Joint Legislative Audit Committee

Gonna call the joint legislative audit committee to order. Good afternoon, and welcome to all of our members. This is the committee's second hearing in 2026 where we're hearing and considering new audit requests. Wanna quickly note that conduct that disrupts, disturbs, or otherwise impedes today's proceedings will not be permitted. Also wanna note that Senator Jones has been appointed by the rules committee to replace Senator Dahle for today's hearing only.

Welcome to Senator Jones when he arrives. Seeing that we are one short of a quorum at this moment, would encourage all members of the of the joint committee to report to Room 447 so we can establish a quorum and take care of today's business. So unless there are questions, let's proceed to the state auditor status reports. We now have a quorum. So if we please call the roll.

We'll call the roll for purpose of establishing a quorum.

[Roll Call]

Alright. A quorum is present. So now we'll proceed to the state order for for the status report.

Thank you very much, Vice Chair Cabaldon and Members of the committee. A quick overview on the status of my office's work before we consider audit requests at today's hearing. Currently for JLAC audits, we have 10 audits in progress for awaiting staff. All JLAC audits approved in 2025 are in progress, and we've recently started our first 2026 audit focusing on the DMV's license revocation process. I expect to publish five of these audits this summer with three more in the fall and two in the winter.

Of the four remaining audits approved three months ago in March, I expect to have all four started by August or within the next eight to ten weeks. Litigation continues with Huntington Beach regarding our audit of the air show. And so that audit is on hold pending the outcome of that litigation. As far as statutory audits in progress, we have eight. In addition to our audit work for JLAC, we also are required to handle various statutory audit work.

We have our audit of the state bars rollout of the February 2025 bar exam, as well as our audit of CSU and UC's implementation of title nine and their efforts to prevent and investigate claims of sexual harassment. We have three, other statutory audits on the tobacco tax, the state's financial, statements, and the federal compliance audit that we are required to do every year.

And And we also have three audits underway under our state high risk program examining the state's late financial reporting as well as issues surrounding Medi Cal eligibility and the safety of the state's water infrastructure. In terms of staff resources, if all audits on today's agenda are approved, I anticipate having all audits started by December 2026. And with that, those are my initial comments, mister vice chair.

Thank you, Mr. Parks. Are there questions for the state auditor? Alright. Then we're gonna proceed to consideration of today's, audits. Note first that Assembly Member Rodriguez has withdrawn auto request 2026, 127 regarding local law enforcement human trafficking.

So it will not be heard at today's hearing. So members, we now have seven audit requests to consider this afternoon. Five four of those requests are on the proposed consent calendar, which will leave three audits for presentation. So the four audits proposed for the consent calendar are item one, audit one zero nine for the University of California Library Resources by Assemblymember Moritsuchi. Item two, audit one Eleven, law enforcement agencies information sharing submitted by Senator Archuleta.

One seventeen, EDD unemployment insurance claims by assembly member Addis, and one nineteen housing and community development, housing development monitoring by assembly member Avila Farias. Does any member wish to remove? Right. The consent calendar has been moved. Seeing no discussion.

Please call the oh, sorry. This is sorry. Thank you. This is a joint committee, so a second is required. My apologies.

In the Senate, we don't have such a rule, so that it's been moved and seconded. So please call the roll on the consent calendar.

Motion is to approve the proposed consent calendar. 2026, 109 University of California Library Resources by Assemblymember of Muratsuchi. 2026, 111, law enforcement agencies. Information sharing via Senator Archuleta. 2026, 117 employment development department unemployment insurance claims by Assemblymember Addis 2026, 119 housing and community development housing development monitoring by Assemblymember Ávila Farías for various Assemblymember Harabedian.

[Roll Call]

All right. The motion carries and the consent calendar is approved. I would, I did want to note that, this is the one of several audits now that we've have approved for the Department of Housing and Community Development. It is not a reflection on the department as a whole, but, by any means, but there are specific issues that both assets have identified on the sought audit that we just approved is in is is, in that vein. Alright.

So that is the consent counter. We'll now move on to our regular calendar, and we're proceeding in sign in order, beginning with those members that are not on the committee, but we have no members that are not on the committee that have signed in yet. So we'll turn to Assemblymember Demaio for presentation of 2026-115.

Thank you, Mister Chair, and Members for the opportunity to present this audit. I'm requesting this audit of the San Diego Association of Governments, which is our regional transportation agency because taxpayers in San Diego County and across the state of California deserve accountability, transparency, and confident that their transportation funds are being spent as promised and in compliance with state law and approved voter initiatives.

This audit obviously focuses on San Diego County, but I believe that it is it is of importance statewide because the concerns raised in this audit that can be addressed and put to rest are concerns raised by, constituents across the state of California. Where are our gas tax monies going? If there are voter approved initiatives, are those initiatives actually funding projects that were promised?

I believe that this audit can serve as a template for how we can look at other regional transportation agencies. Let me also state that there is new management at SANDAG, and the new executive director, I believe, iS Bringing in some very good practices. All the more reason to audit past problems so that new management can work with, the audit the auditor, identifying some remediations and entering into, agreements. SANDAG oversees billions of dollars, including SB 1 road maintenance and rehabilitation account funds.

In addition, they receive a number of state, and local grants, federal grants, and they also have dedicated tax revenues from voter approved initiatives.

As I mentioned, recent events, under the prior, administration have raised serious concerns about SANDAG's financial oversight management practices. Last year, an independent audit revealed that SANDAG executives knew for more than a year and a half about major problems involving State Route 125, before even mentioning it to their governing board. It took the media, and a whistleblower to expose the problem. The audit found that faulty software systems and complete disregard by management resulted in improper customer charges, an estimated $2,000,000 lost to taxpayers.

A second review found additional failures involving vendor management and financial reporting systems.

Those findings alone justify asking the broader questions that my audit request raises. There's also concerns about whether transportation funds are being spent on highway maintenance, rehabilitation, and operations, as promised, or are they being diverted towards other projects that fall outside the intended or legally required purpose of funding sources? Again, I do not wanna get into whether a project is good or bad. That is a management decision. That's a policy decision, but there are certain funding streams that are encumbered that can only go to certain programs.

And, of course, San Diego residents have seen projects where vehicle lanes have been removed or narrowed while resources were redirected to other purposes. And, again, many of the grants and contracts as well as, special tax funds, do not allow for diversion of these funds.

Again, the audit does not presume wrongdoing, and I believe that the transition in management offers us a great opportunity to utilize this audit in a constructive manner to show that there were past practices that were weak, that a new team came in with new commitments, and have been making improvements.

Part of the audit will be looking at the following questions, whether funding sources paid, for the appropriate projects, whether restricted highway funds were used appropriately, whether voters were given accurate information, whether all expenditures are properly documented and reported with appropriate internal controls, whether prom promise projects for voter approved funding streams were actually completed or whether they were reduced in any way in scope or delayed, and looking at administrative costs and overhead costs to ensure that they are appropriately documented and consistent with voter approved initiatives.

I ask that we approve this audit.

And, again, I do believe that with the change in management, there's a great opportunity for us to turn the page and get specific commitments on new practices and internal controls, and that these internal controls or practices could also be of benefit to regional transportation agencies statewide. I ask for an AQye vote.

Thank thank you, Mr. Demaio. We have a motion for the audit. Mister state auditor, in the meantime, now is the time to present your analysis.

Thank you, Chairman Harabedian. As Assemblymember Demaio mentioned, the audit request really directs my office to evaluate SANDAG's use of transportation funding and determine whether spending has been for allowable purposes. The audit has five primary objectives shown in your materials as objectives two through six. Objective two asks us to determine if SANDAG fulfilled its project commitments from the transnet ordinance tax increase, which would include determining how many projects were canceled or curtailed and the amount of overhead costs charged to tax revenues.

Objective three has us focus on whether or not SANDAG has used state highway and transportation funds for allowable purposes, determining whether the use of these funds were for the construction of bikeways and walking trails under its regional transportation active plan, and then determine whether or not such uses were for allowable purposes.

Objective four has us test the allowability of a selection of non road improvement projects that use federal, state, and local funds. Objective five has us focus on whether or to determine the extent to which the build NCC project funded non road related projects such as wetland restoration. And as mister DiMaio mentioned, objective six has us focus on evaluating the extent to which SANDAG accurately submitted required reports justifying expenditures from these funds.

This is a medium sized audit that will require roughly 27 hundred hours to complete.

Thank you. Is a representative from SANDAG here? You. You may come up, and you can testify. We do have Mario Orso as the Chief Executive Officer, and then we have Don Battesi?

Atis. Atis,

who is

okay. Who's the CFO. And, I'll give you each, three minutes, if that's okay. If you need more, we won't cut

Jointly, we'll take the six minutes.

Great. Yeah. Great. Thank you.

First of all, thank you. Thank you for having me. Sorry for giving my back to some of you. Thank you. Assemblymember's Demaio for the kind words.

Again. My name is Mario Orsol. I'm the CEO of SANDAG. But he's the chief financial officer as it was mentioned this month, it will be my second anniversary with SANDAG after thirty three years with Caltrans in different roles. I really wanna share on behalf of the chairman of my board, the staff, as well as myself and Don, the seriously that we take our responsibilities in managing tax fair funds and working at a tax fair funded agency.

We really take that really, really serious. Since I came in my position, I've been very focused in enhancing transparency and trust at the agency. And I think that applies to all of us working in public government. I fully respect and embrace the work that this committee does to fully bat out the concerns that are being brought up. Today's conversation seems to focus on two main questions.

Is the agency's handbag delivering on its commitments? And are we following the rules of the funding? I think we are. I appreciate what Assemblymember Demaio brought up, and we are putting a lot of a lot of elements in place. But I wanna focus part of my conversation to tell you what are the elements have been put in place, some of them in statute by by the assembly.

So, again, we are I do feel that we're delivering our commitments, and we are following the rules of the colors of funding. Many times people bring in frustrations, concerns about why projects are not being built so fast. And as a lot of you may know, major infrastructure projects take years, if not decades, to get to fruition. Required mitigation sometimes becomes part of law, like Norco's corridor that's being mentioned included was included in statute on on the mitigation through a public works plan.

And it required the approvals or the consensus even of the California Coastal Commission.

And then we have funding. Like any other agency that works in transportation, the difference on the sources of funds can vary widely on each project. I know several of you have worked in local governments and NPO boards. And in the past, they're very you must be very familiar with the concept of bringing in different colors of money to be able to fund a mega project. Each type of funding comes with its own packages of eligible uses and oversight requirements.

This is very important because no single source of funding is gonna pay for a mega project or a major endeavor. And therefore, each time we add new types of colors of money, let it be local, state, or federal, the funding comes with its own conditions. What are those conditions? Those conditions are the eligible uses for the funding, the reporting, and the monitoring requirements. Currently, at SANDAG and Don can correct me, we're managing probably more than a 100 colors of money in the agency.

That's a daunting amount of different funding sources. In fact, in the average, Sandec is subject to 14 audits each year. Since 2008, we have had close to 300 audit audits, reviews, or assessments. The Federal Highway Administration, the Federal Transit Administration conducts reviews. We go through the triennial audit from FDA.

Caltrans, the California Transportation Commission signs off on every state dollar we spend and report out in a quarterly basis. In fact, most part of, if not all major highway projects that we do at SANDAG are actually developed and implemented by the state. The environmental document lead, the design, the implementation are determined by the state. It's a partnership that works well and have been and we've been able to leverage our human resources.

When I came into SANDAG, I think this is very important because what Assembly Demaio.

You have one more minute if you wanna wrap it up.

Excellent. We have several audit committees. We have a director a director of internal controls that I created. We have an independent performance auditor that was created by statute that's doing three to four audits. And to summarize, we do feel that we have submitted the appropriate reports.

Transnet has, gotten a lot of the commitments done. And the Norcoast projects were in fact, you know, were not improperly put in projects there. And like I said, in fact, this multi multi multi modal corridor scope was outlined in state statute. So we're open to any questions. I appreciate the openness and the value.

I think we all wanna make government better. But I think sometimes audits are a great thing, but they're also a daunting amount of work. And we need to focus audits where the where where we can get the best out of them. And I think we would like to work with you all to find those specific elements. Thank you.

Thank you, Mr. Orsol. Appreciate that. We'll bring it back to the dais, for questions. We do have a motion from Senator Valladares, but if there are any questions from the members, for any of the parties, including the Senator Demaio. Miss Ransom?

Yes. Thank you. So I wanna thank the, assembly member for bringing the audit request, and I wanna thank the, representatives from Sandbag for your testimony. In reviewing the questions for the audit, a lot of these seem like questions that we should have been able to go to a county or go somewhere, you know, to get these answers. And given that the audit is, you know, half $1,000,000 or so, I'm curious to the requester.

Have you tried to get answers to these questions?

The and we do have some members from San Diego here. The environment in San Diego County has been such that with the number of scandals and problems that SANDAG has had, that the way we can restore public trust and confidence is to go to the state level and to conduct this audit. We also know that there will likely be federal reviews, of, not only SANDAG, but some of our other state agencies.

And having audits that show that, yes, federal funds were appropriately spent, state and local funds were appropriately spent, I think shows that we're being proactive in ensuring that we are complying with federal, state, and local law or voter initiative voter approved initiatives. But it it has SANDAG has really had, a loss of public trust and confidence in San Diego County.

And I do know that they are likely to go back out to, the public and request support. And having this audit is, I think, an important step to evaluating whether that's appropriate.

Okay. And have you gone to them for answers or gone to the county already to get answers to some of the questions?

We've discussed a variety of concerns with the, with SANDAG. I've also spoken to their, auditor, and, a lot of the ideas that are in the letter are formed from those discussions.

Thank you. My question would be to and mister Patrice, are you the executive director? Or

CEO. CEO?

I'm the CEO, Mario Orsol, and Dan Patrice is the CFO.

Okay. So in in just kind of preparing for this, it does look like there's kind of been some grand jury concerns about kind of the internal audits that you mentioned. I just when you gave your report, you did not really touch on some of the questions in the audit. Do you feel that you've provided, an answers to those questions already? And if so, is there a public place where we can get those questions answered?

Thank you. Well, I was gonna get to the questions. I ran out of time. But, basically, we do feel that a lot of the transnet all the original transnet projects were delivered that we haven't had improperly use a bike microtransit or environmental project funds. Basically, they've been used appropriately.

I talked about the North Coast Corridor and that we also have put in appropriate reports for SB 1. Now our audits are open. We can make it available. There's always room for improvement. I I don't wanna say that everybody's perfect in this world because nobody is perfect.

But I think it's managing where the resources will be better or the all that work that would take into an audit that we should really focus on something that it's really should be something of value because we have a lot of audits already being conducted that have been done. And I think going through an evaluation of what exists, and what may be lagging or not should be the focus of determining, not making something so broad. Thank you.

Thank you, miss Ransom. Any other questions?

I'll second.

Okay. We do have a second from Senate Member Hoover. Vice Chair, did you have a question? Please go ahead.

Yeah. So I thanks thanks to everyone for the presentations. I'm I there but there's several of us in the Senate that have served as the chairs of our Sand Ag equivalent. I chaired the SECOG board here with a couple of my colleagues who were served at the same time.

And so I think it is absolutely normal for the regional agencies given their special place in the in the constellation of state agencies, the CTC and everybody else, and the federal agencies for there to be a gazillion audits at any at any one time over and over and over again.

That's just the norm that's the normal mode of operating because all these programs require it. And also that those agencies typically are heavily involved in the projects themselves. And so you the the SANDAG doesn't buy itself, program dollars for the state hop state highway operations and protection program. The shop account, it doesn't do that. So that it can't be done without the state already being aware of the components of that.

Those audits are are working, which the the reason why we know that about the problems with the the vendor system for the toll program is because of the internal audit that that SANDAG conducted, discussed, released, and then and then resolved. And that's that's really what audits I mean, the audits are for that. They are not they're not simply the to catch people. They're they're in they're supposed to be regular things that agencies do and examine in order to to correct problems as they occur.

And if we create an environment where the audits where audits are only seen as gotcha moments for scandal, no one will do them properly.

And so I think this is an example where, yes, something went wrong on the state one 20 on the on the highway 125 toll program, but the audit did its job, and SANDAG is is responding. I'm not gonna comment. I can't talk to the content of their response, but they're doing it in response to what's happened there.

The active transportation plan is not itself a budget, and so auditing that to ensure state funds are being used for highway maintenance rehabilitation, that's not what the regional active transportation plan is. It isn't a budget.

It's not the metropolitan transportation and program that actually allocates dollars to pro to projects. So there's nothing there's nothing in that to audit. That plan is required by the state in order to provide funding for biking and walking projects and for the trails. And so the sort of things that appears from the letter that that SANDAGhas been funding. And then lastly, auditing the build NCC project because it included non roadway projects like the Santa Liho Lagoon Wetlands and other habitat projects.

Those are, as my understanding, those were environmental mitigations required for the road widening projects themselves. So they're not sort of random non highway projects that are being funded out of the out of these out of the highway dollars. They are necessary in order for those highway projects to proceed and to and to accomplish both their sequel work and their responsibilities under both state and federal endangered species law.

So there's I think to the to the question that my that our colleague from from from Stockton has raised, like, the the questions all these questions have answers that are already in in the public record. And SANDAG's the complexity of its business is not at all unique or unusual in this space.

And adding a fourteenth audit to the thirteenth that SANDAG is already doing seems to me not an appropriate use of of our resources given that there isn't something here that is not already being tackled. So I appreciate the effort that's here. I couldn't personally support the audit, though, that's that's proposed today. Thanks, Mister Chair.

Thank you. I'll let the assembly member respond to that. Either now or in your close, there will be public comment. If there aren't other questions or comments from the day I've seen none, why don't we open up for public comment? You can respond to those comments from the Vice Chair.

Any public comment on this audit request, please come forward now. And seeing none, I'm gonna give the floor to Senator Demaio for your closing and to respond to any of the comments that you just heard.

Thank you. And in response to the Senator, I don't agree with your characterization of the the various issues that you brought up. First and foremost, the toll road issue was the result of a whistleblower and involved a federal investigation. We should not have whistleblowers or federal investigators having to go and raise a red flag on things like this. As it relates to the NCC project, sure, there are some examples you can say that if it was mitigation, that would be an appropriate use of funds.

But we are not talking about just mitigation. We are talking about bike lanes. We're talking about art projects. And some of those, are policies of SANDAG. A policy of SANDAG cannot override a funding restriction, as you well know.

And so these are the questions that continue to linger in San Diego County. Voters in San Diego County have rejected now three times SANDAG's request for a tax increase in large part because of the loss of public trust and confidence.

And so I am here really wanting to strike the right approach, and I believe that the state audit is going outside the sandbox because it's so bad locally that I think that is the only way that we're gonna have a credible set of eyes to the public's point of view to put some of these issues at rest. And I actually am optimistic with the new regime. I've seen some good reforms.

I don't think we're there yet. But I think this helps management, the new management come in and say, yes. We wanna look at the past practices because we weren't associated with those. The auditor can look at what can be improved, and then management can respond and stipulate that they will remediate. They will agree with audit recommendations.

And then the public can look at that and decide whether those internal controls and commitments are sufficient. This is a thoughtful way to deal with this, or we can continue to have low levels of public trust and confidence. I think that this is an absolutely necessary audit. That's why I felt a state approach was the best way to deal with this. But if not, I think the the the the public in San Diego will continue to harbor doubts.

Projects will then continue to be rejected at the ballot box, I would presume. And I do believe that we are going to be seeing some federal queries on these matters as it relates to federal funds. So I think we need to be proactive. I ask for support for this audit, and let's restore public trust and confidence with an outside set of eyes. Thank you.

Thank you, Mr. Demaio. And we will bring this back to a vote. I have a none recommendation on this audit, and we will call the roll.

2026, 115 San Diego Association of Governments. Road Project Management by Assembly Member Demaio. [Roll Call]

And that audit fails, based on the vote count, and appreciate the audit coming forward. Thank you to everyone, including you, Assemblymember DeMaio, and we will move on to the second audit from a sign in order, and that's gonna be Senator Valladares. And that's gonna be out of 2026-120 board and state—Board of State and Community Corrections Proposition 47 Grant Administration.

You can start whenever you're ready, Senator. And I—first of all, thank you for everyone for being here; your attention, Senator Jones, for filling in. And I do know that a few members, including Senator DeMaio and Hart, have a plane to catch soon. So, less is more.

We've all read the audits, and you are here to do your job, but we, we would appreciate a succinct presentation. So, with that, Senator, please.

Thank you, Mr. Chair. And, again, another, thank you to both the committee and the chair and the vice chair for the consideration of this audit and for giving me the opportunity to present. In 2014, California voters approved Proposition 47 with the goal of, of reducing certain nonviolent drug and property crimes, from felonies to misdemeanors, while reinvesting state savings into programs intended to improve public safety outcomes.

State savings are deposited annually into the Safe Neighborhoods and School Fund, with 65% allocated to the Board of State and Community Corrections to administer grants supporting mental health treatment, substance abuse disorder services, diversion programs, and other rehabilitative services. The Legislature later expanded allowable use of these funds through AB 1056 to include housing-related assistance, job training, case management, civil legal services, and other community-based supported programs intended to help individuals successfully reenter society and reduce recidivism.

These are significant taxpayer investments made with the promise that they would improve outcomes for these individuals while enhancing public safety. However, more than a decade after Proposition 47 was enacted, there remains insufficient publicly available data to determine whether these grants programs are effectively achieving their intended goals. Current reporting requirements rely heavily on self-reported data from community-based service providers, many of whom receive pass-through funding under BSCC Grant requirements.

While the BSCC requires that at least 50% of grant funding to be distributed to community-based organizations, there appears to be limited independent oversight or standardized evaluation of program performance, recidivism outcomes, or long-term effectiveness. This audit request seeks to provide the legislature and the public with greater transparency and accountability regarding how Proposition 47 funds are being spent, whether performance metrics are reliable, and whether these programs are delivering measurable results for taxpayers and the communities that they are intended to serve.

Ultimately, this is about ensuring accountability, evaluating outcomes, and determining whether these investments are truly reducing recidivism, addressing mental health and substance abuse challenges, and improving public safety across California. Testifying here in support of this audit request is San Bernardino County Sheriff, Shannon Dicus.

Chair Harabedian, in the interest of being quick, just like you asked, I am the Sheriff of San Bernardino County, but I'm speaking to all of you, in regards of not only my position as the sheriff in San Bernardino County, but also a former member of the Board of State and Community Corrections.

And that's an important role for California's entire public safety system, including what the BSCC does for county jail inspections, technical assistance, correctional standards, and in-custody death review responsibilities, and the administration of major public safety, reentry, violence reduction, and rehabilitative grant programs. To its credit, the BSCC has used its existing authority to make Prop 47 grant funding available for services and may also support Proposition 36 implementation, including mental health treatment, substance use disorder treatment, diversion, housing assistance, job training, and other rehabilitative programs.

In the recent release of a $127,000,000 in Prop 47 grant funding, there's a thoughtful step by the Board and the BSCC staff to appear constructive in identifying areas where those funds can be used within the scope and the board's authority. But it doesn't solve the larger issue.

Prop 36 was approved by the voters to address repeat...fentanyl-related offenses and the need for meaningful treatment pathways, however, did not include a dedicated funding mechanism. As a result, counties, courts, law and justice partners, and treatment providers are being asked to implement a major statewide policy without a clear accounting of resources required to make it work. And there's a broader account accountability issue. Much of the recidivism and outcome data associated with Prop 47 programs is currently self-reported.

And I'm saying that from my experience as a BSCC Board member. There does not mean that the data's wrong or doesn't diminish the work being done of the many service providers, but when the legislators be—legislature—is being asked rely on that information and to evaluate program success, to allocate public funds, and to guide future criminal justice policy, self-reported data should be independently reviewed.

I think it's also important, and while I know Prop 36 takes a, a lens of, of partisanship in many cases, I think it's equally important for the entire legislature to have an accurate review of Prop 47 grant funding. I think we would all believe that those folks that are doing a good job in the recidivism space that we could invest more money into them and certainly not less.

This same type of audit has been echoed by the 2024 audit regarding California's failure to appropriately track homelessness and spending audits. This is exactly why the California State Auditor is the right entity for this work. The State Auditor is independent, nonpartisan, and accountable to the legislature and the public, not it would give policy makers a fact based review on how to and how the funds are being used, whether the outcome data is consistent, reliable, and what gaps exist in Proposition 36 implementation, and whether the state resources are aligned with responsibilities being placed on local governments. This audit is not about politics; it's about facts, transparency, and accountability.

For those reasons, I respectfully urge the committee to approve the audit request. Thank you for your time, and I'm hands—happy to answer any questions.

Thank you, Sheriff. Mr. Parks.

Thank you, Chairman Harabedian. In the interest of brevity, the audit has two primary objectives. The first one is to take a focus on the grantees and for a selection of Prop 47 grantees, evaluate their compliance with grant requirements and whether or not that they are collecting and reporting accurate outcome and recidivism data.

The second objective moves away from grantees and focuses more on BSCC's oversight, evaluating how BSCC conducts its oversight of its grant recipients to ensure they follow grant rules, including how they conduct oversight and reviews of community-based organizations. Despite the few objectives, it's a medium to large audit based on the number of grant recipients we're anticipating including in the audit, as well as potentially reviewing recidivism data for hundreds, if not potentially thousands of participants who have gone through the program.

I anticipate that it will take roughly 4,400 hours to complete.

Thank you, Mr. Parks. We will now have Aaron McGuire, Executive Director of the Board of State and Community Corrections. And three minutes to you, Mr. McGuire, whenever you're ready.

Thank you, Mr. Chair and members. My name is Aaron McGuire. I'm the Executive Director of the Board of State and Community Corrections, or BSCC. I appreciate the opportunity to comment on the request to authorize an audit of the BSCC Proposition 47 Grant Program. I'll skip the overview of the grant program itself.

I think that was well covered already, but try to just give you a brief summary of the oversight mechanisms that are currently in place, as well as how the BSCC measures program success, which includes recidivism, which is one of the primary goals of the grant program.

As with many of the BSCC's competitive grants, the Proposition 47 Grant Program awards are determined through a scoring process and through an application process where we have a group of subject matter experts come together to design the rating criteria and then score proposals. Those recommendations are then forwarded to the BSCC Board, which then adopts those proposals. In 2024, the voters approved Proposition 36, which modified Proposition 47 by allowing for felony convictions of people convicted of multiple theft-related offenses and also created a treatment-mandated felony.

Proposition 36 also authorized the BSCC to use the savings generated from Prop 47 to fund treatment-mandated felony programs.

In the fall of 2025, the Board awarded a $127,000,000 as part of the fifth cohort of funding, which brought the total amount of BSCC awards that we've done for this program to $670,000,000. As part of this cohort, applicants were asked to specify whether they would be funding programs to address Proposition 47 or 36. Seven out of the 23 grantees self-identified as implementing newer expanding programs to include Proposition 36 programs.

In addition, one of the things I did wanna point out, in addition to the BSCC's own internal controls and oversight mechanisms, Proposition 47 requires that the California State Controller's Office conduct audits of the Proposition 47 Grant Program every two years. The purpose of the audit done by this the State Controller's Office is to ensure that Prop 47 funds are dispersed and expended solely according to the purposes set forth in the government code.

In addition to their audit of BSCC, the State Controller's Office also conducts random audits of the local public agencies that are receiving BSCC Prop 47 grant programs on a regular basis. The reports generated from these audits are made available to the Legislature and the public, and this committee may wish to consider whether work already done by the State Controller would be duplicative of the work being asked to be done by the State Auditor.

With that, I know the time is short, but I would like to mention that one of the specific points that was brought up was whether or not the data is being self reported by the service providers.

The recidivism data that we required reported to us does have to go through a public agency. It does have to go through a public authority. So, it's not just being self reported by, by community-based organizations. And in terms of the outcomes, we do have a lot of information on our website, with respect, with respect to the reports that have already been done.

Wanna point out that our programs have shown a 60% decrease in homelessness out of the cohort two grantees, a 50% decrease in unemployment rates for the people participating in the Cohort II Program, and then, a recidivism rate of 15.3%, which is out of 20,000 program participants, which is significantly lower than recidivism rates that we see coming out of CDCR.

So, with that, Mr. Chair, if you have any questions, I'd be happy to answer them.

Thank you. Appreciate all the testimony. Any questions from the dais before I open it up for public comment? And seeing none, we will open this up for any public comment. And, again, seeing none. Senator, would you like to close?

Yes. Well, first of all, I just, again, I wanna thank you for the opportunity to present this audit. I will also add that it's my understanding, with a brief conversation, with the auditor that any audits that the controller has completed every two years since the inception of, of Prop 47, of this grant program, will actually be an efficiency that the auditor will use. So, very excited to hear about the, the controller's audits. And then open my notes here because I did have an actual closing.

Respectfully ask for an aye vote. How's that?

Beautiful. That, that's exactly how we like it. Okay. We'll bring it back here. Do I have a motion?

Okay. We have a motion by Senator Jones.

I'll move.

Second.

And a second by Senator Hoover. Madam secretary, let's call the roll. I am an "aye" reco on this, and thank you very much for bringing the audit, Senator.

[Roll Call]

And that audit is approved. Congratulations. Thank you very much. And we will now move on to our last, but not least, presentation by Senator Cortese, Audit Request 2026-107, Department of Human Resources, dental benefits procurement. And, Senator, you can start whenever you're ready.

And we are moving quite along. So, yes, again, brevity is, is the best, is the best medicine here. So, whenever you're, whenever you're ready, go ahead.

Very interested in brevity, Mr. Chair. Thank you for that. And thank you, members. I'm pleased to present an audit to evaluate the Department of Human Resources dental benefit procurement process and contract compliance. Since 1984, the state of California, through CalHR, has contracted with Delta Dental to provide dental insurance coverage.

Delta was founded sixty years ago and operates in 15 states in the District Of Columbia with reported total revenues over $6,000,000,000 and executive salaries ranging from 1.5 to $6,000,000. Despite being one of the largest national insurers, decades of inflation and recent hikes in health care costs, the maximum benefit amount for services has remained at just $2,000 on certain plans for over forty years. Simultaneously, an increasing number of beneficiaries are reporting that their dentist is no longer in-network and struggling to find accessible in-network care.

Retirees who are on fixed incomes and often require more extensive dental work are paying tens of thousands of dollars out of pocket for critical operations or avoiding oral care altogether. Given the critical role that CalHR plays in securing dental insurance for hundreds of thousands of employees, retirees, and their dependents, it's essential that the procurement process remains transparent, competitive, and cost-effective.

With us today to testify in support is Eric Dowdy, with the California Dental Association, and Ted Toppin, representing the California State Retirees. Thank you, and at the appropriate time, I'll respectfully ask for an aye vote.

Thank you, Senator. And gentlemen, three minutes to be split however you'd like.

Oh, great. Thank you, Mr. Chair and members. Eric Dowdy with the California Dental Association. CDA supports this audit because it answers the fundamental questions about whether California state employee dental benefit system is delivering meaningful access to care for workers, retirees, and their families. For years, dentists across California have been reporting growing challenges participating in the state's dental plan.

Same time, state employees and retirees increasingly tell us that they cannot find a dentist accepting their coverage, their dentist has left Delta's provider network, or they are forced to go out of network. Delta Dental, as the Senator had mentioned, has had this contract since 1984. During that same period, annual maximum benefits have remained largely unchanged while the cost of providing dental care has increased automatically.

Senator Cortese's request asked the appropriate question, "Is the procurement and oversight process used by CalHR producing sufficient competition, accountability, transparency, and value for state employees and taxpayers?"

The SADA is about ensuring that California's dental benefit system works for California. For the people who rely on it the most, the state is exercising its proper oversight for the decades on contract affect—affecting—hundreds and thousands of Californians. We respectfully ask for your aye vote.

Thank you very much. Mr. Toppin?

Thank you, Mr. Chair. Members, Ted Toppin for the California State Retirees and also now the Professional Engineers in California Government, in robust support. We strongly thank the Senator for bringing this to the committee. For state retirees and state employees, this, this is about how they can access their dental benefits that they earned throughout their career and continue to earn as part of their total compensation. The questions are as described.

Why is my dentist leaving Delta? Why can't I find a dentist in network? And why am I paying thousands of dollars out of my own pocket for a bent—dental—benefit that I thought provided the, the dental care and health care that I need? So, we would strongly urge support and an aye vote on the audit. Thank you.

Thank you both. Mr. Parks.

Thank you, Chairman Harabedian. The audit has five primary objectives, shown as Objectives 2 through 6. I'll walk through them briefly. Objective 2 focuses on CalHR's approach for procuring and ultimately selecting vendors, including what its methodology and rationale is for actually selecting winning bidders. Objective 3 focuses on CalHR's approach to determining acceptable benefit amounts.

How does CalHR, for example, evaluate the reasonableness of the dental benefits and the annual maximums offered by bidders? And what has CalHR done to maximize covered opt—coverage options—to active and retired workers living either in or out of state? Objective 4 is really data-driven. So, for the last five years, review enrollment data in the state's various dental plans, including average out-of-pocket expense for beneficiaries. And also, how many, enrollees are having difficulty locating dentists?

Objective 5 focuses on how well CalHR exercises its oversight and holds Delta Dental and other providers accountable for performance under the terms of their contracts. And Objective 6 focuses on reviewing CalHR's plans for renegotiating with Delta Dental and determine whether the prices and reimbursement rates to dentists are comparable to industry norm—industry norm, it's, excuse me. This is a medium to large audit that will require roughly 4,200 hours to complete.

Thank you, Mr. Parks. Mr. Dowdy and Mr. Toppin, if you can return to the bleachers, and then we will bring up the Department of Human Resources. We have Monica Erickson, Director, and Nicole Griffith, Chief of the Benefits Division. Whenever you're ready, please proceed and three minutes between the two of you. If you need a little bit more time, let me know, but go ahead.

Okay. Good afternoon, chair and members. Monica Erickson, Director of CalHR. Thank you so much for having us here today, and I will have my subject matter expert introduce herself as well.

Thank you. Nicole Griffith, Chief of CalHR Benefits. Again, thank you so much for having us here today. The CalHR Benefits Division administers benefits for state employees and retirees. Today, I will discuss our Delta—I'm sorry—our dental benefits program, which covers over 600,000 employees, retirees, and dependents. Our dental program delivers comprehensive coverage through Preferred Provider Organizations, also known as PPO, and Prepaid Dental Health Maintenance Organization, also known as the DHMO.

The PPO network through Delta Dental is strong and accessible. 99% of our members have access to Delta Dental provider within 10 miles, and 89% of our members use contracted dent—Delta Dental—providers and receive negotiated rates, resulting in lower out of pocket costs. 11% of our members may be using providers outside of the network. Our dental program offers out of state coverage, just like our health plans. We have approximately 450 individuals enrolled and using out of state coverage.

We are aware that Delta Dental has experienced provider turn—turnover—however, overall, their provider network remains strong. In 2025, Delta Dental experienced a 2.5% loss of dentists that our members use, which equates to 454 providers. However, Delta added 1,603 new providers. Delta Dental has added more providers than they lost.

We've also focused on expanding access to rural areas. While eight providers left rural areas, 34 providers were added, ensuring continued coverage in these areas. I'd like to address concerns about the calendar year maximum limits, which is the total dollar amount our PPO dental plan will pay for covered services in a calendar year. Member value is very important to us, and we consistently monitor data on how members are using their dental benefits. The most common plan design government is a $2,000 calendar year maximum. 25%.

One minute. And I see many pages of, of testimony.

This is other stuff, I'm sorry.

Okay. There you go.

I'll try to be quick. 25% of Delta Dental's government and mun—municipality—clients offer a $2,000 maximum. 40.2% of our 600,000 members reached or exceeded their maximum in 2024. 6.8% of retirees reached or exceeded the maximum in 2025. I will skip over some of this, and if I have time, I'd like to go back.

But we conducted an RFP in 2025 to address the network challenges and ensure the state received the most comprehensive pricing available. Based on the feedback and concerns raised by our members, Delta Dental was one of the handful of vendors to respond to the RFP, demonstrating its continued strength in the market. We are excited to share that effective 01/01/2027, we will offer two dental carriers, Delta Dental and MetLife, who will each offer three PPO plan options and one D—DHMO—prepaid plan.

There will be a total of eight different plan options for employees and retirees to choose from. This transparent and cost-effective process helps ensure the state continues to provide its members with affordable, comprehensive, and accessible dental benefits and a more robust provider network, which is important to us and our members—members.

MetLife will offer two plans moving forward that will have out of state coverage as well. We stand by a transparent competitive procurement process to ensure high quality, competitive, cost-effective benefits for our workforce and their dependents. Our contracts include performance guarantees with financial penalties, which are contractual provisions that require the contractor to meet specified performance standards and impose monetary and..

I gave you an extra minute and a half, but I will let you get one last sentence if you...

Alright.

Let's see which one can I give the best?

She would like to talk about how we've continued to enhance our dental benefits over the last five years each without increasing premiums or out of pocket costs.

That was—that is a great sense to end up. Thank you. Thank you to the both of you. Members, we'll bring it back.

Any questions or comments? Senator Jones.

Thank you. The timing of this is actually fairly interesting for me that I'm just subbing in today on the committee. But, you know, I've been in the legislature—this is my fourteenth year and last year. The—and every time I've gone to the dentist, my dentist has always said, wow, you have really good coverage, until this year when my dentist dropped Delta Dental.

So, I'm in that, if it is a small number, as you're saying, I am in that small number. But my dentist is a very good dentist. He's highly respected in the community, and I'm, you know, sorry to see him leave the program. And now, I'm stuck in that fun effort of finding a new dentist just, you know, for the last six months that I'm in office. But, so, I'm gonna support the audit.

Obviously, it won't affect my situation as I'll be gone. What, once it, the audit even starts and comes back. But I think it is good information for the state's employees to have, so I'll be supporting the audit today.

Thank you, Senator Jones. Any other questions or comments? Assemblymember Ransom.

Okay. Yeah. I'll be very brief. I appreciate the passion and the pride that the opposition, I guess, we'll call it opposition or the agency, has, in regards to the work that they're doing. I also wanna say it's really important that the user experience matches what you are hoping.

And having kids—my, my kids are on Delta Dental, and one of them lives not—she's in California, but not at home. Just some of the difficulties and then also hearing from others, some of the difficulties they've have, I think that it's really important for us, to get to the bottom of this because we do represent a lot of folks with this, including retirees. So, I'm gonna support the audit today, but I do appreciate that the pride you have in trying to do a good job.

Thank you.

Appreciate it.

Thank you, Ms. Ransom. Vice chair.

Yeah. Thank you. I'm also really very pleased that this is here. And this is a common problem of being sort of captured by your contractor because it's just so hard to change at this point, and there's no one else in the market. And we see the outcomes.

And, and, obviously, dental insurance isn't even really that. I mean, it's a discount plan, which is unfortunate, given what we know today about the relationship between dental health and dementia and all sorts of other diseases. And if the—we treated dental care just like every other health care piece, we wouldn't, we—you wouldn't you'd get more than $2,000 to depending on what you actually needed, which we don't do in these systems. So, I'm, I've, this is—you're onto a really important topic.

I'm glad to see the MetLife addition.

However, because they're both gonna be in the market, we're we're not, I—it seems unlikely that we're gonna see MetLife putting exerting a lot of competitive pressure on Delta Dental, and instead, both of them sort of taking collective advantage of a quasi-monopoly situation.

So, I just I think it's a very opportune moment to also be looking at, at the—at an audit in this mode to see as we shift to this two-provider system that we're, we're starting to get benefits, and our, and the members and our employees are starting to get the benefits from competition and not, not simply having two parties matching each other's benefit packages and prices. So, I also intend to support the audit and thank Senator Cortese for bringing this forward.

Thank you, Mr. Vice Chair, and thank you to the agency again for being here and for all the testimony. I've seen no—I have a motion. And do I have a second? And we'll have a second both by Senator Jones and Assemblymember Fong.

So, two seconds, or second and a third. Any public comment, please, put it on the record now. And if you can just state your name and, if it's, you know, just in support or not support and a few seconds as to what.

Yes. Thank you very much. My name is Keith Umemoto, and our lobbyist did present part of the position, California State Retirees. And I'm Executive Vice President.

And this has got to be one of our primary issues with California state retirees. I go to our 26 chapters and what do I hear from them? How much they're spending out of pocket. People are spending hundreds, thousands, and actually have spoken to people that spent over $10,000 out of pocket because of the cap hasn't changed, the accessibility.

And then, making sure that the provider directory is correct. And you may be voting on one of those bills that addresses that. But we do wholeheartedly support this. This is important. And our ability to provide services to the California state retirees and actually, the active members.

And we would love to work with the CalHR more to see what kind of alternatives there there may be and, also with the members of the legislature. But first for, for—and foremost—we do support this audit.

Thank you very much. Any other public comment? And seeing none, we'll bring it back. Senator Cortese, would you like to close?

First of all, thank you, Mr. Chair, for your assistance. Thank you for the very interesting discussion. Thank you, Cal HR. I think, you know, happens to be—you happen to be where this is housed, so, I hope you don't feel, you know, under siege here, but we have a vendor I think people wanna take a look at, and we're very grateful for the opportunity.

I think folks are going to get some real value out of the auditors' work here for—basically, for the first time in a long, long time, we'll get some information that will be very helpful to the legislature in terms of transparency. With that, I respectfully ask for an aye vote.

Thank you very much, Mr. Vice Chair.

Just Mr. Chair, it's not in the scope of the audit, but I do hope the auditor will take a look at the effect of this amazing mug that CalHR has with murder clowns and other horror villains on perhaps getting an even, even better deal from our dental provider.

It, it is absolutely the most interesting part of the of the hearing. So, yes.

It was a little intimidating.

I was intimidated for all of us. Don't worry. It was for all of us.

I hope the cameras picked up on it. So, with that, thank you. We have a motion and a second. Madam secretary, you can call the roll. I am an "aye" recommendation on this audit.

[Roll Call]

Thank you. That is approved. Congratulations. Thank you to the senators. Thank you to the members for all of your patience and cooperations.

A few of us have add on votes, I think, so, why don't we do those? But we are—if you don't have any add on votes, please feel free to leave, and thank you again. And happy Election Day tomorrow.

So, let's do add on votes.

[Roll Call]

If we can just move the conversations outside, just having some trouble hearing here.

[Roll Call]

We are in adjournment.