John T. Reynolds, C.P.A First Assistant County Auditor 212 Stumberg, Suite 100 San Antonio, Texas 78204 (210) 335-2301 FAX: (210)335-2996 Tompkins@bexar.org Tommy J. Tompkins, C.P.A. BEXAR COUNTY AUDITOR August 14, 2008 Honorable Nelson W. Wolff Bexar County Judge Bexar County Courthouse 100 Dolorosa, Suite 1.20 San Antonio, Texas 78205 RE: Review of Arena (formerly SBC) Project BACKGROUND The Arena Project is a complex project involving multiple parties, funds and contracts. One of our objectives was to document many of the project?s financial activities. The appendices at the end of this report, which compose most of this report, supply information regarding contracts, taxes, bonds and construction payments. Other objectives of this review are to ensure that all funds were collected, managed and disbursed in accordance with contractual commitments and state law. In addition, we sought to identify unresolved ?nancial issues that need to be addressed in order for this project to be ?closed-out.? Finally, we examined and documented past practices looking for opportunities for improvement in future projects of a similar nature. We performed tests of collections, examined compliance with funding agreements and tested disbursements. We tested invoices only to verify that they were approved by appropriate personnel, that they appeared reasonable and that invoice totals agreed with amounts disbursed. We reviewed various revenue sharing agreements with the Spurs and examined the related audited ?nancial statements. We also examined the ?nal report of expenditures received from the Project Manager and confirmed the balances remaining in various bank accounts. Honorable Nelson W. Wolff August 14, 2008 Page 2 Executive Summary On October 12, 1999, Bexar County, together with the San Antonio Livestock Exposition, Inc. (SALE), and the San Antonio Spurs, LLC (Spurs) entered into a Memorandum of Agreement (MOA) setting forth the outline of terms and conditions under which the County, SALE and the Spurs would move forward to develop an Arena. In 2000, these entities and other related parties entered into eight additional agreements covering budgets, funding, taxes, bonds, revenue sharing and leasing. The Arena was completed in 2003 and is owned by Bexar County. It is located next to the Freeman Coliseum on a portion of 175 acres owned by the County. The Coliseum was not included in the Arena Project; however, its lease and maintenance is coordinated with the Arena. Commissioners received voter approval for this Venue Project and for the imposition of venue taxes on hotel stays and motor vehicle rentals to fund its share. The County issued over $123 million in tax?exempt bonds and $25.6 million in taxable bonds to be paid solely from venue taxes and Spurs rental payments. The Spurs formed wholly owned subsidiaries to develop the Arena and operate it for a term of twenty-five (25) years. During that period, the County receives an Annual License Fee of $1 .3 million from the Arena Operator (a wholly owned subsidiary of the Spurs). This Annual License Fee is dedicated toward payment of the taxable bonds. If the Spurs relocate before the end of the agreement, the Spurs will continue to make the payment and be subject to liquidated damages. The Spurs retain the majority of revenue from Spurs events including ticket sales, restaurant and concession sales and parking fees. The remainder is considered Arena Project Operating Revenue. The County participates in Net Operating Revenue over $4.75 million per year and in Spurs income from naming rights over $1.875 million. The County has not received any money from either source because neither threshold has been reached. The County paid $146.5 million for the Arena Project and the Spurs paid approximately $42.3 million which includes cost overruns from the initial $175 million budget. As noted in the official Bond Statement, the Venue Project includes additional costs not included in the Arena Project Budget and therefore not shared by the Spurs. These include costs of bond issuance, offsite infrastructure, traf?c mitigation, drainage and additional parking. The county paid approximately $7.4 million of these costs (in addition to the $146.5 million) from venue taxes collected and deposited to the Bexar County Project Improvement Account. Honorable Nelson W. Wolff August 14, 2008 Page 3 Key Contractual Issues County Contribution Not to Exceed $146,500,000 Cost Overruns The Spurs are responsible for all Arena cost overruns with the exception of overruns due to County change orders. Operating and The Spurs are responsible for all Operating and Maintenance Expenses Maintenance Expenses. Spurs Annual License The Spurs License fee will be $1.3 million per year. Payment Renewal and The Spurs will maintain a renewal and replacement account Replacement Fund into which will be deposited $1 million by the Spurs and $300,000 by SALE per year to fund capital repairs. Bexar County can close-out this project and move unused construction funds and project improvement funds to debt service accounts to pay off the bonds. The amount available in all Project accounts as of September 30, 2007 was $43.8 million, almost all of which is available to pay off bonds (see page 13). Currently, the county owes $85,180,000 for tax- exempt bonds and $18,155,000 for taxable bonds. We tested disbursements and found discrepancies such as duplicate payments, missing invoices, missing approvals, and a lack of consistency for documentation. Of?cial copies of some requests for reimbursements submitted by the Project Control Of?ce did not have supporting documentation. Sales Tax was paid in error for some Arena materials and supplies. Reimbursement to the County for hours worked by its employees had no documentation showing how the amount was determined. It appears that the County over paid a consulting contract by $7,000 and that the City of San Antonio never paid its $50,000 portion. In future projects of a similar nature the County should assign someone to carefully review all documentation to ensure that materials and services are delivered, that invoices are accurate and have been properly approved, and that controls are in place to prevent duplicate payments and payment of sales tax. Finally, we suggest that future projects of this magnitude include the cost of hiring a CPA ?rm to conduct an independent audit of project funds. This cost should be included in the project budget as a separate line item and the cost should be shared by all parties. Our comments should not be regarded as an audit opinion; rather as a review of ?nancial management. An audit opinion can only be prepared by an independent CPA ?rm hired for that purpose. Honorable Nelson W. Wolff August 14, 2008 Page 4 Note: Subsequent to this review, Bexar County voters approved new venue projects and an extension of the venue taxes to support them. Some of the recommendations in this report, particularly those related to retirement of outstanding debt, may be affected by decisions related to these new projects and their funding. Signi?cant Events Timeline October 1999 November 1999 January 2000 March 2000 August 2000 November 2000 December 2000 January 2001 January 2003 June 2003 October 2003 October 2005 Bexar County, San Antonio Livestock Exposition, (SALE), and the San Antonio Spurs enter into a Memorandum of Agreement outlining the terms and conditions under which the County, SALE and the Spurs would develop the Arena. County voters approve project and imposition of Venue Taxes. County imposes Venue Taxes. County Pays Pre?development costs from Venue Taxes. Parties to the Memorandum of Agreement sign multiple binding agreements to build, finance and operate the Arena. County contracts with Wells Fargo as Bond Trustee. All parties contract with Wells Fargo as Disbursement Agent for the Project. County issues taxable and tax-exempt Bonds. Venue Taxes and Bond Proceeds transferred to Trustee. Construction begins. Spurs make their ?rst construction payment. County makes its ?nal Arena construction payment. Spurs make their ?nal Arena construction payment. Arena is opened. Project Development Agreement is completed. Honorable Nelson W. Wolff August 14, 2008 Page 5 SCOPE Objectives Following are the speci?c objectives for this review of the SBC Project. ?999935?? Document history of project. Verify that all cash was properly safeguarded. Verify that cash was deposited to correct accounts. Verify that expenditures were spent for approved purposes. Provide a ?nal accounting and disposition of funds. Obtain and organize project documents. Provide recommendations for future projects. Review Procedures Following is a summarized list of the procedures we performed during our review of the SBC Project to ful?ll the objectives. 1. 2. LN .00 10. Interviewed staff at the Bexar County Economic Development Department, the Bexar County Auditor?s Of?ce, Wells Fargo Bank. Contacted San Antonio Livestock Exposition, lnc. (SALE), Community Arena Board (CAB), and Community Arena Management (CAM). Read and summarized all contracts, resolutions and relevant statutes. Reviewed for action items required in the contracts and checked to see if the organization complied. Prepared flowcharts and narrative descriptions of major funds, processes, contractual agreements and parties involved. Traced all transfers between bank accounts. Obtained debt service bank statements and documented revenues, transfers, and payment history. Obtained and tested bank reconciliations. Obtained construction bank statements. Traced and compared disbursements to requisition documents. Disbursements a. Traced and compared applications for payment or invoices from vendors to bank statement fund distribution. Con?rmed payments with vendors as needed. Reviewed and organized supporting documentation. Veri?ed compliance with contracts, resolutions and relevant statutes. Reviewed for proper approvals. Explained old, large or unusual invoices. #7999? Honorable Nelson W. Wolff August 14, 2008 Page 6 g. Reconciled Spurs, SALE, and County requisitions to construction expenditures to ensure that expenditures agree with contract limits and other requirements. h. Interviewed Trustee representative and examined paid requisitions and supporting documents on ?le with the Trustee. Based on our review, we noted the following issues requiring immediate action. Honorable Nelson W. Wolff August 14, 2008 Page 7 RESULTS CONTRACT REVIEW Memorandum of Agreement (MOA) All other binding agreements appear to be in harmony with the MOA. Bexar County Community Arena Development Agreement County and Spurs contributed their share of construction cost as agreed. Development Costs (pre?construction) paid by the County and the San Antonio Livestock Exposition, Inc. (SALE) appeared to be allowable and within budget. The project developer, Arena Project Developer, LLC, delivered its ?nal construction report almost 2 years after its due date. Bexar County Community Arena Operating Agreement The Spurs are paying the County the required annual license fee of $1,300,000 for 25 years to rent the arena. To date the County has not received any ?net operating income? from the Arena Project. From 2003 to present, Community Arena Management?s audited ?nancial statements have shown a net operating loss; therefore the County has not received any revenue. The County does not need to audit net operating revenue as allowed by the agreement because they are being audited by an independent CPA ?rm. Spurs License Agreement The County has not received any income from excess Naming Rights revenue. The Of?cial Statement for Series 2000 Bonds states that ?The Spurs have projected that the County will receive $1,133,000 over the life of the Naming Rights Agreement.? Memorandum of Understanding (MOU) for an Arena District Community Development Plan We found no evidence that the City of San Antonio paid its $50,000 share of a consulting fee to prepare a development plan. The County overpaid $7,000 on the ?nal invoice from the consultant. We found no evidence of a refund. Honorable Nelson W. Wolff August 14, 2008 Page 8 PROJECT Project Improvement and Construction Accounts The County informed the Arena Project Developer that the County?s construction obligation has been ful?lled; however, bank accounts related to project improvements and construction totaling $9.9 million are still open. According to the Bond Indenture, these funds are available to pay off outstanding bonds. DISBURSEMENTS Tests of the Arena Construction Fund There was a lack of documentation for determining what each party was to review prior to paying bills. It appears that the Trustee had limited responsibility for review. Project Control did not provide support for its reimbursement requests. The Trustee paid over $936,000 for furniture, ?xtures and equipment on four requisitions that lacked certi?cation by the architect. The architect did not certify a construction payment of $6,942,991. Sales Tax was paid in error for some Arena materials and supplies. Two invoices were paid twice. The County is owed $725.68 and the Spurs are owed $63,485.52. Tests of the Project Improvement Fund Invoices for three requisitions were missing. Requisitions for reimbursement to the County for hours worked on the project by County employees had no documentation to show how the amount was determined. CUSTODIAN OF RECORDS, PROJECT REPORTS AND INDEPENDENT AUDIT Records were difficult to ?nd because there was no central custodian. There was no audit of the project by an independent CPA. Honorable Nelson W. Wolff August 14, 2008 Page 9 CONTRACT REVIEW Our purpose was to determine that all parties complied with their contract obligations. We read twenty-two contracts, agreements and memoranda looking for action items required in the contracts that could and should be veri?ed. These included construction payments, fund transfers, revenues, and reporting requirements. We prepared summaries and ?owcharts for the nine agreements comprising the ?Arena Project.? (See Attachment PROJECT ORGANIZATION AND CONTRACTS) Memorandum of Agreement (MOA) We reviewed the original memorandum of agreement (MOA) between Bexar County, the San Antonio Spurs, and the San Antonio Livestock Exposition (SALE) for the development, ?nancing, construction, leasing, licensing, management, operation and marketing of the Arena Project. The MOA is a binding document which sets out the basics of the agreement between these three entities and others (See Attachment 8-2). The MOA refers to at least three other binding agreements for management, licensing and non-relocation which must be signed. These and other binding agreements were crafted to ful?ll the requirements outlined in the MOA but they also include additional obligations. We performed a general review of these binding agreements to determine that they were in harmony with the MOA. Conclusion: All binding agreements appear to be in harmony with the MOA. Bexar County Community Arena Development Agreement This agreement deals with construction of the Arena Project and other obligations. The Arena Project Budget ($175 million) was shared by the County (83.7 percent) and the Spurs (16.3 percent). The County?s portion was capped at $146.5 million and the Spurs were required to pick up cost overruns. This agreement also requires the County to pay for additional obligations not included in the Arena Project and therefore not shared with the Spurs. These County obligations include costs of offsite infrastructure roads, drainage and parking lots not included in the Arena Project), traf?c mitigation and costs of bond issuance, which were paid from the Project Improvement Account (discussed later). This agreement required the Project Developer (Spurs affiliate, Arena Project Developer, LLC) to deliver a report to the County?s Representative within thirty-?ve months after Honorable Nelson W. Wolff August 14, 2008 Page 10 issuance of the County Bonds setting forth the total costs incurred by the Project Developer, (ii) all material items required to complete the Project, and the status of any litigation.? This report was due November 2003; however it was not delivered until October 19, 2005. Conclusion: After examining construction documents we concluded that Bexar County and the Spurs contributed their share of construction costs as agreed upon in the MOA and Development Agreement. Recommendation: In future projects the Project Developer should ?le a final construction report by its due date. Bexar County Community Arena Operating Agreement Article 5.7 of this agreement requires the Operator (Spurs Subsidiary) to pay an Annual License Fee to the County of $1.3 million. Article 3 of the Spurs License Agreement requires the Spurs to assume this obligation if the Operating Agreement is terminated and the Spurs License Agreement remains in effect. The Operator has paid the license fee each year. In addition to the annual license fee, the County should receive 20 percent of the cumulative Net Operating Income of the Arena Project in excess of $4,750,000. Net Operating Income is computed by subtracting the Arena Project Operating Expenses from the net Arena Project Operating Revenues for each Fiscal Year. From 2003 to present, Community Arena Management?s audited ?nancial statements report cumulative net operating losses of $24,567,235 under this agreement. 2003 $7,192,130 2004 $6,317,168 2005 $5,411,603 2006 $5,646,334 The agreement requires the threshold ($4,750,000) to be increased in each year by the amount of any cumulative losses from prior years. Therefore, the 2007 Net Operating Income would have to exceed $29,317,235 before the County would receive any income. The primary reason for operating losses is that most revenues belong to the Spurs and most expenses belong to the Operator. Revenues belonging to the Spurs are not included in the computation of Net Operating Income. Spurs revenues include: 0 Spurs Event revenue (ticket sales and most parking receipts), Honorable Nelson W. Wolff August 14, 2008 Page 11 0 Sales of Non-Consumable Concessions in the Spurs Retail Store, 0 Net revenue from Restaurant Area(s) during Basketball Events and Other Spurs Events, 0 60% net revenue from Restaurant Area(s) during Other Spurs Franchise Events, Advertising Revenue, and Naming Rights revenues. The County may inspect and audit Net Operating Revenue and the Renewal and Replacement Account with 10 days prior written notice. To our knowledge no county of?cial including this of?ce has audited the operator?s records. Conclusion: We con?rmed that the Spurs are paying the County the required annual license fee of $1,300,000 for 25 years to rent the arena. It is unlikely that the Net Operating Income threshold will ever be exceeded and that the County will receive any net income from this agreement. The County will not need to audit Net Operating Income unless ?nancial statements indicate that it is approaching the threshold. Even then an audit may not be necessary given that the Operator has ?nancial statements that are audited by an independent CPA ?rm. Spurs License Agreement Revenue for naming rights belongs to the Spurs. However, the County would receive 20 percent of naming rights revenue in excess of $1,875,000 per year. To date the County has not received any income from excess Naming Rights revenue. The Of?cial Bond Statement contains the following: The Spurs have projected that the County will receive $1,133,000 over the life of the Naming Rights Agreement. This of?ce does not receive the Spurs audited ?nancial statements. The County has the right to inspect and audit the Spurs? books and records related to the Naming Rights. Conclusion: It is unclear when the County will ever realize any income from this agreement. The County should request audited ?nancial statements to con?rm revenue from naming rights. Honorable Nelson W. Wolff August 14, 2008 Page 12 Memorandum of Understanding (MOU) for an Arena District Community Development Plan Bexar County, the City of San Antonio, the Spurs and the Community Economic Revitalization Agency (CERA) signed the MOU on May 5, 2002. The parties agreed to share equally the $200,000 cost of a consulting contract between Bexar County and Economics Research Associates (ERA). ERA was to develop a strategy to ?refocus the Freeman Coliseum? and ?to develop a plan to create a zone of positive, sustainable development between the SBC Center site and the central business district.? Although the Spurs and ERA reimbursed the County $50,000 each, we found no evidence that the City contributed its $50,000 share. According to the County?s contract with ERA, the compensation could not exceed $200,000. On September 16, 2003 the County paid $27,000 on the final invoice of $20,000 thus overpaying the contract by $7,000. We found no evidence of a refund from the company. Recommendation: Request from the City of San Antonio $50,000 for its share of the consultant?s cost. Request a refund of $7,000 from the consultant for the overpayment. PROJECT On October 19, 2005, the VP General Manager of the SBC Center (Community Arena Management) wrote a letter to the County Arena Advisory Board indicating that in accordance with the applicable provisions in the Development Agreement there were no outstanding material items required to complete the Project. He attached a ?nal status report setting forth the total costs incurred by Arena Project Developer. Page 17 of the Of?cial Statement for the Bexar County Tax-Exempt Venue Project Revenue Bonds, Series 2000 and Taxable Venue Project Revenue Bonds, Series 2000 describes the County?s options for remaining balances in the Venue Project accounts. Honorable Nelson W. Wolff August 14, 2008 Page 13 Following is a list of the Wells Fargo Trust accounts and ending balances as of September 30, 2007: Acct Account Name Balance at 9-30-07 155 Tax?Exempt Debt Service Account $2,424,948 154 Taxable Debt Service Account 1,128,079 152 Tax-Exempt Construction Account 1,127,495 151 Taxable Construction Account 551,067 160 Tax-Exempt Reserve Account 10,666,206 159 Taxable Reserve Account 2,214,963 162 Tax-Exempt Surplus Debt Redemption Account 1,452,539 161 Taxable Surplus Debt Redemption Account 311,611 169 Rebate Account 221,287 158 License Revenues Account 680,861 157 Hotel Occupancy Tax Account 1,264,135 156 Short-Term Motor Vehicle Rental Tax Account 603,102 153 Project Improvement Account 8,145,298 164 Contingency Account 13,036,527 Total Available for Debt Retirement $43,828,118 The Spurs Project Disbursement account belongs to the Spurs and the Combined Disbursement Account belongs to the County and the Spurs. Acct Account Name Balance at 9-30-07 165 San Antonio Spurs Project Disbursement 70.79 168 Arena Combined Disbursement 24.40 Project Improvement Account The Project Improvement Account is used to pay County expenses for the Venue Project that are not part of the Arena Project. The Of?cial Bond Statement issued in 2000 provides the following definitions. The Arena Project and the Venue Project The Arena Proiect is a 18,500-seat multi-purpose arena and approximately 7,000 related parking spaces to be constructed in the County. The Arena Project will contain more than 750,000 square feet and will serve as the home of the Team and (ii) the San Antonio Livestock Exposition a Texas nonprofit corporation which sponsors the annual San Antonio Livestock Show and Rodeo (the "Rodeo The site on which the Arena Project will be developed is Honorable Nelson W. Wolff August 14, 2008 Page 14 approximately 96 acres in size. The "Venue Project" is a sports, community events and entertainment complex that includes the Arena Project, the Joe and Harry Freeman Coliseum (the "Freeman Coliseum various livestockfacilities for use by the Rodeo, approximately 2,000 additional parking spaces and various roadways for ingress and egress, as well as certain offsite improvements. The Arena Project will be owned by the County (emphasis added). Note that the Venue Project is a more inclusive term than the Arena Project. The Texas Local Government Code Chapter 334 de?nes a ?sports and community venue project" or ?venue project? as ?a venue and related infrastructure.? Venue taxes levied under Chapter 334 may be used for the actual facility and related infrastructure. We reviewed all binding agreements and found no required amount of investment by the County in these additional improvements. However, County Commissioners Court approved a $12.5 million budget from the Project Improvement Account to pay for offsite costs. The County funded this account with $12.5 million when it issued bonds in December 2000. At the beginning of calendar year 2001, the County transferred $1.6 million from venue taxes collected during calendar 2000 to the Taxable Construction Account and $86,000 to the Project Improvement Account. Costs paid from the Project Improvement Fund through 2007 were almost $7.4 million. The balance in the account at 3-31?08 was $8,258,248.72. According to the Bond lndenture ?Upon Final Completion of the Arena Project pursuant to the terms of the Development Agreement, and after payment of all amounts payable by the County pursuant to this Section, any funds remaining in the Project Improvement Account shall remain therein and be used by the County for costs of the Venue Project, which may include paying debt service on the Bonds.? Construction Accounts Upon Final Completion of the Arena Project, the Bond lndenture allows the County to transfer remaining construction funds to: 1. the Project Improvement Account or 2. the Taxable and Tax-Exempt Debt Service Accounts in proportion to the principal. A letter dated January 8, 2003 from the County?s Project Representative to the Arena Project Developer, alerts the Spurs Project Developer that the County?s ?nancial commitment for the Arena Project was ending. The County?s ?nal payment for invoice number 55 brought the County?s total payments to its contractual cap of $146.5 million thus completing the project and releasing the County?s funds. Honorable Nelson W. Wolff August 14, 2008 Page 15 Recommendation: The County should pay the Spurs the balance of the Spurs Project Disbursement Account, $70.79. The combined Arena Disbursement Account should be refunded to the County and the Spurs in proportion to their funding agreements. Bexar County Commissioners should determine whether to transfer all remaining account balances (including the Project Improvement and Construction Accounts) to the Debt Service Accounts. DISBURSEMENTS There were three accounts from which project disbursements were made. Prior to the issuance of bonds in December 2000, the County paid predevelopment costs from its own account at Frost Bank. This account was funded by Venue taxes which had been approved earlier in 2000. The County paid approximately $9 million for attorneys, engineers and planners from its bank account until Wells Fargo Bank was selected as the Project Trustee. When bonds were issued in December, the County deposited bond proceeds and Venue taxes into various accounts at Wells Fargo in compliance with the Bond Statement. Once Wells Fargo was selected as Trustee all future disbursements came from two accounts. The ?rst was the construction account, ?Jnded by the Spurs and the County in proportion to their agreed upon participation. The second was the Project Improvement Account, used by the County to pay for drainage and road improvements that were part of the Venue Project but not included in the Arena budget. The Project Improvement Account was wholly funded by the County and its disbursements were approved solely by the County. There were three types of requisitions paid from the construction account. The Spurs? Project Developer submitted requisitions for payment to the construction contractor, non- construction vendors and to itself for reimbursement of Project Control services and costs it had already paid. Likewise, the County submitted reimbursement requests from the construction account for County salaries and supplies used for the project. In addition, the County was reimbursed the cost of its contract with International Facilities Group, which provided independent construction monitoring services. The County Project Representative prepared invoices for payment from the County?s Project Improvement Fund. The County Auditor?s Of?ce reviewed these for approval prior to sending to the Trustee for payment. Honorable Nelson W. Wolff August 14, 2008 Page 16 Attachments through describe in more detail the procedure for disbursement from each account. Our purpose for reviewing disbursements was to verify that expenditures were 1) of the type allowed by the Development Agreement, 2) properly authorized, and 3) supported with invoices and receiving reports. We reconciled Spurs, SALE, and County requisitions to construction expenditures to ensure that expenditures agree with contract limits and other requirements. Tests of the Arena Construction Fund We obtained copies of requisitions and invoices for the Arena Construction Fund. We examined 20 percent of expenditures ($37.9 million of$193.5 million, 16 of 63 Payment Requisitions). We performed the following tests: 1. Veri?ed that disbursements equaled the approved invoice totals. We traced invoices to requisitions and to amounts disbursed on the bank statements. 2. Reviewed supporting documentation (including invoices, purchase orders and requests for reimbursement). 3. Veri?ed that appropriate individuals signed documents as evidence of approval (including architect certi?cations on percentage of completion). 4. Tested to see if sales tax had been paid in error. 5. Veri?ed that the contact on the invoice was someone with the Arena Project. 6. Recorded 460 invoices on a spreadsheet and looked for old, large, or unusual invoices. 7. Sorted items in various ways to look for duplicate invoices. Review and Approval Procedures There was a lack of documentation for determining what each party was to review prior to paying bills. The Project Control Of?ce, the County Auditor?s Of?ce, the County?s Project Manager and the Spurs Project Developer all signed the form requesting payment or reimbursement. However, it is unclear as to what each signor was attesting by his or her signature. The Disbursement Agreement between the Spurs, the County and Wells Fargo (Trustee and Disbursing Agent) appears to place the burden of review and approval upon the Spurs and the County. Once the signed form requesting payment or reimbursement is sent to Wells Fargo, it appears that Wells Fargo has limited responsibility for review. In fact the Disbursement Agreement states that the ?Disbursement Agent is to act in a ministerial capacity only. . Honorable Nelson W. Wolff August 14, 2008 Page 17 The Disbursement Agreement seems to indicate that the Trustee and the Disbursement Agent rely on certi?cations of approved requisitions by the Developer, the County and Project Control. The assumption is that each party has properly completed, reviewed and approved each request. Supporting Documentation Missing for Project Control Reimbursements Project Control paid certain invoices and later applied for reimbursement from the Trustee. Project Control did not provide support for all of its reimbursement requests. We examined two invoices totaling over $187,000 for which Project Control only attached a one page list of invoices it had paid for utilities, equipment and various services. Another payment was made on a statement instead of an invoice. This presents the possibility of paying for the same item twice. Two other payments did not have purchase orders. Approvals and Architect Certifications Missing The Trustee paid over $936,000 for furniture, ?xtures and equipment on four requisitions that lacked certi?cation by the architect. These forms (Contractor?s Application for Payment) calculate payment on a percentage of completion basis. There were no invoices attached. The architect should have approved them like other construction payments. One of the four also lacked the contractor?s signature. In addition, the architect did not certify a construction payment of $6,942,991. Sales Tax paid in Error on some Arena Materials and Supplies The County is exempt from sales tax. Sometimes vendors added sales tax and the Trustee paid those taxes. Total invoices in the sample with sales tax were $9,263.73. Based on 7.875% sales tax, $676.34 was overpaid. The greater portion of this is due the Spurs because some purchases were made after the County ful?lled it?s contribution. Two invoices were paid twice. No reimbursement has been found. The Project Control Of?ce was hired by the Arena Project Developer (APD) to process payments and keep records. Attachment -3 shows how Project Control prepared invoices for direct payment by the Trustee to vendors. Attachments F4 and F5 show how Project Control paid other vendors directly and then applied for reimbursement from the Trustee. Honorable Nelson W. Wolff August 14, 2008 Page 18 It appears that Project Control paid two vendors, Computer Dynamics and Ellucre, directly and then applied for reimbursement. Project Control later submitted these same invoices for payment directly to the vendors. The Trustee paid the vendors and Project Control for the same invoices. In addition, one of the invoices from Computer Dynamics included a shipping charge twice. Each request for payment was reviewed and approved for payment by all responsible parties. Total overpayments were $64,211.20. Of this amount, the County is due only $725.68, which is its portion of the shipping charge paid twice. It appears that these companies owe the Spurs the remaining $63,485.52. The County did not pay on the duplicate payments because it had already completed its total contribution to the project by the time these duplicates were paid. We were unable to contact either vendor and could not ?nd a reimbursement from either. Tests of the Project Improvement Fund We obtained original requisitions and invoices for the Project Improvement Fund from the Bexar County Auditor?s Of?ce. We examined 100 percent of the Payment Requisitions and supporting documents (72 Requisitions totaling $7.38 million). We traced and compared invoices and applications for payment to bank statements and con?rmed payments with vendors as needed. We reviewed and organized supporting documentation, veri?ed compliance with contracts, resolutions and relevant statutes and examined approvals. We looked for old, large, or unusual invoices. We looked at the date of invoices, description of service or item, if sales tax was included, if contract totals were exceeded and if a purchase order was obtained. We recorded the requisitions on a spreadsheet and categorized them by type. Missing Invoices Invoices for Requisition numbers 1, 4, and 7 were missing. They include payments for engineering, construction, legal and ?nancial services. Requisitions for Reimbursement to the County had no supporting documentation. The Development Agreement provided for reimbursement to the County?s General Fund for hours worked on the Arena project by County employees. Requisitions for reimbursement however, had no supporting documentation to show how the amount was determined. Total reimbursements to the County from the Project Improvement Fund from January 2001 through May 12, 2005 were almost $1.6 million. In addition the Arena Budget included another $463,000 for reimbursement of County salaries and bene?ts that were Honorable Nelson W. Wolff August 14, 2008 Page 19 paid partly from the County?s pre?development account in 2000 and partly from the Arena Construction Account starting in 2001. Recommendations: For future projects of this nature, the County should document in writing the review and approval responsibilities for each party. It should give the Trustee authority to withhold payment on requests lacking signatures of the architect or contractor even if other parties have given their approvals. Assign personnel to care?illy review all documentation to ensure that materials and services were delivered, invoice amounts are accurate (no sales tax added), invoices have been properly approved, and invoice dates and numbers are verified to prevent duplicate payments. CUSTODIAN OF RECORDS, PROJECT REPORTS AND INDEPENDENT AUDIT Because there was no central custodian of records, we spent a great portion of our review time locating and organizing various records. The project paid for county employees to review invoices and approve payments, but there was no budget for a custodian or an independent audit of these transactions. Recommendations: We recommend that future projects provide for a central custodian who is responsible for receiving, logging and archiving project records. These records should be available for all parties and the public to review as needed. Future projects should include a budget line item for an independent CPA ?rm to conduct the type of testing performed in this review on a continual basis until the project is complete. The firm should also prepare a report to all parties at the conclusion of the project. The report should include accurate balances of bank accounts, outstanding liabilities and provide recommendations to improve project management. Honorable Nelson W. Wolff August 14, 2008 Page 20 Tommy J. Tompk Bexar County Auditor cc: Honorable Laura Parker, Judge 386th District Court Honorable David A. Berchelmann, Judge 37th Civil District Court Honorable Juanita Vasquez-Gardner, Judge 399th Criminal District Court Honorable Sergio Rodriguez, Bexar County Commissioner, Precinct 1 Honorable Paul Elizondo, Bexar County Commissioner, Precinct 2 Honorable Lyle Larson, Bexar County Commissioner, Precinct 3 Honorable Tommy Adkisson, Bexar County Commissioner, Precinct 4 Honorable Susan D. Reed, Bexar County District Attorney David Marquez, Director, Bexar County Economic Development Department David Smith, Executive Director, Bexar County Planning and Resource Management ATTACHMENT A SUMMARY OF RECOMMENDATIONS August 14, 2008 Office: SBC Arena Project 1 Of?cial: I Inherent Risk: Low Control Environment: Well Controlled Overall Risk: Low Medium Acceptable Moderate High Poorly High Controlled Type of Procedures: Review Priority Rating: Review Recommendations CONTRACT REVIEW Bexur County Community Arena Development Agreement In future projects the Project Developer should ?le a ?nal construction report by its due date. Memorandum of Understanding (MOU) for an Arena District Community Development Plan Request from the City of San Antonio $50,000 for its share of the consultant?s cost. Request a refund of $7,000 from the consultant for the overpayment. PROJECT CLOSE-OUT Project Improvement and Construction Accounts Distribute to the Spurs the balance of the Spurs Project Disbursement Account. Refund the combined Arena Disbursement Account to the County and the Spurs in proportion to their funding agreements. Determine whether to transfer all remaining account balances including the Project Improvement and Construction Accounts to the related Debt Service Accounts. Page 2] ATTACHMENT A SUMMARY OF RECOMMENDATIONS August 14, 2008 DISBURSEMENTS Tests of the Arena Construction Fund Supporting Documentation Missing for Project Control Reimbursements Approvals and Architect Certi?cations Missing Sales Tax paid in Error on some Arena Materials and Supplies. Two invoices were paid twice. No reimbursement was found. Tests of the Project Improvement Fund Missing Invoices Requisitions for Reimbursement to the County had no Supporting Documentation. Review and Approval Procedures. For future projects of this nature, document in writing the review and approval responsibilities for each party. Give the Trustee authority to withhold payment on requests lacking signatures of the architect or contractor even if other parties have given their approvals. Assign someone to carefully review all documentation to ensure that materials and services were delivered, invoice amounts are accurate (no sales tax added), invoices have been properly approved, and invoice dates and numbers are verified to prevent duplicate payments. CUSTODIAN OF RECORDS, PROJECT REPORTS AND INDEPENDENT AUDIT Provide for a central custodian who is responsible for receiving, logging and archiving project records. These records should be available for all parties and the public to review as needed. Include a budget line item for an independent CPA firm to conduct the type of testing performed in this review on a continual basis until the project is complete. The ?rm should also prepare a report to all parties at the conclusion of the project. The report should include accurate balances of bank accounts, outstanding liabilities and provide recommendations to improve project management. Page 22 INDEX SUPPLEMENTAL INFORMATION August 14, 2008 The following information is provided as an aid to further understand the operation of the SBC project. ATTACHMENT PROJECT ORGANIZATION AND CONTRACTS Project Organization and Contracts B-2 Summary of Contracts Contracting Parties B-4 Distribution List for Arena Project Documents Arena Project Organization Bexar County B-6 Arena Project Organization San Antonio Spurs ATTACHMENT ARENA OPERATING STATEMENTS -1 Arena Statement of Operations Audited C-2 Calculation of Arena Net Income As De?ned In Operating Agreement ATTACHMENT FUNDING PRIOR TO BOND ISSUANCE D-l Venue Tax Distribution Prior To Bond Issuance - Flowchart ATTACHMENT FUNDING AFTER BOND ISSUANCE 13-] Flow of Funds Diagram E-2 Distribution of Bond Proceeds - Flowchart Distribution of Venue Taxes E-4 Distribution of Venue Taxes ?Flowchart Flow of Funds - Arena Construction Account - Flowchart E-6 Flow of Funds - Project Improvement Account Flow of Funds - Project Improvement Account Flowchart Page 23 ATTACHMENT F-l F-2 F-4 F-5 F-6 F-7 ATTACHMENT (3-1 G-2 G-3 ATTACHMENT H-l INDEX SUPPLEMENTAL INFORMATION August 14, 2008 CONSTRUCTION ACCOUNT INVOICE PREPARATION AND APPROVAL General Contractor General Contractor - Flowchart Vendor - Flowchart Project Control Reimbursement Project Control Reimbursement Flowchart Bexar County Reimbursement Bexar County Reimbursement Flowchart Bexar County Construction Consultant (IF G) Bexar County Construction Consultant (IFG) Flowchart CONSTRUCTION ACCOUNT FINAL APPROVAL AND DISBURSEMENT Construction Account Review and Approval of Exhibit Flowchart Construction Account Funding and Disbursement by Trustee Construction Account Funding and Disbursement by Trustee Flowchart PROJECT IMPROVEMENT ACCOUNT REVIEW AND APPROVAL OF INVOICES Project Improvement Account Review and Approval of Invoices Flowchart Page 24 Page 25 Schematic of Contractual Relationships Jasmine. - . . VENUE PROJECT an -vsr~' .. . mast? rn?r L1: MANAGER (Subsidiary of the Spurs) 1 Haii?i?fdif?t-t "x OPERATOR (Subsidiary of the Spurs) 1- KEY: Development Agreement Operating Agreement Spurs License Agreement SALE License Agreement Non- Relocation Agreement Guaranty of Obligations Freeman Coliseum Agreement WEEJI r. .- BEXAR COUNTY DEVELOPMENT AGREEMENT I OPERATING AGREEMENT Jr SPURS LICENSE AGREEMENT Tr SALE LICENSE AGREEMENT RELOCATION AGREEMENT GUARANTY OF OBLIGATIONS FREEMAN COLISEUM AGREEMENT . COLISEUM ADVISORY BOARD X?.t4sr.?ics: 51?: ?u utf' SAN ANTONIO LIVESTOCK EXPOSITION PROJECT ORGANIZATION AND CONTRACTS August 14, 2008 ATTACHMENT ATTACHMENT 3-2 SUMMARY OF CONTRACTS August 14, 2008 Nine contracts govern the Arena Project. To get underway the Project required additional Memoranda of Understanding, Commissioners Court Tax Orders and Resolutions, Inter-local Agreements, feasibility studies and budgets. MEMORANDUM OF AGREEMENT (MOA) (OCTOBER 12, 1999) The MOA was entered into by Bexar County acting by and through its Commissioners Court and its Coliseum Advisory Board (CAB), San Antonio Spurs, and San Antonio Livestock Exposition (SALE) for the development, ?nancing, construction, leasing, licensing, management, operations and marketing, as applicable, of the Arena Project. The following 7 Arena agreements were all signed on August 22, 2000. 1. DEVELOPMENT AGREEMENT: Parties: Bexar County, Coliseum Advisory Board (CAB), and Arena Project Developer LLC (The Project Developer) 0 Ownership Management (Recital D) The County owns the Arena Project and is managed by Community Arena Management, Ltd. (CAM) and the County. - Arena Project Budget De?nition All Project Improvements, Development Costs, food and beverage equipment, scoreboards, FF onsite infrastructure and drainage, management expenses, pre-opening expenses, Team practice facilities, County?s Representative fees, and construction contingencies. The Arena Budget did n_ot include debt issuance and ?nancing costs, additional construction modi?cations requested by SALE or the County, leases, offsite infrastructure, or traf?c mitigation. These non-budget items were budgeted and paid from the Project Improvement Fund, funded solely by the County. 0 Development Costs (Article 2.4) Expenses included in the Arena Project Budget related to architects, engineers, legal, consultants, and expenses of the County?s Community Arena Project of?ce and the Project Developer?s of?ce. The Arena Budget included $3.5 million to reimburse the County for some of its Development Costs and an additional $500,000 for SALE Development Costs. Page 26 ATTACHMENT B-2 SUMMARY OF CONTRACTS August 14, 2008 Funding (Article 2.1) The County?s contribution for the project was from $146.5 million from net proceeds of tax-exempt and taxable bonds plus earning from hotel occupancy tax and vehicle rental tax. The Spurs contribution was $28.5 million plus any overages due to contract modi?cations. Proiect Disbursement Fund (Article 6) A fund separate and apart from any other funds in the County was established at Wells Fargo Bank. The money on deposit in this fund was used to pay costs of the Arena Project by the Trustee upon receipt of a properly completed requisition request submitted by the Project Developer. The County deposited for payment 83.714%, and the Spurs deposited for payment 16.286% of the approved requisitions. Reports (Article 12) The Project Developer provides the County?s Representative written progress, signi?cant event, and inspection reports on a regular basis. The Project Developer delivered to Bexar County a ?nal construction report on October 19, 2005. . OPERATING AGREEMENT: Parties: Bexar County, Coliseum Advisory Board (CAB) and Community Arena Management, (CAM or Operator) Term (Article 3.1): 25 years Arena Proiect Operating Revenue All revenues obtained by the Operator under this agreement. Excluded are all Spurs revenues pursuant to the Spurs License Agreement; all SALE revenues pursuant to the SALE License Agreement; Naming Rights and Advertising Revenues; Club Membership fees; the ?rst $1.00 of the Parking Use Fees and the ?rst $1.00 of the Other Event Seat Use Charges and Team Seat Use Charges, etc. Arena Proiect Operating Expenses All expenses incurred by the Operator within the scope of the Operator?s authority under this Operating Agreement for the management, operation or maintenance of the Arena Project. Excluded: Reimbursed expenses, Additional Improvements and Capital Repairs, Annual License Fee, Renewal and Replacement Contribution, non-cash expenses depreciation and amortization), and Naming Rights. Page 27 ATTACHMENT B-2 SUMMARY OF CONTRACTS August 14, 2008 Net Operating Income (Article 5.2): Arena Project Operating Revenues less Arena Project Operating Expenses. Operator distributes 20% of Net Operating Income in excess of $4,750,000 to the County each ?scal year. Operator retains remainder. Renewal and Replacement Account (Article 5.5.1 and 5.5.3): Operator deposits $1,000,000 each year to a Renewal and Replacement Account. SALE deposits $300,000. Annual License Fee (Article 5.7) Operator pays the County $1,300,000 each year. Ad Valorem Taxes (Article 9.3.) No levy of City, school district, water management district or any other form of ad valorem taxes on the Arena Project or its operations. Records and Audits (Article 7.1) County may inspect and audit Net Operating Revenue and the Renewal and Replacement Account. Reguired Reports (Articles 7.3.1, 7.3.2) Annual audited report by a CPA ?rm including a statement of Arena Project Operating Expenses and Revenues and a statement of calculation of Net Operating Income Ownership (Article 6.1) Project Improvements and Project Site owned by the County. SPURS LICENSE AGREEMENT: Parties: Bexar County, Coliseum Advisory Board (CAB), Spurs and Community Arena Management, Ltd. (The Operator) Term (Article 2.6): 25 years General Grant of Use and License by County (Article 2) The County grants the Spurs a license and right to use and occupy the Licensed Premises. Rent and Spurs Contribution (Article 3) If the Operating Agreement is terminated and the Spurs License Agreement remains in effect, the Spurs shall assume the Operator?s obligation to pay the Annual License Fee million annually) to the County. Page 28 ATTACHMENT B-2 SUMMARY OF CONTRACTS August 14, 2008 Other Spurs Franchises (Article 3.4) Operator retains 40% of all net Concession and Parking Revenue, and 5% from the sale of tickets for Seating for Spurs Events. Spurs Revenues (Article 4) Spurs exclusively own all Spurs Event revenue, net revenue from restaurant areas during Basketball Events and all revenues and expenses from the Retail Store (these are not deemed Arena Project Operating revenue). The net revenue from restaurant areas during Spurs Franchise Events are divided 60%- 40% with the Operator. Management and Control (Article 5) Operator manages and operates the Arena Project during Spurs events. Advertising (Article 7) Spurs Advertising at the Arena Project and revenue received are Spurs Revenue. The Spurs have exclusive rights of Sponsor Signs. All Naming Rights belong to the Spurs. During each Naming Rights year, the Spurs shall be entitled to receive up to $1,875,000. Any consideration in excess of this amount shall be distributed 80% to the Spurs and 20% to the County. Audits (Article 11) The Operator shall annually provide the Spurs and the County a certi?ed audit of Arena Project operations. SALE LICENSE AGREEMENT: Parties: Bexar County, Coliseum Advisory Board (CAB), San Antonio Livestock Exposition, Inc. (SALE) and Community Arena Management, Ltd. (The Operator) Term (Article 2.6): 25 years Permitted Uses (Article 2.5) Rodeo Events Additional Day Parking Outbuildings SALE Of?ce Space, Parking Area, and Box Of?ce Fall Fest Annual Meeting Tented Areas Rent SALE shall pay to the County $1.2 million the ?rst year and increased $50,000 each year until annual rent equals $1.4 million. Commencing with the 6th year, rent will be increased by the CPI fraction. Page 29 ATTACHMENT B-2 SUMMARY OF CONTRACTS August 14, 2008 Renewal and Replacement Account (Article 3.4) SALE collects Seat Use Charges and Parking Fees. First year SALE retains all revenue. Second year and thereafter User Fees collected up to $300,000 paid into the Renewal and Replacement Account. If fees do not equal $300,000, then SALE deposits the difference into the Renewal and Replacement Account. In the event user Fees exceed $300,000, excess is allocated between CAB and SALE. Revenue and Expenses (Article 4) SALE owns all revenues related to any SALE Event. SALE is responsible for all costs and expenses relating to any SALE Event. NON-RELOCATION AGREEMENT: Parties: Term: Bexar County, Coliseum Advisory Board (CAB) and Spurs 25 years The Spurs shall not relocate the Team outside Bexar County during the Term. The Spurs shall not seek approval from the NBA to relocate the Team. In the event of a violation, the County will be entitled to recover from Spurs, $250 million liquidated damages if the Breach were in 2003. Damages are reduced $6 million per year until 2027 (end of term) at which time the damage amount would be $106 million. SPURS GUARANTY AGREEMENT: Until all obligations of the Project Developer and the Operator have been satisfied, the Spurs guarantee the following agreements, which the County would not have entered into without this guaranty. Development Agreement Operating Agreement Freeman Agreement Spurs License Agreement SALE License Agreement Page 30 ATTACHMENT B-2 SUMMARY OF CONTRACTS August 14, 2008 7. FREEMAN COLISEUM AGREEMENT: Parties: Bexar County, Coliseum Advisory Board (CAB), Community Arena Management, Ltd. (The Operator), Spurs, and San Antonio Livestock Exposition, Inc. (SALE) County owns the Freeman Coliseum and the Combined Site. CAB oversees the operation and management of the property. CAB has exclusive rights to use the Freeman Coliseum. Operator has rights to schedule the Freeman Coliseum on available (open) dates. INTERLOCAL AGREEMENT (NOVEMBER 28, 2000) Appointment of Members of the County Representative Committee (Article 2) During construction 3 members were appointed by Bexar County Commissioners and 2 by CAB. After project completion, CAB becomes the committee. Spurs? Rent (Assigned to Trustee, Wells Fargo) (Article 4.1) Construction of Arena Proiect (Article 3) The County agrees to comply with Traffic Mitigation and Offsite Infrastructure and Drainage Improvements of the Development Agreement. Rehabilitation of Freeman Coliseum (Article 5) Effective until the termination of all Arena Documents. Page 31 ATTACHMENT B-3 CONTRACTING PARTIES August 14, 2008 Bexar County Commissioners Court Commissioners received voter approval for the Arena project and for the imposition of venue taxes to fund it. The County issued $123,265,000 in tax- exempt bonds and $25,580,000 in taxable bonds dated 11?01?2000. The County is paying for the bonds from a combination of motor vehicle rental sales tax, hotel tax and Spurs rent. . Community Arena Board (CAB) The Bexar County Commissioners Court charged the CAB (formerly Coliseum Advisory Board) to work with the San Antonio Spurs on development and lease decisions. Commissioners Court originally established the CAB to negotiate rodeo and sporting events at the Freeman Coliseum. CAB consists of a committee of five members, three of which are appointed by the Commissioners Court and two are appointed by CAB. . International Facilities Group (IFG) (Construction Consultant/Monitor) The County contracted with International Facilities Group (IFG) as a consultant. IFG contracted with a local firm, Burton Rose Gonzales, to monitor daily construction and perform ?eld observations/inspections. San Antonio Spurs, LLC The Spurs contributed $28.5 million (16.286%) to pay a portion of the Arena project budget. The Spurs also paid additional costs over the budgeted $175 million. The Spurs had the right to form wholly owned subsidiaries to develop the Arena and manage it for a term of twenty-?ve (25) years. . Arena Project Developer LLC (The Project Developer) The Developer is a wholly-owned subsidiary of the Spurs. The County granted the Project Developer the right and obligation to design and construct the Arena pursuant to the terms and conditions of the Memorandum of Agreement. . Community Arena Management, (CAM). (The Operator) The Operator (CAM) is a wholly?owned subsidiary of the Spurs. The Memorandum of Agreement allows the Spurs to select the Operator. After completion of construction CAM began operating and managing the Arena subject to the terms of the Operating Agreement. San Antonio Livestock Exposition, Inc. (SALE) SALE has the right to use and occupy part of the Arena and the Freeman Coliseum for certain events; primarily the San Antonio Stock Show and Rodeo. SALE owns revenues related to its events and is responsible for all costs and expenses relating to those events. Page 32 ATTACHMENT B-4 DISTRIBUTION LIST FOR ARENA PROJECT DOCUMENTS 4August14,2008 Start All notices, demands. consents, approvals, statements, requests and invoices to be given under The Agreements shall be signed by the party and delivered to the following: Bexar County Commissioners Court Coliseum Advisory Board District Attorney. Susan Reed Arena Project Developer, Rick District Attorney, Chief of Civil Division Denis Clive Braham, Esq.. Community Arena Todd Brewer, Esq. (County) Project Manager. David Marquez Tullos Wells, Esq SALE. R. Keith Martin, Executive Director Timothy Tuggey, Esq., Arter 8- Hadden, LLP End Source: Freeman Coliseum Agreement, Article 5.3 Development Agreement. Article 15.8 Operating Agreement, Article 18.1 SALE License Agreement, Article 21.1 Spurs License Agreement, Article 21.1 Page 33 ATTACHMENT B-5 ARENA PROJECT ORGANIZATION BEXAR COUNTY Organization Chart Bexar County Arena Project Bexar County Auditor Function: Authorize Trustee to release funds for payments. Reconcile bank accounts to general ledger accounts. - County's Representative for actions, August 14, 2008 Bexar County Commissioners Court Community Arena Board (CAB) Arena Project Manager Function: decisions, or determinations on the County's behalf. Bexar County Budget Department Function: Review revenue and expenditure transactions, invoices, and advise the Project Manager. International Facilities Group Function: Inspect construction. materials, performance schedules, i invoices, expenditures, and advise the Project Manager. Burton Rose Gonzales I I Function: i Daily inspect safety, construction quality, material quantity and quality, performance schedules and report Bexar County Assistant Auditor Function: Review invoices expenditures, and advise the Project Manager. Page 34 ATTACHMENT B-6 ARENA PROJECT ORGANIZATION - SAN ANTONIO SPURS August 14, 2008 Organization Chart San Antonio Spurs Arena Project San Antonio Spurs Arena Project Developer Function: The County granted the Project Developer the right and obligation to cause the Arena Project to be designed and constructed pursuant to the terms and conditions in the Development Agreement. Ellerbe, lnc.. Architect Function: Prepares architectural drawings, speci?cations, and other documents. setting forth the design of the Arena Project and the requirements for its construction in suf?cient detail for establishing the costs for construction. the permitting and construction of the Arena Project and other improvements. Olmos Construction. Inc. project Control Function: - unCtlon Prolect Manager General Contractor Hunt Construction Mobile Mini Crown Steel Function: Additional services/work contracted independent from Olmos Construction. Sub Contractors Function: Olmos hired and paid additional workforce as necessary to achieve construction in a timely manner and to quality speci?cations. Engineers Consultants Function: Specialized companies to assist Architect and/or Contractor with regulations, inspections. and compliance. Page 35 ATTACHMENT ARENA OPERATING STATEMENTS August 14, 2008 The following schedule shows the audited Consolidated Statement of Operations for the Arena for 2003-2006. The ?rst page reports the Net Loss according to generally accepted accounting principles under which the Arena operates. The second page shows the adjustment of these losses to arrive at the Net Operating Income (losses) under terms of the Operating Agreement between the Spurs and the County. This computation is needed because the County receives 20 percent of the cumulative Net Operating Income of the Arena Project in excess of $4,750,000. The County does not participate in these losses. Page 36 Revenues: Franchise-related income Nonfranchise-related income Facility fee Local Broadcasting advertising Other Costs expenses Other salaries Building services Insurance Travel Of?ce rent expense Legal Renewal replacement expense Other general administrative Operating loss Depreciation of building imp Net loss ATTACHMENT C?l ARENA STATEMENT OF OPERATIONS - AUDITED August 14, 2008 Community Arena Management, Ltd. and Subsidiaries Consolidated Statement of Operations 2004 2006 906,118 1,567,258 1,502,838 233,602 938,252 5,148,068 3 ,3 05, 40 4,929,348 941,892 28,242 1,71 1,931 153,501 1,000,000 0 12,070,054 (6,921,986) 252,184 (7,174,170) 2005 1,025,534 1,164,353 1,529,388 374,000 893,541 4,986,816 3,248,697 4,773,963 803,866 28,964 1,619,413 204,560 1,000,000 6,227 1 1,685,690 (6,698,874) 214,834 (6,913,708) 574,780 998,595 1,000,000 95,000 631,316 3,299,691 3,478,529 3,766,254 875,052 22,904 1,580,758 165,082 450,685 26,696 10,365,960 (7,066,269) 94,346 (7,160,615) 2003 585,778 1,048,267 1,581,896 0 251,961 3,467,902 3,318,316 4,283,978 590,251 32,557 1,476,821 227,497 0 0 9,929,420 (6,461,518) 12,407 (6,473,925) Page 37 Net loss Adjustments per County agreement Revenue adjustments: (1) Facility fee (2) Renewal replacement interest Expense adjustments: (3) License fee (4) Renewal replacement expense (5) Depreciation (6) Spurs allocation (7) Audit fees (8) Signage maintenance Adjusted net loss per Agreement ATTACHMENT C-2 CALCULATION OF ARENA NET INCOME AS DEFINED IN OPERATING AGREEMENT August 14, 2008 Community Arena Management, Ltd. and Subsidiaries Consolidated Statement of Operations 2006 (7,174,170) (1,000,000) (24,348) 1,300,000 1,000,000 252,184 2005 (6,913,708) (1 ,000,000) (12,729) 1,300,000 1,000,000 214,834 2004 (7,160,615) (1 ,000,000) (1,584) 1,300,000 450,685 94,346 2003 (6,473,925) (1,581,896) (612) 975,000 12,407 (102,704) (15,900) (4,500) (5,646,334) (5,411,603) (1) Dollar per paid ticket and parked car is not allowed per county agreement. (2) Interest from renewal and replacement fund is not allowed per county agreement. (3) License fee to county speci?cally is not included per county agreement. (4) Contribution to renewal and replacement fund is not allowed per county agreement. (5) Depreciation expense is not included per county agreement. (6,317,168) (7,192,130) (6) Allocation of CAM portion of aggregate HR and Payroll costs of Spurs consolidated entities per county agreement. (7) Estimation of audit fees paid on CAM's behalf by Spurs is included per county agreement. (8) 360?degree signage maintenance paid by Spurs included per county agreement. Page 38 ATTACHMENT FUNDING PRIOR TO BOND ISSUANCE August 14, 2008 On November 2, 1999, the voters of Bexar County authorized the Bexar County Commissioners Court to impose a short?term motor vehicle rental tax (MVRT) of five percent on the gross rental receipts from the rental of motor vehicles in Bexar County and a hotel occupancy tax (HOT) of one and three quarters percent (1 of the price paid for a room in a hotel located in Bexar County for the purpose of ?nancing the Sports and Community Venue Project and related infrastructure as defined in the Act. On December 7, 1999, the Commissioners Court ordered the Taxes be collected. The County began collecting Venue taxes in January 2000 and deposited $12.5 million during the next eleven months to the Bexar County Arena Fund (590) in the county?s main bank account at Frost Bank. The county paid invoices for attorneys, architects and other pre?development costs from this fund until it issued bonds in December. The County also reimbursed itself for $1.8 million in payroll and other expenses incurred on behalf of the project. After the bonds were issued in December 2000 the County transferred most of the remaining $2.1 million to the taxable construction account #151 at Wells Fargo (Trustee). The remaining $86,000 was transferred to the Project Improvement Fund #153, also at Wells Fargo. (See Attachments D-l, E-5 and E-7.) Page 39 ATTACHMENT D-l VENUE TAX DISTRIBUTION PRIOR TO BOND ISSUANCE Beginning Jan 2000 Bexar County ordered 1.75% Hotel Occupancy Tax 5% Motor Vehicle Rental Tax Jan through October 2000 collected $12,579,144 Funds used to proceed with Arena development. Beginning January 5, 2001, Tax collections forwarded to Wells Fargo Trustee Account To fund the Reserve Accounts. See E-5 January - December 2000 August 14, 2008 HOT Collected by City Mar Dec 2000 $7,617,700 MVRT Collected by State Comptroller Mar Dec 2000 $4,961,444 Wired to Frost National Bank #19990094 BCT incoming wires Bexar County Frost Bank Demand Account #19987980 Bexar County interest Arena Fund #590 Arena Project Pre?development Expenditures Applications 1-10 $10,818,44040 $1,802,640.78 County Admin Balance plus interest transferred to Taxable Construction Fund Project Improvement Fund See E-7 Page 40 ATTACHMENT FUNDING AFTER BOND ISSUANCE August 14, 2008 In December 2000, Bexar County issued $123,265,000 Tax-Exempt Venue Project Revenue Bonds, Series 2000 and $25,580,000 Taxable Venue Project Revenue Bonds, Series 2000. Since the bonds were issued at a premium, bond proceeds were $151,648,450.01 The County deposited the proceeds in various accounts (see Attachment E-2) with the Arena Project Trustee bank, Wells Fargo. In addition to the various bond reserve and debt service accounts, the county established accounts for construction and one for project improvements. The construction accounts and the project improvement account received their funding from bond proceeds and accrued 1nterest. Accounts Created by Bond Indenture Held by Wells Fargo, Trustee Tax-Exempt Debt Service Account Taxable Debt Service Account Tax-Exempt Construction Account Taxable Construction Account Tax-Exempt Reserve Account Taxable Reserve Account Tax-Exempt Surplus Debt Taxable Surplus Debt Redemption Redemption Account Account Rebate Account License Revenues Account Hotel Occupancy Tax Account Short-Term Motor Vehicle Rental Tax Account Project Improvement Account Contingency Account Page 41 ATTACHMENT E-l FLOW OF FUNDS August 14, 2008 PLEDGED REVENUES BOND PROCEEDS 3. Net Proceed a i Gross Proceeds less Vscouv MVRT Tax Revenues License Revenues Account Accounts i wan? I ail Account<= Ta Exem and Taxable Debt Service Accounts Rebate Account 12 Months Capitalized Int. - Next Annual Interest Paym ems Next Annual Principal Payment ,1 .t-p-y 9% of Bond Proceeds Construction osts, Capitalized Interes t, Bond Insurance, Fees, Expenses, MVRT Revenues through Closing Revenue Reimbursement Tax Exempt and Taxable Reserve Aocoun? Maximum Annual Debt Service. Funded From Pledged Revenues over 12 to 16 Months. prati ns and Maintenance Bx nses Only In the Event the Operating Agreement is Terminated. Ex ected Final Maturity 2014 ?"Exclusive of Reserve Principal a Contg? gency account I All Excess Revenues During Construction Period i~ oz: Plus per Annum after Construction Period. Page 42 ATTACHMENT E-2 DISTRIBUTION OF BOND PROCEEDS August 14, 2008 Dec 20 2000 . . . Venue Preject Wire Receipt 10462300 Painewebber Tax Tax-Exempt #167 Bond proceeds $151,648,45001 See E-5 Tax-Exempt Construction #10462306 #152 Distribution of Bond Proceeds $117.384,042.53 See Taxable Construction #1046230? #151 $10,502,57237 See E-7 Project Beginning Jan 2000 Bexar County ordered 5% Motor Vehicle Rental Tax #153 1.75% Hotel Occupancy Tax Jan through October 2000 funds used to proceed with Arena development Total collected was $12, 579,144. $12,579,054.00 Taxable Debt Service #10462302 #154 $2,255,009.46 Tax-Exempt Debt Service #10462301 #155 $8,561,218.15 Cost of Issuance #10462312 #163 $366,553.50 Page 43 ATTACHMENT E-3 DISTRIBUTION OF VENUE TAXES August 14, 2008 Tax-exempt bonds are payable solely from venue taxes. License revenues from the Spurs are also pledged for payment of the Taxable Bonds. Beginning January 2001, venue tax money was redirected into the Wells Fargo accounts in order of the following priorities (depicted in Attachment 13-1). 1. Tax-Exempt Debt Service Account and the Taxable Debt Service Account the sum of the Accrued Aggregate Debt Service for the Tax?Exempt Bonds and the Accrued Aggregate Debt Service for the Taxable Bonds less the amount of the License Revenues currently on deposit in the Taxable Debt Service Account. Rebate Account only if arbitrage payments are due the US govemment to maintain tax ?exempt status of bonds. Tax-Exempt Reserve Account and the Taxable Reserve Account - until reserve requirements are met. Maintenance and Operating Expenses of the Venue Project - only if needed or in the event the Operating Agreement is terminated. Contingency Account - prior to August 5, 2002, all remaining funds available for transfer, and thereafter $1,000,000 each Bond Year. Tax-Exempt Surplus Debt Redemption Account and Taxable Surplus Debt Redemption Account - Deposited in proportion to the amount of bonds outstanding. Must be used to redeem certain bonds prior to their maturity. Page 44 ATTACHMENT E-4 DISTRIBUTION OF VENUE TAXES August 14, 2008 MVRT Collected by State Comptroller Wells Fargo Short Term Motor Vehicle Rental Tax Account #10462304 #156 Wells Fargo Taxable Reserve Account $2,220,890 max #10462310 #1 59 Wells Fargo Rebate Wells Fargo Tax-Exempt Reserve Account HOT Collected by City Wells Fargo Hotel Occupancy Tax Account #10462303 #157 $10,702,010 max #169 #10,:16620309 January 5, 2001 Tax collections forwarded Wells Fargo Tax to Wells Fargo Trustee 1:222: Exempt Debt Account to fund the #1 0462302 Service Account Reserve Accounts. #154 #10462301 #155 October 31, 2001 Tax Collections forwarded to Contingency Account. February 2002 Wens Far 0 MVRT HOT Revenue to Debt Contingency Aicoum Sew!? once Resewe Taxable #10462311 Tax-exempt requ'remem was met Bondholders #164 Bondholders February 22, 2002 funds from #156 to Rebate #169 to pay US Gov. for the preservation of the tax- exempt status of interest in the tax- i exempt bonds. Wells Fargo Wells Fargo Tax- Taxable Surplus Exempt Surplus June 30? 2003 Account Account Funds from #157 to Surplus #161 #10462317 #10462316 #162. Then. August 2003 from #161 #162 Surplus Accounts to Debt Services. Semi-annual interest payments from Taxable Tax-Exempt Debt Service. Annual Principal payments and call bonds from available excess funds. Holders of bonds Note: All accounts are interest beanng. Page 45 ATTACHMENT E-5 FLOW OF FUNDS - ARENA CONSTRUCTION ACCOUNT Spurs Financin deposits as needed 9 County holds construction funds in #151 #152. Spurs Project Disbursement 10437600 1 65 See D-1 August 14, 2008 1 See See E-2 Bexar County Bexar County Taxable Bond Tax-Exempt Bond Series 2000 Series 2000 12-20-00 12-20-00 Proceeds Proceeds $10,502,572.37 $117,384,042.53 Transfer Balance of Venue Taxes from Frost #19987980 2-1-01 $1,635,300.52 Taxable Tax-Exempt Construction Construction #10462307 #10462306 #1 51 #1 52 Project Disbursement Fund #1 0437500 #1 66 Disbursement #10437700 Payment Requisition submitted to Wells Fargo to pay vendors/contractors, reimburse County. and reimburse Project Control. #168 Arena Combined A Project Control Reimbursements Checks 8. Wires to vendors/ contractors Bexar County Reimbursements wire Page 46 ATTACHMENT E-6 FLOW OF FUNDS - PROJECT IMPROVEMENT ACCOUNT August 14, 2008 The Project Improvement Account is not mentioned in the Memo of Agreement, the Project Development Agreement or any of the other agreements involving the County. Its existence and use appears to arise from the Bond Indenture, where it is listed as one of the 14 accounts of the Venue Project Fund held by the Trustee (Wells Fargo). This account is needed to track the payment of County obligations arising from the Project Development Agreement. The county used this account to pay for bond issuance costs and for roads, drainage and other infrastructure projects not included in the Arena Budget. This Account is funded only by the County and may be used only to pay costs related to the Venue Project for which the County is solely responsible. These costs were not included in the Arena budget, which is a subset of the Venue Project. Therefore the Spurs did not share the costs. This account received $12.5 million in bond proceeds at closing. Interest earnings on this Account are kept within the Account. These funds are not pledged to pay bonded debt but at the discretion of the Commissioners Court may be used to retire debt. The balance in the account at 3?31-08 was $8,258,248.72. The County spent approximately $7.4 million from its Project Improvement Account for construction of drainage and roadway improvements, parking lots, and professional fees for lawyers, consultants and engineers. The County also was reimbursed $1.6 million from this account for County employee salaries through May 12, 2005. That was in addition to reimbursement of approximately $463,000 in salaries from the construction account. Page 47 ATTACHMENT E-7 FLOW OF FUNDS - PROJECT IMPROVEMENT ACCOUNT August 14, 2008 See E-2 Bexar County Series 2000 Bond Proceeds $12,579,054 Spurs funding contribution for Economics Bexar County Research See D-1 Wire $50,000 Associates 9-19-03 4? Wire $50,000 11-6-03 CERA funding Transfer in a Proiect Improvement 7? contribution for . 10462305 portion of Taxes ERA held in Frost Bank #153 at the end of 2000 City of San Antonio DID NOT Make $50,000 contribution Fulbright 8. Jaworski Bexar County Salaries Infrastructure Trust Services ERA Arbitrage Master Plan Insurance Bonds Menger Creek Project Kell Munoz Master Plan Page 48 ATTACHMENT CONSTRUCTION ACCOUNT INVOICE PREPARATION AND APPROVAL August 14, 2008 Bexar County through the Community Arena Board agreed that the San Antonio Spurs would select the architect and project developer to build an arena. The Spurs selected Arena Project Developer, LLC (THE DEVELOPER) and Ellerbe Becket, Inc.; Architect. THE DEVELOPER hired Olmos Construction Inc. as the general contractor and Project Control, Inc. for day-to-day, on-site management. Project Control hired Pape-Dawson Engineers, Hunt Construction, Crown Steel, and other ?rms as needed for independent construction work, engineering, inspections and compliance. Olmos Construction hired sub contractors to meet time and quality construction goals. The County was reimbursed $3.5 million from the Arena Construction account for the costs of consultants, lawyers and other expenses. Bexar County hired International Facilities Group (IFG) to monitor construction. IF hired Burton Rose Gonzales to inspect daily progress. Included in the $3.5 million was money to reimburse the County for salaries and other costs it paid on behalf of the project. Bexar County assigned an assistant auditor (part-time) to review requests for payment. Attachment - depicts the process for preparing and approving invoices to be paid from the Arena Construction Account funded by the County and the Spurs. Attachment re?ects how the draws or requisitions from the Arena Construction Account (with multiple approved invoices) were approved by the Auditor and presented to the Trustee for payment. Attachment - depicts the process for approval by the County and payment by the Trustee of expenses paid from the Project Improvement Account (funded entirely by the County). Page 49 ATTACHMENT F-l CONSTRUCTION INVOICES GENERAL CONTRACTOR August 14, 2008 Olmos Construction, Hunt Construction and Texas Wilson Of?ce Furniture Services assembled their Contractor Applications for Payment each month. Responsible parties for each certified that ?the work covered for payment had been completed in accordance with the contract documents, all amounts have been paid by the contractor, and current payment was due.? The Contractor?s signature was notarized. Architect/ Engineers then certi?ed the ?work had progressed as indicated, the quality of work was in accordance with the contract documents, and the Contractor was entitled to payment.? The Project Control Of?ce assigned a cost code for the item and prepared an Invoice Approval Form listing the company, invoice number, invoice date, services, amount, and payment remittance instructions. The Project Control representative signed the form. Page 50 ATTACHMENT F-2 CONSTRUCTION INVOICES GENERAL CONTRACTOR August 14, 2008 Begin General Contractor Contractor?s General Contractor performs work Files Application for assembles payment Contractor?s Payment- application Application for payment. ArCh'tect 'nspects work? Architect reviews Contractor adjusts application. application Internal Control Review A roved PP no yes Architect certi?es work has progressed, quality of work is in accordance with the contract Architect certi?es and contractor is entitled to application. payment. Project Control attaches and signs Invoice Approval form. Invoice Approval Form See 6-1 Page 51 Service performed or materials/supplies delivered Project Control date stamps invoice reviews Internal control ATTACHMENT ?3 CONSTRUCTION INVOICES VENDORS August 14, 2008 Begin I Vendor Invoice Vendor corrects Project Control receives Invoice invoice approved yes Project Control assembles invoices for payment directly to vendors with Invoice Approval form. A See G-1 no Note: Procedure for stamping invoices as received and documenting approval to pay was not consistent. Page 52 ATTACHMENT -4 CONSTRUCTION INVOICES PROJECT CONTROL REIMBURSEMENT August 14, 2008 The Arena Project Developer prepared two types of invoices for its subsidiary, Project Control; one for management services and the other for reimbursable expenses. The invoice for management services referenced the stated contract fee. Procedures for reimbursement of invoices already paid by Project Control The Arena Project Developer prepared an invoice for the total request for reimbursement. Attached to the invoice were a detailed listing indicating date paid, invoice number, vendor, budget code, and amount due. With the invoice and detailed listing were copies of checks and the invoices. Test results show that supporting documents were missing. Page 53 ATTACHMENT -5 CONSTRUCTION INVOICES PROJECT CONTROL REIMBURSEMENT August 14, 2008 Project Control receives invoices and requisitions which they pay from their own account and then request reimbursement. Invoice Coded data entered onto Schedule for Work Completed Note: Project Control paid 2 invoices out of their funds (for reimbursement) and submitted to Wells Fargo for direct pay in error for a total overpayment of $64,211.20. No refund from vendor observed. Begin Project Control pays invoices. Project Control, assembles invoices for reimbursement, makes copies of checks, prepares a detail list, and creates an Invoice from Arena Project Developer. Project Control assembles invoices for reimbursement with Invoice Approval form. A See G-1 Page 54 ATTACHMENT F-6 CONSTRUCTION INVOICES BEXAR COUNTY REIMBURSEMENT August 14, 2008 The County Auditor prepared a letter certifying reimbursement for salaries and reimbursable expenses such as supplies, telephone, printing and postage. Salary support documents included a summary spreadsheet of salary and bene?ts with computer print-outs from the County?s ?nancial system as back-up. The request was listed on a County form, ?Development Payment List.? Test results show that supporting documentation was not available. Page 55 ATTACHMENT -7 CONSTRUCTION INVOICES BEXAR COUNTY REIMBURSEMENT {August14,2008 Begin County Auditor County Auditor Prints prepares print- Payroll 8. Contribution out for cost of Reports and supplies, phone, prepares Payroll Summary printing postage. Spreadsheet County Auditor prepares Exhibit reimbursement request for County salaries operating costs. County Auditor signs Exhibit certifying its accuracy and submits to County Project Manager, Project Developer and Project Control Of?ce. See G-1 Page 56 ATTACHMENT F-8 CONSTRUCTION INVOICES BEXAR COUNTY CONSTRUCTION CONSULTANT (IFG) August 14, 2008 Procedures for lntemational Facilities Group IF G) invoice and travel reimbursement: I FG submitted requests for payment to the County?s Project Manager with a detailed Cost Report. The Manager?s assistants reviewed and approved the request. The request was listed on a County form, ?Development Payment List.? Page 57 ATTACHMENT F-9 CONSTRUCTION INVOICES BEXAR COUNTY CONSTRUCTION August 14, 2008 County contracted IFG performs International Facilities construction Group to inspect monitoring construction work. services IFG requests payment I I for contract services IFG submits IFG submits cost invoice for contract reports and travel travel reimbursement services receipts County Project Manager determines if work is in accordance with the contract and documentation is complete. 9mm? AUd?m' Exhibit is a Requisition for ev'ews? 3211?: Disbursement. It supported by prepargs I multiple invoices that were reviewed re'm urseTent and approved as noted in the prior reques flowcharts. See 6-1 Page 58 ATTACHMENT CONSTRUCTION ACCOUNT - FINAL APPROVAL AND DISBURSEMENT August 14, 2008 General Procedures for Application for Payment by Trustee Project Control entered a cost code for each item to create the ?Supporting Schedule for Work Completed.? From this supporting schedule, a two page Application for Payment was generated and sequentially numbered. The second page, ?Arena Project Developer Schedule of Values,? summarized the work completed for the month. The ?Application of Payment,? (?rst page) indicated the current payment due and had signature lines for certification by the Project Developer and approval by Bexar County Project Manager and County Auditor. Finally, Exhibit G, ?Requisition for Disbursement of Development Costs? was prepared. The packet of information including invoices, supporting documents, invoice approval forms, the Application for Payment and Exhibit were forwarded to Project Control President, Robert Crittenden to certify the accuracy of the information. The packet was then forwarded to the Chief Arena Project Developer; Rick to attest the requisition was true and correct. The packet finally went to Bexar County for the Arena Project Manager, David Marquez, and County Auditor to also attest the requisition was true and correct, and to approve the Application for Payment. If the payment was to Bexar County, the process originated with the County Project Manager and then went to the Project Developer for approval prior to delivery to the Budget Director and County Auditor. After all parties signed these documents, the Auditor prepared a requisition letter to the Trustee requesting payment. Copies were distributed to ten individuals representing the County, Project Developer, and SALE. Page 59 ATTACHMENT G-l CONSTRUCTION ACCOUNT REVIEW AND APPROVAL OF EXHIBIT August 14, 2008 Project Control Codes Invoices, Enters Data onto Schedule for Work Completed, Schedule of See See Project Control assembles all forms and sends to Project Control President and Chief of Project Development Chief Development Of?cer signs Application for Payment and Exhibit G. Project Control President signs Exhibit Entire Package is delivered to the County for Review and Approval County Project Manager receives, approves and signs Development Cost Payment/Reimbursement Values, etc. Invoice Approval Form Supporting Schedule for Work Completed Schedule of Values Project Application for Payment Exhibit Reimbursement Request Spurs Project Management receives, approves and signs Development Cost Payment/Reimbursement Request, Exhibit Entire Package is delivered to the County Project Manager for Review and Approval County Project Manager receives, approves and signs Development Cost Payment/Reimbursement Request, Exhibit Request, Exhibit i County?s Construction Consultant (IFG) reviews Rejected County Auditor prepares Payment Requisition Letter and sends entire Package to Trustee for payment. Approved County Budget Of?ce reviews Rejected Approved County Auditor A dCount? ff approves signs see itor?s ta . Exhibit G. reviews Rejected Approved Source: Development Agreement, Article 2.4(c) Page 60 ATTACHMENT G-2 CONSTRUCTION ACCOUNT FUNDING AND DISBURSEMENT BY TRUSTEE August 14, 2008 Approval of Payments The County Auditor has sole control of authorizing Wells Fargo Bank (arena Trustee) to release funds for construction payments and related arena expenses. The County Auditor would sign a requisition letter after reviewing the signed ?Requisition for Disbursement of Development Costs? (also known as Exhibit G) along with copies of all invoices to be paid. Exhibit describes the Development Agreement terms and conditions for payment/reimbursement request and is signed by of?cials for; Arena Project Developer, County Community Arena Project Of?ce, Bexar County Auditor?s Of?ce, and Project Control. San Antonio Spurs selected Wells Fargo Bank as the arena Trustee. The bank?s Corporate Trust Services Department disbursed funds from the Bexar County Arena Combined Disbursement Account #10437700 as authorized (wire or check) and veri?ed payments balanced to the requisition letter. This account was funded through 3 accounts; Bexar County Taxable Construction Account #151), Bexar County Tax-Exempt Construction Account #152), and San Antonio Spurs Project Disbursement Fund #165). Bexar County and CAB entered into a construction agreement with Spurs and Sale. The County would contribute $146.5 million and Spurs contribute $28.5 million to construct a new Arena. SALE and Spurs would make annual contributions for the maintenance and operations of the Arena for the next 25 years. Procedures for Wells Fargo Trustee processing payments: The County Auditor prepared a cover letter authorizing a draw down from the construction account listing all requisitions approved during the month. (Spurs and County) Wells Fargo, Trustee for the Arena Project, disbursed payments from the Combined Disbursement Account upon receipt of properly approved reimbursement requisitions and invoices. The Trustee continues to disburse funds from the Project Improvement Account and monitors the Debt Service and related accounts for debt payment. Page 61 ATTACHMENT G-3 CONSTRUCTION ACCOUNT FUNDING AND DISBURSEMENT BY TRUSTEE August 14, 2008 See G-1 Bexar County Taxable Construction #1046230? #1 51 Wells Fargo Trustee receives requisition packet from the County Auditor Bexar County Tax-Exempt Construction #1 0462306 #1 52 Spurs transfer funds to SA Spurs Project Disbursement Account #10437600 #165. Source: Development Agreement, Article VI Trustee Transfers Funds from Bexar County and Spurs accounts into Combined Disbursement Account #10437700 #168 83.714% from County and 16.286% from Spurs. Trustee disburses funds as requested. Checks Wire Transfer authorization Page 62 ATTACHMENT PROJECT IMPROVEMENT ACCOUNT REVIEW AND APPROVAL OF INVOICES August 14, 2008 Requisitions from the Project Improvement Account #153: Mr. Marquez receives invoices for consulting, engineering, and construction services. He reviews and approves these which are forwarded to the County Auditor. The County Auditor reviews/approves the invoices and prepares a sequentially numbered Requisition for the Wells Fargo Trustee. The County Auditor also submits with the requisition, a reimbursement request for ?hours worked on the Arena project by County employees.? This type reimbursement request ended on 5-12-05. Page 63 ATTACHMENT H-l PROJECT IMPROVEMENT ACCOUNT REVIEW AND APPROVAL OF INVOICES August 14, 2008 Invoice Invoice Invoice Consulting Engineering Construction Invoice Attorneys County Project Manager Reviews and Approves County Auditor Reviews no Approved yes Trustee pays funds directly from the Project Auditor Prepares Improvement Fund #153. Requisitions and (No participation by Spurs.) Submits to Trustee for Payment Requisitions for Consultants, Engineers, etc. Wire Transfer authorization Requisition for Reimbursement of County Salaries Page 64