(a) (1) Except in the case of a city or county which has made an election pursuant to paragraph (2) or (3) of this subdivision, in order to receive any allocation pursuant to Section 2126 or Section 7 of Chapter 1600 of the Statutes of 1985, the city or county, as the case may be, shall expend for the maintenance and reconstruction, as defined in subdivision (d) of Section 2126, of its local street and highway system during the fiscal year that it receives an allocation pursuant to Section 2126 or that Section 7 not less than its base year expenditure, excluding the allocation received pursuant to Section 2126 or that Section 7, or both, during the fiscal year.

(2) A city or county may elect to expend during the two fiscal years that it receives an allocation, a total amount which is not less than twice the amount of its base year expenditure.

(3) A city may elect to expend, during the two fiscal years that it receives an allocation and the following fiscal year, a total amount which is not less than three times the amount of its base year expenditure. This paragraph applies only to the Cities of Bakersfield, El Segundo, Novato, Oceanside, San Mateo, San Rafael, Santa Maria, Seal Beach, and Westminster. For the purposes of this paragraph, either actual expenditures or funds encumbered by contractual obligations in the 1987–88 fiscal year shall qualify as expenditures in the year after allocations are received.

(4) Any city, except the Cities of Bakersfield, El Segundo, Novato, San Rafael, and Santa Maria, or county making an election pursuant to paragraph (2) or (3) shall so notify the Controller by December 31, 1987, and a city or county which fails to do so shall be governed by paragraph (1).

(5) Any city or county with a population of 40,000 or less which makes an election pursuant to paragraph (2) or (3) and which expends funds pursuant to that election by October 30, 1988, shall be deemed to have notified the Controller pursuant to paragraph (4).

(6) This subdivision does not apply to a city or a county, including a city which filed a notice with the Controller pursuant to subdivision (g), with a population of 10,000 or less, as most recently determined by the Department of Finance.

(b) The amount allocated to a city or a county, as the case may be, shall be expended by October 30, 1988.

(c) (1) For purposes of this section, “base year expenditure” means the amount that the city or county, as the case may be, expended for patching, overlay, and sealing, and reconstruction of its local street and highway system during the 1984–85 fiscal year, as reported to the Controller pursuant to Section 2151. Any city or county, with a population of 100,000 or less as of October 1, 1986, which filed a notice with the Controller pursuant to subdivision (g), may elect to have its “base year expenditure” determined on the basis of its 1983–84 fiscal year expenditures. A city or county making this election shall so notify the Controller by December 31, 1987, and the election shall not be available to a city or county which does not so notify the Controller.

(2) If the sum of the revenue received by a city or county during the fiscal year pursuant to Section 500 of Title 16, Section 104(b)(2) and (6) and Sections 125 and 144 of Title 23, and Chapter 68 (commencing with Section 5121) of Title 42 of the United States Code, and from the federal Community Block Grant Program, the federal Revenue Sharing Program, and transit assistance funds from the Transportation Planning and Development Account, which was expended for the maintenance and reconstruction of its local street and highway system during the 1984–85 fiscal year, as reported to the Controller pursuant to Section 2151, is more than the sum of funds it received from those sources during any fiscal year, the base year expenditure of the city or county, as the case may be, for the fiscal year shall be reduced by the difference between the sums. For purposes of this paragraph, “revenue received” means that percentage of the project expenditures or the maximum reimbursable amount of eligible project costs as agreed upon by the federal government and the local agency for those projects eligible under this paragraph.

(d) For each fiscal year during which an allocation was made pursuant to Section 2126 or Section 7 of Chapter 1600 of the Statutes of 1985, or both, the Controller shall audit the amount each county and city expended for the maintenance and reconstruction, as defined in subdivision (d) of Section 2126, of its local street and highway system during the fiscal year. For amounts allocated to counties and cities for expenditure by October 30, 1988, the audit shall be completed by October 30, 1990.

(e) (1) If the Controller determines pursuant to subdivision (d) that a county or city, for the fiscal year, expended for the maintenance and reconstruction of its local street and highway system less than the required amount determined pursuant to subdivision (a) or (b), its allocation pursuant to Section 2104 or 2107, as the case may be, shall be reduced during the next fiscal year by the amount that its expenditure is less than the required amount, but the amount of the reduction shall not exceed the amount allocated to the city or county in each fiscal year that the city or county received funds pursuant to Section 2126 or Section 7 of Chapter 1600 of the Statutes of 1985.

(2) Paragraph (1) does not apply to a city or county during the fiscal year in which it returns to the Controller the allocation it received pursuant to Section 2126 or that Section 7, or both. The city or county shall return the allocation plus any accrued interest within 30 days after receipt of the allocation.

(f) Any funds withheld or returned as a result of subdivision (e) shall be reallocated to the other counties and cities whose expenditure is not less than its required amount pursuant to subdivision (b) or (c) of Section 2126, as the case may be.

(g) In the case of a city or county which on or before October 1, 1986, files with the Controller a written notice declaring the inability of the city or county to comply with the matching requirement of subdivision (a), the Controller shall postpone the penalty provisions of paragraph (1) of subdivision (e) and shall not reallocate the funds, as provided for by subdivision (f), until September 1, 1987. The notice to the Controller shall contain all of the following:

(1) The amount of 1984–85 base year matching requirements as determined by the Controller’s audit.

(2) The amount the local entity will fall short of the base year matching requirement.

(3) The reasons why the city or county is unable to meet the base year matching requirement.

(4) The amounts expended by the local entity on patching, overlay, sealing, and reconstruction of its street and highway system in fiscal years 1981–82, 1982–83, and 1983–84.

The Controller shall, by November 1, 1986, transmit to the Chairpersons of the Senate and Assembly Transportation Committees and the Joint Legislative Budget Committee the information submitted by counties and cities in the written notices provided for in this subdivision.

(Amended by Stats. 1991, Ch. 775, Sec. 11.)