Recovery Act
As Initial Implementation Unfolds in States and Localities, Continued Attention to Accountability Issues Is Essential Gao ID: GAO-09-631T April 23, 2009This testimony discusses GAO's work examining the uses and planning by selected states and localities for funds made available by the American Recovery and Reinvestment Act of 2009 (Recovery Act). The Recovery Act is estimated to cost about $787 billion over the next several years, of which about $280 billion will be administered through states and localities. Funds made available under the Recovery Act are being distributed to states, localities, and other entities and individuals through a combination of grants and direct assistance. As Congress may know, the stated purposes of the Recovery Act are to: (1) preserve and create jobs and promote economic recovery; (2) assist those most impacted by the recession; (3) provide investments needed to increase economic efficiency by spurring technological advances in science and health; (4) invest in transportation, environmental protection, and other infrastructure that will provide long-term economic benefits; and (5) stabilize state and local government budgets, in order to minimize and avoid reductions in essential services and counterproductive state and local tax increases. As described in GAO's March testimony, the Recovery Act specifies several roles for GAO including conducting bimonthly reviews of selected states' and localities' use of funds made available under the act. This statement today is based on our report being released today, Recovery Act: As Initial Implementation Unfolds in States and Localities, Continued Attention to Accountability Issues Is Essential, which is the first in a series of bimonthly reviews we will do on states' and localities' uses of Recovery Act funding and covers the actions taken under the Act through April 20, 2009. Our report and our other work related to the Recovery Act can be found on our new website called Following the Money: GAO's Oversight of the Recovery Act, which is accessible through GAO's home page at www.gao.gov. Like the report, this statement discusses (1) selected states' and localities' uses of and planning for Recovery Act funds, (2) the approaches taken by the selected states and localities to ensure accountability for Recovery Act funds, and (3) states' plans to evaluate the impact of the Recovery Act funds they received.
About 90 percent of the estimated $49 billion in Recovery Act funding to be provided to states and localities in FY2009 will be through health, transportation and education programs. Within these categories, the three largest programs are increased Medicaid Federal Medical Assistance Percentage (FMAP) grant awards, funds for highway infrastructure investment, and the State Fiscal Stabilization Fund (SFSF). The funding notifications for Recovery Act funds for the 16 selected states and the District of Columbia (the District) have been approximately $24.2 billion for Medicaid FMAP on April 3, $26.7 billion for highways on March 2, and $32.6 billion for SFSF on April 2. Fifteen of the 16 states and the District have drawn down approximately $7.96 billion in increased FMAP grant awards for the period October 1, 2008 through April 1, 2009. The increased FMAP is for state expenditures for Medicaid services. The receipt of this increased FMAP may reduce the state share for their Medicaid programs. States have reported using funds made available as a result of the increased FMAP for a variety of purposes. For example, states and the District reported using these funds to maintain their current level of Medicaid eligibility and benefits, cover their increased Medicaid caseloads-which are primarily populations that are sensitive to economic downturns, including children and families, and to offset their state general fund deficits thereby avoiding layoffs and other measures detrimental to economic recovery. States are undertaking planning activities to identify projects, obtain approval at the state and federal level and move them to contracting and implementation. For the most part, states were focusing on construction and maintenance projects, such as road and bridge repairs. Before they can expend Recovery Act funds, states must reach agreement with the Department of Transportation on the specific projects; as of April 16, two of the 16 states had agreements covering more than 50 percent of their states' apportioned funds, and three states did not have agreement on any projects. While a few, including Mississippi and Iowa had already executed contracts, most of the 16 states were planning to solicit bids in April or May. Thus, states generally had not yet expended significant amounts of Recovery Act funds. The states and D.C. must apply to the Department of Education for SFSF funds. Education will award funds once it determines that an application contains key assurances and information on how the state will use the funds. As of April 20, applications from three states had met that determination- South Dakota, and two of GAO's sample states, California and Illinois. The applications from other states are being developed and submitted and have not yet been awarded. The states and the District report that SFSF funds will be used to hire and retain teachers, reduce the potential for layoffs, cover budget shortfalls, and restore funding cuts to programs. Planning continues for the use of Recovery Act funds. State activities indlude appointing Recovery Czars; establishing task forces and other entities, and developing public websites to solicit input and publicize selected projects. GAO found that the selected states and the District are taking various approaches to ensuring that internal controls manage risk up-front; they are assessing known risks and developing plans to address those risks. State auditors are also planning their work including conducting required single audits and testing compliance with federal requirements. Nearly half of the estimated spending programs in the Recovery Act will be administered by non-federal entities. State officials suggested opportunities to improve communication in several areas. Officials in nine of the 16 states and the District expressed concern about determining the jobs created and retained under the Recovery Act, as well as methodologies that can be used for estimation of each.
GAO-09-631T, Recovery Act: As Initial Implementation Unfolds in States and Localities, Continued Attention to Accountability Issues Is Essential
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Testimony:
Before the Committee on Homeland Security and Governmental Affairs,
U.S. Senate:
United States Government Accountability Office:
GAO:
For Release on Delivery:
Expected at 9:00 a.m. EDT:
Thursday, April 23, 2009:
Recovery Act:
As Initial Implementation Unfolds in States and Localities, Continued
Attention to Accountability Issues Is Essential:
Statement of Gene L. Dodaro:
Acting Comptroller General of the United States:
GAO-09-631T:
[End of section]
Mr. Chairman, Ranking Member Collins, and Members of the Committee:
I am pleased to be here today to discuss our work examining the uses
and planning by selected states and localities for funds made available
by the American Recovery and Reinvestment Act of 2009 (Recovery
Act).[Footnote 1] The Recovery Act is estimated to cost about $787
billion over the next several years, of which about $280 billion will
be administered through states and localities. Funds made available
under the Recovery Act are being distributed to states, localities, and
other entities and individuals through a combination of grants and
direct assistance. As you know, the stated purposes of the Recovery Act
are to:
* preserve and create jobs and promote economic recovery;
* assist those most impacted by the recession;
* provide investments needed to increase economic efficiency by
spurring technological advances in science and health;
* invest in transportation, environmental protection, and other
infrastructure that will provide long-term economic benefits; and:
* stabilize state and local government budgets, in order to minimize
and avoid reductions in essential services and counterproductive state
and local tax increases.
As I described in my March testimony,[Footnote 2] the Recovery Act
specifies several roles for GAO including conducting bimonthly reviews
of selected states' and localities' use of funds made available under
the act.[Footnote 3] My statement today is based on our report being
released today, Recovery Act: As Initial Implementation Unfolds in
States and Localities, Continued Attention to Accountability Issues Is
Essential, which is the first in a series of bimonthly reviews we will
do on states' and localities' uses of Recovery Act funding and covers
the actions taken under the Act through April 20, 2009.[Footnote 4] Our
report and our other work related to the Recovery Act can be found on
our new website called Following the Money: GAO's Oversight of the
Recovery Act, which is accessible through GAO's home page at
[hyperlink, http://www.gao.gov].
Like the report, my statement this morning discusses (1) selected
states' and localities' uses of and planning for Recovery Act funds,
(2) the approaches taken by the selected states and localities to
ensure accountability for Recovery Act funds, and (3) states' plans to
evaluate the impact of the Recovery Act funds they received. Our report
addresses each of these objectives in detail and contains an appendix
on each of the 16 states and the District of Columbia (the District)
where we did our detailed work that discusses our reporting objectives
as they apply to each of those locations.
As discussed in my March testimony, we selected a core group of 16
states and the District that we will follow over the next few years to
provide an ongoing longitudinal analysis of the use of funds provided
in conjunction with the Recovery Act. The states are Arizona,
California, Colorado, Florida, Georgia, Iowa, Illinois, Massachusetts,
Michigan, Mississippi, New Jersey, New York, North Carolina, Ohio,
Pennsylvania, and Texas. These states contain about 65 percent of the
U.S. population and are estimated to receive collectively about two-
thirds of the intergovernmental federal assistance funds available
through the Recovery Act. We selected these states and the District on
the basis of outlay projections, percentage of the U.S. population
represented, unemployment rates and changes, and a mix of states'
poverty levels, geographic coverage, and representation of both urban
and rural areas. In addition for this bimonthly review, we visited a
non-probability sample of about 60 localities within the 16 selected
states.[Footnote 5]
We collected documents from and conducted semi-structured interviews
with executive-level state and local officials and staff from
Governors' offices, "Recovery Czars," State Auditors, Controllers, and
Treasurers. We also interviewed staff from state legislatures. In
addition, our work focused on federal, state, and local agencies
administering programs receiving Recovery Act funds. We analyzed data
and interviewed officials from the federal Office of Management and
Budget (OMB). We also analyzed other federal guidance on programs
selected for this review and spoke with relevant program officials at
the Centers for Medicare & Medicaid Services (CMS), the U.S. Department
of Transportation and the U.S. Department of Education. We did not
review state legal materials for this report, but relied on state
officials and other state sources for description and interpretation of
relevant state constitutions, statutes, legislative proposals, and
other state legal materials. A detailed description of our scope and
methodology can be found in an appendix to our report.
We conducted a performance audit for our first bimonthly review from
February 17, 2009, to April 20, 2009 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.
In addition to our ongoing work on selected states' and localities' use
of Recovery Act funding, we have completed two of the other mandates
included for us in the Recovery Act. First, on April 3, 2009, we
announced the appointment of 13 members to the Health Information
Technology Policy Committee, a new advisory body established by the
Recovery Act. Additionally, on April 16, 2009, we issued a report on
the actions of the Small Business Administration (SBA) to, among other
things, increase liquidity in the secondary market for SBA loans.
[Footnote 6]
Summary of GAO Findings:
Uses of Funds:
About 90 percent of the estimated $49 billion Recovery Act funding to
be provided to states and localities in fiscal year 2009 will be
through health, transportation and education programs. Within these
categories, the three largest programs are increased Medicaid Federal
Medical Assistance Percentage (FMAP) grant awards, funds for highway
infrastructure investment, and the State Fiscal Stabilization Fund
(SFSF). Table 1 shows the breakout of funding available for these three
programs in the 16 selected states and the District. The Recovery Act
funding for these 17 jurisdictions accounts for a little less than two-
thirds of total Recovery Act funding for these three programs.
Table 1: Notification of Recovery Act Funds for GAO Core States and the
District for Select Programs (Dollars in thousands):
State: Arizona;
Medicaid FMAP: $534,576;
Highways: $521,958;
Fiscal Stabilization Fund: $681,360.
State: California;
Medicaid FMAP: $3,331,167;
Highways: $2,569,568;
Fiscal Stabilization Fund: $3,993,379.
State: Colorado;
Medicaid FMAP: $226,959;
Highways: $403,924;
Fiscal Stabilization Fund: $509,363.
State: District of Columbia;
Medicaid FMAP: $87,831;
Highways: $123,508;
Fiscal Stabilization Fund: $59,883.
State: Florida;
Medicaid FMAP: $1,394,945;
Highways: $1,346,735;
Fiscal Stabilization Fund: $1,809,196.
State: Georgia;
Medicaid FMAP: $521,251;
Highways: $931,586;
Fiscal Stabilization Fund: $1,032,684.
State: Illinois;
Medicaid FMAP: $992,042;
Highways: $935,593;
Fiscal Stabilization Fund: $1,376,965.
State: Iowa;
Medicaid FMAP: $136,023;
Highways: $358,162;
Fiscal Stabilization Fund: $316,467.
State: Massachusetts;
Medicaid FMAP: $1,182,968;
Highways: $437,865;
Fiscal Stabilization Fund: $666,153.
State: Michigan;
Medicaid FMAP: $700,522;
Highways: $847,205;
Fiscal Stabilization Fund: $1,066,733.
State: Mississippi;
Medicaid FMAP: $225,471;
Highways: $354,564;
Fiscal Stabilization Fund: $321,131.
State: New Jersey;
Medicaid FMAP: $549,847;
Highways: $651,774;
Fiscal Stabilization Fund: $891,424.
State: New York;
Medicaid FMAP: $3,143,641;
Highways: $1,120,685;
Fiscal Stabilization Fund: $2,021,924.
State: North Carolina;
Medicaid FMAP: $657,111;
Highways: $735,527;
Fiscal Stabilization Fund: $951,704.
State: Ohio;
Medicaid FMAP: $760,647;
Highways: $935,677;
Fiscal Stabilization Fund: $1,198,882.
State: Pennsylvania;
Medicaid FMAP: $1,043,920;
Highways: $1,026,429;
Fiscal Stabilization Fund: $1,276,766.
State: Texas;
Medicaid FMAP: $1,448,824;
Highways: $2,250,015;
Fiscal Stabilization Fund: $2,662,203.
Total Case Study:
Medicaid FMAP: $16,937,745;
Highways: $15,550,776;
Fiscal Stabilization Fund: $20,836,218.
Percent of National Total:
Medicaid FMAP: 70;
Highways: 58;
Fiscal Stabilization Fund: 64.
National Total:
Medicaid FMAP: $24,233,145;
Highways: $26,660,000;
Fiscal Stabilization Fund: $32,552,620.
Notifications as of:
Medicaid FMAP: April 3, 2009;
Highways: March 2, 2009;
Fiscal Stabilization Fund: April 2, 2009.
Source: GAO analysis of agency data.
Note: For Medicaid FMAP amounts shown are the increased Medicaid FMAP
Grant Awards as of April 3, 2009. For Highways, the amounts shown are
the full state apportionment. For the SFSF, the amounts shown are the
initial release of the state allocation.
[End of table]
Increased Medicaid FMAP Funding:
The 16 states and the District have drawn down approximately $7.96
billion in increased FMAP grant awards for the period October 1, 2008,
through April 1, 2009. The increased FMAP is for state expenditures for
Medicaid services. The receipt of this increased FMAP may reduce the
state share for their Medicaid programs. States have reported using
funds made available as a result of the increased FMAP for a variety of
purposes. For example, states and the District most frequently reported
using these funds to maintain their current level of Medicaid
eligibility and benefits, cover their increased Medicaid caseloads-
which are primarily populations that are sensitive to economic
downturns, including children and families, and to offset their state
general fund deficits, thereby avoiding layoffs and other measures
detrimental to economic recovery.
Highway Infrastructure Investment:
States are undertaking planning activities to identify projects, obtain
approval at the state and federal level, and move them to contracting
and implementation. Some state officials told us they were focusing on
construction and maintenance projects, such as road and bridge repairs.
Before they can expend Recovery Act funds, states must reach agreement
with the Department of Transportation on the specific projects; as of
April 16, 2009, two of the 16 states had agreements covering more than
50 percent of their states' apportioned funds, and three states did not
have agreement on any projects. While a few, including Mississippi and
Iowa had already executed contracts, most of the 16 states were
planning to solicit bids in April or May. Thus, states generally had
not yet expended significant amounts of Recovery Act funds.
State Fiscal Stabilization Fund:
The states and the District must apply to the Department of Education
for SFSF funds. Education will award funds once it determines that an
application contains key assurances and information on how the state
will use the funds. As of April 20, applications from three states had
met that determination-South Dakota, and two of GAO's sample states,
California and Illinois. The applications from other states are being
developed and submitted and have not yet been awarded. The states and
the District report that SFSF funds will be used to hire and retain
teachers, reduce the potential for layoffs, cover budget shortfalls,
and restore funding cuts to programs.
Planning continues for the use of Recovery Act funds. Figure 1 below
shows the projected timing when funds will be made available to states
and localities.
Figure 1: Projected Timing of Federal Recovery Act Funding Made
Available to States and Localities by Fiscal Year:
[Refer to PDF for image: vertical bar graph]
Fiscal year: 2009;
Amount: $48.9 billion.
Fiscal year: 2010;
Amount: $107.7 billion.
Fiscal year: 2011;
Amount: $63.4 billion.
Fiscal year: 2012;
Amount: $23.3 billion.
Fiscal year: 2013;
Amount: $14.4 billion.
Fiscal year: 2014;
Amount: $9.1 billion.
Fiscal year: 2015;
Amount: $5.7 billion.
Fiscal year: 2016;
Amount: $2.5 billion.
Source: GAO analysis of CBO and FFIS data.
[End of figure]
State planning activities include appointing Recovery Czars,
establishing task forces and other entities, and developing public
websites to solicit input and publicize selected projects. In many
states, legislative authorization is needed before the state can
receive and/or expend funds or make changes to programs or eligibility
requirements.
Accountability Approaches:
We found that the selected states and the District are taking various
approaches to ensure that internal controls are in place to manage risk
up-front; they are assessing known risks and developing plans to
address those risks. However, officials in most of the states and the
District expressed concerns regarding the lack of Recovery Act funding
provided for accountability and oversight. Due to fiscal constraints,
many states reported significant declines in the number of oversight
staff--limiting their ability to ensure proper implementation and
management of Recovery Act funds. State auditors are also planning
their work including conducting required single audits and testing
compliance with federal requirements. The single audit process is
important for effective oversight but can be modified to be a more
timely and effective audit and oversight tool for the Recovery Act and
OMB is weighing options on how to modify it.
Nearly half of the estimated spending programs in the Recovery Act will
be administered by non-federal entities. State officials suggested
opportunities to improve communication in several areas. For example,
they wish to be notified when Recovery Act funds are made available
directly to prime recipients within their state that are not state
agencies.
Plans to Evaluate Impact:
An important objective of the Recovery Act is to preserve and create
jobs and promote economic recovery. Officials in nine of the 16 states
and the District expressed concern about determining jobs created and
retained under the Recovery Act, as well as methodologies that can be
used for estimation of each.
GAO's Recommendations:
OMB has moved out quickly to guide implementation of the Recovery Act.
As OMB's initiatives move forward, it has opportunities to build upon
its efforts to date by addressing several important issues.
Accountability and Transparency Requirements:
The Director of OMB should:
* adjust the single audit process to provide for review of the design
of internal controls during 2009 over programs to receive Recovery Act
funding, before significant expenditures in 2010.
* continue efforts to identify methodologies that can be used to
determine jobs created and retained from projects funded by the
Recovery Act.
* evaluate current requirements to determine whether sufficient,
reliable and timely information is being collected before adding
further data collection requirements.
Administrative Support and Oversight:
The Director of OMB should clarify what Recovery Act funds can be used
to support state efforts to ensure accountability and oversight.
Communications:
The Director of OMB should provide timely and efficient notification to
(1) prime recipients in states and localities when funds are made
available for their use, (2) states, where the state is not the primary
recipient of funds, but has a state-wide interest in this information,
and (3) all recipients, on planned releases of federal agency guidance
and whether additional guidance or modifications are expected.
OMB, States, and District Comments on the Draft of Our Report:
We provided the Director of the Office of Management and Budget with a
draft of this report for comment on April 20, 2009. OMB staff responded
the next day, noting that in its initial review, OMB concurred with the
overall objectives of our recommendations. OMB staff also provided some
clarifying information, adding that OMB will complete a more thorough
review in a few days. We have incorporated OMB's clarifying information
as appropriate. In addition, OMB said it plans to work with us to
define the best path forward on our recommendations and to further the
accountability and transparency of the Recovery Act. The Governors of
each of the 16 states and the Mayor of the District were provided
drafts for comment on each of their respective appendixes in this
report. Those comments are included in the appendixes.
Background:
Over time, the programmatic focus of Recovery Act spending will change.
As shown in figure 2, about two-thirds of Recovery Act funds expected
to be spent by states in the current 2009 fiscal year will be health-
related spending, primarily temporary increases in Medicaid FMAP
funding. Health, education, and transportation is estimated to account
for approximately 90 percent of fiscal year 2009 Recovery Act funding
for states and localities. However, by fiscal year 2012, transportation
will be the largest share of state and local Recovery Act funding.
Taken together, transportation spending, along with investments in
community development, energy, and environmental areas that are geared
more toward creating long-run economic growth opportunities, will
represent approximately two-thirds of state and local Recovery Act
funding in 2012.
Figure 2: Composition of State and Local Recovery Act Funding, Fiscal
Years 2009 and 2012:
[Refer to PDF for image: two pie-charts]
Fiscal year 2009:
Health: 64%;
Education and training: 18%;
Transportation: 8%;
Income security: 6%;
Community development: 3%;
Energy and environment: 1%.
Fiscal year 2012:
Health: 1%;
Education and training: 19%;
Transportation: 30%;
Income security: 17%;
Community development: 16%;
Energy and environment: 17%.
Source: GAO analysis of CBO and FFIS data.
[End of figure]
States' and Localities' Use of and Plans for Recovery Act Funds Focuses
on Purposes of the Act and States' Fiscal Stresses:
Medicaid FMAP:
Medicaid is a joint federal-state program that finances health care for
certain categories of low-income individuals, including children,
families, persons with disabilities, and persons who are elderly. The
federal government matches state spending for Medicaid services
according to a formula based on each state's per capita income in
relation to the national average per capita income.[Footnote 7] The
amount of federal assistance states receive for Medicaid service
expenditures is known as the FMAP.
Under the Recovery Act, states are eligible for an increased FMAP for
expenditures that states make in providing services to their Medicaid
populations.[Footnote 8] The Recovery Act provides eligible states with
an increased FMAP for 27 months between October 1, 2008 and December
31, 2010. On February 25, 2009, CMS made increased FMAP grant awards to
states, and states may retroactively claim reimbursement for
expenditures that occurred prior to the effective date of the Recovery
Act.[Footnote 9] Generally, for fiscal year 2009 through the first
quarter of fiscal year 2011, the increased FMAP, which is calculated on
a quarterly basis, provides for: (1) the maintenance of states' prior
year FMAPs; (2) a general across-the-board increase of 6.2 percentage
points in states' FMAPs; and (3) a further increase to the FMAPs for
those states that have a qualifying increase in unemployment rates. For
the first two quarters of 2009, the increases in the FMAP for the 16
states and the District ranged from 7.09 percentage points in Iowa to
11.59 percentage points in California, as shown in table 2.
Table 2: FMAP Changes from Fiscal Year 2008 to the First Two Quarters
of Fiscal Year 2009, for 16 states and the District:
State: Arizona;
FY 2008 FMAP: 66.20;
FY 2009 FMAP, first two quarters: 75.01;
Difference: 8.81.
State: California;
FY 2008 FMAP: 50.00;
FY 2009 FMAP, first two quarters: 61.59;
Difference: 11.59.
State: Colorado;
FY 2008 FMAP: 50.00;
FY 2009 FMAP, first two quarters: 58.78;
Difference: 8.78.
State: District of Columbia;
FY 2008 FMAP: 70.00;
FY 2009 FMAP, first two quarters: 77.68;
Difference: 7.68.
State: Florida;
FY 2008 FMAP: 56.83;
FY 2009 FMAP, first two quarters: 67.64;
Difference: 10.81.
State: Georgia;
FY 2008 FMAP: 63.10;
FY 2009 FMAP, first two quarters: 73.44;
Difference: 10.34.
State: Illinois;
FY 2008 FMAP: 50.00;
FY 2009 FMAP, first two quarters: 60.48;
Difference: 10.48.
State: Iowa;
FY 2008 FMAP: 61.73;
FY 2009 FMAP, first two quarters: 68.82;
Difference: 7.09.
State: Massachusetts;
FY 2008 FMAP: 50.00;
FY 2009 FMAP, first two quarters: 58.78;
Difference: 8.78.
State: Michigan;
FY 2008 FMAP: 58.10;
FY 2009 FMAP, first two quarters: 69.58;
Difference: 11.48.
State: Mississippi;
FY 2008 FMAP: 76.29;
FY 2009 FMAP, first two quarters: 83.62;
Difference: 7.33.
State: New Jersey;
FY 2008 FMAP: 50.00;
FY 2009 FMAP, first two quarters: 58.78;
Difference: 8.78.
State: New York;
FY 2008 FMAP: 50.00;
FY 2009 FMAP, first two quarters: 58.78;
Difference: 8.78.
State: North Carolina;
FY 2008 FMAP: 64.05;
FY 2009 FMAP, first two quarters: 73.55;
Difference: 9.50.
State: Ohio;
FY 2008 FMAP: 60.79;
FY 2009 FMAP, first two quarters: 70.25;
Difference: 9.46.
State: Pennsylvania;
FY 2008 FMAP: 54.08;
FY 2009 FMAP, first two quarters: 63.05;
Difference: 8.97.
State: Texas;
FY 2008 FMAP: 60.56;
FY 2009 FMAP, first two quarters: 68.76;
Difference: 8.20.
Source: GAO analysis of HHS data.
[End of table]
In our sample of 16 states and the District, officials from 15 states
and the District indicated that they had drawn down increased FMAP
grant awards, totaling $7.96 billion for the period of October 1, 2008
through April 1, 2009--47 percent of their increased FMAP grant awards.
In our sample, the extent to which individual states and the District
accessed these funds varied widely, ranging from 0 percent in Colorado
to about 66 percent in New Jersey. Nationally, the 50 states and
several territories combined have drawn down approximately $11 billion
as of April 1, 2009, which represents almost 46 percent of the
increased FMAP grants awarded for the first three quarters of federal
fiscal year 2009 (table 3).[Footnote 10]
Table 3: FMAP Grant Awards and Funds Drawn Down, for 16 States and the
District (Dollars in thousands):
State: Arizona;
FMAP grant awards: $534,576;
Funds drawn: $286,286;
Percentage of funds drawn: 53.6.
State: California;
FMAP grant awards: $3,331,167;
Funds drawn: $1,511,539;
Percentage of funds drawn: 45.4.
State: Colorado;
FMAP grant awards: $226,959;
Funds drawn: 0;
Percentage of funds drawn: 0.0.
State: District of Columbia;
FMAP grant awards: $87,831;
Funds drawn: $49,898;
Percentage of funds drawn: 56.8.
State: Florida;
FMAP grant awards: $1,394,945;
Funds drawn: $817,025;
Percentage of funds drawn: 58.6.
State: Georgia;
FMAP grant awards: $521,251;
Funds drawn: $311,515;
Percentage of funds drawn: 59.8.
State: Illinois;
FMAP grant awards: $992,042;
Funds drawn: $117,081;
Percentage of funds drawn: 11.8.
State: Iowa;
FMAP grant awards: $136,023;
Funds drawn: $81,663;
Percentage of funds drawn: 60.0.
State: Massachusetts;
FMAP grant awards: $1,182,968;
Funds drawn: $272,559;
Percentage of funds drawn: 23.0.
State: Michigan;
FMAP grant awards: $700,522;
Funds drawn: $462,982;
Percentage of funds drawn: 66.1.
State: Mississippi;
FMAP grant awards: $225,471;
Funds drawn: $114,112;
Percentage of funds drawn: 50.6.
State: New Jersey;
FMAP grant awards: $549,847;
Funds drawn: $362,235;
Percentage of funds drawn: 65.9.
State: New York;
FMAP grant awards: $3,143,641;
Funds drawn: $1,739,073;
Percentage of funds drawn: 55.3.
State: North Carolina;
FMAP grant awards: $657,111;
Funds drawn: $414,644;
Percentage of funds drawn: 63.1.
State: Ohio;
FMAP grant awards: $760,647;
Funds drawn: $420,630;
Percentage of funds drawn: 55.3.
State: Pennsylvania;
FMAP grant awards: $1,043,920;
Funds drawn: $330,811;
Percentage of funds drawn: 31.7.
State: Texas;
FMAP grant awards: $1,448,824;
Funds drawn: $665,665;
Percentage of funds drawn: 45.9.
Total:
FMAP grant awards: $16,937,745;
Funds drawn: $7,957,718;
Percentage of funds drawn: 47.0.
Source: GAO analysis of HHS data.
Note: FMAP grant awards are those funds awarded as of April 3, 2009,
and funds drawn down are as of April 1, 2009.
[End of table]
In order for states to qualify for the increased FMAP available under
the Recovery Act, they must meet certain requirements. In particular:
* Maintenance of Eligibility: In order to qualify for the increased
FMAP, states generally may not apply eligibility standards,
methodologies, or procedures that are more restrictive than those in
effect under their state Medicaid programs on July 1, 2008.[Footnote
11] In guidance to states, CMS noted that examples of restrictions of
eligibility could include (1) the elimination of any eligibility groups
since July 1, 2008 or (2) changes in an eligibility determination or
redetermination process that is more stringent than what was in effect
on July 1, 2008. States that fail to initially satisfy the maintenance
of eligibility requirements have an opportunity to reinstate their
eligibility standards, methodologies, and procedures before July 1,
2009 and become retroactively eligible for the increased FMAP.
* Compliance with Prompt Payment: Under federal law states are required
to pay claims from health practitioners promptly.[Footnote 12] Under
the Recovery Act, states are prohibited from receiving the increased
FMAP for days during any period in which that state has failed to meet
this requirement.[Footnote 13] Although the increased FMAP is not
available for any claims received from a practitioner on each day the
state is not in compliance with these prompt payment requirements, the
state may receive the regular FMAP for practitioner claims received on
days of non-compliance. CMS officials told us that states must attest
that they are in compliance with the prompt payment requirement, but
that enforcement is complicated due to differences across states in
methods used to track this information. CMS officials plan to issue
guidance on reporting compliance with the prompt payment requirement
and are currently gathering information from states on the methods they
use to determine compliance.
* Rainy Day Funds: States are not eligible for an increased FMAP if any
amounts attributable (either directly or indirectly) to the increased
FMAP are deposited or credited into any reserve or rainy day fund of
the state.[Footnote 14]
* Percentage Contributions from Political Subdivisions: In some states,
political subdivisions--such as cities and counties--may be required to
help finance the state's share of Medicaid spending. States that have
such financing arrangements are not eligible to receive the increased
FMAP if the percentage contributions required to be made by a political
subdivision are greater than what was in place on September 30, 2008.
[Footnote 15]
In addition to meeting the above requirements, states that receive the
increased FMAP must submit a report to CMS no later than September 30,
2011 that describes how the increased FMAP funds were expended, in a
form and manner determined by CMS.[Footnote 16] In guidance to states,
CMS has stated that further guidance will be developed for this
reporting requirement. CMS guidance to states also indicates that, for
federal reimbursement, increased FMAP funds must be drawn down
separately, tracked separately, and reported to CMS separately.
Officials from several states told us they require additional guidance
from CMS on tracking receipt of increased FMAP funds and on reporting
on the use of these funds.
The increased FMAP available under the Recovery Act is for state
expenditures for Medicaid services.[Footnote 17] However, the receipt
of this increased FMAP may reduce the state share for their Medicaid
programs. States have reported using these available funds for a
variety of purposes. In our sample, individual states and the District
reported that they would use the funds to maintain their current level
of Medicaid eligibility and benefits, cover their increased Medicaid
caseloads--which are primarily populations that are sensitive to
economic downturns, including children and families, and to offset
their state general fund deficits thereby avoiding layoffs and other
measures detrimental to economic recovery. Ten states and the District
reported using these funds to maintain program eligibility. Nine states
and the District reported using these funds to maintain benefits.
Specifically, Massachusetts reported that during a previous financial
downturn, the state limited the number of individuals eligible for some
services and reduced certain program benefits that were optional for
the state to cover. However, with the funds made available as a result
of the increased FMAP, the state did not have to make such reductions.
Similarly, New Jersey reported that the state used these funds to
eliminate premiums for certain children in its State Children's Health
Insurance Program, allowing it to retain coverage for children whose
enrollment in the program would otherwise have been terminated for non-
payment of premiums.
Nine states and the District reported using these funds to cover
increases to their Medicaid caseloads, primarily to populations that
are sensitive to economic downturns, such as children and families. For
example, New Jersey indicated that these funds would help the state
meet the increased demand for Medicaid services. According to a New
Jersey official, due to significant job losses, the state's proposed
2010 budget would not have accommodated all the applicants newly
eligible for Medicaid and that the funds available as a result of the
increased FMAP have allowed the state to maintain a "safety net" of
coverage for uninsured and unemployed people. Six states in our sample
also reported that they used funds made available as a result of the
increased FMAP to comply with prompt payment requirements.
Specifically, Illinois reported that these funds will permit the state
to move from a 90-day payment cycle to a 30-day payment cycle for all
Medicaid providers. Three states also reported using these funds to
restore or to increase provider payment rates.
In addition, 10 states and the District indicated that the funds made
available as a result of the increased FMAP would help offset deficits
in their general funds. Pennsylvania reported that because funding for
its Medicaid program is derived, in part, from state revenues, program
funding levels fluctuate as the economy rises and falls. However, the
state was able to use the funds made available to offset the effects of
lower state revenues. Arizona officials also reported that the state
used funds made available as a result of the increased FMAP to pay down
some of its debt and make payroll payments, thus allowing the state to
avoid a serious cash flow problem.
In our sample, many states and the District indicated that they need
additional guidance from CMS regarding eligibility for the increased
FMAP funds. Specifically, 5 states raised concerns about whether
certain programmatic changes could jeopardize the state's eligibility
for these funds. For example, Texas officials indicated that guidance
from CMS is needed regarding whether certain programmatic changes being
considered by Texas, such as a possible extension of the program's
eligibility period, would affect the state's eligibility for increased
FMAP funds. Similarly, Massachusetts wanted clarification from CMS as
to whether certain changes in the timeframe for the state to conduct
eligibility re-determinations would be considered a more restrictive
standard. Four states also reported that they wanted additional
guidance from CMS regarding policies related to the prompt payment
requirements or changes to the non-federal share of Medicaid
expenditures. For example, California officials noted that the state
reduced Medicaid payments for in-home support services, but that
counties could voluntarily choose to increase these payments without
altering the cost sharing arrangements between the counties and the
state. The state wants clarification from CMS on whether such an
arrangement would be allowable in light of the Recovery Act
requirements regarding the percentage of contributions by political
subdivisions within a state toward the non-federal share of
expenditures.
In response to states' concerns regarding the need for guidance, CMS
told us that it is in the process of developing draft guidance on the
prompt payment provisions in the Recovery Act. One official noted that
this guidance will include defining the term practitioner, describing
the types of claims applicable under the provision, and addressing the
principles that are integral to determining a state's compliance with
prompt payment requirements. Additionally, CMS plans to have a
reporting mechanism in place through which states would report
compliance under this provision. With regard to Recovery Act
requirements regarding political subdivisions, CMS described their
current activities for providing guidance to states. Due to the
variability of state operations, funding processes, and political
structures, CMS has been working with states on a case-by-case basis to
discuss particular issues associated with this provision and to address
the particular circumstances for each state. A CMS official told us
that if there were an issue(s) or circumstance(s) that had
applicability across the states, or if there were broader themes having
national significance, CMS would consider issuing guidance.
Highway Infrastructure Investment:
The Recovery Act provides approximately $48 billion to fund grants to
states, localities and regional authorities for transportation projects
of which the largest piece is $27.5 billion for highway and related
infrastructure investments. The Recovery Act largely provides for
increased transportation funding through existing programs-such as the
Federal-Aid Highway Surface Transportation Program--a federally funded,
state-administered program. Under this program, funds are apportioned
annually to each state department of transportation (or equivalent) to
construct and maintain roadways and bridges on the federal-aid highway
system. The Federal-Aid Highway Program refers to the separately funded
formula grant programs administered by the Federal Highway
Administration (FHWA) in the U.S. Department of Transportation.
Of the $27.5 billion provided in the Recovery Act for highway and
related infrastructure investments, $26.7 billion is provided to the 50
states for restoration, repair, construction and other activities
allowed under the Federal-Aid Highway Surface Transportation Program.
Nearly one-third of these funds are required to be sub-allocated to
metropolitan and other areas. States must follow the requirements for
the existing program, and in addition, the Recovery Act requires that
the Governor must certify that the state will maintain its current
level of transportation spending, and the governor or other appropriate
chief executive must certify that the state or local government to
which funds have been made available has completed all necessary legal
reviews and determined that the projects are an appropriate use of
taxpayer funds. The certifications must include a statement of the
amount of funds the state planned to expend from state sources as of
the date of enactment, during the period beginning on the date of
enactment through September 30, 2010, for the types of projects that
are funded by the appropriation.
The U.S. Department of Transportation is reviewing the Governors'
certifications regarding maintaining their level of effort for
highways. According to the Department, of the 16 states in our review
and the District, three states have submitted a certification free of
explanatory or conditional language--Arizona, Michigan, and New York.
Eight submitted "explanatory" certifications--certifications that used
language that articulated assumptions used or stated the certification
was based on the "best information available at the time," but did not
clearly qualify the expected maintenance of effort on the assumptions
proving true or information not changing in the future. Six submitted a
"conditional" certification, which means that the certification was
subject to conditions or assumptions, future legislative action, future
revenues, or other conditions.[Footnote 18]
Recovery Act funding for highway infrastructure investment differs from
the usual practice in the Federal-Aid Highway Program in a few
important ways. Most significantly, for projects funded under the
Recovery Act, the federal share is 100 percent; typically projects
require a state match of 20 percent while the federal share is
typically 80 percent. Under the Recovery Act, priority is also to be
given to projects that are projected to be completed within three
years. In addition, within 120 days after the apportionment by the
Department of Transportation to the states (March 2, 2009), 50 percent
of the apportioned funds must be obligated.[Footnote 19] Any amount of
this 50 percent of apportioned funding that is not obligated may be
withdrawn by the Secretary of Transportation and redistributed to other
states that have obligated their funds in a timely manner. Furthermore,
one year after enactment, the Secretary will withdraw any remaining
unobligated funds and redistribute them based on states' need and
ability to obligate additional funds. These provisions are applicable
only to those funds apportioned to the state and not those funds
required by the Recovery Act to be suballocated to metropolitan,
regional and local organizations.
Finally, states are required to give priority to projects that are
located in economically distressed areas as defined by the Public Works
and Economic Development Act of 1965, as amended. In March 2009, FHWA
directed its field offices to provide oversight and take appropriate
action to ensure that states gave adequate consideration to
economically distressed areas in selecting projects. Specifically,
field offices were directed to discuss this issue with the states and
to document its review and oversight of this process.
States are undertaking planning activities to identify projects, obtain
approval at the state and federal level, and move projects to
contracting and implementation. However, because of the steps necessary
before implementation, states generally had not yet expended
significant amounts of Recovery Act Funds. States are required to reach
agreement with DOT on a list of projects. States will then request
reimbursement from DOT as the state makes payments to contractors
working on approved projects.
As of April 16, 2009, the U.S. Department of Transportation reported
that nationally $6.4 billion of the $26.6 billion in Recovery Act
highway infrastructure investment funding provided to the states had
been obligated--meaning Transportation and the states had reached
agreements on projects worth this amount. As shown in Table 4 below,
for the locations that GAO reviewed, the extent to which the Department
of Transportation had obligated funds apportioned to the states and the
District ranged from 0 to 65 percent. For two of the states, the
Department of Transportation had obligated over 50 percent of the
states' apportioned funds, for 4 it had obligated 30 to 50 percent of
the states' funds, for 9 states it had obligated under 30 percent of
funds, and for three it had not obligated any funds.
Table 4: Highway Apportionments and Obligations as of April 16, 2009
(Dollars in millions):
State: Arizona;
Amount apportioned: $522;
Amount obligated: $148;
Percent of apportionment obligated: 28;
Number of projects: 26.
State: California;
Amount apportioned: $2,570;
Amount obligated: $261;
Percent of apportionment obligated: 10;
Number of projects: 20.
State: Colorado;
Amount apportioned: $404;
Amount obligated: $118;
Percent of apportionment obligated: 29;
Number of projects: 19.
State: District of Columbia;
Amount apportioned: $124;
Amount obligated: $37;
Percent of apportionment obligated: 30;
Number of projects: 1.
State: Florida;
Amount apportioned: $1,347;
Amount obligated: 0;
Percent of apportionment obligated: 0;
Number of projects: 0.
State: Georgia;
Amount apportioned: $932;
Amount obligated: 0;
Percent of apportionment obligated: 0;
Number of projects: 0.
State: Illinois;
Amount apportioned: $936;
Amount obligated: $606;
Percent of apportionment obligated: 65;
Number of projects: 214.
State: Iowa;
Amount apportioned: $358;
Amount obligated: $221;
Percent of apportionment obligated: 62;
Number of projects: 107.
State: Massachusetts;
Amount apportioned: $425;
Amount obligated: $64;
Percent of apportionment obligated: 15;
Number of projects: 19.
State: Michigan;
Amount apportioned: $847;
Amount obligated: $111;
Percent of apportionment obligated: 13;
Number of projects: 27.
State: Mississippi;
Amount apportioned: $355;
Amount obligated: $137;
Percent of apportionment obligated: 39;
Number of projects: 32.
State: New Jersey;
Amount apportioned: $652;
Amount obligated: $281;
Percent of apportionment obligated: 43;
Number of projects: 12.
State: New York;
Amount apportioned: $1,121;
Amount obligated: $277;
Percent of apportionment obligated: 25;
Number of projects: 108.
State: North Carolina;
Amount apportioned: $736;
Amount obligated: $165;
Percent of apportionment obligated: 22;
Number of projects: 53.
State: Ohio;
Amount apportioned: $936;
Amount obligated: 0;
Percent of apportionment obligated: 0;
Number of projects: 0.
State: Pennsylvania;
Amount apportioned: $1,026;
Amount obligated: $309;
Percent of apportionment obligated: 30;
Number of projects: 108.
State: Texas;
Amount apportioned: $2,250;
Amount obligated: $534;
Percent of apportionment obligated: 24;
Number of projects: 159.
Total:
Amount apportioned: $15,538;
Amount obligated: $3,269;
Percent of apportionment obligated: 21;
Number of projects: 905.
Source: FHWA.
Note: Totals may not add due to rounding.
[End of table]
While most states we visited had not yet expended significant funds,
some told us they were planning to solicit bids in April or May.
Officials, also stated that they planned to meet statutory deadlines
for obligating the highway funds. A few states had already executed
contracts. As of April 1, 2009, the Mississippi Department of
Transportation (MDOT), for example, had signed contracts for 10
projects totaling approximately $77 million.[Footnote 20] These
projects include the expansion of State Route 19 in eastern Mississippi
into a four-lane highway. This project fulfills part of MDOT's 1987
Four-Lane Highway Program which seeks to link every Mississippian to a
four-lane highway within 30 miles or 30 minutes. Similarly, as of April
15, 2009, the Iowa Department of Transportation had competitively
awarded 25 contracts valued at $168 million. Most often however, we
found that highway funds in the states and the District have not yet
been spent because highway projects were at earlier stages of planning,
approval, and competitive contracting. For example, in Florida, the
Department of Transportation (FDOT) plans to use the Recovery Act funds
to accelerate road construction programs in its preexisting 5-year plan
which will result in some projects being reprioritized and selected for
earlier completion. On April 15, 2009, the Florida Legislative Budget
Commission approved the Recovery Act-funded projects that FDOT had
submitted.
For the most part, states were focusing their selection of Recovery Act-
funded highway projects on construction and maintenance, rather than
planning and design, because they were seeking projects that would have
employment impacts and could be implemented quickly. These included
road repairs and resurfacing, bridge repairs and maintenance, safety
improvements, and road widening. For example, in Illinois, the
Department of Transportation is planning to spend a large share of its
estimated $655 million in Recovery Act funds[Footnote 21] for highway
and bridge construction and maintenance projects in economically
distressed areas, those that are shovel-ready, and those that can be
completed by February 2012. In Iowa, the contracts awarded have been
for projects such as bridge replacements and highway resurfacing--
shovel-ready projects that could be initiated and completed quickly.
Knowing that the Recovery Act would include opportunities for highway
investment, states told us they worked in advance of the legislation to
identify appropriate projects. For example, in New York, the state DOT
began planning to manage anticipated federal stimulus money in November
2008. A key part of New York's DOT's strategy was to build on existing
planning and program systems to distribute and manage the funds.
State Fiscal Stabilization Fund:
The Recovery Act provided $53.6 billion in appropriations for the State
Fiscal Stabilization Fund (SFSF) to be administered by the U.S.
Department of Education. The Act requires that the Secretary set aside
$5 billion for State Incentive Grants, referred to by the department as
the Reach for the Top program, and the establishment of an Innovation
Fund. The Recovery Act specifies that 81.8 percent (about $39.5
billion) is to be distributed to states for support of elementary,
secondary, and postsecondary education, and early childhood education
programs. The remaining 18.2 percent of SFSF (about $8.8 billion) is
available for basic government services but may also be used for
educational purposes. These funds are to be distributed to states by
formula, with 61 percent of the state award based on the state's
relative share of the population aged 5 to 24 and 39 percent based on
the state's relative share of the total U.S. population. The Department
of Education announced on April 1, 2009 that it will award the SFSF in
two phases. The first phase--$32.6 billion--represents about two-thirds
of the SFSF.
The states and the District must apply to the Department of Education
for SFSF funds and Education must approve those applications. As of
April 20, 2009, applications from three states had been approved--South
Dakota, and two of GAO's sample states, California and Illinois. Since
applications from other states are now being developed and submitted,
they have not yet received their SFSF funds. The applications to
Education must contain certain assurances. For example, states must
assure that, in each of fiscal years 2009, 2010, and 2011, they will
maintain state support at fiscal year 2006 levels for elementary and
secondary education and also for public institutions of higher
education (IHEs). However, the Secretary of Education may waive
maintenance of effort requirements if the state demonstrates that it
will commit an equal or greater percentage of state revenues to
education than in the previous applicable year. The state application
must also contain (1) assurances that the state is committed to
advancing education reform in increasing teacher effectiveness,
establishing state-wide education longitudinal data systems, and
improving the quality of state academic standards and assessments; (2)
baseline data that demonstrates the state's current status in each of
the education reform areas; and (3) a description of how the state
intends to use its stabilization allocation.
Within two weeks of receipt of an approvable SFSF application,
Education will provide the state with 67 percent of its SFSF
allocation. Under certain circumstances, Education will provide the
state with up to 90 percent of its allocation. In the second phase,
Education intends to conduct a full peer review of state applications
before awarding the final allocations.
After maintaining state support for education at fiscal year 2006
levels, states are required to use the education portion of the SFSF to
restore state support to the greater of fiscal year 2008 or 2009 levels
for elementary and secondary education, public IHEs, and, if
applicable, early childhood education programs. States must distribute
these funds to school districts using the primary state education
formula but maintain discretion in how funds are allocated to public
IHEs. If, after restoring state support for education, additional funds
remain, the state must allocate those funds to school districts
according to the Title I, Part A funding formula. However, if a state's
education stabilization fund allocation is insufficient to restore
state support for education, then a state must allocate funds in
proportion to the relative shortfall in state support to public schools
and IHEs. Education stabilization funds must be allocated to school
districts and public IHEs and cannot be retained at the state level.
Once stabilization funds are awarded to school districts and public
IHEs, they have considerable flexibility over how they use those funds.
School districts are allowed to use stabilization funds for any
allowable purpose under the Elementary and Secondary Education Act
(ESEA), (commonly known as the No Child Left Behind Act), the
Individuals with Disabilities Education Act (IDEA), the Adult Education
and Family Literacy Act, or the Perkins Act, subject to some
prohibitions on using funds for, among other things, sports facilities
and vehicles. In particular, because allowable uses under the Impact
Aid provisions of ESEA are broad, school districts have discretion to
use Recovery Act funding for things ranging from salaries of teachers,
administrators, and support staff to purchases of textbooks, computers,
and other equipment. The Recovery Act allows public IHEs to use SFSF
funds in such a way as to mitigate the need to raise tuition and fees,
as well as for the modernization, renovation, and repair of facilities,
subject to certain limitations. However, the Recovery Act prohibits
public IHEs from using stabilization funds for such things as
increasing endowments, modernizing, renovating, or repairing sports
facilities, or maintaining equipment. According to Education officials,
there are no maintenance of effort requirements placed on local school
districts. Consequently, as long as local districts use stabilization
funds for allowable purposes, they are free to reduce spending on
education from local-source funds, such as property tax revenues.
States have broad discretion over how the $8.8 billion in SFSF funds
designated for basic government services are used. The Recovery Act
provides that these funds can be used for public safety and other
government services and that these services may include assistance for
education, as well as for modernization, renovation, and repairs of
public schools or IHEs, subject to certain requirements. Education's
guidance provides that the funds can also be used to cover state
administrative expenses related to the Recovery Act. However, the Act
also places several restrictions on the use of these funds. For
example, these funds cannot be used to pay for casinos (a general
prohibition that applies to all Recovery Act funds), financial
assistance for students to attend private schools, or construction,
modernization, renovation, or repair of stadiums or other sports
facilities.
States expected that SFSF uses by school districts and public IHEs
would include retaining current staff and spending on programmatic
initiatives, among other uses. Some states' fiscal condition could
affect their ability to meet maintenance of effort (MOE) requirements
in order to receive SFSF monies, but they are awaiting final guidance
from Education on procedures to obtain relief from these requirements.
For example, due to substantial revenue shortages, Florida has cut its
state budget in recent years and the state will not be able to meet the
maintenance-of-effort requirement to readily qualify for these funds.
The state will apply to Education for a waiver from this requirement;
however, it is awaiting final instructions from Education on submission
of the waiver. Florida plans to use SFSF funds to reduce the impact of
any further cuts that may be needed in the state education budget.
In Arizona, state officials expect that SFSF recipients, such as local
school districts, will generally use their allocations to improve the
tools they use to assess student performance and determine to what
extent performance meets federal academic standards, rehire teachers
that were let go because of prior budget cuts, retain teachers, and
meet the federal requirement that all schools have equal access to
highly qualified teachers, among other things. Funds for the state
universities will help them maintain services and staff as well as
avoid tuition increases. Illinois officials stated that the state plans
to use all of the $2 billion in State Fiscal Stabilization funds,
including the 18.2 percent allowed for government services, for K-12
and higher education activities and hopes to avert layoffs and other
cutbacks many districts and public colleges and universities are facing
in their fiscal year 2009 and 2010 budgets. State Board of Education
officials also noted that U.S. Department of Education guidance allows
school districts to use stabilization funds for education reforms, such
as prolonging school days and school years, where possible. However,
officials said that Illinois districts will focus these funds on
filling budget gaps rather than implementing projects that will require
long-term resource commitments. While planning is underway, most of the
selected states reported that they have not yet fully decided how to
use the 18.2 percent of the SFSF, which is discretionary.
Plans to Track Recovery Act Funds:
States' and localities' tracking and accounting systems are critical to
the proper execution and accurate and timely recording of transactions
associated with the Recovery Act. OMB has issued guidance to the states
and localities that provides for separate "tagging" of Recovery Act
funds so that specific reports can be created and transactions traced.
Officials from all 16 of the selected states and the District told us
they have established or were establishing methods and processes to
separately identify, monitor, track, and report on the use of Recovery
Act funds they receive. Officials in some states expressed concern that
the use of different accounting software among state agencies may make
it difficult to provide consistent and timely reporting. Others
reported that their ability to track Recovery Act funds may be affected
by state hiring freezes, resulting from budget shortfalls.
State officials reported a range of concerns regarding the federal
requirements to identify and track Recovery Act funds going to sub-
recipients, localities, and other non-state entities. These concerns
include their ability to track these funds within existing systems,
uncertainty regarding state officials' accountability for the use of
funds which do not pass through state government entities, and their
desire for additional federal guidance to establish specific
expectations on sub-recipient reporting requirements. Officials in many
states expressed concern about being held accountable for funds flowing
directly from federal agencies to localities or other recipients.
Officials in some states said they would like to at least be informed
about funds provided to non-state entities, in order to facilitate
planning for their use and so they can coordinate Recovery Act
activities.
States' Actions to Plan for Use of Recovery Act Funds Include New and
Existing Entities and Processes:
All of the 16 selected states and the District reported taking action
to plan for and monitor the use of Recovery Act funding. Some states
reported that Recovery Act planning activities for funds received by
the state are directed primarily by the governor's office. In New York,
for example, the governor provides program direction to the state's
departments and offices, and he established a Recovery Act Cabinet
comprised of representatives from all state agencies and many state
authorities to coordinate and manage Recovery Act funding throughout
the state. In North Carolina, Recovery Act planning efforts are led by
the newly created Office of Economic Recovery and Investment, which was
established by the governor to oversee the state's economic recovery
initiatives.
Other states reported that their Recovery Act planning efforts were
less centralized. In Mississippi, the governor has little influence
over the state Departments of Education and Transportation, as they are
led by independent entities. In Texas, oversight of federal Recovery
Act funds involves various stakeholders, including the Office of the
Governor, the Office of the Comptroller of Public Accounts, and the
State Auditor's Office as well as two entities established within the
Texas legislature specifically for this purpose--the House Select
Committee on Federal Economic Stabilization Funding and the House
Appropriations' Subcommittee on Stimulus.[Footnote 22]
Several states reported that they have appointed "Recovery Czars" or
identified a similar key official and established special offices, task
forces or other entities to oversee the planning and monitor the use of
Recovery Act funds within their states. In Michigan, the governor
appointed a Recovery Czar to lead a new Michigan Economic Recovery
Office, which is responsible for coordinating Recovery Act programs
across all state departments and with external stakeholders such as
GAO, the federal OMB, and others.
Some states began planning efforts before Congress enacted the Recovery
Act. For example, the state of Georgia recognized the importance of
accounting for and monitoring Recovery Act funds and directed state
agencies to take a number of steps to safeguard Recovery Act funds and
mitigate identified risks. Georgia established a small core team in
December 2008 to begin planning for the state's implementation of the
Recovery Act. Within 1 day of enactment, the governor appointed a
Recovery Act Accountability Officer, and she formed a Recovery Act
implementation team shortly thereafter. The implementation team
includes a senior management team, officials from 31 state agencies, an
accountability and transparency support group comprised of officials
from the state's budget, accounting, and procurement offices, and five
cross-agency implementation teams. At one of the first implementation
team meetings, the Recovery Act Accountability Officer disseminated an
implementation manual to agencies, which included multiple types of
guidance on how to use and account for Recovery Act funds, and new and
updated guidance is disseminated at the weekly implementation team
meetings.
Officials in other states are using existing mechanisms rather than
creating new offices or positions to lead Recovery Act efforts. For
example, a District official stated that the District would not appoint
a Recovery Czar, and instead would use its existing administrative
structures to distribute and monitor Recovery Act funds to ensure quick
disbursement of funds. In Mississippi, officials from the Governor's
office said that the state did not establish a new office to provide
statewide oversight of Recovery Act funding, in part because they did
not believe that the Recovery Act provided states with funds for
administrative expenses--including additional staff. The Governor did
designate a member of his staff to act as a Stimulus Coordinator for
Recovery Act activities.
All 16 states we visited and the District have established Recovery Act
web sites to provide information on state plans for using Recovery
funding, uses of funds to date, and, in some instances, to allow
citizens to submit project proposals. For example, Ohio has created
[hyperlink, http://www.recovery.Ohio.gov], which represents the state's
efforts to create an open, transparent, and equitable process for
allocating Recovery Act funds. The state has encouraged citizens to
submit proposals for use of Recovery Act funds, and as of April 8,
2009, individuals and organizations from across Ohio submitted more
than 23,000 proposals. Iowa officials indicated they want to use the
state's recovery web site [hyperlink, http://www.recovery.Iowa.gov] to
host a "dashboard" function to report updated information on Recovery
Act spending that is easily searchable by the public. Also in Colorado,
the state plans to create a web-based map of projects receiving
recovery funds to help inform the public about the results of Recovery
Act spending in Colorado.
Selected States' and Localities' Internal Controls and Safeguards to
Manage and Mitigate the Risk of Mismanagement, Waste, Fraud, and Abuse
of Recovery Act Funds:
The selected states and the District are taking various approaches to
ensure that internal controls are in place to manage risk up-front,
rather than after problems develop and deficiencies are identified
after the fact, and have different capacities to manage and oversee the
use of Recovery Act funds. Many of these differences result from the
underlying differences in approaches to governance, organizational
structures, and related systems and processes that are unique to each
jurisdiction. A robust system of internal control specifically designed
to deal with the unique and complex aspects of the Recovery Act funds
will be key to helping management of the states and localities achieve
the desired results. Effective internal control can be achieved through
numerous different approaches, and, in fact, we found significant
variation in planned approaches by state. For example,
* New York's Recovery Act cabinet plans to establish a working group on
internal controls; the Governor's office plans to hire a consultant to
review the state's management infrastructure and capabilities to
achieve accountability, effective internal controls, compliance and
reliable reporting under the act; and, the state plans to coordinate
fraud prevention training sessions.
* Michigan's Recovery Office is developing strategies for effective
oversight and tracking of the use of Recovery Act funds to ensure
compliance with accountability and transparency requirements.
* Ohio's Office of Internal Audit plans to assess the adequacy and
effectiveness of the current internal control framework and test
whether state agencies adhere to the framework.
* Florida's Chief Inspector General established an enterprise-wide
working group of agency program Inspectors General who are updating
their annual work plans by including the Recovery Act funds in their
risk assessments and will leave flexibility in their plans to address
issues related to funds.
* Massachusetts's Joint Committee on Federal Recovery Act Oversight
will hold hearings regarding the oversight of Recovery Act spending.
* Georgia's State Auditor plans to provide internal control training to
state agency personnel in late April. The training will discuss basic
internal controls, designing and implementing internal controls for
Recovery Act programs, best practices in contract monitoring, and
reporting on Recovery Act funds.
Internal controls include management and program policies, procedures,
and guidance that help ensure effective and efficient use of resources;
compliance with laws and regulations; prevention and detection of
fraud, waste, and abuse; and the reliability of financial reporting.
Because Recovery Act funds are to be distributed as quickly as
possible, controls are evolving as various aspects of the program
become operational. Effective internal control is a major part of
managing any organization to achieve desired outcomes and manage risk.
GAO's Standards for Internal Control include five key elements: control
environment, risk assessment, control activities, information and
communication, and monitoring.[Footnote 23] Our report contains a
discussion of these elements and the related effort underway in the
jurisdictions we visited.
Current Single Audit Focus May Not Provide Timely Oversight Information
for Recovery Act Funds:
OMB's Circular No. A-133 sets out implementing guidelines for the
single audit and defines roles and responsibilities related to the
implementation of the Single Audit Act, including detailed instructions
to auditors on how to determine which federal programs are to be
audited for compliance with program requirements in a particular year
at a given grantee. The Circular No. A-133 Compliance Supplement is
issued annually to guide auditors on what program requirements should
be tested for programs audited as part of the single audit. OMB has
stated that it will use its Circular No. A-133 Compliance Supplement to
notify auditors of program requirements that should be tested for
Recovery Act programs, and will issue interim updates as necessary.
Both the Single Audit Act and OMB Circular No. A-133 call for a "risk-
based" approach to determine which programs will be audited for
compliance with program requirements as part of a single audit. In
general, the prescribed approach relies heavily on the amount of
federal expenditures during a fiscal year and whether findings were
reported in the previous period to determine whether detailed
compliance testing is required for a given program that year.[Footnote
24] Under the current approach for risk determination in accordance
with Circular No. A-133, certain risks unique to the Recovery Act
programs may not receive full consideration. Recovery Act funding
carries with it some unique challenges. The most significant of these
challenges are associated with (1) new government programs, (2) the
sudden increase in funds or programs that are new for the recipient
entity, and (3) the expectation that some programs and projects will be
delivered faster so as to inject funds into the economy. This makes
timely and efficient evaluations in response to the Recovery Act's
accountability requirements critical. Specifically,
* new programs and recipients participating in a program for the first
time may not have the management controls and accounting systems in
place to help ensure that funds are distributed and used in accordance
with program regulations and objectives;
* Recovery Act funding that applies to programs already in operation
may cause total funding to exceed the capacity of management controls
and accounting systems that have been effective in past years;
* the more extensive accountability and transparency requirements for
Recovery Act funds will require the implementation of new controls and
procedures; and:
* risk may be increased due to the pressures of spending funds quickly.
In response to the risks associated with Recovery Act funding, the
single audit process needs adjustment to put appropriate focus on
Recovery Act programs and to provide the necessary level of
accountability over these funds in a timely manner. The single audit
process could be adjusted to require the auditor to perform procedures
such as the following as part of the routine single audit:
* provide for review of the design and implementation of internal
control over compliance and financial reporting for programs under the
Recovery Act;
* consider risks related to Recovery Act-related programs in
determining which federal programs are major programs; and:
* specifically, test Recovery Act programs to determine whether the
auditee complied with laws and regulations.[Footnote 25]
The first two items above should preferably be accomplished during 2009
before significant expenditures of funds in 2010 so that the design of
internal control can be strengthened prior to the majority of those
expenditures. We further believe that OMB Circular No. A-133 and/or the
Circular No. A-133 Compliance Supplement could be adjusted to provide
some relief on current audit requirements for low-risk programs to
offset additional workload demands associated with Recovery Act funds.
OMB told us that it is developing audit guidance that would address the
above audit objectives. OMB also said that it is considering
reevaluating potential options for providing relief from certain
existing audit requirements in order to provide some balance to the
increased requirements for Recovery Act program auditing.
State and Local Capacity to Manage Risks:
Officials in several states also expressed concerns regarding the lack
of funding provided to state oversight entities, given the additional
federal requirements placed on states to provide proper accounting and
ensure transparency. Due to fiscal constraints, many states reported
significant declines in the number of oversight staff, limiting their
ability to ensure proper implementation and management of Recovery Act
funds. Although the majority of states reported that they lack the
necessary resources to ensure adequate oversight of Recovery Act funds,
some states reported that they are either hiring new staff or
reallocating existing staff for this purpose.
Officials we interviewed in several states said the lack of funding for
state oversight entities in the Recovery Act presents them with a
challenge, given the increased need for oversight and accountability.
According to state officials, state budget and staffing cuts have
limited the ability of state and local oversight entities to ensure
adequate management and implementation of the Recovery Act. For
example, Colorado's state auditor reported that state oversight
capacity is limited, noting that the Department of Health Care Policy
and Financing has had 3 controllers in the past 4 years and the state
legislature's Joint Budget Committee recently cut field audit staff for
the Department of Human Services in half. In addition, the Colorado
Department of Transportation's deputy controller position is vacant, as
is the Department of Personnel & Administration's internal auditor
position. Colorado officials noted that these actions are, in part, due
to the natural tendency in an economic downturn to cut administrative
expenses in an attempt to maintain program delivery levels. Our report
contains more examples of capacity issues from our selected states and
the District.
Although most states indicated that they lack the resources needed to
provide effective monitoring and oversight, some states indicated they
will hire additional staff to help ensure the prudent use of Recovery
Act funds. For example, according to officials with North Carolina's
Governor's Crime Commission, the current management capacity in place
is not sufficient to implement the Recovery Act. Officials explained
that the Recovery Act funds for the Edward Byrne Memorial Justice
Assistance Grant program have created such an increase in workload that
the department will have to hire additional staff to handle over the
next 3 years. Officials explained that these staff will be hired for
the short term since the money will run out in 3 years. Additionally,
officials explained that they are able to use 10 percent of the Justice
Assistance Grants funding to pay for the administrative positions that
are needed.
A number of states expressed concerns regarding the ability to track
Recovery Act funds due to state hiring freezes, resulting from budget
shortfalls. For instance, New Jersey has not increased its number of
state auditors or investigators, nor has there been an increase in
funding specifically for Recovery Act oversight. In addition, the state
hiring freeze has not allowed many state agencies to increase their
Recovery Act oversight efforts. For example, despite an increase of
$469 million in Recovery Act funds for state highway projects, no
additional staff will be hired to help with those tasks or those
directly associated with the Recovery Act, such as reporting on the
number of jobs created. While the state's Department of Transportation
has committed to shift resources to meet any expanded need for internal
Recovery Act oversight, one person is currently responsible for
reviewing contractor-reported payroll information for disadvantaged
business enterprises, ensuring compliance with Davis-Bacon wage
requirements, and development of the job creation figures. State
education officials in North Carolina also said that greater oversight
capacity is needed to manage the increase in federal funding. However,
due to the state's hiring freeze, the agency will be unable to use
state funds to hire the additional staff needed to oversee Recovery
funds. The North Carolina Recovery Czar said that his office will work
with state agencies to authorize hiring additional staff when directly
related to Recovery Act oversight.
With respect to oversight of Recovery Act funding at the local level,
varying degrees of preparedness were reported by state and local
officials. While the California Department of Transportation (Caltrans)
officials stated that extensive internal controls exist at the state
level, there may be control weaknesses at the local level. Caltrans is
collaborating with local entities to identify and address these
weaknesses. Likewise, Colorado officials expressed concerns that
effective oversight of funds provided to Jefferson County may be
limited due to the recent termination of its internal auditor and the
elimination of its internal control audit function. Arizona state
officials expressed some concerns about the ability of rural, tribal,
and some private entities such as boards, commissions, and nonprofit
organizations to manage, especially if the Recovery Act does not
provide administrative funding.
State Plans to Assess Recovery Act Spending Impact:
As recipients of Recovery Act funds and as partners with the federal
government in achieving Recovery Act goals, states and local units of
government are expected to invest Recovery Act funds with a high level
of transparency and to be held accountable for results under the
Recovery Act. As a means of implementing that goal, guidance has been
issued and will continue to be issued to federal agencies, as well as
to direct recipients of funding. To date, OMB has issued two broad sets
of guidance to the heads of federal departments and agencies for
implementing and managing activities enacted under the Recovery Act.
[Footnote 26] OMB has also issued for public comment detailed proposed
standard data elements that federal agencies will require from all
recipients (except individuals) of Recovery Act funding.[Footnote 27]
When reporting on the use of funds, recipients must show the total
amount of recovery funds received from a federal agency, the amount
expended or obligated to the project, and project specific information
including the name and description of the project, an evaluation of its
completion status, the estimated number of jobs created and retained by
the project, and information on any subcontracts awarded by the
recipient, as specified in the Recovery Act.
State reactions vary widely and often include a mixture of responses to
the reporting requirements. Some states will use existing federal
program guidance or performance measures to evaluate impact,
particularly for on-going programs. Other states are waiting for
additional guidance from federal departments or from OMB on how and
what to measure to assess impact. While Georgia is waiting on further
federal guidance, the state is adapting an existing system (used by the
State Auditor to fulfill its Single Audit Act responsibilities) to help
the state report on Recovery Act funds. The statewide web-based system
will be used to track expenditures, project status, and job creation
and retention. The Georgia governor is requiring all state agencies and
programs receiving Recovery Act funds to use this system. Some states
indicated that they have not yet determined how they will assess
impact.
Officials in 9 of the 16 states and the District expressed concern
about the definitions of jobs retained and jobs created under the
Recovery Act, as well as methodologies that can be used for estimation
of each.[Footnote 28] Officials from several of the states we met with
expressed a need for clearer definitions of "jobs retained" and "jobs
created." Officials from a few states expressed the need for
clarification on how to track indirect jobs, [Footnote 29] while others
expressed concern about how to measure the impact of funding that is
not designed to create jobs. Mississippi state officials suggested the
need for a clearly defined distinction for time-limited, part-time,
full-time, and permanent jobs; since each state may have differing
definitions of these two categories. Officials from Massachusetts
expressed concern that contractors may overestimate the number of jobs
retained and created. Some existing programs, such as highway
construction, have methodologies for estimating job creation. But other
programs, existing and new, do not have job estimation methodologies.
Some of the questions that states and localities have about Recovery
Act implementation may have been answered in part via the guidance
provided by OMB for the data elements as well as by guidance issued by
federal departments. For example, OMB provided draft definitions for
employment, as well as for jobs retained and jobs created via Recovery
Act funding. However, OMB did not specify methodologies for estimating
jobs retained and jobs created, which has been a concern for some
states. Data elements were presented in the form of templates with
section by section data requirements and instructions. OMB provided a
comment period during which it is likely to receive many questions and
requests for clarifications from states, localities, and other entities
that can be direct recipients of Recovery Act funding. OMB plans to
update this guidance again in the next 30 to 60 days. Some federal
agencies have also provided guidance to the states. The Departments of
Education, Housing and Urban Development, Justice, Labor,
Transportation, the Corporation for National Community Service, the
National Institutes of Health, and the Centers for Medicare & Medicaid
Services have provided guidance for program implementation,
particularly for established programs. Although guidance is expected,
some new programs, such as Broadband Deployment Grants, are awaiting
issuance of implementation instructions.
Concluding Observations and Recommendations: Moving Forward to Clarify
Recovery Act Roles and Responsibilities:
It has been a little over two months since enactment of the Recovery
Act and OMB has moved out quickly. In this period, OMB has issued two
sets of guidance, first on February 18 and next on April 3, with
another round to be issued within 60 days. OMB has sought formal public
comment on its April 3 guidance update and before this, according to
OMB, reached out informally to Congress, federal, state, and local
government officials, and grant and contract recipients to get a broad
perspective on what is needed to meet the high expectations set by
Congress and the Administration. In addition, OMB is standing up two
new reporting vehicles, Recovery.gov, which will be turned over to the
Recovery Accountability and Transparency Board and is expected to
provide unprecedented public disclosure on the use of Recovery Act
funds, and a second system to capture centrally information on the
number of jobs created or retained. As OMB's initiatives move forward
and it continues to guide the implementation of the Recovery Act, OMB
has opportunities to build upon its efforts to date by addressing
several important issues.
These issues can be characterized broadly in three categories: (1)
Accountability and Transparency Requirements, (2) Administrative
Support and Oversight, and (3) Communications.
Accountability and Transparency Requirements:
Recipients of Recovery Act funding face a number of implementation
challenges in this area. The Act includes many programs that are new or
new to the recipient and, even for existing programs; the sudden
increase in funds is out of normal cycles and processes. Add to this
the expectation that many programs and projects will be delivered
faster so as to inject funds into the economy and it becomes apparent
that timely and efficient evaluations are needed. The following are our
recommendations to help strengthen ongoing efforts to ensure
accountability and transparency.
Single Audit:
The single audit process is a major accountability vehicle but should
be adjusted to provide appropriate focus and the necessary level of
accountability over Recovery Act funds in a timelier manner than the
current schedule. OMB has been reaching out to stakeholders to obtain
input and is considering a number of options related to the single
audit process and related issues.
We Recommend: To provide additional leverage as an oversight tool for
Recovery Act programs, the Director of OMB should adjust the current
audit process to:
* focus the risk assessment auditors use to select programs to test for
compliance with 2009 federal program requirements on Recovery Act
funding;
* provide for review of the design of internal controls during 2009
over programs to receive Recovery Act funding, before significant
expenditures in 2010; and:
* evaluate options for providing relief related to audit requirements
for low-risk programs to balance new audit responsibilities associated
with the Recovery Act.
Reporting on Impact:
Responsibility for reporting on jobs created and retained falls to non-
federal recipients of Recovery Act funds. As such, states and
localities have a critical role in determining the degree to which
Recovery Act goals are achieved. Senior Administration officials and
OMB have been soliciting views and developing options for recipient
reporting. In its April 3 guidance, OMB took an important step by
issuing definitions, standard award terms and conditions, and clarified
tracking and documenting Recovery Act expenditures. Furthermore, OMB
and the Recovery Accountability and Transparency Board are developing
the data architecture for the new federal reporting system that will be
used to collect recipient reporting information. According to OMB,
state chief information officers commented on an early draft and OMB
expects to provide an update for further state review.
We Recommend: Given questions raised by many state and local officials
about how best to determine both direct and indirect jobs created and
retained under the Recovery Act, the Director of OMB should continue
OMB's efforts to identify appropriate methodologies that can be used
to:
* assess jobs created and retained from projects funded by the Recovery
Act;
* determine the impact of Recovery Act spending when job creation is
indirect;
* identify those types of programs, projects, or activities that in the
past have demonstrated substantial job creation or are considered
likely to do so in the future. Consider whether the approaches taken to
estimate jobs created and jobs retained in these cases can be
replicated or adapted to other programs.
There are a number of ways that the needed methodologies could be
developed. One option would be to establish a working group of federal,
state and local officials and subject matter experts.
State and Federal Data Collection:
Given that governors have certified to the use of funds in their
states, state officials are uncertain about their reporting
responsibilities when Recovery Act funding goes directly to localities.
Additionally, they have concerns about the capacity of reporting
systems within their states, specifically, whether these systems will
be capable of aggregating data from multiple sources for posting on
Recovery.gov. Some state officials are concerned that too many federal
requirements will slow distribution and use of funds and others have
expressed reservations about the capacity of smaller jurisdictions and
non-profits to report data. Even those who are confident about their
own systems are uncertain about the cost and speed of making any
required modifications for Recovery.gov reporting or further data
collection.
Problems also have been identified with federal systems that support
the Recovery Act as well. For example, questions have been raised about
the reliability of [hyperlink, http://www.USASpending.gov]
(USAspending.gov) and the ability of Grants.gov to handle the increased
volume of grant applications. OMB is taking concerted actions to
address these concerns. It plans to reissue USASpending guidance
shortly to include changes in operations that are expected to improve
data quality. In a memorandum dated March 9, OMB said that it is
working closely with federal agencies to identify system risks that
could disrupt effective Recovery Act implementation and acknowledged
that Grants.gov is one such system. A subsequent memorandum on April 8,
offered a short-term solution to the significant increase in Grants.gov
usage while longer-term alternative approaches are being explored. GAO
has work underway to review differences in agency policies and methods
for submitting grant applications using Grants.gov and will issue a
report shortly.
OMB addressed earlier questions about reporting coverage in its April 3
guidance. According to OMB there are limited circumstances in which
prime and sub recipient reporting will not be sufficient to capture
information at the project level. OMB stated that it will expand its
current model in future guidance. OMB guidance described recipient
reporting requirements under the Recovery Act's section 1512 as the
minimum which must be collected, leaving it to federal agencies to
determine whether additional information would be required for program
oversight.
We Recommend: In consultation with the Recovery Accountability and
Transparency Board and States, the Director of OMB should evaluate
current information and data collection requirements to determine
whether sufficient, reliable and timely information is being collected
before adding further data collection requirements. As part of this
evaluation, OMB should consider the cost and burden of additional
reporting on states and localities against expected benefits.
Administrative Support and Oversight:
At a time when states are experiencing cutbacks, state officials expect
the Recovery Act to incur new regulations, increase accounting and
management workloads, change agency operating procedures, require
modifications to information systems, and strain staff capacity,
particularly for contract management. Although federal program
guidelines can include a percentage of grants funding available for
administrative or overhead costs, the percentage varies by program. In
considering other sources, states have asked whether the portion of the
State Fiscal Stabilization Fund that is available for government
services could be used for this purpose. Others have suggested a global
approach to increase the percentage for all Recovery Act grants funding
that can be applied to administrative costs. As noted earlier, state
auditors also are concerned with meeting increased audit requirements
for Recovery Act funding with a reduced number of staff and without a
commensurate reduction in other audit responsibilities or increase in
funding. OMB and senior administration officials are aware of the
states' concerns and have a number of options under consideration.
We Recommend: The Director of OMB should timely clarify what Recovery
Act funds can be used to support state efforts to ensure accountability
and oversight, especially in light of enhanced oversight and
coordination requirements.
Communications:
State officials expressed concerns regarding communication on the
release of Recovery Act funds and their inability to determine when to
expect federal agency program guidance. Once funds are released, there
is no consistent procedure for ensuring that the appropriate officials
in states and localities are notified. According to OMB, agencies must
immediately post guidance to the Recovery Act web site and inform to
the "maximum extent practical, a broad array of external stakeholders."
In addition, since nearly half of the estimated spending programs in
the Recovery Act will be administered by non-federal entities, state
officials have suggested opportunities to improve communication in
several areas. For example, they wish to be notified when funds are
made available to prime recipients that are not state agencies.
Some of the uncertainty can be attributed to evolving reports and
timing of these reports at the federal level as well as the recognition
that different terms used by federal assistance programs add to the
confusion. A reconsideration of how best to publicly report on federal
agency plans and actions led to OMB's decision to continue the existing
requirement to report on the federal status of funds in the Weekly
Financial and Activity Reports and eliminate a planned Monthly
Financial Report. The Formula and Block Grant Allocation Report has
been replaced and renamed the Funding Notification Report. This
expanded report includes all types of awards, not just formula and
block grants, and is expected to better capture the point in the
federal process when funds are made available.
We Recommend: To foster timely and efficient communications, the
Director of OMB should develop an approach that provides dependable
notification to (1) prime recipients in states and localities when
funds are made available for their use, (2) states, where the state is
not the primary recipient of funds, but has a state-wide interest in
this information, and (3) all non-federal recipients, on planned
releases of federal agency guidance and, if known, whether additional
guidance or modifications are expected.
Mr. Chairman, Senator Collins, and Members of the Committee, this
concludes my statement. I would be pleased to respond to any questions
you may have.
Contact:
For further information on this testimony, please contact J.
Christopher Mihm on (202) 512-6806 or mihmj@gao.gov.
For issues related to SFSF and other education programs: Cynthia M.
Fagnoni, Managing Director for Education, Workforce and Income Security
(202) 512-7215 or fagnonic@gao.gov.
For issues related to Medicaid and FMAP: Dr. Marjorie Kanof, Managing
Director for Health Care (202) 512-7114 or kanofm@gao.gov.
For issues related to highways and other transportation programs:
Katherine A. Siggerud Managing Director for Physical Infrastructure
(202) 512-2834 or siggerudk@gao.gov.
[End of section]
Footnotes:
[1] Pub. L. No. 111-5, 123 Stat. 115 (February 17, 2009).
[2] [hyperlink, http://www.gao.gov/products/GAO-09-453T].
[3] Recovery Act, div. A, title IX, §901.
[4] [hyperlink, http://www.gao.gov/products/GAO-09-580].
[5] This total includes two entities in the District which received
direct federal funding that was not passed through the District
government.
[6] GAO, Small Business Administration's Implementation of
Administrative Provisions in the American Recovery and Reinvestment Act
of 2009T, [hyperlink, http://www.gao.gov/products/GAO-09-507R]
(Washington, D.C.: April 16, 2009).
[7] States may use certain sources for financing the non-federal share
of Medicaid expenditures, including contributions from political
subdivisions in the state, such as cities or counties.
[8] See Recovery Act, div. B, title V, § 5001 (a)-(c). U.S. territories
are also eligible for an increased FMAP subject to a different formula
than states. Recovery Act div. B, title V, § 5001 (d).
[9] Although the effective date of the Recovery Act was February 17,
2009, states generally may claim reimbursement for Medicaid service
expenditures made on or after October 1, 2008.
[10] This amount includes funds drawn down by U.S. territories and the
District.
[11] See Recovery Act § 5001(f)(1).
[12] States are required to pay 90 percent of clean claims from health
care practitioners within 30 days of receipt and 99 percent of these
claims within 90 days of receipt. See 42 U.S.C. § 1396a(a)(37)(A).
[13] This provision only applies to claims received after February 17,
2009, the date of enactment of the Recovery Act. See Recovery Act §
5001(f)(2).
[14] This prohibition does not apply to any increase in FMAP based on
maintenance of the states' prior year FMAPs.
[15] This prohibition does not apply to any increase in FMAP based on
maintenance of the states' prior year FMAPs.
[16] Recovery Act, div. B, title V, § 5001 (g)(1).
[17] Recovery Act, div. B, title V, § 5001 (a)-(c), (h)(1).
[18] The legal effect of such qualifications is currently being
examined by the U.S. Department of Transportation and has not been
reviewed by GAO.
[19] For federal-aid highway projects, the Federal Highway
Administration of the U.S. Department of Transportation has interpreted
the term obligation of funds to mean the federal government's
contractual commitment to pay for the federal share of a project. This
commitment occurs at the time the federal government approves a project
agreement and the project agreement is executed.
[20] As of April 16, 2009, the U.S. Department of Transportation had
obligated $137.0 million for 32 Mississippi projects.
[21] According to the Federal Highway Administration, Illinois' share
of Recovery Act funds for highway infrastructure investment is
approximately $936 million. This total consists of $655 million for
IDOT projects and $281 million in sub-allocations for local
governments' highway projects. The $655 million to IDOT includes $627
million for IDOT to use statewide and $28 million for mandatory
transportation enhancements. Transportation enhancements include
activities such as provision of facilities for pedestrians and
bicyclists, preservation of abandoned railway corridors, acquisition of
scenic easements, and historic preservation projects.
[22] Under Texas law, the governor is the state's chief budget officer,
but the state legislature and the Legislative Budget Board have a large
role in the state's budget process, which operates on a 2-year cycle.
Both the governor and the Legislative Budget Board develop budget
recommendations and submit budget proposals to the legislature, which
adopts a budget (general appropriations bill) for the 2-year period.
[23] GAO, Standards for Internal Control in the Federal Government,
[hyperlink, http://www.gao.gov/products/GAO/AIMD-00-21.3.1]
(Washington, D.C.: November 1999).
[24] The Single Audit Act requires that all major programs be audited
and specifies minimum dollar amounts and minimum proportions of federal
funds expended for programs to be identified by the auditor as major
programs. See 31 U.S.C. §§ 7501.
[25] The Single Audit Act sets out minimum federal expenditure amounts
and proportions to use as criteria in defining which programs are to be
tested for compliance with program requirements during a single audit.
OMB will need to consider those statutory criteria when considering
revisions to the single audit process.
[26] See, OMB memoranda, M-09-10, Initial Implementing Guidance for the
American Recovery and Reinvestment Act of 2009, February 18, 2009, and
M-09-15, Updated Implementing Guidance for the American Recovery and
Reinvestment Act of 2009T, April 3, 2009.
[27] OMB, Information Collection Activities: Proposed Collection;
Comment Request, Federal Register - 74 Fed. Reg. 14824 (Apr. 1, 2009).
[28] Recovery Act, § 3(a)(1). Non-federal entities receiving
discretionary funds appropriated under the Recovery Act must report on
the number of jobs created and retained, among other requirements.
Mandatory and entitlement programs are excluded from this requirement.
Recovery Act, div. A, title XV. § 1512.
[29] Indirect jobs are jobs created as a result of a demand for goods
and services generated by direct funding from the Recovery Act.
[End of section]
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