[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



                  U.S. GOVERNMENT PRINTING OFFICE
63-137                    WASHINGTON : 2011
-----------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Printing Office, 
http://bookstore.gpo.gov. For more information, contact the GPO Customer Contact Center, U.S. Government Printing Office. Phone 202ï¿½09512ï¿½091800, or 866ï¿½09512ï¿½091800 (toll-free). E-mail, [email protected].  

              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:]

    [GRAPHIC] [TIFF OMITTED] T3137.008
    
    [GRAPHIC] [TIFF OMITTED] T3137.009
    
    [GRAPHIC] [TIFF OMITTED] T3137.010
    
    [GRAPHIC] [TIFF OMITTED] T3137.011
    
    [GRAPHIC] [TIFF OMITTED] T3137.012
    
    [GRAPHIC] [TIFF OMITTED] T3137.013
    
    [GRAPHIC] [TIFF OMITTED] T3137.014
    
    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:]

    [GRAPHIC] [TIFF OMITTED] T3137.015
    
    [GRAPHIC] [TIFF OMITTED] T3137.016
    
    [GRAPHIC] [TIFF OMITTED] T3137.017
    
    [GRAPHIC] [TIFF OMITTED] T3137.018
    
    [GRAPHIC] [TIFF OMITTED] T3137.019
    
    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:]

    [GRAPHIC] [TIFF OMITTED] T3137.020
    
    [GRAPHIC] [TIFF OMITTED] T3137.021
    
    [GRAPHIC] [TIFF OMITTED] T3137.022
    
    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:]

    [GRAPHIC] [TIFF OMITTED] T3137.023
    
    [GRAPHIC] [TIFF OMITTED] T3137.024
    
    [GRAPHIC] [TIFF OMITTED] T3137.025
    
    [GRAPHIC] [TIFF OMITTED] T3137.026
    
    [GRAPHIC] [TIFF OMITTED] T3137.027
    
    [GRAPHIC] [TIFF OMITTED] T3137.028
    
    [GRAPHIC] [TIFF OMITTED] T3137.029
    
    [GRAPHIC] [TIFF OMITTED] T3137.030
    
    [GRAPHIC] [TIFF OMITTED] T3137.031
    
    [GRAPHIC] [TIFF OMITTED] T3137.032
    
    [GRAPHIC] [TIFF OMITTED] T3137.033
    
    [GRAPHIC] [TIFF OMITTED] T3137.034
    
    [GRAPHIC] [TIFF OMITTED] T3137.035
    
    [GRAPHIC] [TIFF OMITTED] T3137.036
    
    [GRAPHIC] [TIFF OMITTED] T3137.037
    
    [GRAPHIC] [TIFF OMITTED] T3137.038
    
    [GRAPHIC] [TIFF OMITTED] T3137.039
    
    [GRAPHIC] [TIFF OMITTED] T3137.040
    
    [GRAPHIC] [TIFF OMITTED] T3137.041
    
    [GRAPHIC] [TIFF OMITTED] T3137.042
    
    [GRAPHIC] [TIFF OMITTED] T3137.043
    
    [GRAPHIC] [TIFF OMITTED] T3137.044
    
    [GRAPHIC] [TIFF OMITTED] T3137.045
    
    [GRAPHIC] [TIFF OMITTED] T3137.046
    
    [GRAPHIC] [TIFF OMITTED] T3137.047
    
    [GRAPHIC] [TIFF OMITTED] T3137.048
    
    [GRAPHIC] [TIFF OMITTED] T3137.049
    
    [GRAPHIC] [TIFF OMITTED] T3137.050
    
    [GRAPHIC] [TIFF OMITTED] T3137.051
    
    [GRAPHIC] [TIFF OMITTED] T3137.052
    
    [GRAPHIC] [TIFF OMITTED] T3137.053
    
    [GRAPHIC] [TIFF OMITTED] T3137.054
    
    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:]

    [GRAPHIC] [TIFF OMITTED] T3137.055
    
    [GRAPHIC] [TIFF OMITTED] T3137.056
    
    [GRAPHIC] [TIFF OMITTED] T3137.057
    
    [GRAPHIC] [TIFF OMITTED] T3137.058
    
    [GRAPHIC] [TIFF OMITTED] T3137.059
    
    [GRAPHIC] [TIFF OMITTED] T3137.060
    
    [GRAPHIC] [TIFF OMITTED] T3137.061
    
    [GRAPHIC] [TIFF OMITTED] T3137.062
    
    [GRAPHIC] [TIFF OMITTED] T3137.063
    
    [GRAPHIC] [TIFF OMITTED] T3137.064
    
    [GRAPHIC] [TIFF OMITTED] T3137.065
    
    [GRAPHIC] [TIFF OMITTED] T3137.066
    
    [GRAPHIC] [TIFF OMITTED] T3137.067
    
    [GRAPHIC] [TIFF OMITTED] T3137.068
    
    [GRAPHIC] [TIFF OMITTED] T3137.069
    
    [GRAPHIC] [TIFF OMITTED] T3137.070
    
    [GRAPHIC] [TIFF OMITTED] T3137.071
    
    [GRAPHIC] [TIFF OMITTED] T3137.072
    
    [GRAPHIC] [TIFF OMITTED] T3137.073
    
    [GRAPHIC] [TIFF OMITTED] T3137.074
    
    [GRAPHIC] [TIFF OMITTED] T3137.075
    
    [GRAPHIC] [TIFF OMITTED] T3137.076
    
    [GRAPHIC] [TIFF OMITTED] T3137.077
    
    [GRAPHIC] [TIFF OMITTED] T3137.078
    
    [GRAPHIC] [TIFF OMITTED] T3137.079
    
    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:]

    [GRAPHIC] [TIFF OMITTED] T3137.080
    
    [GRAPHIC] [TIFF OMITTED] T3137.081
    
    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:]

    [GRAPHIC] [TIFF OMITTED] T3137.082
    
    [GRAPHIC] [TIFF OMITTED] T3137.083
    
    [GRAPHIC] [TIFF OMITTED] T3137.084
    
    [GRAPHIC] [TIFF OMITTED] T3137.085
    
    [GRAPHIC] [TIFF OMITTED] T3137.086
    
    [GRAPHIC] [TIFF OMITTED] T3137.087
    
    [GRAPHIC] [TIFF OMITTED] T3137.088
    
    [GRAPHIC] [TIFF OMITTED] T3137.089
    
    [GRAPHIC] [TIFF OMITTED] T3137.090
    
    [GRAPHIC] [TIFF OMITTED] T3137.091
    
    [GRAPHIC] [TIFF OMITTED] T3137.092
    
    [GRAPHIC] [TIFF OMITTED] T3137.093
    
    [GRAPHIC] [TIFF OMITTED] T3137.094
    
    [GRAPHIC] [TIFF OMITTED] T3137.095
    
    [GRAPHIC] [TIFF OMITTED] T3137.096
    
    [GRAPHIC] [TIFF OMITTED] T3137.097
    
    [GRAPHIC] [TIFF OMITTED] T3137.098
    
    [GRAPHIC] [TIFF OMITTED] T3137.099
    
    [GRAPHIC] [TIFF OMITTED] T3137.100
    
    [GRAPHIC] [TIFF OMITTED] T3137.101
    
    [GRAPHIC] [TIFF OMITTED] T3137.102
    
    [GRAPHIC] [TIFF OMITTED] T3137.103
    
    [GRAPHIC] [TIFF OMITTED] T3137.104
    
    [GRAPHIC] [TIFF OMITTED] T3137.105
    
    [GRAPHIC] [TIFF OMITTED] T3137.106
    
    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:]

    [GRAPHIC] [TIFF OMITTED] T3137.107
    
    [GRAPHIC] [TIFF OMITTED] T3137.108
    
    [GRAPHIC] [TIFF OMITTED] T3137.109
    
    [GRAPHIC] [TIFF OMITTED] T3137.110
    
    [GRAPHIC] [TIFF OMITTED] T3137.111
    
    [GRAPHIC] [TIFF OMITTED] T3137.112
    
    [GRAPHIC] [TIFF OMITTED] T3137.113
    
    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:]

[GRAPHIC] [TIFF OMITTED] T3137.114

[GRAPHIC] [TIFF OMITTED] T3137.115

    Chairman Towns. The committee stands adjourned.
    [Whereupon, at approximately 4:35 p.m., the committee was 
adjourned.]
    [Additional information submitted for the hearing record 
follows:]

[GRAPHIC] [TIFF OMITTED] T3137.116

[GRAPHIC] [TIFF OMITTED] T3137.117

[GRAPHIC] [TIFF OMITTED] T3137.118

[GRAPHIC] [TIFF OMITTED] T3137.119

[GRAPHIC] [TIFF OMITTED] T3137.120

[GRAPHIC] [TIFF OMITTED] T3137.121

[GRAPHIC] [TIFF OMITTED] T3137.122

[GRAPHIC] [TIFF OMITTED] T3137.123

[GRAPHIC] [TIFF OMITTED] T3137.124

[GRAPHIC] [TIFF OMITTED] T3137.125

                                 
