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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

(II)

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

EDOLPHUS TOWNS, New York, Chairman

PAUL E. KANJORSKI, Pennsylvania

CAROLYN B. MALONEY, New York

ELIJAH E. CUMMINGS, Maryland

DENNIS J. KUCINICH, Ohio

JOHN F. TIERNEY, Massachusetts

WM. LACY CLAY, Missouri

DIANE E. WATSON, California

STEPHEN F. LYNCH, Massachusetts

JIM COOPER, Tennessee

GERALD E. CONNOLLY, Virginia

MIKE QUIGLEY, Illinois

MARCY KAPTUR, Ohio

ELEANOR HOLMES NORTON, District of

Columbia

PATRICK J. KENNEDY, Rhode Island

DANNY K. DAVIS, Illinois

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

DARRELL E. ISSA, California

DAN BURTON, Indiana

JOHN L. MICA, Florida

MARK E. SOUDER, Indiana

JOHN J. DUNCAN, JR., Tennessee

MICHAEL R. TURNER, Ohio

LYNN A. WESTMORELAND, Georgia

PATRICK T. MCHENRY, North Carolina

BRIAN P. BILBRAY, California

JIM JORDAN, Ohio

JEFF FLAKE, Arizona

JEFF FORTENBERRY, Nebraska

JASON CHAFFETZ, Utah

AARON SCHOCK, Illinois

BLAINE LUETKEMEYER, Missouri

ANH ‘‘JOSEPH’’ CAO, Louisiana

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

JIM COOPER, Tennessee

GERALD E. CONNOLLY, Virginia

HENRY CUELLAR, Texas

JACKIE SPEIER, California

PAUL W. HODES, New Hampshire

CHRISTOPHER S. MURPHY, Connecticut

MIKE QUIGLEY, Illinois

BRIAN P. BILBRAY, California

AARON SCHOCK, Illinois

JOHN J. DUNCAN, JR., Tennessee

JEFF FLAKE, Arizona

BLAINE LUETKEMEYER, Missouri

BERT HAMMOND, Staff Director

(III)

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

(1)

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.

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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:]

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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:]

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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 nonprofits, 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.

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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

13

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

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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.

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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

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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 cut- ting 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.

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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.

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Well, most of these projects, infrastructure projects, in New York,

L.A., and San Jose, you can’t put shovel ready, big projects like

that, you know, together in 90 days. It just does not exist.

What we identified was street resurfacing—most of us have

streets that need a great deal of repair—as one of the main ways

to get projects immediately underway.

It was a way to put people to work and spend money in the

shortest period of time. So, using our work force, we started our

street resurfacing program.

Then we were told by the Federal Highway Administration last

August that we would be prohibited from using city workers for

any projects started after July 28th.

Now we are faced with a situation where we are funding for future projects, but we are going to have to lay off all of the workers,

or many of the workers, that do our street resurfacing, because of

our budget problems.

That makes no sense, and therefore, my last recommendation is

that the Congress allow the use of force account labor on Recovery

Act funded projects, and not set a higher standard than normal

federally funded highway projects.

Again, I want to thank the Members who are here. I feel heartened that you all decided to come to southern California. Heartened—I know that I am preaching to the choir, because many of

you have mentioned some of these same issues.

I only hope that as more cities in the course of your hearings

begin to raise these issues, we will be better able to put shovel

ready projects into effect, create the jobs that are critical, and retain city work forces at a time when our cities are facing unprecedented financial crises.

Thank you very much.

[The prepared statement of Mr. Villaraigosa follows:]

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Chairman TOWNS. Thank you very much, Mr. Mayor, for your

comments.

Mayor Morris.

STATEMENT OF PATRICK J. MORRIS

Mr. MORRIS. Honorable chairman, co-chairman, members of the

committee. I, first of all, want to turn to Diane Watson, and Mayor

Villaraigosa thanked her on behalf of Los Angeles. On behalf of the

Inland Empire, and all of southern California, and indeed the

State, I want to thank you for——

Chairman TOWNS. Pull the mic a little closer to you.

Mr. MORRIS [continuing]. A lifetime of service to this State, to

this region and to this Nation. Thank you very much.

I am a little nervous. Before me is a digital clock. It started at

5 minutes. I am already 30 seconds into my 5 minutes. Having

talked to your staff, Mr. Chairman, I have timed my comments to

about 10 minutes, and I am told that you will not buzz me. As a

mayor, I buzz people all the time. [Laughter.]

Chairman TOWNS. There is a trap door there. [Laughter.]

Mr. REED. That sounds like a Brooklyn solution to me. [Laughter.]

Chairman TOWNS. It is a good one.

Mr. MORRIS. It is an honor to be here today to talk and share

with you ideas on how we can together build a stronger America

and a better tomorrow with job creation.

I speak to you today as the mayor of an Inland Empire City, and

as an original leader in that region of California. It is a metropolitan area of over 4 million good souls, the third largest in California, and the 14th largest in the Nation.

In the last decade, our Inland Empire has seen its population explode by more than 25 percent, almost four times the rate of the

State and the Nation. Similarly, growth in our GDP output in the

Inland Empire during the last period, 2000 to 2007, hit almost 12

percent per annum, four times the U.S. average.

When a fragile regional economy explodes in such a manner, it

is often followed, as we know, by an equally devastating collapse,

as we have experienced in our area since the Nation’s economic

free fall in 2007.

Unemployment, as Mayor Villaraigosa has cited, is over 14 percent in our region. In our city, it is up to 18 percent. There are an

estimated 175,000 people in our area currently unable to find a job.

Home values have declined in our city almost 50 percent. The

high rates of foreclosures and bank-owned properties plague all of

our communities.

To put this in perspective, the Inland Empire was second only to

Detroit in terms of unemployment rates this past summer. Against

this sobering background, however, is the Federal stimulus dollars

that have flowed into our city and into our region over these last

18 months, and they have provided substantial relief, great welcoming relief to that dark background.

To date, our city has received $20 million in the American Recovery and Reinvestment Act funds to hire new police officers, purchase and rehabilitate foreclosed homes, initiate homeless prevention programs, build new community amenities, and spark ecoVerDate 11-MAY-2000 13:37 Mar 23, 2011 Jkt 000000 PO 00000 Frm 00030 Fmt 6633 Sfmt 6633 C:\KATIES\DOCS\63137.TXT KATIE PsN: KATIE
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nomic 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 sig- nificant 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.

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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

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create the flexibility needed to maximize the beneficial impact of

these Federal funds on our local economy.

To summarize, I would strongly urge Members of Congress and

the Body as it considers additional Federal stimulus funding to

consider the lessons learned from the use of ARRA funds in the Inland Empire.

One, target Federal stimulus funding to infrastructure projects,

because it creates the greatest number of jobs.

Two, flow Federal stimulus funding directly to local and regional

governments through flexible block grants.

This allows Federal funds to be matched with unique local opportunities, moneys, and economic development strategies that maximize the results.

In a nutshell, continued direct flexible block grant funding for infrastructure and energy projects is critical to our collective success

in helping the economic recovery of our Nation.

Thank you very much.

[The prepared statement of Mr. Morris follows:]

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Chairman TOWNS. Thank you very much, Mr. Mayor.

Mr. Reed.

STATEMENT OF CHUCK R. REED

Mr. REED. Thank you, Mr. Chairman, Madam Chairwoman, Congresswoman. Thank you for inviting me to testify, and from San

Jose, the 10th largest city in the country, a city of over a million

people, representing Northern California.

We are very proud to be the capital of the Silicon Valley, the innovation center of the world, and proud of the jobs that we have

created and that we have exported to many other States.

We are not necessarily happy about exporting jobs to other

States, but we are proud of it because the work, the innovation, the

creativity that comes out of Silicon Valley has created products and

services that have changed the world and jobs for untold numbers

of Americans throughout the country, and we are very proud of

that.

But as a job creation center, the recession has hit us hard. We

were still adding jobs in San Jose and Silicon Valley until the capital market crash in about September 2008. Since then, we have

lost 50,000 jobs in San Jose alone, and more in the rest of Silicon

Valley.

I speak for us to thank you and Congress, and the Obama administration for ARRA, the Recovery and Reinvestment Act. The

stimulus package has made a difference, made a difference locally

and more importantly, it was with great relief that we saw the national economy turn the corner.

The rate of job losses made a decline and gross domestic product

is rising. We know that as a job creation center, that once the national economy turns, we are going to start growing in net jobs

again.

I believe that this year will be a year in which net jobs are created in Silicon Valley, and we will again continue to export jobs to

other States.

We are very grateful for the Federal funding that has come directly to San Jose. We are grateful for what it has done for the

economy.

We can spend as much money as you can give us. I think that

is probably true with any mayor. I am happy to take any more

money that Congress wants to send our way.

I am very grateful for what we have received and give back to

the economy. Although I cannot—I guess I should not complain in

the company of my fellow mayors who have higher unemployment

rates than we do in San Jose—but our unemployment rate exceeds

the national average, and we have lost a lot of jobs.

But we are on the way back, I believe, in large part because of

the stimulus program, the package, and the spending that has

changed the economy.

More specifically, in San Jose, by formula calculating, we will receive about $105 million of stimulus funding. We have been awarded $70 million to date, and we have spent 22 percent of that. I

think that is an important thing for everybody to remember, trying

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tended 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.

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We have a couple of them that are at sort of the leading edge

of the process, and they are going through the finalizing, but we

do know that there are companies—such as NanoSAR, one of our

companies, that produces the world’s most cost effective solar cell—

they have an application in for a Department of Energy Loan

Guarantee.

They cannot get money from the capital markets, even though

they have raised hundreds of millions of dollars of venture capital

funding from the private sector and hundreds of patents. They

have a factory. They have a product. They are making profits.

Their manufacturing factory is sold out for the next 3 years, because they have a great product. They cannot borrow the money.

So without the DOE Loan Guarantees, they may wander off into

another country, because other countries want them to make their

next factory there.

These Department of Energy Loan Guarantees—I know there are

other programs in some of the other agencies—I think they are

going to be vitally important in the coming year for the ongoing impact on the economy, beyond the direct spending.

I want to thank Congress for allowing those programs to be a

part of this package, because it is the creation of long-term permanent private sector jobs that will have the most impact on our economy.

I was in Washington back in the November or December timeframe with the League of National Cities, and there were four mayors on the panel. We all agreed that we can spend as much money

as you can give us, but if we are creating jobs, that will disappear

as soon as the funding stops, that is not going to have a lasting

impact on our economy.

That to the extent that a jobs bill or a stimulus package or anything else gets done, it is important to try to focus on those areas

that will help create those long-term permanent jobs, because those

are the jobs that will keep our people working after the Federal

Government stops writing the checks. That is ultimately better for

us and better for the country.

So with that, I want to thank you for the funding. We appreciate

it. We are spending it. People are working. The impacts are there.

And we are very grateful for what Congress has done and what the

Obama administration has done to help us get out of this recession.

[The prepared statement of Mr. Reed follows:]

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Chairman TOWNS. Thank you, very much, Mr. Mayor. Thank you

for your testimony.

Let me indicate the fact that I understand you talked about basically an unfunded mandate, because we are asking for certain information. But, let me just say to you, that we put forth legislation

to give you the resources to be able to do that, because we think

it is so important that we can learn from you as to what you might

decide to with the resources.

But the problem has been that we have not been able to get it

passed. We passed it in the House and every Member up here

voted for it.

But the point is that there is another body that you have probably heard of called the Senate, and they for some reason, have not

gotten around to it.

I think that would solve some of the problems that you raised

here.

Let me yield now to the gentlewoman from California, who is a

member of the committee, Diane Watson.

Ms. WATSON. Again, I want to thank you, Mr. Chairman, and I

want to thank our witnesses. The information we gleam from you

today is very vital to how we set policy.

I am sorry that the mayor of Los Angeles had to leave. Jim

Clark, a representative to our legislative body, is still here, and I

would ask that questions that might be directed, that he could

have the mayor send back to us in writing.

Chairman TOWNS. We will leave the record open in order to give

the mayor an opportunity to respond.

Ms. WATSON. Yes.

Chairman TOWNS. There must be certain questions that you

would like to get answered.

Ms. WATSON. Yes. Our city is severely hurting. We have had to

lay thousands of employees off, particularly in the urban areas. I

know that the mayor has really fought to protect firemen/firefighters, and of course, our police. In this city, the need is so great.

We will direct some questions, Mr. Clark, to you, and you can

have the mayor answer.

With the two of you, and I appreciate your testimony, you are

smaller in population, but large in need. Had we not had the stimulus package, Mayor Morris, what would have happened in your

city? And Mayor Reed, I think you have already indicated what it

would be like because of loss of jobs, but can you continue?

Mr. MORRIS. Let me give you an example. You gave us a re-energized ‘‘Cops’’ program. That was critical to our city. We had held

about 23 positions vacant in our police department. We have a serious issue with public safety in our city, and having those vacancies

was deeply concerning to me as mayor, working on this issue of

public safety. The Cops program allowed us to backfill 15 of those

positions. We are in the hiring process right now.

Those are critical positions to make our city a safer place to live

and work and to educate our children.

That was a major $5 million boost in funding for public safety.

That is already making a difference in terms of the safety of our

community.

Ms. WATSON. Thank you. Mayor Reed.

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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 frontline leaders. We are innovators at the city level and the county

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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

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fornia. 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 cashflow, 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.

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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

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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.

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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.

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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.

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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,

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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

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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.]

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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.

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It is also well behind the pace that they need to maintain just

to meet their upcoming quarterly goal of over 3,900 homes.

In the education area, as of about mid-February, the State had

dispersed to the school districts and other local education agencies

about $4.7 billion in Recovery Act funds for Title 1, Part A, IDEA,

Part B, and the largest by far, the State Fiscal Stabilization Fund.

Most of these funds are being used to retain jobs.

Nonetheless, again as we heard earlier, more than half the school

districts in the State still expect layoffs in the next school year.

We and others, including the State Auditor, have highlighted

concerns related to the California Department of Education’s cash

management practices. Specifically, the early draw down in distribution of Title 1 Recovery Act funds, prior to the time the school

districts were really in a position to use those funds. So what happens is there are issues with the State’s compliance with Federal

cash management practices, as well as requiring the school districts to have to calculate and remit interest on those funds.

The department has implemented a pilot program to try to correct this issue. They are piloting one small non-Recovery Act program right now. We want to see them develop some evaluations

tools for this pilot and then expand it to some of the larger Recovery Act programs.

Just one more quick area on jobs reporting. California recipients

reported over 70,000 jobs on Recovery.gov for the second quarterly

period ending December 31st. This was the largest number of jobs

recorded by any State for that quarter.

However, the California Department of Education, which accounted for about 35,000 of those jobs, so about half, reported those

jobs using the old OMB jobs reporting guidance, which was issued

December 18, 2009. So it was issued a bit late.

What that means is the jobs reporting for California was inconsistent for this quarterly period. The department does plan though

to have the school districts revise these estimates during this open

period we have right now in the Federal reporting system.

And then one other problem that we found with the school districts in the jobs reporting was that they were not consistently collecting and reporting vendor job numbers. So that is another area

that is going to require some additional guidance and oversight to

make sure the next period is more consistent.

That concludes my comments.

I will be happy to answer questions later on.

[The prepared statement of Ms. Calbom follows:]

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Chairman TOWNS. Thank you very much, Ms. Calbom.

Mr. Schultz.

STATEMENT OF HERB K. SCHULTZ

Mr. SCHULTZ. Good afternoon, Chairman Towns, Chairwoman

Watson and other members of the committee. I would like to thank

you for inviting me here today to discuss the American Recovery

and Reinvestment Act.

My name is Herb Schultz, and I am senior advisory to the Governor and director of the California Recovery Task Force, and I appreciate that the chairman acknowledged that when we met 28

years ago, we both had hair. So, it is good to see you. [Laughter.]

After this historic bill was signed, the Governor acted very swiftly creating the California Recovery Task Force. It is made up of the

best and brightest minds from our State who represent over 30 departments and agencies who work in coordination with key external stakeholders across the State to get funds out quickly and efficiently to Californians.

As you saw from the first panel, the Recovery Act requires extraordinary coordination at all levels of government, and the task

force works in partnership with each level, Federal, State, and

local, to ensure that the benefits of the dozens of programs get to

organizations and individuals.

We are working every day and many nights to provide unprecedented levels of transparency and ultimately get California’s economy back on track.

The Governor announced only a couple of weeks ago that California has funded approximately 150,000 jobs from our stimulus efforts. The task force’s goal was to provide unparalleled oversight

and implementation of the $85 billion expected in cash and tax

benefits, the largest of any State.

The task force immediately jumped into action preparing the

State for the largest infusion of Federal funds that the State has

experienced to date. Through the end of 2009, the end of the second

quarter of reporting, $26.6 billion has been awarded to State entities with $13.8 billion, roughly half, being spent to extend safety

nets to millions of Californians. Very important, such as through

Medi-Cal, food stamps, and unemployment insurance.

The remaining $12.8 billion has been committed to contracts,

grants and loans, of which $6.3 billion has already been spent and

is out working on the street creating jobs, job training programs,

and other essential services.

With the significant funding involved, Governor Schwarzenegger

quickly appointed the first in the Nation Recovery Act Inspector

General, and we have mentioned my colleague, Laura Chick, to my

left.

The task force is working in partnership with Laura, along with

the Bureau of State Audits, the State Controller’s Office, the Federal Recovery Accountability and Transparency Board, OMB, and

the Government Accountability Office to make sure that California’s stimulus funding is spent the right way.

Since the beginning, the task force members and staff have also

taken action and met with numerous stakeholders in all communities to educate them and inform them of opportunity.

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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

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California Energy Commission also made certain, per State law, required public input when determining program guidelines for the

awarding of grants. That ensured that the grants were distributed

transparently, accountably and equitably.

In conclusion, the Recovery Act has provided individuals, businesses, non-profits, local governments, and other key constituencies

across the State important financial benefits, opportunities, jobs,

job training, and vital safety net benefits.

The task force will remain ever vigilant to ensure spending is

done efficiently and quickly without sacrificing accountability and

transparency.

Thank you very much for inviting me to testify, and I will be

happy to answer any questions that you may have.

[The prepared statement of Mr. Schultz follows:]

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Chairman TOWNS. Thank you very much, Mr. Schultz.

Ms. Chick.

STATEMENT OF LAURA N. CHICK

Ms. CHICK. Thank you, Chairman Towns and Chairwoman Watson, who has been one of my life long role models, along with Congresswoman Napolitano and Ms. Richardson.

My name is Laura Chick, and about 10 months ago, Governor

Arnold Schwarzenegger appointed me to serve in the role of California’s Inspector General, watching over about $85 billion of Recovery Act dollars coming to California.

The Recovery Act is designed to create jobs to get our economy

moving again. But it also must be about our spending this money

better than ever before.

We have an opportunity to show that transparency and accountability are not just buzz words. If we as government, at the Federal, the State, and the local level, do this right, we can go a long

way to restoring the public’s trust and confidence that government

can actually spend their tax dollars wisely and well.

We can show them the positive and productive role that government can play in their every day life and in their well being.

To that end, when Governor Schwarzenegger appointed me last

April to oversee the spending, my mission was crystal clear—the

three Ds. As a social worker, Congresswoman Napolitano, I know

you understand the prevention part.

It is to deter, detect, disclose waste, fraud, and inefficiencies. I

apologize but I also have a category called ‘‘stupid spending.’’

[Laughter.]

The FBI has estimated that we can expect to lose somewhere between 7 to 10 percent in Recovery Act funds fraud. They quote that

after Hurricane Katrina in New Orleans, the rate of fraud was 17

percent. I know for all of us, those are completely stunning and unacceptable figures.

That is why so much of my job is about preventing fraud and

preventing problems at the front end. My office brought together

the U.S. attorneys, the Federal Inspectors General, the FBI, U.S.

Department of Justice, to do comprehensive fraud awareness and

prevention training up and down the State, and then a live

Webinar for over 2,000 staff and recipients handling recovery dollars.

We also have issued an advisory to all recipients of recovery dollars in the State. It is a checklist of good practices to prevent fraud

at the front end. I’m going to give a recent, real life, unfortunate

example that easily could have been prevented. Not a catastrophe,

but a great lesson learned to shoot out, up, and down the State.

A city-hired contractor for a construction project, a company they

had never used before, his bond turned out to be forged, and he

skipped town after being paid for a portion of the work. But sadly,

his workers were never paid. A simple phone call from the city to

the bond company could have and would have prevented this from

happening.

It is also learned that the owner of the company had State tax

liens. That is a big red flag that is called out in my advisory to try

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and help cities and counties and others to know what to do at the

front end to stop the problem.

Just this January, my office finally received audit staff to be able

to go out into the detection and disclosure phases. My two strike

teams of auditors are out in the field following recovery dollars, out

into our streets and neighborhoods and with some recipients.

These very expedient, in real time focus reviews are going to give

us important snapshots into how the recovery dollars are being

spent right now.

On Tuesday, I released my first report. It was of a local work investment board. These boards have already received and spent significant dollars across the country to help summer youth, dislocated, and adult worker programs.

What we found, unfortunately, were very sloppy business and accounting practices. In fact, Basic Accounting 101 was not being followed. They had received over $3 million for the summer youth

program, but an allocated $1 million of that to cover overhead, including rent. Whoops. They have run as quickly as possible behind

us, that is the good news, to correct the mistakes as we were finding them. Now they have agreed to charge $60,000, appropriately, for overhead and rent, and they are going to redirect the difference between the $60,000 and the $1 million for the summer youth program this upcoming summer.

That is what my office is all about. It’s real time results, not at

the end when the Recovery Act is over, and maybe California and

some recipients will be faced with returning dollars. I am trying to

prevent that, as well as others in the oversight family.

It is our mission to catch the problems early and correct the

problems quickly and see that the dollars are being spent to create

jobs, rev the economy and show the public that we know how to

spend their dollars effectively and well.

Thank you.

[The prepared statement of Ms. Chick follows:]

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Chairman TOWNS. Thank you very much for your statement.

Ms. Howle.

STATEMENT OF ELAINE M. HOWLE

Ms. HOWLE. Thank you, Mr. Chairman, Madam Chair, Members

of Congress. It is an honor to be here on behalf of the State Auditor’s Office in California and talk to you a little bit about the oversight activities that my office has conducted in the last 9 months

with regards to Recovery Act dollars.

The programs that I am going to discuss today are the highway

planning and construction program, State fiscal stabilization program, weatherization, and the State energy program.

With regard to the highway planning and construction program,

this is a program that is administered by our Department of Transportation, commonly referred to as Caltrans in California.

We issued a report in December looking at their management of

Recovery Act dollars in California, getting the funds out for the

local projects. We had one concern, and this was a concern that

was shared by the Federal Highway Administration, and basically

what this concern was, was making sure that the costs that are

being paid for the reimbursement, as Ms. Calbom talked about, the

reimbursements that we paid are for appropriate activities, and for

work that has actually been completed.

Subsequent to our review, the Department of Transportation has

modified their practices to require engineers out in the local level

representing Caltrans to confirm that the work has been done, and

that those invoices are appropriate and before the reimbursement

takes place. We are happy with that progress.

With regards to the State’s fiscal stabilization program, as you

are aware, significant dollars came to California with regard to this

program. Our issue with this program, and Mr. Payne will be able

to speak to this on behalf of the Department of Education, again,

it is cash management.

Cash management has consistently been a concern that we have

raised on previous single audits, and looking at the stabilization

program, we have the same concern.

$1.6 billion was advanced to school districts in the first quarter

of fiscal year 2009/2010. About $571 million was spent. Therefore,

a $1 billion was not spent at the school district level.

That is something that again is a concern as far as meeting cash

management responsibilities and requirements under Federal regulations.

The weatherization program. As again GAO indicated, this is a

program that increased significantly in California, going from approximately $6 to $10 million annually to $186 million. California

received authority to spend that money starting in July 2009, but

it has been delayed, both by delays at the Federal level and at the

State level.

The delays at the Federal level are with regard to Davis-Bacon.

That is a brand new requirement under this program, and the

Davis-Bacon prevailing wage rates were not issued by the U.S. Department of Labor until September. Then there were concerns with

the amounts of those rates, and they were then revised in December 2009.

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So that really put the State of California kind of behind as far

as far as being able to contract with providers. When we were looking at this from the State’s perspective back in December 2009, we

only saw contracts with eight providers in California. So again,

that really does slow the process of implementing this particular

program, and raises concerns on our part, as the State tries to

ramp up, that they make sure they have proper controls in place,

so that when they do contract with providers, those providers are

capable of doing the work and doing quality work.

The other concern we had with regards to weatherization programs, there were five key geographic areas in California that had

not been covered yet. Los Angeles is one of those areas. Other

counties in the Bay Area as well at the time we issued this report

did not have providers ready and willing to participate in the

weatherization program.

The last issue area for this particular program is related to the

monitoring and making sure that recipients were aware of the

Davis-Bacon requirements, were complying with those requirements, and certainly making sure that the inspections were being

done on a quarterly basis, as is required by this particular program.

We do have some serious concerns about the Department of Community Services and the State government’s ability to manage this

program.

The final program that I would like to speak about is the State

energy program. This is one that we had administered by the Energy Commission. Again, this is a program that increased substantially for our State, going from about a $3 million program to a

$226 million program.

And similar to the weatherization, we have been very slow to implement this program. In fact, when we completed our audit in December, the State had only awarded two contracts, one to the Department of General Services, which is a State entity that works

with State agencies as far as buildings. The purpose of that was

for retrofitting buildings, providing energy efficiency measures.

The other contract was with the Employment Development Department, and that was for green jobs, to provide job training for

people for energy efficiency type projects.

So we are very concerned about this program, particularly because the funds have to be fully obligated by September 30th of

this year.

So again we have made recommendations to this end and the administration to really strengthen their controls, strengthen their

management practices, and put some resources toward this particular program.

With that, I am certainly happy to answer any questions that the

committee may have. Thank you.

[The prepared statement of Ms. Howle follows:]

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Chairman TOWNS. Thank you. Thank you so much for your statement.

Mr. Payne.

STATEMENT OF GAVIN PAYNE

Mr. PAYNE. Mr. Chairman, Madam Chairwoman, Congresswoman Napolitano and Congresswoman Richardson, I am delighted

to be here today.

I bring you greetings from the State’s superintendent, Jack

O’Connell, who unfortunately could not be here, to the Members.

We are grateful to Congress and the President for providing

these funds. Let me repeat that. We are grateful, very grateful for

the Congress and the President for having supplied States with

stimulus funds.

They have truly been a lifeline, especially for the California

school districts during this financial crisis.

Let me give you a little context, too. When the stimulus money

first came down, the Superintendent working with the Governor

very consciously made a decision to shift that money from Sacramento to school districts as quickly as possible, knowing that the

accountability would follow from that, but it was a conscious decision made at the time taking full advantage of the opportunity afforded by the Congress and the President.

I would say, at least for our part, from the Governor’s part, loudly applauded by ourselves and often praised.

Let me give you a little bit of the picture of we have. Federal

funds from stimulus money supply about six major Federal programs and a number of smaller ones. We have already received

thus far nine grants, including one in which we administered to

kindergarten through grade 12 a portion on behalf of the Governor’s Office.

Those grants totaled about $6 billion, as was talked about. For

these nine grants, we have issued 3,800 sub-grants to 1,800 subrecipients, 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.

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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 subVerDate 11-MAY-2000 13:37 Mar 23, 2011 Jkt 000000 PO 00000 Frm 00150 Fmt 6633 Sfmt 6633 C:\KATIES\DOCS\63137.TXT KATIE PsN: KATIE
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stantial layoffs, and even with unfortunately, with Federal money,

there were 26,000 of those layoff notices issued last March.

We are expecting another 20,000 layoff notices to be issued this

year, same thing. But we are ever hopeful that we can find the resources to make that good, and make those layoffs not actually

happen before the school year begins.

Again, thank you very much.

[The prepared statement of Mr. Payne follows:]

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Chairman TOWNS. Thank you very much. We are going to take

a 10-minute break, and then we will be right back.

[Recess.]

Chairman TOWNS. Let me thank all of you for your testimony. I

really found it to be very informative.

What I am going to do is I am going to yield my 5 minutes to

the gentlewoman from California, and we will just go right down

the line, and then at the end, I will have some comments.

Ms. WATSON. Thank you so much, Mr. Chairman. I want to

apologize. Our mayor did have to leave. I think he indicated that

he could only stay until 2:30.

The city of Los Angeles is in serious trouble and has a huge deficit, so we do hope that questions are forwarded on to him, and

there will be, I am sure, an immediate response.

One of the words that I heard him repeat over and over again

was ‘‘flexibility.’’ Because so much of the money that has come off

of the stimulus cannot be used in certain areas and categories. He

wants to protect the police, as I mentioned, and firefighters. I

would be interested in getting his responses to those questions.

In reviewing the first two rounds of Recovery Act recipient reporting, committee staff learned that despite the efforts of the Office of Management and Budget [OMB], the Recovery Accountability and Transparency Board is the central agency to make sure

that recipients knew what they were required to report occurred.

For example, the Federal Highway Administration released its

own job estimation guidance during the first reporting cycle. Even

after the OMB released updated guidance for calculating jobs,

FHFA again, offered a different model mere days before the end of

the second reporting cycle.

Mr. Schultz, which jobs model did California use for reporting its

highway numbers during the second reporting cycle, and what is

the difference between the two models, and how much do the two

estimates vary?

Then I will go to Ms. Calbom. Let me just ask you, are there

other instances where OMB and agency Recovery Act guidance differ? And what can be done to ensure that the OMB and the agencies work in concert, so that recipients can report accurate data,

rather than spend their time deciphering what entities to follow?

Mr. Schultz.

Mr. SCHULTZ. Very much appreciate your question. In the second

quarterly reporting, California used the new guidance for all of its

agencies that came out December 18th. We were told a couple of

days before the reporting period that FHWA would like us to use

a different calculation.

We had conversations both in Washington and with the regional

office. Given the concern that we had, because we were getting conflicting guidance, we had not seen anything official, and FHWA

would say well, we should do this.

I wrote the head of OMB and other officials to say that California was going to follow the guidance that was put out country-wide

by OMB. So in the first reporting period, I think as the committee

remembers, there was a job calculation that was based on jobs created or saved.

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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.

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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.

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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.

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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.

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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.

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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

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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

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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

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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?

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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 subrecipients 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 retrained, just move them to monitor different agencies.

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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

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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?

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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.

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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?

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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.

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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

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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 memVerDate 11-MAY-2000 13:37 Mar 23, 2011 Jkt 000000 PO 00000 Frm 00176 Fmt 6633 Sfmt 6633 C:\KATIES\DOCS\63137.TXT KATIE PsN: KATIE
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ber 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.

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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.

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It is clear from today’s testimony, that the Office of Management

and Budget and Federal agencies still need to work on providing

guidance in a clear, consistent, and timely manner, so that recipients of the Recovery Act dollars are able to comply with the requirements associated with those funds.

It is also clear that some entities here in California, namely the

California Department of Education, need to take more seriously

the obligation to adhere to the transparency and accountability requirements that must go along with the use of Recovery Act funds.

The testimonies we heard today also demonstrate that while the

Recovery Act has begun to create jobs and has provided much

needed assistance to filling California’s budget deficit, it also creates another promise, the promise of staggering administrative

costs for their implementation, and the very real threat of waste,

fraud, and abuse.

It is estimated that the cost of audit and oversight activities of Recovery Act funds in this State will be over $6.5 million through

fiscal year 2010 to 2011. With the FBI warning that we can expect

7 to 10 percent of recovery dollars lost to fraud, in my view, every

audit and every oversight activity that can be performed to prevent

the waste of these funds is priceless.

As such, I would like to again publicly call on the U.S. Senate

to take action on the enhanced oversight of State and local economic Recovery Act funds, which Congressman Issa and I introduced, in order to help States and localities defray the expense of

implementing the Recovery Act.

Several members of this committee joined with me to pass that

bill in the House. Nonetheless, the legislation is still being held up

in the Senate. Today we have heard about things going right and

things going wrong in the State of California.

It is our job as Members of Congress and as members of this

committee to put what we have learned to constructive use. Whether we represent Brooklyn, NY, or East L.A., we need to make sure

that our Nation’s recovery efforts are tailored to work for all Americans from coast to coast. From the Atlantic to the Pacific.

Again, I thank our distinguished panel for coming today. Reserving the right to object, the record shall be left open for 7 days, so

that Members may submit information for the record.

And finally, without objection, I will enter this binder of hearing

documents into the committee record.

[The prepared closing statement of Chairman Edolphus Towns

follows:]

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Chairman TOWNS. The committee stands adjourned.

[Whereupon, at approximately 4:35 p.m., the committee was adjourned.]

[Additional information submitted for the hearing record follows:]

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