‘STATE OF CALIFORNIA BUSINESS, I3ah u DEPARTMENT OF HOUSING AND COMMUNITY DEVELOPMENT AUDIT DIVISION 1800 Third Seat, Suite 310 P.O, Box 052080, Seerameto, CA 06252-2050 (oie) seustes FRX (016 446-2229 September 12, 2000 Joseph T. Rouzan, Jr., Executive Director Inglewood Redevelopment Agency One Manchester Boulevard Inglewood, California 90301 ‘Dear Mr. Rouzan: Enclosed, please find our final audit report concerning the Inglewood Redevelopment Agency’s compliance with statutory housing and housing fund requirements. We have included your response to our draft report in the final audit report; a copy of your response letter is also included in “Attachment A”. ‘We greatly appreciate the cooperation and assistance your staff provided during the course of the audit. If you have any questions concerning the report, please feel free to contact me at (916) 324-9763 or by email at epfost@hcd.ca.gov. Sincerely, Eric Pfost, Chief Audit Division Attachments Ce: Julie Bornstein Judy Nevis Rich Friedman Cathy Creswell Jackie Wilson‘STATE OF CALIFORNIA SUSINESS, TRANSEORTATION, AND HOUSING AGENCY _ Bu DEPARTMENT OF HOUSING AND COMMUNITY DEVELOPMENT AUDIT DIVISION 4000 Tid Stet Sule 510 0. Box es2080 Sesramenta, CA 04252-2080 (@1e)azeates Fax 6) 445-2209, September 12, 2000 ‘Ms. Julie Bomstein, Director Department of Housing and Community Development Background: California Health and Safety Code Section 50464 states that the Department of Housing and Community Development (Department) may make investigations of housing and community development, may study the operation and enforcement of redevelopment programs, and may examine the records of redevelopment agencies and secure copies of their records at any time, The Department has elected to initiate a program to review the housing assistance activities of various redevelopment agencies. The following report documents our findings and recommendations based upon our field work in accordance with audit guidelines promulgated by the State Controller’s Office (SCO) for the review of redevelopment agencies. Scope: The purpose of our review was to evaluate the Inglewood Redevelopment Agency’s (Agency) compliance with statutory housing requirements including administration and use of the Low and Moderate Income Housing Fund (MIE) for fiscal years 1995/1996, 1996/1997, and 1997/1998. Certain issues required the review of information and records outside this audit period. Our review was conducted in accordance with Generally Accepted Govemmental. Auditing Standards as published by the Comptroller General of the United States. We used the Guidelines for Compliance Audits of California Redevelopment Agencies as issued by the SCO. During our review we interviewed the following Agency/City representatives: Jeff Mirer, Financial Officer Debbie Nguyen Lee, Accountant Jesse Lewis, Community Development Director ‘Marla Stevens, Development Coordinator ‘We reviewed the following records and materials during the course of the audit: annual reports submitted to the Department; LMIHF financial statements audited by their independent certified public accounting firm; trial balances and the supporting general ledgers; cash receipts and cash disbursements registers; revenue and expenditure journals; adopted findings of the Agency; loan and development agreements; bond issue documents; county property tax remittance statements; a deficit elimination plan, the City/Agency budget; an inventory of real property holdings; replacement housing reports and plans; and the housing component of the redevelopment implementation plan.‘We note the adopted implementation plan indicates “it is a policy of the agency that implementation of housing development and rehabilitation occur through written agreements with private individuals or other developers” and “it is not the intent of the agency to act as the developer for housing projects.” As a result, the plan treats all units assisted with the LMIHF as housing “developed by others” pursuant to Section 33413(b)(2). It is the Department’s opinion (see the enclosed 1994 Redevelopment Housing Law Advisory memo), that at a minimum the development or rehabilitation of units in which the agency has participated (e.g., participated in either the planning, initiation, financing, infrastructure, ‘management, construction, land acquisition, or provision of other assistance) should be treated as “developed by an agency” pursuant to Section 33413(b)(1), even though the agency may not have been the direct instigator or manager of development. ‘The Agency’s interpretation of the statute will significantly reduce affordable housing production obligations. Units that otherwise would only be eligible to meet “agency-developed” production requirements are instead being used to meet production requirements for housing “developed by others”. By treating all agency-assisted housing as housing “developed by others”, the Agency is effectively obviating required production requirements for “agency-developed” housing. ‘We completed our audit fieldwork in Inglewood on February 10, 2000 and issued a draft report to the Agency dated May 22,2000. The Agency responded on August 8, 2000. We have incorporated the Agency’s responses into our final report and a copy of their response is enclosed. This report is solely intended for the use of the Department and the Inglewood Redevelopment, Agency’s management, However, this is not intended to limit distribution of this report which, when final, is a matter of public record. Sincerely, Cx. Ort Eric Pfost, Chief Audit DivisionINGLEWOOD REDEVELOPMENT AGENCY FINDINGS AND RECOMMENDATIONS Finding Number One: Destroyed units were not replaced within statutory timeframe. Condition: Based on information in the 1998 Replacement Housing Report, affordable housing units destroyed/removed within the Century and La Cienega Project Areas were not replaced with an equal or greater number of affordable units within four years as required by statute, The report indicates, for example, that between 1983 and 1987, 629 units affordable to lower- and moderate-income households were removed or destroyed. During and within four years of this period (1983 to 1991), only 143 affordable units were reportedly replaced. On a unit-for- unit basis, this left a replacement-housing deficit of 486 units at the end of 1991. Between 1988 and 1998, 321 additional units were removed and between 1991 and 1998, 343 units were replaced. As of the date of the latest Housing Replacement Report (1998), this leaves a current deficit of 464 affordable replacement units. The report also indicates that 448 affordable units were developed in the project areas between 1976 and 1980, prior to the removal of any affordable units. However, there is no evidence that these units were developed as “advance replacement units” for housing later removed in the mid 1980’s. The Agency’s replacement housing plan (adoption date unknown) only identifies 149 units proposed for construction during 1983 and 1984 as “advance replacement units”. There appears to be no information correlating the number, nature, and affordability of units lost to the “advance replacement units” in the replacement housing plan or implementation plan. In addition, there is no information that the “advance replacement units” were made available to the households subsequently displaced since they were built years before the displacement occurred. If the 448 units constructed prior to 1980 are asserted to be “advance replacement units”, there must be a clear nexus between those units and the units lost and their households, Otherwise, they merely count towards meeting the agency's project area production requirements and there is a significant shortfall of replacement units. Criteria: Health and Safety Code Section 33413(a) requires, in part, that whenever dwelling units housing persons and families of low or moderate income are destroyed or removed from the low- and moderate-income housing market, as a result of agency-sponsored activities, the agency shall cause the development or rehabilitation of an equal number of replacement units, with an equal or greater number of bedrooms, within four years. For units removed after September 1, 1989, at least 75 percent of the replacement units shall be replaced at the same affordable housing cost relative to the income level of the households displaced from the removed or destroyed units.Health and Safety Code Section 33413.5 requires adoption of a replacement housing plan not less than 30 days prior to agreements involving destruction or removal of dwelling units, including notice and hearing to the general public. Specific information about the units to be lost must be included, as well as information regarding the replacement housing. Section 3341.1 prohibits displacement until there are suitable housing units available and ready for occupancy by displaced persons, and Section 3411.3 requires that displaced persons have a priority in all agency-assisted housing. The implementation plan required by Section 33490 also includes. requirements for information related to replacement housing obligations. Health and Safety Code Section 33413(f) provides that the agency may replace destroyed or removed units with a fewer number of replacement units if. (1) the total number of bedrooms in the replacement units equals or exceeds the number of bedrooms in the destroyed units; and (2) all of the units are replaced at the same affordable housing cost relative to the income level of the persons displaced. Recommendation: The Agency should make funding the current deficit of affordable replacement housing units a priority. Other funding sources, such as tax increment designated for non-housing purposes, could be used to supplement the LMIHF and help finance the development of the required replacement housing units as soon as possible. The replacement housing report should also be revised to reflect the bedroom composition and the income level/affordable housing cost of destroyed and replacement units identified in the report. Without this information, it's not possible to fully ascertain the actual replacement housing requirements of the Agency. Agency Response: The Inglewood Redevelopment Agency has and will continue to make every effort to replace units destroyed by Agency activities within the statutory timeframe. During fiscal year 1999/00, the Agency issued Request for Proposals for the development of 130 units of affordable housing on scattered sites. The eventual development of these units coupled with the 366 units replaced since 1977, while none have been removed during this time period, speaks to the Agency's commitment to provide replacement housing. ‘While we appreciate and understand the role of the Department of Housing and Community Development in monitoring the performance of redevelopment agencies replacement housing efforts, we are concerned that your findings regarding Inglewood’ efforts was based on activities prior to 1980. Your notice to the Agency regarding the review and audit of our program indicated that fiscal year 1995/96, 1996/97, and 1997/98 were the subject of your review. Yet, you looked at activities which occurred prior to 1980 and are prepared to disallow the inclusion of 448 low-moderate income units as replacement housing because they were developed prior to their actual need,‘The Department contends that no “clear nexus” exists between the housing developed prior to 1980 and the units destroyed after 1980. We do not concur with that opinion. The Inglewood Redevelopment Agency anticipated the removal of a significant number of units with the amendment to the La Cienega Project Area, which was adopted in 1976, A significant factor that allowed the Ingle wood Redevelopment Agency to anticipate the need for housing was the City of Inglewood’s long-term strategy to recycle properties affected by airport noise by rezoning those properties from residential to industrial uses. As stated in the October 5, 1976 Environmental Impact Report for the La Cienega Redevelopment Project Expansion, (See attached) “The long term intention of the project is to recycle all residential property and non-residential property which is not developed to its full economic potential and is inconsistent with this plan to light industrial uses. Full recycling of the residential units in this area would include approximately 780 units.” Given that knowledge, the Agency acted in a proactive manner in developing units in advance. ‘Therefore, it is our contention that the 448 units should be counted towards the replacement housing requirement. Auditor's Conclusion: While fiscal years 1995/96 through 1997/98 were the focus of our audit, our September 22, 1999 audit start letter specifies “we may ask for earlier documents as needed”. For this particular audit test (Le., verifying that units housing lower- and moderate-income households, destroyed or removed by the Agency were replaced with comparable units within four years), the status and accuracy of the Agency’s records for the period 1995/96 through 1997/98 are tied to the ‘Agency's entire record of unit removal and replacement, which extend as far back as 1976 for the La Cienega and Century project areas. ‘The Agency’s 1998 Replacement Housing Report, for example, identifies the deficit of replacement units as of 1998 as 16 units because the 448 units constructed prior to 1980 are counted as replacement units. When these 448 units are not counted as replacement units, the Agency’s 1998 record of the replacement unit deficit increases to 464, ‘The EIR does not provide adequate documentation to demonstrate that the units assisted between 1976 and 1980 were reserved or made available to the households displaced three to seven years later (between 1983 and 1987). Asnoted in our draft audit report, without information correlating the number, nature, and affordability of the units lost to the “advance replacement units”, a clear nexus does not exist. Our recommendation, therefore, remains the same.Finding Number Two: Units are “double counted” to meet replacement housing and project area production requirements. Condition: Based upon our discussions with Agency staff, and review of the implementation plan and replacement housing report, the Agency is inappropriately counting the same units used to meet replacement housing needs pursuant to Section 33413(a) to also meet project area production requirements pursuant to Section 33413(b). For example, according to the agency’s implementation plan, the production obligation for the Century Project Area is 75 units, The implementation plan indicates that the 526 affordable units itemized in the table on page 6 of the housing component of the plan meet current needs and anticipated needs over the term of the plan and the next ten years. These 526 units, however, are also identified as replacement units in the agency’s 1988 replacement housing report. Criteria: Health and Safety Code Section 33413(b)(3) states that “the requirements of this subdivision shall apply independently of the requirements of subdivision (a).” ‘The Department of Housing and Community Development's (HCD) 1994 Redevelopment Housing Law Advisory memorandum indicates that units used to meet replacement housing needs pursuant to Section 33413(a) may not also be used to meet project area production requirements pursuant to Section 33413(b). See Question 13 of the attached HCD memorandum. Recommendation: The Agency should revise and correct the implementation plan and replacement housing report to identify which of the units assisted by the Agency, or otherwise caused to be available at affordable housing cost, are eligible to meet a replacement housing need pursuant to Section 33413(a) versus project area production requirements pursuant to Section 33413(b). ‘The implementation plan should also be revised to ensure the Agency would be able to meet current project area production requirements within the ten-year timeframe of the plan (i.e., by 2004). Agency Response: Housing production obligations and housing replacement units for the Century and La Cienega Project Areas have been reviewed. Upon the recommendation by your Agency, the two categories will be stated independently in future reports. Both the Housing Implementation Plan and the Replacement Housing Report will be revised pursuant to Section 33413(a) and (b). This will allow for the accounting of housing units in their respective categories without the possibility of double counting.‘The Redevelopment Agency has diligently pursued the development of required housing units to comply with the housing obligations stated both in the Housing Implementation Plan and the Housing Replacement Report. Since 1997, 366 units of replacement housing have been produced. In addition, housing units developed independent of any Agency assistance within the City will be incorporated into the overall tabulation of the project area production requirements. This will assist the Agency in meeting the production obligation within the ten- year timeframe of the Housing Implementation Plan. It is our belief that the Agency has met the housing unit production requirements. ‘These requirements mandate that certain percentages of all housing developed by the Agency or by others in a redevelopment project area be affordable to low-mod persons and families. This will be reflected in the revised Replacement Housing Report as required under California Redevelopment Law, Seotion 33413(b).. Auditor’s Conclusion: ‘The Agency’s response satisfactorily addresses our recommendation. We appreciate the ‘Agency’s cooperation. Finding Number Three. Project area production requirements are incorrectly calculated. Condition: Based on information in the adopted implementation plan, the Agency incorrectly calculated current project area production requirements for affordable housing. Health and Safety Code Section 33413(b)(2) requires, in part, that at least 15 percent of all new and substantially rehabilitated dwelling units developed within a project area under the jurisdiction of an agency by public or private entities or persons other than the agency shall be available at affordable housing cost to persons and families of low or moderate income. Health and Safety Code Section 33413(d)(4) requires that the agency shall adopt an implementation plaa, in accordance with Section 33490, to ensure that the above affordable housing production requirements are met every ten years and at the end of the redevelopment plan, The objective, therefore, isto ensure that at least 15% of all housing developed or rehabilitated in the project area is affordable, and that no more than 85% of all housing developed or rehabilitated is not affordable, to lower- and moderate-income households at the end of the redevelopment plan and at each ten-year update of the implementation plan (e.g., 2004, 2014, etc.). ‘The calculation method employed by the Agency will not achieve the minimum unit ratio of at east 15% affordable to 85% non-affordable. Rather, the calculation used ensures that only 13.7% of all units developed or rehabilitated will be affordable and will cause a deficit of eight units in 2004.For example, according to the implementation plan (page 5 of the housing component), the 470 units developed in the project areas since adoption generates a need for 75 housing units. Based on this calculation method, the affordable unit ratio is as follows: 15 +470 =545 751545 =13.7% In order to ensure that at least 15% of all units developed or rehabilitated are affordable, the following formula may be used: Where X= affordable units And Y =non-affordable units oe ee 0.85 For example: 470(0.15) 0.85) =83 83+470 — =553 83/553 =15% Criterion: Health and Safety Code Section 33413(b)(2) requires, in part, that “At least 15 percent of all new and substantially rehabilitated dwelling units developed within a project area under the jurisdiction of an agency by public or private entities or persons other than the agency shall be available at affordable housing cost to persons and families of low or moderate income.” Health and Safety Code Section 33413(d)(4) requires each agency to adopt an implementation plan, which demonstrates compliance with the requirements of this subdivision, for each project area, every ten years. Recommendation: The Agency should correct its current calculated production requirement to ensure that an appropriate ratio of affordable units to non-affordable units exists and that sufficient low and moderate housing units are developed Agency Response: ‘We have reviewed the calculation method used to determine the area production requirements. ‘We appreciate you making us aware of the calculation error and will correct the calculation as. recommended. Auditor’s Conclusion: ‘The Agency’s response satisfactorily addresses our recommendation. We appreciate the Agency's cooperation.Attachment A CITY OF INGLEWOOD CALIFORNIA FAK 10 412-5168, The Inglewood Redevelopment Agency (810) 412-5290 Acugust 8, 2000 Eric Pfost Chief, Audit Division Department of Housing and Community Development 1800 Third Street, Room 310 Sacramento, CA. 95814 RE: City of Inglewood Redevelopment Agency Audit Response Dear Mr. Pfost: ‘The Inglewood Redevelopment Agency has finalized the response to the findings identified during the audit conducted on February 7 ~ 9, 2000 for compliance with various housing requirements, as mandated by the Health and Safety Code. Please review the enclosed information and if you have any questions, please contact Jesse Lewis, Community Development Director, at (310) 412-5290. Sincerely, Wheres Exect tive EnclosuresInglewood Redevelopment Agency Audit Responses Finding Number One: Destroyed units were not replaced within statutory timeframe Response: The Inglewood Redevelopment Agency has and will continue to make every effort to replace units destroyed by Agency activities within the statutory timeframe. During fiscal year 1999/00, the Agency issued Request for Proposals for the development of 130 units of affordable housing on scattered sites. The eventual development of these units coupled with the 366 units replaced since 1977, while none have been removed during this same time period, speaks to the Agency’s commitment to provide replacement housing. While we understand and appreciate the role of the Department of Housing and Community Development, in monitoring the performance of redevelopment agencies replacement housing efforts, we are concerned that your findings regarding Inglewood’ efforts was based om activities prior to 1980. Your notice to the Agency regarding the review and audit of our program indicated that fiscal year 1995/96, 1996/97, and 1997/98 were the subject of your review. Yet, you looked at activities which occurred prior to 1980 and are prepared to disallow the inclusion of 448 low-moderste income units as replacement housing because they were developed prior to their actual need. ‘The Department contends that no “clear nexus” exists between the housing developed prior ‘to 1980 and the units destroyed after 1980. We do not concur with that opinion. The Inglewood Redevelopment Agency anticipated the removal of a significant number of housing units with the amendment to the La Cienega Redevelopment Project Area, which vwas adopted in 1976. A significant factor that allowed the Inglewood Redevelopment Agency to anticipate the need for housing was the City of Inglewood’s long-term strategy to recycle properties affected by airport noise by rezoning those properties from residential to industrial uses. As stated in the October 5, 1976 Environmental Impact Report for the La Cienega Redevelopment Project Expansion, (See attached) “The long term intention of the project is to recyde all residential property and non-residential property which is not developed to its full economic potential and is inconsistent with this plan to light industrial uses. Full recycling of the residential units in the area would include approximately 780 dwelling units” Given that knowledge, the Agency acted in a proactive manner in developing units in advance. Therefore, itis our contention that the 448 units should be counted towards the replacement housing requirement. <6.22.]1- 347Inglewood Redevelopment Agency Response to Findings Page 2 Finding Number Two: Units are “double counted” to meet replacement housing housing and project area production requirements. Response: Housing production obligations and housing replacement units for the Century and La Cienega Project Areas have been reviewed. Upon the recommendation by your Agency, the ‘vo categories will be stated independently in future reports, Both the Housing Implementation Plan and the Replacement Housing Report will be revised pursuant to Section 33413(a) and (b). This will allow for the accounting of housing units in their respective categories without the possibility of double-counting, The Redevelopment Agency has diligently pursued the development of required housing units to comply with the housing obligations stared both in the Housing Implementation Plan and the Housing Replacement Report. Since 1997, 366 units of replacement housing have been produced. In addition, housing units developed independent of any Agency assistance within the City, will be incorporated into the overall tabulation of the project area production requirements. This will assist the Agency in meeting the production obligation ‘within the ten-year timeframe of the Housing Implementation Plan. Itis our belief that the [Agency has met the housing unit production requirements. These requirements mandate that certain percentages of all housing developed by the Agency or by others in a redevelopment project area be affordable to low-mod persons and familie. ‘This will be reflected in the revised Replacement Housing Report as required under California Redevelopment Law, Section 33413(b). Finding Number Three: Project area production requirements are incorrectly calculated. Response: We have reviewed the calculation method used to determine the area production requirements. We appreciate you making us aware of the calculation error and will correct the calculation as recommended.