Attorneys at Law | A Professional Corporation

To: Doug Cleland and Angela Murray

From: David Scolnic and Adena Herskovitz

cc: Gil High

Re: Ardmore Reevaluation – Dranoff’s March 3rd Option

Date: March 21, 2011

You have asked us to address three issues in connection with the Township’s consideration of
Dranoff Properties, Inc.’s (“Dranoff”) revised plans for the Ardmore Station project (the “March 3rd
Option”):
1. Provide an accounting of the federal grant, the terms of the federal grant, and whether the
Township must return grant funds if the train station is not built;
2. Whether the Development Agreement with Dranoff permits the new proposal; and
3. Is the Township required to issue a new RFP to give other developers the ability to propose
developments meeting the revised project parameters?
Our analysis of each question, based on information and documents provided to us by the Township, is
below.
1. (a) Accounting under Federal Transit Authority (“FTA”) Grant Agreement, Project
No. PA-03-0385-01 (the “Grant Agreement”)
The FTA grant was earmarked by Congress and awarded by the FTA to SEPTA under 49 U.S.C.
§ 5309, Bus and Bus Facilities Capital Investment Grants. The Grant Agreement is between the FTA and
SEPTA, and the Township is a subgrantee. SEPTA is required to disburse the federal funds to the
Township in compliance with the terms of the Grant Agreement and the Master Agreement for FTA
Grant Agreements (the “Master Agreement”), which permit the Township to be paid for expenses
incurred in executing the approved project in accordance with the approved project budget. These
disbursements are made pursuant to a Funding Agreement, dated May 8, 2006 and effective as of
December 8, 2004, as amended from time to time, between SEPTA and the Township (the “Funding
Agreement”). The initial Funding Agreement described certain preliminary activities for which SEPTA
would advance funds, and as the Township requires funds for additional purposes, the Funding
Agreement is amended from time to time to allocate funds for such purposes. The following is a basic
summary, based upon information provided by Township staff, of the different purposes and consultants
for which SEPTA has approved advances to date, together with a description of the amounts actually
expended and the balance remaining.

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 Grant Phase Purpose of Consultants Total Expended Remaining Funds
Allocation through 12/31/10
2006 Initial Funding Environmental Gannett $453,635 $46,365
Agreement: Assessment, Phase 1 Fleming, (Federal Share (to be used for
$500,000 (Federal Environmental, Cultural $362,908/Local NEPA completion)
Share Historical Analysis Heritage Share $90,727)
$400,000/Local and Archeological Research
Share $100,000) Survey, Preliminary Services,
Engineering Amtrak
Funding Agreement Design/ Engineering, Urban $2,739,489 $1,268,585
Amendments 1 - 4: Geotechnical and Engineers & (Federal Share
$4,008,074 (Federal Electric Traction, sub- $2,191,591/Local
Share Financial Analysis & consultants, Share $547,898)
$3,206,459/Local Project Management, Econsult,
Share $801,615) Amtrak Design Amtrak
Review and Force
Account Services
Pending Funding Design/Engineering Urban $0 $943,310
Amendment 5: Engineers and
$943,310 sub-consultants
(Federal Share
$754,648/Local
Share $188,662)
Unallocated Funds not yet allocated, n/a (not yet $0 $1,392,124
Remaining: available for design, allocated)
$1,392,124 (Federal engineering and
Share construction
$1,113,699/Local
Share $278,425)

[SEPTA Project SEPTA SEPTA Township does $0]

Administration: administrative costs not have this
$444,829 information
Total Grant: n/a n/a $3,193,124 (not $3,650,384
$7,288,337 (Federal including SEPTA (Federal Share
Share administrative $2,920,307/Local
$5,830,669/Local funds, Federal Share $730,077)
Share $1,457,668) Share
2,554,499/Local
Share $638,625)

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 (b) Reviewing Whether the Dranoff Proposal Constitutes a Modification of the
Approved Project and, if so, What the Impact Would be if Funds Were To Be Advanced for Such
Purposes.

The federal regulations governing the FTA Grant state that certain changes in an approved project
require prior written approval from the awarding agency, in this case the FTA. The changes which
require approval include budgetary changes which would result in the need for increased funding, and
programmatic changes which revise the scope or objectives of the project. (49 C.F.R. § 18.30).

The Grant Agreement describes the Ardmore Transit Center Project as including the following
components:

ƒ Minimum two-story bus and train station building incorporated with

street level retail and upper level commercial uses. The facility should
include both passenger waiting facilities and a ticket area leading to new
high-level platform facilities adjoining the railroad tracks.

ƒ Structured parking garage for commuters, the public, commercial

clientele and township employees, as well as any parking required by the
zoning code for any new mixed-use, residential and/or retail uses.

ƒ Safe pedestrian crossings, a dedicated commuter pick-up and drop-off

area, taxi stand and ADA accessible pedestrian pathways for station
access and vehicular access to the parking structure and integrated bus
stops.

ƒ Improved and enhanced connections over and/or under the railroad

tracks to facilitate pedestrian and vehicular movement between Lancaster
Avenue, Montgomery Avenue and Suburban Square shopping center.

ƒ Street infrastructure improvements.

The March 3rd Option retains the elements described above, but indefinitely defers construction
of most of the transit improvements (which deferral may create future construction challenges and
increased costs). The question becomes whether the deferral constitutes a “programmatic change which
revises the scope or objectives of the project,” or whether it “results in the need for increased funding.”
The Grant Agreement states that, “Transit improvements within the overall plan will advance first,”
opening the question of what, exactly, must “advance first,” and what “advance” means – designed,
commenced, completed? While it is possible that a change in the phasing of the overall project such that
the transit improvements are completed last would constitute a change in the project, that change does not
appear to constitute “programmatic changes which revise the scope or objectives of the project, ” and so
should not be subject to further FTA approval. On the other hand, if the change in the phasing of the
overall project results in the need for increased funding, the change in the phasing could be subject to
further FTA approval.

For the sake of argument, if there were a proposal not to delay the transit improvements to a later
phase but to entirely eliminate those improvements, there would certainly be a likelihood that such a
change would constitute “programmatic changes which revise the scope or objectives of the project,” and
would therefore be subject to further FTA approval.

Were the Township to proceed with such a programmatic change without FTA approval, the FTA
would have several rights under applicable regulations. While the FTA may withhold, disallow, suspend
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or terminate award funds (49 C.F.R. § 18.43, Master Agreement Section 11), the Master Agreement states
that “In general, termination of Federal assistance for the Project will not invalidate obligations properly
incurred by the Recipient before the termination date to the extent those obligations cannot be canceled.
If, however, the Federal Government determines that the Recipient has willfully misused Federal
assistance by failing to make adequate progress, failing to make reasonable and appropriate use of Project
property, or failing to comply with the terms of the Grant Agreement or Cooperative Agreement for the
Project including this Master Agreement, the Federal Government reserves the right to require the
Recipient to refund the entire amount of Federal assistance provided for the Project or any lesser amount
as the Federal Government may determine.” (Section 11) In plain English, were the Township to engage
in a programmatic change without FTA approval, the grant funds could be required to be repaid.

As stated above, a mere change in the timing of the phasing should not be viewed as a change that
would require FTA approval, but an elimination of the entire transit improvements or an increased need
for federal funding would probably require such approval. Therefore, the ultimate question is whether a
change in timing could be misconstrued as an elimination of the improvements entirely. Although the
risk of such a misconstruction may be small in this case, it is at least possible. Additionally, there is a
possibility that potential increased costs related to the change in timing could be construed as budgetary
changes which would result in the need for increased funding. Therefore, were the Township to endorse
the March 3rd Option, the prudent course in this case, as to the FTA, would be to seek FTA approval to
the postponement of the transit improvements, with an express recognition that such postponement could
be indefinite.

2. Dranoff Agreement

The Development Agreement between the Township and Dranoff contemplates a unified
development “Project” consisting of two separate parts, a private component to be constructed by the
developer and a public component to be constructed by the Township. The “Private Project” includes an
approximately 7-story mixed use building with residential units above ground floor retail and below-
ground parking for the residential units. The “Public Project” includes (but is not limited to) a new train
station building with 2 floors of commercial space above the ground-level station, a public and commuter
parking garage with at least 500 parking spaces, roadway improvements, ADA accessible pedestrian
cross-track access, streetscape improvements, bus intermodal transfer facilities, and high-level train
platforms. (Recitals F and G, Section 4.1)

Under the Development Agreement, Dranoff is required to design and construct the “Private
Project” (Section 1.2) in accordance with the terms of the Agreement, to provide development services in
connection with the design and construction of the “Public Project” (Article 3), to obtain funding for the
entire Project (Section 2.4), and to complete the overall Project within a very specific time frame.

Our understanding of the March 3rd Proposal is that it does not significantly change the Private
Project but that it does modify the Public Project. Among other things, it transfers ownership of the
garage from the Township to Dranoff, significantly reduces the number of parking spaces in the Public
Project, and it modifies the sequencing of the transit improvements so as to cause those improvements to
be completed outside of the project schedule. These changes would undoubtedly necessitate an
amendment to the Development Agreement.

Additionally, the March 3rd Proposal raises a number of issues and concerns in connection with
the transfer of property from the Township to the private developer, as well as with the integration of the
Township’s Public Safety Building Addition, including the jail and evidence storage, into the garage.
(The Development Agreement anticipates that the parking garage, including the public safety facilities, is
to be owned and operated by the Township.) Among other things, the disposal of public property to a
private party, and the continued use of a portion of such privately owned property for public safety
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purposes, would add additional complexities which the Township would have to address in order to move
forward.

3. Request for Proposals

In June, 2007 the Township issued a Request for Proposals (the “RFP”) to assist it in selecting a
developer to work with the Township on the proposed revitalization of Ardmore: “With this RFP, the
Township is seeking an experienced, financially strong, technically capable developer(s) or development
team(s) that can work with the Township, SEPTA, Amtrak, the FTA and other interested parties to
propose a financially viable development plan that meets the public goals outlined in Section 1.1,
including a mixed use transit center, parking, retail, commercial and residential uses.” (RFP Section 2.0)
As a result of the RFP, and after Dranoff redesigned its original response to the RFP, the Township
selected Dranoff as its developer partner, entering first into a letter of intent, and then a year later into the
Development Agreement described above. The March 3rd Proposal will change the project, both from
what was contemplated in the RFP and from what was contemplated in the Development Agreement.

While the RFP included goals and “program requirements” for the future public and private
development in Ardmore, including a new train station and transit improvements, retail space, additional
parking, and an improved traffic and pedestrian environment (Sections 1.1 and 4.0), as well as a statement
that “Transit Center must be undertaken first in order to ensure the timely and appropriate use of the
federal funds available” (Section 2.5), the RFP did not establish a contractual relationship between the
Township and Dranoff, nor did it obligate the Township to implement the goals and plans described in the
RFP. On the contrary, the RFP was a tool which the Township used to locate and select a developer to
work with the Township.

We are not aware of municipal laws requiring a specific RFP process before the Township can
work with a developer in the manner contemplated by the RFP and the Development Agreement, or of
any funding sources for the Ardmore project, existing or potential, which require an RFP process for the
developer. Assuming that the Township validly issued the original RFP and Development Agreement,
the Township should not be legally obligated to issue a revised RFP in connection with the March 3rd
Option.

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