The state auditor looked into the property management practices of the California Department of Transportation in its handling of a group of state-owned residential parcels along State Route 710 in the Los Angeles area. The auditor found that Caltrans has been charging rent far below the fair market value for the properties it owns and manages.
The leases were so undervalued that over the course of four years, Caltrans lost $22 million in rent when compared to the amount it should have been charging, the auditor estimated. Of the properties in question, 15 were being rented by state employees below market value, and four of the employees worked for Caltrans.
The auditor valued the properties at $238 million, but found that state law would prohibit Caltrans from ever selling the property at this value. A 1979 law likely would force Caltrans to sell the properties at a reduced value to current tenants with low to moderate incomes who have not owned real property in the last three years. This means Caltrans would only be able to sell the properties for an estimated $40 million.
The auditor also discovered that Caltrans spent $9.7 million more in repairs on the properties than it received in rent over the last 3½ years. Caltrans has been paying the Department of General Services (DGS) an average of $4.7 million a year, without a contract, to provide repairs, and could not provide documentation to substantiate why it chose DGS to do the work, nor why the work was necessary. Caltrans could not even produce paperwork to document how the work was billed.
The auditor said DGS had little oversight over its labor costs and could not justify the erratic practices it used to charge its clients fees. Also, Caltrans could not verify if tenants occupying 58 properties it rents to "low-income tenants" actually qualified for the discounted housing they received. (Source: California State Auditor's Office, August 16.)