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Presentation, discussion, and possible action on recommendation to adopt an Agreed Final Order assessing an administrative penalty relating to Rosemont at Meadow Lane (HTC 03433 / CMTS 3421), and a Final Order of debarment for Evan J. Hunden, David B. Ratliff, and Michael Volz
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RECOMMENDED ACTION
recommendation
WHEREAS, Rosemont at Meadow Lane (HTC 03433 / CMTS 3421) (Property), owned by Rosemont Meadow Lane Apartments, LLC, had uncorrected compliance findings relating to the applicable land use restriction agreement and the associated statutory and rule requirements;
WHEREAS, Evan J. Hunden, David B. Ratliff, and Michael Volz (the Responsible Parties) control Rosemont Meadow Lane Manager, LLC, the 100% member of Rosemont Meadow Lane Apartments, LLC;
WHEREAS, Evan J. Hunden has five Actively Monitored Developments, three of which have been referred for an administrative penalty during the last three years;
WHEREAS, David B. Ratliff has seven Actively Monitored Developments, four of which have been referred for an administrative penalty during the last three years;
WHEREAS, Michael Volz has seven Actively Monitored Developments, four of which have been referred for an administrative penalty during the last three years;
WHEREAS, Tex. Gov’t Code §2306.0504(b) states that the Department may debar a person from participation in a Department program on the basis of the person's past failure to comply with any condition imposed by the Department in the administration of its programs;
WHEREAS, 10 TAC §2.401 defines the violations that are eligible for debarment;
WHEREAS, the Responsible Parties have exceeded the 50% debarment threshold identified at 10 TAC §2.401(e)(2)(a) to trigger mandatory debarment for repeated violations in a portfolio, with 50% or more of the Actively Monitored Developments under their Control being referred for a penalty in the last three years;
WHEREAS, the Enforcement Committee previously considered debarment in 2022 for the same 50% threshold violation and voted to dismiss the debarment, but the Department reserved the right to consider future debarment under 10 TAC §2.401(e)(2)(A) in the event that there were additional administrative penalty referrals for this ownership portfolio;
WHEREAS, there have been 10 monitoring reviews in the intervening period since 2022, with seven reviews corrected timely, one review referred for an administrative penalty, and two reviews with pending corrective action deadlines;
WHEREAS, the Responsible Parties failed to timely submit corrective documentation for the noncompliance identified during the 2023 Uniform Physical Standards (UPCS) inspection at the Property, which scored 47 out of 100, resulting in an administrative penalty referral that violated the 50% referral threshold at 10 TAC §2.401(e)(2)(a) for a second time;
WHEREAS, the Responsible Parties participated in an informal conference with the Enforcement Committee on July 30, 2024, regarding the administrative penalty referral for the Property and the referral for debarment;
WHEREAS, the Responsible Parties agreed, subject to Board approval, to enter into an Agreed Final Order, assessing an administrative penalty of $20,000.00 for the 2023 UPCS noncompliance, with $15,000.00 payable at signing and the remainder to be forgiven if acceptable corrections were submitted per the terms of the order;
WHEREAS, the Enforcement Committee agreed to table their debarment recommendation per the Responsible Parties’ request to await the results of a physical inspection at the Property that was due to take place on or after September 26, 2024;
WHEREAS, TDHCA performed a National Standards for the Physical Inspection of Real Estate (NSPIRE) inspection on September 26, 2024, recording a score of 75.28 out of 100;
WHEREAS, TDHCA’s NSPIRE inspection confirmed resolution of the remaining noncompliance from the 2023 UPCS inspection, rendering a forgivable portion of the administrative penalty in the Agreed Final Order to no longer be necessary;
WHEREAS, on October 03, 2024, the Enforcement Committee reconvened and voted to recommend a two-year debarment term;
WHEREAS, on October 15, 2024, the TDHCA Executive Director issued a debarment determination notice recommending a two-year debarment term for the Responsible Parties;
WHEREAS, on October 22, 2024, Responsible Parties appealed their debarment determination to the Board;
WHEREAS, staff has based the above debarment term recommendations on the Department’s rules for debarment and an assessment of each and all of the material factors identified at 10 TAC §2.401(j) that are to be considered in determining a recommended period of debarment, applied specifically to the facts and circumstances present in this case; and
WHEREAS, staff has based the above recommendation for an Agreed Final Order for an administrative penalty on the Department’s rules for administrative penalties and an assessment of each and all of the statutory factors to be considered in assessing such penalties, applied specifically to the facts and circumstances present in this case.
NOW, therefore, it is hereby
RESOLVED, that two Orders, including: (1) a Final Order of Debarment for a term of two years for the Responsible Parties; and (2) an Agreed Final Order assessing an administrative penalty of $15,000.00 against Rosemont Meadow Lane Apartments, LLC, substantially in the form presented at this meeting, and authorizing any non-substantive technical corrections, are hereby adopted as the order of this Board.
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BACKGROUND
PROPERTY AND FINANCING INFORMATION: The Property is subject to a Land Use Restriction Agreement (LURA) signed by a prior owner in 2004 in consideration for a housing tax credit allocation to build and operate the Property, an apartment complex composed of 264 units, located in Dallas. The Responsible Parties acquired the Property on January 29, 2021. TDHCA’s UPCS inspection score on July 9, 2021, was 65 out of 100. The previous UPCS inspection conducted on September 1, 2017, scored 83 out of 100. The property management company at the time of the current violations at issue was Avenue5, but they were replaced by Asset Living in October 2024.
VIOLATIONS SUBJECT TO ADMINISTRATIVE PENALTIES: The TDHCA Compliance Division (Compliance) performed a UPCS inspection at the Property on September 26, 2023. This inspection scored 47 out of 100, and the list of deficiencies was extensive, including 86 Level 1 deficiencies, 39 Level 2 deficiencies, and 131 Level 3 deficiencies, with Level 3 being the most severe. Scoring is at Exhibit 1. Owner was required to: (1) certify to the correction of cited exigent and fire safety hazards within three working days; and (2) submit work orders and/or invoices to document correction of all cited deficiencies on or before December 27, 2023. TDHCA granted deadline extensions for the requirement to submit work orders and/or invoices to document correction of all cited deficiencies through March 26, 2024, the maximum allowed. Owner uploaded the certification for correction of exigent fire and safety hazards (EH&S) on October 1, 2023, but did not submit any documentation of work orders and/or invoices to document correction of any of the 256 cited deficiencies.
On April 1, 2024, Compliance referred the property owner, Rosemont Meadow Lane Apartments, LLC, for an administrative penalty. The Property was also placed on an annual inspection schedule due to its low inspection score of 47 out of 100. Owner submitted partial corrections on April 11, 2024, in response to the administrative penalty referral. Additional corrective documentation was submitted on April 12, 2024, May 15, 2024, and July 26, 2024, and items that remained unresolved as of the July 30, 2024 informal conference are highlighted in yellow at Exhibit 1. The Compliance Division confirmed resolution of those final deficiencies during their September 26, 2024 National Standards for the Physical Inspection of Real Estate (NSPIRE) inspection. Additional new noncompliance was identified during the 2024 NSPIRE inspection, but it is within its 90-day corrective action period, and is not eligible for an administrative penalty at this time.
VIOLATIONS SUBJECT TO DEBARMENT: Tex. Gov’t. Code 2306.0504(c) states, “(c) The department shall debar a person from participation in a department program if the person: (1) materially or repeatedly violates any condition imposed by the department in connection with the administration of a department program, including a material or repeated violation of a land use restriction agreement regarding a development supported with a housing tax credit allocation;”
10 TAC §2.401(e)(2)(A) states, “(e) Repeated Violations of a LURA that shall be referred to the Committee for Debarment. […] (2) Repeated violations in a portfolio. Persons who control five or more Actively Monitored Developments will be considered for Debarment based on repeated violations in a portfolio. A Person shall be referred to be committee if an inspection or referral, after April 1, 2021, indicates the following: (A) 50% or more of the Actively Monitored Developments in the portfolio have been referred to the Enforcement Committee within the last three years. The Enforcement Committee may increase this threshold at its discretion. For example, if three properties in a five-property portfolio are monitored in the same month, and then referred to the Enforcement Committee at the same time, it may be appropriate to increase the 50% threshold;”
TDHCA analysis of the ownership portfolio after the administrative penalty referral for the Property indicated that Evan J. Hunden, David B. Ratliff, and Michael Volz, the Responsible Parties in Control, had exceeded the 50% administrative penalty referral threshold under 10 TAC §2.401(e)(2)(A). A copy of that analysis is at Exhibit 2. This is the second debarment referral for Mr. Ratliff and Mr. Volz, who were previously considered for debarment in 2022 under the same rule. That 2022 debarment referral was dismissed after the Enforcement Committee decided to increase the 50% referral threshold; however, the Department reserved the right to consider future debarment under 10 TAC §2.401(e)(2)(A) in the event that there were additional administrative penalty referrals for this ownership portfolio.
DEBARMENT IS MANDATORY UNLESS 50% THRESHOLD IS INCREASED: The above constitutes a mandatory debarment violation unless the 50% referral threshold is increased again in accordance with 10 TAC §2.401(a). Unlike the 2022 debarment referral, there are no extenuating circumstances to consider, and the Enforcement Committee thought that increasing the threshold a second time would effectively render the 50% threshold meaningless. The 2022 debarment referral should have been a “wake-up call,” but the promised changes from 2022 were not fully implemented.
RESPONSIBLE PARTIES IN CONTROL AND ACTIVELY MONITORED DEVELOPMENT ANALYSIS: Definitions are at Exhibit 3. Evan J. Hunden, David B. Ratliff, and Michael Volz are Responsible Parties in Control for purposes of this analysis. They are the managing members of Rosemont Meadow Lane Manager, LLC, the 100% member of Rosemont Meadow Lane Apartments, LLC, the property owner. The analysis at Exhibit 2 concludes that Mr. Ratliff controls seven Actively Monitored Developments, Mr. Volz controls seven, and Mr. Hunden controls five. Of those, four Actively Monitored Developments have been referred for an administrative penalty in the past three years, exceeding the 50% administrative referral threshold.
All three Responsible Parties are executive officers of DevCo, LLC, headquartered in Washington State. It is Washington’s largest provider of affordable housing, and they develop, own, and manage approximately 12,000 units throughout the US. They expanded into Texas on December 29, 2020.
RECOMMENDATION INITIALLY TABLED AND PROPERTY INSPECTED AGAIN: The Enforcement Committee considered administrative penalties and debarment during its informal conference on July 30, 2024. The Committee recommended an Agreed Final Order for an administrative penalty of $20,000.00, with $15,000.00 payable at signing and the remainder to be forgiven if acceptable corrections were submitted per the Order, but it tabled the debarment recommendation per owner’s counsel’s request because the Property was due for a TDHCA physical inspection in September. Responsible Parties were confident of an improved score and hoped that would be taken into consideration. TDHCA performed a National Standards for the Physical Inspection of Real Estate (NSPIRE) inspection on September 26, 2024, scoring 75.28 out of 100 (see Exhibit 4).
FACTORS CONSIDERED TO DETERMINE RECOMMENDED DEBARMENT TERM: On October 15, 2024, the TDHCA Executive Director issued a debarment determination notice for a two-year debarment term for the Responsible Parties. Although this is a mandatory debarment under the rule, there is no required minimum or maximum debarment term, and the Board may increase or decrease this term. Pursuant to 10 TAC §2.401(j), the recommended period of debarment was based upon the following material factors:
1. REPEATED OCCURRENCES: The debarment violation was caused by repeated referrals for an administrative penalty, exceeding the 50% threshold defined at 10 TAC §2.401(e)(2)(A). The same violation occurred in 2022. The 2022 debarment referral was dismissed with no action taken due to a variety of factors that supported increasing the debarment threshold, however, the Department reserved the right to consider future debarment under 10 TAC §2.401(e)(2)(A) in the event that there were additional administrative penalty referrals in this ownership portfolio. Rosemont at Meadow Lane was referred for an administrative penalty on April 1, 2024, repeating the debarment violation.
2. SERIOUSNESS OF UNDERLYING ISSUES: The Responsible Parties continue to rely too heavily upon the property management team at Avenue 5 Residential, which was understaffed in 2022, and still understaffed in 2024. The Responsible Parties acknowledged that they were not adequately supervising Avenue 5 despite repeated failures to perform to an adequate standard, and despite assurances made to the Enforcement Committee in 2022. All penalty referrals that contributed to violating the 50% referral threshold are reviews where the Responsible Parties failed to submit any corrective documentation. Additionally, the 2023 UPCS inspection showed that the property was in poor condition, scoring 47 out of 100. The 50% referral threshold was established in 10 TAC §2.401(e)(2)(A) in 2021 to signal to the Department that there is a serious problem in the ownership portfolio that must be addressed before the ownership group should further expand its portfolio, or receive additional funds in Texas. In 2024, the rule was amended to establish a three-year look-back period, comparable to previous participation reviews. Exceeding the 50% referral threshold indicates that the Responsible Parties are repeatedly failing to adhere to TDHCA compliance requirements, so continuing to grow the TDHCA portfolio is not advisable. Debarment is not exclusively a punishment; its purpose is primarily to give the Responsible Parties time to regroup and fix their internal policies and mechanisms to show that they can responsibly administer TDHCA properties and funding.
3. PRESENCE OR ABSENCE OF CORRECTIVE ACTION: As noted above, the Responsible Parties submitted timely certification of correction for exigent and fire safety hazards cited during the 2023 UPCS inspection, but failed to submit any corrective documentation for cited deficiencies on or before December 27, 2023. On April 1, 2024, Compliance referred the property owner for an administrative penalty. The Responsible Parties submitted partial corrections between April 11, 2024, and July 26, 2024, addressing all noncompliance except the items marked in yellow at Exhibit 1. TDHCA staff verified resolution of those final items during the inspection on September 26, 2024.
During the 2024 informal conference, the Responsible Parties offered vague assurances that changes would be made to their processes, but did not provide any substantive information to lead the Enforcement Committee to believe that any demonstrable changes will be taking place in the near future. The Responsible Parties were in the process of replacing the property management company, however, they did not appear to be making sufficient changes to how they supervise the property management company, and it appeared they would be relying on the same system that repeatedly failed with Avenue 5 Residential. The Responsible Parties are based in Washington State, and they have recently started to implement systems with regional managers, but those managers were not previously in Texas, which the Responsible Parties recognized was an issue. They now have a regional manager in Dallas. Alan Maynie is their asset manager who has access to CMTS and is responsible for monitoring for compliance. However, Mr. Manie already had this level of access prior to referral. During the 2022 informal conference, the Responsible Parties stated that they had implemented trackers and meeting schedules pertaining to TDHCA compliance, and that TDHCA compliance items would be a standing agenda item on all executive leadership meetings at DevCo. This was a significant component in the decision not to debar in 2022. During the 2024 informal conference, Mr. Hunden admitted that process was not implemented at the executive level. It appears that the Responsible Parties did not prioritize compliance despite assurances made during the 2022 debarment informal conference.
4. OTHER MATERIAL FACTORS: There have been ten monitoring reviews in the intervening period since the 2022 debarment informal conference, including seven successful monitoring reviews where the Responsible Parties submitted timely and complete corrective documentation, one review that was referred for an administrative penalty after failing to submit corrections, and two reviews that are pending corrective action deadlines. The administrative penalty referral percentage will decrease in 2025 when some of the referrals pass the three-year lookback period.
The inspection score history was also considered. The property scored 83 out of 100 during its UPCS inspection on September 1, 2017; 65 out of 100 during its UPCS inspection on July 9, 2021; 82 out of 100 on its UPCS inspection on October 28, 2022; 47 out of 100 on its 2023 UPCS inspection; and 75.28 out of 100 on its NSPIRE inspection on September 26, 2024. The current owner purchased the property on January 29, 2021. This history demonstrates a decline in condition in 2021, improvement in 2022, a steep decline in 2023, and then improvement in 2024. Committee members compared the 2023 and 2024 inspection reports and noted that there is some overlap regarding deficiency types observed, such as exposed electrical wiring, broken or missing stairway handrails, and damaged locks.
The Responsible Parties indicated that this is a complicated property from physical and security perspectives. Crime is significant in this area of the city, and safety and security issues contribute to problems with the physical condition. Significant effort is required in order to prevent quickly declining conditions due to vandalism.
On May 22, 2024, the City of Dallas filed a lawsuit against Rosemont Meadow Lane Apartments, LLC, Avenue 5 Residential, LLC, and 4722 Meadow Street, Dallas, Texas 75215, in rem, seeking a temporary injunction to require compliance with city code, citing violations of various public health and safety-related ordinances, and seeking to enjoin the owner from operating the Property in a manner that constitutes a common nuisance by permitting habitual serious criminal activity at the Property between 2022 - 2024. The City cited failure to abate public health and safety ordinances, and failure to implement basic maintenance and crime abatement strategies. The City first documented health and safety violations in September 2021. It stated that the owner required frequent City assistance and inspection pressure to come into compliance and close the matter. Despite that assistance, the City stated that the property returned to its previous substandard condition, failing its annual inspection on April 19, 2023, with a score of 60/100. This timeline is consistent with TDHCA’s 2021 UPCS timeline and the temporary UPCS score improvement that was also observed by TDHCA in 2022. Owner’s counsel indicated that during the TDHCA informal conference on July 30, 2024, the Owner was working with the City on an Agreed Temporary Injunction (TI). That TI was signed on August 15, 2024, and includes a series of City deadlines spanning from September 13, 2024, through January 10, 2025.
The Enforcement Committee is also recommending a separate Agreed Final Order for an administrative penalty relating to the 2023 UPCS noncompliance noted above for the Property. During the informal conference on July 30, 2024, the Committee voted to assess a $20,000.00 administrative penalty, with $15,000.00 due at signing and $5,000.00 forgivable if all noncompliance is resolved within 30 days of Board approval. Compliance confirmed resolution of the final deficiencies during their September 2024 NSPIRE inspection, so the Agreed Final Order has been adjusted accordingly. The Responsible Parties spent $2,021,139.00 on repairs at the Property between December 31, 2023, and July 1, 2024. This is a significant amount, and additional expenditures are needed to repair deficiencies from the TDHCA NSPIRE inspection conducted on September 26, 2024, and the City’s TI. $15,000.00 is an appropriate administrative penalty, recognizing that the property has negative net cash flow, and that the Department would prefer for funds to be invested in the property to improve tenant conditions rather than a penalty.
Finally, Committee members considered the Responsible Parties’ history in Texas. DevCo purchased their first property in Texas on December 29, 2020, and it can take time to establish compliance procedures. It also considered that this 50% administrative referral threshold for debarment is relatively new, established April 1, 2021, so the Committee has only seen a few of them. The fact that two of those referrals are for the Responsible Parties is significant. The Responsible Parties are actively expanding in Texas, and they resyndicated six of their TDHCA HTC properties in 2023. Those six properties are currently undergoing rehabilitation, including: Park at Humble HTC 23434 (substantially completed), Tigoni Villas HTC 23424 (substantially completed), Positano HTC 23421 (anticipated completion December 2024), Costa Almadena HTC 23437 (anticipated completion December 2024), Rosemont Ash Creek HTC 23420 (anticipated completion February 2025), and Brookside Gardens HTC 23454 (anticipated completion February 2025). Each will have final construction inspections, file monitoring reviews, and NSPIRE inspections at some point after completion. The Responsible Parties need to complete those projects, and adjust compliance procedures to ensure complete and timely responses to monitoring reviews before receiving further TDHCA funding or purchasing additional TDHCA properties.
DEBARMENT APPEAL: Owner’s counsel submitted written responses on May 15, 2024, and July 29, 2024, and then submitted an appeal to the board on October 22, 2024. Their arguments from the three submissions include:
1. Noting that property management timely submitted the Exigent Health and Safety Certificate for the 2023 UPCS inspection, and outlining correspondence timelines regarding requested extensions for the corrective action deadline. Stated that delays were due to insufficient onsite staff to resolve the noncompliance once the EH&S deficiencies were corrected.
2. Noting that there were no other penalty referrals after July 2022, and suggesting that this shows corrective measures implemented after their 2022 informal conference have been working.
3. Stating that if the referral had come later, the 50% threshold would not have been breached:
a. Two of the developments are not Actively Monitored yet (see Exhibit 2). If Actively Monitored, the Responsible Parties would not trigger the 50% threshold, assuming that neither is referred.
b. Cites 3-year lookback period. Multiple referrals will fall off the analysis chart soon.
4. Stating that primary problem is Avenue5’s turnover and lack of staffing onsite. This was the reason for requesting an extension for the 2023 UPCS inspection that caused this referral.
5. Analyzing miscommunication by Avenue5’s onsite staff, thinking they had requested another extension, past the deadline of March 26, 2024. TDHCA staff notes that the maximum extension was through March 26, 2024, which TDHCA communicated when it approved the final extension in January. This demonstrates poor supervision and internal controls by both the Responsible Parties and Avenue5.
6. Focusing on their other performance and overall improvement since 2022.
7. Was notably silent regarding the poor physical condition of the property cited in the 2023 UPCS inspection.
The day before their July informal conference, Owner’s Counsel presented a new argument that Costa Almadena and Brookside Gardens (see analysis at Exhibit 2) should be considered Actively Monitored Developments, therefore bringing the Responsible Parties below the 50% referral threshold. For this analysis, TDHCA reviews each property in the ownership portfolio for: (1) the Control start date (purchase date), (2) whether a monitoring report or other deadline has been issued to the Responsible Parties for a physical inspection, file review, or affirmative marking / policies review in the past three years, and (3) whether there was an administrative penalty referral during the past three years under the Responsible Party. Although two of the TDHCA letters noted below did fall within the three-year period in question, the purpose of analyzing Actively Monitored Developments under 10 TAC §2.401(e)(2)(a) is to review a Responsible Party’s conduct for the past three years for properties under their Control in their ownership portfolio. The current owner was not in Control at the time of any of the monitoring events below, nor did they submit any corrections for those reviews. Conducting the analysis in the way proposed would essentially allow owners to purchase a prior owner’s good compliance history and take credit for it. This interpretation would encourage owners who are nearing the 50% debarment threshold to add more properties to their portfolio, which is inconsistent with the rule’s and the statute’s intent. Accordingly, it is inconsistent with the intention of the rule to consider these Actively Monitored Developments for the period in question, and they are therefore excluded from that calculation:
1. Costa Almadena: UPCS inspection conducted July 7, 2021. Inspection Report issued August 6, 2021. Corrections submitted by prior owner October 18, 2021, reflecting a final correction date of September 27, 2021. Responsible Parties purchased the property December 1, 2021. TDHCA issued a close-out letter March 14, 2022. The only overlap with Responsible Parties was the TDHCA close-out letter date.
2. Brookside Gardens: UPCS inspection conducted April 19, 2022. Inspection Report issued May 20, 2022. Corrections submitted by prior owner June 6, 2022, reflecting a final correction date of May 26, 2022. Responsible Parties purchased the property June 22, 2022. TDHCA issued a close-out letter October 3, 2022. The only overlap with Responsible Parties was the TDHCA close-out letter date.
Owner’s Counsel submitted an appeal on October 22, 2024, including a new argument that the analysis for Evan Hunden at Exhibit 2 omits three developments that should be counted because the developments were resyndicated in 2023, and he now has control authority in the new organizational structures for The Mondello, The Positano, and Costa Almadena. TDHCA staff analyzed those arguments at Exhibit 2, but Mr. Hunden’s administrative penalty referral percentage remains unchanged for the same reasons outlined above, since TDHCA has not monitored any of those three developments since Mr. Hunden’s control authority began.
A partially probationary debarment term was not considered. The recommended two-year term will provide adequate time for the Responsible Parties to implement changes to internal monitoring procedures, and for TDHCA to confirm that problems have been addressed. Additionally, the debarment term would need to be more than one year to make an impact on the Responsible Parties’ ability to apply for more tax credits.
It is not part of the Enforcement Committee recommendation, but the Property will remain on an annual TDHCA physical inspection schedule through September 2025, at which time the inspection schedule will be re-evaluated by the Compliance Division based upon the property condition and other relevant information.
Accordingly, after consideration of all appropriate factors, including those set out in TEX. GOV’T CODE §2306.0504 and 10 TEX. ADMIN. CODE §2.401, the Enforcement Committee and Executive Director recommend two orders:
1. A Final Order of Debarment for a term of two years for Evan J. Hunden, David B. Ratliff, and Michael Volz.
2. An Agreed Final Order assessing an administrative penalty of $15,000.00 against Rosemont Meadow Lane Apartments, LLC.
Exhibits:
1. 2023 UPCS Scoring
2. Actively Monitored Development Analysis
3. Statute and rule excerpts
4. 2024 NSPIRE Scoring
5. October 22, 2024 Appeal