HomeMy WebLinkAbout07.B- City Manager DOC ID: 4239 A
CITY OF SAN BERNARDINO — REQUEST FOR COUNCIL ACTION
Agreement/Contract
From: Allen Parker M/CC Meeting Date: 12/21/2015
Prepared by: Allen Parker, (909) 384-
5122
Dept: City Manager Ward(s): All
Subject:
Discuss and Take Possible Action on Whether to Continue to Fund Operations of San
Bernardino Employment and Training Agency (SBETA) Using City Funds, Subject to
Possible Reimbursement from the State of California, and If So, for What Period of
Time. (#4239)
Current Business Registration Certificate: Not Applicable
Financial Impact:
Financial Impact: Potential expense of approximately $125,000 per month, with
possibility of reimbursement.
Motion: To continue to fund the operations of the San Bernardino Employment and
Training Agency (SBETA) using City funds for months.
Subject: Consider Whether to Continue to Fund Operations of San Bernardino
Employment and Training Agency (SBETA) Using City Funds, Subject to Possible
Reimbursement From State of California, and If So, For What Period of Time.
Synopsis of Previous Council Action:
July 20, 2015 -- Mayor and Common Council voted to authorize a budget amendment
equal to 1/12th of SBETA's annual budget to keep the agency open until July 31 and to
discuss the matter further at a meeting on July 29, 2015.
July 29, 2015 -- Mayor and Common Council voted to allocate up to $250,000 to
continue SBETA in operation until September 21, 2015.
September 21, 2015 -- Mayor and Common Council voted to allocate s 375,000 to
continue SBETA in operation through the end of December 2015.
Background:
SBETA serves as the City's employment and training services provider for the purpose
of implementing federally-funded workforce investment programs. The City receives
funding from the United States Department of Labor for SBETA's operations. The
funding is administered by the California Employment Development Department (EDD).
In October 2014, EDD placed the City on cash hold due to the City's failure to submit a
timely single audit of its federally-funded programs. A local entity that receives federal
funding is required to submit a single audit annually, covering all its federal programs
and showing how the funds were spent. Pass-through recipients of federal funds, such
as EDD, are required to impose sanctions, which can include cash holds, on local
entities that do not complete their single audits on time.
1 1 +. 1-1-. E! n Packet Pa 7B4
4239
The City's single audits for the years ended June 30, 2013 and 2014 are currently
overdue. Hence, the cash hold has remained in place and the City has received no
funds from EDD since October of last year. In the interim, the City has funded SBETA
from other sources.
Discussion:
The only basis stated by EDD for the cash hold when it was imposed in October 2014
was the delinquent 2013 single audit. More recently, however, when the City asked
EDD to confirm that the cash hold would be released upon the submission of the
delinquent audits, EDD stated it might not release the cash hold if the audits had
"systemic" adverse findings such as those contained in the 2012 single audit. An email
from an EDD staff attorney from August 2015 is attached, in which it is stated, "systemic
material findings resulting from the single audits that are currently in process could
result in the cash hold not being lifted."
It is anticipated that the 2013 and 2014 audits will contain systemic adverse findings,
but that the City will be able to demonstrate that action has been taken to address the
findings. In the interim, WIA was replaced by a new federal law, the Workforce
Innovation and Opportunity Act of 2014 (WIOA), effective July 1, 2015. The City applied
to receive funding under WIOA but was initially rejected by the State due to the cash
hold and overdue audits. The City appealed the rejection and the hearing officer
handling the appeal concluded the cash hold and audits were not a legal basis for
rejecting the City's WIOA application. The hearing officer's Decision and
Recommendation, dated November 12, 2015, is attached.
SBETA also obtained opinion letters from Rochelle Daniels, an attorney specializing in
workforce matters, concerning the City's likelihood of obtaining reimbursement of funds
expended to fund SBETA pending the submission of the overdue audits. The letters,
dated July 27 and September 17, 2015, are attached. Ms. Daniels concluded that the
City should expect to be reimbursed for the money it spent to fund SBETA prior to
WIOA taking effect, and might expect to be reimbursed for money spent after that time if
it won its appeal, which, as stated, the City eventually did.
The most recent communication from the State concerning the cash hold is a November
17, 2015 letter from the State Labor Secretary directing that the City be conditionally
designated to receive funding under WIOA, but threatening adverse action, including
defunding, if the audit requirements and other fiscal requirements are not satisfied. The
letter is attached.
As the currently-approved City funding for SBETA runs out at the end of this month, the
Mayor and Council are requested to consider whether to continue the funding beyond
that time and if so, for what period of time.
Attachments:
EDD email dated August 10, 2015
Hearing Officer Decision and Recommendation dated November 12, 2015
Rochelle Daniels letter dated July 27, 2015
Rochelle Daniels letter dated September 17, 2015
State Labor Secretary letter dated November 17, 2015
4239
Supporting Documents:
SBETA Agenda 12-21-15 Rochelle Daniels Letter 7-27-15 (PDF)
SBETA 12-21-15Rochelle Daniels Ltr re Cash Hold 9-15 (PDF)
SBETA Agenda 12-21-15Decision and Recommendation 11.12.15 (PDF)
SBETA Agenda 12-21-15 Asuncion Email 8-10-15 (PDF)
Rochelle J. Daniels
Attorney Et Consultant
5301 North 36`h Court - Hollywood, Florida 33021 =
danielsri @aol.com 954 205 2582
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July 27, 2015 0
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Dr. Ernest Dowdy Jr U
Executive Director =
San Bernardino Employment &Training Agency
600 N Arrowhead Ave Ste 300
San Bernardino, CA 92401-1148
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RE: Cash Hold on Workforce Investment Act/Workforce Innovation and Opportunity Act o
Funds
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Dear Dr. Dowdy:
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Query
I have been asked to provide an opinion regarding the State of California's obligation to U-
reimburse the City of San Bernardino for costs incurred with respect to its employment
and training programs as follows:
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1. Expenses in the amount $489,598.66 incurred prior to October 17, 2014, the date on
which a hold was placed on the City's Workforce Investment Act of 1998 grants. Note N
a cash draw down requested on October 16, 2014 was never honored although at that
time the City had not yet received any notice of the cash hold. LO
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2. Expenses incurred after the cash hold prior to denial, on July 17, 2015, of initial
designation of the city as a workforce area under the Workforce Innovation and Y
Opportunity Act of 2014; and
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3. Expenses incurred July 17, 2015.
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In total approximately 1.3 million owed to city I have provided the requested analysis below.
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Opinion 0
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1. Expenses in the amount $489,598.66 incurred prior to October 17, 2014, the date on
which a hold was placed on the City's Workforce Investment Act of 1998 grants. Note N
a cash draw down requested on October 16, 2014 was never honored although at that
time the City had not yet received any notice of the cash hold. _
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Yes, the City should expect to be reimbursed in accordance with the grant ¢
guidelines.
These expenses were incurred prior to any notice of a sanction and should be
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reimbursed once the state lifts the sanction regardless of whether the City
appeals the denial of initial designation and is successful.
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Packet Pa. 767
Dr. Ernest Dowdy
Page 2
2. Expenses incurred after the cash hold prior to denial, on July 17, 2015, of initial
designation of the city as a workforce area under the Workforce Innovation and E
Opportunity Act of 2014; o
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Yes, the City should expect to be reimbursed in accordance with the grant W
guidelines.
These expenses were incurred prior to any notice of denial of designation status
and should be reimbursed once the state lifts the sanction. The state never E
terminated the grants. m
3. Expenses incurred July 17, 2015.
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There may be a difference in the state's stance regarding the youth vs adult / 0
dislocated worker funds, as the youth funds were allocated in April prior to the
denial of designation as a workforce area and were obligated by the city. These
funds may have to be reimbursed as the city proceeded forward in good faith and °
at that time the state did not indicate that they would not designate the city.
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4. With respect to the adult/dislocated worker the city did receive an email stating 2
that expenses incurred under the Workforce Innovation and Opportunity Act of 2094 0
would not be subject to reimbursement because the city was not designated as a
workforce area. Therefore if the city decides to appeal and wins, it is likely M
allowable expenses incurred in support of the grants would have to be
reimbursed.
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Background l Facts ti
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Designation of the City of San Bemardino as a Workforce Area under the Workforce J
Investment Act
The City of San Bernardino was designated by the Governor of the State of California o
as a workforce investment area under the Workforce Investment Act of 1998, 29 U.S.C.
§ 2801 et seq, (WIA). This entitled the city to a formula allocation of funds to deliver
workforce services to citizens and residents of the city. 0
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On July 22, 2014, the Workforce Innovation and Opportunity Act of 2014, P. L. 113-
128, (WIOA) was enacted and replaced WIA. WIOA took effect July 1, 2015 and N
required the state to re-designate local areas.
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Designation of Workforce Areas Under W10A a
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WiOA required states to designate local areas which had been designated as workforce w
investment areas under WIA, if those areas (1) requested designation, (2) met their
federal performance measures and (3) maintained fiscal integrity, for the two (2) full
program years immediately preceding the year in which WIOA was enacted, that is July
1, 2012—June 30, 2013 and July 1, 2013—July 1, 2014.
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Packet Pq. 768
Dr. Ernest Dowdy
Page 3
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Pursuant to WIOA federal and state guidance regarding initial designation of workforce
areas, the City of San Bernardino requested designation as a workforce area.
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Although the United States Department of Labor (USDOL) encouraged states to E
complete the designation process prior to July 1, 2015, USDOL Training Employment o
Guidance Letter (TEGL) 27-14 advised that states could designate local areas in 2015
or in 2016. The City of San Bernardino was informed in writing on July 17, 2015, after L
the start of the program year, that their request for designation had been denied m
because the City's did not meet the fiscal integrity requirement due to outstanding audit
reports covering the immediately preceding two (2) years. c
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Fiscal Issues o
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1. Entities receiving federal grant funds in excess of $500,000 (now $750,000) o
annually are required to conduct an organization-wide audit. On August 1, 2012,
the City of San Bernardino filed for Chapter 9 Bankruptcy resulting in delays to LL
the issuance of their fiscal year 2012 / 2013 and 2013 / 2014 audit reports. The
Office of Management and Budget (OMB) Circulars governing audit allow
recipients of pass through grants, (in this instance the state), to impose sanctions o
for late audit reports. Ref. OMB Circular A-133, the applicable circular for the
audit years in question, as follows: M
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"In cases of continued inability or unwillingness to have an audit conducted in accordance with LO
this part, Federal agencies and pass-through entities shall take appropriate action using
sanctions such as: N
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(a) Withholding a percentage of Federal awards until the audit is completed satisfactorily;
(b) Withholding or disallowing overhead costs;
(c) Suspending Federal awards until the audit is conducted; or N
(d) Terminating the Federal award.
Relying on the Circular, the state imposed a cash hold. The new OMB "super °
circular" which is codified at 2 CFR 200 expands upon the available sanctions.
2. WIA and now WIOA Title 1 awards states and local areas funds to serve adults, W
dislocated workers and youth. Adult and dislocated worker allocations becomes r
available July 1 each year. The youth allocation becomes available in April of N
each year. As a result even though the state had not designated local areas in
April of 2015, under WIOA, the City of San Bernardino was allocated its youth
funds for the 2015 — 20167 program years and entered into agreements to serve
youth with those funds. Q
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3. The USDOL issued TEGL 38-14 on June 8, 2015 advising states and local areas m
regarding the 2014 unexpended WIA funds carried forward into the program year
starting July 1, 2015. The TEGL provides for the continued expenditure of WIA
funds on WIA participants still in the program on July 1, 2015 and the use of WIA s
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Packet Pg. 769
Dr. Ernest Dowdy
Page 4
funds not needed for WIA participants to be spent on WIOA implementation
activities.
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The City of San Bernardino Employment and Training_Agency has WIA carry 0
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forward funds which can be used to pay any WIA participant expenses and
related overhead if the cash hold was released. U
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4. Since the state did not officially notify the City of San Bernardino regarding its =
designation status under WIOA prior to July 1, 2015 the City continued to expend m
funds at least through July 17, 2015, when it received notice from the state that it
would not be designated.
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The City of San Bernardino's Status as a Local Workforce Area r-
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The City of San Bernardino has the right to appeal the state's refusal to designate the
city as a local workforce area under WIOA. The appeal must be filed within 20 days of o
the date the state notice was postmarked.
Impact of Cash Hold and Failure to Be Designated on the City's WIA ! WIOA L
Expenditures
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Once the audits are completed, the city should be able to submit a request for a draw
down to cover expenditures at least through July 17, 2016. This is based upon the life of
WIA funding. WIA funds are available to local areas for two years from the date they S
are allocated. The funds have a two (2) year life. (Ref. Mechanics of Workforce r
Funding, Desktop Reference Guide, USDOL Dec. 2013). However, the city should be N
careful to observe the date when the funds will no longer be available to them. For
funds obligated on July 1, 2014, the City would have until June 30, 2016 to completely
expend the grant. The passage of WIOA and the failure of the City to be designated a N
local area limits the city to WIA expenditures and related WIA overhead.
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The state board director who is not the director of the California Employment Development 2
Department (EDD) issued an informal opinion on July 3, 2015, stating that he did not
think the city could be reimbursed for WIOA expenditures because the city has not been W
designated a workforce area under WIOA. The emails from the state board were
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confusing because a later email indicated the city might be reimbursed. Regardless the N
state board is the policy arm, EDD is the administrative arm and would be the entity
which implements the rule. _
To assure ongoing costs of the Employment and Training Agency will be reimbursed the ¢
city should consider: w
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1. Ascertaining the amount of WIA carry forward into program year 2015 — 2016
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which began on July 1, 2015.
Packet Pq. 770
7.B.
Dr. Ernest Dowdy
Page 5
2. Limiting expenditures of the Agency to the amount of the carry forward and to
WIA related activities which would include closeout of the grants. a)
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Options
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1. Appeal o
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WIOA at § 106(b)(5) provides that local areas may appeal a state's determination
not to designate the area under WIOA as follows:
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(5) APPEALS.—A unit of general local government (including a combination of such units) or grant N
recipient that requests but is not granted designation of an area as a local area under paragraph (2) ,-
or (3) may submit an appeal to the State board under an appeal process established in the State N
plan. If the appeal does not result in such a designation, the Secretary of Labor, after receiving a c
request for review from the unit or grant recipient and on determining that the unit or grant recipient
was not accorded procedural rights under the appeals process described in the State plan, as
specified in section 102(b)(2)(D)(i)(III), or that the area meets the requirements of paragraph (2) or o
(3), may require that the area be designated as a local area under such paragraph. -0
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As can be seen from the language underscored above the WIOA criteria at `-
§106(b)(2) requires designation if the local area:
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"...was designated as a local area for purposes of the Workforce Investment Act of 1998 for the 2- U
year period preceding the date of enactment of this Act, performed successfully, and sustained fiscal rn
integrity." N
In that instance the Secretary will mandate designation. The city: r
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a. Was a local area under WIA. L
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b. Met its performance measures for the two (2) years prior to the enactment of
WIOA
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c. Has not been cited for any fiscal wrong doing, even though the audits as a result a
of the bankruptcy are taking significantly longer to be completed than the time
prescribed in the federal guidance. o
The city can certainly argue that: T
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a. They have been monitored by the state at least once each program year and
there were no significant or material findings.
b. There are no outstanding corrective action issues. a
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c. Staff who have managed the grants successfully for many years are still m
employed by the city. Cn
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Packet Pg. 771
7.B.a
Dr. Ernest Dowdy
Page 6
d. The state has been told by two reputable firms that the audit process is ongoing.
They audit firms have not cited un-auditable records, or stated that the reports
would not be forthcoming. E,
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e. The city's bankruptcy filing did not result in the failure to provide services under w
WIA. 0
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f. There is no evidence that there is or has been any fiscal wrongdoing with respect
to the WIA federal grant funds. m
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2. Consideration of Possible Additional Actions Cn
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The state's decision to impose a cash hold, as opposed to a lessor sanction that would
have allowed the city to continue to operate has contributed to the fiscal crisis in the
city. In March of 2015, the General Accounting office (GAO) issued a report titled, Q
Municipalities in Fiscal Crisis, Federal Agencies Monitored Grants and Assisted o
Grantees, but More Could Be Done to Share Lessons Learned. A reading of the report
indicates that not all states imposed cash holds on municipalities who had filed for U_
bankruptcy. Further, corrective action resulted in the lifting of cash holds when they
were imposed. The report goes on to share ways in which municipalities can be
assisted during periods of serious fiscal constraints, to use federal grants to continue
services for the intended populations under the grants.
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Based upon the report some possible options and approaches the city might consider
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include:
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a. Requesting that the state use some of the funds that would be allocated to the L
local area to conduct or engage an audit firm to conduct "agreed upon w
procedures"to assure the integrity of the WIA funds during program years 2012 —
2013 and 2013 — 2014, while waiting for the audit reports to be completed. This d
could be used to confirm fiscal integrity and allow funds to be released so that
the city could pay its grant bills and reimburse its service providers. °
b. Ask the state to pay the service providers under contract and reimburse the city o
for payroll related to staff who are 100% charged to the grants to the extent WIA W
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funds are available.
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c. Request that the state conduct a risk assessment and in-depth monitoring. If the
monitoring results in no material findings release the cash hold. This was
suggested in the GAO report.
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Packet PQ. 772
Dr. Ernest Dowdy
Page 7
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d. Ask the state to allow for a restricted draw down releasing funds for WIA C
expenditures, followed by a financial report prior to each draw down. This was E
another technique suggested by the GAO report. o
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Please do not hesitate to call should you have any further questions. W
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Rochelle J. Daniels
Attorney 8t Consultant
5301 North 3e Court-Hollywood, Florida 33021 -o
danielsrl(_aol.com 954 205 2582
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September 17, 2015 C
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Dr. Ernest Dowdy Jr
Executive Director
San Bernardino Employment&Training Agency
600 N Arrowhead Ave Ste 300 m
San Bernardino, CA 92401-1148 R
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RE: Cash Hold on Workforce Investment Act/Workforce Innovation and Opportunity Act o
Funds
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Dear Dr. Dowdy: a
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I have been asked to provide an opinion of the State's responsibility to repay the City of
San Bernardino for continuing activities and expenditures in support of its workforce L
system, the San Bernardino Employment and Training Agency. In my letter dated July (D
27, 2015 1 indicated that:
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1. Expenses in the amount $489,598.66 incurred prior to October 17, 2014, the date on a)
which a hold was placed on the City's Workforce Investment Act of 1998 grants. Note a N
cash draw down requested on October 16, 2014 was never honored although at that time
the City had not yet received any notice of the cash hold. LO
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Yes, the City should expect to be reimbursed in accordance with the grant o
guidelines. These expenses were incurred prior to any notice of a sanction and =
should be reimbursed once the state lifts the sanction regardless of whether the
City appeals the denial of initial designation and is successful.
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2. Expenses incurred after the cash hold prior to denial, on July 17, 2015, of initial
designation of the city as a workforce area under the Workforce Innovation and 2
Opportunity Act of 2014;
Yes, the City should expect to be reimbursed in accordance with the grant
guidelines. These expenses were incurred prior to any notice of denial of designation
status and should be reimbursed once the state lifts the sanction. The state never o
terminated the grants. LO
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3. Expenses incurred July 17, 2015. N
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There may be a difference in the state's stance regarding the youth vs adult/dislocated w
worker funds, as the youth funds were allocated in April prior to the denial of designation N
as a workforce area and were obligated by the city. These funds may have to be
reimbursed as the city proceeded forward in good faith and at that time the state did not a
indicate that they would not designate the city. E
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Packet Pq. 774
7.B:b
Dr. Ernest Dowdy
September 17, 2015
Page 2
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4. With respect to the adult / dislocated worker the city did receive an email stating
mat expenses incurred under the Workforce Innovation and Opportunity Act of 2014 E
would not be subject to reimbursement because the city was not designated as a o
workforce area. Therefore if the city decides to appeal and wins, it is likely a
allowable expenses incurred in support of the grants would have to be w
reimbursed. 0
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Since that time the City has filed an appeal of the State's decision not to grant initial
designation, and the City has been issued a Notice of Obligation from the state through m
June 2017 for WIOA formula adult, and dislocated worker sub grants and for state
Rapid Response funds to address lay-offs and closings. N
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In researching the impact of a the issuance of a Notice of Obligation, I looked at the o
Employment Development Division (EDD) of California, State of California, CaIJOBS 2-
Cash Request Handbook Workforce Investment Act, issued February, 2015, (Exhibit a
1) which according to the EDD website is current guidance. The purpose of the O
handbook is stated as follows: _
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"...is to provide instructions to any subgrantee of Workforce Investment Act
(WIA) funds and other types of funds, who has entered into a binding contract
with the Employment Development Department (EDD), and needs cash to meet L)
their expenditures for the programs." (emphasis added) 0)
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The handbook provides guidance for drawing down funds for entities that have entered LO
into binding contracts with the State of California. The handbook goes on to say:
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DESCRIPTION OF CaIJOBSsm CASH DRAW MODULE 0
The CaIJOBSSM Cash Draw module is a Virtual OneStop system that contains
the financial data for each Workforce Investment Act grant and other types of
funds issued by the Federal Department of Labor (DOL) and other agencies J
through the State of California's EDD. CaIJOBS6m is used by all subgrantees,
including staff in each of California's Local Workforce Investment Areas, and the
staff in the EDD. Subgrantees use CaIJOBSSM to record expenditures against o
each grant and to request cash to cover those expenses. The EDD uses it to ='
monitor contract compliance and grant expenditures. The data in CaIJOBSSM
may be used for audit purposes at the federal, state and subrecipient levels. �0
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The handbook defines an "obligation" as follows: N
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OBLIGATIONAL AUTHORITY
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The Obligational Authority (OA) is the limit of cash available for a grant.
The State of California through its Notice of Obligation has made a sub grant available
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to the City. The State of California has never stopped issuing Notices of Obligations and
Pal cket Pa. 775 I
Dr. Ernest Dowdy
September 17, 2015
Page 3
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signed sub-grants to the City of San Bernardino indicating the funds available to it for c
workforce activities, irrespective of its decision at its June, 2015 State Board Meeting at C
which designation was denied to the City of San Bernardino. w
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The State has an obligation to provide workforce services to the entire state,' and does
this by creating workforce areas and allocating formula funds so that the residents and E
citizens of the area can get workforce services. EDD continues to issue Notices of m
Obligations to the City and has not re-allocated the City's grants to the County of San
Bernardino or to any other area. In accordance with the EDD Cash Handbook the -
obligational authority is equated with the funds that can be drawn down. There is no
limitation in the Notice of Obligation to the City that is not within the normal Notice of o
Obligations conditions. (See Exhibit 2 — Notice of Obligation) It appears that the state
has not provided direction to any other workforce area to provide services to the City's o
residents and has not reallocated the City's formula grants. To the contrary, the state V
has entered into a binding contract to provide the funds to the City.
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The General Accounting Office, (GAO) special publication, titled, Principles of Federal
Appropriations Law Third Edition Volume II (2004), defines "obligation" as follows: o
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"Thus, in very general and simplified terms, an "obligation" is some action that creates a legal liability or M
definite commitment on the part of the government, or creates a legal duty that could mature into a legal
liability by virtue of an action that is beyond the control of the government. Payment may be made
immediately or in the future." Chapter 7, page 7—3.
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This means that once the obligation is incurred the payment is owed even if made after c
a program year, for example, has ended. _
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Grants are not contracts and there are a number of decisions that indicate that contract L)
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law is not directly applicable to a grant award. However the GAO publication tells us:
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Funds must be obligated by the grantor agency within their period of availability.s, The
period of availability of appropriated funds is the period of time provided by law in which
the administering agency has to obligate the funds. B-271607, June 3, 1996. The °
statutory requirement for recording obligations extends to all actions necessary to
constitute a valid obligation, and includes, of course, grant obligations (31 U.S.C. §
1501(a)(5)).32 Proper recording of grant obligations facilitates compliance with the "time W0
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of obligation" requirement by ensuring that agencies have adequate budget authority to
cover their obligations. See B-300480, Apr. 9, 2003, aff d In B-300480.2, June 6, 2003. N
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The state has been obligating funds to the City and has been reporting those obligations
as required in their federal reports to the US Department of Labor. The funds have not w
been reallocated to another area. Therefore the funds are available to pay the city's v00i
expenditures. While this does not mean that the state will pay readily, there is nothing to c
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W IOA§ 106(b)(1)(A)Workforce Development Areas
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Dr. Ernest Dowdy
September 17, 2015
Page 4
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indicate that the state will not honor the costs incurred by the City for its workforce
programs as it continues to issue appropriate grant obligation notifications.
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Sincerely yours, E
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S/ %tcheM Daniel °c
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Rochelle J. Daniels L
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IN THE MATTER OF THE APPEAL OF
CITY OF SAN BERNARDINO PURSUANT TO 29 U.S.C. § 3121(b)(5)
FROM DENIAL OF THE APPLICATION FOR INITIAL DESIGNATION
AS A LOCAL WORKFORCE DEVELOPMENT AREA UNDER
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THE WORKFORCE INNOVATION AND OPPORTUNITY ACT
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DECISION AND RECOMMENDATION
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On August 10, 2015,the City of San Bernardino ("City") filed an appeal of the decision
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denying its application for initial designation as a local workforce development area under the
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Workforce Innovation and Opportunity Act ("WIOA"). A hearing was held by way of the 51�
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submission of briefing by the City and the California Workforce Development Board ("CWDB") 7
regarding the issues in the appeal, and the record was closed on November 2, 2015.
The issues on appeal are:
1. Whether in denying the application for initial designation,the State failed to apply
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the correct legal standard required under the W10A. 0
2. Whether the denial of the City's request for initial designation constituted improper
arbitrary disparate treatment compared to similarly situated applicants.
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Upon review of the submissions of the City,the CWDB, the relevant statutory and 0
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regulatory authorities and precedents,this decision finds that in recommending the City's T-
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application for initial designation be denied, the CWDB utilized a standard clearly in conflict CM
with and exceeding the statutory conditions for initial designation mandated by the WIOA. For
as
this reason, this decision finds it unnecessary to reach the question of whether the denial
constituted improper and arbitrary disparate treatment. This decision recommends that the m
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CWDB rescind its prior recommendation to deny initial designation and re-evaluate the City's
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request for initial designation under the correct applicable criteria. E
Packat Pa. 778
7.B.c
t. INTRODUCTION AND PROCEDURAL BACKGROUND
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On July 22, 2014, President Obama signed the Workforce Innovation and Opportunity
a
Act into law. ("WIOA", 29 U.S.G. § 3101 et seq.) This Act, like its predecessors in the Workforce m
Investment Act of 1998 ("WIA", Pub.L. No. 105-220 (Aug. 7, 1988) 112 Stat. 936),the Job cn
Training Partnership Act of 1982 ("JTPA", Pub.L. No. 97-300 (Oct. 13, 1982) 96 Stat. 1322), and o
_
the Comprehensive Employment and Training Act of 1973 ("CETA", Pub.L. No. 93-203 (Dec. 28, °-
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1973) 87 Stat. 839), was enacted "to provide workforce investment activities, through a
0
statewide and local workforce development systems,that increase the employment, retention,
and earnings of participants, and increase attainment of recognized postsecondary credentials
by participants, and as a result, improve the quality of the workforce, reduce welfare
0
dependency, increase economic self-sufficiency, meet the skill requirements of employers, and v
a)
enhance the productivity and competitiveness of the Nation." (29 U.S.C. § 3101(6).) States that r
wish to obtain federal grants for WIOA programs must comply with an extensive set of LO
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requirements which includes establishing a state workforce investment board, and preparing a
unified four-year plan that describes the state's strategic vision, as well as its implementation c
and operational policies for approval by the Secretary of Labor. (29 U.S.C. § 3112(a).) In order
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for a state to receive allotments for activities that are intended to be administered locally, the E
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WIOA requires the Governor to designate local workforce development areas within the state.
These local areas serve as a jurisdiction for the administration of workforce development
activities and distribution of adult, dislocated worker, and youth funds which the state allocates o
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to local areas based on their population characteristics. o
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The WIOA requires states to utilize specified criteria and processes in evaluating N
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requests from units of local government to be designated as local areas. Depending on
whether the local area unit had been previously designated as a local area under the WIA,
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designation under the WIOA may be either mandatory or discretionary. For previously
designated local areas, the WIOA provides that the Governor"shall approve a request for initial ca
designation as a local area from any area that was designated as a local area for purposes of the
Workforce Investment Act of 1998 for the 2-year period preceding the date of enactment of
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this Act, performed successfully, and sustained fiscal integrity." (29 U.S.G. § 3121(b)(2).) After Q
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Packet Pa.779
the period of initial designation,the WIOA requires states to approve a request for subsequent
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designation, provided that the local area continued to perform successfully and maintain fiscal
integrity. (29 U.S.C. § 3121(b)(3).) According to the U.S. Department of Labor("DOL"),the F:
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purpose of these provisions is to facilitate the orderly transition from the WIA to the WIOA, and
afford previously-designated local areas a measure of assurance that their status as local areas
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will be protected if they have met clearly defined criteria, (Department of Labor, 80 Fed. Reg. .0
20703 (proposed April 16, 2015)(to be codified at 20 C.F.R. Parts 601, 651, 652 et al.)
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For requests from units of local government that had not been previously designated,
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the WIOA provides that Governor may designate the local area to the extent designation is
consistent with labor markets and regional economic development areas in the state,the area
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has resources necessary to effectively administer the requirements of the Act, and the state
a)
board recommends the area for designation. (29 U.S.C. §§ 3121(b)(1)(A), (B), and (b)(4).)
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The WIOA requires that local areas subject to the mandatory designation provisions be N
afforded specific appeal rights in the event their request for designation is denied. First, such a
local area must be given the right to appeal the denial to the state's workforce development cc
board. (29 U.S.C. § 3121(b)(5).) If that appeal does not result in designation, the local area may 0
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next appeal the denial to the Secretary of Labor. (1d.) In this appeal, the WIOA authorizes the E 0
Secretary of Labor to require the state to grant designation if the Secretary determines either
that the local area was not afforded procedural rights under the state's appeals process, or that
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the local area meets the WIOA's statutory criteria for designation. (1d.) Local areas that have
not been previously designated under the WIA do not possess these statutory rights to appeal a LO
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decision denying designation. (29 U.S.C. § 3112(b)(2)(D)(i)(111).)
In this matter, while the parties differ in their legal analysis, the relevant facts are largely
not in dispute. Prior to the WICIA's enactment,the City of San Bernardino had been designated
as a local workforce investment area under the WIA. For the fiscal years 2010-11, 2011-12, UJ
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2012-13, and 2013-14, in Fiscal Monlioring Report letters issued to the City,the Employment Cn
Development Department ("EDD", authorized to administer the requirements of the WIA E
pursuant to Unemployment insurance Code, §9600.7) advised that, overall,the City was
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meeting the applicable financial management requirements under the WIA (though noting an
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instance of noncompliance in the area of expense documentation for fiscal year 2012-13).
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Following a series of discussions, by letter dated October 8, 2014,the EDD notified the m
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City that effective October 17, 2014, the EDD would be suspending reimbursements for the N
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City's WIA expenditures (a "cash-hold") due to the City's failure to submit an audit of its
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expenditures consistent with the Single Audit Act, for the fiscal year 2012-13.
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On January 16, 2015,the Workforce Services Division ("WSD") of the EDD issued draft 0
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directive WSDD-111 for public comment, describing the State's initial local area designation and U_
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local board certification policies under the WIOA. The draft directive received public comment,
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underwent revision, was finalized and ultimately issued on February 20, 2015, as WSD14-10. In 0
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this directive,the WSD provided the following definition of fiscal integrity for the purposes of M
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the WIOA's initial designation criteria (WSD14-10, p, 4 (Feb. 20, 2015)):
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Sustained fiscal integrity—the local area has not been found in violation of one
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or more of the following during PYs 2012-13 or 2013-14:
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• Final determination of significant finding(s) from audits, evaluations, or
other reviews conducted by state or local governmental agencies or the
Department of Labor identifying issues of fiscal integrity or misexpended E
funds due to the willful disregard or failure to comply with any WIA
requirement, such as failure to grant priority of service or verify
participant eligibility.
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• Gross Negligence-defined as a conscious and voluntary disregard for the
need to use reasonable care, which is likely to cause foreseeable grave o
injury or harm to persons, property, or both. LO
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• Failure to observe accepted standards of administration. Local areas N
must have adhered to the applicable uniform administrative
requirements set forth in Title 29 CFR Parts 95 and 97, appropriate Office
of Management and Budget circulars or rules, WIA regulations, and state ¢
guidance. Highlights of these responsibilities include the following: w
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o Timely reporting of WIA participant and expenditure data
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o Timely completion and submission of the required annual single s
audit U
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o Have not been placed on cash hold for longer than 30 days
(in alignment with WIOA Section 106[e][2])
By letter dated May 15, 2015,the CWDB advised the City that,following consideration
of its application for initial designation,the request would be recommended for denial on the
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basis that the City did not meet the criteria set forth in WSD14-10. In particular, the letter 0
identified three categories of deficiencies: (1)timely reporting of WIA participant and .0
expenditure data; (2)timely completion of the required annual single audit—the City's audit for
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fiscal year 2011-12 was submitted late, and the audit for 2012-13 had not yet been submitted;
and (3) not been placed on cash hold for longer than 30 days. U.
On June 23, 2015, the CWDB met to address pending recommendations for the initial
designations of local workforce development areas, including the City's. By letter dated July 17,
2015, the CWDB advised the City that the Governor and Secretary of the Labor&Workforce
Development Agency had agreed with the Board's recommendation to deny initial designation.
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On August 10, 2015, the City filed this appeal, seeking reversal of the State's decision to deny
initial designation. .2
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11. DISCUSSION
In its appeal,the City poses essentially two arguments. First and foremost,the City
argues that the standards set forth in WSD14-10 used to determine that the City did not sustain
fiscal integrity, exceed and conflict with the exclusive mandatory criteria set forth in the WICIA.
As such,the City contends the standards described in WSD14-10 are invalid and applied in
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excess of the Board's authority. Second,the City argues that the denial of designation was
improper and arbitrary, asserting that all other local areas that applied for initial designation,
but which also failed to meet all requirements of WSD14-10, were recommended for either full
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or conditional designation. Cn
In contrast,the CWDB maintains that the conditions set forth in Directive WSD14-10 are E
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authorized under federal and state law, have been approved by the DOL, and that the CWDB's S
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Pne-lraf Pet 7A7
application of the criteria was consistent with the requirements set forth in the WIOA. As a
consequence,the CWDB maintains that the City's request for initial designation was properly
denied. F
'The gravamen of the primary dispute is one of conflicting statutory interpretations. As
indicated, the WIOA provides that under certain conditions,the Governor must grant initial 0 4-
designation to local areas that had previously been designated under the WIA. The CWDB and
the City concur that these requirements are set forth in section 106(b)(2) of the WIOA (29
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U.S.C..§ 3121(b)(2)), providing in relevant part:
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INITIAL DESIGNATION.—During the first 2 full program years following the date
of enactment of this Act, the Governor shall approve a request for initial
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designation as a local area from any area that was designated as a local area 0 r_
for purposes of the Workforce Investment Act of 1998 for the 2-year period
preceding the date of enactment of this Act, performed successfully, and M
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sustained fiscal integrity. q9t
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The parties further agree that WIOA defines the phrase "sustained fiscal integrity, in 7
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subdivision (e)(2) of section 106 (29 U.S.C. § 3121(e)(2)):
DEFINITIONS.—For purposes of this section: E
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(2) SUSTAINED FISCAL INTEGRITY.—The term "sustained fiscal
integrity", used with respect to a local area, means that the Secretary
has not made a formal determination, during either of the last 2
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consecutive years preceding the determination regarding such
integrity, that either the grant recipient or the administrative entity of
the area misexpencled funds provided under subtitle B (or, if applicable,
title I of the Workforce Investment Act of 1998 as in effect prior to the N
effective date of such subtitle B) due to willful disregard of the
requirements of the provision involved, gross negligence, or failure to
comply with accepted standards of administration.
The parties disagree, however, as to how this provision should be understood and
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applied. The City argues that under this provision, the State may not determine that the City Cn
failed to sustain fiscal integrity for the purposes of section 106 absent a preexisting formal
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determination by the Secretary, finding a misexpencliture of funds attributable to specific
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behaviors. Conversely, the CWDB insists that this provision contemplates that the State will
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determine whether the local area has or has not sustained fiscal integrity using criteria the
State considers appropriate, in absence of, and prior to any formal finding by the Secretary of F:
Labor that funds have been misexpended. The CWDB argues that formal determination by the
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Secretary referenced in section 106(e)(2) refers to the Secretary's determination only in the 0 4-
context of an appeal from the State's denial of designation. For multiple reasons, however,the
CWDB's construction of this provision establishing the criteria for mandatory initial designation
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is legally untenable,
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A.The meaning of"Sustained Fiscal Integrityn under section 106(e)(2)
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In resolving questions of statutory interpretation, the canons of construction are well
established. The fundamental goal is to ascertain the intent of the legislature. In doing so, first
the statutory language is generally considered to be the best and most reliable indicator of the LO
legislature's intended purpose. (Fitch v. Select Products Co. (2005) 36 Cal.4th 812, 818;see also
Baker v. Workers'Comp. Appeals Bd. (2011) 52 Cal.4th 434,442.) Words of the statutes in
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question are afforded their ordinary meaning as well as the text of related provisions and terms
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used in other parts of the statute, and the structure of the statutory scheme. (See Lonicki v. E
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Sutter Health Central(2008)43 Cal.4th 201, 209; California Teachers Assn. v. San Diego
Community College Dist. (1981) 28 Cal.3d 692, 698; see also, Clean Air Constituency v. State Air
Resources Bd. (1974) 11 Cal.3d 801 813-814.) If the statutory language is clear and
unambiguous, the inquiry ends as it is presumed the legislature meant what it said and the
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plain meaning of the statute governs. (People v. Snook(1997) 16 Cal.4th 1210, 121.) If the
statutory language in question remains ambiguous after analyzing the text and structure, N
various extrinsic sources, such as legislative history, are used in ascertaining the legislature's
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intended purpose. (Holland v. Assessment Appeals Bd. No. 1 (2014) 58 Cal.4th 482, 490.) This 0
approach applies with equal force in construing federal law. (See, Holloway v. United States W
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(1999) 526 U.S. 1, 6 ["(T]he language of the statutes that Congress enacts provides the most Cn
reliable evidence of its intent. For that reason, we typically begin the task of statutory E
construction by focusing on the words that the drafters have chosen. In interpreting the statute
7
at issue, [w]e consider not only the bare meaning of the critical word or phrase but also its
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placement and purpose in the statutory scheme."] [internal quotations marks and citations
omitted].)
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1. The plain language refers to a prior determination by the Secretary
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In reviewing the plain language of section 106(e)(2),the City's construction is wholly
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consistent with the straightforward reading of the WIOA's definition of"sustained fiscal 0
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integrity". Giving all words in section 106(e)their ordinary meaning within the context of the
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entire section, the natural understanding of the phrase "has not made a formal determination, 0)
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during either of the last 2 consecutive years preceding the determination regarding such a
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integrity", means that at the time the State makes a decision on whether the local entity has
met the criteria for initial or subsequent designation,the State's task is to ascertain whether 7T.
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the Secretary of Labor has already made specific formal findings concerning the local area
7
during the two prior years, The State's determination of fiscal integrity for this limited purpose
under the WICA,then, wholly hinges on the existence or absence of a prior determination by .0
the Secretary concerning the local area.
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While the ordinary reading of this provision as a whole leads to this conclusion,the E
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import of specific terms utilized in section 106(e)(2) also inform and support it. The use of the
word "preceding" in the phrase "during either of the last 2 consecutive years preceding the
determination regarding such integrity" [emphasis added] makes clear that this definition turns .0
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on whether the Secretary has already issued the relevant negative determination. And
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Congress' use of the phrase "has not made a formal determination" in reference to the
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Secretary also indicates an action that has occurred in the past. Under the CWDB's
construction, however, the Secretary's determination would not have been made during the
two years antecedent to the State's decision on the designation request; it would be
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subsequent, directly conflicting with the terms of this provision. Effectively, the CWDB's M
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construction would rewrite this provision to refer to a possible future determination that the
Secretary "may make" on appeal from a denial of a request for designation. Further still,the E Z
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CWDB's construction would obviate the need for a reference to the Secretary's determination
in any fashion in section 106(e)(2), since section 106(b)(5) already specifically provides the
Secretary's authority to review the State's denial of designation 0n appeal.' Thus, under the
CVVD8's construction, much of the statutory language set forth in section 106(e) even carries
legal relevance. c
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Treating large portions of statutory definition as mere surplusage, however, conflicts "-
with well-established rules qf statutory construction. (Watkins V. Real Estate Co/nnniss/one,
(1960) 182 Cal. App.Zd 397, 400 [a construction making some words surplusage |5tobe
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avoided].) Absent citation tP statute, legislative history orany showing of intent supporting the
CVV[}B'S approach, there is no basis t0 find that Congress intended much of the statutory =
language set forth im section 1O6(e)/2ys definition tobeanullity. Thus, the CVVDB'sargument '
that Secretary's formal determination referenced in section lOG must be understood to be the o
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Secretary's determination resulting from J potential appeal from the State's denial of request
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for designation, cannot be reconciled with the contrary specific statutory language used.2 m
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Section 106(b)(5)provides:
(S)APPEALS.--A unit of general local government(including a combination of such units)ox �
grant recipient that requests but is not granted designabonufanareaasa|oca|mreaunder zz
paragraph (2)or(3)may submit an appeal to the State board under an appeal process �
established in the State plan. If the appeal does not result in such a designation,the Secretary
of Labor,after receiving a request for review from the unit or grant recipient and on
determining that the unit orgrant recipient was not accorded procedural rights under the
appeals process described in the State plan,as specified)n section 1O2(b)(2)(D)(\)(}O)'orthat LO
the area meets the requirements of paragraph(2)or(3),may require that the area be T
designated asa local area under such pom ��raph. (29U.5.C. � 3l21(b)(5).) C14
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While the CWDBs briefing asserts that the Secretary's determination is required,but only in connection
with an appeal from the denial of designation,the City points out that in comments submitted to the DOL in its
proposed ro|emaking,the[VVDB has expressed a different interpretation of the requirements of section 106(e). In o*
these comments the CWDB suggested that the DOL's regulations concerning the definition of sustained fiscal
integrity should be"clarified"in such a manner as to require a Secretary determination that a funds have been uj
misspent due to willful disregard of the requirements of the WIOA,but that the Secretary's determination is not om
required in circumstances which the State determines constitute gross negligence or failure to comply with
accepted standards of administration. While this comment appears to be consistent with the parsing of section
106(e)(2)utilized in VVSDI4'1O that does not require a determination by the Secretary,the[VVD8 has not
specifically argued this interpretation in this appeal.
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2. The Department of Labor's administrative construction of section 106(e)(2) does
not support the CWDB's position
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Even assuming, arguendo,that the plain language of section 106(e) could be treated as
ambiguous and susceptible to an interpretation which does not require the Secretary to have
previously made a determination concerning fiscal integrity upon which the State's action must
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hinge,the Department of Labor's ("DOL") published guidance to date on the construction of 0
this provision is contrary to the CWDB's position.a
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As the parties agree,the DOL publishes Training and Employment Guidance Letters
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("TEGLs") in effort to clarify the various requirements of the WIOA and assist parties in
implementing their various responsibilities. The DOL's TEGL 27-14 issued on April 15, 2015,
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instructs: "This guidance describes the steps that the Governor and other State and local
entities must complete in order to designate local areas in the State.The Governor must follow
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the requirements provided in this guidance until the final regulations take effect." (TEGL 27-14, LO
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item 5.B., p.6.) With regard to the mandatory designation provisions,TEGL 27-14 specifies:
"Sustained Fiscal Integrity" Definition: For the purpose of determining initial .0
local area designation, the term "sustained fiscal integrity" means that the
Secretary has not made a formal determination that either the grant recipient
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or the administrative entity of the area misexpended funds due to willful E
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disregard of the requirements of the provision involved, gross negligence, or
failure to comply with accepted standards of administration for the two-year
period preceding the determination. (TEGL 27-14, item 5.C.(iii), p.7) (U
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As with the statute, nothing in this guidance letter suggests or implies that the State's
evaluation of sustained fiscal integrity for the purposes of initial or subsequent designation may
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The CWDB asserts that the DOL has"approved"WSD14-10, by reference to an email dated September V_
2015. As the City notes,while the email indicates that WSD14-10 was developed with consultation from M
representatives of the DOL in effort to ensure compliance with federal requirements,the email does not state that
the DOL"approved"or"authorized"the directive,or that the specific definitions and interpretations set forth in
the Directive reflect the DOL's interpretation of the technical requirements of the provisions at issue here. In
contrast to the CWDB's submissions demonstrating the DOL's express approval of the State's requests for waivers uj
of specific provisions of the WIA,the email does not contain any analogous representation on behalf of the DOL or M
imprimatur of approval. Nor does the CWDB identify any other document indicating that the DOL has considered
and approved the definitions WSD14-10 sets for interpreting and applying the requirements of sustained fiscal
integrity for the purpose of initial designation. For this reason,the CWDB's submission is insufficient to support a E
finding that the DOL approved WSD14-10.
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be based on anything other than the Secretary's formal determination made prior, rather than
subsequent, to the time designation is requested.
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Similarly,the DOL's proposed regulations provide guidance concerning how it currently
construes the phrase "sustained fiscal integrity". In the proposed regulations,the DOL again
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adheres closely to the statutory definition, expressing the meaning of sustained fiscal integrity 0
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in terms identical to its description in TELL 27-14. .0
Ultimately, neither the language of the statute nor the DOL's published guidance and
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proposed regulation support an i "D nterpretation of section 106(e)(2)that does not require the C
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prior existence of a formal determination by the Secretary,finding misexpencliture attributable
to the local area as the basis for the State's determination that the area has failed to sustain
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fiscal integrity.
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3.The WIOXs structure does not support the CWDBs position 7
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As the plain language and administrative guidance on section 106(e)(2) do not support
the CWDBs construction, it offers a structural argument. The State is obligated to monitor
local areas' compliance with the WIOA, including its applicable administrative requirements; 0
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therefore,the State's determination of fiscal integrity under section 106(e)(2) should be 0
understood as referring to its conclusions about the local entity's fiscal integrity drawn from the
State's oversight activities. Extending this,the CWDB argues that the Secretary does not C
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directly make determinations concerning a local area's misexpencliture of funds. instead,the
CWDB offers that the Secretary may only make a determination on the local area's fiscal LO
integrity following an appeal of the State's imposition of sanctions against the subrecipient
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Proposed section 679.260(c)provides:
(c)For the purpose of determining initial and subsequent local area designation under§
679.250(a)and(c),the term "sustained fiscal integrity'means that the Secretary has
not made a formal determination that either the grant recipient or the administrative
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entity of the area misexpended funds due to willful disregard of the requirements of the
provision involved,gross negligence,or failure to comply with accepted standards of
administration for the 2-year period preceding the determination. (Proposed Rules,§ E
679.260(c),80 Fed.Reg.20841(April 16, 2015).)
stemming from the State's monitoring of the local areas. Thus, the CWDB asserts that because
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the WIOA permits the Secretary to review the State's imposition of sanctions against the local r_
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area pursuant to section 184 of the WIOA,this appellate review necessarily constitutes the
Secretary's determination described in section 106(e)(2). Consequently, the Secretary's
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determination cannot feasibly occur prior to the appeal of the denial of designation. Lastly,the 0 4-
CWDB asserts that section 106(e)(2) cannot be reasonably understood as providing two 0
opportunities for a determination by the Secretary of Labor—once in issuing a formal (D
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determination regarding fiscal integrity, and a second on an appeal of an entity denied
designation. This,the CWDB argues, illustrates that the right to appeal the denial of initial U_
designation would be "meaningless and inoperative" if section 106(e)(2) were understood to
require the Secretary to have made a prior determination rather than a determination on an 0
appeal from the denial of designation.
The first difficulty with the CWDB's argument is that while there is no dispute the State LO
possesses the obligation and authority to monitor local areas' compliance with the WICIA's "7
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requirements, Congress chose not to incorporate or reference this function in the standards
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governing mandatory initial designation. Instead, Congress defined the term sustained fiscal
integrity for the limited context of initial designation in a specific manner—the Secretary's prior E
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determination. And Congress chose to describe the State's oversight duties, sanction authority,
and the subject entity's appeal rights from the State's use of its oversight authority in a wholly
distinct provision of the WIOA.
Next,the CWDB's argument fails to account that the right to appeal the denial of initial
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designation is not limited to issues concerning only a local area's satisfaction of the condition of
fiscal integrity. Instead, the appeal may involve disputes over whether the local entity
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performed successfully" in the preceding two years using standards that were in place on the
effective date of the WIOA's enactment, rather than retroactively applied (29 U.S.C. §
3121(e)(1); or also whether the entity was afforded procedural rights under the State's plan
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governing appeals of a denial of designation. (29 U.S.C. §3121(b)(5).)
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Still more fundamentally,the CWDB's argument wholly overlooks the Secretary's ability
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to have already made a determination in an appeal of sanctions involving the local area's fiscal <
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integrity during the two years prior to the State's decision on the request for designation if such
sanction and appeal had taken place prior to the enactment of the WIOA and corresponding
request for designation. Thus, even if the CWDB's description of the Secretary's authority
as
under the WIOA as limited to appellate review were accurate, it would not support the CWDBs C
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construction of section 106(e)(2). As with the WIOA, under the WIA the State bore the duty 4-
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and authority to monitor a local area's compliance with WIA requirements on an ongoing basis, C
require correction of observed noncompliance and impose sanctions. Section 184 describes
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this duty, requiring states to establish such fiscal control and fund accounting procedures as 0"D
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needed to ensure the proper disbursal of, and accounting for, Federal funds allocated to local u-
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areas. (29 U.S.C. § 3244(a)(1).) Specifically, section 184 requires states to perform annual
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onsite monitoring of each local area (29 U.S.C. § 3244(a)(4)) and take action when the state
determines that a local area Is not in compliance with the uniform administrative requirements M
applicable to the federal grants (29 U.S.C. § 3244(a)(5)), as well as certify to the Secretary, every
7
two years, that the state has performed this and taken appropriate actions to secure
compliance. (29 U.S.C. § 3244(a)(6).) A local area possess the right to appeal sanctions for
0
substantial violations to the Secretary. (29 U.S.C. §3244(b)(2).) Thus,the Secretary could have
C
CD
made a determination on the local area's misexpenclitures, willful disregard of federal E
E
requirements,gross negligence, or compliance with administrative requirements, under the 0 U
processes as they existed under the WIA. Such a determination on appeal prior to the
enactment of the WIOA would have constituted the Secretary's determination required in C
.2
section 106(e)(2),5
LO
Note also,the DOL's proposed regulations distinguish the application of sanctions and corrections under
section 184 in the context of"subsequent"designation,recognizing that the Governor's monitoring during the 04
period of initial designation,and imposition of sanctions under 184 during this period could form a basis for
C
refusing subsequent designation under section 106:
Proposed §679.250(d)describes the role of the Governor in reviewing a local area's
subsequent designation. Paragraph(d)(1)permits the Governor to evaluate a local area
at any time to ensure the local area continues to meet the requirements for subsequent CO
eligibility at paragraph(c). Paragraph(d)(2)requires the Governor to review local areas Cn
to ensure they continue to satisfy the requirements at paragraph(2)as part of each 4- C
year State planning cycle.Sections 116(g)(2)(A)and 184(b)(1)of WIOA describe the a)
E
required actions that the Governor must take in the event that a local workforce area
o
fails to meet its negotiated levels of performance or does not comply with
administrative requirements, respectively. Under these provisions the Governor retains
13
Moreover, contrary to the CWDB's suggestion,the Secretary possesses authority under
the WIOA, and previously under the WIA, to take direct action both against recipients and
subrecipients of grants. In identical terms, the WIA and the WIOA state that if the Secretary
determines that the Governor has failed to take prompt action to remedy substantial violations
Cn
by a subgrantee, the Secretary shall.6 Also identical, section 184(d)(3) of the WIA and the WIOA 4.-
provide: 0
The Secretary is authorized to impose any sanction consistent with the
provisions of this title and with any applicable Federal or State law directly 0
against any subgrantee or contractor for violation of this title, including
regulations issued under this title. [emphasis added] U_
The DOL's longstanding regulations under WIA also expressed the Secretary's authority
to impose sanctions directly against subrecipients based on audits conducted by the Office of
the Inspector General, and the authority to make initial and final determinations concerning
LO
violations of the WIA directly against subrecipients." These descriptions of the Secretary's 7
authority under the WIA are essentially identical to that which the Secretary possesses under
the WIOA. In describing this authority, the DOIL's proposed regulations explain that while .0
Federal oversight will be conducted primicirily at the recipient level,the Secretary continues to
be authorized to monitor all subrecipients of financial assistance awards in order to determine E
the authority to take corrective action in light of failure of performance or fiscal
management short of reclesignation,and is not required to redesignate a local area that
has failed to maintain the requirements of paragraph h1. Fu,thennore,the Governor
may redesignate local areas at any time with the cooperation of the CEO and Local
Board ina given local area, (Proposed Rules,80pcd.Rqg.J07V3(April 16'2015).)
-Section 1D4(b)(3)provides: "ACTION BY THE SECRETARY'--|f the Governor falls to take promptly un =
�
action required under paragraph(1) [the imposition of corrective action and sanctions for substantial Violations),
the Secretary shall take such act\on.° (Z9U.B.C.§3244(b)(3).) See also,ZOCf.A.§667.7OD(c)and(d): ,M
V_
(c)For substantial violations of WIA statutory and regulatory requirements, if the Governor fails to
promptly take the actions specified in WIA section 184(b)(1),the Grant Officer may impose such actions
directly against the local area oo
.
(d)TheGmntDf0mermoyaboimpooeasanctiondirect{yagainstasubredp|ent,asauthohzedinsection
1Q4(d)(3)of the Act.|m such a case,the Grant Officer will inform the recipient nf the action.
CD
r, `v
For audits of subrecipients conducted by the OIG,ordinarily the final determination is issued not later
than 360 days from the date the OIG issues the final approved audit report to ETA.' (20[F.N.§667.510(d).)
u
[
2OF.R.§667.52O(e)affirms: "Nothing|n this subpart precludes the Grant Officer from issuing an
initial determination and/or final determination directly to a subrecipient,in accordance-with section 184(d)(3)of
the Act. |n such acase, the Grant Officer will inform the recipient nf this acbon.°
14
compliance,9 and take direct action to impose sanctions against subgrantees.10 This authority is
longstanding as the JTPA also authorized the Secretary to monitor subgrantees, and impose
sanctions directly against these subgrantees for violations of its provisions." Ultimately, while F
�
9 �
Proposed section 683/4UO�)provides:
What are the Federal and State monitoring and oversight responsibilities?
(a)The Secretary is authorized co monitor all recipients and subrecipientsnf all Federal
financial assistance awarded and funds expended under title I of WIOA and Wagner- «L
0
Peyser to determine compliance with the Acts and Department regulations,and may
investigate any matter deemed necessary to determine such compliance. Federal �
oversight will bo conducted primarily at the recipient �
p|en�|eve|. (Proposed u-
683.4UQ(a),8OFed.Re0.2US84(April I6,20lS).)
m in
Proposed section G83.7QO(e)provides: c
p
�
§683.700 When can the Secretary impose sanctions and corrective actions on recipients and
subredpientsof title|Workforce Innovation and Opportunity Act funds?
(e)3ubrecipients.The Grant Officer may impose a sanction directly against a
subrecip|ent,as authorized inVV0A sec.184(d)(3)and 2[FR2OD.338.|n such acase, Lo
the Grant Officer will inform the direct grant recipient of the action. (/d.' §68l780(e),
�
80 Fed.Re8.20889.) `-
| N� �
/ sm
The DDL's descriptive note concerning section 003.7OU also explains:
When can the Secretary impose sanctions and corrective actions on recipients and
subnedp\emtsmftitle I Workforce Innovation and Opportunity Act funds?
This proposed section describes the procedures and circumstances under which the
Department will impose sanctions or take corrective actions,as described in sec. IO4(b)
and(e),against States, local areas,and grant recipients and subrecipients. For actions �
�
mtherthanthmueundarVV0Asecl8O(a),theprocessoudinedinhG83440vviUbeused �o
before corrective actions or sanctions are taken against direct recipients.This section �
also gives the Grant Officer the authority to take direct action against local areas or
other subrecipients,which will also be done using the process in§683.440. (Id, .2
Fed'Reg-20757 [emphasis added)')
Proposed section GA3.44O(d)further provides: "For audits ofsubecip|en1s conducted by the O/G' w»
T
ordinarily the final determination is issued not later than 360 days from the date the OIG issues the final approved ��
audit report zo ETA." (/d,y6D3.44O(d),8OFed.Reg.ZOQD6[emphasisodded).) 04
Section 164(e)(3)of the JTPAprovided: "The Secretary|s authorized to impose any sanction consistent
with the provisions nf this Act and any applicable Federal or State law directly against any subgrantee for violation
o/this Act or the regulations under this AcL° (formerly codified atZBU.S.C. 51S74(e)(3).} The DOL'sregulations
under the]PTA similarly provided "Oversight and monitoring. (a)The Secretary may monitor all recipients and
subnec|p)entynf financial assistance pursuant tu section 2G0pf the Art." (formerly codified at20C.F.R. g
627'475(a).) m
Note that even under the CETA,the 0]L exercised its authority hz direct grantees to perform audits of
subgrantees and,following informal and formal hearings,impose liability against grantees based on a findings
concerning 8subg[antee's compliance with its obligations under act and the grantee's failure t0ensure
compliance. (See,City mf Oakland u Donovan(1983)7O3F.2d11O4;Atlantic County u Dept.oƒLabor(1983)7l6
F.Id 834.)
15
CWDB is correct that grantees are liable for conduct by subgrantees and subject to repaying
0
misspent funds, the Secretary may issue determinations both directly against a subgrantee, or
against a grantee based on a subgrantee's actions. Either type of determination would meet
the requirements of section 106(e)(2).
There are additional reasons that render the conflation of section 106(e)(2)'s standards 0
for designation with the sanction authority and procedures under section 184 untenable. .0
Where the Governor has determined that a local area has committed a substantial violation of
0
the WIOA, the sanctions available to the Governor under section 184 include issuing a notice of
U.
intent to revoke approval of a local plan; imposing a reorganization plan which may include
decertifying the local board involved (29 U.S.C, § 3244(b)(1)(B)), and selecting an alternative
0
U
entity to administer the program for the local entity involved;or merging a local area into one
a)
M
or more other local areas. As the City observes, all of these types of actions necessarily pertain N
to areas that have already been designated. None suggest any interrelationship with the
7
standards governing initial designation.
T-
r-
Also, as indicated earlier, Congress specified that states must adopt a process to allow a .2
local entity to appeal a denial of its request for mandatory initial designation to the state board.
E
(29 U.S.C. § 3121 (b)(5).) if that appeal does not result in designation,the matter may be E
0
appealed to the Secretary of Labor. In that subsequent appeal, the Secretary may require the
C
state to designate the local area if the Secretary determines either that the local area was not
accorded procedural due process rights, or that the local area meets the statutory criteria for .0
A
0
(D
mandatory designation. In contrast,the provisions governing appeals of sanctions issued by 0
LO
the Governor on the basis of uncorrected substantial violations do not mandate any right to
N
N
appeal to the state board prior to appealing the sanction to the Secretary. (29 U.S.C. T-
CU
3244(b)(2).) Further, the provisions governing sanctions do not specifically authorize the
Secretary to reverse a state's chosen sanction on the basis of an inquiry into the procedural
W
rights the state afforded to the local area in connection with taking imposing corrective action. M
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4.;
Lastly,the conflation of section 106 and 184 also creates irreconcilable conflict within
E
the WIOA's structure. Section 184(b)(2)(A) specifies that a governor's sanctions shall not
U
B
become effective until the time for appeal to the Secretary has expired, or the Secretary has <
16
issued a decision on the state's intended sanction. (29 U.S.C. 3244(b)(2)(A).) Thus, when a
governor imposes corrective action sanctions pursuant to section 184, Congress determined
that local area should not be subjected to the practical impact of that decision until the
Secretary has approved it or the time to challenge it has expired. However, the state's act of
Cn
denying the request for designation is, in practical terms, effective immediately and remains in 4-
0
effect until such time as it may be overturned by the Secretary. Until then, the local area 0
immediately bears the economic consequence of the state's action by being ineligible to a
0
receive grant funds for WJOA programs. Thus, the postures on appeal are reversed. While a
state's sanction does not become effective until upheld the Secretary under section 184, a LL
state's denial of designation under section 106 is effective immediately unless overturned by
the Secretary. As a result, in arguing that the State's authority to deny initial designation 0
should be understood within the context of the section 184 and the Secretary's ability to issue a M
N
7T_
determination on appeal, the CWDB arrogates to itself the ability to impose an immediately UIJ
7
04
effective sanction—an authority that Congress chose to specifically withhold.
Applying the established rules of statutory construction, however, avoids these
.2
M
ineluctable conflicts. As the City observes, "a specific provision relating to a particular subject
will govern in respect to that subject, as against a general provision, although the latter, E
E
0
0
standing alone, would be broad enough to include the subject to which the more particular
provision relates." (Rose v. State of California (1942) 19 Cal.2d 713, 723-724.) Thus, where
section 106(b)(5) specifically addresses the procedures governing appeals of the denial of
mandatory initial designation, even assuming arguendo,that section 184 were to be considered
broad enough to encompass appeals from this denial, it is wholly silent on this issue and LO
CV
provides for processes that are different and in conflict with those specified in section 106. The
more specific requirements of section 106 therefore governs.
At base,the CWDB mistakenly frames sections 106(b) as an additional mechanism for
imposing sanctions against local areas rather than a standard established to provide transitional
Cn
certainty to local areas that their designation status would be maintained if definitive
requirements had been met prior to the enactment of the WIOA—Le., successful performance E
IL U
and the lack of the Secretary's negative formal determination on their fiscal integrity. The
17
Secretary has long held,and continues to possess, distinct authority to monitor a subgrantee's
O
compliance with the terms of its grants, and could have made findings concerning the
subgrantee's fiscal integrity either directly or in the context of an appeal from the State's
(D
actions prior to the enactment of the WIOA. Ultimately,the CWDB's structural argument CO
concerning section 106(e)(2) is irreconcilable with the WIOA's disparate provisions governing
0
the imposition of corrective actions and sanctions against already-designated local areas. 0
0
B. WSD14-10
U_
The City argues that it was error for the CWDB to rely on the descriptions of"sustained
fiscal integrity" set forth in WSD14-10, as it sets forth conditions in excess of those prescribed 0
U
by the WIOA section 106(e)(2). In response,the CWDB argues that WSD14-10 was authorized C.n
M
N
under state law, approved by the DOL, and that the CWDB acted within its authority to rely on 7t_
LO
the conditions set forth in WSD14-10. 7
There is no dispute that the WIOA requires states to adopt a plan and policies for
0
designating local areas under the conditions set forth in the Act, and that the DOL instructed
states to do so by July 1, 2015. Also, Unemployment Insurance Code section 9600.7 authorizes
E
E
the department to administer the requirements of the WIA, and to "adopt, amend, or repeal 0
any rules and regulations necessary...." More generally, Unemployment Insurance Code section
305 provides: "Regulations for the administration of the functions of the Employment
0
Development Department under this code shall be adopted, amended, or repealed by the
Director of Employment Development as provided in Chapter 3.5 (commencing with Section LO
T_
L
11340) of Part 1 of Division 3 of Title 2 of the Government Code." C I�
N
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Under California law, agencies that wish to use rules and standards of general
application in order to implement, interpret, make specific the law enforced or administered by
it or govern its procedure interpreting it, must comply with the provisions of the Administrative
LU
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Procedures Act ("APA", Gov. Code, § 11340 et seq.) Compliance with the requirements of the
APA under California law is mandatory(Armistead v. State Personnel Board(1978) 22 Cal.3d
E
198), and all regulations are subject to this requirement unless expressly exempted by statute.
18
0�-I* D- 709
(Gov. Code, § 11346 ["This chapter shall not be superseded or modified by any subsequent
0
legislation except to the extent that the legislation shall do so expressly."]; see also, Engleman S
'a
E
M
v. State Board of Education (1992) 2 Cal.App.4th 47.) Lastly, any doubt as to the applicability of F
a)
the APA are to be resolved in favor of applying the APA. (Morales v. California Dept. of ca
(n
Corrections and Rehabilitation (2008) 168 Cal.App.4th 729.) 0#.-
W
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The analysis of whether WSD14-10 constitutes a regulation subject to the requirements
r
of the APA is not academic. California Government Code section 11340.5 prohibits a state CL
0
agency from utilizing or enforcing any guideline, criterion or standard of general application
U-
unless it has been promulgated in accordance with the requirements of the APA. And it is well
settled that regulations that have not been adopted pursuant to the procedures of the APA are
0
0
void and carry no binding effect. (See, Tidewater Marine Western, Inc. v. Bradshaw(1996) 14
a)
Cn
Cal.4th 557, 576.) N
7T-
LO
in response to the hearing officer's request for briefing on whether WSD14-10
7
constitutes a regulation subject to the requirements of the APA,the parties take diametrically
opposed positions. The City argues that WSD14-10 was required to comply with the APA, and 0
its failure to do so renders it invalid. The CWDB argues that WSD14-10 was developed with
robust public participation consistent with the goals of the APA, and under the reasoning of E
0
Voss v. Superior Court(1996) 46 Cal.App.4th 900, is exempt from the requirements of the APA.
Voss, however, does not support the CWDBs position. In Voss, the Court held that the
Legislature intended to exempt marketing orders issued by the Department of Agriculture 0
pursuant to the California Marketing Act of 1937 ("CMA") (Food & Agr. Code, § 58601 et Seq.)
Lo
from the rulemaking requirements of the APA. In doing so, Voss held that to find such
N
N
legislative intent to supplant or limit application of the APA, the other statute authorizing the
regulation must disclose this express intent:
Thus, another statute will supplant or limit the APA when two conditions are
met. One, the other statute directing that the APA be supplanted or limited
must have been enacted after 1947. (Engelmann v. State Bd. of Education N
(1991) 2 Cal.App.4th 47, 59 t3 Cal.Rptr.2d 264J.)Two,the other statute must
disclose an e E xpress intention to supplant or limit the APA. (Voss, 46 -C
Cal.App.4th at p.906 [emphasis added].)
19
In finding that met in this case, the court identified specific statutory language expressing such
intent:
CU
[W]hat is now Food and Agricultural Code section 14, enacted in 1957, is such a
statute. It provides in part as follows: "Wherever, pursuant to this code, any
state department, officer, board, agency, committee,or commission is in
4-
authorized to adopt rules and regulations, such regulations shall be adopted in 0
0
accordance with [the APA] to the extent that that chapter [the APA] is not r-
.2
specifically in conflict with the express terms of the provisions of this code which
authorize the adoption of such regulations." (Voss, 46 Cal.App.4th at p. 909.) CL
0
In light of this language, the legislative history regarding the CIVIA, and a comparison of LL
various provisions of the CIVIA posing actual conflict with the requirements of the APA, the
0
court found that the CIVIA constituted a complete, rational and integrated scheme for the L)
issuance of marketing orders;that scheme conflicted in its entirety with the separate system
N
for enactment of rules set forth in the APA. Therefore,the court found the APA to be
supplanted pursuant to the Legislature's direction.
Here, the CWDB cites no statutory language, nor identifies any legislative history
evincing a legislative intent to supplant or limit the application of the APA with regard to
policies and procedures involving implementation of the WIOA. And, unlike Voss,the CWDB E
E
0
does not identify any actual conflicts between the requirements of the APA, and any provision
of State or federal law concerning the WIOA. Absent any statutory language, indicia of
legislative intent to exempt WSD applications and interpretations of the WIOA, or an .0
.10
identification of actual conflict between the APA and either federal and state law, Voss provides U
LO
no legal authority by which WSD14-10 may be treated as exempt from the requirements
4
2 C�
California's APA.1 As a consequence, WSD14-10 does not independently carry the force of law N
and to the extent it expresses interpretations of the WIOA or additional State requirements, it
w
M
Cn
12
Moreover,an agency's solicitation and receipt of public comment on a proposed regulation,standing
alone,does not satisfy the goals and requirements of the APA. (Sims v. Dept,of Corr.and Rehab. (2013)216
Cal.AppAth 1059, 1071)
20
Packet Pa. 797
kw does not bind the considerations or determinations of the CWDB, in evaluating the City's
request for designation under the standards mandated by section 106.13
E
ca
Further, beyond conflicting with the plain language of section 106(e)(2), affording
CO
weight to WSD14-10 poses tension with the interpretive doctrine expressio unius est exclusio r_M
alterius(the expression of some things in a statute necessarily means the exclusion of other 0
things not expressed (Gikas v. Zolin (1993) 6 Cal.4th 841, 852). Here Congress has identified the .0
discrete elements defining the phrase "sustained fiscal integrity" for the purposes of mandatory
CL
0
initial designation. In light of Congress's choice to identify specific conditions that will create a
non-discretionary duty for the State to designate, this provision may not be reasonably U_
construed as authorizing the State to independently establish additional different criteria; nor
0
does the CWDB,identify any inclicia of legislative intent supporting this. L)
In this regard, the City's comparison of the circumstances here with those presented in
Private Indus. Council v. Employment Dev. Dept(1997) 57 Cal. App, 4th 1290, is apt. In Private
Industry Council, a dispute arose over EDD Interim Directive No. 93-15, which had been issued
in accordance with the Department's authority to establish regulations to implement the JTPA.
The Directive required local job training agencies to spend at least 80%of the funds allocated to
them in a given year, and instructed that if the 80%threshold was not met, EDD would E E
0
recapture the unspent portion by reducing the agency's allocation of funds. The Department
implemented this recapture against the Private Industrial Council, and the Council challenged
C
the action and Directive as inconsistent with the requirements of the JTPA, and unenforceable .0
as adopted in violation of the APA. Although EDD maintained the Directive was "philosophically
LO
T11
and administratively in alignment" with Congress's overall intent to provide job training funds IL
N
to the states, and ensure that funds are utilized promptly and efficiently where most needed, N
the court held the Directive was inconsistent with the provisions of the JTPA that allowed for
funds to be expended over three years—"EDD cannot contravene federal law simply because it
"'has a better idea." (Id. at p.1294.) As a consequence,the court found the Directive in LU
M
Cn
conflict with the JTPA and therefore invalid. Because it found the Directive invalid on that basis,
E
M
13 U
WSD14-10 appears to contain both interpretations of the requirements of section 106,as well as
additional state-imposed requirements that it characterized as in alignment with section 106(e)(2)".
21
Pni-leaf Pfi 70R
the court found it unnecessary to reach the question of whether the Directive also violated the
o
APA. Though WSD14-10 similarly characterizes its additional requirements to the phrase
sustained fiscal integrity as "in alignment with WfOA Section 106(e)(2)", like the court's holding
in Private Industrial Council, the Directive's additional criteria conflicts with the WIOA's express
terms. 4-M
0
W
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0
(D
Ill. CONCLUSION CL
0
The State bears the duty of governance over local areas. It must hold them accountable
U_
3-
for both their performance in achieving the WIOA's goals, as well as their compliance with its (D
:2
administrative requirements. Separately, however,the WIC)A proscribes non-discretionary 0
criteria that states must apply in determining whether to grant an entity that had previously a)
M
N
enjoyed designation under the WIA, initial designation under the W10A. In considering the
LO
City's request, the CWDB did not apply this mandatory criteria. Thus, while the CWDB frames
7
the issue in this appeal as fundamentally concerning the State's responsibility and authority to
.2
hold local area subgrantees accountable for the WIOA's performance and administrative
requirements,this mischaracterizes the more narrow legal issue. Ultimately,the question is
E
not whether the State possesses this duty and authority; it indisputably does. But,the E 0
authority and the legal mechanisms available to the State to perform its oversight role under
the WIOA's statutory scheme are distinct from the statutory processes and criteria by which it
must evaluate requests for initial designation. Nothing in the WIC)A suggests that Congress
intended the conditions for initial designation under section 106(e)(2)to refer to the State's
LO
independent evaluation of fiscal integrity that is not founded on a "formal determination" by
N
the Labor Secretary. The entreaty to disregard the WIOA's statutory language, design and
intent is unpersuasive. It should be emphasized, however, while it is clear that the CWDB did
not apply the mandatory statutory definition of"sustained fiscal integrity", nothing in this
decision may be construed as suggesting that the State is constrained in any way from M
performing its oversight obligations, and accordingly imposing any corrective action or sanction
E
within the parameters specified under the WIOA's sanction provisions, distinct from the
designation criteria at issue here.
22
For the foregoing reasons, this decision recommends that the CWDB rescind its prior
0
decision recommending the denial of initial designation, and re-evaluate the City's request
L
applying the correct definitions mandated under the WIOA as described in this decision.
as
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Dated: _ `rt Signed: o
Mark Woo-Sam
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23
P�r4n+Dr,Rnn
7.B.c
PROOF OF SERVICE 0
2 E
(Code Civ. Proc. §§ 1013a, 2015.5)
3 1 am employed in the County of Sacramento, California. I am over the age of eighteen
4 years and not a party to the within action; my business address is 800 Capitol Mall. Suite
0
5 5000, Sacramento, 95814. On November 12, 2015 1 served the following documents:
0
6 Decision and Recommendation in the Matter of the Appeal of the City of San Bernardino
7
0
on the parties listed below, through their attorneys of record, by placing true copies thereof in
8
sealed envelopes addressed as shown below for service as designated below- U.
9
(A) By personal service. I personally delivered the documents to the persons at the
10 0
addresses listed below. For a party represented by an attorney, delivery was made to the
attorney or at the attorney's office by leaving the documents in an envelope or package clearly
11
co
labeled to identify, the attorney being served with a receptionist or an individual in charge of 04
12 the office. LO
13 (B) By United States mail. I enclosed the documents in a sealed envelope or package
addressed to the persons at the address below and:
14
0
(1) ❑ deposited the sealed envelope with the United States Postal Service, with the
is
postage fully prepaid.
16 E
(a) [:] and the sealed envelope was prepared for Certified Mail, Return Receipt E
0
17 Requested, with appropriate fees for such service fully prepaid.
18 (b) ❑ and the sealed envelope was prepared for Registered Mail, with
appropriate fees for such service fully prepaid.
.2
19
(2) 2 placed the envelope for collection and mailing, following our ordinary business
20
practices. I am readily familiar with this business's practice for collecting and LO
21 processing correspondence for mailing. On the same day that correspondence is placed
for collection and mailing, it is deposited in the ordinary course of business with the N
22 United States Postal Service, in a sealed envelope with postage fully prepaid.
23 (a) ❑ and the sealed envelope was prepared for Certified Mail, Return Receipt
Requested,with appropriate fees for such service fully prepaid.
24
(b)❑ and the sealed envelope was prepared for Registered Mail, with
25 Cn
appropriate fees for such service fully prepaid.
26 1 am a resident or employed in the county where the mailing occurred. The envelope E
27 or package was placed in the mail at Sacramento, California.
28
1 (C) By overnight delivery:
0
2 (1) ❑ I enclosed the documents in an envelope or package provided by an overnight
delivery carrier and addressed to the persons at the addresses below. I placed the
3
envelope or package for collection and overnight delivery at an office or a regularly utilized
drop box of overnight delivery carrier.
4 ca
U)
4-
5 (2) ❑ 'I'lie documents were delivered to an authorized courier or driver authorized to 0
0
receive documents by an overnight delivery carrier, in an envelope or package designated r-
0
6 by the carrier with delivery fees paid or provided for, addressed to the person to whom it
is to be served, at the office address as last given by that person on the document filed in the
7 CL
cause and served on the party making service. 0
8
TYPE OF SERVICE ADDRESS/FAX NO. (IF APPLICABLE) U-
9 U. S. Mail Donn Dimichele, Deputy City Attorney
City of San Bernardino
10 300 North D Street 0
San Bernardino, CA 92418
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12 U. S. Mail Tim Rainey, Executive Director
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California Work-force Development Board 7
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13 800 Capitol Mall, Suite 1022 7
Sacramento, CA 95814
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15 1 declare under penalty of perjury under the laws of the State of California that the foregoing
16 is true and correct. E
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18 Date: 11/12/2015
Felicia Molle' 0
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20
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From: Asuncion,Deanna(abEDD
To: Donn Dimichele
Cc: Rainey,TimCa1CWDB; Hughes(Clifton).Sandra(Legal)(a)EDD
Subject: WIA Funding Cash Hold
Date: Monday,August 10,2015 4:07:46 PM =
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Mr. Dimichele, m
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The Employment Development Department's (EDD) Legal Office would like to respond to the Q.
questions set out in your July 30, 2015, e-mail to Mr.Tim Rainey: w
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1. The question therefore is whether single rroogram audits for the years in question would be
acceptable to EDD for purposes of releasing the withheld funds
Unfortunately,the answer to this question which Dr. Dowdy previously posed to our department in m
February of this year, continues to be no. As you know, our contractual relationship is with the City 0
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of San Bernardino, not the City department known as the San Bernardino Employment and Training o
Agency (SBETA). Given this relationship and the City's ongoing bankruptcy status, it's imperative c
that the state and the federal governments be assured that the City has the financial integrity and
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capacity to properly administer and account for the federal funds in question. From the State's Q
perspective, only properly completed single audits that cover the entire operations of the auditee 0
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and which provide an independent, professional affirmation of the City's requisite financial integrity
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and capacity will suffice to address this matter.
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2. As I read the 2011-12 single audit, none of the material findings pertained to SBETA. WIA c
funds. or any DOL program. Is it EDD's view that material findings with respect to any federal v
program would be reason to decline to lift the WIA cash hold? N
We consider the findings systemic in nature and potentially affecting all funds received by the City,
regardless if a specific program or department is or is not singled out in the audit report. Although to
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SBETA operates the WIA program, it is the City of San Bernardino that controls the accounting and °
cash management of the WIA funds, not SBETA. Please also note that two findings remain
unresolved from the City's 2010-2011 single audit. In response to the above question, if the single E
audit met all the conditions identified above and only identified findings with another federal w
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program, not systemic findings, then the cash hold would not be imposed. However, as you are •0
aware, this is not the case and as a result the cash hold remains in place. Accordingly, systemic N
material findings resulting from the single audits that are currently in process could result in the Q
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cash hold not being lifted.
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Please let EDD General Counsel Sandra Clifton or me know if you have any additional questions.
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Deanna Asuncion Q
Assistant Chief Counsel Q
Employment Development Department w
(916)654-8410 m
(916)654-9069 [Fax]
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