CITY OF LOS ANGELES INTER-DEPARTMENTAL CORRESPONDENCE

Transcription

1 FORM GEN. 160 CITY OF LOS ANGELES INTER-DEPARTMENTAL CORRESPONDENCE Date: May 01, 2014 To: From: Honorable Members of the City Council L.A. for Kids Steering Committee Miguel A. S.antana, City Administrativeifzffi Gerry F. Miller, Chief Legislative Analyst Patricia Whelan, Office of the Mayor :;!lw.! Subject: through Proposition K Program: Reconciliation of Prior Years, Status of Active Projects and Strategic Plan to Complete Program Requirements SUMMARY The LA for Kids Steering Committee presents for Council and Mayor Consideration: 1) a reconciliation of the first 16 years of the Proposition K program; 2) a status report on active projects; and, 3) policy and funding recommendations for accomplishing the remaining Proposition K funding requirements by committing a portion of the program's surplus funding capacity to offset the funding gap currently projected for the remaining projects the City is obligated to complete under the program. This report is also responsive to the Council Motion directing staff to report on the status of the Proposition K program and provide a strategic plan for accomplishing the remaining program requisites (C.F S1). The Proposition K: L.A. for Kids program is currently in its 17th year of a 3D-year authority, during which the City is authorized to collect up to $25 million in annual assessments for a total funding of $750 million over the life of the program. The program was established in November 1996, by passage of the Proposition K Ballot Measure approved by City voters, with allowable funding use restricted to capital development of youth recreational and cultural facilities, along with associated administrative and maintenance expenses. I'" 'I:.~,' Due to aggressive efforts to deliver, on the commitments made to City residents, the majority of the Proposition K'funding requirements has already been satisfied with 13 additional years remai~[l~~h~(~~ h~~ '-;(?~d over the course of the last year on

2 reconciliation activities and cost projections to serve as a framework for developing a strategic plan to complete the remaining Proposition K funding requirements. Under the terms of the Proposition K Ballot Measure authorizing the program, the City is required to complete 183 specified projects and award a minimum of $ million in competitive funds across eight funding categories. As of the current program year, 112 out of the 183 specified projects have been completed with an additional 37 specified projects in active development. Through eight award cycles, the cumulative level of competitive grant awards totals $ million. However, in order to offset $10.8 million in excess funding awarded under four of the competitive funding categories, an additional $27.2 million in future competitive grants will need to be awarded in order to satisfy the Ballot Measure requirements. As reflected in the chart below, all the remaining non-specified funding requirements can be fully funded for $140 million in Proposition K funds. The remaining funding capacity for the specified program totals $184.9 million. Of this amount, the maximum level of funding that active and future specified projects would qualify for totals $91.6 million, based on the established inflation and interest award rates (Attachments 5 and 8). This leaves a surplus funding capacity of $93.4 million after all program funding requirements have been satisfied. As presented in section 5 of this report, a significant portion of this surplus funding capacity is recommended to offset the funding shortfalls projected for specified projects not yet initiated. Total Revenues - Annual Assessment Funds $325,000,000 Administration s 10,336,971 Maintenance $ 82,322,588 Competitive Program $ 27,212,415 Debt Service s 20,151,084 $140,023,058 $ 7,824,596 $ 83,733,976 $ 91,558,572 $ 93,418,370 One of the allowable uses of program funds defined in the Proposition K Ballot Measure is the award of inflationary adjustments for specified projects. At the time the current inflation and interest award rates were established, various assumptions were made as to the timing and costs of projects that although reasonable at the time, do not reflect the reality that currently confronts the program. The Bureau of Engineering has developed cost estimates for the 36 remaining specified projects, with an estimated funding gap of $64.4 million after accounting for all committed and future earmarks of Page 2 of 22

3 supplemental funding sources (Attachment 8). Given the opportunity to complete the remaining program mandates within program resources, the Steering Committee recommends utilizing up to $64.4 million of the $93.4 million in surplus funding capacity to address the funding shortfalls projected for the remaining set of specified projects (Attachment 8). There is no specific use recommended at this time for the remaining $29 million in surplus funding capacity, which can only be used for eligible Proposition K program expenses. Potentially, these monies could be used to offset specified funding shortfalls beyond the current estimated level or for award of additional competitive grants. The surplus funding capacity that exists under the program is partially attributable to the inflationary allowance defined for specified projects in the program Ballot Measure. A significant level of surplus capacity has also been generated through deliberate efforts on the part of the Steering Committee to leverage supplemental funding sources, such as federal and state grants, to offset costs that would have otherwise been funded by Proposition K monies. Additional savings are attributable to sound financial management exercised during the first half of the program to deliver active projects within available funds and maximize the level of funds retained for future use to complete the remaining program mandates. As part of the annual budget process, program assessment funds must be obligated through contractual agreements, awards to City departments or through eligible labor costs incurred by City staff. Any unobligated portion of assessment funds would be permanently lost to the program. In addition to the $25 million in program assessment funds collected from local residents annually, the Proposition K program also generates interest earnings that are not subject to the same annual funding obligation requirements. There is sufficient program interest monies available to commit $16.13 million at this time to fully address the funding shortfalls estimated for 11 high priority specified projects identified by the respective departments and Council Offices from the set of remaining specified projects (Attachment 8). The proposed commitment of program interest monies would enable the program to utilize funds that are not needed for other program purposes to accelerate completion of the remaining specified projects. Subject to approval to commit these interest funds, the surplus funding capacity projected for the program would increase by an additional $16 million to a total of $45 million. There are also unspent funds remaining for the completed projects that will be recommended for programming through future reports to Council. Conceptual approval is recommended to utilize the program's surplus funding capacity to address shortfalls projected for the remaining Proposition K specified projects identified in Attachment 8, in excess of the current inflation and interest award rates. As discussed in report section 5, the Proposition K program is not subject to the same use restrictions as other assessment programs adopted following the passage of Proposition 218. The City Attomey has confirmed there are no legal authorities that expressly allow or prohibit the recommended use of the program's surplus funding 2013 w 14 Proposition K Program Reconciliation, Page 3 of 22

4 capacity. However, the City Attorney also states there is the possibility of legal challenges from City property owners who may assert that there was an expectation that the City would commit non-program funding sources to offset funding shortfalls for specified projects in excess of the levels authorized in the Proposition K Ballot Measure, inclusive of inflationary adjustments from program inflation and interest monies. As of the current year, there is only partial cost recovery for project delivery expenses funded by the City's General Fund. Additionally, capital monies derived from City funding sources are regularly utilized to offset funding shortfalls for Proposition K. projects, as reflected in the report recommendations. It is the intent of the Steering Committee to continue leveraging capital funds from both City and external funding sources, to the extent that these monies are available. However due to the magnitude of shortfalls projected for some of the remaining specified projects, the most viable means for moving these projects into active development is to utilize a portion of the program's surplus funding capacity, as recommended. The Steering Committee is also sensitive to the issue of funding equity and will continue to monitor the geographic distribution of funds and take necessary measures to address any current or future imbalances over the course of the remaining program years. The proposed use of the surplus funding capacity to fully fund the remaining specified projects should result in a higher level of cost recovery for project delivery expenses currently incurred by the General Fund. The reimbursement of project delivery costs advanced by the General Fund has been irregular due to the need to prioritize use of available monies to fund the capital improvements the City is required to accomplish under the terms of the Proposition K Ballot Measure. Beginning in , the General Fund has received one-time revenues from savings remaining from completed projects. Program staff expects to identify additional residual funds at the conclusion of closeout activities currently underway that would be available to provide additional reimbursement of prior-year General Fund expenses. Staff will provide a mid-year report to the Steering Committee on the level of cost recovery incurred for prior years and the projected rate of cost recovery for the remaining years of the program. The remaining report recommendations provide funding to address $4.36 million in active project shortfalls (Attachment 7) and enabling authorities needed to complete the program reconciliation for prior program years. Additional administrative considerations adopted by the L.A. for Kids Steering Committee at its meeting held on March 27, 2014, are reflected in section 6 of this report. RECOMMENDATIONS That the Council, subject to the approval of the Mayor: 2013~14Proposition K Program Reconciliation, Page 4 of 22

5 Program Reconciliation: Program Years Authorize the retroactive award of Proposition K interest funds totaling $1,360,215 (Attachments 8 and 10), as follows: MacArthur Park (R20) - $11,669 Glassel Recreation Center (S120) - $79,037 Palms Recreation Center (S44) - $69,412 Sepulveda Park West (S62) - $188,421 Van Ness (S75) - $201,476 Watts Junior Arts Center (S146) - $199,809 Rancho Cienga (S93) - $610, Authorize staff to identify and transfer unspent funds remaining for completed projects (Attachments 2 and 3) to new accounts within the Proposition K program entitled "Residual Funds for Reprogramming," with a specific use of these monies to be presented for Council and Mayor approval in a forthcoming report. 3. Accept the work completed by external funding sources as having satisfied the Proposition K scope requirements for four specified projects identified in report section 3d and authorize staff to process reimbursements to the General Fund for project expenses incurred on these projects. Active Projects: Program Year Approve the proposed funding awards reflected in Attachment 7 to address funding shortfalls for active projects, totaling $4,361,091, from the following sources previously authorized for use on capital park projects: $3,245,828 - Park and Recreational Sites and Facilities $1,115,263 - Capital Improvement Expenditure Program (CIEP) Future Projects: Program Years Approve in concept the use of the Proposition K program surplus funding capacity, as identified in Attachment 1, to offset the funding shortfalls projected for the 36 future specified projects up to the amounts identified in Attachment 8, with the actual awards to be authorized by separate Council action(s) at the time the respective projects are ready to proceed into construction. 6. Authorize the award of $16.13 million in Proposition K program interest funds, to fund design and construction activities for the 11 high-priority future specified projects identified in Attachment 8. Page 5 of 22

6 Controller's Instructions and Technical Adjustments 7. Authorize the Controller to: a. Adjust balances within the Proposition K Funds (Fund Nos 43K, 43M, 43L, 43N, 43P, 44S and 46A) to effectuate the funding adjustments associated with Recommendations 1 and 2 above, in accordance with instructions to be provided by the Office of the City Administrative Officer. b. Transfer and appropriate $16.13 million in Proposition K interest earnings (Fund 43K, Revenue Code No. 4903) and increase the cash balance within Proposition K Projects Fund No. 43K, to set up new accounts for the 11 high-priority specified projects (Attachment 13). c. Transfer and appropriate a total of $4.36 million in capital funds that includes $3.24 million in Park and Recreational Sites and Facilities and $1.12 million in Capital Improvements Expenditure Program monies, to address project funding shortfalls for active projects (Attachment 13). 8. Authorize the CAO to prepare technical adjustments, as needed to carry out the intent of the Council action and authorize the Controller to implement those technical adjustments. FISCAL IMPACT There is no additional impact on the General Fund as the funding commitments recommended through the report recommendations are funded by Special Fund monies. To the extent that the Proposition K surplus funding capacity discussed in this report can be utilized to fund the full cost of the remaining specified projects, the level of cost offsets incurred by the General Fund for project delivery costs would decrease. Program staff are completing closeout activities and expect to identify residual funds for completed projects that would potentially be used to reimburse for prior-year expenses incurred by the General Fund. Efforts will be made on a go forward basis to increase the rate of cost recovery during the remaining years of the program. Project awards totaling $4.36 million in capital funds previously authorized for park projects are recommended to address active funding shortfalls identified at this time for 13 active projects addressed in this report (Attachment 7). The recommended funding sources include $3.24 million in Park and Recreational Sites and Facilities and $1.12 million in Capital Improvements Expenditure Program monies. An additional award of $16.13 million in Proposition K interest funds are recommended to address the funding shortfalls for 11 out of the 36 future specified projects remaining under the program (Attachment 8), which are high priorities for the respective operating departments and Council Offices. Specific cost estimates for operating and maintaining the projects addressed through the funding recommendations of this report have not yet been developed, but will be addressed through the City budget as projects are completed. Page 6 of 22

7 DISCUSSION 1. Basis for Report Over the course of the last year, the LA for Kids 8teering Committee staff has conducted an extensive reconciliation of the Proposition K program in order to accomplish the following objectives: 1) Provide a complete report on program accomplishments during Program Years 1-16; 2) Report on active projects in development as of the current Program Year 17; and, 3) Develop a strategic plan for accomplishing the remaining program requirements over Program Years On August 6, 2013, the City Council introduced a Motion that directed the Program Manager of the Proposition K program to report to the Arts, Parks, Health, Aging, and River Committee, relative to the status of the Proposition K program (C.F, ). This report is also responsive to Council instructions, with the status of active projects presented in section 4 of this report and the accompanying Attachments Program Background and Funding Requirements The Proposition K program, currently in its 17th year of a 30-year authorization, was established by the adoption of a Ballot Measure approved by City voters in November Under the terms of the Ballot Measure, the City is allowed to collect up to $25 million in annual assessments for a 30-year period covering FYs through Proposition K assessment funds can only be used for capital improvements or acquisition costs associated with youth recreational projects, program administration, maintenance of completed capital projects and debt service on bond financed projects. The LA for Kids 8teering Committee (8teering Committee) was created by City Ordinance as the program's administering entity (Los Angeles Administrative Code section 8.325). Committee membership consists of representatives from the Offices of the Mayor, the Chief Legislative Analyst (CLA) and the City Administrative Officer (CAO), with the latter serving as the chair. Council transferred project management from the Commission for Children, Youth and their Families to the Bureau of Engineering (BOE) in April 2002 (C.F ) and administration of the program's competitive awards process in December 2003 (C.F ). The CAO staff serves as the program administrator. Over the life of the program, the City is required to award a minimum of $ million in competitive grants and complete 183 projects specified in the Ballot Measure with predefined scope requirements. The specified projects are further divided into:.. Regional projects that serve multiple Council Districts or the City as a whole; and,.. Local projects serving a small number of communities within the same District Proposition K Program Reconciliation, Page 7 of 22

8 The Ballot Measure specifies expenditure ratios that the City must achieve over the 3D-year life of the program for capital expenses (82%), maintenance (15%) and administration (3%). State law prohibits the use of Proposition K funds on program operations. The funding limits and use restrictions for the three funding categories are: XCii.../jf@Mllli:Y:p i%.'{;/iijl{l' i.i1'i~r~ahii:i~i'q,.iii!irijj i;;; "". Funding Category Share of Revenues U1tJ.~.""i.~"' "'. ~"'''''' Funding Limit (30 Yr Total) Capital 82% $615.0 million Use Restrictions!;.Z2)iY~W~Wi8W%i;.i!;i Funding for competitive and specified projects, debt service for bonded projects and inflationary adiustments for specified oroiects. Funds awarded annually through a competitive process, limited to Maintenance 15% million maintenance costs for completed projects with active service and maintenance terms. Funds allocated as a first priority to fund the fee charged by the County Recorder for collecting Administrative 3% 22.5 million assessment funds, with remaining funds allocated to partially offset program administrative costs incurred bv the City. Total Revenues: USO.O mlllion ~IArff~~ 3. Reconciliation of Program Years 1 through 16 The Steering Committee staff conducted a financial review of all program expenditures during the first 16 years of the program. As part of this review, staff validated the cumulative funding levels for the three major categories of program expenses, as outlined in the preceding section. Staff also conducted an extensive review to confirm the development and funding status of all projects initiated during Program Years a. Cumulative Expenses by Program Funding Categories Inclusive of funds budgeted for FY , the chart below reflects the cumulative funding levels for the three major categories of program expenses and the estimated level of funds available for future years. The proposed expenditure schedule for the remaining program years is reflected in Attachment 1, along with a detailed itemization of the funding expended in prior program years. 2013~14 Proposition K Program Reconciliation, Page 8 of 22

9 Expense Category Cumulative Current Yr Remaining Total 30 Year Funding Budget Balance for (PYs 1-17) Funding Limit (PYs 1-16) IPY 17) Future Years Capital $361,958,128 $20,701,431 $382,659,559 $615,000,000 $232,340,441 Maintenance $ 26,651,815 $ 3,525,597 $ 30,177, ,500,000 82,322,588 Administrative ~ j 1,390,(151 ~ s 12 : ,500,000 10,336,971 Totals: $400,000,000 $25,000,000 $425,000,000 $750,000,000 $325,000,000 b. Validation of Project Completions - Specified & Competitive The Steering Committee staff conducted a comprehensive review of projects funded during Program Years 1-16, finding substantial compliance with the following evaluation criteria: Completion of full scope requirements supported by acceptable documentation; Expended funds do not exceed the maximum Proposition K funding level applicable to each project; and, Proposition K program monies used to fund a portion or all the required scope elements. In total, there are 280 completed projects which includes 112 specified projects and 168 competitive projects, as summarized below and detailed in Attachments 2 and 3, respectively. W,,;\,v< icy;nii;!,,::;;???;; '< K X?; '<;;\fy/v,,:,s!i!!ip i)?/:!8i ;Y2?j Project Type Competitive Projects* Specified Projects** Total a. Museum, Theater and Zoo Facilities b. Childcare Centers c. Junior Arts I Youth Center Facilities d. lnterqenerational (Senior & Youth) Centers 1 1 e. Pool, Lake, Wetlands and Other Aquatics f. Roller/lce/Hockev/SkateDark Facilities q, Park Development I Facility Renovations h. Liuhtino Proiects i. Urban Oreeninu and Trail develoornent i. Acquisition for Open Space and Parks Total Proiects: * Competitive projects are awarded through a Request for Proposals Process conducted every two to three years, with a total of eight award cycles to date. ** Specified projects have defined scopes and funding limits established by the Ballot Measure. 2013~14 Proposition K Program Reconciliation, Page 9 of 22

10 Since several critical functions, including program management responsibilities were transitioned during the initial years of the program, many of the early program closeout documents needed to substantiate project closeouts were not readily available or needed to be supported by alternate documentation. With few exceptions, the Steering Committee staff has been successful in compiling appropriate documentation to substantiate project completions. Any outstanding documentation noted in the report attachments will be obtained through follow-up activities, with a mid-year report to the Steering Committee on final outcomes. The completed project count does not include a total of 24 phased projects that are in various stages of completion, as detailed in Attachment 4. These phased projects will be added to the completed projects list in future years once the full scope requirements for the overall project have been satisfied. c. Recommended Offset for Funding Overages - Completed Projects Of the 280 projects completed under the program, only nine received excess assessment funds totaling $1.26 million, as detailed in Attachment 10. The recommended offset for this overage includes: 1) the retum of $641,104 in unspent funds awarded to the respective projects; 2) the retroactive award of $550,015 in program interest funds since these monies are usually awarded concurrent with construction award; and, 3) the repayment of $65,129 from the Sites and Facilities fund for the one competitive project included in this set (Attachment 10). For the eight specified projects at issue, the recommended level of retroactive interest funds does not exceed the levels the respective projects qualified for at the time of construction award. Since the City Attorney has advised that competitive projects are ineligible to receive program interest funds, $65,129 in Sites and Facilities monies is recommended to repay the overage of assessment funds for the remaining competitive project. By using funding residuals and retroactive interest awards to offset the noted funding overages, other supplemental funds available to the prog ram can be better utilized to resolve shortfalls for active projects (see section 4a; Attachment 7). d. Crediting the Program for Projects Completed with External Funding Various components of the Proposition K specified scope requirements were satisfied by external funding sources. The City Attorney has advised that in order to credit the program for satisfying the respective scope requirements, Proposition K funds must reimburse a portion of the incurred expenses. The Steering Committee staff will process General Fund reimbursements for costs incurred on the projects identified below: 2013~14Proposition K Program Reconciliation, Page 10 of22

11 Chandler-Burbank Bikeway Griffith Park North Hollywood Skate Facility Stonehurst Recreation Center R7 R Development of bikeway along Chandler-Burbank (full scope completion; Attachment 2) Ph A RAP project satisfied parking lot refurbishments for live steamers artial sco e com letion; Attachment 4. Ph I - Roller Hockey Rink, via 1st cycle competitive project - YMCA East Valley project (C1 0-1); Ph II - Parking completed as an extension project using private funds; Ph III - Skateboard facility completed by RAP artial sco e com letion; Attachment Ph I - Restrooms funded by Proposition A grant funds. e. Competitive Program - Cumulative Funding for Cycles 1-8 The Ballot Measure established minimum funding levels for eight categories of competitive projects. At this time, the program has met and exceeded four of these categories by nearly $11 million. In order to satisfy the funding requirements for the remaining four categories, an additional $27.2 million in competitive funds will need to be awarded prior to the sunset of the program in FY , as reflected in the chart below: Minimum Project Type Funding Requirement Cumulative Excess Funding Awards (over minimum)' Remaining Award Requirement 1.Regional Recreation / Educational Facilities $ 20,000,000 $21,419,791 $1,419, Neighborhood At-Risk Youth Facilities $ 20,000,000 $21,651,508 $1,651, Youth Schools / Recreation Proiects $ 20,000,000 $ 9,472,020 $10,257, A uatic u rades $ 16,000,000 $11,411,949 $4,588, Athletic Fields $ 16,500,000 $22,357,274 $5;707, Li htin $ 16,000,000 $ 9,413,504 $6,586, Urban Greenin $ 15,000,000 $17,021,693 $2,021, Acquisition of Parks/Natural Lands $ 20,000,000 $14,220,112 $5,779,888 Totals: $143,650,000 $127,434,951 $10,800,266 $27,212,415, The excess funds awarded under the four competitive funding categories identified in the chart above, reduces the overall program funding surplus projected for the Proposition K program by approximately $11 million, as detailed in Attachment 1. However, due to the level of surplus capacity available over the 13 remaining program years, this excess funding under the competitive program does not adversely impact the ability to fully fund projects under the specified program. Page 11 of 22

12 f. Options for Future Competitive Funding Cycle(s) Staff recommends limiting future awards of competitive funding to satisfy the $27.2 million in additional funding awards that are needed to satisfy the minimum funding requirements for the four remaining funding categories, as reflected in the chart above. This will enable the program to fully satisfy the competitive funding requirements established in the Proposition K Ballot Measure, while preserving the maximum level of surplus funding capacity remaining under the program to address the funding requirements of the specified program (refer to report section 5). One option for awarding the remaining balance of competitive funds is to release four separate RFPs, with each one focused on one of the four remaining funding categories. The next Proposition K Request for Proposals (RFP) for the Ninth Funding Cycle is currently scheduled for release by March 2015, to award competitive funds over a three-year period covering FYs through In order to provide sufficient time for planning and targeted outreach, staff will retum to the Steering Committee with a specific plan to complete the remaining funding requirements under the Proposition K competitive program by September g. Competitive Program - Regional Distribution of Funds At the onset of every funding cycle, an equal level of competitive funds is assigned to each of the three Proposition K funding regions for the Central, Southern and Valley regions. At this point in the program, there is an imbalance between the level of funds currently awarded between the three regions, as reflected below. I. - n K vvh Region Central Council Districts C" ,4,5, 11, 13 & 14 (CD 5 - South of Mulholland Drive; CD 11 - North of Interstate 10),- u.,," IUU"V" by Cumulative Funding Funding (cvctes 1 81 Distribution $39,362,659 31% Southern 8,9,10,11 & 15 (CD 11 South of Interstate 10) $40,996,244 32% Valley 2,3,5,6,7& 12 (CD 5 - North of Mulholland Drive) $46,878,948 37% Totals $127,434, % This variance in funding across regions is attributable to various factors that include reprogramming actions, redistricting and low levels of eligible funding requests within a given region, relative to the level of funds available. Since there are additional monies to award through future competitive cycles, an effort will be made to reduce the variance in cumulative funding between the respective regions. Specific recommendations to promote this objective will be provided in the proposed September 2014 report to the Steering Committee. Page 12 of 22

13 h. Competitive Program - Service and Maintenance Requirements As a condition for receiving Proposition K competitive funds, grant recipients are contractually obligated to provide specific services over a set term of years. The service and maintenance requirements and preliminary compliance status for the completed competitive projects is reflected in Attachment 3. BOE is in process of providing technical support to agencies that are not currently in full compliance with their service and maintenance terms. BOE will report to the Steering Committee by September 2014, with suggested follow-up for any competitive grantee that remains out of compliance with the respective service and maintenance terms. i. Competitive Program - Award Rescissions There are seven competitive projects for which the grant recipients have provided written requests to rescind all or a portion of the respective grant awards (Attachment 11). As summarized below, the cumulative funding available for reprogramming for these projects totals $2.13 million. C103-3 Mar Vista Institute - art center $ 83,669 C104-3 Mar Vista Institute - childcare center $ 99,584 C135-4 Variet Bo s and Girls Club - a uatic renovations $ 400,000 C184-6 Variet Bo s and Girls Club - construct new m $ 376,742 C167-6 Therapeutic Living Centers for the Blind - playground for children with disabilities e" $ 125,000 C206-7 Children's Has ital Los An eles - child care ex ansion 7 $ 800,660 C208-7 RAP: Daniels Field S arts Center new ress box' 7 $ 242,858 Total: $2,128,513 The overall grant award for this project totals $485,716 for restroom renovations and construction of a new press box. Due to a significant funding shortfall prompted by the demolition of the old press box, this component is being rescinded along with half the funding award (RAP Board action pending). The remaining funds will be used to complete the restroom renovations along with supplemental funds recommended as part of the shortfall funding recommendations (Attachment 7). As part of the annual Proposition K budget process, applicants that did not receive the full level of funding requested through the competitive award cycles are added to the "Proposition K C List of Altemate Projects." These C List projects can potentially receive funding that becomes available from competitive projects that are withdrawn or rescinded. Action to officially rescind the competitive grant awards identified above will need to be deferred to Fiscal Year , in order to provide sufficient time for staff to assess the viability of projects eligible to receive the $2.13 million in competitive funds at issue. Potentially, these monies could be utilized to reduce the regional funding imbalance, as discussed in section 3.g. of this report. Page

14 4. Status of Active Projects There are currently 101 projects in various phases of active development, including those in pre-design, design, acquisition, construction and post-construction. The active project count includes 38 specified projects and 63 competitive projects, with a full listing provided in Attachment 5 and 6, respectively. The Steering Committee staff has examined the funding status for the 101 active Proposition K projects, along with various related park projects. At this time, staff has identified 13 projects with aggregate funding shortfalls totaling $4.36 million (Attachment 7), which includes 10 Proposition K projects and three related projects: 9 active Proposition K projects - $3.2 million 3 related projects - $1.12 million 1 prior-year completed Proposition K project - $65,129 (to correct funding overage - refer to report section 3c) It is anticipated that additional shortfalls will be identified as the scopes and budget estimates for active projects are refined, particularly those in early phases of development. Shortfalls beyond the current estimates will be addressed in subsequent years with program funds and supplemental monies available to the program. a. Shortfall Funding Recommendations for Active Projects The Steering Committee has previously recommended the use of available supplemental program funding sources to maximize the number of active funding shortfalls that are resolved, while working within the various funding restrictions that apply to the individual funding sources. Program funding sources that are typically used to offset project funding shortfalls include: Proposition K inflation and interest funds, Proposition 40, Proposition A, Quimby, the Capital Improvement Expenditure Program (CIEP), the Park and Recreational Sites and Facilities (Sites and Facilities) Fund and the Community Development Block Grant (CDBG). In developing a funding strategy to address the estimated funding needs of active projects, staff accounted for all committed and future earmarks of supplemental funding sources available to the program, as identified in Attachment 7. This includes Proposition K inflation and interest awards recommended for three Proposition K specified projects that are based on the award rates currently in effect (proposed award modification presented in section 5 for future projects). In order to address the remaining funding shortfall totaling $4.36 million, funding awards from the following sources are recommended through the report recommendations: $3,245,828 - Sites and Facilities $1,115,263 - CIEP Page 14 of 22

15 b. City Cost Recovery for Administration, Maintenance and Project Delivery Costs Since the inception of the program, City departments have received partial funding for program administration and project maintenance costs at levels that remain fairly stable from one year to the next. However, the reimbursement of project delivery costs advanced by the General Fund has been irregular due to the need to prioritize use of available monies to fund the required Proposition K capital improvements the City is required to complete. Beginning in , the General Fund has received one-time revenues from savings remaining from completed Proposition K projects. Efforts to recover additional program costs supported by the General Fund will continue as part of an ongoing administrative review of the program. To the extent that the program's surplus capacity can be committed in levels sufficient to fully fund the costs of capital improvements and the City's associated project delivery costs, the annual offsets provided by the General Fund would be expected to decrease. Program staff expects to identify additional residual funds remaining from completed projects once closeout activities currently underway are concluded. These residual funds would be available to recover additional unreimbursed costs incurred by the General Fund in support of prior-year program activities. On a go forward basis, staff will monitor cost recovery rates and work to refine project estimates to ensure the program moves towards a higher rate of cost recovery during the remaining years of the program. 5. Remaining Program Requirements As presented in the preceding sections of this report, the majority of the. funding requirements defined in the Proposition K Ballot Measure have been satisfied as of the current Program Year 17. In an effort to develop a long term plan for completing the remaining program requirements, the Steering Committee staff has developed cost projections for the remaining specified projects (Attachment 8). After accounting for all the remaining program expenses, there is a significant level of surplus funding capacity estimated at $93.4 million. The projected surplus is recommended to offset the funding shortfall estimated for the remaining set of specified projects. a. Surplus Funding Capacity - Proposed Use to Offset Specified Project Shortfalls As reflected in Attachment 1, the funding capacity for the remaining 13 years authorized for the Proposition K program totals $325 million. Of this total, only $140 million - or the equivalent of 5.6 years in annual collections - is needed to satisfy all non-specified program funding requirements: Program administration ($10.3 million) Maintenance for completed projects ($82.3 million) o Competitive grant awards ($27.2 million) Debt service payments for bonded projects ($20.2 million) Page 15 of 22

16 This leaves a remaining funding capacity of nearly $185 million to complete all the active and future specified projects (Attachments 5 and 8). As summarized in the chart below, there is a surplus funding capacity of $93.4 million after reserving the maximum level of: Proposition K specified funds that both active and future projects are entitled to receive; and, Proposition K inflation and interest monies that active and future projects qualify for based on the current rates of award. Total Future FundingAvailability- SpecifiedProgram: FutureS ecified Funds 4,680,125 46,461,084 Inflation/InterestEligibility usm current rates ', ,, The projected $93.4 million in surplus funding capacity is sufficient to fully address the estimated funding shortfall totaling $64.4 million for the 36 specified projects remaining under the program (Attachment 8). The remaining excess funding capacity of $29 million would be available to address any funding shortfalls beyond the levels currently projected for the remaining specified projects or to potentially award additional competitive grants in latter program years. While there is sufficient funding capacity within the Proposition K program to fully fund the remaining specified projects, a revised policy for award of program inflation and interest funds is needed in order to utilize this capacity. The proposed revisions to inflation and interest award policy would facilitate completion of the projects without the need for additional supplemental funding beyond what is currently reflected in Attachment 8. b. Current Award Policy - Proposition K Inflation and Interest Funds Proposition K inflation and interest monies are primarily used to offset project funding shortfalls for specified projects that are attributable to cost escalation over the course of the 30 year program. Proposition K inflation funds are programmed each year as part of the $25 million annual program budget. Program interest funds are outside of the annual budget and are in addition to annual assessment fund collections. The interest funds are program revenues in Page 16 of 22

17 the form of interest, earnings on the assessment funds and collection penalties. Program interest monies can also be. used to offset shortfalls in annual collections or to accelerate program outcomes by funding expenses in excess of the $25 million annual spending limit that applies to program assessment funds. In a memorandum dated February 4, 2003, the City Attorney provides background on how these rates were established, the applicable use restrictions and the conditions required to implement a revised award policy. The current inflation and interest rates were established based on various assumptions made relative to the timing and costs of projects. The assumptions were likely reasonable during the early-years of the program, however, at this later stage of the program a revised award policy is needed to enable the City to address the remaining funding requirements of the specified program within the available program surplus funding capacity. The City Attorney has advised that a study to update the information and assumptions underlying the current award rates would be needed to justify revisions to the existing policy. The Steering Committee staff has completed the various reconciliation and cost projections discussed in the preceding sections of this report to provide the context needed to consider the proposed use of surplus capacity to offset funding shortfalls for the remaining specified program. Key features of the current inflation and. interest award policies are outlined below:.. Specified projects are eligible to receive a maximum inflation allowance of three percent each program year starting from Program Year 2 through the year the construction contract is awarded... An objective index is used to determine the maximum award of interest funds that a specified project is eligible to receive (currently the Department of Labor, Producer Price Index is used)... The interest award eligibility level is reduced by the amount of inflation funds awarded to the respective projects. e The combined level of inflation and interest funds awarded to a project is further limited to the shortfall funding level identified at the time of construction award... Competitive projects are ineligible to receive inflationlinterest funds since project estimates are provided in response to periodic Request for Proposals and should therefore reflect current cost estimates that account for inflationary factors over the course of the construction term. 2013w14 Proposition K Program Reconciliation, Page 17 of 22

18 c. Proposed Award Policy - Proposition K Inflation and Interest Funds The current award rates used for Proposition K inflation and interest funds are not reflective of the needs of the program. While there is sufficient funding capacity available under the program, the current inflation and interest award rates are too restrictive and would resolve less than half the funding shortfalls projected for the remaining specified projects. At this stage of the Proposition K program with the majority of the capital funding requirements complete and a surplus capacity of $93.4 million projected, after factoring for all remaining program costs, it is appropriate to consider revising the program's inflation and interest award policy The City Attorney has consistently advised against exceeding the current inflation and interest award rate in order to ensure there is sufficient funding to achieve all the remaining program mandates. However, based on the outcome of program reconciliation activities, there is a significant level of excess funding capacity that can be utilized to complete the remaining specified projects without negatively impacting any of the other remaining program funding mandates. The City Attorney advises there is no expressed prohibition to utilize the program's surplus funding capacity as recommended in this report. However, the City Attorney also states there is the possibility of legal challenges from the City property owners who may assert that there was an expectation that the City would commit non-program funding sources to offset funding shortfalls for specified projects in excess of the levels authorized in the Proposition K Ballot Measure, inclusive of inflationary adjustments from program inflation and interest monies. Even with the proposed use of the program's surplus funding capacity, the Steering Committee still intends to continue its practice of leveraging supplemental funding from City sources, along with State and Federal grants, as available. As reflected in the report recommendations and supporting attachments, City capital funds along with other non-program funding sources are being used to offset shortfalls projected for the active Proposition K projects. It is also important to recognize that since the Proposition K program was established by City voters at the time Proposition 218 was adopted, the program is not subject to the various restrictions that apply to other assessment programs. Under the terms of Proposition 218, assessment fees are limited to the special benefits directly assignable to individual property owners in association with the capital projects to be funded by the assessment fees. The Proposition K Ballot Measure by contrast allows for a broader use of assessment funds, with specified regional projects serving communities across multiple Council Districts. Page 18 of 22

19 Absent specific legal restrictions, approval in concept to utilize the program's surplus funding capacity, as identified in Attachment 1, to offset the funding shortfalls projected for the remaining specified projects is recommended up to the amounts identified in Attachment 8. The actual award levels would be subject to separate approval on the part of the Steering Committee, Council and the Mayor, as part of the annual budget at the time the respective projects are ready to proceed into construction. d. High Priority - Future Specified Projects Through a collaborative review process involving BOE, the Department of Recreation and Parks (RAP), the Cultural Affairs Department and impacted Council Offices, the following 11 projects were identified as funding priorities for the set of future specified projects identified in Attachment 8. ansen Dam, R 16 Phase III - one restroom building, road refurbishment, trail improvement and lighting. Ph II - restrooms and related improvements for C195-7; Ph 111- water Improvements Ph III - trail improvements S/E Valley Roller & Skateboard Rink, R27 Ph 11- acquisition/development of roller (hockey) rink Studio City, S12 Modern gym, community center, landscape & irrigation Runyon Canyon, S36 Property acquisition for park expansion Robertson Rancho Cienega Rec Center, S46 Sports Center, S93 Construct modern gym, community center, childcare center, perimeter improvements Construct fitness annex as part of larger site redevelopment project currently in design Chatsworth Park South, S107 Outdoor & parking lot improvements (Old) Engine Co. 23 Arts Center, S78 Refurbish, retrofit, convert facility into youth arts center Highland Park Jr. Arts Center, S133 Refurbish, retrofit, convert facility into youth arts center Proposition K assessment funds must be obligated against incurred expenses or through contractual agreements prior to the close of every fiscal year to avoid the permanent loss of unobligated funds. These restrictions are in place to ensure that the program is only collecting the minimum level of funds from City property owners that are needed to support current program activities, in conformance with applicable State and federal law. Program interest funds while generally treated with the same considerations as program assessment monies do not originate as program collections, but are generated as program revenues on assessment funds. Page 19 of 22

20 Since Proposition K interest funds are less restrictive, funding earmarks totaling $16.13 million are recommended for future use to offset the funding shortfalls for the 11 high-priority projects. The recommended use of program interest funds would commit funding that is currently not utilized or needed for other program purposes to accelerate outcomes for completion of the remaining specified projects. Subject to approval, these monies would be obligated under the current fiscal year to fund design activities and to offset a portion of the construction costs as projects progress into active development. Funding from program assessment funds that these priority projects are entitled to receive would be programmed through the annual budget development process. At this time, authority for BOE to complete design documents for the 11 priority projects is recommended, with a report on the status of these projects by September 2014, prior to the next round of funding deliberations that will begin in October Steering Committee Policy Recommendations Due to aggressive efforts to deliver on the funding commitments made to City residents through the Proposition K Ballot Measure, the majority of the program requirements has already been satisfied as of the current Program Year 17, with 13 additional years remaining. As presented in report section 3, the Steering Committee staff completed full financial reconciliation for prior program years and substantiated full scope compliance for the 280 completed specified and competitive projects that are listed in Attachments 2 and 3. Staff has also evaluated the funding needs of the 101 active Proposition K projects that are in different phases of development, as identified in Attachments 5 and 6. After leveraging available sources of supplemental program funds, there are sufficient funds available to fully offset the $4.36 million in funding shortfalls projected for the active projects with the recommended commitment of CIEP ($1.11 million) and Sites and Facilities ($3.25) funds. With a confirmed list of completed projects and sufficient funding available to address the funding needs identified at this time for active projects, it is possible to estimate the level of funding available to complete the remaining program mandates over the course of the final 13 years of the Proposition K program. As presented earlier in the report, all non-specified program requirements will be fully funded with the commitment of $140 million, or the equivalent of 5.6 years of annual program collections, leaving $185 million in funding capacity to complete the specified program (Attachment 1). Of this balance, the active and future specified projects are entitled to receive $91.6 million in additional specified funds, along with program inflation and interest monies calculated based on the established rates of award. This leaves a surplus funding capacity of $93.4 million, of which $64.4 million is recommended to address the funding shortfall estimated for the 36 remaining specified projects identified in Attachment 8. The remaining surplus funding capacity. of $29 million is not recommended for a specific use at this time, but could potentially be Page 20 of 22