This is the second in a series of annual reports on Department of Transportation (department) revenues and expenditures authorized by the Seismic Retrofit Bond Act of 1996 (Bond Act). Chapter 310, Statutes of 1995, requires the California State Auditor to ensure that the seismic retrofit projects funded by the bond proceeds are consistent with the purpose of the Bond Act.
Seismic retrofit expenditures for 7 toll bridges and approximately 1,150 bridges in Phase II of the retrofit program qualify for Bond Act funding. As of July 1997, the expenditures totaled $435 million, including approximately $114 million of expenditures and commitments incurred during fiscal years 1994-95 and 1995-96.
Interim funding for expenditures incurred during fiscal years 1994-95 and 1995-96 was provided through the State Highway Account, the Consolidated Toll Bridge Fund, and other state funds. For fiscal year 1996-97, the State used loans from its Pooled Money Investment Account to cover expenditures until bonds could be sold. General-obligation bonds related to the Bond Act were issued in March and October 1997. They totaled $350 million.
In general, the department has ensured that the seismic retrofit projects are consistent with the purpose of the Bond Act. However, we noted the following inappropriate charges:
· For 3 of the 60 projects we reviewed, the department erroneously charged expenditures totaling $70,000 for projects that were incorrectly classified as Phase II.
· For nine additional projects, the department erroneously charged a total of $624,000 for projects that were not
Phase II because accounting records identified the projects as Phase II.
· For 11 projects dropped from Phase II status, the department has not determined how much of the $6 million in expenditures as of October 1997 was inappropriately charged to the Seismic Retrofit Bond Fund after the projects were dropped.
These inappropriate charges occurred because the department does not have a good system for communicating and monitoring changes in project status.
The department also encountered difficulties in complying with the Bond Act requirement to reimburse the State Highway Account
and Consolidated Toll Bridge Fund for the fiscal year 1994-95 and 1995-96 seismic retrofit expenditures. The State Treasurer's Office and
the Department of Finance objected because the reimbursement as planned would result in the loss of the bonds' tax-exempt status.
The Department of Finance also refused to reimburse those expenditures because of a specific issue related to interim funding from the
Pooled Money Investment Account loan. Chapter 327, Statutes of 1997, provides an opportunity for the department to make the
reimbursement without the loss of the bonds' tax-exempt
status and without violating the terms of the loan. As of November 19, 1997, the reimbursements had not been made.
To ensure that only eligible projects are funded with the Seismic Retrofit Bond Fund, the department should take the following steps:
· Establish clear, written procedures for communicating and monitoring changes in the project status; and
· Promptly reclassify projects it is inappropriately identifying as Phase II projects.
The Department of Transportation agreed to use the information in our report in the final resolution of funds for the Seismic Retrofit Bond Fund of 1996.