Summary

Federal Funds: The State of California Takes Advantage of Available Federal Grants, but Budget Constraints and Other Issues Keep It From Maximizing This Resource August 2003 2002-123.2 rotiduA etatS ainrofilaC S T I D U A E T A T S F O U A E R U B The first five copies of each California State Auditor report are free. Additional copies are $3 each, payable by check or money order. You can obtain reports by contacting the Bureau of State Audits at the following address: California State Auditor Bureau of State Audits 555 Capitol Mall, Suite 300 Sacramento, California 95814 (916) 445-0255 or TTY (916) 445-0033 OR This report is also available on the World Wide Web http://www.bsa.ca.gov/bsa/ The California State Auditor is pleased to announce the availability of an on-line subscription service. For information on how to subscribe, please contact the Information Technology Unit at (916) 445-0255, ext. 456, or visit our Web site at www.bsa.ca.gov/bsa Alternate format reports available upon request. Permission is granted to reproduce reports. � � � ��������� ���� ������ ������������� ������������������� ������������ ����������������������� August 6, 2003 2002-123.2 The Governor of California President pro Tempore of the Senate Speaker of the Assembly State Capitol Sacramento, California 95814 Dear Governor and Legislative Leaders: As requested by the Joint Legislative Audit Committee, the Bureau of State Audits presents the second of two audit reports examining whether California is maximizing the amount of federal funds it is entitled to receive for appropriation through the Budget Act. This report concludes that California as a whole receives a share of federal funding for grants that is near its share of the United States’ population (population share). However, on a grant-by-grant basis, grant allocation formulas can result in a California grant share that is lower than California’s population share, largely because of unfavorable demographics and the use of out-of-date statistics. Because grant formulas are created at the federal level, the State has little control over these factors. On the other hand, state and local policies have limited California’s share of federal funds in a few cases, and departments have sometimes lost federal funding due to the lack of state matching funds. In addition, the State has lost some federal funds because of an inability to obligate funds timely, federal sanctions, and other budget constraints. Respectfully submitted, ELAINE M. HOWLE State Auditor ������������������� �������������������������������������������������� ���������������������������������������� ������������������ CONTENTS Summary 1 Introduction 5 Audit Results California’s Share of Federal Grants Falls Short of Its Population Share, Due in Part to the State’s Demographics and Federal Grant Formulas 11 State and Local Policies Have Limited California’s Share of Federal Funds in a Few Cases 19 California Is Not Obtaining the Maximum Funding Available From Some Federal Grants, but to Do So Generally Would Require More State Spending 23 The State Has Lost and May Continue to Lose Some Federal Funds Because of an Inability to Obligate Funds, Federal Sanctions, and Budget Constraints 27 Recommendations 35 Appendix Grants for Which California Received Less Than Its Population Share in State Fiscal Year 2001–02 37 Responses to the Audit Department of Finance 45 Business, Transportation and Housing Agency 47 Department of Transportation 48 Department of Housing and Community Development 50 Health and Human Services Agency 51 Department of Health Services 52 Blank page inserted for reproduction purposes only. California State Auditor Report 2002-123.2 11 SUMMARY Audit Highlights . . . RESULTS IN BRIEF Our review of federal grant Overall, California’s share of total federal grant awards funding received by California is slightly less than its 12 percent share of the nation’s found that: population (population share). During fiscal year 2001–02, þ California’s share of California received $42.7 billion, or 11.8 percent of the total nationwide grant funding, amount of federal grants awarded. We reviewed the 86 grants at 11.8 percent, was accounting for 90 percent of total nationwide federal grant only slightly below its 12 percent share of the awards in fiscal year 2001–02. California’s share of 50 of these U.S. population. grants exceeded 12 percent, providing $4.9 billion more than an allocation based on population share alone. California’s share þ Factors beyond the State’s control, such as of the remaining 36 grants was $5.3 billion less than an alloca- demographics, explain tion based on population share alone. Several factors come into much of California’s play when the federal government awards federal grants. Some relatively low share of are under the State’s control and some are not. Grants where 10 large grants. California’s share falls below its population percentage include þ Grant formulas using out- the following: of-date statistics reduced California’s award share for another six grants. • Grants where demographics work against California. Of the 36 grants where the State’s share of grant awards fell below its þ In a few cases, California population share, 10 are explained by California’s low share policies limit federal of a particular demographic group, most notably its low rural funding, but the effect on program participants and elderly populations. may outweigh funding considerations. • Grants where the selected factors are unfavorable to the þ California could increase State. Many federal formulas for the Highway Planning and its federal funding in some Construction grant (highway grant) do not favor California, cases, but would have to which paid an average of 10.1 percent of the nation’s federal spend more state funds to fuel taxes and fees during federal fiscal years 1998 through do so. 2001, but received only an average of 9.3 percent of the þ In some instances, highway grant. California has lost federal funds because of • Grants with formulas that use out-of-date statistics or include its noncompliance with program guidelines or by minimum funding levels for each state. For example, much not using funds while they of a grant for maternal and child health services is distributed are available. according to a 1983 allocation for earlier programs, when þ The statewide hiring California’s share was only 5.8 percent. freeze and a pending 10 percent cut in Federal funds also are limited by state and local policies for personnel costs may which benefits may outweigh the loss of funding. California’s further limit federal funds share of the Special Education-Grants to States (Special for staff. Education) grant, for example, is less than would be expected given its number of children because of assessment practices California State Auditor Report 2002-123.2 11 and rigorous screening of children being considered for special education services. Also, California’s federal funding for the In-Home Supportive Services program is less than it could be because the State of California (State) pays legally responsible relatives to be caregivers, a type of activity that is ineligible for federal reimbursement. In other cases, the State could increase its federal funding, but would have to spend more state dollars to do so. Some federal dollars have been lost because departments could not obtain the required state matching funds. For example, the Department of Health Services (Health Services) lost federal funds for a component of the Medical Assistance program due to the lack of matching funds. Other federal money has been lost because according to some state agencies they have lacked the staff to apply for or administer the federal programs. In addition, local agencies could risk losing federal funds because of a drop in state funding for transportation projects. The State has not complied with some program guidelines, resulting in other losses of federal funds over the last three years. In addition, departments sometimes lose federal funds by failing to obligate the funds within a grant’s period of availability. The largest such loss was about $1.45 billion lost to California’s State Children’s Health Insurance Program because of a slow start-up of the program. Since 1998, California also has paid penalties to the federal government for failing to implement a statewide child support automation system. Finally, the statewide hiring freeze has limited agencies from spending available federal funds on grants staff, and a pending budget cut of 10 percent in personnel costs may further limit federal funds for staff. RECOMMENDATIONS As federal grants are brought up for reauthorization, the Legislature, in conjunction with the California congressional delegation, may wish to petition Congress to revise grant formulas that use out-of-date statistics to determine the share of grants awarded to the states. The Legislature may wish to ask departments to provide infor- mation related to the impact on federal program funding when it considers cuts in General Fund appropriations. 22 California State Auditor Report 2002-123.2 California State Auditor Report 2002-123.2 33 Health Services should continue to work with the Department of Social Services to determine the feasibility of pursuing an Independence Plus waiver that may allow the State to claim federal reimbursement for a portion of the expenditures for care- giver services provided by family members to participants in the In-Home Supportive Services program. The Department of Finance should ensure that it considers the loss of federal funding before implementing personnel reduc- tions related to departments’ 10 percent reduction plans. AGENCY COMMENTS The agencies we reviewed generally agreed with the report’s findings and recommendations. The California Department of Education chose not to formally respond to the report. n 22 California State Auditor Report 2002-123.2 California State Auditor Report 2002-123.2 33 Blank page inserted for reproduction purposes only. 44 California State Auditor Report 2002-123.2 California State Auditor Report 2002-123.2 55 INTRODUCTION BACKGROUND California as a whole, including individuals, private organizations, and state and local governments, received 11.8 percent, or $42.7 billion, of all federal grants awarded during fiscal year 2001–02. This share was slightly below California’s 12 percent share of the nation’s population (population share). The State of California (State) received the overwhelming majority of this funding. In fact, the State and state-run institutions of higher education accounted for 85.3 percent of California’s fiscal year 2001–02 grants, with governmental special districts and nonprofit organizations a distant second and third at 3.8 percent and 3.6 percent, respectively. Four state departments administered more than 87 percent of the $34.3 billion in federal grants awarded directly to the State, excluding state-run higher education institutions. Figure 1 on the following page shows that the Department of Health Services managed nearly half of the State’s federal grant funding, primarily for the Medical Assistance program. The Department of Social Services and the Department of Education also administered large portions of the grant funds. The vast majority of the State’s grant funding—more than 95 percent in fiscal year 2001–02—relates to formula grants. Formula grants are awarded according to formulas prescribed in law or regulation and fund ongoing activities that are not confined to a specific project. Formulas generally are based on statistical data, such as poverty rates, that indicate a need for services as determined by Congress or the federal awarding agency. The statistics used to calculate the amount awarded to a specific grantee come from a variety of sources, including the U.S. Census Bureau, the Bureau of Economic Analysis, and other federal agencies. For example, the formula for the Special Programs for the Aging, Title III, Part C, Nutrition Services grant is based primarily on a state’s proportion of the national population age 60 years and older, as estimated by the U.S. Census Bureau. The remaining grants are project grants. They are awarded for specific projects of a fixed duration and include fellowships, scholarships, and research grants. As a whole, California received $1.4 billion in project grant assistance during fiscal year 2001–02. 44 California State Auditor Report 2002-123.2 California State Auditor Report 2002-123.2 55 FIGURE 1 Four Departments Administer Most of the State’s Federal Grant Awards* Fiscal Year 2001–02 �������� ���������������� ����������� ����� ������������ �������������� ����������� ���� ������������ �������������� ������������ ����� ������������ ��������� ����������� ����� ������������ �������������� ����������� ����� Source: Federal Assistance Award Data System. * Grant awards do not include unemployment compensation benefit payments. The federal government considers them to be direct assistance payments to individuals, rather than grants. Federal grants generally require recipients to share program costs. There are two types of cost-sharing requirements: matching requirements and level of effort requirements. Under matching requirements, the grantee must contribute a specified amount or percentage to match federal receipts, and this match normally must be from nonfederal sources. The required nonfederal matching share is generally less than 50 percent of a grant’s total costs. The State often uses money from its General Fund to meet these matching requirements. In some cases, however, it uses money from its special revenue funds; in other cases, it passes on the cost-sharing requirement to local subgrantees. The Rehabilitation Services-Vocational Rehabilitation Grants to States (Vocational Rehabilitation) program is an example of a grant with a matching requirement. Under this grant, the State must, using nonfederal funds, share 21.3 percent of the expenditures for vocational rehabilitation services and administration. In addition, if the construction of a community rehabilitation facility funded in part by the Vocational Rehabilitation program is approved, the State must use nonfederal sources to fund at least 50 percent of the costs. 66 California State Auditor Report 2002-123.2 California State Auditor Report 2002-123.2 77 Level of effort requirements are designed to prevent grantees from obtaining federal funds for a program and then reducing their own expenditures on that program. They include requirements that grantees maintain a set level of expenditures from nonfederal sources for specified activities from period to period, or that they use federal funds to supplement, but not supplant or replace, nonfederal funding of services. In addition to its matching requirement, the Vocational Rehabilitation program has a level of effort requirement. Under this requirement, the State must spend an amount from nonfederal sources that is at least equal to the amount of nonfederal funds it spent for the program two years earlier. If the State fails to maintain this expenditure level, the federal awarding agency will reduce the grant award by an amount equal to the decrease in nonfederal spending. In May 2003, we issued Federal Funds: California’s Share of Grant Funding Is Close to Its Share of the Population, but State Spending Cuts May Result in Reduced Federal Funds, Report 2002-123.1, which includes an appendix noting the cost-sharing requirements for the 52 programs accounting for 95 percent of the State’s federal cash receipts in fiscal year 2001–02. In the State Administrative Manual, the Department of Finance (Finance) has delegated to state agencies much of its authority to require advance approval of federal grant applications. However, a department must request advance approval from Finance when applying for any new federal grant not included in an approved budget. A department also must request advance approval from Finance if the activities to be performed have been denied previously or if the grant involves “sensitive policy issues.” The determination of a sensitive policy issue is left to the department’s discretion. When requesting approval, a department must provide information specific to the grant, including a brief description, the application amount, and the budget impact. Depending on the timing of the grant application, the department must include and justify the request as part of its annual budget request. If the department does not anticipate the grant early enough to include it in the annual budget request, it must obtain Finance’s advance approval of the application. In addition, if the unanticipated grant will augment or reduce available amounts for expenditure for the affected program, project, or function by more than $200,000 or 10 percent, the grant may fall under Control Section 28.00 of the annual budget. The requesting department then must submit additional materials to Finance, which will notify the 66 California State Auditor Report 2002-123.2 California State Auditor Report 2002-123.2 77 Legislature. Finance cannot approve the grant applications that fall under Section 28.00 sooner than 30 days after notifying the chair of the Joint Legislative Budget Committee. SCOPE AND METHODOLOGY The Joint Legislative Audit Committee (audit committee) requested that the Bureau of State Audits determine whether California is maximizing the amount of federal funds it is entitled to receive for appropriation through the Budget Act. Specifically, we were asked to examine the policies, procedures, and practices state agencies use to identify and apply for federal funds. We also were asked to determine if the State is apply- ing for and receiving the federal program funds for which it is eligible. In addition, we were asked to identify programmatic changes to state-administered programs that could result in the receipt of additional federal funds. Finally, the audit committee asked us to examine whether the State is collecting all applicable federal funds or is forgoing or forfeiting federal funds for which it is eligible. To understand federal obligations for formula and project grants, we analyzed data from the Federal Assistance Award Data System (federal data system). This database, managed by the U.S. Census Bureau, documents 98 percent of federal grant awards flowing to the states and territories. Using this data, we accumulated obligations of grant awards for the four quarters making up state fiscal year 2001–02. We noted in our May 2003 report, Federal Funds: California’s Share of Grant Funding Is Close to Its Share of the Population, but State Spending Cuts May Result in Reduced Federal Awards, Report 2002-123.1, that for fiscal year 2001–02 the number of large federal grants received by California was split almost evenly between those in which California received a share of the grant greater than its 12 percent population share and those in which California’s share fell below its population share. According to our preliminary analysis in that report, of the 84 grants accounting for 90 percent of the total nationwide federal grant awards in fiscal year 2001–02, California’s share of 46 grants exceeded its population share; 38 grants fell below. Upon further analysis of the grants in the federal data system, we determined that California’s share of the Head Start Administration grant was actually above its population share, and that the Unemployment Insurance grant was large enough to be added as another grant with a California share above 88 California State Auditor Report 2002-123.2 California State Auditor Report 2002-123.2 99 12 percent. Grant award information for five other grants required adjustments, although California’s overall share of these grants still fell below its population share. In addition, after adjustments, the total federal award for another grant fell well below our initial criteria for review and we eliminated it from our analysis. After these revisions, of the 861 grants accounting for more than 90 percent of total nationwide federal grant awards in fiscal year 2001–02, California’s share exceeded its 12 percent population share in 50 instances, providing $4.9 billion more than an allocation based on population share alone. California’s share of the remaining 36 grants was $5.3 billion less than an allocation based on population share alone. Additionally, California’s awards for all grants were $813 million less than an allocation based on population alone. This is somewhat better than our preliminary analysis, which indicated that California’s share was $1.5 billion less than an allocation based on population alone. We also used the federal data system to identify federal grants totaling between $10 million and $405 million in fiscal year 2001–02 for which California received nothing. Of the 50 grants we identified, California was ineligible for 21 because of geographic limitations, the specification of non-California grantees, or other limiting characteristics. For example, California received no funding for the Historically Black Colleges and Universities program because none of these colleges is located in the State. California also did not receive funding for the Appalachian States Research, Technical Assistance, and Demonstration Projects because of geographic restrictions. In addition, the State was precluded from some grants because the federal government limits eligibility to individuals, nonprofits, or other nonstate government entities. In other cases, we eliminated grants from consideration because state governments, although not explicitly excluded, received only a small portion of the funding, if any. For example, almost all of the Undersea Research Program was awarded to universities and other institutions of higher education; no state government received funding. Out of these 50 grants, we determined that the State could expect to receive funding for two grants with no California funding. We discuss these grants on page 22 of the Audit Results. 1 The Workforce Investment Act (WIA) grant split into three separate WIA grants in federal fiscal year 2001. In our first report, we counted the predecessor WIA grant. For this report, we substituted the three successor WIA grants for the predecessor grant. 88 California State Auditor Report 2002-123.2 California State Auditor Report 2002-123.2 99 To determine factors affecting California’s share of selected federal grants, we reviewed information from the Catalog of Federal Domestic Assistance, applicable federal laws, and U.S. agency publications. We compared these factors with statistics from federal agencies, including the U.S. Census Bureau, U.S. Department of Agriculture, and Bureau of Economic Analysis, as well as other sources. We compared California’s share of the different federal grants and programs with California’s share of the total U.S. population. We calculated the population share based on 2001 U.S. Census Bureau estimates for the United States, Puerto Rico, and other territories. When California’s share of a federal grant was substantially lower than its population share, we determined whether the factors we had identified reasonably explained the difference. When additional information was needed, we contacted state and federal officials for further clarification. We surveyed a sample of 33 state departments and agencies to determine the policies, procedures, and practices that state agencies use to identify and apply for federal funds, and to determine whether any limitations have caused the State to forgo this funding. We also asked them whether the State could change any programs in order to obtain additional federal funding. We interviewed officials from selected departments and obtained additional documentation where survey responses indicated substantial constraints for maximizing federal funding, or a loss of federal funding due to management practices. In addition, we contacted Finance about its role in the implementation of the State’s hiring freeze and the proposed additional 10 percent reduction in departments’ personnel budgets. Additionally, we examined the State’s Single Audit, which presents audit findings related to the State’s administration of federal funds, to determine whether agencies have had to return funds to the federal government because of noncompliance. Finally, we reviewed the Governor’s Budget, Legislative Analyst’s reports, and pending legislation to determine if there are other issues constraining the State’s ability to obtain the maximum available funds. n 1100 California State Auditor Report 2002-123.2 California State Auditor Report 2002-123.2 1111 AUDIT RESULTS CALIFORNIA’S SHARE OF FEDERAL GRANTS FALLS SHORT OF ITS POPULATION SHARE, DUE IN PART TO THE STATE’S DEMOGRAPHICS AND FEDERAL GRANT FORMULAS California’s share of total federal grants awarded during fiscal year 2001–02 was 11.8 percent, or $42.7 billion. This share is slightly below California’s 12 percent share of the nation’s population (population share). We reviewed the 86 grants accounting for 90 percent of total nationwide federal grant awards in fiscal year 2001–02. California’s share of 50 of these grants exceeded 12 percent, providing $4.9 billion more than an allocation based on population share alone. California’s share of the remaining 36 grants was $5.3 billion less than an allocation based on population share alone. State agencies are doing a good job of identifying new or expanded grant funding, using the Federal Register to identify new funding possibilities and pursuing other sources of information, such as the Web sites of federal awarding agencies. Grants for which California’s share falls below its population share include ones in which demographics work against California, and formula grants that provide minimum funding levels to states or use out-of-date statistics. The Appendix presents details on the 36 grants for which California’s funding is lower than its population share. Most of the federal formulas for the Highway Planning and Construction grant (highway grant) do not favor California, which paid an average of 10.1 percent of the total federal fuel taxes and fees during federal fiscal years 1998 through 2001 but received only an average of 9.3 percent of the highway grant. A minimum guarantee keeps the State’s share from being even lower. Of the 36 grants for which California’s share fell below its total population share, 10 are due to California’s low share of a particular demographic group. California received relatively little of the federal funds awarded to rural communities for water and waste disposal systems in fiscal year 2001–02 because its rural population is low in relation to the rest of the nation. In addition, California is the country’s sixth youngest state, so it received less than its total population share of grants to serve the elderly. 1100 California State Auditor Report 2002-123.2 California State Auditor Report 2002-123.2 1111 Funding formulas that do not allocate funds based on popula- tions in need result in a lower percentage of grant funding for populous states such as California. Some grants are awarded based on old statistical data that no longer reflect the distribu- tion of populations in need. For example, much of a grant for maternal and child health services is distributed according to states’ 1983 share for earlier programs, for which California’s share was 5.8 percent. If the entire grant were based on more current statistics, California’s award for fiscal year 2001–02 would be $23.6 million higher. Other grants provide minimum funding to states without regard to need; the State Homeland Security grant, for example, distributes 40 percent of its funds to states on an equal basis, with the rest matching population share. For this grant, the average per resident share for California will be $4.75, far less than the $7.14 average per U.S. resident. California’s Proportionally Low Grant Awards Often Are Related to Unfavorable Demographics or to Measures Not Directly Tied to Existing Need Of the 86 grants accounting for 90 percent of total nationwide federal grant awards in fiscal year 2001–02, California’s share California’s award fell was below 12 percent in 36 cases, amounting to $5.3 billion below its population less than an allocation based on population share alone. These share for 36 of the grants include the highway grant, for which some component 86 large grants. formulas are unfavorable; grants where the demographics work against California, such as those for rural residents and the elderly; and grants that use out-of-date statistics or guarantee minimum state funding levels. The Appendix presents details on these 36 grants. Although Formulas for the Highway Grant Are Unfavorable to California, the State Is Getting Its Guaranteed Share As we discussed in our May 2003 report, Federal Funds: California’s Share of Grant Funding Is Close to Its Share of the Population, but State Spending Cuts May Result in Reduced Federal Funds, Report 2002-123.1, most of the federal formulas for the highway grant do not favor California. For instance, in federal fiscal year 2001, California accounted for only 7 percent of the nation’s interstate lane mileage and 8 percent of contributions to the federal Highway Account attributable to commercial vehicles, which combined determine 67 percent of the interstate maintenance formula. California accounted for 12 percent of the vehicle miles traveled on the interstate system, which 1122 California State Auditor Report 2002-123.2 California State Auditor Report 2002-123.2 1133 determines the remaining 33 percent of this formula. Another aspect of the highway grant, however, guarantees each state a minimum return of funds. The grant is funded through fuel taxes and fees, and each state is guaranteed a return of 90.5 percent of the taxes and fees it pays into the Federal Highway Account of the federal Highway Trust Fund. During federal fiscal years 1998 through 2001, California paid an average of 10.1 percent of the total federal fuel taxes and fees. Based on the minimum guaran- tee, California could expect to receive back about 9.1 percent of funding for the majority of the highway grant. Our preliminary analysis showed that California’s share of awards in federal fiscal years 1998 through 2001 was 8.2 percent, significantly less than the expected 9.1 percent level, and was only 6.6 percent in state fiscal year 2001–02. Upon further analysis, however, we determined that California’s share of awards approximates its guaranteed share of the highway grant. The discrepancy in award levels relates to a change in the federal government’s method of recording awards. According to the California Department of Transportation (Transportation), before federal fiscal year 2000, the federal government included transfers that states made from the Federal Highway Account to the Federal Mass Transit Account in its record of state awards for the highway grant. However, beginning in federal fiscal year 2000, these transfers no longer were included as highway grant awards. Based on an analysis of awards in the Federal Assistance Award Data System, we determined that the amounts were not recorded as Federal Transit Formula grant awards either. However, we were able to obtain documents from the Federal Transit Administration showing that the transfers were available to and designated by California for specific transit programs. If these transfers are added back to the highway grant, California’s share of the grant for federal fiscal years 1998 through 2001 averages 9.3 percent, slightly above the State’s guaranteed share. In addition, California’s share for state fiscal year 2001–02 awards rises to 7.6 percent after the addition of transit grant transfers. Reported highway grant awards represent approved and California’s share of the obligated projects authorized under the federal funding available highway grant is slightly to a state, or its obligational authority. Thus, the 7.6 percent above the minimum awards share for fiscal year 2001–02 indicates that California guaranteed level of had not used all of its obligational authority within this period. 9.1 percent. Based on an analysis of obligations through the end of the federal fiscal year in September 2002, however, California’s share of federal fiscal year 2002 awards approximates its guaranteed share after the addition of transit grant transfers. 1122 California State Auditor Report 2002-123.2 California State Auditor Report 2002-123.2 1133 California’s Low Proportion of Rural Residents and Its Relatively Young Population Are Among Several Demographic Factors That Unfavorably Affect Its Share of Some Federal Grants Unfavorable demographics often contribute to California’s relatively low share of funding for grants. Of the 36 grants we reviewed in which California’s share fell below its population share, 10 were due primarily to California’s low share of a par- ticular demographic group. For example, California received $10.4 million of the funds awarded under the Water and Waste Disposal Systems for Rural Communities grant in fiscal year 2001–02. This represented only 1.8 percent of the $567 million awarded from this grant nationwide, well below California’s 12 percent share of the U.S. population. Funds for this project grant are available for facilities to provide rural water supply and distribution, waste collection, pumping, treatment, or disposal. Awards are allocated to states based on their rural population, number of households in poverty, and unemployment level. The comparatively small proportion of rural residents in California explains the State’s relatively low award share from this grant. According to the 2000 U.S. census, only 5.6 percent of California’s residents live in rural areas. Moreover, California’s rural residents account for only 3.2 percent of the country’s total rural population. Because of the State’s low share of the rural populace, it is reasonable to California’s relatively expect that California would receive a relatively low share of small populations of rural funding from this program. and elderly residents limit its share of some grants. This program is only one example of grants for which California’s relatively small rural population reduces its grant share. Other grants focused on rural areas include the Cooperative Extension Service grant and the Community Development Block Grants/State’s Program. California received less than 4 percent of the total awards for both of these grants. Similarly, California’s relatively young population explains its low share of grants serving the elderly. For example, the State received $53 million, or only 9.3 percent, of the Special Programs for the Aging, Title III, Part C, Nutrition Services (Nutrition Services) grant and only $34 million, or 8.3 percent, of the grant for the Senior Community Service Employment Program (Senior Employment). Both grants award funding based on a state’s proportion of older residents compared with their proportion in the country as a whole. Census data for 2000 indicate that California is the country’s sixth youngest state, with a median age of 33.3 years. According to the 1144 California State Auditor Report 2002-123.2 California State Auditor Report 2002-123.2 1155 Administration on Aging, California residents age 60 years and older make up only 10.4 percent of all U.S. residents age 60 years and older, the target population for the Nutrition Services grant. Similarly, the U.S. Census Bureau reports that Californians age 55 and older make up only 10.3 percent of the nation’s total population age 55 and older, the basis for the Senior Employment grant. Consequently, California’s share of the Nutrition Services and Senior Employment grants are below 12 percent. As explained at page 17, a minimum guaranteed level of funding to states further reduces California’s share of the Nutrition Services grant. Additionally, the Senior Employment grant’s formula includes a provision based on per capita income that benefits states with low per capita income. California has an above-average per capita income that further decreases its share of this grant. Because of the State’s demographic composition, California’s relative need for grants focused on rural or elderly populations may be less than that of other states. Conversely, these same demographics increase California’s share of other grants. As we explained in our May 2003 report, the State receives a high share of the transit grant because of its high level of urbaniza- tion. Also, California’s youthful population contributes to a relatively high share of funding under the State Children’s Health Insurance Program. Formula Grants That Use Out-of-Date Statistics or That Distribute Awards Equally Among the States Limit California’s Share of Grant Funding Funding formulas that do not allocate funds based on measures closely reflecting need can reduce California’s share of grant funding. For example, some grants are awarded based on old statistical data that no longer reflect the distribution of popu- lations in need. Grant formulas also may include provisions guaranteeing a minimum level of funding to states, without In fiscal year 2001–02, regard to populations in need. California would have received about $66 million One example of a grant formula based on old data or past funding more for a child care levels disadvantageous to California is the Child Care Mandatory grant if the entire award and Matching Funds of the Child Care and Development Fund had been based on 2000 grant. In this case, California was awarded $275 million in fiscal census data. year 2001–02, a grant share of only 10.5 percent. The “manda- tory fund” portion of this grant is awarded based on a state’s share of federal funding in the early 1990s from child care programs that have since been repealed. In fiscal year 2001–02, 1144 California State Auditor Report 2002-123.2 California State Auditor Report 2002-123.2 1155 the mandatory fund portion made up 44 percent of the total grant award, and California received only 6.9 percent of this por- tion. In contrast, the “matching fund” portion of this grant in fiscal year 2001–02 was based on a state’s proportion of children under age 13, based on 2000 census data. These statistics yielded California 13 percent of the matching fund portion. If the entire grant were awarded based on the 2000 census statistics, California would have received $66 million more in fiscal year 2001–02. The Maternal and Child Health Services Block Grant to the States also uses old data, and California is penalized significantly. In fiscal year 2001–02, the State received only $43.9 million for this grant, 7.5 percent of the total funding available. This grant California would enables states to maintain and strengthen health care for pregnant have received about women, mothers, infants, and children who do not have access $23.6 million more for to adequate health care. Although the grant’s formula is based a maternal and child on the proportion of a state’s population of children living in health grant in fiscal year poverty compared with the proportion in the entire nation, a 2001–02 had the awards large base portion of the grant is distributed according to the been based on 1990 share states were allocated in 1983 for previous programs with census data instead of a similar focus. Of the total $586 million from the fiscal year 1983 awards for previous 2001–02 award, $422 million of the grant was based on the 1983 programs, and even more allocation. According to the U.S. Department of Health and had they been based on Human Services, California’s share of the base 1983 allocation 2000 census data. is only 5.8 percent. In contrast, California’s share of the other portion of the grant, which is based on 1990 data showing a state’s proportion of the nation’s children living in poverty, was 11.5 percent. California’s grant award for fiscal year 2001–02 would have been $23.6 million higher if the entire grant were awarded based on these data. The 2000 census data, which the U.S. Department of Health and Human Services will use to distribute the additional portion of the award starting in federal fiscal year 2004, indicates an even greater disparity. California’s rate for children in poverty aver- aged 15.3 percent for 1998 through 2000, yet the base amount of this grant, which currently makes up 72 percent of the total grant, will continue to be distributed based on 1983 figures. Similarly, California received only 7.6 percent of the Capitalization Grants for State Revolving Funds in fiscal year 2001–02. These grants are designed to provide funding to states so they can provide low-interest loans and other nongrant financing to local agencies for construction of wastewater treatment facilities. California’s share reflects an allotment percentage established in legislation in 1987. In this case, however, the law does not 1166 California State Auditor Report 2002-123.2 California State Auditor Report 2002-123.2 1177 include a method for determining current need or a process for adjusting even a portion of the grant award. Because of the lack of award criteria, we could not determine whether California’s need for this grant has increased relative to the rest of the United States in the past 15 years. A bill under consideration in Congress would require the program administrator, the U.S. Environmental Protection Agency, to determine the level of need nationwide for use in a funding formula. Nevertheless, the new criteria would apply only to funding in excess of the grant’s current awards of $1.3 billion. Some grants also include provisions guaranteeing a minimum level of funding to the states and territories, reducing the share of funding for California and other large states. For the grants we reviewed, the minimum level of funding tended to affect 10 percent to 25 percent of the total program amounts and is thus a secondary cause of California’s low share for those grants. For example, each state is assured at least 0.5 percent of the Nutrition Services grant. This provision is another factor that reduces California’s grant below its share of the population age 60 and older, the primary basis for awards under the grant, as we discussed on page 15. In some cases, we recognize that equal distribution of a small portion of a grant may be necessary to ensure a minimum level of administration and services in some states. For the greatly expanded State Homeland Security grant, however, minimum funding provisions appear to go beyond ensuring Because of guaranteed minimum services and have a much larger impact on California’s minimum levels of share of funding. This program’s appropriations, signed into law by funding to all states, the president in February and April 2003, will distribute $2.1 billion California’s award for to enhance the capability of state and local emergency responders the State Homeland by allowing for the purchase of advanced equipment. It also seeks to Security grant will be address other homeland security needs, including the development $4.75 per resident, well and conduct of weapons exercises and training programs, the below the $7.14 average protection of critical infrastructure, and administrative costs. per U.S. resident. California will receive only 8 percent of this grant because 40 percent of it will be distributed equally among all states. The remaining 60 percent will be distributed based on a state’s population share. As it stands, the award for California will amount to only $4.75 per resident, well below the $7.14 average per U.S. resident. In contrast, Delaware’s award will amount to $23.75 per resident. If the entire grant were awarded based on population share, California’s award would be $248 million in federal fiscal year 2003, $83.7 million more than actually allocated. 1166 California State Auditor Report 2002-123.2 California State Auditor Report 2002-123.2 1177 California Uses Reasonable Processes to Identify New or Expanded Grant Funding State departments appear to use reasonable processes to identify new or expanded funding from federal grants. They generally identify new and augmented federal funding through public sources such as the Federal Register, informal networks such as national organizations, and direct contact with federal awarding agencies. In California, departments are responsible for identi- fying their own federal funding opportunities, and the role of their overseeing agencies in identifying new funding opportu- nities is generally minimal. There is no central department or agency responsible for helping departments identify new federal funding opportunities. Many departments responding to our survey, described in the Introduction, noted that they identify new funding opportunities through public resources such as the Federal Register. Departments use the The Federal Register is a legal newspaper published daily by the Federal Register, Web National Archives and Records Administration. It contains sites of federal agencies, federal agency regulations, proposed rules and notices, and and participation in executive orders and proclamations. It also contains grant- national organizations to specific notices for a variety of individual grants. Departments identify federal funding also rely on the Web sites of federal awarding agencies. Staff opportunities. members at several departments, including the Department of Child Support Services, the Department of Social Services (Social Services), and the Governor’s Office of Criminal Justice Planning, noted that they frequently check the Web sites of federal awarding agencies in order to stay alert to new information relating to federal funding opportunities. Several departments also noted membership in national organizations and participation in directors’ conferences, which discuss opportunities to apply for new federal funding, as useful tools for identifying funding opportunities. For instance, the Department of Food and Agriculture seeks out information on potential funding opportunities through its participation in the National Association of State Departments of Agriculture. Many departments also stay abreast of new federal grants by staying in direct contact with federal awarding agencies. The California Student Aid Commission and the Department of Alcohol and Drug Programs stated that their regular contact with federal awarding agencies leads to information regarding new or expanded grant opportunities. 1188 California State Auditor Report 2002-123.2 California State Auditor Report 2002-123.2 1199 Although some states have central agencies responsible for identifying new federal funding opportunities, California does not have such an agency. The closest thing to a central agency in California is the state clearinghouse, which serves as California’s federally required single point of state contact for federal grants. The clearinghouse collects and distributes information on federal grant applications that must be publicly noticed for comment. However, it does not provide information on federal grants; nor does it help state or local agencies identify or apply for new grants. The central agencies for some other states help to identify funding opportunities. For example, the goal of Wisconsin’s Federal-State Relations Office, under the Wisconsin Department of Administration, is to ensure that Wisconsin gets its fair share of federal dollars. To meet this goal, it analyzes federal issues and their impact and provides assistance in obtaining federal grants and procurement through education, outreach, training, and other activities. In Texas, the State Grants Team is part of the Texas Governor’s Office of Budget, Planning, and Policy and is responsible for alerting entities throughout Texas about funding opportunities. The team regularly posts a “grant alert” on its Web site that consists of compilations of information about current funding solicitations offered by federal, state, and private grant funding resources. The New York State Assembly produces a monthly publication entitled Grants Action News that provides updates and information on available federal, state, and foundation grants. Despite California’s lack of a similar central agency, our review revealed that departments did not miss grant opportunities because of a lack of awareness. Thus, although the creation of a central agency might yield some benefits to California, they would likely be related to the identification of small grants or to a marginal reduction in the time that agencies spend identifying grants. STATE AND LOCAL POLICIES HAVE LIMITED CALIFORNIA’S SHARE OF FEDERAL FUNDS IN A FEW CASES State and local policies limit California’s share of federal funds for three programs. For the Special Education–Grants to States (Special Education) grant, California’s share is less than would be expected based on its number of children because of the local 1188 California State Auditor Report 2002-123.2 California State Auditor Report 2002-123.2 1199 approach to deeming children eligible for special education California’s federal services. California’s federal funding for the In-Home Supportive funding for the In-Home Services program is also low because of a state program that pays Supportive Services legally responsible relatives to be caregivers, a type of activity program is low because that is ineligible for federal reimbursement. Another agency has of a state program that proposed changing the Access for Infants and Mothers (AIM) pays legally responsible and State Children’s Health Insurance (Children’s Insurance) relatives to be caregivers, programs to increase federal grant funding. In addition, the a type of activity State has chosen not to apply for two small grants for which ineligible for federal it is eligible. These policies have affected the State’s ability to reimbursement. maximize the receipt of federal funds. However, we did not review the effects on stakeholders that a change in government policies for these programs would entail, effects that may outweigh funding considerations. California’s approach to special education appears to reduce its grant share of the related federal Special Education grant. This grant assists states in providing a free appropriate public education to all children with disabilities. According to a report by the U.S. Department of Education, during the 1999–2000 school year, California had 10.2 percent of the nation’s children, ages 3 through 21, served under the federal Special Education program, although the State’s share of the nation’s children was 12.4 percent. This is reflective of the fact that only 6.8 percent of California’s children participated in services covered by the Special Education grant, compared with an average of 8.3 percent of children nationally. California’s participation rate is the third lowest in the United States. In contrast, participation rates for Massachusetts and New Jersey are 10.7 percent and 10.3 percent, respectively. According to the California Department of Education (Education), California’s low share of children served under this program may be due to the assessment practices and rigorous screening of children being considered for special education services. According to Education, local school districts attempt to serve special needs children in the least restrictive environment possible, using early intervention and accommodation in the regular classroom as much as possible, rather than special education. This approach may serve these children’s needs better, but it appears to entail lower levels of participation. The State’s Residual In-Home Supportive Services program, funded solely from state and county sources, has likely reduced the participation of some eligible recipients in the federally supported Personal Care Services program. Both programs provide various services to eligible aged, blind, and disabled 2200 California State Auditor Report 2002-123.2 California State Auditor Report 2002-123.2 2211 persons who are unable to remain safely at home without this type of assistance. The Residual In-Home Supportive Services program provides additional services and serves recipients who are not eligible for the federal program. In addition, the State’s program allows legally responsible relatives to be caregivers to recipients. Legally responsible relatives include spouses and parents who have a legal obligation to meet the personal care needs of their family members. The federal program, in contrast, does not allow payments to such caregivers. According to the analysis of the fiscal year 2002–03 Budget Bill by the Legislative Analyst’s Office, prohibiting legally responsible relatives from acting as paid caregivers would likely cause more of the State’s recipients to become eligible for federal aid from the Personal Care Services program. The Legislative Analyst’s Office estimated that if the State’s eligibility policies mirrored the federal guidelines, federal medical reimbursement for in-home services could have risen, decreasing the State’s costs by $30 million and local costs by $18 million. However, the Department of Finance (Finance) advises that any savings would be offset by increased state costs resulting from the movement of state recipients into more expensive long-term care facilities. Finance preliminarily estimates that to the extent that 17.6 percent of the affected recipients were to move into institutions, the entire savings resulting from mirroring federal guidelines would be offset by increased state costs. In addition, Finance indicates that disallowing in-home services provided by legally responsible relative caregivers would be a major policy change, and would have a significant adverse impact on a large portion of vulnerable clients currently receiving services under the state program. Alternatively, the Department of Health Services (Health Services), in conjunction with Social Services may be able to apply for a A federal waiver waiver under the Medical Assistance program, called Medi-Cal allowing payments in California. This recently developed waiver program, to relatives assisting called Independence Plus, may allow states to claim federal aged, blind, or disabled reimbursement for a portion of the expenditures for caregiver persons could save the services provided by family members. The departments estimate State millions of dollars. that the State may be able to save $133 million of costs currently borne by the State’s Residual In-Home Supportive Services program if this waiver is pursued. They indicated that they are jointly exploring the feasibility of this waiver. 2200 California State Auditor Report 2002-123.2 California State Auditor Report 2002-123.2 2211 The State’s Managed Risk Medical Insurance Board (board) estimates that a programmatic change to its AIM and Children’s Insurance programs would save the State a net of $8 million annually through increased federal reimbursements and greater efficiencies. It has included a program change in the fiscal year 2003–04 Governor’s Budget proposing that infants eligible for the AIM program who meet certain income restrictions be enrolled in the Children’s Insurance program while their mothers continue to receive prenatal and postpartum care under the AIM program. Currently, the primary source of funding for the AIM program is the Proposition 99 Cigarette and Tobacco Surtax funds. Due to restrictions in Proposition 99, these funds may be used only for programs that do not receive funding from federal or private sources. By switching children to the Children’s Insurance program, the State would be able to receive federal funds for up to 65 percent of the costs. This change, however, also would require a greater expenditure of the General Fund. The board estimates that these expenditures may rise by as much as $1.6 million a year. Finally, the State has turned down the opportunity to apply for two grants. Through our review of grants for which California received no funding in fiscal year 2001–02, we identified two The State has not applied grants in which the State could participate: Abstinence Education for two small grants—the and the Pacific Fisheries Data program grants. For the first grant, Abstinence Education and Health Services says that it twice submitted a budget change the Pacific Fisheries Data proposal in which it sought to apply for funding for the grant, programs. but the Legislature rejected the first request and Finance denied the second request. The Abstinence Education program enables states to provide abstinence education and, where appropriate, mentoring, counseling, and adult supervision to promote abstinence from sexual activity. The grant is awarded based on a state’s relative share of children living in poverty, and it requires a 43 percent state match. Based on California’s rate for children in poverty, which averaged 15.3 percent for 1998 through 2000, we estimate that the State could receive as much as $6.1 million in federal funding if it chose to participate in this program and would need to provide up to $4.6 million in state matching funds. The Department of Fish and Game says it did not apply for the second grant, the Pacific Fisheries Data program, because it was focusing on other priority efforts, consistent with its goals, that already had resources available to effectively manage grants. It says that it did not have the additional resources needed to take 2222 California State Auditor Report 2002-123.2 California State Auditor Report 2002-123.2 2233 on new grant management responsibilities. This grant provides support to state fishery agencies to enhance their data collection and analysis systems to respond to fisheries management needs, and it provides up to 100 percent federal funding. It is a project rather than a formula grant, so it is difficult to estimate how much the State might receive. However, according to the Catalog of Federal Domestic Assistance, this program funded a total of $18.6 million in cooperative agreements in federal fiscal year 2002 and financial assistance to grantees ranged from $36,000 to $7.7 million, averaging $3.8 million. CALIFORNIA IS NOT OBTAINING THE MAXIMUM FUNDING AVAILABLE FROM SOME FEDERAL GRANTS, BUT TO DO SO GENERALLY WOULD REQUIRE MORE STATE SPENDING The State has lost some federal dollars because departments were unable to obtain the matching state dollars required by federal programs. For example, a Health Services program to recognize high quality skilled nursing facilities would have received more federal grant money had state matching funds been available. In addition, a reduction in state funding for several transportation- related funds may lead to the loss of federal funding for local projects. The use of state matching dollars to maximize federal funds must, however, be balanced against the State’s other priorities. In other cases, departments say they lack the staff to apply for and manage additional grants. For example, Health Services says it lacks the staff to research and apply for several waiv- ers to federal requirements for its Medi-Cal program. Also, the Department of Housing and Community Development (Housing) states that California’s rural counties lack the financial resources to create the necessary planning documents to receive a possible $2.3 million annually in federal funds under the McKinney-Vento Homeless Assistance Act. The State Lost Some Available Federal Funding Because It Could Not Provide Required Matching Funds and May Lose More in the Future Many of the federal programs under which the State receives funding require that it spend a certain amount of state funding, referred to as matching funds, in order to receive a set amount in federal grant dollars. As such, a department’s inability to 2222 California State Auditor Report 2002-123.2 California State Auditor Report 2002-123.2 2233 obtain state matching funds for a federal program limits the amount of funds it receives from federal agencies. The limited availability of state matching funds has kept Health Services and may keep Transportation from maximizing federal funding. At Health Services, the Quality Awards program, part of the Medi-Cal program, was established to recognize skilled nursing facilities that provide exemplary care to residents. In 2001, the U.S. Department of Health and Human Services agreed to match each dollar in state spending for this program according to the federal Medical Assistance Percentage (matching rate). In recent years, the matching rate has been close to 50 percent, meaning that state funding is matched dollar for dollar. For fiscal years 2001–02 and 2002–03, the federal government agreed to provide as much as $16 million for the program. In fact, however, The lack of matching Health Services received only $4 million in state funding for funds led to the loss this program during fiscal year 2001–02, and it received no state of $12 million for a funding for the program in fiscal year 2002–03 because of cuts Medi-Cal subprogram. in General Fund spending. Consequently, the State received $12 million less in federal funding than it would have if it had spent the originally planned state match. Transportation projects could risk losing federal funding because of a drop in available state matching funds. Our July 2003 report titled California Department of Transportation: Low Cash Balances Threaten the Department’s Ability to Promptly Deliver Planned Transportation Projects, Report 2002-126, noted that the Legislature authorized loans totaling $1.3 billion from the Traffic Congestion Relief Fund (traffic fund) to the General Fund in fiscal years 2001–02 and 2002–03 as the State’s fiscal crisis worsened. This reduced amounts in the traffic fund available for planned projects. The traffic fund then faced further budget uncertainties when the governor’s December 2002 midyear spending reduction proposal called for (1) forgiving $500 million of the loans to the General Fund and (2) suspending the more than $1 billion transfer of state gasoline sales tax revenues from the General Fund to the Transportation Investment Fund, which in turn transfers money to the traffic fund and other transportation funds. A May 2003 revision to the Governor’s Budget would decrease the suspension to $938 million, including up to $678 million for the traffic fund, and require the General Fund to repay these funds eventually. In July 2003, the Legislature enacted bills suspending $856 million in transfers to the Transportation Investment Fund and requiring the General Fund to repay this amount with interest by June 2009. 2244 California State Auditor Report 2002-123.2 California State Auditor Report 2002-123.2 2255 Decreased state funding for traffic fund projects may force implementing agencies to turn to other sources for funding or risk losing federal funds. Data from the California Transportation Commission’s survey of implementing agencies revealed that at least $7.8 billion in other funds needed to complete their projects, including some federal funds, are in jeopardy if traffic fund dollars are not available. For example, the Los Angeles County Metropolitan Transportation Authority reported that if it could not replace traffic fund contributions, it risked losing $490 million in federal funds for one project. In April 2003, it requested that this project replace other projects already earmarked for funding by another state transportation fund in order to secure the federal funding. Administrative Concerns May Lead Agencies to Avoid New Grant Opportunities Some departments cite a general lack of staffing or other administrative issues as a factor limiting their participation in federal programs. For example, under the Medical Assistance program, each state can apply for waivers that remove certain federal requirements for specific components of the overall program. Health Services currently operates under several waivers covering services including clinic services and home and community-based services. According to Health Services, there are several other waivers that it could potentially implement, in addition to the one related to the Residual In-Home Supportive Services program discussed on page 21, if it were able to research, identify, and apply for them. Health Services says its current staff is not large enough to develop additional waiver opportunities, and because it has not been able to research this area it cannot estimate the amount of additional federal funds it might reap. According to data from the U.S. Department of Health and Human Services, in federal fiscal year 2002, California received only 2 percent of the Health Services says it did federal expenditures paid under waivers for the entire Medical not apply for additional Assistance program. It is important to note, however, that funding under the an expansion of the State’s Medi-Cal program related to new Housing Opportunities waivers likely would require an increase in state funding in order for Persons with AIDS to meet the program’s matching requirements. program because of a lack of resources to Health Services also believes that a lack of staff resources has apply for, implement, kept its Acquired Immune Deficiency Syndrome (AIDS) divi- monitor, and evaluate sion from applying for some federal grant dollars. Specifically, the new program. Health Services indicates that it did not apply for additional funding under the Housing Opportunities for Persons with AIDS 2244 California State Auditor Report 2002-123.2 California State Auditor Report 2002-123.2 2255 program because of a lack of resources to apply for, implement, monitor, and evaluate the new program. Health Services states that in each of the last four years it would have applied for the maximum annual grant amount of $1.3 million if it had the resources available to apply for and manage the grant. According to Health Services, the competitive nature of the grant and the annual change in the type of projects funded made it impracti- cal to submit a budget change proposal to increase staff related to this grant. The uncertainty surrounding the long-term need for staff positions and the timing of the application process were additional factors contributing to the decision not to submit a budget change proposal. California’s rural counties also may be forgoing a total of $2.3 million annually from three McKinney Continuum of The administrative Care Homeless Assistance programs under the McKinney- burden of developing Vento Homeless Assistance Act because of concerns over the continuum of care burden of creating the required planning documents. During plans may be keeping fiscal year 2001–02, Housing said that 27 of the State’s counties rural counties from had not completed continuum of care plans, a requirement applying for homeless for receiving funds under the McKinney Continuum of Care assistance grants. Homeless Assistance programs. These plans demonstrate a broad participation of community stakeholders and identify the resources and gaps in a community’s approach to providing a range of homeless services. For rural counties, the administrative burden of developing such plans may outweigh the potential increased federal funding. For example, Housing estimates that Inyo County would be eligible to receive only $31,996 more in annual funding for homeless aid if it developed a plan and won an award. Although efforts to complete a plan may be financially and administratively burdensome for rural counties, under U.S. Department of Housing and Urban Development (HUD) guidelines, the State could develop its own continuum of care plan for the “balance of the state”—those areas that have not created their own continuums. Housing believes, however, that it is infeasible to develop a balance of state plan due to the logistical obstacles involved in bringing together counties from different areas of the State. Instead, Housing is working with HUD to help counties collaborate to develop regional plans, including providing state and federal planning grants for multicounty plans. Housing may have identified another reason why it may not be in the State’s best interests to pursue a continuum of care plan for the balance of the State. According to Housing, funding awarded to California as a whole is higher than its original allocations because other areas of the State are 2266 California State Auditor Report 2002-123.2 California State Auditor Report 2002-123.2 2277 effectively competing for nationwide unused funds. Thus, it believes that any application by the State for rural areas could decrease funding to the existing continuum of care jurisdictions. THE STATE HAS LOST AND MAY CONTINUE TO LOSE SOME FEDERAL FUNDS BECAUSE OF AN INABILITY TO OBLIGATE FUNDS, FEDERAL SANCTIONS, AND BUDGET CONSTRAINTS Over the last three fi scal years, agencies sometimes lost federal funds by failing to obligate funds within the grants’ periods of availability. In addition, noncompliance with program guide- lines in four instances resulted in funding losses of more than $758 million, mostly related to the lack of a statewide child support automation system. Finally, the statewide hiring freeze sometimes keeps agencies from spending available federal fund- ing on grants staff, and a pending budget cut of 10 percent in personnel costs may further limit spending of federal funds. Failure to Obligate Funds Within the Period of Availability Resulted in the Loss of Some Funds In addition to the $1.45 billion in lost funding under the Children’s Insurance program, departments responding to our survey identifi ed nearly $25 million2 in lost federal funds between July 1, 1999, and December 31, 2002, resulting from a failure to obligate and/or liquidate funds within their grants’ periods of availability. The period of availability is the specifi ed time period during which a nonfederal entity may use funds from a federal award. The Children’s Insurance program reversions related to the State’s slow start-up of the federal program in fi scal years 1998–99 through 2000–01. The program now provides services at a level consistent with its annual funding alloca- tion from the federal government; however, it appears that the program will continue to have sizable carry-over funds in future years. The amounts that reverted to the federal government for the other 60 grants identifi ed by the departments we surveyed were small in relation to the total grant award, typically less than 2 percent. 2 Additionally, the Department of Alcohol and Drug Programs is working with the U.S. Department of Education to adjust $2.6 million in expired funding. California State Auditor Report 2002-123.2 222777 The most significant loss of federal funds relates to the Children’s Insurance program grant, which is administered by the Managed Risk Medical Insurance Board (board). This grant helps states Over a three-year provide health care to low-income children who do not period, the State lost have health insurance. According to the board, over the last $1.45 billion in Children’s three years the State has forgone as much as $1.45 billion in Insurance program available federal funding because of a slow start-up and limited funding because of a slow state matching funds. California is not the only state that has start-up of the program. lost available funding under this program. Only 14 states, including New York and Maryland, fully spent their federal fiscal year 2000 allotments by the end of federal fiscal year 2002, the final period of availability for that year. Unspent funds for that year amounted to $2.2 billion nationwide, with California’s $744 million portion making up 34 percent of the total. As a state initiating a new program, California’s need to enroll clients led to a slow start-up of the Children’s Insurance program and a resulting loss of federal funds, which primarily match a state’s spending on insurance coverage for enrollees. According to a report by San Diego State University, administrative start- up costs made up a high proportion of total costs for states with new Children’s Insurance programs, but the federal Children’s Insurance program limits federal funding for these costs to 10 percent of total program costs. Thus, states with new programs had to bear most of the costs for outreach and other administrative expenditures during this phase. In contrast, states with existing programs, such as New York, were able to spend their entire grant awards and qualify for additional funding because their administrative costs were relatively low and their number of enrollees was large. Additionally, Health Services stated that California had delays in obtaining outreach contracts with 72 community-based organizations because of insufficient staff and lengthy contractor negotiations. Moreover, enrollment barriers such as linguistic diversity and families split between the Children’s Insurance and Medi-Cal programs, further slowed enrollment of children into the program. As shown in Figure 2, California has not had enough qualified program expenditures to use its total annual allocations each year, but expenditures have been rising steadily. Unspent annual allocations, which can be carried over for two years, less funds reverting after the two-year cutoff, have been substantial. This has led to a high balance of available funding. According to estimates by the board, reimbursable program expenditures will approximate its annual allocations in the next few years. Thus, 2288 California State Auditor Report 2002-123.2 California State Auditor Report 2002-123.2 2299 the board estimates that in the next few years carry-over funds, though still large, will continue to decline, and reversions to the federal government will stop after October 2003. FIGURE 2 A Large Balance of Available Children’s Insurance Funding Exists Despite Reversions of Funding ��������� ���������� ������ ������������ ����� ����� ����� ����� ��� � ���� ���� ���� ���� ���� Limited state matching funds also have affected the Children’s Insurance program. For example, the board said it has not implemented an approved federal waiver to include the parents of eligible children because it lacks the approximate one-third state funding share required to match the available federal funds. The board indicated that a lack of state funding also has resulted in the reduction of outreach activities for the Children’s Insurance program. The State has tried to develop new sources of matching funds for the Children’s Insurance program. In October 2001, the governor signed Assembly Bill 495 (Chapter 648, Statutes of 2001), which established a mechanism for collecting local funds and matching them with federal funds available under the program. A new fund established 2288 California State Auditor Report 2002-123.2 California State Auditor Report 2002-123.2 2299 ����������������� ����������������� Source: Managed Risk Medical Insurance Board. by this bill accepts intergovernmental transfers from local gov- ernments as the nonfederal matching funds for programs at the county level. As of June 2003, however, the State Controller’s Office indicates that this fund has received no revenues. Of the other departments with reverted funds, Education reported the largest total. As of May 2003, it indicated that 29 grants had reverted more than $17.6 million over the past three fiscal years. This amounted to less than 0.5 percent of the $3.9 billion in total awards for these grants. Of the reverted funds, the largest amount, totaling more than $11 million, related to a program that is no longer active. As of July 31, 2002, the Comprehensive School Reform grant lost the second largest proportion, $2.6 million out of its $16.2 million award for fiscal year 1999–2000. Education said the reversion resulted from a lack of spending authority in the award’s first year and the resulting inability of Education to award two years’ worth of grant funds to subgrantees within the period of availability. Program Noncompliance Resulted in Lost Federal Funds Noncompliance with federal guidelines in four instances resulted in penalties, judgments, and ineligibility for federal reimbursements of more than $758 million over the past three fiscal years. Since 1999, California has paid federal penalties for failing to implement a statewide child support automation system. Through July 2003, the total amount of federal penalties paid by the State amounted to nearly $562 million. Before federal fiscal year 2002, the penalty amounts owed reduced federal awards for the Child Support Enforcement program administered by the Since 1999, the State Department of Child Support Services (Child Support Services); has been penalized since then Child Support Services has received its full award but $562 million for not paid the penalties from state funds. The estimated penalty pay- having a statewide child ment for fiscal year 2003–04 is $207 million. support automation system, but it is working As a step toward eliminating the penalties, the Legislature to develop one. enacted Chapter 479, Statutes of 1999, providing guidelines for procuring, developing, implementing, and maintaining a single, statewide system to support all 58 counties and comply with all federal certification requirements. In June 2003, Child Support Services and the Franchise Tax Board, which is managing the project, submitted a proposal to the Legislature to enter into a contract with an information technology company to begin the first phase of project development in July 2003, 3300 California State Auditor Report 2002-123.2 California State Auditor Report 2002-123.2 3311 with implementation in the 58 counties to be completed by September 2008. The total 10-year project cost is $1.3 billion, of which $801 million is for the contract. The federal government has conditionally approved the project, which is estimated to be eligible for 66 percent federal funding. At Social Services, the U.S. Department of Agriculture (USDA) imposed sanctions because county error rates for the Food Stamp program exceeded the national standard. Under current USDA rules, states must maintain a quality control system to review a sample of their food stamp cases to determine the state’s error rate. When a state’s error rate exceeds the annual allowable error rate that the USDA establishes, the state is assessed a sanction based upon the difference between its error rate and the standard. For federal fiscal years 2001 and 2002, California’s error rate for the Food Stamp program exceeded the federal standard by 8.7 percent and 6.6 percent, respectively. In February 2003, Social Services appealed the $114.3 million sanction for federal fiscal year 2001, stating that the USDA did not consider certain factors that would adjust the error rate and reduce the sanction to zero. The USDA responded to the appeal in May 2003, concluding that California had failed to state a claim upon which relief could be granted and was therefore not entitled to any penalty relief. In June 2003, Social Services received a nearly $62.6 million sanction for federal fiscal year 2002, which it has the option to settle or appeal. Social Services says it is working to improve its error rate by expanding its oversight of the Food Stamp program, requiring quarterly rather than monthly reports, and hiring contractors to evaluate targeted counties with high error rates to determine the causes and develop corrective action plans and goals. It says the State has made significant improvement in food stamp payment accuracy during the first five months of federal fiscal year 2003, decreasing the error rate by 6.8 percent compared to federal fiscal year 2002. At the Department of Developmental Services (Developmental The State has lost Services), decertification of nine of the 22 residential units at the more than $16 million Porterville Developmental Center (Porterville) in September 2001 annually because of caused an annual loss of more than $16 million in federal funds. the decertification of These units were decertified because they were not compatible nine residential units with federal program requirements such as consumer freedom, at the Porterville access, and community integration. Medi-Cal generally reimburses Developmental Center. developmental centers for about half of most costs, but the decertification made the nine units ineligible for federal funding. Developmental Services states that it is a recent trend by the federal 3300 California State Auditor Report 2002-123.2 California State Auditor Report 2002-123.2 3311 Centers for Medicare and Medicaid to deny certification to secure treatment programs similar to Porterville’s and that certification may not be possible for these programs. Porterville will reapply for certification of some of the nine units when it completes some capital outlay projects to increase activity and programming space and expand housing on the campus, and obtains sufficient support from community members to allow for more community integration off the campus. Similarly, the Department of Veterans Affairs estimates that it lost $3.5 million in federal funds when certification was withdrawn for the Veterans Home of California, Barstow (Barstow home) in July 2000. This decertification prevented the Barstow home from qualifying for federal payments for its daily care of residents and for Medicare and Medi-Cal reimbursements. Health Services recertified the Barstow home effective January 17, 2002, and the home resumed billing the federal government for services performed. In a subsequent action, the Department of Veterans Affairs decided in March 2003 to limit the services provided at the Barstow home as a result of continual problems with recruiting and retaining an adequate number of qualified licensed nurses. The Current Hiring Freeze Has and a Proposed 10 Percent Staff Reduction May Limit Agencies’ Ability to Spend Federal Funds on Grants Staff In order to address the State’s significant decline in revenues, the governor has undertaken several initiatives to reduce spending on personnel. These include a hiring freeze in effect since October 2001 and a 10 percent reduction in staffing proposed in April 2003. The hiring freeze already has had a negative effect on some federal programs, and the 10 percent reduction may affect them as well. As a result of a hiring freeze established to reduce state expenditures, managers of federal programs at two state departments say they have been unable to fill positions that receive some federal funds. On October 23, 2001, the governor issued an executive order prohibiting state agencies and departments from filling vacancies that would constitute a new hire to state government. This hiring freeze prohibited new hires regardless of the fund paying for the position. Although certain positions and appointments, such as public health and safety personnel, and personnel directly involved in producing state revenues, are excluded from the order, other positions are 3322 California State Auditor Report 2002-123.2 California State Auditor Report 2002-123.2 3333 subject to provisions of the hiring freeze. On July 1, 2003, the governor issued a similar executive order extending the freeze through June 30, 2005. After the October 2001 executive order, Finance directed agencies, departments, and other state entities to enforce the hiring freeze. It also established a process for exempting some positions. The process includes explaining why a particular position should be exempted and what the effect of not granting an exemption would be. Departments and their oversight agencies must approve the exemptions and then forward them to Finance for approval. In response to our survey, staff at two The federal government departments said the hiring freeze and an inability to obtain noted that vacant positions exemptions had affected their federal programs negatively. within a cancer prevention In September 2002, the U.S. Centers for Disease Control and program and difficulties in Prevention (CDC) wrote to Health Services noting nine vacant filling positions due to the positions within the State’s National Cancer Prevention and hiring freeze were major Control program and difficulties in filling vacancies due weaknesses. to the state-imposed hiring freeze as major weaknesses. It recommended that the program continue to push for exceptions to the hiring freeze and find the best and quickest way possible to fill the many vacancies. In a December 2002 letter of response to the CDC, Health Services indicated that it had filled some vacant positions, and in March 2003 Health Services sent exemption requests for five federally funded positions to Finance, four of which Finance denied. As of June 2003, Health Services says that the CDC plans to reduce the National Cancer Prevention and Control program grant for the 12 months ending June 30, 2004, to $8.4 million from the $10.6 million awarded for the nine months ending June 30, 2003. Health Services said an important element in the CDC’s reduction was the department’s inability to fill vacant federally funded positions. For this grant, the federal government requires the State to provide at least 25 percent in matching funds. Similarly, the USDA informed Education’s Nutrition Services Division (division) in September 2002 that through a management evaluation it had identified corrective actions in several areas where a lack or shortage of staff contributed to findings. It was concerned about staffing shortages in a unit responsible for conducting reviews and providing technical assistance to sponsoring institutions participating in the child nutrition programs. It warned that the USDA may withhold some or all of the federal funds allocated to Education if it determines that Education is seriously deficient in the administration of any program for which state administrative 3322 California State Auditor Report 2002-123.2 California State Auditor Report 2002-123.2 3333 funds are provided. The USDA noted that a mix of federal funds and General Fund maintenance of effort appropriations support the vacant positions. In May 2003, the State Superintendent of Public Instruction wrote to the Governor’s Office asking for approval of a blanket freeze exemption allowing Education to fill all division vacancies, reestablish 12 division positions eliminated during the fiscal year 2002–03 reduction of positions, and exempt the division from a proposed 10 percent reduction in staff. It appears that exemption requests for some federally funded positions have passed administrative hurdles at the Finance has approved departmental and agency levels and have been approved by some hiring freeze Finance. Finance has not maintained statewide statistics to exemptions where track the number of requests for or approvals of hiring freeze departments presented a exemptions. However, it was able to provide examples of compelling need. approved exemptions for positions that are fully federally funded where departments presented a compelling need. For example, Social Services requested an exemption to fill seven positions for clerical support in its disability unit. Finance reviewed the reason for the exemption, identifying federal approval for an increase in workload for the unit, and subsequently approved the exemption. Finance’s Health and Human Services Unit also stated that from January through May 2003, it received requests to exempt 1,536 positions and approved 1,105 positions, many of which are partly supported by federal funds. As noted earlier, the Superintendent of Public Instruction has requested an exemption for one division at Education from a proposed 10 percent reduction in personnel. On April 1, 2003, Finance and the Department of Personnel Administration informed departments that they had to prepare a reduction plan and associated layoff plan to reduce personnel budgets by at least 10 percent in additional ongoing costs. These cuts might be implemented in the event that proposed reductions contained in the fiscal year 2003–04 Governor’s Budget are not realized in a timely manner. The proposed budget reduction would cut employee compensation costs by $855 million over the fiscal year, of which $470 million would relate to the General Fund. Finance instructed departments to place a priority on eliminat- ing positions that would produce immediate savings, such as vacant positions, temporary employees, and student assistants. All position reductions would be permanent, and therefore Finance told department directors to be prepared to address and 3344 California State Auditor Report 2002-123.2 California State Auditor Report 2002-123.2 3355 defend why they chose to cut particular positions and to explain the expected programmatic impact of eliminated positions. The reduction plan must contain a fund split that mirrors the split between the General Fund and all other funds combined in the fiscal year 2003–04 Governor’s Budget. For departments with significant federal funding, it may be difficult to meet the goal of reducing personnel budgets by 10 percent without jeopardizing federal funding or the administration of federal programs. Since this initiative is still being developed, however, it is unclear how or whether federal funds would be affected. Nevertheless, policy makers should consider carefully the potential loss of federal funding that would result from a reduction in federal program staff. RECOMMENDATIONS As federal grants are brought up for reauthorization, the Legislature, in conjunction with the California congressional delegation, may wish to petition Congress to revise grant formulas that use out-of-date statistics to determine the share of grants awarded to the states. The Legislature may wish to ask departments to provide information related to the impact of federal program funding when it considers cuts in General Fund appropriations. Finance should ensure that it considers the loss of federal funding before implementing personnel reductions related to departments’ 10 percent reduction plans. Health Services should continue to work with Social Services to determine the feasibility of pursuing an Independence Plus waiver that may allow the State to claim federal reimbursement for a portion of the expenditures for caregiver services provided by legally responsible family members to participants in the In-Home Supportive Services program. 3344 California State Auditor Report 2002-123.2 California State Auditor Report 2002-123.2 3355 We conducted this review under the authority vested in the California State Auditor by Section 8543 et seq. of the California Government Code and according to generally accepted government auditing standards. We limited our review to those areas specified in the audit scope section of this report. Respectfully submitted, ELAINE M. HOWLE State Auditor Date: August 6, 2003 Staff: Nancy C. Woodward, CPA, Audit Principal James R. Sandberg-Larsen, CPA Michelle R. Ludwick Cameron Swinko, CMA Amari B. Watkins, CPA Paul P. Zahka 3366 California State Auditor Report 2002-123.2 California State Auditor Report 2002-123.2 3377 APPENDIX Grants for Which California Received Less Than Its Population Share in State Fiscal Year 2001–02 In the Audit Results, we state that California received a less than 12 percent share for 36 of the 86 grants making up 90 percent of total federal grant funding in fiscal year 2001–02. (The State’s share of the U.S. population (population share) is 12 percent.) The following tables present California’s share of the total national grant during that period and the amount of California’s actual award according to the Federal Assistance Award Data System. They also show the amount by which California’s actual award fell below an allocation based solely on population share. The tables list the grants by the factors, established by law or regulation, that determine the funding level. In total, California’s awards for these grants fell below an allocation based solely on population share by $5.3 billion. 3366 California State Auditor Report 2002-123.2 California State Auditor Report 2002-123.2 3377 3388 California State Auditor Report 2002-123.2 California State Auditor Report 2002-123.2 3399 na woleb llaf ot erahs drawa sti gnisuac ,erahs wol ylevitaler a sah ainrofilaC hcihw rof snoitalupop tegrat no desab sdnuf drawa taht stnarg 01 stneserp 1.A elbaT ylevitaler a seviecer ti os ,etats dezinabru ylhgih a si ainrofilaC .stnarg 01 eht fo eerht sevird noitalupop larur ,ecnatsni roF .noitalupop no ylelos desab noitacolla .gnisuoh denwo ylcilbup dna ,ylredle ,seeyolpme laredef fo egatnecrep wol a sah osla ainrofilaC .stnarg eseht fo erahs wol 1.A ELBAT noitalupoP tegraT eht fo erahS woL a saH ainrofilaC hcihW rof stnarG 20–1002 raeY lacsiF tnuomA rednU latoT noitalupoP ainrofilaC laredeF erahS s’ainrofilaC sdrawA sdrawA lapicnirP ni sralloD( tnecreP ni sralloD( ni sralloD( drawA eht rof sisaB eht yhW ro tnanimreteD drawA fo epyT seetnarG )snoilliM erahS )snoilliM )snoilliM elbarovafnU sI drawA rof sisaB ecnatsissA emaN margorP fo tnemtrapeD )94( $ %20.01 842$ 374,2$ fo erahs hgih a sah ainrofilaC evitartsinimda fo emulov s’etatS alumroF troppuS dlihC troppuS dlihC snoitcelloc eraC retsoF dna FNAT stsoc tset ytinretap dna sesnepxe tnemecrofnE %001 ;secivreS ,tnemnrevog laredef eht ot eud etats eht tnuoma eht yb decuder laredef eht stesffo yllaitrap hcihw rof tnemnrevog laredef eht sewo evitartsinimda rof noitubirtnoc morf stnemesrubmier ecnatsissa .stsoc tset ytinretap dna sesnepxe yraropmeT eht ni stnapicitrap )FNAT( seilimaF ydeeN rof ecnatsissA smargorp eraC retsoF dna fo tnemtrapeD )79( 47.3 44 671,1 larur eht fo erahs s’ainrofilaC ,gnidworcrevo gnisuoh ,ytrevoP alumroF ytinummoC dna gnisuoH .wol si noitalupop larur a nihtiw gnisuoh fo ega dna kcolB tnempoleveD ytinummoC noitalupop margorP s’etatS/stnarG ;tnempoleveD %001 nur-etatS )73( 37.2 11 304 mraf dna larur fo erahs s’ainrofilaC ,noitalupop mraf ,noitalupop laruR /alumroF noisnetxE evitarepooC %001 ;seitisrevinu .wol si snoitalupop tnemtolla 2691 tcejorP ecivreS ecfifO s’ronrevoG )752( 21.0 2 951,2 yllaredef laminim dah ainrofilaC ycnegreme ro retsasid rof deeN tcejorP ecnatsissA retsasiD ycnegremE fo ycnegreme dna retsasid deralced *ecnatsissa %001 ;secivreS .20–1002 raey lacsfi ni stneve ecnatsissa loohcs lacoL )54( 09.7 68 190,1 laredef fo erahs wol a sah ainrofilaC ohw seeyolpme laredef dna yratiliM alumroF diA tcapmI %7.99 ;stcirtsid .seeyolpme tcejbus ton ytreporp laredef no krow sexat lacol ot eht fo tnemtrapeD )13( 69.6 34 816 llams ylevitaler a sah ainrofilaC stnacilppa elbigile ot detnarg sdrawA tcejorP drauG lanoitaN %001 ;yratiliM sti ot nosirapmoc ni drauG lanoitaN sisab evititepmoc a no snoitarepO yratiliM .erahs noitalupop ecnanetniaM dna stcejorP tcirtsid laicepS )103( 23.3 511 864,3 ylcilbup fo erahs wol a sah ainrofilaC denwo ylcilbup elbaliava fo rebmuN tcejorP naidnI dna cilbuP ;stnemnrevog .gnisuoh denwo gnitarepo fo tsoc eht ;stinu gnisuoh gnisuoH %001 ytilitu egareva sulp ,tinu egareva na stsoc 3388 California State Auditor Report 2002-123.2 California State Auditor Report 2002-123.2 3399 tnuomA rednU latoT noitalupoP ainrofilaC laredeF erahS s’ainrofilaC sdrawA sdrawA lapicnirP ni sralloD( tnecreP ni sralloD( ni sralloD( drawA eht rof sisaB eht yhW sisaB ro tnanimreteD drawA fo epyT seetnarG )snoilliM erahS )snoilliM )snoilliM elbarovafnU sI drawA rof ecnatsissA emaN margorP tfiorpnoN )51($ %33.8 43$ 114$ ylredle wol a sah ainrofilaC atipac rep ,noitalupop ylredlE /alumroF ytinummoC roineS ;snoitaroproc sti htiw derapmoc noitalupop muminim etats ,emocni tcejorP tnemyolpmE ecivreS %5.36 atipac rep a dna erahs noitalupop margorP .egareva lanoitan eht evoba emocni fo tnemtrapeD )51( 43.9 35 565 ylredle wol a sah ainrofilaC muminim etats ,noitalupop ylredlE alumroF rof smargorP laicepS %001 ;gnigA sti htiw derapmoc noitalupop ,III eltiT ,gnigA eht .erahs noitalupop noitirtuN ,C traP secivreS ;stnemnrevog ytiC )85( 38.1 01 765 larur eht fo erahs s’ainrofilaC noitalupop laruR tcejorP etsaW dna retaW %001 .wol si noitalupop rof smetsyS lasopsiD seitinummoC laruR .stnarg gnilesnuoC sisirC dna ecnatsissA cilbuP gnidulcni stnarg rellams lareves otni tilps saw tnarg ecnatsissA retsasiD ehT * 4400 California State Auditor Report 2002-123.2 California State Auditor Report 2002-123.2 4411 sdrawa ni gnitluser ,slevel gnidnuf etats muminim deetnaraug ro noitamrofni etad-fo-tuo gnisu serahs etats enimreted taht salumrof htiw stnarg xis stsil 2.A elbaT atad sesu setatS ot stnarG noitatilibaheR lanoitacoV–secivreS noitatilibaheR eht ,elpmaxe roF .noitalupop .S.U eht fo erahs tnecrep 21 s’ainrofilaC woleb gnillaf a ta dexfi sdnuf setacolla setatS eht ot tnarG kcolB secivreS htlaeH dlihC dna lanretaM eht dna ,sdrawa ’setats eht fo snoitrop enimreted ot s0791 etal eht morf .61 egap ees ,eussi siht no noitamrofni erom roF .level tnemtolla 3891 2.A ELBAT sleveL gnidnuF etatS muminiM eetnarauG hcihW ro noitamrofnI detadtuO no desaB stnemtollA 20–1002 raeY lacsiF tnuomA rednU latoT noitalupoP ainrofilaC laredeF erahS s’ainrofilaC sdrawA sdrawA lapicnirP ni sralloD( tnecreP ni sralloD( ni sralloD( drawA eht rof sisaB eht yhW sisaB ro tnanimreteD drawA fo epyT seetnarG )snoilliM erahS )snoilliM )snoilliM elbarovafnU sI drawA rof ecnatsissA emaN margorP retaW etatS )65( $ %65.7 59 $ 952,1$ rof nosaer eht enimreted tonnac eW erahs tnecrep dexfi yllanoissergnoC alumroF stnarG noitazilatipaC lortnoC secruoseR eht esuaceb erahs wol s’ainrofilaC oN .7891 raey lacsfi laredef morf gnivloveR etatS rof %001 ;draoB .denfied llew ton si drawa eht rof sisab revird ticilpxe sdnuF fo tnemtrapeD )04( 94.01 572 126,2 rof elbigile noitalupop s’ainrofilaC siht fo noitrop ”dnuf yrotadnam“ ehT alumroF yrotadnaM eraC dlihC %5.99 ;noitacudE yltnacfiingis desaercni sah tnarg siht s’etats a no desab dedrawa si tnarg sdnuF gnihctaM dna .s0991 ylrae eht ecnis ylrae eht ni gnidnuf laredef fo erahs dna eraC dlihC eht fo smargorp erac dlihc morf s0991 dnuF tnempoleveD ehT .delaeper neeb ecnis evah taht no desab si noitrop ”dnuf gnihctam“ rednu nerdlihc fo noitroporp s’etats a .31 ega fo tnemtrapeD )91( 18.01 571 816,1 seetnaraug taht noisivorp tnarg A yratnemelE fo erahs tnecrep tsehgiH tcejorP noitcudeR eziS ssalC %001 ;noitacudE eht ot gnidnuf fo level muminim a tcA noitacudE yradnoceS dna s’ainrofilaC stimil seirotirret dna setats lanoisseforP rewohnesiE ro I eltiT .tnarg siht fo erahs ,8991 ni tnarg etatS tnempoleveD muminim etats tnemtrapeD )421( 66.4 87 486,1 ygrene emoh fo erahs s’ainrofilaC stsoc ygrene emoh ,tnemtolla 4891 alumroF emoH emocnI-woL ytinummoC fo eht ecnis desaercni sah serutidnepxe sdlohesuoh emocni-wol fo ecnatsissA ygrenE dna secivreS .s0891 ;tnempoleveD %4.99 fo tnemtrapeD )62( 05.7 44 685 ni nerdlihc fo noitalupop s’ainrofilaC siht rof setats ot tnemtolla 3891 alumroF dlihC dna lanretaM ;secivreS htlaeH .3891 ecnis desaercni sah deen emocni-wol fo noitroporp ,margorp kcolB secivreS htlaeH %001 nerdlihc setatS eht ot tnarG fo tnemtrapeD )55( 08.9 342 184,2 no desab si erahs s’ainrofilaC 8791 ,emocni atipac rep ,noitalupoP alumroF noitatilibaheR ;noitatilibaheR .8791 morf noitamrofni detadtuo muminim etats ,tnemtolla etats lanoitacoV–secivreS %001 si emocni atipac rep s’ainrofilaC stnarG noitatilibaheR lanoitan eht naht rehgih ylthgils setatS ot .egareva 4400 California State Auditor Report 2002-123.2 California State Auditor Report 2002-123.2 4411 era taht saera no desucof yletanimoderp era srevird drawa eht esuaceb sdnuf fo erahs rewol a gniviecer si ainrofilaC hcihw rof stnarg owt stneserp 3.A elbaT no noitamrofni erom rof 21 egap ees esaelP .egasu leuf leseid sa hcus ,kaew si ainrofilaC hcihw ni srotcaf drawot dethgiew era salumroF .etatS eht ot elbarovafnu .tnarG noitcurtsnoC dna gninnalP yawhgiH eht 3.A ELBAT ainrofilaC ot elbarovafnU saerA ni dethgieW salumroF 20–1002 raeY lacsiF tnuomA rednU latoT noitalupoP ainrofilaC laredeF erahS s’ainrofilaC sdrawA sdrawA lapicnirP ni sralloD( tnecreP ni sralloD( ni sralloD( drawA eht rof sisaB eht yhW sisaB ro tnanimreteD drawA fo epyT seetnarG )snoilliM erahS )snoilliM )snoilliM elbarovafnU sI drawA rof ecnatsissA emaN margorP ;tnemnrevog ytiC )231( $ %78.6 771 $ 575,2 $ stropria yramirp yltsom sah ainrofilaC noitacolla rewol a htiw tnuoma esaB tcejorP tnemevorpmI tropriA %44 emoS .stnuoc regnessap hgih htiw tnuoc regnessap sa regnessap rep margorP ytilicaf regnessap a esopmi stropria tropria fi decuder si esab ;sesaercni ytnuoC rieht gnisaerced ybereht ,egrahc ytilicaf regnessap a sesopmi %93 ;tnemnrevog .stnemeltitne regnessap fo erahs ,noitalupop ,aera dnal etats ;egrahc dna aera dnal wol sah etatS eht ,oslA stropria yramirpnon ot nosirapmoc ni stropria yramirpnon .erahs noitalupop sti fo tnemtrapeD )716,1( 85.7 177,2 765,63 fo tsom fo noitroporp s’ainrofilaC ,selim etatsretni ,selim lairetrA /alumroF dna gninnalP yawhgiH ;noitatropsnarT taht salumrof eht fo stnenopmoc eht etats ;selim gnivird ,selas leuf leseid tcejorP noitcurtsnoC %4.39 .wol era erahs s’etatS eht evird muminim 4422 California State Auditor Report 2002-123.2 California State Auditor Report 2002-123.2 4433 lacideM eht rof sdnuf fo erahs rewol a seviecer ainrofilaC ,ecnatsni roF .serudecorp ro seicilop lacol ro etatS yb desuac serahs wol htiw stnarg ruof stsil 4.A elbaT noitacifitreC dna yevruS etatS eht fo erahs s’ainrofilaC nosaer eno ,noitidda nI .eellorne rep sdneps etatS eht tnuoma wol eht fo esuaceb tnarg margorP ecnatsissA gnisrun fo snoitcepsni s’etatS eht esuaceb drawa s’etatS eht desaercni ton sah tnemnrevog laredef eht taht si wol si tnarg sreilppuS dna sredivorP eraC htlaeH fo .dlohserht egareva lanoitan eht naht regnol tnecrep 51 naht erom ,egareva no ,ekat semoh 4.A ELBAT serudecorP ro seiciloP lacoL ro etatS ot elbatubirttA gnidnuF fo erahS woL 20–1002 raeY lacsiF tnuomA rednU latoT noitalupoP ainrofilaC laredeF erahS s’ainrofilaC sdrawA sdrawA lapicnirP ni sralloD( tnecreP ni sralloD( ni sralloD( drawA eht rof sisaB eht yhW sisaB ro tnanimreteD drawA fo epyT seetnarG )snoilliM erahS )snoilliM )snoilliM elbarovafnU sI drawA rof ecnatsissA emaN margorP %44 ;stfiorpnoN )91( $ %99.7 93 $ 684 $ tnemtraped eht ot gnidroccA stnacilppa elbigile ot detnarg sdrawA tcejorP detadilosnoC drawa s’etatS eht gniretsinimda sisab evititepmoc a no egdelwonK ;tnemnrevog ytiC ton esohc ti ,tnarg siht rednu dna tnempoleveD %4.41 llams lanoitidda rof ylppa ot margorP noitacilppA ytnuoC gnfifats fo esuaceb sdrawa tnarg %41 ;tnemnrevog .stniartsnoc fo tnemtrapeD )720,2( 26.01 526,51 201,741 si eellorne rep gnidneps s’ainrofilaC rof ecnatsissa lacidem no gnidnepS alumroF ecnatsissA lacideM ;secivreS htlaeH ehT .etats rehto yna fo taht naht ssel rep etats ,slaudividni emocni-wol margorP %001 gnihctam tsewol eht seviecer etatS emocni atipac ,tnecrep 05 ,elbissop egatnecrep si emocni atipac rep sti esuaceb .egareva lanoitan eht evoba ylthgils fo tnemtrapeD )501( 23.01 056 692,6 sezisahpme ycilop lacol dna etatS eht rednu devres nerdlihc fo rebmuN alumroF -noitacudE laicepS %001 ;noitacudE ni nerdlihc sdeen-laiceps gnipeek noitacudE seitilibasiD htiw slaudividnI setatS ot stnarG ,tnemnorivne evitcirtser tsael eht tcA nehw noitacude laiceps gnidiova .elbissop fo tnemtrapeD )21( 32.9 14 444 desaercni ton saw drawa s’ainrofilaC lanoitan ;stseuqer tegdub etatS alumroF dna yevruS etatS ;secivreS htlaeH etatS eht esuaceb raey siht ni delliks rof semit yevrus egareva htlaeH fo noitacfiitreC %9.99 eht erom ro tnecrep 51 yb dedeecxe seitilicaf gnisrun dna sredivorP eraC rof dlohserht emit egareva ediwnoitan sreilppuS .syevrus emoh gnisrun gnitelpmoc 4422 California State Auditor Report 2002-123.2 California State Auditor Report 2002-123.2 4433 ,elpmaxe roF .sisab evititepmoc a no stnacilppa etatsnon ot ylno dedrawa era dna erahs noitalupop s’etatS eht woleb llef taht stnarg tcejorp evfi stneserp 5.A elbaT elbigile fo ytiliba ehT .snoitazinagro labirt dna sebirt dezingocer yllaredef ot elbaliava si margorP tnempoleveD tnemeganaM htlaeH—ecivreS htlaeH naidnI eht .sdrawa eseht fo erahs s’ainrofilaC senimreted stnarg eseht rof etepmoc ot stnacilppa etatsnon 5.A ELBAT sisaB evititepmoC a no stnacilppA etatsnoN elbigilE ot detnarG sdrawA 20–1002 raeY lacsiF tnuomA rednU latoT noitalupoP ainrofilaC laredeF erahS s’ainrofilaC sdrawA sdrawA lapicnirP ni sralloD( tnecreP ni sralloD( ni sralloD( drawA eht rof sisaB eht yhW sisaB ro tnanimreteD drawA fo epyT seetnarG )snoilliM erahS )snoilliM )snoilliM elbarovafnU sI drawA rof ecnatsissA emaN margorP loohcs lacoL )41($ %86.9 65 $ 285 $ lacol s’etatS eht lla ton taht sraeppa tI elbigile ot detnarg era sdrawA tcejorP yrutneC ts12 %8.88 ;stcirtsid siht rof deilppa seicnega lanoitacude ,sisab evititepmoc a no stnacilppa gninraeL ytinummoC .tnarg *.muminim etats sretneC %8.57 ;stfiorpnoN )34( 82.7 76 919 rewol a evah ot sraeppa ainrofilaC elbigile ot detnarg era sdrawA tcejorP htlaeH ytinummoC siht rof gniylppa stnacilppa fo erahs .sisab evititepmoc a no stnacilppa sretneC .tnarg nur-etatS )42( 60.01 221 112,1 rewol a evah ot sraeppa ainrofilaC elbigile ot detnarg era sdrawA tcejorP ralucsaV dna traeH ;seitisrevinu siht rof gniylppa stnacilppa fo erahs .sisab evititepmoc a no stnacilppa hcraeseR sesaesiD %5.35 .tnarg ;stfiorpnon rehtO %2.91 ;sebirt naidnI )64( 47.2 41 794 fo egatnecrep llams a sah ainrofilaC yllaredef ot detnarg era sdrawA tcejorP —ecivreS htlaeH naidnI ;%36 .stnapicitrap margorp elbigile labirt dna sebirt dezingocer tnemeganaM htlaeH .sisab evititepmoc a no snoitazinagro tnempoleveD %82 ;stfiorpnoN margorP ;stnemnrevog ytiC )73( 85.5 23 285 fo egatnecrep llams a sah ainrofilaC elbigile ot detnarg era sdrawA tcejorP ,seidutS ,syevruS %6.04 .stnapicitrap margorp elbigile .sisab evititepmoc a no stnacilppa dna snoitagitsevnI esopruP laicepS tcirtsid laicepS stnarG ;stnemnrevog %7.43 .2002 raey lacsfi laredef ni ainrofilaC ot elbarovaf erom si taht tnarg alumrof a otni gninoitisnart nageb tnarg sihT* Table A.6 lists the remaining nine grants whose share of awards fell below California’s 12 percent population share. These grants did not meet our cutoff requirements for further investigation, except for the HOME Investment Partnerships Program. TABLE A.6 Remaining Grants That Fell Below California’s Population Share Fiscal Year 2001–02 Amount Under Total Federal California Population Awards Awards California’s Share Type of (Dollars in (Dollars in Percent (Dollars in Program Name Assistance Millions) Millions) Share Millions) Byrne Formula Grant Program Formula $ 492 $ 51 10.35% $ (8) Capitalization Grants for Drinking Water State Revolving Funds Formula 733 87 11.86 (1) Center for Research for Mothers and Children Project 557 65 11.59 (2) Drug Abuse Research Programs Project 613 66 10.80 (7) Employment Service Formula 749 89 11.91 (1) HOME Investment Partnerships Program* Formula 1,476 164 11.08 (14) Lung Diseases Research Project 469 51 10.83 (6) School Renovation Grants Formula 1,170 139 11.92 (1) Vocational Education-Basic Grants to States Formula 1,077 121 11.22 (8) * The HOME Investment Partnerships Program is awarded based on several factors including poor households living in rental units built before 1950. It also has a state minimum provision. During our investigation of this grant, we determined that the awards listed on the Federal Assistance Award Data System reflect funding for approved projects, rather than the overall grant allocation. California’s share of allocations was around 13.5 percent in federal fiscal years 2001 and 2002. 4444 California State Auditor Report 2002-123.2 California State Auditor Report 2002-123.2 4455 Agency’s comments provided as text only. Department of Finance Office of the Director State Capitol, Room 1145 Sacramento, CA 95814-4998 July 25, 2003 Ms. Elaine M. Howle State Auditor Bureau of State Audits 555 Capitol Mall, Suite 300 Sacramento, California 95814 Dear Ms. Howle: Thank you for the opportunity to review and comment on the audit entitled “Federal Funds: The State of California Takes Advantage of Available Federal Grants, but Budget Constraints and Other Issues Keep It From Maximizing This Resource.” This is the second of two reports assessing whether California is maximizing the amount of federal funds it is entitled to receive for appropriation through the Budget Act. The initial report described the types of federal funds available to California, assessed the degree to which funding mirrors California’s share of national population, and concluded that California’s overall share of federal grants is currently close to its population share, although proposed reductions in State funding may change that situation since the largest federal programs require State matches. I am pleased to note that this second report revises upward slightly the Bureau’s estimate of California’s share of federal grants and concludes, “State departments appear to use reasonable processes to identify new or expanded funding from federal grants.” Overall, I agree with the report’s findings and conclusions. I note the following: • In reviewing the report, Finance for the most part did not verify numeric data and understood that was not your office’s expectation. Factual differences, where identified, have been largely resolved. • Transportation: • The statement that “The State lost some available federal funding because it could not provide required matching funds and may lose more in the future” (page 29 of the draft) appears to be based largely on the concern that local governments may not be able to spend federal transportation allocations fully due to loans of $1.3 billion from the Traffic Congestion Relief Fund to the General Fund. At this 4444 California State Auditor Report 2002-123.2 California State Auditor Report 2002-123.2 4455 Ms. Elaine M. Howle July 25, 2003 Page 2 point, that risk seems low. The California Department of Transportation in the past has done an excellent job of managing federal dollars to ensure full utilization. The balance of dollars referred to in that section for other programs is very minor. • The report states that the Traffic Congestion Relief Fund loans to the General Fund “reduced amounts in the traffic fund available for planned projects” (page 30 of the draft). My staff advises me, however, that the funds borrowed to date and proposed for 2003-04 take into account the cash needs of current and scheduled Traffic Congestion Relief Program project allocations and do not negatively impact those projects. While there has been some delay in allocations due to budget negotiations, the 2003 Budget Act is expected to include funding for all current and planned allocations for the prior and current fiscal years. The report notes that budget constraints affect decisions about State participation in federally funded programs and recommends that the “Department of Finance should ensure that it considers the loss of federal funding before implementing personnel reductions related to departments’ 10 percent reduction plans.” In Budget Letter 03-21, Finance directs departments to identify impacts on federal funds as part of their 10 percent reduction plans. This information will be considered in Finance’s review of the plans. However, please note that Budget Act requirements may limit Finance’s flexibility in this regard. If you have any questions or need any additional information regarding this response, then please contact Shelley Mateo, Program Budget Manager, at 445-3274. STEVE PEACE Director By: (Signed by: Kathryn Radtkey-Gaither) KATHRYN RADTKEY-GAITHER Assistant Director, Operations 4466 California State Auditor Report 2002-123.2 California State Auditor Report 2002-123.2 4477 Agency’s comments provided as text only. Business, Transportation and Housing Agency 980 9th Street, Suite 2450 Sacramento, CA 95814-2719 July 25, 2003 Elaine M. Howle State Auditor Bureau of State Audits 555 Capitol Mall, Suite 300 Sacramento, CA 95814 Dear Ms. Howle: Attached are the Department of Transportation’s (DOT) and the Department of Housing and Community Development’s (HCD) responses to your draft report, Federal Funds: The State of California Takes Advantage of Available Federal Grants, but Budget Constraints and Other Issues Keep It From Maximizing This Resource (#2003-123.2). I am pleased that your review disclosed no need for recommendations to either department. The DOT and the HCD work to the extent possible to maximize the amount of federal funding for their respective programs, but we agree with your finding that there are some constraints beyond their control. I am very proud of the fact that the departments work tirelessly to gain every additional dollar that is available, such as when the DOT pursues highway funding that is not used by other states. I appreciate the opportunity to respond to your audit report. If you need additional information, please do not hesitate to contact me, or Michael Tritz, Chief of the Office of Internal Audits within the Business, Transportation and Housing Agency, at (916) 324-7517. Sincerely, (Signed by: Maria Contreras-Sweet) MARIA CONTRERAS-SWEET Secretary Attachments 4466 California State Auditor Report 2002-123.2 California State Auditor Report 2002-123.2 4477 Department of Transportation Office of the Director 1120 N Street P.O. Box 942873 Sacramento, CA 94273-0001 July 23, 2003 Maria Contreras-Sweet, Secretary Business, Transportation, and Housing Agency 980 – 9th Street, Suite 2450 Sacramento, CA 95814 Dear Secretary Contreras-Sweet: I am pleased to provide the California Department of Transportation’s (Department) response to the Bureau of State Audits’ (BSA) report entitled, “Federal Funds: The State of California Takes Advantage of Federal Grants, but Budget Constraints and Other Issues Keep It From Maximizing This Resource.” The draft audit report identified four issues related to Federal Funds maximization. However, only two of the four issues pertained to the Department as follows: • California’s Share of Federal Grants Falls Short of Its Population Percentage, Due in Part to the State’s Demographics and Federal Grant Formulas. • California Is Not Maximizing Some Federal Grants, But to Do So Would Require More State Spending. The report noted that most of the federal formulas for the Highway Planning and Construction grant (highway grant) do not favor California, which paid an average of 10.1 percent of the total federal fuel taxes and fees during fiscal years 1998 through 2001 but received only an average of 9.3 percent of the highway grant. A minimum guarantee keeps the State’s share from being lower. The report also noted that transportation projects may lose federal funds because of a drop in available State matching funds. BSA’s prior audit report dated July 3, 2003, titled, “California Department of Transportation: Low Cash Balances Threaten the Department’s Ability to Promptly Deliver Planned Transportation Projects,” acknowledged that the Legislature authorized loans totaling $1.3 billion from the Traffic Congestion Relief Fund to the General Fund in fiscal years 2001-02 and 2002-03 as the State’s fiscal condition worsened. The report further states that decreased State funding for transportation projects will force implementing agencies to turn to other sources for funding or risk losing federal funds. 4488 California State Auditor Report 2002-123.2 California State Auditor Report 2002-123.2 4499 Maria Contreras-Sweet July 23, 2003 Page 2 The report does not offer specific recommendations for the Department. However, the Department has a general response to the draft report. Department Response: Issue 1: California’s Share of Federal Grants Falls Short of Its Population Percentage, Due in Part to the State’s Demographics and Federal Grant Formulas The Department agrees with BSA’s assessment of the Highway Planning and Construction grant (highway grant) distribution of federal highway funding (i.e. Apportionment), and how that pertains to the Minimum Guarantee (MG) provision of the Transportation Equity Act for the 21st Century. The MG ensures each State receives 90.5 percent of its share of the total contributions into the Highway Account of the Federal Highway Trust Fund. Issue 2: California Is Not Maximizing Some Federal Grants, But to Do So Would Require More State Spending. Although most federal funds require non-federal matching funds, the Department and local transportation agencies are taking steps to prevent the loss of any federal funds. By transferring State and local funds among projects and re-prioritizing projects, the Department and the local agencies are able to provide sufficient matching funds to obtain all the federal funding available to California. In addition, by effective federal fund management and aggressive project delivery scheduling, the Department obtains federal funds not used by other states. In the past ten years, California has received over $350 million in additional Apportionment and Obligation Authority not used by other states. It must be noted that the ongoing failure of the Legislature to pass a fiscal year 2003-04 budget could have a real and lasting negative impact on the State’s ability to maximize the use of federal transportation funding. The United States Department of Transportation has informed the Department that increased transportation costs associated with the Legislature’s delay must be borne entirely by California taxpayers. Unless the impasse is broken very quickly, this will begin to impact the overall program, and hurt the State’s efforts to utilize existing federal funds, much less increase them. If you have any questions, or require further information, please contact Gerald Long, External Audit Coordinator, at (916) 323-7122. Sincerely, (Signed by: Jeff Morales) Jeff Morales Director 4488 California State Auditor Report 2002-123.2 California State Auditor Report 2002-123.2 4499 Department of Housing and Community Development Office of the Director 1800 Third Street, Room 450 Sacramento, CA 94252-2050 July 24, 2003 Ms. Elaine Howle, State Auditor Bureau of State Audits 555 Capitol Mall, Suite 300 Sacramento, CA 95814 Dear Ms. Howle: The Department of Housing and Community Development (HCD) was pleased to assist the Bureau of State Audits in its audit on the State’s efforts to maximize available federal grants. Although no recommendations were made for further actions by HCD, we wish to assure you that the Department will continue its vigilance and work with the Business, Transportation and Housing Agency, the Governor’s Office and the California Congressional Delegation to maximize the receipt of federal housing funds. We will also continue our work to promote federal housing program designs and policies that assist California in meeting its housing needs, especially the housing needs of lower income households. The report also correctly noted that HCD is continuing its work with the U. S. Department of Housing and Urban Development and local jurisdictions to assist jurisdictions or regional consortia of jurisdictions in accessing McKinney Continuum of Care funds. If you have any questions, please contact me or Judy Nevis, Chief Deputy Director, at 445-4775. Sincerely, (Signed by: Matthew O. Franklin) Matthew O. Franklin Director 5500 California State Auditor Report 2002-123.2 California State Auditor Report 2002-123.2 5511 Agency’s comments provided as text only. Health and Human Services Agency 1600 Ninth Street, Room 460 Sacramento, CA 95814 July 25, 2003 Ms. Elaine Howle State Auditor Bureau of State Audits 555 Capitol Mall, Suite 300 Sacramento, CA 95814 Dear Ms. Howle: Thank you for the opportunity to comment on the Bureau of State Audits’ draft report entitled “Federal Funds: The State of California Takes Advantage of Federal Grants, but Budget Constraints and Other Issues Keep It From Maximizing This Resource.” Enclosed is the Department of Health Services response to the review findings and recommendations. We appreciate the cooperation and assistance provided by your staff. If you require further information concerning this review, please feel free to contact Diana M. Bontá, R.N., Dr. P.H., Director of the Department of Health Services, at (916) 440-7400. Sincerely, (Signed by: Grantland Johnson) GRANTLAND JOHNSON Enclosure 5500 California State Auditor Report 2002-123.2 California State Auditor Report 2002-123.2 5511 Department of Health Services 714 P Street P.O. Box 942732 Sacramento, CA 94234-7320 July 24, 2003 Ms. Elaine M. Howle State Auditor Bureau of State Audits 555 Capitol Mall, Suite 300 Sacramento, CA 95814 Dear Ms. Howle: Thank you for the opportunity to comment on the draft of the audit entitled “Federal Funds: The State of California Takes Advantage of Federal Grants, but Budget Constraints and Other Issues Keep It From Maximizing This Resource.” The Department of Health Services (DHS) is committed to identifying available sources of funds to implement programs or improve existing services to serve the people of California. DHS is pleased that the Bureau of State Audits recognizes this endeavor. DHS agrees with the recommendation made in the draft report that DHS should continue to work with the Department of Social Services (DSS) to determine the feasibility of pursuing an Independence Plus waiver. Such a waiver may allow the state to claim federal reimbursement for a portion of the expenditures for caregiver services provided by family members to participants in the In-Home Supportive Services program. However, due to the state budget crisis and lack of available staff to develop an Independence Plus waiver, the effort towards this project has been suspended until staffing can be made available. If DHS obtains additional resources for this purpose, DHS will resume working with DSS to develop a waiver application. The application would be subject to Centers for Medicare and Medicaid Services (CMS) approval and CMS may require that any federal financial participation resulting from a waiver not supplant state funds. We appreciate the cooperation and assistance provided by your staff. If you have additional questions or concerns, please contact Mr. Stan Rosenstein, Deputy Director, Medical Care Services at (916) 440-7800. Sincerely, (Signed by: Diana M. Bontá) Diana M. Bontá Director 5522 California State Auditor Report 2002-123.2 California State Auditor Report 2002-123.2 5533 cc: Members of the Legislature Office of the Lieutenant Governor Milton Marks Commission on California State Government Organization and Economy Department of Finance Attorney General State Controller State Treasurer Legislative Analyst Senate Office of Research California Research Bureau Capitol Press 5522 California State Auditor Report 2002-123.2 California State Auditor Report 2002-123.2 5533