Report 2011-120 Recommendations and Responses in 2015-041

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

Department Number of Years Reported As Not Fully Implemented Total Recommendations to Department Not Implemented After One Year Not Implemented as of 2014-041 Response Not Implemented as of Most Recent Response
Department of General Services 3 15 2 1 1
Department of Transportation 3 26 5 4 4

Recommendation To: General Services, Department of

To ensure that the construction unit complies with the State's procurement laws and policies, General Services should continue its efforts to implement regulations that govern the small business certification process related to defining and enforcing violations of commercially useful function requirements.

Response

During the 2014/15 fiscal year, DGS made a concerted effort to issue a comprehensive revision of the small business (SB) regulations, including commercially useful function provisions. As part of these efforts, DGS' Office of Small Business and DVBE Services (OSDS) took the following actions: (1) in December 2014, issued a Notice of Proposed Rulemaking to SB Regulations announcement; (2) in February 2015, provided an inspection period of the modified regulations; (3) in March 2015, held a public hearing to receive comments; and, (4) in June 2015, provided another inspection period of the modified regulations.

In July and August, in consultation with DGS legal staff, OSDS began the process of finalizing the SB regulations. The process identified sections of the proposed regulations that needed to be further researched and discussed prior to submittal of the rulemaking file to the Office of Administrative Law (OAL). As a result, DGS will not be able to meet the statutory deadline, December 28, 2015, for submittal of the file to OAL.

OSDS will restart the SB regulatory process in early 2016 and estimates that the rulemaking file will be submitted to OAL in September 2016. Subsequently, depending on OAL's response, DGS anticipates the regulations to be effective in December 2016.

  • California State Auditor's Assessment of Status: Not Fully Implemented
  • Completion Date: December 2016
  • Response Date: September 2015

Recommendation To: Transportation, Department of

To ensure that it collects fair market rents for the SR 710 properties on the State's behalf, Caltrans should, using the fair market rent determinations for all SR 710 properties it recently prepared and excluding those in its affordable rent program, adjust the tenants' rents to fair market after providing them with proper notice.

Response

Caltrans continues to implement rental rate adjustments (increases and decreases) instituted with the first wave of rental rate adjustments on March 1, 2013. The ultimate goal is that all rental rates are gradually adjusted to fair market rent or the Affordable Rent Level, if applicable.

Rent increase cycles continue to take place on April 1 and October 1 of each year, and notices are sent to affected tenants sixty days or more before their rent increase becomes effective; the most recent rent increase notices were sent to tenants in August 2015 to be effective in October 2015. Currently, there are 89 tenants out of 206 (which excludes 175 tenants in the affordable rent program) paying fair market rent. As of October 2015, there will be an additional 26 tenants paying fair market rent. Of the remaining 91 tenants, 82 are less than 25 percent below fair market rent and are expected to be at fair market rent within the next cycle of rent increases. The remaining 9 tenants will continue to see incremental rent adjustments until their rent is also at the fair market rent. One other circumstance to consider is that, in general, fair market rent has appreciated since the audit report was issued, thereby further delaying the achievement of having all relevant tenants paying fair market rent.

Evaluation of the last two adjustment cycles revealed that although all market rental rate evaluations were completed in a timely fashion and a number of increases were indicated as completed, a group of rental rate adjustments were inadvertently omitted and not entered into the Right of Way Property Management System. The missing group includes ARP and market rate tenants, and Caltrans is taking steps to adjust these tenancies within the October 1 cycle.

Caltrans is in the process of implementing a File Maker Pro system to track rental rate adjustments and continues to strive toward assurance that tenants are paying fair market rent as appropriate.

  • California State Auditor's Assessment of Status: Not Fully Implemented
  • Completion Date: to be determined
  • Response Date: September 2015

Recommendation 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.

Response

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

  • California State Auditor's Assessment of Status: Not Fully Implemented
  • Completion Date: to be determined
  • Response Date: September 2015

Recommendation To: Transportation, Department of

To comply with the 2007 court ruling and the APA until such time as the Legislature may choose to act, Caltrans should establish regulations to govern the sales process for the SR 710 properties affected by the Roberti Bill.

Response

Caltrans and CalSTA published the proposed Affordable Sales Program regulations in February 2015 for public review. Comments were considered and incorporated into the revised proposed regulations published in July 2015, and adoption of the final regulations is expected to take place at the end of the year. The proposed Affordable Sales Program regulations will allow Caltrans to implement the Roberti Bill and sell the affected properties.

  • California State Auditor's Assessment of Status: Not Fully Implemented
  • Completion Date: December 2015
  • Response Date: September 2015

Recommendation To: Transportation, Department of

To pursue alternatives to its management of the SR 710 properties, Caltrans should prepare a cost-benefit analysis to determine if the State would save money by hiring a private vendor to manage the properties. If such savings would occur, Caltrans should seek an exemption under Government Code, Section 19130 (a), to hire a private vendor.

Response

Caltrans and CalSTA are continuing to pursue the goal of eliminating Caltrans' role in managing SR 710 properties. As stated in the status to Recommendation No. 39, Caltrans and CalSTA are currently in the process of submitting proposed Affordable Sales Program regulations to be adopted by the Office of Administrative Law by the end of the year. Caltrans recently submitted a request for proposal for consultant contract management of the sales process. Although the scope of work for the Sales Program does not include property management, the sales effort is directed toward expeditious reduction in property management activity.

  • California State Auditor's Assessment of Status: Not Fully Implemented
  • Completion Date: to be determined
  • Response Date: September 2015

Current Status of Recommendations

All Recommendations in 2015-041