We’ve found moldy/water damaged/unrecoverable holdings with retention commitments.

Sorry to hear it! If the material is already widely held in EAST (more than 5 copies), then yes, you may remove the retention commitment. You can determine the level of retention in EAST by searching in OCLC or via the search on the homepage of eastlibraries.org. If it is not widely held in EAST, an attempt should be made to acquire the material. If that is not possible it should be added it to the semi annual reallocation process.