Recovery Act
California's Use of Funds and Efforts to Ensure Accountability Gao ID: GAO-10-467T March 5, 2010The American Recovery and Reinvestment Act of 2009 (Recovery Act) specifies several roles for GAO, including conducting bimonthly reviews of selected states' and localities' use of funds made available under the act. This testimony is based on GAO's bimonthly work in California, where the Recovery Act provided more than $85 billion--or about 10 percent of the funds available nationally--for program funding and tax relief. This testimony provides a general overview of: (1) California's use of Recovery Act funds for selected programs, (2) the approaches taken by California agencies to ensure accountability for Recovery Act funds, and (3) the impacts of these funds. This testimony focuses on selected programs that GAO has covered in previous work including the use of Recovery Act funds by the state and two localities' --City of Los Angeles and County of Sacramento, Highway Infrastructure Investment, and the Weatherization Assistance Program. GAO also updated information on three education programs with significant Recovery Act funds being disbursed--the State Fiscal Stabilization Fund (SFSF), and Recovery Act funds for Title I, Part A, of the Elementary and Secondary Education Act of 1965 (ESEA), as amended, and Part B of the Individuals with Disabilities Education Act (IDEA),. GAO provided a draft of this statement to California state and local officials and incorporated their comments where appropriate.
(1) State and Local Budgets: Despite the influx of Recovery Act funds, California continues to face severe budgetary pressures and estimates a current shortfall of as much as $21billion --roughly one-quarter of the state's annual budget expenditures. California's cities and counties are also struggling with budget problems. According to officials from the City of Los Angeles and County of Sacramento, Recovery Act funds are helping to preserve essential services and repair infrastructure but have generally not helped stabilize their base budgets. (2) Transportation Infrastructure: According to California officials, 100 percent of California's $2.570 billion highway infrastructure Recovery Act apportionment has been obligated. The state has dedicated most of these funds for pavement improvements--including resurfacing and rehabilitating roadways. (3) Weatherization Assistance: As of January 25, 2010, California had awarded about $66 million to 35 local service providers throughout the state for weatherization activities. State and federal requirements, such as prevailing wage rates, as well as the implementation of these requirements, have delayed weatherization and, as of February 26, 2010, the state had weatherized only 849 homes--less than 2 percent of the 43,000 homes that are estimated to be weatherized with Recovery Act funds. (4) Education: As of February 19, 2010, California had distributed approximately $4.7 billion for three education programs, including the SFSF. Local education agencies plan to use more than half of these funds to retain jobs; however, a majority reported that they still expect job losses. Also, cash management issues, related to federal cash balances and the calculation and remittance of interest, remain, but the California Department of Education has taken preliminary steps to resolve them.(5) Accountability: California oversight entities and state agencies have taken various actions to oversee Recovery Act funds, including training, risk assessments, on-site monitoring, and audits. The Governor established the Recovery Task Force to ensure funds are spent efficiently and effectively, and the State Auditor and Inspector General also have key oversight roles. (6) Jobs Reporting: Recipients reported that 70,745 jobs were funded in California during the last quarter of 2009. However, about 70 percent of these jobs were in education and were not reported using the Office of Management and Budget's (OMB) latest guidance, and therefore were not calculated consistently with other jobs reported.
GAO-10-467T, Recovery Act: California's Use of Funds and Efforts to Ensure Accountability
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Testimony:
Before the Committee on Government Oversight and Reform, House of
Representatives:
United States Government Accountability Office:
GAO:
For Release on Delivery:
Expected at 10:00 a.m. EST:
Friday, March 5, 2010:
Recovery Act:
California's Use of Funds and Efforts to Ensure Accountability:
Statement of Linda Calbom:
Western Regional Director:
GAO-10-467T:
GAO Highlights:
Highlights of GAO-10-467T, a testimony before the Committee on
Government Oversight and Reform, House of Representatives.
Why GAO Did This Study:
The American Recovery and Reinvestment Act of 2009 (Recovery Act)
specifies several roles for GAO, including conducting bimonthly
reviews of selected states‘ and localities‘ use of funds made
available under the act. This testimony is based on GAO‘s bimonthly
work in California, where the Recovery Act provided more than $85
billion”or about 10 percent of the funds available nationally”for
program funding and tax relief. This testimony provides a general
overview of: (1) California‘s use of Recovery Act funds for selected
programs, (2) the approaches taken by California agencies to ensure
accountability for Recovery Act funds, and (3) the impacts of these
funds.
This testimony focuses on selected programs that GAO has covered in
previous work including the use of Recovery Act funds by the state and
two localities‘-”City of Los Angeles and County of Sacramento, Highway
Infrastructure Investment, and the Weatherization Assistance Program.
GAO also updated information on three education programs with
significant Recovery Act funds being disbursed”the State Fiscal
Stabilization Fund (SFSF), and Recovery Act funds for Title I, Part A,
of the Elementary and Secondary Education Act of 1965 (ESEA), as
amended, and Part B of the Individuals with Disabilities Education Act
(IDEA). GAO provided a draft of this statement to California state and
local officials and incorporated their comments where appropriate.
What GAO Found:
State and Local Budgets:
Despite the influx of Recovery Act funds, California continues to face
severe budgetary pressures and estimates a current shortfall of as
much as $21 billion-”roughly one-quarter of the state‘s annual budget
expenditures. California‘s cities and counties are also struggling
with budget problems. According to officials from the City of Los
Angeles and County of Sacramento, Recovery Act funds are helping to
preserve essential services and repair infrastructure but have
generally not helped stabilize their base budgets.
Transportation Infrastructure:
According to California officials, 100 percent of California‘s $2.570
billion highway infrastructure Recovery Act apportionment has been
obligated. The state has dedicated most of these funds for pavement
improvements”including resurfacing and rehabilitating roadways.
Weatherization Assistance:
As of January 25, 2010, California had awarded about $66 million to 35
local service providers throughout the state for weatherization
activities. State and federal requirements, such as prevailing wage
rates, as well as the implementation of these requirements, have
delayed weatherization and, as of February 26, 2010, the state had
weatherized only 849 homes”-less than 2 percent of the 43,000 homes
that are estimated to be weatherized with Recovery Act funds.
Education:
As of February 19, 2010, California had distributed approximately $4.7
billion for three education programs, including the SFSF. Local
education agencies plan to use more than half of these funds to retain
jobs; however, a majority reported that they still expect job losses.
Also, cash management issues, related to federal cash balances and the
calculation and remittance of interest, remain, but the California
Department of Education has taken preliminary steps to resolve them.
Accountability:
California oversight entities and state agencies have taken various
actions to oversee Recovery Act funds, including training, risk
assessments, on-site monitoring, and audits. The Governor established
the Recovery Task Force to ensure funds are spent efficiently and
effectively, and the State Auditor and Inspector General also have key
oversight roles.
Jobs Reporting:
Recipients reported that 70,745 jobs were funded in California during
the last quarter of 2009. However, about 70 percent of these jobs were
in education and were not reported using the Office of Management and
Budget‘s (OMB) latest guidance, and therefore were not calculated
consistently with other jobs reported.
View [hyperlink, http://www.gao.gov/products/GAO-10-467T] or key
components. For more information, contact Linda Calbom at (206) 287-
4809 or calboml@gao.gov.
[End of section]
Mr. Chairman and Members of the full Committee, Madame Chairwoman and
Members of the Subcommittee:
I am pleased to be here today to discuss our work in California
examining the uses and planning for funds made available by the
American Recovery and Reinvestment Act of 2009 (Recovery Act).
[Footnote 1] Congress and the administration have fashioned a
significant response to what is generally reported to be the nation's
most serious economic crisis since the Great Depression. The Recovery
Act's combined tax provisions and spending are estimated to cost $862
billion, including more than $85 billion in tax relief and additional
spending in California for investments in transportation
infrastructure, education, weatherization assistance, and other
programs.
The Recovery Act requires GAO, among other things, to conduct
bimonthly reviews of selected states' and localities' use of funds
made available under the act.[Footnote 2] We issued our fifth
bimonthly report on March 3, 2010, which summarized our work on a
group of 16 states including California, the District of Columbia (the
District), and selected localities.[Footnote 3] The selected
jurisdictions for our in-depth reviews contain about 65 percent of the
U.S. population and are estimated to receive collectively about two-
thirds of the intergovernmental assistance available through the
Recovery Act. We have issued individual summaries for California,
other selected states, and the District four times. These summaries
are accessible through GAO's recovery page at [hyperlink,
http://www.gao.gov/recovery]. The Recovery Act also mandated GAO to
comment quarterly on the estimates of jobs created or retained as
reported by recipients of Recovery Act funding from federal
agencies.[Footnote 4] We issued our initial report related to
recipient reporting, including recommendations for recipient report
improvements, on November 19, 2009,[Footnote 5] and our second report
with updated information regarding the second round of recipient
reports covering the period October 1, 2009 through December 31, 2009,
on March 3, 2010.[Footnote 6]
My statement today is based on our work in California and provides a
general overview of (1) California's uses of Recovery Act funds for
selected programs, (2) the approaches taken by California agencies to
ensure accountability for Recovery Act funds, and (3) the impacts of
these funds on creating and retaining jobs. My testimony focuses on
selected programs that we have covered in our previous work including
the use of Recovery Act funds by the state and two localities--City of
Los Angeles and County of Sacramento--to help address their budget
challenges, Highway Infrastructure Investment, and the Weatherization
Assistance Program. In addition to these programs and issues, we
updated information on three education programs with significant
Recovery Act funds being disbursed--the State Fiscal Stabilization
Fund (SFSF), and Recovery Act funds for Title I, Part A, of the
Elementary and Secondary Education Act of 1965 as amended, (ESEA), and
the Individuals with Disabilities Education Act (IDEA), Part B.
Finally, I am discussing California's efforts to meet reporting
requirements under section 1512 of the Recovery Act, and the
information California recipients reported, which is publicly
available on the [hyperlink, http://www.recovery.gov] (Recovery.gov)
Web site.
We conducted performance audits for our bimonthly reviews in
accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe
that the evidence obtained provides a reasonable basis for our
findings and conclusions based on our audit objectives.
Background:
California is the nation's most populous state and the eighth-largest
economy in the world. California is estimated to receive approximately
$85 billion in Recovery Act funds, or about 10 percent of the funds
available nationally. Nearly 80 percent of Recovery Act funding to
states and localities is projected to be distributed within the first
3 years. Peak projected outlays are in fiscal year 2010, with outlays
that year projected to be more than twice the level of fiscal year
2009 outlays. The California Recovery Task Force (Task Force), which
was established by the Governor in March 2009, has overarching
responsibility for ensuring that the state's Recovery Act funds are
spent efficiently and effectively and are tracked and reported in a
transparent manner. The Task Force reports on the use and status of
Recovery Act funds using the state's recovery Web site [hyperlink,
http://www.recovery.ca.gov]. In addition to the Task Force's efforts,
other California entities with oversight responsibilities, including
the State Auditor, have expanded the scope of their work to include a
focus on state programs receiving Recovery Act funds.
As of December 9, 2009, the Task Force estimated that approximately
$53 billion has been allocated to California state agencies and local
governments, nonprofits, local education agencies, and private
companies through spending programs. The remaining portion,
approximately $30 billion, is being provided to individuals and
businesses in the form of direct tax relief. Approximately $33.7
billion has been awarded and $17.8 billion has been expended. As shown
in figure 1, health, education, and labor accounted for almost 96
percent of California's Recovery Act expenditures. The largest
programs within these areas were the state Medicaid program and SFSF.
Figure 1: California Estimated Recovery Act Funding and Expenditures
for Programs as of December 09, 2009:
[Refer to PDF for image: vertical bar graph and pie-chart]
Total allocated ($52,931 million):
Expended: $17,820 million;
Awarded but not expended: $33,709 million;
Allocated but not awarded: $1,402 million.
Amount expended ($17,820 million):
Education ($6,440 million): 36%;
Health and Human Services ($5,395 million): 30%;
Labor ($5,327 million): 30%;
Transportation ($297 million): 2%;
Other ($361 million): 2%.
Source: GAO analysis of California Recovery Act Task Force data.
Note: Totals may not add to 100 percent due to rounding. The actual
dollar amounts will vary as Recovery Act dollars move from allocation
estimates by the federal government to the actual amount awarded to
California and eventually made available to the various programs to be
spent by those programs. This graphic does not include the
approximately $30 billion in estimated tax relief funds for California.
[End of figure]
To help measure the impact of the Recovery Act, the act contains
numerous provisions that require recipients of Recovery Act funding to
report quarterly on several measures. Nonfederal recipients of
Recovery Act funds, such as state and local governments, private
companies, educational institutions, and nonprofits, are required to
submit reports with information on each project or activity, including
amounts and a description of the use of funds and an estimate of the
jobs created or retained. To collect this information, the U.S. Office
of Management and Budget (OMB) and the Recovery Accountability and
Transparency Board created a nationwide data collection system to
obtain data from recipients, [hyperlink,
http://www.federalreporting.gov] (FederalReporting.gov), and another
site for the public to view and download recipient reports,
Recovery.gov. Shortly before recipients could begin entering data into
FederalReporting.gov for the second quarterly reporting period, OMB
issued a memorandum[Footnote 7] for the heads of U.S. executive
departments and agencies on December 18, 2009, updating its reporting
guidance on the Recovery Act, in response to suggestions made by
recipients, agencies, and our recommendations. The updated guidance
focuses on issues related to data quality, nonreporting recipients,
and reporting of job estimates, among other important reporting
requirements.
We previously reported that the Task Force, with the assistance of the
state's Chief Information Officer (CIO), created and deployed a
central information technology system for state departments to report
quarterly recipient report data. For the first two rounds of recipient
reporting, California established a centralized reporting system, the
California ARRA Accountability Tool (CAAT), which state agencies
receiving Recovery Act funds used to report their data to the Task
Force. California's CIO, on behalf of the Task Force, was responsible
for collecting the data from state agencies and uploading the data to
FederalReporting.gov.
California's State and Local Governments Continue to Grapple with
Budget Problems, but Recovery Act Funds Have Helped Preserve Services:
California used Recovery Act funds to help balance the state fiscal
year 2009-2010 budget, when the state faced a nearly $60 billion
budget gap, and future budget shortfalls are expected.[Footnote 8] As
discussed in our prior reports, California balanced its state fiscal
year 2009-2010 budget by, among other things, making more than $31
billion in cuts, increasing taxes by $12.5 billion, and using over $8
billion in Recovery Act funds. However, California's long-term fiscal
prospects remain of concern. For example, in November 2009, the
Legislative Analyst's Office (LAO) estimated the size of the 2009-2010
and 2010-2011 budget shortfall at about $21 billion.[Footnote 9]
According to the LAO, the main reasons for the budget gaps are: the
inability of the state to achieve previous budget solutions in several
areas, the effects of several adverse court rulings and, for 2010-
2011, the expiration of various one-time and temporary budget
solutions approved in 2009. The Governor's 2010-2011 budget proposal
was somewhat more optimistic and identified a $18.9 billion budget
shortfall. Nonetheless, the budget gap constitutes roughly one-quarter
of the state's annual budget expenditures.
The Governor declared a fiscal emergency on January 8, 2010, calling
the legislature into special session to act on his proposed solutions
to address the budget shortfall. Those proposed solutions include
reductions in state programs, shifts of state funds to pay for general
fund expenses, and requests for additional federal funds and greater
flexibility. On January 22, 2010, the state Controller urged the state
legislature and Governor to address the state's projected budget and
cash shortfalls for the remainder of the current fiscal year, as well
as the next fiscal year, in order to protect California's economic
recovery, continue the financing of public works projects, and prevent
even greater financial hardship. Further, the Controller stated that,
if the budget situation is not resolved, the legislature and Governor
will again face the prospect of a cash crisis beginning in July 2010.
[Footnote 10]
Local city and county governments in California are also struggling
with declining revenues and budget problems. Additionally, local
governments are affected by the fiscal situation of the state as a
number of revenue sources--such as sales tax, gas tax, vehicle
license, and many others--pass through the state. For example, in
order to balance the California's fiscal year 2009-2010 budget, state
leaders agreed to borrow almost $2 billion in local property tax
revenue and make $877 million in local government transportation
revenue available to the state general fund for transit debt service.
Officials we met with in the City of Los Angeles (Los Angeles) and the
County of Sacramento said that they face budget shortfalls this fiscal
year due to declines in state funding for programs, tax revenues, and
fees. (Figure 2 highlights information about the two local governments
we reviewed.) For example, a Los Angeles official told us that, for
the remainder of fiscal year 2010, they are trying to close a deficit
of $212 million and have a projected $485 million deficit for fiscal
year 2011. Sacramento County officials reported that the county is
facing a nearly $14 million general fund budget shortfall for the
remainder of fiscal year 2009-2010, and faces cuts of around $149
million for next fiscal year.[Footnote 11] According to government
officials in both localities, Recovery Act funds are helping to
preserve the delivery of essential services and repair infrastructure
but have generally not helped stabilize their base budgets.
Figure 2: Information about Sacramento County and Los Angeles:
[Refer to PDF for image: table illustrated with map of California]
Estimated population (2008):
Sacramento: 1,394,154;
Los Angeles: 3,833,995.
Unemployment rate (November 2009):
Sacramento: 12.7%;
Los Angeles: 13.2%.
Budget FY10: (change from FY09):
Sacramento: $4.3 billion (-19.0%);
Los Angeles: $7.0 billion (-1.0%).
Locality type:
Sacramento: County;
Los Angeles: Metropolitan city.
Sources: U.S. Census Bureau and U.S. Department of Labor (demographic
information); County of Sacramento and City of Los Angeles (budget
information); Map Resources (map); and GAO.
Note: Population data are from July 1, 2008. Unemployment rates have
not been seasonally adjusted. Rates are a percentage of the labor
force.
[End of figure]
Overall, as of February 18, 2010, a Los Angeles official reported that
the city had been awarded about $597 million in Recovery Act grants,
and Sacramento County officials reported the county had been awarded
about $88 million in Recovery Act formula grants as of January 15.
Most Recovery Act funds to local governments flow through existing
federal grant programs. Some of these funds are provided directly to
the local government by federal agencies, and others are passed from
the federal agencies through state governments to local agencies. As
shown in table 1, local officials reported their governments' use of
Recovery Act funds in program areas including public safety (Edward
Byrne Memorial Justice Assistance Grant (JAG)) and Energy Efficiency
and Conservation Block Grant (EECBG). Other Recovery Act funds
received by these localities included formula grants for prevention of
Internet crimes against children, public housing, emergency shelter,
health centers, capital improvements, airport security and
improvement, transportation, and additional competitive grant awards.
Officials reported that Los Angeles has applied for about $893 million
in additional Recovery Act grants, and the County of Sacramento has
applied for an additional $330 million in competitive grants.
Table 1: Selected Examples of Local Governments' Use of Recovery Act
Funds:
Local government: Los Angeles;
JAG: Los Angeles is using a $30.5 million grant to work with the
County of Los Angeles and 75 jurisdictions within the county to
improve law enforcement operations, including interoperability of
communication systems to deal with region-wide emergencies;
EECBG: Los Angeles was awarded a $37 million grant that it intends to
use for several categories of projects including energy efficiency
retrofit programs, research and technology strategies, financing
programs, and energy efficiency incentives.
Local government: County of Sacramento;
JAG: County is using a $1.9 million grant for a gang suppression unit
project that seeks to reduce crime and violence through community
supervision efforts that target identified gang members. The Recovery
Act grant will fund six community probation supervisor positions that
work with high-risk gang offenders;
EECBG: County was awarded a $5.4 million grant that it intends to use
for a combination of county facility projects that will reduce
operational costs and improve the energy efficiency of its
infrastructure resulting in energy cost savings and job creation.
Funds will also be used for a Climate Action Implementation Plan,
Green Building standards, and a municipal financing program for
property owners that make energy efficiency improvements.
Sources: GAO analysis of information provided by City of Los Angeles
and County of Sacramento and as reported on www.recovery.gov.
[End of table]
Nearly All of California's Highway Funds Have Been Obligated to
Pavement and Infrastructure Projects and California Continues to Take
Steps to Meet Recovery Act Requirements:
In March 2009, California was apportioned $2.570 billion in Recovery
Act funds for the restoration, repair, and construction of highways
and other activities allowed under the Federal-Aid Highway Surface
Transportation Program. As of February 16, 2010, the U.S Department of
Transportation (DOT) Federal Highway Administration (FHWA) had
obligated $2.525 billion (98 percent) of California's apportionment.
[Footnote 12] Highway funds are apportioned to states through federal-
aid highway program mechanisms, and states must follow existing
program requirements, which include ensuring each project meets all
environmental requirements associated with the National Environmental
Policy Act (NEPA), complying with goals to ensure disadvantaged
businesses are not discriminated against in the awarding of
construction contracts, and using American-made iron and steel in
accordance with Buy American requirements. The Recovery Act also
required that 30 percent of these funds be suballocated, primarily
based on population, for metropolitan, regional, and local use. In
California, according to state sources, a state law enacted in late
March 2009, increased the suballocation so that more--62.5 percent of
the $2.570 billion ($1.606 billion)--would be allocated to local
governments for projects of their selection.
California Has Dedicated Most of Its Recovery Act Highway Funds for
Pavement Projects and Continues to Monitor Federal Reimbursements:
The majority of Recovery Act highway obligations for California have
been for pavement improvements--including resurfacing, rehabilitating,
and constructing roadways. Of the funds obligated, approximately 65
percent ($1.643 billion) is being used for pavement widening and
improvement projects, while 32 percent ($815 million) is being used
for safety and transportation enhancements, and 3 percent ($68
million) for bridge replacement and improvement projects. Figure 3
shows obligations in California by the types of road and bridge
improvements being made.
Figure 3: Breakdown of Highway Obligations in California as of
February 16, 2010, by Project Type:
[Refer to PDF for image: pie-chart]
Pavement projects (65 percent, $1,643 million):
- Pavement improvement ($1,345 million): 53%;
- Pavement widening ($286 million): 11%;
- New road construction ($12 million): Less than 1%;
Bridge projects (3 percent, $68 million):
- Bridge replacement ($44 million): 2%;
- Bridge improvement ($24 million): 1%;
Other (32 percent, $815 million): 32%.
Source: GAO analysis of FHWA data.
Note: Totals may not add to 100 percent due to rounding. "Other"
includes safety projects, such as improving safety at railroad grade
crossings and transportation enhancement projects, such as pedestrian
and bicycle facilities, engineering, and right-of-way purchases.
[End of figure]
According to information reported on Recovery.gov, as of December 31,
2009, California funded 761 highway infrastructure projects with
Recovery Act funds. Fourteen percent, or 103 of these projects, were
completed, 34 percent (268 projects) were under way, and about 51
percent (390 projects) had not yet started. Projects under way, which
were in various stages of completion, accounted for over $1 billion in
obligations, and projects that have been obligated funds but had not
yet started, had an estimated value of almost $953 million. (See
figure 4 for an example of Recovery Act-funded pavement project.)
Figure 4: Example of Recovery Act Funded Sidewalk Pavement Project
Under Way in Los Angeles, California:
[Refer to PDF for image: 2 photographs]
California Department of Transportation sign indicating that the
construction project is funded by the Recovery Act:
Ongoing sidewalk pavement project with construction signs and barriers
in Los Angeles, California:
Source: GAO.
[End of figure]
Under both the Recovery Act and the regular Federal-Aid Highway
Surface Transportation Program, California has considerable latitude
in selecting projects to meet its transportation goals and needs.
California Department of Transportation (Caltrans) officials reported
using the state portion to fund state highway rehabilitation and
maintenance projects that would not have otherwise been funded due to
significant funding limitations. In addition to maintenance projects,
the state has allocated Recovery Act funds to large construction
projects, including one of the largest transportation investments,
approximately $197.5 million for the construction of the Caldecott
Tunnel, a new two-lane, bore tunnel connecting Contra Costa and
Alameda counties. In addition, as previously mentioned, according to
state officials, a March 2009 state law provided more funding directly
to local governments, allowing a number of locally important projects
to be funded. For example, $319 million in Recovery Act funds were
obligated for 195 local projects in the Los Angeles area that may not
have otherwise been funded in 2009, such as the Compton Boulevard
resurfacing project. This project received approximately $750,000 in
Recovery Act funds and would not have been funded for many years
without these funds.
As of February 16, 2010, $273 million of the $2.525 billion obligated
to California highway projects had been reimbursed by FHWA.[Footnote
13] Although federal reimbursements in California have increased over
time, from $22 million in September 2009 to $273 million, this rate,
11 percent, continues to be lower than the amount reimbursed
nationwide, 25 percent ($6.3 billion) of the $25.1 billion obligated.
As we reported in December 2009, Caltrans officials attributed the
lower reimbursement rate to having a majority of its projects
administered by local governments, which may take longer to reach the
reimbursement phase than state projects, due to additional steps
required to approve local highway projects. For example, highway
construction contracts administered by local agencies generally call
for a local review and a local public notice period, which can add
nearly 6 weeks to the process. Additionally, Caltrans officials stated
that localities with relatively small projects tend to seek
reimbursement in one lump sum at the end of a project to minimize time
and administrative cost. Caltrans has started to monitor pending
invoices submitted by local agencies for Recovery Act projects to
better assess how quickly Recovery Act funds are being spent.
California Reported Meeting the 1-Year Obligation Deadline and Is
Taking Steps to Meet Other Recovery Act Requirements:
The Recovery Act required states to ensure that all apportioned
Recovery Act funds were obligated within 1 year after apportionment
and, according to Caltrans officials, as of February 18, 2010, 100
percent of California's highway infrastructure Recovery Act
apportionment has been obligated.[Footnote 14] If any states did not
meet this requirement by March 2, 2010, the Secretary of
Transportation would withdraw and redistribute the unobligated funding
to other eligible states. Any Recovery Act funds that are withdrawn
and redistributed are available for obligation until September 30,
2010.
In addition to meeting the 1-year obligation deadline under the
Recovery Act, Caltrans has also been working to meet two other
Recovery Act requirements that do not exist in the regular Federal-Aid
Highway Surface Transportation Program: (1) identification of
economically distressed areas and (2) maintenance of effort.
* Identifying economically distressed areas. As we reported in
December 2009, Caltrans revised its economically distressed areas
determination using new guidance issued to states in August 2009 by
FHWA, in consultation with the Department of Commerce, giving more
direction on "special needs" criteria for areas that do not meet the
statutory criteria in the Public Works and Economic Development
Act.[Footnote 15] As a result, the number of counties considered
distressed increased from 49 to all 58 counties. According to Caltrans
officials, this new determination did not change how it funded or
administered Recovery Act projects. Caltrans officials told us that,
in selecting projects for funding, they first considered how quickly
the project could be started and its potential to create and retain
jobs, then considered the extent of need with each economically
distressed area. The Recovery Act requires states to give priority to
projects that can be completed within 3 years and to projects located
in economically distressed areas.[Footnote 16] Recently, FHWA reviewed
the documentation that California used in its application of special
needs criteria and determined that the data used were not consistent
with FHWA guidance. Caltrans has been advised that the data must show
a connection between demonstrated severe job losses and actual,
identified firm closures and restructuring. On February 24, 2010,
Caltrans officials reported that Caltrans was working to address
FHWA's data concerns by evaluating methods to assess the job losses
without the use confidential data.
* Maintaining effort. While California is still reviewing its current
maintenance-of-effort certification, it does not anticipate difficulty
in maintaining the level of spending for transportation projects
funded by the Recovery Act that it planned to spend as of February 17,
2009--the day the Recovery Act was enacted.[Footnote 17] California,
like many other states, had to revise its initial March 5, 2009,
certification, because the certification included a conditional
statement, which was not permitted by the Recovery Act. On February 9,
2010, DOT requested that each state review its current certification
and take any corrective action with regard to the state's calculation
of the maintenance-of-effort amount on or before March 11, 2010.
Although California is reviewing its certification, Caltrans officials
maintain that California expects to meet the planned level of
spending, in part because the state reinstated a transportation bond
program worth approximately $20 billion.
Home Weatherization Was Delayed Across California, Largely Due to
State and Federal Requirements:
The Recovery Act appropriated $5 billion for the Weatherization
Assistance Program, which the Department of Energy (DOE) is
distributing to each of the states, the District, and seven
territories and Indian tribes, to be spent over a 3-year period.
[Footnote 18] This program helps low-income families reduce their
utility bills by making long-term energy efficiency improvements to
their homes by, for example, installing insulation or modernizing
heating or air conditioning equipment. DOE has limited states' access
to 50 percent of these funds and plans to provide access to the
remaining funds once a state meets certain performance milestones,
including weatherizing 30 percent of all the homes in its state plan
that it estimates it will weatherize with Recovery Act funds. In
addition, the Recovery Act requires all laborers employed by
contractors and subcontractors on Recovery Act projects to be paid at
least the prevailing wage, as determined under the Davis-Bacon Act.
The Department of Labor (Labor) first established prevailing wage
rates for weatherization in all of the 50 states and the District by
September 3, 2009.
DOE allocated approximately $186 million in Recovery Act funds for
weatherization in California. This represents a large increase in
funding over California's annually appropriated weatherization
program, which received about $14 million for fiscal year 2009. By
June 2009, DOE had provided 50 percent--about $93 million--of the
Recovery Act funds to the California Department of Community Services
and Development (CSD), the state agency responsible for administering
the state's weatherization program. In late July, the state
legislature approved CSD's use of these funds. Of the funds received,
CSD retained about $16 million to support oversight, training, and
other state activities. CSD has begun distributing the remaining $77
million throughout its existing network of local weatherization
service providers, including nonprofit organizations and local
governments.[Footnote 19]
Home Weatherization Has Started in California, but Service Providers
Are Still Being Developed for Los Angeles and the San Francisco Bay
Area:
According to CSD, as of January 25, 2010, CSD had awarded about $66
million of the $77 million to 35 local service providers throughout
the state for planning, purchasing equipment, hiring and training, and
weatherizing homes. This amount includes $14.3 million to two service
providers for three of the four service areas in the County of Los
Angeles. It also includes almost $3 million and $3.8 million,
respectively, to the service providers for Orange and Riverside
counties. CSD has not yet awarded the remaining funds--approximately
$10 million--to service providers for the remaining part of the County
of Los Angeles, parts of Alameda County, Alpine County, El Dorado
County, Santa Clara County, San Francisco County, and Siskiyou County.
For these areas, CSD has been either seeking a new service provider or
is withholding funds pending the completion of an investigation of the
designated service provider. CSD reported that, as of December 31,
2009, CSD and its service providers spent approximately $10 million--
or about 5 percent--of the Recovery Act funds on weatherization-
related activities. Also, according to CSD, 849 homes were weatherized
as of February 26, 2010, which is less than 2 percent of the
approximately 43,000 homes that CSD currently estimates will be
weatherized with Recovery Act funds. In particular, 7 homes have been
weatherized in the County of Los Angeles, and 0 and 20 homes have been
weatherized in Orange and Riverside counties, respectively.[Footnote
20]
State and Federal Requirements Have Delayed Weatherization in
California:
Weatherization in California has been delayed, in part, because (1)
CSD decided to wait until Labor determined the state's prevailing wage
rates, which occurred on September 3, 2009, and (2) after the
prevailing wage rates were determined, local service providers raised
concerns about an amendment CSD is requiring them to adopt to their
Recovery Act weatherization contracts to ensure compliance with the
act. CSD officials explained that, in anticipation of additional
staffing and administration challenges for service providers, they
wanted more clearly defined Davis-Bacon Act requirements, including
the actual wage rates, before spending Recovery Act funds. CSD
estimates that waiting for the wage rate determinations delayed
weatherization in California for 2 to 3 months.[Footnote 21] CSD
reported to us that, although the rate determinations for two of three
weatherization-related job categories are mostly similar to what
service providers currently pay, the rates for the third category--
heating, ventilating, and air conditioning work--are much higher and
will, thus, lead to cost increases.[Footnote 22] CSD also reported
that it expects that the Davis-Bacon Act administrative requirements--
including expanding existing administrative and accounting systems,
updating payroll documentation and reporting, and increasing
subcontractor monitoring--will have a substantial impact on program
costs. For example, CSD must seek a replacement service provider for
three of the previously discussed designated service areas because the
existing three providers for these areas chose not to participate in
the Recovery Act-funded weatherization activities due, in part, to
concerns that the funding did not adequately support these increased
administrative requirements. CSD also reported that its service
providers have had difficulty identifying subcontractors willing to
comply with the Davis-Bacon Act requirements.
According to state officials, CSD is requiring service providers to
adopt an amendment to their Recovery Act weatherization contracts to
ensure that they comply with the Recovery Act, including certifying
that they comply with the Davis-Bacon provisions, before providing
Recovery Act funds to them to weatherize homes. Only two providers
adopted the amendment by the initial October 30 deadline. According to
CSD, many providers did not adopt the amendment because they objected
to some of its provisions, including those pertaining to compensation,
cost controls, and performance requirements. As a result, CSD entered
into negotiations with providers and formally issued a modified
amendment on December 17, 2009. However, prior to December 17, CSD
announced steps that providers could take to accept the modified
amendment in advance of its formal issuance and, thus, begin
weatherizing homes sooner. Twenty-six service providers accepted the
modified amendment in advance of the formal issuance and, to date, all
active service providers have adopted the amendment. According to
state officials, the amendment requires service providers to submit a
wage plan for meeting the Davis-Bacon Act requirements before
receiving any funds to weatherize homes. As of February 24, 2010, 26
service providers have submitted wage plans, all of which CSD has
approved. Finally, CSD has plans to issue an additional contract
amendment by the end of March, 2010 to, among other things, release
new prevailing wages rates issued by Labor in December 2009. A CSD
official told us that the department does not anticipate any delays in
implementing this amendment.
Concerns Exist about California's Ability to Timely Access and Manage
Its Remaining Weatherization Funds:
In a February 2, 2010, audit of CSD, the State Auditor reported that
delays in weatherizing homes could jeopardize CSD's ability to meet
DOE's performance milestones and, thus, its ability to timely access
the remaining $93 million in Recovery Act weatherization funds.
[Footnote 23] Thirty percent of all homes estimated to be weatherized
in the state plans approved by DOE must be completed before the
remaining funds may be accessed. The State Auditor also found that CSD
needs to improve its control over cash management and that it lacks
written procedures for preparing program reports. In its response to
the report, CSD stated that it plans to meet DOE's performance
milestones by redirecting funds from areas without service providers
to providers with the capacity to weatherize more homes. CSD also
outlined steps it is taking to provide weatherization services to the
previously discussed unserviced areas where it is either seeking a new
service provider or withholding funds. Our prior reports have also
highlighted delays in this program, and we plan to continue to follow
California's progress in using Recovery Act weatherization funds,
including:
* Number of homes weatherized. Although CSD has developed quarterly
targets for weatherizing enough homes to meet DOE's performance
milestones, it is too early to assess whether service providers are
meeting these targets. However, as of February 26, 2010, CSD reported
that the state had weatherized only 849 of the 3,912 homes targeted
for the first quarter of the 2010 calendar year.
* Service areas without weatherization providers. According to CSD, 6
out of 43 designated service areas do not yet have service providers
that are ready to begin weatherizing homes with Recovery Act funds.
According to CSD's latest estimates, these service areas account for
3,624--or over 8 percent--of the approximately 43,000 homes that it
currently plans to weatherize with Recovery Act funds.
* Additional contract amendment forthcoming. In light of service
providers' resistance to CSD's first contract amendment process, CSD
cannot be certain that its upcoming attempt to revise contracts will
not be met with some level of resistance from providers and,
therefore, lead to additional delays in weatherizing homes.
In response to the State Auditor's findings, the Task Force stated
that it is working with CSD to improve internal controls and
streamline contract approvals and that the Task Force is committed to
ensuring that California "does not leave one dollar of Recovery Act
funding on the table."
California Primarily Used Recovery Act Education Funds to Retain Jobs
and Is Working to Address Its Cash Management Issues:
As of February 19, 2010, California disbursed approximately $4.7
billion in Recovery Act education funds for three programs--SFSF; ESEA
Title I, Part A, as amended; and IDEA, Part B. These funds were
allocated to local educational agencies (LEA), special education local
plan areas, and institutions of higher education (IHE). Specifically,
California was allocated $5.47 billion in SFSF funds to help state and
local governments stabilize their budgets by minimizing budgetary cuts
in education and other government services. Under the Recovery Act,
states must allocate 81.8 percent of their SFSF to support education
(education stabilization funds), and the remaining 18.2 percent must
be used for public safety and other government services, which may
include education programs. California has received about $1.1 billion
in SFSF government services funds that it used for payroll costs for
its corrections system and has received about $4 billion in SFSF
education stabilization funds. California also received approximately
$464 million in Recovery Act ESEA Title I, Part A funding, which
supports education for disadvantaged students and about $286 million
in IDEA funding, which supports special education efforts.
LEAs Are Primarily Using Recovery Act Funds to Retain Jobs but Still
Anticipate Job Losses:
The majority of LEAs in California said they anticipate using more
than half of their Recovery Act funds to retain jobs. As of December
31, 2009, the California Department of Education (CDE) reported that
LEAs in the state funded a total of nearly 50,000 education jobs--
mostly teachers--with the three Recovery Act education funding
programs in our review, with approximately 39,000 of those jobs funded
by SFSF.[Footnote 24] In the Los Angeles Unified School District (LA
Unified), according to district officials, almost 6,400 jobs were
funded by the three Recovery Act programs. LA Unified officials said
that, without the Recovery Act funds, teacher layoffs could have
caused increased class size, with a resulting loss of individual
attention to each student. Yet, even with SFSF funds, an estimated 50
percent of the California LEAs reported that they expect job losses.
Recently, officials from two large California LEAs told us that their
districts anticipate teacher and other staff layoffs for the next
school year to address budget shortfalls. According to a senior LA
Unified official, the district may face teacher and support staff cuts
of 7,000 to 8,000 to balance its budget for the 2010-2011 school year.
While LEAs are using a large portion of their Recovery Act funds for
jobs, LEAs we met with told us they also planned to use funds for
other eligible activities, such as purchasing textbooks and funding
deferred facility maintenance, among other program uses. We visited
two LEAs in California--the Los Angeles Unified School District and
Alvina Elementary Charter School in Fresno County--to find out more
about how they are spending Recovery Act funds, see table 2 for a
description of these uses.
Table 2: Planned Uses of Recovery Act Funds at Two LEAs Reviewed by
GAO:
LEA: LA Unified;
ESEA Title I, Part A: Individual school councils determine how funds
are used and select from a district approved list that includes staff
positions (such as teacher, teacher's assistant, school nurse, and
psychiatric social worker); parent training; instructional materials;
and classroom equipment;
IDEA Part B: Funds are being used to:
* reduce reliance on contracting staff by training on-site staff;
* train teachers to meet the instructional, social, emotional, and
behavioral needs of students with disabilities integrated into the
general education program;
* provide special education leadership training for elementary and
secondary site administrators; and;
* train teachers in practices to improve outcomes for students
identified with autism;
SFSF: All funds are being used for salaries, including salaries for
2,558 teachers and 210 administrative and other support positions.
LEA: Alvina Elementary Charter School;
ESEA Title I, Part A: Funds are being used to increase K-3
instructional aide hours and to hire a new teacher and a new
instructional aide, allowing Alvina to increase student enrollment;
IDEA Part B: No IDEA funds received;
SFSF: Funds are being used for staff retention, hiring
paraprofessionals, and buying math textbooks.
Sources: GAO analysis of information provided by the Los Angeles
Unified School District and Alvina Elementary Charter School.
[End of table]
LEAs also awarded contracts for services and materials using Recovery
Act funds. Although including provisions related to the Recovery Act
is not a requirement under the act, LEA officials we met with stated
that including Recovery Act provisions in contracts could have been
useful in helping vendors understand Recovery Act requirements,
including reporting requirements. However, none of the contracts we
reviewed included provisions related to Recovery Act requirements. We
met with seven LEAs that awarded contracts using either SFSF or ESEA
Title I Recovery Act funds, or both, for services, such as tutoring,
professional development for teachers, for special programs for
students, and for equipment. According to LEA officials and our review
of contracts, contract terms did not include specific Recovery Act
requirements, such as wage rate requirements, whistle blower
protection, and reporting requirements. LEA officials stated that they
neither received guidance from CDE regarding the administration of
Recovery Act contracts, nor were they aware of Recovery Act specific
contract terms and conditions. Two of the LEAs we met with told us
that they plan to include Recovery Act terms and conditions in future
contracts.
California Has Taken Initial Steps to Resolve Its Ongoing Cash
Management Issues:
Our prior reports highlighted concerns related to CDE's and LEAs' ESEA
Title I, Part A, cash management practices--specifically CDE's early
drawdown of ESEA Title I Recovery Act funding and the release of $450
million (80 percent) of the funds to LEAs on May 28, 2009. According
to CDE officials, the drawdown was in lieu of its normally scheduled
drawdown of school year 2008-2009 ESEA Title I funds and, therefore,
the schools would be ready to use the funds quickly. However, in
August 2009, we contacted the 10 LEAs in California that had received
the largest amounts of ESEA Title I, Part A Recovery Act funds and
found that 7 had not spent any of these funds and that all 10 reported
large cash balances--ranging from $4.5 million to about $140.5
million. This raised issues about the state's compliance with
applicable cash management requirements. In response to cash
management concerns,[Footnote 25] CDE implemented a pilot program to
help monitor LEA compliance with federal cash management requirements.
The program uses a Web-based quarterly reporting process to track LEA
cash balances. Currently, the pilot program collects cash balance
information from LEAs that receive funds under one relatively small
non-Recovery Act program. CDE officials told us that they plan to
expand the pilot to include regular and Recovery Act ESEA Title I,
Part A, and SFSF by October 2010. CDE has collected data from LEAs for
two quarters and has conducted an analysis to compare drawdown amounts
from prior fiscal years. However, CDE has not yet established
performance goals for the pilot program or developed a program
evaluation plan.
We also raised concerns about the inconsistent interest calculation
and payment remittance processes at LEAs in California. CDE has since
developed an interest calculation methodology and, on January 25,
2010, provided guidance to all LEAs on calculating and remitting
interest on federal cash balances. CDE officials also told us that
they plan to monitor LEA remittance of interest from Recovery Act
funded programs by reviewing expenditure data LEAs submit in their
quarterly recipient reports and verifying that the LEA remitted
appropriate interest amounts. However, CDE has not yet developed
mechanisms to help ensure LEAs are using sound interest calculation
methods and promptly remitting interest earned on federal cash
advances for non-Recovery Act funded programs. We plan to continue
following this cash management issue in our ongoing bimonthly work.
Numerous State Entities and Agencies Are Engaged in Overseeing
Recovery Act Funds:
Since the Recovery Act was enacted in February 2009, California
oversight entities and state agencies have taken various actions to
oversee the use of Recovery Act funds. State oversight entities, for
example, have conducted risk assessments of internal control systems
and provided guidance to recipients of Recovery Act funds. In our
previous reports on Recovery Act implementation, we discussed the
oversight roles and activities of key entities in California for
Recovery Act funds. In addition to these entities, state agencies are
responsible for, and involved in, oversight and audits of Recovery Act
programs. Although certain federal agencies and Inspectors General
also have various oversight roles, our review has focused on the state
efforts.
As mentioned in our previous reports, the Task Force was established
by the Governor to track Recovery Act funds that come into the state
and ensure that those funds are spent efficiently and
effectively.[Footnote 26] The Task Force is relying on California's
existing internal control framework to oversee Recovery Act funds,
supplemented by additional oversight mechanisms. Several agencies and
offices play key roles in overseeing state operations and helping
ensure compliance with state law and policy. The key oversight
entities are the Task Force, the state's Recovery Act Inspector
General, and the State Auditor. Their key oversight roles are
summarized in table 3.
Table 3: Overview of Key Oversight Roles in California:
Entity: Task Force;
Prevention: Provide education, training, and guidance to state
recipients on appropriate use of Recovery Act funds;
Readiness/risk assessment: Monitor department activities and support
allocation of funds;
Audits: Reviews of recipient reports;
Technical assistance: Provide technical assistance on reporting and
appropriate use of funds;
Investigations: N/A.
Entity: Recovery Act Inspector General;
Prevention: Coordinate training for state and local governments on
oversight and prevention of fraud, waste, and abuse;
Readiness/risk assessment: Interview recipient departments and
ascertain plans for ensuring oversight of expenditures. Identify risks
based on prior audits, reviews, and program characteristics;
Audits: Limited-scope reviews and audits evaluating indicators of
waste, fraud, and abuse;
Technical assistance: Analyze deficiencies and provide a framework to
prevent future problems;
Investigations: Investigate complaints directed to the Recovery Act
Inspector General's Office.
Entity: State Auditor;
Prevention: Conduct early reviews and testing of internal controls;
Readiness/risk assessment: Identify risks based on prior Single Audit
findings, Recovery Act funding, and federal guidance;
Audits: Single Audit for state departments;
Technical assistance: N/A;
Investigations: Investigate or refer whistle blower complaints.
Source: GAO's analysis of California's Recovery Act Oversight Plan.
[End of table]
As California gained more experience in implementing the Recovery Act
during the past year, state oversight entities have taken actions to
evaluate and update controls and guidance related to Recovery Act
funds. For example, the Task Force prepared and issued 30 Recovery Act
Bulletins to provide instructions and guidelines to state agencies
receiving Recovery Act funds on topics ranging from recipient
reporting requirements related to jobs to appropriate cash management
practices. Additionally, the California Recovery Act Inspector General
coordinated seven fraud prevention and detection training events
throughout the state for state and local agencies and the service
provider community, with presentations from federal agencies on
measures to avoid problems and prevent fraud, waste, and abuse. Over
1,000 state and local agency staff attended training events, which
were also available through a Webinar. As of December 2009, the
California State Auditor's office published five letters or reports on
the results of early testing and/or preparedness reviews conducted on
25 Recovery Act programs at nine state departments that are
administering multiple Recovery Act programs. These audit reports
resulted in numerous recommendations to state agencies aimed at
improving oversight of Recovery Act funds.
California agency officials and internal auditors, from state
departments that manage transportation, education, and weatherization
programs, are engaged to various degrees in the oversight and auditing
of Recovery Act funds. Table 4 provides an overview of selected
oversight and auditing activities of these agencies.
Table 4: Selected Oversight Activities by State Agency:
State agency: Caltrans;
Oversight activities:
* An internal audit team is currently reviewing the Recovery Act Local
Assistance Program and expects to report sometime later this year;
* An internal audit team conducted a limited scope review of full-time
equivalent (FTE) calculations for the most recent quarterly job
reports;
* An audit of the Recovery Act Project Management/Construction, which
will focus on contracts administered by Caltrans, is planned for later
this year.
State agency: CDE;
Oversight activities:
* According to CDE officials, they assess the reasonableness of the
information reported by LEAs to CDE to meet the Recovery Act's
recipient reporting requirement;
* CDE plans to conduct desk and field reviews of LEA's compliance with
federal and state requirements. CDE plans to conduct 11 field reviews
by the end of fiscal year 2010, in conjunction with its risk
assessment. These reviews will take into consideration the amount of
funding received by LEAs and open audit findings.
State agency: CSD;
Oversight activities:
* CSD's oversight of its weatherization program includes a combination
of monthly, quarterly, and annual desk reviews; routine on-site
program monitoring; and an annual review of independent auditors'
reports;
* CSD conducts annual on-site monitoring of service providers and
requires them to ensure that all contractors' postinstallation work
meets standards; CSD plans to increase the frequency of the
postinstallation inspections to a quarterly basis;
* CSD also plans to review service providers for program compliance,
track expenditures, document support time spent on projects, and
conduct field inspections of 5 to 20 percent of weatherized homes;
* CSD formed a team--chaired by the Chief Deputy Director and
including key managers and staff--to design and implement work plans
to help ensure compliance with OMB, DOE, and related state
requirements and Recovery Act goals.
Sources: GAO analysis of information provided by Caltrans, CDE, and
CSD.
[End of table]
California Reported That Over 70,000 Jobs Were Funded during the Last
Quarter of 2009, but OMB's New Reporting Guidance Was Not Consistently
Implemented:
As reported on Recovery.gov, as of February 23, 2010, California
recipients reported funding 70,745 jobs with Recovery Act funds during
the second quarterly reporting period ending on December 31, 2009.
This was the largest number of jobs reported by any state for this
quarter. The Recovery Act provided funding through a wide range of
federal programs and agencies. Over 30 California state agencies have
or are expected to receive Recovery Act funds and were required to
report job estimates. Figure 5 shows the number and share of jobs
funded by state agencies receiving Recovery Act funds, as reported on
Recovery.gov. Education programs accounted for approximately 71
percent, about 50,000 jobs--38,924 under SFSF, and 11,048 under other
programs administered by CDE.
Figure 5: Jobs Reported by California State Program Agencies as
Recipients of Recovery Act Funding:
[Refer to PDF for image: pie-chart]
Department of Education and Governor‘s Office of Planning and
Research[A] (49,972 jobs): 70.6%;
Employment Development Department (2,558 jobs): 3.6%;
Department of Transportation (1,662 jobs): 2.4%;
Department of Community Services and Development (432 jobs): 1.0%.
All other (16,121 jobs): 22.8%.
Total jobs reported: 70,745.
Source: Recovery.gov.
Note: Data as of February 10, 2010, and updated through February 23,
2010. Totals may not add to 100 percent due to rounding.
[A] Estimates for the Department of Education and the Governor's
Office of Planning and Research were combined because the Office of
Planning and Research acts as the pass through agency for education
funds under the State Fiscal Stabilization Fund.
[End of figure]
Task Force officials reported that new reporting guidance issued by
OMB--approximately 2 weeks before recipients were to begin reporting--
was implemented by most state agencies, but the notable exception was
CDE, which continued to follow the old guidance. On December 18, 2009,
OMB updated its reporting guidance, and the Task Force advised
California recipients that there were some notable changes,
specifically as follows:
* Recipients do not have to determine if a particular employee or job
classification would have been laid off without the receipt of
Recovery Act funds (i.e., retained), as they did before. If a position
is being funded by the Recovery Act, the hours should be included in
the number of jobs created;
* Recipients are no longer required to sum hours across reporting
quarters or provide cumulative totals. Instead, they report jobs on a
quarterly basis, providing a quarterly snapshot; and:
* Recipients will find the federal reporting system open in February
to correct data reported during January.
The new OMB guidance still required recipients to report jobs as FTE,
but it further defined FTEs as the total number of hours worked and
funded by Recovery Act dollars within the reporting quarter and
provided guidance on applying the new formula. According to Task Force
officials, CDE did not instruct LEAs to recalculate job estimates
using the new OMB guidance. CDE plans to have LEAs revise job
estimates reported during the second reporting period when CDE
requests data for the third report, which will be due on March 15,
2010, to CDE. Until that time, the data available to the public for
education-related jobs in California are not comparable to that
reported by other states.[Footnote 27] Additionally, although CDE's
uncorrected job estimates for the second reporting period remain on
the Recovery.gov Web site, the Task Force announced that it will not
include CDE's job estimates in its reports.
In addition to not following OMB's updated guidance on calculating
FTEs, we also found that partly due to unclear guidance from CDE, LEAs
we reviewed had collected and reported job information from vendors
inconsistently.[Footnote 28] We met with seven LEAs--including LA
Unified, the largest LEA in California--to gain an understanding of
their processes for obtaining information necessary to meet Recovery
Act reporting requirements. LEAs told us that they received reporting
guidance from CDE, including calculating teacher and administrative
jobs, but did not receive clear guidance on how to collect and report
vendor jobs funded by the Recovery Act. As a result, LEAs we reviewed
had varying jobs data collection processes. For example, one LEA that
did not report vendor jobs for the second reporting period told us
that, for future quarters, they plan to survey vendors to estimate the
range of jobs created or retained (e.g., 1-5, 6-10, 11-15 jobs). Two
other LEAs told us they did not contact vendors to collect data on
jobs created or retained but reported the number of vendors with a
Recovery Act contract. For instance, if the LEA had four contracts
using Recovery Act funds during the reporting period, the LEA reported
four vendor jobs. Officials from LEAs also reported confusion
regarding CDE's guidance to identify vendors--by reporting their name
and zip code or Dun and Bradstreet Universal Numbering System number--
that received payments of $25,000 or more in the quarter.[Footnote 29]
Some LEAs did not collect and report job estimates from vendors with
payments of less than $25,000 because they erroneously applied CDE's
guidance on vendor identification to determine which vendor jobs to
report.[Footnote 30] According to an official from one of these LEAs,
the number of vendor jobs it reported for the second quarter would
increase from 12 to at least 77 if it collected job estimates from all
of its vendors with Recovery Act contracts. As a result, some vendor
jobs funded by the Recovery Act were not reported.
On February 23, 2010, CDE issued updated guidance to LEAs, and other
subrecipients, to assist them with the third Recovery Act reporting
period. However, this guidance neither provided LEAs additional
information on collecting and reporting vendor jobs, nor did it
clarify that the vendor identification guidance was not applicable to
the Recovery Act's jobs reporting requirements. As the prime
recipient, CDE is responsible for ensuring Recovery Act requirements
are met, including reporting vendor jobs funded by the Recovery Act.
We plan to continue to follow these reporting issues as part of our
ongoing bimonthly work.
Task Force officials stated that while OMB's revised guidance on
calculating FTEs for the second reporting period was easier to
implement compared with the first period, other data issues made it
difficult to report timely, accurate, and complete information. For
example, the Task Force received error messages in
FederalReporting.gov when the congressional district where the
Recovery Act-funded project was located did not match the recipient
address. The Task Force reported receiving more than 1,500 error
reports for data it submitted to FederalReporting.gov related to
congressional districts and zip codes, even though California's CAAT
system had mechanisms in place to try to prevent the entry of false
congressional districts. In order to expedite these corrections, Task
Force officials told us that they decided to change their data to what
FederalReporting.gov would accept, rather than what they knew was
correct in some instances. For example, if they knew a recipient had
moved and had a new zip code, but FederalReporting.gov did not have
the updated zip code for the recipient's new address, the Task Force
used the old zip code to get the report to upload successfully to
FederalReporting.gov. Issues with zip codes also surfaced for local
agencies that reported directly to Federalreporting.gov. For example,
officials from the Los Angeles County Metropolitan Transportation
Authority said they received an error message for an incorrect
congressional district, because they initially used the congressional
district in which the project was located as opposed to the agency's
headquarters office. Officials from the transportation authority
interpreted OMB's guidance as the congressional district in which the
project/activity was being performed, but they later received
clarification that the congressional district should be consistent
with the recipient's address.
Mr. Chairman and Madame Chairwoman, this concludes my prepared
statement. I would be pleased to respond to any questions that you or
other Members of the Committee or Subcommittee might have.
GAO Contact and Staff Acknowledgments:
For further information regarding this testimony, please contact Linda
Calbom at (206) 287-4809 or calboml@gao.gov. Contact points for our
Offices of Congressional Relations and Public Affairs may be found on
the last page of this statement. Individuals who made key
contributions to this statement include Guillermo Gonzalez, Chad
Gorman, Richard Griswold, Susan Lawless, Gail Luna, Heather MacLeod,
Emmy Rhine, Eddie Uyekawa, and Lacy Vong.
[End of section]
Footnotes:
[1] Pub. L. No. 111-5, 123 Stat. 115 (Feb. 17, 2009).
[2] Recovery Act, div. A, title IX, §901, 123 Stat. 191.
[3] The states we are following as part of our analysis are Arizona,
California, Colorado, Florida, Georgia, Illinois, Iowa, Massachusetts,
Michigan, Mississippi, New Jersey, New York, North Carolina, Ohio,
Pennsylvania, and Texas.
[4] Recovery Act, div. A, §1512, 123 Stat. 287-88. We will refer to
the quarterly reports required by section 1512 as recipient reports.
[5] GAO, Recovery Act: Recipient Reported Jobs Data Provide Insight
into Use of Recovery Act Funding, but Data Quality and Reporting
Issues Need Attention, [hyperlink,
http://www.gao.gov/products/GAO-10-223] (Washington, D.C.: Nov. 19,
2009).
[6] GAO, Recovery Act: One Year Later, States' and Localities' Uses of
Funds and Opportunities to Strengthen Accountability, [hyperlink,
http://www.gao.gov/products/GAO-10-437] (Washington, D.C.: Mar. 3,
2010).
[7] OMB Memoranda, M-10-08, Updated Guidance on the American Recovery
and Reinvestment Act-Data Quality, Non Reporting Recipients, and
Reporting of Job Estimates (Washington, D.C.: Dec. 18, 2009).
[8] See GAO, State and Local Governments' Fiscal Outlook March 2010
Update, [hyperlink, http://www.gao.gov/products/GAO-10-358]
(Washington, D.C.: Mar. 2, 2010). This and related products can be
found at http://gao.gov/special.pubs/longterm/longterm.html].
[9] Included in the estimated $21 billion budget shortfall is an
estimated $6.3 billion general fund deficit at the end of 2009-2010.
[10] In July 2009, severe cash deficits forced the Controller's Office
to issue registered warrants, called IOUs, to meet the state's payment
obligations.
[11] According to County of Sacramento officials, the health and human
services area is the most impacted by the budget shortfall.
[12] DOT has interpreted the term, obligation of funds, to mean the
federal government's commitment to pay for the federal share of a
project. This commitment occurs at the time the federal government
signs a project agreement (highways) or grant agreement (public
transportation). This amount does not include obligations associated
with the $27 million of apportioned funds that were transferred from
FHWA to the Federal Transit Administration (FTA) for transit projects.
Generally, FHWA has authority pursuant to 23 U.S.C. § 104(k)(1) to
transfer funds made available for transit projects to FTA.
[13] States request reimbursement from FHWA as they make payments to
contractors working on approved projects.
[14] At the end of our fieldwork, obligation amounts had not been
confirmed. Our prior work identified challenges and issues associated
with meeting the 1-year deadline including unexpected deobligation
requests as a result of savings from contract awards that were less
than the state engineers' estimates.
[15] In July 2009, we identified substantial variation in the extent
to which states prioritized projects in economically distressed areas
and how they identified these areas and recommended that DOT provide
clear guidance to states on methodologies for determining economically
distressed areas. See GAO, Recovery Act: States' and Localities'
Current and Planned Uses of Funds While Facing Fiscal Stresses, GAO-09-
829 (Washington, D.C.: July 8, 2009).
[16] Economically distressed areas are defined by the Public Works and
Economic Development Act of 1965, as amended. To qualify as an
economically distressed area, an area must (1) have a per capita
income of 80 percent or less of the national average; (2) have an
unemployment rate that is, for the most recent 24-month period for
which data are available, at least 1 percent greater than the national
average unemployment rate; or (3) be an area the Secretary of Commerce
determines has experienced or is about to experience a "special need"
arising from actual or threatened severe unemployment or economic
adjustment problems resulting from severe short-or long-term changes
in economic conditions.
[17] Recovery Act, div. A, § 1201(a). The Recovery Act required the
state to certify that it will maintain the level of spending for the
types of transportation projects funded by the Recovery Act that it
planned to spend the day the Recovery Act was enacted. As part of this
certification, the Governor of each state is required to identify the
amount of funds the state planned to expend from state sources from
February 17, 2009, through September 30, 2010.
[18] The Recovery Act appropriation represents a significant increase
over the approximately $225 million that the program has received
annually in recent years.
[19] According to CSD, California currently has 43 designated service
areas. However, local providers may serve more than one designated
service area. For example, the Redwood Community Action Agency
provides weatherization services for the two areas covering both Modoc
and Humboldt Counties.
[20] DOE collects data reported by states and territories on the
number of homes weatherized and on state and territory expenditures of
funds on a quarterly basis. The data reported by states as of a
certain date (such as for the quarter ending December 31, 2009) can
change as states finalize figures for homes weatherized and funds
spent. DOE originally planned to weatherize 593,000 homes with
Recovery Act funding by March 31, 2012. A DOE report issued on
February 24, 2010, indicated that 30,252 homes had been weatherized
nationwide as of December 31, 2009, though numbers are not yet
finalized. See GAO-10-437.
[21] In July 2009, DOE and Labor issued a joint memorandum authorizing
grantees to begin weatherizing homes using Recovery Act funds,
provided they pay workers at least Labor's wage rates for residential
construction, or an appropriate alternative category, and compensate
workers for any differences if Labor establishes a higher local
prevailing wage rate for weatherization activities.
[22] The three weatherization-related job categories are (1) general
weatherization work, including minor repairs, caulking, and the
installation of smoke detectors; (2) the replacement of doors and
windows; and (3) all associated work involved with the installation
and repair of heating, ventilating, and air conditioning systems.
[23] California State Auditor, Bureau of State Audits, Department of
Community Services and Development: Delays by Federal and State
Agencies Have Stalled the Weatherization Program and Improvements Are
Needed to Properly Administer Recovery Act Funds, Letter Report 2009-
119.2 (Sacramento, CA: Feb. 2, 2010).
[24] As discussed later in this testimony, for the purposes of the
second quarterly report, CDE did not implement OMB's latest reporting
guidance, which may have resulted in data that are not comparable to
that reported by other states.
[25] Both the California State Auditor and the Education Inspector
General have cited deficiencies in CDE and LEA ESEA Title I cash
management. The Single Audit issued by the State Auditor in May 2009
found that CDE had disbursed over $1.6 billion to LEAs during the
fiscal year ending June 30, 2008, with no assurances that the LEAs
minimized the time between the receipt and disbursement of federal
funds, as required by federal regulations. The report also noted that
CDE did not ensure that interest earned on federal program advances is
remitted on at least a quarterly basis. (See State of California
Internal Control and State Federal Compliance Audit Report for the
Fiscal Year Ended June 30, 2008, May 2009, Report 2008-002.)
Additionally, the Education Inspector General reported in March 2009
that CDE needed to strengthen controls to ensure that LEAs correctly
calculate and promptly remit interest earned on federal cash advances.
(See ED-IG/A09H0020, March 2009.) Finally, the Education Inspector
General also reported in January 2010 that the California Department
of Education needs to ensure that LEAs receive Recovery Act ESEA Title
I and SFSF funds, when needed, to pay program costs and remit interest
earned on cash advances in a timely manner.
[26] The Task Force is also charged with working with the President's
administration; helping cities, counties, nonprofits, and others
access the available funding; and maintaining a Web site [hyperlink,
www.recovery.ca.gov] that contains updated information about
California's Recovery Act funds.
[27] In addition to CDE, our national review of second round reporting
indicates that some recipients, particularly in the education area,
did not follow the new calculation and do not expect to do so until
the third round of reporting. We previously cautioned against
aggregation of first round FTE data, and it holds for this round of
reporting as well.
[28] A vendor is defined as a dealer, distributor, merchant, or other
seller providing goods or services required for the conduct of a
federal program.
[29] Recipient reports are to include payments to subrecipients and
vendors. Subrecipients are required to report the name and zip code of
the vendor's headquarters or Dun and Bradstreet Universal Numbering
System number for payments to vendors in excess of $25,000.
[30] Under OMB guidance, prime recipients are required to generate
estimates of job impact by directly collecting specific data from sub-
recipients and vendors on jobs resulting from a sub-award. To the
maximum extent practicable, prime recipients should collect
information from all sub-recipients and vendors in order to generate
the most comprehensive and complete job impact numbers available.
However, in limited circumstances, the prime recipient can employ an
approved statistical methodology to generate estimates of job impact,
thereby collecting data from a smaller subset of sub-recipients and
vendors in order to extrapolate an estimate of job impacts to all
applicable sub-recipients and vendors. A statistical methodology
should only be employed in those cases where a comprehensive
collection of jobs data from all sub-recipients and vendors is overly
costly or burdensome and thus disrupts the prime recipients' ability
to effectively implement the underlying mission of the program. Job
estimates regarding vendors are to be limited to direct job impacts
for the vendor and not include "indirect" or "induced" jobs.
[End of section]
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