March 27, Dear Ms. Ritta:

Transcription

1 March 27, 2018 Theresa Ritta Real Property Management Services U.S. Department of Health and Human Services VIA Re: Response/Request for Reconsideration respecting Your Denial Letter dated March 23, 2018 United States Marine Corps Reserve Center 59 Acre Portion, Federal Center Intersection of Union Blvd. & W. 4th Ave. Lakewood, CO G-CO AJ Dear Ms. Ritta: The Colorado Coalition for the Homeless (CCH) hereby requests agency reconsideration of your denial of our final application for the public benefit conveyance of the above referenced property as outlined in your letter dated March 23, In light of the lack of a formal appeal process in your determination role under Title V, we submit this request for the following reasons: 1. HHS s determination that the application is not approvable because it failed to meet threshold requirements related to the CCH s ability to finance the development and operation of the approved program use is erroneous, arbitrary and capricious. 2. HHS cited incomplete or speculative elements of the plan as failing to meet the requirements of 42 U.S.C (e)(4) and 45 C.F.R. 12a.9(b)(4). However, while 42 U.S.C (e)(4) was amended by the FAST Act of 2016 to change the requirements related to demonstrating the ability to finance a public benefit conveyance such that an applicant must provide a reasonable plan to finance the approved program, the cited regulations at 45 C.F.R. 12a.9(b)(4) have not been amended to reflect this change of standard. Further, the HHS Application has not been changed to provide specific guidance as to what HHS considers necessary for the application to demonstrate a reasonable plan to finance the proposed plan. Your application questions remain the same as they were prior to the FAST Act changes. Page 1

2 3. Contrary to established HHS practice, HHS failed to provide CCH an opportunity to correct or supplement any information in its final application that HHS felt was speculative or incomplete, even though other applicants under the Title V acquisition process have been able to provide such clarifications or supplemental information. 4. HHS made conclusions in its determination that were not supported and are contrary to a reasonable interpretation of the law and fact. First, HHS claims that CCH failed to meet threshold requirements related to the CCH s ability to finance the development and operation of the approved program use. The application guidelines do not outline any specific threshold requirements, nor does the Title V statute 42 U.S.C , nor the regulations at 45 C.F.R. 12a.9(b)(4) define any such requirements. Thus, it is difficult to refute HHS s claim of failure to meet threshold requirements when no specific requirements exist. The determination letter refers to specific elements of the financing plan that HHS found lacking. However, each of these elements is so minimal to the overall financing cost and plan for the approved use that the reliance of HHS on any of the cited omissions is arbitrary and capricious. These cited omissions include: a. The electric service infrastructure does not include costs relevant to a fire alarm system which would increase expenses which were not accounted for in the development costs. There is no stated requirement in the HHS application or in the regulations that a fire alarm system is required for the proposed use. Discussion in the CCH original application did not include the provision of a fire alarm system. Given the lack of a requirement of a fire alarm system, concluding that the omission of an alarm and providing no funding to cover an alarm is a failure to meet threshold requirements is arbitrary. If, in the course of implementing the Phase One approved use, CCH or GSA determines that a fire alarm system is needed or desired, there are contingency funds included in both the Site Electrical Services budget and the overall development budget to covers such costs. b. The HHS determination letter stated that similarly, CCH s operating costs failed to include information pertaining to water expenses and funding to cover costs. While HHS is correct that we did not separately identify water service costs, this was inadvertent, in that these costs are included under Contractual Budget line item. The $57,000 labeled as Trash should have been labeled as Trash and Utilities, including water. The total cost of water for our similar properties housing 250 persons is approximately $45,000 per year, and thus was included within the proposed budget. Even though covered by our application, flagging the absence of a $45,000 cost in a $2.6 million operating budget does not rise to the level of deficiency to deny the application and reflects the arbitrary basis of your review. Second, the determination letter questions the validity of the $5 million CCH committed from the pending sale of its Renaissance 88 Apartments LLLP. Your letter cites that the Purchase and Sale Agreement dated June 27, 2017 attached in the application was only partially executed and Page 2

3 not legally binding and therefore insufficient to demonstrate the availability of $5 million to fund the program. CCH mistakenly attached the wrong PDF file. Attached here is the fully executed purchase agreement with signatures from both parties which were contemporaneously executed on June 27, That HHS would conclude that CCH was purposely relying on an unexecuted and invalid agreement to document these funds is unimaginable and the failure of HHS to request clarification was arbitrary and capricious. As noted below, HHS has requested such clarification of other applicants other Title V surplus property applications, and its failure to do so here is further evidence of capricious action. Similarly, HHS fails to credit CCH s commitment of the $5 million from the net proceeds from the Sale of the Renaissance 88 Apartments LLLP because we used the word that CCH expects to receive rather than will receive, or fails to provide documentation about amount of debt on the property and how the net receipts would be distributed. We believe this conclusion is without merit. It is the documented commitment from CCH of $5 million in the application that satisfies the FAST ACT requirement of a reasonable plan supporting the availability of funding, and there is no requirement in the HHS application guidance that requires an analysis of how the funds an applicant commits are derived or calculated. CCH provided the Purchase and Sale agreement to present extra documentation to support its commitment of funds. CCH used the word expects because that actual amount of the proceeds will vary slightly based on closing costs which will not be finalized until the day of the sale. This expectation is not inherently speculative and insufficient as evidence as HHS concludes. If HHS felt it needed more detail on the proceeds of the sale, it could have requested clarification and we would have been glad to provide such. Indeed, the calculation is as follows: Page 3 PROJECTED SELLERS SETTLEMENT STATEMENT RENAISSANCE 88 APARTMENTS DEBIT CREDIT SALES PRICE $ 20,000,000 Payoff CHFA First Note $ 10,900,794 Payoff CHFA HOF Note $ 735,886 Payoff Subordinate debt to CCH $ 4,699,652 Accounts Payable due to CCH $ 334,124 Adjustment for Accounts Payable $ 84,443 Security Deposits Payable $ 33,667 Adjustments for Rent Receivable $ 56,526 Due to Limited Partners $ 1,500,000 Projected Closing Costs $ 30,000 Totals $ 18,375,092 $ 20,000,000 Due to Seller (CCH) $ 1,624,908 Due to CCH from Sub-Debt $ 4,699,652 Due to CCH from Accounts Payable $ 334,124 Total Proceeds to CCH $ 6,658,684

4 HHS s faults CCH s ability to finance the $3.6 million development costs of the Solar Farm due to a lack of documentation demonstrating commitment or even interest on the part of a specific lender related to this type of project. However, we cited specific the necessary documentation in our application on pages 15 and 22 the letter from REV in attachment 4.8.(2).6 citing specific investors and lenders where we state: Regarding obtaining a tax credit investor for the solar energy credits, REV has discussed this project with a number of potential investors and has identified strong interest from multiple investors and lenders. These include US Bank, Bank of America, Colorado Business Bank, WGL Energy, a division of Washington Gas and Electric, a multibillion dollar capital source. We further cited CCH s experience in obtaining both equity investment and financing for such projects on page 16: The Colorado Coalition for the Homeless has previous experience with US Bank providing equity investment for both Low Income Tax Credit, solar tax credits, and New Market Tax Credit developments generating $25 million of investment and $7 million of loans over the past five years. We are confident that US Bank, or another investor, would be willing to invest and finance this solar project. The letter in attachment 4.8.(2).6 from REV states: REV has extensive experience developing this size and scope of solar project. We are currently developing large scale solar projects to power residential communities similar to this project in New Jersey, California, Washington, DC, and Hawaii. We have worked with a number of tax equity investors, and lenders, and for this project we expect potential lenders to include: US Bank, Bank of America, and Colorado Business Bank. We have also entered into in-depth discussions on this project with one of our development partners, WGL Energy, a division of Washington Gas and Electric, a multibillion dollar capital source. They are very interested in pursuing the project with REV. In short, the proposed project has third party investor interest from multiple sources, and REV has strong interest as an independent solar developer. Furthermore, the REV letter details its discussions with Xcel and stated: REV discussed the definition of low-income CSG subscriber with the subject matter expert for Xcel and was told that there should be no issue with qualifying CCH and its associated residential and service facilities to meet the intention of the low-income definition. We believe that this third party representation from REV should be sufficient to demonstrate a reasonable financing plan for the Solar Collector Farm. We are willing and able to provide Page 4

5 specific letters of interest or commitment for investing and financing should HHS so require, and can do so within 15 days. Contrary to HHS s conclusion that our proposed sources are speculative and insufficient, the HHS application states in question 4(E): If the applicant contemplates that major construction/renovation is necessary to make the property suitable for full utilization, and funds are not currently available, give plans and proposed sources of funding to carry out the proposed program and development. Please include the estimated amount of funds each source will provide, including any anticipated grants (emphasis added). This language assumes that there will be some funding sources which will not currently available or committed and thus speculative. Even in the outdated HHS application form, there is no requirement of a specific commitment from specific lenders of investors. We direct you to the continuing Order of the United States District Court of the District of Columbia pursuant to Civil case No in the National Law Center of Homelessness and Poverty, et al. v. United States Department of Veterans Affairs, et a. Paragraph 14 of that Order, which directs HHS to allow an intent to apply for Title IV funds to be sufficient to satisfy the homeless provider s financial showing requirement. We contend that the requirement of allowing an intent to apply for funding is not limited to Title IV funds, but generally apply to intention to apply to other funding and financing sources as we identified in our application. We again make reference to the FAST Act of 2016 amendments which sets forth the standard that the application must provide a reasonable plan to finance the approved program not the commitment of actual funds but a reasonable plan to obtain such funds. We believe that the information provided in the application and supported by the third party engineer REV clearly demonstrates a reasonable plan to finance the solar collector farm. The HHS determination also concluded that the existence of net revenue, in and of itself, is not indicative of CCH s ability to fund operations without a specific designation. We believe that such a conclusion is arbitrary and capricious. There is nothing in the application guidance, the statute, or the regulations that allows HHS to require segregated funding sources for operations. CCH demonstrated through its audited 2015 and 2016 financial audited statements, and its unaudited 2017 financial statements net revenue of $16.6 million in 2016, $5 million in 2105, and $3.6 million in 2017 before consolidation. It is counterfactual to suggest that actual net revenue of more than $25 million over the past three years is not sufficient to demonstrate the ability to fund the proposed use budgeted at $2.6 million. Indeed it is the best measure of demonstration of the ability to fund such uses, based on its ongoing fundraising and revenue activities. Again, the new FAST Act standard requires a reasonable plan to finance, not dedicated financing sources. One of the reasons that this standard was changed by Congress in 2016 was Page 5

6 the fact that it is extremely difficult for applicants to provide committed sources of funding for a Title V proposed use given the uncertainty as to whether HHS will approve the application and the short timeline for obtaining financing commitments. Based on the HHS determination letter in this case, it is clear that HHS is still using the referenced standard in its regulation at 45 C.F.R. 12a.9(b)(4), i.e.... The applicant must specifically describe all anticipated costs and sources of funding for the proposed program. However, based on the statutory change, the standard should be as reflected in 42 U.S.C (e)(4), i.e... the applicant has 45 days in which to provide a final application that sets forth a reasonable plan to finance the approved program (emphasis added). Finally, HHS found the reference to CCH s capital campaign projected to raise more than $25 million to be insufficient because CCH did not provide any information demonstrating past success with similar capital campaigns. However, CCH included in its initial application the following in response to question 4(D): As described above, CCH is a successful developer and operator of complex housing and service programs and facilities. The Coalition s annual budget is approximately $55 million, with funding from a variety of sources, including Federal grant funding from HHS, HRSA, DOJ, HUD, SAMHSA, and the VA. CCH also receives significant reimbursement from Medicaid and Medicare for its integrated health services. CCH has raised more than $750 million over the past 25 years to support the acquisition, development, construction or rehabilitation of 1,900 housing units using a combination of public and private funding, low income housing tax credits, new market tax credits, and funding from state and local governmental agencies. We have also raised more than $250 million in operational funding over our 33 year history from a variety of governmental grants, foundations, and individual contributions. Attached is the 2016 CCH Consolidated Audited Financial Statement and Audit as Exhibit 4D. The balance sheet of CCH shoes total assets of $108 million and total net assets of $51.5 million as of December 31, 2016, including case and cash equivalents of $5.4 million which can be deployed immediately to fund the Phase One proposed plan. We are confident that our current funds and committed funding will allow us to successfully implement Phase One of our prosed use. We are equally confident that, if CCH is awarded the property, we will be able to provide a financing plan for the Phase Two development of the site. Indeed, CCH has essentially built the five buildings proposed for the Phase Two permanent housing on five sites over the past five years to housing homeless families and individuals and provide integrated health and employment facilities with those housing units. Doing another five buildings on a single site, with the accompanying efficiencies of working on one site with once jurisdiction will be much easier to accomplish. We did not feel it necessary or appropriate to be redundant in repeating this information in the final application. Page 6

7 As stated above, we believe that HHS s failure to allow CCH the opportunity to provide additional clarification or additional materials that you needed to review CCH s ability to finance the proposed use arbitrary and capricious as we are aware of other applications to HHS under Title V where such clarification or supplementation was requested and provided prior to an approval by HHS. Specifically, the City and County of San Francisco applied for a vacant surplus property in San Francisco on May 31, On June 9, 2017, your office requested additional information and clarification on a number of questions answered by the City in its initial application, including answers to question 4(c) regarding operating costs for the proposed use, 4(d) requesting the various sources for capital operating and service costs, identification of the sources, if any, have been committed/awarded, and providing commitment/award letters. See Attached San Francisco Response to HHS. The City of San Francisco was able to provide such additional documentation, and HHS approved its application. We believe that the failure to allow CCH to provide additional documentation, while allowing other similar applicants to do so, is arbitrary and capricious. We would request the ability to provide any additional documentation that HHS believes it needs, in addition to the information provided in this letter, to demonstrate CCH s reasonable plan to finance the approved plan. Given the sensitivity of the timing of this matter, and the potential that the General Services Administration may begin to market the surplus property for sale, must insist upon a prompt response to this request for reconsideration so that we may take other appropriate legal action if needed. Please respond to this request within 10 days. Should you have any questions or need additional information, please contact me at or jp@coloradocoalition.org. Thank you for your consideration to this request. Sincerely yours, John Parvensky Page 7