2023-124 Local Streets and Roads Program

The State Controller Has Not Held Cities Accountable for Maintaining Local Spending on Streets and Roads

The State Controller Has Not Audited Cities or Counties to Ensure That They Maintain Their Required Local Spending on Streets and Roads

State law requires cities and counties to maintain a minimum level of local spending on their streets and roads; this minimum level is referred to as maintenance of effort. The law specifically requires cities and counties to provide the State Controller with an annual report on all of their spending on streets and roads, and the State Controller reviews that information to determine whether each city and county has met the maintenance‑of‑effort requirement. In addition, state law authorizes—but does not require—the State Controller to perform audits to ensure that cities and counties are meeting the maintenance‑of‑effort requirement. State law establishes penalties for cities and counties that do not meet the requirement: following an audit, the State Controller must withhold future funding in an amount up to the amount of funds that the city or county received during the fiscal year that was audited.

Although the State Controller performs some limited reviews of whether cities and counties are meeting the maintenance‑of‑effort requirement, it does not perform formal audits. Typically, a review is substantially less in scope than an audit. The text box lists some of the key elements of an audit. In December of each year, state law requires cities and counties to provide the State Controller with a complete report of the expenditures for street or road purposes during the preceding fiscal year. Instead of using this information to perform an audit, the State Controller only reviews it. Specifically, its review procedures direct staff to identify the funding sources of the reported amounts and to assess whether the city or county met the maintenance‑of‑effort requirement. The State Controller explained that in some cases, it will request additional information, such as details about the sources of funds spent, to inform its review.

When the State Controller identifies a city or county that did not meet its maintenance‑of‑effort requirement, the Controller’s practice is to inform the city or county that it must spend additional funds in the current fiscal year to make up for the spending shortfall from the prior fiscal year. The State Controller asserts that to maintain compliance with program requirements, the city or county must spend a specified additional amount, which the State Controller identifies, during the current fiscal year. The State Controller noted that its reviews are not audits and cannot be used as a basis for withholding funding from cities or counties. This is problematic because without the State Controller conducting audits and withholding funding, cities or counties may evade their responsibility for maintaining local spending on streets and roads. We calculated the total amount that cities underspent to meet their maintenance‑of‑effort requirements for fiscal year 2020–21 using the results of the State Controller’s reviews. We found that the total amount that cities underspent was nearly $10.7 million, or about 1 percent of the nearly $950 million that all cities in the State were required to spend to meet their maintenance‑of‑effort requirement for that fiscal year.

Although the State Controller performed reviews of cities and counties and identified instances of potential noncompliance, it did not take additional steps to enforce state law. As Table 5 shows, for fiscal years 2017–18 through 2021–22, the State Controller sent 168 notices of potential noncompliance to cities and counties that spent less local funding than required.³ Although these notices flag potential noncompliance, the cities and counties still have an opportunity to increase their spending of local funds during the following, or second, fiscal year to make up for the amount they underspent. The State Controller did not send notices to the same county twice. However, in 27 instances across 21 cities, the State Controller identified potential noncompliance in the same city two years in a row, indicating that those cities did not make up in the second year for their noncompliance in the first year. In fact, the State Controller sent a notice of potential noncompliance to five cities for each year across four fiscal years, indicating continual noncompliance. For fiscal year 2020–21, the shortfall in local spending that the State Controller identified for these five cities was more than $1.6 million. However, the State Controller did not follow up on its reviews by conducting audits of any of these cities. As a result, it has not withheld any funds from cities that it suspects have not met the maintenance‑of‑effort requirement.

We determined that the six cities we reviewed recently met the maintenance-of-effort requirement. We reviewed the local expenditures that the cities reported to the State Controller for fiscal year 2020-21 to allow for further analysis if any did not meet the requirement in that year. Specifically, we reviewed accounting records to determine whether the cities reported local expenditures as required, and whether the level of that the spending was sufficient to meet the requirement.

The State Controller explained that it plans to conduct more reviews in 2024, and it agreed that conducting audits would be preferable to conducting reviews. The State Controller identified insufficient staffing as a significant challenge to its conducting audits for the Local Streets and Roads Program. In fiscal year 2018–19, the State Controller received funding for three permanent positions for conducting program reviews and four two‑year limited‑term positions that expired in June 2020 to conduct field audits. The State Controller reported that with these seven staff members, it was able to do all of the following: calculate the maintenance‑of‑effort amounts for each city and county, create road maintenance program guidelines specific to its oversight responsibilities, collaborate with the Commission on program implementation, perform desk reviews of the maintenance‑of‑effort requirement for 435 cities and 28 counties, and begin conducting field audits of 65 cities and counties potentially not meeting requirements. In January 2020, the State Controller submitted a request to make permanent the four limited‑term staff positions in order to continue the audits. However, staff explained that the State Controller withdrew this request due to the pandemic. The State Controller noted that it would need approximately six to eight additional staff members to enable it to conduct the audits, for a total of nine to 11 full‑time auditors compared to the three it has now.

State Law Does Not Provide Sufficient Time for Cities to Resolve Maintenance‑of‑Effort Issues

State law provides a limited window for cities and counties to make up shortfalls in meeting the maintenance‑of‑effort requirement: they must spend additional local funds in a second fiscal year after a first fiscal year in which they did not meet the requirement. If they do not make up the shortfall in that second fiscal year, state law allows the State Controller to withhold program funds. However, the process for the State Controller to receive data from the cities and counties and then determine whether they met the requirement takes many months. This means that by the time the State Controller has made its determination and notified the city or county of the shortfall, there remains only about a month for the city or county to increase its spending.

On or before December 1—five months into the fiscal year—the State Controller generally receives data on city and county spending from the most recently completed fiscal year, in part because cities and counties must close their accounting records after the June 30 end of the fiscal year. Prior to 2019, state law required cities and counties to provide this data in October, but the State revised the date to December that year, which provided cities with more time to submit accurate and complete reports. The State Controller begins reviewing this data to determine whether the cities and counties met the maintenance‑of‑effort requirement. The State Controller’s review of cities’ and counties’ compliance with the requirement for fiscal year 2021–22 took roughly six months to complete and comprised reviews for the more than 480 cities and 58 counties in the State. The State Controller’s activities during this time frame included sending notices of potential noncompliance to the cities and counties. However, when the State Controller sent the notices in the end of May 2023, there was just over one month remaining in the second fiscal year. As a result of this timing, the State Controller was asking cities to plan and approve additional spending in a very short period of time. For example, in the end of May 2023, the State Controller notified the city of Fontana of its potential noncompliance with the maintenance‑of‑effort requirement for fiscal year 2021–22 and specified that the city would need to spend approximately $256,000 in local funds on purposes related to streets and roads on or before June 30, 2023, to satisfy the requirement. The State Controller’s notice provided only a little more than one month for Fontana to spend a substantial amount from its discretionary funding sources before the end of the second fiscal year.

In general, cities need months to plan and approve additional spending for transportation. For example, in response to these notifications, cities would need to identify and secure a new funding source—such as by delaying another project and transferring those funds to a streets project—then develop a budget change proposal, get that proposal approved by the city council during a public meeting, and spend the additional funds. Cities indicated that completing these steps could take several months or more.

We did not identify concerns with the length of time it took the State Controller to review city and county spending and send the notifications because there is a large volume of data to review and the State Controller has limited staffing resources. In order to appropriately hold cities and counties accountable for not meeting the maintenance‑of‑effort requirement, we believe that they need an additional fiscal year after the State Controller completes its reviews to make up for insufficient local spending.

The State Controller’s Interpretation of State Law Reduces Its Likelihood of Holding Cities Accountable for Insufficient Local Spending

The State Controller has interpreted the law in a way that allows cities to continue to receive program funds even though some cities continually fail to meet the maintenance‑of‑effort requirement. According to the State Controller, as long as a city spends enough local funds to make up for the shortfall in a previous year, that city is complying with the program requirements and state law. The State Controller maintains this position even when cities continue to appear noncompliant with the maintenance‑of‑effort requirement year after year. For example, if a city has a maintenance‑of‑effort requirement of $1 million each year, but in Year 1 it only spent $700,000, the State Controller would identify the city as having incurred a shortfall of $300,000 in local spending on streets and roads. In Year 2, the city could spend $1 million, but the State Controller would count the first $300,000 as covering the prior year’s shortfall and would count the remaining $700,000 toward the city’s $1 million maintenance‑of‑effort requirement for Year 2. This means the city would still have a $300,000 shortfall, which would carry over into Year 3. In effect, the State Controller’s interpretation of the law allows this deficit to roll forward indefinitely, and the State Controller would not hold cities accountable for these shortfalls as long as the cities continued to spend some local funds on streets and roads. The State Controller noted that this practice of rolling shortfalls into the next fiscal year without withholding funds is how it conducted a different program, now defunct, that had similar statutory language related to maintaining local spending.

However, in the view of our legal staff, the State Controller’s interpretation of the law is contrary to its plain meaning. State law requires that the amount of local funding meet the maintenance‑of‑effort requirement over a two‑year period, to total the amount that the city or county should have spent during those two years. Whether the State Controller conducts reviews or audits, its staff has indicated that the standard used to determine whether a city or county has met its obligations for local spending on streets and roads is the rolling approach just described. In the above example, the State Controller should have withheld program funds from that city in Year 3 after conducting an audit, rather than allow the city to continue to receive full funding from the program.

Finally, the State Controller’s interpretation of state law’s ambiguity may lead to cities or counties losing their entire allocation, which we do not believe is an appropriate remedy for cities and counties that do not meet the maintenance-of-effort requirement. State law requires cities and counties to meet the requirement to remain eligible for the program, and allows the State Controller to withhold funds up to the amount they received from the program. The State Controller has interpreted the law to mean that it must withhold all program funds from cities and counties its audits find did not meet the maintenance of effort requirement. We consider this approach overly punitive, as the penalty for underspending local funds should be a withholding in the amount of that underspending and no more.

State Agencies Are Properly Administering Program Eligibility, Payment, and Reporting Processes

The Commission’s Program Eligibility Process Is Transparent and Complies With State Law

The Commission makes all program information, including information about eligibility for the program, available to the public in a manner that promotes transparency. To become eligible for program funding, cities and counties must be aware of submission deadlines in advance so they can develop project details and adopt authorizing resolutions at upcoming city council or board of supervisors meetings. The Commission created program‑reporting guidelines that include detailed explanations of the information that cities and counties must submit to demonstrate that they are eligible to receive funding. The Commission also publishes a three‑page funding eligibility checklist for cities and counties that itemizes these requirements. Instead of requiring cities and counties to draft resolutions without any guidance or direction, which may lead them to submit inadequate information, the Commission provides a sample resolution that cities and counties can consult for reference. Moreover, because cities and counties can submit project lists and expenditure reports for the program only through the Commission’s CalSMART database, the Commission provides guidance on how to use the database, holding multiple training sessions annually to provide city and county staff with step‑by‑step instructions. The Commission also publishes a guide for using CalSMART on its website. The six cities we reviewed—Baldwin Park, Bell, Coronado, Oakland, Riverside, and Yuba City—all indicated that they have not had any significant problems using CalSMART. Some city staff even stated that the analysts at the Commission are very responsive to their inquiries.

The Commission maintains a comprehensive list of contact information for all cities and counties and communicates directly with them to help ensure that they satisfy eligibility requirements and are aware of deadlines to submit information. Several months before it makes eligibility determinations, the Commission emails reminders to cities and counties to alert them of upcoming deadlines, providing them with ample time to submit the required information. For example, the Commission set a target of sending reminders in March to all cities and counties to remind them to submit their requests for funding, including eligibility information, by the July 1 due date. The Commission also has a process to send bi‑weekly reminders to governments at risk of missing the deadline inviting them to submit the information necessary for the Commission’s eligibility determination.

The Commission’s efforts are effective: Since 2019 every city and county in the State that is potentially eligible for the program has submitted information and received program funds.⁴ The Commission has achieved this success by offering to review draft resolutions, directly assisting cities and counties in preparing their project lists, and helping cities and counties correct any shortcomings in their submissions. The Commission tracks all submissions and keeps a record of any shortcomings that cities and counties must address to become eligible. For example, one city submitted its resolution without the signatures required to make the resolution official, so the Commission contacted the city to correct the issue. As Table 2 shows, of the 539 cities and counties that submitted information for fiscal year 2022–23, 201 needed corrective action. After the Commission worked with some of these cities and counties, only 14 cities had not provided complete submissions by the initial deadline and therefore needed to use the subsequent eligibility process. The Commission determined that these final 14 cities were eligible for program funding during that process. Our review of the submissions of 15 cities and five counties, which we selected based on the size of their populations, confirmed that they met all statutory requirements. We therefore conclude that the Commission has adequate processes in place for determining eligibility.

Further promoting transparency and accountability, the Commission ensures that cities and counties adopt projects in publicly held meetings that allow residents to review and comment on the city’s or county’s project proposals. The Commission clearly states this requirement in the program guidelines and the eligibility checklist and requires the cities and counties to submit through CalSMART resolutions adopted in public meetings. The Commission also stated that it performs a risk‑based review to verify that a selection of cities and counties adopted resolutions in public meetings. For example, when cities or counties submit unsigned resolutions, or use the process to obtain subsequent eligibility, the Commission stated that it reviews that government’s website to verify that the city or county adopted those resolutions in a public meeting. Our review of the 15 cities and five counties found that each did adopt their resolution containing the list of proposed projects in a public meeting.

The State Controller Accurately Distributes Program Funds to All Eligible Cities and Counties

The State Controller has disbursed nearly $7 billion in program funds to cities and counties since the program began in 2017. As Figure 6 shows, the disbursement amount in fiscal year 2017–18 was the lowest because the State did not begin receiving revenue from the increased taxes and fees that fund the program until well into that fiscal year. The increase in fuel taxes did not begin until November 2017, and the transportation improvement fee began in January 2018. Since then, there has been little variation in the funding amounts from year to year, and the funding has generally increased.

Figure 6

Local Streets and Roads Program Funds Distributed to Cities and Counties Have Varied Slightly Each Year
(in millions)

Source: State Controller.

A bar chart from fiscal year 2017-18 to fiscal year 2022-23 with the funds distributed each year to cities and counties. The top shows the total funding of $6.8 billion. In fiscal year 2017-18 cities and counties each received $193 million. In fiscal year 2018-19 they each received $610 million. In fiscal year 2019-20 they each received $578 million. In 2020-21 they each received $617 million. In fiscal year 2021-22 they each received $666 million, and in fiscal year 2022-23 they each received $738 million. The overall trend is a significant increase after the initial year of the program, when revenues started collection, and more limited changes in subsequent years with an overall raise in distributed funds each year.

We calculated the appropriate distributions to cities and counties and found that the State Controller distributed funds to cities and counties in accordance with the formula specified in state law. We selected one month in each year of fiscal years 2020–21, 2021–22, and 2022–23 to verify, by recalculating, the State Controller’s payment amounts to each of the cities and counties. To recalculate the appropriate amounts, we obtained the calculation and supporting documentation that the State Controller used to derive the monthly payment amounts for each city and county. The supporting documentation included the various components of the calculation, such as the Commission’s report of eligible cities and counties, U.S. Census data, the Department of Finance’s certified population, the California Department of Motor Vehicles’ reports on registered vehicles, and the California Department of Transportation’s reports on maintained road miles. We used the Commission’s eligibility report to ensure that each of the cities and counties that the State Controller included in its calculations was eligible to receive program funds. We used the remaining documentation to identify key data necessary to independently calculate the monthly payment amount for each city and county, according to the requirements in state law. We found that the amounts our calculations produced agreed with those monthly payment amounts that the State Controller calculated and paid.

Further, to ensure that the cities actually received the correct amount of program funds, we verified that the six cities we selected for review received the amounts that the State Controller calculated. We collected the applicable accounting records at each of the six cities and compared the received amounts to the amounts that we calculated for the three months, and we determined that the State Controller appropriately provided the cities with all of the program funds.

As a point of clarification, we note that neither the State Controller nor the Commission is required to provide funding estimates or commitments to cities and counties. Because program funding comes from various fuel taxes and vehicle fees that can produce different amounts of revenue each month, the State Controller cannot guarantee a specific amount of funding. The six cities that we reviewed explained that they receive future funding availability estimates from the League of California Cities to inform their budgeting and project selection. The League of California Cities is a nonprofit advocacy group that supports cities and offers education and training programs for city officials. The League of California Cities also provides cities with estimates that it derives from the Department of Finance’s statewide revenue estimates contained in the Governor’s Budget proposals. The cities we reviewed stated that the funding amounts they anticipate receiving generally align with those amounts the State Controller ultimately provides.

Additionally, state law does not require cities to submit project cost estimates when submitting project proposals. As we discuss in the Introduction, the Commission, which oversees the process, does not approve proposed projects or authorize funding to specific projects. Rather, the Commission’s role is to review project lists and resolutions to ensure that they are complete and comply with statutory requirements. According to the Commission, cities and counties are responsible for determining which projects to fund and for determining how to fund them, based on their priorities each year. To fund and complete their planned projects, some of the cities we reviewed used multiple funding sources, such as grants or sales tax revenues, in conjunction with program funding.

The Commission Ensures That All Cities and Counties Submit Required Expenditure Reports

All cities and counties report their expenditures annually to the Commission. We found that each of the six cities we reviewed submitted expenditure reports as state law requires. We also verified that all cities and counties that received program funds reported their expenditures for fiscal year 2021–22, the most recent year available at the time of our review. To verify this, we obtained the expenditure reports from the Commission’s website and reviewed the data, comparing it to the State Controller’s data listing the cities and counties to which it distributed program funds. Later in this report, we discuss our work to verify the accuracy of the reports for the six cities we reviewed, which included reviewing accounting controls and tracing reported expenditures to source documentation such as invoices.

Program guidelines require cities and counties to use CalSMART to submit expenditure reports to the Commission by December 1 of each year. State law requires the expenditure reports to include specific information, as the text box shows, and states the intent of the law to provide transparency for the public and to promote accountability. The Commission collects and then publishes this information on its program website. We verified that the six cities we reviewed submitted their most recent expenditure reports in a timely manner.

The Commission has developed an effective process to ensure that all recipients submit expenditure reports as required. The Commission publicizes program requirements and guidelines, including those related to expenditure reporting, and distributes them to cities and counties. It also conducts training sessions each year to provide local agencies with precise instructions on reporting their expenditures in CalSMART. The Commission provided documentation of attendance at its training sessions and documentation of its efforts to keep cities and counties informed. We reviewed the content of these training sessions and found that they provide extensive and detailed information necessary for cities and counties to submit reports effectively.

Further, the Commission tracks the reports it receives and identifies which cities and counties have not submitted reports. We confirmed that as the deadline approaches, the Commission contacts those cities and counties that have not yet submitted required information. The Commission then works directly with those cities and counties to ensure that they report the information on time. Because of this proactive approach to ensure timely reporting, the Commission has not needed to take further actions to address any lack of reporting.

Although the Cities We Reviewed Are Appropriately Using Local Streets and Roads Program Funding, Most Still Have Deteriorating Road Conditions

The Cities We Reviewed Generally Use Program Funding to Address Streets With Poor Pavement Conditions

Cities use different processes for selecting projects but generally use Local Streets and Roads Program funding to improve those roads with deteriorated pavement conditions. The six cities we reviewed each use a pavement management system to assess and address the needs of their local streets. A typical pavement management system uses computer software, informed by onsite reviews of actual pavement conditions, that provides PCI data for road segments and the road network over a period of time. Cities use this information to assess both their current and anticipated future pavement conditions and to identify maintenance and rehabilitation recommendations that optimize the use of available funding. This assessment allows cities to identify the streets with the poorest conditions when selecting projects to fund through the program.

In the past, some cities did not prioritize repairs for the streets with the poorest conditions, indicating a potential lack of consideration for the equity of their investments in street repair and maintenance. Some cities fund projects that are located in areas designated by the State as disadvantaged communities. Historically, cities may not have always focused funding on the streets in the poorest condition, either because of a lack of funding or because of a pavement management system that did not consider equity across different areas of the city. As a result, projects that cities are currently prioritizing can be located in areas that they have historically neglected. For the six cities we reviewed, we evaluated each city’s process for selecting projects, and we reviewed those projects to verify that each city prioritized streets according to its established priorities. Using the pavement management system reports, we verified the condition of the streets selected for maintenance or other improvements. In Figures A.1 through A.6 of the Appendix, we provide the location of most of the projects in relation to disadvantaged communities in the cities that we reviewed.

State law provides cities and counties with some flexibility in their use of program funds, allowing them to adapt the program to meet local needs. Cities may use program funds in combination with state or federal grants, and some cities have been able to do so to repair more streets in poor condition and to address multiple objectives, which they could not do using only program funds. For example, Yuba City reserved nearly $1 million in program funds to match $4.3 million in state and federal grants to begin an approximately $5.2 million project to repair pavement and construct such complete street elements as bike lanes and sidewalks. To facilitate funding for another project, Yuba City accumulated program funds over several years as allowed by state law.

State law also allows cities and counties to fund projects they had not included in their proposed project lists. For example, in 2021 the city of Davis proposed to use program funds to install and repair curb ramps, bike lanes, and other complete street projects throughout the city. However, Davis deferred some of this work as part of a larger project and instead chose to use program funds for a road rehabilitation project. Some of the cities we reviewed expressed their gratitude that the program allows such flexibility in the use of funding.

We also evaluated the extent to which cities considered equity in their selection of projects to fund. Importantly, state law neither defines equity nor requires cities to consider equity during the project selection process for the program. Nonetheless, Oakland’s department of transportation has developed a weighting system that accounts for both street conditions and underserved populations, as shown in Table 3. Oakland uses planning areas that follow Oakland’s geography and demographics—which do not align with its city council districts—as a simple way to distribute resources equitably. To include the underserved population component of the weighting system, city staff identify the percentage of Oakland’s underserved population that reside in each planning area. Staff use U.S. Census data to quantify the underserved populations, such as the percentage of households with low incomes or having residents who are people of color. Oakland then identifies the percentage of each planning area’s streets that are in poor condition. The city combines the underserved population and pavement condition components to produce weighting factors for each planning area. Oakland then distributes program funding by planning area using the weighting factors.

Riverside stated that it, too, addresses equity in its project selection decisions. In addition to consulting its pavement management report when selecting projects, the city also considers whether projects address public maintenance requests and community concerns. The city is divided into wards and the staff targets streets for repair to ensure that the city distributes funds evenly among those different areas of the city, particularly when addressing maintenance requests. This approach ensures that no one area will receive more funding just because people in that area have submitted more maintenance requests. Riverside also uses Community Development Block Grant funds for some projects; federal regulations require that those funds be used to target low‑income residents and that regular community meetings be held to address potential concerns.

We also evaluated each city’s efforts to promote transparency and accountability and found that the cities all met or exceeded state law’s requirement that cities adopt proposed projects in publicly held meetings. The cities we reviewed complied with those requirements and also held community meetings to encourage public engagement or publicized information about projects using government websites or social media. Oakland held community meetings in different languages when it reviewed its paving plan with residents, and Coronado developed a website to provide public updates on its sidewalk enhancement project. Moreover, each of the six cities, or the hired contractors, sends notifications of planned construction projects to affected community members. Cities typically require staff to present larger projects at city council meetings that are open to the public. Thus, if cities need to change projects after submitting their proposals to the Commission, the public likely has an opportunity to comment at those meetings. Cities are also required to provide updates on projects when they submit their expenditure reports to the Commission and are required to inform the Commission of any changes to their list of proposed projects. Each of these efforts to involve the public provides opportunity for transparency and accountability and provides communities with critical information about changes to their local streets.

The Six Cities Commonly and Appropriately Use Program Funding for Maintenance and Rehabilitation Projects

We reviewed expenditure data that all cities and counties submitted to the Commission to identify the most and least common uses of program funds. We found that cities and counties reported spending 85 percent of total program funds on road maintenance and rehabilitation, as Figure 7 shows. Similarly, we found that five of the six cities we reviewed spent the majority of their program funds on road maintenance and rehabilitation. We provide a detailed breakdown of their spending in Appendix Table A.3, which shows that the six cities in total spent the majority, or 72 percent, of their program funds on road maintenance and rehabilitation.

Figure 7

Cities and Counties Spent the Majority of Local Streets and Roads Program Funds on Road Maintenance and Rehabilitation From Fiscal Year 2017–18 Through 2021–22

Source: Commission expenditure data for all cities and counties.

Figure 7 is a pie chart that shows the proportion of program funds that have been spent in four different expenditure categories from fiscal year 2017-18 through 2021-22. The four categories are Safety, Complete Street Components, Other, and Road Maintenance and Rehabilitation, which are described below the pie chart. Cities have spent the majority of funds on road maintenance and rehabilitation projects, which account for 85.3% of funds spent. Projects in the ‘other’ category, which represents projects that are in multiple categories, accounts for 5.3% of funds spent. 5% of spending was for complete street components and 4.4% was for safety projects.

The six cities used the remaining program funds for other allowed purposes, such as road safety projects. For example, Oakland spent some program funds on a traffic‑calming program, which included adding speed bumps and improving crosswalks on city streets. Coronado used all of its program funds on a complete street components project that created more space and better visibility for pedestrians on an oceanfront boulevard. In this respect, Coronado is unique among the cities we reviewed, because its use of program funds has not focused on street rehabilitation and maintenance. In 2022 Coronado had an overall PCI of 75, which is good and much higher than the statewide average. Because its pavement conditions are generally good, it has fewer maintenance needs and can prioritize other types of projects. Under state law, these are all allowable uses of funds.

After reviewing a selection of expenditures, we found that each of the cities we reviewed used program funds appropriately. We obtained accounting reports that listed each of the project expenditures from fiscal years 2019–20 through 2021–22, and we ensured that they reconciled to the expenditure amounts that the cities reported to the Commission. We then reviewed underlying documentation at each city, such as invoices and staff time charges, to determine how cities used these funds. For each city, we reviewed supporting documents from a selection of projects listed in the expenditure report, which enabled us to review approximately 50 percent or more of each city’s program spending. We found that the cities we reviewed spent all funds on allowable uses, including projects that improved road conditions or added safety elements. We found no evidence that cities used funds inappropriately, such as for police or fire services.

Further, the six cities have processes and systems in place to ensure that they spend program funds appropriately. Our testing included examining the processes that cities use to ensure that they spend funds appropriately. For example, we found that each city has a separate fund to track program revenues and expenditures, which ensures that the city does not combine program funding with other funding sources or misappropriate funds. We also reviewed purchasing and accounting controls that restrict how city staff can spend program funds. For example, Oakland has a gasoline tax road maintenance and rehabilitation account that its transportation department uses to track program funds and ensure that the city spends those funds only on allowed activities. The city also limits who can spend funds from this account to ensure that only relevant departments may access funds, such as its Department of Transportation.

Streets Are Deteriorating Faster Than These Cities Can Improve Them With Available Program Funds

We found that for the six cities we reviewed, pavement conditions have declined by 10 percent—from  an average PCI of 69 in 2015 to an average PCI of 62 in 2022. At the time it passed SB1, the Legislature found that cities and counties faced a $78 billion funding shortfall for adequately maintaining existing streets over the next decade. In the first six years of the program, from fiscal years 2017–18 through 2022–23, the State provided cities and counties with a total of nearly $7 billion—just a fraction of the shortfall they faced in 2017. The six cities we reviewed reported that the program funding they do receive is often not nearly the amount they need to maintain or improve their street conditions. As Table 4 shows, the cities’ annual spending for this purpose is significantly lower than the amount they estimate is needed to improve their road conditions. For example, in 2022 Riverside reported that it spent $21 million on maintenance and improvements to its roads annually, but it estimates that it would need to spend $40 million each year to maintain its current road conditions and $98 million each year to improve its road conditions to a PCI of 70 within five years.

The cities reported that program funding is critical to their ability to mitigate the rate of deterioration on their streets. As Figure 8 shows, the overall PCI for the six cities that we reviewed has generally declined since 2015, and some cities’ pavement conditions are approaching “Poor” condition. For example, Yuba City’s overall pavement network had an average PCI of 53 in 2022, meaning that the streets are in the “At Risk” category and potentially in need of a new road surface, also called resurfacing. For context, Yuba City receives approximately $1.4 million in program funds each year to assist it in maintaining approximately 525 lane miles of pavement. However, this amount falls far short of the nearly $13 million it estimates it needs annually to maintain the condition of its streets and is drastically less than the $21 million needed to improve its streets. The 2023 pavement assessment report indicated that Yuba City needs to spend $258 million over the next 10 years to bring its street network to a condition that can be maintained with ongoing preventive maintenance.

Figure 8

Pavement Conditions in the Cities We Reviewed Have Generally Declined Since 2015

Source: City pavement management system reports, staff estimates, and California Statewide Local Streets and Roads Needs Assessment.

Note: Baldwin Park used a pavement management system prior to 2020 but does not have confidence in its accuracy. Therefore, we do not include that information. The city plans to update its PCI information in 2024 but does not have values for 2021, 2022, or 2023.

Figure 8 is a chart that shows the decline in pavement condition for the five of the six cities we reviewed. The y-axis the average PCI, with a range from 40 – 100 and is divided into different shaded areas that describe the pavement condition within that range. 40 – 50 is labeled poor. 50 – 70 is labeled at risk. 70 – 100 is labeled good. The x-axis has evenly spaced segments for each year, starting at 2015 and ending at 2022. At the beginning of 2018, there is a dotted line that indicates when Local Streets and Roads Funding began. This graph shows the pavement condition for each city for each using points on the graph with numerical values. Each city’s points are connected by different color lines. Almost all cities show a decline in pavement condition over these years, with slight increases and decreases throughout that time period. Oakland is the only city that has increased its rating substantively. Oakland’s pavement condition was 56, or at risk, in 2015. In 2021, its pavement condition had risen to 58. Baldwin Park did not have confidence in the accuracy of its rating prior to 2020, or in 2021 or 2022. Therefore, we do not include that information. Bell’s pavement condition was 78 in 2015, which is good. In 2022 its pavement condition was 69 or at risk. Coronado’s pavement condition was 80 in 2015 and 75 in 2022, which are both within the range considered good. Riverside’s pavement condition was 65 in 2015 and 59 in 2022, which are both at risk ratings. Yuba City’s pavement condition was 65 in 2015 and decreased to 53 by 2022. Both ratings are at risk.

Additionally, although Coronado’s 166 lane miles of pavement is in the best condition of all six cities’ pavement, its PCI has slowly declined since 2015, decreasing from 80 to 75, although the streets are still in the “Good‑to‑Excellent” category in 2022. Coronado is currently completing a review of its pavement condition to determine how much funding it will need to maintain the condition of its pavement and provided us with an estimate. Of the six cities, Oakland, which has 2,052 lane miles of pavement, is the only city to have slightly increased its PCI since 2015. In 2015 Oakland had a PCI of 56, which declined to 53 in 2017 before the State began providing program funding. However, from 2018 to 2022, after the city began receiving this funding along with more than $350 million in revenues it authorized from a bond measure, Oakland increased its overall PCI from 55 to 57. Nonetheless, this PCI indicates that Oakland’s average pavement condition is still categorized as “At Risk” and in need of resurfacing.

Many cities struggle to maintain their current PCI, and some have identified additional resources to address the poor condition of their streets. The roads in Coronado and Bell have generally been in good condition, although they have declined in recent years, and they have not yet needed to identify additional funding sources. The four other cities we reviewed—Baldwin Park, Oakland, Riverside, and Yuba City—do not have good pavement conditions.

In light of these conditions, these four cities have identified and used additional funding sources, such as sales taxes and bonds, for street repair and maintenance, or they are considering doing so in the future. For example, Oakland passed a bond measure in 2016 to, among other things, fund rehabilitation and maintenance of its streets, and it combines these bond measure funds, an authorized total of $350 million, with funds from the Local Streets and Roads Program. Riverside stated that it receives around $2.4 million a year from a countywide transportation sales tax revenue specifically dedicated to maintaining the city’s streets. Baldwin Park, according to a city official, receives $1.6 million annually in funding for streets from three bond measures: a Los Angeles County measure from 1990 and two other bond measures from 2008 and 2016. Yuba City has not yet passed a tax or bond measure to fund street repair. In light of its funding challenges, Yuba City is currently evaluating whether to place a measure on the November 2024 election ballot to increase sales taxes by 1 percent to collect $14.5 million each year. As a general tax increase, the city cannot restrict itself to using this funding on its streets. However, it can use this funding on general government activities, such as public safety, infrastructure projects, and deferred maintenance, which can include maintenance of its streets. Despite the additional funding from the program, cities will continue to struggle to maintain the conditions of their streets.

Appendix A

Selected Program Information

City and County Program Allocations

The State Controller distributes funding to eligible cities and counties throughout the State. To do so, it uses information on the number of registered vehicles and road miles in counties and census data on the population in cities. Specifically, the State Controller must proportionally distribute the funds available to cities according to each city’s proportion of the population of all cities in the State. For example, if a city has 1 percent of the total population of all cities in the State, the State Controller would distribute 1 percent of available funds to that city. For counties, the State Controller must distribute three‑quarters of the funding according to each county’s proportion of all registered vehicles in the State. The law then requires the State Controller to proportionally distribute the remaining quarter of county funding to each county according to the number of miles of maintained county roads in each county in proportion to all miles of maintained county roads in the State. Tables A.1 and A.2 list the program funds that the State Controller allocated to cities and counties for fiscal year 2022–23, along with applicable information on the number of registered vehicles, road miles, and population data.

Project Details for the Six Cities We Reviewed

The six cities we reviewed generally spent program funds on road maintenance and rehabilitation projects, as Table A.3 shows. These rehabilitation projects include sealing cracks in pavement and replacing the top layer of roads with new asphalt. Cities that used program funds to fund complete street projects undertook projects such as adding bike lanes and sidewalks to existing roads. Table A.4 provides additional detail about the specific projects that these six cities funded. Many of these projects are located in disadvantaged communities.

The California Environmental Protection Agency (CalEPA) identifies disadvantaged communities according to geographic, socioeconomic, public health and environmental hazard criteria. CalEPA’s Office of Environmental Health Hazard Assessment provides online maps that display these disadvantaged communities. The cities we reviewed typically fund projects to address streets with the poorest road conditions, and some cities explicitly direct funding to improve streets in disadvantaged communities. Figures A.1 through A.6 show the locations of major street projects in relation to the disadvantaged communities identified by CalEPA in each of the cities we reviewed. These figures generally include projects that cities reported funding from fiscal years 2017–18 through 2021–22.

Figure A.1

All Local Streets and Roads Program Projects in Baldwin Park Have Been Located in Disadvantaged Communities

Source: The Office of Environmental Health Hazard Assessment and Baldwin Park reporting to the Commission for fiscal years 2017–18 through 2021–22.

Note: This map does not include some smaller street segments that the city reported paving or streets the city reported paving but for which the beginning and ending locations were not in the public data.

Figure A.1 is a map of Baldwin Park with a blue dotted outlining the city limit. The entire city is shaded light green, which indicates that the entire City is located within a designated disadvantaged community. Red lines indicate the location of program funded projects. These projects are generally on the periphery of the city, but there are prominent projects in the center of the city on Maine and Pacific avenues. Because the entire city is a disadvantaged community, all projects are located within a disadvantaged community.

Figure A.2

All Local Streets and Roads Program Projects in Bell Have Been Located in Disadvantaged Communities

Source: The Office of Environmental Health Hazard Assessment and Bell reporting to the Commission for fiscal years 2017–18 through 2021–22.

Note: This map does not include some smaller street segments that the city reported paving.

Figure A.2 is a map of the city of Bell with a blue dotted line outlining the city limit. The entire map is shaded light green, which means that the entire City is a designated disadvantaged community. There are red lines that indicate the location of program funded projects. These projects generally were on north-south streets throughout the small city. Because the entire City is a disadvantaged community, all projects are located within disadvantaged communities.

Figure A.3

Coronado’s Local Streets and Roads Program Project Was Not Located in a Disadvantaged Community Because the City Does Not Have Any Disadvantaged Communities

Source: The Office of Environmental Health Hazard Assessment and Coronado reporting to the Commission for fiscal years 2017–18 through 2021–22.

Figure A.3 is a map of Coronado with a blue dotted line outlining the city limit. There are no light green shaded areas within the City, which would indicate the location of designated disadvantaged communities. There is a red line indicating the Local Streets and Roads Program funded project location, which is Ocean Street that runs along the coast from an air force base towards the center of the city. Because the city does not have any disadvantaged communities, it also does not have any projects located in disadvantaged communities.

Figure A.4

In Fiscal Years 2017–18 and 2018–19, Oakland Spent Local Streets and Roads Program Funding on Projects Mostly Outside of Disadvantaged Communities

Source: The Office of Environmental Health Hazard Assessment and Oakland reporting to the Commission for fiscal years 2017–18 through 2021–22.

Note: Oakland’s public expenditure reports after fiscal year 2018–19 included the streets on which it performed maintenance and rehabilitation activity, but it did not indicate the beginning and ending locations for those projects. As a result, we were unable to map them here. To view a map of street maintenance and rehabilitation activity since that time, which addressed more streets in disadvantaged communities, see Oakland’s map at https://oakgis.maps.arcgis.com/apps/webappviewer/index.html?id=8aebdc3c3a5141648907385d28d2f45d

Figure A.4 is map of Oakland with a blue dotted line outlining the city limit. Light green shaded areas indicate designated disadvantaged communities within the city. There are red lines indicating program funded project locations. The majority of these lines are located outside of the green shaded area, in the northeastern 2/3rds of the city, which means that most of Oakland’s program funded projects during this time period were not located within the disadvantaged communities. This demonstrates why Oakland changed its approach to funding street maintenance and rehabilitation to focus more on disadvantaged communities.

Figure A.5

Riverside Has Spent Its Local Streets and Roads Program Funding on Street Maintenance Projects, Many of Which Are Located in Disadvantaged Communities

Source: The Office of Environmental Health Hazard Assessment and Riverside reporting to the Commission for fiscal years 2017–18 through 2021–22.

Note: This map includes only the largest projects that Riverside reported. The city also reported that it paved many smaller street segments and worked on traffic control devices, such as traffic signals.

Figure A.5 is a map of the Riverside with a blue dotted line outlining the city limit. Light green shaded areas throughout the City indicate designated disadvantaged communities within the City. There are red lines indicating program funded project locations. The majority of the projects shown are located with the shaded area, which means that many of Riverside’s program funded projects are located with disadvantaged communities. This map includes only the largest projects that Riverside reported. The city also reported that it paved many smaller street segments and worked on traffic control devices, such as traffic signals. Jurupa Ave, Phoenix Ave, Adams St. Indiana Ave, University Ave, Kansas, MLK, Orange St. are the projects located within disadvantaged communities. Although most projects are in the center of the city, many are located in the western part of the city as well.

Figure A.6

Yuba City’s Local Streets and Roads Program Projects Were Located in or Adjacent to Disadvantaged Communities

Source: The Office of Environmental Health Hazard Assessment and Yuba City reporting to the Commission for fiscal years 2017–18 through 2021–22.

Figure A.6 shows a map of Yuba City with a blue dotted line outlining the city limit. A green shaded area on the eastern side of the City indicates designated disadvantaged communities. There are two red lines on the map which indicate program funded project locations. One line, labeled Bridge St., is located within the blue shaded area. The second project, Franklin Ave., is located on the border of that blue shaded area. This map shows that of the two projects are located in or adjacent to a disadvantaged community, near the center of the city.

Appendix B

Scope and Methodology

The Audit Committee directed the California State Auditor to conduct an audit of state and local oversight of the Local Streets and Roads Program to provide independently developed and verified information. Specifically, we reviewed and verified information to confirm that state agencies are facilitating the program appropriately, and we evaluated how cities use funds to improve the conditions of local streets. Table B lists the objectives that the Audit Committee approved and the methods we used to address them. Unless otherwise stated in the table or elsewhere in the report, statements and conclusions about cities selected for review should not be projected to all cities.

Assessment of Data Reliability

The U.S. Government Accountability Office, whose standards we are statutorily obligated to follow, requires us to assess the sufficiency and appropriateness of computer‑processed information we use to support our findings, conclusions, or recommendations. In performing this audit, we relied on electronic data files that we obtained from the State Controller, the Commission’s website, and accounting reports from the six cities that we visited. To verify the accuracy of the State Controller and Commission data, we reviewed accounting reports and ensured that they agreed with State Controller payment information and Commission spending data. We did not perform completeness testing on these data files because they are mainly sourced to other electronic files and are paperless. Although we recognize that these limitations may affect the precision of the numbers we present, there is sufficient and appropriate evidence to support our findings, conclusions, and recommendations.

California State Controller

March 15, 2024

Mr. Grant Parks
California State Auditor
621 Capitol Mall, Suite 1200
Sacramento, CA 95814

SUBJECT:  Local Streets and Roads Program Audit, Report Number 2023-124

Dear Mr. Parks:

The California State Controller’s Office appreciates the opportunity to provide comments and address the recommendations included in the California State Auditor’s Local Streets and Roads Program audit. As the California State Controller, I am deeply committed to ensuring the accurate and timely disbursement of the Local Streets and Roads Program funds and ensuring accountability of local governments in expending these funds to maintain and fix deteriorating streets and roads throughout California.

We appreciate the California State Auditor’s Office confirming that the State Controller’s Office is properly administering program eligibility, payment, and the reporting process. Additionally, we appreciate California State Auditor’s recognition that the State Controller’s Office continues to monitor the 481 cities and 58 counties for compliance with the maintenance of efforts requirements with limited staff resources. We value the acknowledgement of our audit efforts prior to the reduction of the staff resources by 57 percent due to the four limited-term positions expiring in 2020. The State Controller’s Office is committed to the implementation of the recommendations below and the enforcement of the city and county maintenance of effort requirements as prescribed by law.

Please see our responses to the recommendations below.

Recommendation 1
To ensure that cities and counties are held accountable to state law and are not supplanting local spending with program funds, by October 2024, the State Controller should begin auditing cities and counties that it identifies as at risk of not meeting the maintenance-of-effort requirement. It should withhold program funds in the amount prescribed by law from cities and counties that it concludes have not complied with the requirement.

State Controller’s Office Response to Recommendation 1
Concur. The State Controller’s Office will continue to pursue resources to perform the maintenance of effort audits and is optimistic that the California State Auditor’s report will assist the State Controller’s Office in supporting our continued requests. Without audits to verify whether cities and counties have complied with the maintenance of effort requirements, the State Controller’s Office cannot withhold program funds and enforce the maintenance-of-effort requirement.   

The State Controller’s Office’s authorized positions were reduced from 7 to 3 (57 percent) when the four limited-term positions designated to conduct audits expired in 2020. As indicated in the audit report, the State Controller’s Office began conducting 65 audits of cities and counties for Fiscal Years 2017-18 and 2018-19. However, the State Controller’s Office did not have resources to initiate additional audits after the four limited-term positions expired.

The remaining three permanent positions continue to monitor the maintenance of effort compliance of the 481 cities and 58 counties by receiving city and county’s streets and roads reports, tracking expenditures, providing outreach, and performing desk reviews. In anticipation of obtaining additional resources to conduct audits, the State Controller’s Office developed an audit plan based on information obtained during our desk reviews and initiated a few audits.  However, these audits are currently on hold and may need to be canceled due to a lack of resources.

① Recommendation 2 To ensure that cities and counties are held accountable to state law and are not continuing to supplant local spending with program funds, the State Controller should by October 2024 revise its practice to only allow cities or counties to violate the requirement for two fiscal years, rather than continually, as under its current practice. After two years’ noncompliance, the State Controller should withhold program funds in accordance with state law.

State Controller’s Office Response to Recommendation 2
Concur. The State Controller’s Office has fully implemented the California State Auditor’s recommendation to only allow cities or counties two fiscal years to meet their maintenance of effort requirements instead of the previous method applied.

Recommendation 2: “For both recommendations, the State Controller’s Office concurs that program funds should be withheld after an audit for cities and counties that do not meet the maintenance of effort requirements in accordance with state law. However, the State Controller’s Office has concerns regarding the maintenance of effort enforcement methodology illustrated in Figure 2 for Fiscal Year 3, which indicates that only the maintenance of effort shortfall would be withheld in Year 3.

The Streets and Highways Code, Section 2036 (a) indicates that cities and counties shall maintain their existing commitment of local funds for street, road, and highway purposes in order to remain eligible for an allocation or apportionment of funds pursuant to Section 2032. Additionally, the Streets and Highway Code Section 2036 (e) states that the Controller shall withhold from its apportionment pursuant to Section 2032 for a fiscal year following an audit an amount up to the amount of funds that the city or county received during the fiscal year that was audited. Therefore, the State Controller’s Office believes that state law would require the entire Local Streets and Roads Program allocation or apportionment for the applicable year audited to be withheld after an audit confirms noncompliance with the maintenance of effort requirement versus only the shortfall amount.

Thank you for the opportunity to provide our response to the audit report. The State Controller’s Office appreciates the professionalism and the dedication of the California State Auditor’s Office staff.

If you have any questions regarding the SCO’s comments, please contact Kim Tarvin, Division Chief, Division of Audits at 916-324-1696 or ktarvin@sco.ca.gov.

Sincerely,

Malia Cohen
California State Controller

CALIFORNIA STATE AUDITOR’S COMMENT ON THE RESPONSE FROM THE CALIFORNIA STATE CONTROLLER

To provide clarity and perspective, we are commenting on the response to our audit report from the State Controller. The number below corresponds with the number we have placed in the margin of the State Controller’s response.

① As part of our quality control process, our standard practice is to provide agencies five working days to review and comment on a draft copy of the report. During this time, we encourage agencies to discuss with us any concerns they may have regarding the report. In keeping with this practice, we updated our text here to better reflect the ambiguity in state law related to the amount of program funds that the State Controller would be required to withhold from cities and counties that do not meet the maintenance-of-effort requirement. Further, we include a recommendation to the Legislature that it address this issue by amending state law to provide clarity.