Report 2011-120 Recommendation 2 Responses

Report 2011-120: California Department of Transportation: Its Poor Management of State Route 710 Extension Project Properties Costs the State Millions of Dollars Annually, Yet State Law Limits the Potential Income From Selling the Properties (Release Date: August 2012)

Recommendation #2 To: Transportation, Department of

To ensure that it collects fair market rents for the SR 710 properties on the State's behalf, Caltrans should make only limited exceptions to charging fair market rent and document the specific public purpose that is served in any case that it does not charge fair market rent.

Annual Follow-Up Agency Response From October 2016

Caltrans continues to implement rental rate adjustments as previously described. However, because the rental market rates in Southern California continue to escalate at a fast pace, fewer tenants are at fair market rent. In October 2015, District 7 had 115 tenants paying fair market rent. This number decreased to 46 tenants because, during the most recent rental rate evaluations, the fair market rent escalated sufficiently so as to move a large number of tenants to the "below market rent" category. Additionally, the total number of properties rented with the potential of eventually being rented at fair market rent increased from 206 in 2015 to 254 currently. This number increased because some tenants no longer qualified for the Affordable Rent Program; consequently, they were moved out of the program, but were moved to a rent level "below fair market rent." Attachment 1 shows examples of properties with rent increases from 2015 to 2016.

Of the 208 tenants currently paying less than fair market rent, there are 93 tenants whose rent is within 25 percent of fair market rent. These tenants will have annual increases of 10 percent annually. Seventy-nine tenants are between 25 and 50 percent below fair market rent and 36 tenants between 50 and 87 percent below market rent. These tenants will have their rent increased twice per year until they are within 25 percent of market rent. It should be noted that the majority of tenants will take longer to get to fair market rent if rental market rates continue to escalate.

Finally, District 7 has 111 tenants in the Affordable Rent Program, which is a decrease from the 175 tenants in the program in 2015. The decrease stems from some tenants no longer qualifying for the program, as mentioned above, and other tenants who moved out of the properties.

California State Auditor's Assessment of Annual Follow-Up Status: Fully Implemented

Caltrans seeks to collect fair market rent from all tenants with the exception of those who qualify for the affordable rent program (program). Our review in May 2017 of Caltrans' process for annually verifying tenants' eligibility for the program found significant improvements such as a more robust income certification packet, which requires that tenants complete a form requesting the release of their tax information, and a secondary review of tenant eligibility. Additionally, for those files we tested, our review found tenants in the program received an accurate and timely rent increase to their most current affordable rent level, as applicable.

Annual Follow-Up Agency Response From September 2015

Please see response to No. 1 - response applies to 1 and 2

California State Auditor's Assessment of Annual Follow-Up Status: Not Fully Implemented

Annual Follow-Up Agency Response From October 2014

Please see response to No. 1 - response applies to 1 and 2

California State Auditor's Assessment of Annual Follow-Up Status: Not Fully Implemented

Annual Follow-Up Agency Response From October 2013

Please refer to our one-year response.

California State Auditor's Assessment of Annual Follow-Up Status: Not Fully Implemented

1-Year Agency Response

The ARP was offered to all tenants who qualified and currently there are 206 tenants in the ARP statewide; 49 of these tenants existed in the ARP prior to the expansion. District 7 has 176 tenants that are renting from the SR 710 properties; 130 tenants are new to the ARP and 46 were already in the ARP. Presuming all 206 tenants remain in their properties and in the ARP, Caltrans expects to receive $1,985,544 in the current fiscal year in rental income from the tenants. Caltrans estimates that if these tenants were not in the ARP and received a 10 percent increase semi-annually, a maximum of an additional $314,569 in rental income would be generated in the current fiscal year.

California State Auditor's Assessment of 1-Year Status: Partially Implemented

6-Month Agency Response

Caltrans stated that it and the Business, Transportation, and Housing Agency (agency) determined that an expanded Affordable Rent Program (ARP) would be offered, and emergency regulations were approved by the Office of Administrative Law (OAL) on December 24, 2012. The letters sent to all SR 710 tenants on the rental rate increase also included information on how to apply for the ARP. Caltrans plans to notify the tenants who applied for the ARP, by the stated deadline, whether they qualify by February 15, 2013.

California State Auditor's Assessment of 6-Month Status: Partially Implemented

60-Day Agency Response

Caltrans stated that it is in the process of assessing rental rate increases to fair market rent and has sent letters to all SR 710 tenants requesting their financial information. Caltrans also stated that, once it completes its analysis of all of the information, it will work with the agency to determine the best course of action for it and the State. Caltrans anticipates that, after providing the affected tenants with the requisite 60-day notice, rental rate increases will be effective March 1, 2013. (See 2013-406, p. 168)

California State Auditor's Assessment of 60-Day Status: Partially Implemented

All Recommendations in 2011-120

Agency responses received after June 2013 are posted verbatim.