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Santa Ana and Stanton out of compliance with Measure M2

City budgets can make the eyes of even the most interested taxpayer roll back a bit in their head. With more cities bringing forward and passing sales tax measures and the new revenue going directly into the black hole of their general fund, it is difficult to follow exactly what is being spent where.

Measure M, originally passed by Orange County voters in 1990 was different. The half-cent sales tax was dedicated to specific transportation improvements throughout the county. Over $4 billion was invested in freeways, street and road improvements, as well as transit projects. In 2006 Measure M2 was passed by almost 70% of the voters. The renewal of the half-cent transportation sales tax is estimated to provide around $13 billion of transportation and infrastructure improvements through 2040. One of the components of both Measure M and M2 is the Local Streets and Roads Program, through which 32% of Measure M2 revenue, or what the Orange County Transportation Authority (OCTA) now calls OC Go, goes directly to improving streets and roads throughout Orange County.

Cities have an opportunity to compete for funds as well has receive a portion of that 32% based on a formula that takes into account population, the amount of street miles in each jurisdiction as well as their sales tax revenue.

The program was never meant to replace public works funding in jurisdictions’ general fund budgets. In fact, cities are required to maintain a minimum level of spending to be eligible to receive these dollars. When voters passed M2 the intent was to fund additional projects, not supplant tax dollars already being spent. Cities have several requirements they have to meet to stay eligible to receive this funding. One of the requirements is to “continue to invest general fund funds (or other local discretionary funds) for transportation and annually increase this commitment to keep pace with inflation”. Every city has a baseline amount they must spend on a defined program and they have to submit copies of the program list that shows how they will be spending the OC Go dollars.

One would think this would be a fairly simple matter for cities, they have been doing it for decades now and street maintenance should be a priority for every city council in Orange County.

For the first time since Measure M was enacted in 1990 two cities, Santa Ana and Stanton, failed to meet the minimum requirements and will not be allowed to compete for funds or receive their taxpayer’s portion of the Local Fair Share program this year. Both jurisdictions will also have to undergo an additional audit, paid for by their taxpayers, to get back into compliance next year. Almost all of the cities audited this year had reporting errors and some included items that were disallowed. But even with disallowed items those cities were still able to stay in compliance with required levels of spending.

According to OCTA audit findings Santa Ana used an out of date methodology for calculating indirect costs to the tune of over $700,000. Due to staff changes, the city was not able to locate supporting documents. The city of Stanton cut it even closer. Audit reports identified just over $8,000 in expenditures that were not properly classified. Voters in Stanton approved a one-cent sales tax increase in 2014 that brings in an additional $4 million a year in general fund revenue. $4 million a year and their funding program cut it so close that an $8,000 deficit means they will lose their fair share funding for this year. An OCTA board agenda item even states that cities are cautioned “budgeting at or just above the required Maintenance of Effort amount may put the agency’s M2 funds at risk.”

The accountability process laid out in Measure M2 worked. The independent Taxpayer Oversight Committee chaired by our Auditor Controller Eric Woolery and made up of dedicated taxpayers from all areas of Orange County did their job and reported their findings to the OCTA Board of Directors. The board then voted to find both cities ineligible to receive M2 revenues and suspended payments until they could demonstrate compliance with eligibility requirements. OCTax commends both the Taxpayers Oversight Committee and the OCTA Board of Directors for taking a tough stand on behalf of the taxpayers of Orange County.

This article first appeared in the Orange County Register.

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