agency Loans and the 2003 Parity Loans of each Project Area, after deduction of such property tax administrative charges and Section (AB 1290) payments. 63

72 East Hollywood/Beverly Normandie CRA/LA FINLEY AVE. NEW HAMPSHIRE AVE. DRACENA AVE. RODNEY DR. FRANKLIN AVE. CLARISSA AVE. ROSALIA RD AVE. HOOVER ST. HARVARD BLVD. KINGSLEY DR. WINONA BLVD. NORMANDIE AVE. MARIPOSA AVE. ALEXANDRIA AVE. KENMORE AVE. EDGEMONT ST. BERENDO ST. VERMONT AVE. RUSSEL AVE. MELBOURNE AVE. KINGSWELL AVE. HILLHURST AVE. COMMONWEALTH AVE. TALMADGE ST. HOLLYWOOD BLVD. PROSPECT AVE. HOBART BLVD. HARVARD BLVD. HOLLYWOOD BLVD. SUNSET BLVD. BEVERLY BLVD. COUNCIL ST. COUNCIL ST. NORMANDIE AVE. 1ST ST. 2ND ST. MARIPOSA AVE. ALEXANDRIA AVE. KENMORE AVE. CATALINA ST. BERENDO ST. NEW HAMPSHIRE AVE. 3RD ST. 64

73 Project Area Description THE EAST HOLLYWOOD/BEVERLY-NORMANDIE PROJECT The East Hollywood/Beverly-Normandie Earthquake Disaster Assistance Project is located approximately four miles west of Downtown Los Angeles and one block east of the Hollywood Redevelopment Project Area. It consists of two noncontiguous areas totaling 656 acres. The East Hollywood portion is approximately 464 acres bounded by Hobart Boulevard on the west, Franklin and Finley Avenues on the north, Talmadge and Hillhurst Streets on the east, and both sides of Sunset Boulevard and Prospect Avenue on the south. It is a diverse community with an intense concentration of hospital facilities, notably Kaiser Permanente Hospital, Queen of Angels/Hollywood Presbyterian Hospital and Children s Hospital Los Angeles, and related medical offices and facilities located primarily along Sunset Boulevard. The 11.4-acre Barnsdall Park, situated on a hilltop site, is a focal point of the community. High-density apartments and neighborhood retail uses predominate along Hollywood Boulevard. This area includes a portion of the Los Feliz Village Commercial District, which contains neighboring middle-income residences, and a Metro Rail station at Vermont Avenue and Sunset Boulevard. The Beverly/Normandie segment is approximately 192 acres in size bordered by Beverly Boulevard on the north, New Hampshire Avenue on the east, Third Street on the south and Normandie Avenue on the west. This portion of the Project area contains a mixture of neighborhood retail and various ethnic businesses and grocery stores, which serve the densely populated multi-family residential district. The January 1994 Northridge Earthquake caused substantial property damage in the East Hollywood/Beverly- Normandie Project area. Over $10.9 million in structural damage to approximately 327 multifamily sites and $2.6 million in structural damage to 39 commercial sites occurred. In total, including public facilities, 509 buildings (commercial, multi-family residential and public facilities) were affected, resulting in an estimated $15.5 million in total damages. Barnsdall Park, the only City-owned park serving the Project area, sustained significant earthquake damage. The National Register of Historic Places lists many of its structures and buildings including those designed by world renowned American architect, Frank Lloyd Wright. The East Hollywood/Beverly Normandie Project was established in response to the January 1994 Northridge Earthquake. The goals of the Redevelopment Plan are to aid in the repair, restoration and/or demolition of earthquake damaged residential and commercial buildings, support the reconstruction and re-occupancy of the damaged commercial centers, and encourage the return of consumer and resident confidence within these areas. Development Within the Project Area In December 2005, the Agency appropriated and expended funds to develop Bronson Courts Apartments located at North Bronson Avenue, a housing project with dwelling units for low-income and/or moderate-income persons within and outside the Project Area. Such funds in the amount of $2,499,200 provided financial assistance for the predevelopment loan and acquisition of affordable housing. This project will replace current overcrowded and severely blighted housing with 32 units of well-designed and modern housing. The Agency has plans underway to build an affordable housing project of between units to be located near the intersection of Hollywood Boulevard and Vermont Avenue. These units will be made affordable to households earning between 30% and 80% of the area median income. This project is intended to help alleviate the significant shortage of affordable housing in an area of the Project Area and the significant escalation of residential rents. In partnership with the United States Postal Service, the Agency is facilitating the development of the Vermont Parking Structure Project, an approximately 500-car parking structure with approximately 5,000 square feet of neighborhood-serving retail space. The project is located on Vermont Avenue, which is a tremendous street for pedestrian traffic and street-fronting retail, and will provide public parking, with the potential to provide flex- 65

74 car services, metro bike facilities, park-and-ride linkage to the Red Line metro rail, and a shuttle connection with the newly renovated Griffith Park Observatory. DEVELOPMENT ACTIVITY Since the establishment of the East Hollywood/Beverly-Normandie Project Area, there has been significant capital investment within and immediately surrounding the Project Area, as illustrated by the following table. The ultimate configuration, value, and completion dates of the projects listed below are subject to change and subject to construction and other risks. See RISK FACTORS Real Estate and General Economic Risk. TABLE 14 Development Activity Activity 1. MTA Redline Train Station located at Sunset Boulevard and Vermont Ave. New construction of transit station.* 2. Childrens Hospital Los Angeles Expansion. New construction of a 460,000 square-foot, 280-bed facility and seismic upgrades. * Agency / Status Public Agency Development/ Non-profit Entity/Estimated start date of June 2006 and completion in June Kaiser Permanente Hospital Expansion. Rebuilding of Hollywood medical facilities for seismic upgrades and expansion. The first phase will bring the hospital up to a total of 460 beds and add one million square feet in a seven-story facility.* Source: Agency * All or a portion of the real property associated with such project is tax-exempt. Non-profit Development/First phase will open in fall Certain of the foregoing development projects are owned and operated by tax-exempt entities and consequently, no additional Tax Revenues are expected to be payable in connection with such developments. The Agency budget for the Project Area for Fiscal Year is approximately $15,000,000. The Agency has included numerous residential, commercial and industrial rehabilitation projects in its proposed Fiscal Year budget for the Project Area, including the following projects: Completion of design, environmental, permitting, and community participation processes for the East Hollywood Streetscape Program, including both the East Hollywood Streetscape and the Barnsdall Transit- Oriented District Projects. Conduct of an economic development study and development of a strategic plan for the Beverly/Virgil area of the Project Area. Area. Implementation of the homeownership program by initiating co-op conversion projects in the Project Location of a site and commencement of a feasibility analysis, including conceptual drawings, for the Vermont Ave mixed-use parking structure. Limitations and Requirements of the East Hollywood/Beverly-Normandie Redevelopment Plan The termination date of the effectiveness of the East Hollywood/Beverly-Normandie Redevelopment Plan is April 21, The Agency cannot receive Tax Revenues with respect to the East Hollywood/Beverly- 66

75 December 14, The Redevelopment Plan does not limit the dollar amount of tax increment revenues to be received from the Project Area. Largest Taxpayers East Hollywood/Beverly-Normandie Project Area Set forth below are the ten largest taxpayers in the East Hollywood/Beverly-Normandie Project Area based on the property tax roll, based on information provided by the County of Los Angeles, and includes all secured and unsecured values located within the Project Area attributable to such assessee. See RISK FACTORS Concentration of Ownership. Rank TABLE 15 Ten Largest Taxpayers East Hollywood/Beverly-Normandie Project Area Major Assessees No. of Parcels Use Value % of Project Value 1 FHP LLC 9 Multi. Fam. Residential $10,019, % North Normandie Ave. LLC 1 Multi. Fam. Residential 10,013, Greendale Properties LLC 3 Multi. Fam. Residential 9,974, New Hampshire Assoc. 1 Multi. Fam. Residential 9,235, Donald T. Sterling TR 2 Multi. Fam. Residential 9,215, Henry and Anita Weiss TRS 11 Multi. Fam. Residential 8,141, Safeway Inc 1 Supermarket 7,076, Braveheart RE LLC 1 Multi. Fam. Residential 6,032, Sunset LLC 1 Professional Building 5,979, David Weisswasser DW Glendale 2 Multi. Fam. Residential 5,423, TOTAL VALUE MAJOR ASSESSEES $81,431,887 TOTAL PROJECT VALUE $1,182,421,142 TOTAL % OF PROJECT VALUE 6.89% TOTAL % OF INCREMENTAL VALUE 19.79% Source: Katz Hollis 67

76 Historical Taxable Values East Hollywood/Beverly-Normandie Project Area Tax Revenues of the East Hollywood/Beverly-Normandie Project Area is derived from the tax increment from property taxes on the taxable property within the Project Area. Tax Revenues of the Project Area are to be deposited by the Agency in the Pledged Revenue Fund created under the East Hollywood/Beverly-Normandie Loan Agreement and then transferred to the Debt Service Fund held by the Agency. The Agency shall withdraw from the Debt Service Fund and transfer to the Trustee an amount equal to the principal of and interest on the East Hollywood/Beverly-Normandie Loan Agreement, the East Hollywood/Beverly-Normandie 2003 Parity Loan and any future Parity Debt of the East Hollywood/Beverly-Normandie Project Area. Such moneys so transferred by the Agency constitute a portion of the Revenues and shall be deposited by the Trustee into the Revenue Fund established under the Series L Indenture. No later than three (3) Business Days prior to each Interest Payment Date, the Trustee shall transfer from the Revenue Fund and shall deposit into and apply, together with other revenues deposited in the Revenue Fund relating to payments on the other 2006 Agency Loans, the amounts held in the Interest Account, the Principal Account and the applicable Reserve Account, if necessary, to pay the principal of and interest on the Series L Bonds then coming due, and to restore the amount in the applicable Reserve Account to the Reserve Requirement, if necessary. See SECURITY FOR THE BONDS and LIMITATIONS ON TAX REVENUES herein, for a discussion of the limitations on Tax Revenues of the East Hollywood/Beverly-Normandie Project Area, and RISK FACTORS for a discussion of certain risks relating to the Pledged Tax Revenues of the Project Areas. The following table is a schedule of the respective taxable valuations in the East Hollywood/Beverly-Normandie Project Area for the Fiscal Years through

77 TABLE 16 Historical Taxable Value East Hollywood/Beverly-Normandie Project Area HISTORICAL TAXABLE VALUE(1) 2001/ / / / /06 Secured Land $ 444,414,813 $ 480,000,712 $ 519,354,981 $ 569,486,215 $ 637,967,195 Improvements 764,524, ,759, ,627, ,643,484 1,021,065,061 Personal Property 102,638, ,976,825 90,425, ,670,147 83,637,967 Gross Secured $1,311,578,059 $1,391,737,209 $1,400,407,901 $ 1,582,799,846 $ 1,742,670,223 Less: Exemptions 514,215, ,846, ,241, ,717, ,617,527 Exemption Adjustments (2) Total Secured $ 797,362,538 $ 862,890,271 $ 957,166,147 $ 1,049,082,580 $ 1,157,052,696 Unsecured Land Improvements 8,673,506 9,713,231 9,226,410 16,755,429 18,205,324 Personal Property 20,445,939 25,088,689 35,502,068 34,901,112 38,559,516 Gross Unsecured $ 29,119,445 $ 34,801,920 $ 44,728,478 $ 51,656,541 $ 56,764,840 Less: Exemptions 101, , ,000 26,848,825 31,396,394 Total Unsecured $ 29,018,445 $ 34,648,920 $ 44,528,478 $ 24,807,716 $ 25,368,446 TOTAL PROJECT VALUE $ 826,380,983 $ 897,539,191 $1,001,694,625 $1,073,890,296 $ 1,182,421,142 Percentage Increase/Decrease 8.61% 11.60% 7.21% 10.11% (1) Values are as reported by the Los Angeles County Auditor-Controller, unless otherwise stated. (2) Exemption adjustments are based on specific situations where exemptions were filed late and not included in the initial roll values. Source: Katz Hollis Projected Tax Revenues East Hollywood/Beverly-Normandie Project Area The following tables set forth the projections of taxable valuation and Tax Revenues from developments in the East Hollywood/Beverly-Normandie Project Area. The Agency believes the assumptions (set forth in the footnotes below) upon which the projections are based are reasonable; however, some assumptions may not materialize and unanticipated events and circumstances may occur which adversely affect the Tax Revenues (see RISK FACTORS ). Therefore, the actual Tax Revenues received from the East Hollywood/Beverly-Normandie Project Area during the forecast period may vary from the projections and the variations may be material. See APPENDIX A FISCAL CONSULTANT S REPORT. The East Hollywood/Beverly-Normandie Project is liable for payments under Section to certain taxing entities, as hereinafter described in the subsection captioned Section (AB 1290) Payments, which payments are expected in all cases to be subordinated to payments of debt service on the Bonds. See APPENDIX A FISCAL CONSULTANT S REPORT and the section therein titled Part III PROJECTION OF TAX INCREMENT REVENUES for estimates of future AB 1290 payments and Part IV BACKGROUND INFORMATION for an additional discussion of AB 1290 payments. A summary of the projected taxable valuation and Tax Revenues from the East Hollywood/Beverly- Normandie Project Area is as follows: 69

78 TABLE 17 Projected Tax Revenues East Hollywood/Beverly-Normandie Project Area (Dollars in thousands) East Hollywood/Beverly Normandie Earthquake Disaster Assistance Project TAX REVENUE PROJECTION (000's Omitted) Fiscal Year FY FY FY FY FY FY FY FY FY FY Adjusted Real Property 2.00% $1,091,620 $1,104,555 $1,126,646 $1,149,179 $1,172,163 $1,195,606 $1,219,518 $1,243,908 $1,268,786 $1,294,162 New Development -Real (2) Assumed Resolved Appeals Impact (3) (1,781) Assumed Pending Appeals Impact (3) (6,942) Total Real Property $1,082,897 $1,104,555 $1,126,646 $1,149,179 $1,172,163 $1,195,606 $1,219,518 $1,243,908 $1,268,786 $1,294,162 Adjusted Other Property (4) 90,801 90,801 90,801 90,801 90,801 90,801 90,801 90,801 90,801 90,801 New Development -Other Total Other Property $90,801 $90,801 $90,801 $90,801 $90,801 $90,801 $90,801 $90,801 $90,801 $90,801 Total Value $1,173,698 $1,195,356 $1,217,447 $1,239,980 $1,262,964 $1,286,407 $1,310,319 $1,334,709 $1,359,588 $1,384,963 Incremental Value Over Base of $770,983 $402,715 $424,373 $446,464 $468,997 $491,981 $515,424 $539,336 $563,727 $588,605 $613,980 Gross Tax Increment $4,031 $4,244 $4,465 $4,690 $4,920 $5,154 $5,393 $5,637 $5,886 $6,140 Unitary Revenue (5) Properyty Tax Administrative Fee (6) (62) (85) (89) (94) (98) (103) (108) (113) (118) (123) Total Adjusted Tax Increment Revenue $3,968 $4,159 $4,375 $4,596 $4,821 $5,051 $5,285 $5,525 $5,768 $6,017 AB 1290 Payments (787) (849) (893) (938) (984) (1,070) (1,158) (1,248) (1,340) (1,433) Net Tax Increment Revenue (7)(8) $3,181 $3,310 $3,482 $3,658 $3,837 $3,981 $4,127 $4,277 $4,429 $4,584 (1) Real property in the Project is assumed to increase by 2 percent annually. (2) For the purposes of this projection New Development is not included. (3) Represents the estimated impact from filed appeals as of January (4) Other property in the Project is assumed to remain constant. (5) Unitary revenue is the actual amount as reported by the County as of January Unitary revenue in future years is assumed to remain constant. (6) The property tax administrative charge is based on actual charge for fiscal year Property tax administrative in future years is estimated at 2 percent of the estimated revenue. (7) A portion of the AB1290 Payments are currently subordinated to payments of debt service on the Agency loans for this Project. Subordination of all AB1290 payments to the payment of debt service on the Agency loans for this Project is pending. (8) It is estimated that the Agency will be impacted by $22,000, and $72,000 in fiscal year for prior year Resolved and Pending Assessment Appeals Refunds, respectively. The Agency will reimburse this amount from funds on hand. 70

79 TABLE 18 East Hollywood/Beverly-Normandie Project--Annual Debt Service Schedule 2006 Agency Loan and 2003 Parity Loan Year Ending 2003 Parity Loan 2006 Agency Loan Total 2006 $104, $ - $104, , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , TOTAL $5,133, $14,115, $19,248,

80 Assessment Appeals East Hollywood/Beverly-Normandie Project Area Resolved assessment appeals reduced estimated property valuation within the East Hollywood/Beverly- Normandie Project by approximately $1,781,000 for Fiscal Year , and refunds are estimated to reduce Project Area revenues in Fiscal Year by $22,000. In addition, a number of appeals are currently pending regarding assessed valuation within the East Hollywood/Beverly-Normandie Project that may result in insignificant reductions in estimated property valuation and refunds to property owners. The estimated valuation reduction for the East Hollywood/Beverly-Normandie Project for Fiscal Year is $6,942,000 and the estimated refund is $72,000. See APPENDIX A FISCAL CONSULTANT S REPORT Part II Taxable Value Assessment Appeals for a discussion of such appeals. The potential impact of pending appeals is based on the applicant s opinion of the value of the contested parcels. Actual impacts to Tax Revenues are dependent upon the actual revised value, if any, of assessments resulting from values determined by the County Assessment Appeals Board or through litigation, and upon the timing of successful appeals. See APPENDIX A FISCAL CONSULTANT S REPORT hereto and RISK FACTORS Assessment Appeals. Historically, the Agency has addressed resolved and pending refunds resulting from assessment appeals through its budgeting process. Each quarter, as new appeal information becomes available, the Agency reviews such information and makes appropriate budgeting adjustments so as to absorb significant impact (if any) from appeals out of cash on hand, program revenues, or other means necessary to meet its obligations to Bondholders. This policy is an internal management tool and is subject to change. While the Agency cannot guarantee the continuation of such policy, it currently has no plans to adjust or eliminate it. There can be no assurance as to the level of appeal activity in the Project Area or of the outcome of any of the above pending appeals. It is possible that other owners of property in the East Hollywood/Beverly-Normandie Project will file appeals to lower their assessment values to comparable levels. See APPENDIX A - FISCAL CONSULTANT S REPORT hereto for the assumptions the Fiscal Consultant has made concerning the resolved and pending appeals in the East Hollywood/Beverly-Normandie Project. Successful appeals will result in reductions in the amount of Tax Revenues collected and could have an adverse effect on the Agency s ability to pay debt service on the Bonds. Housing Set-Aside Requirements East Hollywood/Beverly-Normandie Project Area In accordance with Section of the Redevelopment Law, not less than twenty percent (20%) of all taxes which are allocated to the Agency from the East Hollywood/Beverly-Normandie Project shall be used by the Agency for purposes of improving, increasing and preserving the City s supply of housing for persons and families of low or moderate income (including the payment of indebtedness, such as the Bonds, issued or incurred for such purposes). See LIMITATIONS ON TAX REVENUES Low and Moderate Income Housing Requirements herein. The East Hollywood/Beverly-Normandie Project is subject to the 20% Housing Set-Aside requirement. A portion of the Housing Tax Revenues in the East Hollywood/Beverly-Normandie Project is pledged to the repayment of the Agency Loan relating to the East Hollywood/Beverly-Normandie Project because a like portion of the proceeds thereof will be or were used for low and moderate-income housing purposes or the Agency has otherwise complied with applicable law relating to the 20% Set Aside Requirement. The Fiscal Consultant s Report set forth herein in APPENDIX A and the estimate of revenues provided herein does not separately identify revenues committed for the 20% Housing Set-Aside requirement. Section (AB 1290) Payments East Hollywood/Beverly-Normandie Project Area Section of the Health and Safety Code requires that taxing entities affected by the adoption of a redevelopment plan or the amendment of a redevelopment plan after January 1, 1994 receive an additional portion of tax revenues otherwise payable to the Agency for a project area. See LIMITATIONS ON TAX REVENUES Section (AB 1290) Payments herein. Because the Redevelopment Plan for the East Hollywood/Beverly- 72

81 Normandie Project was adopted after January 1, 1994, the East Hollywood/Beverly-Normandie Project is liable for AB 1290 payments. While the statute permits these amounts to be subordinated to the payment of debt service on obligations issued by the Agency for the affected project areas under certain conditions, the Agency has not requested and received such subordination with regards to the 2003 Parity Loans, the 2006 Agency Loan, and any future Parity Debt issued from the Project Area, from any taxing entity other than the City of Los Angeles, but the Agency intends to request such subordination. In addition to the City, the Agency is liable for AB 1290 payments to the County and certain taxing entities administered by it, and to the following independent taxing entities, which are not administered or controlled by the Los Angeles County Board of Supervisors: Los Angeles Community College District Los Angeles Unified School District Los Angeles County School Services District Los Angeles County West Vector Control District Water Replenishment District of Southern California See APPENDIX A FISCAL CONSULTANT S REPORT for information regarding the AB 1290 payments for the Project Areas and a detailed discussion of the formulas upon which calculation of the AB 1290 payments is based. See APPENDIX A FISCAL CONSULTANT S REPORT and the information therein relating to the Project Area in the sections therein titled Part III PROJECTION OF TAX INCREMENT REVENUES for estimates of future AB 1290 payments and Part IV BACKGROUND INFORMATION for an additional discussion of AB 1290 payments. While the Agency has pledged the Tax Revenues of each Project Area to pay principal and interest on the 2006 Agency Loans and all Parity Debt relating to the Project Area, the Agency is liable for certain payments to the County for property tax administrative charges relating to the collection of the Tax Revenues and to the aforementioned taxing entities, which payments must also be made from the Tax Revenues. See the section herein entitled LIMITATIONS ON TAX REVENUES and the information set forth therein under the captions Tax Collection Fees and Section (AB 1290) Payments. See, also, the section herein entitled DEBT SERVICE SCHEDULES Estimated Net Tax Increment Revenues and Debt Service Coverage 2006 Agency Loans, which sets forth the projected debt service coverage on the 2006 Agency Loans and the 2003 Parity Loans of each Project Area, after deduction of such property tax administrative charges and Section (AB 1290) payments. THE AUTHORITY The Authority is the Community Redevelopment Financing Authority of The Community Redevelopment Agency of the City of Los Angeles, California. The Authority is a joint exercise of powers authority which has the IDA and the Agency as its members. The Authority was formed in June of 1992 pursuant to Section 6500 et seq. of the California Government Code. The Board of the Agency (which serves as the Board of the IDA) serves as the Board of the Authority. The staff of the Agency serves as the staff of the Authority. The City Council retains certain approval authority over actions taken by the Agency and the Authority. THE AGENCY The Agency is a public body, corporate and politic, organized and existing under and pursuant to the Constitution and the Law. The Agency was activated in 1948 by the City Council. The City encompasses 469 square miles and is the second largest city by population in the United States. The mission of the Agency is to serve as the prime entity responsible for devising and implementing geographically based action strategies that serve to check and reverse deterioration in Los Angeles most troubled urban neighborhoods. The Agency will direct governmental and private sector investment, as necessary, to implement these strategies and will undertake the necessary steps required to engender new investment and growth in these areas. 73

82 Currently, the Agency administers 34 redevelopment projects and one revitalization project. The 34 existing redevelopment projects cover over 22,000 acres of land located throughout the City. None of the tax increment revenues generated by the other redevelopment projects is pledged to pay debt service on the Bonds. Personnel The Agency is governed by a board of seven Commissioners appointed to staggered four-year terms by the Mayor and confirmed by the City Council. The present Commissioners of the Agency, the dates of expiration of their terms of office and their current principal occupations are as follows: Commissioner Term Expires* Occupation William H. Jackson, Chairman November 4, 2008 Real estate attorney Madeline Janis-Aparicio, Vice-Chair November 4, 2006 Attorney; nonprofit CEO Joan Ling, Treasurer November 4, 2007 CEO, real estate company Bruce D. Ackerman November 4, 2006 Nonprofit CEO John A. Perez November 4, 2007 Architect Alejandro Ortiz November 4, 2009 Political director, labor union Brenda Shockley November 4, 2008 President, nonprofit community development corporation * Commissioners whose terms expire continue to serve until replaced or reappointed. Operations of the Agency are conducted under the direction of the Chief Executive Officer assisted by a staff of approximately 228 employees. Principal employees of the Agency staff are as follows: Cecilia V. Estolano. Chief Executive Officer of the Agency since May Real estate and land use attorney, of counsel to Gibson Dunn & Crutcher (1 year); Special Assistant Attorney, Los Angeles for real estate and economic development (3 years); Land use, real estate and environmental law attorney, Gibson Dunn & Crutcher (3 years); Senior Policy Advisor, U. S. Environmental Protection Agency (2 years). Donald R. Spivack. Acting Chief of Operations of the Agency since June 1, 2006 and current Deputy Chief of Operations since October Deputy Administrator (Community Operations I) of the Agency (4 years); Deputy Administrator (Community Development) of the Agency (4 years); Director of Operations of the Agency (8 years); Senior Project Manager (Central Business District) of the Agency (4 ½ years); Transportation Manager of the Agency (8 months); Chief of Community Planning of Montgomery County, Maryland Planning Department, the Maryland-National Capital Park and Planning Commission ("MNCPPC") (9 ½ years); Transportation Coordinator, MNCPPC (1 year); Director of Physical Planning of Southeastern Michigan Transportation Authority (2 years); Assistant Professor, Architecture and Planning, Ohio University (Athens, Ohio) (3 years). Randall K. Wilkins. Chief Financial Officer of the Agency since August 2000; Interim Chief Financial Officer of the Agency (6 months); Budget Manager of the Agency (10 years); Manager of Finance & Administration of Gould, Inc., Computer Systems Division (5 years); and Supervisor-Financial Planning & Analysis of Gould, Inc., Computer Systems Division (5 years). Raymond L. Fors. Finance Director of the Agency since May 1988; Finance Officer of the Agency (3 years); Public Finance Consultant and Investment Banker (9 years); various positions in the Trust and Operations Research departments of Security Pacific National Bank (7 years). Margarita De Escontrias. Regional Administrator (East Valley Region) of the Agency since August 2005; Acting Regional Administrator (East Valley Region)(3 months): Housing Manager of the Agency (4 ½ years); 74

83 Principal Development Specialist, Senior Development Specialist, Development Specialist, Economic Development Agency of the County of Riverside (15 years). Helmi Hisserich. Regional Administrator (Hollywood and Central Region) of the Agency since September Manager of Keyser Marston Associates, Inc. (4 years); Senior Economic Development Deputy for Mayor Richard Riordan of the City of Los Angeles (3 1/2 years); Director of Economic Development Programs, CHARO Community Development (3 years); Vice President, Trust Division, Security Pacific Bank (6 years). Leslie Lambert. Regional Administrator for the West Valley Regional Area. Project Manager of Reseda/Canoga Park Project of the Agency since 1995; Agency Housing Manager for Policy and Development (5 years); Housing Manager/Administrator, Pasadena Community Development Commission (5 years); Housing Manager, California Department of Housing and Community Development (6 years).in 1995 Ms. Lambert became Project Manager for the Reseda-Canoga Park Project, which is now the West Valley Region. Ms. Lambert joined the CRA in 1990 as the Housing Manager for Policy and Development. Private Consultant in Sacramento, working with jurisdictions in Northern California in the design and implementation of programs funded under the Community Development Block Grant Program. The Agency also contracts for professional services covering such areas as marketing, planning, law, economics, finance, engineering, and architecture. Agency Projects The following table provides a brief comparative description of the Agency s 34 current active redevelopment project areas (excluding the Reseda/Canoga Park Project, the Pacoima/Panorama City Project and the East Hollywood/Beverly-Normandie Project): 75

84 AGENCY PROJECTS Base Year FY06 FY06 Date Size Assessed Assessed Incremental Redevelopment Project Created (Acres) Value (1) Value Taxable Value Adams-Normandie (2) 5/ $ 42,441,528 (2) N/A Adelante Eastside 3/99 2,164 1,194,256,788 1,743,114, ,857,295 Beacon Street 4/ ,763,528 87,155,672 80,392,144 Broadway/Manchester 12/ ,897, ,540,209 27,642,929 Bunker Hill 3/ ,353,759 2,683,270,128 2,662,916,369 Central Business District (2)(3) 7/75 1,549 1,402,237,616 (2) N/A Central Industrial (4) 11/ ,252,011 1,051,650, ,398,876 Chinatown 1/ ,237, ,608, ,371,534 City Center (4) 5/ ,163,716,363 3,048,896, ,180,395 Council District 9 Corridors 12/95 2,817 1,678,584,138 2,312,753, ,169,848 Crenshaw (5) 5/ ,211, ,522, ,310,604 Crenshaw/Slauson 10/ ,153, ,448,406 94,294,640 Exposition/University Park (6)(7) 1/ ,618, ,603, ,984,342 Hollywood 5/86 1,107 1,217,812,439 3,274,524,936 2,056,712,497 Laurel Canyon 12/ ,109, ,985, ,875,377 Little Tokyo 2/ ,596, ,205, ,608,929 Los Angeles Harbor 7/ ,803, ,640, ,836,975 Mid-City 5/ ,683, ,968, ,284,914 Monterey Hills 7/ ,173, ,213, ,039,934 Normandie 5 10/ ,798, ,795, ,997,132 North Hollywood 2/ ,396,710 1,082,936, ,539,932 Pacific Corridor 5/ ,606, ,973, ,367,277 Pico Union 1 2/ ,680, ,130, ,449,506 Pico Union 2 11/ ,047, ,083, ,036,788 Rodeo/La Cienega 5/ ,016,285 55,878,471 53,862,186 Vermont/Manchester 5/ ,874, ,042,472 67,167,807 Watts 12/ ,002,685 35,609,459 27,606,774 Watts Corridors 11/ ,218,304 91,334,288 45,115,984 Western/Slauson 5/ ,033, ,866,880 73,833,176 Westlake 5/ ,133,413 1,119,171, ,038,513 Wilshire Center/Koreatown 12/95 1,207 2,515,955,183 3,381,617, ,661,957 (1) As reported by the County. Upon passage of AB454, the County implemented the measure by reducing the base year assessed values of all redevelopment projects by the amount of unitary values existing in the base. (See Taxes in the Fiscal Consultant Report in APPENDIX A - "FISCAL CONSULTANT'S REPORT.") (2) Project has reached its cap for its receipt of tax increment revenue (3) In accordance with a stipulated judgment filed in 1977, seven buildings within the Central Business District are not included in the calculation of the Agency's tax increment revenues. The value as shown and resulting tax revenues are therefore adjusted to reflect such Agreement. The stipulated judgment also limits annual Agency Tax Increment as to those seven buildings to $75 million. (4) No tax increment is collected due to litigation pertaining to validity of project area. (5) Project was expanded in (6) Project was expanded in 1983 and in (7) Project Area was formerly known as Hoover. 76

85 Powers The Agency is charged with the responsibility of eliminating blight through the process of redevelopment. All powers of the Agency are vested in its seven commissioners. The Agency exercises governmental functions in carrying out projects and has sufficient broad authority to acquire, develop, administer and sell or lease property, including the right of eminent domain and the right to issue bonds and expend the proceeds, subject, however, to certain limitations set forth in the redevelopment plans for each of the project areas of the City. Existing legislation permits the Agency to clear buildings and other improvements to develop as a building site any real property that it owns or has acquired, and to construct capital improvements and infrastructure. Redevelopment is carried out pursuant to the Law, a portion of the Health and Safety Code of the State of California, which defines redevelopment as the planning, development, replanning, redesign, clearance, reconstruction or rehabilitation, or any combination of these, of all or part of a survey area and the provisions of such residential, commercial, industrial, public or other structures or spaces as may be appropriate or necessary in the interests of the general welfare, including recreational and other facilities incidental or appurtenant to them. The Agency may, out of the funds available to it for such purposes, pay for all or part of the value of land and the cost of buildings, facilities, structures or other improvements to be publicly owned and operated, to the extent that such improvements are of benefit to a project area and no other reasonable means of financing is available. The Agency must sell or lease remaining property within a project area for redevelopment by others in strict conformity with the redevelopment plan for such project area, and may specify a period within which such redevelopment must begin and be completed. Factors Affecting Redevelopment Agencies Generally Other features of California law which bear on redevelopment agencies include general provisions which require public agencies to let contracts for construction only after competitive bidding. The Law provides that construction in excess of $5,000 undertaken by a redevelopment agency shall be done only after competitive bidding. California statutes also provide for offenses punishable as felonies which involve direct or indirect interest of a public official in a contract made by such official in his or her official capacity. In addition, the Law prohibits a redevelopment agency or city official or employee who, in the course of his or her duties, is required to participate in the formulation or approval of plans or policies, from acquiring any interest in property in a redevelopment project. California also has strict laws regarding public meetings (known as the Ralph M. Brown Act) which require all redevelopment agency and city meetings to be open to the public, with certain exceptions not applicable here. Article XIIIA of the California Constitution provides that full cash value of property used in determining taxable valuation may reflect from year to year the inflationary rate, not to exceed two percent for any given year, or such lesser amount as shown in the consumer price index. Such rate is computed on an April 1 year end. Financial Information The Agency accounts for its financial transactions through separate funds representing the Project Areas. The Agency s Combined Financial Statement and Schedules for the Fiscal Year ended June 30, 2004 were prepared by Agency staff and audited by the certified public accounting firm of Simpson & Simpson. The Agency s Combined Financial Statement and Schedule with Report on Audit by Independent Certified Public Accountants are attached hereto as APPENDIX C. Copies of the Agency s audited financial statements can be obtained at the office of the Finance Director of the Agency. The Bonds are payable solely from the Tax Revenues of the respective Project Area and other revenues of the Agency are not available for the payment of principal of and interest thereon. 77

86 Agency Investment Policy The proceeds of the Bonds and other moneys required to be deposited by the Agency in the funds and accounts established under the respective Indentures will be held and invested by the Agency and the respective Trustee in Permitted Investments, as defined in the Indentures. The Agency s surplus funds and investment portfolio are invested in accordance with an adopted investment policy developed by the Agency in accordance with the provisions of State law. The fundamental considerations in making Agency investments are safety (i.e., preservation of invested capital), liquidity and yield. The investment portfolio is structured, taking into consideration diversification and risk limitations, prudent investment principles and cash flow requirements. The investment portfolio is rated AAA/V-1+ by Fitch Ratings. Credit ratings reflect the views of the rating agency and any explanation of the significance of the ratings should be obtained directly from such rating agency. The Agency does not invest in leveraged products, structured notes or inverse floating rate notes or engage in borrowing to acquire securities. TAX MATTERS The Internal Revenue Code of 1986 (the Code ) imposes certain requirements that must be met subsequent to the issuance and delivery of bonds, such as the Series L Bonds and the Series N Bonds, for interest thereon to be and remain excluded pursuant to section 103(a) of the Code from the gross income of the owners thereof for federal income tax purposes. Noncompliance with such requirements could cause the interest on such bonds to be included in the gross income of the owners thereof for federal income tax purposes retroactive to the date of issuance of the bonds. The Agency has indicated that no attempt will be made to comply with those requirements for the Series L Bonds and expects the interest on the Series L Bonds to be included in gross income pursuant to Section 103(a) of the Code (federally taxable). The Agency has, however, covenanted to maintain the exclusion of the interest on the Series N Bonds from the gross income of the owners thereof for federal income tax purposes. In the opinion of Robinson & Pearman LLP., Bond Counsel, under existing law, interest on the Series L Bonds and the Series N Bonds is exempt from personal income taxes of the State of California. Bond Counsel is further of the opinion, assuming compliance with the aforementioned covenant, that interest on the Series N Bonds is excluded pursuant to section 103(a) of the Code from the gross income of the owners thereof for federal income tax purposes, that the Series N Bonds are not specified private activity bonds within the meaning of section 57(a)(5) of the Code and, therefore, the interest on the Series N Bonds will not be treated as an item of tax preference for purposes of computing the alternative minimum tax imposed by section 55 of the Code. The receipt or accrual of interest on the Series N Bonds owned by a corporation may affect the computation of its alternative minimum taxable income, upon which the alternative minimum tax is imposed, to the extent that such interest is taken into account in determining the adjusted current earnings of that corporation (75 percent of the excess, if any, of such adjusted current earnings over the alternative minimum taxable income being an adjustment to alternative minimum taxable income (determined without regard to such adjustment or to the alternative tax net operating loss deduction)). Bond Counsel expresses no opinion as to the exclusion from gross income for federal income tax purposes of interest on the Series L Bonds or regarding any other federal tax consequence relating to the accrual or receipt of interest on the Series L Bonds or the Series N Bonds, although Bond Counsel observes, assuming noncompliance by the Agency and the Authority with the above mentioned requirements of the Code with respect to the Series L Bonds, that interest on the Series L Bonds will be fully includable in the gross income of the recipients thereof for federal income tax purposes (taxable). Bond Counsel has not undertaken to advise in the future whether any events after the date of issuance of the Series L Bonds or the Series N Bonds may affect the tax status of interest on such bonds or the tax consequences of the ownership of such bonds. No assurance can be given that future legislation, or amendments to the Code, if enacted into law, will not contain provisions that could directly or indirectly reduce the benefit of the exemption of 78

87 interest on the Series L Bonds and the Series N Bonds from personal income taxation by the State of California or of the exclusion of the interest on the Series N Bonds from the gross income of the owners thereof for federal income tax purposes. Furthermore, Bond Counsel expresses no opinion as to any federal, State or local tax law consequences with respect to the Series N Bonds, or the interest thereon, if any action is taken with respect to the Series N Bonds or the proceeds thereof predicated or permitted upon the advice or approval of bond counsel if such advice or approval is given by counsel other than Bond Counsel. Although Bond Counsel is of the opinion that interest on the Series N Bonds is excluded from the gross income of the owners thereof for federal income tax purposes, an owner s federal, State or local tax liability may be otherwise affected by the ownership or disposition of such bonds. The nature and extent of these other tax consequences will depend upon the owner s other items of income or deduction. Without limiting the generality of the foregoing, prospective purchasers of the Series N Bonds should be aware that (a) section 265 of the Code denies a deduction for interest on indebtedness incurred or continued to purchase or carry the Series N Bonds or, in the case of a financial institution, that portion of an owner s interest expense allocated to interest on the Series N Bonds, (b) with respect to insurance companies subject to the tax imposed by section 831 of the Code, section 832(b)(5)(B)(i) reduces the deduction for loss reserves by 15% of the sum of certain items, including interest on the Series N Bonds, (c) interest on the Series N Bonds earned by certain foreign corporations doing business in the United States could be subject to a branch profits tax imposed by section 884 of the Code, (d) passive investment income, including interest on the Series N Bonds, may be subject to federal income taxation under section 1375 of the Code for Subchapter S corporations that have Subchapter C earnings and profits at the close of the taxable year if greater than 25% of the gross receipts of such Subchapter S corporation is passive investment income, (e) section 86 of the Code requires recipients of certain Social Security and certain Railroad Retirement benefits to take into account, in determining the taxability of such benefits, receipts or accruals of interest on the Series N Bonds and (f) under section 32(i) of the Code, receipt of investment income, including interest on the Series N Bonds, may disqualify the recipient thereof from obtaining the earned income credit. Bond Counsel has expressed no opinion regarding any such other tax consequences. Bond Counsel opinion is not a guarantee of a result, but represents its legal judgment based upon its review of existing statutes, regulations, published rulings and court decisions and the representations and covenants of the Agency described above. No ruling has been sought from the Internal Revenue Service (the Service ) with respect to the Service. The Service has an ongoing program of auditing the tax-exempt status of the interest on municipal obligations. If an audit of the Series N Bonds is commenced, under current procedures the Service is likely to treat the Agency as the taxpayer, and the owners of the Series N Bonds would have no right to participate in the audit process. In responding to or defending an audit of the tax-exempt status of the interest on the Series N Bonds, the Agency may have different or conflicting interest from the owners of the Series N Bonds. Further, the disclosure of the initiation of an audit may adversely affect the market price of the Series N Bonds, regardless of the final disposition of the audit. RATINGS The Bonds have been rated AAA by Standard & Poor s Ratings Services, a division of The McGraw-Hill Companies, Inc. ( S&P ), Aaa by Moody s Investor s Service Inc. ( Moody s ) and AAA by Fitch Ratings ( Fitch ) with the understanding that, upon the delivery of the Bonds, the Financial Guaranty Insurance Policy insuring the scheduled payment of the principal of and interest on the Bonds when due will be issued by the Bond Insurer. S&P has issued an underlying rating for the Bonds of A-. An explanation of the significance and status of such credit ratings may be obtained from the rating agencies furnishing the same. Such ratings reflect only the views of such organizations and an explanation of the significance of such ratings may be obtained from the respective agencies at the following addresses: Standard & Poor s Ratings Services, 55 Water Street, New York, New York 10041; Moody s Investor s Service Inc., 99 Church Street, New York, NY 10007; and Fitch Ratings, One State Street Plaza, New York, New York There is no assurance that such ratings will continue for any given period of time or that they will not be revised or 79

88 withdrawn entirely by any such rating agencies, if in their respective judgments, circumstances so warrant. A revision or withdrawal of any such credit rating could have an effect on the market price of the Bonds. UNDERWRITING The Underwriters have agreed to purchase the Bonds, subject to certain conditions, at a purchase price for the Series L Bonds of $31,681,580.45, being calculated as follows: the aggregate principal amount of the Series L Bonds ($32,000,000) less an Underwriters discount of $155, and less an original issue discount of $163,219.55; and for the Series N Bonds, at a purchase price of $8,314, being calculated as follows: the aggregate principal amount of the Series N Bonds ($8,000,000.00) less an Underwriters' discount of $30, plus an original issue premium of $344, The Underwriters have offered the Bonds to the public initially at the prices set forth on the inside cover page of this Official Statement, which prices may subsequently change without any requirement of prior notice. The Underwriters reserve the right to join with dealers and other underwriters in offering the Bonds to the public. The Underwriters may offer and sell Bonds to certain dealers (including dealers depositing Bonds into investment trusts) at prices lower than the public offering prices, and such dealers may reallow any such discounts on sales to other dealers. LEGAL OPINIONS The opinion of Robinson & Pearman LLP, Los Angeles, California, Bond Counsel, approving the validity of the Bonds and stating that interest on the Series N Bonds is excluded from gross income for federal income tax purposes, and that interest on the Bonds is exempt from personal income taxes of the State of California under present State income tax laws, will be furnished to the purchaser at the time of delivery of the Bonds at the expense of the Authority and the Agency. See APPENDIX E FORM OF BOND COUNSEL OPINIONS. Compensation for Bond Counsel s services is contingent upon the sale and delivery of the Bonds. The legal opinion is only as to legality and are not intended to be nor are they to be interpreted or relied upon as disclosure documents or an express or implied recommendation as to the investment quality of the Bonds. Certain legal matters will be passed on for the Agency and the Authority by Rockard J. Delgadillo, City Attorney of the City of Los Angeles, California, as Agency General Counsel and Counsel to the Authority, respectively, and by The Law Offices of Elizabeth C. Green, Los Angeles, California, as Disclosure Counsel. Compensation for Disclosure Counsel s services is contingent upon the sale and delivery of the Bonds. NO LITIGATION There is no action, suit or proceeding known to the Authority or the Agency to be pending or threatened, restraining or enjoining the execution or delivery of the Bonds, the Loan Agreements or the Indentures or in any way contesting or affecting the validity of the foregoing or any proceedings of the Authority or the Agency taken with respect to any of the foregoing. MISCELLANEOUS All of the preceding summaries of the Indentures, the Loan Agreements, the Continuing Disclosure Agreement, the Redevelopment Law, other applicable legislation, the Redevelopment Plans of the respective Project Areas, the 2003 Parity Loans, and other agreements and other documents are made subject to the definitive provisions of such documents respectively and do not purport to be complete statements of any or all of such provisions. Reference is hereby made to such documents on file with the Authority and the Agency for further information in connection therewith. 80

89 This Official Statement does not constitute a contract with the purchasers of the Bonds. Any statements made in this Official Statement involving matters of opinion or estimates, whether or not expressly stated, are set forth as such and not as representations of fact, and no representation is made that any of the estimates will be realized. The execution and delivery of this Official Statement by the Finance Director of the Agency and the Assistant Secretary of the Authority have been duly authorized by the Agency and the Authority. THE COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF LOS ANGELES, CALIFORNIA By: /s/ Raymond L. Fors Finance Director THE COMMUNITY REDEVELOPMENT FINANCING AUTHORITY OF THE COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF LOS ANGELES, CALIFORNIA By: /s/ Donald R. Spivack Assistant Secretary (THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK) 81

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91 FISCAL CONSULTANT S REPORT APPENDIX A

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93 REPORT OF THE FISCAL CONSULTANT Prepared for COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF LOS ANGELES (Los Angeles County, California) regarding the 2006 Pooled Tax Allocation Loans East Hollywood/Beverly Normandie Earthquake Disaster Assistance Project Loan Agreements Pacoima/Panorama City Earthquake Disaster Assistance Project Loan Agreements Reseda/Canoga Park Earthquake Disaster Assistance Project Loan Agreements Submitted by Katz Hollis June 2006 CRALA/2006poolA 06/02/06/LJA

94 PART I INTRODUCTION The Los Angeles Community Redevelopment Agency, (the Agency ) is considering entering into loan agreements for each of three of its redevelopment projects (collectively the 2006 Loan Agreements). Loans made under the agreements would fund, in part, the Agency s activities within and/or of benefit to each of the Projects. The loans are to be secured by the Agency s pledge of tax increment revenues generated by the Earthquake Disaster Assistance Project for Portions of Council District 3 (the Reseda/Canoga Park Project ); the Earthquake Disaster Assistance Project for Portions of Council District 7 (the Pacoima/Panorama City Project ) and the East Hollywood/Beverly-Normandie Earthquake Disaster Assistance Project (the East Hollywood/Beverly-Normandie Project ). The redevelopment projects are referred to herein collectively as the Projects. In connection with the proposed pledge of revenue, the Agency has requested that Katz Hollis review current and historical taxable values and property tax revenues, review currently pending and recently resolved assessment appeals and estimate future tax increment revenues for the Projects. Pursuant to that request, Katz Hollis has prepared this Fiscal Consultant s Report (the Report ). The key data for the Projects is summarized in tabular format on Figures I-1A through I-1C shown on the following pages. This Report is organized into the following four parts: Part I, Introduction, provides an outline of the Report, a summary of the Projects including Project Profiles, Figures I-1A through I-1C. Part II, Project Taxable Value and Tax Increment Revenue, covers current and historic values, taxable value attributable to major assessees, currently pending and recently resolved assessment appeals, and information on the sources of tax increment revenues including unitary property taxes and supplemental property taxes. An analysis describing the impacts of existing off-sets to and liens on tax increment revenues including the low and moderate income housing set-aside and property tax administrative charges is also included in Part II. Part III, Projection of Tax Increment Revenues, includes a projection of future levels of taxable value and resultant tax increment revenues. Additionally, Part III discusses and demonstrates the impact of recently resolved assessment appeals on tax increment revenue of the Projects. Part III also includes a discussion of the underlying assumptions of the projection. Part IV, Background Information, contains background information on the topics covered in Parts I through III of this Report. It has been prepared for those readers of the Report who may wish further information on the analysis and conclusions presented in prior sections. Please note that the value estimates and tax increment revenue projection in this Report are based upon information believed to be reasonable and accurate as of the date of this analysis. To the extent that current information is modified, resulting tax increment revenue may be other than that projected. The discussion of allocation procedures for property taxes contained in this Report is based largely upon information provided by representatives of Los Angeles County (the County ). These procedures are in some measure set administratively and are subject to change. No proposed changes to these procedures, other than those discussed herein, have been identified to date. CRALA/2006poolA 06/02/06/LJA

95 Community Redevelopment Agency of the City of Los Angeles Reseda/Canoga Park Earthquake Disaster Assistance Project Figure I-1A PROJECT PROFILE GENERAL INFORMATION ASSESSED VALUES/TAX RECEIPTS MAJOR APPEALS (6) Historical Resolved 2005/06 Estimated Date of Adoption: December 13, 1994 Incremental Original Levy Adjusted Historical Assessee Value Impact Refunds Amendments: November 21, 2003 Year Taxable Value Levy Adjustment Receivable Receipts (2) Secured Area: 2,400 Acres 2001/02 324,705,460 3,364,301 (133,870) 3,230,431 3,184,543 Walgreen Company 408,000 8,000 Tax Increment Limit: None 2002/03 444,977,762 4,530,010 (218,103) 4,311,906 4,273, Canby Associates 162,000 1,000 Tax Increment Received Through $26,298, /04 643,979,957 6,595,026 (336,870) 6,258,155 6,259,445 Thomas Vedres 71,000 8,000 Bond Indebtedness Limit: $190,000, /05 887,408,934 8,973,027 (373,105) 8,599,922 8,563,604 Bond Indebtedness Outstanding as of June 2005 $12,480,000 Unsecured Time Limit on Debt Incurrence: December 13, 2009 (2) Includes all current taxes and redemption payments collected. Vons Companies Inc N/A 6,000 Time Limit on the Effectiveness of the Best Buy Stores N/A 3,000 Redevelopment Plan: December 13, 2015 Percentage Collection (3) Xerox Corporation N/A 1,000 Time Limit to Receive TI/Repay Indebtedness: June 30, 2041 Current Year Collections including Year Collections (4) Prior Year (5) Estimated 2005/06 Impact $641,000 $27, / % 98.6% Estimated 2002/03 REVENUE ESTIMATE (1) 2002/ % 99.1% Pending 2005/06 Estimated 2003/ % 100.0% Assessee Value Impact Refunds 1994/ / / % 99.6% 2005/06 Base Year Incremental Secured Secured Value Value Value Average Collections 97.6% 99.3% Mary & Andre Hagentorn 2,950,000 30,000 Land $1,384,063,378 $783,914,296 $600,149,082 Office Depot 2,336,000 23,000 Improvements 1,815,189,212 1,197,988, ,200,593 (3) Uncollected amounts due to a combination of factors. See Part II, Walgreen Company 1,188,000 12,000 Personal Property 30,990,234 58,256,975 (27,266,741) "Project Tax Increment Receipts" for additional information. Reseda Vanowen 366,000 0 Less: Exemptions 226,131,270 $190,979,346 35,151,924 (4) All current year taxes collected. Yoram & Ruthie/Ziv, Simon Levy 264,000 0 Total Secured 3,004,111,554 1,849,180,544 $1,154,931,010 (5) All current taxes and redemption payments collected. BFS Retail & Commercial Operations 214,000 0 Unsecured Other 8 Appeals with initial values under 1.0 million 1,051,000 3,000 Land TAX SHARING AGREEMENTS Improvements 34,624,925 34,215, ,062 Unsecured Personal Property 63,988,796 54,623,094 9,365,702 None. Vons Companies Inc N/A 6,000 Less: Exemptions 1,263,244 35,400 1,227,844 Radnet N/A 4,000 Total Unsecured 97,350,477 88,803,557 8,546,920 Value Per Land Use* Estimated 2005/06 Impact $8,369,000 $78,000 Total Value 3,101,462,031 1,937,984,101 1,163,477,930 Residential (6) See Part II, "Assessment Appeals" for additional information. Less: Resolved Appeal Valuation Reductions 641, % Pending Appeal Valuation Reductions 8,369,000 TEN MAJOR ASSESSEES Adjusted Incremental Secured and Unsecured 1,154,467,930 Use/ % of Tax Increment Revenue $11,554,000 Common Project Unitary Revenue 0 Assessee Name Amount Value Less: Property Tax Administrative Charge 175,030 Other Westfield Topanga Owner LP Shopping Center $169,206, % 0.33% Renaissance Apartments LLC Apartments 69,147, % Gross Estimated Revenue $11,378,970 InstitutionsIndustial Essex Portfolio LP Apartments 40,010, % 1.79% Commercial Forest Glen Development Apartments 1.94% 34,009, % AB 1290 Payments 2,289, % Sam Menlo TR Apartments 28,565, % Revenue By Type Topanga and Victory Partners Offices 22,936, % NET ESTIMATED REVENUE $9,089,170 Combined Properties Reseda Shopping Center 23,798, % Secured Woodland Hills Apartments 21,652, % 99.27% Warner Center Summit LTD Apartments 19,460, % Catellus Development Corporation Shopping Center 17,679, % (1) Additional information is contained in Figure II-1. Unsecured 0.73% Total Major Assessees $446,467,064 Total 2005/06 Project Value $3,101,462,031 Percentage of 2005/06 Total Value 14.40% Percentage of 2005/06 Incremental Value 38.37% Project Profile * Land use distribution based on the 2005/06 Los Angeles County secured roll. Copyright 1992 Katz Hollis

96 Community Redevelopment Agency of the City of Los Angeles Pacoima/Panorama City Earthquake Disaster Assistance Project Figure I-1B PROJECT PROFILE GENERAL INFORMATION ASSESSED VALUES/TAX RECEIPTS MAJOR APPEALS (7) Historical Resolved 2005/06 Estimated Date of Adoption: November 29, 1994 Incremental Original Levy Adjusted Historical Assessee Value Impact Refunds Amendments: None Year Taxable Value Levy Adjustment Receivable Receipts (2) Secured DBA McDonold's Herrera, Robert N. 2,266,000 4,000 Area: 2,914 Acres 2001/02 312,877,024 3,519,159 (124,134) 3,395,025 3,238,614 ARG Enterprises, Inc. DBA Black Angus 760,000 7,000 Tax Increment Limit: None 2002/03 489,494,085 4,956,565 (642,736) 4,313,830 4,213,895 Elan Argil 524,000 5,000 Tax Increment Received Through $22,868, /04 653,358,030 6,594,947 (280,712) 6,314,234 6,287,757 Cassy K. Chun 171,000 3,000 Bond Indebtedness Limit: $200,000, /05 912,117,219 9,194,033 (130,458) 9,063,575 9,011,359 Anthony J. Quintero 171,000 0 Bond Indebtedness Outstanding as of June 2005 $4,195,000 Unsecured Time Limit on Debt Incurrence: November 29, 2009 (2) Includes all current taxes and redemption payments collected. Xerox Corporation N/A 4,000 Time Limit on the Effectiveness of the Arch Wireless Operating Co, Inc. N/A 1,000 Redevelopment Plan: December 31, 2015 Percentage Collection (3) Time Limit to Receive TI/Repay Indebtedness: November 29, 2041 Estimated 2005/06 Impact $3,892,000 $24,000 Current Year Collections including Agency Year Collections (4) Prior Year (5) Reciepts (6) Estimated Pending 2005/06 Estimated 2001/ % 95.4% 62.6% Assessee Value Impact Refunds 2005/06 REVENUE ESTIMATE (1) 2002/ % 97.7% 72.6% Secured 2003/ % 99.6% 99.6% Winterberry Properties 1,130, / / / % 99.4% 99.4% Royal Cedros Investments 970, /06 Base Year Incremental 9504 Sepulveda LLC/Boris, George T 680,000 0 Secured Value Value Value Average Collections 95.2% 98.0% 83.5% Ojai Oil Company 563,000 0 Land $1,534,933,747 $840,862,636 $694,071,111 Edmond Thomasian 490,000 0 Improvements 1,842,774,720 1,373,756, ,017,787 (3) Uncollected amounts due to a combination of factors. See Part II, Rene A. Lim 312,000 0 Personal Property 12,627,234 48,049,253 (35,422,019) "Project Tax Increment Receipts" for additional information. John J. Choi 281,000 0 Less: Exemptions 186,464,184 88,903,733 97,560,451 (4) All current year taxes collected. Victor & Jacline Alexandroff 273,000 0 (5) All current taxes and redemption payments collected. Jorge Sanchez 265,000 0 Total Secured $3,203,871,517 $2,173,765,089 $1,030,106,428 (6) and Agency receipts were constrained by total indebtedness existing Pauls P Kuo 208,000 0 Unsecured for that fiscal year. See Part II, "Project Tax Receipts" for additional information. Other 3 Appeals with initial values under 1.0 million 355,000 0 Land 2,026, ,026,820 TAX SHARING AGREEMENTS Unsecured Improvements 113,927,922 78,804,606 35,123,316 Medtronic Minimed Inc. N/A 83,000 Personal Property 236,954, ,629, ,325,665 None. Advanced Bionics Corporation N/A 41,000 Less: Exemptions 13,956,620 31,000 13,925,620 United Parcel Service N/A 12,000 Total Unsecured $338,952,915 $196,402,734 $142,550,181 Value Per Land Use* Quallion N/A 11,000 Brenda Foundation N/A 10,000 Total Value $ 3,542,824,432 $ 2,370,167,823 $ 1,172,656,609 Super Center Concepts Inc. N/A 5,000 Residential Ralphs Grocery Co. N/A 2,000 Less: Resolved Appeal Valuation Reductions 3,892, % Quinn Company N/A 1,000 Pending Appeal Valuation Reductions 5,527,000 Estimated 2005/06 Impact $5,527,000 $165,000 Adjusted Incremental Secured and Unsecured $1,163,237,609 (7) See Part II, "Assessment Appeals" for additional information. Industrial Tax Increment Revenue $11,642,000 TEN MAJOR ASSESSEES Unitary Revenue % Use/ % of Less: Property Tax Administrative Charge 177,019 Other Common Project 1.82% Commercial Assessee Name Amount Value Gross Estimated Revenue $11,465, % NF Plant Enterprises LP Shopping Center $45,785, % AB 1290 Payments 2,290,600 Revenue By Type Panorama City Associates Shopping Center 28,863, % Spectrolab INC. Manufacturing 27,153, % NET ESTIMATED REVENUE $9,174,400 Secured Henry and Anita Weiss TRS Apartments 24,166, % 87.84% S and V Van Nuys Associates LLC Shopping Ctr/Vac Indus 24,106, % G and S Partnership Industial 22,252, % (1) Additional information is contained in Figure II-1. Pacifica of the Valley Corporation Hospital/Vacant lots 20,891, % Tobias Partners LP Apartments 19,213, % Centro Watt Property Shopping Center 19,104, % Valacal Company Light Manufacturing/Va 17,992, % Total Major Assessees $249,531,523 Unsecured Total 2005/06 Project Value $3,542,824, % Percentage of 2005/06 Total Value 7.04% Percentage of 2005/06 Incremental Value 21.28% Project Profile * Land use distribution based on the 2005/06 Los Angeles County secured roll. Copyright 1992 Katz Hollis

97 Community Redevelopment Agency of the City of Los Angeles East Hollywood/Beverly Normandie Earthquake Disaster Assistance Project Figure I-1C PROJECT PROFILE GENERAL INFORMATION ASSESSED VALUES/TAX RECEIPTS MAJOR APPEALS (6) Historical Resolved 2005/06 Estimated Date of Adoption: December 14, 1994 Incremental Original Levy Adjusted Historical Assessee Value Impact Refunds Amendments: None Year Taxable Value Levy Adjustment Receivable Receipts (2) Secured Shawky W. Mikhail 625,000 4,000 Area: 656 Acres 2001/02 55,398, ,880 (160,250) 414, ,515 Bervely Vista Investments 500,000 5,000 Tax Increment Limit: None 2002/03 126,556,353 1,281,714 (153,478) 1,128,236 1,118,204 David Levian 328,000 3,000 Tax Increment Received Through $6,927, /04 230,711,787 2,329,250 (418,944) 1,910,306 1,848,802 Orly Maciborski 205,000 2,000 Bond Indebtedness Limit: $54,050, /05 302,907,458 3,053,729 (406,919) 2,646,809 2,658,245 Paul J & Grace Lee 123,000 1,000 Bond Indebtedness Outstanding as of June 2005 $1,860,000 Unsecured Time Limit on Debt Incurrence: December 14, 2009 (2) Includes all current taxes and redemption payments collected. Vons Companies N/A 4,000 Time Limit on the Effectiveness of the Xerox Corporation N/A 2,000 Redevelopment Plan: December 14, 2010 Percentage Collection (3) Arch Wireless Operating Co, Inc. N/A 1,000 Time Limit to Receive TI/Repay Indebtedness: December 14, 2040 Estimated 2005/06 Impact $1,781,000 $22,000 Current Year Collections including Year Collections (4) Prior Year (5) Estimated Pending 2005/06 Estimated 2001/ % 92.3% Assessee Value Impact Refunds 2005/06 REVENUE ESTIMATE (1) 2002/ % 99.1% Secured 2003/ % 96.8% Charob 1,987, / / % 100.4% Safeway 1,415, /06 Base Year Incremental Washington Mutual Bank 1,264,000 - Secured Value Value Value Average Collections 95.5% 97.1% Time Warner Communications 1,118,000 22,000 Land $637,967,195 $378,209,351 $259,757, Alexandria Apartments 592,000 - Improvements 1,021,065, ,300, ,764,684 (3) Uncollected amounts due to a combination of factors. See Part II, Sung J. Shin 390,000 - Personal Property 83,637,967 86,562,194 (2,924,227) "Project Tax Increment Receipts" for additional information. Lap S. Fong 176,000 - Less: Exemptions 585,617, ,510, ,107,262 (4) All current year taxes collected. Unsecured Total Secured $1,157,052,696 $736,561,657 $420,491,039 (5) All current taxes and redemption payments collected. Greendale Properties N/A 40,000 Unsecured Vons Companies N/A 8,000 Land TAX SHARING AGREEMENTS Xerox Corporation N/A 2,000 Improvements 18,205,324 7,163,004 11,042,320 Estimated 2005/06 Impact $6,942,000 $72,000 Personal Property 38,559,516 27,344,177 11,215,339 None. Less: Exemptions 31,396,394 86,000 31,310,394 (6) See Part II, "Assessment Appeals" for additional information. Total Unsecured $25,368,446 $34,421,181 ($9,052,735) TEN MAJOR ASSESSEES Value Per Land Use* Total Value $ 1,182,421,142 $ 770,982,838 $ 411,438,304 Use/ % of Residential Common Project Less: Resolved Appeal Valuation Reductions 1,781, % Assessee Name Amount Value Pending Appeal Valuation Reductions 6,942,000 FPH LLC Apartments $10,019, % 1800 North Normandie Ave. LLC Apartments 10,013, % Adjusted Incremental Secured and Unsecured $402,715,304 Greendale Properties LLC Apartments 9,974, % 1800 New Hampshire Association Apartments 9,235, % Tax Increment Revenue $4,030,552 Donald T Sterling TR Apartments 9,215, % Unitary Revenue 0 Henry and Anita Weiss TRS Apartments 8,461, % Less: Property Tax Administrative Charge 62,285 Safeway Inc. Supermarket 7,076, % Other Institutions Commercial Braveheart Re LLC Apartments 6,032, % Gross Estimated Revenue $3,968, % 6.26% 18.53% 5000 Sunset LLC Professional Blg. 5,979, % AB 1290 Payments 787,310 David Weiswasser DW Glendale Apartments 5,423, % Revenue By Type NET ESTIMATED REVENUE $3,180,957 Total Major Assessees $81,431,887 Total 2005/06 Project Value $1,182,421,142 Percentage of 2005/06 Total Value 6.89% (1) Additional information is contained in Figure II-1. Percentage of 2005/06 Incremental Value 19.79% Secured % Project Profile * Land use distribution based on the 2005/06 Los Angeles County secured roll. Copyright 1992 Katz Hollis

98 Community Redevelopment Agency of the City of Los Angeles Pooled Tax Allocation Loans Part I Introduction Characteristics of the Projects Reseda/Canoga Park Project The 2,500-acre Reseda/Canoga Park Project is located in the West San Fernando Valley communities of Canoga Park, Reseda and Winnetka and generally includes the Sherman Way commercial corridor from Topanga Canyon Boulevard on the west to Louise Avenue on the east and Saticoy Street from Mason Street on the west to Oakdale Avenue on the east. Portions of the residential communities of Canoga Park and Reseda are also included within the project area boundaries. Pacoima/Panorama Park Project The Pacoima/Panorama Park Project Area is located in the northeast San Fernando Valley and includes portions of the communities of Arleta, Lakeview Terrace, Mission Hills, North Hills, North Hollywood, Pacoima, Panorama City, Sun Valley, Sylmar and Van Nuys. The project consists of approximately 2, 914 acres and is generally bounded by the San Diego Freeway on the west, Foothill Freeway on the north and east, and Victory Boulevard on the south. East Hollywood/Beverly-Normandie Project The East Hollywood/Beverly-Normandie Earthquake Disaster Assistance Project is located approximately four miles west of Downtown and one block east of the Hollywood Redevelopment Project Area. It consists of two noncontiguous areas totaling 656 acres. The East Hollywood portion is approximately 464 acres bounded by Hobart Boulevard on the west, Franklin and Finley Avenues on the north, Talmadge and Hillhurst Streets on the east, and both sides of Sunset Boulevard and Prospect Avenue on the south. It is a diverse community with an intense concentration of hospital facilities, notably Kaiser Permanente and Children s Hospital of Los Angeles, located along Sunset Boulevard. The Beverly/Normandie segment is approximately 192 acres in size bordered by Beverly Boulevard on the north, New Hampshire Avenue on the east, Third Street on the south and Normandie Avenue on the west. This portion of the Project area contains a mixture of neighborhood retail and various ethnic businesses and grocery stores, which serve the densely populated multi-family residential district. Pursuant to AB 1290, each of the Projects has time limits and dollar limits that constrain the activities of the Agency although none of the Projects has a dollar limit on the receipt of tax increment. These limits are summarized in the table below. I-2

99 Community Redevelopment Agency of the City of Los Angeles Pooled Tax Allocation Loans Part I Introduction Debt Incurrence Time Limit Plan Effectiveness/ Duration Time Limit Tax Increment Receipt Time Limit Bonded Indebtedness Dollar Limit Reseda/Canoga Park Project December 13, 2009 December 13,2015 December 13, 2041 $190,000,000 Pacoima/Panorama City Project November 29, 2009 December 31, 2015 November 29, 2041 $200,000,000 East Hollywood/Beverly- Normandie Project December 14, 2009 December 14, 2010 December 14, 2040 $54,050,000 I-2

100 PART II PROJECT TAXABLE VALUE AND TAX INCREMENT REVENUE INTRODUCTION The following paragraphs provide summarized information regarding property tax valuation and revenues realized or to be realized for the Projects in the current and prior fiscal years. Much of the information regarding fiscal year values and resultant revenues is presented on Figures II-1A through II-1C, Estimate of Tax Increment Revenues. Additional specifics regarding the analyses and assumptions that underlie the information in this Part II can be found in Part IV, Background Information. PROJECT TAXABLE VALUE Current and Historical Taxable Value Value for each Project is originally reported by the County in late September of each fiscal year and is based on the aggregation of parcel values in the Project equalized as of August 20th of such year. Fiscal year values for the Projects are shown on Figures II-1A through II-1C, Estimate of Tax Increment Revenues. The amounts of and changes in taxable values for the Projects over recent fiscal years are shown on Figures II-2A through II-2C, Historical Taxable Value. The annualized percentage change in value over the term of the analysis and the change between the two most recent fiscal years are summarized below. 4-Year Annual Most Recent Exemptions Reseda/Canoga Park Project 8.20% 9.77% Pacoima/Panorama City Project 7.20% 7.94% East Hollywood/Beverly-Normandie Project 9.37% 10.11% Reports of assessed value for the Projects provided by the County early each fiscal year provide the basis for much of the information presented in this Report. The reports include the amounts of tax exemptions granted to properties comprising a Project. Such exemptions are granted on an annual basis subject to the filing of requests for exempt status by the various qualifying entities (religious institutions, non-profit organizations, etc.). Late filing and processing of the requests for exemption can result in the omission of exemptions from the early reports of Project value. The omission results in the overstatement of Project value (because of the understatement of the exemption offset) and estimates of revenue higher than may actually be received by the Agency. The review of recent years values for the Projects disclosed that exemptions might be understated for two fiscal years for the Pacoima/Panorama City Project and for one fiscal year for the Receda/Canoga Park Project. The values provided on Figures II-2A and II-2B for the Projects include adjustments that represent the excluded exemptions. The adjustments are based on a review of roll data processed later in each fiscal year and on a review of properties that have consistently received tax exemption. CRALA/2006poolA 04/17/06/LJA

101 Community Redevelopment Agency Figure II-1A of the City of Los Angeles Reseda/Canoga Park Earthquake Disaster Assistance Project 1994/ / /06 Base Incremental Taxable Value Taxable Value Taxable Value Secured Land $1,384,063,378 $783,914,296 $600,149,082 Improvements 1,815,189,212 1,197,988, ,200,593 Personal Property 30,990,234 58,256,975 (27,266,741) Gross Secured $3,230,242,824 $2,040,159,890 $1,190,082,934 Less: Exemptions 226,131, ,979,346 35,151,924 Total Secured $3,004,111,554 $1,849,180,544 $1,154,931,010 Unsecured Land Improvements 34,624,925 34,215, ,062 Personal Property 63,988,796 54,623,094 9,365,702 Gross Unsecured $98,613,721 $88,838,957 $9,774,764 Less: Exemptions 1,263,244 35,400 1,227,844 Total Unsecured $97,350,477 $88,803,557 $8,546,920 Total Secured and Unsecured $3,101,462,031 $1,937,984,101 $1,163,477,930 Resolved Appeal Valuation Reductions (2) 641,000 Pending Appeal Valuation Reductions (2) 8,369,000 Adjusted Incremental Secured and Unsecured $1,154,467,930 Tax Increment Revenue $11,554,000 Unitary Revenue (3) 0 Less: Property Tax Administrative Charge 175,030 Gross Estimated Revenue $11,378,970 AB 1290 Payments 2,289,800 NET ESTIMATED REVENUE (4)(5) $9,089,170 (1) Based on information provided by the County of Los Angeles. (2) Based on information reported by the County as of January (3) As reported by the County as of January (4) Total Estimated Revenue includes $2,275,794 of revenue designated for housing uses but available for debt service on the proposed bonds. (5) It is estimated that the Agency will be impacted by $27,000, and $78,000 in prior year Resolved and Pending Assessment Appeals Refunds, respectively. The Agency will reimburse this amount from funds on hand.

102 Figure II-1B Community Redevelopment Agency of the City of Los Angeles Pacoima/Panorama City Earthquake Disaster Assistance Project 1994/ / /06 Base Incremental Taxable Value Taxable Value Taxable Value Secured Land $1,534,933,747 $840,862,636 $694,071,111 Improvements 1,842,774,720 1,373,756, ,017,787 Personal Property 12,627,234 48,049,253 (35,422,019) Gross Secured $3,390,335,701 $2,262,668,822 $1,127,666,879 Less: Exemptions 186,464,184 88,903,733 97,560,451 Total Secured $3,203,871,517 $2,173,765,089 $1,030,106,428 Unsecured Land 2,026, ,026,820 Improvements 113,927,922 78,804,606 35,123,316 Personal Property 236,954, ,629, ,325,665 Gross Unsecured $352,909,535 $196,433,734 $156,475,801 Less: Exemptions 13,956,620 31,000 13,925,620 Total Unsecured $338,952,915 $196,402,734 $142,550,181 Total Secured and Unsecured $3,542,824,432 $2,370,167,823 $1,172,656,609 Resolved Appeal Valuation Reductions (2) 3,892,000 Pending Appeal Valuation Reductions (2) 5,527,000 Adjusted Incremental Secured and Unsecured $1,163,237,609 Tax Increment Revenue $11,642,000 Unitary Revenue (3) 0 Less: Property Tax Administrative Charge 177,019 Gross Estimated Revenue $11,465,000 AB 1290 Payments 2,290,600 NET ESTIMATED REVENUE (4)(5) $9,174,400 (1) Based on information provided by the County of Los Angeles. (2) Based on information reported by the County as of January (3) As reported by the County as of January (4) Total Estimated Revenue includes $2,292,996 of revenue designated for housing uses but available for debt service on the proposed bonds. (5) It is estimated that the Agency will be impacted by $24,000, and $165,000 in prior year Resolved and Pending Assessment Appeals Refunds, respectively. The Agency will reimburse this amount from funds on hand.

103 Community Redevelopment Agency Figure II-1C of the City of Los Angeles East Hollywood/Beverly Normandie Earthquake Disaster Assistance Project 1994/ / /06 Base Incremental Taxable Value Taxable Value Taxable Value Secured Land $637,967,195 $378,209,351 $259,757,844 Improvements 1,021,065, ,300, ,764,684 Personal Property 83,637,967 86,562,194 (2,924,227) Gross Secured $1,742,670,223 $1,114,071,922 $628,598,301 Less: Exemptions 585,617, ,510, ,107,262 Total Secured $1,157,052,696 $736,561,657 $420,491,039 Unsecured Land Improvements 18,205,324 7,163,004 11,042,320 Personal Property 38,559,516 27,344,177 11,215,339 Gross Unsecured $56,764,840 $34,507,181 $22,257,659 Less: Exemptions 31,396,394 86,000 31,310,394 Total Unsecured $25,368,446 $34,421,181 ($9,052,735) Total Secured and Unsecured $1,182,421,142 $770,982,838 $411,438,304 Resolved Appeal Valuation Reductions (2) 1,781,000 Pending Appeal Valuation Reductions (2) 6,942,000 Adjusted Incremental Secured and Unsecured $402,715,304 Tax Increment Revenue $4,030,552 Unitary Revenue (3) 0 Less: Property Tax Administrative Charge 62,285 Gross Estimated Revenue $3,968,267 AB 1290 Payments 787,310 NET ESTIMATED REVENUE (4)(5) $3,180,957 (1) Based on information provided by the County of Los Angeles. (2) Based on information reported by the County as of January (3) As reported by the County as of January (4) Total Estimated Revenue includes $793,653 of revenue designated for housing uses but available for debt service on the proposed bonds. (5) It is estimated that the Agency will be impacted by $22,000, and $72,000 in prior year Resolved and Pending Assessment Appeals Refunds, respectively. The Agency will reimburse this amount from funds on hand.

104 Community Redevelopment Agency of the City of Los Angeles Reseda/Canoga Park Earthquake Disaster Assistance Project Figure II-2A HISTORICAL TAXABLE VALUE (1) 2001/ / / / /06 Secured Land $ 891,024,595 $ 948,233,660 $ 1,059,935,440 $ 1,200,195,945 $ 1,384,063,378 Improvements 1,381,846,102 1,447,371,792 1,531,331,022 1,659,537,674 1,815,189,212 Personal Property 36,727,159 36,723,487 9,404,973 7,291,050 30,990,234 Gross Secured $ 2,309,597,856 $ 2,432,328,939 $ 2,600,671,435 $ 2,867,024,669 $ 3,230,242,824 Less: Exemptions 157,004, ,229, ,717, ,381, ,131,270 Exemption Adjustments (2) - - 6,597, Total Secured $ 2,152,593,787 $ 2,273,099,571 $ 2,478,355,902 $ 2,723,643,423 $ 3,004,111,554 Unsecured Land Improvements 42,323,433 41,202,799 40,884,053 64,767,667 34,624,925 Personal Property 67,929,341 68,766,493 64,918,103 91,134,945 63,988,796 Gross Unsecured $ 110,252,774 $ 109,969,292 $ 105,802,156 $ 155,902,612 $ 98,613,721 Less: Exemptions 157, ,000 2,194,000 54,153,000 1,263,244 Total Unsecured $ 110,095,774 $ 109,862,292 $ 103,608,156 $ 101,749,612 $ 97,350,477 TOTAL PROJECT VALUE $ 2,262,689,561 $ 2,382,961,863 $ 2,581,964,058 $ 2,825,393,035 $ 3,101,462,031 Percentage Increase/Decrease 5.32% 8.35% 9.43% 9.77% (1) Values are as reported by the Los Angeles County Auditor-Controller, unless otherwise stated. (2) Exemption adjustments are based on specific situations where exemptions were filed late and not included in the initial roll values.

105 Community Redevelopment Agency of the City of Los Angeles Pacoima/Panorama City Earthquake Disaster Assistance Project Figure II-2B HISTORICAL TAXABLE VALUE (1) 2001/ / / / /06 Secured Land $ 1,024,597,183 $ 1,094,802,613 $ 1,191,109,782 $ 1,344,225,720 $ 1,534,933,747 Improvements 1,434,807,598 1,533,503,111 1,616,296,019 1,727,788,646 1,842,774,720 Personal Property 36,061,691 33,096,805 26,620,606 27,821,172 12,627,234 Gross Secured $ 2,495,466,472 $ 2,661,402,529 $ 2,834,026,407 $ 3,099,835,538 $ 3,390,335,701 Less: Exemptions 89,131, ,747, ,393, ,845, ,464,184 Exemption Adjustments (2) 31,401, , Total Secured $ 2,374,932,757 $ 2,535,750,277 $ 2,707,632,466 $ 2,950,990,360 $ 3,203,871,517 Unsecured Land Improvements 95,246, ,081, ,456, ,437, ,927,922 Personal Property 220,527, ,199, ,140, ,820, ,954,793 Gross Unsecured $ 317,444,971 $ 331,307,631 $ 317,597,487 $ 342,258,842 $ 352,909,535 Less: Exemptions 9,332,881 7,396,000 1,704,100 10,964,160 13,956,620 Total Unsecured $ 308,112,090 $ 323,911,631 $ 315,893,387 $ 331,294,682 $ 338,952,915 TOTAL PROJECT VALUE $ 2,683,044,847 $ 2,859,661,908 $ 3,023,525,853 $ 3,282,285,042 $ 3,542,824,432 Percentage Increase/Decrease 6.58% 5.73% 8.56% 7.94% (1) Values are as reported by the Los Angeles County Auditor-Controller, unless otherwise stated.

106 Figure II-2C Community Redevelopment Agency of the City of Los Angeles East Hollywood/Beverly Normandie Earthquake Disaster Assistance Project HISTORICAL TAXABLE VALUE (1) 2001/ / / / /06 Secured Land $ 444,414,813 $ 480,000,712 $ 519,354,981 $ 569,486,215 $ 637,967,195 Improvements 764,524, ,759, ,627, ,643,484 1,021,065,061 Personal Property 102,638, ,976,825 90,425, ,670,147 83,637,967 Gross Secured $ 1,311,578,059 $ 1,391,737,209 $ 1,400,407,901 $ 1,582,799,846 $ 1,742,670,223 Less: Exemptions 514,215, ,846, ,241, ,717, ,617,527 Total Secured $ 797,362,538 $ 862,890,271 $ 957,166,147 $ 1,049,082,580 $ 1,157,052,696 Unsecured Land Improvements 8,673,506 9,713,231 9,226,410 16,755,429 18,205,324 Personal Property 20,445,939 25,088,689 35,502,068 34,901,112 38,559,516 Gross Unsecured $ 29,119,445 $ 34,801,920 $ 44,728,478 $ 51,656,541 $ 56,764,840 Less: Exemptions 101, , ,000 26,848,825 31,396,394 Total Unsecured $ 29,018,445 $ 34,648,920 $ 44,528,478 $ 24,807,716 $ 25,368,446 TOTAL PROJECT VALUE $ 826,380,983 $ 897,539,191 $ 1,001,694,625 $ 1,073,890,296 $ 1,182,421,142 Percentage Increase/Decrease 8.61% 11.60% 7.21% 10.11% (1) Values are as reported by the Los Angeles County Auditor-Controller.

107 Community Redevelopment Agency of the City of Los Angeles Pooled Tax Allocation Loans Part II Taxable Value Assessment Appeals Pending and recently resolved assessment appeals were reviewed in order to determine the potential impact on current and future value and on tax increment revenue for the Projects should appeals be resolved in favor of the respective assessees. The analysis disclosed that each of the Projects has recently resolved and pending assessment appeals that may affect the receipt of revenue. A summary of the findings of the analysis, including estimated impacts to Project assessed values and revenues, are shown on the following table. Details as to the names of assessees and the category of property (secured/unsecured) can be found on Figures I-1A through I- 1C in Part I. Resolved Assessment Appeals # Estimated Valuation Impact Estimated Total Refunds Reseda/Canoga Park Project 7 $641,000 $27,000 Pacoima/Panorama City Project 5 $3,892,000 $24,000 East Hollywood/Beverly-Normandie Project 8 $1,781,000 $22,000 Pending Assessment Appeals # Estimated Valuation Impact Estimated Total Refunds Reseda/Canoga Park Project 16 $8,369,000 $78,000 Pacoima/Panorama City Project 21 $5,527,000 $165,000 East Hollywood/Beverly-Normandie Project 10 $6,942,000 $72,000 The estimated valuation impacts shown above represent reductions in value for the Project that would occur given the resolution of all pending appeals in favor of the taxpayer. These amounts of impact would vary if the appeals were resolved in later fiscal years based on the application of inflationary factors (up to 2 percent per year) to the reduced taxable values. The total estimated refunds associated with pending appeals represent an estimate of the total refund for the prior fiscal years due to the taxpayers if the resolution of the appeals were to result in the valuation reduction estimates shown above. The amount of the refund due will increase annually, so long as the appeal is outstanding, by approximately one percent of the estimated valuation reduction Major Assessees Figures II-3A through II-3C, the Ten Major Assessees for Fiscal Year , list ten major assessees in each Project based on their value on the tax roll. The cumulative taxable value of the ten major assessees in each Project and their approximate percentage of the total taxable value and incremental value of each Project are summarized on the following table. II-2

108 Figure II-3A Community Redevelopment Agency of the City of Los Angeles Reseda/Canoga Park Earthquake Disaster Assistance Project TEN MAJOR ASSESSEES FOR FISCAL YEAR 2005/06 (1) % of Major No. of 2005/06 Project Rank Assessees Assessments Use Value Value 1 Westfield Topanga Owner LP 1 Shopping Center $169,206, % 2 Renaissance Apartments LLC 4 Apartments 69,147, % 3 Essex Portfolio LP 1 Apartments 40,010, % 4 Forest Glen Development 5 Apartments 34,009, % 5 Sam Menlo TR 4 Apartments 28,565, % 6 Topanga and Victory Partners 1 Offices 22,936, % 7 Combined Properties Reseda 14 Shopping Center 23,798, % 8 Woodland Hills 2 Apartments 21,652, % 9 Warner Center Summit LTD 1 Apartments 19,460, % 10 Catellus Development Corporation 2 Shopping Center 17,679, % TOTAL VALUE MAJOR ASSESSEES $446,467,064 TOTAL 2005/06 PROJECT VALUE $3,101,462,031 TOTAL % OF 2005/06 PROJECT VALUE 14.40% TOTAL % OF 2005/06 INCREMENTAL VALUE 38.37% (1) Based on information provided by the County of Los Angeles and a field survey done by KatzHollis. Includes all secured and unsecured value located within the Project Area attributable to each assessee.

109 Figure II-3B Community Redevelopment Agency of the City of Los Angeles Pacoima/Panorama City Earthquake Disaster Assistance Project TEN MAJOR ASSESSEES FOR FISCAL YEAR 2005/06 (1) % of Major No. of 2005/06 Project Rank Assessees Assessments Use Value Value 1 NF Plant Enterprises LP 13 Shopping Center $45,785, % 2 Panorama City Associates 2 Shopping Center 28,863, % 3 Spectrolab INC. 3 Manufacturing 27,153, % 4 Henry and Anita Weiss TRS 21 Apartments 24,166, % 5 S and V Van Nuys Associates LLC 2 Shopping Ctr/Vac Indust 24,106, % 6 G and S Partnership 1 Industial 22,252, % 7 Pacifica of the Valley Corporation 4 Hospital/Vacant lots 20,891, % 8 Tobias Partners LP 1 Apartments 19,213, % 9 Centro Watt Property 1 Shopping Center 19,104, % 10 Valacal Company 9 Light Manufacturing/Vacant Residential 17,992, % TOTAL VALUE MAJOR ASSESSEES $249,531,523 TOTAL 2005/06 PROJECT VALUE $3,542,824,432 TOTAL % OF 2005/06 PROJECT VALUE 7.04% TOTAL % OF 2005/06 INCREMENTAL VALUE 21.28% (1) Based on information provided by the County of Los Angeles and a field survey done by KatzHollis. Includes all secured and unsecured value located within the Project Area attributable to each assessee.

110 Figure II-3C Community Redevelopment Agency of the City of Los Angeles East Hollywood/Beverly Normandie Earthquake Disaster Assistance Project TEN MAJOR ASSESSEES FOR FISCAL YEAR 2005/06 (1) % of Major No. of 2005/06 Project Rank Assessees Assessments Use Value Value 1 FPH LLC 9 Apartments $10,019, % North Normandie Ave. LLC 1 Apartments 10,013, % 3 Greendale Properties LLC 3 Apartments 9,974, % New Hampshire Association 1 Apartments 9,235, % 5 Donald T Sterling TR 2 Apartments 9,215, % 6 Henry and Anita Weiss TRS 11 Apartments 8,461, % 7 Safeway Inc. 1 Supermarket 7,076, % 8 Braveheart Re LLC 1 Apartments 6,032, % Sunset LLC 1 Professional Blg. 5,979, % 10 David Weiswasser DW Glendale 2 Apartments 5,423, % TOTAL VALUE MAJOR ASSESSEES $81,431,887 TOTAL 2005/06 PROJECT VALUE $1,182,421,142 TOTAL % OF 2005/06 PROJECT VALUE 6.89% TOTAL % OF 2005/06 INCREMENTAL VALUE 19.79% (1) Based on information provided by the County of Los Angeles and a field survey done by KatzHollis. Includes all secured and unsecured value located within the Project Area attributable to each assessee.

111 Community Redevelopment Agency of the City of Los Angeles Pooled Tax Allocation Loans Part II Taxable Value Major Assessees as a Percentage of Project Values Major Assessee Value Percentage of Total Project Value Percentage of Incremental Value Reseda/Canoga Park Project $446,467, % 38.37% Pacoima/Panorama City Project $249,531, % 21.28% East Hollywood/Beverly- Normandie Project $81,431, % 19.79% PROJECT TAX REVENUE Project tax revenues consist primarily of tax increment revenues generated from the application of appropriate tax rates to the incremental taxable value of the Projects. Other tax increment sources can include unitary property taxes and supplemental property taxes. Tax Rates For purposes of computing revenues of the Projects for this Report, the secured tax rate was assumed, which was applied to both secured and unsecured property. This secured tax rate is generally the same for all project areas in Los Angeles. Portions of the override tax rate are levied by the Los Angeles Community College District (LACCD) and by the Los Angeles Unified School District (LAUSD) to fund debt service payments on bonds issued for the purpose constructing and renovating school facilities. Authority for the levy was provided through voter approval of the issuance of bonds. Similarly, voters approved a levy by the City of Los Angeles (the City ) for purposes of public facilities. Pursuant to Constitutional and statutory provisions, the taxes generated by application of these levies to incremental value in a redevelopment project are to be paid to LACCD, LAUSD and the City and are not included in tax increment paid to the Agency. As shown below, we have deducted a portion of the override rate to determine the applicable tax rate. For additional information regarding tax rates, please refer to PROJECT AREA TAX REVENUE - Tax Increment and Tax Rates in Part IV. Unitary Property Taxes Secured Tax Rate Full Tax Rate $ City of Los Angeles ( ) LAUSD Facility Levy ( ) LACCD ( ) Net Tax Rate $ All of the Projects were adopted after the State Board of Equalization began to assess unitary property on a countywide basis. As a result, there was no unitary property specifically assigned to any of the Projects at the time of its adoption and no allocation of unitary revenue to the Project. There continues to be no unitary II-3

112 Community Redevelopment Agency of the City of Los Angeles Pooled Tax Allocation Loans Part II Taxable Value revenue paid to any of the Projects for the fiscal year. Because the formula for the allocation of unitary revenue uses the growth of secured value in a jurisdiction (project area) relative to growth in other jurisdictions, the Projects may, at some time in the future, participate in unitary revenues. No estimate of the Projects eventual participation in the allocation of unitary revenue has been included in the estimates of this Report. Please refer to PROJECT AREA TAX REVENUE - Unitary Property Taxes in Part IV. Supplemental Property Taxes The Agency typically receives supplemental revenues on an annual basis. Supplemental property taxes shown on the following table are a function of new construction activity and transfers of ownership occurring in the Projects after the tax lien date and can result in an increase in or an off-set to revenues of the Projects. The following are annual supplemental property tax receipts for the Projects over the period from through HISTORICAL PROJECT SUPPLEMENTAL RECEIPTS Reseda/Canoga Park Project Pacoima/Panorama City Project East Hollywood/Beverly- Normandie Project $ 891,787 $ 864,753 $ 249, , , , ,225,829 1,383, , ,076,690 2,126, ,525 Please also refer to PROJECT AREA TAX REVENUE - Supplemental Property Taxes in Part IV. ADJUSTMENTS TO TAX INCREMENT REVENUE It is our understanding that the Agency intends to pledge those tax increment revenues described above, and allowed by law to be pledged, toward payments that will secure debt service. The pledge of tax increment revenues toward the payment of debt service may be subject to adjustments to tax increment described below. Property Tax Administrative Costs The County currently reduces the amount of total tax increment revenue allocated to the Agency from the Projects to cover property tax administrative costs. The County administrative fees for fiscal year are shown in the table below for each Project. For fiscal year and thereafter the charges are estimated to be 2 percent of estimated Project revenue Administrative Charge Reseda/Canoga Park Project $175,030 Pacoima/Panorama City Project $177,019 East Hollywood/Beverly-Normandie Project $ 62,285 II-4

113 Community Redevelopment Agency of the City of Los Angeles Pooled Tax Allocation Loans Part II Taxable Value Low and Moderate Income Housing The Agency must set aside 20 percent of its allocated tax increment from each of the Projects for low and moderate income housing purposes, except under certain specified conditions (See discussion of Housing Set- Aside in Part IV). It is our understanding that at least 20 percent of the proceeds of the proposed Bonds for each Project will be used for low and moderate income housing purposes specified in the Redevelopment Law. Revenues available to pay debt service on the loans do not need, therefore, to be offset by the required housing set-aside. Accordingly, estimates of tax revenue provided in this Report do not deduct the housing set-aside. AB 1290 Tax Sharing Payments AB 1290 eliminated the provision of Section allowing redevelopment agencies to enter into new agreements to make payments from tax increment to affected taxing entities as a mitigation of fiscal impact caused by the adoption or amendment of redevelopment projects. The payments that might otherwise be made by projects under the such pass-through agreements have been replaced with a statutory tax increment sharing formula. The statutory payments are triggered when a project is adopted or amended to add territory after January 1, 1994 or when a redevelopment plan is amended to extend or eliminate financial deadlines or to increase the amont of tax increment that may be received by an Agency. A further discussion of the statutory payments and the formula for their computation is included in Part IV. All of the Projects were adopted after January 1, As a result, each Project must make statutory payments to all affected taxing entities. Estimates of the amount due taxing entities from the Projects per the statutory formula is included on Tables II-1A through II-1C and estimated for future years in the projections of Part III. AB 1290 also provides for the subordination of the payments due taxing entities to debt service on redevelopment agency debt. The subordination must be requested by an agency prior to incurring the debt. Taxing entities must refuse the subordination (and substantiate the cause for refusal) within forty-five days of the agency s request or the subordination is granted. The estimates of tax revenue provided in this Report provide indications of amounts available both before and after deduction of payments estimated to be due the taxing entities pursuant to AB Payments required to be made to the City of Los Angeles under AB 1290 for each of the Projects have already been subordinated to debt service payments on the Agency loans. It is our understanding that the Agency intends to request subordination of AB 1290 payments from the other affected taxing entities and anticipates the subordination of those payments to debt service on the 2006 Loan Agreements will also become effective. LOS ANGELES COUNTY ALLOCATION ADJUSTMENTS The major component of the Los Angeles County allocation procedures that affect the Agency's receipt of tax increment revenues from the Project is the County's current policy of allocating tax increment revenues with offsets for delinquencies, taxable value adjustments and/or refunds of taxes because of successful assessment appeals. II-5

114 Community Redevelopment Agency of the City of Los Angeles Pooled Tax Allocation Loans Part II Taxable Value Project Tax Increment Receipts Tax receipts for the Project were reviewed in order to analyze collection trends. This review revealed the collection trends shown below for fiscal years through when compared to original levies. The effects on collection percentages of redemption payments received each year are also identified to indicate whether delinquencies in tax payments are being cured on a consistent basis. PERCENTAGE COLLECTIONS Fiscal Year Current Year Collections Reseda/Canoga Park Pacoima/Panorama City Project Project East Hollywood/Beverly- Normandie Project % 93.9% 92.3% % 95.0% 97.0% % 96.2% 94.6% % 95.7% 97.9% Fiscal Year Including Prior Year Collections Reseda/Canoga Park Pacoima/Panorama City Project Project East Hollywood/Beverly- Normandie Project % 95.4% 92.3% % 97.7% 99.1% % 99.6% 96.8% % 99.4% 100.4% For fiscal years and the Agency did not receive the full collections from the Pacoima/Panorama City Project. Reciepts for these fiscal years were equal to 62.6% and 72.6% of the actual levy, respectively. The reason for the variance from the collections shown above was the Project s lack of sufficient outstanding indebtedness to claim all of the revenues available. II-6

115 PART III PROJECTIONS OF TAX INCREMENT REVENUES INTRODUCTION The estimates of future taxable values and revenues for the Projects presented as Figures III-1A through III-1C are provided as an indication of the effect of pending instances of assessment changes and as a model of the future effects of some of the factors discussed in this Report. The estimates of annual value and revenue are constructed through a method that attempts to include only existing or imminent instances of changes in values or revenues incorporating certain assumptions about their timing or impact. As such, the projections are an indication of the effects of less than the full universe of elements that can affect the generation of future revenues in the Projects. PROJECTIONS OF PROJECT TAXABLE VALUES Real property values included on Figures III-1A through III-1C are comprised of locally assessed secured and unsecured land and improvement values. The projections included in this Part III are based on the assumption that real property value will increase at an annual rate of two percent. This two percent is the inflation factor to be used by all county assessors per the direction of the State Board of Equalization. Two percent is the maximum percent inflation factor allowable by the State Board of Equalization for estimating future years real property value. Taxable value growth that may occur as the result of changes in ownership or new construction are not included in the projections. Other property values included on Figures III-1A through III-1C represent the taxable value of secured and unsecured personal property. No inflationary trend has been applied to Other Property value. Project Tax Revenue Tax increment revenues shown on Figures III-1A through III-1C have been calculated by applying applicable tax rates to the incremental taxable value of the respective Project. Applicable tax rates exclude the rate levied by the Los Angeles Unified School District, the Los Angeles Community College District and the City of Los Angeles, as discussed in Part II. Total tax revenue does not include supplemental property taxes. Possible offsets to revenue resulting from delinquencies or other factors impacting collections of property tax revenues have not been assumed.. CRALA/2006poolA 04/17/06/LJA

116 Community Redevelopment Agency of the City of Los Angeles Reseda/Canoga Park Earthquake Disaster Assistance Project Figure III-1A TAX REVENUE PROJECTION (000's Omitted) Fiscal Year FY FY FY FY FY FY FY FY FY FY Adjusted Real Property 2.00% $3,007,746 $3,058,711 $3,119,885 $3,182,283 $3,245,929 $3,310,847 $3,377,064 $3,444,605 $3,513,497 $3,583,767 New Development -Real (2) Assumed Resolved Appeals Impact (3) (641) Assumed Pending Appeals Impact (3) (8,369) Total Real Property $2,998,736 $3,058,711 $3,119,885 $3,182,283 $3,245,929 $3,310,847 $3,377,064 $3,444,605 $3,513,497 $3,583,767 Adjusted Other Property (4) 93,716 93,716 93,716 93,716 93,716 93,716 93,716 93,716 93,716 93,716 New Development -Other Total Other Property $93,716 $93,716 $93,716 $93,716 $93,716 $93,716 $93,716 $93,716 $93,716 $93,716 Total Value $3,092,452 $3,152,427 $3,213,601 $3,275,999 $3,339,644 $3,404,563 $3,470,780 $3,538,321 $3,607,213 $3,677,483 Incremental Value Over Base of: $1,937,984 $1,154,468 $1,214,443 $1,275,617 $1,338,015 $1,401,660 $1,466,579 $1,532,796 $1,600,337 $1,669,229 $1,739,499 Gross Tax Increment $11,554 $12,144 $12,756 $13,380 $14,017 $14,666 $15,328 $16,003 $16,692 $17,395 Unitary Revenue (5) Properyty Tax Administrative Fee (6) (175) (243) (255) (268) (280) (293) (307) (320) (334) (348) Total Adjusted Tax Increment Revenue $11,379 $11,902 $12,501 $13,113 $13,736 $14,372 $15,021 $15,683 $16,358 $17,047 AB 1290 Payments (2,290) (2,429) (2,551) (2,781) (3,015) (3,254) (3,498) (3,746) (4,000) (4,258) Net Tax Increment Revenue (7)(8) $9,090 $9,473 $9,950 $10,332 $10,721 $11,118 $11,524 $11,937 $12,359 $12,789 (1) Real property in the Project is assumed to increase by 2 percent annually. (2) For the purposes of this projection New Development is not included. (3) Represents the estimated impact from filed appeals as of January (4) Other property in the Project is assumed to remain constant. (5) Unitary revenue is the actual amount as reported by the County as of January Unitary revenue in future years is assumed to remain constant. (6) The property tax administrative charge is based on actual charge for fiscal year Property tax administrative in future years is estimated at 2 percent of the estimated revenue. (7) A portion of the AB1290 Payments are currently subordinated to payments of debt service on the Agency loans for this Project. Subordination of all AB1290 payments to the payment of debt service on the Agency loans for this Project is pending. (8) It is estimated that the Agency will be impacted by $27,000, and $78,000 in fiscal year for prior year Resolved and Pending Assessment Appeals Refunds, respectively. The Agency will reimburse this amount from funds on hand.

117 Community Redevelopment Agency of the City of Los Angeles Pacoima/Panorama City Earthquake Disaster Assistance Project Figure III-1B TAX REVENUE PROJECTION (000's Omitted) Fiscal Year FY FY FY FY FY FY FY FY FY FY Adjusted Real Property 2.00% $3,307,199 $3,363,736 $3,431,010 $3,499,631 $3,569,623 $3,641,016 $3,713,836 $3,788,113 $3,863,875 $3,941,152 New Development -Real (2) Assumed Resolved Appeals Impact (3) (3,892) Assumed Pending Appeals Impact (3) (5,527) Total Real Property $3,297,780 $3,363,736 $3,431,010 $3,499,631 $3,569,623 $3,641,016 $3,713,836 $3,788,113 $3,863,875 $3,941,152 Adjusted Other Property (4) 235, , , , , , , , , ,625 New Development -Other Total Other Property $235,625 $235,625 $235,625 $235,625 $235,625 $235,625 $235,625 $235,625 $235,625 $235,625 Total Value $3,533,405 $3,599,361 $3,666,636 $3,735,256 $3,805,249 $3,876,641 $3,949,461 $4,023,738 $4,099,500 $4,176,778 Incremental Value Over Base of $2,370,168 $1,163,238 $1,229,193 $1,296,468 $1,365,088 $1,435,081 $1,506,473 $1,579,294 $1,653,570 $1,729,332 $1,806,610 Gross Tax Increment $11,642 $12,292 $12,965 $13,651 $14,351 $15,065 $15,793 $16,536 $17,293 $18,066 Unitary Revenue (5) Properyty Tax Administrative Fee (6) (177) (246) (259) (273) (287) (301) (316) (331) (346) (361) Total Adjusted Tax Increment Revenue $11,465 $12,046 $12,705 $13,378 $14,064 $14,763 $15,477 $16,205 $16,947 $17,705 AB 1290 Payments (2,291) (2,458) (2,593) (2,730) (2,988) (3,250) (3,518) (3,792) (4,071) (4,355) Net Tax Increment Revenue (7)(8) $9,175 $9,588 $10,112 $10,648 $11,076 $11,513 $11,959 $12,413 $12,877 $13,350 (1) Real property in the Project is assumed to increase by 2 percent annually. (2) For the purposes of this projection New Development is not included. (3) Represents the estimated impact from filed appeals as of January (4) Other property in the Project is assumed to remain constant. (5) Unitary revenue is the actual amount as reported by the County as of January Unitary revenue in future years is assumed to remain constant. (6) The property tax administrative charge is based on actual charge for fiscal year Property tax administrative in future years is estimated at 2 percent of the estimated revenue. (7) A portion of the AB1290 Payments are currently subordinated to payments of debt service on the Agency loans for this Project. Subordination of all AB1290 payments to the payment of debt service on the Agency loans for this Project is pending. (8) It is estimated that the Agency will be impacted by $24,000, and $165,000 in fiscal year for prior year Resolved and Pending Assessment Appeals Refunds, respectively. The Agency will reimburse this amount from funds on hand.

118 Figure III-1C Community Redevelopment Agency of the City of Los Angeles East Hollywood/Beverly Normandie Earthquake Disaster Assistance Project TAX REVENUE PROJECTION (000's Omitted) Fiscal Year FY FY FY FY FY FY FY FY FY FY Adjusted Real Property 2.00% $1,091,620 $1,104,555 $1,126,646 $1,149,179 $1,172,163 $1,195,606 $1,219,518 $1,243,908 $1,268,786 $1,294,162 New Development -Real (2) Assumed Resolved Appeals Impact (3) (1,781) Assumed Pending Appeals Impact (3) (6,942) Total Real Property $1,082,897 $1,104,555 $1,126,646 $1,149,179 $1,172,163 $1,195,606 $1,219,518 $1,243,908 $1,268,786 $1,294,162 Adjusted Other Property (4) 90,801 90,801 90,801 90,801 90,801 90,801 90,801 90,801 90,801 90,801 New Development -Other Total Other Property $90,801 $90,801 $90,801 $90,801 $90,801 $90,801 $90,801 $90,801 $90,801 $90,801 Total Value $1,173,698 $1,195,356 $1,217,447 $1,239,980 $1,262,964 $1,286,407 $1,310,319 $1,334,709 $1,359,588 $1,384,963 Incremental Value Over Base of $770,983 $402,715 $424,373 $446,464 $468,997 $491,981 $515,424 $539,336 $563,727 $588,605 $613,980 Gross Tax Increment $4,031 $4,244 $4,465 $4,690 $4,920 $5,154 $5,393 $5,637 $5,886 $6,140 Unitary Revenue (5) Properyty Tax Administrative Fee (6) (62) (85) (89) (94) (98) (103) (108) (113) (118) (123) Total Adjusted Tax Increment Revenue $3,968 $4,159 $4,375 $4,596 $4,821 $5,051 $5,285 $5,525 $5,768 $6,017 AB 1290 Payments (787) (849) (893) (938) (984) (1,070) (1,158) (1,248) (1,340) (1,433) Net Tax Increment Revenue (7)(8) $3,181 $3,310 $3,482 $3,658 $3,837 $3,981 $4,127 $4,277 $4,429 $4,584 (1) Real property in the Project is assumed to increase by 2 percent annually. (2) For the purposes of this projection New Development is not included. (3) Represents the estimated impact from filed appeals as of January (4) Other property in the Project is assumed to remain constant. (5) Unitary revenue is the actual amount as reported by the County as of January Unitary revenue in future years is assumed to remain constant. (6) The property tax administrative charge is based on actual charge for fiscal year Property tax administrative in future years is estimated at 2 percent of the estimated revenue. (7) A portion of the AB1290 Payments are currently subordinated to payments of debt service on the Agency loans for this Project. Subordination of all AB1290 payments to the payment of debt service on the Agency loans for this Project is pending. (8) It is estimated that the Agency will be impacted by $22,000, and $72,000 in fiscal year for prior year Resolved and Pending Assessment Appeals Refunds, respectively. The Agency will reimburse this amount from funds on hand.

119 PART IV BACKGROUND INFORMATION INTRODUCTION This Part IV contains background information on the topics covered in Parts I through III of this Report. It has been prepared for those readers of the Report who may wish further information on the analysis and conclusions presented in prior sections. PROJECT AREA TAXABLE VALUE Pursuant to provisions of the California Constitution and the California Revenue and Taxation Code, county assessors are directed to determine the full cash value of locally-assessed real and personal property as of January 1 of each year. Locally assessed property is classified as either secured or unsecured. The secured classification includes property on which the property tax levied becomes a lien on the property sufficient, in the opinion of the assessor, to secure payment of the taxes. Property taxes levied on unsecured property do not become a lien against the unsecured property, but may become a lien on other property owned by the taxpayer. The SBE is charged with assessing the value of state-assessed properties as of January 1 of each year. (All state-assessed property is classified as secured property.) Taxable property is assessed at 100 percent of its full cash value as defined by the California Constitution. Locally Assessed Values Real property is comprised of locally assessed secured and unsecured land and improvements. Pursuant to Article XIIIA of the California Constitution (effective as of the fiscal year) and Section 51 of the Revenue and Taxation Code, the taxable value of real property is limited to the lesser of actual market value or the value (the base assessment value ) compounded by an inflation factor of up to 2 percent annually. A new base assessment value is determined in instances of new construction or changes of ownership, which may result in increased property values in the year of the occurrence, above the 2 percent annual inflation factor. Other property values are comprised of locally assessed secured and unsecured personal property. The taxable value of personal property is based on its full cash value and may be revalued annually without regard to the annual 2 percent inflation limitation imposed by Article XIIIA. State Board of Equalization ( SBE ) Values The SBE determines the annual taxable value of real and personal property of state-assessed utilities and railroads. The SBE determines the value of both unitary and non-unitary property of utilities. The taxable value of unitary properties is based on the unit valuation of all properties utilized statewide in the primary function of a utility. Non-unitary properties are also assessed by the SBE but are not part of the primary function of the utility. Following the passage of Proposition 13 adding Article XIIIA to the California Constitution, the SBE determined that the provisions of that Article requiring a roll back of real property values to their values and a constraint on inflationary growth of 2 percent per year did not apply to state-assessed property. This interpretation has been upheld by the California Supreme Court (ITT World Communications, Inc. vs. CRALA/2006poolA 04/17/06/LJA

120 Community Redevelopment Agency of the City of Los Angeles Pooled Tax Allocation Loans Part IV Background City and County of San Francisco, et al, 37 Cal. 3d January, 1985). Consequently, state-assessed property may be revalued annually, and such assessments are not subject to the annual 2 percent inflation limitation of Article XIIIA. Prior to the fiscal year, the SBE reported the value of each utility within each individual tax rate area to the auditor-controller of each county. Assembly Bill ( AB ) 454 (Chapter 921, Statutes of 1987) revised the method of reporting and allocating property taxes generated from state-assessed properties so that only the taxable value of non-unitary properties and unitary railroad properties are reported for each tax rate area. As a result, the taxable value of the Project does not include most state-assessed unitary property. The Agency does receive an allocation of property taxes generated from state-assessed unitary property taxes, a description of which is included below in the Project Area Tax Revenue section of this Part IV. Assessment Appeals An assessee of locally assessed or state-assessed property may contest the taxable value enrolled by the county assessor or by the SBE, respectively. The assessee of state-assessed property or locally assessed personal property, the valuation of which is subject to annual reappraisal, actually contests the determination of the full cash value of property when filing an assessment appeal. Because of the limitations to the determination of the full cash value of locally assessed real property by Article XIIIA, an assessee of locally assessed real property generally contests the original determination of the base assessment value of the parcel (i.e., the value assigned after a change of ownership or completion of new construction). In addition, the assessee of locally assessed real property may contest the current assessment value (the base assessment value plus the compounded annual inflation factor) when specified conditions have caused the full cash value (i.e., market value) to drop below the current assessment value. At the time of reassessment, after a change of ownership or completion of new construction, the assessee may appeal the base assessment value of the property. Under an appeal of a base assessment value, the assessee appeals the actual underlying market value of the sales transaction or the recently completed improvement. A base assessment appeal has significant future revenue impacts because a reduced base year assessment will then reduce the compounded value of the property prospectively. Except for the 2 percent inflation factor, the value of the property cannot be increased until a change of ownership occurs or additional improvements are added. Pursuant to Section 51(b) of the Revenue and Taxation Code, the assessor may place a value on the tax roll lower than the compounded base assessment value if the full cash value of real property has been reduced by damage, destruction, depreciation, obsolescence, removal of property, or other factors causing a decline in the value. Reductions in value pursuant to Section 51(b), commonly referred to as Proposition 8 appeals, can be achieved by a taxpayer either by formal appeal or administratively by assessor staff appraising the property. A reduced full cash value placed on the tax roll does not change the base assessment value. The future impact of a parcel subject to a Proposition 8 appeal is dependent upon a change in the conditions that caused the drop in value. In fiscal years subsequent to a successful Proposition 8 appeal, the assessor may determine that the value of the property has increased as a result of corrective actions or improved market conditions and enroll a value on the tax roll up to the parcel s compounded base assessment value. Appeals of the taxable value for Project assessments could potentially lower taxable values, as currently reported, thereby reducing tax increment revenues. For this reason, currently pending and recently resolved assessment appeals filed by taxpayers in the Project were reviewed. The results of this review are discussed in Part II of this Report. IV-2

121 Community Redevelopment Agency of the City of Los Angeles Pooled Tax Allocation Loans Part IV Background The taxable value of utility property may be contested by utility companies and railroads to the SBE. Typically, the impact of utility appeals is on the statewide unitary value of a utility as determined by the SBE. As a result, the successful appeal of a utility may not impact the taxable value of the Project but could impact the Project s allocation of unitary property taxes. It should also be noted that the potential appeals impact as shown in the analyses in Section II of this Report, is based on estimated valuation reductions for each of the contested parcels. Actual impacts to tax increment revenues are dependent upon the actual revised value, if any, of assessments resulting from values determined by the Los Angeles County Assessment Appeals Board or through litigation, and upon the timing of successful appeals. The actual valuation impact to the Project from a successful assessment appeal will occur on the assessment roll next prepared after the actual valuation reduction. PROJECT AREA TAX REVENUE Pursuant to Article XVI, Section 16 of the California Constitution and Section of the California Health and Safety Code, redevelopment agencies are eligible to receive that portion of levied property taxes that are in excess of levied property taxes generated from the application of tax rates to the base year value of redevelopment project areas. The primary source of the excess property taxes (the tax increment ) is dependent on the total taxable value of a project area. In addition, tax increment may also be generated from property tax sources, which are not included in the current taxable value of a project area, but may be directly or indirectly related to current or past taxable values. These sources include unitary property taxes and supplemental property taxes. Tax Increment and Tax Rates By subtracting the base year value of a project area from the total taxable value of secured and unsecured real and personal property, the county auditor-controller determines the incremental taxable value of a project area. The resultant tax increment revenue is determined by applying applicable tax rates to the incremental taxable value. The projected tax increment revenues shown on Figures III-1A through III-1C have been computed using tax rates comprised of a basic rate ($1.00 per $100 of taxable value) and of debt service tax rates levied for purposes of repaying voter-approved debt, as prescribed by Article XIIIA. Except for recently approved debt service levies, as discussed below, the revenues generated by the application of such rates to incremental assessed value in redevelopment projects accrue to redevelopment agencies instead of the levying entity. Debt service tax rates (rates in excess of $1.00 per $100 of taxable value) typically decline each year. A declining debt service tax rate is the result of several factors: an effective limit from July 1, 1978 until June 3, 1986 established by Article XIIIA (and since amended, as discussed below) on the amount of property taxes that can be levied (equal to the annual obligations or indebtedness approved by the voters); rising taxable values within the jurisdictions of taxing entities levying the approved debt service tax rate (which reduces the tax rate needed to be levied by the taxing entity to meet debt service requirements); and the eventual retirement, over time, of the voter-approved indebtedness. On June 3, 1986, California voters approved a constitutional amendment to Article XIIIA that allows, by a twothirds vote, the levy of an ad valorem property tax in excess of 1 percent to pay debt service on indebtedness IV-3

122 Community Redevelopment Agency of the City of Los Angeles Pooled Tax Allocation Loans Part IV Background for the acquisition and improvement of real property approved on or after July 1, Further, a constitutional amendment approved by voters on November 8, 1988 and implementing legislation, AB 89 (Chapter 250, Statutes of 1989), added subdivision (e) to Section The new subdivision excludes from the calculation of tax increment revenues property taxes generated by any new voter-approved bonded indebtedness approved on or after January 1, For the purposes of estimating future tax rates for the Project, the tax rate has been divided into three categories: 1) the basic tax rate; 2) amounts levied by the Los Angeles Community College District ( LACCD ), by the Los Angeles Unified School District ( LAUSD ) and by the City of Los Angeles to repay voter-approved indebtedness; and 3) the remaining debt service tax rates. The tax rates levied by LACCD, by LAUSD and by the City of Los Angeles are subject to the constitutional amendment discussed above that excludes any such rate from the determination of tax increment due redevelopment agencies. For this reason, the LACCD, LAUSD and City of Los Angeles rates supporting the debt of the districts are excluded from the computation of tax increment revenue in this Report. The remaining tax rates levied in the Project are assumed to decline over time as discussed earlier in this section. Unitary Property Taxes Prior to , the SBE reported the value of each utility within each individual tax rate area to the auditorcontroller of each county. AB 454 (Chapter 921, Statutes of 1987) revised the method of reporting and allocating property tax revenues generated from most state-assessed unitary properties beginning with the fiscal year. Under AB 454, the state reports to each county auditor-controller only the countywide unitary taxable value of each utility, without an indication of the distribution of the value among tax rate areas. AB 454 provides two formulas for auditor-controllers to utilize to determine the allocation of unitary property taxes derived from county-wide unitary value, as described below: 1) For revenue generated from the basic 1 percent tax rate, each jurisdiction, including redevelopment project areas, is to receive up to 102 percent of its prior year unitary property tax revenue. If countywide revenues generated from unitary properties are greater than 102 percent of prior year revenues, each jurisdiction receives a percentage share of the excess unitary revenues equal to the percentage of each jurisdiction s share of countywide secured property taxes. 2) For revenue generated from the application of the debt service tax rate to countywide unitary taxable value, each jurisdiction, including redevelopment project areas, is to receive a percentage share of revenue based on the jurisdiction s annual debt service requirements and the percentage of property taxes received by each jurisdiction from unitary property taxes. The provisions of AB 454 apply to all state-assessed property except railroads and non-unitary properties, whose valuation continues to be allocated to individual tax rate areas. The provisions of AB 454 do not constitute elimination or revision of the method of assessing utilities by the SBE. Generally, Chapter 921 allows valuation growth or decline of state-assessed unitary property to be shared by all jurisdictions within a county. IV-4

123 Community Redevelopment Agency of the City of Los Angeles Pooled Tax Allocation Loans Part IV Background The county-wide allocation of unitary value began in with the allocation of unitary revenue existing in the prior fiscal year among taxing jurisdictions (including redevelopment project areas). Jurisdictions created after that fiscal year (as were the Projects) receive no allocation of unitary revenue as of the creation of the district. The jurisdiction may receive allocations in subsequent fiscal years because the formula for allocation relies upon the relative growth of a jurisdiction s secured value. As of the fiscal year, the Projects have yet to receive an allocation of unitary revenue. Supplemental Property Taxes Senate Bill ( SB ) 813 (Chapter 498, Statutes of 1983) added sections 75 through to the Revenue and Taxation Code, which provide for the supplemental assessment and taxation of property as of the occurrence of a change of ownership or completion of new construction. Previously, statutes enabled the assessment of such changes only as of the property tax lien date next following the change, and thus delayed the realization of increased property taxes from the new assessment. As enacted, SB 813 provided increased revenue generated from the supplemental assessment of property to be allocated exclusively to school districts for the and fiscal years. That provision was amended by SB 794 (Chapter 447, Statutes of 1984) such that only supplemental property tax revenues collected for were to be allocated exclusively to school districts. As a result of SB 794, applicable legislation now provides that the supplemental revenues are to be allocated to redevelopment agencies and taxing entities in the same manner as regularly collected property taxes. AVAILABLE TAX INCREMENT It is our understanding that the Agency intends to pledge those tax increment revenues described above, and allowed by law to be pledged, toward payments that will secure debt service on the Bonds. The pledge of tax increment revenues toward the payment of debt service may be subject to adjustments to tax increment described below. Property Tax Administrative Charges In 1990, the Legislature enacted SB 2557 (Chapter 466, Statutes of 1990) which allows counties to charge for the cost of assessing, collecting and allocating property tax revenues to local government jurisdictions on a prorated basis. As enacted, SB 2557 appeared to exclude redevelopment agencies from either a reduction in tax increment revenues or a charge for a county s property tax administration costs. SB 1559 (Chapter 697, Statutes of 1992) clarified the provisions of SB 2557 as they relate to redevelopment agencies. In addition to including redevelopment agencies among entities subject to the property tax administration charge, SB 1559 also provides that amounts due as local agencies contribution for such charge are to be allocated to the county as part of the overall system for the redistribution of property taxes (as opposed to being paid pursuant to invoices). The property tax administrative charges are included as a deduction to tax increment revenues on estimates provided in this Report. Low- and Moderate-Income Housing Chapter 1337, Statutes of 1976, added Sections and to the Health and Safety Code, requiring redevelopment agencies to set aside 20 percent of all tax increment allocated to redevelopment project areas adopted after December 31, 1976, into a low- and moderate-income housing fund. As provided by Section IV-5

124 Community Redevelopment Agency of the City of Los Angeles Pooled Tax Allocation Loans Part IV Background , the low- and moderate-income housing requirement can be reduced or eliminated if a redevelopment agency finds that: 1) no need exists in the community to improve or increase the supply of low- and moderateincome housing; 2) that some stated percentage less than 20 percent of the tax increment revenues is sufficient to meet the community s housing need; or 3) that other substantial or equivalent efforts, including the obligation of funds of equivalent impact from state, local and federal sources for low- and moderate-income housing are being provided for in the community. As amended by AB 315 (Chapter 872, Statutes of 1991), Section restricts the ability to reduce or eliminate the low- and moderate-income housing requirement. A community can claim that no need exists, or can claim that less than 20 percent of tax increment revenue is sufficient, only if that claim is consistent with the housing element of the community's general plan. As of June 30, 1993, communities may no longer claim an "equivalent effort" exemption except for obligations incurred prior to May 1, 1991 that were entered into with the understanding that the "equivalent effort" exemption would remain intact. Each of the Projects was adopted after January 1, 1977, and is therefore subject to the requirements of Chapter The Agency annually deposits at least 20% of revenues received from the Projects into the housing fund. AB 1290 Payments Pursuant to law prior to 1994, taxing entities, by adopting a resolution prior to a redevelopment plan adoption, were able to receive revenues generated by the inflationary growth of assessed value in newly adopted redevelopment projects (former Section 33676). Also, the law allowed redevelopment agencies to make payments to affected taxing entities to mitigate the fiscal impact to such agencies as the result of a redevelopment plan adoption (former Section 33401). The resolutions that allowed the use of Section provisions are commonly referred to as 2% resolutions. The payments using Section were typically made pursuant to agreements between agencies and a taxing entities commonly referred to as pass-through agreements. AB 1290 repealed the provisions that enabled adoption of new 2% resolutions and creation of new passthrough agreements. AB 1290 replaces the payments which may have resulted from new 2% resolutions and from new pass-through agreements with a statutory tax increment sharing formula for all redevelopment project areas established on or after January 1, 1994 (as were the Projects) and requires statutory pass-throughs to all taxing entities. AB 1290 payments are paid based on increases in revenue at several periods over the term of a project area s receipt of tax increment. The payments are in amounts determined per the following formulas: (1) Commencing with the first fiscal year a project receives tax increment and continuing to the last fiscal year of such receipt, the Agency shall pay to the affected taxing entities an amount equal to 25 percent of the tax increments received by the Agency after the amount required to be deposited in the Low- and Moderate-Income Housing Fund has been deducted. (2) Commencing with the 11 th fiscal year and continuing through the last fiscal year in which the Agency receives tax increment, the Agency shall pay to the affected taxing entities, in addition to the amounts paid pursuant to item (1) above and after deducting the amount allocated to the Low- and Moderate- IV-6

125 Community Redevelopment Agency of the City of Los Angeles Pooled Tax Allocation Loans Part IV Background Income Housing Fund, an amount equal to 21 percent of the portion of tax increments received by the Agency. (3) Commencing with the 31 st fiscal and continuing through the last fiscal year in which the Agency receives tax increments, the Agency shall pay to the affected taxing entities, in addition to the amounts paid pursuant to items (1) and (2) above and after deducting the amount allocated to the Low- and Moderate-Income Housing Fund, an amount equal to 14 percent of the portion of tax increments received by the Agency. The agency s legislative body (city council or board of supervisors) may elect to receive its share of payments generated by the first tier of payments. It is unclear whether second and third tier payments are reduced by the legislative body s share or if that share is distributed among the other taxing entities. For purposes of estimating AB 1290 payments in this report, we have assumed that there will be no reduction of the second and third tier payments. Agencies may request the subordination of the AB 1290 payments to debt secured by a project s revenue. The request must be made prior to incurring the debt and is to be accompanied by substantial evidence that anticipated debt service and revenues will still allow the projected payments to the taxing entities to be made. An affected taxing entity may disapprove the agency s request within forty-five days of its receipt only if the entity finds, based upon substantial evidence, that the agency will not be able to pay both debt service and the payment due the taxing entity. Absent such disapproval the subordination is deemed approved. TAX ALLOCATION PROCEDURES OF LOS ANGELES COUNTY Tax Increment Revenue The County reports preliminary taxable values for redevelopment project areas by category in August of each fiscal year. Estimates of the amount of property tax revenues to be generated by the Project for a given tax year are prepared by the County in late September or early October. When computing tax increment revenues, the County subtracts the base year taxable value from the current year taxable value for each tax rate area comprising a redevelopment project to arrive at incremental taxable value by tax rate area. Secured and unsecured tax rates are applied to incremental taxable values by tax rate area, and the resulting revenues are then aggregated to arrive at the total tax increment revenues due a given redevelopment project area and annexed area(s), if applicable, of a redevelopment project. Tax Receipts Based upon the County's most recent tax allocation schedule, taxes are allocated to the Agency monthly beginning in November of a fiscal year. The initial installment is comprised of approximately 80 percent of unsecured taxes plus various adjustments that have occurred in prior year tax receipts. Amajor allocation occurs in late December following the December 10 deadline for payment of secured taxes. Another such significant allocation occurs in April after the second deadline for allocation of secured taxes. Allocations continue until the August following the end of a fiscal year. IV-7

126 Community Redevelopment Agency of the City of Los Angeles Pooled Tax Allocation Loans Part IV Background The County adjusts its allocation of taxes to reflect delinquencies within a redevelopment project area. As a result, tax receipts have varied from anticipated levies for redevelopment projects in Los Angeles County. These variations can also be attributable to successful assessment appeals or to roll changes, which can either increase or decrease a project area's taxable value. These changes also have a corresponding impact on tax revenues received by an agency. The findings of a review of the Project s tax collections are presented in Part II. LEGISLATION/COURT DECISIONS Educational Revenue Augmentation Fund The State of California mandated that redevelopment agencies provide $135 million dollars during the fiscal year in order to offset the State s cost of education and thereby ease the budget difficulties being experienced by State government. The contribution from each agency is to be deposited into the Educational Revenue Augmentation Fund (ERAF) established in each county. The amount to be contributed by each agency is based on tax increment revenues reported to the State Controller for the fiscal year. The determined amount was to be paid to the county auditor prior to May 10, Failure to do so would have resulted in the auditor deducting any unpaid amount from the property tax apportioned to an agency s legislative body (the associated city or county). The Agency s contribution to the ERAF for was $3,950,253. The Governor s Budget for the fiscal year, as revised on May 14, 2004 (the May Revise ), includes a proposal that redevelopment agencies continue to contribute to the cost of education in the State. The Budget Summary indicates that the shift of local government dollars to education will be the same as in $1.3 billion. The May Revise contains a modified proposal for redevelopment agencies contribution to the ERAF that would require the shift of $250 million statewide for each of the and fiscal years. The allocation of the ERAF shift among redevelopment agencies would be accomplished using the same methodology as employed in That methodology provides that the payments made by agencies be computed differently for each of two halves comprising the statewide amount of ERAF to be taken from agencies. The computation for one half of the ERAF uses the gross tax increment received by an agency in the most recent fiscal year compiled by the California State Controller and compares that amount to like amounts (i.e., gross tax increment) received by all agencies in the State. The second half is computed in like manner but using net tax increment revenue, which is determined by deducting payments made to taxing entities to ameliorate the fiscal impact of tax increment flowing to agencies. SB 1096 (Chapter 211, Statutes of 2004) contains the provisions that implement the Governor s budget proposal. It s provisions vary significantly from those of earlier years ERAF mandates only in the fine tuning of redevelopment agencies ability to extend the period for receipt of tax increment in a given project. That ability is now tied to the number of years remaining for a project s receipt of tax increment. AB 2115 (Chapter 610, Statutes of 2004) added a program allowing agencies to borrow funds needed for ERAF payments from a qualified issuer (the California Statewide Communities Development Authority) and repay the loans with future revenues. The Agency s contribution to the ERAF for was $8,347,628, which, according to Agency staff, was paid from funds on hand and not deducted from the revenue to be received from the Agency s projects for the IV-8

127 Community Redevelopment Agency of the City of Los Angeles Pooled Tax Allocation Loans Part IV Background fiscal year. A similar contribution to ERAF in the amount of $8,861,317 will be necessary for the fiscal year. IV-9

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129 APPENDIX B SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURES AND THE LOAN AGREEMENTS The following is a summary of certain provisions of the Indentures and the 2006 Agency Loan Agreements and is not a full description or statement thereof. In addition to the provisions summarized below, several provisions of the Indentures and the Loan Agreements are described earlier in this Official Statement. Prospective purchasers of the Bonds are referred to the complete copies of the Indentures and Loan Agreements for a full description of such documents, copies of which are available upon request from the Trustee. Definitions. THE INDENTURES The following terms have the following definitions when used in this discussion of the Indentures. Certain definitions have been added or modified for use in this Official Statement. Act means Articles 1 through 4 (commencing with Section 6500) of Chapter 5, Division 7, Title 1 of the Government Code of the State, as in existence on the Closing Date or as thereafter amended from time to time. Agency means The Community Redevelopment Agency of the City of Los Angeles, California, a public body corporate and politic duly created, established and authorized to transact business and exercise its powers, all under and pursuant to the Community Redevelopment Law (Part I of Division 24 of the Health and Safety Code of the State of California) organized under the laws of the State, and any successor thereto. Agreement means that certain Joint Exercise of Powers Agreement, dated as of June 11, 1992, by and between the Agency and the IDA, together with any amendments thereof and supplements thereto. Authority means the Community Redevelopment Financing Authority of The Community Redevelopment Agency of the City of Los Angeles, California, a joint powers authority duly organized and existing under the Agreement and the laws of the State, including the Act. Board means the Board of Directors of the Authority. Bond or Bonds or Series of Bonds means, as applicable, the Series L Bonds or the Series N Bonds, authorized by and at any time Outstanding pursuant to the Bond Law and the Indentures. Bond Insurer means MBIA Insurance Corporation, provider of the Financial Guaranty Insurance Policy for the Bonds, and any successor entity thereto. Bond Law means Article 4 of Chapter 5 of Division 7 of Title 1 of the Government Code of the State.

130 Bond Year means each 12-month period extending from September 2 in one calendar year to September 1 of the succeeding calendar year, both dates inclusive; provided that the first Bond Year with respect to the Bonds shall commence on the Closing Date and end on September 1, Business Day means any day, other than a Saturday or Sunday or a day on which commercial banks in New York, New York, Los Angeles, California or any other city or cities where the Trust Office of the Trustee is located are required or authorized by law to close or a day on which the Federal Reserve System is closed. Certificate of the Authority means a certificate in writing signed by the Chairman, Vice Chair, Secretary or Treasurer of the Authority or by any other officer of the Authority or the Agency duly authorized by the Authority for that purpose. City means the City of Los Angeles, duly organized and existing under the laws of the State of California. Closing Date means June 28, 2006, which is the date of original issuance of the Bonds. Code means the Internal Revenue Code of 1986, as amended. Any reference to a provision of the Code shall include the applicable Regulations with respect to such provision. Constituent Loan Agreements means, collectively, (1) the following Loan Agreements relating to the Series L Bonds: (a) the Loan Agreement, Series B, dated as of June 1, 2006, by and among the Authority, the Trustee and the Agency relating to the loan of $8,000,000 to the Agency with respect to the East Hollywood/Beverly-Normandie Project; (b) the Loan Agreement, Series B, dated as of June 1, 2006, by and among the Authority, the Trustee and the Agency relating to the taxable loan of $8,000,000 and the tax-exempt loan of $8,000,000 to the Agency with respect to the Pacoima/Panorama City Project[provisions relating to the taxable loan]; and (c) the Loan Agreement, Series B, dated as of June 1, 2006, by and among the Authority, the Trustee and the Agency relating to the loan of $16,000,000 to the Agency with respect to the Reseda/Canoga Park Project and (2) the following Loan Agreement relating to the Series N Bonds: the Loan Agreement, Series B, dated as of June 1, 2006, by and among the Authority, the Trustee and the Agency relating to the taxable loan of $8,000,000 and the taxexempt loan of $8,000,000 to the Agency with respect to the Pacoima/Panorama City Project [provisions relating to the tax-exempt loan]; Constituent Project Areas means, collectively the East Hollywood/Beverly-Normandie Project, the Pacoima/Panorama City Project and the Reseda/Canoga Park Project. Debt Service means, during any period of computation, the amount obtained for such period by totaling the following amounts: (a) the principal amount of all outstanding Bonds of a Series coming due and payable by their terms in such period; B-2

131 (b) the minimum principal amount of all Outstanding Term Bonds of a Series scheduled to be redeemed by operation of mandatory sinking fund deposits in such period, together with any premium thereon; and (c) the interest which would be due during such period on the aggregate principal amount of Bonds which would be Outstanding in such period if the Series L Bonds are retired as scheduled, but deducting and excluding from such aggregate amount the amount of Bonds no longer Outstanding. Depository means (a) initially, DTC; and (b) any other Securities Depository acting as Depository pursuant to Section 2.19 of the Indenture. Depository System Participant means any participant in the Depository s book-entry system. Designated Officer means the Chief Executive Officer of the Agency (the Chief Executive Officer ), the Chief Operating Officer of the Agency, the Chief Financial Officer of the Agency, the Finance Director, the Secretary or any Assistant Secretary, any designee of the Chief Executive Officer, or by any other officer of the Agency duly authorized by the Agency for that purpose. DTC means The Depository Trust Company, New York, New York, and its successors and assigns. Event of Default means any of the events described in the Indentures and the Constituent Loan Agreements. Federal Securities means direct obligations of the United States of America and securities fully and unconditionally guaranteed as to the timely payment of principal and interest by the United States of America; provided, that the full faith and credit of the United States of America must be pledged to any such direct obligation or guarantee, including interest strips of the Resolution Funding Corporation for which separation of principal and interest is made by a Federal Reserve Bank in book-entry form. Financial Guaranty Insurance Policy means the applicable bond insurance policy for the Bonds delivered by the Bond Insurer. Fiscal Year means any 12-month period extending from July 1 in one calendar year to June 30 of the succeeding calendar year, both dates inclusive, or any other 12-month period selected and designated by the Authority as its official fiscal year period. IDA means, as the Industrial Development Authority of the Community Redevelopment Agency of the City of Los Angeles, California. Indenture means, as applicable, the Indenture of Trust for the Series L Bonds dated as of June 1, 2006 by and between the Authority and the Trustee or the Indenture of Trust for the Series N Bonds dated as of June 1, 2006 by and between the Authority and the Trustee, as originally executed or as they may from time to time be supplemented, modified or amended by B-3

132 any Supplemental Indenture pursuant to the provisions thereof. Indentures mean both of said documents. Independent Certified Public Accountant means any certified public accountant or firm of certified public accountants appointed and paid by the Authority, and who, or each of whom: (a) is in fact independent and not under domination of the Authority, the City or the Agency; (b) does not have any substantial interest, direct or indirect, in the Authority, the City or the Agency; and (c) is not connected with the Authority, the City or the Agency as an officer or employee of the Authority, the City or the Agency but who may be regularly retained to make annual or other audits of the books of or reports to the Authority, the City or the Agency. Information Services means Financial Information, Inc. s Daily Called Bond Service, 30 Montgomery Street, 10th Floor, Jersey City, New Jersey 07302, Attention: Editor; Kenny Information Service s Called Bond Service, 65 Broadway, 16th Floor, New York, New York 10006; Moody s Investors Service, Center Drive, Suite 150, Charlotte, North Carolina 28217, Attention: Called Bond Department; and First Data Services, Inc., 8 Station Square, Rutherford, New Jersey 07070; or, in accordance with then-current guidelines of the Securities and Exchange Commission, to such other addresses and/or such other services providing information with respect to called bonds, or no such services, as the Issuer may designate in a certificate of the Issuer delivered to the Trustee. Interest Account means the account by that name established and held by the Trustee pursuant to the Indenture. Interest Payment Date means September 1 and March 1 (or the next Business Day, if such date is not a Business Day), in each year, beginning March 1, 2007, and continuing thereafter so long as any Bonds remain Outstanding. Loan Fund means the fund by that name established and held by the Trustee pursuant to Section 3.03 of the Indentures. Loan Agreements or 2006 Agency Loan Agreements means the Constituent Loan Agreements. Loans or 2006 Agency Loans means the loans made by the Authority to the Agency under and pursuant to the Constituent Loan Agreements. Nominee means (a) initially, Cede & Co. as nominee of DTC; and (b) any other nominee of the Depository designated pursuant to Section 2.19 of the Indenture. Nonpurpose Investment means any Investment Property which is acquired with the Proceeds and is not acquired in order to carry out the governmental purpose of the Bonds. B-4

133 Outstanding, when used as of any particular time with reference to Bonds, means (subject to the provisions of Section 9.07 of the Indentures) all Bonds theretofore executed, issued and delivered by the Authority under the applicable Indenture except: (a) Bonds theretofore cancelled by the Trustee or surrendered to the Trustee for cancellation; (b) Bonds paid or deemed to have been paid within the meaning of Section 9.03 of the Indentures; and (c) Bonds in lieu of or in substitution for which other Bonds shall have been executed, issued and delivered pursuant to this Indenture or any Supplemental Indenture. Owner or Bond Owner, when used with respect to any Bond, means the person in whose name the ownership of such Bond shall be registered on the Registration Books. Participant means those broker-dealers, banks and other financial institutions from time to time for which the Depository holds Bonds as a securities depository. Permitted Investments means any of the following which at the time of investment are legal investments under the laws of the State for the moneys proposed to be invested therein (provided that the Trustee shall have no duty to determine the legality of any investments): (a) Federal Securities; (b) direct obligations and fully guaranteed certificates of beneficial interest of the Export-Import Bank of the United States; consolidated debt obligations and letter of credit-backed issues of the Federal Home Loan Banks; participation certificates and senior debt obligations of the Federal Home Loan Mortgage Corporation ( FHLMCs ); debentures of the Federal Housing Administration; mortgage-backed securities (except stripped mortgage securities which are valued greater than par on the portion of unpaid principal) and senior debt obligations of the Federal National Mortgage Association ( FNMAs ); participation certificates of the General Services Administration; guaranteed mortgage-backed securities and guaranteed participation certificates of the Government National Mortgage Association ( GNMAs ); debt obligations and letter of credit-backed issues of the Student Loan Marketing Association; local authority bonds of the U.S. Department of Housing & Urban Development; guaranteed Title XI financings of the U.S. Maritime Administration; and Resolution Funding Corporation securities; (c) direct obligations of any state of the United States of America or any subdivision or agency thereof whose unsecured, uninsured and unguaranteed general obligation debt is rated Aa or better by Moody s Investors Service and AA or better by Standard and Poor s Ratings Services, or any obligation fully and unconditionally guaranteed by any state, subdivision or agency whose unsecured, uninsured and unguaranteed general obligation debt B-5

134 is rated Aa or better by Moody s Investors Service and AA or better by Standard and Poor s Ratings Services; (d) commercial paper (having original maturities of not more than 270 days) rated P-1 by Moody s Investors Service and A-1 or better by Standard and Poor s Ratings Services; (e) Federal funds, unsecured certificates of deposit, time deposits, investment agreements or bankers acceptances (in each case having maturities of one year or less or, if longer, which allows funds to be withdrawn as required by the Indenture with no penalty) of any domestic bank (including the Trustee and any affiliates of the Trustee) including a branch office of a foreign bank which branch office is located in the United States (provided legal opinions are received to the effect that full and timely payment of such deposit or similar obligation is enforceable against the principal office or any branch of such bank), or a financial institution or insurance company, in each case having uninsured, unsecured and unguaranteed obligations rated in one of the two highest rating categories by Moody s Investors Services and Standard and Poor s Ratings Services; (f) deposits, including certificates of deposit, of any bank, including the Trustee and its affiliates, or savings and loan association which has combined capital, surplus and undivided profits of not less than $3 million; provided such deposits are continuously and fully insured by the Bank Insurance Fund or the Savings Association Insurance Fund of the Federal Deposit Insurance Corporation; (g) the Local Agency Investment Fund of the State; (h) investments in money-market funds (including funds of the Trustee and its affiliates) registered under the Federal Investment Company Act of 1940 rated AAAm or AAAm -G by Standard and Poor s Ratings Services and Aaa by Moody s Investors Service, including money market funds for which the Trustee and its affiliates provide investment advisory or other management services; and (i) repurchase agreements collateralized by Federal Securities, GNMAs, FNMAs or FHLMCs with any registered broker/dealer or any commercial bank or any financial institution if such broker/dealer or financial institution has an uninsured, unsecured and unguaranteed obligation rated P-1 or A3 or better by Moody s Investors Service, and A-1 or A- or better by Standard and Poor s Ratings Services; provided: 1. a master repurchase agreement or specific written repurchase agreement governs the transaction; 2. the securities are held by the Trustee or an independent third party acting solely as agent ( Agent ) for the Trustee, free and clear of any lien, and such third party B-6

135 is (a) a Federal Reserve Bank; or (b) a bank which is a member of the Federal Deposit Insurance Corporation and which has combined capital, surplus and undivided profits of not less than $50 million, and the Trustee shall have received written confirmation from such third party that it holds such securities, free and clear of any lien, as Agent; 3. a perfected first security interest under the Uniform Commercial Code, or book entry procedures prescribed at 31 C.F.R et seq. or 31 C.F.R et seq. in such securities is created for the benefit of the Trustee; 4. the repurchase agreement has a term of either one year or less, or, if longer, allows funds to be withdrawn as required by the Indenture with no penalty, and the Trustee or the Agent will value the collateral securities no less frequently than weekly and will liquidate the collateral securities if any deficiency in the required collateral percentage is not restored within two Business Days of such valuation; 5. the fair market value of the securities in relation to the amount of the repurchase obligation, including principal and interest, is equal to at least 104% (105% if the securities are GNMAs, FNMAs or FHLMCs), and if the value of such securities held as collateral slips below such level, then additional cash and/or acceptable securities must be transferred to the Agent; and 6. the Trustee receives a legal opinion from the provider s counsel that the obligation is a legal, valid and binding obligation of the provider, enforceable on its term, that the collateral is free and clear of any third party liens and that a perfected security interest can be created for the benefit of the Trustee. Person means an individual, corporation, firm, association, partnership, trust or other legal entity or group of entities, including a governmental entity or any agency or political subdivision thereof. Principal Account means the account by that name established and held by the Trustee pursuant to Section 4.02 of the Indenture. Private Business Use means use directly or indirectly in a trade or business carried on by a natural person or in any activity carried on by a person other than a natural person, excluding use by a governmental unit and use by any person as a member of the general public. B-7

136 Proceeds means the face amount of the Bonds of a Series plus accrued interest and original issue premium, if any, less original issue discount, if any, and includes any other amounts which will be held under the related Indenture or the Constituent Loan Agreements. Qualified Credit Instrument means any of the following: (a) (b) (c) surety bond or insurance policy issued to the Trustee by a company licensed to issue an insurance policy guaranteeing the timely payment of debt service on the Series L Bonds (a municipal bond insurer ) if the claims paying ability of the issuer thereof shall be rated AAA and Aaa by Standard and Poor s Ratings Services and Moody s Investors Service, respectively; a surety bond or insurance policy issued to the Trustee by an entity other than a municipal bond insurer if the claims paying ability of the issuer thereof shall be rated Aa and AA or better by Moody s Investors Service and Standard and Poor s Ratings Services; or an unconditional irrevocable letter of credit issued to the Trustee by a bank, if the issuer thereof is rated at least AA- by Standard and Poor s Ratings Services and Aa3 by Moody s Investors Service. Record Date means, with respect to any Interest Payment Date, the fifteenth calendar day of the month (whether or not such day is a Business Day) immediately preceding such Interest Payment Date. Registration Books means the records maintained by the Trustee pursuant to Section 2.15 for the registration and transfer of ownership of the Bonds. Regulations means temporary and permanent regulations promulgated under or with respect to Sections 103 and 141 through 150, inclusive, of the Code. Representation Letter means the Representation Letter described in the Indentures. Request of the Authority means a request in writing signed by a Designated Officer or by any other officer of the Agency duly authorized by the Agency for that purpose. Reserve Account or Reserve Accounts means the account by that name established pursuant to Section 2.06 of each of the Constituent Loan Agreements and held by the Trustee. Responsible Officer means any vice president, assistant vice president or trust officer of the Trustee within its Corporate Trust Department who routinely administer its duties hereunder. Revenue Fund means the fund by that name established pursuant to Section 4.02 of the Indenture. Revenues means (a) all amounts payable by the Agency to the Authority pursuant to the Constituent Loan Agreements other than administrative fees and expenses and indemnity against claims payable to the Authority and the Trustee; (b) any proceeds of a Series of Bonds originally B-8

137 deposited with the Trustee and all moneys deposited and held from time to time by the Trustee in the funds and accounts established under the applicable Indenture; and (c) investment income with respect to any moneys held by the Trustee in the funds and accounts established under the Indenture. Securities Depositories means The Depository Trust Company, 711 Stewart Avenue, Garden City, New York 11630, Facsimile (616) or 4190, or, in accordance with then current guidelines of the Securities and Exchange Commission, such other addresses and/or such other securities depositories as the Authority may designate in a Certificate of the Authority delivered to the Trustee. Series L Bonds means the bonds designated as the The Community Redevelopment Financing Authority of The Community Redevelopment Agency of the City of Los Angeles, California Pooled Financing Bonds Series L (Taxable)(Reseda/Canoga Park, East Hollywood- Beverly-Normandie and Pacoima/Panorama City Project Areas) authorized in the Indenture for the Series L Bonds in the original aggregate principal amount of $32,000,000. Series N Bonds means the bonds designated as the The Community Redevelopment Financing Authority of The Community Redevelopment Agency of the City of Los Angeles, California Pooled Financing Bonds Series N (Tax-Exempt)(Pacoima/Panorama City Project Area) authorized in the Indenture for the Series N Bonds in the original aggregate principal amount of $8,000,000. State means the State of California. Supplemental Indenture means any indenture, agreement or other instrument hereafter duly executed by the Authority and the Trustee in accordance with the provisions of this Indenture. Trust Office means the corporate trust office of the Trustee at 633 W. 5th Street, 24th Fl., Los Angeles, California 90071, provided that for registration, transfer, exchange, payment and surrender of Bonds means the corporate trust office of Trustee in St. Paul, Minnesota or such other office designated by the Trustee. Trustee means U.S. Bank National Association, in its capacity as trustee, and its successors and assigns, and any other corporation or association which may at any time be substituted in its place as provided in Article VI. of the Indenture Establishment of Funds and Accounts; Flow of Funds Loan Fund. The Trustee shall establish and maintain a separate fund under each Indenture to be known as the Loan Fund into which shall be deposited a portion of the proceeds of sale of the Bonds pursuant to the Indenture. The Trustee shall disburse all amounts in the Loan Fund on the Closing Date pursuant to the provisions of the Constituent Loan Agreements and thereupon shall close the Loan Fund. Receipt, Deposit and Application of Revenues. All Revenues described in clause (a) of the definition thereof in the Indenture shall be promptly deposited by the Trustee upon receipt B-9

138 thereof in a special fund designated as the Revenue Fund which the Trustee shall establish, maintain and hold in trust under each Indenture. No later than three (3) Business Days prior to each Interest Payment Date, the Trustee shall transfer from the Revenue Fund and deposit into the following respective accounts (each of which the Trustee shall establish and maintain within the Revenue Fund), the following amounts in the following order of priority, the requirements of each such account (including the making up of any deficiencies in any such account resulting from lack of Revenues sufficient to make any earlier required deposit) at the time of deposit to be satisfied before any transfer is made to any account subsequent in priority: (a) Interest Account. No later than three (3) Business Days prior to each Interest Payment Date, the Trustee shall deposit in the Interest Account an amount required to cause the aggregate amount on deposit in the Interest Account to equal the amount of interest becoming due and payable on such Interest Payment Date on all Outstanding Bonds. No deposit need be made into the Interest Account if the amount contained therein is at least equal to the interest becoming due and payable upon all Outstanding Bonds on the next succeeding Interest Payment Date. All moneys in the Interest Account shall be used and withdrawn by the Trustee solely for the purpose of paying the interest on the Bonds as it shall become due and payable (including accrued interest on any Bonds redeemed prior to maturity). All amounts on deposit in the Interest Account on the first day of any Bond Year, to the extent not required to pay any interest then having come due and payable on the Outstanding Bonds, shall be withdrawn therefrom by the Trustee and transferred to the Agency to be used for any lawful purposes of the Agency. (b) Principal Account. No later than three (3) Business Days prior to each Interest Payment Date on which the principal of the Bonds shall be payable, the Trustee shall deposit in the Principal Account an amount required to cause the aggregate amount on deposit in the Principal Account to equal the principal of the Bonds coming due and payable on such Interest Payment Date pursuant to the Indenture, or the redemption price of the Bonds (consisting of the principal amount thereof and any applicable redemption premiums) required to be redeemed on such Interest Payment Date pursuant to the Indenture. All moneys in the Principal Account shall be used and withdrawn by the Trustee solely for the purpose of (i) paying the principal at maturity of the Bonds at the respective maturities thereof; (ii) paying the principal of the Term Bonds upon the mandatory sinking fund redemption thereof pursuant to the Indenture; or (iii) paying the principal of and premium, if any, on any Bonds upon the redemption thereof pursuant to the Indenture. All amounts on deposit in the Principal Account on the first day of any Bond Year, to the extent not required to pay the principal of any Outstanding Bonds then having come due and payable, shall be withdrawn therefrom and transferred to the Agency to be used for any lawful purposes of the Agency. (c) Reserve Accounts. If on any date deposits are to be made pursuant to (a) and (b) above, and amounts on deposit in the Revenue Fund shall be insufficient to enable the Trustee to make such deposits, the Trustee shall withdraw the amount of such insufficiency from the applicable Reserve Account established pursuant to the applicable B-10

139 Constituent Loan Agreements and transfer such amount to the Revenue Fund, as described in the applicable Loan Agreement. Investments. All moneys in any of the funds or accounts established with the Trustee pursuant to the Indenture shall be invested by the Trustee solely in Permitted Investments, as directed in writing by either the Authority or the Agency and filed with the Trustee at least two Business Days in advance of the making of such investments. In the absence of any such direction from the Authority or the Agency, the Trustee shall invest any such moneys in certain Permitted Investments described in clause (h) of the definition thereof. Obligations purchased as an investment of moneys in any fund shall be deemed to be part of such fund or account. Subject to the following sentence, Permitted Investments of moneys in the Reserve Accounts shall have a maturity of no greater than five years. If a Permitted Investment may be liquidated or put at a price equal to the yield to maturity of such Permitted Investment with or to the provider thereof or such other entity rated at least Aa3 by Moody s Investors Service, AA- by Standard and Poor s and AA- by Fitch Ratings at least semiannually in connection with the Interest Payment Dates on the Bonds, then such Permitted Investment may, notwithstanding any other maturity limitation set forth herein or in the definition of Permitted Investments in the Indenture, have a maturity of more than five years. The Authority shall not enter into any such liquidation or put agreement if such liquidation or put agreement would result in the ratings then in effect on the Bonds being lowered. All interest or gain derived from the investment of amounts in any of the funds or accounts established hereunder shall be deposited in the fund or account from which such investment was made. For purposes of acquiring any investments hereunder, the Trustee may commingle funds held by it hereunder as directed by either the Authority or the Agency. The Trustee may act as sponsor, advisor, depository, principal or agent in the acquisition or disposition of any investment. The Trustee shall incur no liability for losses arising from any investments made pursuant to the provisions of the Indenture. The Authority acknowledges that regulations of the Comptroller of the Currency grant the Authority the right to receive brokerage confirmations of security transactions to be effected by the Trustee hereunder as they occur. The Authority specifically waives the right to receive such notification to the extent permitted by applicable law and agrees that it will instead receive periodic cash transaction statements which include detail for the investment transactions effected by the Trustee hereunder; provided, however, that the Authority retains its right to receive brokerage confirmation on any investment transaction requested by the Authority. Valuation and Disposition of Investments. For the purpose of determining the amount in any fund or account, the value of Permitted Investments credited to such fund shall be valued at the market value thereof (excluding any accrued interest). In making any valuation of Permitted Investments hereunder, the Trustee may utilize computerized securities pricing services that may be available to it, including those available through its regular accounting system and rely thereon. B-11

140 Certain additional Covenants Punctual Payments. The Authority shall punctually pay or cause to be paid the principal, interest and premium, if any, to become due in respect of all the Bonds, in strict conformity with the terms of the Bonds and the applicable Indenture, but only out of Revenues and other assets pledged for such payment as provided in the Indenture. Extension of Payment of Bonds. The Authority shall not directly or indirectly extend or assent to the extension of the maturity of any of the Bonds or the time of payment of any claims for interest by the purchaser of such Bonds or by any other arrangement, and in case the maturity of any of the Bonds or the time of payment of any such claims for interest shall be extended, such Bonds or claims for interest shall be subject to the prior payment in full of the principal of all of the Bonds then Outstanding and of all claims for interest thereon which shall not have been so extended. Nothing in this Section shall be deemed to limit the right of the Authority to issue Bonds for the purpose of refunding any Outstanding Bonds, and such issuance shall not be deemed to constitute an extension of maturity of the Bonds. Against Encumbrances. The Authority shall not create, or permit the creation of, any pledge, lien, charge or other encumbrance upon the Revenues and other assets pledged or assigned under the Indenture while any of the Bonds are Outstanding, except the pledge and assignment created by the Indenture. Subject to this limitation, the Authority expressly reserves the right to enter into one or more other indentures for any of its corporate purposes, including other programs under the Act, and reserves the right to issue other obligations for such purposes. Power to Issue Bonds and Make Pledge and Assignment. The Authority is duly authorized pursuant to law to issue the Bonds and to enter into the Indenture and to pledge and assign the Revenues, the Constituent Loan Agreements and other assets purported to be pledged and assigned, respectively, under the Indenture in the manner and to the extent provided in the Indenture. The Bonds and the provisions of the Indenture are, and will be the legal, valid and binding special obligations of the Authority in accordance with their terms, and the Authority and the Trustee, subject to the provisions of the Indenture, shall at all times, to the extent permitted by law, defend, preserve and protect said pledge and assignment of Revenues and other assets and all the rights of the Bond Owners under the Indenture against all claims and demands of all persons whomsoever. Accounting Records and Financial Statement. The Trustee shall at all times keep, or cause to be kept, proper books of record and account, prepared in accordance with corporate trust industry standards, in which complete and accurate entries shall be made of all transactions made by the Trustee relating to the proceeds of the Bonds, the Revenues, the Constituent Loan Agreements and all funds and accounts established pursuant to the Indenture and the Loan Agreements. Such books of record and account shall be available for inspection by the Authority and the Agency during regular business hours with reasonable prior notice. No Additional Obligations. The Authority covenants that no additional bonds, notes or other indebtedness shall be issued or incurred which are payable out of the Revenues in whole or in part. Nothing in this section shall preclude the Agency from issuing Parity Debt as defined B-12

141 under the Constituent Loan Agreements in accordance with the provisions of the Constituent Loan Agreements. Constituent Loan Agreements. The Trustee, as assignee of the Authority s rights pursuant to the provisions of each of the Loan Agreements, subject to the provisions of the Indenture, shall promptly use reasonable efforts to collect all amounts due from the Agency pursuant to the applicable Constituent Loan Agreement and, subject to the provisions of the Indenture, shall diligently enforce, and take all steps, actions and proceedings reasonably necessary for the enforcement of all of the rights of the Authority under the Loan Agreements and for the enforcement of all of the obligations of the Agency under the Indenture. The Authority, the Trustee and the Agency may at any time amend or modify the Constituent Loan Agreements pursuant to the provisions of the applicable Loan Agreement, (i) but only if the Trustee first obtains the written consent of the Bond Insurer and the Owners of a majority of aggregate principal amount of the Bonds then Outstanding to such amendment or modification; or (ii) without the written consent of any of the Bond Insurer or the Bond Owners, if such amendment or modification is for any one or more of the following purposes: (a) to add to the covenants and agreements of the Agency contained in the Constituent Loan Agreements, other covenants and agreements thereafter to be observed, or to limit or surrender any rights or power therein reserved to or conferred upon the Agency so long as such limitation or surrender of such rights or powers shall not materially adversely affect the Owners of the Bonds; (b) to make such provisions for the purpose of curing any ambiguity, or of curing, correcting or supplementing any defective provision contained in the Constituent Loan Agreements, or in any other respect whatsoever as the Agency may deem necessary or desirable; provided, under any circumstances, that such modifications or amendments shall not materially adversely affect the interests of the Owners of the Bonds. The Authority shall notify the Bond Insurer and each rating agency rating the Bonds at the time of such amendment or modification of such amendment or modification at least 15 days in advance of the effective date of such amendment or modification, by giving written notice with a copy of the proposed amendment or modification included. No Arbitrage (Series N Bonds). The Authority shall not take, nor permit nor suffer to be taken by the Trustee, the Agency or otherwise, any action with respect to the proceeds of the Series N Bonds which, if such action had been reasonably expected to have been taken, or had been deliberately and intentionally taken, on the Closing Date would have caused the Series N Bonds to be arbitrage bonds within the meaning of Section 148 of the Code. Rebate of Excess Investment Earnings to Federal Government (Series N Bonds). The Authority hereby covenants to rebate excess investment earnings to the federal government in accordance with applicable requirements of Section 148(f) of the Code. B-13

142 Private Business Use Limitation (Series N Bonds). The Authority shall assure that: (d) not more than 10% of the Proceeds of the Series N Bonds is used for Private Business Use if, in addition, the payment of the principal of, or the interest on, more than 10% of the Proceeds of the Series N Bonds is, under the terms of the Series N Bonds or any underlying arrangement directly or indirectly (i) secured by any interest in property, or payments in respect of property, used or to be used for a Private Business Use; or (ii) to be derived from payments, whether or not to the Authority, in respect of property or borrowed money used or to be used for a Private Business Use; and (e) in the event that an amount in excess of 5% of the Proceeds of the Series N Bonds is used for a Private Business Use, and, in addition, the payment of the principal of, or the interest on, more than 5% of the Proceeds of the Series N Bonds during the term thereof is, under the terms of the Series N Bonds or any underlying arrangement, directly or indirectly secured by any interest in property, or payments in respect of property, used or to be used for said Private Business Use or is to be derived from payments, whether or not to the Authority, in respect of property or borrowed money used or to be used for a Private Business Use, then, (i) said excess over 5% of the Proceeds of the Series N Bonds which is used for a Private Business Use shall be used for a Private Business Use related to a government use of such Proceeds; and (ii) each such Private Business Use over 5% of the Proceeds of the Bonds which is related to a government use of such Proceeds shall not exceed the amount of such Proceeds which is used for the government use of Proceeds to which such Private Business Use is related. Limitation on Use of Proceeds for Loan (Series N Bonds). The Authority shall assure that the Proceeds of the Series N Bonds are not used, directly or indirectly, to make loans to two or more ultimate borrowers (including governmental units) and in the event that loans are made, directly or indirectly, to a single borrower other than a governmental unit, the Authority shall assure that not in excess of 5% of the Proceeds of the Series N Bonds is used for such purpose. The provisions of this section do not apply to loans constituting Nonpurpose Investments or to loans which enable the borrower to finance any governmental tax or assessment of general application for specific essential governmental functions. Federal Guarantee Prohibition (Series N Bonds). The Authority shall not take any action or permit or suffer any action to be taken if the result of the same would be to cause any of the Series N Bonds to be federally guaranteed within the meaning of Section 149(b) of the Code. Modification and Amendment of the Indenture Amendment. Each Indenture and the rights and obligations of the Authority and of the owners of the Series of Bonds may be modified or amended at any time by a Supplemental Indenture which shall become binding upon adoption, without consent of any bond owners or the Bond Insurer, to the extent permitted by law but only for any one or more of the following purposes: (a) to add to the covenants and agreements of the Authority contained in the Indenture, other covenants and agreements thereafter to be observed, or to limit or B-14

143 surrender any rights or powers herein reserved to or conferred upon the Authority so long as such limitation or surrender of such rights or powers shall not materially adversely affect the Owners of the Bonds; (b) to make such provisions for the purpose of curing any ambiguity, or of curing, correcting or supplementing any defective provision contained in the Indenture, or in any other respect whatsoever as the Authority may deem necessary or desirable; provided that under any circumstances such modifications or amendments shall not materially adversely affect the interests of the Owners of the Bonds. Except as set forth in the preceding paragraph, the Indenture and the rights and obligations of the Authority and of the Owners of the Bonds may only be modified or amended at any time by a Supplemental Indenture which shall become binding when the written consent of the Bond Insurer and the Owners of a majority of the aggregate principal amount of the Bonds Outstanding are filed with the Trustee. No such modification or amendment shall (i) extend the maturity of or reduce the interest or compounding rate on any Bond or otherwise alter or impair the obligation of the Authority to pay the principal, and interest or redemption premiums at the time and place and at the rate and in the currency provided therein of any Bond without the express written consent of the Owner of such Bond; (ii) reduce the percentage of the aggregate principal amount of the Bonds Outstanding required for the written consent to any such amendment or modification; or (iii) without its written consent thereto, modify any of the rights or obligations of the Trustee. Events of Default and Remedies of Bond Owners Events of Default. The following events shall be Events of Default under the Indenture: (a) Default by the Authority in the due and punctual payment of the principal amount or redemption premium, if any, of any Bond pursuant to the provisions of the Indenture, whether at maturity as therein expressed, by proceedings for redemption, by declaration or otherwise; (b) Default by the Authority in the due and punctual payment of any installment of interest on any Bond pursuant to the provisions of the Indenture; (c) Default by the Authority in the observance of any of the other covenants, agreements or conditions on its part in the Indenture or in the Bonds contained, if such default shall have continued for a period of 30 days after written notice thereof, specifying such default and requiring the same to be remedied, shall have been given to the Authority by the Trustee, or to the Authority and the Trustee by the Owners of not less than 25% of the aggregate principal amount of the Bonds Outstanding; provided that such default shall not constitute an Event of Default hereunder if the Authority shall commence to cure such default within said 30-day period and thereafter diligently and in good faith shall cure such default within a reasonable period of time; and (d) the filing by the Authority of a petition or answer seeking reorganization or arrangement under the federal bankruptcy laws or any other applicable law of the United B-15

144 States of America, or if a court of competent jurisdiction shall approve a petition, filed with or without the consent of the Authority, seeking reorganization under the federal bankruptcy laws or any other applicable law of the United States of America, or if, under the provisions of any other law for the relief or aid of debtors, any court of competent jurisdiction shall assume custody or control of the Authority or of the whole or any substantial part of its property. Remedies and Rights of Bond Owners. Upon the occurrence of an Event of Default, the Trustee may pursue any available remedy at law or in equity to enforce the payment of the principal of and interest and premium, if any, on the Outstanding Bonds, and to enforce any rights of the Trustee under or with respect to the Indenture. If an Event of Default shall have occurred and be continuing, and if the Trustee has been indemnified as provided in the Indenture, the Trustee shall, upon the request of the Owners of at least 25% in aggregate principal amount of the Bonds Outstanding, be obligated to exercise such one or more of the rights and powers conferred by the Indenture, as the Trustee, being advised by counsel, shall deem most expedient in the interests of the Bond Owners, provided however, if the Bond Insurer is not in default under the Financial Guaranty Insurance Policy, the Bond Insurer, acting alone, shall have to right to control such proceedings. No remedy conferred upon or reserved to the Trustee or the Bond Owners by the terms of the Indenture is intended to be exclusive of any other remedy, but each and every such remedy shall be cumulative and shall be in addition to any other remedy given to the Trustee or the Bond Owners hereunder or now or hereafter existing at law or in equity. No delay or omission to exercise any right or power accruing upon any Event of Default shall impair any such right or power or shall be construed to be a waiver of any such Event of Default or acquiescence therein; such right or power may be exercised from time to time as often as may be deemed expedient. Application of Revenues and Other Fund After Default. All amounts received by the Trustee pursuant to any right given or action taken by the Trustee under the provisions of the Indenture shall be applied by the Trustee in the following order, upon presentation of the several Bonds and the stamping thereon of the amount of the payment if only partially paid, or upon the surrender thereof if fully paid: First, to the payment of the fees, costs and expenses of the Trustee, including reasonable compensation to its agents, attorneys and counsel; and Second, to the payment of the whole amount of principal of and interest on, the Bonds then due and unpaid, with interest on overdue installments of principal and interest to the extent permitted by law at the rate of interest then borne by the Outstanding Bonds; provided, however, that in the event such amounts shall be insufficient to pay in full the amount of such interest and principal, then such amounts shall be applied in the following order of priority: B-16

145 (a) to the payment of all installments of interest on the Bonds then due and unpaid, on a pro rata basis in the event that the available amounts are insufficient to pay all such interest in full; (b) to the payment of principal of all installments of the Bonds then due and unpaid, on a pro rata basis in the event that the available amounts are insufficient to pay all such principal in full; and (c) to the payment of interest on overdue installments of principal and interest, on a pro rata basis in the event that the available amounts are insufficient to pay all such interest in full. Power of Trustee to Control Proceedings. In the event that the Trustee, upon the happening of an Event of Default, shall have taken any action, by judicial proceedings or otherwise, pursuant to its duties hereunder, whether upon its own discretion or upon the request of the Owners of a majority of the aggregate principal amount of the Bonds Outstanding, it shall have full power (subject to the right of the Bond Insurer to control such proceedings), in the exercise of its discretion for the best interest of the Owners of the Bonds with respect to the continuance, discontinuance, withdrawal, compromise, settlement or other disposal of such action; provided, however, that the Trustee shall not, unless there no longer continues an Event of Default, discontinue, withdraw, compromise or settle, or otherwise dispose of any litigation pending at law or in equity, if at the time there has been filed with it a written request signed by the Owners of a majority of the aggregate principal amount of the Bonds Outstanding hereunder opposing such discontinuance, withdrawal, compromise, settlement or other disposal of such litigation. Any suit, action or proceeding which any Owner of Bonds shall have the right to bring to enforce any right or remedy hereunder may be brought by the Trustee for the equal benefit and protection of all Owners of Bonds similarly situated and the Trustee is hereby appointed (and the successive respective Owners of the Bonds issued hereunder, by taking and holding the same, shall be conclusively deemed so to have appointed it) the true and lawful attorney-in-fact of the respective Owners of the Bonds for the purpose of bringing any such suit, action or proceeding and to do and perform any and all acts and things for and on behalf of the respective Owners of the Bonds as a class or classes, as may be necessary or advisable in the opinion of the Trustee as such attorney-in-fact. Appointment of Receivers. Upon the occurrence of an Event of Default hereunder, and upon the filing of a suit or other commencement of judicial proceedings to enforce the rights of the Trustee and of the Bond Owners under the Indenture, the Trustee shall be entitled, as a matter of right, to the appointment of a receiver or receivers of the Revenues and other amounts pledged hereunder, pending such proceedings, with such powers as the court malting such appointment shall confer. Non-Waiver. Nothing in the Indenture, or in the Bonds, shall affect or impair the obligation of the Authority, which is absolute and unconditional, to pay the interest on and principal of the Bonds to the respective Owners of the Bonds at the respective dates of maturity, as herein provided, out of the Revenues and other moneys herein pledged for such payment. B-17

146 A waiver of any default or breach of duty or contract by the Trustee or any Bond Owner shall not affect any subsequent default or breach of duty or contract, or impair any rights or remedies on any such subsequent default or breach. No delay or omission of the Trustee or any Owner of any of the Bonds to exercise any right or power accruing upon any default shall impair any such right or power or shall be construed to be a waiver of any such default or an acquiescence therein; and every power and remedy conferred upon the Trustee or Bond Owners by the Bond Law or by the Indenture may be enforced and exercised from time to time and as often as shall be deemed expedient by the Trustee or the Bond Owners, as the case may be. Rights and Remedies of Bond Owners. No Owner of any Bond issued hereunder shall have the right to institute any suit, action or proceeding at law or in equity, for any remedy under or upon the Indenture, unless (a) such Owner shall have previously given to the Trustee written notice of the occurrence of an Event of Default; (b) the Owners of a majority of the aggregate principal amount of the Bonds Outstanding shall have made a written request upon the Trustee to exercise the powers granted herein or to institute such action, suit or proceeding in its own name; (c) said Owners shall have tendered to the Trustee indemnity reasonably acceptable to the Trustee against the costs, expenses and liabilities to be incurred in compliance with such request; and (d) the Trustee shall have refused or omitted to comply with such request for a period of 30 days after such written request shall have been received by, and said tender of indemnity shall have been made to, the Trustee, Such notification, request, tender of indemnity and refusal or omission are hereby declared, in every case, to be conditions precedent to the exercise by any Owner of Bonds of any remedy hereunder; it being understood and intended that no one or more Owners of Bonds shall have any right in any manner whatsoever, by his or their action, to enforce any right under the Indenture, except in the manner herein provided, and that all proceedings at law or in equity to enforce any provision of the Indenture shall be instituted, held and maintained in the manner herein provided and for the equal benefit of all Owners of the Outstanding Bonds. The right of any Owner of any Bond to receive payment of the principal of and interest and premium, if any, on such Bond as herein provided or to institute suit for the enforcement of any such payment, shall not be impaired or affected without the written consent of such Owner, notwithstanding the foregoing provisions of the Indenture or any other provision of the Indenture. If the Bond Insurer is not in default under the Financial Guaranty Insurance Policy, notwithstanding any other provision of the Indenture, the Bond Insurer, acting alone, shall have the right to direct all remedies in the event of default under the Indenture. For this purpose, the Bond Insurer shall be deemed to be the Owner of all of the Bonds and shall have the right to institute any suit, action, or proceeding at law or in equity under the same terms given to Bond Owners under the Indenture. Termination of Proceedings. In case the Trustee shall have proceeded to enforce any right under the Indenture by the appointment of a receiver or otherwise, and such proceedings shall have been discontinued or abandoned for any reason, or shall have been determined adversely, then and in every such case, the Authority, the Trustee and the Bond Owners shall be restored to their former positions and rights hereunder, respectively, with regard to the property B-18

147 subject to the Indenture, and all rights, remedies and powers of the Trustee shall continue as if no such proceedings had been taken. Discharge of Indenture If the Authority shall pay and discharge any or all of the Outstanding Bonds in any one or more of the following ways: (a) by paying or causing to be paid the principal of and interest and premium, if any, on such Bonds, as and when the same become due and payable; (b) by irrevocably depositing with the Trustee, in trust, at or before maturity, money which, together with the available amounts then on deposit in the funds and accounts established with the Trustee pursuant to the Indenture and the Constituent Loan Agreements, is fully sufficient to pay such Bonds, including all principal, interest and redemption premiums; or (c) by complying with the requirements set forth in the Indenture and by irrevocably depositing with the Trustee or any other fiduciary, in trust in an escrow, noncallable Federal Securities, including, without limitation, State and Local Government Series issued by the United States Treasury ( SLGS ), United States Treasury bills, notes and bonds, as traded on the open market; and/or Zero Coupon Treasury Bonds ( STRIPS ), in such amount as an Independent Certified Public Accountant shall determine will, together with the interest to accrue thereon and available moneys then on deposit in the funds and accounts established with the Trustee pursuant to the Indenture and the Constituent Loan Agreements, be fully sufficient to pay and discharge the indebtedness on such Bonds (including all principal, interest and any redemption premiums) at or before their respective maturity dates; and if such Bonds are to be redeemed prior to the maturity thereof, notice of such redemption shall have been mailed pursuant to the Indenture or provision satisfactory to the Trustee shall have been made for the mailing of such notice and the provisions of the following paragraph have been complied with, then, at the Request of the Authority, and notwithstanding that any of such Bonds shall not have been surrendered for payment, the pledge of the Revenues and other funds provided for in the Indenture with respect to such Bonds, and all other pecuniary obligations of the Authority under the Indenture with respect to all such Bonds, shall cease and terminate, except only the obligation of the Authority to pay or cause to be paid to the Owners of such Bonds not so surrendered and paid all sums due thereon from amounts set aside for such purpose as aforesaid and all expenses and costs of the Trustee. Any funds thereafter held by the Trustee which are not required for said purposes, shall be paid over to the Authority. Prior to any such discharge of the Bonds, the Bond Insurer shall be provided (i) fifteen business days notice of any advanced refunding of the Bonds, (ii) an accountant s report with respect to the sufficiency of the amounts deposited to defease the Bonds and discharge the Indenture and (iii) an opinion of counsel acceptable to the Bond Insurer that such Bonds have been legally discharged and that any escrow agreement establishing such defeasance or discharge operates legally to discharge the Bonds under the Indenture. B-19

148 Additionally, the Authority and the Agency shall have the right to discharge any Outstanding Bond by purchasing such Bond at public or private sale as and when, and at such prices (including brokerage commissions) not in excess of the par amount thereof plus accrued interest thereon to the date of such purchase, as the Authority or the Agency, as the case may be, in its sole discretion determine, and by tendering such Bond to the Trustee for cancellation. Further, in lieu of depositing any or all of the cash with the Trustee in connection with any sinking fund redemption pursuant to the Indenture, the Authority or the Agency shall have the right to tender to the Trustee for cancellation, no later than 15 days prior to the date set forth for the mailing of notice of redemption, a portion of the applicable Term Bonds in an amount less than or equal to the amount of such sinking fund redemption. THE LOAN AGREEMENTS The following terms have the following definitions when used in this discussion of the 2006 Agency Loan Agreements. Certain definitions have been added or modified for use in this Official Statement. Capitalized terms not defined herein shall have the meanings given such terms in the Indentures Annual Debt Service means for the Loan and any Parity Debt, for each Bond Year, the amount payable on such Loan and Parity Debt in such Bond Year. For purposes of such calculation, variable rate Parity Debt shall be deemed to bear interest at the maximum rate permitted by the Parity Debt Instrument pursuant to which such Parity Debt is issued. For purposes of such calculation, there shall be excluded payments with respect to the Series B Loan or any Parity Debt to the extent that amounts due with respect to the Loan or such Parity Debt are prepaid or otherwise discharged in accordance with this B Loan Agreement or the relevant Parity Debt Instrument or to the extent the proceeds thereof are then deposited in an escrow fund in which amounts are invested in Permitted Investments and from which moneys may not be released to the Agency unless the amount of Tax Revenues (as determined in accordance with Section 2.08 of the Loan Agreement) and Additional Revenues for each succeeding Fiscal Year at least equals 125% of the amount of Annual Debt Service for each applicable succeeding Bond Year which would result if any such moneys on deposit in such escrow fund were released and deposited in the Redevelopment Fund or the Low and Moderate Income Housing Fund. Costs of Issuance means all expenses incurred in connection with the authorization, issuance, sale and delivery of the Bonds and the application of the proceeds of the Loans pursuant to the Constituent Loan Agreements, compensation, fees and expenses (including, but not limited to, fees and expenses for legal counsel) of the Authority, the Agency and the Trustee, compensation to any Independent Redevelopment Consultant or underwriters, legal fees and expenses and recording costs, rating agency fees, bond insurance premiums, costs of preparation and reproduction of documents and costs of printing. Costs of Issuance Fund means the fund by that name established and held by the Agency pursuant to the provisions of the Constituent Loan Agreements. Designated Officer means the Chief Executive Officer of the Agency (the Chief Executive Officer ), the Chief Operating Officer of the Agency, the Chief Financial Officer of the Agency, the Finance Director, the Secretary or any Assistant Secretary, any designee of the B-20

149 Chief Executive Officer, or by any other officer of the Agency duly authorized by the Agency for that purpose. Independent Redevelopment Consultant means any consultant or firm of such consultants appointed by the Agency, and who, or each of whom: (a) is judged by the Agency to have experience in matters relating to the collection of Tax Revenues or otherwise with respect to the financing of redevelopment projects; (b) is in fact independent and not under the domination of the Agency; (c) does not have any substantial interest, direct or indirect, with the Agency, other than as original purchaser of the Bonds, the Loans or any Parity Debt; and (d) is not connected with the Agency as an officer or employee of the Agency, but who may be regularly retained to make reports to the Agency. Loan means the 2006 Agency Loan. Loan Agreement means the 2006 Agency Loan Agreement. Loan Agreements means the Loan Agreement and any applicable Parity Debt Instrument. Loans means collectively the Loan and any other Outstanding Parity Debt. Low and Moderate Income Housing Fund means the fund of the Agency by that name established pursuant to the provisions of Section of the Redevelopment Law. Maximum Annual Debt Service means, as of the date of calculation, the largest Annual Debt Service for the current or any future Bond Year payable on the Loan or any Parity Debt in such Bond Year. For purposes of such calculation, variable rate Parity Debt shall be deemed to bear interest at the maximum rate permitted by the Parity Debt Instrument pursuant to which such Parity Debt is issued. For purposes of such calculation, there shall be excluded payments with respect to the Loan or any Parity Debt (a) to the extent that amounts due with respect to the Loan or such Parity Debt are prepaid or otherwise discharged in accordance with the applicable Loan Agreement or the relevant Parity Debt Instrument; or (b) to the extent the proceeds thereof are then deposited in an escrow fund in which amounts are invested in Permitted Investments and from which moneys may not be released to the Agency unless the amount of Tax Revenues (determined in accordance with the provisions of each Loan Agreement) and Additional Revenues for each succeeding Fiscal Year at least equals 125% of the amount of Annual Debt Service for each applicable succeeding Bond Year which would result if any such moneys on deposit in such escrow fund were released and deposited in the Redevelopment Fund or the Low and Moderate Income Housing Fund. Owner or Bond Owner, when used with respect to any Bond, means the person in whose name the ownership of such Bond shall be registered on the Registration Books. B-21

150 Parity Debt means the 2006 Agency Loan and any other indebtedness of the Agency relating to the Project Area meeting the requirements of Section 2.08 of the Loan Agreement, provided that the Agency may incur Parity Debt for the purpose of refunding a portion of the Outstanding Loans without complying with the requirements of subsection 2.08(b) of the Loan Agreements, so long as Maximum Annual Debt Service on the Loans after the issuance of such Parity Debt is not greater than Maximum Annual Debt Service on the Loans prior to the issuance of such Parity Debt. Parity Debt Instrument means any resolution, indenture of trust, loan agreement, trust agreement or other instrument authorizing the issuance of any Parity Debt. Plan Limit means the limitation contained in the Redevelopment Plan on the number of dollars of taxes which may be divided and allocated to the Agency pursuant to the Redevelopment Plan, as such limitation is prescribed by the provisions of Section of the Redevelopment Law. Project Area means the project area described in the Redevelopment Plan for each of the Constituent Project Areas. Proportionate Share means the percentage which shall be deemed to be the proportion of the proceeds of the Bonds allocable to each Loan, respectively. Redevelopment Fund means the fund described in the respective Loan Agreement. Redevelopment Law means the Community Redevelopment Law of the State, constituting Part 1 of Division 24 of the Health and Safety Code of the State, and the acts amendatory thereof and supplemental thereto. Redevelopment Plan means the Earthquake Disaster Assistance Plan for the Project Area, approved by ordinance of the City Council of the City, together with any amendments thereof at any time duly authorized pursuant to the Redevelopment Law. Redevelopment Project means the undertaking of the Agency pursuant to the Redevelopment Plan and the Redevelopment Law for the redevelopment of the applicable Project Area. Report means a document in writing signed by an Independent Redevelopment Consultant and including: (a) a statement that the person or firm making or giving such Report has read the pertinent provisions of such Loan Agreement to which such Report relates; (b) a brief statement as to the nature and scope of the examination or investigation upon which the Report is based; and (c) a statement that, in the opinion of such person or firm, sufficient examination or investigation was made as is necessary to enable said consultant to express an informed opinion with respect to the subject matter referred to in the Report. B-22

151 Representation Letter means the Representation Letter described in the Indenture. Request of the Agency means a request in writing signed by a Designated Officer or by any other officer of the Agency duly authorized by the Agency for that purpose. Reserve Requirement means (i) with respect to the Loan or any Taxable Parity Debt, as of any calculation date, Maximum Annual Debt Service with respect to the Loan or such Taxable Parity Debt, as applicable; and (ii) with respect to any Tax-Exempt Parity Debt, as of any calculation date, the least of (a) 10% of the outstanding principal amount of such Tax-exempt Parity Debt, as applicable; provided that if the original issue discount of such Tax-exempt Parity Debt exceeds 2% of such original principal amount, then initially 10% of the original principal amount of, less original issue discount on, such Tax-exempt Parity Debt, but excluding from such calculation any proceeds of such Tax-exempt Parity Debt deposited in an escrow described in the definitions of Annual Debt Service and Maximum Annual Debt Service; (b) Maximum Annual Debt Service with respect to such Tax-exempt Parity Debt, as applicable; or (c) 125% of average Annual Debt Service on such Tax-exempt Parity Debt, as applicable; provided further that the Agency may meet all of a portion of the Reserve Requirement by depositing a Qualified Credit Instrument meeting the requirements of the Indenture or the applicable Loan Agreement. For purposes of calculating Maximum Annual Debt Service with respect to determining the Reserve Requirement, variable rate Parity Debt shall be deemed to bear interest rate at the maximum rate permitted by the Parity Debt Instrument. In the event proceeds of the Loan or Parity Debt are deposited in an escrow described in the definitions of Annual Debt Service and Maximum Annual Debt Service, each such time that moneys are released from such escrow, other than to prepay a portion of the Loan or Panty Debt, an amount of such released moneys shall be deposited in the applicable Reserve Account as is necessary to ensure that the amount on deposit therein at least equals the Reserve Requirement for the Loan or Parity Debt after such release. Special Fund means the fund by that name established and held hereunder by the Agency pursuant to each of the loan agreements related to the 2003 Parity Debt. Subordinate Debt means any loans, advances or indebtedness issued or incurred by the Agency pursuant to any Loan Agreement, which are either: (a) payable from, but not secured by a pledge of or lien upon, the Tax Revenues; or (b) secured by a pledge of or lien upon the Tax Revenues which is subordinate to the pledge of and lien upon the Tax Revenues hereunder for the security of the applicable Loan. Taxable Parity Debt means Parity Debt the interest on which is included in gross income for federal income tax purposes. Tax-exempt Parity Debt means Parity Debt the interest on which is excluded from gross income for federal income tax purposes. Tax Revenues means all taxes annually allocated within the Plan Limit and paid to the Agency with respect to the applicable Project Area following the Closing Date, pursuant to Article 6 of Chapter 6 (commencing with Section 33670) of the Redevelopment Law and Section 16 of Article XVI of the Constitution of the State and other applicable state laws and as B-23

152 provided in the Redevelopment Plan, including all payments, subventions and reimbursements, if any, to the Agency specifically attributable to ad valorem taxes lost by reason of tax exemptions and tax rate limitations (but excluding payments to the Agency with respect to personal property within the Project Area pursuant to Section et seq. of the California Government Code); and including that portion of such taxes, if any, otherwise required by Section of the Redevelopment Law to be deposited in the Low and Moderate Income Housing Fund, but only to the extent necessary to repay that portion of the proceeds of the Loan and any Parity Debt (including applicable reserves and financing costs) used to finance or refinance the increasing or improving of the supply of low and moderate income housing within or of benefit to the Project Area, but excluding all other amounts of such taxes required to be deposited into the Low and Moderate Income Housing Fund and excluding Investment Earnings. The Loan; Establishment of Funds; Parity Debt Terms of Loans. The principal of each Loan and interest shall be payable in installment payments to be made no later than August 25 and February 20 (or if the applicable August 25 or February 20 is not a Business Day, then on the next preceding Business Day), or such earlier date as the Agency may set forth in a separate instrument, in each of the years and in the amounts, as set forth in the Loan Agreements. It is understood that installment payments under the Constituent Loan Agreements shall be applied by the Trustee to the payment of the Bonds on the next succeeding Interest Payment Date, as more particularly provided in the Indenture. In the event principal of any Loan shall be prepaid in part or otherwise discharged pursuant to the optional prepayment provisions of the applicable Loan Agreement, the principal component of each annual installment shall be reduced in the same amount as the amount of Bonds redeemed with respect to the related maturity as further provided in the written directions of the Agency to the Trustee referred to in the provisions of the Indenture, and the interest component of each such installment shall be reduced so as to reflect the interest due on the Bonds on the corresponding Interest Payment Date which is being paid pursuant to such Loan, as further provided in said written instructions. Further, to the extent that moneys are available in the Interest Account or Principal Account held under the Indenture, the Agency may elect to apply the Proportionate Share of such moneys to interest or principal payments due under such Loan. Interest on each installment of principal of each Loan has been calculated at the annual interest rate payable by the Authority on the Bonds on the basis of a 360-day year of twelve 30-day months, and shall accrue on the unpaid principal of each Loan from and including the Closing Date to, but not including, the Interest Payment Date with respect to which such installment of principal is payable. Interest on each Loan shall be payable on each Interest Payment Date. Any installment of principal or interest which is not paid when due shall continue to accrue interest from and including the Interest Payment Date with respect to which such principal or interest is payable to but not including the date of actual payment. In the event that the Agency shall be delinquent in making any payment due under the terms of any Loan Agreement, the Agency shall pay to the Trustee, in addition to the amounts B-24

153 due under the applicable Loan Agreement, all amounts necessary to reimburse the applicable Reserve Account for draws thereon (including interest on such draws computed at the yield on the Bonds) due to such late payment. Payments on each Loan shall be payable by the Agency to the Trustee, as assignee of the Authority under the Indenture, in immediately available funds which constitute lawful money of the United States of America at the times as set forth in the Applicable Loan Agreement. Optional Prepayment. The principal of the Loan shall be subject to optional prepayment in part on any date from any available source of funds, at the prepayment prices (expressed as a percentage of the principal amount of the Bonds to be redeemed from the proceeds of such prepayment) set forth in, and pursuant to, the optional redemption provisions of the Indenture. Costs of Issuance Fund. Each Loan Agreement establishes a fund to be held by the Agency known as the Costs of Issuance Fund into which shall be transferred the proceeds of the Loans initially deposited in the Loan Fund pursuant to each of the Constituent Loan Agreements. The moneys in the Costs of Issuance Fund shall be used to pay Costs of Issuance from time to time upon receipt of a Request of the Agency. On the date which is 90 days following the Closing Date, or upon the earlier date that all Costs of Issuance have been paid, the Agency shall transfer all remaining amounts in the Costs of Issuance Fund to the Project Funds established pursuant to the provisions of each of the Constituent Loan Agreements. Reserve Accounts. Each Loan Agreement establishes a Reserve Account to be held by the Trustee in trust for the benefit of the Authority and the Owners of the Bonds. Each Reserve Account shall be maintained at the Reserve Requirement at all times prior to the payment of the applicable Loan in full pursuant to the provisions of the applicable Loan Agreement, except to the extent required for the purposes set forth in the provisions relating to the applicable Reserve Account. The Agency reserves the right, with respect to all or any portion of the Reserve Requirement to substitute, at any time and from time to time, one or more Qualified Credit Instruments for cash or any Qualified Credit Instrument then on deposit in or held in the applicable Reserve Account. Any such Qualified Credit Instrument shall provide that the Trustee is entitled to draw amounts thereunder when required by the provisions of the Indenture to make transfers from the applicable Reserve Account to the Interest Account and the Principal Account in the event of a deficiency in any such account; provided that, in any such event, the Trustee shall first apply to any such deficiency the amount of cash (including cash represented by investments) then on deposit in such Reserve Account. Upon deposit by the Agency with the Trustee of any such Qualified Credit Instrument, the Trustee shall withdraw from the applicable Reserve Account and transfer to the Agency for deposit in the Redevelopment Fund, an amount equal to the principal amount of such Qualified Credit Instrument. In the event that the Agency shall fail to deposit with the Trustee the full amount required to be deposited pursuant to the provisions of the transfer of Tax Revenues on or before the third (3) Business Day preceding any Interest Payment Date, on such Interest Payment Date, the Trustee shall withdraw from the Reserve Account and transfer to the Interest Account and the Principal Account, in such order, the difference between the amount required to be deposited B-25

154 pursuant to the provisions of the applicable Loan Agreement and the amount actually deposited by the Agency. In the event that there shall not then be sufficient cash available in the Reserve Account to transfer the full amount of the difference from the Reserve Account, before the end of the third Business Day preceding any Interest Payment Date, the Trustee shall make a demand for payment on any applicable Qualified Credit Instrument for the amount of the deficiency, all in the manner and as provided in such Qualified Credit Instrument, and shall deposit the amount received from the issuer of the Qualified Credit Instrument pursuant to such demand into the Interest Account and the Principal Account, in such order, the difference between the amount required to be deposited pursuant to the provisions of the applicable Loan Agreement and the amount actually deposited by the Agency and transferred from the applicable Reserve Account. In the event such Reserve Account has on deposit more than one Qualified Credit Instrument, the Trustee shall draw on such Qualified Credit Instruments on a pro-rata basis. In the event that the amount on deposit in the applicable Reserve Account on the third Business Day preceding any Interest Payment Date (other than the final Interest Payment Date) exceeds the Reserve Requirement (including in any such calculation the then principal amount of any applicable Qualified Credit Instrument, including any reinstatement of the principal thereof), the Trustee shall, at the Request of the Agency, withdraw from such Reserve Account and transfer to the Agency the amount of Investment Earnings which are in excess of the Reserve Requirement for application pursuant to the provisions of the applicable Loan Agreement. At the Request of the Agency filed with the Trustee, all amounts in a Reserve Account shall either (a) be credited, on the third (3) Business Day preceding the final Interest Payment Date, to the deposit then required to be made by the Agency pursuant to the applicable Loan Agreement; or (b) transferred, on the final Interest Payment Date, to the Agency to be used for any lawful purpose relating to the Project Area. Notwithstanding the foregoing provisions, no amounts shall be withdrawn from the Reserve Account and transferred to the Agency during any period in which an Event of Default shall have occurred and be continuing under the applicable Loan Agreement. The Trustee shall maintain adequate records, verified with the provider of any Qualified Credit Instrument, as to the amount available to be drawn at any given time under such Qualified Credit Instrument, and as to amounts paid and owing to such provider under the terms of any applicable agreement. Redevelopment Fund. Each Loan Agreement establishes a separate fund to be known as the Applicable Project Area Redevelopment Fund (each, a Redevelopment Fund ), which shall be held and maintained by the Agency. Amounts on deposit in the Redevelopment Fund, if any, shall be derived solely from the proceeds of the applicable Loan and from the interest, profits and other income received from the investment of moneys in the Redevelopment Fund. Moneys in the Redevelopment Fund shall be used solely in the manner provided by the Redevelopment Law and the Redevelopment Plan. The Agency shall pay moneys from the Redevelopment Fund upon receipt of claims thereon and signed by at least one duly authorized officer or member of the Agency. The Agency warrants that no withdrawal shall be made from the Redevelopment Fund for any purpose not authorized by law and shall be for payment or reimbursement for costs incurred with respect to the Redevelopment Project. B-26

155 Issuance of Subordinate Debt. In addition to the Loan and Parity Debt, the Agency may issue or incur Subordinate Debt in such principal amount as shall be determined by the Agency. Validity of Loans. The validity of each Loan shall not be dependent upon the completion of the Redevelopment Project or upon the performance by any person of its obligation with respect to the Redevelopment Project. Pledge of Tax Revenues; Application of Funds Pledge of Tax Revenues. Each Loan and all Parity Debt shall be equally secured for the benefit of the Authority and the Owners of the Bonds by a pledge of and lien on all of the Tax Revenues, without preference or priority for series, issue, number, dated date, sale date, date of execution or date of delivery. The payment obligations of the Agency pursuant to any Qualified Credit Instrument shall be secured for the benefit of the provider thereof by a pledge and lien on all of the Tax Revenues which pledge and lien shall be subordinate to the pledge and lien securing the Loan and any Parity Debt. The Loan shall be additionally secured for the benefit of the Authority and the Owners of the Bonds by a first pledge of and lien upon all of the moneys in the applicable Reserve Account, excluding Investment Earnings. The Tax Revenues are allocated in their entirety to the payment of the principal of and interest on the Loan and all Parity Debt. Except for the Tax Revenues and the applicable Reserve Account, no funds or properties of the Agency are pledged to, or otherwise liable for, the payment of principal of or interest or premium, if any, on any Loan. Pledged Revenue Fund; Debt Service Fund; Deposit of Tax Revenues. Each Loan Agreement establishes a special fund (the Pledged Revenue Fund ), which shall be held by the Agency. The Agency shall deposit all of the Pledged Tax Revenues received in any Bond Year in the Pledged Revenue Fund promptly upon the receipt thereof. Any Tax Revenues received during such Bond Year in excess of Pledged Tax revenues for such Bond Year shall be released from the pledge and lien hereunder and may be used for any lawful purpose of the Agency. Prior to the payment in full of the principal of and interest and prepayment premium, if any, on the Loan and all Parity Debt and the payment in full of all other amounts payable hereunder and under any Parity Debt Instrument, the Agency shall not have any beneficial right or interest in the moneys on deposit in the Pledged Revenue Fund, except as provided in this Series B Loan Agreement and in any Parity Debt Instrument, and such moneys shall be used and applied as set forth herein and in any Parity Debt Instrument. Each Loan Agreement also establishes another special fund (the Debt Service Fund ), which shall be held by the Agency. The Agency shall timely transfer from the Pledged Revenue Fund ratably to the Special Fund, the Debt Service Fund and in any applicable debt service fund created by any Parity Debt Instrument promptly upon receipt thereof by the Agency, until such time, if any, during such Bond Year as the amounts on deposit in the such debt service funds equal the aggregate amounts required to be transferred to the Trustee pursuant to Section 3.03 for such Bond Year; and (except as may be otherwise provided in any Parity Debt Instrument). In the event that there are insufficient Pledged Tax Revenues to make all payments required into the Special Fund, the Debt Service Fund and into any other applicable debt service funds created by Parity Debt Instruments, the Agency shall allocate Pledged Tax Revenues from the Pledged Revenue Fund among the Special Fund, the Debt service Fund and any applicable debt service B-27

156 funds created by Parity Debt Instruments on a proportionate basis based on the relative amount of Pledged Tax Revenues that would have been required to make all such deposits in full. Transfer of Tax Revenues to Trustee. The Agency shall withdraw from the Special Fund and transfer to the Trustee the following amounts at the following times and in the following order of priority: (a) Payment Amount. No later than each February 20 and August 25 of each year, commencing February 20, 2007, the Agency shall withdraw from the Special Fund and transfer to the Trustee an amount equal to the payment amount on the Loan becoming due and payable on the applicable Interest Payment Date. (b) Reserve Account Deposits. In the event that the Trustee shall notify the Agency that the amount on deposit in the Reserve Account under a Loan Agreement is less than the Reserve Requirement, or the Agency has withdrawn amounts on deposit in the Reserve Account to make payments on the applicable Loan, the Agency shall immediately withdraw from the Special Fund and transfer to the Trustee for deposit in the Reserve Account an amount of money necessary to maintain amounts on deposit therein at the Reserve Requirement; provided that amounts required to be transferred to the Reserve Account shall, if necessary, first be used to reinstate the principal amount of any applicable Qualified Credit Instrument and shall then be used to replenish any cash portion of the Reserve Requirement. No such transfer and deposit need be made to the Reserve Account so long as there shall be on deposit therein a sum at least equal to the Reserve Requirement. (c) Surplus. Except as may be otherwise provided in any Parity Debt Instrument, the Agency shall not be obligated to deposit in the Special Fund in any Bond Year an amount of Tax Revenues which, together with other available amounts in the Special Fund, exceeds the amounts required to be transferred to the Trustee in such Bond Year. In the event that for any reason whatsoever any amounts shall remain on deposit in the Special Fund on any September 2 after making all of the transfers theretofore required to be made pursuant to the preceding clauses (a) and (b) and pursuant to any Parity Debt Instrument, the Agency may withdraw such amounts from the Special Fund for use for any lawful purposes of the Agency. Investment of Moneys; Valuation of Investments. All moneys in the Pledged Revenue Fund, the Debt Service Fund and the Project Fund shall be invested by the Agency solely in Permitted Investments, maturing no later than the respective dates on which such moneys are estimated by the Agency to be required for application to the Redevelopment Project or required to be deposited with the Trustee pursuant to the provisions of the applicable Loan Agreement. All moneys in each Reserve Account shall be invested by the Trustee solely in Permitted Investments pursuant to the direction of the Agency given to the Trustee (and promptly confirmed in writing by the Agency) in advance of the making of such investments. In the absence of any such direction from the Agency, the Trustee shall invest any such moneys in Permitted Investments described in clause (h) of the definition thereof. B-28

157 During the period beginning on the date of issuance of the Bonds and ending on the date on which all amounts in the Redevelopment Fund have been expended in accordance with the provisions of the applicable Loan Agreement, Investment Earnings on moneys in the Redevelopment Fund shall be deposited into the Redevelopment Fund and, thereafter, such Investment Earnings shall be transferred by the Agency to the Special Fund and used to pay debt service on the Bonds. Permitted Investments acquired as an investment of moneys in any fund or account held under any Loan Agreement shall be credited to such fund or account. For the purpose of determining the amount in any fund, the value of Permitted Investments credited to such fund shall be calculated at the market value thereof excluding accrued interest. Permitted Investments on deposit in the Reserve Accounts shall be valued by the Trustee at least annually. In making any valuation of Permitted Investments hereunder, the Trustee may utilize computerized securities pricing services that may be available to it, including those available through its regular accounting system and rely thereon. Other Covenants of the Agency Punctual Payment. The Agency will punctually pay or cause to be paid the principal of and interest on the Loans together with any prepayment premiums thereon in strict conformity with the terms of the applicable Loan Agreement, and it will faithfully observe and perform all of the conditions, covenants and requirements of the Loan Agreement. Limitation on Superior Debt. (a) The Agency covenants that, so long as a Loan remains unpaid, the Agency shall not issue any bonds, notes or other obligations, enter into any agreement or otherwise incur any loans, advances or indebtedness, which is in any case secured by a lien on all or any part of the Tax Revenues which is superior to or on a parity with the lien established hereunder for the security of the Loan, excepting only Parity Debt issued pursuant to the provisions of the applicable Loan Agreement. (b) The Agency has determined that the Low and Moderate Income Housing Fund of each redevelopment project financed or refinanced pursuant to the Loan Agreements (including applicable reserve and financing and interest costs), is not less than is required pursuant to Redevelopment Law. As a result, the Agency shall have available sufficient Tax Revenues from the Project Area for the pledge set forth in each respective Loan Agreement. Additionally, if and to the extent the Trustee is obligated to make a draw on a Reserve Account due to an insufficiency of Tax Revenues to make payments on the applicable Loan, the Agency shall transfer Tax Revenues attributable to such Project Area to the Trustee to replenish the applicable Reserve Account to the extent and as permitted by the applicable Loan Agreement. Books and Accounts; Financial Statement. The Agency will keep, or cause to be kept, proper books of record and accounts, separate from all other records and accounts of the Agency and the City, in which complete and correct entries shall be made of all transactions relating to B-29

158 each of the Project Areas, the Tax Revenues, the Pledged Revenue Fund, the Debt Service Fund, the Project Fund and the Reserve Account and the accounts therein, established by the Indenture or the applicable Loan Agreement. Such books of record and accounts shall at all times during business hours be subject, upon prior written request, to the reasonable inspection of the Authority, the Trustee and the Owners of any Bonds then Outstanding, or their representatives authorized in writing. Taxation of Leased Property. All amounts derived by the Agency pursuant to the provisions of Section of the Redevelopment Law with respect to the lease of property for redevelopment shall be treated as Tax Revenues for all purposes of each Loan Agreement, and shall be paid to the Agency for deposit in the Special Fund. Disposition of Property. The Agency will not participate in the disposition of any land or real property in any of the Project Areas to anyone which will result in such property becoming exempt from taxation because of public ownership or use or otherwise (except property dedicated for public right-of-way and except property planned for public ownership or use by the Redevelopment Plan in effect on the date of the applicable Loan Agreement) so that such disposition shall, when taken together with other such dispositions, aggregate more than 10% of the land area in the applicable Project Area unless such disposition is permitted as hereinafter provided in the applicable Loan Agreement. If the Agency proposes to participate in such a disposition, it shall thereupon appoint an Independent Redevelopment Consultant to report on the effect of said proposed disposition. If the Report of the Independent Redevelopment Consultant concludes that the security of the Loan or the rights of the Authority, the Bond Owners and the Trustee under the applicable Loan Agreement will not be materially impaired by said proposed disposition, the Agency may thereafter make such disposition. If said Report concludes that such security will be materially impaired by said proposed disposition, the Agency shall disapprove said proposed disposition. Maintenance of Tax Revenues. The Agency shall comply with all requirements of the Redevelopment Law to insure the allocation and payment to it of the Tax Revenues, including without limitation the timely filing of any necessary statements of indebtedness with appropriate officials of the Agency. The Agency shall not enter into any agreement with the City or any other governmental unit which would have the effect of reducing the amount of Tax Revenues generated by the applicable Project Area available to the Agency for payment of each Loan. Nothing in the Loan Agreements is intended or shall be construed in any way to prohibit or impose any limitations on the entering into by the Agency of any such agreement, amendment or supplement which by its terms is subordinate to the payment of the Loan and all Parity Debt. Compliance with Law, Completion of Project. The Agency will comply with all applicable provisions of the Law in completing the applicable Redevelopment Project including, without limitation, duly noticing and holding any public hearing required by either Sections or of the Law prior to application of proceeds of the Bonds to any portion of the applicable Redevelopment Project subject to either Section or In addition, the Agency will comply timely with the public hearing and further requirements of Section The Agency will also comply with the requirements of Section 33675, including filing any required statements of indebtedness with the County Auditor-Controller. The Agency will commence, and will continue to completion, with all practicable dispatch, the Redevelopment B-30

159 Projects and the Projects will be accomplished and completed in a sound and economical manner and in conformity with the Redevelopment Plan and the Redevelopment Law. No Arbitrage. The Agency and the Authority shall not take, nor permit nor suffer to be taken by the Trustee, or otherwise, any action with respect to the proceeds of the Series N Bonds or the tax exempt portion of the Loan for the Pacoima/Panorama City Project Area which, if such action had been reasonably expected to have been taken, or had been deliberately and intentionally taken, on the Closing Date would have caused the Series N Bonds or the Tax- Exempt Series B Loan to be arbitrage bonds within the meaning of Section 148 of the Code. Private Business Use Limitation. The Authority and the Agency shall assure that: (c) not more than 10% of the Proceeds of the Series N Bonds is used for Private Business Use if, in addition, the payment of the principal of, or the interest on, more than 10% of the Proceeds of the Series N Bonds is, under the terms of the Series N Bonds or any underlying arrangement, directly or indirectly (i) secured by any interest in property, or payments in respect of property, used or to be used for a Private Business Use; or (ii) to be derived from payments, whether or not to the Authority or the Agency, in respect of property or borrowed money used or to be used for a Private Business Use; and (d) in the event that an amount in excess of 5% of the Proceeds of the Series N Bonds is used for a Private Business Use, and, in addition, the payment of the principal of, or the interest on, more than 5% of the Proceeds of the Series N Bonds during the term thereof is, under the terms of the Series N Bonds or any underlying arrangement, directly or indirectly secured by any interest in property, or payments in respect of property, used or to be used for said Private Business Use or is to be derived from payments, whether or not to the Authority or the Agency, in respect of property or borrowed money used or to be used for a Private Business Use, then, (i) said excess over 5% of the Proceeds of the Series N Bonds which is used for a Private Business Use shall be used for a Private Business Use related to a government use of such Proceeds; and (ii) each such Private Business Use over 5% of the Proceeds of the Series N Bonds which is related to a government use of such Proceeds shall not exceed the amount of such Proceeds which is used for the government use of Proceeds to which such Private Business Use is related. Limitation on Use of Proceeds. The Authority and the Agency shall assure that the Proceeds of the Series N Bonds and the tax exempt portion of the Loan for the Pacoima/Panorama City Project Area are not used, directly or indirectly, to make loans to two or more ultimate borrowers (including governmental units) and in the event that loans are made, directly or indirectly, to a single borrower other than a governmental unit, the Authority and the Agency shall assure that not in excess of 5% of the Proceeds of the Series N Bonds the tax exempt portion of the Loan for the Pacoima/Panorama City Project Area is used for such purpose. The provisions of this section do not apply to loans constituting Nonpurpose Investments or to loans which enable the borrower to finance any governmental tax or assessment of general application for specific essential governmental functions. Federal Guarantee Prohibition. The Authority and the Agency shall not take any action or permit or suffer any action to be taken if the result of the same would be to cause any of the B-31

160 Series N Bonds or the tax exempt portion of the Loan for the Pacoima/Panorama City Project Area to be federally guaranteed within the meaning of Section 149(b) of the Code. Redevelopment of Project Area. The Agency shall ensure that all activities undertaken by the Agency with respect to the redevelopment of the Project Area are undertaken and accomplished in conformity with all applicable requirements of the Redevelopment Plan and the Redevelopment Law. Without limiting the generality of the foregoing, the Agency covenants that it shall deposit or cause to be deposited in the Low and Moderate Income Housing Fund all amounts when, as and if required to be deposited, therein pursuant to the Redevelopment Law, and shall use such amounts as required by the Redevelopment Law. Events of Default and Remedies Events of Default and Acceleration of Maturities. The following events shall constitute Events of Default under each of the Loan Agreements: (a) failure by the Agency to pay the principal of or interest or prepayment premiums, if any, on the applicable Loan or any Parity Debt when and as the same shall become due and payable; (b) failure by the Agency to observe and perform any of the covenants, agreements or conditions on its part contained in the applicable Loan Agreement, other than as referred to in the preceding clause (a), for a period of 30 days after written notice specifying such failure and requesting that it be remedied has been given to the Agency by the Trustee; provided, however, that if in the reasonable opinion of the Agency the failure stated in such notice (other than a failure to pay the fees and expenses of the Trustee) can be corrected, but not within such 30-day period, the Trustee shall not unreasonably withhold its consent to an extension of such time if corrective action is instituted by the Agency within such 30-day period and diligently pursued until such failure is corrected; and (c) the Agency commences a voluntary action under Title 11 of the United States Code or any substitute or successor statute. If an Event of Default has occurred and is continuing, the Trustee shall, upon the written direction of the Owners of a majority of the aggregate principal amount of Bonds Outstanding (which shall be the Bond Insurer, acting alone, if the Bond Insurer is not in default under the Financial Guaranty Insurance Policy), (i) declare the principal of the applicable Loan, together with the accrued interest on all unpaid installment payments thereof, to be due and payable immediately, and upon any such declaration the same shall become immediately due and payable, anything in the applicable Loan Agreement to the contrary notwithstanding; and (ii) subject to receipt of indemnity satisfactory to the Trustee, exercise any other remedies available to the Trustee in law or at equity. Immediately upon becoming actually aware of the occurrence of an Event of Default, the Trustee shall give notice of such Event of Default to the Agency and the Bond Insurer by telephone, facsimile or other telecommunication device, promptly confirmed in writing. The Trustee shall not be deemed to have actual knowledge of an Event of Default (other than the failure by the Agency to pay the principal of or interest or B-32

161 prepayment premiums, if any, on the applicable Loan when and as the same shall become due) until a Responsible Officer of the Trustee shall have been given written notice thereof. This provision, however, is subject to the condition that if, at any time after the principal of the applicable Loan shall have been so declared due and payable, and before any judgment or decree for the payment of the moneys due shall have been obtained or entered, the Agency shall deposit with the Trustee a sum sufficient to pay all payments on the applicable Loan matured prior to such declaration, with interest on such overdue payments at the rate then borne by the Outstanding Bonds, and the reasonable expenses of the Trustee (including but not limited to attorneys fees), and any and all other defaults known to the Trustee shall have been made good or cured to the satisfaction of the Trustee or provision deemed by the Trustee to be adequate shall have been made therefor, then, and in every such case, the Owners of a majority in aggregate principal amount of the Outstanding Bonds may, by written notice to the Trustee and the Agency rescind and annul such declaration and its consequences. However, no such rescission and annulment shall extend to or shall affect any subsequent default, or shall impair or exhaust any right or power consequent thereon. Application of Funds Upon Default. All amounts received by the Trustee pursuant to any right given or action taken by the Trustee under the provisions of the applicable Loan Agreement shall be applied by the Trustee in the following order: (a) to the payment of the fees, costs and expenses of the Trustee in carrying out the provisions of the Loan Agreements, including reasonable compensation to its agents, attorneys and counsel; and (b) to the payment of all payments on the applicable Loan then due and unpaid, with interest on overdue payments to the extent permitted by law at the rate of interest then borne by the Outstanding Bonds; provided, however, that in the event such amounts shall be insufficient to pay in full the full amount of such interest and principal, then such amounts shall be applied in the order by which the overdue payments first became delinquent; and (c) to the payment of all amounts then due and payable to or on behalf of the provider of the Qualified Credit Instrument by the Agency under the terms of the Qualified Credit Instrument. No Waiver. Nothing in any other provision of the Loan Agreements, shall affect or impair the obligation of the Agency, which is absolute and unconditional, to pay from the Tax Revenues and other amounts pledged thereunder, the payments and prepayment premiums, if any, on the applicable Loan to the Trustee, as therein provided, or affect or impair the right of action, which is also absolute and unconditional, of the Trustee to institute suit to enforce such payment by virtue of the contract embodied in the applicable Loan Agreement. A waiver of any default by the Trustee shall not affect any subsequent default or impair any rights or remedies on the subsequent default. No delay or omission of the Trustee to exercise any right or power accruing upon any default shall impair any such right or power or shall be construed to be a waiver of any such default or an acquiescence therein, and every power and remedy conferred upon the Trustee by the Redevelopment Law or by the provisions of the B-33

162 applicable Loan Agreement may be enforced and exercised from time to time and as often as shall be deemed expedient by the Trustee. If a suit, action or proceeding to enforce any right or exercise any remedy shall be abandoned or determined adversely to the Trustee, the Agency and the Trustee shall be restored to their former positions, rights and remedies as if such suit, action or proceeding had not been brought or taken. Remedies Not Exclusive. No remedy conferred upon or reserved to the Trustee is intended to be exclusive of any other remedy. Every such remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing, at law or in equity or by statute or otherwise, and may be exercised without exhausting and without regard to any other remedy conferred by the Redevelopment Law or any other law. Discharge of Loan Agreement. If the Agency shall pay and discharge all or a portion of the entire indebtedness on any Loan in any one or more of the following ways: (a) by paying or causing to be paid the payments and prepayment premiums, if any, on all or a portion of such Loan, as and when the same become due and payable; (b) by irrevocably depositing with the Trustee, in trust, at or before maturity, cash in an amount which, together with the available amounts then on deposit in any of the funds and accounts established pursuant to the Indenture or the applicable Loan Agreement, is fully sufficient to pay all or a portion of the payments and prepayment premiums, if any, on such Loan; or (c) by irrevocably depositing with the Trustee or any other fiduciary, in trust, Federal Securities in such amount as an Independent Accountant shall determine will, together with the interest to accrue thereon and available moneys then on deposit in the funds and accounts established pursuant to the Indenture or pursuant to the applicable Loan Agreement, be fully sufficient to pay and discharge all or a portion of the indebtedness on such Loan (including all payments and prepayment premiums) at or before maturity; then, at the election of the Agency but only if all other amounts then due and payable hereunder, including any amounts owed to the provider of a Qualified Credit Instrument, shall have been paid or provision for their payment made, the pledge of and lien upon the Tax Revenues and other funds provided for in the applicable Loan Agreement and all other obligations of the Trustee, the Authority and the Agency under the applicable Loan Agreement with respect to that portion of such Loan so prepaid and discharged shall cease and terminate, except only the obligation of the Agency to pay or cause to be paid to the Trustee, from the amounts so deposited with the Trustee or such other fiduciary, all sums due with respect to such Loan and all expenses and costs of the Trustee and the provider of any Qualified Credit Instrument. Notice of such election shall be filed with the Authority, and the Trustee. Any funds thereafter held by the Trustee under such Loan Agreement, which are not required for said purpose, shall be paid over to the Agency. B-34

163 APPENDIX C EXCERPTS FROM THE AUDITED FINANCIAL STATEMENTS OF THE AGENCY Fiscal Year Ended June 30, 2005

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165 THE COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF LOS ANGELES, CALIFORNIA Comprehensive Annual Financial Report For the Fiscal Year Ended June 30, 2005 Prepared by: FINANCE AND ACCOUNTING DIVISION Randall K. Wilkins Chief Financial Officer Ras Mallari Chief Accounting Officer COORDINATION AND CONTROL Eleanor A. Memije Accounting Manager Sylvia Amaya Principal Accountant PREPARATION AND ASSISTANCE Teresita Carreon-De Leon Senior Accountant Teresita Cruz Senior Accountant De Dinh Accounting Assistant Special Assistance Accounts Payable Budgets Business Operations and Asset Management Finance Graphics Information Technology Payroll

166 THE COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF LOS ANGELES, CALIFORNIA Comprehensive Annual Financial Report For the Fiscal Year Ended June 30, 2005 TABLE OF CONTENTS INTRODUCTORY SECTION Letter of Transmittal...1 GFOA Certificate of Achievement for Excellence in Financial Reporting...5 CRA Board of Commissioners...6 CRA Organizational Chart...7 List of Elected and Appointed City Officials...8 FINANCIAL SECTION Independent Auditor s Report...9 Management s Discussion and Analysis...11 Basic Financial Statements: Government-wide Financial Statements: Statement of Net Assets...21 Statement of Activities...22 Fund Financial Statements: Balance Sheet Governmental Funds...23 Reconciliation of the Balance Sheet of Governmental Funds to the Statement of Net Assets of Governmental Activities...24 Statement of Revenues, Expenditures, and Changes in Fund Balances Governmental Funds...25 Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds to the Statement of Activities of Governmental Activities...26 Statement of Net Assets Proprietary Funds...28 Statement of Revenues, Expenses, and Changes in Fund Net Assets Proprietary Funds...29 Statement of Cash Flows Proprietary Funds...30 Statement of Fiduciary Net Assets Agency Funds...31 Notes to Basic Financial Statements: Note 1 Summary of Significant Accounting Policies...32 Note 2 Detailed Notes on All Funds...41 Note 3 Other Information...57 Required Supplementary Information: Schedule of Funding Progress Employees Pension Plan...64 Schedule of Revenues, Expenditures, and Changes in Fund Balances Budget and Actual: Housing Fund...65 Special Revenue Fund...66 Note to Required Supplementary Information...67 Other Supplementary Information: Schedule of Revenues, Expenditures, and Changes in Fund Balances Budget and Actual: Capital Projects Fund...68 Debt Service Fund...69

167 THE COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF LOS ANGELES, CALIFORNIA Comprehensive Annual Financial Report For the Fiscal Year Ended June 30, 2005 TABLE OF CONTENTS - (Continued) FINANCIAL SECTION (continued) Combining Statement of Net Assets Internal Service Funds...70 Combining Statement of Revenues, Expenses, and Changes in Fund Net Assets Internal Service Funds Combining Statement of Cash Flows Internal Service Funds...72 Combining Statement of Fiduciary Net Assets Agency Funds...73 Statement of Changes in Assets and Liabilities Agency Funds...74 Combined Balance Sheet By Redevelopment Project Area...75 Combined Schedule of Revenues, Expenditures, and Changes in Fund Balances by Redevelopment Project Area...81 Schedule of Third-Party Indebtedness STATISTICAL SECTION Government-wide Information: Expenses by Function Governmental Activities...90 Revenues by Source Governmental Activities...91 Fund Information: Expenditures by Function Governmental Funds...92 Revenues by Source Governmental Funds...93 Analysis of Debt Service Coverage Tax Allocation Bonds...94 Ratio of Annual Debt Service Expenditures to Total General Governmental Expenditures...95 Top Ten Assessees within Each Redevelopment Project Area...96 Assessed Valuations All Redevelopment Project Areas...97 CRA/LA Project Areas...98 Map of Project Locations...99 Project Area Statistical Summaries Insurance Coverage COMPLIANCE SECTION Independent Auditor s Report on Compliance with Laws, Regulations, and Administrative Requirements Governing California Redevelopment Agencies...110

168 fy05 Introductory Section Collage of photographic images from projects in the East Valley region - North Hollywood, Laurel Canyon and Pacoima/Panorama City.

169 Community Redevelopment Agency of the CITY OF LOS ANGELES DATE / FILE CODE / 354 South Spring Street / Suite 800 Los Angeles / California T / F December 15, 2005 To the Honorable Mayor, Members of the City Council, City Controller, and the Board of Commissioners of The Community Redevelopment Agency of the City of Los Angeles: California redevelopment law requires redevelopment agencies to publish and transmit to their governing bodies and the State Controller within six months of the close of each fiscal year a complete set of financial statements presented in conformity with generally accepted accounting principles (GAAP) and audited in accordance with generally accepted auditing standards by a firm of licensed certified public accountants. Pursuant to that requirement, we hereby issue the comprehensive annual financial report of The Community Redevelopment Agency of the City of Los Angeles (Agency) for the fiscal year ended June 30, This report consists of management s representations concerning the finances of the Agency. Consequently, management assumes full responsibility for the completeness and reliability of all the information presented in this report. To provide a reasonable basis for making these representations, management of the Agency has established a comprehensive internal control framework that is designed both to protect the Agency s assets from loss, theft, or mis use and to compile sufficient reliable information for the preparation of the Agency s financial statements in conformity with GAAP. Because the cost of internal controls should not outweigh their benefits, the Agency s comprehensive framework of internal controls has been designed to provide reasonable rather than absolute assurance that the financial statements will be free from material misstatement. As management, we assert that, to the best of our knowledge and belief, this financial report is complete and reliable in all material respects. The Agency s financial statements have been audited by Simpson and Simpson, Certified Public Accountants. The goal of the independent audit was to provide reasonable assurance that the Agency s financial statements for the fiscal year ended June 30, 2005 are free of material misstatement. The independent audit involved examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements; assessing the accounting principles used and significant estimates made by management; and evaluating the overall financial statement presentation. Based upon the audit, the independent auditor concluded that there was a reasonable basis for rendering an unqualified opinion that the Agency s financial statements for the fiscal year ended June 30, 2005 are fairly presented in conformity with GAAP. The independent auditor s report is presented as the first component of the financial section of this report. GAAP require that management provide a narrative introduction, overview, and analysis to accompany the basic financial statements in the form of Management s Discussion and Analysis (MD&A). This letter of transmittal is designed to complement the MD&A and should be read in conjunction with it. The Agency s MD&A can be found immediately following the report of the independent auditor. -1-

170 Community Redevelopment Agency of the CITY OF LOS ANGELES PROFILE OF THE AGENCY The Agency was established by the Los Angeles City Council (City Council) in 1948 under State Law to devise and implement geographically-based action strategies to check and reverse physical and economic blight in the City of Los Angeles (City) most distressed urban neighborhoods. The Agency will direct governmental and private sector investments, as necessary in implementing these strategies and in undertaking the necessary steps required to engender new investment and growth in these areas. Toward these ends, the Agency provides technical and financial assistance to a variety of partners, including (a) neighborhood-based groups that promote a mission of empowering the community by working toward the achievement of a healthy economic and social infrastructure; (b) residents who seek to take part in the City s prosperity; (c) investors who understand the importance and the needs of the urban markets; and (d) the urban labor pool. The Agency lends assistance to investors willing to take a risk for a more vibrant City, to neighborhood residents exhibiting confidence in their communities, and to those in need who seek to take part in the City s prosperity. As of June 30, 2005, the Agency operated 34 redevelopment project areas and a revitalization project area. The Agency finances a variety of programs in each redevelopment project area, including creating and rehabilitating housing and commercial housing developments, façade improvements and streetscapes, reconstructing deteriorated public facilities and improvements, public art, and grant programs. All Agency activities must be consistent with the goals and objectives of the respective project s redevelopment plan and five-year implementation plan. Historically, over fifty percent of the Agency revenues come from incremental property taxes. Pursuant to state law, the Agency is required to spend at least 20 percent of this revenue on lowand moderate-income housing. Other revenue sources include grants, bond proceeds, leases, proceeds from sale of land, loan collections, and interest income. Due to the nature of redevelopment financing and changes in the financial reporting requirements established by the Government Accounting Standards Board (GASB) under GASB 34, Agency liabilities normally exceed assets, thus resulting in a deficit in the statement of net assets. Redevelopment activities, which benefit and increase property assessed values in the redevelopment project areas, are primarily financed through the issuance of tax allocation bonds. Proceeds from these tax allocation bonds are used for infrastructure projects, commercial and housing loans, and project operations. The tax allocation bond issues, which are secured by future tax increment revenues, are carried as liabilities in the Agency books. However, the uses of the bond proceeds do not result in equivalent Agency assets. Infrastructure projects are turned over to the City and loans receivable are carried in the Agency books at amounts substantially lower than cost. A Board of seven commissioners appointed by the Mayor and confirmed by the City Council oversees the Agency. A Chief Executive Officer appointed by the Board directs the Agency staff and its operations. Under the Oversight Ordinance adopted in 1991, every action of the Agency is subject to City Council review and/or approval. The Oversight Ordinance also designated the City Controller and City Attorney as the Agency s controller and legal counsel, respectively. -2-

171 Community Redevelopment Agency of the CITY OF LOS ANGELES Budgetary control. The Agency s annual budget serves as the foundation for financial planning and control. The budget is prepared under the guidelines established by State redevelopment law and the City of Los Angeles budget ordinance. The budget is approved by the City Council and adopted by the Agency Board prior to the start of the fiscal year. In addition, because the Agency s budget is prepared well in advance of the fiscal year to which it relates, the budget is regularly amended for changes in available resources and project objectives with the approval of the Agency Board and the City Council. The appropriated budget is prepared by fund, redevelopment project, cost center, and objective. The City Budget Ordinance allows Agency management to increase or decrease an objective based on predefined limits. Beyond such limits, the Agency Board and the City Council must approve increases and decreases in expenditures. An objective is defined as a specific project or type of work being performed within a redevelopment project area. A more detailed discussion of the Agency budget can be found in the accompanying Note to Required Supplementary Information on page 67. The budget-to-actual comparison for housing and special revenue funds is presented in the Required Supplementary Information of this report on pages 65 and 66, whereas, the budget-toactual comparison for capital projects and debt service funds is presented in the Other Supplementary Information on pages 68 and 69. FACTORS AFFECTING FINANCIAL CONDITION The information presented in the financial statements is perhaps best understood when it is considered from the broader perspective of the specific environment within which the Agency operates. Local economy. Various economic indicators project continued modest growth in 2006 for the Southern California region. In addition to these favorable economic indicators, the Agency continues to benefit from the relatively strong real estate market, which is primarily responsible for the better than expected growth in assessed valuation. State budget deficits. To help alleviate the State of California s budget deficits, State law requires redevelopment agencies to shift tax increment revenues to K-12 schools and community colleges, amounting to $75 million in fiscal year 2003, $135 million in fiscal year 2004, $250 million in fiscal year 2005, and another $250 million in fiscal year The Agency s share was $2,109,000 in fiscal year 2003, $3,950,000 in fiscal year 2004, $8,348,000 in fiscal year 2005, and will be approximately $9,000,000 in fiscal year Cash management policies and practices. In accordance with the Agency Investment Policy, cash temporarily idle during the year was invested in obligations of the U.S. Treasury or U.S. governmental agencies, certificates of deposits, bankers acceptances, repurchase agreements, commercial paper, the Local Agency Investment Fund administered by the State of California, and guaranteed investment contracts. The maturities of the investments range from days to years, with an average maturity of approximately five months. For the fiscal year ended June 30, 2005, the average yield on investments was 3.06 percent. -3-

172 Community Redevelopment Agency of the CITY OF LOS ANGELES Risk management. As part of its risk management program, the Agency carries commercial and general insurance policies. The cost of the insurance is allocated to all the redevelopment projects. A schedule of the Agency s insurance policies appears on page 109. Pension and other postemployment benefits. The Agency provides pension benefits to its employees. These benefits are provided through the California Public Employees Retirement System, an agent multiple-employer defined benefit pension plan. The Agency also provides postretirement health and dental care benefits for certain retirees and their dependents. As of the end of fiscal year 2005, there were 91 retired employees receiving these benefits, which are financed on a pay-as-you-go basis. Additional information on the Agency s pension arrangements and postemployment benefits can be found in notes 3-A and 3-B in the Notes to Basic Financial Statements and in the Required Supplementary Information on page 64. AWARDS AND ACKNOWLEDGMENTS The Government Finance Officers Association (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to the Agency for its comprehensive annual financial report (CAFR) for the fiscal year ended June 30, This was the third consecutive year the Agency achieved this prestigious award. In order to be awarded a Certificate of Achievement, the Agency published an easily readable and efficiently organized CAFR. This report satisfied both GAAP and applicable legal requirements. A Certificate of Achievement is valid for a period of one year only. We believe that our current CAFR continues to meet the Certificate of Achievement Program s requirements and we are submitting it to the GFOA to determine eligibility for another certificate. The preparation of this report would not have been possible without the efficient and dedicated efforts of the staff of the Finance and Accounting Division. We would like to express our appreciation to other Agency staff that assisted in the preparation of this report. Credit must also be given to the Agency Board of Commissioners and the City Controller s Office for their unfailing support for maintaining the highest standards of professionalism in the management of the Agency s finances. Respectfully submitted, Randall K. Wilkins, Chief Financial Officer Richard L. Benbow, Acting Chief Executive Officer -4-

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174 THE COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF LOS ANGELES, CALIFORNIA BOARD OF COMMISSIONERS William H. Jackson Chairman Madeline Janis-Aparicio Vice-Chair Joan Ling Treasurer Bruce D. Ackerman Member John A. Pérez Member Brenda Shockley Member Shu Kwan Woo Member -6-

175 THE COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF LOS ANGELES, CALIFORNIA Organizational Chart CRA Board of Commissioners Acting Chief Executive Officer Richard L. Benbow Human Resources Chief Financial Officer (CFO) Chief Operating Officer (COO) Finance Accounting Technical Services and Program Development Public Affairs Regional Project Clusters Budgets Audits and Compliance Information Technology Business Operations and Asset Management Administrative Services Environmental Planning Real Estate Acquisition and Relocation Housing Engineering West Valley Hollywood & Central East Valley Downtown GIS Strategic Planning Eastside South Los Angeles Resources Development Cultural Arts Los Angeles Harbor Appraisal Services -7-

176 CITY OFFICIALS City of Los Angeles, California Antonio Villaraigosa Mayor Rockard J. Delgadillo City Attorney Laura Chick City Controller Alex Padilla 7th District Council President Wendy Greuel 2nd District President Pro-Tempore Ed P. Reyes 1st District Dennis P. Zine 3rd District Tom LaBonge 4th District Jack Weiss 5th District Tony Cárdenas 6th District Bernard Parks 8th District Jan Perry 9th District Herb J. Wesson, Jr. 10th District Bill Rosendahl 11th District Greig Smith 12th District Eric Garcetti 13th District José Huizar 14th District Janice Hahn 15th District NON-ELECTED FISCAL OFFICERS Director of Finance Antoinette D. Christovale City Treasurer Joya C. De Foor City Administrative Officer William T Fujioka City Purchasing Agent & General Manager Department of General Services Alvin Y. Blain -8-

177 fy05 Financial Section collage of photographic images from projects in the West Valley region - Reseda/ Canoga Park

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179

180 MANAGEMENT S DISCUSSION AND ANALYSIS

181 THE COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF LOS ANGELES, CALIFORNIA Management s Discussion and Analysis June 30, 2005 As management of The Community Redevelopment Agency of the City of Los Angeles (Agency), we offer readers of the Agency s financial statements this narrative overview and analysis of the financial activities of the Agency for the fiscal year ended June 30, We encourage readers to consider the information presented here in conjunction with additional information that we have furnished in our letter of transmittal, which can be found on pages one through four of this report. Financial Highlights The liabilities of the Agency exceeded its assets at the close of the fiscal year 2005 by $150,115,000 (deficit). Of this net deficit of $150,115,000, $343,425,000 is either net assets invested in capital assets or restricted for capital projects, low and moderate-income housing activities, and debt service. The remaining deficit of $493,540,000 will be paid out of future Agency revenues, primarily pledged tax increment to be collected in future years (page 21). The Agency s total deficit decreased by $55,941,000. While the governmental activities net assets increased by $57,029,000, the business-type activities net assets decreased by $1,088,000 (page 22). As of the close of fiscal year 2005, the Agency s governmental funds reported combined ending fund balances of $281,465,000, an increase of $12,579,000 in comparison with the prior year. Approximately 38.7 percent of this total amount, $108,807,000, has been appropriated in the 2006 fiscal year budget (page 23). The Agency s long-term debt at June 30, 2005 net of unamortized premiums/discounts and deferred amounts from refunding totaled $649,033,000, a decrease of $17,684,000 from prior year s balance of $666,717,000 (page 49). Overview of the Financial Statements This discussion and analysis are intended to serve as an introduction to the Agency s basic financial statements. The Agency s basic financial statements consist of three components: 1) government-wide financial statements, 2) fund financial statements, and 3) notes to basic financial statements. This report also contains required and other supplementary information in addition to the basic financial statements. Government-wide financial statements. The government-wide financial statements are designed to provide readers with a broad overview of the Agency s finances, in a manner similar to a private sector business. The statement of net assets presents information on all of the Agency s assets and liabilities, with the difference between the two reported as net assets. Over time, increases or decreases in net assets may serve as a useful indicator of whether the financial position of the Agency is improving or deteriorating. The statement of activities presents information showing how the Agency's net assets changed during the current fiscal year. All changes in net assets are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of the related cash flows. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future fiscal periods (e.g., uncollected revenues, and earned but unused vacation leave). -11-

182 THE COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF LOS ANGELES, CALIFORNIA Management s Discussion and Analysis - (Continued) June 30, 2005 The governmental activities of the Agency include housing, community and economic development, public improvement, project general, and debt service while the business-type activity of the Agency includes an Agencyowned and operated public parking facility. The government-wide financial statements can be found on pages 21 and 22 of this report. Fund financial statements. A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The Agency, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. All of the funds of the Agency can be divided into three categories: governmental funds, proprietary funds, and fiduciary funds. Governmental funds. Governmental funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements. However, unlike the government-wide financial statements, governmental fund financial statements focus on near-term inflows and outflows of spendable resources, as well as on balances of spendable resources available at the end of the fiscal year. Such information may be useful in evaluating a government's near-term financing requirements. Because the focus of governmental funds is narrower than that of the government-wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government-wide financial statements. By doing so, readers may better understand the long-term impact of the government's near-term financing decisions. Both the governmental fund balance sheet and the governmental fund statement of revenues, expenditures, and changes in fund balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities. This reconciliation can be found on pages 24, 26 and 27. The Agency maintains four individual governmental funds. Information is presented separately in the governmental fund balance sheet and in the governmental fund statement of revenues, expenditures, and changes in fund balances for the capital projects fund, debt service fund, housing fund, and special revenue fund, which are all considered to be major funds. The governmental fund financial statements can be found on pages 23 and 25 of this report. The Agency adopts an annual appropriated budget for all governmental funds. To demonstrate compliance with this budget, a budgetary comparison statement has been provided for the housing and special revenue funds in the Required Supplementary Information on pages 65 and 66, and the capital projects and debt service funds in the Other Supplementary Information on pages 68 and 69. Proprietary funds. The Agency maintains two different types of proprietary funds. An enterprise fund is used to report the same functions presented as business-type activities in the government-wide financial statements. The Agency uses an enterprise fund to account for the operation of a public parking garage financed by a parking revenue bond. Internal service funds are an accounting device used to accumulate and allocate costs and revenues internally among the Agency s various functions. The Agency uses internal service funds to account for its personnel and administrative costs, an investment pool, and the transactions of its financing authority. Because all of these functions predominantly benefit governmental rather than business-type functions, they have been included within governmental activities in the government-wide financial statements. -12-

183 THE COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF LOS ANGELES, CALIFORNIA Management s Discussion and Analysis - (Continued) June 30, 2005 Proprietary fund financial statements provide the same type of information as the government-wide financial statements, only in more detail. The proprietary fund financial statements provide separate information for the above functions. Conversely, these internal service funds are combined into a single, aggregated presentation in the proprietary fund financial statements. The proprietary fund financial statements can be found on pages 28 through 30 of this report. Fiduciary funds. Fiduciary funds are used to account for resources held for the benefit of parties outside the Agency. Fiduciary funds are not reflected in the government-wide financial statements because the resources of those funds are not available to support the Agency s own programs. The accounting method used for fiduciary funds is much like that used for proprietary funds except that the fiduciary funds do not have a measurement focus. The fiduciary fund financial statement can be found on page 31 of this report. Notes to basic financial statements. The notes provide additional information that is essential to a full understanding of the data provided in the government-wide and fund financial statements. The notes to basic financial statements can be found on pages 32 through 63 of this report. Other information. In addition to the basic financial statements and accompanying notes, this report also presents required supplementary information concerning the funding progress of the employees pension plan of the Agency on page 64 of this report, and a budgetary comparison for the housing and special revenue funds on pages 65 and 66 of this report. Other supplementary information concerning the Agency s budgetary comparison for capital projects and debt service funds, financial statements of the internal service funds, financial statements of the fiduciary funds, financial statements of individual redevelopment project areas, and third-party indebtedness is presented on pages 68 through 89. Government-wide Financial Analysis As noted earlier, net assets may serve over time as useful indicator of a government s financial position. As of the close of fiscal year 2005, the liabilities of the Agency exceeded its assets by $150,115,000 (deficit). Of this net deficit amount, $55,881,000 is invested in capital assets and $287,544,000 represents restricted net assets for capital projects, low and moderate-income housing activities, and debt service. The remaining balance of $493,540,000 represents a deficit, which will be paid out of future Agency revenues. The largest portion of the Agency s deficit is caused by the outstanding long-term debt of $649,033,000. This is primarily due to the nature of redevelopment financing, whereby the Agency issues bonds or incurs long-term debt to finance a substantial portion of its redevelopment activities which include infrastructure projects, housing, public parking, commercial and retail projects, community development activities, and others. Although infrastructure assets are transferred to the City of Los Angeles, the debt remains with the Agency. The Agency also provides gap financing in other types of redevelopment activities and any equity assumed in these projects is usually significantly less than the underlying expenses. In addition to the public purpose of these redevelopment activities, they are designed to generate additional tax increment resources, to service the Agency s debt and finance additional projects. The Agency s deficit decreased by $55,941,000 during the current fiscal year. This amount is higher than the decrease of $20,398,000 in fiscal year The decrease in the Agency s deficit is primarily due to the $29,113,000 increase in the loan valuation of its loan portfolio at June 30,

184 THE COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF LOS ANGELES, CALIFORNIA Management s Discussion and Analysis - (Continued) June 30, 2005 The following table summarizes the Agency s net assets (in thousands of dollars): Agency s Net Assets (Deficit) June 30, 2005 June 30, 2004 Governmental Business-type Governmental Business-type Activities Activities Total Activities Activities Total Current and other assets $ 331,196 $ 3,504 $ 334,700 $ 279,640 $ 3,485 $ 283,125 Restricted assets 71,415 6,079 77,494 71,009 5,814 76,823 Land held for redevelopment 39,157-39,157 40,746-40,746 Capital assets, net of accumulated depreciation and amortization 67,909 33, ,868 71,489 34, ,092 Total assets 509,677 43, , ,884 43, ,786 Current and other liabilities 51,479 2,822 54,301 43,819 2,306 46,125 Long-term debt liabilities, net of unamortized premium, discount, and deferred amount on refunding 603,046 45, , ,942 45, ,717 Total liabilities 654,525 48, , ,761 48, ,842 Net assets: Invested in capital assets, net of related debt 67,909 (12,028) 55,881 71,489 (11,172) 60,317 Restricted net assets 281,465 6, , ,886 5, ,700 Deficit (494,222) 682 (493,540) (542,252) 1,179 (541,073) Total deficit $ (144,848) $ (5,267) $ (150,115) $ (201,877) $ (4,179) $ (206,056) Governmental Activities. During fiscal year 2005, governmental activities reduced the deficit by $57,029,000 or 28.2 percent of prior year s total deficit. Key elements for the decreases in the deficit are as follows: Total revenues for fiscal year 2005 decreased by $1,213,000 or 0.8 percent. The decrease in grant revenues of $16,041,000 or 41.1 percent was mostly offset by the growth of all other revenues sources. The primary revenue increase came from incremental property taxes, which grew by $12,205,000 or 13.4 percent. The continuing strength of the real estate market accounted for this higher than expected growth of incremental property taxes. Total expenses increased slightly by $156,000 or 0.1 percent from fiscal year Program expenses other than debt service totaled $84,793,000 or 73.7 percent of the total expenses, an increase of $3,218,000 or 3.9 percent. The combined decrease of $9,017,000 in community and economic development and public improvement expenditures was due to the slower than anticipated implementation of various capital projects. This decrease was offset by an increase of $4,091,000 and $8,144,000 in housing and project general expenditures, respectively. The increase in project general expenditures was mostly due to a $4,398,000 increase in ERAF contributions and higher personnel and related costs. -14-

185 THE COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF LOS ANGELES, CALIFORNIA Management s Discussion and Analysis - (Continued) June 30, 2005 Interest expense on long-term debt decreased by $3,062,000 or 9.2 percent. This was primarily attributable to the Agency refinancing of several bond issues resulting in lower interest costs on its borrowings. The net increase in the valuation of the Agency s loan portfolio of $29,113,000 contributed 52.0 percent of the $55,941,000 decrease in the Agency s deficit. The increase in the value of the Agency s loan portfolio reflects the recognition of the higher value of the real estate pledged to these loans and lower interest rates. The following table and charts provide a summary of the Agency s revenues and expenses for its governmental activities (in thousands of dollars): Agency's Changes in Net Assets - Governmental Activities Fiscal Year Ended June 30, 2005 June 30, 2004 * Revenues: Program revenues: Capital grants and contributions $ 23,016 $ 39,057 Charges for services 5,018 3,975 General revenues: Incremental property taxes 103,231 91,026 Interest income 10,874 9,298 Other Total revenues 143, ,255 Program expenses: Housing 25,200 21,109 Community and economic development 17,088 23,297 Public improvement 7,851 10,659 Project general 34,654 26,510 Sub-total 84,793 81,575 Interest on long-term debt 30,333 33,395 Total expenses 115, ,970 Special item: Net change in loan valuation 29,113 (8,887) Change in net assets 57,029 20,398 Deficit - beginning of year (201,877) (222,275) Deficit - end of year $ (144,848) $ (201,877) *Certain reclassifications have been made to the 2004 program expenses to conform to the the current year presentation. -15-

186 THE COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF LOS ANGELES, CALIFORNIA Management s Discussion and Analysis - (Continued) June 30, 2005 Expenses and Program Revenues - Governmental Activities Fiscal Year 2005 $40,000 $35,000 $30,000 Expenses Revenues $25,000 $20,000 $15,000 $10,000 $5,000 $0 Housing Community and Economic Development Public Improvement Project General Interest on Long-Term Debt Revenues by Source - Governmental Activities Fiscal Year 2005 Community & Economic Development 6.5% Interest Income 7.6% Housing 6.8% Incremental Property Taxes 72.2% Charges for Services 3.5% Public Improvement 2.0% Project General 0.8% Other 0.6% -16-

187 THE COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF LOS ANGELES, CALIFORNIA Management s Discussion and Analysis - (Continued) June 30, 2005 Business-Type Activities. A public parking garage financed with parking revenue bonds started operations in March The net loss on the garage of $1,088,000 increased the deficit to $5,267,000. The following summarizes the operating results of the Agency s enterprise fund for the year ended June 30, 2005 (in thousands of dollars): Agency's Changes in Net Assets - Business-type Activities Fiscal Year Ended June 30, 2005 June 30, 2004 Revenues: Parking receipts $ 3,690 $ 2,647 Interest income Other Total revenues 3,941 2,978 Expenses: Parking activities 5,029 4,584 Change in net assets (1,088) (1,606) Deficit - beginning of year (4,179) (2,573) Deficit - end of year $ (5,267) $ (4,179) Expenses and Program Revenues - Business-type Activities Fiscal Year 2005 $6,000 $5,000 $4,000 $3,000 $2,000 $1,000 $0 Expenses Revenues Parking Activities Interest Income Other Revenue Revenues by Source - Business-type Activities Fiscal Year 2005 Parking Receipts 93.6% Interest Income 5.5% Other Revenue.9% -17-

188 THE COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF LOS ANGELES, CALIFORNIA Management s Discussion and Analysis - (Continued) June 30, 2005 Financial Analysis of the Agency's Funds As noted earlier, the Agency uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. Governmental funds. The focus of the Agency s governmental funds is to provide information on near-term inflows, outflows, and balances of spendable resources. Such information is useful in assessing the Agency s financing requirements. In particular, the unreserved fund balance serves as a useful measure of the Agency s net resources available for spending at the end of the fiscal year. Individual fund information of governmental funds reported by the Agency include the capital projects fund, debt service fund, housing fund, and special revenue fund, which are all considered major funds. As of June 30, 2005, the Agency s governmental funds reported a combined ending fund balance of $281,465,000, an increase of $12,579,000 in comparison with the prior year. Of the $281,465,000, $172,658,000 is reserved for debt service, low and moderate-income housing activities, advances to other funds, and encumbrances. The remaining $108,807,000, which is approximately 38.7 percent of the total fund balance constitutes the unreserved fund balance. This amount is available for spending and has been appropriated in the fiscal year 2006 budget. Capital Projects Fund. The capital projects fund is used to account for redevelopment expenditures from tax increment, bond proceeds, federal grants, and project program income. The balance of this fund at the end of the current fiscal year amounted to $117,045,000, an increase of $2,135,000 from prior year s fund balance. Compared to last year, this increase is significantly lower than the $40,384,000 increase in prior year s fund balance when several debt issuances were made. Debt Service Fund. The debt service fund is used to accumulate resources to pay for principal, interest, and other related costs on the Agency s long-term debt. As of June 30, 2005, the debt service fund has a total balance of $60,169,000 all of which is reserved for debt service. This fund balance showed an increase of $3,746,000 from the prior year s amount. The increase in the fund balance was mainly due to lower interest expense as a result of debt restructuring and refunding of several Agency bonded indebtedness. Housing Fund. The housing fund primarily accounts for the portion of tax increment and related revenue designated for low and moderate-income housing. State law requires redevelopment agencies to set aside at least 20 percent of tax increment for low and moderate-income housing projects. At the end of the fiscal year, the housing fund balance increased by $7,515,000 to a total of $90,101,000. The increase is primarily due to decrease in expenditures caused by delays in implementing various housing projects. The entire fund balance is reserved for low and moderateincome housing projects. Special Revenue Fund. The special revenue fund is used to account for revenues and expenditures from specific sources such as developer contributions, City participation, art fund contributions, and local grants. In fiscal year 2005, the fund balance of this fund decreased by $817,000 to $14,150,000. Proprietary funds. The Agency s proprietary funds provide the same type of information found in the governmentwide financial statements, but in more detail. As of June 30, 2005, the Agency-owned parking garage showed a deficit of $5,267,000. Other factors concerning the operation of the Agency-owned parking garage have already been addressed in the discussion of the Agency s business-type activities. -18-

189 THE COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF LOS ANGELES, CALIFORNIA Management s Discussion and Analysis - (Continued) June 30, 2005 Capital Assets The Agency s investments in capital assets net of accumulated depreciation and amortization for its governmental and its business-type activities as of June 30, 2005 totaled $67,909,000 and $33,959,000, respectively. The Agency s capital assets include land, building and improvements, equipment, and a multi-level public parking facility. This 1725-car public parking facility located in the Hollywood Redevelopment Project area, which was financed by the issuance of $44,235,000 of parking revenue bonds, was opened for business in March Additional information on the Agency s capital assets can be found in note 2-C on pages 44 and 45 of this report. Debt Administration At June 30, 2005, the Agency s long-term debt liabilities of $649,033,000, net of unamortized bond premium/discount and deferred amounts on refunding is summarized as follows (in thousands of dollars): Agency s Long-Term Debt Governmental Business-type Activities Activities Total Tax allocation bonds $ 512,154 $ - $ 512,154 Parking revenue bonds - 41,623 41,623 Notes payable 14,878 4,364 19,242 Payable to the City 76,014-76,014 Total $ 603,046 $ 45,987 $ 649,033 As of June 30, 2005, the Agency had forty tax allocation bonds and one parking revenue bond outstanding, totaling $553,777,000, net of unamortized bond premiums, discounts, and related items of $6,369,000. Of the 40 tax allocation bond issues, 28 are insured. Twenty-three (23) insured bond issues are rated Aaa/AAA, and five (5) bond issues are rated A. This equates to 86.9 percent of the principal amount of bonds issued as insured. The remaining bonds are uninsured and have investment grade ratings. Additional information on the Agency s long-term debt can be found in note 2-F on pages 48 through 55 of this report. Economic Factors and Next Year's Budget and Rates Employment. According to the Los Angeles County Economic Development Corporation (LAEDC), the 2004 average non-farm unemployment rate for Los Angeles County was at 6.6 percent. The LAEDC is projecting non-farm unemployment rates of 5.5 percent and 5.6 percent for 2005 and 2006, respectively. Personal income growth. LAEDC projected total personal income growth for Los Angeles County of 6.5 percent for

190 THE COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF LOS ANGELES, CALIFORNIA Management s Discussion and Analysis - (Continued) June 30, 2005 Inflation rate. The LAEDC estimated the inflation rate for the Southern California area as measured by the consumer price index, in the 4.3 percent range for 2005 calendar year. All of the above economic factors were considered in preparing the Agency s budget for fiscal year As of June 30, 2005, the Agency s governmental funds showed an unreserved fund balance of $108,807,000. As part of the Agency s budget process as described in the note to required supplementary information on page 67, this amount was appropriated in the fiscal year 2006 budget. Other Matters School transfers. Due to the State budget crisis, California Redevelopment Agencies were required to transfer tax increment revenues to the Educational Revenue Augmentation Fund (ERAF). The Agency s share in fiscal years 2003, 2004, and 2005 were $2,109,000, $3,950,000, and $8,348,000, respectively. The State Department of Finance has determined the Agency s share to be approximately $9,000,000 for fiscal year Requests for Information This financial report is designed to provide a general overview of the Agency s finances for all those with an interest in such information. Questions concerning any of the information provided in this report or requests for additional financial information should be addressed to the Office of the Chief Financial Officer, The Community Redevelopment Agency of the City of Los Angeles, 354 South Spring Street, Los Angeles, California

191 fy05 Basic Financial Statements Collage of photographic images from projects in the Hollywood & Central Region - East Hollywood, Hollywood, Mid-City Corridors, Pico Union I, Pico Union II, Westlake and Wilshire Center/ Koreatown.

192 THE COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF LOS ANGELES, CALIFORNIA Statement of Net Assets June 30, 2005 (In Thousands) Governmental Business-type Activities Activities Total ASSETS Cash and cash equivalents $ 127,793 $ 316 $ 128,109 Unrestricted investments 101, ,842 Receivables: Incremental property taxes 3,809-3,809 Grants 4,983-4,983 Accrued interest 1,244-1,244 Other, net of uncollectibles of $291 3, ,310 Loans receivable, net of allowance for market value write-downs and uncollectibles of $457,145 68,605-68,605 Restricted assets 71,415 6,079 77,494 Deferred charges 11,392 2,194 13,586 Court and other deposits for land acquisition 6,963-6,963 Land held for redevelopment 39,157-39,157 Capital assets, net of accumulated depreciation and amortization of $21,232: Land 59,133 10,428 69,561 Building and improvements 7,601 23,521 31,122 Equipment 1, ,185 Other assets 1,249-1,249 Total assets 509,677 43, ,219 LIABILITIES Accounts payable and accrued liabilities 4, ,339 Accrued vacation and sick leave payable 2,600-2,600 Interest payable 16,125 1,824 17,949 Unearned revenue 6,529-6,529 Deposits and other liabilities 21, ,884 Noncurrent liabilities: Due within one year 27, ,436 Due in more than one year 575,305 45, ,597 Total liabilities 654,525 48, ,334 NET ASSETS (DEFICIT) Invested in capital assets, net of related debt 67,909 (12,028) 55,881 Restricted for: Capital projects 131, ,195 Low and moderate-income housing activities 90,101-90,101 Debt service 60,169 6,079 66,248 Unrestricted (494,222) 682 (493,540) Total net assets (deficit) $ (144,848) $ (5,267) $ (150,115) See accompanying notes to basic financial statements. -21-

193 THE COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF LOS ANGELES, CALIFORNIA Statement of Activities For the Fiscal Year Ended June 30, 2005 (In Thousands) Program Revenues Net (Expenses) Revenues and Change in Net Assets Charges Capital for Grants and Governmental Business-type Functions/Programs Expenses Services Contributions Activities Activities Total Governmental activities: Program expenses: Housing $ 25,200 $ - $ 9,711 $ (15,489) $ - $ (15,489) Community and economic development 17,088 5,018 9,383 (2,687) - (2,687) Public improvement 7,851-2,830 (5,021) - (5,021) Project general 34,654-1,092 (33,562) - (33,562) Interest on long-term debt 30, (30,333) - (30,333) Total governmental activities 115,126 5,018 23,016 (87,092) - (87,092) Business-type activities: Parking activities 5,029 3, (1,339) (1,339) Total business-type activities 5,029 3, (1,339) (1,339) Total government-wide $ 120,155 $ 8,708 $ 23,016 (87,092) (1,339) (88,431) General revenues: Incremental property taxes 103, ,231 Interest income 10, ,090 Other Total general revenues 115, ,259 Special item: Net change in loan valuation 29,113-29,113 Change in net assets 57,029 (1,088) 55,941 Net assets (deficit) - beginning of year (201,877) (4,179) (206,056) Net assets (deficit) - end of year $ (144,848) $ (5,267) $ (150,115) -22-

194 THE COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF LOS ANGELES, CALIFORNIA Balance Sheet Governmental Funds June 30, 2005 (In Thousands) ASSETS Total Capital Debt Special Governmental Projects Service Housing Revenue Funds Cash and cash equivalents $ 3,588 $ - $ 1 $ 40 $ 3,629 Unrestricted investments 742-1,024 1,085 2,851 Receivables: Incremental property taxes 3, ,809 Grants 4, ,983 Accrued interest Other, net of uncollectibles of $291 3, ,266 Due from other funds 115,911 16,951 89,763 16, ,086 Loans receivable, net of allowance for market value write-downs and uncollectibles of $457,145 33,187-34, ,605 Restricted assets 5,458 50,144-1,379 56,981 Advances to other funds 8, ,627 Other assets Total assets $ 178,735 $ 67,104 $ 125,609 $ 20,530 $ 391,978 LIABILITIES AND FUND BALANCES Liabilities: Accounts payable and accrued liabilities $ 1,794 $ - $ 739 $ 118 $ 2,651 Due to other funds 8,521 5,705-3,331 17,557 Advances from other funds 7, ,452 Unearned revenue 38,956-34,769 1,409 75,134 Other liabilities 5,127 1,230-1,362 7,719 Total liabilities 61,690 6,935 35,508 6, ,513 Fund balances: Reserved for: Debt service - 60, ,169 Low and moderate-income housing activities ,251-79,251 Advances to other funds 1, ,175 Encumbrances 20,073-10,850 1,140 32,063 Unreserved, designated for continuing work programs 95, , ,807 Total fund balances 117,045 60,169 90,101 14, ,465 Total liabilities and fund balances $ 178,735 $ 67,104 $ 125,609 $ 20,530 $ 391,978 See accompanying notes to basic financial statements. -23-

195 THE COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF LOS ANGELES, CALIFORNIA Reconciliation of the Balance Sheet of Governmental Funds to the Statement of Net Assets of Governmental Activities June 30, 2005 (In Thousands) Amounts reported for governmental activities in the statement of net assets are different because: Fund balances of all governmental funds (page 23) $ 281,465 Long-term receivables are not available to pay for current expenditures and are deferred on the modified accrual basis. Loans receivable 68,605 Deposits held by the Los Angeles County Court and other deposits for land acquisition are not spendable financial resources, therefore, are not reported as assets in governmental funds. 6,963 Land held for redevelopment are not spendable financial resources, therefore, are not reported as assets in governmental funds. 39,157 Land, building and improvements are not spendable financial resources, therefore, are not reported as assets in governmental funds. 66,734 Interfund receivable/payable between the enterprise fund and the capital projects fund in governmental funds have been eliminated for financial statement presentation. This interfund receivable/payable do not affect the govermental activities. 7 Bond issuance costs are expended in governmental funds when paid, however, are deferred and amortized over the life of the corresponding bonds for purposes of the statement of net assets. Unamortized bond issuance costs 11,392 Interest payable on long-term debt does not require the use of current financial resources, therefore, is not accrued as a liability in the balance sheet of governmental funds. (16,125) Long-term debt is not due and payable in the current period, therefore, is not reported in governmental funds. Long-term debt $ (608,103) Unamortized premiums, discounts, and deferred amounts on refunding 5,057 (603,046) Deficit of governmental activities (page 21) $ (144,848) See accompanying notes to basic financial statements. -24-

196 THE COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF LOS ANGELES, CALIFORNIA Statement of Revenues, Expenditures, and Changes in Fund Balances - Governmental Funds For the Fiscal Year Ended June 30, 2005 (In Thousands) Total Capital Debt Special Governmental Projects Service Housing Revenue Funds Revenues: Incremental property taxes $ 103,231 $ - $ - $ - $ 103,231 Grants 16, ,187 18,080 Interest income 7, , ,874 Proceeds from sale of land 10,384-1,377-11,761 Loan repayments 989-1, ,572 Rental income 5, ,018 Developer participation City participation ,220 4,250 Other 3, ,971 Total revenues 147, ,978 6, ,443 Expenditures: Current: Program salaries and administrative costs, including technical and professional personnel 29,071-2, ,388 Real estate and other acquisition costs 8, ,632 9,996 Housing 6,219-6, ,419 Rehabilitation ,233 Public improvement 3, ,642 Relocation 1,347-1, ,473 Development loans 7,421-1,659-9,080 Community service ERAF payments 8, ,348 Tax increment administrative fees 1, ,024 Other 9, ,139 2,880 19,757 Debt service: Principal - 30, ,297 Interest expense - 28, ,446 Bond issuance costs Total expenditures 77,635 59,111 20,508 6, ,403 Revenues over (under) expenditures 69,596 (58,682) (14,530) 656 (2,960) Other financing sources (uses): Issuance of long-term debt 15, ,543 Discount on issuance of debt (4) (4) Transfers in (out) (83,000) 62,428 22,045 (1,473) - Total other financing sources (uses) (67,461) 62,428 22,045 (1,473) 15,539 Net change in fund balances 2,135 3,746 7,515 (817) 12,579 Fund balances, beginning of year 114,910 56,423 82,586 14, ,886 Fund balances, end of year $ 117,045 $ 60,169 $ 90,101 $ 14,150 $ 281,465 See accompanying notes to basic financial statements. -25-

197 THE COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF LOS ANGELES, CALIFORNIA Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds to the Statement of Activities of Governmental Activities For the Fiscal Year Ended June 30, 2005 (In Thousands) Amounts reported for governmental activities in the statement of activities are different because: Net change in fund balances - governmental funds (page 25) $ 12,579 New loans, loan repayments, and related items recognized in governmental funds are reported in the statement of net assets as increases (decreases) in the loans receivable. New loans given during the fiscal year $ 13,960 Loan repayments received: Retained by the Agency $ (2,572) Payable to the City (3,068) (5,640) Write-offs (4,020) Adjustments 19,918 Change in market valuation 9,195 33,413 The net effect of various transactions involving court and other deposits and land held for redevelopment is to increase (decrease) net assets. Change in court and other deposits for land acquisition (130) Change in land held for redevelopment (1,589) (1,719) The net effect of various transactions involving capital assets is to increase (decrease) net assets. Sale of land (2,067) Conveyance of land (982) Loss on sale of land 55 (2,994) Governmental funds report capital outlays as expenditures. However, in the statement of activities, the costs of these assets are allocated over their estimated useful lives and reported as depreciation or amortization expense. Amortization of leasehold improvements (474) Governmental funds report the effect of issuance costs when debt is first issued, whereas these amounts are deferred and amortized over the life of the debt in the statement of activities. Bond issuance costs 367 Amortization of bond issuance costs (628) (261) Continued -26-

198 THE COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF LOS ANGELES, CALIFORNIA Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds to the Statement of Activities of Governmental Activities (Continued) For the Fiscal Year Ended June 30, 2005 (In Thousands) Governmental funds report the effect of premiums, discounts, and similar items when debt is first issued, whereas these amounts are deferred and amortized over the life of the debt in the statement of activities. Deferred amounts on refunding bonds 3,614 Amortization of deferred amounts on refunding bonds (537) Premiums and discounts on issuance of debt 4 Amortization of bond premiums and discounts 61 3,142 Principal repayment of long-term debt is reported as an expenditure in the governmental funds, thus, has the effect of reducing fund balance because current financial resources have been used. However, the principal payments reduce the liabilities in the statement of net assets and do not result in an expense in the statement of activities. Principal payment on long-term debt 30,297 Accrued interest expense on long-term debt is reported in the statement of activities, but does not require the use of current financial resources. This amount represents the increase in accrued interest expense not reported in governmental funds. (1,411) Proceeds from issuance of debt are reported as other financing sources in governmental funds and, thus, contribute to the change in fund balances. However, issuing debt increases long-term liabilities in the statement of net assets and does not affect the statement of activities. Proceeds were received from: Tax allocation bonds (6,500) Notes payable (9,043) (15,543) Change in net assets of governmental activities (page 22) $ 57,029 See accompanying notes to basic financial statements. -27-

199 THE COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF LOS ANGELES, CALIFORNIA Proprietary Funds Statement of Net Assets June 30, 2005 (In Thousands) Governmental Activities Internal Service Business-type Activities Enterprise Fund ASSETS Current assets: Cash and cash equivalents $ 124,164 $ 316 Unrestricted investments 98,991 - Receivables: Accrued interest 1,195 - Other Due from other funds 5,408 7 Other assets 1,157 - Total current assets 230,965 1,310 Noncurrent assets: Restricted assets 14,434 6,079 Deferred charges - 2,194 Capital assets: Land - 10,428 Building and improvements - 25,534 Equipment 12, Less accumulated depreciation (10,961) (2,046) Total capital assets, net of accumulated depreciation 1,175 33,959 Total noncurrent assets 15,609 42,232 Total assets 246,574 43,542 LIABILITIES Current liabilities: Accounts payable and accrued liabilities 1, Accrued vacation and sick leave payable 2,600 - Interest payable - 1,824 Due to other funds 236,742 - Matured bonds payable Other liabilities 4, Total current liabilities 245,399 3,517 Noncurrent liabilities: Advances from other funds 1,175 - Notes payable - 4,364 Bonds payable - 40,928 Total noncurrent liabilities 1,175 45,292 Total liabilities 246,574 48,809 NET ASSETS (DEFICIT) Invested in capital assets, net of related debt - (12,028) Restricted for: Debt service - 6,079 Unrestricted Total net assets (deficit) $ - $ (5,267) See accompanying notes to basic financial statements. -28-

200 THE COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF LOS ANGELES, CALIFORNIA Proprietary Funds Statement of Revenues, Expenses, and Changes in Fund Net Assets For the Fiscal Year Ended June 30, 2005 (In Thousands) Governmental Activities Internal Service Business-type Activities Enterprise Fund Operating revenues: Parking receipts $ - $ 3,690 Other revenue - 35 Applied charges 32,388 - Total operating revenues 32,388 3,725 Operating expenses: Personnel compensation 13,469 - Employee benefits 11,852 - Central office expenses 4,132 - Depreciation expense Other administrative costs 2,340 1,483 Total operating expenses 32,388 2,134 Net income from operating activities - 1,591 Nonoperating revenues: Interest income 29, Total nonoperating revenues 29, Nonoperating expenses: Interest on long-term debt - 2,814 Amortization of bond issuance costs - 81 Interest income allocated to participating funds 29,347 - Total nonoperating expenses 29,347 2,895 Net loss from nonoperating activities - (2,679) Total deficit - beginning of year - (4,179) Total deficit - end of year $ - $ (5,267) See accompanying notes to basic financial statements. -29-

201 THE COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF LOS ANGELES, CALIFORNIA Proprietary Funds Statement of Cash Flows For the Fiscal Year Ended June 30, 2005 (In Thousands) Governmental Business-type Activities Activities Internal Enterprise Service Fund Cash flows from operating activities: Reimbursements for applied charges $ 32,388 $ - Parking receipts - 3,690 Payments to employees (25,321) - Payments to other vendors (5,941) (1,410) Net cash provided by operating activities * 1,126 2,280 Cash flows from capital and related financing activities: Acquisition of capital assets (483) (7) Principal paid on capital debt - (665) Interest paid on capital debt - (2,427) Deposit from developer Net cash used by financing activities (483) (2,271) Cash flows from investing activities: Proceeds from sale of investments 893,079 7,390 Purchase of investments (853,093) (7,655) Interest income 29, Interest allocated to other funds (29,347) - Deposits from other funds 131,599 - Payments to other funds (163,886) - Net cash used by investing activities 7,699 (49) Net increase (decrease) in cash and cash equivalents 8,342 (40) Cash and cash equivalents, beginning of year 115, Cash and cash equivalents, end of year $ 124,164 $ 316 * Reconciliation of operating income to net cash provided by operating activities: Net income from operating activities $ - $ 1,591 Adjustments to reconcile operating income to net cash provided (used) by operating activities: Depreciation and amortization expenses (Increase) decrease in other receivables 2 (140) Increase in due from other funds (2,732) - Decrease in other assets 10 - Increase in accounts payable and accrued liabilities Increase in accrued vacation and sick leave 54 - Increase in other liabilities 3, Increase in advance from other funds Net cash provided by operating activities $ 1,126 $ 2,280 See accompanying notes to basic financial statements. -30-

202 THE COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF LOS ANGELES, CALIFORNIA Fiduciary Funds Statement of Fiduciary Net Assets - Agency Funds June 30, 2005 (In Thousands) ASSETS Due from other funds $ 9,798 Restricted assets 2,449 Total assets $ 12,247 LIABILITIES Construction disbursements payable $ 8,484 Other liabilities: Good faith deposits payable 2,838 Unclaimed properties 257 Restitution of wages payable 567 Security deposits 101 Total liabilities $ 12,247 See accompanying notes to basic financial statements. -31-

203 NOTES TO BASIC FINANCIAL STATEMENTS

204 THE COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF LOS ANGELES, CALIFORNIA Notes to Basic Financial Statements June 30, 2005 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The financial statements of The Community Redevelopment Agency of the City of Los Angeles, California (Agency) have been prepared in conformity with generally accepted accounting principles (GAAP) as applied to government units. The Governmental Accounting Standards Board (GASB) is responsible for establishing GAAP for state and local governments through its pronouncements. The significant accounting principles and policies utilized by the Agency are described below. A. Reporting Entity The Agency was established by the Los Angeles City Council (City Council) in 1948 for the purpose of eliminating blight and promoting economic revitalization within designated project areas of the City of Los Angeles (City). As a quasi-governmental entity established pursuant to the Community Redevelopment Law of California as codified in the State of California Health and Safety Code, the Agency has no legislative authority. A Board of seven commissioners (Board of Commissioners) appointed by the Mayor and confirmed by City Council oversees the Agency. Under the Oversight Ordinance adopted in 1991, every action of the Agency is subject to City Council review and/or approval. Under GASB Statement No. 14, the Agency is considered a component unit of the City. The Agency s basic financial statements, which are discretely presented in the basic financial statements of the City, present an aggregation of a) funds associated with 34 redevelopment project areas and one revitalization area; b) funds received by the Agency that are designated for specific feasibility studies and housing uses; and c) other funds that may be used citywide for redevelopment purposes. The redevelopment project areas are separate, individual legal entities and are overseen by the Agency. CRFA, Blended Component Unit On June 5, 1992, based on a joint powers agreement, the Agency and the Agency s Industrial Development Authority created the Community Redevelopment Financing Authority (CRFA) for the purpose of issuing one or more pooled bond issues and other financings. By issuing bonds on a pooled basis, issuance costs can be reduced significantly, making previously uneconomic bond financings and refinancings feasible. The CRFA is an entity legally separate from the Agency but is governed by the same board as the Agency. For financial reporting purposes, the CRFA is blended into the Agency s basic financial statements as if it were part of the Agency s operations because its purpose is to provide bond financing services for the Agency. A separate standalone report for the CRFA may be obtained through the Office of the Chief Financial Officer of the Agency at 354 South Spring Street, Los Angeles, California B. Government-Wide and Fund Financial Statements The government-wide financial statements (i.e., the statement of net assets and the statement of activities) report information on all of the non-fiduciary activities of the Agency. For the most part, the effects of interfund activities have been removed from these statements. Governmental activities, which are normally supported by incremental property taxes, intergovernmental revenues and grants, are reported separately from business-type activities, which rely to a significant extent on fees. -32-

205 THE COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF LOS ANGELES, CALIFORNIA Notes to Basic Financial Statements June 30, 2005 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) The statement of activities demonstrates the degree to which the direct expenses of a given function or identifiable activity are offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or program. Direct expenses also include allocated indirect costs, such as staff salaries, rents, utilities, supplies, depreciation and amortization of capital assets, and other administrative costs. Program revenues include 1) charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given function or segment, and 2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or segment. Taxes and other revenue items not included among program revenues are reported instead as general revenues. Separate financial statements are provided for governmental funds, proprietary funds, and fiduciary funds, even though the latter are excluded from the government-wide financial statements. Major individual governmental funds and major individual proprietary funds are reported as separate columns in the fund financial statements. The Agency reports the following major funds: Governmental Funds: Capital Projects Fund This fund accounts for all revenues and costs of funding redevelopment activities such as land acquisitions, public improvements, relocations, and other project costs in compliance with the California redevelopment law. Revenues deposited in this fund include incremental property taxes, federal grants, and various project program income. Debt Service Fund The debt service fund is used to account for the accumulation of resources for, and the payment of, general long-term debt principal, interest, and related costs. Housing Fund This fund represents primarily the 20 percent set-aside of eligible incremental property tax revenue, which provides housing for low and moderate-income persons in redevelopment project areas, as required by State law. Starting with fiscal year 2003, the Agency increased its financial commitment to affordable housing from 20 percent to 25 percent of new tax increment revenues, and from 25 percent to as much as percent of new bond proceeds in alignment with the establishment of housing as a priority to support the City s Housing Trust Fund Initiative. Special Revenue Fund This fund is used to account for the proceeds from specific revenue sources such as developer contributions, art fund contributions, and local grants. Expenditures on this fund are restricted to specific projects. All of the above governmental funds have annual appropriated budgets. The budget-to-actual comparison of the governmental funds is shown in the Required Supplementary Information and Other Supplementary Information of this report (see also Note to Required Supplementary Information on page 67). Proprietary Funds: Enterprise Fund The enterprise fund is used for operations that are financed and operated in a manner similar to private business enterprises. The Agency uses this fund to account for activities related to a public -33-

206 THE COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF LOS ANGELES, CALIFORNIA Notes to Basic Financial Statements June 30, 2005 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) parking garage financed by tax-exempt parking revenue bonds with the intent of servicing the debt, and maintaining and operating the facility through revenues generated by the facility in accordance with the respective bond indenture. Internal Service Fund The Agency reports the following funds within its internal service fund: 1) Operating Fund The Agency uses an operating fund to account for costs of operating the Agency which include staff salaries, rents, utilities, supplies, depreciation and amortization of capital assets, and other administrative costs. These costs are allocated to projects through an indirect cost allocation plan based on each project s direct labor charges. 2) Investment Fund The Agency uses an investment fund to combine and invest resources of those funds (participating funds) that do not have yield restrictions or other limitations on investments. By combining resources, the Agency is able to increase its investment yield by creating a larger pool from which to invest its resources. Interest earned from these pooled investments is allocated to participating funds based on each fund s average daily equity balance during the fiscal year. Within the investment fund is a revolving cash account where all cash transactions are made. Cash transactions for each participating funds increase/decrease the equity of that fund in the investment fund while cash transactions for nonparticipating funds create a receivable/payable from/to the investment fund that are cleared periodically through fund transfers. 3) Financing Authority This fund accounts for the transactions of the CRFA, which is considered a blended component unit in the accompanying basic financial statements. Additionally, the Agency reports the following fiduciary fund type: Agency Fund The agency fund is used to account for assets held by the Agency in an agent capacity and is custodial in nature (assets equal liabilities). C. Measurement Focus, Basis of Accounting, and Financial Statement Presentation The government-wide financial statements are reported using the economic resources measurement focus and accrual basis of accounting, as are the proprietary fund financial statements. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. The fiduciary fund, which consists of the agency funds apply the accrual basis of accounting but do not have a measurement focus. The governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the Agency considers revenues to be available if they are collected within 60 days of the end of the current fiscal period. Incremental property taxes, interest income, and certain loan repayments are susceptible to accrual. Expenditure-driven grants are recognized as revenues when -34-

207 THE COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF LOS ANGELES, CALIFORNIA Notes to Basic Financial Statements June 30, 2005 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) the qualifying expenditures have been incurred and all other grant requirements have been met. Other revenues that are generally not measurable until actually received are not accrued. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures, as well as expenditures related to postemployment benefits, are recorded only when payment is due. Private-sector standards of accounting and financial reporting issued prior to December 1, 1989, generally are followed in both the government-wide and enterprise fund financial statements to the extent that those standards do not conflict with or contradict guidance of the Governmental Accounting Standards Board. The Agency also has the option of following subsequent private-sector guidance for its business-type activities and enterprise fund, subject to this same limitation. The Agency has elected not to follow subsequent private-sector guidance. As a general rule, the effects of interfund activities have been eliminated from the government-wide financial statements. Amounts reported as program revenues include capital grants and contributions, and charges for services. Internally dedicated resources are reported as general revenues rather than as program revenues. Likewise, general revenues include all tax revenues. Proprietary funds distinguish operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from providing services in connection with a proprietary fund s principal ongoing operations. The principal operating revenues of the Agency s internal service and enterprise funds are applied charges, which are reimbursements from projects for operating costs and parking receipts, respectively. Operating expenses for internal service and enterprise funds include administrative expenses, and depreciation and amortization on capital assets. All revenues and expenses not meeting this definition are reported as non-operating revenues and expenses. When both restricted and unrestricted resources are available for use, it is the Agency s policy to use restricted resources first, then, unrestricted resources, as they are needed. D. Cash, Cash Equivalents, and Investments Cash includes deposits maintained with various banks within redevelopment project areas while cash equivalents represent investments with original maturities of 90 days or less. These include investments in the State of California administered Local Agency Investment Fund (LAIF). All investments including those shown as restricted assets (note 1-F) are carried at amortized cost, which approximates fair value. Under State Law and authority delegated to the Agency by City Council, the Agency is authorized to invest in a variety of securities and financial instruments including interest bearing bank accounts, U.S. Treasuries, Federal agency obligations, certificates of deposit, commercial paper, and the State of California administered LAIF, provided that deposits maintained with banks and savings and loan associations in excess of the Federally insured amount are fully collateralized in accordance with State Law governing deposits of public funds. The primary investment considerations are safety, liquidity, and yield. -35-

208 THE COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF LOS ANGELES, CALIFORNIA Notes to Basic Financial Statements June 30, 2005 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) E. Loans Receivable To enhance the redevelopment process, the Agency grants below-market interest rate loans primarily for the rehabilitation and development of low and moderate-income housing and the development of commercial properties. Since these loans are generated to assist various redevelopment project areas, repayment terms are structured to meet requirements established by the Agency and the specific project area. Repayment terms on these loans can be classified in the following categories: Amortizing loans loans requiring monthly payments designed to payoff both the principal and interest over a specified period, usually years. Included in this category are partially amortizing loans and interest only payment loans requiring balloon payments at maturity date. Deferred loans loans requiring repayments only on the earlier of loan due date or when the mortgaged properties are sold or refinanced. Residual receipts loans loans requiring repayments only when the project or mortgaged properties have positive cash flows as defined by a specific loan agreement. As a condition for granting below-market interest rate loans, the Agency requires covenants on these projects including but not limited to defining development terms, income restrictions with respect to tenants and oversight ability on the projects' operations. These covenants, loan conditions, and repayment terms are monitored by the Agency to ensure compliance with redevelopment goals and objectives and specific loan agreements. In the government-wide financial statements, the Agency s loans receivable are reported net of allowance for market value write-downs and uncollectibles. In the fund financial statements, the Agency s loans receivable are shown in the balance sheet with an offset to a deferred revenue account. Loans are not available spendable resources and are therefore, recorded as project costs in the year the loan is disbursed rather than as loans receivable. Accordingly, repayments of principal and interest are recorded as revenue in the period received. F. Restricted Assets Restricted assets include investments maintained by the Agency with bond fiscal agents and trustees, under provisions of the bond indentures/fiscal agent agreements, which are considered as pledged collateral for payment of principal and interest on the Agency s tax allocation bond and parking revenue bond obligations. G. Land Held for Redevelopment As part of its redevelopment activities, the Agency may acquire land for eventual disposition to housing or commercial real estate developers based on the reuse appraisal of the land. While the Agency may exercise the power of eminent domain to acquire land, the majority of land acquisitions have been consummated by means other than eminent domain. -36-

209 THE COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF LOS ANGELES, CALIFORNIA Notes to Basic Financial Statements June 30, 2005 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) In the government-wide financial statements, land acquired and subsequently disposed for redevelopments are reported as assets or reduction from the assets, whereas, in the fund financial statements, land acquisitions and dispositions are recorded as project costs or revenues in the year acquired or disposed. H. Capital Assets Assets purchased or acquired with original costs of $100 or more and estimated useful life of more than one year are capitalized at historical cost. Additions, improvements, and other capital outlays that significantly extend the useful life of an asset are capitalized. Other costs incurred for repairs and maintenance are expensed as incurred. Depreciation of capital assets other than land is provided using the straight-line method over the following estimated useful lives: Capital Assets Years Building and improvements 30 to 40 Vehicles 5 Office equipment 5 Computer software 5 Computer hardware 3 I. Interfund Receivable, Payable, and Transfers Interfund transactions are made between funds for various reasons, some of which are statutory in nature. Generally, these interfund transactions only affect funds within a project area as State redevelopment law prohibits the transferring of funds between project areas without an approved finding of benefit. Interfund receivable/payable between these funds are recorded as current and non-current interfunds and are subject to elimination upon consolidation. Current interfund transactions are reported in the fund financial statements as Due to/due from Other Funds and long-term interfund transactions as Advances to/advances from Other Funds. The CRA Special Revenue Fund and the Bunker Hill Program Income, which are reported in the capital projects fund, may be used for eligible redevelopment expenditures without geographical restrictions. As authorized in the Agency s budgets, these funds are used to pay for expenditures in various projects, either because the projects do not have sufficient resources, or cannot pay for the expenditures due to use-restrictions on their available resources. The beneficiary projects will reimburse the CRA Special Revenue Fund and Bunker Hill Program Income from future available project resources. Because the timing and amounts of these reimbursements are uncertain, the transactions are recorded as transfers, rather than advances. -37-

210 THE COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF LOS ANGELES, CALIFORNIA Notes to Basic Financial Statements June 30, 2005 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) J. Compensated Absences Agency employees accumulate vacation pay in varying amounts as services are provided. All outstanding vacation time is payable upon termination of employment. Agency employees accumulate sick leave hours at the rate of 96 hours per fiscal year to a maximum of 800 hours. The Agency pays employees for sick leave as it is used and is not obligated to pay sick leave upon termination of employment. However, the Agency pays 50 percent of the accumulated sick leave in excess of 800 hours to active employees and 50 percent of the available sick leave to retiring employees upon retirement. The vacation earned and accumulated sick leave hours are recognized as current liability in the government-wide activities and the internal service funds. K. Long-term Obligations In the government-wide financial statements and proprietary funds financial statements, long-term debt and other long-term obligations are reported as liabilities in the applicable governmental activities, business-type activities, or proprietary funds statement of net assets. Bond premiums and/or discounts and deferred losses on refundings are deferred and amortized over the life of the bonds using the straight-line method, as interest expense. Bonds payable are reported net of the applicable unamortized bond premium or discount and deferred losses on refundings. Bond issuance costs are reported as deferred charges and amortized over the term of the related debt using the straight-line method. In the fund financial statements, governmental fund types recognize bond premiums and discounts, as well as bond issuance costs, during the period issued. The face amount of debt issued is reported as other financing sources. Premiums received on debt issuances are reported as other financing sources, while discounts on debt issuances are reported as other financing uses. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as debt service expenditures. L. Deferred Revenue The Agency uses a deferred revenue account in the governmental funds to record revenues that do not meet both the measurable and available criteria for recognition in the current period. Deferred revenues also arise when resources are received before the Agency has a legal claim to them. In subsequent periods, when both revenue criteria are met, or when the Agency has a legal claim to the resources, the liability for deferred revenue is removed and revenue is recognized. In the government-wide financial statements, deferred revenue represents resources that have been received, but not yet earned. M. Construction Disbursements Payable The Agency uses a Construction Disbursements Payable (CDP) account within the Agency Fund to handle escrow like functions formerly performed by an outside escrow company. The CDP account enhances control over construction disbursements and allows the Agency to benefit from interest earnings for monies held in the account. -38-

211 THE COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF LOS ANGELES, CALIFORNIA Notes to Basic Financial Statements June 30, 2005 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Through the CDP account, the Agency provides a disbursement service for borrowers and grantees. Monies deposited to this account are considered loans receivable in the government-wide financial statements, whereas, in the fund financial statements, they are considered as project expenditures at the time of deposit. Interest earnings for the CDP account are returned to the original funding source, unless otherwise specified. N. Incremental Property Tax Revenues Incremental property tax revenues represent property taxes collected from the excess of taxes levied and collected each year on a redevelopment project area over the amount that is levied and collected on the base year property tax assessment (a property tax base year is determined to be the year prior to the establishment of a redevelopment project area). The County of Los Angeles (County) assesses properties, bills, and collects property taxes, as follows: Secured Unsecured Valuation/lien dates January 1 January 1 Levy dates July 1 July 1 Due dates (delinquent as of) 50% on November 1 (December 10) July 1 (August 31) 50% on February 1 (April 10) Pursuant to provisions of the California Constitution and the California Revenue and Taxation Code, county assessors are directed to determine the full cash value of locally assessed real and personal property as of January 1 of each year. Locally assessed property is classified as either secured or unsecured. The secured classification includes property on which property tax levied becomes a lien on the property to secure payment of the taxes. Property taxes levied on unsecured property do not become a lien against the unsecured property, but may become a lien on other property owned by the taxpayer. The State Board of Equalization is charged with assessing the value of state-assessed properties as of January 1 of each year. (All state-assessed property is classified as secured property.) Taxable property is assessed at 100 percent of its full cash value as defined by the California Constitution. The County remits to the Agency its share of the property taxes levied. Property taxes levied are recorded as receivable in the fiscal year of levy. Revenue is recognized in the fund financial statements when it is available, as discussed under Basis of Accounting (note 1-C). O. Net Assets and Fund Equity In the government-wide financial statements, net assets are classified in the following categories: Invested in capital assets, net of related debt This category groups all capital assets into one component of net assets. Accumulated depreciation and the outstanding balances of debt that are attributable to the acquisition, construction or improvement of these assets reduce this category. -39-

212 THE COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF LOS ANGELES, CALIFORNIA Notes to Basic Financial Statements June 30, 2005 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Restricted net assets This category presents external restrictions imposed by creditors, grantors, contributors or laws or regulations of other governments, and restrictions imposed by law through constitutional provisions or enabling legislation. Additionally, this category presents restrictions placed on the categories of debt service and specific projects and programs as established by the Board of Commissioners. Unrestricted net assets This category represents the net assets of the Agency, which are not restricted for any project or other purpose. In the fund financial statements, governmental funds report reserves and designations of fund balance that are either not available or have been earmarked for specific purposes. The various reserves and designations are established by actions of the Board of Commissioners and management and can be increased, reduced or eliminated by similar actions. P. Use of Estimates The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts in the financial statements and accompanying notes. Actual results could differ from the estimates. Q. Reclassification Certain reclassifications have been made in the 2004 financial statements in order to conform to the current year presentation. R. GASB Statement No. 40, Deposit and Investment Risk Disclosure In fiscal year 2005, the Agency adopted GASB Statement No. 40, which was an amendment to GASB Statement No. 3. This new pronouncement issued in March 2004, establishes and modifies disclosure requirements related to investment and deposit risks: credit risk (including custodial credit risk and concentrations of credit risk), interest rate risk, and foreign currency risk. -40-

213 THE COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF LOS ANGELES, CALIFORNIA Notes to Basic Financial Statements June 30, 2005 NOTE 2 - DETAILED NOTES ON ALL FUNDS A. Cash, Cash Equivalents, and Investments Cash Cash consists of cash deposits maintained with various banks within redevelopment project areas. At June 30, 2005, the carrying amount of the Agency's cash deposits totaled $4,893,000 while the bank balances totaled $7,206,000. The difference of $2,313,000 represents primarily outstanding checks and other reconciling items. Of the total bank balances, $674,000 was covered by the Federal Depository Insurance Corporation and $6,532,000 was fully collateralized as required by State law and reported to the State Administrator of Local Agency Security to ensure the safety of public deposits. Under the California Government Code, a financial institution is required to secure deposits in excess of $100,000 made by state or local government units by pledging securities held in the form of an undivided collateral pool. The market value of the pledged securities in the collateral pool must equal at least 110 percent of the total amount deposited by the public agencies. California law also allows financial institutions to secure public deposits by pledging first trust deed mortgage notes having a value of 150 percent of those deposits. The collateral must be held at the pledging bank s trust department or other bank, acting as the pledging bank s agent, in the Agency s name. Cash Equivalents Cash equivalents totaling $123,216,000 represent investments with original maturities of 90 days or less. These include investments in the State of California administered LAIF in the amount of $65,836,000, investments in Federal securities of $38,494,000, and commercial paper of $18,886,000. Investments The Agency s investments, which are classified into unrestricted and restricted investments, are carried at amortized cost, which approximates fair value. At June 30, 2005, unrestricted investments consisted almost entirely of U.S. Treasury, Federal securities, and commercial paper and deposited into Agency safekeeping accounts, which have been established to ensure segregation of Agency owned securities. Restricted investments, shown as restricted assets consisted primarily of investments maintained with bond fiscal agents and trustees, which are considered as pledged collateral for payment of principal and interest on the Agency s tax allocation bond obligations. Also included in this category were investments by the enterprise fund representing funds held by the trustee for the Cinerama Dome Public Parking Project. -41-

214 THE COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF LOS ANGELES, CALIFORNIA Notes to Basic Financial Statements June 30, 2005 NOTE 2 - DETAILED NOTES ON ALL FUNDS At June 30, 2005, cash, cash equivalents, and investments are reflected in the statement of net assets of the accompanying basic financial statements with carrying values as follows (in thousands of dollars): Cash $ 4,893 Investments: Cash equivalents $ 123,216 Unrestricted investments 101,842 Restricted assets 77, ,552 Total $ 307,445 The Agency s cash equivalents and investments at June 30, 2005 consist of the following investment types (in thousands of dollars): Weighted Average Maturity Investment Type Amortized Costs Fair Value (Years) Investments held by the Agency Treasury securities $ 4,006 $ 4, Federal securities 132, , Commercial paper 29,809 30, Local Agency Investment Fund 65,836 65, Certificates of deposit N/A Total investments held by the Agency 232, ,518 Investments held by fiscal agent or trustee: Treasury securities 65,144 65, Federal securities 1,633 1, Repurchase agreement 3,108 3, Total investments held by fiscal agent or trustee 69,885 69,874 Total investments $ 302,552 $ 303,392 Portfolio weighted average maturity for investments held by the Agency 0.44 The Agency s general investment policy is to apply the prudent-person rule: Investments are made as a prudent person would exercise in the management of their own affairs, not for speculation, but for investment considering the general economic conditions and the anticipated needs of the Agency. The objective is to minimize the interest rate risk and credit risk of each investment. In addition, in order to minimize the total volatility of the portfolio, the Agency shall maintain a diversified portfolio of investments. -42-

215 THE COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF LOS ANGELES, CALIFORNIA Notes to Basic Financial Statements June 30, 2005 NOTE 2 - DETAILED NOTES ON ALL FUNDS (continued) Interest rate risk. In accordance with the Agency s investment policy, the Agency manages its exposure to declines in fair values by limiting the weighted average maturity of its investment portfolio to less than two (2) years, excluding investments held by a trustee, fiscal agent or escrow bank in connection with an Agency bond, note or certificate of participation issue. Credit risk. Under the California Government Code, investments in commercial paper are limited to ratings of A-1 or higher by nationally recognized statistical rating organizations (NRSROs). Accordingly, the Agency s investment policy limits investments in commercial paper to A-1 or higher by NRSROs. At June 30, 2005, the Agency s investments in commercial paper at amortized costs of $26,840,000 and $2,969,000 are rated A-1 and A-1+, respectively, by Standard & Poor s. B. Loans Receivable A schedule of loans receivable at June 30, 2005 including allowance for market value write-downs and uncollectibles is as follows (in thousands of dollars): Principal Balance Residual Amortizing Deferred Receipts Total Outstanding at July 1, 2004 $ 47,867 $ 67,795 $ 385,870 $ 501,532 Additions: New Loans - 2,968 10,992 13,960 Reductions: Principal repayments (1,203) (1,127) (242) (2,572) Program income payable to the City (3,068) - - (3,068) Others * (515) 22,780 (6,367) 15,898 Outstanding at June 30, ,081 92, , ,750 Less allowance for market value write-downs and uncollectibles (17,472) (78,667) (361,006) (457,145) Balance at June 30, 2005 $ 25,609 $ 13,749 $ 29,247 $ 68,605 * Include loan amendments and service repayments on forgivable loans. The increase in market value of loans receivable for the year ended June 30, 2005 amounted to $29,113,000 and is reflected as special item, net change in loan value, in the statement of activities of the accompanying basic financial statements. The higher value of the loans receivable portfolio is primarily due to the increase in the real estate values and lower interest rates. -43-

216 THE COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF LOS ANGELES, CALIFORNIA Notes to Basic Financial Statements June 30, 2005 NOTE 2 - DETAILED NOTES ON ALL FUNDS (continued) C. Capital Assets Changes in capital assets for the year ended June 30, 2005 were as follows (in thousands of dollars): Balance Depreciation/ Balance Description July 1,2004 Acquisitions Dispositions Amortization June 30, 2005 Governmental activities: Capital assets, not being depreciated: Land $ 62,127 $ - $ (2,994) $ - $ 59,133 Capital assets, being depreciated: Building and leasehold improvements 15, ,826 Less accumulated depreciation/amortization (7,751) - - (474) (8,225) Net building and leasehold improvements 8, (474) 7,601 Equipment 11, ,136 Less accumulated depreciation (10,366) - - (595) (10,961) Net equipment 1, (595) 1,175 Net capital assets, being depreciated 9, (1,069) 8,776 Net capital assets, governmental activities $ 71,489 $ 483 $ (2,994) $ (1,069) $ 67,909 Business-type activities: Capital assets, not being depreciated: Land $ 10,428 $ - $ - $ - $ 10,428 Capital assets, being depreciated: Building and improvements 25, ,534 Less accumulated depreciation (1,375) - - (638) (2,013) Net building 24, (638) 23,521 Equipment Less accumulated depreciation (20) - - (13) (33) Net equipment (13) 10 Net capital assets, being depreciated 24, (651) 23,531 Net capital assets, business-type activities $ 34,603 $ 7 $ - $ (651) $ 33,

217 THE COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF LOS ANGELES, CALIFORNIA Notes to Basic Financial Statements June 30, 2005 NOTE 2 - DETAILED NOTES ON ALL FUNDS (continued) Depreciation expense of $474,000 was charged to the community and economic development functions in the governmental activities and $651,000 was charged to the parking facilities in the business-type activities. The balance of depreciation expense of $595,000 was added to other indirect costs which were allocated among all functions in the governmental activities through an indirect cost allocation plan based on direct labor (note 1-B). D. Interfund Receivable, Payable, and Transfers The composition of interfund balances and transfers as of June 30, 2005 was as follows (in thousands of dollars): Interfund Receivable/Payable: Receivable Fund Payable Fund Amount Capital Projects Fund Internal Service Fund $ 107,390 Debt Service Fund Internal Service Fund 11,246 Housing Fund Internal Service Fund 89,763 Special Revenue Fund Internal Service Fund 13,130 Fiduciary Fund Internal Service Fund 9,798 Internal Service Fund Internal Service Fund 5,415 Total $ 236,742 Advances From/To Other Funds: Receivable Fund Payable Fund Amount Capital Projects Fund Internal Service Fund $ 1,175 Capital Projects Fund Capital Projects Fund 7,292 Capital Projects Fund Special Revenue Fund 160 Total $ 8,

218 THE COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF LOS ANGELES, CALIFORNIA Notes to Basic Financial Statements June 30, 2005 NOTE 2 - DETAILED NOTES ON ALL FUNDS (continued) Interfund Transfers: Funds Transferred From Funds Capital Debt Special Transferred To Projects Service Housing Revenue Total Capital Projects Fund $ 5,237 $ 137 $ - $ 1,111 $ 6,485 Debt Service Fund 52,373-9, ,565 Special Revenue Fund Housing Fund 31, ,099 Total $ 89,485 $ 137 $ 10,054 $ 1,519 $ 101,195 The above interfund transfers represent primarily amounts transferred from projects respective tax increment and housing funds for debt service; housing set-asides; transfers from the CRA Special Revenue Fund and the Bunker Hill Program Income to various projects that do not have sufficient resources to pay for eligible expenditures; and repayments of these transfers to the CRA Special Revenue fund and the Bunker Hill Program Income (note 1-I). E. CRFA Bonds On June 5, 1992, based on a joint powers agreement, the Agency and the Agency s Industrial Development Authority created the CRFA for the purpose of issuing one or more pooled bond issues and other financings. By issuing bonds on a pooled basis, issuance costs can be reduced significantly, making previously uneconomic bond financings and refinancings feasible (note 1-A). The following table summarizes the CRFA bond transactions for the fiscal year ended June 30, 2005 (in thousands of dollars): Balance, July 1, 2004 $ 371,210 Retirement, various pooled financing bond issues (9,745) Balance, June 30, 2005 $ 361,

219 THE COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF LOS ANGELES, CALIFORNIA Notes to Basic Financial Statements June 30, 2005 NOTE 2 - DETAILED NOTES ON ALL FUNDS (continued The following CRFA bonds were outstanding at June 30, 2005 (in thousands of dollars): Date of Maturity Interest Original Balance Description Issue Date Rate Issue Outstanding Payable by Agency Redevelopment Projects: Pooled bonds: Pooled Financing Bonds, Series B 8/1/1992 9/1/ % % $ 15,820 $ 1,505 Pooled Financing Refunding Bonds, Series E 8/1/1998 9/1/ % % 21,805 16,170 Pooled Financing Refunding Bonds, Series F 8/1/1998 9/1/ % % 12,820 9,190 Pooled Financing Bonds, Series H (taxable) 6/15/2002 9/1/ % % 9,765 9,460 Pooled Financing Bonds, Series I (taxable) 6/1/2003 9/1/ %-5.50% 14,890 14,240 Pooled Financing Bonds, Series J (taxable) 9/17/2003 9/1/ % % 17,970 17,690 Pooled Financing Bonds, Series J 9/17/2003 9/1/ % % 4,500 4,410 Pooled Financing Bonds, Series K (taxable) 9/17/2003 9/1/ % % 4,645 4,580 Grand Central Square Multifamily Housing Bonds, Series A 9/15/ /1/ % % 12,881 12,111 Revenue bonds: Bunker Hill Project Revenue Bonds, Series 2005A 5/19/ /1/ % % 181, ,510 Bunker Hill Project Revenue Bonds, Series 2005B 5/19/ /1/ % % 87,550 81,710 Total payable by Agency Redevelopment Projects 352,576 Payable by MTA: Grand Central Square Multifamily Housing Bonds, Series A 9/15/ /1/ % % 9,454 8,889 Total CRFA bonds $ 361,465 With the exception of the Grand Central Square Multifamily Housing Bonds (Housing Bonds), the source of all payments of outstanding principal and interest on the CRFA pooled financing bonds consists of debt service payments on underlying tax allocation bonds and notes issued by the respective Agency redevelopment project areas. The Housing Bonds for the Grand Central Square Project (Project) are special limited obligations of the CRFA with different sources of payment. As of completion of the Project in May 1995, the debt service payments on the Housing Bonds are percent from incremental property tax revenues of the Bunker Hill (BH) Project and percent from Proposition A sales tax revenues received by the Los Angeles County Metropolitan Transportation Authority (MTA). The CRFA revenue bonds are payable exclusively from the revenues, principally constituting payments to be made by the Agency on its Bunker Hill Tax Allocation Refunding Bonds, Series H (BH Series H) and Bunker Hill Tax Allocation Refunding Bonds, Series K (BH Series K), and other funds as provided in the CRFA Indenture. -47-

220 THE COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF LOS ANGELES, CALIFORNIA Notes to Basic Financial Statements June 30, 2005 NOTE 2 - DETAILED NOTES ON ALL FUNDS (continued) As a blended component unit, CRFA s activities for financial reporting purposes are blended into the Agency s basic financial statements. Hence, in the accompanying statement of net assets, $352,576,000 receivable/payable between the CRFA and the Agency is eliminated. The Grand Central Square Multifamily Housing Bonds, Series A with an outstanding principal amount of $8,889,000 that are secured by the MTA s Proposition A sales tax revenues are not considered an Agency obligation. These are reported under the Schedule of Third-Party Indebtedness on pages 87 through 89. F. Long-Term Debt Governmental Activities Tax Allocation Bonds, CD9 Project On March 30, 2005, the Agency issued its CD 9 (Council District Nine Corridors South of Santa Monica Freeway Recovery Redevelopment Project) Series D taxable tax allocation bonds in the amount of $6,500,000 at interest rates ranging from 3.20 percent to 5.65 percent. Proceeds from the bond issue were used by the Agency to fund various projects in the CD 9 Project, fund a reserve account, and pay the costs of bond issuance. Notes Payable, NOHO Commons Project During the fiscal year, the Agency recorded a loan in the amount of $9,043,000, pursuant to an Owner Participation Agreement with the developer of the NOHO Commons Project (NOHO Commons) in the North Hollywood Redevelopment Project area (NH Project). This loan, which bears interest at six percent, consists of advances made by the developer in connection with acquisition and conveyance of the following: 1) Subarea A property, $1,168,000; 2) Subarea B property, $5,526,000 (see also note 2H, North Hollywood HUD Section 108 Loan); 3) Subarea C property, $2,049,000; and 4) MTA owned parcel, $300,000. The loan is payable solely from the NOHO Commons site specific tax increment subordinate to the NH Project s existing and future senior-lien bonds and the area-wide tax increment pledge to the City on the Section 108 loan assumed by the developer. Business-type Activities Notes Payable, Cinerama Dome Public Parking Project On August 18, 2000, the Agency issued $44,235,000 of Parking System Revenue Bonds Series 2000A (Series 2000A Bonds) with interest rates ranging from 4.6 percent to 5.8 percent, to finance land acquisition and construction of the Cinerama Dome Public Parking Project located in the Hollywood Redevelopment Project Area. The primary source of payment on the Series 2000A Bonds is the facility s parking revenues net of operating and maintenance costs with the payment of debt service also insured by ACA Financial Guaranty Corporation. Under circumstances in which actual net revenues are insufficient to pay debt service, the shortfall could be covered by a $9.325 million letter of credit provided by the developer and Agency s pledge of Hollywood tax increment revenues in amounts up to $1,000,000 annually. The pledge of Hollywood tax increment revenues is subordinate to the project area tax allocation bonds and pass-through payments. This pledge will be released upon the project reaching stabilization, i.e. two consecutive twelve-month periods during which net revenues equal 1.35 times maximum annual debt service on the bonds. -48-

221 THE COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF LOS ANGELES, CALIFORNIA Notes to Basic Financial Statements June 30, 2005 NOTE 2 - DETAILED NOTES ON ALL FUNDS (continued) On June 28, 2005, the Agency directed the bond trustee to draw $828,000 from the $9.325 million letter of credit, bringing the total of all draws against the letter of credit to $4,364,000 as of June 30, The drawings were needed because the net revenues of the parking garage were insufficient to meet the bond debt payments on January 1, 2003, July 1, 2003, January 1, 2004, July 1, 2004, and July 1, The Agency is obligated to reimburse the developer for all draws from the letter of credit plus 10 percent interest per annum from any available cash flow from the parking garage operations and will be due to the developer only after the project has reached stabilization as explained above. However, the Agency may prepay this obligation at anytime with no prepayment penalty. The Agency s long-term debt transactions for the year ended June 30, 2005 are summarized as follows (in thousands of dollars): Balance Balance Due Within Description July 1, 2004 Additions Retirement June 30, 2005 One Year Governmental activities: Tax allocation bonds payable $ 526,237 $ 6,500 $ (15,526) $ 517,211 $ 16,090 Notes payable 6,570 9,043 (735) 14,878 5,180 Payable to the City 90,050 - (14,036) 76,014 6,471 Sub-total before unamortized discount and deferred charges 622,857 15,543 (30,297) 608,103 27,741 Less unamortized discount and deferred charges (1,915) (3,142) - (5,057) - Net long-term debt, governmental activities $ 620,942 $ 12,401 $ (30,297) $ 603,046 $ 27,741 Business-type activities: Revenue bonds payable $ 43,600 $ - $ (665) $ 42,935 $ 695 Notes payable 3, ,364 - Sub-total before unamortized premium (discount) 47, (665) 47, Less unamortized premium (discount) (1,361) 49 - (1,312) - Net long-term debt, business-type activities $ 45,775 $ 877 $ (665) $ 45,987 $ 695 Total, net long-term debt $ 666,717 $ 13,278 $ (30,962) $ 649,033 $ 28,

222 THE COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF LOS ANGELES, CALIFORNIA Notes to Basic Financial Statements June 30, 2005 NOTE 2 - DETAILED NOTES ON ALL FUNDS (continued) Long-term debt outstanding at June 30, 2005 is comprised of the following (in thousands of dollars): Date of Maturity Interest Original Outstanding Description Issue Date Rate Issue Balance Governmental activities: Tax allocation bonds: Adams Normandie, Series B (taxable) 4/1/1991 7/1/ % % $ 2,400 $ 770 Adelante Eastside, Series A (taxable) 6/27/2002 9/1/ % % 4,750 4,710 Beacon Street, Refunding Series B * 8/1/1998 9/1/ % % 4,350 3,130 Bunker Hill, Grand Central Square Multifamily Housing, Series A (note 2-E) * 9/15/ /1/ % % 12,881 12,111 Bunker Hill, Refunding Series H * 12/1/ /1/ % % 202, ,175 Bunker Hill, Refunding Series K * 5/19/ /1/ % % 56,885 51,445 Bunker Hill, Refunding Subordinate Lien 2004L 5/19/2004 3/1/ % % 30,955 30,955 Chinatown, Refunding Series C 4/1/1998 7/1/ % % 13,205 6,860 CD 9 Corridors, Series A (taxable) 6/26/2001 9/1/ % % 2,000 1,910 CD 9 Corridors, Series B 6/26/2001 9/1/ % % 2,000 2,000 CD 9 Corridors, Series C (taxable) * 9/17/2003 9/1/ % % 5,500 5,425 CD 9 Corridors, Series D (taxable) 3/30/2005 9/1/ % 5.65% 6,500 6,500 Crenshaw, Refunding Series C * 8/1/1998 9/1/ % % 3,895 2,820 Crenshaw/Slauson, Series A (taxable) * 6/15/2002 9/1/ % % 1,135 1,115 East Hollywood/Beverly-Normandie, Series A * 9/17/2003 9/1/ % % 1,885 1,860 Hollywood, Refunding Series C 3/1/1998 7/1/ % % 35,840 35,645 Hollywood, Refunding Series D (taxable) 11/25/2003 7/1/ % % 23,000 21,440 Hoover, Refunding Series C 11/1/1995 9/1/ % % 5,040 3,115 Hoover, Series D (taxable) 4/1/1996 9/1/ % % 4,500 3,490 Laurel Canyon Commercial Corridor, Refunding Series B (taxable) * 9/17/2003 9/1/ % % 2,760 2,720 Little Tokyo, Refunding Series D 12/18/2003 7/1/ % % 11,430 11,430 Little Tokyo, Series E (taxable) 12/18/2003 7/1/ % % 8,140 6,945 Los Angeles Harbor, Refunding Series C * 8/1/1998 9/1/ % % 5,345 3,915 Mid-City Recovery, Refunding Series B (taxable) * 6/15/2002 9/1/ % % 6,500 6,295 Monterey Hills, Refunding Series C * 8/1/1998 9/1/ % % 12,930 9,795 Monterey Hills, Series D (taxable) 5/9/2002 9/1/ % 4,500 4,500 Normandie 5, Refunding Series C * 8/1/1992 9/1/ % % 6,320 1,505 Normandie 5, Refunding Series D * 8/1/1998 9/1/ % % 3,530 2,460 Normandie 5, Series E (taxable) * 6/1/2003 9/1/ % % 4,330 4,140 North Hollywood, Refunding Series D 2/1/1996 7/1/ % % 16,825 11,600 North Hollywood, Series E 10/1/2000 7/1/ % % 5,800 5,495 North Hollywood, Series F 5/1/2002 7/1/ % % 17,120 16,870 Pacoima/Panorama City, Series A (taxable) * 9/17/2003 9/1/ % % 4,265 4,195 Pico Union 1, Refunding Series B * 8/1/1998 9/1/ % % 4,575 3,240 Pico Union 1, Series C (taxable) * 6/1/2003 9/1/ % % 3,250 3,110 Pico Union 2, Series A (taxable) * 6/1/2003 9/1/ % % 7,310 6,

223 THE COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF LOS ANGELES, CALIFORNIA Notes to Basic Financial Statements June 30, 2005 NOTE 2 - DETAILED NOTES ON ALL FUNDS (continued) Date of Maturity Interest Original Outstanding Description Issue Date Rate Issue Balance Reseda/Canoga Park, Series A * 9/17/2003 9/1/ % % 4,500 4,410 Reseda/Canoga Park, Series B (taxable) * 9/17/2003 9/1/ % % 8,205 8,070 Vermont/Manchester, Series A (taxable) * 6/15/2002 9/1/ % % 1,130 1,110 Watts Corridors, Series A (taxable) * 6/15/2002 9/1/ % % 1, Total tax allocation bonds payable before unamortized discount and deferred charges 517,211 * Purchased by and payable to the CRFA. Project notes payable: Central Business District, South Park Supermarket 12/19/ /19/ % Hollywood, Business loans Various Until Paid Los Angeles Harbor, Industrial Development - Block 29 8/13/1999 1/1/ % North Hollywood, NOHO Commons Various Until Paid 6.00% 9,043 9,043 Various recovery projects, Bank of the West revolving loan Various 8/4/2005 Variable 10,000 5,111 Total project notes payable 14,878 Payable to the City (note 2-H) 76,014 Total long-term debt, governmental activities $ 608,103 Business-type activities: Revenue bonds: Parking System Revenue Bonds, Series A before unamortized premium (discount) 8/18/2000 7/1/ % % 44,235 42,935 Notes payable: Developer letter of credit 12/30/2002 7/1/ % 4,364 4,364 Total long-term debt, business-type activities $ 47,299 Variable interest rate on the secured promissory note by the Agency with Bank of the West (formerly Tokai Bank, then United California Bank) is determined annually or more often using either the bank s prime rate plus 100 basis points or a Libor rate plus 250 basis points pursuant to the loan agreement. At June 30, 2005, the interest rate on this loan was seven percent. -51-

224 THE COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF LOS ANGELES, CALIFORNIA Notes to Basic Financial Statements June 30, 2005 NOTE 2 - DETAILED NOTES ON ALL FUNDS (continued) Annual requirements to amortize all long-term debt outstanding as of June 30, 2005 are reflected in the following table (in thousands of dollars). Governmental activities: Year Tax Allocation Payable to the Ending Bonds Payable Notes Payable City (note 2-H) Total June 30 Principal Interest Principal Interest Principal Interest Principal Interest 2006 $ 16,090 $ 27,735 $ 5,180 $ 666 $ 6,471 $ 1,241 $ 27,741 $ 29, ,638 27, ,107 28, ,315 26, , ,383 27, ,907 25, ,975 27, ,688 24, ,688 26, , ,642-2,713 10,033 2, , , ,698 79,050-2,713-1, ,698 83, ,590 45,970-2,713 5, ,429 49, ,647 16,116 9,043 1, ,690 18, ,970 1, ,671-63,691 1,790 Sub-total 517, ,468 14,878 13,019 76,014 9, , ,589 Unamortized discount and deferred charges (5,057) (5,057) - Total $ 512,154 $ 384,468 $ 14,878 $ 13,019 $ 76,014 $ 9,102 $ 603,046 $ 406,589 Business-type activities: Year Parking Revenue Ending Bonds Payable Notes Payable Total June 30 Principal Interest Principal Interest Principal Interest 2006 $ 695 $ 2,412 $ - $ 436 $ 695 $ 2, , , , , , , , , ,895 10,625-2,182 4,895 12, ,385 9,145-2,182 6,385 11, ,400 7,130-2,182 8,400 9, ,115 4,419-2,182 11,115 6, , ,364 1,309 12,694 2,294 42,935 44,019 4,364 12,217 47,299 56,236 Unamortized discount (1,312) (1,312) - Total $ 41,623 $ 44,019 $ 4,364 $ 12,217 $ 45,987 $ 56,

225 THE COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF LOS ANGELES, CALIFORNIA Notes to Basic Financial Statements June 30, 2005 NOTE 2 - DETAILED NOTES ON ALL FUNDS (continued) The bond indentures/fiscal agent agreements contain various limitations and restrictions which require the Agency to perform its duties in accordance with redevelopment law and the redevelopment plan for the respective project and to not invest, reinvest, or expend the proceeds from any tax exempt bond issue in such a manner as to result in the loss of exemption from Federal income taxation of bond interest. The Agency is in compliance with all covenants, restrictions, and limitations of these bond issues. Pursuant to Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934 (Continuing Disclosure Rule), the Agency, or its authorized Dissemination Agent, is required to file annually a financial report for all fixed interest rate bonds issued on or after July 1, The Dissemination Agent shall file copies of the annual report(s) with each Nationally Recognized Municipal Securities Information Repository approved by the Securities and Exchange Commission, and the appropriate state information depository, if any. In the case of Agency tax allocation bonds, the annual reports consist of, but are not limited to, a copy of the Agency s most recent audited financial statements and information updating particular tables in each bond issue s Official Statement. Other types of information are required for third-party supported bond issues (note 3-H, Third- Party Indebtedness), such as housing revenue bonds. Furthermore, if any of eleven enumerated events occur, the Agency is required to promptly notify and instruct the Dissemination Agent to report the occurrence. G. Prior Years Defeasance of Debt In prior years, the Agency defeased various bond issues by creating separate irrevocable trust funds. New debt was issued and the proceeds were used to purchase U.S. government securities, which were placed in the trust funds held by the respective escrow agents. The investments and fixed earnings from the investments are sufficient to fully service the defeased debt until the debt is called for redemption or matures. The trust account assets and corresponding liabilities for the defeased bonds are not reflected on the accompanying basic financial statements. At June 30, 2005, bonds outstanding in the amount of $63,990,000 were considered defeased. H. Payable to the City of Los Angeles CDBG Regular Program Year Allocations The Agency s Community Development Block Grant (CDBG) allocations from the City have been structured as either grants or non-interest bearing loans with no definite due dates, or deferred loans. Under various contracts with the City, the Agency has recorded a non-interest bearing loan of $50,671,000 and 20-year loans totaling $17,194,000. These loans are to be repaid from certain sources such as tax increment revenues of the respective redevelopment projects as they become available as defined in the contracts. In addition to the tax increment revenues, the program income earned on the 20-year loan funds is applied as repayments to the 20-year loans. -53-

226 THE COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF LOS ANGELES, CALIFORNIA Notes to Basic Financial Statements June 30, 2005 NOTE 2 - DETAILED NOTES ON ALL FUNDS (continued) Pursuant to a City Council authorization, new promissory notes were issued in February 2003 amending the 20-year loans from amortizing notes to deferred notes to cure a technical default by the Agency on these notes. These notes as amended continue to accrue interest at the existing rate and any principal and interest due under the existing notes are deferred until maturity, with an option to extend loan maturity dates for another five years for each respective note. At June 30, 2005, interest accrued on these notes in the amount of $8,154,000 was reported as interest payable in the government-wide financial statements. Hollywood BGIF Loan The Agency recorded a $935,000 loan under the Block Grant Investment Funds (BGIF) Loan Program at 3.0 percent interest rate to finance the rehabilitation and expansion of the Gogerty Building component of the Capitol Records Campus development in the Hollywood Redevelopment Project area. Repayment of this loan is secured by a pledge of Hollywood site-specific tax increment revenues, which is subordinate to all existing Hollywood Project s bond and tax increment commitments. The site-specific tax increment revenues pledged to the BGIF loan are currently not sufficient to meet the required loan amortization. Pursuant to the Hollywood BGIF loan agreement, the Agency requested an extension that will provide for a re-amortization of the outstanding loan balance of $899,000 plus any accrued interests thereon, over 20 years at the same interest rate of 3.0 percent. Hollywood UDAG Loan On December 1, 2002, the Agency signed a promissory note at 5.50 percent interest rate involving receipt of $4,250,000 Urban Development Action Grant (UDAG) funds from the City, to pay a portion of the Agency s acquisition for the Live Broadcast Theater in the Hollywood Redevelopment Project. These funds were provided to the Agency in the form of a cooperation agreement and loan that was to be paid out of community improvement fees from the developer in accordance with a disposition and development agreement. The cooperation agreement required the return of the Agency s loan repayments back to the Agency to finance block grant qualifying expenditures. On July 25, 2003, the City Council authorized the amendment of the repayment terms to allow the Agency to repay this loan by making City approved block grant qualifying expenditures in the Hollywood Redevelopment Project. North Hollywood CDBG Float Loan During fiscal year 2003, the Agency recorded a $3,000,000 CDBG float loan (Float Loan) at 4.0 percent interest rate, to provide interim financing to the NOHO Commons Project (NOHO Commons) in the North Hollywood Redevelopment Project area (NH Project). Repayment of this loan is secured by a pledge of the NH Project s areawide tax increments, which is subordinate to all NH Project s existing and future senior-lien bonds. The Float Loan matured on April 30, 2005, however, the City has authorized extension of the due date to December 31, 2007, basically to ensure the maximum availability of project area funds for the NH Project work program. Of the total Float Loan, $2,000,000 was to be forgiven through conveyance to the City of land acquired for street widening purposes at the project site. However, the City Council has directed the Community Development Department or designee to review all possible options for the cash repayment of the $2,000,000 in addition to the conveyance. This matter is currently underway and is expected to be resolved in fiscal year

227 THE COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF LOS ANGELES, CALIFORNIA Notes to Basic Financial Statements June 30, 2005 NOTE 2 - DETAILED NOTES ON ALL FUNDS (continued) North Hollywood HUD Section 108 Loan In addition to the Float Loan described above, the City provided the Agency in fiscal year 2004, a $14,000,000 HUD (Housing and Urban Development) Section 108 loan to partially fund acquisition and relocation costs on the NOHO Commons in the NH Project. The loan agreement allows the Agency to assign the loan to the developer. In September 2005, the loan assignment was effected. As a condition of the developer s assumption of the loan, the Agency conveyed Subarea B of the NOHO Commons and executed a note payable to the developer, at an interest rate of six percent (see also note 2F). The note, which is secured by a pledge of the NOHO Commons site-specific tax increment revenues, was executed to reimburse certain project costs paid for in advance by the developer. In addition, the Agency has pledged to the developer the site-specific tax increment revenues on the NOHO Commons to the extent that the developer s annual returns on investment rate are less than 10 percent. These pledges to the developer are subordinate to the NH Project s existing and future senior-lien bonds and the area-wide tax increment pledge to the City. Although there has been an assignment of the loan to the developer, the Agency will maintain its pledge to the City of area-wide tax increment revenues as security for the full $14,000,000 loan. However, this area-wide tax increment pledge is subordinate to the NH Project s existing and future senior-lien bonds. The loan is further secured by an unconditional guaranty of payment not to exceed $12,307,000. J.H. Snyder Company, a company related to the developer issued the guaranty. The Agency's obligation to the City for funds utilized has been recorded as long-term debt in the government-wide financial statements. Annual debt service requirements for the payable to the City are contained in note 2-F. The following is a schedule of amounts payable to the City at June 30, 2005 (in thousands of dollars). Date of Maturity Interest Original Outstanding Description Issue Date Rate Issue Balance Various projects, CDBG Various dates None - $ 50,671 $ 50,671 Various projects, CDBG 20-year loan 2/6/2003 6/30/ % 7,200 6,395 Various projects, CDBG 20-year loan 2/6/2003 9/30/ % 3,294 2,983 Various projects, CDBG 20-year loan 2/6/2003 3/31/ % 3,294 3,144 Various projects, CDBG 20-year loan 2/6/2003 5/15/ % 1,699 1,699 Various projects, CDBG 20-year loan 2/6/2003 6/30/ % 1,590 1,590 Various projects, CDBG 20-year loan 2/6/2003 4/26/ % 1,383 1,383 Hollywood, BGIF loan 9/6/2001 3/7/ % Hollywood, UDAG loan 12/1/ /1/ % 4,250 4,250 North Hollywood, CDBG float loan 10/15/ /31/ % 3,000 3,000 Total payable to the City $ 76,

228 THE COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF LOS ANGELES, CALIFORNIA Notes to Basic Financial Statements June 30, 2005 NOTE 2 - DETAILED NOTES ON ALL FUNDS (continued) I. Net Assets and Fund Equity The following is a schedule of fund balances at June 30, 2005 (in thousands of dollars): Capital Debt Special Description Projects Service Housing Revenue Total Reserved: Debt Service $ - $ 60,169 $ - $ - $ 60,169 Advance to other funds 1, ,175 Low and moderate-income housing activities ,251-79,251 Encumbrances 20,073-10,850 1,140 32,063 Total reserved 21,248 60,169 90,101 1, ,658 Unreserved, designated 93, , ,807 Total fund balances $ 114,996 $ 60,169 $ 90,101 $ 16,199 $ 281,465 The specific reservations and designations of the fund balances at June 30, 2005, are described below. Debt service represents amounts set aside for payment of principal and interest on long-term obligations and amounts established to satisfy debt service requirements imposed by various bond agreements. Advance to other funds represents a portion of the fund balance for advances by the CRA Special Revenue Fund and projects to the Internal Service Fund mainly for the acquisition of capital assets (note 1-I). Low and moderate-income housing activities amounts set aside from tax increment revenues and bond proceeds to be used for low and moderate-income housing projects. Encumbrances represents a portion of the fund balance set aside for commitments outstanding at the end of the fiscal year arising from approved purchase orders, work orders, loans, and contracts. Unreserved, designated a portion of the fund balance appropriated for fiscal year 2006 work program. J. Deficit Net Assets The enterprise fund had deficit net assets at June 30, 2005 of $5,267,000. Funding for future deficits is discussed in note 2-F (Business-type activities, Notes Payable). -56-

229 THE COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF LOS ANGELES, CALIFORNIA Notes to Basic Financial Statements June 30, 2005 NOTE 3 OTHER INFORMATION A. Employees Retirement System The Agency contributes to the California Public Employees Retirement System (CalPERS), an agent multipleemployer public employee defined benefit pension plan. CalPERS provides retirement and disability benefits, annual cost-of-living adjustments, and death benefits to plan members and beneficiaries. CalPERS acts as a common investment and administrative agent for participating public entities within the State of California. Benefit provisions and all other requirements are established by state statute and authorized by the City Council. Copies of CalPERS annual financial report may be obtained from their Executive Office at 400 P Street, Sacramento, California The pension plan covers all full-time employees of the Agency. Under the provision of CalPERS, pension benefits fully vest after five years of service. An employee may retire at age 50 and receive annual pension benefits equal to a predetermined percentage of the employee s salary earned during the highest 12 consecutive months of employment multiplied by the number of years of service. Effective July 1, 1997, the Agency amended its contract with CalPERS changing the retirement formulation from two percent at age 60 to two percent at age 55 in order to provide a retirement incentive to employees. As a result, under the amended plan, the service requirement benefits now vary from percent at age 50 to percent at age 63 and over multiplied by the number of years of service. The contribution requirements of plan members and the Agency are established and may be amended by CalPERS. Participants are required to contribute seven percent of their annual covered salary. However, the Agency makes the contributions required of Agency employees on their behalf and for their account. The Agency is required to contribute at an actuarially determined rate. For fiscal year 2005, the Agency s annual pension costs and required contribution was percent which was determined as part of the June 30, 2002 actuarial valuation using the entry age normal actuarial cost method. The actuarial assumptions included (a) 8.25 percent investment rate of return (net of administrative expenses), (b) projected annual salary increases that vary by duration of service, and (c) two percent per year cost-of-living adjustment. Both (a) and (b) included an inflation component of 3.5 percent. The actuarial value of CalPERS assets was determined using techniques that smooth the effects of short-term volatility in the market value of investments over a three-year period (smoothed market value). CalPERS unfunded actuarial accrued liability/(surplus) is being amortized as a level percentage of pay over a closed 20-year period. Gains and losses that occur in the operation of the plan are amortized over a rolling period, which results in an amortization of 10 percent of unamortized gains and losses each year. If the plan s accrued liability exceeds the actuarial value of plan assets, then the amortization payment on the total unfunded liability may not be lower than the payment calculated over a 30-year amortization period. -57-

230 THE COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF LOS ANGELES, CALIFORNIA Notes to Basic Financial Statements June 30, 2005 NOTE 3 - OTHER INFORMATION (continued) Three-year Trend Information for CalPERS (Dollar Amount in Thousands) Annual Pension Percentage of Net Fiscal Cost APC Pension Year (APC) Contributed Obligation 6/30/03 $ - - $ - 6/30/ /30/05 1, % - B. Other Postemployment Benefits In addition to the pension benefits described in the Employees Retirement System, the Agency provides postretirement health care benefits to all employees who retired on or after January 1, 1993, with at least 10 years of service prior to retirement. In accordance with employment agreements with various employee groups, the Agency subsidizes health care benefits starting at 40 percent of the maximum current subsidy to Agency employees for the first 10 years of service and increases at the rate of four percent for each additional year of service. At 25 years of service and over 50 years of age, the retiree health care benefit is 100 percent subsidized by the Agency. Expenditures for postretirement benefits are recognized in the year incurred. During the fiscal year, the Agency recognized $476,000 in postretirement costs for 91 eligible retirees. In June 2004, the Government Accounting Standards Board issued GASB 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions (OPEB), which will require government entities such as the Agency to recognize postretirement health benefit costs during the working career of Agency employees starting no later than the fiscal year Deemed as a financially responsible method of accounting for postretirement health benefit costs, the Agency has decided to implement an early compliance with the requirements of this new accounting standard in fiscal year 2006 instead of waiting for the deadline of fiscal year In preparation for next year s compliance, the Agency has obtained approval from its Board and the City Council to deposit up to $3,000,000 into a trust fund as its initial funding. As of June 30, 2005, this amount is recorded in unrestricted investments offset by other liabilities in the Internal Service Fund until the Agency is able to contract with a trustee for its OPEB trust fund. -58-

231 THE COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF LOS ANGELES, CALIFORNIA Notes to Basic Financial Statements June 30, 2005 NOTE 3 - OTHER INFORMATION (continued) C. Deferred Compensation The Agency offers its employees a deferred compensation plan (Plan) created in accordance with Internal Revenue Code Section 457. The Plan, which is available to all full-time employees, allows them to defer a portion of their compensation for income tax shelter purposes. The current maximum annual deferral, which is indexed to inflation, is the lesser of $14,000 a year or 33-1/3 percent of the employee s compensation for the 2005 tax year, plus catch up amounts consistent with Internal Revenue Service regulations. The Plan is administered by independent financial institutions (Plan Administrators) that have fiduciary responsibilities over the plan assets. They invest the deferred amounts as directed by participants, maintain detailed accounting records of individual participant s deferrals and earnings, and disburse funds to the plan participants under the terms of the deferred compensation agreements. The Plan assets are not considered the property and rights of the Agency; therefore, such assets are not reflected in the accompanying basic financial statements. D. Bunker Hill Project Bonds Issued and Restructured As of June 30, 2003, Bunker Hill tax allocation bonds payable totaled $316,414,000, consisting of $266,414,000 of senior-lien bonds and $50,000,000 of Bunker Hill 1997 Subordinate Series A tax allocation refunding bonds. The Financial Security Assurance insurance agreement covering the subordinate bonds required the pledge and retention of all tax increment revenues. The bond agreements provided for a reduction of restrictions on the tax increment pledge upon retirement of the subordinate bonds and the achievement of acceptable debt service coverage. In the meantime, Bunker Hill could use only non-tax increment revenues (program income, special revenue, grants, etc.) to fund its ongoing work program. In order to release tax increment revenues from restrictive bond covenants, a bond restructuring/refinancing plan, which included the retirement of the subordinate bonds was developed and implemented in fiscal year While the plan had not produced new money through June 30, 2005, revenue projections indicated it might make available up to $27,400,000 in tax increment revenues for project expenditures over the next six years. Angels Flight Litigation The Agency was sued as a co-defendant in several lawsuits resulting from the February 1, 2002 Angels Flight funicular accident in which one death occurred and several people were injured. All plaintiffs cases have now been settled. Agency counsel has advised that both the settlement amounts and attorneys fees were covered by insurance except in one plaintiff s case. Agency s litigation counsel filed a complaint to recover an equitable amount from all co-defendants of the $875,000 settlement amount paid to said plaintiff. -59-

232 THE COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF LOS ANGELES, CALIFORNIA Notes to Basic Financial Statements June 30, 2005 NOTE 3 - OTHER INFORMATION (continued) E. Central Business District (CBD) Redevelopment Project The 1977 Stipulated Judgment A 1977 stipulated judgment resulting from litigation challenging the CBD redevelopment plan provided that during the life of the CBD Redevelopment Project (CBD Project), the Agency could receive no more than $750,000,000 of tax increment revenues (lifetime cap) for use in connection with the Project, nor more than $75,000,000 in any one fiscal year. The CBD Project reached its lifetime cap in fiscal year Since no more tax increment revenues will be received for the CBD Project, redevelopment activities therein will be funded by non-tax increment sources through the Project s end date of July 18, The 2002 Litigation The Project s Redevelopment Plan was amended in May The amendment deleted certain areas of the Project Area. Some of the deleted areas were incorporated into the City Center Redevelopment Project (adopted May 2002) and into the Central Industrial Redevelopment Project (adopted November 2002). Adoption of these two new projects was intended to allow the Agency to continue funding and working in vital areas of Downtown Los Angeles that remain blighted and still require intervention. The County of Los Angeles and another party filed and won separate lawsuits in the Superior Court challenging the amendment of the CBD Project and the adoption of the City Center and Central Industrial Redevelopment projects. The Agency appealed to the California Court of Appeal. On April 19, 2005, the Court of Appeal ruled that the amendment of the CBD Project was valid, but the adoption of the City Center and the Central Industrial Redevelopment projects was invalid to the extent that it allows for receipt of tax increment from property deleted from the CBD Project. Therefore, the lawsuit is back in Superior Court to resolve issues regarding blight and project feasibility. Trial is set for April F. Hollywood Redevelopment Project In July 2003, several property owners filed a lawsuit in Superior Court against the Agency s amendment of the Hollywood Redevelopment Plan. This amendment restored the Agency s power of eminent domain and eliminated the deadline for incurring new debt in the Hollywood Project Area. The lawsuit alleges that the Agency failed to form a Project Area Committee, and that various City Council findings (made during the amendment hearings) were not supported by substantial evidence. On December 4, 2004, the Superior Court ruled in favor of the Agency and the City, validating the Plan amendment. The plaintiffs appealed to the California Court of Appeal, which will hear oral argument in December G. Risk Management The Agency is exposed to various risks related to torts; theft of, damage to, and destruction of assets; errors and omissions; and natural disasters for which the Agency carries commercial insurance policies. The premiums are paid from the internal service fund and allocated to various functions of the Agency. Potential claims against the Agency not covered by commercial insurance are disclosed in note 3-H. -60-

233 THE COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF LOS ANGELES, CALIFORNIA Notes to Basic Financial Statements June 30, 2005 NOTE 3 - OTHER INFORMATION (continued) H. Commitments and Contingent Liabilities At June 30, 2005, as presented in its fiscal year 2006 Budget, the Agency had approximately $163,244,000 in outstanding commitments. These commitments include projected fiscal year 2006 expenditures for work program pursuant to executed agreements, like Disposition and Development agreements, Loan agreements, and Memoranda of Understanding. They also include projected fiscal year 2006 expenditures for activities mandated by the California Community Redevelopment Law. Operating Leases The Agency has several operating leases for office space, which are not included in capital assets. These leases involve the central office facilities and site offices. The total rent expense for operating leases for the year ended June 30, 2005 was $1,644,000. The Agency has the following contractual agreements for future rental payments at June 30, 2005 (in thousands of dollars): Fiscal Year Ending June 30 Amount 2006 $ 1, , , , , Total $ 8,372 ERAF Transfers During the State budget crisis in , California Redevelopment Agencies were required to shift a portion of the tax increment revenues they receive to the Educational Revenue Augmentation Fund (ERAF) for allocation to K through 12 schools and community colleges. From fiscal year 2003 through fiscal year 2005, the Agency has contributed a total of $14,407,000 to the ERAF. Projected contribution by the Agency to the fund for fiscal year 2006 will be approximately $9,000,000. Hollywood and Highland Project The Agency helped to facilitate public improvement financing for the Hollywood and Highland commercial development by the TrizecHahn Corporation (the Developer). Public financing consisted of taxable certificates of participation issued by the Municipal Improvement Corporation of Los Angeles (MICLA) for the live broadcast theater and tax-exempt parking revenue bonds issued by the City for a subterranean parking structure. -61-

234 THE COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF LOS ANGELES, CALIFORNIA Notes to Basic Financial Statements June 30, 2005 NOTE 3 - OTHER INFORMATION (continued) The debt service requirements for the theater certificates of participation are paid from the annual lease rental payments from the City s General Fund. To the extent that the transient occupancy tax generated by the hotel project at the site is less than the annual debt service requirement, the Developer (or its successor) has guaranteed up to 74 percent of the shortfall. Under certain conditions, the Developer may be released from the guarantee after the eleventh year (year 2010). In a cooperation agreement executed in February 2004, the Agency has agreed to guarantee the remaining 26 percent, net of certain exclusions, payable from tax increment revenues or other legally available funds from the Hollywood Redevelopment Project Area (Project Area). The Agency will be released from this guaranty when the Developer is released from its guaranty as described above. Unless subordination is approved by the City Council, the pledge of tax increment is senior to all future pledges of tax increment from the Project Area. The parking revenue bonds are payable from and secured by a pledge of the parking revenues deposited into the City s Special Parking Revenue Fund. The February 2004 cooperation agreement does not require the Agency to provide a back-up reimbursement mechanism should parking revenues be insufficient to pay for the debt service on the parking bonds. The obligation to pay Hollywood Project tax increment revenues to the City, under certain conditions, is subject to prior and senior obligations to pay tax allocation bond debt service, housing set-asides as required by State law, and pass-through payments arising from agreements with the County of Los Angeles, the Los Angeles Unified School District, and the Los Angeles Community College District. Regency Billboard Litigation In October 2003, the Federal Court issued a pre-trial ruling on a lawsuit filed against the Agency (in 1999) by Regency Outdoor Systems (Regency) based on the Agency s denial of two billboard applications in the Hollywood and Hoover Redevelopment Project areas. The pre-trial ruling denied Regency s claim for lost profits, but found the Agency s use of its Redevelopment Plan provisions to review Regency s billboard applications to violate Regency s First Amendment rights, and indicated they could seek (at trial) lost processing and attorney fees. Agency legal staff estimates that a trial court award of such fees would not exceed $1 million. In January 2004, the Federal Court directed the Agency and Regency into settlement discussions. In February 2005, Regency withdrew from settlement discussions. In October 2005, all parties filed a status report with the Federal Court indicating Regency s lawsuit may now be scheduled for trial. Slauson Shopping Center The Cooperation Agreement and the Disposition and Development Agreement for the development of the Slauson Shopping Center (Center) between the City and the Agency provides for the developer to enter into a loan agreement with the City in the amount of $2,005,000 as a condition of conveyance of the property to be acquired by the Agency and conveyed to the Developer (Developer Loan). This loan will be secured by deed of trust on the property from the developer to the City, subordinate only to the permanent financing on the property. The Agency also pledged site-specific tax increment on the Center to the City for use in repayment of Section 108 Loan funds borrowed by the developer for the Center, in an amount not to exceed $1,126,000 over 18 years. This pledge is subordinate to the redevelopment project area s existing and future senior-lien tax increment bonds. The developer -62-

235 THE COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF LOS ANGELES, CALIFORNIA Notes to Basic Financial Statements June 30, 2005 NOTE 3 - OTHER INFORMATION (continued) will be responsible for the annual repayment of this loan if City site-specific tax revenue allocated to the Center and the Agency s pledged site-specific tax increment revenue is not adequate to service the loan. Other Litigation In the normal course of business, the Agency has been named as a defendant or co-defendant in several lawsuits and claims arising from its redevelopment activities. These claims against the Agency have been evaluated and, upon consultation with the Los Angeles City Attorney, Agency management believes that the ultimate resolution of such claims will not have a material adverse impact on the financial condition of the Agency. Third-Party Indebtedness It is the policy of the Agency to encourage redevelopment activities on the part of the private sector. To this end, the Agency has authorized the issuance of tax-exempt long-term financing for activities, which promote redevelopment within the City. Such debt instruments are collateralized by private sector assets and are payable solely from the respective revenues generated thereon. Since this indebtedness is not a liability of the Agency it does not appear in the accompanying basic financial statements. As of June 30, 2005, the balance of long-term tax-exempt third-party indebtedness was $507,218,000 as shown on pages 87 through 89. I. Subsequent Events Bond Issuance On July 1, 2005, the Agency issued its Adelante Eastside Series B and Beacon Street Series C taxable tax allocation bonds in the aggregate principal amounts of $7,000,000 and $2,680,000, respectively. The Adelante Eastside Series B bonds bear interest rates ranging from percent to 5.90 percent while the Beacon Street Series C bonds bear interest rate at percent. Proceeds of the bonds will be used to finance improvements within the Adelante Eastside Redevelopment Project and the Beacon Street Redevelopment Project, fund a reserve account for the bonds of each series, and pay the costs of issuing the bonds. Central Pacific Bank Loan On August 4, 2005, the Agency signed a promissory note with Central Pacific Bank (CPB), in the amount of $5,300,000, for the purpose of refinancing an existing loan with Bank of the West, for an 84-month, fully amortizing term at variable interest rates of 2.25 percent above the London Interbank Offered Rates (LIBOR), or alternatively, CPB s Base Rate (i.e.prime Rate) plus 0.50 percent. The initial variable interest rate on the loan was 6.75 percent, which increased to 7.0 percent on August 9, Effective August 19, 2005, the Agency exercised its option to fix the interest rate for the remaining term of the loan at percent. -63-

236 fy05 Required Supplementary Information Collage of photographic images from projects in the Downtown Region - Bunker Hill, Central Business District, Central Industrial, Chinatown, City Center, Council District 9 and Little Tokyo.

237 THE COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF LOS ANGELES, CALIFORNIA Employees' Pension Plan Schedule of Funding Progress (In Thousands) (Overfunded) Actuarial Unfunded Actuarial Actuarial Accrued (Overfunded) AAL as a Valuation Asset Liability Unfunded Funded Covered Percentage of Date Value (AAL) AAL Ratio Payroll Covered Payroll 6/30/01 $ 106,876 $ 88,427 $ (18,449) 120.9% $ 14,124 (130.6%) 6/30/02 100,716 99,757 (959) 101.0% 15,761 (6.1%) 6/30/03 102, ,774 12, % 16, % See accompanying independent auditor's report. -64-

238 THE COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF LOS ANGELES, CALIFORNIA Housing Fund Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual For the Fiscal Year Ended June 30, 2005 (In Thousands) Variance with Initial Final Final Budget Budget Budget Actual Positive (Negative) Revenues: Interest income $ 2,641 $ 2,641 $ 2,854 $ 213 Proceeds from sale of land - 1,201 1, Loan repayments 1,786 1,786 1,494 (292) Other Total revenues 4,427 5,628 5, Expenditures: Current: Program salaries and administrative costs, including technical and professional personnel 4,161 4,321 2,967 1,354 Real estate and other acquisition costs 2,936 3, ,262 Housing 21,883 14,577 6,900 7,677 Rehabilitation 3,986 3, ,001 Relocation 145 1,249 1, Development loans 2,873 6,433 1,659 4,774 Community service Tax increment administrative fees Other 3,774 10,944 7,139 3,805 Total expenditures 40,279 44,881 20,508 24,373 Revenues over (under) expenditures (35,852) (39,253) (14,530) 24,723 Other financing sources (uses): Transfers in (out) 19,286 20,218 22,045 1,827 Total other financing sources (uses) 19,286 20,218 22,045 1,827 Net change in fund balances (16,566) (19,035) 7,515 26,550 Fund balances, beginning of year 17,320 82,586 82,586 - Fund balances, end of year $ 754 $ 63,551 $ 90,101 $ 26,550 See accompanying independent auditor's report and notes to required supplementary information. -65-

239 THE COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF LOS ANGELES, CALIFORNIA Special Revenue Fund Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual For the Fiscal Year Ended June 30, 2005 (In Thousands) Variance with Initial Final Final Budget Budget Budget Actual Positive (Negative) Revenues: Grants $ - $ - $ 1,187 $ 1,187 Interest income (18) Loan repayments Developer participation 250 2, (1,624) City participation 2,430 4,243 4,220 (23) Other 300 1, (581) Total revenues 3,242 7,825 6,805 (1,020) Expenditures: Current: Program salaries and administrative costs, including technical and professional personnel Real estate and other acquisition costs 945 2,065 1, Housing Rehabilitation 485 1, ,185 Public improvement 2,847 2, ,399 Relocation Development loans Community service Other 7,126 6,432 2,880 3,552 Total expenditures 11,626 13,892 6,149 7,743 Revenues over (under) expenditures (8,384) (6,067) 656 6,723 Other financing sources (uses): Transfers in (out) (204) (561) (1,473) (912) Total other financing sources (uses) (204) (561) (1,473) (912) Net change in fund balances (8,588) (6,628) (817) 5,811 Fund balances, beginning of year 3,464 14,967 14,967 - Fund balances, end of year $ (5,124) $ 8,339 $ 14,150 $ 5,811 See accompanying independent auditor's report and notes to required supplementary information. -66-

240 NOTE TO REQUIRED SUPPLEMENTARY INFORMATION

241 THE COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF LOS ANGELES, CALIFORNIA Note to Required Supplementary Information June 30, 2005 STEWARDSHIP, COMPLIANCE, AND ACCOUNTABILITY Budgetary Accounting The Agency's annual budget is prepared for all governmental funds under guidelines established by State redevelopment law and the City of Los Angeles Budget Ordinance and is presented for reporting purposes on a basis consistent with generally accepted accounting principles. The budget is approved by the City Council and adopted by the Agency Board before the beginning of the new fiscal year. In addition, because the Agency's budget is prepared well in advance of the fiscal year to which it relates, the budget is regularly amended for changes in available resources and project objectives, with the approval of the Agency Board and City Council. The Agency's annual budget is more comparable to a capital improvement budget, whereby projects are not typically proposed, started, and completed in one fiscal year. Therefore, funds available in a fiscal year may be allocated for expenditure over a multi-year period. Certain funds are therefore allocated to "carryover" into future years beyond the fiscal year of the budget. These future year allocations along with any unexpended revenue from prior years are analyzed at year-end as part of the annual budget process called the carryover amendment. The carryover amendment amends the new year budget for any unexpended revenues from prior years that have not been previously estimated in the new year budget. The process occurs as of June 30, after the traditional accounting close. Once the prior year is closed, an analysis of encumbrances, contracts, commitments and other existing activities is performed and evaluated against original program objectives and resources. Any excess of revenues over expenditures for the prior year is credited to the fund balance of the respective funds and is considered as part of the carryover revenue in the new year. After carryover revenue is determined, the Agency performs a complete re-examination of the purposes of each project objective without any reference to what has gone before. Previously approved spending levels, including future year allocations, are reviewed in detail and are not automatically carried over into the next fiscal year. Work program objectives and commitments must be justified to warrant allocation of carryover revenue. This concept of "zero based budgeting" has been successfully applied to the Agency's unique business structure and provides a timely opportunity to review the status of objectives in each redevelopment area. By this method, prior year revenues are reallocated to either pre-existing or new objectives, in new and updated amounts, through the carryover process. -67-

242 fy05 Other Supplementary Information Collage of photographic images from projects in the Eastside Region - Adelante Eastside, Boyle Heights 1, Boyle Heights 2, Lincoln Heights and Monterey Hills.

243 THE COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF LOS ANGELES, CALIFORNIA Capital Projects Fund Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual For the Fiscal Year Ended June 30, 2005 (In Thousands) Variance with Initial Final Final Budget Budget Budget Actual Positive (Negative) Revenues: Incremental property taxes $ 94,295 $ 94,334 $ 103,231 $ 8,897 Grants 7,867 1,032 16,893 15,861 Interest income 2,687 2,674 7,397 4,723 Proceeds from sale of land ,384 10,384 Loan repayments Rental income 3,868 3,868 5,018 1,150 City participation (325) Other ,289 2,789 Total revenues 109, , ,231 44,096 Expenditures: Current: Program salaries and administrative costs, including technical and professional personnel 28,426 33,065 29,071 3,994 Real estate and other acquisition costs 17,994 16,664 8,244 8,420 Housing 12,978 15,896 6,219 9,677 Rehabilitation 9,763 7, ,749 Public improvement 21,316 19,206 3,885 15,321 Relocation 5,652 2,866 1,347 1,519 Development loans 4,052 7,468 7, Community service 2,953 1, ERAF payments 4,344 8,348 8,348 - Tax increment administrative fees 1,669 1,669 1, Other 33,458 23,246 9,737 13,509 Total expenditures 142, ,955 77,635 60,320 Revenues over (under) expenditures (33,191) (34,820) 69, ,416 Other financing sources (uses): Issuance of long-term debt 11,860 15,500 15, Premium (discount) on issuance of debt (4) (69) Transfers in (out) (68,106) (69,119) (83,000) (13,881) Total other financing sources (uses) (56,165) (53,554) (67,461) (13,907) Net change in fund balances (89,356) (88,374) 2,135 90,509 Fund balances, beginning of year 28, , ,910 - Fund balances, end of year $ (60,707) $ 26,536 $ 117,045 $ 90,509 See accompanying independent auditor's report. -68-

244 THE COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF LOS ANGELES, CALIFORNIA Debt Service Fund Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual For the Fiscal Year Ended June 30, 2005 (In Thousands) Variance with Initial Final Final Budget Budget Budget Actual Positive (Negative) Revenues: Interest income $ - $ - $ 429 $ 429 Total revenues Expenditures: Current: Other Debt service: Principal 11,996 30,297 30,297 - Interest expense 30,484 28,488 28, Bond issuance costs Total expenditures 42,780 59,351 59, Revenues over (under) expenditures (42,780) (59,351) (58,682) 669 Other financing sources (uses): Transfers in (out) 49,024 63,464 62,428 (1,036) Total other financing sources (uses) 49,024 63,464 62,428 (1,036) Net change in fund balances 6,244 4,113 3,746 (367) Fund balances, beginning of year 103,000 56,423 56,423 - Fund balances, end of year $ 109,244 $ 60,536 $ 60,169 $ (367) See accompanying independent auditor's report. -69-

245 THE COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF LOS ANGELES, CALIFORNIA Internal Service Funds Combining Statement of Net Assets June 30, 2005 (In Thousands) Operating Investment Financing Fund Fund Authority Total ASSETS Current assets: Cash and cash equivalents $ 797 $ 123,367 $ - $ 124,164 Unrestricted investments - 98,991-98,991 Receivables: Accrued interest - 1,195-1,195 Other Due from other funds 5, ,408 Other assets 1, ,157 Total current assets 7, , ,965 Noncurrent assets: Restricted assets - 2,151 12,283 14,434 Capital assets: Equipment 12, ,136 Less accumulated depreciation (10,961) - - (10,961) Total capital assets, net of accumulated depreciation 1, ,175 Total noncurrent assets 1,175 2,151 12,283 15,609 Total assets 8, ,704 12, ,574 LIABILITIES Current liabilities: Accounts payable and accrued liabilities 1, ,715 Accrued vacation and sick leave payable 2, ,600 Due to other funds - 225,704 11, ,742 Other liabilities 3,097-1,245 4,342 Total current liabilities 7, ,704 12, ,399 Noncurrent liabilities: Advances from other funds 1, ,175 Total noncurrent liabilities 1, ,175 Total liabilities 8, ,704 12, ,574 NET ASSETS (DEFICIT) Unrestricted Total net assets (deficit) $ - $ - $ - $ - See accompanying independent auditor's report. -70-

246 THE COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF LOS ANGELES, CALIFORNIA Internal Service Funds Combining Statement of Revenues, Expenses, and Changes in Fund Net Assets For the Fiscal Year Ended June 30, 2005 (In Thousands) Operating Investment Financing Fund Fund Authority Total Operating revenues: Applied charges $ 32,388 $ - $ - $ 32,388 Total operating revenues 32, ,388 Operating expenses: Personnel compensation 13, ,469 Employee benefits 11, ,852 Central office expenses 4, ,132 Depreciation expense Other administrative costs 2, ,340 Total operating expenses 32, ,388 Net income from operating activities Nonoperating revenues: Interest income - 4,901 24,446 29,347 Total nonoperating revenues - 4,901 24,446 29,347 Nonoperating expenses: Interest income allocated to participating funds - 4,901 24,446 29,347 Total nonoperating expenses - 4,901 24,446 29,347 Net income from nonoperating activities Total net assets - beginning of year Total net assets - end of year $ - $ - $ - $ - See accompanying independent auditor's report. -71-

247 THE COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF LOS ANGELES, CALIFORNIA Internal Service Funds Combining Statement of Cash Flows For the Fiscal Year Ended June 30, 2005 (In Thousands) Operating Investment Financing Fund Fund Authority Total Cash flows from operating activities: Reimbursements for applied charges $ 32,388 $ - $ - $ 32,388 Payments to employees (25,321) - - (25,321) Payments to other suppliers (5,941) - - (5,941) Net cash provided by operating activities * 1, ,126 Cash flows from capital and related financing activities: Acquisition of capital assets (483) - - (483) Net cash used by financing activities (483) - - (483) Cash flows from investing activities: Proceeds from sale of investments - 893, ,079 Purchase of investments - (853,093) - (853,093) Interest income - 4,901 24,446 29,347 Interest income allocated to other funds - (4,901) (24,446) (29,347) Deposits from other funds - 131, ,599 Payments to other funds - (163,886) - (163,886) Net cash used by investing activities - 7,699-7,699 Net increase (decrease) in cash and cash equivalents 643 7,699-8,342 Cash and cash equivalents, beginning of year , ,822 Cash and cash equivalents, end of year $ 797 $ 123,367 $ - $ 124,164 * Reconciliation of operating income to net cash provided by operating activities: Net income from operating activities $ - $ - $ - $ - Adjustments to reconcile operating income to net cash provided by operating activities: Depreciation and amortization expenses Decrease in other receivables Increase in due from other funds (2,732) - - (2,732) Decrease in other assets Increase in accounts payable and accrued liabilities Increase in accrued vacation and sick leave Increase in other liabilities 3, ,029 Increase in advance from other funds Net cash provided by operating activities $ 1,126 $ - $ - $ 1,126 See accompanying independent auditor's report. -72-

248 THE COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF LOS ANGELES, CALIFORNIA Fiduciary Funds Combining Statement of Fiduciary Net Assets - Agency Funds June 30, 2005 (In Thousands) Construction Deposits Disbursements Total ASSETS Due from other funds $ 1,314 $ 8,484 $ 9,798 Restricted assets 2,449-2,449 Total assets $ 3,763 $ 8,484 $ 12,247 LIABILITIES Construction disbursements payable $ - $ 8,484 $ 8,484 Other liabilities: Good faith deposits payable 2,838-2,838 Unclaimed properties Restitution of wages payable Security deposits Total liabilities $ 3,763 $ 8,484 $ 12,247 See accompanying independent auditor's report. -73-

249 THE COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF LOS ANGELES, CALIFORNIA Fiduciary Funds Statement of Changes in Assets and Liabilities - Agency Funds For the Fiscal Year Ended June 30, 2005 (In Thousands) Deposits ADDITIONS Deposits: Deposits from other funds - Construction Disbursement $ $ 10,061 Good faith deposits Unclaimed properties 77 - Restitution of wages 15 - Security deposits 26 - Total additions ,061 DEDUCTIONS Construction disbursements - 10,061 Return of deposits Total deductions ,061 Change in net assets - - Net assets - beginning - - Net assets - ending $ - $ - See accompanying independent auditor's report. -74-

250 THE COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF LOS ANGELES, CALIFORNIA Governmental Funds Combined Balance Sheet - By Redevelopment Project Area June 30, 2005 (In Thousands) ASSETS Central Adams Adelante Beacon Broadway/ Bunker Business Normandie Eastside Street Manchester Hill District Cash and cash equivalents $ 2 $ - $ - $ - $ 146 $ - Unrestricted investments ,084 Receivables: Incremental property taxes ,488 - Grants Accrued interest Other, net of uncollectibles of $ Due from other funds - 3,639 1,939 1,385 42,690 12,166 Loans receivable, net of allowance for market value write-downs and uncollectibles of $457, ,152 15,020 Restricted assets ,745 1,379 Advances to other funds ,591 - Other assets Total assets $ 1,295 $ 4,589 $ 2,586 $ 1,403 $ 103,564 $ 30,620 LIABILITIES AND FUND BALANCES Liabilities: Accounts payable and accrued liabilities $ - $ 41 $ 18 $ - $ 452 $ 135 Due to other funds , Advances from other funds Unearned revenue ,828 15,524 Other liabilities ,362 Total liabilities ,106 17,386 Fund balances Reserved for: Debt service ,351 - Low and moderate-income housing activities - 1, ,695 3,434 Advances to other funds Encumbrances ,665 4,965 Unreserved, designated for continuing work programs ,109 4,835 Total fund balances 898 4,077 1, ,458 13,234 Total liabilities and fund balances $ 1,295 $ 4,589 $ 2,586 $ 1,403 $ 103,564 $ 30,620 See accompanying independent auditor's report. Continued

251 THE COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF LOS ANGELES, CALIFORNIA Governmental Funds Combined Balance Sheet - By Redevelopment Project Area - (Continued) June 30, 2005 (In Thousands) ASSETS Central City Council Crenshaw/ Industrial Chinatown Center District 9 Crenshaw Slauson Cash and cash equivalents $ - $ 1,618 $ - $ 20 $ - Unrestricted investments Receivables: Incremental property taxes Grants , Accrued interest Other, net of uncollectibles of $ Due from other funds - 5, ,722 1,960 2,112 Loans receivable, net of allowance for market value write-downs and uncollectibles of $457, Restricted assets - 7,468-1, Advances to other funds Other assets Total assets $ - $ 14,890 $ 393 $ 16,740 $ 2,185 $ 2,244 LIABILITIES AND FUND BALANCES Liabilities: Accounts payable and accrued liabilities $ - $ 52 $ 4 $ 98 $ - $ 7 Due to other funds - 5, , Advances from other funds Unearned revenue Other liabilities Total liabilities - 6, , Fund balances Reserved for: Debt service - 2,696-1, Low and moderate-income housing activities - 1,923-6, Advances to other funds Encumbrances - 2, Unreserved, designated for continuing work programs - 1, , Total fund balances - 8, ,089 1,912 1,623 Total liabilities and fund balances $ - $ 14,890 $ 393 $ 16,740 $ 2,185 $ 2,244 See accompanying independent auditor's report. Continued

252 THE COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF LOS ANGELES, CALIFORNIA Governmental Funds Combined Balance Sheet - By Redevelopment Project Area - (Continued) June 30, 2005 (In Thousands) ASSETS East Hollywood/ Beverly- Laurel Little Los Angeles Normandie Hollywood Hoover Canyon Tokyo Harbor Cash and cash equivalents $ - $ - $ - $ - $ 186 $ - Unrestricted investments - 1, Receivables: Incremental property taxes Grants Accrued interest Other, net of uncollectibles of $ Due from other funds 8,372 18,684 1,611 5,303 6,585 2,223 Loans receivable, net of allowance for market value write-downs and uncollectibles of $457,145-9, , Restricted assets 100 3, ,929 - Advances to other funds Other assets Total assets $ 8,530 $ 32,950 $ 3,422 $ 5,570 $ 11,751 $ 2,412 LIABILITIES AND FUND BALANCES Liabilities: Accounts payable and accrued liabilities $ - $ 689 $ 15 $ 2 $ 1 $ 3 Due to other funds Advances from other funds Unearned revenue - 9, , Other liabilities 211 1, Total liabilities , , Fund balances Reserved for: Debt service 289 3, , Low and moderate-income housing activities 2,299 2, ,742 3,485 1,250 Advances to other funds Encumbrances 215 6, Unreserved, designated for continuing work programs 4,975 9,665 1,118 2,812 3, Total fund balances 7,778 21,279 2,455 5,067 10,155 2,244 Total liabilities and fund balances $ 8,530 $ 32,950 $ 3,422 $ 5,570 $ 11,751 $ 2,412 See accompanying independent auditor's report. Continued

253 THE COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF LOS ANGELES, CALIFORNIA Governmental Funds Combined Balance Sheet - By Redevelopment Project Area - (Continued) June 30, 2005 (In Thousands) ASSETS Pacoima/ Mid-City Monterey North Pacific Panorama Recovery Hills Normandie 5 Hollywood Corridor City Cash and cash equivalents $ - $ - $ 2 $ 427 $ - $ - Unrestricted investments Receivables: Incremental property taxes Grants Accrued interest Other, net of uncollectibles of $ Due from other funds 3,368 5,736 5,562 10,661 1,647 19,022 Loans receivable, net of allowance for market value write-downs and uncollectibles of $457, Restricted assets , Advances to other funds Other assets Total assets $ 4,754 $ 6,607 $ 6,426 $ 17,198 $ 1,672 $ 19,628 LIABILITIES AND FUND BALANCES Liabilities: Accounts payable and accrued liabilities $ 13 $ 4 $ 4 $ 343 $ - $ 31 Due to other funds , Advances from other funds Unearned revenue Other liabilities Total liabilities 1, , ,784 Fund balances Reserved for: Debt service 1,134 2,548 1,783 2, Low and moderate-income housing activities 875 1, , ,616 Advances to other funds Encumbrances ,311 2, Unreserved, designated for continuing work programs 709 1,742 1,170 6, ,463 Total fund balances 3,409 5,825 5,957 13,213 1,143 17,844 Total liabilities and fund balances $ 4,754 $ 6,607 $ 6,426 $ 17,198 $ 1,672 $ 19,628 See accompanying independent auditor's report. Continued

254 THE COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF LOS ANGELES, CALIFORNIA Governmental Funds Combined Balance Sheet - By Redevelopment Project Area - (Continued) June 30, 2005 (In Thousands) ASSETS Pico Pico Reseda/ Rodeo/ Vermont/ Union 1 Union 2 Canoga Park La Cienega Manchester Watts Cash and cash equivalents $ - $ - $ - $ - $ - $ 1 Unrestricted investments Receivables: Incremental property taxes Grants Accrued interest Other, net of uncollectibles of $ ,309 Due from other funds 4,360 11,782 18, ,472 1,538 Loans receivable, net of allowance for market value write-downs and uncollectibles of $457, Restricted assets , Advances to other funds Other assets Total assets $ 4,920 $ 12,468 $ 22,908 $ 370 $ 1,575 $ 3,438 LIABILITIES AND FUND BALANCES Liabilities: Accounts payable and accrued liabilities $ 27 $ 10 $ 35 $ - $ - $ 4 Due to other funds - - 1, Advances from other funds - - 1, Unearned revenue Other liabilities Total liabilities , Fund balances Reserved for: Debt service 1,289 1,202 1, Low and moderate-income housing activities 537 3,825 4, Advances to other funds Encumbrances , Unreserved, designated for continuing work programs 2,262 6,751 9, ,576 Total fund balances 4,491 12,315 18, ,288 2,876 Total liabilities and fund balances $ 4,920 $ 12,468 $ 22,908 $ 370 $ 1,575 $ 3,438 See accompanying independent auditor's report. Continued

255 THE COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF LOS ANGELES, CALIFORNIA Governmental Funds Combined Balance Sheet - By Redevelopment Project Area - (Continued) June 30, 2005 (In Thousands) ASSETS Watts Western/ Wilshire/ Corridors Slauson Westlake Koreatown Other Total Cash and cash equivalents $ - $ - $ - $ - $ 1,227 $ 3,629 Unrestricted investments ,851 Receivables: Incremental property taxes ,809 Grants ,983 Accrued interest Other, net of uncollectibles of $ ,266 Due from other funds 662 1,203 4,177 9,529 11, ,086 Loans receivable, net of allowance for market value write-downs and uncollectibles of $457, ,985 68,605 Restricted assets ,981 Advances to other funds ,627 Other assets Total assets $ 760 $ 1,226 $ 4,602 $ 9,721 $ 28,561 $ 391,978 LIABILITIES AND FUND BALANCES Liabilities: Accounts payable and accrued liabilities $ - $ - $ 21 $ 1 $ 641 $ 2,651 Due to other funds ,557 Advances from other funds ,452 Unearned revenue ,375 75,134 Other liabilities ,719 Total liabilities , ,513 Fund balances Reserved for: Debt service ,169 Low and moderate-income housing activities ,363 3,060-79,251 Advances to other funds ,175 Encumbrances ,392 32,063 Unreserved, designated for continuing work programs ,514 5,266 6, ,807 Total fund balances ,937 8,793 8, ,465 Total liabilities and fund balances $ 760 $ 1,226 $ 4,602 $ 9,721 $ 28,561 $ 391,978 See accompanying independent auditor's report. -80-

256 THE COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF LOS ANGELES, CALIFORNIA Governmental Funds Combined Schedule of Revenues, Expenditures, and Changes in Fund Balances - By Redevelopment Project Area For the Fiscal Year Ended June 30, 2005 (In Thousands) Central Adams Adelante Beacon Broadway/ Bunker Business Normandie Eastside Street Manchester Hill District Revenues: Incremental property taxes $ - $ 2,752 $ 887 $ 203 $ 25,565 $ - Grants - - 1, Interest income , Proceeds from sale of land Loan repayments Rental income , Developer participation City participation Other ,089 Total revenues 50 3,036 2, ,492 3,753 Expenditures: Current: Program salaries and administrative costs, including technical and professional personnel - 1, , Real estate and other acquisition costs Housing Rehabilitation Public improvement Relocation Development loans Community service ERAF payments ,392 - Tax increment administrative fees Other , ,547 Debt service: Principal ,711 - Interest expense ,681 - Bond issuance costs Total expenditures 907 3,442 2, ,397 2,087 Revenues over (under) expenditures (857) (406) (204) 147 5,095 1,666 Other financing sources (uses): Issuance of long-term debt Discount on issuance of debt Transfers in (out) (37) , Total other financing sources (uses) (37) , Net change in fund balances (894) ,299 1,802 Fund balances, beginning of year 1,792 3,584 1, ,159 11,432 Fund balances, end of year $ 898 $ 4,077 $ 1,588 $ 446 $ 75,458 $ 13,234 See accompanying independent auditor's report. Continued

257 THE COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF LOS ANGELES, CALIFORNIA Governmental Funds Combined Schedule of Revenues, Expenditures, and Changes in Fund Balances - By Redevelopment Project Area - (Continued) For the Fiscal Year Ended June 30, 2005 (In Thousands) Central City Council Crenshaw/ Industrial Chinatown Center District 9 Crenshaw Slauson Revenues: Incremental property taxes $ - $ 3,543 $ - $ 4,417 $ 675 $ 517 Grants , Interest income Proceeds from sale of land Loan repayments Rental income Developer participation City participation Other Total revenues - 4, , Expenditures: Current: Program salaries and administrative costs, including technical and professional personnel - 1,194-2, Real estate and other acquisition costs , Housing Rehabilitation Public improvement Relocation Development loans Community service ERAF payments Tax increment administrative fees Other Debt service: Principal - 1, Interest expense Bond issuance costs Total expenditures - 3, ,311 1, Revenues over (under) expenditures (226) (583) (16) Other financing sources (uses): Issuance of long-term debt , Discount on issuance of debt (4) - - Transfers in (out) - (2,725) Total other financing sources (uses) - (2,725) - 6, Net change in fund balances - (2,106) 78 6, Fund balances, beginning of year - 10, ,819 1,746 1,574 Fund balances, end of year $ - $ 8,464 $ 89 $ 14,089 $ 1,912 $ 1,623 See accompanying independent auditor's report. Continued

258 THE COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF LOS ANGELES, CALIFORNIA Governmental Funds Combined Schedule of Revenues, Expenditures, and Changes in Fund Balances - By Redevelopment Project Area - (Continued) For the Fiscal Year Ended June 30, 2005 (In Thousands) East Hollywood/ Beverly- Laurel Little Los Angeles Normandie Hollywood Hoover Canyon Tokyo Harbor Revenues: Incremental property taxes $ 2,674 $ 10,222 $ 1,988 $ 981 $ 2,186 $ 1,346 Grants , Interest income Proceeds from sale of land , Loan repayments Rental income Developer participation City participation Other Total revenues 3,040 11,282 5,805 1,172 3,641 2,024 Expenditures: Current: Program salaries and administrative costs, including technical and professional personnel 236 3, Real estate and other acquisition costs Housing - 1, Rehabilitation Public improvement Relocation Development loans - - 4,200-4,280 - Community service ERAF payments 112 1, Tax increment administrative fees Other 9 1, Debt service: Principal 75 1, , Interest expense 191 3, Bond issuance costs Total expenditures ,112 6,427 1,023 7,637 1,522 Revenues over (under) expenditures 2,366 (2,830) (622) 149 (3,996) 502 Other financing sources (uses): Issuance of long-term debt Discount on issuance of debt Transfers in (out) Total other financing sources (uses) Net change in fund balances 2,366 (2,830) (622) 149 (3,996) 502 Fund balances, beginning of year 5,412 24,109 3,077 4,918 14,151 1,742 Fund balances, end of year $ 7,778 $ 21,279 $ 2,455 $ 5,067 $ 10,155 $ 2,244 See accompanying independent auditor's report. Continued

259 THE COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF LOS ANGELES, CALIFORNIA Governmental Funds Combined Schedule of Revenues, Expenditures, and Changes in Fund Balances - By Redevelopment Project Area - (Continued) For the Fiscal Year Ended June 30, 2005 (In Thousands) Pacoima/ Mid-City Monterey North Pacific Panorama Recovery Hills Normandie 5 Hollywood Corridors City Revenues: Incremental property taxes $ 2,097 $ 2,988 $ 1,796 $ 7,801 $ 1,094 $ 8,289 Grants Interest income Proceeds from sale of land , Loan repayments Rental income Developer participation City participation Other Total revenues 2,893 3,223 2,356 16,845 1,199 9,378 Expenditures: Current: Program salaries and administrative costs, including technical and professional personnel 1, , ,865 Real estate and other acquisition costs , Housing ,400 Rehabilitation Public improvement 1, Relocation , Development loans Community service ERAF payments Tax increment administrative fees Other , Debt service: Principal , Interest expense , Bond issuance costs Total expenditures 3,546 2,274 1,683 36, ,907 Revenues over (under) expenditures (653) (19,390) 475 3,471 Other financing sources (uses): Issuance of long-term debt , Discount on issuance of debt Transfers in (out) 1, Total other financing sources (uses) 1, , Net change in fund balances (10,347) 620 3,535 Fund balances, beginning of year 2,871 4,876 5,284 23, ,309 Fund balances, end of year $ 3,409 $ 5,825 $ 5,957 $ 13,213 $ 1,143 $ 17,844 See accompanying independent auditor's report. Continued

260 THE COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF LOS ANGELES, CALIFORNIA Governmental Funds Combined Schedule of Revenues, Expenditures, and Changes in Fund Balances - By Redevelopment Project Area - (Continued) For the Fiscal Year Ended June 30, 2005 (In Thousands) Pico Pico Reseda/ Rodeo/ Vermont/ Union 1 Union 2 Canoga Park La Cienega Manchester Watts Revenues: Incremental property taxes $ 1,308 $ 2,302 $ 8,322 $ - $ 379 $ 347 Grants Interest income ,415 Proceeds from sale of land Loan repayments Rental income Developer participation City participation Other Total revenues 1,496 2,719 10, ,893 Expenditures: Current: Program salaries and administrative costs, including technical and professional personnel , Real estate and other acquisition costs - 4 2, Housing 30-1, Rehabilitation Public improvement , Relocation Development loans Community service ERAF payments Tax increment administrative fees Other Debt service: Principal Interest expense Bond issuance costs Total expenditures 1,860 1,845 10, Revenues over (under) expenditures (364) ,060 Other financing sources (uses): Issuance of long-term debt Discount on issuance of debt Transfers in (out) Total other financing sources (uses) Net change in fund balances (364) ,060 Fund balances, beginning of year 4,855 11,441 18, ,127 1,816 Fund balances, end of year $ 4,491 $ 12,315 $ 18,977 $ 370 $ 1,288 $ 2,876 See accompanying independent auditor's report. Continued

261 THE COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF LOS ANGELES, CALIFORNIA Governmental Funds Combined Schedule of Revenues, Expenditures, and Changes in Fund Balances - By Redevelopment Project Area - (Continued) For the Fiscal Year Ended June 30, 2005 (In Thousands) Watts Western/ Wilshire/ Corridors Slauson Westlake Koreatown Other Total Revenues: Incremental property taxes $ 288 $ 473 $ 2,418 $ 5,373 $ - $ 103,231 Grants ,925 18,080 Interest income ,874 Proceeds from sale of land ,128 11,761 Loan repayments ,572 Rental income ,018 Developer participation City participation ,250 Other ,340 3,971 Total revenues ,842 6,099 10, ,443 Expenditures: Current: Program salaries and administrative costs, including technical and professional personnel ,388 Real estate and other acquisition costs ,996 Housing ,308 13,419 Rehabilitation ,233 Public improvement ,642 Relocation ,473 Development loans ,080 Community service ERAF payments ,348 Tax increment administrative fees ,024 Other ,757 Debt service: Principal ,297 Interest expense ,446 Bond issuance costs Total expenditures ,526 8, ,403 Revenues over (under) expenditures (444) (145) 2,092 4,573 2,708 (2,960) Other financing sources (uses): Issuance of long-term debt ,543 Discount on issuance of debt (4) Transfers in (out) (157) - (3,114) - Total other financing sources (uses) (157) - (3,114) 15,539 Net change in fund balances ,935 4,573 (406) 12,579 Fund balances, beginning of year ,002 4,220 9, ,886 Fund balances, end of year $ 713 $ 765 $ 3,937 $ 8,793 $ 8,693 $ 281,465 See accompanying independent auditor's report. -86-

262 THE COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF LOS ANGELES, CALIFORNIA Schedule of Third-Party Indebtedness June 30, 2005 (In Thousands) Description Date of Maturity Interest Original Balance Issue Date Rate Issue Outstanding Demand Certificates of Participation Baldwin Hills Public Parking Facilities Project 12/15/ /1/2014 Variable $ 30,000 $ 30,000 Multifamily Housing Development Revenue Bonds Lanewood Apartments Project 12/1/ /1/2008 Variable 8,000 8,000 Multifamily Housing Revenue Demand Bonds 12/31/ /1/2005 Variable 28,400 28,400 Skyline at South Park Apartments Project, Phase II Reoffered 9/14/1987 Demand Certificates of Participation Broadway-Spring Center Project 7/15/1987 7/1/2012 Variable 14,700 8,000 Multifamily Housing Revenue Bonds, 1989 Series A Academy Village Apartments Project 10/26/ /1/2019 Variable 23,000 20,000 Multifamily Housing Bonds, 1993 Series A Grand Central Square 9/15/ /1/ % % 9,454 8,889 1/ Housing Revenue Refunding Bonds 1994 Series A, Citywide 6/7/1994 1/1/ % % 20,600 15,090 Housing Revenue Refunding Bonds 1994 Series C, Citywide 9/14/1994 7/1/ % % 8, Multifamily Housing Revenue Refunding Bonds 1995 Series A, Angelus Plaza Project 11/1/1995 6/15/ % 33,020 18,010 Multifamily Housing Revenue Refunding Bonds 1996 Series A, Angelus Plaza Project 1/3/1996 7/1/ % 15,470 12,855 Multifamily Housing Revenue Note, 1999 Series A Western/Slauson Amistad Plaza (note size increased by $500,000 in May 2002) 6/1/1999 1/1/2031 Variable/fixed 4,989 4,989 Multifamily Housing Revenue Note, 1999 Series A Grandview Nine Family Housing 6/1/1999 1/1/2031 Variable/fixed 4,711 4,711 Multifamily Housing Revenue Refunding Bonds, Series 2000, Promenade Towers Project 4/1/2000 4/1/2030 Variable/fixed 47,550 47,550 Continued See accompanying independent auditor's report. -87-

263 THE COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF LOS ANGELES, CALIFORNIA Schedule of Third-Party Indebtedness - (Continued) June 30, 2005 (In Thousands) Description Date of Maturity Interest Original Balance Issue Date Rate Issue Outstanding Multifamily Housing Revenue Bonds, Series 2000A Rowan Lofts Project 12/6/ /1/2034 Variable 21,880 21,880 Multifamily Housing Revenue Bonds, Series 2000A-T Rowan Lofts Project 12/6/ /1/2034 Variable 2,412 2,412 Multifamily Housing Revenue Bonds, Series 2001A Security Building Project (tax-exempt) 8/13/ /15/2034 Variable 13,500 13,500 (remarketed in 6/25/2002) Multifamily Housing Revenue Bonds, Series 2001 A-T Security Building Project (taxable) 8/13/ /15/2034 Variable 4,545 4,545 (remarketed in 6/25/2002) Multifamily Housing Revenue Refunding Bonds, Series 2002 Grand Promenade Project-Freddie Mac Credit Enhanced 4/17/2002 4/1/2032 Variable 43,000 43,000 Qualified Redevelopment Bonds, 2002 Refunding Series A Grand Central Square 4/15/ /1/ % % 20,825 20,125 2/ Multifamily Housing Revenue Bonds, 2002 Series A Metropolitan Lofts Apartments 12/23/ /1/2052 Variable 53,000 53,000 Multifamily Housing Revenue Bonds, Series 2002 Pico Union Scattered-Site Preservation Apartments 12/20/2002 1/20/ % % 16,895 16,895 (remarketed on 2/27/2004) Multifamily Housing Revenue Bonds, 2003 Series A Views at /21/2003 9/1/2019 Variable 8,007 8,007 Multifamily Housing Revenue Bonds, Series 2003A Second and Central Apartments Project 12/12/ /1/2038 Variable 26,665 26,665 Multifamily Housing Revenue Bonds, Series 2003B Second and Central Apartments Project 12/12/ /1/2038 Variable Multifamily Housing Revenue Bonds, Series 2003A Wilshire Station Apartments 11/1/ /15/ % 75,175 75,175 Multifamily Housing Revenue Bonds, Series 2003B Wilshire Station Apartments 11/1/ /15/ % 9,825 9,825 See accompanying independent auditor's report. Continued -88-

264 THE COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF LOS ANGELES, CALIFORNIA Schedule of Third-Party Indebtedness - (Continued) June 30, 2005 (In Thousands) Description Date of Maturity Interest Original Balance Issue Date Rate Issue Outstanding Multifamily Housing Revenue Bonds, Series 2002-T Pico Union Scattered-Site Preservation Apartments 2/26/2004 7/20/ % 3,000 3,000 Multifamily Housing Revenue Bonds, Series 2005A Views at 270 3/17/2005 9/1/2019 Variable 1,000 1,000 Total third-party indebtedness $ 548,578 $ 507,218 1/ This represents 42.33% of the $22,335,000 Grand Central Square Multifamily Housing Bonds, 1993 Series A issued by the CRFA and secured by Proposition A sales tax revenues received by the MTA (note 2-E, CRFA Bonds). 2/ Bonds are 100% secured by Proposition A sales tax revenues received by the MTA. See accompanying independent auditor's report. -89-

265 fy05 Compliance Section Collage of photographic images from projects in the Los Angeles Harbor Region - Beacon Street, LA Harbor and Pacific Corridor.