[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]
TRACKING THE MONEY: ASSESSING THE RECOVERY ACT'S IMPACT ON THE STATE OF
CALIFORNIA
=======================================================================
JOINT HEARING
before the
COMMITTEE ON OVERSIGHT
AND GOVERNMENT REFORM
and the
SUBCOMMITTEE ON GOVERNMENT MANAGEMENT,
ORGANIZATION, AND PROCUREMENT
of the
COMMITTEE ON OVERSIGHT
AND GOVERNMENT REFORM
HOUSE OF REPRESENTATIVES
ONE HUNDRED ELEVENTH CONGRESS
SECOND SESSION
__________
MARCH 5, 2010
__________
Serial No. 111-106
__________
Printed for the use of the Committee on Oversight and Government Reform
Available via the World Wide Web: http://www.gpoaccess.gov/congress/
index.html
http://www.house.gov/reform
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COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM
EDOLPHUS TOWNS, New York, Chairman
PAUL E. KANJORSKI, Pennsylvania DARRELL E. ISSA, California
CAROLYN B. MALONEY, New York DAN BURTON, Indiana
ELIJAH E. CUMMINGS, Maryland JOHN L. MICA, Florida
DENNIS J. KUCINICH, Ohio MARK E. SOUDER, Indiana
JOHN F. TIERNEY, Massachusetts JOHN J. DUNCAN, Jr., Tennessee
WM. LACY CLAY, Missouri MICHAEL R. TURNER, Ohio
DIANE E. WATSON, California LYNN A. WESTMORELAND, Georgia
STEPHEN F. LYNCH, Massachusetts PATRICK T. McHENRY, North Carolina
JIM COOPER, Tennessee BRIAN P. BILBRAY, California
GERALD E. CONNOLLY, Virginia JIM JORDAN, Ohio
MIKE QUIGLEY, Illinois JEFF FLAKE, Arizona
MARCY KAPTUR, Ohio JEFF FORTENBERRY, Nebraska
ELEANOR HOLMES NORTON, District of JASON CHAFFETZ, Utah
Columbia AARON SCHOCK, Illinois
PATRICK J. KENNEDY, Rhode Island BLAINE LUETKEMEYER, Missouri
DANNY K. DAVIS, Illinois ANH ``JOSEPH'' CAO, Louisiana
CHRIS VAN HOLLEN, Maryland
HENRY CUELLAR, Texas
PAUL W. HODES, New Hampshire
CHRISTOPHER S. MURPHY, Connecticut
PETER WELCH, Vermont
BILL FOSTER, Illinois
JACKIE SPEIER, California
STEVE DRIEHAUS, Ohio
JUDY CHU, California
Ron Stroman, Staff Director
Michael McCarthy, Deputy Staff Director
Carla Hultberg, Chief Clerk
Larry Brady, Minority Staff Director
Subcommittee on Government Management, Organization, and Procurement
DIANE E. WATSON, California, Chairman
PAUL E. KANJORSKI, Pennsylvania BRIAN P. BILBRAY, California
JIM COOPER, Tennessee AARON SCHOCK, Illinois
GERALD E. CONNOLLY, Virginia JOHN J. DUNCAN, Jr., Tennessee
HENRY CUELLAR, Texas JEFF FLAKE, Arizona
JACKIE SPEIER, California BLAINE LUETKEMEYER, Missouri
PAUL W. HODES, New Hampshire
CHRISTOPHER S. MURPHY, Connecticut
MIKE QUIGLEY, Illinois
Bert Hammond, Staff Director
C O N T E N T S
----------
Page
Hearing held on March 5, 2010.................................... 1
Statement of:
Calbom, Linda M., Western Regional Director for the U.S.
Government Accountability Office; Herb K. Schultz,
director, California Recovery Act Task Force; Laura N.
Chick, California inspector general for Recovery Act;
Elaine M. Howle, independent State auditor, State of
California; and Gavin Payne, chief deputy superintendent of
public instruction, California Department of Education..... 52
Calbom, Linda M.......................................... 52
Chick, Laura N........................................... 114
Howle, Elaine M.......................................... 118
Payne, Gavin............................................. 145
Schultz, Herb K.......................................... 86
Villaraigosa, Antonio, mayor, city of Los Angeles, CA;
Patrick J. Morris, mayor, city of San Bernardino, CA; and
Chuck R. Reed, mayor, city of San Jose, CA................. 14
Morris, Patrick J........................................ 26
Reed, Chuck R............................................ 35
Villaraigosa, Antonio.................................... 14
Letters, statements, etc., submitted for the record by:
Calbom, Linda M., Western Regional Director for the U.S.
Government Accountability Office, prepared statement of.... 54
Chick, Laura N., California inspector general for Recovery
Act, prepared statement of................................. 116
Howle, Elaine M., independent State auditor, State of
California, prepared statement of.......................... 120
Morris, Patrick J., mayor, city of San Bernardino, CA,
prepared statement of...................................... 30
Payne, Gavin, chief deputy superintendent of public
instruction, California Department of Education, prepared
statement of............................................... 148
Reed, Chuck R., mayor, city of San Jose, CA, prepared
statement of............................................... 38
Schultz, Herb K., director, California Recovery Act Task
Force, prepared statement of............................... 89
Towns, Chairman Edolphus, a Representative in Congress from
the State of New York:
Prepared statement of.................................... 3
Prepared closing statement of............................ 176
Villaraigosa, Antonio, mayor, city of Los Angeles, CA,
prepared statement of...................................... 19
Watson, Hon. Diane E., a Representative in Congress from the
State of California, prepared statement of................. 6
TRACKING THE MONEY: ASSESSING THE RECOVERY ACT'S IMPACT ON THE STATE OF
CALIFORNIA
----------
FRIDAY, MARCH 5, 2010
House of Representatives, Committee on Oversight
and Government Reform, joint with the
Subcommittee on Government Management,
Organization and Procurement,
Los Angeles, CA.
The committee and subcommittee met, pursuant to notice, at
1 p.m., at the California Science Center's Donald P. Loker
Conference Center, 700 Exposition Drive, Los Angeles, CA,
Chairman Edolphus Towns (chairman of the committee) presiding.
Present: Representatives Towns, Watson, and Chu.
Also present: Representatives Napolitano and Richardson.
Staff present: Kwane Drabo and Katherine Graham,
investigators; Bert Hammond, staff director; Deborah Mack,
professional staff member; Leah Perry, senior counsel; Jason
Powell, counsel and special policy advisor; and Valerie Van
Buren, clerk.
Chairman Towns. Good afternoon. I want to thank all the
Members of Congress, witnesses, local government officials, and
interested citizens for being here today.
The Committee on Oversight and Government Reform joins with
Chairwoman Diane Watson, Subcommittee on Government Management,
Organization, and Procurement, to continue its ongoing
oversight of the American Recovery and Reinvestment Act of
2009. I am also delighted to have another member of the
committee present, Congresswoman Chu.
This is the fifth in a series of hearings which the full
committee began immediately after passage of the act to examine
this extraordinary effort to rescue our troubled economy.
This is also the second in a series of field hearings which
the committee embarked upon to observe exactly how the Recovery
Act is performing in States, cities, and neighborhoods across
the country.
We began on the East Coast, New York State, and we now move
3,000 miles across the country to the West Coast and the State
of California.
Early last year, from coast-to-coast, it was drastically
evident that our economy was in trouble. The Nation was
experiencing a nearly unprecedented level of job loss,
foreclosures, and State and local budget deficits.
As with almost every State in our Union, the outlook in
California was bleak. It was clear that immediate and decisive
action was necessary to slow the free fall of the economy.
Congress acted decisively in passing the Recovery Act, the
largest economic stimulus program since the New Deal.
Recent news reports indicate that California is now showing
signs of economic stabilization. Recovery Act spending may well
be making a significant contribution to that stabilization.
According to the Recovery Board, California has been
awarded over $21 billion and received almost $8 billion in
recovery funds so far. With those dollars, California reported
just over 70,000 jobs funded by the act between October 1st and
December 31, 2009.
We are here today to make sure that the Recovery Act is
working, and the Recovery Act dollars are properly accounted
for.
California will receive more Recovery Act funds than any
other State in the Nation. It is critical that we make sure
those dollars flow rapidly, effectively, and efficiently from
the Federal Government to the State; from the State to the
locality; from the local government to the contractors; and
from the contractors to the paychecks of hard working
Californians, trying to put food on the family table.
In that regard, I have concerns about several key issues.
There are reports that certain State agencies have failed to
provide proper cash management, provide proper sub-recipient
monitoring, and abide by Federal reporting guidelines. We will
explore these and related issues in today's hearing.
We are not here today to lay blame and to point fingers. We
are here to work constructively to ensure that taxpayer dollars
are properly used and accounted for.
Today we want to better understand how Recovery Act dollars
are being used in California and in other cities.
What are the unique obstacles, statewide and locally, to
the use and tracking of recovery funds? Are we effectively
preventing waste, fraud, and abuse of Recovery Act funding? If
not, what further steps need to be taken?
Finally, I hope that we can identify areas in which we can
improve the way in which the Federal Government, States and
cities work together toward rebuilding our Nation's economic
strength.
Again, I want to thank our witnesses for appearing today,
and I look forward to your testimony.
Now at this time, I yield to the gentlewoman from
California, Congresswoman Diane Watson, who breaks my heart
because she's leaving Congress.
[The prepared statement of Chairman Edolphus Towns
follows:]
[GRAPHIC] [TIFF OMITTED] T3137.001
[GRAPHIC] [TIFF OMITTED] T3137.002
Ms. Watson. Thank you, Chairman Towns, for agreeing to hold
this important joint field hearing in my District, California's
33rd Congressional District, on the impact of The American
Recovery and Reinvestment Act.
Today's hearing is the second in a series of field hearings
the committee has undertaken to evaluate the implementation of
the Recovery Act at the State and local level.
When the Recovery Act was signed into law on February 17,
2009, $787 billion was appropriated in a nationwide effort to
promote economic stability, to preserve and create jobs, to
assist those most impacted by the recession, and to stabilize
State and local government budgets, while also providing long-
term economic benefits by investing in transportation,
environmental protection, and in infrastructure.
Today's field hearing is especially important because
California has been awarded more funding than any other State
in the Nation, while also struggling with a devastating State
budget crisis, an estimated 12.1 percent statewide unemployment
rate, and an even more severe unemployment crisis in its
minority and youth community.
For the month of January, the national jobless rate for
African Americans was 16.5 percent, 12.6 percent for Hispanics,
and a whopping 24.4 percent for teenagers. So you see, Mr.
Chairman, and committee members, colleagues, and those in the
audience, we have a huge challenge.
Therefore, Mr. Chairman, without objection, I would like to
submit the rest of my opening statement for the record, and
allow Congresswoman Judy Chu, also a member of the Oversight
and Government Reform Committee, to deliver brief remarks using
the remainder of my time.
Chairman Towns. Without objection, so ordered.
[The prepared statement of Hon. Diane E. Watson follows:]
[GRAPHIC] [TIFF OMITTED] T3137.003
[GRAPHIC] [TIFF OMITTED] T3137.004
[GRAPHIC] [TIFF OMITTED] T3137.005
[GRAPHIC] [TIFF OMITTED] T3137.006
[GRAPHIC] [TIFF OMITTED] T3137.007
Ms. Chu. Thank you so much, Congresswoman Watson, for the
opening statement. I want to spend my time highlighting an
extraordinary effort, one of the most successful job creation
programs created by the Recovery Act, that created 10,000 jobs
right here in L.A. County in less than a year.
The unemployment rate here in California is 12 percent. The
challenge is getting jobs up quickly so that people can put
food on the table.
While this program was spearheaded by L.A. County, and in
particular, by County Supervisor Don Knabe, who was
unfortunately not able to testify before the subcommittee
today, he has, however, submitted a letter and a fact sheet,
which I'd like to highlight in my comments today.
This job creation program was funded through a little known
part of the Recovery Act called ``The Emergency Contingency
Fund of TANF.'' Local work force investment boards placed
eligible job seekers in positions, and 80 percent of their
salary was funded by stimulus funds. The employer provided the
rest. Participants are placed into subsidized jobs in all
sectors of the economy, from non-profits, to government, and to
private business. They were matched for jobs that complemented
their employment goals.
The new jobs could not replace existing employees or
replace somebody who was about to be promoted. Some examples of
these jobs were park rangers, receptionists, teachers'
assistants, dental assistant trainees, customer service clerks,
and childcare workers. These workers made up to $10 an hour for
up to 40 hours a week.
The program was truly a win/win, benefiting both workers
and businesses. Workers benefited by getting hands-on
experience in a setting where they could earn wages, develop
new skills, and enhance existing skills.
Businesses benefited by getting the help that they needed,
while temporarily dealing with their payroll costs in a
reasonable manner. Companies were able to try out these
workers, and ultimately could possibly hire these workers
permanently as the economy improved.
These jobs generated by this program could help businesses
expand in these difficult times by reducing their economic
risks.
Programs like this were created all across the Nation in 29
States, but L.A.'s was the most successful, and I have been
very energized in promoting this all across the country and to
our Congressmembers in D.C.
By creating these subsidized jobs, we are truly providing
the economic multipliers to get our economy out of a recession,
but the program is at risk. Funding expires on September 30th,
and it would make 60,000 jobs disappear.
That is why I am cosponsoring and pushing very hard for an
extension and an expansion of this bill through critical
funding that is needed, so that we can make sure that Angelenos
get back to work.
I do have good news, in that the Senate bill that Senator
Kerry put together and put forth on Thursday does include this
bill, but we do still have a long way to go.
Chairman Towns. Thank you very much. I thank the
gentlewoman from California. Let me yield to Congresswoman
Napolitano for any comments she might have.
Mrs. Napolitano. Thank you, Mr. Chairman. I am very pleased
that I was invited to sit at this hearing with you.
This is of great importance to me, and I thank you,
Chairwoman Watson, for holding the hearing in our southern
California area. I associate my remarks with my colleagues.
However, I also want to address some of the other issues that I
find very disturbing.
The Recovery Act has been very, very helpful in some of my
areas. You see the media saying there is no new job
development. There is in my area. Transportation--several
different things have happened in my area. Teachers are still
working because that helped the school district.
While you hear the negativisms in the media, you must ask
the local people what is really happening, because it is
helping maintain some of those jobs as the recovery becomes
more and more successful. It is slow, granted, but it is there,
and it is building up.
My biggest concern at this point has been several things:
Fraud, accountability, and efficiency in those funds that come
in from the Federal Government for my local institutions,
whether it be cities, water districts, etc., because I think
that the taxpayer funds that are very hard to get to, we must
utilize every single dollar to its fullest extent, and ensure
that it is used properly and for its intended purpose.
The House bill, the new jobs House bill, we do need that.
We need the job training. We must increase the infrastructure,
especially in recycled water. Water is economy. It is money. If
we are not able to ensure that other areas are assisted in
water recycling so that in the future we do not have
restrictive water tables, etc., then we must be sure that this
includes training in our institutions for people to understand
how critical water is to our area.
We have other issues. Transportation. While we talk about
all the billions of dollars that come into California for the
bullet train, while I do not oppose it, I do not endorse it.
I need mass transit for people to go to work, to go to
school, for people to move around when they need to without
polluting the environment. I am sure that many of you probably
would entertain that it does not bode well for those people who
are working class to be able to use an expensive train ticket
that they are only going to use maybe once in a while. That is
a concern of mine.
In my area, we have met with the High Speed Rail Authority
over the issues that are being held with the money coming in,
and whether or not they are working with communities to be able
to ensure that right-of-way is certain, that the cities are in
tandem with what they are trying to do. Those are some of my
biggest concerns.
We do look for future work with the GAO, and I am glad they
are here. We will be talking to you, because we want to ensure
that not only does the State do their part, but that we are in
tandem with what we are all doing.
So with that, I thank you very much, and I yield back.
Chairman Towns. Thank you very much, Congresswoman
Napolitano, for talking about the stimulus money and what it is
doing, and of course, we need to work in ways to be able to
improve getting it down to the community.
Congresswoman Laura Richardson.
Ms. Richardson. Good afternoon, all of you. I am going to
be brief, because we are excited about having you here and the
testimony that we are about to hear. Let me just say a couple
of points.
One, I want to thank you, Chairman Towns, for not only
coming by way of Washington being the chairman of the
committee, but also you could have very easily chosen to be in
your own District in New York.
I was on the flight with him yesterday, so we appreciate
you coming here and getting real live testimony of the concerns
in our community.
To Congresswoman Diane Watson, congratulations on bringing
us all here. I do not think that there is a more important
issue to talk about than what money we have currently received,
how are we using it, so we can move forward and say what else
can we do better.
You are going out with an incredible applause, I think,
from all of us, and we are very grateful for all your services.
[Applause.]
Ms. Richardson. In particular, in the House of
Representatives, I serve on the Transportation and
Infrastructure Committee and on four subcommittees of that,
which is Highways and Rail, Aviation, Rails in particular, and
then also, Aviation. They are pretty much all the hot button
issues that we face here in California.
I am currently on Homeland Security, and recently, just
about a month ago, I was named as a subcommittee Chair, which
is pretty exciting, being here only 3 years in Congress, to be
in that position.
It is critical that we look at some of the under water
grants. We are going to need a lot of things, police support. I
see Mr. Baca who is in the audience today. These positions--you
should feel comfortable that your representatives are on vital
committees that are making key decisions that impact direct
dollars coming here.
Finally, the last thing I would like to say is my focus
today is going to be, No. 1, on education. I am quite
disturbed, and I will be very frank.
I went to an earlier rally this morning, and it was about
the whole teacher situation, and why is it that we have
invested, I think, quite a lot of money, and yet it seems like
tuition costs are going up, we are losing teacher positions, we
are closing classrooms, and yet the money is coming. I would
like to know where is the money.
The second point is weatherization. It is my understanding
that some of the initial RFPs that came out have since been
pulled back. I have several different non-profits in my area
that are prepared to train people and to get the weatherization
done, and we need to discuss that.
Finally, I would like to say on the transportation end, I
was not as thrilled with the bands that came out, which was the
over $1 billion in discretionary funds that the Secretary had
that we received, I think, very little of.
The Under Secretary slipped a little bit and he made a
comment. He said, ``Well, you know, we tried to spread it
around, there are areas that got high speed rail, and also
this,'' we are like, wait a minute. California's a large State.
We are the largest in the United States.
We are grateful for the $2 billion that we got for high
speed rail, but that has nothing really to do with all of the
other communities that we have to serve and transportation that
needs to happen.
So a few months ago, I went to Sacramento. I had an
opportunity to sit down with Ms. Chick. We discussed some of
the things that the Governor's Office is doing and what we look
to do to moving forward. You should know, she is very open, she
is accessible, and wants to make it work.
I look forward to today's participation. Thank you very
much.
Chairman Towns. Thank you very much. Now we move to our
witnesses.
We are delighted today to have with us Mayor Villaraigosa,
serving a second term as the 41st mayor of Los Angeles. Of
course, the mayor's also the vice president of the U.S.
Conference of Mayors. Prior to being elected as the mayor of
Los Angeles in 2005, he served as a speaker in the California
State Assembly, and has been a Council member. We welcome you
to the committee.
The Honorable Patrick Morris was elected mayor of San
Bernardino in 2006. Mayor Morris also serves as president of
the San Bernardino International Airport and Authority, and co-
chairman of the Inland Valley Development Agency. We also
welcome you here as well.
Of course, we have the Honorable Chuck Reed. He was elected
in 2006 as the 64th mayor of San Jose. Previously, Mayor Reed
served as City Council member of the 4th District of San Jose.
Besides his services to the city of San Jose, Mayor Reed has
also served our great Nation as a member of the U.S. Air Force
during the Vietnam War.
Let me welcome all of you here. At this time--it's a
longstanding tradition that we always swear our witnesses in.
Of course, I would ask you if you would kindly stand and raise
your right hands.
[Witnesses sworn.]
Chairman Towns. Let the record reflect that they all
answered in the affirmative. You may all be seated.
Mr. Mayor, we will start with you.
STATEMENTS OF ANTONIO VILLARAIGOSA, MAYOR, CITY OF LOS ANGELES,
CA; PATRICK J. MORRIS, MAYOR, CITY OF SAN BERNARDINO, CA; AND
CHUCK R. REED, MAYOR, CITY OF SAN JOSE, CA
STATEMENT OF ANTONIO R. VILLARAIGOSA
Mr. Villaraigosa. Thank you, Mr. Chairman. I, too, want to
thank you for holding this hearing in the city of Los Angeles,
in the southern California area. As was mentioned, you could
have held this anywhere, and the fact that you are shining the
light on a part of the State that is critical to the direction
of the State, it is critical to the Nation, it is very much
appreciated and I want thank you for that.
Of course, Chairwoman Watson. We go back 20 years. There is
life after politics. Trust me. I know. I was out for a couple
of years. [Laughter.]
Let me just say how thankful we are for your leadership,
for your extraordinary work as a School Board member through
very, very tough times in this city, as the president of the
School Board, Member of the Senate and now Member of the
Congress.
L.A. is going to miss your advocacy, and I just want to
thank you for your service.
Congress Member Chu and I also go back from the 1970's.
Young, idealistic college students. I just want to acknowledge
you and thank you for your support and your advocacy, both as a
member of the Assembly and now at the Board of Equalization,
and for the Congress.
I have had the great fortune to have worked very closely
with Congress Member Napolitano. We served in the California
Legislature together, and I could not be prouder to have her as
one of the members of the L.A. delegation. Thank you for being
here.
Finally, Congress Member Richardson, whom I am proud to
have supported early on. I just want to thank you for shining
the light on some of the issues that you mentioned,
particularly around our schools.
Let me just say to my fellow mayors, it is great to be here
with you as well.
I appreciate the opportunity to testify before you today.
At the outset, let me just say that the city of Los Angeles
is grateful to President Obama, the Congress, and particularly
the House, because I think the House understood different
incentives and the importance of metropolitan areas. It is
something that I want to speak to in just a moment.
I want to thank the Congress, and of course President
Obama, for passage of the Recovery Act and the funds that Los
Angeles has been awarded.
To date, the city has been awarded $592 million in Recovery
Act funds. With these funds, we have created or retained 1,681
jobs, of which 869 are temporary summer youth jobs, training
our local work force, repairing our infrastructure, improving
our environment, and assisting those most impacted by this
economic downturn. I would, of course, like to see more funding
come to Los Angeles, and particularly, our fair share.
You know, it is important to note that L.A.--that
California does get the most money, but we are also by far the
largest State. On a per capita basis, many of us in California
believe that we need to get a higher return on our tax
investment.
We understand that we will never get an one-to-one return,
and I know in New York it is the same situation. We do think we
need to shorten the distance between what we give and what we
get.
I look forward to working, of course, with our
congressional delegation, who I have always been able to count
on to advocate for our region.
Let me give you a snapshot of what is happening today in
the city of Los Angeles. We are facing unprecedented times and
economic challenges. Just to give you an example, 2 years ago,
we had a $240 million budget deficit. Last year, we had a $530
million budget deficit. Two years ago, we resolved that first
deficit. Then we resolved $400 million of the $530 million
deficit. We had a $175 million drop in revenues.
We are facing in the current year a $212 million deficit
after cutting more than $600 million out of a $4.4 billion
general fund.
These are deficits unlike anything we have seen in
generations. The unemployment rate--I remember being in the
White House with President Obama when he said that the worse
case scenario would be a double digit unemployment rate.
Well, I raised my hand, and said the worse case scenario
has come to Los Angeles. Today, our unemployment rate is at 14
percent, and the area that Congress Member Richardson
represents, that number is closer to 20 percent.
When you look at these numbers, they're at--the same with
Congress Member Watson. When you look at these numbers, they
are astronomical. Not since the Great Depression have we seen
this many people out of work.
Some of our most important industries, like construction--
as you know, the 4-years that I have been mayor, if you look
downtown or at Hollywood, construction has been at its all time
low years in a row, a 30 percent drop. A 30 percent
unemployment rate in that industry. Our tax revenues from
property sales, business, documentary, transfer and hotel
occupancy are down by more than 30 percent.
For the remainder of our fiscal years, I said we are facing
a $212 million deficit, and we are projecting a $485 million
deficit next year.
We have instituted the most generous early retirement
package in the Nation of 2,400 employees, so that we did not
have to lay off. This year, we are going to be looking at
layoffs, furloughs, and salary cuts just to make payroll.
So, how have Recovery Act funds impacted our financial
situation? Well, the real answer, not as much as we would like.
One of the five goals of the Recovery Act was to stabilize
State and local budgets. Unfortunately, while State budgets and
school districts received recovery funds to stabilize their
budgets, municipal governments have not.
The recovery funds we received for the most part cannot be
used to supplant local funds. Rather, these funds must be used
to expand existing programs or launch new initiatives that will
be difficult to sustain once the recovery funds are expended.
With that said, my first recommendation to the committee is
to allow municipalities to use recovery funds for budget
stabilization. Now, I know that my friend, and one of your
colleagues, Congress Member Miller, is putting forth a jobs
bill that would do just that. I commend him for that. I met
with him last week, and I asked him to move that through the
House as quickly as possible. The cities need help now.
The vice president of the U.S. Conference of Mayors had
found that this problem is not unique to the city of Los
Angeles. The city of San Jose and San Bernardino are all here,
and they can tell you that cities all across the country are
facing virtually the same scenario that I just painted for our
own city. If we are going to get this country on the road to
recovery, that road begins in our cities.
Let me state that 88 percent of the gross domestic product
is located in our cities. Eighty-two percent of the
unemployment rate is located in our cities. Eighty percent of
the foreclosures are located in cities.
When the ``shovel ready'' infrastructure money was
distributed, States received 70 percent of the money, while
metropolitan areas received 30. That, I know, was something
that--that is why I mentioned the House--that the House wanted
to fix it and the Senate did not.
Ultimately, we distributed that money on a 70/30 basis.
What I said back then when I was in the White House was
yes, when we distribute money, 70 percent to the States and 30
to the cities, we may build a road, but that road is going to
connect the ducks to the geese.
In the case of Ms. Richardson's District, we can build a
bridge to connect the two biggest ports in the United States of
America, Long Beach and Los Angeles. That is a different kind
of infrastructure project. Infrastructure money that is spent
in cities creates jobs as well as improves mobility and air
quality.
That brings my second recommendation, to send more of the
recovery funds directly to metropolitan areas.
Now another issue is the siloing of funds that has limited
our ability to utilize funds where they can do the most good or
where the need is greatest.
For example, in one area of the city, we may receive funds
to improve policing services, but not to fix the streets,
conduct weatherization of homes, add energy efficiency
lighting, or prevent foreclosure.
How much more efficient it would be if we had the
flexibility on how and where recovery funds were used.
Flexibility like we have with the community development block
grant program, that allows us to nimbly put money where the
need is.
Another concern with existing grant programs is the missing
link to job creation, which is the No. 1 priority of my
administration and has been the central focus of your work and
of the Recovery Act.
Here is a good example. We just received--thank you very
much for that--I was with Members of Congress and the Senate
when we received it--$7.5 million for broadband expansion
funding. We received, by the way, that one, our fair share--we
received more than any city in the country.
But while this funding will allow us to bridge the digital
divide by creating 4,000 workstations at public libraries,
recreation and community centers, it only created one job.
So my third recommendation is to break down the siloing of
recovery funds and allow greater flexibility in how the funds
may be used in order to maximize job creation.
Finally, L.A. will be negatively impacted due to the
interpretations by Federal agencies of Recovery Act language.
When we received ``shovel ready'' infrastructure funding
through the Recovery Act, we identified--because if you
remember, at the time, they said you have to get this out in 90
days.
Well, most of these projects, infrastructure projects, in
New York, L.A., and San Jose, you can't put shovel ready, big
projects like that, you know, together in 90 days. It just does
not exist.
What we identified was street resurfacing--most of us have
streets that need a great deal of repair--as one of the main
ways to get projects immediately underway.
It was a way to put people to work and spend money in the
shortest period of time. So, using our work force, we started
our street resurfacing program.
Then we were told by the Federal Highway Administration
last August that we would be prohibited from using city workers
for any projects started after July 28th.
Now we are faced with a situation where we are funding for
future projects, but we are going to have to lay off all of the
workers, or many of the workers, that do our street
resurfacing, because of our budget problems.
That makes no sense, and therefore, my last recommendation
is that the Congress allow the use of force account labor on
Recovery Act funded projects, and not set a higher standard
than normal federally funded highway projects.
Again, I want to thank the Members who are here. I feel
heartened that you all decided to come to southern California.
Heartened--I know that I am preaching to the choir, because
many of you have mentioned some of these same issues.
I only hope that as more cities in the course of your
hearings begin to raise these issues, we will be better able to
put shovel ready projects into effect, create the jobs that are
critical, and retain city work forces at a time when our cities
are facing unprecedented financial crises.
Thank you very much.
[The prepared statement of Mr. Villaraigosa follows:]
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Chairman Towns. Thank you very much, Mr. Mayor, for your
comments.
Mayor Morris.
STATEMENT OF PATRICK J. MORRIS
Mr. Morris. Honorable chairman, co-chairman, members of the
committee. I, first of all, want to turn to Diane Watson, and
Mayor Villaraigosa thanked her on behalf of Los Angeles. On
behalf of the Inland Empire, and all of southern California,
and indeed the State, I want to thank you for----
Chairman Towns. Pull the mic a little closer to you.
Mr. Morris [continuing]. A lifetime of service to this
State, to this region and to this Nation. Thank you very much.
I am a little nervous. Before me is a digital clock. It
started at 5 minutes. I am already 30 seconds into my 5
minutes. Having talked to your staff, Mr. Chairman, I have
timed my comments to about 10 minutes, and I am told that you
will not buzz me. As a mayor, I buzz people all the time.
[Laughter.]
Chairman Towns. There is a trap door there. [Laughter.]
Mr. Reed. That sounds like a Brooklyn solution to me.
[Laughter.]
Chairman Towns. It is a good one.
Mr. Morris. It is an honor to be here today to talk and
share with you ideas on how we can together build a stronger
America and a better tomorrow with job creation.
I speak to you today as the mayor of an Inland Empire City,
and as an original leader in that region of California. It is a
metropolitan area of over 4 million good souls, the third
largest in California, and the 14th largest in the Nation.
In the last decade, our Inland Empire has seen its
population explode by more than 25 percent, almost four times
the rate of the State and the Nation. Similarly, growth in our
GDP output in the Inland Empire during the last period, 2000 to
2007, hit almost 12 percent per annum, four times the U.S.
average.
When a fragile regional economy explodes in such a manner,
it is often followed, as we know, by an equally devastating
collapse, as we have experienced in our area since the Nation's
economic free fall in 2007.
Unemployment, as Mayor Villaraigosa has cited, is over 14
percent in our region. In our city, it is up to 18 percent.
There are an estimated 175,000 people in our area currently
unable to find a job.
Home values have declined in our city almost 50 percent.
The high rates of foreclosures and bank-owned properties plague
all of our communities.
To put this in perspective, the Inland Empire was second
only to Detroit in terms of unemployment rates this past
summer. Against this sobering background, however, is the
Federal stimulus dollars that have flowed into our city and
into our region over these last 18 months, and they have
provided substantial relief, great welcoming relief to that
dark background.
To date, our city has received $20 million in the American
Recovery and Reinvestment Act funds to hire new police
officers, purchase and rehabilitate foreclosed homes, initiate
homeless prevention programs, build new community amenities,
and spark economic development through energy efficient and
renewable energy programs.
These city investments of our funds have translated into
over 100 direct jobs, with an additional estimated 80 to 130
induced jobs for infrastructure and construction projects.
It is important to note that our city's job numbers are not
as significant as one might expect with $20 million in
investments. The reason is that 65 percent of the city's RA
funds have gone toward direct government services, while only
35 percent have been for infrastructure and construction
projects.
At the regional level, the job picture is quite different.
Sand Bag, the transportation planning agency for our county,
has received over $180 million in ARRA funds. All of the ARRA
funds received by Sand Bag have been directed into
infrastructure and construction projects, which has translated
into a whopping 2,300 jobs.
The lesson learned? If the primary goal of Federal stimulus
funds is immediate job creation, Federal stimulus dollars for
infrastructure creates many more jobs per dollar than stimulus
funds for direct government services.
There is an equally important lesson to be learned about
the manner in which ARRA funds can be leveraged with local
resources when invested in infrastructure projects.
In the Inland Empire, the regional leaders leveraged ARRA
funds with local funds to create hundreds of additional jobs.
Let me explain.
We have a $700 million Interstate 215 project that involves
the reconstruction and widening of 7.5 miles of critical
transportation infrastructure through our city. In the summer
of 2009, that project was in jeopardy of coming to a standstill
due to the lack of State bond funding. Not only would a
standstill have been costly to our local economy, it also
risked Sand Bag being unable to take advantage of the 30
percent reduction in construction costs because of lower
construction bids.
When Sand Bag received the $128 million in ARRA funding for
transportation projects, rather than scatter these resources
across the broad landscape of the Nation's largest county, we
directed it specifically to the one project I have identified,
the I-215 Freeway project, and locked in substantially over a
30 percent reduction in construction costs in the current
economy. That is the leverage.
As a result of the construction cost savings, our Sand Bag
Board created its own local stimulus program. Thirty-one
million dollars in construction savings to be immediately
directed toward local transportation infrastructure projects,
thus creating an additional 565 jobs in both direct and
indirect job creation locally.
The lesson learned? By making a strategic use of a large
lump sum of Federal stimulus dollars, regions can leverage
additional local resources in a way that broadens and deepens
the economic and job creation objectives of the American
Recovery and Reinvestment Act.
The newly created energy efficiency and conservation block
grants program is another success story on how ARRA funds can
opportunistically be used by local governments, and it provides
an important lesson on how Federal stimulus dollars should be
allocated.
Similar to the highly successful community development
block grant program, the energy efficiency block grants are
allocated directly to cities and counties for projects that
have energy efficiency improvements and services to reduce
greenhouse gas emissions.
Our city was awarded $2 million for this program, and we
have begun to implement projects that will immediately put
contractors, architects, and engineers to work with energy
efficiency construction projects that will have a
transformational effect on our local economy.
Because this money is provided directly to local
jurisdictions through flexible block grants, the limited
Federal dollars can be matched with local funds and economic
development strategies to broaden and deepen the economic and
job creation objectives of ARRA.
In our city, we are leveraging our EECBG Federal funds with
private funding through the development of our AB811 program,
or PACE programs, as they are known at the Federal level.
Our city is bargaining with the county, combining portions
of our collective EECBG funds to implement a program that
creates a pool of secure and low-cost private capital to fund
major retrofit projects on homes and businesses that reduce
energy and water consumption and generate renewable energy.
These projects will give our local economy an enormous boost.
We estimate for every 800 loans issued, a direct economic
impact of some $20 million will be infused into the local
economy. This example illustrates how, when given Federal funds
directly, without tight Federal and State constraints, we at
the local level use innovation and creativity to ignite our own
local economies.
An opposite example is the Federal funds that have flowed
thus far through the neighborhood stabilization program. Prior
to the receipt of the NSP funds, our city had designed a
program that would have used NSP funds to purchase foreclosed
homes in ``tipping point'' neighborhoods to ensure that these
homes remained owner occupied.
The plan was designed to prevent stable neighborhoods with
high owner occupancy levels from being destabilized with a
purchase of foreclosed homes by absentee land owners, the
historic problem that has plagued our city during the previous
foreclosure crisis in the late 1990's and mid-1980's. In
essence, we wanted to prevent bad history from repeating
itself.
However, when the guidelines were released, we were
informed that the NSP funds could only be spent in certain
Census tracks, and those tracks did not align with our city's
very strategic neighborhood stabilization program.
So, Federal guidelines dictated to us where to place these
resources without any firsthand knowledge of our community or
its housing issues and needs.
It is critically important that local government be allowed
to determine where best to direct resources to ensure maximum
benefit for program objectives.
Lessons learned? Federal stimulus dollars that are block
granted to local regions and cities without being channeled
through a historic and often Byzantine State and Federal
funding silos, do not create the flexibility needed to maximize
the beneficial impact of these Federal funds on our local
economy.
To summarize, I would strongly urge Members of Congress and
the Body as it considers additional Federal stimulus funding to
consider the lessons learned from the use of ARRA funds in the
Inland Empire.
One, target Federal stimulus funding to infrastructure
projects, because it creates the greatest number of jobs.
Two, flow Federal stimulus funding directly to local and
regional governments through flexible block grants.
This allows Federal funds to be matched with unique local
opportunities, moneys, and economic development strategies that
maximize the results.
In a nutshell, continued direct flexible block grant
funding for infrastructure and energy projects is critical to
our collective success in helping the economic recovery of our
Nation.
Thank you very much.
[The prepared statement of Mr. Morris follows:]
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Chairman Towns. Thank you very much, Mr. Mayor.
Mr. Reed.
STATEMENT OF CHUCK R. REED
Mr. Reed. Thank you, Mr. Chairman, Madam Chairwoman,
Congresswoman. Thank you for inviting me to testify, and from
San Jose, the 10th largest city in the country, a city of over
a million people, representing Northern California.
We are very proud to be the capital of the Silicon Valley,
the innovation center of the world, and proud of the jobs that
we have created and that we have exported to many other States.
We are not necessarily happy about exporting jobs to other
States, but we are proud of it because the work, the
innovation, the creativity that comes out of Silicon Valley has
created products and services that have changed the world and
jobs for untold numbers of Americans throughout the country,
and we are very proud of that.
But as a job creation center, the recession has hit us
hard. We were still adding jobs in San Jose and Silicon Valley
until the capital market crash in about September 2008. Since
then, we have lost 50,000 jobs in San Jose alone, and more in
the rest of Silicon Valley.
I speak for us to thank you and Congress, and the Obama
administration for ARRA, the Recovery and Reinvestment Act. The
stimulus package has made a difference, made a difference
locally and more importantly, it was with great relief that we
saw the national economy turn the corner.
The rate of job losses made a decline and gross domestic
product is rising. We know that as a job creation center, that
once the national economy turns, we are going to start growing
in net jobs again.
I believe that this year will be a year in which net jobs
are created in Silicon Valley, and we will again continue to
export jobs to other States.
We are very grateful for the Federal funding that has come
directly to San Jose. We are grateful for what it has done for
the economy.
We can spend as much money as you can give us. I think that
is probably true with any mayor. I am happy to take any more
money that Congress wants to send our way.
I am very grateful for what we have received and give back
to the economy. Although I cannot--I guess I should not
complain in the company of my fellow mayors who have higher
unemployment rates than we do in San Jose--but our unemployment
rate exceeds the national average, and we have lost a lot of
jobs.
But we are on the way back, I believe, in large part
because of the stimulus program, the package, and the spending
that has changed the economy.
More specifically, in San Jose, by formula calculating, we
will receive about $105 million of stimulus funding. We have
been awarded $70 million to date, and we have spent 22 percent
of that. I think that is an important thing for everybody to
remember, trying to calculate the economic impact, is that the
money was not all intended to be spent in the first year, and
we certainly have not done that.
The process of getting the awards out and then us bidding
it, of course, has slowed things down a little bit. But that is
good, because there is still money that is going to affect the
economy this year. We are tracking your dollars very closely.
I was in Washington, DC, last year on the day that the
Congress committee decided what the stimulus package was going
to look like. I heard loud and clear from the Obama
administration, from Members of Congress, do not mess this up.
We are going to put out a lot of money, and local governments
have to be very careful to spend it the way Congress intended,
do the oversight, because there will be plenty of people
looking to criticize it, plenty of opportunities to make
mistakes. Just be careful and do it ``right.'' And we have.
Even though we are not necessarily getting reimbursed for
the oversight, if you are going to give us $100 million, we are
going to take it. I think we are obligated to do so.
Our city manager has been tasked with tracking the money,
doing the reports, doing the oversight. We have asked our city
auditor to look over the manager's shoulders.
We are very confident that we know where every dollar went
and we will be able to track that. I cannot say that for every
other city, because I know that those general fund dollars that
have to get spent on these kinds of things, that implements
some of these special programs, are hard to come by.
Our city is no stranger to holes and gaps. I do not think
there is a city in California that doesn't have problems.
If there is some improvement to be made, it is in the
clarity of the oversight, and for funding that could be used
for oversight of RAAR funds, and that is really important,
because it will encourage other cities and local governments to
do the appropriate oversight, to make sure that we spend it the
way you wanted it spent.
I am very confident that we can do that in San Jose. We
have been doing that.
I am going to talk just a little bit about the future, as I
see the stimulus money impacting the economy.
We have a different view in San Jose perhaps from the rest
of the country, because innovations drive San Jose.
But there has been some specific programs beyond the direct
funding that is coming to the city, and beyond some of the
things that we have mentioned today, and that is funding for
innovation. Funding, for example, through the Department of
Energy loan guarantee program.
One of the things that happened when the capital market
crashed in September 2008 was that it was practically
impossible for small businesses and growing businesses to get
access to capital markets, to be able to borrow the money they
needed to finance their expansions and their factories.
We have 10 companies in San Jose that have applications in
for the Department of Energy Loan Guarantees. Each of those
companies will create jobs. Each of those companies will invest
in San Jose, if those guarantees are awarded to them.
We have a couple of them that are at sort of the leading
edge of the process, and they are going through the finalizing,
but we do know that there are companies--such as NanoSAR, one
of our companies, that produces the world's most cost effective
solar cell--they have an application in for a Department of
Energy Loan Guarantee.
They cannot get money from the capital markets, even though
they have raised hundreds of millions of dollars of venture
capital funding from the private sector and hundreds of
patents. They have a factory. They have a product. They are
making profits. Their manufacturing factory is sold out for the
next 3 years, because they have a great product. They cannot
borrow the money.
So without the DOE Loan Guarantees, they may wander off
into another country, because other countries want them to make
their next factory there.
These Department of Energy Loan Guarantees--I know there
are other programs in some of the other agencies--I think they
are going to be vitally important in the coming year for the
ongoing impact on the economy, beyond the direct spending.
I want to thank Congress for allowing those programs to be
a part of this package, because it is the creation of long-term
permanent private sector jobs that will have the most impact on
our economy.
I was in Washington back in the November or December
timeframe with the League of National Cities, and there were
four mayors on the panel. We all agreed that we can spend as
much money as you can give us, but if we are creating jobs,
that will disappear as soon as the funding stops, that is not
going to have a lasting impact on our economy.
That to the extent that a jobs bill or a stimulus package
or anything else gets done, it is important to try to focus on
those areas that will help create those long-term permanent
jobs, because those are the jobs that will keep our people
working after the Federal Government stops writing the checks.
That is ultimately better for us and better for the country.
So with that, I want to thank you for the funding. We
appreciate it. We are spending it. People are working. The
impacts are there. And we are very grateful for what Congress
has done and what the Obama administration has done to help us
get out of this recession.
[The prepared statement of Mr. Reed follows:]
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Chairman Towns. Thank you, very much, Mr. Mayor. Thank you
for your testimony.
Let me indicate the fact that I understand you talked about
basically an unfunded mandate, because we are asking for
certain information. But, let me just say to you, that we put
forth legislation to give you the resources to be able to do
that, because we think it is so important that we can learn
from you as to what you might decide to with the resources.
But the problem has been that we have not been able to get
it passed. We passed it in the House and every Member up here
voted for it.
But the point is that there is another body that you have
probably heard of called the Senate, and they for some reason,
have not gotten around to it.
I think that would solve some of the problems that you
raised here.
Let me yield now to the gentlewoman from California, who is
a member of the committee, Diane Watson.
Ms. Watson. Again, I want to thank you, Mr. Chairman, and I
want to thank our witnesses. The information we gleam from you
today is very vital to how we set policy.
I am sorry that the mayor of Los Angeles had to leave. Jim
Clark, a representative to our legislative body, is still here,
and I would ask that questions that might be directed, that he
could have the mayor send back to us in writing.
Chairman Towns. We will leave the record open in order to
give the mayor an opportunity to respond.
Ms. Watson. Yes.
Chairman Towns. There must be certain questions that you
would like to get answered.
Ms. Watson. Yes. Our city is severely hurting. We have had
to lay thousands of employees off, particularly in the urban
areas. I know that the mayor has really fought to protect
firemen/firefighters, and of course, our police. In this city,
the need is so great.
We will direct some questions, Mr. Clark, to you, and you
can have the mayor answer.
With the two of you, and I appreciate your testimony, you
are smaller in population, but large in need. Had we not had
the stimulus package, Mayor Morris, what would have happened in
your city? And Mayor Reed, I think you have already indicated
what it would be like because of loss of jobs, but can you
continue?
Mr. Morris. Let me give you an example. You gave us a re-
energized ``Cops'' program. That was critical to our city. We
had held about 23 positions vacant in our police department. We
have a serious issue with public safety in our city, and having
those vacancies was deeply concerning to me as mayor, working
on this issue of public safety. The Cops program allowed us to
backfill 15 of those positions. We are in the hiring process
right now.
Those are critical positions to make our city a safer place
to live and work and to educate our children.
That was a major $5 million boost in funding for public
safety. That is already making a difference in terms of the
safety of our community.
Ms. Watson. Thank you. Mayor Reed.
Mr. Reed. I think I can give you a couple of examples, some
of the mystery about the job creation. We have been awarded
roughly $15 million for transportation, which we are using for
street resurfacing. Well, we have not spent all $15 million.
You cannot spend it all at once. If you have lots and lots of
streets, and lots of work to be done, that is nowhere nearly
enough to cover our needs.
But there are people working today, surfacing roads today,
who would not be working today workout that money, and because
we do a series of contracts, those people are going to be
working for a long time, until we spend that money.
The fact that we only created a few jobs with the $15
million is not the measure of the impact, because you have to
look at how long those jobs are going to last, not just spend
$15 million and you only got a few jobs, because those people
will be working for some period of time when you roll out the
contracts.
That is one area where it is easy for people to
misunderstand why there is so few jobs for that kind of award.
We also put to work last summer, probably the first money
to arrive, for summer jobs for youth. We put to work 800 young
people based on the criteria in the act, that these kids had
some disadvantages in their lives and some difficulties. That
was the criteria. We put 800 kids to work.
It was only a summer program, but those kids got some real
money for their families and they got some job training. They
got exposure to the kinds of things that they need to get to
get into the work force.
We got the money, we spent the money, and we had an impact,
and although those jobs are not permanent, but each and every
one of those kids benefited from it and our city benefited from
it. We did not spend all the money last summer, so we will do
it again this summer if we have the money.
Ms. Watson. If the two of you could reiterate your
recommendations. We have been considering in Washington to send
moneys directly to the school districts, maybe to cities, to
counties, and so on, rather than going through the archaic
structure of the Governor in Sacramento.
There are often differences in the largest State of the
Union with 38 million people, as you see through the lens of
State government, and as you see to your own local areas.
Why do you not reiterate those recommendations?
Mr. Morris. Mayor Villaraigosa eloquently stated that the
metropolitan areas of this State have been the hardest hit by
this massive recession, and we need to focus on those cities
and regions where we have that great disconnect between life as
a healthy place and life in a disaster.
Direct funding of the block grant type I was suggesting, I
think, is critical. To go through the State, through that
filtering system, it leaves a lot of money on the table in
Sacramento. You served up there, many of you, in Congress. You
know I used the word ``Byzantine'' before, and that is true. To
get money out of Sacramento in ways that makes sense sometimes
is very, very challenging.
Block grant funding, particularly the EECBG type, is just
deeply appreciated and we can put it to work, and we are
creative front-line leaders. We are innovators at the city
level and the county level. We know what the problems are and
how to resolve those issues.
You need to understand that direct funding mechanism. You
put it into effect, in the energy programming articulated for
us, that is very, very helpful to us.
I told you before in my testimony, using those dollars in a
way that combines, in our case, with AB811 structures, we are
going to stimulate a whole new green economy, largely
attributable to your creativity of a direct grant program, a
block grant type program.
Mr. Reed. There are some areas in which the existing
formulas and the money went through the State that I think
worked fairly well. In transportation, for example, because we
got some of the earliest money through the transportation
distribution through the State, through the Metropolitan
Planning Organization onto the regions.
There is a delay anytime you have to go through the State
and go through that process before it actually gets into
circulation, and direct funding to the cities through the block
grant program is probably the fastest way to get the money into
circulation.
We have another problem with direct funding through the
State, at least in transportation, because our Metropolitan
Transportation Commission in northern California, which San
Jose participates in, is not the representative on a population
basis. It is not one person, one vote.
San Jose, being the largest city in the region, third
largest in the State, and Santa Clara County, they are both
underrepresented, so representation seems to be a little more
rural, a little more, as Mayor Villaraigosa so eloquently put
it, ``building things from ducks to geese is a possibility when
the money goes through the States.'' I know that many other
States and other big cities that have bigger problems than
California.
Ms. Watson. I am going to yield some time to Assemblywoman
Richardson, because she raised a key question about education,
and I would like a response.
There are two procedures in the formula, and I want you to
respond to them. Maintenance of effort and a local match or
statewide match. And most often, States that really suffer
under maintaining the effort at the same level and matching the
funds, I would like to take your comments on those two
procedures.
Mr. Reed. Maintenance of effort has not been a big issue
for our city, because most of the ARRA funding that has come in
has been for specified projects and specified things. We are
spending it in accordance to the guidelines.
That was one of our concerns last year when Mayor
Villaraigosa and I were in Washington talking to Congress about
how do we ensure the States maintain their efforts, because the
States have a fairly poor record when it comes to that. That
has been an issue for us.
I cannot comment directly on what the State has done, but I
think you are going to have some experts here speaking pretty
shortly.
Ms. Watson. I will raise the question with them.
Mr. Reed. But the local match is always a problem, given
the kind of budget problems that local governments are having
in California. Now, particularly, San Jose will have a budget
gap next year greater than 10 percent of the general funds. So,
every general fund dollar is very precious.
We will undoubtedly have some cases where we just cannot
afford to do the match, even though you are going to give us
three quarters of the money.
Chairman Towns. The gentlewoman's time has expired, and the
gentlewoman from California will have her own time. It is a
matter of time. [Laughter.]
Congresswoman Chu.
Ms. Chu. Thank you very much, Mr. Chair.
I would like to ask a question about the flow of money and
whether that is going smoothly. I know that we had to put money
up front, and one of the things that struck me is L.A.'s
struggle with this flow of money.
They were awarded $600 million but only received $16
million, and then had to spend $31 million, mostly by taking
out loans and waiting to be reimbursed.
This places a very significant burden on localities to put
the money up front, when it is difficult in these economic
times to get credit, not to mention the interest problem.
I am wondering what the situation has been for your cities
with regard to the flow of money and how hard it has been
coming down.
Mr. Morris. Quite frankly, Congresswoman, I am not sure
that we have suffered the kind of disabilities that the mayor
of L.A. has offered to you this afternoon.
We have--on COPS that I discussed, that money has flowed,
and we are in the hiring process as we speak. Our dollars for
the I-215, that is a major $125 million that we needed, has
come speedily to the table. We have kept thousands employed in
highway construction as a result of that.
I do not know enough about L.A.'s problems in terms of
cash-flow, but I have not heard from our regional
transportation group or city manager that we have had
difficulty in receiving those dollars.
Mr. Reed. We have been awarded roughly $70 million and we
have spent approximately $16 million, and have been reimbursed
about $8 million. We are spending it and we are getting
reimbursements.
That is something that we have been able to handle, in
part, because it is not all coming out of the general fund. We
have some enterprise funds, and it is a little bit different. I
would say that we are not controlled because of that.
Cash flow will probably be an issue, especially in this
next budget year as our cash reserves continue to go down.
I had just one other fact when I was talking about the
transportation and street resurfacing. We were awarded $15
million and we spent $173,000. We have been reimbursed $33,000,
and created 26 jobs. Now, 26 jobs does not sound like a lot for
$15 million, but we haven't spent $15 million. We are spending
the money. We will get reimbursed, and the TSR will get
reimbursed, so that will help us with cash-flow on the street
resurfacing.
Ms. Chu. I am wondering if you have had similar problems to
what he was talking about, where a job was given to city
employees, but then they were told that they had to have jobs
that were contracted out instead, and they forced the city to
really fire 139 workers, who actually were doing jobs that were
part of that street project anyway.
Mr. Reed. By and large, most of the power of spending has
been on contracts in private sector companies. We are not
putting a lot of city employees to work doing that, so it has
been a big problem for us.
We do not have the same problem with all agencies, but we
will be laying off city employees, no doubt about it, but that
is a problem to be solved, if anything, as it continues.
Ms. Chu. Thank you. I yield back.
Chairman Towns. Thank you very much. That is something new.
We do not get to yield back very often.
Mrs. Napolitano.
Mrs. Napolitano. Thank you, Chairman Towns. It's just a lot
of questions. I wish, like you, that Mayor Villaraigosa had
stayed a little bit longer, because there are some issues and
we are very adjacent to him as mayor of Los Angeles.
Mayor Morris, San Bernardino, my neighboring city, the
Alameda border east goes all the way through and affects your
area. My biggest concern has been the funding to do the great
separation. We have not been processed yet. To me, that would
be a great creator of jobs.
Mr. Morris. I serve on the MetroLink Board. You know of our
accidents and you know the danger, we regularly have tragic
pedestrian incidents at grade crossings. From that Board table,
it is clear of the need.
Our neighboring city, Riverside, I think, in the city
itself, has over 20 grade crossings. That really slows down the
commerce of that city, more than any other city in the region.
We desperately need those resources. You are right. This is
critical infrastructure to create a transit system that makes
sense, for both cargo as well as passenger transit. You
mentioned in your opening statement, Congresswoman, that you
were deeply concerned about the issue of transit funding.
You know, I think it is critically important that we use
this disaster as an opportunity to envision a new future for
southern California. Southern California has been much more
visionary with the advent of transit systems that move people
in alternative choices to the automobile.
Southern California has remained auto dependent with a
great but troubling freeway system. We need to invest in
infrastructure for transit. This is an opportunity area for us,
to look at transit centers and the rapid transit bus lines and
light rail systems, and invest heavily in this future.
It will be upon us, and our children and grandchildren will
inherit what we have or have not done. I would love to see
stimulus dollars invested more heavily in that kind of
visionary infrastructure that you discussed.
Mrs. Napolitano. Well, we need to get--there's not much
room for fraud in the area of grade separations, because it
extends to the railroads. It is 3 to 5 percent of matching
funds. The State does not have the funding, and so it is mostly
Federal and local participation. That is a sad state of
affairs, because you compromise the safety of the individuals
at grade separations.
With that said, I am looking also at--is there any project
funds that because there is such high unemployment, that those
bids may have come under the estimates?
What is happening to that money, and is that money being
held accountable, so they can expand the projects for the
additional job creation?
Those areas are a great concern, like you said. I'd
certainly like to talk to Mayor Reed about their solar company,
because that is an issue--that is where new job creation is
going to be.
Accountability of the funds that might be coming from the
Federal Government to assist in the development, not only
training, but the new manufacturing companies coming in to
assist and help us expand, those are great issues.
Mr. Reed. Funny, that I have seen her come to the
Department of Energy. She always seems to be doing an excellent
job at this time of working those issues. A year ago when I was
in Washington when the stimulus bill was being put together,
the Department of Energy had one high-level appointee, and that
was Secretary Chu.
The Department has had to write the regulations, issue the
regulations, implement the program while growing itself,
getting the staff in place, the congressionally approved
appointees, as well as all the senior staff.
They have been doing that while trying to manage the
programs. I met with John Silver, the executive director of the
loan guarantee program, this week, and they are much better
equipped to deal with that.
But the kind of detail and work that they are doing with
their private sector companies to make sure the money is spent
correctly, I think is very good. We have yet to see the money.
Mrs. Napolitano. We are running out of time. Let me
interrupt you just briefly to say be sure that you work with
your SBA, Small Business Administration, a chance for small
business assistance, to ensure that these small companies are
able to get--do you have tax benefit loans?
Mr. Reed. Yes.
Mrs. Napolitano. That is so critical. If we are going to
have time in order to build that, we also need to ensure that
the money is going directly to what it was intended to and that
it is used.
Mr. Morris. I quickly want to respond to your comment about
the T-billing authorization. We need it sooner than later. We
need to look at it again.
Mrs. Napolitano. I am not the administration.
Mr. Morris. I understand that. I'm talking to you. You talk
to the President.
Mrs. Napolitano. No, we do not. [Laughter.]
Mr. Morris. I do not. We need to look at the caps on small
starts and new starts. Those are the----
Mrs. Napolitano. Grants?
Mr. Morris. Yes. Those are the things that we need to
rebuild an economy in the new future.
Mrs. Napolitano. I could not agree with you more, sir.
Thank you, Mr. Chairman.
Chairman Towns. Thank you very much. I now yield to
Congresswoman Richardson.
Ms. Richardson. Thank you, Mr. Chair. First of all, thank
you, for the two of you testifying with pertinent information.
Let me ask you a couple of really direct questions. We have a
limited period of time.
Mayor Morris, how many jobs did you say were created in
your city and region based on----
Mr. Morris. Well, we have--on the stimulus package we put
together for the I-215, that's about 2,300 jobs. We have within
our city probably thus far, 200 jobs. But as Mayor Reed
suggested, we are still unfolding some of those resources.
Those numbers will increase over the next 12 to 18 months. You
know, we are trying to be shovel ready in all particulars, but
that is a challenge, as Mayor Reed suggests.
Ms. Richardson. I understand. My next question is, of those
jobs, how many were new and how many were you preserving?
Mr. Morris. In the city, we were preserving jobs, and those
are high cost jobs, totally funded police officers, required
personnel or other city employees. It is a pretty heavy
commitment.
I said that in my testimony, talking about creating new
jobs and getting the most bang for our bucks. It is in new jobs
out there in the community, in the construction industry,
building infrastructure.
Ms. Richardson. I am sorry, we have to cut you off, but in
Congress we have rules. We do not get the 10-minutes.
Of the numbers that you said, besides transportation, which
I am getting actually to the next question, you are not
creating new jobs. They were all preserved jobs. I don't have a
problem with that. I am just trying to understand accurately
what happened.
Mr. Morris. Yes. We basically used it in-house.
Ms. Richardson. My next question is, of the transportation
dollars that you used and the highway project, what were--did
you bring in any new minority contractors who were able to take
advantage of that job?
Mr. Morris. We have a local contractor, one that bid a
large bid for the next two phases of the I-215, and I have
several other subcontractors which I believe are minority
contractors. I have not tracked that carefully, quite honestly.
Ms. Richardson. Could you provide this panel with that
information?
Mr. Morris. Yes, we will give you that.
Ms. Richardson. Thank you, sir.
Mr. Reed, Mayor Reed, the same question to you. How many
jobs did you preserve?
Mr. Reed. The cumulative total was 335, and of that, most
of them are not new jobs. So the paving contractors, they got
the people who are already working, to keep them working.
Because in the construction business you might have a job not
very long. Most of them are continuation jobs.
Ms. Richardson. I understand. Of any construction jobs that
you have, do you have any record in terms of how many minority
contractors are willing to take advantage of the work?
Mr. Reed. I do not have that information.
Ms. Richardson. Could you get that for us?
Mr. Reed. Certainly.
Ms. Richardson. My second point is, if you so appreciate
the stimulus dollars, then I would recommend what you consider
doing is helping us to let people know more about what
happened. We took the heat for the vote, a very tough vote for
us, but unfortunately--I will be very frank with you. I drive
up and down the State, and I see, you know, ``Mayor Morris''
and whoever, and this great project that he did. You have to
admit President Obama and Members of Congress stood up and took
the tough vote.
And I am going to be frank with you, if you expect us to do
it again, one of my biggest concerns, lessons learned, would be
better acknowledging where it came from. Because we are getting
pounded out there, and the American public, it is not
resonating with them, of what we did and what they are seeing.
If we are all in this boat together, we need your help to
talk more about that. So I do not know if that is in places
that you go in the communities, everywhere. Let people know
what happened. Because only through that can we be able to step
up and do something again. Finally, my next question----
Mr. Morris. Come to San Jose, you will see the signs giving
Congress credit.
Ms. Richardson. You are doing better than some.
Mr. Reed. I just need projects.
Mrs. Napolitano. The public does not know it. They really
do not.
Mr. Morris. We had an event that would knock your socks
off, when we opened up that contract. We had people from
Washington. The administration was there. It is a big cotton
picking deal.
Ms. Richardson. What I am talking about, Mayor Morris, is
an ongoing communication with the public about how the funds
were used, where did the funds come from, and what we did and
what we need them to continue to do. I think you can find
greater opportunities to do so.
My last question. The Government Accountability Office says
that the L.A. Unified School District is facing staff cuts up
to 8,000 for the years 2010 and 2011. In San Bernardino, Mayor
Morris, the GAO says that you are going to have a $30.7 million
budget shortfall that would cut 197 staff positions, including
94 teachers.
What is your role with education and what do you intend to
do?
Mr. Morris. I do not have a subset of schools, like Mayor
Villaraigosa, under my charge. I am a former school board
president before I was a judge, before I was a mayor. So I had
some experience and deep concerns about these issues.
I am working to get one of those great grants that help
neighborhoods, like the group from New York City, to try to
create a dynamic for a children's zone in Harlem.
Our schools are challenged, which was suggested by your
comments, in terms of performance, as well as in terms of
financing.
I care deeply about this. I endorsed a host of publicly
chartered schools in my community to create small academies
that do a better job.
As mayor, I have an educational roundtable that works on
these issues. I have no direct authority. All of our school
districts in inland southern California, we will send out
notices of termination of teachers. It is the saddest, the most
desperate situation I have seen in my lifetime.
Ms. Richardson. Let me suggest before my time has expired,
that you look at some of the stabilization money, how we are
spending differently, categories that your city is receiving,
that you consider putting together some programs to help
teachers, to help various staff members as they go through
these difficult times.
Thank you, Mr. Chairman.
Chairman Towns. I thank the gentlewoman from California for
her comments.
Let me just ask a couple of quick things to both of you.
You know, this jobs bill, do you have any suggestions as to
what you think should happen with the jobs bill? You mentioned
flexibility earlier. Could you be specific in terms of that?
Mr. Morris. My point of view--the word is block grants,
block grants, block grants. Send it to us with general
provisions where there is obvious areas of need and employment
opportunities and we will knock your socks off with good
results.
We know where the problems are in our cities. We know where
the opportunities are. We know how to mix and match funds,
Federal, State, and local. One of them--let me give you an
example real fast. We got this Federal Act called the Second
Chance Act. We have returning parolees to our city as the
California prisons are over populated, and we need to have a
new dynamic in terms of how we do business--justice in the
State, but it requires a 50 percent grant, a match.
We applied for a ``Second Chance'' grant, but were allowed
to take some State funds to match your funds and some other
local funds and we made the match. It took some creative
movement of funds to create the 50 percent match to the Federal
Second Chance Act.
If you give it to us without too many strings attached, we
can mix and match dollars and programs to create, I think, the
greatest impact on unemployment. That's my----
Mr. Reed. We will happily spend any money that you wish to
direct to the cities, and we will effectively spend it. We will
spend it the way you want it spent. But those jobs are likely
willing to last until the checks run out.
I would recommend that we try to focus the jobs bill on
areas where we can help private sector create long-term
permanent jobs. Access to capital for small businesses is
critical.
Big businesses have other sources, but our small businesses
that create most of the jobs in this country, are having very
difficult times getting access to capital markets, not just our
solar companies. It is companies of all kinds.
Clean up the banking system and the capital markets. I know
that is a small challenge. That would be the most important
thing, because the private sector is going to create those
long-term jobs that are going to help.
Mr. Morris. I join Mayor Reed in that quest. He is right.
Focusing on long-term private sector entrepreneurial kinds of
investments is critical, as is investment in the infrastructure
for the future of this Nation. Those, I think, are the best
investments we can make.
Chairman Towns. In your city, are you responsible for the
Board of Education?
Mr. Reed. In my city, nobody is in charge. We have 19
school districts----
Chairman Towns. I should go there and teach. [Laughter.]
Mr. Reed. Nineteen 19 school districts. Each of them with a
separately elected board of trustees, and a County Board of
Education, so we have to work in a collaborative way. As the
mayor, I am a mediator, collaborator, and I hold people
accountable, but ultimately have no authority over the schools.
Chairman Towns. The point I want to make, Mr. Mayor, is the
situation is you are about to lay off teachers, could you take
some of the stimulus money and be able to save the jobs of the
teachers?
Mr. Reed. I know from talking to my School Board members
that there are teachers who are working this year, working now
because of stimulus dollars, that were going to be laid off.
If there is a way that money came directly to the cities
that we could give it out to the school district boards, but we
have never experimented with that and I do not know how that
might work.
Ms. Watson. Mr. Chairman, if you might yield, I might be
able to shine some light on how it is structured here in
California.
Chairman Towns. Sure.
Ms. Watson. We send moneys to the Governor of California,
and the Governor then appropriates money based on a formula
called ``ADA,'' Average Daily Attendance, to the over 1,600
school districts. There is a firewall between city governance
and school districts.
In the county or in L.A. Unified School District, I should
say, there are 27 cities. The city government really has no
responsibility for those schools. The responsibility is within
the school district.
We fund them based on that formula. So you might have some
of your cities in L.A. Unified, but it covers about 910 square
miles, the district does. We have close to a million children
in the district.
City government has really nothing to do. Now, in the case
of Los Angeles, the mayor was able to get the school board,
seven members, to vote to give him 10 schools. The money in
this State follows the child. That money that would come to the
district then would follow the child into some special charter
school set up or whatever.
I yield back.
Chairman Towns. Let me explain, because in our city, the
mayor made the decision to save 14,000 teachers. Of course, the
mayor does it.
Mr. Morris. Oh, for that kind of authority. [Laughter.]
And that kind of money.
Chairman Towns. Let me thank the both of you for your
testimony. It was very, very helpful to me, and it is important
to know what you will do with the stimulus money. We appreciate
your testimony. Thank you so much for coming today and sharing
with us.
Mr. Reed. Thank you.
Mr. Morris. Thank you very much. It has been an honor to be
here.
Chairman Towns. We will now move to the second panel. Mr.
Herb Schultz, Ms. Calbom, Ms. Howle, Ms. Laura Chick, and Gavin
Payne.
Ms. Linda Calbom is the Western Regional Director for the
Government Accountability Office. Ms. Calbom's work
specifically includes assessing the implementation of Recovery
Act funding in California.
Previously, Ms. Calbom served as the Director for GAO,
Financial Management Assurance, for over 15 years. Prior to
joining GAO, Ms. Calbom was a senior audit manager with
Deloitte & Touche in Seattle, WA, where she worked for 11
years. Welcome.
Mr. Herb Schultz is the director of California's Recovery
Act Task Force, and senior advisor for Governor Schwarzenegger.
In doing so, Mr. Schultz is leading the effort to track
recovery funds coming into the State, and ensuring that those
dollars are spent efficiently and effectively.
Previously, Mr. Schultz served as Acting Secretary for the
Labor and Workforce Development Agency in the administration of
former Governor Gray Davis, and as Deputy Director of External
Affairs for the Department of Managed Health Care.
Ms. Elaine Howle is California's independent State auditor.
Ms. Howle has more than 20 years of experience in auditing and
management in California's State Auditor's Office.
Ms. Howle has released eight key reports last year and
several this year, that have examined specific problems in the
program funding by the Recovery Act dollars within this State.
Ms. Laura Chick is the California Inspector General for the
Recovery Act. Ms. Chick is responsible for deterring and
detecting of fraud, waste, and abuse of over $50 billion in
Recovery Act funding.
Ms. Chick served as Los Angeles city controller for nearly
8 years. Before that, Ms. Chick was a city counsel member for
the West San Fernando Valley area.
Mr. Gavin Payne serves as the chief deputy superintendent
of public instruction for the California Department of
Education.
As chief deputy, Mr. Payne manages all activities of the
State Department of Education and oversees relationships
between his department and the State School District and
Council, as well as for the Federal Government.
Prior to his present appointment, Mr. Payne worked for more
than a decade as Superintendent Jack O'Connell's Chief of Staff
in the California Legislature.
Did I get everybody?
Now, there is a longstanding policy that we swear all of
our witnesses in. Stand and raise your right hands.
[Witnesses sworn.]
Chairman Towns. Let the record reflect that they all
answered in the affirmative. You may be seated. I will just go
right down the line starting with you, Ms. Calbom, and then
right down the line. You all have 5 minutes. [Laughter.]
Unless you are a mayor. [Laughter.]
We will go right down the line.
Thank you so much.
STATEMENTS OF LINDA M. CALBOM, WESTERN REGIONAL DIRECTOR FOR
THE U.S. GOVERNMENT ACCOUNTABILITY OFFICE; HERB K. SCHULTZ,
DIRECTOR, CALIFORNIA RECOVERY ACT TASK FORCE; LAURA N. CHICK,
CALIFORNIA INSPECTOR GENERAL FOR RECOVERY ACT; ELAINE M. HOWLE,
INDEPENDENT STATE AUDITOR, STATE OF CALIFORNIA; AND GAVIN
PAYNE, CHIEF DEPUTY SUPERINTENDENT OF PUBLIC INSTRUCTION,
CALIFORNIA DEPARTMENT OF EDUCATION
STATEMENT OF LINDA M. CALBOM
Ms. Calbom. Thank you, Mr. Chairman, Madam Chairwoman and
Congresswoman Napolitano. Thank you very much for inviting me
to come today to talk with you about the work that we have been
doing on Recovery Act spending for the State of California.
My comments today will just very briefly touch on the
Recovery Act spending and a few of the key programs we have
been following in California. These include the highway
infrastructure investment, weatherization assistance, and three
of the education programs, including the State Fiscal
Stabilization Fund.
As far as the highway funds, transportation officials in
the State tell us that they have obligated 100 percent of their
$2.6 billion in funds that were apportioned to the State. The
majority of these funds, about 65 percent, as some of the
mayors were indicating, are committed to pavement widening and
improvement projects.
Payment from the Federal Government for these and other
highway projects comes on a reimbursable type basis. So as the
contractors complete the work, then the money gets reimbursed.
California has kind of lagged behind in the reimbursement. The
rate is about 11 percent. The rest of country is at about 25
percent.
The transportation officials tell us that a lot of it has
to do with the fact that California--about twice of their
programs are administered at the local level, their projects
are administered at the local level, as the average than the
rest of the country. That just takes a little bit longer for
the approvals to happen. They believe they are going to start
to flow faster now.
As far as weatherization, again, a couple points. That
program is a lot smaller than, for instance, the highways. It
is $186 million that's been allocated to the State, but this is
a big increase in the typical funding for this program, which
received only about $14 million for fiscal year 2009.
You will hear more today about the weatherization of homes
in California has been delayed, largely due to efforts to
comply with some of the State efforts to make sure they are
complying with the prevailing wage rates and other requirements
of the Recovery Act.
The State Department of Community Services, which is
responsible for administering this program, told us just about
a week ago that they have now weatherized about 850 homes, but
this is less than 2 percent of the 43,000 homes that they
expect to weatherize with Recovery Act funds.
It is also well behind the pace that they need to maintain
just to meet their upcoming quarterly goal of over 3,900 homes.
In the education area, as of about mid-February, the State
had dispersed to the school districts and other local education
agencies about $4.7 billion in Recovery Act funds for Title 1,
Part A, IDEA, Part B, and the largest by far, the State Fiscal
Stabilization Fund. Most of these funds are being used to
retain jobs.
Nonetheless, again as we heard earlier, more than half the
school districts in the State still expect layoffs in the next
school year.
We and others, including the State Auditor, have
highlighted concerns related to the California Department of
Education's cash management practices. Specifically, the early
draw down in distribution of Title 1 Recovery Act funds, prior
to the time the school districts were really in a position to
use those funds. So what happens is there are issues with the
State's compliance with Federal cash management practices, as
well as requiring the school districts to have to calculate and
remit interest on those funds.
The department has implemented a pilot program to try to
correct this issue. They are piloting one small non-Recovery
Act program right now. We want to see them develop some
evaluations tools for this pilot and then expand it to some of
the larger Recovery Act programs.
Just one more quick area on jobs reporting. California
recipients reported over 70,000 jobs on Recovery.gov for the
second quarterly period ending December 31st. This was the
largest number of jobs recorded by any State for that quarter.
However, the California Department of Education, which
accounted for about 35,000 of those jobs, so about half,
reported those jobs using the old OMB jobs reporting guidance,
which was issued December 18, 2009. So it was issued a bit
late.
What that means is the jobs reporting for California was
inconsistent for this quarterly period. The department does
plan though to have the school districts revise these estimates
during this open period we have right now in the Federal
reporting system.
And then one other problem that we found with the school
districts in the jobs reporting was that they were not
consistently collecting and reporting vendor job numbers. So
that is another area that is going to require some additional
guidance and oversight to make sure the next period is more
consistent.
That concludes my comments.
I will be happy to answer questions later on.
[The prepared statement of Ms. Calbom follows:]
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Chairman Towns. Thank you very much, Ms. Calbom.
Mr. Schultz.
STATEMENT OF HERB K. SCHULTZ
Mr. Schultz. Good afternoon, Chairman Towns, Chairwoman
Watson and other members of the committee. I would like to
thank you for inviting me here today to discuss the American
Recovery and Reinvestment Act.
My name is Herb Schultz, and I am senior advisory to the
Governor and director of the California Recovery Task Force,
and I appreciate that the chairman acknowledged that when we
met 28 years ago, we both had hair. So, it is good to see you.
[Laughter.]
After this historic bill was signed, the Governor acted
very swiftly creating the California Recovery Task Force. It is
made up of the best and brightest minds from our State who
represent over 30 departments and agencies who work in
coordination with key external stakeholders across the State to
get funds out quickly and efficiently to Californians.
As you saw from the first panel, the Recovery Act requires
extraordinary coordination at all levels of government, and the
task force works in partnership with each level, Federal,
State, and local, to ensure that the benefits of the dozens of
programs get to organizations and individuals.
We are working every day and many nights to provide
unprecedented levels of transparency and ultimately get
California's economy back on track.
The Governor announced only a couple of weeks ago that
California has funded approximately 150,000 jobs from our
stimulus efforts. The task force's goal was to provide
unparalleled oversight and implementation of the $85 billion
expected in cash and tax benefits, the largest of any State.
The task force immediately jumped into action preparing the
State for the largest infusion of Federal funds that the State
has experienced to date. Through the end of 2009, the end of
the second quarter of reporting, $26.6 billion has been awarded
to State entities with $13.8 billion, roughly half, being spent
to extend safety nets to millions of Californians. Very
important, such as through Medi-Cal, food stamps, and
unemployment insurance.
The remaining $12.8 billion has been committed to
contracts, grants and loans, of which $6.3 billion has already
been spent and is out working on the street creating jobs, job
training programs, and other essential services.
With the significant funding involved, Governor
Schwarzenegger quickly appointed the first in the Nation
Recovery Act Inspector General, and we have mentioned my
colleague, Laura Chick, to my left.
The task force is working in partnership with Laura, along
with the Bureau of State Audits, the State Controller's Office,
the Federal Recovery Accountability and Transparency Board,
OMB, and the Government Accountability Office to make sure that
California's stimulus funding is spent the right way.
Since the beginning, the task force members and staff have
also taken action and met with numerous stakeholders in all
communities to educate them and inform them of opportunity.
To date, more than 45,000 people representing local
government, non-profits, energy groups, education transit
officials, health care stakeholders, large and small business,
and local government officials have met with the task force.
By coordinating efforts to put forth the most competitive
applications possible, California has experienced a great deal
of success in taking advantage of various discretionary
opportunities.
I know we have had some discussion here about high speed
rail, but the State of California has also obligated its entire
100 percent, $2.5 billion plus, in highway programs.
We received nearly $70 million for health information
technology and $30 million for health care jobs and job
training. We put 40,000 young people to work in summer jobs,
delivered more than 650,000 warm meals to seniors, and we kept
in force 650 police officers, providing important public safety
for our community.
As Congresswoman Chu mentioned, more than 11,000 low-income
Californians have been hired by employers who were subsidized
by the Recovery Act.
But these big picture numbers fail to tell the story--any
of the individual stories--of how the Recovery Act has impacted
real Californians, like ``Bart.''
Bart was laid off from his construction job and without a
job for over 6 months. With little savings left and months away
from losing his home, Bart went from worrying about how to feed
his family to being hired.
He is now working to extend State Route 905, funded in part
by Recovery Act dollars. We thank the President and the
Congress for that. This is a real person, and the Recovery Act
is making a real difference.
Yes, there have been growing pains along the way. Several
departments greatly expanded existing programs and also
developed new ones. In addition, many Federal guidelines have
been changing throughout the life of the program.
The weatherization program, for example, faced significant
challenges early on, but has successfully reorganized, added
key resources, streamlined contract approvals, and improved
internal controls, many that were identified by our own
readiness reviews and by audits undertaken by the Bureau of
State Audits and the Inspector General.
Today, 94 percent of the unions are under contract, and we
are working hard to get the remaining areas contracted. I know
that the committee is very interested in that.
To date, after the slow start, the department is on track
to do approximately 4,000 homes in the first quarter, and to
make the goals by September 30th and throughout the life of the
program.
The Recovery Act also allocated a significant share of
funding toward energy projects. The task force recognized early
on, and it has been mentioned, that considerable changes would
need to be made in order for the Recovery Act funding in energy
to be successfully spent.
To date, I am happy to provide you that almost 70 percent
of the energy program funds are now committed.
While the State energy program existed prior to the
Recovery Act, Federal funding grew from $3 million to $226
million. The California Energy Commission also made certain,
per State law, required public input when determining program
guidelines for the awarding of grants. That ensured that the
grants were distributed transparently, accountably and
equitably.
In conclusion, the Recovery Act has provided individuals,
businesses, non-profits, local governments, and other key
constituencies across the State important financial benefits,
opportunities, jobs, job training, and vital safety net
benefits.
The task force will remain ever vigilant to ensure spending
is done efficiently and quickly without sacrificing
accountability and transparency.
Thank you very much for inviting me to testify, and I will
be happy to answer any questions that you may have.
[The prepared statement of Mr. Schultz follows:]
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Chairman Towns. Thank you very much, Mr. Schultz.
Ms. Chick.
STATEMENT OF LAURA N. CHICK
Ms. Chick. Thank you, Chairman Towns and Chairwoman Watson,
who has been one of my life long role models, along with
Congresswoman Napolitano and Ms. Richardson.
My name is Laura Chick, and about 10 months ago, Governor
Arnold Schwarzenegger appointed me to serve in the role of
California's Inspector General, watching over about $85 billion
of Recovery Act dollars coming to California.
The Recovery Act is designed to create jobs to get our
economy moving again. But it also must be about our spending
this money better than ever before.
We have an opportunity to show that transparency and
accountability are not just buzz words. If we as government, at
the Federal, the State, and the local level, do this right, we
can go a long way to restoring the public's trust and
confidence that government can actually spend their tax dollars
wisely and well.
We can show them the positive and productive role that
government can play in their every day life and in their well
being.
To that end, when Governor Schwarzenegger appointed me last
April to oversee the spending, my mission was crystal clear--
the three Ds. As a social worker, Congresswoman Napolitano, I
know you understand the prevention part.
It is to deter, detect, disclose waste, fraud, and
inefficiencies. I apologize but I also have a category called
``stupid spending.'' [Laughter.]
The FBI has estimated that we can expect to lose somewhere
between 7 to 10 percent in Recovery Act funds fraud. They quote
that after Hurricane Katrina in New Orleans, the rate of fraud
was 17 percent. I know for all of us, those are completely
stunning and unacceptable figures.
That is why so much of my job is about preventing fraud and
preventing problems at the front end. My office brought
together the U.S. attorneys, the Federal Inspectors General,
the FBI, U.S. Department of Justice, to do comprehensive fraud
awareness and prevention training up and down the State, and
then a live Webinar for over 2,000 staff and recipients
handling recovery dollars.
We also have issued an advisory to all recipients of
recovery dollars in the State. It is a checklist of good
practices to prevent fraud at the front end. I'm going to give
a recent, real life, unfortunate example that easily could have
been prevented. Not a catastrophe, but a great lesson learned
to shoot out, up, and down the State.
A city-hired contractor for a construction project, a
company they had never used before, his bond turned out to be
forged, and he skipped town after being paid for a portion of
the work. But sadly, his workers were never paid. A simple
phone call from the city to the bond company could have and
would have prevented this from happening.
It is also learned that the owner of the company had State
tax liens. That is a big red flag that is called out in my
advisory to try and help cities and counties and others to know
what to do at the front end to stop the problem.
Just this January, my office finally received audit staff
to be able to go out into the detection and disclosure phases.
My two strike teams of auditors are out in the field following
recovery dollars, out into our streets and neighborhoods and
with some recipients.
These very expedient, in real time focus reviews are going
to give us important snapshots into how the recovery dollars
are being spent right now.
On Tuesday, I released my first report. It was of a local
work investment board. These boards have already received and
spent significant dollars across the country to help summer
youth, dislocated, and adult worker programs.
What we found, unfortunately, were very sloppy business and
accounting practices. In fact, Basic Accounting 101 was not
being followed. They had received over $3 million for the
summer youth program, but an allocated $1 million of that to
cover overhead, including rent. Whoops. They have run as
quickly as possible behind us, that is the good news, to
correct the mistakes as we were finding them.
Now they have agreed to charge $60,000, appropriately, for
overhead and rent, and they are going to redirect the
difference between the $60,000 and the $1 million for the
summer youth program this upcoming summer.
That is what my office is all about. It's real time
results, not at the end when the Recovery Act is over, and
maybe California and some recipients will be faced with
returning dollars. I am trying to prevent that, as well as
others in the oversight family.
It is our mission to catch the problems early and correct
the problems quickly and see that the dollars are being spent
to create jobs, rev the economy and show the public that we
know how to spend their dollars effectively and well.
Thank you.
[The prepared statement of Ms. Chick follows:]
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Chairman Towns. Thank you very much for your statement.
Ms. Howle.
STATEMENT OF ELAINE M. HOWLE
Ms. Howle. Thank you, Mr. Chairman, Madam Chair, Members of
Congress. It is an honor to be here on behalf of the State
Auditor's Office in California and talk to you a little bit
about the oversight activities that my office has conducted in
the last 9 months with regards to Recovery Act dollars.
The programs that I am going to discuss today are the
highway planning and construction program, State fiscal
stabilization program, weatherization, and the State energy
program.
With regard to the highway planning and construction
program, this is a program that is administered by our
Department of Transportation, commonly referred to as Caltrans
in California.
We issued a report in December looking at their management
of Recovery Act dollars in California, getting the funds out
for the local projects. We had one concern, and this was a
concern that was shared by the Federal Highway Administration,
and basically what this concern was, was making sure that the
costs that are being paid for the reimbursement, as Ms. Calbom
talked about, the reimbursements that we paid are for
appropriate activities, and for work that has actually been
completed.
Subsequent to our review, the Department of Transportation
has modified their practices to require engineers out in the
local level representing Caltrans to confirm that the work has
been done, and that those invoices are appropriate and before
the reimbursement takes place. We are happy with that progress.
With regards to the State's fiscal stabilization program,
as you are aware, significant dollars came to California with
regard to this program. Our issue with this program, and Mr.
Payne will be able to speak to this on behalf of the Department
of Education, again, it is cash management.
Cash management has consistently been a concern that we
have raised on previous single audits, and looking at the
stabilization program, we have the same concern.
$1.6 billion was advanced to school districts in the first
quarter of fiscal year 2009/2010. About $571 million was spent.
Therefore, a $1 billion was not spent at the school district
level.
That is something that again is a concern as far as meeting
cash management responsibilities and requirements under Federal
regulations.
The weatherization program. As again GAO indicated, this is
a program that increased significantly in California, going
from approximately $6 to $10 million annually to $186 million.
California received authority to spend that money starting in
July 2009, but it has been delayed, both by delays at the
Federal level and at the State level.
The delays at the Federal level are with regard to Davis-
Bacon. That is a brand new requirement under this program, and
the Davis-Bacon prevailing wage rates were not issued by the
U.S. Department of Labor until September. Then there were
concerns with the amounts of those rates, and they were then
revised in December 2009.
So that really put the State of California kind of behind
as far as far as being able to contract with providers. When we
were looking at this from the State's perspective back in
December 2009, we only saw contracts with eight providers in
California. So again, that really does slow the process of
implementing this particular program, and raises concerns on
our part, as the State tries to ramp up, that they make sure
they have proper controls in place, so that when they do
contract with providers, those providers are capable of doing
the work and doing quality work.
The other concern we had with regards to weatherization
programs, there were five key geographic areas in California
that had not been covered yet. Los Angeles is one of those
areas. Other counties in the Bay Area as well at the time we
issued this report did not have providers ready and willing to
participate in the weatherization program.
The last issue area for this particular program is related
to the monitoring and making sure that recipients were aware of
the Davis-Bacon requirements, were complying with those
requirements, and certainly making sure that the inspections
were being done on a quarterly basis, as is required by this
particular program.
We do have some serious concerns about the Department of
Community Services and the State government's ability to manage
this program.
The final program that I would like to speak about is the
State energy program. This is one that we had administered by
the Energy Commission. Again, this is a program that increased
substantially for our State, going from about a $3 million
program to a $226 million program.
And similar to the weatherization, we have been very slow
to implement this program. In fact, when we completed our audit
in December, the State had only awarded two contracts, one to
the Department of General Services, which is a State entity
that works with State agencies as far as buildings. The purpose
of that was for retrofitting buildings, providing energy
efficiency measures.
The other contract was with the Employment Development
Department, and that was for green jobs, to provide job
training for people for energy efficiency type projects.
So we are very concerned about this program, particularly
because the funds have to be fully obligated by September 30th
of this year.
So again we have made recommendations to this end and the
administration to really strengthen their controls, strengthen
their management practices, and put some resources toward this
particular program.
With that, I am certainly happy to answer any questions
that the committee may have. Thank you.
[The prepared statement of Ms. Howle follows:]
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Chairman Towns. Thank you. Thank you so much for your
statement.
Mr. Payne.
STATEMENT OF GAVIN PAYNE
Mr. Payne. Mr. Chairman, Madam Chairwoman, Congresswoman
Napolitano and Congresswoman Richardson, I am delighted to be
here today.
I bring you greetings from the State's superintendent, Jack
O'Connell, who unfortunately could not be here, to the Members.
We are grateful to Congress and the President for providing
these funds. Let me repeat that. We are grateful, very grateful
for the Congress and the President for having supplied States
with stimulus funds.
They have truly been a lifeline, especially for the
California school districts during this financial crisis.
Let me give you a little context, too. When the stimulus
money first came down, the Superintendent working with the
Governor very consciously made a decision to shift that money
from Sacramento to school districts as quickly as possible,
knowing that the accountability would follow from that, but it
was a conscious decision made at the time taking full advantage
of the opportunity afforded by the Congress and the President.
I would say, at least for our part, from the Governor's
part, loudly applauded by ourselves and often praised.
Let me give you a little bit of the picture of we have.
Federal funds from stimulus money supply about six major
Federal programs and a number of smaller ones. We have already
received thus far nine grants, including one in which we
administered to kindergarten through grade 12 a portion on
behalf of the Governor's Office.
Those grants totaled about $6 billion, as was talked about.
For these nine grants, we have issued 3,800 sub-grants to 1,800
sub-recipients, which are primarily school districts, charter
schools, and county offices of education.
So in the second quarter, as you heard, those sub-
recipients reported creating or retaining about 34,000 jobs in
K-12 alone, and about 4,000 or 5,000 in higher education.
This is the largest volume of sub-recipients and sub-
grants, I think, from our fellow State agencies in California,
and possibly the largest amount State agencies nationwide.
As I said, the decision was made to follow along with
collecting data. For most of the education programs, the funds
were part of existing State--excuse me--existing Federal
programs, and the normal data collections have been our normal
monitoring process.
We knew that we had the mechanisms in place to monitor
those funds. The existing Federal guidelines govern all those.
The one difference being, of course, the State fiscal
stabilization fund, for which there are a few guidelines, or
which has been the primary life line for the school districts.
Section 1512 reporting is an issue of concern for me. It
now requires reporting quarterly from recipients and sub-
recipients on the amount of funds that were awarded, the
expenditures, the number of jobs saved or created as a result
of ARRA.
To comply with this, we created a fairly quick and easy and
good Web page system for collecting data from the districts. We
issued a number of guidances and had Webinars all over the
page, at least half a dozen times, if not more in the
districts.
We had great participation by those districts, so that they
were knowing what was going to be expected of them.
I think today our reporting effort has been successful,
more than the quarterly reports required by the act.
An issue, of course, that you have heard about has been
calculating jobs figures. We made a call to the Department of
Education after the December 18th guidance came out, indicating
the new methodology, which frankly, we liked, and it is much
simpler to deal with. The new methodology that came out from
OMB came in December 18th.
The Superintendent's call at that point was frankly, not to
require districts to comply, and there were a number of factors
for that. Of course, the guidance itself allowed for that. Most
of it was sort of being real and on the ground on December
18th. Many school districts already shut down for the break for
the holidays. Most of them or many of them shut down literally,
as a means of saving money.
At the same time, just to give you a little more context,
we were trying to collect from or trying to engage those
districts at the same time in embracing with us an attempt to
apply for Race To The Top funds. That was a very complicated
period.
Also, the question for us is always reliability. If the
choice for us is reliability of the data or timing of the data,
we will often opt for reliability so that we do not report job
numbers that could be incorrect.
For those three reasons mainly, we opted to issue the
guidance around that December 18th memo and the new methodology
earlier in January, and in fact, those districts are going back
and completing that data.
Questions about administration and oversight. We are quite
proud of working with the Governor's Office given the current
budget crisis in the State of California.
We have funding guidance out. We have administered funds
throughout. There was mention made of cash management, a
longstanding issue that we have been dealing with very
earnestly.
We have been working with the U.S. Department of Education
quite actively on a high-level program to get our arms around
cash management. We have been modifying our monitoring
processes on other programs to comply.
We feel very confident that those systems will change and
improve quite substantially this year and next year as we go.
The other piece of that puzzle is interest reimbursements
from districts back to the State. We have been very active in
that with the school districts and have been monitoring that
quite closely as well.
Recognizing that I am almost out of time, I want to
reiterate the thank you. Reiterate the fact that in the context
of the time, you were the only people standing in the way of
the money from the Federal Government, the only people standing
in the way of substantial layoffs, and even with unfortunately,
with Federal money, there were 26,000 of those layoff notices
issued last March.
We are expecting another 20,000 layoff notices to be issued
this year, same thing. But we are ever hopeful that we can find
the resources to make that good, and make those layoffs not
actually happen before the school year begins.
Again, thank you very much.
[The prepared statement of Mr. Payne follows:]
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Chairman Towns. Thank you very much. We are going to take a
10-minute break, and then we will be right back.
[Recess.]
Chairman Towns. Let me thank all of you for your testimony.
I really found it to be very informative.
What I am going to do is I am going to yield my 5 minutes
to the gentlewoman from California, and we will just go right
down the line, and then at the end, I will have some comments.
Ms. Watson. Thank you so much, Mr. Chairman. I want to
apologize. Our mayor did have to leave. I think he indicated
that he could only stay until 2:30.
The city of Los Angeles is in serious trouble and has a
huge deficit, so we do hope that questions are forwarded on to
him, and there will be, I am sure, an immediate response.
One of the words that I heard him repeat over and over
again was ``flexibility.'' Because so much of the money that
has come off of the stimulus cannot be used in certain areas
and categories. He wants to protect the police, as I mentioned,
and firefighters. I would be interested in getting his
responses to those questions.
In reviewing the first two rounds of Recovery Act recipient
reporting, committee staff learned that despite the efforts of
the Office of Management and Budget [OMB], the Recovery
Accountability and Transparency Board is the central agency to
make sure that recipients knew what they were required to
report occurred.
For example, the Federal Highway Administration released
its own job estimation guidance during the first reporting
cycle. Even after the OMB released updated guidance for
calculating jobs, FHFA again, offered a different model mere
days before the end of the second reporting cycle.
Mr. Schultz, which jobs model did California use for
reporting its highway numbers during the second reporting
cycle, and what is the difference between the two models, and
how much do the two estimates vary?
Then I will go to Ms. Calbom. Let me just ask you, are
there other instances where OMB and agency Recovery Act
guidance differ? And what can be done to ensure that the OMB
and the agencies work in concert, so that recipients can report
accurate data, rather than spend their time deciphering what
entities to follow?
Mr. Schultz.
Mr. Schultz. Very much appreciate your question. In the
second quarterly reporting, California used the new guidance
for all of its agencies that came out December 18th. We were
told a couple of days before the reporting period that FHWA
would like us to use a different calculation.
We had conversations both in Washington and with the
regional office. Given the concern that we had, because we were
getting conflicting guidance, we had not seen anything
official, and FHWA would say well, we should do this.
I wrote the head of OMB and other officials to say that
California was going to follow the guidance that was put out
country-wide by OMB. So in the first reporting period, I think
as the committee remembers, there was a job calculation that
was based on jobs created or saved.
The Governor of this State, many Governors, and the
National Governors Association, I believe, and many Members of
Congress, did not think that was an accurate predictor of, if
you will, number of jobs created in the country.
So we lobbied very actively through the National Governors
Association and with Congress people, and were able to get that
second quarter calculation changed to jobs funded, which is a
better calculation, if you will.
So we complied with both, if you will, the Federal
Government guidance in the first, which is created or saved.
The second, which is funded, which means, I think to your
point, it is apples and oranges.
With these continuous shifts, we worked very much in
partnership, but we had been in almost every program
underscoring to the Federal Government that we need one set of
guidance, as opposed to various agencies getting conflicting
information.
Ms. Watson. I think we hear that. [Laughter.]
Ms. Calbom. And that is certainly something that GAO has
recommended, too, or we did recommend, and OMB adopted our
recommendation, to simplify and to provide some very, specific
guidance on what do you mean by equivalence.
Because people were applying the guidance but in different
ways. They were interpreting it differently, in the first
round, in particular.
As far as your question on FHWA and OMB, there were some
issues there. My understanding is they have worked those out.
They have had some discussions back in D.C. and have worked
those out. So hopefully, we won't run into those problems. I
know that it caused some extra problems, certainly for you guys
in getting kind of red flags on the numbers when perhaps they
did not need to be getting the flags and had to do some
research.
I think this in an evolving process. It is going to get
better and better as we go along. Certainly, the simplification
of the jobs calculation approach is going to help a lot.
Mr. Schultz. I just heard from a member of our staff the
State stimulus directors are meeting in Washington and I am
here. Someone went on my behalf, and OMB did announce today
that the OMB rules that we followed are in place, so that FHWA
should not be giving conflicting guidance.
Ms. Watson. I just want all of you to understand the reason
why we are having this hearing out here, riding in the seat of
where we are highly challenged, is so that we can take your
inputs back.
We have not had this kind of a recession since the 1930's,
and at that time, people jumped out the windows. We are the
safety net.
And so, the stimulus--I sit on the Oversight Committee, and
I head a subcommittee, and I remember--the Chair will remember,
it was--you were not Chair then, but it was September 17, 2008
that Paulson came to us and said that the sky is falling, the
house is on fire, and so on. We moved on it very, very quickly
to put the fire out.
So the stimulus and Recovery Act, it was put out there. And
so now we are trying to do it right. Anything you want to tell
us, this is your opportunity.
I would like to move on. Federal agencies are responsible
for reviewing recipient data on the use of the Recovery Act
funds in order to identify the data errors. Likewise,
recipients who delegate reporting responsibilities to a sub-
recipient must review the sub-recipient's data to flag
potential errors.
Mr. Payne.
Mr. Payne. Yes, ma'am.
Ms. Watson. What procedures did the California Department
of Education utilize in its reviews of school district data?
Mr. Payne. Well, as I mentioned, most of the reviews of
school district data happened at the same time that we were
doing ongoing monitoring of those exact programs.
The first thing I would acknowledge is that any monitoring
program can always use improvement. We are actively engaged in
improving those systems. We are engaged with the U.S.
Department of Education to put in place sort of risk based
systems of monitoring that we will be rolling out rather soon
from our department with those districts, and moving forward.
We are taking quite seriously, especially the remittance of
interest from early grants of the stimulus funds. As I
mentioned in my comments, my prepared comments, we are taking
very seriously our obligations under cash management
principles.
Ms. Watson. Great. I would like to get back to Mr. Schultz.
California uses a centralized recipient reporting system. What
procedures did your office utilize to review the recipient
data?
Mr. Schultz. Significant. We have put in place something
that is called the CAT system, which was put together to be a
data base, which taking all of the information from the
recipients and the sub-recipients, department by department,
and putting it into the system, and scrubbing, very
specifically, all of the data.
If you sort of travel it down and you take Caltrans, the
Department of Education, Caltrans works with more than 400
local transit agencies. They, themselves, have over 900
individual contracts that make up that $2.5 million.
We have quality control data reporting managers in our
computerized center to take all of that data, go through the
data, and bring it back to the department when there is an
error, and literally work record by record in order to ensure
that the data that is being put out is correct.
If we have a problem-in terms of the Federal Government
comes back and says ``no, this zip code plus four was not
right'' or some of those other issues--we are on the department
like a bee on honey. We go back and we literally go contract by
contract, award by award, to do that.
In addition, we have done our own readiness reviews and
spot checks to make sure on an ongoing basis, in addition to
working with the auditors and with Laura's office as well, to
make sure that there are not system problems, systemic problems
in those departments.
It is a whole series of things that we are continuously
doing.
Ms. Watson. What I try to inform my colleagues of all the
time is that California is like three different States. That is
north, central and southern California. Trying to monitor and
be sure that waste, fraud, and abuse does not occur, is a real
serious challenge.
Now, I was in the Senate when Jerry Brown got rid of our
planes, you know, Mr. Chairman, to be able to send inspectors
down and people to oversee how things are going.
We did not have our private jets any more, so we had to use
commercial airlines, and he really cut down on the travel.
We saw, Laura, waste occurring, and we had no one to
oversee it. So can I direct to you, what have you learned in
your position now that we need to be aware of as we deal with
these funds?
Ms. Chick. Congresswoman, I would say what I have seen at
the very front end, and as I interviewed each department that
was getting recovery funds and asked what is your plan to
oversee these dollars, many of the managers said oh, you know,
we are used to getting Federal money, we are going to do what
we have always done, which caused me to catch my breath.
Because I understand very clearly that the President and
Congress has said to us look, we are giving you more money than
ever before. We want you to spend it faster than ever before,
but we want you to spend it better than ever before. This is at
a time when government has less resources than ever before. So,
it is a challenge. It is a real challenge.
What concerns me the most is once the money leaves the
State and is going out there--all my life has been in an
elected office at the local level, so I carefully listened to
the mayors saying they want more flexibility.
But we also have to have more oversight. Because quite
frankly, the dollars that concern me the most are not the
dollars in State government. It is once they leave State
government. And I am not criticizing any one department at the
State level. I do not think our scrutinizing of dollars that we
give out, State of California gives out, is robust, at all.
My eyes are especially on the dollars that have left the
State. BSA is doing an outstanding job getting State
departments to be in better shape. What is called the ``sub-
recipient monitoring'' is not robust enough.
In terms of dollars for oversight, it is always the money
that is cut first, because it is not about the direct delivery
of services. It is about watching over money. But the money
that is spent on oversight usually more than pays for itself,
by preventing problems or finding them and collecting money
that has been misspent or inappropriately misspent.
I wish there was some way for us in government to come up
with that magic formula that says for every program created, X
percent should be set aside specifically for oversight.
I would volunteer at any moment to come to Washington to
speak to the Senate who has not acted on your bill, Congressman
Towns, to say, you are asking us to spend this better than ever
before, and my hope is when the recovery dollars are over, one
of the things that is left behind are better operations of
government at every level, including better oversight, and
better oversight will deliver better operations.
Chairman Towns. The gentlewoman's time has expired. We
could do another round, but let me now yield to Mrs.
Napolitano.
Mrs. Napolitano. Thank you, Mr. Chairman. It is just a
great dialog. I am very pleased that this is all coming out.
I have some specific questions for Ms. Calbom. Where we
have--I am going back to the High Speed Rail Authority--where
we find not only that they have employed over 100 and some odd
consultants and spending a lot of money that they do not even
have the ability to actually build yet, so they do not have a
lot of the things done, like right-of-way acquisitions and all
of that good stuff, what is happening?
Who is looking over their shoulder to ensure that money
that was given to California for that specific purpose is not
being misspent or abused?
Ms. Calbom. That is an area that our California Recovery
Act team has not looked at, but back in Washington, DC, we have
teams that are looking at kind of the overall High Speed Rail
issue.
I know in particular they are looking at the oversight that
the Federal Railways Administration is to cover. It is a new
role for them.
So whether or not they can do the oversight they need, but
then it has to, of course, trickle down, you know, at the local
level because it is a lot of money.
Again, we have not looked at that, so I do not have
specifics----
Mrs. Napolitano. Nobody is looking at that?
Ms. Howle.
Ms. Howle. Congresswoman, we actually are currently
auditing the High Speed Rail Authority. We were requested by
the Joint Legislative Audit Committee, which was provided in
the legislature, to audit the High Speed Rail Authority.
We are also included in bond language, to continue to
monitor any bonds. Certainly, the voters of California approved
the major bond initiative last fall.
We will be issuing a report on, and looking at use of
consultants. Looking at their business plan. Looking at any
strategic plan. We will be issuing that report in late April of
this year. We would be happy to share that with this committee.
Mrs. Napolitano. Let's just focus on that. What are you
going to do once you issue the recommendations?
Ms. Howle. Well, I would like to talk about the followup
process----
Mrs. Napolitano. Let me stop you for a second. I am telling
you that one was issued a very bad audit report, and they have
totally ignored it, and nobody is going after them. They are
wasting taxpayer money, and nobody is doing anything about it
at the State level.
Ms. Howle. Well, when we issue audit reports, we have a
followup process. Those entities that we audit are required to
report back to my office 60 days, 6 months, 1 year. What I do
is I share that information with the legislature, and the
legislature typically has oversight hearings. In fact, we are
going to have----
Mrs. Napolitano. Unfortunately, it's the fox in the hen
house. Sorry.
Ms. Howle. I was going to say, when we issued the report on
the State energy program, both the joint legislative audit
committee and the budget committees called the administration
before the committee and asked for progress reporting. It is
not like the audit is done, we made recommendations, and no one
pays attention. There is a continuous followup process to make
sure that recommendations that are made are paid attention to
and implemented.
Mrs. Napolitano. Apparently, in this case, they are not
being paid attention to. Nobody that I know of has even
contacted any of the local cities to ensure that they are
following the recommendations.
Ms. Howle. This is an audit at the local level?
Mrs. Napolitano. Anyway, that is one of the things.
And too, Ms. Calbom, when you do your request for
proposals, I call them requests for proposals, for bids, do you
specify reporting back from the vendors, whether they are
vendor, new hire's, rehire's, or retained jobs, because you
were saying that they do not tell you. You were going back to
request information from them for the stimulus effect on jobs
and hire's.
Ms. Calbom. What I was mentioning is, if I am understanding
your question, is the Department of Education was not reporting
the vendor jobs. Is that the issue?
Mrs. Napolitano. Right, because those are other jobs
created.
Ms. Calbom. Yes. That would be the kind of jobs basically
where a school district might enter into a contract with a
vendor to provide some direct training, for example.
Mrs. Napolitano. You are getting that information up front?
In other words, when you issue out the money, did you at that
same point ask for information/feedback for reporting on those
specific things to keep from going back and asking the
questions from them?
Ms. Calbom. Well, that is something--we are the auditors.
We are not the ones that would do that. What we have told the
department and some of the school districts that we have talked
to that had a number of contracts out there is that if you can
put some language in the contract up front, which we do you see
other agencies require them, but we did not see the school
districts doing this, but if you put language in the contract
up front that requires those vendors to do the jobs reporting
and the other requirements under ARRA, then it happens
automatically.
Right now what is happening is the school districts are
having to scramble, call vendors, do a survey. The ones we have
talked to so far--we will be working with Mr. Payne and others
at CDE.
They have told us in the future now, they are going to put
language specifically in their contacts that requires the
vendors to report the jobs. So hopefully, we have kind of
nipped it in the bud, but there is some more work that needs to
be done there.
Mrs. Napolitano. Just what Ms. Howle and I were talking
about, California received the major portion of $135 million
stimulus funding for expansion of 516, recycle water projects.
Those are critical.
Thank you, Mr. Chairman.
Chairman Towns. Thank you very much. I now yield my 5
minutes to the gentlewoman from California.
Ms. Richardson. Thank you, Mr. Chairman. I am going to ask
if you would allow us permission to revise and extend our
remarks.
Chairman Towns. Yes.
Ms. Richardson. And also, did you give permission that any
questions that we were not able to get answers for from today,
that the panelists will give us answers in writing?
Ms. Watson. Yes. I sure did, yes.
Ms. Richardson. Thank you, sir.
My staff told me I was a little hard and I said you know,
in Washington, you have no idea what it is like where we work.
For any of you, I apologize. It is just we are used to limited
time. We have to get the answers to the questions, and these
are big issues.
We hope we are not throwing any of you off. That is
certainly not my intention.
Mr. Schultz. I spent 18 years in D.C. I know exactly what
you are talking about.
Ms. Richardson. All right. OK. My first question is for Ms.
Howle or Ms. Chick. Caltrans originally lacked adequate
internal controls. It has improved its procedures to better
ensure that it disburses Federal funds for local agencies only
for reasonable costs and work claims.
However, according to the same report, Caltrans has not
completed any of their process reviews, the main method for
determining if they are complying with local or Federal law.
Are you aware of that? Are you following up on it?
Ms. Howle. The first part of your question, I was aware of.
That was an issue that we raised in the report that we issued
in December. It is my understanding that Caltrans modified its
practices as of September 2009.
When we go back in, which will be relatively soon, we will
followup with any previous findings to confirm that they are
following those practices.
The second half of your question, I am not familiar with
that concern.
Ms. Richardson. OK. If you could followup, I would
appreciate it.
I can give you my next one between the two of you, you and
Ms. Chick.
Ms. Howle, particularly regarding education, as I said, I
had approached the chairman because I was quite concerned with
what is happening with education.
Le me start off with Ms. Calbom. I seem to recall when we
first went to do the recovery, Governor Schwarzenegger came to
Washington. There was a concern that California was going to
get a certain amount of money, and he made various commitments.
Do you remember what that was all about?
Ms. Calbom. Can you be a little more specific? Commitments
about?
Ms. Richardson. I believe that there was a different way
that the Governor was proposing to use some of the funds. The
President originally was planning on holding some funds, and
then we went ahead and did it. Are you familiar with that?
Ms. Calbom. No. I am not sure what that was about,
Ms. Richardson. I will supply it in writing.
Coming back to my question, Ms. Howle and Mr. Payne, could
you please supply to this body a report based upon education K
through 12 and higher ed, what have been the salaries over the
last 12 to 24 months, what has been the bonuses, and where have
been the cuts?
From everything that I am reading, I am hearing teacher
positions are on the line. What else is going on? I guess what
my impression was, with all the money that was coming, that was
supposed to help stabilize, it does not seem like it is much
better. It seems like it is about the same.
If you could really help us with a subsequent, very
detailed report of what has happened specifically with
education, and some real hard numbers, that would be very
helpful. That is K through 12, Cal State, UC, all of it.
My next question is weatherization. Ms. Howle, you said
that there were no agencies in Los Angeles that could cover it,
and it was tragic. Well, yesterday, I met with Derrick Simpson,
who is the head of the Long Beach Community Action Partnership,
regarding a project his organization applied for funding with
the Recovery Act dollars through the Community Services
Development Fund.
His organization received the RFP in July--I am sorry--
received the contract in July, signed the contract in August,
and although they began providing services and everything in
July, they did not receive any funding until December.
In addition to that, weatherization, they applied in
junction with the Job Corps. Both of those organizations have a
long history of doing work. And yet, they were recently told in
late December that ``oh, now all the RFP work is done,'' that
in 6 months, hopefully, and they were in the top three. It went
to the original provider.
I will tell you, that is not what the recovery dollars were
for. If you noticed the question that I asked the mayors, the
question was what new and preserved jobs have you done?
Many of us, although we wanted to help people save their
current jobs, we were also trying to decrease unemployment. If
all we got out of this was the jobs that we saved, and we have
not addressed the growing unemployment, we are still going to
have some big problems.
I'd like to ask you if you could go back and look at that
weatherization contract. Look at who finally got it, and why
was it not that any of these local groups who were working,
very well respected, suddenly after going through the whole
process for 6 months, were now told ``OK, we are not going to
do that, we are just going to give it to so and so?'' That was
not the point.
I think the results show that you failed, in terms of
adequately disbursing the weatherization funds. I do not know
if it is out of panic, ``oh, we did not get it done, let's just
use whoever we had,'' after you have already done this other
work.
Mr. Schultz. I think there is a number--we can provide you
a chronology and all that information, if you would like. I
think the original strategy was given the growth in the
program, was to go with the existing providers as much as
possible in the 42 areas, if you will. There are 36 contracts
in place.
I think what happened during that process, and it does
raise the point that you do, that there were a number of those
existing providers who said we are not interested in doing
ARRA. Part of that had to do with one, either the Recovery Act
paperwork; two, the Davis-Bacon prevailing wage requirements,
and some that were on sort of probation, if you will.
I think that we moved into a phase where--yesterday, for
example, I was on the phone with a couple of people from the
construction and building trades, because the question was, we
have programs. We are absolutely happy to come out and be sub-
providers.
I was asking our folks why did we not go there first, and
the issue was about the existing providers. There is one area
of L.A. that there will now be sort of a bifurcated RFP. I
think that may be the instance that you are talking about. Part
of that is the way that the contracting went, in short, the
contractors would not be ready for the ARRA piece until August
2010, when there is a deadline of 30 percent at the end of
September.
The providers that did bid on that occasion will get to bid
on the existing program. They just will not be able to bid on
the ARRA.
I am happy to write up and give you a section-by-section
accounting, whether that is the one or another one.
But the program overall is in a vastly different place than
it was, that the Auditor and I were talking about. Those
remaining areas are sort of being closed up, so that to the
point that we have 94 percent of all of the contracts that need
to be done, that represents 94 percent of the homes to be done.
I am happy to provide that.
Ms. Richardson. Mr. Chairman, if I could get 30 last
seconds.
Chairman Towns. I would be delighted to give the
gentlewoman an additional 30 seconds.
Ms. Richardson. Thank you, Mr. Chairman.
Ms. Chick, the pace of the Federal outlay for California
highway projects continues to be slower than the national
average. In addition to that, when we look at the maintenance
of effort, and it is one of the worst budget deficits in the
Nation, it is questionable whether California and its
localities will be able to meet its MOE obligations.
Under these circumstances and allocations, do you think
California can do it?
Ms. Chick. I would defer to the Chair of the Recovery Task
Force on that, because it is not an area of expertise at this
time for me. He is nodding his head that we will meet those
obligations.
What I cannot answer is how. Before I turn it over to him,
in terms of the shovel ready and moving quick, I think one of
things that we absolutely have seen is an underscoring of our
knowledge that government does not move quickly.
One of the things I hope comes out of this is a laundry
list of all of the steps that projects have to go through, and
our understanding in looking at the timeline attached to each
one, and looking for--not getting rid of regulations and
important policy goals, but how does government move things
more quickly, as we do when there are earthquakes and nature-
made disasters.
How do we translate that kind of expediting and working
together to a man-made disaster of the type that is facing us
today?
I do have to turn to the Chair of the Task Force.
Mr. Schultz. It has been both in GAO and a little bit, I
think, in the State Auditor's report, an issue. We have gone
back and we will be submitting a revised maintenance of effort
certification. We are 100 percent confident that we will be
able to meet it.
Ms. Richardson. I hope so.
Mr. Schultz. I am happy to provide you with complete
information, if you like.
Ms. Richardson. Thank you.
Chairman Towns. Thank you very much. The Oversight
Committee had a hearing, and we learned that priority is to be
given to economically distressed areas, despite a clear
mandate.
As a result, the Secretary of Transportation, Ray LaHood,
and Federal Highway Administration Director, Victor Mendez,
worked with me to draft guidance which addressed this issue.
It has come to my attention that when the new guidance was
applied in California, the numbers of counties considered
distressed became all counties. That appears to be a way to get
around the guidelines.
Ms. Calbom, is California simply misinterpreting DOT
guidance, applying its own formula, or is it something that is
not clear?
Ms. Calbom. Well, I think that is something that they are
continuing to work with the Department of Transportation on
back in Washington, and Mr. Schultz can speak to that.
At least in our discussions with Caltrans, you know, they
told us that what they really did at the very beginning was
take a look at all different aspects of the requirements. I
think one of the big ones they focused on was things that could
be completed within 3 years.
Their comment to us was, you know, even if we tightened up
on this guidance, we think, because we really look to this
ability to get the projects done, we had to go with the ones
that were there and ready to go, and that could be completed
without the timeframes.
They told us anyway that would not have changed their
allocation of the funds. That is something, you know, they are
continuing to have discussions back in Washington with the
Department.
Mr. Schultz. I think, Mr. Chairman, there are two issues at
play in the specific instance that you are talking about. There
is the State confidentiality laws, that with the four new
criteria that have come out, are not apples to oranges, if you
will, in the way that the Federal Department of Transportation
wants to do this.
We are trying to work out a better way to define it, so
that there is a more accurate accounting of which counties,
specifically, are economically distressed.
We also have a number of programs where the requirement may
be say 20 percent. We had some individual policies to try and
spread the stimulus dollars to more economically distressed/
disadvantaged communities than the Recovery Act requires.
The specific instance that you are talking about, we are in
discussions about how to better implement that provision.
Chairman Towns. You know, I think Ms. Richardson sort of
said let's have plain talk, saying we push it too far.
Well, let me tell you what it seems to me. That there is
something rotten in the cotton. That is what it seems to me.
You know what I mean? That just does not add up.
All of a sudden, all of the counties are now distressed, I
mean, but before they were not. That does not hit you as being
a bit funny, Mr. Schultz?
Mr. Schultz. I think it hits me as there is a significant
problem, and we have been involved with discussions at the
Department of Transportation to try and get to the bottom of
it. We will provide that information to the committee; yes.
Chairman Towns. If we can help you get to the bottom of it,
we would like to do so. I will be honest with you, I am
disturbed by it, because all of a sudden, all the counties, and
that to me just does not seem right. You know, I am from New
York, so maybe--[laughter.]
Mr. Schultz. I understood it. It is a very serious issue.
We have taken it very seriously. I have looked through all of
this criteria, and we are in an ongoing discussion with them to
appropriately define it. There is a State law in terms of the
information that is not available into the calculation, and we
are trying to work through what we could use as a proxy.
Chairman Towns. Ms. Calbom, if you could help them, I would
certainly appreciate it. If you could look and see if you could
give them some suggestions, because it seems they need some
help on this.
Ms. Calbom. Will do.
Chairman Towns. Let me just talk about the Recovery Act,
the whole thing in terms of fraud, waste, and abuse. Never
before in the history of the country have we sent out this kind
of money so quickly. Of course, some of the experts, the people
that I respect, are saying out of $767 billion, whatever money
out, that $55 billion was going to waste, fraud, and abuse.
Now, that to me is a lot of waste, lots of fraud, and a lot
of abuse. What can we do to cut down on that number?
Because is that not frightening, saying that $55 billion is
going to be wasted? They did not even talk about stupid
spending. They did not mention that. [Laughter.]
What can we do as legislators to be able to cut down on
that?
Now, Congressman Issa and I have this legislation, as you
know. The point is as indicated, the Senate, for some reason,
they do not agree with us or they will not act, or whatever. I
don't know what their problem is over there. The point is I
would like to get your input.
Ms. Calbom. It is hard to come up with ways to improve
oversight on recovery dollars without giving some resources to
the sub-recipients and local governments, county and city.
It is not all about more resources. I think some of it is
also about how we watch the money. For instance, I will just
give you a couple quick examples that come to my mind.
I have noticed at the State level, inside State departments
that are watching Federal dollars, you know, relationships
buildup between the monitors and the monitees, between the
agencies.
It develops a culture, kind of get along, go along. You
know, you do not want to rock the boat. You do not want to make
people upset. You do not want to cause problems. You do not
want to air dirty laundry.
One of the things that State government could do
differently is to make sure that monitors get moved around, and
are not monitoring the same agency year after year. They do not
have to be re-trained, just move them to monitor different
agencies.
Another thing that needs to change, and the Governor's hard
at work on it, is to put real meaning into transparency. For
instance, the first few weeks I was in Sacramento, I was
talking to State departments, and one of them mentioned that
they have auditors, and I leaned across the table and said
``well, that is great. Can I go online to see the audits?'' I
must have said something bad, because they recoiled. They said
``we do not put our reports online.''
Well, the Governor almost immediately issued an executive
order to start building up his transparency Web site, and said
``you know all those reports sitting in your drawers? I want
them online where people can see. Because, it is daylight and
part of the Recovery Act is about transparency. When you put
the light of day on things, it is amazing what starts to
happen.''
So, Congressman, that is very much why I am blasting my
reports out as much as I can in terms of the media as a
partner. Because so often when we shove things down, how do the
other work investment boards up and down the State become aware
of problems and things that they should do differently, if I
am, not sharing what I found at that first work investment
board that I saw?
I am not giving you specific things that your committee can
do, because I sure would like that bill passed out of the
Senate, but I think the calling for robust accountability, not
just at the end of the day, but all the way through, and having
hearings like this, and asking tough questions, it goes a long,
long way to forcing State and local government to show you that
we are spending Federal dollars well.
Chairman Towns. All right. Let me ask you this, Mr. Payne.
You know, I think I need to preface this by saying in New York
City, the mayor appoints the Chancellor of the schools. The
mayor is in charge and has the overall responsibility for
education. If there is any reason that they are not doing it
right, the people can vote the mayor out. That kind of thing.
Here we have a situation where that is not the case. Since
the California Department of Education does not fall under the
auspices of the Governor, and outside the authority of both the
Recovery IG and the Recovery Task Force, what exact methods are
in place to deter any waste, fraud, and abuse with the recovery
dollars? How do we avoid this?
Mr. Payne. It is a great question and a legitimate
question. Although we do not fall under the specific
guidelines, specifically under the Governor's Office, we do
have a history of working with the Governor's Office on these
exact issues.
On our Web site, we have posted a lot of guidance and data
for school districts to pull down. We have sent, proactively,
data to them about waste, fraud, and abuse. We have conducted
Webinars. Ms. Chick has done exactly the same work and has done
the communications as well.
We have a cooperative working relationship on just those
issues. I think that the reality is that we are actively
engaged in monitoring our schools. I appreciate the suggestion
perhaps that the monitor/monitee relationship can be
interesting at times.
I would ask you to just ask the school districts whether
they think it is a particularly cozy relationship with the
Department of Education. We hear it often, that they are not
particularly happy with what we say to them about monitoring
their activities, and we are quite active with them in doing
that. We find ourselves in that situation quite often. It is a
love/hate relationship.
We ship them a whole bunch of money, and at the same time,
we then come back to them and say that you better be doing it
right. We are very active in that, and we are very active with
them when they are not doing it right on a regular basis.
Chairman Towns. Mr. Schultz, I guess you heard about that
great relationship between Education and, of course, the
Governor's Office. I would like to get your comments on that,
because that is sort of unusual.
Mr. Schultz. It is unusual as I understand it. That is a
separately constitutionally elected office. The role of the
task force has and will always be to provide oversight and
technical assistance. We did, very actively, provide guidance
to all of the State's departments to ensure that people were
using the new job calculations.
There is a Recovery Act bulletin that we provided to the
committee, and we have done individual meetings with
departments.
It is an interesting relationship, but something that we
have to deal with. We are very much in partnership with the
department. It does not mean we always agree. The Governor as a
separate constitutionally elected official can disagree.
They have come together on things recently like Race to the
Top, but we had a difference of opinion in terms of----
Chairman Towns. How you get to the top. I understand that.
Depends on how you get to the top.
Ms. Chick. Well, I think one of those things the Recovery
Act keeps highlighting is how government operates in silo, and
how important it is for us to work together.
I would just publicly offer, although my shop is small,
that all of the State departments receiving recovery dollars,
except for the Department of Education, have signed MOUs with
my office giving me the authority and the possibility to do
these on the ground in real time spot checks.
I would offer whatever help my small shop can give to the
Superintendent and the Department of Education, and would love
to have him sign one of those MOUs with me.
Mr. Schultz. I think, this is why in addition to the task
force, the Governor appointed Laura the first in the Nation of
its kind, because he wanted to ensure that as we were
implementing and providing the right oversight, that the money
was spent not only efficiently and effectively, but in the
right way.
We all try to work in a strong partnership, especially with
the locals. I know a number of the committee members brought up
the locals. There are many locals that are getting direct
Federal money and we have spent an incredible amount of time
introducing Federal officials to State officials, supporting
their projects.
When I was listening to the mayor, we understand about the
flexibility, but we are actually going in the communities and
trying to help them bring down those direct dollars.
Chairman Towns. I guess, Mr. Payne, you know, I said I was
not going to ask this, but the next reporting guideline is for
March, are you going to meet that deadline?
Mr. Payne. Yes, we will. There is a little bit of
conflicting guidance but folks are working very hard.
Chairman Towns. So you are going to be OK to do it?
Mr. Payne. It's a considerable amount of scrubbing, as Mr.
Schultz was talking about earlier, to get everybody at every
level to do a robust job of scrubbing that data.
Speaking to the issue of resources, we have detailed only
two staff to do this work and they did yeoman's work on the
effort, and we are still trying to figure out exactly how we
are going to do resources on an ongoing basis.
It is very active, and we are very engaged with our
districts to get that data.
Chairman Towns. Ms. Calbom.
Ms. Calbom. I think that there is an effort underway. I
know there were a couple communications out to the school
districts to work on that. One of the areas that we did not see
any additional communication on was in the vendor job area.
I know that the department did put out some guidance, but
somehow there seems to be a communication gap, at least--it was
not a huge sample, but seven or eight of some of the larger
school districts that we talked to, they did not think that
they got that guidance.
I think it is real important to make sure there is
followup, that everybody is on board, and, in fact, is
receiving the guidance and applying it.
Chairman Towns. Thank you very much. Ms. Howle.
Ms. Howle. I would like to make a comment with regard to
oversight and the Department of Education. Absolutely, it is a
separate constitutional office, but the State Auditor's Office
in California has a responsibility for conducting a single
audit. We audit the Department of Education every single year,
looking at all of the Federal programs and make recommendations
to the Department of Education.
The other thing that I think that can happen in California,
and I have been working with the California Legislature,
because I really appreciate Congress being very actively
involved in the Recovery Act--what I did earlier this year or
back in 2009, was meet with the Joint Legislative Audit
Committee, which is a committee of Assembly members and
senators, to educate them about the Recovery Act and the
importance of the Recovery Act to their districts, to their
constituents.
We are working as an oversight entity to get the
legislature more engaged in oversight and enforcing, helping me
because I do not have enforcement authority, to get them to
implement recommendations.
In the past few months, the Joint Legislative Audit
Committee has had hearings on some of the reports that I have
issued, and is planning to have some subsequent hearings over
the next couple of months, so that the legislature in
California is doing what Congress is doing. Getting engaged and
making sure that certainly at the State level, that the State
agencies are making changes and correcting the problems that we
have identified.
We certainly have a very strong oversight role when it
comes to the State Department of Education. There is an
independent auditor looking at education.
Mr. Schultz. And for the Recovery Task Force, we have been
working not only to educate the legislature but we have had a
county-by-county breakdown of the Recovery Act funds that have
come, if you will, into the State.
We now have it by congressional district, and we are
working on Assembly districts and Senate districts, so that the
Members understand by category what is actually coming in, how
we can work together, which organizations can we go and target
better and say ``you, here, these non-profits could participate
in this program or that program.''
We are trying to work along side in doing that.
Chairman Towns. Right. Any other Members have questions?
Mrs. Napolitano. Are you putting that online?
Mr. Schultz. Absolutely.
Mrs. Napolitano. Where are you showing how to access that
online?
Mr. Schultz. We are showing it everywhere and anywhere that
we can possibly----
Mrs. Napolitano. Try the California cable, public access
channel.
Mr. Schultz. That is a great idea.
Mrs. Napolitano. Otherwise, you have the information and
nobody else.
Mr. Schultz. We also are doing significant--like I said, we
have about 45,000 people. Now, granted that is a small number
in the State, but we have gone out to various communities.
Mrs. Napolitano. Ms. Chick, one of the things that you
mentioned was the work investment board, the WIB. Back in my
City Council days, I found it very lacking in being able to do
the jobs that they were supposed to do because they were hiring
the same companies. The companies were bled. Once they trained
the people, they would let them go and hire another one to get
that funding.
I would love a comprehensive report, because that to me is
critical to be able to ensure that people who need job
training, who can maybe then proceed to moving into jobs,
especially if they are green energy jobs.
Ms. Chick. So, if I might.
Mrs. Napolitano. Quickly, very brief.
Ms. Chick. I would say the Work Investment Act needs re-
visiting. It would be a wonderful time and way some point soon
for Congress to reassess----
Mrs. Napolitano. Let's work on that. We will get something
in the works.
Ms. Chick. I am doing more WIB reports, and I would be
happy to forward them all to you.
Mrs. Napolitano. Thank you. Mr. Schultz, the California
Recovery Task Force, do you work with small businesses to be
able to do job training along with WIB?
Mr. Schultz. Absolutely. Absolutely. We have a small
business advocate and small business----
Mrs. Napolitano. Again, who knows about it?
Mr. Schultz. Well, I think that we go out to all of the
major small business organizations across the State.
Mrs. Napolitano. How about the Chambers?
Mr. Schultz. We write newsletters. All the Chambers. We
work with every major----
Mrs. Napolitano. How about the cities?
Mr. Schultz. Chambers, the cities. We just met with the
California State Association, with the counties, with the
cities. We go to their meetings.
Mrs. Napolitano. Contract.
Mr. Schultz. Contract cities. We have been to them all.
Mrs. Napolitano. Can I again suggest----
Mr. Schultz. That one, we will do. That is a great
suggestion.
Mrs. Napolitano. Weatherization is an issue, and then other
home improvement areas. We also work with the California
licensing board that goes out, to be able to understand that
this is part of where the money is going to, weatherization.
Mr. Schultz. Yes, absolutely. Not only with those
organizations, but with the organizations that represent
seniors, children, low income, county welfare directors'
associations. All of them, we have been out visiting them, at
their meetings, talking about all these various programs,
including weatherization.
Mrs. Napolitano. Do you send notices so they can put it on
their reader boards for their public access channel?
Mr. Schultz. We will need to do that. We do send out lots
of press releases that go out----
Mrs. Napolitano. It could still be on the public access
channel.
Mr. Schultz. Understood.
Mrs. Napolitano. OK.
Mr. Schultz. That is a great suggestion, and I think we
will do that.
Mrs. Napolitano. I appreciate it.
Ms. Calbom, you talked about the cities and the counties,
and by the time it trickles down to the locals, you have
already lost 20 to 30 percent of the funding in the
administration and the administrative fees.
How difficult would it be for direct funding to the cities,
being able to have all the things that goes with it, the
reporting, the access, everything? Because to me, as you see,
they are the ones that get the job done. They know what their
requirements are for their locals to be able to do the hiring,
and know which businesses are legitimate, if you will.
How difficult would it be if the task force requires more
infusion of personnel to be able to oversee it?
Ms. Calbom. Yes. It would require more oversight. I mean,
as we have been talking all along, any entity, be it a city,
county, or the State that is getting funding, needs to have the
oversight that goes along with it.
As far as how difficult would it be to set up the reporting
infrastructure, Mr. Schultz can probably speak to that, because
they have had to do it at the State level.
Depending how many programs I think you are talking about,
there is a fair amount that has to go into it.
Mrs. Napolitano. That is OK.
Ms. Calbom. OK.
Mrs. Napolitano. I am already down to the ``nitty-gritty''
here. Also, in talking about weatherization, there are only 2
percent that have been----
Mr. Schultz. That has significantly, at this point,
changed. We have almost, I believe, 900 that are completed, but
about 3,000 others that have either started or----
Mrs. Napolitano. Explain the process. Who do you utilize?
Davis-Bacon is involved.
Mr. Schultz. Correct. The initial strategy was to go out to
existing weatherization providers, because there are two
programs in the State. One is a Federal program, the low-income
housing weatherization program, and there is a general
weatherization program.
Mrs. Napolitano. Before you go further, do you realize the
International Brotherhood of Electrical Workers is working in
tandem with NECA, National Electrical Contractors Association,
to do green buildings?
My concept is why do you not start with hospitals in the
community, city council, the chambers, whatever, schools,
because they are the ones who need the most to be able to save
that money.
A program that will help them be able to put up front
money, loans or guarantees of some kind, and then be able to
save in the long run all that money, which would put additional
funds into teacher pay or all the other things.
Why are we not also doing that with homes? Because you can
add it on, like a reverse mortgage, for instance. Has anybody
looked at those programs?
Mr. Schultz. Well, I think in terms of--it depends on which
programs you are talking about. If you are talking about the
weatherization program, especially, as I said, as a former
Labor Secretary to Governor Davis, we have recently been
meeting with the IBW and with the laborers and other people to
bring them into the weatherization program.
Because the concern, since I have been in on in the last 8
weeks, to be quite frank, is that in going with the original
providers, it was probably a good strategy, but it was not an
effective strategy. The State fell down because it did not
reach out broad enough to providers, such as the ones that you
are talking about.
I had a conversation with a labor official yesterday and
said let's walk through the Davis-Bacon requirements. I just
want to make sure that you understand that we are fully
supportive of your coming on and being subcontractors. There is
a big difference between a prevailing wage in the State and
Davis-Bacon.
In most areas, it is lower, but in this economy, I want to
understand, as a former Labor Secretary, I think you probably
want jobs in the area, and you deserve jobs in this area, and
some of the providers that originally were there, they opted
out for two or three reasons that I mentioned earlier.
One, many of them said I do not want to do ARRA, the
reporting requirements are too difficult. Second, some of them
did say I just do not want to do a government program where I
am going to have to get paid less. The other one that was
really significant is that there were some problematic
agencies, and we did not go out and contract with high risk
agencies. We have not been able to work with them, so I am with
you.
Mrs. Napolitano. Well, I know my time is short. One more
comment, and then I will quit. That is, Laura, you have a great
idea. Why do not all the agencies work together to be able to
strategize of what is priority, how do you manage to be able to
do all the things we have been discussing here to protect the
general public, protect the moneys of the general public, and
of course, do a better job.
Thank you, Mr. Chairman.
Chairman Towns. Thank you very much. Congresswoman Watson.
You OK?
Ms. Watson. Yes. I will yield to the Congresswoman.
Chairman Towns. Ms. Watson yields to Congresswoman
Richardson.
Ms. Richardson. Thank you. I have five questions and 5
minutes, so about 30 seconds each.
Ms. Howle, I thought I understood in your presentation you
said that education had received about $1 million and had spent
half of that. Did I hear you correctly?
Ms. Howle. Education had--it had been $1.6 billion advanced
to local school districts and those school districts, as of
September of last year, had spent $570 million.
Ms. Richardson. Mr. Payne, when you sat there and said you
are doing a great job of oversight, that does not sound very
great to me, so if you could include that in your report of
what is missing. That means you are batting 30 percent, and if
any of your students got 30 percent, they would fail.
Mr. Payne. Thank you. I appreciate that, and we will
provide that. A little bit of context for the issue. The money
was shipped consciously, but it is also money to be used over a
period of time. The context of the districts, of course, is
that it sort of--the balance is about $45 billion in State and
local funds.
As we know, 2 years ago that was over $60 billion in State
and local funds, and about $7 billion in Federal funds.
They are dealing with orders of magnitude, a much bigger
problem than just buckets that can be filled with Recovery Act
money. Part of our struggle with that has been to encourage
them to spend the money as quickly as possible.
At the same time, their natural instinct is to conserve,
because the budgets keep being bad. From that prospective, they
know what the rules are. We have been communicating with them,
that they have to remit any funds that interest is unspent. We
are engaged with them in doing that.
Ms. Richardson. Mr. Payne, I have read Ms. Howle's report,
and I believe the problem extends beyond that. So in your
response to this committee, if you could address the questions
that Ms. Howle has, and I would venture to say to you that my
recommendation to the school districts is--for example, Long
Beach Unified has sent out 800 notices--I do not know if we
have until next year, 2 years from now.
The question would be if we are considering closing
schools, reducing classes, all of that, I think the re-
evaluation has to take place. You said you are providing
oversight. I am saying as a member today of this committee, it
does not seem to be sufficient. I would like to hear further
what you are going to do.
No. 2. Ms. Howle, you said that you provided
recommendations to the Joint Legislative Audit body about
things that they could implement. If you could provide this
committee with those. Not only with education, with any other
department.
Mr. Schultz, you mentioned a district by district report,
if you could supply that report to this committee.
Mr. Schultz. Absolutely.
Ms. Richardson. Also, the distressed areas and how that has
changed, if you could supply that to the committee.
Mr. Schultz and Mr. Payne, as I mentioned in my entry-level
comments, a lot of the recovery's success has to be that we as
Members lead and support the State and its departments.
I had an instance where it was the first kick-off of an
educational event, I think California was named first. You guys
had an event in my district. I did not receive an invitation. I
did not receive notification. It was really a slap in the face.
So I would say to you, if I have a second chance at the
bite of the apple to disburse recovery dollars, they are not
going to you, they are going directly to the schools, and those
are some of the reasons why, some of the reasons that are
written in the report, and I think just really an overall lack
of respect and inclusion and working with other people who are
trying to work with you to be successful.
I just wanted to say that. And finally, Ms. Chick and Mr.
Payne. Ms. Chick offered the MOU. Are you willing to sign it?
Mr. Payne. Not at this time. We will review it.
Ms. Richardson. Haven't you already reviewed it?
Mr. Payne. We have auditors of our own that spot-check. We
also depend on Ms. Howle's organization as well.
Ms. Chick. I am talking about going out on the ground to
actually look at what is going on at a school district. I would
need that MOU to be able to do it.
Ms. Richardson. We would hope that you would reconsider
that. I think that Laura's doing a great job, as she obviously
noted in her testimony. I think Ms. Chick and what her office
provides would only help and not hurt. If you are doing such a
good job, you should not be afraid of it. I look forward to
your report.
Thank you.
Chairman Towns. Thank you very much. If there are no
further comments----
Ms. Watson. I would just like to make a final comment.
Chairman Towns. Sure. The gentlewoman from the 33rd
District.
Ms. Watson. Thank you so very much. In the audience, we
have a young man that has served on the City Council of
Inglewood. I believe since the former mayor has stepped down, I
think Danny Taper is acting mayor. However, we did not know
that he was going to be here 3 days before, so we cannot call
him.
He did ask some questions to the panel, and I would just
like to throw them out, and if you are not prepared, then you
can give them to us in writing.
It's about the city of Inglewood, and it is adjacent to my
district, the 33rd. My district is the 33rd, and I think that
Inglewood is the 35th Congressional District. They have been
working with addressing transportation and the waste, fraud,
and abuse in the use of stimulus funds.
If you have any information on how they are doing with
that, we would like to know. Has Inglewood experienced
difficulty in getting funds into shovel ready projects. If any
of you know about Inglewood, particularly, we would like to
know. What examples would you have of collaborating with the
use of ARRA funds.
These are the questions that would have been asked should
he have been able to testify. If you have any information on
Inglewood----
Chairman Towns. Madam Chair, let me just say what we need
to do is just submit them in writing and let them respond to
them.
Ms. Watson. And with that said, I want to thank you so much
for traveling here, and my colleagues, too, and spending the
time that you have with us. It has been very, very valuable.
I also want to again apologize for our mayor. We did not
know that he was leaving so soon, but I was glad he was here,
and he does have a written statement, and from that, we can
gleam information from as we shape policy.
With that, let me thank you for coming to Los Angeles and
holding the hearing with our Subcommittee on Government
Management, Organization, and Procurement. It has been very
informational.
I want to thank all the witnesses for your valuable input.
We will take this back with us to Washington, DC.
Chairman Towns. It is a pleasure to be here with you. Of
course, we regret that you will leave us, but you have made
your mark. It has been a pleasure working with you. Let me just
sort of say that publicly in your District. [Laughter.]
Let me thank all of the witnesses for your testimony, and I
appreciate the interest of the Members of Congress, State and
local government officials, and the California residents who
attended this hearing today.
In Washington, it is easy to stay behind blinders and only
look at the big picture of government programs, or outlays. It
is easy to simply look at formulas that say that we have helped
or that we should have helped a certain number of people with a
particular dollar amount of Federal spending.
At some point, in order to really know what is going on, we
have to step outside the box, go out into the field to hear
from the providers and evaluators. Quite frankly, measuring the
success of the Recovery Act is not about a Federal agency being
able to say that it has helped employ certain numbers of people
with recovery dollars. It is about local leaders being able to
tell us that people in their communities are now employed and
providing for their families.
It is about those leaders being able to tell us that
communities are being revitalized, and that businesses are
getting back up on their feet. It is about taking a good hard
look at the Federal dollars coming out of the bottom end of the
funnel in order to make sure we are not losing taxpayer dollars
to waste, fraud, and abuse.
It is clear from today's testimony, that the Office of
Management and Budget and Federal agencies still need to work
on providing guidance in a clear, consistent, and timely
manner, so that recipients of the Recovery Act dollars are able
to comply with the requirements associated with those funds.
It is also clear that some entities here in California,
namely the California Department of Education, need to take
more seriously the obligation to adhere to the transparency and
accountability requirements that must go along with the use of
Recovery Act funds.
The testimonies we heard today also demonstrate that while
the Recovery Act has begun to create jobs and has provided much
needed assistance to filling California's budget deficit, it
also creates another promise, the promise of staggering
administrative costs for their implementation, and the very
real threat of waste, fraud, and abuse.
It is estimated that the cost of audit and oversight
activities of Recovery Act funds in this State will be over
$6.5 million through fiscal year 2010 to 2011. With the FBI
warning that we can expect 7 to 10 percent of recovery dollars
lost to fraud, in my view, every audit and every oversight
activity that can be performed to prevent the waste of these
funds is priceless.
As such, I would like to again publicly call on the U.S.
Senate to take action on the enhanced oversight of State and
local economic Recovery Act funds, which Congressman Issa and I
introduced, in order to help States and localities defray the
expense of implementing the Recovery Act.
Several members of this committee joined with me to pass
that bill in the House. Nonetheless, the legislation is still
being held up in the Senate. Today we have heard about things
going right and things going wrong in the State of California.
It is our job as Members of Congress and as members of this
committee to put what we have learned to constructive use.
Whether we represent Brooklyn, NY, or East L.A., we need to
make sure that our Nation's recovery efforts are tailored to
work for all Americans from coast to coast. From the Atlantic
to the Pacific.
Again, I thank our distinguished panel for coming today.
Reserving the right to object, the record shall be left open
for 7 days, so that Members may submit information for the
record.
And finally, without objection, I will enter this binder of
hearing documents into the committee record.
[The prepared closing statement of Chairman Edolphus Towns
follows:]
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Chairman Towns. The committee stands adjourned.
[Whereupon, at approximately 4:35 p.m., the committee was
adjourned.]
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follows:]
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