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Before the Committee on Government Oversight and Reform, House of 

United States Government Accountability Office: 

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 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 

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. 

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. 

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,] or key 
components. For more information, contact Linda Calbom at (206) 287-
4809 or 

[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 

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,]. 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,] ( 
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. 


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,]. 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,] (, and another 
site for the public to view and download recipient reports, Shortly before recipients could begin entering data into 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 

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 

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 

[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 

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 

[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, 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, 

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 

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 

State and Federal Requirements Have Delayed Weatherization in 

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, 

* 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 

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 

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 

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 
* 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' 
* 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 

[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 

As reported on, 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 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. 


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 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 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 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 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 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 Issues with zip codes also surfaced for local 
agencies that reported directly to 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 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] 


[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,] (Washington, D.C.: Nov. 19, 

[6] GAO, Recovery Act: One Year Later, States' and Localities' Uses of 
Funds and Opportunities to Strengthen Accountability, [hyperlink,] (Washington, D.C.: Mar. 3, 

[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,] 
(Washington, D.C.: Mar. 2, 2010). This and related products can be 
found at]. 

[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 

[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,] 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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