OAKLAND -- City council members want to know why Oakland, with an unemployment rate hovering 4 percent above the state average, squandered $644,000 in job-training grants.

Oakland was one of 20 California cities in 2010 to receive a National Emergency Grant to help long-term unemployed residents get jobs, but by the end of last year the city had returned nearly all the money because it couldn't comply with the program's requirements.

"I'm extremely upset," Councilmember Larry Reid said. "We've got all these folks out here that needed the help."

Oakland has seen its unemployment rate drop over the past few years, from roughly 18 percent to just under 13 percent, but that figure still dwarfs many of its Bay Area neighbors. The state unemployment rate is 9.8 percent.

City officials said Monday that the administration of former Mayor Ron Dellums applied for the $745,000 grant, part of a federal stimulus program overseen by the state, without fully understanding its stringent requirements.

The city planned to use the funds to help hard-to-employ people, such as ex-convicts, get work experience to put on their resumes, said John Bailey, who heads the city's Workforce Investment Board. However, the grant specified that the funds had to go toward job-training programs established in conjunction with employers that planned to hire the trainees.

Additionally, the city had to hold an open competition for the two nonprofits chosen to run the programs, which it never did, Bailey said.

Oakland officials worked with the state to try to salvage the funds, which had to be spent by last June, but it deemed that the bidding for vendors would take too long and struggled to find companies willing to participate in job-training programs.

"We thought it was important to follow the letter of the law ... but it's always unfortunate when money has to go back," Assistant City Administrator Fred Blackwell said.

In working with the state, the city managed to get approval to use just $80,849 out of the $725,462 grant.

It's unclear why Oakland was chosen for the grant, considering that its plan for using the funds didn't comply with regulations. Neither the city, which was closed for business due to budget constraints, nor the state Employment Development Department, which oversees the grant program, could provide a copy of the city's application on Monday.

Department spokesman Dan Stephens said in an email Oakland wasn't the only recipient that had to return funds, and that most of Oakland's money was redistributed to other cities that received grants.

Since the 2008 financial meltdown, Oakland had received $6,668,774 in stimulus funding for its youth, adult and dislocated worker training program, none of which had to be returned, Stephens wrote.

However, Oakland's handling of job-training funds has been a political hot potato that has landed the city in trouble before with state regulators. A 2010 state audit criticized the city's management of $3.1 million in job-training funds and questioned the accounting and job-creation figures provided by the Private Industry Council, a politically connected nonprofit that provided the services.

Later that year, the Dellums administration decided to put the city in charge of running the programs -- reducing the council's business with the city.

Given the lost funds, Reid said the city should reconsider how it overseas job-training programs.

"If we're sending money back to the federal government, then maybe we should get out of the business of running the program," he said.

At Reid's request, the city is scheduled to issue a report to council members about the lost funds next month.

Contact Matthew Artz at 510-208-6435.