Recovery Act
Clean Water Projects Are Underway, but Procedures May Not Be in Place to Ensure Adequate Oversight Gao ID: GAO-10-761T May 26, 2010The American Recovery and Reinvestment Act of 2009 (Recovery Act) included $4 billion for the Environmental Protection Agency's (EPA) Clean Water State Revolving Fund (SRF). This testimony--based on GAO's report GAO-10-604, issued on May 26, 2010, in response to a mandate under the Recovery Act--addresses (1) state efforts to meet requirements associated with the Recovery Act and SRF program, (2) the uses of Recovery Act funds, and (3) EPA's and states' efforts to oversee the use of these funds. GAO's review of the Clean Water SRF program focused on 14 states and selected localities--known as subrecipients--in each of these states. These 14 states received approximately 50 percent of the total appropriated under the Recovery Act for the Clean Water SRF. GAO obtained data from EPA and the 14 states, including the amounts and types of financial assistance each SRF program provided, which subrecipients were first-time recipients of Clean Water SRF funding, and which projects serve disadvantaged communities.
The 14 states we reviewed for the Clean Water SRF program had all projects under contract by the 1-year, February 17, 2010, deadline and also took steps to give priority to projects that were ready to proceed to construction by that same date. Eighty-seven percent of Clean Water SRF projects were under construction within 12 months of enactment of the Recovery Act. In addition, the 14 Clean Water SRFs exceeded the 20 percent green reserve requirement, using 29 percent of SRF funds to provide assistance for projects that met EPA criteria for being "green," such as water or energy efficiency projects; these states also met or exceeded the requirement to use at least 50 percent of Recovery Act funds to provide additional subsidization in the form of, for example, principal forgiveness or grants. SRF officials in most of the states we reviewed said that they faced challenges in meeting Recovery Act requirements, including the increased number of applications needing review and the number of new subrecipients requiring additional support in complying with the SRF program and Recovery Act requirements. States used a variety of techniques to address these concerns to meet the 1-year deadline, such as hiring additional staff to help administer the SRF program. The 14 states we reviewed distributed nearly $2 billion in Recovery Act funds among 890 water projects through their Clean Water SRF program. Overall, these 14 states distributed about 79 percent of their funds as additional subsidization, with most of the remaining funds provided as low- or zero-interest loans that will recycle back into the programs as subrecipients repay their loans. In addition, states we reviewed used at least 40 percent of Clean Water SRF Recovery Act project funds ($787 million) to provide assistance for projects that serve disadvantaged communities, and almost all of this funding was provided in the form of additional subsidization. Almost half of the Clean Water SRF subrecipients had never previously received assistance through that program. Of the 890 projects awarded Recovery Act Clean Water SRF program funds in these states, more than one-third are for green projects, and almost all of these (93 percent) were awarded additional subsidization. EPA has modified its existing oversight of state SRF programs by planning additional performance reviews beyond the annual reviews it already conducts, but these reviews do not include an examination of state subrecipient monitoring procedures. According to EPA officials, EPA has not established new subrecipient monitoring requirements for Recovery Act-funded projects and has given states a high degree of flexibility to operate their SRF programs based on each state's unique needs. Although many states have expanded their existing monitoring procedures, the oversight procedures in some states may not be sufficient given that (1) federal funds awarded to each state under the Recovery Act have increased as compared with average annual awards; (2) all Recovery Act projects had to be under contract within 1 year; and (3) EPA and states had little experience with some new Recovery Act requirements, such as the Buy American requirements. For example, some projects have been completed before any site inspection has occurred.
GAO-10-761T, Recovery Act: Clean Water Projects Are Underway, but Procedures May Not Be in Place to Ensure Adequate Oversight
This is the accessible text file for GAO report number GAO-10-761T
entitled 'Recovery Act: Clean Water Projects Are Underway, but
Procedures May Not Be in Place to Ensure Adequate Oversight' which was
released on May 26, 2010.
This text file was formatted by the U.S. Government Accountability
Office (GAO) to be accessible to users with visual impairments, as
part of a longer term project to improve GAO products' accessibility.
Every attempt has been made to maintain the structural and data
integrity of the original printed product. Accessibility features,
such as text descriptions of tables, consecutively numbered footnotes
placed at the end of the file, and the text of agency comment letters,
are provided but may not exactly duplicate the presentation or format
of the printed version. The portable document format (PDF) file is an
exact electronic replica of the printed version. We welcome your
feedback. Please E-mail your comments regarding the contents or
accessibility features of this document to Webmaster@gao.gov.
This is a work of the U.S. government and is not subject to copyright
protection in the United States. It may be reproduced and distributed
in its entirety without further permission from GAO. Because this work
may contain copyrighted images or other material, permission from the
copyright holder may be necessary if you wish to reproduce this
material separately.
Testimony:
Before the Committee on Transportation and Infrastructure, House of
Representatives:
United States Government Accountability Office:
GAO:
For Release on Delivery:
Expected at 10:00 a.m. EST:
Wednesday, May 26, 2010:
Recovery Act:
Clean Water Projects Are Underway, but Procedures May Not Be in Place
to Ensure Adequate Oversight:
Statement of David C. Trimble, Acting Director:
Natural Resources and Environment:
GAO-10-761T:
GAO Highlights:
Highlights of GAO-10-761T, testimony before the Committee on
Transportation and Infrastructure, House of Representatives.
Why GAO Did This Study:
The American Recovery and Reinvestment Act of 2009 (Recovery Act)
included $4 billion for the Environmental Protection Agency‘s (EPA)
Clean Water State Revolving Fund (SRF). This testimony”based on GAO‘s
report GAO-10-604, issued on May 26, 2010, in response to a mandate
under the Recovery Act”addresses (1) state efforts to meet
requirements associated with the Recovery Act and SRF program, (2) the
uses of Recovery Act funds, and (3) EPA‘s and states‘ efforts to
oversee the use of these funds.
GAO‘s review of the Clean Water SRF program focused on 14 states and
selected localities”known as subrecipients”in each of these states.
These 14 states received approximately 50 percent of the total
appropriated under the Recovery Act for the Clean Water SRF. GAO
obtained data from EPA and the 14 states, including the amounts and
types of financial assistance each SRF program provided, which
subrecipients were first-time recipients of Clean Water SRF funding,
and which projects serve disadvantaged communities.
What GAO Found:
The 14 states we reviewed for the Clean Water SRF program had all
projects under contract by the 1-year, February 17, 2010, deadline and
also took steps to give priority to projects that were ready to
proceed to construction by that same date. Eighty-seven percent of
Clean Water SRF projects were under construction within 12 months of
enactment of the Recovery Act. In addition, the 14 Clean Water SRFs
exceeded the 20 percent green reserve requirement, using 29 percent of
SRF funds to provide assistance for projects that met EPA criteria for
being ’green,“ such as water or energy efficiency projects; these
states also met or exceeded the requirement to use at least 50 percent
of Recovery Act funds to provide additional subsidization in the form
of, for example, principal forgiveness or grants. SRF officials in
most of the states we reviewed said that they faced challenges in
meeting Recovery Act requirements, including the increased number of
applications needing review and the number of new subrecipients
requiring additional support in complying with the SRF program and
Recovery Act requirements. States used a variety of techniques to
address these concerns to meet the 1-year deadline, such as hiring
additional staff to help administer the SRF program.
The 14 states we reviewed distributed nearly $2 billion in Recovery
Act funds among 890 water projects through their Clean Water SRF
program. Overall, these 14 states distributed about 79 percent of
their funds as additional subsidization, with most of the remaining
funds provided as low- or zero-interest loans that will recycle back
into the programs as subrecipients repay their loans. In addition,
states we reviewed used at least 40 percent of Clean Water SRF
Recovery Act project funds ($787 million) to provide assistance for
projects that serve disadvantaged communities, and almost all of this
funding was provided in the form of additional subsidization. Almost
half of the Clean Water SRF subrecipients had never previously
received assistance through that program. Of the 890 projects awarded
Recovery Act Clean Water SRF program funds in these states, more than
one-third are for green projects, and almost all of these (93 percent)
were awarded additional subsidization.
EPA has modified its existing oversight of state SRF programs by
planning additional performance reviews beyond the annual reviews it
already conducts, but these reviews do not include an examination of
state subrecipient monitoring procedures. According to EPA officials,
EPA has not established new subrecipient monitoring requirements for
Recovery Act-funded projects and has given states a high degree of
flexibility to operate their SRF programs based on each state‘s unique
needs. Although many states have expanded their existing monitoring
procedures, the oversight procedures in some states may not be
sufficient given that (1) federal funds awarded to each state under
the Recovery Act have increased as compared with average annual
awards; (2) all Recovery Act projects had to be under contract within
1 year; and (3) EPA and states had little experience with some new
Recovery Act requirements, such as the Buy American requirements. For
example, some projects have been completed before any site inspection
has occurred.
What GAO Recommends:
GAO-10-604 recommended that the EPA Administrator work with the states
to implement specific oversight procedures to monitor and ensure
subrecipients‘ compliance with the provisions of the Recovery Act-
funded Clean Water SRF program. EPA neither agreed nor disagreed with
our recommendation.
View [hyperlink, http://www.gao.gov/products/GAO-10-761T] or key
components. For more information, contact David C. Trimble at (202)
512-3841 or trimbled@gao.gov.
[End of section]
Mr. Chairman and Members of the Committee:
I am pleased to be here today to discuss our work examining selected
states' use of funds made available for clean water projects under the
American Recovery and Reinvestment Act of 2009 (Recovery Act).
[Footnote 1] Congress and the administration have fashioned a
significant response to what is generally considered to be the
nation's most serious economic crisis since the Great Depression. The
Recovery Act's combined spending and tax provisions are estimated to
cost $787 billion, including $4 billion for the Environmental
Protection Agency's (EPA) Clean Water State Revolving Fund (SRF). The
Recovery Act specified several roles for us, including conducting
ongoing reviews of selected states' and localities' use of funds made
available under the act. We recently completed our sixth review, being
issued today, which examined a core group of 16 states, the District
of Columbia, and selected localities.[Footnote 2] One component of
this review focused on the Clean Water SRF program in 14 of those
states and selected localities--known as subrecipients--in each of
these states.[Footnote 3] These 14 states received approximately 50
percent of the total amount appropriated for the Clean Water SRF.
My statement today is based on this work as it relates to the Clean
Water SRF program's use of Recovery Act funds and addresses (1) state
efforts to meet requirements associated with the Recovery Act, (2) the
uses of Recovery Act funds, and (3) EPA's and states' efforts to
oversee the use of these funds. We obtained data from EPA's Clean
Water SRF Benefits Reporting system as well as each of the 14 states
in our review, including the amounts and types of financial assistance
that each SRF program provided using Recovery Act funds, the type of
Clean Water SRF projects funded, the contract completion and
construction start dates for these projects, which subrecipients were
first-time recipients of the Clean Water SRF program, and which
projects serve disadvantaged communities. We also reviewed relevant
regulations and federal guidance and interviewed EPA officials that
administer the programs in headquarters and 4 of the 10 EPA regions.
[Footnote 4] In addition, we conducted semistructured interviews with
state officials who administer the SRF programs and with subrecipients
who received Recovery Act funds. We conducted performance audits for
this review from November 2009 to May 2010 in accordance with
generally accepted government auditing standards. Those standards
require that we plan and perform the audit to obtain sufficient,
appropriate evidence to provide a reasonable basis for our findings
and conclusions based on our audit objectives. We believe that the
evidence obtained provides a reasonable basis for our findings and
conclusions based on our audit objectives.
Background:
The Recovery Act appropriated $4 billion for the Clean Water SRF
program.[Footnote 5] This funding represents a significant increase
compared with federal funds awarded as annual appropriations to the
SRF program in recent years. From fiscal years 2000 through 2009,
annual appropriations averaged about $1.1 billion for the Clean Water
SRF program. Established in 1987, EPA's Clean Water SRF program
provides states and local communities independent and permanent
sources of subsidized financial assistance, such as low-or no-interest
loans for projects that protect or improve water quality and that are
needed to comply with federal water quality regulations.
In addition to providing increased funds, the Recovery Act included
some new requirements for the SRF programs. For example, states were
required to have all Recovery Act funds awarded to projects under
contract within 1-year of enactment--which was February 17, 2010
[Footnote 6]--and EPA was directed to reallocate any funds not under
contract by that date.[Footnote 7] In addition, under the Recovery
Act, states should give priority to projects that were ready to
proceed to construction within 12 months of enactment. States were
also required to use at least 20 percent of funds as a "green reserve"
to provide assistance for green infrastructure projects, water or
energy efficiency improvements, or other environmentally innovative
activities. Further, states were required to use at least 50 percent
of Recovery Act funds to provide assistance in the form of, for
example, principal forgiveness or grants. These types of assistance
are referred to as additional subsidization and are more generous than
the low-or no-interest loans that the Clean Water SRF programs
generally provide.
Despite Challenges, States Met Recovery Act Requirements for the SRFs:
The 14 states we reviewed for the Clean Water SRF program met all
Recovery Act requirements specific to the Clean Water SRF.
Specifically, the states we reviewed had all projects under contract
by the 1-year deadline and also took steps to give priority to
projects that were ready to proceed to construction within 12 months
of enactment of the Recovery Act. Eighty-seven percent of Clean Water
SRF projects were under construction within 12 months of enactment. In
addition, the 14 Clean Water SRFs we reviewed exceeded the 20 percent
green reserve requirement, using 29 percent of Recovery Act SRF funds
in these states to provide assistance for projects that met EPA
criteria for the green reserve. These states also met or exceeded the
50 percent additional subsidization requirement; overall, the 14
states distributed a total of 79 percent of Recovery Act Clean Water
SRF funds as additional subsidization.
SRF officials in most of the states we reviewed said that they faced
challenges in meeting Recovery Act requirements, especially the 1-year
contracting deadline. Under the base program, it could take up to
several years from when funds are awarded before the loan agreement is
signed, according to EPA officials. Some SRF officials told us that
the compressed time frame imposed by the Recovery Act posed challenges
and that their workloads increased significantly as a result of the 1-
year deadline. Among the factors affecting workload are the following:
* Reviewing applications for Recovery Act funds was burdensome.
Officials in some states said that the number of applications
increased significantly, in some cases more than doubling compared
with prior years, and that reviewing these applications was a
challenge. For example, New Jersey received twice as many applications
than in past years, according to SRF officials in that state.
* Explaining new Recovery Act requirements was time-consuming. Because
projects that receive any Recovery Act funds must comply with Buy
American requirements and Davis-Bacon wage requirements,[Footnote 8]
state SRF officials had to take additional steps to ensure that both
applicants for Recovery Act funds and those awarded Recovery Act funds
understood these requirements.
* Applicants and subrecipients required additional support. Many
states took steps to target Recovery Act funds to new recipients,
including nontraditional recipients of Clean Water SRF funds, such as
disadvantaged communities.[Footnote 9] According to SRF officials in
some states, new applicants and subrecipients required additional
support in complying with SRF program and Recovery Act requirements.
In the states we reviewed, nearly half of Clean Water SRF
subrecipients had not previously received assistance through that
program.
* Project costs were difficult to predict. Officials in some states
told us that actual costs were lower than estimated for many projects
awarded Recovery Act funds and, as a result, some states had to
scramble to ensure that all Recovery Act funds were under contract by
the 1-year deadline. For example, in January 2010, officials from
Florida's SRF programs told us that a few contracts for Recovery Act-
funded projects in the state had come in below their original project
cost estimates, and that this was likely to be the program staff's
largest concern as the deadline approached. However, lower estimates
also allowed some states to undertake additional projects that they
would otherwise have been unable to fund with the Recovery Act funding.
States used a variety of techniques to address these workload concerns
and meet the 1-year contracting deadline, according to state SRF
officials with whom we spoke. Some states hired additional staff to
help administer the SRF programs, although SRF officials in other
states told us that they were unable to do so because of resource
constraints. For example, New Jersey hired contractors to help
administer the state's base Clean Water SRF funds, allowing
experienced staff to focus on meeting Recovery Act requirements,
according to SRF officials in that state. Moreover, some states hired
contractors to provide assistance to both applicants and
subrecipients. For example, California hired contractors--including
the Rural Community Assistance Corporation--to help communities apply
for Recovery Act funds. Furthermore, states took steps to ensure that
they would have all Recovery Act funds under contract even if projects
dropped out because of Recovery Act requirements or time frames. For
example, most of the states we reviewed awarded a combination of
Recovery Act and base funds to projects to allow for more flexibility
in shifting Recovery Act funds among projects.
States also used a variety of techniques to ensure that they would
meet the green reserve requirement. For example, some of the states we
reviewed conducted outreach to communities and nonprofit organizations
to solicit applications for green projects. Moreover, to make green
projects more attractive to communities, some states offered
additional subsidization to all green projects or relied on a small
number of high-cost green projects to meet the requirement. For
example, Mississippi officials told us that the state funded three
large energy efficiency projects that helped the state's Clean Water
SRF program meet the green reserve requirement.
Recovery Act Funds Went to Many Disadvantaged Communities and New
Recipients:
The 14 states we reviewed distributed nearly $2 billion in Recovery
Act funds among 890 water projects through their Clean Water SRF
program. These states took a variety of approaches to distributing
funds. For example, four states distributed at least 95 percent of
Recovery Act funds as additional subsidization, while three other
states distributed only 50 percent as additional subsidization, the
smallest amount permitted under the Recovery Act. Overall, these 14
states distributed approximately 79 percent of Clean Water SRF
Recovery Act funds as additional subsidization, with most of the
remaining funds provided as low-or no-interest loans that will recycle
back into the programs as subrecipients repay their loans. As the
funds are repaid, they can then be used to provide assistance to SRF
recipients in the future. Furthermore, states varied in the number of
projects they chose to fund. For example, Ohio distributed
approximately $221 million among 274 Clean Water SRF projects, while
Texas distributed more than $172 million among 21 projects. Some
states funded more projects than originally anticipated because other
projects were less costly than expected, according to officials. For
example, Texas was able to provide funds for two additional clean
water projects because costs--especially material costs--were lower
than anticipated for other projects.
States we reviewed used at least 40 percent of Recovery Act Clean
Water SRF project funds ($787 million) to provide assistance for
projects that serve disadvantaged communities.[Footnote 10] Most of
the states we reviewed took steps to target some or all Recovery Act
funds to these low-income communities, generally by considering a
community's median household income when selecting projects and
determining which projects would receive additional subsidization in
the form of principal forgiveness, negative interest loans, or grants.
According to state officials from nine Clean Water SRF programs, 50
percent of all projects funded by those states' SRF programs serve
disadvantaged communities, and all of these disadvantaged communities
were provided with additional subsidization. SRF officials in some
states told us that Recovery Act funds--especially in the form of
additional subsidization--have provided significant benefits to
disadvantaged communities in their states. For example, according to
officials from California's Clean Water SRF program, that state used
funds to provide assistance for 25 wastewater projects that serve
disadvantaged communities, and approximately half of these projects
would not have gone forward as quickly or at all without additional
subsidization. Officials from the City of Fresno confirmed that one of
these projects--which will replace septic systems with connections to
the city's sewer systems in two disadvantaged communities--would not
have gone forward without additional subsidization. Local officials
told us that this project will decrease the amount of nitrates in the
region's groundwater, which is the source of the city's drinking water.
The Clean Water SRF programs from the 14 states we reviewed used
Recovery Act funds to provide assistance for 890 projects that will
meet a variety of local needs. Figure 1 shows how the 14 states
distributed Recovery Act funds across various clean water categories.
Figure 1: Share of Recovery Act Funds Provided to Clean Water SRF
Projects in 14 States, by Category:
[Refer to PDF for image: pie-chart]
Secondary treatment: 34%;
Sanitary sewer overflow: 18%;
New sewers: 12%;
Advanced treatment: 12%;
Nonpoint source projects: 8%;
Combined sewer overflow: 7%;
Storm water sewers: 3%;
Recycled water distribution: 2%;
Other[A]: 4%.
Source: GAO analysis of EPA data and information provided by states.
[A] Three states--California, Massachusetts, and Texas--reported
awarding Recovery Act funds to other types of Clean Water SRF projects
or project components. These projects include, for example, expanding
a disposal system, constructing a reclaimed water delivery system, and
constructing a wind turbine.
[End of figure]
In the states we reviewed, the Clean Water SRF programs used more than
70 percent of Recovery Act project funds to provide assistance for
projects in the following categories:
* Secondary treatment and advanced treatment. States we reviewed used
nearly half of all Recovery Act project funds to support wastewater
infrastructure intended to meet or exceed EPA's secondary treatment
standards for wastewater treatment facilities. Projects intended to
achieve compliance with these standards are referred to as secondary
treatment projects, while projects intended to exceed compliance with
these standards are referred to as advanced treatment projects. For
example, Massachusetts' Clean Water SRF program awarded over $2
million in Recovery Act funds to provide upgrades intended to help the
City of Leominster's secondary wastewater treatment facility achieve
compliance with EPA's discharge limits for phosphorous.
* Sanitary sewer overflow and combined sewer overflow. States we
reviewed used about 25 percent of Recovery Act project funds to
support efforts to prevent or mitigate discharges of untreated
wastewater into nearby water bodies. Such sewer overflows, which can
occur as a result of inclement weather, can pose significant public
health and pollution problems, according to EPA. For example,
Pennsylvania used 56 percent of project funds to address sewer
overflows from municipal sanitary sewer systems and combined sewer
systems.[Footnote 11] In another example, Iowa's Clean Water SRF
program used Recovery Act funds to help the City of Garwin implement
sanitary sewer improvements. Officials from that city told us that
during heavy rains, untreated water has bypassed the city's pump
station and backed up into basements of homes and businesses, and that
the city expects all backups to be eliminated as a result of planned
improvements.
In addition to funding conventional wastewater treatment projects, 9
of the 14 Clean Water SRF programs we reviewed used Recovery Act funds
to provide assistance for projects intended to address nonpoint source
pollution--projects intended to protect or improve water quality by,
for example, controlling runoff from city streets and agricultural
areas. The Clean Water SRF programs we reviewed used 8 percent of
project funds to support these nonpoint source projects, but nonpoint
source projects account for 20 percent (179 out of 890) of all
projects. A large number of these projects--131 out of 179--were
initiated by California or Ohio. For example, California used Recovery
Act funds to provide assistance for the Tomales Bay Wetland
Restoration and Monitoring Program, which restores wetlands that had
been converted into a dairy farm. Figure 2 shows the number of
projects that fall into various clean water categories.
Figure 2: Clean Water SRF Projects Awarded Recovery Act Funds in 14
States, by Category:
[Refer to PDF for image: vertical bar graph]
Category: Sanitary sewer overflow;
Number of projects: 244.
Category: Secondary treatment;
Number of projects: 201.
Category: Nonpoint source projects;
Number of projects: 179.
Category: New sewers;
Number of projects: 140.
Category: Advanced treatment;
Number of projects: 106.
Category: Combined sewer overflow;
Number of projects: 54.
Category: Storm water sewers;
Number of projects: 47.
Category: Other[A];
Number of projects: 16.
Category: Recycled water distribution;
Number of projects: 13.
Source: GAO analysis of EPA data and information provided by states.
Note: Some projects fall into more than one category.
[A] Three states--California, Massachusetts, and Texas--reported
awarding Recovery Act funds to other types of Clean Water SRF projects
or project components. These projects include, for example, expanding
a disposal system, constructing a reclaimed water delivery system, and
constructing a wind turbine.
[End of figure]
Of the 890 projects awarded Recovery Act funds by the Clean Water SRF
programs in the states we reviewed, more than one-third (312) address
the green reserve requirement. Of these green projects, 289 (93
percent) were awarded additional subsidization. Figure 3 shows the
number of projects that fall into each of the four green reserve
categories included in the Recovery Act. Many of these projects are
intended to improve energy efficiency and are expected to result in
long-term cost savings for some communities as a result of these
improvements. For example, the Massachusetts Water Resources Authority
is using Recovery Act funds provided through that state's Clean Water
SRF program to help construct a wind turbine at the DeLauri Pump
Station, and the Authority estimates that, as a result of this wind
turbine, more than $350,000 each year in electricity purchases will be
avoided. Furthermore, some projects provide green alternatives for
infrastructure improvements. For example, New York's Clean Water SRF
program provided Recovery Act funds to help construct a park designed
to naturally filter stormwater runoff and reduce the amount of
stormwater that enters New York City's sewers. More than half of the
city's sewers are combined sewers, and during heavy rains, sewage
sometimes discharges into Paerdagat Basin, which feeds into Jamaica
Bay.
Figure 3: Green Reserve Projects Awarded Recovery Act Clean Water SRF
Program Funds in 14 States, by Category:
[Refer to PDF for image: vertical bar graph]
Category: Green infrastructure;
Number of projects: 128;
Funding: $165 million.
Category: Energy efficiency;
Number of projects: 117;
Funding: $320 million.
Category: Water efficiency;
Number of projects: 30;
Funding: $36.5 million.
Category: Environmentally innovative;
Number of projects: 65;
Funding: $68.5 million.
Source: GAO analysis of EPA data and information provided by states.
Note: Some projects fall into more than one category.
[End of figure]
Although EPA and States Have Expanded Existing Oversight Procedures to
Address Recovery Act Requirements, the Procedures May Not Ensure
Adequate Oversight:
EPA has modified its existing oversight of state SRF programs by
planning additional performance reviews beyond the annual reviews it
is already conducting, but these reviews do not include an examination
of state subrecipient monitoring procedures. Specifically, EPA is
conducting midyear and end-of-year Recovery Act reviews in fiscal year
2010 to assess how each state is meeting Recovery Act requirements. As
part of these reviews, EPA has modified its annual review checklist to
incorporate elements that address the Recovery Act requirements.
Further, EPA officials will review four project files in each state
for compliance with Recovery Act requirements and four federal
disbursements to the state to help ensure erroneous payments are not
occurring. According to EPA officials, through these added reviews,
EPA is providing additional scrutiny over how states are using the
Recovery Act funds and meeting Recovery Act requirements as compared
with base program funds. As of May 14, 2010, EPA completed field work
for its mid-year Recovery Act reviews in 13 of the states we reviewed
and completed final reports for 3 of these states (Iowa, Ohio, and
Pennsylvania). EPA has plans to begin field work in the final state at
the end of May 2010.
Although the frequency of reviews has increased, these reviews do not
examine state subrecipient monitoring procedures. In 2008, the EPA
Office of Inspector General (OIG) examined state SRF programs'
compliance with subrecipient monitoring requirements of the Single
Audit Act and found that states complied with the subrecipient
monitoring requirements but that EPA's annual review process did not
address state subrecipient monitoring procedures. The OIG suggested
that EPA include a review of how states monitor borrowers as part of
its annual review procedures. EPA officials told us that they agreed
with the idea to include a review of subrecipient monitoring
procedures as part of the annual review but have not had time to
implement this suggestion because EPA's SRF program officials have
focused most of their attention on the Recovery Act since the OIG
published its report. EPA officials also told us that they believe the
reviews of project files and federal disbursements could possibly
identify internal control weaknesses that may exist for financial
controls, such as weaknesses in subrecipient monitoring procedures.
These reviews occur as part of the Recovery Act review and aim to
assess a project's compliance with Recovery Act requirements and help
ensure that no erroneous payments are occurring.
In terms of state oversight of subrecipients, EPA has not established
new subrecipient monitoring requirements for Recovery Act-funded
projects, according to EPA officials. Under the base Clean Water SRF
program, EPA gives states a high degree of flexibility to operate
their SRF programs based on each state's unique needs and
circumstances in accordance with federal and state laws and
requirements. According to EPA officials, although EPA has established
minimum requirements for subrecipient monitoring, such as requiring
states to review reimbursement requests, states are allowed to
determine their own subrecipient monitoring procedures, including the
frequency of project site inspections.
While EPA has not deviated from this approach with regard to
monitoring Recovery Act-funded projects, it has provided states with
voluntary tools and guidance to help with monitoring efforts. For
example, EPA provided states with an optional inspection checklist to
help states evaluate a subrecipient's compliance with Recovery Act
requirements, such as the Buy American and job reporting requirements.
EPA has also provided training for states on the Recovery Act
requirements. For example, as of May 14, 2010, EPA has made available
11 on-line training sessions (i.e.webcasts) for state officials in all
states to help them understand the Recovery Act requirements. EPA has
also provided four workshops with on-site training on its inspection
checklist for state officials in California, Louisiana, New Mexico,
and Puerto Rico.
Although EPA has not required that states change their subrecipient
oversight approach, many states have expanded their existing
monitoring procedures in a variety of ways. However, the oversight
procedures may not be sufficient given that (1) federal funds awarded
to each state under the Recovery Act have increased as compared with
average annually awarded amounts; (2) all Recovery Act projects had to
be ready to proceed to construction more quickly than projects funded
with base SRF funds; and (3) EPA and states had little previous
experience with some of the Recovery Act's new requirements, such as
Buy American provisions, according to EPA officials. The following are
ways in which oversight procedures may not be sufficient:
* Review procedures for job data. According to OMB guidance on
Recovery Act reporting, states should establish internal controls to
ensure data quality, completeness, accuracy, and timely reporting of
all amounts funded by the Recovery Act. We found that most states we
reviewed had not developed review procedures to verify the accuracy of
job figures reported by subrecipients using supporting documentation,
such as certified payroll records. As a result, states may be unable
to verify the accuracy of these figures. For example, Mississippi SRF
officials told us that they do not have the resources to validate the
job counts reported by comparing them against certified payroll
records. In addition, during interviews with some subrecipients, we
found inconsistencies among subrecipients on the types of hours that
should be included and the extent that they verified job data
submitted to them by contractors. For example, in New Jersey one
subrecipient told us they included hours worked by the project
engineer in the job counts, while another subrecipient did not.
* Review procedures for loan disbursements. According to EPA
officials, the agency requires states to verify that all loan payments
and construction reimbursements are for eligible program costs. In
addition, according to EPA guidance, states often involve technical
staff who are directly involved in construction inspections to help
verify disbursement requests because they have additional information,
such as the status of construction, that can help accurately approve
these requests. However, we found that in two states we reviewed,
technical or engineering staff did not review documentation supporting
reimbursement requests from the subrecipient to ensure they were for
legitimate project costs. For example, officials in Pennsylvania told
us that technical staff from the state's Department of Environmental
Protection--which provides technical assistance to SRF subrecipients--
do not verify monthly payments to subrecipients that are made by the
Pennsylvania Infrastructure Investment Authority, the state agency
with funds management responsibility for the state's SRF programs.
Instead, Department of Environmental Protection staff approve project
cost estimates prior to loan settlement, when they review bid
proposals submitted by contractors, and Pennsylvania Infrastructure
Investment Authority officials verify monthly payments against the
approved cost estimates.
* Inspection procedures. According to EPA officials, the agency
requires that SRF programs have procedures to help ensure
subrecipients are using Recovery Act SRF funding for eligible
purposes. While EPA has not established required procedures for state
project inspections, it has provided states its optional Recovery Act
inspection checklist to help them evaluate a subrecipient's compliance
with Recovery Act requirements, such as the Buy American and job
reporting requirements. Some states we reviewed have adopted EPA's
Recovery Act inspection checklist procedures and modified their
procedures accordingly. For example, California and Arizona plan to
implement all elements of EPA's checklist for conducting inspections
of Recovery Act projects, according to officials in these states.
Other states have modified their existing inspection procedures to
account for the new Recovery Act requirements. For example, officials
from Georgia said they added visual examination of purchased materials
and file review steps to their monthly inspections to verify that
subrecipients are complying with the Buy American provision. In
contrast, the Pennsylvania Department of Environmental Protection's
inspection procedures do not include a review of Recovery Act
requirements. For example, we found that inspection reports for three
Recovery Act projects we visited in Pennsylvania do not include
inspection elements that covered Davis-Bacon or Buy American
provisions. Instead, the Pennsylvania Infrastructure Investment
Authority requires subrecipients to self-certify their compliance with
these Recovery Act requirements when requesting payment from the
state's funds disbursement system. Registered professional engineers
who work for the subrecipients must sign off on these self-
certifications and subrecipients could face loss of funds if a
certification is subsequently found to be false, according to the
Executive Director of the Authority.
* Frequency and timing of inspections. According to EPA officials, the
agency does not have requirements on how often a state SRF program
must complete project inspections, and the frequency and complexity of
inspections vary by state for the base SRF program. Officials from
several states told us they have increased the frequency of project
site inspections. For example, Colorado SRF officials said the state
is conducting quarterly project site inspections of each of the
state's Recovery Act funded SRF projects, whereas under the state's
base SRF programs, Colorado inspects project sites during construction
only when the state has concerns. However, we found that two states
either did not conduct site inspections of some projects that are
complete or had not yet inspected projects that were near completion.
For example, as of April 19, 2010, Ohio EPA had inspected about 41
percent of its Clean Water SRF projects, but our review of Ohio's
inspection records showed that at least 6 projects are complete and
have not been inspected, and a number of others are nearing completion
and have not been inspected.
* Monitoring compliance with Recovery Act requirements. We found
issues in several states during interviews with SRF subrecipients that
suggest uncertainty about subrecipients' compliance with Recovery Act
requirements. For example, we interviewed one subrecipient in Ohio
whose documentation of Buy American compliance raised questions as to
whether all of the manufactured goods used in its project were
produced domestically. In particular, the specificity and detail of
the documentation provided about one of the products used left
questions as to whether it was produced at one of the manufacturer's
nondomestic locations. Further, another subrecipient in Ohio was
almost 2 months late in conducting interviews of contractor employees
to ensure payment of Davis-Bacon wages.
In summary, EPA and the states successfully met the Recovery Act
deadlines for having all projects under contract by the 1-year
deadline, and almost all Clean Water SRF projects were under
construction by that date as well. Furthermore, Recovery Act funds
were distributed to many new recipients and supported projects that
serve disadvantaged communities. In addition, Recovery Act Clean Water
SRF program funds have supported a variety of projects that are
expected to provide tangible benefits to improving local water
quality. However, as demonstrated in the above examples, the oversight
mechanisms used by EPA and the states may not be sufficient to ensure
compliance with all Recovery Act requirements. The combination of a
large increase in program funding, compressed time frames, and new
Recovery Act requirements present a significant challenge to EPA's
current oversight approach. As a result, we recommended that the EPA
Administrator work with the states to implement specific oversight
procedures to monitor and ensure subrecipients' compliance with the
provisions of the Recovery Act-funded Clean Water and Drinking Water
SRF programs. EPA neither agreed nor disagreed with this
recommendation.
Mr. Chairman, this concludes my prepared statement. I would be pleased
to respond to any questions that you or other Members of the Committee
might have.
GAO Contact and Staff Acknowledgments:
For further information regarding this statement, please contact David
C. Trimble at (202) 512-3841 or trimbled@gao.gov. Contact points for
our Offices of Congressional Relations and Public Affairs may be found
on the last page of this statement. Individuals who made key
contributions to this statement include Nancy Crothers, Elizabeth
Erdmann, Brian M. Friedman, Gary C. Guggolz, Emily Hanawalt, Carol
Kolarik, and Jonathan Kucskar.
[End of section]
Footnotes:
[1] Pub. L. No. 111-5, 123 Stat. 115 (Feb. 17, 2009).
[2] GAO, Recovery Act: States' and Localities' Uses of Funds and
Actions Needed to Address Implementation Challenges and Bolster
Accountability, [hyperlink, http://www.gao.gov/products/GAO-10-604]
(Washington, D.C.: May 26, 2010). For related state appendixes, see
[hyperlink, http://www.gao.gov/products/GAO-10-605SP].
[3] The 14 states we reviewed are Arizona, California, Colorado,
Florida, Georgia, Iowa, Massachusetts, Mississippi, New Jersey, New
York, North Carolina, Ohio, Pennsylvania, and Texas.
[4] We interviewed officials in EPA Region 3 (Philadelphia), Region 6
(Dallas), Region 8 (Denver), and Region 9 (San Francisco).
[5] EPA allocates clean water funds to the states based on a statutory
formula. The $4 billion in Recovery Act funds includes about $39
million in Clean Water Act (CWA) Section 604(b) Water Quality
Management Planning Grants. Section 604(b) of the CWA requires the
reservation each fiscal year of a small portion of each state's Clean
Water SRF allotment - usually 1 percent - to carry out planning under
Sections 205(j) and 303(e) of the CWA. States generally use 604(b)
grants to fund regional comprehensive water quality management
planning activities to improve local water quality. In this testimony,
any reference to Recovery Act funds excludes these planning grants.
[6] In this report we use the word "project" to mean an assistance
agreement, i.e., a loan or grant agreement made by the state SRF
program to a subrecipient for the purpose of a Recovery Act project.
[7] The Recovery Act requires states to have all funds awarded to
projects "under contract or construction" by the 1-year deadline. EPA
interprets this as requiring states to have all projects under
contract in an amount equal to the full value of the Recovery Act
assistance agreement by the deadline, regardless of whether
construction has begun, according to a September 2009 memorandum.
Thus, in this report, we use "under contract" when referring to this
requirement. Further, according to EPA's March 2, 2009, memorandum,
the agency will deobligate any Recovery Act SRF funds that a state
does not have awarded to projects under contract by the 1-year
deadline and reallocate them to other states.
[8] The Buy American provisions of the Recovery Act generally require
that iron, steel, and manufactured goods acquired for use on a public
building or public work be produced in the United States, subject to
limited exceptions. The Davis-Bacon provisions of the Recovery Act
require that contractors and subcontractors pay all laborers and
mechanics working on Recovery Act projects at least the prevailing
wage rates in the local area where they are employed, as determined by
the Secretary of Labor.
[9] States differ in how they define disadvantaged communities. In
general, disadvantaged community status takes into account factors
such as median household income and community size. At least one state
included in this report determines disadvantaged community status at
the county level. Some states have introduced efforts to provide base
SRF funds to disadvantaged communities, while others have not.
[10] Because three states do not maintain information on which
projects serve disadvantaged communities and two additional states
maintain only limited information on which projects serve
disadvantaged communities, we cannot provide complete information on
the number of projects serving these communities.
[11] Combined sewer systems are designed to collect rainwater runoff,
domestic sewage, and industrial wastewater in the same pipe.
[End of section]
GAO's Mission:
The Government Accountability Office, the audit, evaluation and
investigative arm of Congress, exists to support Congress in meeting
its constitutional responsibilities and to help improve the performance
and accountability of the federal government for the American people.
GAO examines the use of public funds; evaluates federal programs and
policies; and provides analyses, recommendations, and other assistance
to help Congress make informed oversight, policy, and funding
decisions. GAO's commitment to good government is reflected in its core
values of accountability, integrity, and reliability.
Obtaining Copies of GAO Reports and Testimony:
The fastest and easiest way to obtain copies of GAO documents at no
cost is through GAO's Web site [hyperlink, http://www.gao.gov]. Each
weekday, GAO posts newly released reports, testimony, and
correspondence on its Web site. To have GAO e-mail you a list of newly
posted products every afternoon, go to [hyperlink, http://www.gao.gov]
and select "E-mail Updates."
Order by Phone:
The price of each GAO publication reflects GAO‘s actual cost of
production and distribution and depends on the number of pages in the
publication and whether the publication is printed in color or black and
white. Pricing and ordering information is posted on GAO‘s Web site,
[hyperlink, http://www.gao.gov/ordering.htm].
Place orders by calling (202) 512-6000, toll free (866) 801-7077, or
TDD (202) 512-2537.
Orders may be paid for using American Express, Discover Card,
MasterCard, Visa, check, or money order. Call for additional
information.
To Report Fraud, Waste, and Abuse in Federal Programs:
Contact:
Web site: [hyperlink, http://www.gao.gov/fraudnet/fraudnet.htm]:
E-mail: fraudnet@gao.gov:
Automated answering system: (800) 424-5454 or (202) 512-7470:
Congressional Relations:
Ralph Dawn, Managing Director, dawnr@gao.gov:
(202) 512-4400:
U.S. Government Accountability Office:
441 G Street NW, Room 7125:
Washington, D.C. 20548:
Public Affairs:
Chuck Young, Managing Director, youngc1@gao.gov:
(202) 512-4800:
U.S. Government Accountability Office:
441 G Street NW, Room 7149:
Washington, D.C. 20548:
