inspector general letter to governor 8-11-10

8/9/2019 Inspector General letter to Governor 8-11-10

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STATE OF CALIFORNIAOFFICE OF THE INSPECTOR GENERAL

AMERICAN RECOVERY ACT FUNDSLAURA N. CHICKINSPECTOR GENERAL

August 11, 2010The Honorable Arnold SchwarzeneggerOffice of the GovernorState CapitolSacramento, California 95814Dear Governor Schwarzenegger:The American Recovery and Reinvestment Act provides California with an opportunity for action in areaswhere the economic meltdown has stalled progress. One of these opportunities is the ability toimplement your call to green state buildings.California cannot maximize the stimulus funding unless its agencies and departments take all reasonablesteps to ensure that these dollars are spent correctly and expediently. Doing so includes a mandate to Ido things differently, smarter, and faster. . by streamlining, identifying and eliminating needless red tape!and looking for ways to create efficiencies and get results. ICalifornia was perfectly situated at the start of ARRA to be the poster child fo r greening state ownedbuildings. In 2004, well before ARRA, you issued Executive Order S-20-04 which directed the state to"commit to aggressive action to reduce state building electricity usage by retrofitting, building andoperating the most energy and resource efficient buildings by taking all cost-effective measuresdescribed in the Green Building Action Plan fo r facilities owned, funded or leased by the state and toencourage cities, counties and schools to do the same." Then, in Spring of 2009, as Congress passed theRecovery Act, the State Department of General Services (DGS) began to advocate for funding to financeenergy savings measures fo r state bUildings. That funding, $25 million, was approved in September2009.Early on I began inquiring about DGS' progress in moving these greening projects forward. Theseprojects improve the environment, pOSition the State to appropriately serve as a role model, and mostimportantly, create desperately needed jobs in the pr ivate sector. I was assured repeatedly by DGS thatall necessary steps were being taken to have these projects up and running as quickly as possible.Unfortunately, that proved not to be the case. As of their June 30, 2010 report, DGS has only expended i$121,788, or 1% of which they have been awarded.Since your Executive Order of 2004, and certainly since the advent of the Recovery Act in 2009, DGScould have been aggressively planning, organizing, and strategizing to assure that these funds would be ispent as quickly as possible. In addition, they should have been proactively trouble shooting and lookingfor all possible road blocks and finding solutions in advance. The sooner a project is completed, realizes iits energy savings, and repays its loan, the faster the state can add additional buildings to green and Imove California toward its energy reduction goals.

1400 TENTH STREET, SACRAMENTO, CALIFORNIA 95814(916) 322-3003' FAX (916) [email protected]
mailto:[email protected]:[email protected]


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While DGS has offered up a myriad of unacceptable excuses fo r their slow pace (please see attachedDGS document) and assured me they will meet the ARRA deadline of June 2012 for expenditures, I amwriting you to say that this is not good enough; we absolutely can do better! DGS must see this as a top"now" priority, hound dog it to death, and take whatever immediate action necessary to move theseprojects forward as efficientlyand effectively as possible. Although DGS has been slow to expend thesefunds, 1must point out that the California Energy Commission has been an equal partner. They mustjoin with DGS to be part of the solution.Sincerely,

LAURA N. CHICKInspector General


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ENERGY EFFICIENT STATE PROPERTY REVOLVING FUNDAMERICAN RECOVERY AND REINVESTMNET ACT OF 2009

08/04/10 P-1

Executive Summary

The $25 million American Recovery and Reinvestment Act of 2009 (ARRA) EnergyEfficient State Property Revolving Fund (Loan Fund) has evolved over the last sixmonths. The Loan Fund initially started with two project pipelines, a Large BuildingsProgram and a Small Buildings Program. The DGS Large Building Program, which isopen to all agencies and departments, began with a $16 million funding allocation. TheSmall Building Program, which covers state buildings smaller than 50,000 square feet,initially had an allocation of $9 million.

The first loan with the Department of General Services (DGS) Building and PropertyManagement Branch (BPM) was executed on December 28, 2009 for approximately$3.7 million. Shortly after the execution of this loan, the loan amount was reduced by $2million to reflect the elimination of the Board of Equalization Building. Moreover, $7

million worth of shovel ready projects in state buildings that are part of the GovernorsSale/Leaseback Initiative had to be withdrawn to protect the Initiative from potentialcontractor liens.

To mitigate this $ 9 million loss, DGS shifted $7 million to the Small Building Program,but, unfortunately, the shift comes with a long lead time since an energy servicecompany (ECCO) must conduct an energy audit to validate savings before the projectcan be funded. However, loan applications and agreements for these small buildingprojects are currently being developed and will be finalized by September 30, 2010. Inaddition, following an aggressive marketing effort, a loan with the California Departmentof Corrections (CDCR) was executed on April 8, 2010 for approximately $4.1 millionwhich also helps to offset the loss of these $9 million in shovel ready projects.

Regrettably, the CDCR projects are on hold until the States 2010-11 Budget is adopted.

On a positive note, $3 million in loans for the DGS Large Buildings Program will beexecuted by August 15, 2010. Moreover, CDCR and the California State UniversitySystem (CSU) have identified additional projects totaling $13.5 million, which exceedsavailable funds.

Background

The ARRA (Public Law 111-5) provided funds to the United States Department ofEnergy to make allocations to existing State Energy Programs [SEP]. Accordingly, onJune 25, 2009, the California Energy Commission (CEC) received $226,093,000 fordistribution under its SEP guidelines.

On June 28, 2009, Governor Schwarzenegger signed ABx4 11, adding Sections 25470through 25474 to the Public Resources Code, created the Loan Fund and directed DGSto administer it. In March 2010, CEC transferred $25,000,000 of the $226,093,000 intothe Loan Fund to finance energy efficient retrofits in state facilities. Participating stateagencies will use the savings [cost avoidance] from these retrofits to service their debt tothe Loan Fund. These debt payments will allow DGS to fund future retro-fit projects instate buildings.


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Implementation

Large Building ProgramThe Large Building Program was severely impacted by the Sale/Leaseback Initiative

which imposed a moratorium on building improvements during the marketing of thebuildings. Unfortunately, most of DGS shovel-ready energy projects were pre-empted bythis decision. Secondly, another large project at the Board of Equalization building (BOE)was removed from the program as a political concession.

Due to successful marketing efforts of the Loan Fund Program with other departments,the Loan Fund Project Selection and Loan Review Committees have approved andissued loans in the amount of $4.1 million for projects at CDCR facilities. Additionally,the Loan Fund Committee has received and approved $4.3 million in loan applicationsfor DGS buildings. Depending upon fund availability, the CDCR has identified anotherloan application with projects for approximately $3.5 million and the California StateUniversity Campuses have identified projects totaling $10 million.

Small Building ProgramThe Loan Fund initially earmarked approximately $9 million for this program. TheDepartment of Motor Vehicles, California Highway Patrol, the Department ofDevelopmental Services, the Department Mental Health, the Department of WaterResources, and the Office of the Chief Information Officer are the participatingdepartments. Due to the loss of projects in the Large Buildings Program, funds werereallocated to the Small Building Program, increasing its allocation from $9 million to $16million.

Implementing the Small Building Program always had the longest lead time of the twoprograms due to the need procure the services of an energy services company (ESCO)to conduct energy audits in the various facilities statewide. The ESCO completed over

80 site visits and preliminary energy audits during March and April 2010 then presentedthose findings to the participating departments. Final energy audits were conductedfrom May through July 2010 to identify the best projects for energy efficient retrofits.

ChallengesThe loan agreement with the CDCR for $4.1 million has been executed but theSCO recently asked CDCR to file a Section 28 letter seeking additionalexpenditure authority. The Section 28 letter cannot be approved by theDepartment of Finance until the 2010-11 State Budget is passed.The budget impasse may impact loan execution associated with projects underthe Small Building Program. Client departments are reluctant to commit to loansabsent a budget.

CEQA must be completed prior to issuing a NTP to the contractors. Although theprojects qualify for Categorical Exemptions, every one must comply with the 35day statute of limitations period before proceeding.


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The chart below shows how the program has evolved between the dates the programwas initiated (Dec-09) and today (Jul-10).

State Builidng Energy Efficient Loan

Program

$16,000,000

$4,300,000

$9,000,000

$16,000,000

$4,100,000

$0

$5,000,000

$10,000,000

$15,000,000

$20,000,000

$25,000,000

Dec-09 Jul-10

CDCR BuildingProgram

Small BuildingProgram

DGS BuildingProgram

This table presents the current status of the executed loans for the ARRA Loan FundProgram.

Activity LoanExecuted

ProjectsCompletion

Comments

DGS.BPM Loan for$1.3 million in projects

12/28/09 012/30/10 This loan funded projects in theCalifornia Energy Commission,Bateson, and Secretary of

State Office Buildings.CDCR loan for$4.1 million in projects

04/08/10 TBD Completion date subject topassage of 2010-11 StateBudget

This table presents the schedule for approving the remaining loan packages, securingCEQA and issuing the Notice to Proceed.

Activity Start Complete CommentsApprove Loan Packagesfor the Small BuildingsProgram [$16 million ] and

for the Large BuildingsProgram [$3 million]

08/15/10 09/30/10 Approval of some loanpackages may be subject topassage of budget.

CEQA Compliance 09/01/10 11/05/10 CEQA will be conducted on aflow basis as loan packagesare approved.

Issue Notice to Proceed 11/01/10 12/01/10 NTPs will be issued on a flow

basis as CEQA is completed.

inspector general letter to governor 8-11-10

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