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Wednesday, May 20, 2009 | In the wake of Sept. 11, 2001, the federal government flooded California with money to help the state ramp up its homeland security effort. San Diego benefited greatly from the spending, reaping more than $20 million in homeland security grants since 2002.

But while San Diego and other local governments spent the federal money, the state scrambled to keep track of where all the cash was going. As California’s spending on homeland security ballooned from a few million in 2000 to more than $500 million in 2003, the state’s effort to account for all the money became akin to “trying to build a bicycle while you’re riding it,” according to one senior state official.

It took the state more than five years to get around to checking on San Diego’s spending of the federal grants, according to state and county audits. Those documents reveal that for the first few years the federal money poured into San Diego, few formal procedures existed to track whether the money was actually being spent on the purpose for which Congress made it available: Making San Diegans safer.

When the federal government did its own checking, it found that, as a result of the state of California’s poor monitoring of the homeland security money, local governments had been allowed to misspend millions of dollars. California was also unable to adequately measure whether the vast amounts of money actually helped to protect the state’s citizens, a federal audit concluded.

Now, the federal government plans to send California more than $80 billion — an amount that makes the state’s homeland security spending look puny — via the stimulus package. The city of San Diego hopes to claim more than $56 million of that money, and the county and other local cities, schools, and agencies hope to pick up tens of millions more.

As local governments salivate over the prospect of the federal dollars, the state is rushing to reassure a skeptical public that the money will be spent wisely and accounted for. But there are already hints that the problems that plagued the homeland security effort could stymie the state as it seeks to make its spending transparent.

The Bureau of State Audits has warned that California’s agencies may be ill-prepared to receive and pass on the tsunami of dollars coming from the federal government. The amount of oversight and reporting needed to manage so much money may overwhelm the financial tracking systems at the organizations it is being sent to help, a state auditor said.

There is also little indication that there will be sufficient federal oversight of the portion of the stimulus funds that will flow directly to local governments from Washington without passing through Sacramento.

While the stimulus spending may receive scrutiny from the media and political watchdog groups, there are signs that the federal and state agencies tasked with handing out the money are already struggling to cope with managing the huge amounts of money being passed to them. And San Diego’s experience with the homeland security grants offers valuable insight into how difficult it may be to manage the federal stimulus dollars at a local level.

“It’s going to be the same thing,” said Veronique de Rugy, a senior research fellow at the Mercatus Center at George Mason University, who has written extensively about the homeland security grants. “They don’t have a system in place to track the money. They should have had a system in place beforehand, then appropriated the money, then started tracking, but they’re not doing that, so how can we even think that they’re tracking the money?”

Between July 1, 2002 and July 23, 2007, San Diego received almost $22 million in homeland security grants from the federal government.

The homeland security audits, which obtained in partnership with the Center for Investigative Reporting, show that for the first years it was receiving grants, the county had few formal procedures for ensuring the money was being spent on the purposes it was intended for.

State auditors eventually concluded that San Diego had properly administered all of the federal funds. But Ron Lane, director of the county’s Office of Emergency Services and the key official who administered the grants for the county, acknowledged that for the first few years it was spending the federal grants, the county was creating its tracking system as it went along.

For example, the audits show that the county only began building a central database to track the equipment it was buying with the grants in 2007 — after the state asked it to provide records of where everything it had bought had ended up.

At a state level, the department charged with managing California’s homeland security effort was severely tested by the vast influx of federal money, said Brendan Murphy, director of grant management for the California Emergency Management Agency. Systems weren’t in place to properly monitor how local governments were spending the new money, he said, so state officials also built the tracking mechanisms as they went along.

Troubles at the State Level

The state didn’t get around to auditing how local governments were spending the homeland security grants until 2006 and that process wasn’t completed until 2008.

California’s delayed monitoring of the homeland security grants was criticized by the Department of Homeland Security’s Office of Inspector General.

The inspector general found, for example, that one local government had bought a power generator for $96,605 without realizing that installing the generator would cost $130,000. Because the county wouldn’t provide the money to install the generator, it sat, unused for two years, the inspector general’s report states.

The state also didn’t require local governments to provide documentation to support millions of dollars it was paying out in grants, the report states. The state didn’t have the staff to review the thousands of receipts it was receiving, nor did it have the space to store the paperwork that would be provided, the report states.

The stimulus spending is similar to the homeland security grants, but there are key differences that local and state officials are quick to point out.

Unlike the homeland security grants, most of the stimulus funding that’s coming California’s way will be funneled through the state’s largest, most established departments that are used to handling large amounts of federal money, officials said.

Murphy, who will monitor the stimulus money that flows to the California Emergency Management Agency from the Department of Justice, said he’s confident that his staff is prepared to properly account for the sudden flood of stimulus money coming from the American Recovery and Reinvestment Act.

“While I am looking at a large influx of resources, I won’t be building from scratch like I was in 2005,” Murphy said. “the programs I’m running are existing legacy programs so, while we are getting a one-time amount of money that I’m very thankful for and the state’s very thankful for, we’re putting that into programs that already have existing, proven mechanisms within them.”

The state auditor doesn’t seem to share Murphy’s optimism.

In April, the Bureau of State Audits released a brief report that concluded “the State’s system for administering the Recovery Act’s funds represents a high-risk issue area.”

Doug Cordiner, California’s chief deputy state auditor, said past audits have shown that some the state’s largest departments, which have for years processed large amounts of federal money, already have internal problems they need to address. That’s before the departments see their workloads swell with the influx of the Recovery Act money, Cordiner said.

“All of a sudden, they’re going to get all this recovery money and we have concerns,” Cordiner said. “We are looking now to see if they have corrected their previous issues.”

California Gov. Arnold Schwarzenegger has convened a Recovery Task Force and has asked the Bureau of State Audits to create “readiness reviews” of the state entities that will be receiving recovery funds. Schwarzenegger has also created the position of a Recovery Act Inspector General, who will oversee the state’s effort to provide accountability for the Recovery Act spending.

De Rugy said that sounds like too little too late. “They shouldn’t start spending any money until they have the answers to these questions that they’re going to be asking,” she said.

‘They’re Doing It on the Fly’

A chunk of the Recovery Act money won’t be funneled through Sacramento, however. Much of the money that will be made available to local governments — $11.2 billion of the $80 billion total, according to the state auditor — will be awarded directly to local governments from Washington.

Who will be monitoring that money depends on which federal agency the funds are coming from.

For example, San Diego hopes to receive $20.1 million via the Department of Transportation and $12.5 million via the Department of Energy. Each of those federal departments has an inspector general’s office that will be responsible for tracking the federal funds.

The Mayor’s Office has set up a website that will list how the city is spending the stimulus money. That data and other information provided by the state and the federal government is likely to be pored over by media and government watchdogs considering the politically charged nature of the stimulus package.

But Job Nelson, director of intergovernmental relations for the Mayor’s Office, said he hasn’t spoken to the federal agencies about how they will be auditing the money the city will receive. But he said there are indications that the agencies are building their framework for processing and managing the stimulus money as they go.

“They’re all scrambling to be able to get money out and they’re doing it on the fly,” Nelson said.

Nelson said the Department of Energy has amended its guidelines for one of the grants seven times since the grants came out.

Calls to the Offices of Inspector General of the Department of Energy, Department of Transportation and Department of Housing and Urban Development were not immediately returned.

Please contact Will Carless directly at with your thoughts, ideas, personal stories or tips. Or set the tone of the debate with a letter to the editor.

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