California is estimated to receive approximately  $85 billion in Recovery Act funds, or about 10 percent of the funds  available nationally. California’s State and Local Governments Continue to Grapple with Budget Problems, but Recovery Act Funds Have Helped Preserve Services

California used Recovery Act funds to help balance the state fiscal year  2009-2010 budget, when the state faced a nearly $60 billion budget gap,  and future budget shortfalls are expected. Nonetheless, the  budget gap constitutes roughly one-quarter of the state’s annual budget  expenditures. Local city and county governments in California are also struggling with  declining revenues and budget problems. Officials we met with in the City of Los Angeles (Los  Angeles) and the County of Sacramento said that they face budget  shortfalls this fiscal year due to declines in state funding for programs, tax  revenues, and fees. 2 highlights information about the two local  governments we reviewed.) According to government officials in both localities, Recovery Act funds  are helping to preserve the delivery of essential services and repair  infrastructure but have generally not helped stabilize their base budgets. The Recovery Act  also required that 30 percent of these funds be suballocated, primarily  based on population, for metropolitan, regional, and local use. California Has Dedicated Most of Its Recovery Act Highway Funds for Pavement Projects and Continues to Monitor Federal Reimbursements

The majority of Recovery Act highway obligations for California have been  for pavement improvements—including resurfacing, rehabilitating, and  constructing roadways. California Reported Meeting the 1-Year Obligation Deadline and Is Taking Steps to Meet Other Recovery Act Requirements

The Recovery Act required states to ensure that all apportioned Recovery  Act funds were obligated within 1 year after apportionment and, according  to Caltrans officials, as of February 18, 2010, 100 percent of California’s  highway infrastructure Recovery Act apportionment has been obligated. The  Department of Labor (Labor) first established prevailing wage rates for  weatherization in all of the 50 states and the District by September 3, 2009. In late July, the state legislature approved CSD’s use of these  funds. Home Weatherization Has Started in California, but Service Providers Are Still Being Developed for Los Angeles and the San Francisco Bay Area

According to CSD, as of January 25, 2010, CSD had awarded about $66  million of the $77 million to 35 local service providers throughout the state  for planning, purchasing equipment, hiring and training, and weatherizing  homes. Also, according to CSD, 849  homes were weatherized as of February 26, 2010, which is less than 2  percent of the approximately 43,000 homes that CSD currently estimates  will be weatherized with Recovery Act funds. In response to the State Auditor’s findings, the Task Force stated that it is  working with CSD to improve internal controls and streamline contract  approvals and that the Task Force is committed to ensuring that California  “does not leave one dollar of Recovery Act funding on the table.”

	California Primarily Used Recovery Act Education Funds to Retain Jobs and Is Working to Address Its Cash Management Issues

As of February 19, 2010, California disbursed approximately $4.7 billion in  Recovery Act education funds for three programs—SFSF; ESEA Title I,  Part A, as amended; and IDEA, Part B. Numerous State Entities and Agencies Are Engaged in Overseeing Recovery Act Funds

Since the Recovery Act was enacted in February 2009, California oversight  entities and state agencies have taken various actions to oversee the use of  Recovery Act funds. Although certain federal agencies and Inspectors  General also have various oversight roles, our review has focused on the  state efforts. Their key oversight roles are  summarized in table 3. Table 4 provides an overview of selected oversight and auditing  activities of these agencies. California Reported That Over 70,000 Jobs Were Funded during the Last Quarter of 2009, but OMB’s New Reporting Guidance Was Not Consistently Implemented

As reported on Recovery.gov, as of February 23, 2010, California recipients  reported funding 70,745 jobs with Recovery Act funds during the second  quarterly reporting period ending on December 31, 2009. As a result, some vendor jobs  funded by the Recovery Act were not reported.
Why GAO Did This Study

The American Recovery and Reinvestment Act of 2009 (Recovery Act) specifies several roles for GAO, including conducting bimonthly reviews of selected states' and localities' use of funds made available under the act. This testimony is based on GAO's bimonthly work in California, where the Recovery Act provided more than $85 billion--or about 10 percent of the funds available nationally--for program funding and tax relief. This testimony provides a general overview of: (1) California's use of Recovery Act funds for selected programs, (2) the approaches taken by California agencies to ensure accountability for Recovery Act funds, and (3) the impacts of these funds. This testimony focuses on selected programs that GAO has covered in previous work including the use of Recovery Act funds by the state and two localities' --City of Los Angeles and County of Sacramento, Highway Infrastructure Investment, and the Weatherization Assistance Program. GAO also updated information on three education programs with significant Recovery Act funds being disbursed--the State Fiscal Stabilization Fund (SFSF), and Recovery Act funds for Title I, Part A, of the Elementary and Secondary Education Act of 1965 (ESEA), as amended, and Part B of the Individuals with Disabilities Education Act (IDEA),. GAO provided a draft of this statement to California state and local officials and incorporated their comments where appropriate.

What GAO Found

(1) State and Local Budgets: Despite the influx of Recovery Act funds, California continues to face severe budgetary pressures and estimates a current shortfall of as much as $21billion --roughly one-quarter of the state's annual budget expenditures. California's cities and counties are also struggling with budget problems. According to officials from the City of Los Angeles and County of Sacramento, Recovery Act funds are helping to preserve essential services and repair infrastructure but have generally not helped stabilize their base budgets. (2) Transportation Infrastructure: According to California officials, 100 percent of California's $2.570 billion highway infrastructure Recovery Act apportionment has been obligated. The state has dedicated most of these funds for pavement improvements--including resurfacing and rehabilitating roadways. (3) Weatherization Assistance: As of January 25, 2010, California had awarded about $66 million to 35 local service providers throughout the state for weatherization activities. State and federal requirements, such as prevailing wage rates, as well as the implementation of these requirements, have delayed weatherization and, as of February 26, 2010, the state had weatherized only 849 homes--less than 2 percent of the 43,000 homes that are estimated to be weatherized with Recovery Act funds. (4) Education: As of February 19, 2010, California had distributed approximately $4.7 billion for three education programs, including the SFSF. Local education agencies plan to use more than half of these funds to retain jobs; however, a majority reported that they still expect job losses. Also, cash management issues, related to federal cash balances and the calculation and remittance of interest, remain, but the California Department of Education has taken preliminary steps to resolve them.(5) Accountability: California oversight entities and state agencies have taken various actions to oversee Recovery Act funds, including training, risk assessments, on-site monitoring, and audits. The Governor established the Recovery Task Force to ensure funds are spent efficiently and effectively, and the State Auditor and Inspector General also have key oversight roles. (6) Jobs Reporting: Recipients reported that 70,745 jobs were funded in California during the last quarter of 2009. However, about 70 percent of these jobs were in education and were not reported using the Office of Management and Budget's (OMB) latest guidance, and therefore were not calculated consistently with other jobs reported.